Exhibit 10.3
AMENDMENT AND RESTATEMENT
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OF
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MANAGEMENT AGREEMENT
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by and between
RESIDENCE INN BY MARRIOTT, INC.
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as "MANAGER"
and
AHM RES I LIMITED PARTNERSHIP
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as "LESSEE"
Dated as of March 29, 2002
AMENDMENT AND RESTATEMENT
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OF MANAGEMENT AGREEMENT
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This Amendment and Restatement of Management Agreement ("Agreement") is
executed as of the 29th day of March, 2002 ("Execution Date"), by AHM RES I
LIMITED PARTNERSHIP, a Virginia limited partnership ("Lessee"), with a mailing
address at 00 Xxxxx Xxxxx Xxxxxx, Xxxxxxxx, Xxxxxxxx 00000, and RESIDENCE INN BY
MARRIOTT, INC. ("Manager"), a Delaware corporation, with a mailing address at
00000 Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000.
R E C I T A L S :
A. Lessee is an indirect, wholly-owned subsidiary of Apple Hospitality Two,
Inc., a Virginia corporation and a real estate investment trust ("Apple
Hospitality"), which is also the indirect owner through AHT Res I GP, Inc., a
Virginia corporation and AHT Res I LP, Inc., a Virginia corporation, of 100%
equity of Marriott Residence Inn Limited Partnership, a Delaware limited
partnership ("Owner"), which owns fifteen (15) inns (collectively, the "Inns" or
individually, an "Inn," as more particularly described in Section 1.01 hereof)
which are being operated under the trade name "Residence Inn" or "Residence Inn
by Marriott" or "Marriott Residence Inn," located upon the fifteen parcels of
real property (collectively, the "Sites" or individually, a "Site") described on
Exhibit A attached to this Agreement and incorporated herein. Each Site is
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improved by buildings containing guest suites, a GATEHOUSE (a registered
trademark of Manager) building containing a common area lobby, meeting rooms and
administrative offices, and certain other amenities and related facilities (the
"Buildings"). Each respective Site and the Buildings thereon are collectively
referred to as an "Inn," as more particularly described in Section 1.01 hereof.
B. Owner has leased to Lessee and Lessee has leased from Owner the Inns
pursuant to that certain Master Lease Agreement of even date hereof (the "Hotel
Lease").
C. Owner and Manager are parties to that certain Management Agreement dated
as of March 29, 1988, as amended by (i) that certain Manager's Letter Agreement
dated October 10, 1995, among Manager, Owner and German American Capital
Corporation ("GACC"); (ii) that certain Manager's Letter Agreement dated October
10, 1995, among Manager, Owner, and iStar Financial Inc. ("iStar"), successor to
Starwood Mezzanine Investors, L.P.; (iii) that certain Letter Agreement dated
October 9, 1998, between Owner and Manager; and (iv) that certain Four Party
Agreement dated October 10, 1995, between GACC, iStar, Owner and Manager
(collectively, the "Old Management Agreement"), pursuant to which Manager
manages and operates the Inns for the account of Owner.
D. Pursuant to that certain Consent, Assignment and Assumption of
Management Agreement of even date herewith, Owner has assigned its interest in
the Old Management Agreement to Lessee, subject to certain obligations set forth
in such Consent, Assignment and Assumption of Management Agreement and that
certain Owner Agreement of even date hereof.
E. Lessee and Manager desire and have agreed to amend and restate the Old
Management Agreement in its entirety, upon the terms and conditions set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement and other good and valuable consideration, the receipt of which is
hereby acknowledged, Owner and Manager agree to amend and restate the Old
Management Agreement in its entirety as follows:
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ARTICLE I
DEFINITION OF TERMS
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1.01 Definition of Terms
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The following terms when used in the Agreement shall have the meanings
indicated:
"Accounting Period" shall mean the four (4) week accounting periods having
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the same beginning and ending dates as Manager's four (4) week accounting
periods, except that an Accounting Period may occasionally contain five (5)
weeks when necessary to conform Manager's accounting system to the calendar.
"Actual Debt Service" shall mean the lesser of (i) Fifteen Million Three
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Hundred Thousand Dollars ($15,300,000) per Fiscal Year; or (ii) the actual
interest paid or accrued in that Fiscal Year (provided that the rate is a
commercially reasonable market interest rate), plus the actual amortization of
principal in that Fiscal Year (provided that the amortization rate is a
commercially reasonable market rate) on the Refinanced Principal Amount.
"Additional Inn Investment" shall mean any amounts expended by Owner after
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March 29, 1988, or by Lessee, for the following purposes:
a) to fund the cost of any expansion, previously consented to by Manager,
of any Inn;
b) to fund the cost of any repairs or replacements, with respect to any
Inn, which are not covered by insurance proceeds under Section 14.01A;
c) to fund the cost of any building alterations, improvements,
replacements and related expenses, requested by Manager, under Section
7.03 A 2;
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d) to fund any reasonable business needs (not including amounts funded
under Section 7.02 E) of Lessee relating to operation of one or more
of the Inns, as requested by or otherwise approved by Manager.
"Adjusted Capital Contributions" shall mean the balance, from time to time,
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of:
(i) the Capital Contributions; plus
(ii) any Additional Inn Investments; less
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(iii) cumulative distributions to the partners of Owner of Net Sales
Proceeds and Net Refinancing Proceeds.
"Affiliate" shall mean any individual or entity directly or indirectly
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through one or more intermediaries, controlling, controlled by or under common
control with a party. The term "control," as used in the immediately preceding
sentence, means, with respect to a corporation, the right to exercise, directly
or indirectly, more than fifty percent (50%) 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 mean this Amendment and Restatement of Management
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Agreement between Owner and Manager with respect to the fifteen (15) Inns listed
on Exhibit A hereto.
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"Annual Operating Projection" shall have the meaning ascribed to it in
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Section 8.03.
"Average Revenue Index" shall mean the sum of the Revenue Index for each
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Inn that has not been previously Terminated hereunder (whether in connection
with a Sale of the Inn or Inns, or pursuant to other applicable provisions of
this Agreement) divided by the total number of Inns that have not been
previously Terminated hereunder (whether in connection with a Sale of the Inn or
Inns, or pursuant to other applicable provisions of this Agreement).
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"Average Revenue Index Threshold" shall mean the sum of the Revenue Index
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Threshold for each Inn that has not been previously Terminated hereunder
(whether in connection with a Sale of the Inn or Inns, or pursuant to other
applicable provisions of this Agreement) divided by the total number of Inns
that have not been previously Terminated hereunder (whether in connection with a
Sale of the Inn or Inns, or pursuant to other applicable provisions of this
Agreement).
"Average Revenue Per Available Room" shall mean the sum of the Revenue per
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Available Room for the hotels in the Competitive Set for the Inn in question
divided by the total number of hotels in the Competitive Set for the Inn in
question.
"Base Management Fee" shall mean an amount payable to Manager, subject to
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the provisions of Article V hereof, for the following services hereunder:
corporate planning and policy services, financial planning and corporate
financial services, risk planning and insurance services, corporate executive
management, legislative and governmental representation, in-house legal services
and protection of the "Marriott" trade name and trademarks. Such amount shall be
equal, during any given Fiscal Year (or portion thereof), to two percent (2%) of
Gross Revenues.
"Building Estimate" shall have the meaning ascribed to it in Section 7.03
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A.
"Capital Contributions" shall mean the total amount of money actually
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contributed (not including promissory notes or other evidences of indebtedness)
to Owner as of December 31, 1989 by the general partner and the limited partners
of Owner as of December 31, 1989.
"Chain Services" shall have the meaning ascribed to it in Section 10.02.
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"Competitive Set" shall mean the group of hotels which are chosen as
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competitive to the Inn, being the hotels that are generally within the same
hotel market segment as the Inn. As of the Execution Date, the parties agree
that the Competitive Set shall consist of the hotels listed on
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Exhibit E for each of the Inns. If any of such hotels, subsequent to the
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Execution Date, either changes its chain affiliation or ceases to operate or
otherwise ceases to reflect the general criteria set forth in the first sentence
of this definition, Lessee and Manager agree to mutually, reasonably and in good
faith, discuss appropriate changes to the foregoing list of the hotels that
shall comprise the Competitive Set. Disputes regarding such changes to the
Competitive Set will be resolved by the Expert in accordance with the provisions
of Section 19.10.
"Contingent Management Fees (IMF)" shall mean the cumulative total (which
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shall not bear interest) of those portions of any Incentive Management Fees for
each Fiscal Year (or portion thereof) which are not paid to Manager in such
Fiscal Year owing to the limitations set forth in Section 5.02 hereof.
"Deductions" shall have the meaning ascribed to it in the definition of
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Operating Profit.
"Effective Date" shall mean the date on which Owner acquired fee title to
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the Inns pursuant to the Purchase Agreement.
"Execution Date" shall have the meaning ascribed to it in the Preamble
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hereto.
"Expert" shall mean an independent, nationally recognized hotel consulting
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firm or individual who is qualified to resolve the issue in question, or a
nationally recognized accounting firm with a hospitality division (other than an
accounting or consulting firm with a then existing relationship with Manager,
Lessee or their respective Affiliates), who is appointed in each instance by
agreement of the parties or, failing agreement, each party shall select one (1)
such nationally recognized consulting firm, accounting firm or individual, as
the case may be, and the two (2) respective firms and/or individuals so selected
shall select another such nationally recognized consulting firm, accounting firm
or individual, as the case may be, to be the Expert. Each party agrees that it
shall not appoint an individual as an Expert hereunder if the individual
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is, as of the date of appointment or within six (6) months prior to such date,
employed by such party, either directly or as a consultant or accountant, in
connection with any other matter. In the event that either party calls for an
Expert determination pursuant to the terms hereof, the parties shall have ten
(10) days from the date of such request to agree upon an Expert and, if they
fail to agree, each party shall have an additional ten (10) days to make its
respective selection of a firm or individual, and within ten (10) days of such
respective selections, the two (2) respective firms and/or individuals so
selected shall select another such nationally recognized consulting firm,
accounting firm or individual, as the case may be, to be the Expert. If either
party fails to make its respective selection of a firm or individual within the
ten (10) day period provided for above, then the other party's selection shall
be the Expert. Also, if the two (2) respective firms and/or individuals so
selected shall fail to select a third nationally recognized consulting firm,
accounting firm or individual to be the Expert, then such Expert shall be
appointed by the American Arbitration Association and shall be a qualified
person having at least ten (10) years recent professional experience as to the
subject matter in question.
"FF&E" shall mean furniture, furnishings, fixtures, vehicles, carpeting and
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equipment, but shall not include Fixed Asset Supplies.
"First Priority Return" shall mean an annual non-cumulative amount retained
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by Lessee out of certain portions of Operating Profit, as set forth in Section
5.02 hereof, equal to $75,000 plus ten percent (10%) of the balance, from time
to time, of (i) the Capital Contributions, plus (ii) any Additional Inn
Investments made after the Execution Date; provided, however, that upon the
Termination of this Agreement with respect to a given Inn or Inns (whether in
connection with the Sale of the Inn or Inns, or pursuant to other applicable
provisions of this Agreement), the
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First Priority Return, as used thereafter, shall be reduced by the applicable
percentage for such Inn or Inns, as set forth in Exhibit "D" hereto.
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"Fiscal Year" shall mean Manager's Fiscal Year which now ends at midnight
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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 shall constitute a separate Fiscal Year. A partial Fiscal Year between the
end of the last full Fiscal Year and the Termination of this Agreement shall
also constitute a separate Fiscal Year. If Manager'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 distribution of
Operating Profit or other payments due hereunder.
"Fixed Asset Supplies" shall mean items included within "Property and
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Equipment" under the Uniform System of Accounts including, but not limited to,
linen, china, glassware, tableware, uniforms, and similar items, whether used in
connection with public space or suites.
"Force-Majeure" shall have the meaning ascribed to it in Section 14.03
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hereof.
"Gross Revenues" shall mean all revenues and receipts of every kind derived
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from operating the Inns and all departments and parts thereof, including, but
not limited to: income (from both cash and credit transactions) from rental of
rooms, stores, offices, exhibit or sales space of every kind; 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 (except as
otherwise provided in Section 7.02 C hereof with respect to the sale of FF&E),
service charges, and proceeds, if any, from business interruption or other loss
of income insurance; provided,
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however, that Gross Revenues shall not include: (i) gratuities to employees of
any of the Inns; (ii) federal, state or municipal excise, sales or use taxes or
similar Impositions collected directly from patrons or guests or included as
part of the sales price of any goods or services; (iii) Net Refinancing Proceeds
or Net Sales Proceeds; (iv) proceeds from the sale of FF & E; (v) interest
received or accrued with respect to the funds in the Reserve or the other
operating accounts of the Inns,: or (vi) any refunds, rebates, discounts and
credits of a similar nature, given, paid or returned in the course of obtaining
Gross Revenues or components thereof.
"Impositions" shall have the meaning ascribed to it in Section 12.01.
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"Incentive Management Fee" shall mean an amount which equals fifteen
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percent (15%) of Operating Profit in any Fiscal Year in which the total
Operating Profit is less than the Operating Profit Objective, and twenty percent
(20%) of Operating Profit in any Fiscal Year in which the total Operating Profit
equals or exceeds the Operating Profit Objective. Payment of the Incentive
Management Fee to Manager shall be subject to the provisions of Article V
hereof.
"Initial Term" shall have the meaning ascribed to it in Section 4.01.
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"Inn" or "Inns" shall refer individually or collectively to the fifteen
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(15) inns located on the fifteen (15) Sites described on Exhibit A hereto. The
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term "Inn" or "Inns" shall incorporate not only the Site or Sites but also all
easement or other appurtenant rights thereto, together with the Buildings and
all other improvements constructed or to be constructed thereon, and all FF&E
and Fixed Asset Supplies installed or located therein.
"Inn Term" shall have the meaning ascribed to it in Section 4.01.
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"Inventories" shall mean "Inventories" as defined in the Uniform System of
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Accounts, such as, but not limited to, provisions in storerooms, refrigerators,
pantries and kitchens;
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beverages in wine cellars and bars; other merchandise intended for sale; fuel;
mechanical supplies; stationery; and other expensed supplies and similar items.
"Lender" shall mean, individually and collectively, GACC and iStar.
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"Loan Agreement" shall mean, individually and collectively, each Loan
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Agreement dated as of October 10, 1995, between Owner and a Lender.
"Manager" shall have the meaning ascribed to it in the Preamble hereto.
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"Marketing Fund" shall mean that certain fund maintained by Manager,
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Marriott, or a Marriott Affiliate, in its capacity as franchisor of the 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 Marketing Fund may, at the option
of Manager and any association which may be formed by the Residence Inn by
Marriott franchisees, 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. As of the Execution Date, the current system-wide charge is two and
one-half percent (2.5%) of Suite Revenues. The actual advertising and marketing
program activities that will be supported by the Marketing Fund may change and
shall be determined by Marriott. Commencing with Fiscal Year 2002, the
system-wide charge shall not be increased without a majority vote by members of
The Residence Inn Association or its successor in favor of such increase.
"Marriott" shall mean Marriott International, Inc., the corporate parent of
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Manager.
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"Maturity Date" shall mean September 30, 2002, or, if earlier, the date of
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any refinancing or prepayment of the Term Loan indebtedness.
"Net Refinancing Proceeds" shall mean the cumulative full amount disbursed
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(in one or more advances) under any loan or loans obtained by Owner, from time
to time, to the extent such disbursement or disbursements are not used for the
following purposes: (i) simultaneous repayment of other indebtedness of Owner;
(ii) commercially reasonable transaction costs; and (iii) the payment to Owner
of Owner's Capital Return.
"Net Sales Proceeds" shall mean the cumulative net proceeds received by
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Owner, from time to time, from any one or more of the following: (i) any Sale of
an Inn; (ii) the exchange, condemnation, eminent domain taking, casualty or
other disposition of any of (or any portion of) the Inns or the Sites; or (iii)
the liquidation of Owner's property interest in the Inns in connection with a
dissolution of Owner. The phrase "net proceeds," as used in the foregoing
sentence, shall mean the gross proceeds received from any of the foregoing to
the extent such gross proceeds are not used for the following purposes: (i)
simultaneous repayment of indebtedness secured by the Inn or Inns being sold (or
the pro rata portion of indebtedness secured by all the Inns); (ii) commercially
reasonable transaction costs and, in the case of a condemnation, eminent domain
taking or casualty, all costs of repairing, restoring, replacing and
reconstructing an Inn or any portion thereof; and (iii) the payment to Owner of
Owner's Capital Return. The term "Net Sales Proceeds" shall not include proceeds
from dispositions of FF&E described in Section 7.02C hereof.
"Operating Loss" shall mean a negative Operating Profit.
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"Operating Profit" shall mean the excess of Gross Revenues over the
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following deductions ("Deductions") incurred by Manager, on behalf of Lessee, in
operating the Inns:
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1. The cost of sales including salaries, wages (including accruals for
year-end bonuses to key management employees), fringe benefits, payroll taxes
and other costs related to employees of each Inn (the foregoing costs shall not
include salaries and other employee costs of executive personnel of Manager who
do not work at one of the Inns on a regular basis; except that the foregoing
costs shall include the allocable, portion of the salary and other employee
costs of any general manager or other supervisory personnel (not including
regional vice presidents or regional sales people) assigned to a "cluster" of
hotels and inns which includes one or more of the Inns);
2. Departmental expenses, administrative and general expenses and the cost
of marketing, advertising and business promotion, heat, light and power, and
routine repairs, maintenance and minor alterations treated as Deductions under
Section 7.01;
3. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of each Inn;
4. A reasonable reserve for uncollectible accounts receivable as determined
by Manager;
5. All costs and fees of independent accountants or other third parties who
perform services required or permitted hereunder;
6. All costs and fees of technical consultants and operational experts for
specialized services;
7. The Residence Inn System Fee;
8. The Base Management Fee;
9. The Inns' pro rata share of costs and expenses incurred by Manager in
providing Chain Services;
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10. Insurance costs and expenses as provided in Article XI;
11. Taxes, if any, payable by or assessed against Manager related to this
Agreement or to Manager's operation of the Inns (exclusive of Manager's income
taxes) and all Impositions;
12. The contributions to the Repairs and Equipment Reserve which are
required pursuant to Section 7.02;
13. The contributions required to be made, as they may change from time to
time, to the Marketing Fund in order for the Inns to remain members of the
System (such contributions are presently two and one-half percent (2.5%) of
Suite Revenues); and
14. Such other costs and expenses as are specifically provided for
elsewhere in this Agreement or are otherwise reasonably necessary for the proper
and efficient operation of the Inns.
"Operating Profit Objective" shall mean the amount of Twenty-three Million
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Five Hundred Thousand Dollars ($23,500,000); provided, however, that upon the
Termination of this Agreement with respect to a given Inn or Inns (whether in
connection with the Sale of the Inn or Inns, or pursuant to applicable other
provisions of this Agreement), the Operating Profit Objective shall be reduced
by the pro rata portion thereof attributable to such Inn or Inns, as set forth
on Exhibit "C" hereto.
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"Operative Principal Amount" shall mean the principal amount outstanding
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under the Loan Agreement as of the Maturity Date.
"Owner" shall have the meaning ascribed to it in the Preamble.
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"Owner's Capital Return" shall mean the sum of: (a) an amount which, when
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added to all previous or simultaneous retentions or receipts by Owner of
Operating Profit (less the aggregate amount of Qualifying Debt Service paid by
Owner out of such Operating Profit), Net Sales
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Proceeds and Net Refinancing Proceeds, equals a cumulative return on the
weighted average Adjusted Capital Contributions, from time to time, of twelve
percent (12%) per annum, from the Effective Date through the date such Net Sales
Proceeds or Net Refinancing Proceeds are realized; plus (b) an amount which
equals the Adjusted Capital Contributions as of the date on which such Net Sales
Proceeds or Net Refinancing Proceeds are realized by Owner.
"Partnership Filing Period" shall mean such period of time (not to exceed
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seventy-five (75) days) after the close of each Fiscal Year within which Lessee
must receive final accounting statements from Manager with respect to such
Fiscal Year in order for Owner to have a reasonable period of time within which
to prepare and make all required filings with the Securities and Exchange
Commission and other applicable governmental agencies.
"Prime Rate" shall mean the base rate of interest announced from time to
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time by Bankers Trust Company, New York, New York.
"Purchase Agreement" shall mean that Purchase Agreement dated as of March
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29, 1988 between Owner, as purchaser and Marriott Corporation, as seller.
"Qualifying Debt Service" shall mean:
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1. As to any Fiscal Year (prorated for portions thereof) during the term of
this Agreement, the Stipulated Debt Service; plus
2. The interest and principal actually paid or accrued (provided that the
terms of each such loan are commercially reasonable) pursuant to loans obtained
by Owner to fund Additional Inn Investments. In no event, however, shall
"Qualifying Debt Service" include, with respect to any indebtedness incurred to
fund any Additional Inn Investment: (i) any balloon payments; or (ii) that
portion of any such indebtedness which is incurred for the purpose of
distributing the same to the partners of Owner. The term "balloon payments," as
used in this
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Agreement, shall mean any repayments or prepayments of principal in any given
Fiscal Year (regardless of whether the borrower is permitted or obligated to
make same) to the extent that such repayments or prepayments exceed five percent
(5%) per year of the outstanding principal amount of such indebtedness as of the
date of full disbursement thereof to the borrower thereunder.
"Refinanced Principal Amount" shall mean that portion of the principal
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amount of indebtedness incurred by Owner to refinance the debt outstanding under
the Loan Agreement as shall be equal to the sum, of: (a) the Operative Principal
Amount, plus (b) commercially reasonable transaction costs and loan origination
fees relating to such refinancing, but only to the extent such costs and fees do
not exceed, in the aggregate, two percent (2%) of the Operative Principal
Amount.
"Renewal Term" or "Renewal Terms" shall have the meaning ascribed to it in
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Section 4.01.
"Repairs and Equipment Reserve" shall have the meaning ascribed to it in
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Section 7.02 A.
"Repairs and Equipment Estimate" shall have the meaning ascribed to it in
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Section 7.02 D.
"Reserve" shall have the meaning ascribed to it in Section 7.02 A.
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"Residence Inn System Fee" shall mean an amount paid to Manager for the
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following services hereunder: divisional financial services; product planning
and development; employee planning; protection of the "Marriott Residence Inn"
"Residence Inn by Marriott," and "Residence Inn" trade names, trademarks, logos
and service marks; and the services of Manager's technical and operational
experts making periodic inspection and consultation visits to
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the Inns (but not the services of the personnel of the Architecture and
Construction Division of Marriott providing architectural, technical or
procurement services for any Inn, which shall be treated as a Deduction
described in subsection 6 of the definition of "Operating Profit"). Such amount
shall be equal, during any given Fiscal Year (or portion thereof), to four
percent (4%) of Suite Revenues.
"Revenue Data Publication" shall mean Xxxxx'x STAR Report, a monthly
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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 Available Room of hotels in the general trade area of
the Inn. If such Xxxxx'x STAR Report is discontinued in the future, or ceases
(in the reasonable opinion of either Lessee or Manager) to be a satisfactory
source of data regarding the Revenue Per Available Room of various hotels in the
general trade area of the Inn, Manager shall select an alternative source for
such data, subject to Lessee's approval. If the parties fail to agree on such
alternative source within a reasonable period of time, the matter shall be
resolved by the Expert in accordance with the provisions of Section 19.10.
"Revenue Index" shall mean that fraction that is equal to (a) the Revenue
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Per Available Room for the Inn divided by (b) the Average Revenue Per Available
Room for the hotels in the Competitive Set for such Inn, as set forth in the
Revenue Data Publication. Appropriate adjustments to the Revenue Index shall be
made in the event of a major renovation of the Inn.
"Revenue Index Threshold" shall mean a fraction equal to one hundred (100)
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divided by one hundred (100), or 1.00 as a decimal. However, if the entry of one
or more hotels into the Competitive Set for an Inn (or the removal of one or
more hotels from the Competitive Set for an Inn) causes significant variations
in the Revenue Index that do not reflect the Inn's true position
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in the relevant market, appropriate adjustments shall be made to the Revenue
Index Threshold by mutual consent of Lessee and Manager.
"Revenue Per Available Room" shall mean (i) the term "revenue per available
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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 an available inn guestroom that is keyed as a single unit.
"Sale of an Inn" or "Sale of the Inns" shall mean any sale, assignment,
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transfer or other disposition, for value or otherwise, voluntary or involuntary,
of Owner's and/or Lessee's title to one or more of the Inns and/or the Sites
(either fee or leasehold title, as the case may be). For purposes of this
Agreement, a "Sale of the Inn" shall also include (i) a lease (or sublease) of
the Inns or Sites and (ii) 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 or Lessee. The phrase "controlling interest"
shall mean the right (through equity ownership, by contract, or by any other
arrangement) to exercise, directly or indirectly, more than fifty percent (50%)
of the voting rights attributable to the shares of Owner or Lessee, as the case
may be, or, if Owner or Lessee is a partnership, of the general partner (or
managing partner, if more than one) of Owner or Lessee, as the case may be.
Notwithstanding the foregoing, the term "Sale of the Inns" shall not be deemed
or construed to include (i) any transfer, conversion or exchange of
publicly-held or publicly-traded securities of Owner's ultimate parent entity,
by operation of law or otherwise, or any issuance of additional securities of
Owner's ultimate parent entity; (ii) any sale, assignment, transfer or other
disposition of the Inn or the Site by Owner or Lessee to an Affiliate
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of Owner, provided that, a subsequent sale, assignment, transfer, lease,
sublease or other disposition of the Inns or Sites by or a change in
"controlling interest" of such Affiliate would constitute a "Sale of the Inns";
(iii) a collateral assignment intended to provide security for a loan; or (iv)
the lease of the Inns by Owner to Lessee under the Hotel Lease; provided that,
with respect to clauses (i) and (ii) of this sentence, if Manager believes (and
so states in writing to Lessee) that any one or more of the following is true:
(a) that the proposed purchaser is engaged in the business of operating (as
distinguished from owning or financing) hotels or other lodging facilities in
competition with Manager, Marriott or any Marriott Affiliate; (b) that the
proposed purchaser is known as being of bad moral character or is in control of
or controlled by persons known as being of bad moral character, or (c) that the
financial condition and prospects of the proposed purchaser are not adequate to
discharge the obligations of Lessee under this Agreement, Manager shall have the
right to terminate this Agreement, by written notice to Lessee, with respect to
such Inn or Inns.
"Second Priority Return" shall mean an annual non-cumulative amount
----------------------
retained by Lessee out of certain portions of Operating Profit, as set forth in
Section 5.02 hereof, equal to five percent (5%) of the balance from time to
time, of:
(i) the Capital Contributions; plus
(ii) any Additional Inn Investments made prior to the Execution Date; less
----
(iii) cumulative distributions to the partners of Owner of Net Sales
Proceeds and Net Refinancing Proceeds;
provided, however, that upon the Termination of this Agreement with respect
to a given Inn or Inns (whether in connection with the Sale of the Inn or Inns,
or pursuant to other
18
applicable provisions of this Agreement), the Second Priority Return, as used
thereafter, shall be reduced by the applicable percentage for such Inn or Inns,
as set forth in Exhibit "D" hereto
-----------
"Site" or "Sites" refer individually or collectively to the parcels of land
----
whose addresses are set forth on Exhibit A attached hereto and incorporated
---------
herein.
"Stipulated Debt Service" shall mean, as to any Fiscal Year (prorated for
-----------------------
portions thereof) prior to the Maturity Date, the amount of Fifteen Million
Three Hundred Thousand Dollars ($15,300,000); as to any Fiscal Year (prorated
for portions thereof) after the Maturity Date, the Actual Debt Service;
provided, however, that upon the Termination of this Agreement with respect to a
given Inn or Inns (whether in connection with the Sale of the Inn or Inns, or
pursuant to applicable other provisions of this Agreement), the Stipulated Debt
Service shall be reduced by the pro rata portion thereof attributable to such
Inn or Inns, as set forth on Exhibit "B" hereto (after the Maturity Date, only
-----------
the percentages shown in the third column will be used).
"Suite Revenues" shall mean that portion of the Gross Revenues of any Inn,
--------------
or of all of the Inns, which is attributable to the rental of guest suites.
"System" shall mean all inns which are operated under the "Residence Inn by
------
Marriott," "Residence Inn" or "Marriott Residence Inn" trade names.
"Term Loan" shall mean the term loans provided by Lender to Owner.
---------
"Termination" shall mean the expiration or sooner cessation of the
-----------
Agreement with respect to a given Inn or Inns.
"Total Original Cost" shall mean the amount of one Hundred Seventy-eight
-------------------
Million Seven Hundred Fifty Thousand Dollars ($178,750,000).
"Trade Names" shall have the meaning ascribed in Section 9.01.
-----------
19
"Uniform System of Accounts" shall mean the Uniform System of Accounts for
--------------------------
Hotels, Ninth Revised Edition, 1996, as published by the Hotel Association of
New York City, Inc.
"Working Capital" shall mean funds which are reasonably necessary for the
---------------
day-to-day operation of the business of the Inns, including, without limitation,
amounts sufficient for the maintenance of change and xxxxx cash funds, operating
bank accounts, receivables, payrolls, prepaid expenses and funds required to
maintain Inventories, less accounts payable and accrued current liabilities.
END OF ARTICLE I
20
ARTICLE II
APPOINTMENT OF MANAGER
----------------------
2.01 Appointment
-----------
Lessee hereby appoints and employs Manager as Lessee's exclusive agent to
supervise, direct and control the management and operation of the Inns for the
term provided in Article IV. Manager accepts said appointment and agrees to
manage the Inns during their respective Inn Terms in accordance with the terms
and conditions hereinafter set forth. The performance of all activities by
Manager hereunder shall be for the account of Lessee. Manager may not delegate
its duties hereunder except to a Marriott Affiliate which satisfies the
requirements of Section 17.01 A 1 hereof.
2.02 Delegation of Authority
-----------------------
The operations of the Inns shall be under the exclusive supervision and
control of Manager which, except as otherwise specifically provided in the
Agreement, shall be responsible for the proper and efficient operation of the
Inns. Manager shall have discretion and control, free from interference,
interruption or disturbance, in all matters relating to management and operation
of each Inn, including, without limitation, charges for rooms and commercial
space, credit policies, food and beverage services, employment policies,
granting of concessions or leasing of shops and agencies within each 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 Inns. Manager shall be
entitled to contract with companies that are Marriott Affiliates (or companies
in which Manager has an ownership interest if such interest is not sufficient to
make such a company a Marriott Affiliate) to provide goods and/or services to
the Hotel; provided that the prices and/or terms for
21
such goods and/or services are competitive. Additionally, Manager may contract
for the purchase of goods and services for the Hotel with third parties that
have other contractual relationships with Manager and Marriott Affiliates, so
long as the prices and terms are competitive. In determining, pursuant to the
foregoing, whether such prices and/or terms are competitive, they will be
compared to the prices and/or terms which would be available from reputable and
qualified parties for goods and/or services of similar quality, and the goods
and/or services which are being purchased shall be grouped in reasonable
categories, rather than being compared item by item. The prices paid may include
overhead and the allowance of a reasonable return to Marriott Affiliates (or
companies in which Manager has an ownership interest if such interest is not
sufficient to make such a company a Marriott Affiliate). Owner acknowledges and
agrees that, with respect to any purchases of goods or services pursuant to this
Section 2.02 and subject to the foregoing qualification that prices and/or terms
are competitive, Marriott Affiliates may retain as part of the reasonable return
those allowances, credits, rebates, commissions and discounts received with
respect to any such purchases, provided that, such allowances, credits, rebates,
commissions and discounts that are in excess of the reasonable return shall be
paid or credited to Lessee.
2.03 Licenses and Permits
--------------------
A. Lessee agrees upon request by Manager to sign promptly and without
charge applications for licenses, permits or other instruments necessary for
operation of each Inn, which applications shall be prepared by Manager as
necessary from time to time.
B. Manager shall have the option to terminate the Agreement with respect to
a given Inn, at any time, upon one hundred twenty (120) days' written notice to
Owner, in the event of a withdrawal or revocation, by any lawful governing body
having jurisdiction thereof, of any
22
license or permit that materially affects the operation of the Inn provided: (i)
such withdrawal or revocation is not the fault of Manager, but rather is due to
circumstances beyond Manager's reasonable control; (ii) all applicable appeals
to higher governmental authorities regarding such withdrawal or revocation have
been exhausted; and (iii) Manager has made every reasonable effort to obtain a
substitute license or permit that would allow for the continued operation of
such Inn as a first-class facility.
2.04 Non-Discrimination
------------------
The parties recognize that Manager, Marriott and Marriott Affiliates either
own or manage other hotels and inns. Certain of these hotels and inns, now or in
the future, may be located within the general geographical area of one or more
of the Inns. Manager shall institute reasonable internal controls and procedures
to ensure that no favoritism shall be accorded to such other hotels or inns on
the basis of the ownership thereof and that, at all times during the term of
this Agreement, Manager will operate the various hotels or inns under its
management, including the Inns, in a non-discriminatory manner.
END OF ARTICLE II
23
ARTICLE III
OWNERSHIP OF THE INNS
---------------------
3.01 Ownership of the Inns
---------------------
A. Lessee hereby covenants that it will have, keep, and maintain its
leasehold interest, and that it will cause Owner to keep and maintain its fee
title, to each Site and each Inn free and clear of any and all liens,
encumbrances or other charges, except as follows:
1. Easements or other encumbrances (other than those described in
subsections 2, 3 and 4 hereof) that do not materially adversely affect the
operation of any Inn by Manager, including, without limitation, any encumbrances
or other defects of title subject to which title was conveyed to Owner under the
terms of the Purchase Agreement and as listed on Exhibit F;
2. Mortgages, deeds of trust, similar security instruments or like
instruments ("Mortgages") which: (i) contain a provision reasonably acceptable
to Manager's counsel that this Agreement will not be subject to forfeiture or
Termination other than in accordance with the terms hereof, notwithstanding a
default under such Mortgage; and either (ii) secure either (x) any indebtedness
on which all or a portion of the payments constitute Qualifying Debt Service, or
(y) debt incurred for distribution to the partners of Owner; or (iii) secure any
amount due under the Loan Agreement;
3. Liens for taxes, assessments, levies or other public charges not
yet due or that are being contested in good faith; and
4. Liens, encumbrances, or other charges resulting from Manager's
acts.
B. Provided Manager is not in monetary default under this Agreement, Lessee
shall pay and discharge, or cause Owner to pay and discharge (whichever is
applicable), on or before
24
the due date, any and all installments of principal and interest due and payable
upon any Mortgage described in this Section (including, without limitation, any
amounts owed under the Loan Agreement) and shall indemnify Manager from and
against all claims, litigation and damages (other than damages representing
Manager's lost profits) arising from the failure to make such payments as and
when required.
END OF ARTICLE III
25
ARTICLE IV
TERM
----
4.01 Term
----
A. The term of this Agreement shall be from the Effective Date to the
expiration of the Inn Term (as defined in subsection B below) for the last Inn
to which this Agreement applies.
B. With respect to each Inn, the "Inn Term" shall consist of an "Initial
Term" and the "Renewal Term(s)". The "Initial Term" shall begin on the Effective
Date and shall continue until December 28, 2007. Each Inn Term may thereafter be
renewed by Manager, at its sole option, (on the same terms and conditions
contained herein, except as set forth in the final sentence of this Section
4.01B), for each of five (5) successive periods of ten (10) Fiscal Years each
("Renewal Terms"), provided that (i) Manager exercises its renewal option with
respect to at least eighty percent (80%) of the Inns that have not been
previously terminated hereunder that either (a) meet the then-current brand
standards employed for the System or (b) are subject to property improvement
programs reasonably required by Manager, and (ii) an "event of default" by
Manager has not occurred under Section 15.01 hereof (or, if such an "event of
default" has occurred, that it is being cured in accordance with the provisions
of Section 15.01 or 15.02 hereof). If Manager elects to exercise such option to
renew as to any or all of the Inns, it shall give Owner notice to that effect at
least eighteen (18) months prior to the expiration of the then current Inn Term
with respect to such Inn or Inns. If Manager does not elect to renew the term of
this Agreement, as to one or more of the Inns, on the expiration of the then
current Inn Term with respect to such Inn or Inns, Manager shall continue to
manage such Inn or Inns during the final eighteen (18) months of their
respective Inn Terms, unless, during such eighteen (18) month period, Owner
effects a sale of such Inn or Inns or secures a new manager therefor, in which
case
26
the respective Inn Terms of such affected Inns shall be prematurely terminated,
as of the date of such sale or the effective date of such new management
contract. In the event Manager elects to renew as to some, but not all, of the
Inns, the adjustments described in subsections B through E of Section 18.03
shall be made to this Agreement. Manager agrees that (i) upon completion of the
current 10-year plan improvements outlined on Exhibit G hereto all of the Inns
---------
subject thereto will be deemed to comply with the brand standards generally
employed for the System that are current as of the end of the Initial Term, and
(ii) to the extent any of the Inns subject to the current 10-year plan
improvements have not been completed, but are in compliance with such plan
improvements, such Inns will be deemed to comply with the brand standards
generally employed for the System that are current as of the end of the Initial
Term.
4.02 Performance Termination
-----------------------
A. 1. Commencing with the Effective Date and continuing until the end of
Fiscal Year 2003, subject to the provisions of Section 4.02 B and C below,
Lessee shall have the option to terminate this Agreement with respect to all of
the Inns if, with respect to any three (3) consecutive Fiscal Years during the
aforementioned period, the average of the Operating Profit (computed, for
purposes of this Section 4.02 A only, without deducting any Impositions) for all
of the Inns does not equal or exceed eight percent (8%) of the sum total of (i)
the Total Original Cost, and (ii) any Additional Inn Investments previously made
with respect to any Inn.
2. Commencing with Fiscal Year 2004 and continuing until the end of the
term of this Agreement, subject to the provisions of Section 4.02 B and C below,
Lessee shall have the option to terminate this Agreement with respect to all of
the Inns if, with respect to any two (2) consecutive Fiscal Years during the
aforementioned period:
27
(i) The average Operating Profit computed for purposes of this Section
4.02A only, (without deducting any Impositions) for all of the Inns does
not equal or exceed eight percent (8%) of the sum total of (i) the Total
Original Cost, and (ii) any Additional Inn Investments previously made with
respect to any Inn; and
(ii) The Average Revenue Index for all of the Inns during each such
Fiscal Year is less than the Average Revenue Index Threshold for such
Fiscal Year.
B. Such option to terminate shall be exercised by serving written notice
thereof on Manager no later than sixty (60) days after the receipt by Lessee of
the annual accounting under Section 8.01 hereof for such second or third
consecutive Fiscal Year, as the case may be. Such notice shall state the basis
on which Lessee asserts the right of termination and shall show all mathematical
calculations constituting the basis therefor. If Manager does not elect to avoid
termination pursuant to Section 4.02 C below, this Agreement shall terminate as
of the end of the second full Accounting Period following the date on which
Manager receives Lessee's written notice of its intent to terminate this
Agreement. Lessee's failure to exercise its right to terminate this Agreement
pursuant to Section 4.02 A during any given Fiscal Year shall not be deemed an
estoppel or waiver of Lessee's right to terminate this Agreement as to
subsequent Fiscal Years to which this Section may apply.
C. Upon receipt of Lessee's written notice of termination under Section
4.02 B, Manager shall have the option, to be exercised within sixty (60) days
after receipt of said notice, to avoid such termination by advancing to Lessee
the amount of any deficiency described in Section 4.02 A. If Manager exercises
such option, then the foregoing Lessee's election to terminate this Agreement
under Section 4.02 A shall be cancelled and of no force or effect and this
Agreement not terminate. Such cancellation, however, shall not affect the right
of Lessee, as
28
to each subsequent Fiscal Year to which Section 4.02 A applies, to again elect
to terminate this Agreement pursuant to the provisions of Section 4.02 A (which
subsequent election shall again be subject to Manager's rights under this
Section 4.02 C). If Manager does not exercise its option to make the advance
permitted by this Section 4.02 C, then this Agreement shall be terminated as of
the date set forth in Section 4.02 B. Amounts advanced by Manager pursuant to
this Section 4.02 C and in connection with a deficiency that has occurred under
Section 4.01 A.1 shall be recovered by Manager, without interest, in subsequent
Fiscal Years, in the same manner and with the same priority as Contingent
Management Fees (IMF). Amounts advanced by Manager pursuant to this Section 4.02
C and in connection with a deficiency that has occurred under Section 4.01 A.2
shall not be recovered by Manager.
4.03 Actions to be Taken on Termination
----------------------------------
Upon a Termination of this Agreement with respect to any one or more of the
Inns, the following shall be applicable:
A. Manager shall prepare a final accounting statement with respect to such
Inn or Inns, as more particularly described in Section 8.01 hereof, dated as of
the date of Termination. Within thirty (30) days of the receipt by Lessee 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 a default by either party, in which case the defaulting party shall
pay such cost.
B. Manager shall release and transfer to Lessee any of Lessee's funds which
are held or controlled by Manager with respect to such Inn or Inns.
C. Manager shall make available to Lessee such books and records respecting
such Inn or Inns (including those from prior years, subject to Manager's
reasonable records retention
29
policies) as will be needed by Lessee to prepare the accounting statements, in
accordance with the Uniform System of Accounts, for such Inn or Inns for the
year in which the Termination occurs and for any subsequent year.
D. Manager shall (to the extent permitted by law) assign to Lessee or to
the new manager all operating licenses and permits for such Inn or Inns which
have been issued in Manager's name (including liquor and restaurant licenses, if
any); provided that, if Manager has expended any of its own funds in the
acquisition of any of such licenses or permits, Lessee shall reimburse Manager
therefor if it has not done so already.
E. Appropriate adjustments shall be made regarding the application of this
Agreement to any remaining Inns, such as, but not limited to, those adjustments
described in Section 18.02 and 7.02 F, and the re-computation of Stipulated Debt
Service and Operating Profit Objective as described in the definitions of those
terms in Article I hereof.
F. Various other actions shall be taken, as described in this Agreement,
including, but not limited to, the actions described in Sections 6.01, 13.01 C,
9.02 and 11.04.
G. Manager shall peacefully vacate and surrender such Inn or Inns' to
Lessee.
END OF ARTICLE IV
30
ARTICLE V
COMPENSATION OF MANAGER
-----------------------
5.01 Management Fee
---------------
In consideration of services to be performed during the term of this
Agreement, Manager shall, subject to the provisions of Section 5.02 hereof, be
paid the sum of the following as its management fee:
(a) the Base Management Fee; plus
(b) the Residence Inn System Fee; plus
(c) the Incentive Management Fee.
The Incentive Management Fee will be payable based on Operating Profit, as set
forth in Section 5.02 hereof. Any Incentive Management Fees which become
Contingent Management Fees (IMF) shall be payable as provided in Section 5.02
and 5.03 hereof. The Base Management Fee and the Residence Inn System Fee shall
be payable based on Suite Revenues, and shall not be subject to limitations
based on the amount of Operating Profit.
5.02 Payment of Management Fees Based on Operating Profit
----------------------------------------------------
Any Incentive Management Fee and Contingent Management Fee (IMF) the
payment of which is based on Operating Profit shall, in each Fiscal Year (and
with respect to each Accounting Period within each such Fiscal Year) as more
particularly described in Section 5.04 hereof), be payable in accordance with
the following sequence of computations:
A. First, Lessee shall retain any Operating Profit until Lessee has
received (to the extent of Operating Profit in that Fiscal Year) the Qualifying
Debt Service (which shall be prorated among the Accounting Periods within any
given Fiscal Year).
31
B. Second, Lessee shall retain the remaining balance of Operating Profit
until Lessee has received (to the extent of Operating Profit in that Fiscal
Year) its First Priority Return (which shall be prorated among the Accounting
Periods within any given Fiscal Year).
C. Intentionally Deleted.
---------------------
D. Intentionally Deleted.
---------------------
E. Fifth, the remaining balance of Operating Profit shall be divided into
two (2) equal halves, one-half to be retained by Lessee and the other half to be
paid to Manager, until the one-half retained by Lessee and the one-half paid to
Manager are each (separately) equal to the Second Priority Return (which shall
be prorated among the Accounting Periods within any given Fiscal Year) at which
point payments under this subsection E, shall cease and any remaining balance of
Operating Profit shall be paid in accordance with subsections F and G below. The
one-half paid to Manager under this subsection E shall be applied to the payment
(in sequence) of the Incentive Management Fee for the current Fiscal Year and
any Contingent Management Fee (IMF). Notwithstanding any other provisions
hereof, the amount paid to Manager under this subsection E shall in no event
exceed the Incentive Management Fee for the current Fiscal Year and any
Contingent Management Fees (IMF).
F. Sixth, the remaining balance of Operating Profit shall be divided into
two portions: (i) seventy-five percent (75%) of such balance shall be paid to
Manager, and (ii) twenty-five percent (25%) shall be retained by Lessee. The 75%
portion paid to Manager under this subsection F shall be applied to the payment
(in sequence) of the balance of the Incentive Management Fee for the current
Fiscal Year and the balance of any Contingent Management Fees (IMF).
Notwithstanding any other provisions hereof, the amount paid to Manager under
this subsection F, when added to the amount paid to Manager under subsection E
above, shall in
32
no event exceed the balance of the Incentive Management Fees for the current
Fiscal Year and the balance of any Contingent Management Fees (IMF).
G. Seventh, any remaining balance of Operating Profit shall be retained by
Lessee.
5.03 Payment of Management Fee from Net Sales Proceeds and Net Refinancing
---------------------------------------------------------------------
Proceeds.
---------
In the event that Owner, from time to time during the term of this
Agreement, realizes Net Sales Proceeds or Net Refinancing Proceeds and, at that
time, there exist any unpaid (i) Incentive Management Fees or (ii) Contingent
Management Fees (IMF), such unpaid management fees shall be paid, to the maximum
extent possible, to Manager out of such Net Sales Proceeds or Net Refinancing
Proceeds, as the case may be.
5.04 Accounting and Interim Payment
------------------------------
A. Within twenty (20) days after the close of each Accounting Period,
Manager shall submit an interim accounting to Lessee showing Gross Revenues,
Suite Revenues, Deductions, Operating Profit, and applications thereof with
respect to the Inns, and an operating balance sheet for each Inn. Manager shall
transfer with each accounting any interim amounts due Lessee and shall retain
any interim amounts due Manager, (as described in Section 5.01 hereof). Each
accounting will be prepared on a consolidated basis and on an individual Inn
basis.
B. Calculations and payments of the Incentive Management Fee, the Base
Management Fee, the Residence Inn System Fee, and applications of Operating
Profit made with respect to each Accounting Period within a Fiscal Year shall be
accounted for cumulatively. Within the Partnership Filing Period, Manager shall
submit an accounting to Lessee, as more fully described in Section 8.01, for the
immediately preceding Fiscal Year, which accounting shall be controlling over
the interim accountings. Any adjustment as required by the Fiscal Year
accounting shall be made by cash payments within five (5) business days of the
receipt by Lessee
33
of such final accounting. No adjustment shall be made for any Operating Loss in
a preceding or subsequent Fiscal Year.
C. If the Operating Profit for any Fiscal Year exceeds the Operating Profit
Objective, Manager shall be entitled to an Incentive Management Fee of twenty
percent (20%) of Operating Profit for that entire Fiscal Year, and appropriate
year-end adjustments shall be made if the interim cumulative accountings for
that Fiscal Year were based on the Incentive Management Fee being fifteen
percent (15%) of Operating Profit. Beginning with the first Accounting Period in
the next succeeding Fiscal Year, and continuing during all Accounting Periods
for the remainder of such next succeeding Fiscal Year, Manager shall be entitled
to perform the above-described interim cumulative accountings on the assumption
that the Incentive Management Fee for that entire Fiscal Year will be twenty
percent (20%) of Operating Profit; subject, however, to appropriate year-end
adjustments if the final accounting pursuant to Section 8.01 hereof for any such
Fiscal Year shows that in fact the Operating Profit Objective was not exceeded
during such Fiscal Year, and that therefore the Incentive Management Fee for
that Fiscal Year is fifteen percent (15%) of Operating Profit. In all subsequent
Fiscal Years, Manager shall be entitled to perform the above-described interim
cumulative accountings on the assumption that the Incentive Management Fee will
be twenty percent (20%) of Operating Profit if, and only if, the Incentive
Management Fee for the immediately preceding Fiscal Year was in fact twenty
percent (20%) of Operating Profit; otherwise, such interim cumulative
accountings will be performed on
34
the assumption that the Incentive Management Fee will be fifteen percent (15%)
of Operating Profit; regardless of which assumption is used, appropriate
year-end adjustments will be made if such assumption proves to be incorrect.
END OF ARTICLE V
35
ARTICLE VI
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
6.01 Working Capital
---------------
The parties recognize that the seller under the Purchase Agreement sold to
the Owner, who in turn provided to the Manager, as agent, the initial Working
Capital for the Inns. Manager believes that the current level of Working Capital
should be reasonably sufficient for each Inn to operate as a fully functioning
business as of the Execution Date. Lessee shall from time to time thereafter
promptly advance, upon five (5) days written request of Manager, any additional
funds necessary to maintain Working Capital at levels reasonably determined by
Manager to be necessary to satisfy the needs of each Inn as its operation may
from time to time require. Funds so advanced for Working Capital shall be
utilized by Manager on behalf of Lessee for the purposes of this Agreement
pursuant to cash management policies established for the System, but Lessee
shall be the beneficial owner of all such funds throughout the term of this
Agreement. Upon Termination with respect to any Inn or Inns, Manager shall
return to Lessee any unused Working Capital, except for Inventories purchased by
Manager pursuant to Section 9.02.
6.02 Fixed Asset Supplies
--------------------
The parties recognize that the seller under the Purchase Agreement sold to
the Owner, who in turn provided to the Manager, as agent, the initial Fixed
Asset Supplies for the Inns. Manager believes that the current level of Fixed
Asset Supplies should be reasonably sufficient for each Inn to operate as a
fully functioning business as of the Execution Date. Lessee shall from time to
time thereafter promptly advance, upon thirty (30) days request of Manager, any
additional funds necessary to maintain Fixed Asset Supplies at levels determined
by Manager to be necessary to satisfy the needs of each Inn as its operation may
from time to time require.
36
Fixed Asset Supplies shall remain the property of Lessee throughout the term of
the Agreement except for Fixed Asset Supplies purchased by Manager pursuant to
Section 9.02.
END OF ARTICLE VI
37
ARTICLE VII
REPAIRS, MAINTENANCE AND REPLACEMENTS
-------------------------------------
7.01 Routine Repairs and Maintenance
-------------------------------
Manager shall maintain each Inn in good repair and condition and in
conformity with applicable laws and regulations 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 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.
7.02 Repairs and Equipment Reserve
-----------------------------
A. Manager shall establish, on a consolidated basis (or on such other basis
as may be reasonably required by lenders providing financing to Lessee or Owner
with respect to the Inns), an escrow reserve account ("Repairs and Equipment
Reserve" or the "Reserve"), in a bank or similar institution reasonably
acceptable to both Manager and Lessee, to cover the cost of:
1. Replacements and renewals related solely to the FF&E of the Inns;
and
2. Certain routine repairs and maintenance to each Inn's building
which are normally capitalized under generally accepted accounting principles,
such as exterior and interior repainting; resurfacing building walls, floors,
roofs and parking areas; buying or leasing replacement vehicles; and replacing
folding walls and the like, but which are not major repairs, alterations,
improvements, renewals or replacements to such building's structure or to its
mechanical, electrical, heating, ventilating, air conditioning, plumbing or
vertical transportation systems, the cost of which are to be paid by Lessee
under Section 7.03, rather than from the Reserve.
38
B. Each Fiscal Year, subject to the provisions of subsection E, below,
Manager shall transfer into the Reserve an amount equal to five percent (5%) of
Gross Revenues. Transfers into the Reserve shall be made at the time of each
interim accounting described in Section 5.04 A hereof. Any amounts held in the
Reserve may be applied, as between the Inns, without regard to the source of
such amounts, provided that such application satisfies the requirements of this
Article VII. All amounts transferred to the Reserve shall be deducted from Gross
Revenues in determining Operating Profit and shall be deposited in the special
Reserve account described in Section 7.02A hereof.
C. Manager shall from time to time make such (1) replacements and renewals
to the FF&E of the Inns, and (2) repairs to each Inn building of the nature
described in Section 7.02 A 2, as it deems necessary, up to the balance in the
Repairs and Equipment Reserve. No expenditures will be made in excess of said
balance without the approval of Lessee. Additionally, with respect to renovation
projects in excess of $500,000 at an Inn, Lessee shall have the right to
designate a contractor that Manager must allow to bid on such project and whose
bid Manager must consider in good faith in selecting the contractor. At the end
of each Fiscal Year, any amounts remaining in the Repairs and Equipment Reserve
shall be carried forward to the next Fiscal Year. Proceeds from the sale of FF&E
no longer necessary to the operation of each Inn shall be added to the Reserve.
The Reserve will be kept in an interest bearing account, and any interest which
accrues thereon shall be retained in the Reserve. Neither (i) proceeds from the
disposition of FF&E, nor (ii) interest which accrues on amounts held in the
Reserve, shall (a) result in any reduction in the required contributions to the
Reserve set forth in subsection B above, nor (b) be included in Gross Revenues.
39
D. Manager shall prepare an estimate ("Repairs and Equipment Estimate") of
the expenditures necessary for (1) replacements and renewals to the FF&E of the
Inns, and (2) repairs to each Inn building of the nature described in Section
7.02 A 2, during the ensuing Fiscal Year and shall submit such Repairs and
Equipment Estimate to Lessee at the same time it submits the Annual Operating
Projection described in Section 8.03. Lessee shall have the right to approve the
Repairs and Equipment Estimate with respect to individual expenditures of
$10,000 or more. With respect to individual expenditures of less than $10,000,
Lessee shall have the right to approve the aggregate amount of all such
expenditures on an Inn by Inn basis. Disputes regarding the Repairs and
Equipment Estimate will be resolved by the Expert in accordance with the
provisions of Section 19.10. The Repairs and Equipment Estimate shall be
prepared on a consolidating basis showing proposed expenditures as to each Inn.
It shall also indicate the estimated time schedule for making such replacements
and renewals.
E. The percentage contributions for the Repairs and Equipment Reserve
described in Section 7.02 B are estimates based upon Manager's prior experience.
As each Inn ages, these percentages may not be sufficient to keep the Reserve at
the levels necessary to make the replacements and renewals to the FF&E of such
Inn, or to make the repairs to such Inn building of the nature described in
Section 7.02 A 2, which are required to maintain such Inn as a first-class
facility. If the Repairs and Equipment Estimate prepared in good faith by
Manager exceeds the available funds in the Repairs and Equipment Reserve, Lessee
will:
1. Agree to increase the annual percentage in Section 7.02 B to
provide the additional funds required, or
40
2. Arrange to obtain outside financing for the additional funds
required, in which event the principal and interest payments on such financing
shall constitute Deductions in determining Operating Profit, or
3. Provide the additional funds required; in which case, such amounts
(plus interest at the Prime Rate plus one percent (1%) per annum) shall be
repaid to Lessee from Gross Revenues in equal installments over the period of
the next sixty-five (65) Accounting Periods, and such installment repayments
shall be Deductions.
A failure or refusal by Lessee to agree to either 1, 2 or 3 above within a
sixty (60) day period after Manager's request therefor shall entitle Manager,
within sixty (60) days after such failure or refusal, to notify Lessee that it
will terminate this Agreement, as to those Inns as to which agreement was not
reached, as of a date six (6) months after the date of Manager's notice. If
Manager does not so notify Lessee, it shall continue to manage the Inns in
question, as provided under this Agreement, without the aforesaid increase in
the percentage contribution to the Reserve.
F. Upon Termination of this Agreement with respect to any one or more of
the Inns, whether pursuant to 7.02 E above or pursuant to other provisions of
this Agreement, a portion of the Reserve shall be released from the Reserve and
paid to Lessee; such portion shall be computed by multiplying the amount then in
the Reserve by a fraction, the numerator of which shall be the Gross Revenues
attributable to the Inn or Inns which are the subject of Termination for the
most recently concluded Fiscal Year and the denominator of which shall be all
Gross Revenues for the same Fiscal Year.
41
7.03 Building Alterations, Improvements, Renewals, Replacements
----------------------------------------------------------
A. Manager shall prepare an annual estimate of the expenses necessary for
major repairs, alterations, improvements, renewals and replacements (which
repairs, alterations, improvements, renewals and replacements are not among
those referred to in Section 7.02 A 2) to the structural, mechanical,
electrical, heating, ventilating, air conditioning, plumbing or vertical
transportation elements of each of the Inn buildings ("Building Estimate") and
shall submit such Building Estimate to Lessee for its approval at the same time
the Annual Operating Projection is submitted. The Building Estimate shall be
prepared on a consolidating basis showing proposed expenditures as to each Inn.
With respect to major repairs, alterations, improvements, renewals, or
replacements in excess of $500,000 at an Inn, Lessee shall have the right to
designate a contractor that Manager must allow to bid on such project and whose
bid Manager must consider in good faith in selecting the contractor. Manager
shall not make any expenditures for such purposes without the prior written
consent of Lessee. However, if major repairs, alterations, improvements,
renewals or replacements to any Inn are required by reason of any law,
ordinance, regulation or order of a competent government authority, or are
otherwise required for the continued safe and orderly operation of such Inn,
Manager shall immediately give Lessee notice thereof and shall be authorized
(but not obligated) to take appropriate remedial action without such approval if
Lessee does not act; provided that Manager shall in no event act without
obtaining Lessee's prior consent if the cost of such remedial action exceeds,
for any given Inn, four percent (4%) of such Inn's annual Gross Revenues. Lessee
shall bear the cost of all such alterations, improvements, renewals or
replacements by either:
42
1. Providing outside financing for the additional funds required, in
which event the principal and interest payments on such financing shall
constitute Qualifying Debt Service, or
2. Providing the additional funds required, which amounts shall be
treated as Additional Inn Investments hereunder.
B. If Lessee does not approve the Building Estimate as to one or more or
all of the Inns within sixty (60) days after it has been submitted, Manager may,
within sixty (60) days after the end of said sixty-day period, notify Lessee
that it will terminate this Agreement as to those Inns as to which agreement was
not reached as of a date six (6) months after the date of Manager's notice. If
Manager does not so notify Lessee, it shall continue to manage the Inns in
question, as provided under this Agreement, without making any expenditures in
the Building Estimate that were not approved.
7.04 Liens
-----
Manager and Lessee shall use their best efforts to prevent any liens from being
filed against any Inn which arise from any maintenance, repairs, alterations,
improvements; renewals or replacements in or to such 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 cost of
obtaining the lien release.
7.05 Ownership of Replacements
-------------------------
All repairs, alterations, improvements, renewals or replacements made
pursuant to Article VII, and all amounts kept in the Reserve, shall be the
property of Lessee.
43
7.06 Design Specifications
---------------------
Subject to brand design standards generally employed for the System, with
respect to any capital expenditure programs submitted to Owner by Manager, Owner
shall have the right to choose in its reasonable discretion one prototype
package for such capital expenditure program from the variety of standard
prototype packages available to complete such program. With respect to custom
design packages that fall outside the scope of the then-current brand design
standards and prototype packages generally employed for the System, Lessee and
Manager must mutually agree upon the details of such custom design packages,
including design specifications.
END OF ARTICLE VII
44
ARTICLE VIII
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
8.01 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 the Agreement. Lessee may at reasonable intervals during
Manager's normal business hours examine such records. Within the Partnership
Filing Period, Manager shall furnish Lessee a statement in reasonable detail
summarizing the operations of the Inns for the immediately preceding Fiscal Year
and a certificate of Manager's chief accounting officer certifying that such
year-end statement is true and correct. The parties shall, within five (5)
business days after the receipt of such statement, make any adjustments, by cash
payment, in the amounts paid or retained for such Fiscal Year as are needed
because of the final figures set forth in such statement. If Lessee desires, at
its own expense, to audit such statement and supporting records, Lessee shall
begin such audit within ninety (90) days following its receipt of such statement
and shall complete such audit within ninety (90) days after commencement of the
audit. If Lessee does not make such an audit, then such statement shall be
deemed to be conclusively accepted by Lessee as being correct, and Lessee shall
have no right thereafter, except in the event of fraud by Manager, to question
or examine the same. If any audit by Lessee discloses an understatement of any
amounts due Lessee, Manager shall promptly pay Lessee such amounts found to be
due, plus interest thereon (at the Prime Rate plus one percent (1%) per annum)
from the date such amounts should originally have been paid. If, however, the
audit discloses that Manager has not received any amounts due it, Lessee shall
pay Manager such amounts, plus interest thereon (at the Prime Rate plus one
percent (1%) per annum) from the date such amounts should originally
45
have been paid. Any dispute concerning the correctness of an audit, which
dispute is not resolved within sixty (60) days after such dispute is raised in
writing, shall be settled by an Expert in accordance with Section 19.10.
B. If Lessee's audit discloses an error in the total payment of amounts due
Lessee, for any Fiscal Year so audited, that is in excess of five percent (5%),
Manager shall pay for the cost of Lessee's audit. In addition, in such event,
Lessee may audit the statements of Inn operations and supporting records for the
two (2) preceding Fiscal Years. Lessee shall bear the cost of such audit, except
for the cost thereof relating to any Fiscal Year in which the audit discloses an
error in excess of five percent (5%),in the payment of amounts due Lessee.
C. All statements shall be prepared on a consolidated basis and on an
individual Inn basis.
8.02 Accounts, Expenditures
----------------------
A. All funds derived from operation of the Inns shall be deposited by
Manager in a bank account in a bank designated by Manager. Withdrawals from said
accounts shall be made by representatives of Manager whose signatures have been
authorized. Reasonable xxxxx cash funds shall be maintained at each Inn.
B. All payments made by Manager hereunder shall be made from authorized
bank accounts, xxxxx cash funds, or from Working Capital provided pursuant to
Section 6.01. Manager shall not be required to make any advance or payment to or
for the account of Lessee except out of such funds, and Manager shall not be
obligated to incur any liability or obligation for Lessee's account without
assurances that necessary funds for the discharge thereof will be provided by
Lessee. Debts and liabilities incurred by Manager as a result of its operation
and management of the Inns pursuant to the terms hereof, whether asserted before
or after the
46
Termination of this Agreement, will be paid by Lessee to the extent funds are
not available for that purpose from the operation of the Inns.
8.03 Annual Operating Projection
---------------------------
A. Manager shall submit to Lessee for its review, thirty (30) days prior to
the beginning of each Fiscal Year, an "Annual Operating Projection." Manager
will consider in good faith suggestions made by Lessee with respect to the
Annual Operating Projection and make modifications thereto that Manager deems
appropriate. Such projection shall project, on a consolidated basis, and on an
individual Inn basis, the estimated average daily suite rates, average
occupancy, Gross Revenues, departmental profits, Deductions, and Operating
Profit for the forthcoming Fiscal Year for the Inns, taking into account each
Inn's market area. Manager shall use its best efforts to adhere to the Annual
Operating Projection. It is understood, however, that the Annual Operating
Projection is an estimate only and that unforeseen circumstances such as, but
not limited to, the costs of labor, material, services and supplies, casualty,
operation of law, or economic and market conditions may make adherence to the
Annual Operating Projection impracticable, and Manager shall be entitled to
depart therefrom due to causes of the foregoing nature.
B. If Owner or Lessee intends to sell or refinance any one or more of the
Inns, Manager agrees to cooperate in providing information to facilitate such
sale or refinancing.
8.04 Operating Losses; Credit
------------------------
A. To the extent there is an Operating Loss for any Accounting Period,
additional funds in the amount of any such deficiency shall be provided by
Lessee within twenty (20) days after Manager has given written notice to Lessee
of such Operating Loss. If Manager elects not to so notify Lessee or if Lessee
does not so fund such deficiency on Manager's request (but, in
47
such latter case, without affecting Manager's other remedies under this
Agreement), Manager shall have the right to withhold an amount equal to such
deficiency from future disbursements of funds otherwise due to Lessee.
B. In no event shall either party borrow money in the name of or pledge the
credit of the other.
END OF ARTICLE VIII
48
ARTICLE IX
TRADEMARKS, TRADE NAMES AND SERVICE MARKS
-----------------------------------------
9.01 Trademarks, Trade Names and Service Marks
-----------------------------------------
A. During the term of the Agreement, each Inn shall be known as a
"Residence Inn" or "Residence Inn by Marriott" or "Marriott Residence Inn", with
such additional identification as may be necessary to provide local
identification. If the name of the "Residence Inn by Marriott" System is
changed, Manager will change the name of each Inn to conform thereto. The names
"Marriott," "Residence Inn," "Residence Inn by Marriott" and "Marriott Residence
Inn" (each of the foregoing names, together with any combination thereof, shall
herein be collectively referred to as the "Trade Names"), when used alone or in
connection with another word or words, and the Marriott or Residence Inn
trademarks. service marks, other trade names, symbols, logos and designs shall
in all events remain the exclusive property of Marriott, and nothing contained
herein shall confer on Lessee the right to use any of the Trade Names, or the
Marriott or Residence Inn trademarks, service marks, other trade names, symbols,
logos or designs otherwise than in strict accordance with the terms of this
Agreement. Except as provided in Section 9.02, upon Termination with respect to
an Inn, any use of or right to use any of the Trade Names, or any of the
Marriott or Residence Inn trademarks, service marks, other trade names, symbols,
logos or designs by Lessee shall cease forthwith with respect to such Inn and
Lessee shall promptly remove from such Inn any signs or similar items which
contain any of said Trade Names, trademarks, service marks, other trade names,
symbols, logos or designs. If Lessee has not removed such signs or similar items
promptly upon Termination, Manager shall have the right to remain at such Inn as
long as is necessary for it to do so.
B. Included under the terms of this Section are all trademarks, service
marks, trade
49
names, symbols, logos or designs used in conjunction with the Inns, including
but not limited to restaurant names, lounge names, etc., whether or not the
marks contain the "Marriott" name or the "Residence Inn" name. The right to use
such trademarks, service marks, trade names, symbols, logos or designs belongs
exclusively to Manager, and the use thereof inures to the benefit of Manager
whether or not the same are registered and regardless of the source of the same.
9.02 Purchase of Inventories and Fixed Asset Supplies
------------------------------------------------
Upon Termination, either of this entire Agreement or with respect to a
given Inn, Manager shall have the option, to be exercised within thirty (30)
days after Termination, to purchase, at their then book value, any items of such
Inn's Inventories and Fixed Asset Supplies as may be marked with any Trade Name,
or any Marriott or Residence Inn trademark, other trade name, symbol, logo or
design. In the event Manager does not exercise such option, Lessee agrees that
it will use any such items not so purchased exclusively in connection with such
Inn (or one of the other Inns) until they are consumed.
9.03 Computer Software
-----------------
A. Any computer software (including upgrades and replacements) at any of
the Inns that is owned by Manager, Marriott, a Marriott Affiliate, or the
licensor of any of them is proprietary to its owner or licensor, as the case may
be, and shall in all events remain the exclusive property of such owner or
licensor, and nothing contained in this Agreement shall confer on Lessee the
right to use any of such software with the exception of any computer software at
the Inns that is commercially available to the public.
50
B. Upon Termination of this Agreement with respect to any given Inn or all
Inns, Manager shall have the right to remove from each Inn with respect to which
this Agreement has been terminated, at its expense within a reasonable time
thereafter and without compensation to Lessee, the RICHIE System software and
any other computer software (including upgrades and replacements), owned by
Manager, Marriott, any Marriott Affiliate or the licensor of any of them, with
the exception of any computer software at the Inns that is commercially
available to the public. Furthermore, upon any such Termination, Manager shall
be entitled to remove from any Inn with respect to which this Agreement has been
terminated, at its expense within a reasonable time thereafter and without
compensation to Lessee, any computer equipment utilized as part of a centralized
reservation system or owned by a party other than Lessee. In the event of any
such removal hereunder, Manager shall provide to Lessee, in a form reasonably
satisfactory to Lessee and at Lessee's expense, all information and data with
respect to the Inns stored in such computer software, provided that, to the
extent such information or data is proprietary or confidential to Marriott, such
information or data shall not be provided to Lessee.
9.04 Breach of Covenant
------------------
Manager and/or its Affiliates shall be entitled, in case of any breach of
the covenants of Article IX by Lessee or others claiming through it, to
injunctive relief and to any other right or remedy available at law. Article IX
shall survive Termination.
END OF ARTICLE IX
51
ARTICLE X
---------
MANAGEMENT AND USE OF THE INNS
------------------------------
10.01 Management of the Inns
----------------------
Manager shall manage each Inn under standards comparable to those
prevailing in other inns in the "Residence Inn by Marriott" System, including
all activities in connection therewith which are customary and usual to such an
operation.
10.02 Chain Services
--------------
Manager shall, commencing with the Effective Date and thereafter during the
term of this Agreement, cause to be furnished to each Inn certain services
("Chain Services") which are furnished generally on a central or regional basis
to other inns in the "Residence Inn by Marriott" System which are managed by
Manager or any Marriott Affiliate, and which benefit each Inn as a participant
in such System. Chain Services shall include: (i) divisional executive
management; (ii) sales office services; the development of programs for training
and manpower development; and computer payroll and accounting services; and
(iii) such additional central or regional services as may from time to time be
furnished for the benefit of inns in the "Residence Inn by Marriott" System or
in substitution for services now performed at individual inns which may be more
efficiently performed on a group basis. The services described in this Section
10.02 shall not include services which are described in the definitions of "Base
Management Fee" and "Residence Inn System Fee." Costs and expenses incurred in
the providing of such services shall be allocated on a fair and equitable basis,
on a "per-suite" basis, among all "Residence Inn by Marriott" inns managed by
Manager in the United States receiving the same. To the extent that services
described in this Section 10.02 have been funded through the
52
Marketing Fund, there will be no allocation of the costs and expenses thereof
under this Section 10.02.
10.03 Lessee's Right to Inspect
-------------------------
Lessee or its agents shall have access to any Inn at any and all reasonable
times for the purpose of protecting the same against fire or other casualty,
prevention of damage to the Inn, inspection, making repairs, or showing such Inn
to prospective purchasers, tenants or mortgagees.
END OF ARTICLE X
53
ARTICLE XI
INSURANCE
---------
11.01 Property Insurance
------------------
A. Manager shall, commencing with the Effective Date and for the duration
of each Inn Term, procure and maintain, using funds deducted from Gross Revenues
in determining Operating Profit, with insurance companies approved by Lessee and
licensed to do business in the state where the respective Inn is located (unless
coverage is not available from licensed companies or non-licensed companies
provide coverage which a reasonable insurance expert would deem preferable), a
minimum of the following insurance:
1. Insurance on each Inn (including contents) against loss or damage
by all perils included in "all risk" (as such term is commonly used in the
insurance industry) coverage, in an amount not less than one hundred percent
(100%) of the replacement cost thereof, except that if such 100% replacement
cost coverage is not available on reasonable rates and terms, then such
insurance shall be in an amount not less than ninety (90%) of the replacement
cost of each Inn;
2. Earthquake and flood insurance, if available on reasonable rates
and terms, to be determined at the discretion of Manager;
3. Insurance against loss or damage from explosion of boilers,
pressure vessels, pressure pipes and sprinklers, to the extent applicable,
installed in each Inn;
4. Business interruption insurance covering loss of profits and
necessary continuing expenses for interruptions caused by any occurrence covered
by the insurance referred to in Section 11.01 A 1, 2 and 3, for a period of not
less than one (1) year after the occurrence, of a type and in amounts and with
such deductible limits as are generally established
54
by Manager at the other inns it owns or manages under the Marriott Residence Inn
name in the United States.
B. All policies of insurance required under Section 11.01 X 0, 0, 0 xxx 0
xxxxx xx carried in the name of Owner, Lessee, Manager, and the holder of the
first mortgage indebtedness with respect to the Inns (a "First Mortgage");
subject to the rights of any lender, any losses thereunder shall be payable to
the parties as and to the extent their respective interests, if any, may appear.
C. Any Mortgage on any Inn shall contain provisions to the effect that
proceeds of the insurance policies required to be carried under Section 11.01
shall be available for repair and restoration of such Inn.
11.02 Operational Insurance
---------------------
Manager shall, commencing with the Effective Date and for the duration of each
Inn Term, procure and maintain, using funds deducted from Gross Revenues in
determining Operating Profit, either with insurance companies approved by Lessee
and licensed to do business in the state where the respective Inn is located
(unless coverage is not available from licensed companies or non-licensed
companies provide coverage which a reasonable insurance expert would deem
preferable), or by Manager legally qualifying as a workers' compensation
self-insurer in the state where the particular Inn is located, the following
insurance:
A. Workers' compensation and employer's liability insurance as may be
required under applicable laws covering all of Manager's employees at each Inn,
with such deductible limits or self-insured retentions as are generally
established by Manager at the other inns it owns or manages under the "Residence
Inn by Marriott" name in the United States;
55
B. Fidelity bonds, with reasonable limits and deductibles to be determined
by Manager, covering its employees in job classifications normally bonded in the
other inns it owns or manages under the "Residence Inn by Marriott" name in the
United States or as otherwise required by law, and comprehensive crime insurance
to the extent Manager and Lessee mutually agree it is necessary for each Inn;
C. Comprehensive general public liability insurance against claims for
personal injury, death or property damage occurring on, in, or about each Inn,
and automobile insurance on vehicles operated in conjunction with such Inn, with
a combined single limit of not less than Twenty-five Million Dollars
($25,000,000) for each occurrence for personal injury, death and property
damage, with such deductible limits or self-insured retentions as are generally
established by Manager at the other inns it owns or manages under the "Residence
Inn by Marriott" name in the United States; if Manager feels in its reasonable
discretion that higher limits are appropriate, it will obtain them; and
D. Such other insurance in amounts as Manager in its reasonable judgment
deems advisable for protection against claims, liabilities and losses arising
out of or connected with the operation of the Inns or as reasonably required by
Owner's lenders holding First Mortgages on the Inns.
11.03 Coverage
--------
All insurance described in Sections 11.01 and 11.02 may be obtained by
Manager by endorsement or equivalent means under its or Marriott's blanket
insurance policies, provided that such blanket policies substantially fulfill
the requirements specified herein. Deductible limits and self-insured retentions
shall be as provided in the blanket policies covering the inns owned or managed
by Manager under the "Residence Inn by Marriott" name in the United States. In
56
addition, Manager may self-insure workers' compensation insurance (if it has
legally qualified to do so) or otherwise retain such risks or portions thereof
as it does with respect to other inns it owns or manages under the "Residence
Inn by Marriott" name in the United States.
11.04 Cost and Expense
----------------
Insurance premiums and any costs or expenses with respect to the insurance
described in this Article XI shall be Deductions in determining Operating
Profit. Premiums on policies for more than one year shall be charged pro rata
against Gross Revenues over the period of the policies. The expenses incurred in
maintaining Manager's self-insurance program shall be charged on an equitable
basis to the inns participating in such programs. Any reserves, losses, costs,
damages or expenses which are uninsured, or fall within deductible limits, shall
be treated as a cost of insurance and shall be Deductions in determining
Operating Profit. Upon Termination, either of this entire Agreement or with
respect to a given Inn, an escrow fund in an amount reasonably acceptable to
Manager (which amount, when funded, shall thereafter be final as between Lessee
and Manager) shall be established from Gross Revenues (or, if Gross Revenues are
not sufficient, with funds provided by Lessee) to cover the amount of any
deductible limits and all other costs which will eventually have to be paid by
Manager with respect to pending or contingent claims, including those which
arise after Termination for causes arising during the term of the Agreement.
11.05 Lessee Provided Coverage
------------------------
Notwithstanding anything to the contrary contained in this Article XI,
Lessee may, at its option, with sixty (60) days advance written notice to
Manager, procure the insurance coverage required under Sections 11.01 hereof.
Premiums for such coverage shall be treated as a Deduction; provided, that if
the cost of such insurance and the related deductibles procured by
57
Lessee exceeds the cost of Manager's insurance for comparable coverage, all
excess costs, deductibles and coverages shall be the sole responsibility of
Lessee and shall not be a Deduction. If Lessee exercises its option to procure
such insurance, Manager shall not again be required to provide such insurance
for a period of four (4) Fiscal Years thereafter. If Lessee exercises its option
to procure such insurance, Lessee hereby waives its rights of recovery from
Manager and its affiliates, directors, officers and employees for loss or damage
to an Inn, and any resultant interruption of business, to the extent covered by
the insurance provided herein.
11.06 Policies and Endorsements .
--------------------------
A. Where permitted, all insurance provided under Article XI shall name
Lessee, Owner and any lender or mortgagee designated by Owner as additional
insureds. Manager shall deliver to such additional insureds certificates of
insurance with respect to all policies so procured, including existing,
additional and renewal policies and, in the case of insurance about to expire,
shall deliver certificates of insurance with respect to the renewal policies not
less than ten (10) days prior to the respective dates of expiration.
B. All policies of insurance provided for under Article XI shall, to the
extent obtainable, have attached thereto an endorsement that such policy shall
not be cancelled or materially changed without at least thirty (30) days' prior
written notice to the certificate holder. Each property insurance policy
maintained in accordance with Article XI shall contain a specific waiver of
subrogation with respect to property claims.
END OF ARTICLE XI
58
ARTICLE XII
TAXES
-----
12.01 Real Estate and Personal Property Taxes
---------------------------------------
All real estate and personal property taxes, levies, assessments and
similar charges on or relating to each Inn ("Impositions") during each Inn Term
shall be paid by Manager from Gross Revenues, before any fine, penalty, or
interest is added thereto or lien placed upon any Inn or upon the Agreement,
unless payment thereof is in good faith being contested and enforcement thereof
is stayed. Any such payments shall be a Deduction in determining Operating
Profit. Lessee shall, within five (5) days of receipt, furnish Manager with
copies of official tax bills and assessments which it may receive with respect
to any of the Inns. Owner, Lessee or Manager (in which case Lessee agrees to
sign, or cause Owner to sign, the required applications and otherwise cooperate
with Manager in expediting the matter) may initiate proceedings to contest any
Imposition, and all reasonable costs of any such contest shall be paid from
Gross Revenues and shall be a Deduction in determining Operating Profit.
END OF ARTICLE XII
59
ARTICLE XIII
INN EMPLOYEES
-------------
13.01 Employees
---------
A. All personnel employed at each Inn shall at all times be the employees
of Manager. Manager shall have absolute discretion to hire, promote, supervise,
direct and train all employees at each Inn, to fix their compensation and,
generally, establish and maintain all policies relating to employment. Manager
shall use best efforts to notify Lessee as soon as practical of any anticipated
changes in the persons who occupy the positions of General Manager and Director
of Sales and Marketing for any Inn; provided, however, that the parties
acknowledge and agree that any failure by Manager to provide such notice shall
neither constitute an "event of default" under this Agreement nor constitute a
material breach of this Agreement.
B. Manager shall decide whom, if any, of the employees of each Inn shall
reside at such Inn, and shall be permitted to provide free accommodations and
amenities to its employees and representatives living at or visiting each Inn in
connection with its management or operation. No person shall otherwise be given
gratuitous accommodations or services without prior Joint approval of Lessee and
Manager except in accordance with usual practices of the hotel and travel
industry.
C. At Termination with respect to a given Inn, other than a Termination (i)
by reason of a default of Manager hereunder or (ii) at Manager's option (except
as a result of a default by Lessee), provided that the expiration of a given Inn
Term under Section 4.01 shall not be deemed "at Manager's option" for purposes
of this Section 13.01, an escrow fund shall be established from Gross Revenues
(or, if Gross Revenues are not sufficient, with funds provided by Lessee)
60
to reimburse Manager for all costs and expenses incurred by Manager in
terminating its employees at the affected Inn, such as severance pay,
unemployment compensation and other employee liability costs arising out of the
termination of employment of Manager's employees at such Inn.
D. Neither Lessee nor Manager shall effect a Termination of this Agreement
without allowing sufficient time for Manager to comply with notice requirements
of federal and state laws and regulations regarding the closing of a business or
termination of employees, and Manager shall comply with such notice
requirements; provided, however, that this provision shall not be applicable if
Lessee or its new hotel manager hires a sufficient number of Inn employees to
avoid Manager incurring liability under such notice requirements in connection
with such termination, and Lessee (or its permitted successors and assigns, if
applicable), shall indemnify, defend and hold Manager, Marriott Affiliates and
each of their officers, directors, shareholders, agents and assigns, harmless
from all costs, expenses, damages, penalties, actions, claims, obligations and
liabilities, including reasonable attorneys' fees, to the extent arising or
resulting from any such liability under federal and state laws and regulations
(including, but not limited to the WARN Act) regarding the closing of a business
or termination of employees.
END OF ARTICLE XIII
61
ARTICLE XIV
DAMAGE, CONDEMNATION AND FORCE MAJEURE
--------------------------------------
14.01 Damage and Repair
-----------------
A. If, during the term hereof, any of the Inns is damaged or destroyed by
fire, casualty or other cause, Lessee shall, at its cost and expense and with
all reasonable diligence, repair or replace the damaged or destroyed portion of
such Inn to the same condition as existed previously. To the extent available,
proceeds from the insurance described in Section 11.01 or Section 11.05, as the
case may be, shall be applied to such repairs or replacements. However, Lessee
shall not be obligated to so repair or replace the damaged or destroyed portion
of such Inn if one or more of the following is true: (i) the Inn is so badly
damaged or destroyed that it cannot reasonably be repaired or replaced within
one (1) year of the date on which the construction work relating to the repair
and/or replacement would begin; (ii) with respect to insurance obtained by
Manager under Section 11.01, the proceeds of such insurance available for such
repair or replacement are less than ninety percent (90%) of the estimated repair
and replacement costs; or (iii) the remainder of the Inn Term with respect to
such Inn is less than ten (10) years, and Manager fails to agree to extend such
Inn Term to a date which is at least ten (10) years after the estimated date of
the completion of such repair and/or replacement. If Lessee has elected to
obtain insurance under Section 11.05, Lessee shall be obligated to so repair or
replace the damaged or destroyed portion of such Inn if the insurance proceeds
that would have been available for such repair or replacement had the insurance
been procured by Manager under Section 11.01, are greater than or equal to
ninety percent (90%) of the estimated repair and replacement costs. If Lessee
elects not to repair or replace said damaged portion of such Inn for
62
one or more of the foregoing reasons, it shall so notify Manager by written
notice within ninety (90) days after the date of the casualty.
B. In the event damage or destruction to any Inn from any cause materially
and adversely affects the operation of such Inn and (i) Lessee fails to promptly
commence and complete the repairing, rebuilding or replacement of the same so
that such Inn shall be substantially the same as it was prior to such damage or
destruction, or (ii) Lessee notifies Manager, pursuant to the provisions of
Section 14.01 A above, that Lessee will not repair or replace such damage for
one or more of the reasons set forth in Section 14.01 A, Manager may, at its
option, terminate the Agreement with respect to such Inn upon sixty (60) days'
written notice.
14.02 Condemnation
------------
A. In the event all or substantially all of any 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 such Inn shall be so taken, but the result is that it is
unreasonable to continue to operate such Inn, this Agreement shall terminate
with respect to such Inn. Owner, Lessee and Manager shall each have the right to
initiate such proceedings as they deem advisable to recover any damages to which
they may be entitled. Manager's rights to recover any damages pursuant to this
subsection shall be subject and subordinate to the prior rights of the Lender
holding the First Mortgage with respect to such Inn to recover damages related
to its interest in the Inn being taken.
B. In the event a portion of any Inn shall be taken by the events described
in Section 14.02 A, or an entire Inn is affected but on a temporary basis, and
the result is not to make it unreasonable to continue to operate such Inn, this
Agreement shall not terminate. However, so
63
much of any award for any such partial taking or condemnation as shall be
necessary to render such Inn equivalent to its condition prior to such event
shall be used for such purpose.
14.03 Force Majeure
-------------
A. If acts of God, acts of war, civil disturbance, or governmental action
(collectively herein referred to as "Force Majeure") make it impractical for
either Lessee or Manager to perform any of its respective obligations hereunder,
such obligation shall be suspended until it is again possible for the affected
party to perform it. In addition, if such an event, in Manager's or Lessee's
reasonable judgment, makes continued operation of an Inn impractical for more
than a reasonable temporary period, then Manager or Lessee may terminate this
Agreement as to such Inn on sixty (60) day's written notice to Lessee or
Manager, as the case may be.
B. The provisions of Section 14.03 A shall not apply to the specific
provisions of this Agreement regarding (i) damage or destruction, (ii)
condemnation, and (iii) withdrawal or revocation of licenses or permits.
END OF ARTICLE XIV
64
ARTICLE XV
DEFAULTS
--------
15.01 Events of Default
-----------------
The following shall constitute "events of default" to the extent permitted
by applicable law:
A. The failure of either party to make any payment required to be made in
accordance with the terms hereof within ten (10) days after written notice that
such payment has not been made; or
B. Unless Section 15.01 A is applicable, the breach by either party of any
material representation, warranty or covenant contained in this Agreement, or
the default by either party in the performance of any covenants, undertakings,
obligations or conditions set forth in this Agreement, which breach or default
shall not have been cured within thirty (30) days after notice of such breach or
default; provided that an so "event of default" shall not exist with regard
thereto if such breach or default (i) is not attributable to a failure to pay
any sums due under this Agreement, and (ii) such breach or default is curable
(but not within such thirty (30) day period) and the defaulting party commences
the cure of said breach or default within said thirty (30) day period and
thereafter proceeds diligently and in good faith to complete such cure; or
C. If a court of competent jurisdiction has entered a final, non-appealable
judgment finding Manager liable for fraud, gross negligence or willful and
wanton misconduct in its dealings with Lessee hereunder; or
D. If Manager or Owner or Lessee shall apply for or consent to the
appointment of a receiver, trustee or liquidator of all or a substantial part of
its assets or make a general assignment for the benefit of its creditors, or
file a voluntary petition in bankruptcy or a petition
65
seeking reorganization, composition, arrangement with creditors, liquidation or
similar relief under any present or future statute, law or regulation, or file
any answer admitting the material allegations of a petition filed against it in
any such proceeding, or be adjudicated a bankrupt or insolvent or take any
action looking toward dissolution (other than Owner or Lessee pursuing a sale of
all or substantially all of its assets); or
E. If any final order, judgment or decree (that is, an order, judgment or
decree affirmed on appeal to a court of last resort or after the expiration of
any period to appeal) shall be entered without the application, approval or
consent of Manager or Owner or Lessee by any court of competent jurisdiction,
approving a petition seeking reorganization , composition, arrangement with
creditors, liquidation or similar relief under any present or future statute,
law or regulation with respect to Manager or Lessee, or appointing a receiver,
trustee or liquidator of all or a substantial part of Manager's or Owner's or
Lessee's assets and such order, judgment or decree shall continue unstayed and
in effect for an aggregate of sixty (60) days (whether or not consecutive).
15.02 Remedies
--------
A. If, at any time during the term of this Agreement, an "event of default"
(as defined in Section 15.01) shall occur, then the non-defaulting party may, at
its option, terminate this Agreement by giving notice to the other party,
specifying a date, not earlier than thirty (30) days after the receipt of such
notice, for Termination, of this Agreement. If the default has not been cured on
or before the date specified in the aforesaid notice, this Agreement shall
terminate on such date.
66
B. The rights set forth in Section 15.02 A shall not be in substitution
for, but shall be in addition to, any and all rights and remedies available to
the non-defaulting party by reason of applicable law.
END OF ARTICLE XV
67
ARTICLE XVI
WAIVER AND PARTIAL INVALIDITY
-----------------------------
16.01 Waiver.
-------
The failure of either party to insist upon a strict performance of any of
the terms or provisions of the 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.
16.02 Partial Invalidity
------------------
If any portion of the Agreement shall be declared invalid by order, decree
or judgment of a court, the Agreement shall be construed as if such portion had
not been inserted herein except when such construction would operate as an undue
hardship on Manager or Lessee or constitute a substantial deviation from the
general intent and purpose of said parties as reflected in the Agreement.
END OF ARTICLE XVI
68
ARTICLE XVII
ASSIGNMENT
----------
17.01 Assignment
----------
A. Neither party shall assign or transfer or permit the assignment or
transfer of this Agreement without the prior written consent of the other;
provided, however, that Manager shall have the right, without such consent, to
(1) assign its interest in this Agreement to any Marriott Affiliate which (i)
has adequate experience in managing hotels and has adequate capital to conduct
its business as Manager under this Agreement, and (ii) agrees in writing to be
bound by and comply with the terms of this Agreement (such written agreement to
be delivered to Owner); and (2) lease shops or grant concessions at the Inns so
long as the terms of any such leases or concessions do not exceed the term of
this Agreement. Nothing contained herein shall prevent (i) the conditional
assignment of this Agreement by Lessee as security for any Mortgage on the Inns
pursuant to Section 17.02; (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 Marriott; (iii) an assignment of this Agreement in connection with an
approved Sale of the Inns pursuant to Section 18.01 A 2; or (iv) any sale,
assignment, transfer or other disposition of an Inn or Site by Owner or Lessee
to an Affiliate of Owner, provided that, with respect to this clause (iv), if
any of the following is true: (i) that the proposed purchaser is engaged in the
business of operating (as distinguished from owning or financing) hotels or
other lodging facilities in competition with Manager, Marriott or any Marriott
Affiliate; (ii) that the proposed purchaser is known as being of bad moral
character or is in control of or controlled by persons known as being of bad
moral character, or (iii) that the financial condition and prospects of the
proposed purchaser are not adequate to discharge the obligations of Lessee under
this Agreement, then any such sale,
69
assignment, transfer or other disposition of an Inn or Site by Owner or Lessee
to an Affiliate of Owner shall be prohibited.
B. 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. An assignment by either Lessee
or Manager of its interest in this Agreement shall not relieve Lessee or
Manager, as the case may be, from their respective obligations under this
Agreement, and shall inure to the benefit of, and be binding upon, their
respective successors, heirs, legal representatives, or assigns.
17.02 Mortgages and Collateral Assignments
------------------------------------
Lessee or Owner may from time to time (i) grant Mortgages encumbering the
Inns, and (ii) collaterally assign its interest under this Agreement as
additional security, provided that all such Mortgages and collateral
assignments: (a) are granted or entered into in connection with indebtedness
that is described in Section 3.01 A 2 (ii) and (iii) hereof, and (b) each
contain a non-disturbance provision in the form described in Section 3.01 A 2
(i) hereof. Provided that all of the provisions of Section 3.01 A 2 are complied
with, Manager agrees that (in connection with Lessee or Owner obtaining such
secured loans) it will (x) deliver to the lender, upon Lessee's or Owner's
written request therefor, a statement that this Agreement is in full force and
effect; (y) subordinate Manager's interest in this Agreement to the rights of
the lender upon foreclosure of any such Mortgage, or upon the granting of a deed
70
in lieu of foreclosure; and (z) attorn to and recognize such lender or its
assignee as being the "Owner" or "Lessee" (as the case may be) under this
Agreement upon a conveyance of title to the Inns to such lender or its assignee,
whether such conveyance is the result of a foreclosure of said Mortgage, or is
the result of a deed in lieu of foreclosure; provided that, such lender
simultaneously agrees to execute a non-disturbance, subordination and attornment
agreement substantially in the form attached hereto as Exhibit H, which shall be
recordable in the jurisdictions where the Inns are located.
END OF ARTICLE XVII
71
ARTICLE XVIII
SALE OF AN INN OR INNS
----------------------
18.01 Right of First Refusal
----------------------
A. It is a principal inducement for Manager to enter into this transaction
that the fifteen (15) Inns shall not, at any one time, ever be owned by more
than four (4) separate individuals or entities each of whom has a management
agreement with Manager with respect to its Inn or Inns. Accordingly, Lessee
agrees that it will not have the right to enter into a Sale of an Inn if such a
transaction, when consummated, would result in the fifteen (15) Inns being owned
by more than four (4) separate owners. Subject to the foregoing, if Owner
receives a bona fide written offer to enter into a Sale of an Inn, and desires
to accept such offer, Lessee shall, or shall cause Owner to, give written notice
thereof to Manager stating the name of the prospective purchaser or tenant, as
the case may be, the price or rental and the terms and conditions of such
proposed Sale of the Inn, together with all other information requested by
Manager and reasonably available to Owner or Lessee. Within thirty (30) days
after the date of receipt of Lessee's written notice and such other information,
Manager shall elect, by written notice to Lessee, one of the following
alternatives:
1. To purchase or lease such Inn or Inns at the same price or rental
and upon the same terms and conditions as those set forth in the written notice
from Lessee to Manager or upon other terms acceptable to Owner, in which event
Lessee and Manager shall promptly enter into an agreement for such sale or lease
and shall finalize the same within ninety (90) days.
2. To consent to such Sale of an Inn and to agree to enter into a new
management agreement, with respect to such Inn or Inns, with such purchaser or
tenant, which new management agreement will be on all of the terms and
conditions of this Agreement, except that the Stipulated Debt Service and the
Operating Profit Objective shall be only the portion
72
thereof allocable to such Inn or Inns as set forth in Exhibits "B" and "C"
------------ ---
hereof, and except that, in preparing such new management agreement, appropriate
adjustments shall be made to all other terms and provisions of this Agreement
which have been agreed to and/or computed on the assumption that this Agreement
will apply to all fifteen (15) Inns (and reciprocal adjustments shall likewise
be made to this Agreement itself, which will be applicable to the Inns not being
sold under this Section 18.01, as set forth in Section 18.02 hereof); provided,
however, that if Manager in good faith believes (and so states in writing to
Lessee) that any one or more of the following is true: (i) that the proposed
purchaser is engaged in the business of operating (as distinguished from owning
or financing) hotels or other lodging facilities in competition with Manager,
Marriott or any Marriott Affiliate; (ii) that the proposed purchaser is known as
being of bad moral character or is in control of or controlled by persons known
as being of bad moral character; or (iii) that the financial condition and
prospects of the proposed purchaser are not adequate to discharge the
obligations of Lessee under this Agreement, Manager shall have the right to
terminate this Agreement, by written notice to Lessee, with respect to such Inn
or Inns, and Manager shall not be required to enter into such new management
agreement with respect thereto. The effective date of such Termination shall
coincide with the date of the finalization of the proposed Sale of the Inn. Such
Termination shall not be effective if such Sale of the Inn is not finalized.
B. If Manager shall fail to elect any of the above alternatives within said
thirty (30) day period, such failure shall be conclusively deemed to constitute
an election under subsection 2 above to enter into a new management agreement,
with respect to such Inn or Inns, with such purchaser or tenant, and the
provisions thereof shall prevail as if Manager had consented in writing thereto.
Any proposed Sale of an Inn of which notice has been given by Lessee to Manager
hereunder must be finalized within one hundred eighty (180) days following the
giving
73
of such notice, unless Manager has exercised its option under subsection 1 above
to purchase or lease the Inns. Failing such finalization, such notice, and any
response thereto given by Manager, shall be null and void and all of the
provisions of Section 18.01 A must again be complied with before Owner shall
have the right to finalize a Sale of an Inn upon the terms contained in said
notice, or otherwise.
18.02 Effect of Sale of Inn
---------------------
Upon the consummation of the Sale of an Inn, subject to the provisions of
Section 18.01, then:
A. This Agreement shall terminate with respect to such Inn, but not with
respect to the remaining Inns; as to such Inn involved in the Sale, the actions
described in Section 4.03 shall be taken (except that, if Manager is entering
into a new management agreement with the purchaser or tenant, as the case may
be, of such Inn, then the actions described in subsections C, D and G of Section
4.03 shall not be necessary);
B. The Stipulated Debt Service shall be reduced by the portion thereof
allocable to such Inn as set forth in Exhibit "B" hereto;
-----------
C. The Operating Profit Objective shall be reduced by the portion thereof
allocable to such Inn as set forth in Exhibit "C" hereto;
-----------
D. A portion of the Repairs and Equipment Reserve maintained pursuant to
Section 7.02 hereof shall be transferred to the purchaser of such Inn (or, at
the direction of the Lessee, released to the Lessee); such portion shall be
computed by multiplying the Repairs and Equipment Reserve by a fraction, the
numerator of which shall be the Gross Revenues attributable to such Inn being
sold for the most recently concluded Fiscal Year and the denominator of which
shall be the Gross Revenues attributable to all the Inns for such Fiscal Year;
74
E. Appropriate adjustments shall be made to those other terms and
provisions of this Agreement (e.g., Working Capital, insurance) which have been
agreed on, computed or established on the assumption that this Agreement will
apply to all fifteen (15) of the Inns; and
F. Unless Manager has elected not to enter into a new management agreement
with the purchaser or tenant, as the case may be, of such Inn, for one or more
of the reasons set forth in subsections (i), (ii) and (iii) of Section 18.01 A 2
hereof, Manager and such purchaser or tenant shall execute the new management
agreement described in Section 18.01 A 2.
END OF ARTICLE XVIII
75
ARTICLE XIX
MISCELLANEOUS
-------------
19.01 Right to Make Agreement
-----------------------
Each party warrants, with respect to itself, that neither the execution of
the Agreement nor the finalization of the transactions contemplated hereby shall
violate any provision of law or judgment, writ, injunction, order or decree of
any court or governmental authority having jurisdiction over it; 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; or 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 the Agreement and
any extensions thereof, the full right to enter into the Agreement and perform
its obligations hereunder.
19.02 Consents
--------
Wherever in the Agreement the consent or approval of Lessee or Manager is
required, such consent or approval shall 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 Lessee or Manager 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 (except as
otherwise provided in this Agreement).
19.03 Agency
------
The relationship of Lessee and Manager shall be that of principal and
agent, and nothing contained in the Agreement shall be construed to create a
partnership or joint venture between them or their successors in interest.
Manager's agency established by the Agreement is coupled with an interest and
may not be terminated by Lessee until the expiration of the term of the
76
Agreement, except as provided in Section 4.02 or Article XV. Notwithstanding the
agency relationship created by the Agreement, nothing contained herein shall
prohibit, limit or restrict (except as specifically set forth in Section 2.04
hereof) Manager or any of its affiliates and subsidiaries from developing,
owning, operating, leasing, managing or franchising inns, hotels or other
lodging products in any of the market areas where any of the Inns are located.
19.04 Applicable Law
--------------
The Agreement shall be construed under and shall be governed by the laws of
the State of Maryland.
19.05 Recordation
-----------
The terms and provisions of the Agreement shall run with the parcels of
land designated as the Sites, and with Lessee's interest therein, and shall be
binding upon all successors to such interest. At the request of either party,
the parties shall execute sufficient copies of an appropriate memorandum of the
Agreement in recordable form and cause the same to be recorded in each of the
jurisdictions where the Inns are located. Any cost of such recordation shall be
initially borne by Lessee, reimbursed to Lessee from Gross Revenues, and treated
as a Deduction.
19.06 Headings
--------
Headings of Articles and Sections are inserted only for convenience and are
in no way to be construed as a limitation on the scope of the particular
Articles or Sections to which they refer.
77
19.07 Notices
-------
Notices, statements and other communications to be given under the terms of
the Agreement shall be in writing and delivered by hand against receipt or sent
by certified or registered mail, postage prepaid, return receipt requested, or
by Federal Express (or other nationally-recognized overnight courier), marked
for next business day delivery, with delivery charges paid by the sender:
To Lessee:
---------
Apple Hospitality Management, Inc.
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxx
with a copy to Owner at:
Marriott Residence Inn Limited Partnership
c/o Apple Hospitality Two, Inc.
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxx
with a copy, which shall not constitute notice, to:
Jenkens & Xxxxxxxxx, P.C.
0000 Xxxx Xxx., Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxxx X. Xxxxx
To Manager:
----------
Residence Inn by Marriott, Inc.
c/o Marriott International, Inc.
Law Department
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: North American Lodging Operations/Dept. 52.923
78
with a copy to:
Residence Inn by Marriott, Inc.
c/o Marriott International, Inc.
Lodging Finance
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Senior Vice President, Global Asset Management
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 shall be deemed
to have been served as of five (5) days after said posting for purposes of
establishing that the sending party complied with the applicable time
limitations set forth herein, but shall not be binding on the addressee until
actually received. Any such notice which is properly sent by Federal Express (or
other nationally-recognized overnight courier) shall be deemed to have been
served as of the business day after being sent for purposes of establishing that
the sending party complied with the applicable time limitations set forth
herein, but shall not be binding on the addressee until actually received.
19.08 Limited Liability
-----------------
Manager agrees that no limited partner of Owner shall have any personal
liability hereunder in excess of such limited partner's contribution to the
capital of Owner.
19.09 Entire Agreement
----------------
The Agreement, together with other writings signed by the parties expressly
stated to be supplemental hereto and together with any instruments to be
executed and delivered pursuant to the Agreement, constitutes the entire
agreement between the parties and supersedes all prior understandings and
writings, and may be changed only by a writing signed by the parties hereto.
79
19.10 Expert Decisions
----------------
Where this Agreement calls for a matter to be referred to an Expert for
determination, the following provisions shall apply:
A. The use of the Expert shall be the exclusive remedy of the parties and
neither party shall attempt to adjudicate any dispute in any other forum. The
decision of the Expert shall be final and binding on the parties and shall not
be capable of challenge, whether by arbitration, in court or otherwise;
B. Each party shall be entitled to make written submissions to the Expert,
and if a party makes any submission it shall also provide a copy to the other
party and the other party shall have the right to comment on such submission.
The parties shall make available to the Expert all books and records relating to
the issue in dispute and shall render to the Expert any assistance requested of
the parties. The costs of the Expert and the proceedings shall be borne as
directed by the Expert unless otherwise provided for herein. The Expert may
direct that such costs be treated as Deductions;
C. With respect to any matter referred to the Expert for determination
under Section 7.02D, the Expert shall make its decision by applying the
standards applicable to hotels in accordance with the System standards
(including compliance with the requirements of any quality assurance program)
and determining whether the matter at issue is necessary to satisfy such
standards; and
D. The terms of engagement of the Expert shall include an obligation on the
part of the Expert to: (i) notify the parties in writing of his decision within
forty-five (45) days from the date on which the Expert has been selected (or
such other period as the parties may agree or as set forth herein); and (ii)
establish a timetable for the making of submissions and replies.
END OF ARTICLE XIX
80
IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be executed
as of the day and year first written above.
AHM RES I LIMITED PARTNERSHIP
By: AHM Res I, GP, Inc., general partner
Attest:
By: /s/ Xxxxx X. Xxxxxx
--------------------- -------------------------------------
Assistant Secretary Xxxxx X. Xxxxxx, President
RESIDENCE INN BY MARRIOTT, INC.
Attest:
/s/ Xxxxx Currino By: /s/ X. Xxxxxx Pulse, Jr.
--------------------- -----------------------------------------
Assistant Secretary X. Xxxxxx Pulse, Jr. Vice President
--------------------
81
EXHIBIT A
---------
Locations of the Inns
---------------------
1) Costa Mesa, California
----------------------
000 Xxxxx Xxxxxx
Xxxxx Xxxx, Xxxxxxxxxx 00000
2) La Jolla, California
--------------------
0000 Xxxxxx Xxxxx
Xx Xxxxx, Xxxxxxxxxx 00000
3) Long Beach, California
----------------------
0000 X. Xxxxxx Xxxxxx
Xxxx Xxxxx, Xxxxxxxxxx 00000
4) Boulder, Colorado
-----------------
0000 Xxxxxx Xxxxx Xxxxx
Xxxxxxx, Xxxxxxxx 00000
5) Atlanta (Buckhead), Georgia
---------------------------
0000 Xxxxxxxx Xxxx,
Xxxxxxxxx Xxxxxxx, Xxxxxxx 00000
6) Atlanta (Perimeter East), Georgia
---------------------------------
0000 Xxxxx Xxxxx
Xxxxxxxx, Xxxxxxx 00000
7) Atlanta (Cumberland), Georgia
-----------------------------
0000 Xxxxxxxx Xxxx
Xxxxxx, Xxxxxxx 00000
8) Chicago (Lombard), Illinois
---------------------------
0000 X. Xxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
9) Southfield, Michigan
--------------------
00000 Xxxxxxx Xxxx Xxxxxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
10) St. Louis (Chesterfield), Missouri
-----------------------------------
00000 Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxx 00000
11) St. Louis (Galleria), Missouri
------------------------------
0000 XxXxxxxx Xxxxxx
Xx. Xxxxx, Xxxxxxxx 00000
12) Cincinnati (North), Ohio
------------------------
00000 Xxxxxxx Xxxx
Xxxxxxxxxx, Xxxx 00000
13) Columbus (North), Ohio
----------------------
0000 Xxxx Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxx 00000
14) Dayton (North), Ohio
--------------------
0000 Xxx Xxxxxx
Xxxxxx, Xxxx 00000
15) Dayton (South), Ohio
--------------------
000 Xxxxxxxx Xxxxx
Xxxxxxxxxx, Xxxx 00000
EXHIBIT B
---------
Breakdown of the $15,300,000 Stipulated Debt Service into 15 components, one for
each Inn:
-------------------------------------------------------------
1) Atlanta/Buckhead $ 1,071,000 7.0%
-------------------------------------------------------------
2) Atlanta/Cumberland 979,200 6.4%
-------------------------------------------------------------
3) Atlanta/Perimeter East (Dunwoody) 979,200 6.4%
-------------------------------------------------------------
4) Boulder, CO 1,193,400 7.8%
-------------------------------------------------------------
5) Chicago/Lombard 948,600 6.2%
-------------------------------------------------------------
6) Cincinnati North (Sharonville) 673,200 4.4%
-------------------------------------------------------------
7) Columbus North 459,000 3.0%
-------------------------------------------------------------
8) Costa Mesa 1,132,200 7.4%
-------------------------------------------------------------
9) Dayton North 351,900 2.3%
-------------------------------------------------------------
10) Dayton South 474,300 3.1%
-------------------------------------------------------------
11) La Jolla 2,692,800 17.6%
-------------------------------------------------------------
12) Long Beach 1,484,100 9.7%
-------------------------------------------------------------
13) Southfield 933,300 6.1%
-------------------------------------------------------------
14) St. Louis/Chesterfield 642,600 4.2%
-------------------------------------------------------------
15) St. Louis/Galleria 1,285,000 8.4%
-------------------------------------------------------------
$15,300,000 100.0%
=============================================================
EXHIBIT C
---------
Breakdown Of the $23,500,000 Operating Profit Objective into 15 components, one
for each Inn:
-------------------------------------------------------------
1) Atlanta/Buckhead $ 1,645,000 7.0%
-------------------------------------------------------------
2) Atlanta/Cumberland 1,504,000 6.4%
-------------------------------------------------------------
3) Atlanta/Perimeter East (Dunwoody) 1,504,000 6.4%
-------------------------------------------------------------
4) Boulder, CO 1,833,000 7.8%
-------------------------------------------------------------
5) Chicago/Lombard 1,457,000 6.2%
-------------------------------------------------------------
6) Cincinnati North (Sharonville) 1,034,000 4.4%
-------------------------------------------------------------
7) Columbus North 705,000 3.0%
-------------------------------------------------------------
8) Costa Mesa 1,739,000 7.4%
-------------------------------------------------------------
9) Dayton North 540,500 2.3%
-------------------------------------------------------------
10) Dayton South 728,500 3.1%
-------------------------------------------------------------
11) La Jolla 4,136,000 17.6%
-------------------------------------------------------------
12) Long Beach 2,279,500 9.7%
-------------------------------------------------------------
13) Southfield 1,433,500 6.1%
-------------------------------------------------------------
14) St. Louis/Chesterfield 987,000 4.2%
-------------------------------------------------------------
15) St. Louis/Galleria 1,974,000 8.4%
-------------------------------------------------------------
$23,500,000 100.0%
=============================================================
EXHIBIT D
---------
Breakdown of the percentages to be used for reducing the First Priority Return,
Second Priority Return, and other appropriate adjustments (e.g., working
capital, insurance), in the event one or more Inns are sold or otherwise removed
from the scope of this Agreement.
-----------------------------------------------
1) Atlanta/Buckhead 7.0%
-----------------------------------------------
2) Atlanta/Cumberland 6.4%
-----------------------------------------------
3) Atlanta/Perimeter East (Dunwoody) 6.4%
-----------------------------------------------
4) Boulder, CO 7.8%
-----------------------------------------------
5) Chicago/Lombard 6.2%
-----------------------------------------------
6) Cincinnati North (Sharonville) 4.4%
-----------------------------------------------
7) Columbus North 3.0%
-----------------------------------------------
8) Costa Mesa 7.4%
-----------------------------------------------
9) Dayton North 2.3%
-----------------------------------------------
10) Dayton South 3.1%
-----------------------------------------------
11) La Jolla 17.6%
-----------------------------------------------
12) Long Beach 9.7%
-----------------------------------------------
13) Southfield 6.1%
-----------------------------------------------
14) St. Louis/Chesterfield 4.2%
-----------------------------------------------
15) St. Louis/Galleria 8.4%
-----------------------------------------------
100.0%
===============================================
EXHIBIT E
---------
Breakdown of Competitive Set for Each Inn
--------------------------------------------------------------------------------
1) Atlanta/Buckhead
--------------------------------------------------------------------------------
Residence Inn Atlanta/Buckhead
--------------------------------------------------------------------------------
Summerfield By Wyndham Buckhead
--------------------------------------------------------------------------------
Residence Inn Atlanta Buckhead Lenox Park
--------------------------------------------------------------------------------
Homewood Suites Atlanta Buckhead
--------------------------------------------------------------------------------
Amerisuites Atlanta Buckhead
--------------------------------------------------------------------------------
Hawthorn Suites Atlanta Buckhead
--------------------------------------------------------------------------------
2) Atlanta/Cumberland
--------------------------------------------------------------------------------
Residence Inn Atlanta Cumberland
--------------------------------------------------------------------------------
Hampton Inn Suites Atlanta Galleria
--------------------------------------------------------------------------------
Hawthorn Suites Atlanta
--------------------------------------------------------------------------------
Homewood Suites Atlanta Cumberland
--------------------------------------------------------------------------------
Wyndham Hotels Vinings
--------------------------------------------------------------------------------
Embassy Suites Atlanta Galleria
--------------------------------------------------------------------------------
Amerisuites Atlanta Galleria
--------------------------------------------------------------------------------
3) Atlanta/Perimeter East (Dunwoody)
--------------------------------------------------------------------------------
Residence Inn Atlanta Dunwoody
--------------------------------------------------------------------------------
Staybridge Suites Atlanta Perimeter
--------------------------------------------------------------------------------
Holiday Inn Select Perimeter Dunwoody
--------------------------------------------------------------------------------
Four Points Atlanta Perimeter
--------------------------------------------------------------------------------
Summerfield By Wyndham Perimeter
--------------------------------------------------------------------------------
Residence Inn Atlanta Perimeter West
--------------------------------------------------------------------------------
Amerisuites Atlanta Perimeter
--------------------------------------------------------------------------------
4) Boulder, CO
--------------------------------------------------------------------------------
Residence Inn Boulder
--------------------------------------------------------------------------------
Millennium Hotels Boulder
--------------------------------------------------------------------------------
Courtyard Louisville
--------------------------------------------------------------------------------
The Broker Inn
--------------------------------------------------------------------------------
Marriott Boulder
--------------------------------------------------------------------------------
Courtyard Boulder
--------------------------------------------------------------------------------
Homewood Suites Boulder
--------------------------------------------------------------------------------
5) Chicago/Lombard
--------------------------------------------------------------------------------
Residence Inn Chicago Lombard
--------------------------------------------------------------------------------
Embassy Suites Chicago Lombard
--------------------------------------------------------------------------------
Extended Stay America Chicago Downers Grove
--------------------------------------------------------------------------------
Doubletree Guest Suite Downers Grove
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Courtyard Chicago Oakbrook Terrace
--------------------------------------------------------------------------------
Studio Plus Chicago Lombard
--------------------------------------------------------------------------------
Hampton Inn Chicago Oakbrook Area
--------------------------------------------------------------------------------
Holiday Inn Express Chicago Downers Grove Oakbrook
--------------------------------------------------------------------------------
6) Cincinnati North (Sharonville)
--------------------------------------------------------------------------------
Amerisuites Cincinnati North
--------------------------------------------------------------------------------
Residence Inn Cincinnati Sharonville North
--------------------------------------------------------------------------------
Homewood Suites Sharonville
--------------------------------------------------------------------------------
Woodfield Suites Cincinnati
--------------------------------------------------------------------------------
Extended Stay America Cincinnati Springdale
--------------------------------------------------------------------------------
Signature Inn North Cincinnati
--------------------------------------------------------------------------------
7) Columbus North
--------------------------------------------------------------------------------
Hampton Inn Columbus North
--------------------------------------------------------------------------------
Residence Inn Columbus North
--------------------------------------------------------------------------------
Marriott Columbus North
--------------------------------------------------------------------------------
Homewood Suites Columbus
--------------------------------------------------------------------------------
Extended Stay America Columbus North
--------------------------------------------------------------------------------
Xxxxxxx Club Hotel
--------------------------------------------------------------------------------
Country Inn & Suites Columbus North
--------------------------------------------------------------------------------
Wellesley Suites Columbus Polaris
--------------------------------------------------------------------------------
8) Costa Mesa
--------------------------------------------------------------------------------
Holiday Inn Costa Mesa Orange County Airport
--------------------------------------------------------------------------------
Residence Inn Costa Mesa Newport Beach
--------------------------------------------------------------------------------
Embassy Suites Irvine Orange County Airport
--------------------------------------------------------------------------------
Embassy Suites Santa Xxx
--------------------------------------------------------------------------------
Quality Suites Xxxx Xxxxx Airport
--------------------------------------------------------------------------------
Wyndham Garden Hotel Orange County
--------------------------------------------------------------------------------
Hilton Costa Mesa
--------------------------------------------------------------------------------
Country Inn & Suites by Xxxxx Costa Mesa
--------------------------------------------------------------------------------
9) Dayton North
--------------------------------------------------------------------------------
Residence Inn Dayton North
--------------------------------------------------------------------------------
Comfort Inn Dayton
--------------------------------------------------------------------------------
Hampton Inn Dayton Northwest
--------------------------------------------------------------------------------
Holiday Inn Dayton North
--------------------------------------------------------------------------------
Homewood Suites Fairborn
--------------------------------------------------------------------------------
Residence Inn Xxxxxx Xxxx
--------------------------------------------------------------------------------
10) Dayton South
--------------------------------------------------------------------------------
Residence Inn Dayton South
--------------------------------------------------------------------------------
Doubletree Guest Suite Hotel Dayton
--------------------------------------------------------------------------------
Holiday Inn Dayton Mall
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Homewood Suites Dayton South
--------------------------------------------------------------------------------
11) La Jolla
--------------------------------------------------------------------------------
Wyndham Hotels San Diego North
--------------------------------------------------------------------------------
Radisson Hotel La Jolla
--------------------------------------------------------------------------------
Embassy Suites San Diego La Jolla
--------------------------------------------------------------------------------
Residence Inn San Diego La Jolla
--------------------------------------------------------------------------------
Doubletree Del Mar
--------------------------------------------------------------------------------
Homestead Studio Suites San Diego Xxxx Xxxxx
--------------------------------------------------------------------------------
12) Long Beach
--------------------------------------------------------------------------------
Extended Stay America Long Beach
--------------------------------------------------------------------------------
Residence Inn Long Beach
--------------------------------------------------------------------------------
Holiday Inn Long Beach Airport
--------------------------------------------------------------------------------
Marriott Long Beach
--------------------------------------------------------------------------------
13) Southfield
--------------------------------------------------------------------------------
Homestead Studio Suites Southfield
--------------------------------------------------------------------------------
Hilton Southfield
--------------------------------------------------------------------------------
Residence Inn Southfield
--------------------------------------------------------------------------------
Embassy Suites Southfield
--------------------------------------------------------------------------------
Candlewood Hotel Detroit Farmington Hills
--------------------------------------------------------------------------------
Candlewood Hotel Detroit Southfield
--------------------------------------------------------------------------------
14) St. Louis/Chesterfield
--------------------------------------------------------------------------------
Garden Inn St. Louis Chesterfield
--------------------------------------------------------------------------------
Residence Inn St. Louis Chesterfield
--------------------------------------------------------------------------------
Springhill Suites Chesterfield St. Louis
--------------------------------------------------------------------------------
Hampton Inn St. Louis Chesterfield
--------------------------------------------------------------------------------
Hampton Inn Suites Chesterfield
--------------------------------------------------------------------------------
Homewood Suites Chesterfield
--------------------------------------------------------------------------------
15) St. Louis/Galleria
--------------------------------------------------------------------------------
La Quinta St. Louis Westport
--------------------------------------------------------------------------------
Clubhouse Inns Of America St. Louis
--------------------------------------------------------------------------------
Sheraton Inn West Port Lakeside Chalet
--------------------------------------------------------------------------------
Xxxxxxxxx Xxx Xx. Xxxxx Xxxxxxxx Xxxxx
--------------------------------------------------------------------------------
Summerfield By Wyndham Westport
--------------------------------------------------------------------------------
Holiday Inn St. Louis Westport
--------------------------------------------------------------------------------
Extended Stay America St. Louis Westport
--------------------------------------------------------------------------------
Studio Plus St. Louis Westport
--------------------------------------------------------------------------------
EXHIBIT F
---------
Encumbrances Permitted
1. Residence Inn Atlanta - Buckhead
Lawyers Title Insurance Corporation
Commitment No. 44722.04
Effective Date: August 7, 2001 at 5:00 P.M.
The following items listed on Schedule B - Section 2 are permitted:
Nos. 7-14.
2. Residence Inn Atlanta - Cumberland
Lawyers Title Insurance Corporation
Commitment No. 44721.04
Effective Date: August 24, 2001 at 5:00 P.M.
The following items listed on Schedule B - Section 2 are permitted:
Nos. 7-13.
3. Residence Inn Atlanta/Perimeter - Dunwoody
Lawyers Title Insurance Corporation
Commitment No. 44723.04
Effective Date: August 22, 2001 at 5:00 P.M.
The following items listed on Schedule B - Section 2 are permitted:
Nos. 7, 8 and 10.
4. Residence Inn Boulder
Lawyers Title Insurance Corporation
Case No. 75395
Effective Date: August 20, 2001 at 7:45 A.M.
The following items listed on Schedule B - Section 2 are permitted:
Nos. 7-16.
5. Residence Inn Chicago - Lombard
Lawyers Title Insurance Corporation
Case No. 01-10758
01-19606
Effective Date: July 31, 2001
The following items listed on Schedule B (Special Exceptions) are
permitted: Nos. 2-16.
6. Residence Inn Cincinnati North/Sharonville
Commitment for Title Insurance
Case No. 01Q1182-1
Effective Date: August 30, 2001 at 7:30 A.M.
The following items listed on Schedule B - Section 2 are permitted:
Nos. 3-15; 17.
7. Residence Inn Columbus North
Lawyers Title Insurance Corporation
Order No. L156010
Effective Date: August 30, 2001 at 6:59 A.M.
The following items listed on Schedule B - Section 2 are permitted:
Nos. 10-17.
8. Xxxxxxxxx Xxx Xxxxx Xxxx - Xxxxxxx Xxxxx
Lawyers Title Company
Order No. 0109562-94
Effective Date: August 3, 2001 at 7:30 A.M.
The following items listed on Schedule B are permitted: Nos. 3-17.
9. Residence Inn Dayton North
Lawyers Title Insurance Corporation
Case No. 0107115L
Effective Date: August 23, 2001 at 7:59 A.M.
The following items listed on Schedule B - Section 2 are permitted:
Nos. 3-6.
10. Residence Inn Dayton South
Commitment for Title Insurance
Case No. 10107114L
Effective Date: August 23, 2001 at 7:59 A.M.
The following items listed on Schedule B - Section 2 are permitted:
Nos. 3-10; 12 and 13.
11. Residence Inn La Jolla
Lawyers Title Insurance Company
Order No. 283783-05
Effective Date: August 15, 2001 at 7:30 A.M.
The following items listed on Schedule B are permitted: Nos. 7-19; 21-30.
12. Residence Inn Long Beach
Lawyers Title Company
Order No. 5106033-70
Effective Date: August 22, 2001 at 7:30 A.M.
The following items listed on Schedule B are permitted:
Nos. 2-4; 8; 10-11; 13 and 15.
13. Residence Inn Southfield - Detroit
Lawyers Title Insurance Corporation
Case No. 109515N GRA
N-092170
Effective Date: July 3, 2001 at 8:00 A.M.
The following items listed on Schedule B - Section 2 are permitted:
Nos. 5-11.
14. Residence Inn St. Louis - Galleria
Lawyers Title Insurance Company
Commitment No. 181749
Effective Date: September 4, 2001 at 8:00 A.M.
The following items listed on Schedule B-II are permitted:
Nos. 11-41; 43, 44 and 51.
15. Residence Inn St. Louis - Chesterfield
Lawyers Title Insurance Company
Commitment No. 181750
Effective Date: August 30, 2001 at 8:00 A.M.
The following items listed on Schedule B-II are permitted:
Nos. 11-39; 41 and 43-49.
EXHIBIT H
---------
SUBORDINATION, NON-DISTURBANCE
AND ATTORNMENT AGREEMENT
THIS SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT (the
"Agreement") is made and entered into as of the day of ,
----- --------------
,among: (i) ("Mortgagee"), a
----------- ------------------------------ ------------
corporation having an address at ; (ii)
-------------------------------------
Marriott Residence Inn Limited Partnership ("Owner"), a Delaware limited
partnership having an address at 000 Xxxx Xxxx Xxxxxx, Xxxxxxxx, Xxxxxxxx 00000;
and (iii) Residence Inn by Marriott, Inc. ("Manager"), a Delaware corporation
having an address at 00000 Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000.
R E C I T A L S
---------------
1. Owner and Mortgagee each are party to the Loan Agreement (defined in
Section 1 below).
2. Owner is the owner of the Inn (defined in Section 1 below), and
Mortgagee is the holder of the Mortgage (defined in Section 1 below) that
encumbers the Inn.
3. Owner and AMH Res I Limited Partnership ("Lessee") have entered into
that certain Master Hotel Lease Agreement (defined in Section 1 below) pursuant
to which Owner has leased the Hotel to Lessee.
4. Lessee and Manager have entered into the Management Agreement (defined
in Section 1 below), and in connection therewith, Lessee, Lessor and Manager
have entered into that certain Owner Agreement of even date thereof.
5. Mortgagee and Manager desire to provide for Manager's continued
management of the Inn pursuant to the Management Agreement, notwithstanding any
default by Owner or Lessee under the Loan Agreement, the Mortgage or the
Management Agreement, upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto mutually agree
and covenant as follows:
1. Definitions. Any capitalized term that is not specifically defined in
-----------
this Agreement shall have the meaning set forth in the Management Agreement. The
following terms when used in this Agreement shall have the meanings indicated:
"Foreclosure" shall mean any exercise of the remedies available to the
-----------
holder of the Mortgage, upon a default under the Mortgage, which results in a
transfer of title to or possession of the Inn. The term "Foreclosure" shall
include, without limitation: (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 either ownership or
control of the Owner, by exercise of a stock pledge or otherwise; (v) a transfer
resulting from an order given in a bankruptcy, reorganization, insolvency or
similar proceeding; (vi) 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 (vii) any
similar judicial or non-judicial exercise of the remedies held by the holder of
the Mortgage.
"Foreclosure Date" shall mean the date on which title to or possession of
----------------
the Inn is transferred by means of a Foreclosure.
"Inn" shall mean that certain inn containing approximately [ ]
--- -----------
guest rooms that is located on the site described in Exhibit "A" hereto.
"Loan Agreement" shall mean that certain Loan dated between
-------------- --------------
Owner and Mortgagee.
"Management Agreement" shall mean that certain Amendment and Restatement of
--------------------
Management Agreement, dated , 2002, between Lessee and Manager
-------------
pursuant to which Manager manages the Inn on behalf of Lessee. The term
"Management Agreement," as used in this Agreement, shall include any amendments,
modifications, supplements, replacements or extensions of the Amendment and
Restatement of Management Agreement.
"Master Hotel Lease" shall mean that certain hotel lease dated
------------------ ------------
between Owner and Lessee.
"Mortgage" shall mean that certain mortgage, dated , ,
-------- --------------- ------
in the principal amount of Dollars ($ ), which was
---------------------- --------
recorded in the Office of the Clerk of County, , on
------------ --------------
, , in Book , Page . The Mortgage encumbers the
----------------- ----- ----- -----
Inn. The term "Mortgage," as used in this Agreement, shall include: (i) any
amendments, modifications, supplements, replacements, extensions or refinancings
of the original "Mortgage" that was recorded as set forth above; and (ii) any
existing or future financing by Mortgagee that is wholly or partially secured by
the Inn, including a "blanket mortgage" encumbering properties other than the
Inn.
"Mortgagee" shall mean any of the following: (i) the entity identified as
---------
the "Mortgagee" in the Preamble; (ii) any successors or assigns of that entity;
(iii) any nominee or designee of that
2
entity (or any other entity described in this definition); (iv) any initial or
subsequent assignee of all or any portion of the interest of that entity in the
Mortgage; or (v) any entity that is a participant in the financing secured by
the Mortgage, or otherwise acquires an equitable interest in the Mortgage.
"Subsequent Owner" shall mean any individual or entity that acquires title
----------------
to or possession of the Inn or through a Foreclosure (together with any
successors or assigns thereof), including, without limitation, (i) Mortgagee,
(ii) any purchaser of the Inn from Mortgagee, or any lessee of the Inn from
Mortgagee, or (iii) any purchaser of the Inn at Foreclosure.
2. Subordination of Management Agreement. Subject to the parties'
-------------------------------------
compliance with the provisions of this Agreement, the Management Agreement and
all right, title and interest of Manager in and to the Inn are and shall be
subject and subordinate to the lien of the Mortgage; provided, however, that,
notwithstanding the foregoing subordination, neither Mortgagee nor any
Subsequent Owner shall name Manager as a defendant in any Foreclosure (unless
required by law in order for Mortgagee to obtain complete relief in a judicial
foreclosure proceeding, in which event Manager may be so named subject to the
non-disturbance obligations set forth in Section 3 of this Agreement and
provided that (i) such naming shall not be in derogation of any of the rights of
Manager set forth in this Agreement and (ii) the Management Agreement shall not
be subject to forfeiture or termination, other than in accordance with the terms
thereof, by reason of such suit, action or proceeding or any judgment rendered
therein) or otherwise take steps that are inconsistent with Section 3 of this
Agreement.
3. Non-Disturbance.
---------------
A. In the event any Subsequent Owner comes into possession of or
acquires title to the Inn either at or following a Foreclosure, Mortgagee agrees
(which agreement shall be binding on all Subsequent Owners) that if, at such
time, the Management Agreement has not expired or otherwise been earlier
terminated in accordance with its terms, then Mortgagee and all Subsequent
Owners shall recognize Manager's rights under the Management Agreement and
Manager shall not be disturbed in its right to manage and operate the Inn
pursuant to the provisions of the Management Agreement.
B. If, at the time that a Subsequent Owner acquires its interest by
Foreclosure, the Management Agreement has terminated for any reason whatsoever
or Manager does not have the right to manage or operate the Inn pursuant to the
provisions of the Management Agreement (in each case other than due to an Event
of Default by Manager under the Management Agreement), Subsequent Owner and
Manager shall immediately enter into a replacement agreement on the same terms
and conditions as the Management Agreement, except that the term of such
replacement agreement shall start from the date the Management Agreement
terminates (or, as applicable, the date on which Manager no longer has the right
to manage or operate the Inn pursuant to the provisions of the Management
Agreement) and shall
3
continue for the balance of the term that would have otherwise remained under
the Management Agreement.
4. Attornment. Manager agrees that, upon a Foreclosure of the Mortgage,
----------
provided that (subject to the provisions of Section 3 above) the Management
Agreement has not expired or otherwise been earlier terminated in accordance
with its terms, Manager shall attorn to any Subsequent Owner and shall remain
bound by all of the terms, covenants and conditions of the Management Agreement,
for the balance of the remaining term thereof (and any renewals thereof that may
be effected in accordance with the Management Agreement) with the same force and
effect as if such Subsequent Owner were the "Owner" under the Management
Agreement; provided, however, that Manager shall be under no such obligation to
so attorn: (i) if such Subsequent Owner would not qualify as a permitted
transferee under Section 18.01 of the Management 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) days after the date of such acquisition of title to the
Inn), assumes all of the obligations of the "Owner" under the Management
Agreement that arise from and after the Foreclosure Date (or such later date of
acquisition of title to the Inn), pursuant to a written assumption agreement
that is reasonably acceptable to Manager and that shall be delivered to Manager.
Upon the written request of Mortgagee, Manager shall periodically execute and
deliver a statement, in a form reasonably satisfactory to Mortgagee, reaffirming
Manager's obligation to attorn as set forth in this Section 4.
5. Notice and Opportunity to Cure.
------------------------------
A. In the event of a Default by Lessee in the performance or
observance of any of the terms and conditions of the Management Agreement, and
in the event that Manager gives written notice thereof to Lessee pursuant to
Article XV of the Management Agreement, Manager shall also give a duplicate copy
(herein referred to as the "First Notice") of such notice to Mortgagee, in
accordance with Section 8 of this Agreement. In addition, in the event that such
Default is not cured within the applicable cure period under Article XV of the
Management Agreement, and Manager intends to exercise its remedy of terminating
the Management Agreement, Manager shall send a second notice (the "Second
Notice") to Mortgagee, in accordance with Section 8 hereof, stating Manager's
intention to terminate the Management Agreement. Manager shall forbear from
taking any action to terminate the Management Agreement for a period of thirty
(30) days after the service of the First Notice, and for an additional period of
thirty (30) days after the service of the Second Notice (if such Second Notice
is required, as set forth above).
B. No notice given by Manager to Lessee shall be effective as a notice
under Article XV of the Management Agreement unless the applicable duplicate
notice to Mortgagee that is required under Section 5.A hereof (either the First
Notice or the Second Notice, as the case may be) is given to Mortgagee in
accordance with this Agreement. It is understood that any failure by Manager to
give such a duplicate notice (either the First Notice or the Second Notice,
4
as the case may be) to Mortgagee shall not be a default by Manager either under
this Agreement or under the Management Agreement, but rather shall operate only
to void the effectiveness of any such notice by Manager to Lessee under Article
XV of the Management Agreement.
C. Manager agrees to accept performance by Mortgagee with the same
force and effect as if the same were performed by Lessee, in accordance with the
provisions and within the cure periods prescribed in the Management Agreement
(except that Mortgagee shall have such additional cure periods, not available to
Lessee, as are set forth in Section 5.A hereof).
D. Except as specifically limited in the foregoing paragraphs, nothing
contained herein shall preclude Manager from exercising any of its rights or
remedies against Lessee with respect to any default by Lessee under the
Management Agreement.
6. Notice to Manager. Mortgagee shall deliver to Manager a copy of any
-----------------
notice of default under the Mortgage that Mortgagee sends to Owner.
7. Assignment of Management Agreement. Owner has, pursuant to the
----------------------------------
applicable provisions of the Mortgage, collaterally assigned to Mortgagee, as
additional security for the indebtedness evidenced by the Mortgage, all of
Owner's right, title and interest in and to the Management Agreement, including
the right to distributions payable to Lessee pursuant thereto. Manager hereby
acknowledges that it has been given a copy of the foregoing assignment. Owner
and Manager hereby acknowledge and agree that, upon the occurrence of a default
under the Loan Agreement or Mortgage, Mortgagee may (from time to time) give
Manager a notice or notices directing Manager to pay to Mortgagee subsequent
distributions under Article V or other applicable provisions under the
Management Agreement that would otherwise be payable to Lessee, and Manager
agrees to comply with any such notice. Manager shall continue to make payments
in compliance with any such notice from Mortgagee until Manager receives written
instructions to the contrary from Mortgagee. Owner and Lessee hereby give
consent to any such payments by Manager to Mortgagee that are in compliance with
any such notice. The foregoing consents by Owner and Lessee shall be deemed to
be irrevocable until the entire debt secured by the Mortgage has been
discharged, as evidenced either by the recordation of a satisfaction or release
executed by Mortgagee, or by the delivery of a written statement to that effect
from Mortgagee to Manager. It is understood that Manager shall comply with the
direction set forth in any such notice without any necessity to investigate
Mortgagee's reasons for sending such notice, or to confirm whether or not Owner
is in fact in default under the terms of the Loan Agreement or Mortgage.
8. Notices. Notices, statements and other communications to be given under
-------
the terms of this Agreement shall be in writing and delivered by hand against
receipt or sent by certified or registered mail, postage prepaid, return receipt
requested, or by Federal Express (or other nationally-recognized overnight
courier), marked for next business day delivery, with delivery charges paid by
the sender:
5
To Mortgagee:
------------
To Owner:
--------
Marriott Residence Inn Limited Partnership
c/o Apple Hospitality Two, Inc.
000 Xxxx Xxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxx
To Lessee:
---------
AHM Res I Limited Partnership
c/o Apple Hospitality Management, Inc.
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Xxxxx X. Xxxxxx
and, if to Owner or Lessee, with a copy,
which shall not constitute notice, to:
Jenkens & Xxxxxxxxx, P.C/
0000 Xxxx Xx., xxxxx 0000
Xxxxxx, Xxxxx 00000
Attn: Xxxxxx X. Xxxxx
To Manager:
----------
Residence Inn by Marriott, Inc.
c/o Marriott International, Inc.
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Law Department, 52/923
Senior Operations Attorney
FAX: 301/000-0000
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 shall be deemed
to have been served as of five (5) days
6
after said posting for purposes of establishing that the sending party complied
with the applicable time limitations set forth herein, but shall not be binding
on the addressee until actually received. Any such notice which is properly sent
by Federal Express (or other nationally-recognized overnight courier) shall be
deemed to have been served as of the business day after being sent for purposes
of establishing that the sending party complied with the applicable time
limitations set forth herein, but shall not be binding on the addressee until
actually received.
9. Estoppel Certificates. Manager shall, at any time and from time to time
---------------------
upon not less than thirty (30) days' prior written notice from Mortgagee,
execute, acknowledge and deliver to Mortgagee, or to any third party specified
by Mortgagee, a statement in writing: (a) certifying (i) that the Management
Agreement is unmodified and in full force and effect (or if there have been
modifications, that the same, as modified, is in full force and effect and
stating the modifications) and (ii) the date through which the management fees
due under the Management Agreement have been paid; (b) stating whether or not to
the best knowledge of Manager (i) there is a continuing default by Lessee in the
performance or observance of any covenant, agreement or condition contained in
the Management Agreement, or (ii) there shall have occurred any event that, 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 Manager may have
knowledge; and (c) stating such other information as Mortgagee may reasonably
request. Such statement shall be binding upon Manager and may be relied upon by
Mortgagee and/or such third party specified by Mortgagee as aforesaid.
10. Confirmatory Documentation.
--------------------------
The provisions of Section 2, Section 3 and Section 4 of this Agreement are
and shall be fully effective and binding between the parties, upon the
occurrence of the conditions set forth in such Sections, without the execution
of any further instruments by any party. Notwithstanding the foregoing, each
party to this Agreement shall have the right (from time to time, for so long as
this Agreement is in effect) to request either or both of the other parties to
execute documentation (in form reasonably satisfactory to all signing parties)
confirming (if true) that such conditions (if any) have been satisfied and that
the provisions of Section 2, Section 3 and/or Section 4 hereof have been
implemented. In such event, each of the parties that are requested to execute
such confirmatory documentation agrees to execute it within a reasonable period
of time (not to exceed thirty (30) days) after its receipt of such request.
11. Miscellaneous.
-------------
A. This Agreement may be executed in a number of identical
counterparts. If so executed, all counterparts shall, collectively, constitute
one agreement, but in making proof of this Agreement, it shall not be necessary
to produce or account for more than one such counterpart, provided that xerox or
facsimile copies of all signatures are produced.
7
B. The terms and conditions of this Agreement shall inure to the
benefit of, and be binding upon, the respective successors, heirs, legal
representations and assigns of each of the parties hereto.
C. Notwithstanding anything herein to the contrary, the commencement
and prosecution of Foreclosure proceedings under the Mortgage is a matter
entirely within the discretion of Mortgagee.
D. The use of the neuter gender in this Agreement shall be deemed to
include any other gender, and words in the singular number shall be held to
include the plural, when the sense requires.
E. In the event the Management Agreement shall be amended, modified or
supplemented, the Management Agreement, as so amended, modified or supplemented,
shall continue to be subject to the provisions of this Agreement without the
necessity of any further act by the parties hereto.
F. The provisions of this Agreement shall not be modified, amended,
waived, discharged or terminated except by a written document signed by all of
the parties hereto.
G. This Agreement and its validity, interpretation and enforcement
shall be governed by the laws of the state in which the Inn is located.
H. Captions of Sections herein are inserted only for convenience and
are in no way to be construed as a limitation on the scope of the particular
Sections to which they refer.
I. If any term, covenant or condition of this Agreement is held to be
invalid, illegal or unenforceable in any respects, all other terms and
conditions of this Agreement shall remain in full force and effect.
J. The waiver by any party of the performance of any covenant,
condition or promise shall not invalidate this Agreement and shall not be
considered a waiver of any other covenant, condition or promise. No such waiver
shall constitute a waiver of the time for performing any other act or identical
act required to be performed at a later time. The exercise of any remedy
provided in this Agreement shall not constitute a waiver of any remedy provided
by law or in equity, and the provision in this Agreement of any remedy shall not
exclude any other remedy unless such remedy is expressly excluded hereby.
[Signatures are on next page.]
8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Attest: ("Mortgagee"),
--------------------------------
a corporation
--------------------------------
By:
------------------------- -----------------------------
Assistant Secretary Title:
--------------------------
Attest: RESIDENCE INN BY MARRIOTT, INC. ("Manager"),
a Delaware corporation
By:
------------------------- ---------------------------------
Assistant Secretary Title: Vice President
Attest/Witness: ("Owner"),
----------------------------------
a
-------------------------
By:
------------------------- ---------------------------------
[insert acknowledgments, in the form required for recordation in the
jurisdiction in which the Inn is located, for the individuals signing
on behalf of Mortgagee, Owner and Manager]
9
EXHIBIT "A"
TO SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT
Legal Description of the Site
-----------------------------
10
