EXHIBIT 10.9
NONCOMPETITION AGREEMENT
THIS NONCOMPETITION AGREEMENT ("Agreement") is made and entered into as of
_______________, 1998, between and among HOST MARRIOTT CORPORATION, a Delaware
corporation ("HMC"), HOST MARRIOTT, L.P., a Delaware limited partnership (the
"Operating Partnership," together with HMC "Host"), CRESTLINE CAPITAL
CORPORATION, a Delaware corporation ("CCC"), ________________, a Delaware
corporation ("NCS1") and _________, a Delaware corporation ("NCS2," together
with NCS1, "NCS"). As used in this Agreement, the terms "Host," "CCC" and "NCS"
shall mean Host, CCC and NCS, as the case may be, and their respective
Subsidiaries and Affiliates (as such terms are defined in Section 1).
WHEREAS, in connection with (i) the lease of substantially all of the full-
service hotels owned by Host, and the sublease of certain limited-service hotels
leased by Host from third parties, to CCC (each, a "Hotel Lease" and, together,
the "Hotel Leases") and (ii) the lease by NCS to CCC of certain furniture,
furnishing, fixtures, soft goods, case goods, equipment and other similar items
for use in the hotels ("FF&E") under certain leases entered into in connection
with the Hotel Leases (the "FF&E Leases"), in each case as part of the REIT
Conversion (as defined in Section 1), Host, CCC and NCS have agreed to enter
into this Agreement; and
WHEREAS, as of the date hereof, CCC's principal business consists of owning
the Senior Living Community Business, the Hotel Leasing Business, the Asset
Management Services Business and the Swissotel Management Company Interest (as
such terms are defined in Section 1); and
WHEREAS, as of the date hereof, Host's principal business consists of
owning the Host Business and the Non-Controlled Subsidiary Interests (as such
terms are defined in Section 1).
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, in the Hotel Leases and the FF&E Leases, and in the related
agreements entered into pursuant to or related to the Hotel Leases or the FF&E
Leases, and for other valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, Host, CCC, and NCS agree as follows:
ARTICLE ONE
DEFINITIONS
1. Definitions.
The following terms when used herein shall have the meanings set forth
below:
"Affiliates" shall mean any Person directly or indirectly controlling or
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controlled by, or under direct or indirect common control with, Host, NCS or
CCC, as the case may be. For purposes of this definition, "control," when used
with respect to any Person, means the power to direct the management and
policies of such Person, directly or indirectly, through the ownership of voting
securities, by contract, or otherwise. Notwithstanding the foregoing, (i)
Host's Affiliates shall not include CCC, any Non-Controlled Subsidiary or
Marriott International, Inc., or their respective Subsidiaries or Affiliates,
(ii) CCC's Affiliates shall not include Host, any Non-Controlled Subsidiary or
Marriott International, Inc., or their respective Subsidiaries or Affiliates,
(iii) NCS1's Affiliates shall not include Host, CCC, Marriott International,
Inc. or any other Non-Controlled Subsidiary, or their respective Subsidiaries or
Affiliates and (iv) NCS2's Affiliates shall not include Host, CCC, Marriott
International, Inc. or any other Non-Controlled Subsidiary, or their respective
Subsidiaries or Affiliates.
"Asset Management Services Business" means the provision of asset
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management services to owners of hotels, including without limitation, (i)
administration of contracts, (ii) review of operating and financial results,
financial statements, budgets, revenue projections and capital spending plans
with hotel managers and owners, (iii) administration of facility loans, (iv)
negotiation of third party management arrangements, (v) assessment of market
conditions, (vi) negotiation of regulatory issues and (vii) provision of advice
and information in connection with acquisitions or dispositions of hotels.
"Carried Interest" shall mean with respect to any Person, any right of
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another Person (by reason of its status as a general partner, sponsor or
otherwise) to receive a specific portion of the earnings or assets of such
Person once other investors in such Person have received an agreed upon return
on their investment in such Person.
"CCC" shall have the meaning set forth in the first paragraph of this
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Agreement.
"CCC Managed Hotel" shall have the meaning given to it in subparagraph (b)
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in the definition of "Hotel Leasing Business".
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"Compete" shall mean (i) to conduct or participate or engage in, or bid
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for, or otherwise pursue, a business, whether as a principal, sole proprietor,
partner, stockholder, or agent of, or consultant or lender to, or manager for,
any Person or in any other capacity, or (ii) have any ownership or financial
interest in any Person or business which conducts, participates or engages in,
or bids for, or otherwise pursues, a business, whether as a principal, sole
proprietor, partner, stockholder, or agent of, investor in, or consultant or
lender to or manager for, any Person or in any other capacity.
"FF&E" shall have the meaning set forth in the second paragraph of this
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Agreement.
"FF&E Leases" shall have the meaning set forth in the second paragraph of
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this Agreement.
"Franchise Business" shall mean the ownership or operation of any single or
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multiple full-service hotel management or franchise system operating under one
or more common brand names. Without otherwise expanding the definition of
"Franchise Business," the term "Franchise Business" shall not include (i) the
operation of hotels, whether owned by CCC or otherwise, pursuant to a franchise
or similar license agreement with the owner or operator of the brand name as
long as such owner or operator is not CCC, including the operation of full-
service hotels owned by owners other than CCC pursuant to leases on management
agreements, (ii) any business or activity with respect to limited-service hotels
or (iii) any asset management activities undertaken with respect to hotels for
the owners of such hotels.
"Host" shall have the meaning set forth in the first paragraph of this
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Agreement.
"Host Business" shall mean the business of owning full-service hotels,
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including without limitation the Initial Hotels, acquiring additional existing
and newly developed full-service hotels, developing and constructing for
ownership by Host full-service hotels, and improving and expanding the Initial
Hotels and any additional full-service hotels in which Host acquires an
interest. The term "Host Business" shall not include, without limitation, (i)
any business or other activity with respect to limited-service hotels or (ii)
any business or other activity with respect to full-service hotels other than
the acquisition, development or ownership of full-service hotels or equity
interests therein.
"Host REIT" shall mean HMC Merger Corporation, a Maryland corporation into
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and with which Host will merge as part of the REIT Conversion.
"Hotel Lease" shall have the meaning set forth in the second paragraph of
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this Agreement.
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"Hotel Leasing Business" means the business of leasing, as the tenant or
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subtenant, limited-service or full-service hotel properties and operating or
franchising, as the operator or franchisee, such properties, either directly or
through a contractual arrangement with a third party, provided, however, that
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a lease (or sublease) of a full-service hotel by CCC shall not be considered a
permitted part of the Hotel Leasing Business unless the following conditions
shall apply:
(a) If the lease is with respect to a full-service hotel and CCC will not
be the operator or manager of such hotel (other than through a contractual
arrangement with a third-party manager),
(i) the lessor must be a Publicly-Traded REIT or a Permitted
Private REIT and the rental payments made by CCC to the lessor must
qualify as "rents from real property" within the meaning of Section
856(d) of the Code; and
(ii) the estimated economic benefit to be derived by the
tenant or subtenant, as applicable, from the lease during the period
commencing on the lease commencement date and ending on the initial
lease termination date, or, in the case of any extension or renewal
of any lease which may be exercised solely at the lessee's option
(other than renewals or extensions which provide for rent at then
prevailing fair market rental rates), the termination of the
extension or renewal period (the "Lease Term"), shall not exceed
fifteen percent (15%) of the estimated total economic benefit to be
generated by the leased property during the Lease Term, computed as
described in clause (iii) below;
(iii) For purposes of clause (ii) above:
(A) the estimated economic benefit to be derived by the
tenant or subtenant during the Lease Term shall equal the
present value of the projected net operating income to be
received by the tenant or subtenant, respectively, from the
leased property for the Lease Term (after deduction for
rental payments but before deduction for debt service
and including any residual payments to be received by the
tenant or subtenant at any time during the Lease Term
(including on the last day thereof)), calculated by applying a
discount factor which is appropriate in light of the leased
property's condition and overall market conditions at the time
of determination of such economic value and the risk to the
tenant or subtenant associated with the proposed lease
structure; and
(B) the estimated total economic benefit to be derived from
the leased property during the Lease Term shall equal the sum
of (1) the present value (calculated by applying a discount
factor which is appropriate in light of the leased property's
condition and overall market conditions at the time of
determination of such economic value) of the projected total
net operating income from the leased property for the Lease
Term (before any deductions for rental payments to be made
under the lease and before any deductions for debt service, and
in the event the hotel is a CCC Managed Hotel, before any
deductions for management fees paid to CCC) and (2) the present
value (calculated by applying a discount factor which is
appropriate in light of the leased property's condition and
overall market conditions at the time of determination of such
economic value) of the projected residual value of the leased
property at the expiration of the Lease Term, computed by
applying a capitalization rate which is appropriate in light of
the leased property's expected condition and overall market
conditions as of such date to the projected annual net
operating income (before any deductions for debt service, rent,
and in the event the hotel is a CCC Managed Hotel, management
fees paid to CCC) as of the last day of the Lease Term (the
"Leased Hotel Present Value").
All of the various determinations of net operating
income from the leased property provided for above, together
with the various adjustments thereto, and the discount rates
and capitalization rates to be applied in making the
computations provided for above shall be as reasonably
determined by CCC (subject to the review and approval of Host
in its reasonable judgment and to the Section 5.1 of this
Agreement in the event that there is a disagreement between
Host and CCC with respect thereto).
(b) If the lease is with respect to a full-service hotel and CCC will
be the operator or manager of the hotel (other than through a contractual
arrangement with a third-party manager) (a "CCC Managed Hotel"), the lessor may
be any Person, but the estimated economic benefit to be derived by the CCC from
the lease and any related management contract (including both management fees,
including any base incentive and other similar management fees, and any
operating profit to be retained by the tenant or subtenant in such capacity)
during the Lease Term, computed as described in clause (i) below, shall not
exceed either twenty-five percent (25%) of the estimated Leased Hotel Present
Value, or fifty percent (50%) of the Leased Hotel Equity Value of such hotel,
computed as described in clause (ii) below:
(i) For purposes of subparagraph (b) above, the estimated
economic benefit to be derived by CCC during the Lease Term shall
equal the present value of the sum of (1) the projected net operating
income to be received by the tenant or subtenant, respectively, from
the leased property for the Lease Term (after deduction for rental
payments but before deduction for debt service and including any
residual payments to be received by the tenant or subtenant at any
time during the Lease Term (including on the last day thereof)) and
(2) the projected management fees (including base management fees,
incentive management fees, and other amounts payable to CCC),
calculated by applying a discount factor which is appropriate in
light of the leased property's condition and overall market
conditions at the time of determination of such economic value and
the risk to the tenant or subtenant associated with the proposed
lease structure; and
(ii) For purposes of subparagraph (b) above, the equity value
of such hotel shall be the Hotel Present Value of such hotel less the
outstanding debt with respect to such hotel at the commencement of
the Lease Term (the "Leased Hotel Equity Value.")
All of the various determinations of net operating income from
the leased property provided for above, together with the various
adjustments thereto, and the discount rates and capitalization rates
to be applied in making the computations provided for above shall be
as reasonably determined by CCC (subject to the review and approval
of Host in its reasonable judgment and to the Section 5.1 of this
Agreement in the event that there is a disagreement between Host and
CCC with respect thereto).
Without otherwise expanding the definition of "Hotel Leasing Business," the
term "Hotel Leasing Business" shall not, as to the activities of any Person,
include the Hotel Management Business when undertaken with respect to a hotel,
whether as to management activities by such Person on behalf of itself or on
behalf of others, or such person has not entered into any lease relationship
with respect to such hotel.
"Hotel Management Business" means the business of managing, operating or
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franchising limited-service or full-service hotel properties on behalf of third
parties with respect to matters incident to the operation of such properties
including, without limitation, management services with respect to food,
beverages, housekeeping, laundry, vending, plant and equipment operation and
maintenance, grounds care, gift or merchandise shops within such properties,
reservations, sales and marketing services, conference and meeting facilities,
health rooms, swimming
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and other sports facilities and all other services related to the operation of
such hotel properties.
"Initial Hotels" shall mean the full-service hotels operated primarily
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under the Marriott, Xxxx-Xxxxxxx, Four Seasons, Swissotel and Hyatt brand names
in which Host will initially have controlling interests or own outright
following the REIT Conversion, as set forth on Schedule A hereto.
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"Lease Term" shall have the meaning set forth in the definition of "Hotel
Leasing Business."
"Leased Hotel Equity Value" shall have the meaning given to it in
subsection (b)(ii) of the definition of "Hotel Leasing Business" (computed as of
the time specified in the specific provision of this Agreement where the term is
being used).
"Leased Hotel Present Value" shall have the meaning given to it in
subsection (a)(iii)(B) of the definition of "Hotel Leasing Business" (computed
as of the time specified in the specific provision of this Agreement where the
term is being used).
"Managed Hotel Equity Value" shall mean with respect to any CCC
Managed Hotel the Managed Hotel Present Value of such hotel less the outstanding
debt with respect to such hotel at the commencement of the Management Agreement
Term (computed as of the time specified in the specific provision of this
Agreement where the term is being used).
"Managed Hotel Present Value" shall have the meaning given to it in
subsection (ii) of the definition of "Permitted Full-Service Management
Agreement" (computed as of the time specified in the specific provision of the
agreement where the term is being used).
"Merger" shall mean the merger of Host with and into Host REIT as part of
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the REIT Conversion.
"NCS" shall have the meaning set forth in the first paragraph of this
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Agreement.
"NCS1" shall have the meaning set forth in the first paragraph of this
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Agreement.
"NCS2" shall have the meaning set forth in the first paragraph of this
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Agreement.
"1998 Noncompetition Agreement" shall have the meaning set forth in Section
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4.1.B. hereof.
"Non-Controlled Subsidiary" shall mean any taxable corporation, including
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without limitation NCS, in which the Operating Partnership owns, directly or
through a Subsidiary, more than fifty percent (50%) of the economic interest but
which the Operating Partnership, either directly or through a Subsidiary, does
not control. For purposes of this definition, "control," when used with respect
to any Non-Controlled Subsidiary, means the power to direct the management and
policies of such Non-Controlled Subsidiary, directly or indirectly, through the
ownership of voting securities, by contract, or otherwise.
"Non-Controlled Subsidiary Interests" shall mean the economic interests
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held by the Operating Partnership, either directly or through a Subsidiary, in
the Non-Controlled Subsidiaries.
"Operating Partnership" shall have the meaning set forth in the first
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paragraph of this Agreement.
"Permitted Full-Service Lease" shall mean either a Permitted REIT Lease or
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a Permitted Operating Lease.
"Permitted Full-Service Management Agreement" shall mean a management
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agreement entered into by CCC (or to be entered into by CCC) with respect to a
full-service hotel where CCC will be the manager but CCC will not also be the
lessee with respect to such full-service hotel and with respect to which the
estimated economic benefit to be derived by CCC from such management contract
(including any base, incentive and other similar management fees) during period
commencing on the management agreement commencement date and ending on the
initial management agreement termination date, or, in the case of any extension
or renewal of any management agreement which may be exercised solely at the
manager's option (other than renewals or extensions which provide for management
fees at then prevailing fair market rates), the termination of the extension or
renewal period (the "Management Agreement Term"), computed as described in
clause (i) below, shall not exceed twenty percent (20%) of the estimated Managed
Hotel Present Value (as defined below):
(i) The estimated economic benefit to be derived by
CCC during the Management Agreement Term shall equal the
present value of the projected management fees (including base
management fees, incentive management fees, and other amounts
payable to CCC), calculated by applying a discount factor
which is appropriate in light of overall market conditions at
the time of determination of such economic value and the risk
to the manager associated with the proposed management
agreement fee structure; and
(ii) The term "Managed Hotel Present Value" means the
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estimated total economic benefit to be derived from the
managed property during the Management Agreement Term, which
shall equal the sum of (1) the present value (calculated by
applying a discount factor which is appropriate in light of
the managed property's condition and overall market conditions
at the time of determination of such economic value) of the
projected total net operating income from the managed property
for the Management Agreement Term (before any deductions for
rental payments to be made under any lease, before any
deductions for debt service, and before any deduction for any
management fees paid to CCC) and (2) the present value
(calculated by applying a discount factor which is appropriate
in light of the managed property's condition and overall
market conditions at the time of determination of such
economic value) of the projected residual value of the managed
property at the expiration of the Management Agreement Term,
computed by applying a capitalization rate which is
appropriate in light of the managed property's expected
condition and overall market conditions as of such date to the
projected annual net operating income (before any deductions
for debt service, rent, and any management fees paid to CCC)
as of the last day of the Management Agreement Term (the
"Managed Hotel Present Value").
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All of the various determinations of net operating
income from the managed property provided for above, together
with the various adjustments thereto, and the discount rates
and capitalization rates to be applied in making the
computations provided for above shall be as reasonably
determined by CCC (subject to the review and approval of Host
in its reasonable judgment and to Section 5.1 of this
Agreement in the event that there is a disagreement between
Host and CCC with respect thereto).
"Permitted Operating Lease" shall mean a lease which satisfies the criteria
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set forth in subparagraph (b) to the proviso in the definition of "Hotel
Leasing Business."
"Permitted Private REIT" shall mean an entity that would be a Publicly-
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Traded REIT but for the fact that shares of capital stock or other units of
equity interests of the REIT that are generally entitled to vote for the
election of directors or similar managers are not listed or admitted to trading
on the New York Stock Exchange or the American Stock Exchange or designated for
quotation on the Nasdaq National Market, or any successor to any of the
foregoing, so long as CCC's lease or sublease of a full-service hotel from such
entity and any other investment in or with respect to such full-service hotel
would not cause CCC to violate Section 3.D.
"Permitted REIT Lease" shall mean a lease which satisfies the criteria
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set forth in subparagraph (a) to the proviso in the definition of "Hotel Leasing
Business" and that is not a Permitted Operating Lease.
"Person" shall mean any person, firm, corporation, general or limited
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partnership, association, or other entity.
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"Primary Host Lessee" shall mean the lessee of more than 25% by number of
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the Initial Hotels.
"Publicly-Traded REIT" shall mean a REIT whose shares of capital stock or
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other units of equity interests that are generally entitled to vote for the
election of directors or similar managers are listed or admitted to trading on
the New York Stock Exchange or the American Stock Exchange or designated for
quotation on the Nasdaq National Market, or any successor to any of the
foregoing. The term "Publicly-Traded REIT" shall include any Person whose
operations are consolidated with those of a Publicly-Traded REIT under generally
accepted accounting principles or in which the Publicly-Traded REIT otherwise
owns, directly or indirectly, a twenty-five percent (25%) or greater equity
interest so long as, in either case, the Publicly-Traded REIT must take the
assets and operations of such Person into account in determining whether it
satisfies the income and asset requirements of Section 856(c) of the Code.
"REIT" shall mean "real estate investment trust" within the meaning of
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Sections 856 through 859 of the Code.
"REIT Conversion" shall mean the reorganization of Host's business
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operations to permit Host REIT to qualify as a REIT, including the Merger and
the other transactions described in the Prospectus/Consent Solicitation that is
part of the Registration Statement filed with the Securities and Exchange
Commission by Host REIT and the Operating Partnership on Form S-4 (File
No. 333-55807).
"Senior Living Community Business" shall mean, as to any Person, the
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business of acquiring and owning existing and newly developed retirement
community properties, improving and expanding the retirement community
properties owned and acquired by such Person and/or operating retirement
community properties for other owners thereof (whether pursuant to a management
agreement, operating agreement, lease, license or otherwise).
"Subsidiaries" shall mean corporations or other entities which are more
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than ten percent (10%) owned, directly or indirectly, by Host, CCC or NCS, as
the case may be, and partnerships in which Host, CCC or NCS, as the case may be,
or a Subsidiary thereof, is a general partner. Notwithstanding the foregoing,
Host's Subsidiaries shall not include NCS or any other Non-Controlled Subsidiary
which becomes a party to this Agreement or otherwise agrees to be bound by terms
which are substantially the same as those set forth in Section 2.
"Swissotel Management Company Interest" means CCC's 25% interest in
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Swissotel Management (USA) L.L.C.
"Transfer" shall mean the sale, conveyance, disposal of or other transfer
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of ownership, title or other interest.
ARTICLE TWO
NONCOMPETITION WITH RESPECT TO THE SENIOR LIVING
COMMUNITY BUSINESS
2. Certain Restrictions on Host and NCS.
A. Except as provided in Section 2.C., from the date hereof until December
31, 2003, neither Host nor NCS shall Compete in the Senior Living Community
Business.
B. Except as provided in Section 2.C., from the date hereof until the
earlier of (i) December 31, 2008 and (ii) the date on which CCC is no longer the
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Primary Host Lessee, neither Host nor NCS shall Compete in the Hotel Leasing
Business.
C. Neither Section 2.A. nor Section 2.B. shall prohibit Host or NCS from
engaging in the following activities:
(i) the ownership of any equity interest in any Person which Competes
in the Senior Living Community Business or the Hotel Leasing Business if
Host or NCS, as the case may be, directly or indirectly, is the beneficial
owner of not more than five percent (5%) of such Person's outstanding
equity interests, including for such purpose any Carried Interest in such
Person, whether or not earned (based upon the maximum percentage applicable
for such Carried Interest) and cannot, by reason of the ownership of such
equity interest or otherwise, have any right to control such Person
(including, but not limited to, control resulting from a general partner
interest, special rights as a manager of a limited liability company or
similar entity, contractual or other rights to representation on the board
of such Person that are disproportionate to Host's or NCS', as the case may
be, equity ownership in such Person, disproportionate voting rights with
respect to Host's or NCS', as the case may be, equity position, or veto or
approval rights as to major decisions);
(ii) the acquisition (by merger, stock purchase or otherwise) of, or
the purchase of assets from, any Person who Competes in the Senior Living
Community Business or the Hotel Leasing Business if the fair market value,
on the acquisition date, of the acquired assets which relate to activities
which Compete with the Senior Living Community Business or the Hotel
Leasing Business, as the case may be, do not constitute more than ten
percent (10%) of the total purchase price for the transaction; or
(iii) (A) the leasing, directly or indirectly, by Host from NCS or by
NCS from Host of limited-service or full-service hotel properties, (B) the
leasing, directly or indirectly, by Host of properties pursuant to the
leases listed on Schedule B attached hereto, including any renewals or
extensions thereof, or (C) the leasing, directly or indirectly, by Host
from any other Person of limited-service or full-service hotel properties
where Host has a direct or indirect equity interest in such Person
sufficient for such Person to be consolidated with Host for financial
accounting purposes.
D. Each of Host and NCS agrees that, from the date hereof until December
31, 2000, it will not solicit, hire or induce the termination of employment of,
a person who is employed by CCC at the time of, or was employed by CCC at any
time within three months prior to, such solicitation, hiring or inducement and
whose grade is, or, if applicable, was at the time of the termination of his
employment with CCC, the equivalent of Host's current grade 56 or above.
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ARTICLE THREE
NONCOMPETITION WITH RESPECT TO THE HOST BUSINESS
3. Certain Restrictions on CCC.
A. Except as provided in Section 3.B., from the date hereof until the
earlier of (i) December 31, 2008 and (ii) the date on which CCC is no longer the
Primary Host Lessee, (a) CCC shall not Compete in the Host Business, and (b) CCC
shall not, without the consent of Host, in its sole and absolute discretion,
either enter into any leases with respect to full-service hotels other than
Permitted Full-Service Leases or enter into any management agreements with
respect to full-service hotels other than Permitted Full-Service Management
Agreements.
B. Section 3.A. shall not prohibit CCC from engaging in the following
activities:
(i) any activity (including any investments) undertaken by CCC that
is necessary to and reasonably connected with its business of acting as a
lessee of full-service hotels, including acquisitions of property and
assets used in such hotels that are incidental to CCC's role as lessee
(such as "hotel working capital" and "furniture, fixtures and equipment" in
a manner similar to that contemplated under the Hotel Leases) but excluding
loans to or equity investments in the lessor or any of its Affiliates
except to the extent permitted under clause (v) below;
(ii) any activity undertaken by CCC with respect to the Asset
Management Services Business;
(iii) the ownership of any equity interest in any Person which
Competes in the Host Business if CCC, directly or indirectly, is the
beneficial owner of not more than five percent (5%) or more of such
Person's outstanding equity interests, including for such purpose any
Carried Interest in such Person, whether or not earned (based upon the
maximum percentage applicable for such Carried Interest) and cannot, by
reason of the ownership of such equity interest or otherwise, have any
right to control such Person (including, but not limited to, control
resulting from a general partner interest, special rights as a manager of a
limited liability company or similar entity, contractual or other rights to
representation on the board of such Person that are disproportionate to
CCC's equity ownership in such Person, disproportionate voting rights with
respect to CCC's equity position, or veto or approval rights as to major
decisions);
(iv) the acquisition (by merger, stock purchase or otherwise) of, or
the purchase of assets from, any Person who Competes in the Host Business
if the fair market value, on the acquisition date, of the acquired assets
which
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relate to activities which Compete with the Host Business do not constitute
more than ten percent (10%) of the total purchase price for the
transaction; or
(v) the provision of financing for any full-service hotel (whether
directly or by participation in a lender syndicate) so long as the
following conditions are met:
(A) on the date on which CCC becomes contractually committed to
provide such financing (1) CCC is (or in connection with such
financing will become) the lessee of such hotel (pursuant to a lease
which is a Permitted Full-Service Lease), (2)CCC is (or in
connection with such financing will become) the manager of such hotel
(pursuant to a management agreement which is a Permitted Full-Service
Management Agreement) or (3) CCC has a bona fide contract to become
the lessee of such hotel (pursuant to a lease which would be a
Permitted Full-Service Lease) or the manager of such hotel (pursuant
to a management agreement which would be a Permitted Full-Service
Management Agreement) upon completion of the construction and
development or stabilization of such hotel and upon satisfaction of
reasonable conditions; and either
(B) if the Permitted Full-Service Lease will not be a Permitted
Operating Lease, the following conditions are met:
(1) if such financing is in the form of a loan, (x) the present
value of CCC in such financing (determined applying the principles set
forth in clause (E) below) does not exceed fifteen percent (15%) of
the Leased Hotel Present Value of the hotel which is subject to such
financing, each as determined as of, on the date on which CCC becomes
contractually committed to provide such financing, and (y) such loan
does not include any equity participation feature (whether in the form
of warrants, options, a conversion right, interest payments based upon
profits, revenues, and/or appreciation, or otherwise) that would cause
CCC to violate subclause (2) below at any time, assuming for purposes
of such determination that CCC would exercise any and all options and
other rights that it might have in connection with such loan (provided
that the foregoing shall not prevent the exercise by CCC of its rights
upon foreclosure of such indebtedness unless the default with respect
to such indebtedness giving the right to such foreclosure had occurred
or was imminent at the time CCC acquired such indebtedness),
and/or
(2) if such financing is in the form of an equity investment,
directly or indirectly, in the full-service hotel or the Person
owning, directly or indirectly, such hotel, CCC will not beneficially
own (and will not have any right to acquire beneficial ownership of)
more than fifteen percent (15%) of the outstanding Leased Hotel Equity
Value, computed on the date on which CCC becomes contractually
commited to make such equity investment (including for such purpose
any Carried Interest in such Person, whether or not earned (based upon
the maximum percentage applicable for such Carried Interest)), and CCC
cannot, by reason of the ownership of such equity interest or
otherwise, have any right to control the hotel or the Person owning
such hotel (including, but not limited to, control resulting from a
general partner interest, special rights as a manager of a limited
liability company or similar entity, contractual or other rights to
representation on the board of such
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Person that are disproportionate to CCC's equity ownership in such
Person, disproportionate voting rights with respect to CCC's equity
position, or veto or approval rights as to major decisions), and
(3) the combined economic interest of CCC in the full-service
hotel under the Permitted REIT Lease (calculated as set forth in the
definition of "Hotel Leasing Business") and the present value of CCC's
interest in any financing or equity interests described in subclauses
(1) and (2) above (determined applying the principles set forth in
Clause (E) below), all determined as of the date CCC becomes
contractually committed to make such investment, cannot exceed either
(x) twenty percent (20%) of the Leased Hotel Present Value, on the date
CCC becomes contractually committed to provide such financing, of the
hotel which is subject to such financing or (v) forty percent (40%) of
the Leased Hotel Equity Value of such hotel on such date; or
(C) if the Permitted Full-Service Lease will be a Permitted
Operating Lease, the following conditions are met:
(1) if such financing is in the form of a loan, such loan does
not include any equity participation feature (whether in the form of
warrants, options, a conversion right, interest payments based upon
profits, revenues, and/or appreciation, or otherwise) that would cause
CCC to violate subclause (2) below at any time, assuming for purposes
of such determination that CCC would exercise any and all options and
other rights that it might have in connection with such loan (provided
that the foregoing shall not prevent the exercise by CCC of its rights
upon foreclosure of such indebtedness unless the default with respect
to such indebtedness giving the right to such foreclosure had occurred
or was imminent at the time CCC acquired such indebtedness),
(2) if such financing is in the form of an equity investment,
directly or indirectly, in the full-service hotel or the Person owning,
directly or indirectly, such hotel, CCC cannot, by reason of the
ownership of such equity interest or otherwise, have any right to
control the hotel or the Person owning such hotel (including, but not
limited to, control resulting from a general partner interest, special
rights as a manager of a limited liability company or similar entity,
contractual or other rights to representation on the board of such
Person that are disproportionate to CCC's equity ownership in such
Person, disproportionate voting rights with respect to CCC's equity
position, or veto or approval rights as to major decisions), and
(3) the combined economic interest of CCC in the full-service
hotel under the Permitted Operating Lease (calculated as set forth in
the definition of "Hotel Leasing Business") and the present value of
CCC's interest in any financing or equity interests described in
subclauses (1) and (2) above, (determined applying the principles set
forth in clause (E) below), all determined as of the date CCC becomes
contractually committed to make such investment cannot exceed either
(x) twenty five percent (25%) of the Leased Hotel Present Value, on the
date CCC becomes contractually committed to provide such financing, of
the hotel which is subject to such financing, or (y) fifty percent
(50%) of the Leased Hotel Equity Value of such hotel, on such date.
(D) if CCC is a party to, or has a bona fide contract to become a
party to, a Permitted Full-Service Management Agreement, the following
conditions are met:
(1) if such financing is in the form of a loan, such loan does
not include any equity participation feature (whether in the form
of warrants, options, a conversion right, interest payments based
upon profits, revenues, and/or appreciation, or otherwise) that
would cause CCC to violate subclause (2) below at any time,
assuming for purposes of such determination that CCC would
exercise any and all options and other rights that it might have
in connection with such loan (provided that the foregoing shall
not prevent the exercise by CCC of its rights upon foreclosure of
such indebtedness unless the default with respect to such
indebtedness giving the right to such foreclosure had occurred or
was imminent at the time CCC acquired such indebtedness),
(2) if such financing is in the form of an equity investment,
directly or indirectly, in the full-service hotel or the Person
owning, directly or indirectly, such hotel, CCC cannot, by reason
of the ownership of such equity interest or otherwise, have any
right to control the hotel or the Person owning such hotel
(including, but not limited to, control resulting from a general
partner interest, special rights as a manager of a limited
liability company or similar entity, contractual or other rights
to representation on the board of such Person that are
disproportionate to CCC's equity ownership in such Person,
disproportionate voting rights with respect to CCC's equity
position, or veto or approval rights as to major decisions), and
(3) the combined economic interest of CCC in the full-service
hotel under the Permitted Full-Service Management Agreement
(calculated as set forth in the definition of "Permitted Full-
Service Management Agreement") and the present value of CCC's in
any financing or equity interests described in subclauses (1) and
(2) above (determined applying the principles set forth in clause
(E) below), all determined as of the date CCC becomes
contractually committed to make such investment, cannot exceed
either (x) twenty percent (20%) of the Managed Hotel Present
Value, on the date CCC becomes contractually committed to provide
such financing, of the hotel which is subject to such financing,
or (y) forty percent (40%) of the Managed Hotel Equity Value of
such hotel on such date.
(E) The present value of CCC's interest in any financing or
equity interests purposes of this Section 3.B.(v) shall be determined
by computing the present value of the cash flow projected to be
received by CCC with respect to such financing or equity interest
during the Lease Term or the Management Agreement Term, as applicable,
assuming that such financing or equity interest is liquidated for its
projected fair market value at the expiration of the Lease Term or
Management Agreement Term, as applicable, calculated by applying a
discount factor which is appropriate in light of overall market
conditions at the time of determination of such economic value and the
risk to CCC associated with the proposed financing or equity interest.
All of the various determinations of cash flow projected to be received
from the proposed financing or equity interest and the discount rates
to be applied in making the computations provided for above (and any
capitalization rates to be applied for determining projected fair
market values at the expiration of the Lease Term or Management
Agreement Term, as applicable) shall be as reasonably determined by CCC
(subject to the review and approval of Host in its reasonable judgment
and to Section 5.1 of this Agreement in the event that there is a
disagreement between Host and CCC with respect thereto).
C. CCC agrees that, from the date hereof until December 31, 2000, it will
not solicit, hire, or induce the termination of employment of, a person who is
employed by Host or NCS at the time of, or was employed by Host or NCS at any
time within three months prior to, such solicitation, hiring or inducement and
whose grade, is or, if applicable, was at the time of the termination of his
employment with Host or NCS, the equivalent of Host's current grade 56 or above.
D. Notwithstanding any other provision of this Agreement, until the
expiration of the period set forth in Section 3.A, CCC shall not lease or
sublease any full-service hotel from a REIT that is not a Publicly-Traded REIT
unless the combined economic interest of CCC in the full-service hotel under
such lease and any other leases of full-service hotels from REITs that are not
Publicly-Traded REITs (calculated as set forth in the definition of "Hotel
Leasing Business" but with such calculation being made as of the date on which
the determination is being made under this Paragraph D) and any financing or
equity interests in hotels leased from such REITs (or in the Persons owning such
hotels) (with the value thereof determined as of the date on which the
determination is being made under this Paragraph D) does not exceed the greater
of $125,000,000 or the book fifteen percent (15%) of the book value of CCC is
assets value of CCC as of such date.
ARTICLE FOUR
LIMITATION ON ENGAGEMENT IN THE HOTEL MANAGEMENT BUSINESS
4.1 Certain Restrictions on CCC.
A. Except as provided in Sections 4.1.B. and 4.1.C., CCC shall be entitled
to Compete in the Hotel Management Business.
B. CCC acknowledges that the provisions of that certain Restated
Noncompetition Agreement between and among Host and Marriott International,
Inc., dated March 3, 1998 (the "1998 Noncompetition Agreement"), applies to it
and that such 1998 Noncompetition Agreement has been amended effective the date
hereof to include CCC as a party thereto.
C. Notwithstanding the foregoing Section 4.1.A., from the date hereof
until the earlier of (i) December 31, 2008 and (ii) the date on which CCC is no
longer the Primary Host Lessee, CCC shall comply with the following
restrictions:
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(i) CCC shall not, without the consent of Host in its sole
discretion, engage in the Hotel Management Business with regard to any
hotels owned by Host, provided that, the foregoing shall not be deemed to
prohibit CCC from acting in its capacity as a lessee of hotels owned by
Host where CCC has engaged another Person who is not a Affiliate of CCC to
manage or operate, within the meaning of the term "Hotel Management
Business," the leased hotels.
(ii) CCC shall not engage in the Hotel Management Business with regard
to any full-service hotels not owned by Host unless either (a) CCC is not the
lessee (or sublessee) with respect to such hotel, the management agreement with
respect to such hotel is a Permitted Full-Service Management Agreement, or (b)
if CCC is either the lessee or sublessee with respect to such hotel, the lease
with respect to such hotel is a Permitted Full-Service Lease and CCC is in
compliance with the conditions set forth in Section 3.B(v) with respect to such
hotel.
(iii) CCC shall not Compete in the Franchise Business.
D. Notwithstanding anything herein to the contrary, nothing in this
Agreement shall prohibit CCC from owning the Swissotel Management Company
Interest or any activities undertaken by Swissotel Management (USA) L.L.C.
ARTICLE FIVE
MISCELLANEOUS
5.1 Arbitration of Certain Matters.
Host, CCC and NCS agree that any controversy or dispute concerning any
calculation or determination of value, net cash flows, present values, net
operating income, capitalization rate or sales arising under the definition of
anticipated cash flow, "Host Leasing Business," "Leased Hotel Equity Value,"
"Leased Hotel Present Value," "Permitted Full-Service Management Agreement,"
"Managed Hotel Present Value" or "Managed Hotel Equity Value" in Section 1, or
under Section 2C(ii), 3B(iv), 3B(v) or Section 3E, hereof, including without
limitation any dispute as to whether a determination of any of the foregoing by
CCC is reasonable, shall be settled in arbitration in accordance with the Rules
of the American Arbitration Association then in effect. Such arbitration shall
take place in Washington, D.C. Any judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof. The
arbitrators shall not, under any circumstances, have any authority to award
punitive, consequential, exemplary or similar damages, and may not, in any
event, make any ruling, finding or award that does not conform to the terms and
conditions of this Agreement. Nothing contained in this Section 5.1 shall limit
or restrict in any way the right or power of a party at any time to seek
injunctive relief in any court and to litigate the issues relevant to such
request for injunctive relief before such court (i) to restrain the other party
from breaching this Agreement, or (ii) for specific enforcement of this Section
5.1. The parties agree that any legal remedy available to a party with respect
to a breach of this Section 5.1 will not be adequate and that, in addition to
all other legal remedies, each party is entitled to an order specifically
enforcing this Section 5.1. Neither party nor the arbitrators may disclose the
existence or results of any arbitration under this Agreement or any evidence
presented during the course of the arbitration without the prior written consent
of both parties, except as required to fulfill applicable disclosure and
reporting obligations, or as otherwise required by agreements with third
parties, or by law.
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5.2 Entire Agreement.
This Agreement, the Hotel Leases, the FF&E Leases and the 1998
Noncompetition Agreement constitute the entire agreement of the parties
concerning the subject matter hereof.
5.3 Modification.
This Agreement may only be amended, modified or supplemented in a written
agreement signed by both parties hereto.
5.4 Waiver.
No term or condition of this Agreement shall be deemed to have been waived,
nor shall there be any estoppel against the enforcement of any provision hereof,
except by written instrument of the party charged with such waiver or estoppel.
5.5 Severability.
Host, CCC and NCS agree that the period of restriction and the lack of
geographical area of restriction imposed upon the parties are fair and
reasonable, are reasonably required for the protection of each of the parties
hereto and have been specifically negotiated and carefully tailored with a view
to preventing the serious and irreparable injury the other party will suffer in
the event of competition by such party with the other party during the time
periods set forth herein. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect as though the invalid portions were not a part
hereof. If the provisions of this Agreement relating to the geographical area
of restriction or the period of restriction shall be deemed to exceed the
maximum geographical area or period which a court having jurisdiction over the
matter would deem enforceable, such area or period shall, for purposes of this
Agreement, be deemed to be the maximum geographical area or period which such
court would deem valid and enforceable.
5.6 Remedies.
CCC, Host and NCS agree that irreparable damage would occur in the event
any of the provisions of this Agreement were not to be performed in accordance
with the terms hereof, and that their remedy at law for any breach of the other
party's obligations hereunder would be inadequate. CCC, Host and NCS agree and
consent that temporary and permanent injunctive relief may be granted in any
proceeding which may be brought to enforce any provision hereof without the
necessity of proof of actual damage.
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The parties hereby agree that the obligations of Host and NCS hereunder are
independent and that neither Host nor NCS shall have any liability for the
breach by the other of such other's obligations hereunder. CCC and Host agree
that, in the event that any Non-Controlled Subsidiary which is not a party to
this Agreement engages in any activity in which Host is prohibited from engaging
under this Agreement, CCC shall not be entitled to terminate this Agreement but
Host shall indemnify and hold CCC harmless from any liabilities, damages, losses
and reasonable expenses incurred by CCC as a result thereof.
5.7 Enforceability.
The terms, conditions and promises contained in this Agreement shall be
binding upon and shall inure to the benefit of each of the parties hereto, their
heirs, personal representatives, or successors and assigns. Without limiting
the generality of the foregoing, the parties agree that, following the Merger,
Host REIT shall be deemed to be a successor of Host under this Agreement. Each
of the parties hereto shall cause its Subsidiaries which are not Non-Controlled
Subsidiaries to comply with such party's obligations hereunder. Nothing herein,
expressed or implied, shall be construed to give any other Person any legal or
equitable rights hereunder.
5.8 Assignment and Successors and Assigns.
Neither party shall, without the prior written consent of the other, assign
any rights or delegate any obligations under this Agreement. Notwithstanding
anything herein to the contrary, the restrictions, rights and obligations set
forth herein shall be treated as follows: in the event Host Transfers all or
substantially all of the Host Business, the transferee thereof shall
automatically be bound by the terms of this Agreement; in the event CCC
Transfers all or substantially all of the Senior Living Community Business or
all or substantially all of the Hotel Leasing Business or all or substantially
all of the Asset Management Services Business, the transferee thereof shall
automatically be bound by the terms of this Agreement; and, in the event either
NCS1 or NCS2 Transfers all or substantially all of its business of leasing FF&E
to lessees of full and limited-service hotels, the transferee thereof shall
automatically be bound by the terms of this Agreement.
5.9 Consent to Jurisdiction.
Subject to Section 5.1 hereof, the parties irrevocably submit to the
exclusive jurisdiction of (i) the Courts of the State of Maryland in Xxxxxxxxxx
County, and (ii) if federal jurisdiction exists, the United States District
Court for the State of Maryland for the purposes of any suit, action or other
proceeding arising out of this Agreement.
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5.10 Interpretation.
When a reference is made to this Agreement to a Section, Article, or
Schedule, such reference shall be to a Section, Article, or Schedule of this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall neither affect the meaning or
interpretation of this Agreement, nor define or limit the scope or intent of any
provision or part hereof. Whenever the words "include," or "includes," or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
5.11 Notices.
All notices and other communications hereunder shall be in writing and
shall be delivered by hand, by telecopier with computer generated acknowledgment
of receipt, by mail or by Federal Express or similar expedited commercial
carrier, to the parties at the following addresses (or at such other addresses
for a party as shall be specified by like notice), postpaid and certified with
return receipt requested (if by mail), or with all freight charges prepaid (if
by Federal Express or similar carrier), and shall be deemed given on the date of
acknowledged receipt, in the case of a notice by telecopier, and, in all other
cases, on the date of receipt or refusal:
To Host:
Host Marriott Corporation
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxxxxxxx X. Xxxxxxxx, Senior Vice
President, General Counsel and
Corporate Secretary
Fax No.: 301/000-0000
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To CCC:
Crestline Capital Corporation
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxx X.X. Xxxxxx, Senior Vice President,
General Counsel and Corporate Secretary
Fax No.: 301/
--------
To NCS1:
------------------------
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention:
----------------
Fax: 301/
-----------------
To NCS2:
------------------------
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attention:
----------------
Fax: 301/
-----------------
5.12 Governing Law.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Maryland, regardless of the laws that might be applied
under applicable principles of conflicts of laws.
5.13 Relationship of Parties.
It is understood and agreed that nothing in this Agreement shall be deemed
or construed by the parties or any third party as creating an employer-employee,
principal/agent, partnership or joint venture relationship between or among the
parties.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered, all as of the day and year first above written.
CRESTLINE CAPITAL CORPORATION
By:
-----------------------------
Name:
Title:
HOST MARRIOTT CORPORATION
By:
-----------------------------
Name:
Title:
HOST MARRIOTT, L.P.
By: HMC REAL ESTATE LLC,
General Partner
By:
-----------------------------
Name:
Title:
[NCS1]
By:
-----------------------------
Name:
Title:
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[NCS2]
By:
-----------------------------
Name:
Title:
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Schedule A
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Initial Hotels
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Schedule B
----------
Certain Permitted Leases
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