EXHIBIT 10.17
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RESIDENCE INN MANAGEMENT AGREEMENT
between
HMH PROPERTIES, INC.
("Owner")
and
RESIDENCE INN BY MARRIOTT, INC.
("Management Company")
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TABLE OF CONTENTS
ARTICLE I DEFINITION OF TERMS ................................................... 1
1.1 Definition of Terms .............................................. 1
ARTICLE II APPOINTMENT OF MANAGEMENT COMPANY ..................................... 27
2.1 Appointment ...................................................... 27
2.2 Delegation of Authority .......................................... 27
2.3 Operational Standards ............................................ 28
2.4 Limitations on Authority ......................................... 31
2.5 Covenants, Conditions or Restrictions ............................ 32
2.6 Licenses and Permits ............................................. 34
ARTICLE III OWNERSHIP OF THE INN .................................................. 34
3.1 Ownership of the Inn ............................................. 34
ARTICLE IV TERM .................................................................. 35
4.1 Term ............................................................. 35
4.2 Actions to be Taken Upon Termination ............................. 38
4.3 Performance Termination .......................................... 39
ARTICLE V COMPENSATION OF MANAGEMENT COMPANY:
DISTRIBUTIONS ........................................................ 41
5.1 Management Fees .................................................. 41
5.2 Distribution of Operating Profit ................................. 42
5.3 Accounting and Interim Payments .................................. 42
5.4 Accounting for Period Prior to Effective Date .................... 44
ARTICLE VI FINANCING OF THE INN .................................................. 44
6.1 Amendments of Management Agreement ............................... 44
6.2 Notice and Opportunity to Cure ................................... 46
6.3 Collateral Assignment of Management Agreement .................... 47
6.4 Subordination of Management Agreement ............................ 48
6.5 Non-Disturbance Agreement ........................................ 49
6.6 Attornment ....................................................... 50
6.7 No Modification or Termination of Agreement ...................... 51
6.8 Owner's Right to Finance the Inn ................................. 52
6.9 Cross Collateralization .......................................... 52
6.10 Sale/Leaseback Transactions ...................................... 53
ARTICLE VII WORKING CAPITAL AND FIXED ASSET SUPPLIES .............................. 54
7.1 Working Capital .................................................. 54
7.2 Fixed Asset Supplies ............................................. 55
ARTICLE VIII REPAIRS, MAINTENANCE AND REPLACEMENTS ................................. 56
8.1 Routine Repairs and Maintenance .................................. 56
8.2 FF&E Reserve ..................................................... 56
8.3 Building Alterations, Improvements, Renewals, and Replacements ... 60
8.4 Liens ........................................................... 65
8.5 Ownership of Replacements, Etc .................................. 65
ARTICLE IX BOOKKEEPING AND BANK ACCOUNTS ........................................ 65
9.1 Books and Records ............................................... 65
9.2 Inn Accounts. Expenditures ...................................... 67
9.3 Annual Operating Budget ......................................... 67
9.4 Operating Losses: Credit ........................................ 69
9.5 Consolidated Reports ............................................ 69
ARTICLE X PROPRIETARY MARKS; INTELLECTUAL PROPERTY .............................. 70
10.1 Proprietary Marks ............................................... 70
10.2 Purchase of Inventories and Fixed Asset Supplies ................ 71
10.3 Computer Software and Equipment ................................. 71
10.4 Intellectual Property ........................................... 72
10.5 Breach of Covenant .............................................. 72
ARTICLE XI POSSESSION AND USE OF INN ............................................. 72
11.1 Quiet Enjoyment ................................................. 72
11.2 Use ............................................................. 73
11.3 Chain Services .................................................. 73
11.4 Owner's Right to Inspect ........................................ 74
11.5 Indemnity ....................................................... 75
ARTICLE XII INSURANCE ............................................................. 76
12.1 Interim Insurance ............................................... 76
12.2 Property and Operational Insurance .............................. 76
12.3 General Insurance Provisions .................................... 78
12.4 Cost and Expense ................................................ 79
12.5 Owner's Option to Obtain Certain Insurance ...................... 80
ARTICLE XIII TAXES ................................................................. 82
13.1 Real Estate and Personal Property Taxes ......................... 82
ARTICLE XIV INN EMPLOYEES ......................................................... 85
14.1 Employees ....................................................... 85
ARTICLE XV DAMAGE CONDEMNATION AND FORCE MAJEURE ............................... 88
15.1 Damage and Repair ............................................... 88
15.2 Condemnation .................................................... 88
15.3 Force Majeure ................................................... 90
ARTICLE XVI DEFAULTS .............................................................. 91
16.1 Definition of "Default" ......................................... 91
16.2 Definition of "Event of Default" ................................ 92
16.3 Remedies Upon an Event of Default ............................... 92
16.4 Owner's Estate .................................................. 93
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ARTICLE XVII WAIVER AND PARTIAL INVALIDITY .......................................... 94
17.1 Waiver .......................................................... 94
17.2 Partial Invalidity .............................................. 94
ARTICLE XVIII ASSIGNMENT ............................................................ 95
18.1 Assignment ...................................................... 95
ARTICLE XIX SALE OF THE INN ........................................................ 97
19.1 Sale of the Inn ................................................. 97
ARTICLE XX MISCELLANEOUS .......................................................... 100
20.1 Right to Make Agreement ......................................... 101
20.2 Consents ........................................................ 101
20.3 Agency .......................................................... 102
20.4 Confidentiality ................................................. 103
20.5 Equity Offerings ................................................ 103
20.6 Applicable Law .................................................. 104
20.7 Recordation ..................................................... 104
20.8 Headings ........................................................ 104
20.9 Notices ......................................................... 104
20.10 Environmental Matters ........................................... 105
20.11 Estoppel Certificates ........................................... 106
20.12 Trade Area Restriction .......................................... 107
20.13 Arbitration ..................................................... 107
20.14 Entire Agreement ................................................ 109
Exhibit "A" Location of Inn and Legal Description
Exhibit "A-1" Number of Suites and Brief Description of Facilities;
Priority Basis, Performance Termination Threshold; Loan
Priority Basis (Number set forth in (i) of Definition);
Revenue Index Threshold
Exhibit "B" Form of Accounting Period
Exhibit "C" [Intentionally Deleted]
Exhibit "D" Map of Restricted Area
Exhibit "D-1" Narrative Description of Restricted Area
Exhibit "E" Proprietary Marks which will remain the property of Owner
after Termination
Exhibit "F" Title Encumbrances; Existing CC&R's (separately describing
those charges thereunder which will be treated as capital
expenditures under Section 8.3); Existing Ground Lease (if
applicable); Existing Mortgages (if any)
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RESIDENCE INN
MANAGEMENT AGREEMENT
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This Management Agreement ("Agreement") is executed as of the ____ day of
_________________, 1993 ("Effective Date"), by HMH PROPERTIES, INC., ("Owner"),
a Delaware corporation, with a mailing address at 00000 Xxxxxxxx Xxxx, Xxxxxxxx,
Xxxxxxxx 00000 and RESIDENCE INN BY MARRIOTT, INC. (Management Company"), a
Delaware corporation, with a mailing address at 00000 Xxxxxxxx Xxxx, Xxxxxxxx,
Xxxxxxxx 00000.
R E C I T A L S :
A. Owner is the owner of the Inn (as defined and more fully described in
Section 1.1 which is located as set forth on Exhibit "A" hereto; and
B. Owner desires to have Management Company manage and operate the Inn,
and Management Company is willing to perform such services for the account of
Owner on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITION OF TERMS
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1.1 Definition of Terms
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The following terms when used in this Agreement shall have the meanings
indicated:
"Accounting Period" shall mean each of the four (4) week accounting periods
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which are used in Management Company's accounting system, except that an
Accounting Period may occasionally contain five (5) weeks when necessary to
conform Management Company's accounting system to the calendar.
"Accounting Period Statement" shall have the meaning set forth in Section
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5.3.
"Additional Invested Capital" shall mean the cumulative total L as of any
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given date during the Term, of the following: (i) any expenditures made by Owner
in response to a
Building Estimate, pursuant to Section 8.3, and any expenditures by Owner
pursuant to Section 20.10.C; (ii) any contributions by Owner to the FF&E Reserve
(beyond the funding described in Section 8.2.B and 8.2.E); other than those
contributions which are reimbursed to Owner under Section 8.2.F; (iii) any
payments by Owner with regard to special assessments or impact fees, pursuant to
Section 13.1.B(2) or 13.1.B(3); and (iv) any costs, expenses and charges which
are described on Exhibit "F" hereto as "capital charges" pursuant to Section
2.5.A. Owner shall give Management Company prompt notice of any amounts for
which it has provided funding which constitute "Additional Invested Capital"
together with such evidence of funding as Management Company may reasonably
require.
"Affiliate" shall mean any individual or entity directly or indirectly
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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 the exercise,
directly or indirectly, of fifty-one percent (51%) or more of the voting rights
attributable to the shares of the controlled corporation, and, with respect to
an entity that is not a corporation, the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of the
controlled entity.
"Agreement" shall have the meaning set forth in the Preamble.
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"Annual Operating Budget" shall have the meaning set forth in Section 9.3.
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"Annual Operating Statement" shall have the meaning set forth in Section
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9.1.
"Available Cash Flow" shall mean an amount, with respect to each Fiscal
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Year or portion thereof, (prorated for any partial Fiscal Year) during the Term
of this Agreement, equal to the excess, if any, of the Operating Profit for such
Fiscal Year over the sum of: (i) the applicable Owner's Priority in such Fiscal
Year, plus; (ii) the Base Management Fee, plus; (iii) Deferred Contingent Base
Management Fees paid to Manager in such Fiscal Year.
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"Base Management Fee" shall mean for each Fiscal Year (prorated for any
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partial Fiscal Year) during the Term of this Agreement, an amount equal to two
percent (2%) of Gross-Revenues, which shall be paid to Management Company as
compensation (in addition to the Residence Inn System Fee and Incentive
Management Fee) for the services performed pursuant to this Agreement.
"Building Estimate" shall have the meaning set forth in Section 3.3.A.
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"Capitalization Multiple" shall mean the number ten (10).
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"Case Goods" shall mean furniture and furnishings used in the Inn,
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including, without limitation: chairs, beds, chests, headboards, desks, lamps,
tables, television sets, kitchen equipment, mirrors, pictures, wall decorations
and similar items.
"CC&R's" shall have the meaning set forth in Section 2.5.
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"Chain Services" shall have the meaning set forth in Section 11.3.
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"Coverage Ratio" shall mean the number one and three-tenths (1.3).
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"Cure Payment" shall have the meaning set forth in Section
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"Deductions" shall have the meaning set forth in the definition of
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Operating Profit.
"Default" shall have the meaning set forth in Section 16.1.
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"Deferred Contingent Base Management Fees" shall mean an amount equal to
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(a) the sum of all unpaid Base Management Fees deferred in accordance with
Section 5.2.B less (b) all sums paid to Management Company in accordance with
the provisions of Section 5.2.C.
"Effective Date" shall have the meaning set forth in the Preamble.
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"Employee Claims" shall mean any and all claims (including all fines,
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judgments, penalties, costs, Litigation and/or arbitration expenses, attorneys'
fees and expenses, and costs of settlement with respect to any such claim) by
any employee or employees of Management Company against Owner or Management
Company with respect to the
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employment at the Inn of such employee or employees. "Employee Claims" shall
include, without limitation, the following: (i) claims which are eventually
resolved by arbitration, by Litigation or by settlement; (ii) claims which also
involve allegations that any applicable employment-related contracts affecting
the employees at the Inn have been breached; and (iii) claims which involve
allegations that one or more of the Employment Laws has been violated; provided,
however, that "Employee Claims" shall not include claims for worker compensation
benefits (which shall be governed by Article XII hereof) or for unemployment
benefits.
"Employment Laws" shall mean any federal, state or local law (including the
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common law), statute, ordinance, rule, regulation, order or directive with
respect to employment, conditions of employment, benefits, compensation, or
termination of employment that currently exists or may exist at any time during
the Term of this Agreement, including, but not limited to, Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Workers
Adjustment and Retraining Notification Act, the Occupational Safety and Health
Act, the Immigration Reform and Control Act of 1986, the Polygraph Protection
Act of 1988 and the Americans With Disabilities Act of 1990.
"Environmental Laws" shall mean: any federal, state or local law, rule or
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regulation (both present and future) dealing with the use, generation,
treatment, storage, disposal or abatement of Hazardous Materials, including, but
not limited to, (i) the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., as amended; (ii) the regulations
promulgated thereunder, from time to time; (iii) all federal, state and local
laws, rules and regulations (now or hereafter in effect) dealing with the use,
generation, treatment, storage, disposal or abatement of Hazardous Materials;
and (iv) the regulations promulgated thereunder, from time to time.
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"Event of Default" shall have the meaning set forth in Section 16.2.
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"Existing CC&R's" shall have the meaning set forth in Section 2.5.A.
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"Existing Ground Leases" shall mean the ground leases which are listed on
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Exhibit "F", but for purposes of this Agreement shall not include any amendments
or modifications after the Effective Date.
"Existing Mortgages" shall mean the Mortgages which are listed on Exhibit
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"F", but for purposes of this Agreement shall not include any amendments or
modifications after the Effective Date.
"FF&E" shall mean furniture, furnishings, fixtures, Soft Goods, Case Goods,
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Shuttle Vehicles, signage and equipment at the Inn (including, without
limitation, facsimile machines, communication systems, audio-visual equipment,
and all computer and other equipment needed for the reservation system and the
property management system, and all other electronic systems needed for any Inn,
from time to time, as well as similar systems based on other technologies which
may be developed in the future).
"FF&E Estimate" shall have the meaning set forth in Section 8.2.C.
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"FF&E Reserve" shall have the meaning set forth in Section 8.2.A.
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"First Notice" shall have the meaning set forth in Section 6.2.
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"Fiscal Year" shall mean Management Company's Fiscal Year which now ends at
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midnight on the Friday closest to December 31 in each calendar year; the new
Fiscal Year begins on the Saturday immediately following said Friday. Any
partial Fiscal Year between the Effective Date and the commencement of the first
full Fiscal Year and any partial Fiscal Year between the end of the last full
Fiscal Year and the Termination of this Agreement, shall constitute a separate
Fiscal Year. If Management Company's Fiscal Year is changed in the future,
appropriate adjustment to this Agreement's reporting and accounting procedures
5
shall be made; provided, however, that no such change or adjustment shall alter
the Term of this Agreement, or in any way reduce the distributions of Operating
Profit or other payments due Owner hereunder, or otherwise significantly and
adversely affect Owner's rights or obligations under this Agreement.
"Fixed Asset Supplies" shall mean supply items included within "Property
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and Equipment" under the Uniform System of Accounts, including linen, cleaning
supplies, china, glassware, tableware, uniforms, and similar items.
"Force Majeure" shall mean acts of God, acts of war, civil disturbance,
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governmental action (including the revocation or refusal to grant a License,
where such revocation or refusal is not due to the fault of the party whose
performance is to be excused for reasons of Force Majeure), strikes, lockouts,
fire, unavoidable casualties or any other causes beyond the reasonable control
of either party (excluding, however: (i) lack of financing; or (ii) general
economic and/or market factors).
"Foreclosure" shall mean any exercise of the remedies available to a
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Holder, upon a default under the Secured Loan held by such Holder, which results
in a transfer of title to or possession of the Inn. The term "Foreclosure"
shall include, without limitation, any one or more of the following events, if
they occur in connection with a default under a Secured Loan: (i) a transfer by
judicial foreclosure; (ii) a transfer by deed in lieu of foreclosure; (iii) the
appointment by a court of a receiver to assume possession of the Inn; (iv) a
transfer of either ownership or control of the Owner, by exercise of a stock
pledge or otherwise; (v) if title to the Inn is held by a tenant under a ground
lease, an assignment of the tenant's interest in such ground; (vi) any similar
judicial or non-judicial exercise of the remedies held by the Holder.
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"Foreclosure Date" shall mean the date on which title to or possession of
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the Inn is transferred by means of a Foreclosure.
"Future CC&R's" shall have the meaning set forth in Section 2.5.B.
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"GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
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Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Owner
and reasonably satisfactory to Management Company (a "Substitute Index") then
prepared and published by an agency of the Government of the United States,
appropriately adjusted for changes in the manner in which such index is prepared
and/or year upon which such index is based. Any dispute regarding the selection
of the Substitute Index or the adjustments to be made thereto shall be settled
by arbitration in accordance with Section 20.13. Except as otherwise expressly
stated herein, whenever a number or amount is required to be "adjusted by the
GDP Deflator", or similar terminology, such adjustment shall be equal to the
percentage increase or decrease (except that, for purposes of this Agreement,
the GDP Deflator shall not be decreased below its level as of the Effective
Date) in the GDP Deflator which is issued for the month in which such adjustment
is to be made (or, if the GDP Deflator for such month is not yet publicly
available, the GDP Deflator for the most recent month for which the GDP Deflator
is publicly available) as compared to the GDP Deflator which was issued for the
month in which the Effective Date occurred.
"Gross Revenues" shall mean, for each Fiscal Year during the Term of this
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Agreement, all revenues and receipts of every kind derived from operating the
Inn and parts thereof, including, but not limited to: income (from both cash and
credit transactions), before commissions and discounts for prompt or cash
payments, from rental of rooms, stores,
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offices, meeting, exhibit or sales space of every kind; parking fees, license,
lease and concession fees and rentals (not including gross receipts of
licensees, lessees and concessionaires); income from vending machines; health
club membership fees; food and beverage sales; wholesale and retail sales of
merchandise (other than proceeds from the sale of FF&E no longer necessary to
the operation of the Inn, which shall be deposited in the FF&E Reserve as set
forth in Section 8.2.D hereof); service charges, to the extent not distributed
to the employees at the Inn as gratuities; and proceeds, if any, from business
interruption or other loss of income insurance; provided, however, that Gross
Revenues shall not include the following: gratuities to Inn employees; federal,
state or municipal excise, sales, use or similar taxes collected directly from
patrons or guests or included as part of the sales price of any goods or
services; insurance proceeds other than proceeds from business interruption or
other loss of income insurance); condemnation proceeds (other than for a
temporary taking); any proceeds from any Sale of the Inn or from the refinancing
of any debt encumbering the Inn; proceeds from the disposition of FF&E no longer
necessary for the operation of the Inn; interest which accrues on amounts
deposited in either the FF&E Reserve or any escrow accounts which are
established in accordance with Section 13.1.C; or Cure Payments.
"Ground Lease Rental" shall mean the annual rental, as of the Effective
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Date, under the Existing Ground Lease.
"Ground Lessor" shall mean the landlord under the Existing -Ground Lease.
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"Hazardous Materials" shall mean and include any substance or material
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containing one or more of any of the following: "hazardous material", "hazardous
waste", "hazardous substance", "regulated substance", "petroleum", "pollutant",
"contaminant", or "asbestos", as such terms are defined in any applicable
Environmental Law, in such concentration(s) or
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amount(s) as may impose clean-up, removal, monitoring or other responsibility
under any applicable Environmental Laws, or which may present a significant risk
of harm to guests, invitees or employees of the Inn.
"Holder" shall mean any holder, from time to time, of any Secured Loan.
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"Impositions" shall mean all real estate and personal property taxes,
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levies, assessments and similar charges (other than those which are specifically
excluded pursuant to Section 13.1.B) including, without limitation, the
following: all water, sewer or similar fees, rates, charges, excises or levies;
license fees; permit fees; inspection fees and other authorization fees and
other governmental charges of any kind or nature whatsoever, whether general or
special, ordinary or extraordinary, foreseen or unforeseen, or hereinafter
levied or assessed of every character (including all interest and penalties
thereon), which at any time during or in respect of the Term of this Agreement
may be assessed, levied, confirmed or imposed on Owner with respect to the Inn
or otherwise in respect of or be a lien upon the Inn. Impositions shall not
include any income or franchise taxes payable by Owner or Management Company.
Impositions shall include any taxes, levies, assessments and similar charges
which may be enacted by the applicable governmental authority in lieu of, or in
complete or partial substitution for, Impositions.
"Incentive Management Fee" shall mean, for each Fiscal Year during the Term
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of this Agreement, the payments which shall be made to Management Company, as
compensation (in addition to the Base Management Fee and the Residence Inn
System Fee) to Management Company for its services under this Agreement, in the
amount of fifty percent (50%) of the Available Cash Flow in each Fiscal Year (or
portion thereof); provided, however, that the cumulative Incentive Management
Fee received by Management Company, from the Effective Date through any given
point in time during the Term of this Agreement, shall not
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exceed twenty percent (20%) of the cumulative Operating Profit from the
Effective Date through such point in time provided further, however, that in no
event shall the aforesaid cumulative limitation require Management Company to
refund to Owner any Incentive Management Fees which were paid in a previous
Fiscal Year and which were within such limitation as of the time when they were
paid.
"Initial Term" shall have the meaning set forth in Section 4.1.
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"Inn" shall mean the hotel, containing approximately the number of Suites
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which are set forth on Exhibit "A"-l hereto, which Owner owns at the location
specified in Exhibit "A"; the term n Inn" shall include the Site, the
improvements built thereon, and all FF&E, Fixed Asset Supplies and Inventories
installed therein.
"Inn Retention" shall have the meaning set forth in Section 12.3 hereof.
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"Intellectual Property" shall mean: (i) all Software; and (ii) all
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manuals, brochures and directives issued by Management Company to its employees
at the Inn regarding the procedures and techniques to be used in operating the
Inn.
"Interest Rate" shall mean an annual rate of interest equal to the Prime
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Rate (as adjusted from time to time) plus three hundred (300) basis points
provided; however, that in no event shall the Interest Rate exceed the maximum
rate which is permitted under applicable Legal Requirements.
"Inventories" shall mean "Inventories" as defined in the Uniform System of
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Accounts, such as provisions in storerooms, refrigerators, pantries and
kitchens; beverages in wine cellars and bars; other merchandise intended for
sale; fuel; mechanical supplies; stationery; and other expensed supplies and
similar items.
"Legal Requirement" shall mean any federal, state or local law, code, rule,
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ordinance, regulation or order of any governmental authority or agency having
jurisdiction
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over the business or operation of the Inn or the matters which are the subject
of this Agreement, including , without limitation, the following: (i) any
building, zoning or use laws, ordinances, regulations or orders and (ii)
Environmental Laws.
"License" shall mean any license, permit, decree, act, order, authorization
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or other approval or instrument which is necessary in order to operate the Inn
in accordance with Legal Requirements and pursuant to the Residence Inn System
Standards and otherwise in accordance with this Agreement.
"Litigation" shall mean: (i) any cause of action commenced in a federal,
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state or local court; and (ii) any claim brought before an administrative agency
or body (for example, without limitation, employment discrimination claims).
"Loan Priority Basis" shall mean the sum total, as of any given point in
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time during the Term, of: (i) the amount shown on Exhibit "A-l"; plus (ii) any
Additional Invested Capital expended by Owner, less the amount of any
condemnation award received by Owner and not applied to restoration of the Inn
pursuant to Section 15.2.B.
"Management Analysis Report" shall mean a report which, if required
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pursuant to Section 9.1.B, shall be prepared by Management Company and delivered
to Owner and shall include a narrative description regarding the preceding
Fiscal Year, of: (i) the Inn's operating performance, including significant
variations from the Annual Operating Budget; (ii) an analysis of any significant
variation of the actual average daily revenue per available room from what was
set forth in the Annual Operating Budget; (iii) a review of the competitive
hotel market; (iv) a calculation of the Revenue Index, and Operating Profit less
Ground Lease Rental, if any, compared to the Performance Termination Threshold;
and (v) such
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other supplementary information as Owner or Management Company shall reasonably
deem necessary to an understanding of the operation of the Inn.
"Management Company" shall have the meaning set forth in the Preamble.
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"Management Fees" shall mean the Base Management Fee, the Deferred
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Contingent Base Management Fees, the Residence Inn System Fee and the Incentive
Management Fee.
"Marriott" shall mean Marriott International, Inc., a Delaware corporation
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having an address at 00000 Xxxxxxxx Xxxx, Xxxxxxxx, Xxxxxxxx 00000.
"Mortgage" shall mean any security instrument which encumbers real
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property, including, without limitation, mortgages, deeds of trust, security
deeds and similar instruments.
"Net Operating Profit" shall mean the greater of (i) the excess, if any, of
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Operating Profit less Owner's Priority, or (ii) zero (0).
"Non-Disturbance Agreement" shall mean an agreement, in recordable form in
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the jurisdiction in which the Inn is located, executed and delivered by a Holder
(which agreement shall by its terms be binding upon all Subsequent Owners), for
the benefit of Management Company, pursuant to which, in the event such Holder
or any Subsequent Owner comes into possession of or acquires title to the Inn
either at or following a Foreclosure, such Holder and all Subsequent Owners
shall (x) recognize Management Company's rights under this Agreement, and (y)
shall not name Management Company as a party in any Foreclosure action or
proceeding, and (z) shall not disturb Management Company in its right to
continue to manage the Inn pursuant to this Agreement; provided, however, that
at such time: (i) this Agreement has not expired or otherwise been earlier
terminated in accordance with its terms; (ii) there are no outstanding Events of
Default by Management Company, and (iii) no material event has occurred and no
material condition exists which, after notice or the passage of time or both,
would entitle Owner to terminate
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this Agreement.
"Operating Accounts" shall have the meaning set forth in Section 9.2.
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"Operating Loss" shall mean a negative Operating Profit.
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"Operating Profit" shall mean, in each Fiscal Year during the Term of this
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Agreement, the excess of Gross Revenues over the following deductions
("Deductions") incurred by Management Company or its Affiliates (or, in the case
of any Owner Deductions, by Owner) in operating the Inn:
1. The cost of sales including, without limitation, salaries, wages,
employee benefits, Employee Claims (except to the extent specifically set
forth to the contrary in Section 14.1.C or 14.1.D), payroll taxes and other
costs related to Inn employees;
2. Departmental expenses; administrative and general expenses; the
cost of Inn advertising and business promotion; all utility costs,
including but not limited to the cost of heat, light, power and water; and
the cost of routine repairs, maintenance and minor alterations which are
treated as Deductions under Section 8.1;
3. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of the Inn;
4. A reasonable reserve for uncollectible accounts receivable as
determined by Management Company;
5. All reasonable costs and fees of independent professionals or
other third parties who are retained by Management Company to perform
services required or permitted hereunder; provided that Management Company
will notify Owner at least thirty (30) days in advance of any proposed
expenditure under this paragraph 5 which
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is in excess of Twenty Thousand Dollars ($20,000) and which was not
specifically identified in the Annual Operating Budget, and Management
Company shall consider in good faith any comments which Owner may have with
respect to such proposed expenditure; and provided, further, that if such
expenditure involves immediately-needed repair work to the Inn or if
immediate action is otherwise required, the above described requirement
regarding thirty (30) days' prior notice shall be modified to require
whatever notice period is reasonable under the circumstances;
6. The reasonable cost and expense of technical consultants and
operational experts who are employees of Management Company or one of its
Affiliates, and who perform specialized services in connection with non-
routine Inn work; provided, however, that the costs and expenses so
incurred shall only be Deductions to the extent such costs and expenses are
reasonable and competitively priced, as compared to similar work done by
outside consultants or experts; and provided, further, that Management
Company will notify Owner at least thirty (30) days in advance of any
proposed expenditure under this paragraph 6 which is in excess of Twenty
Thousand Dollars ($20,000.00) and which was not specifically identified in
the Annual Operating Budget, and Management Company shall consider in good
faith any comments which Owner may have with respect to such proposed
expenditure; and provided, further, that if such expenditure involves
immediately-needed repair work to the Inn or if immediate action is
otherwise required, the above-described requirement regarding thirty (30)
days' prior notice shall be modified to require whatever notice period is
reasonable under the circumstances;
14
7. The Residence Inn System Fee;
8. Subject to Section 11.3.B, the Inn's pro rata share of costs and
expenses incurred by Management Company (or its Affiliate) in providing
Chain Services;
9. Insurance costs and expenses as provided in Section 12.4.B;
10. Taxes, if any, payable by or assessed against Management Company
related to this Agreement or to Management Company's operation of the Inn
(exclusive of Management Company's income taxes or franchise taxes) and all
Impositions assessed against the Inn;
11. Amounts which are required to be transferred into the FF&E
Reserve in accordance with the provisions of Section 8.2;
12. Transfers required to be made, as they may change from time to
time, to the System Marketing Fund, in order for the Inn to remain a member
of the System; (such contributions are presently two and one-half percent
(2 1/2%) of Suite Revenues);
13. The reimbursement to Owner of the amount of any Owner Deductions;
14. Lease payments pursuant to the leases of Shuttle Vehicles and
Telephone and Office Equipment (to the extent Management Company has not
elected to make such payments from the FF&E Reserve);
15. The payment to Management Company of the cost of preparing the
Management Analysis Report pursuant to Section 9.1.B; and
16. Such other costs and expenses incurred by Management Company or
its Affiliates (not including the costs and expenses included in the
Residence Inn System Fee) as are specifically provided for elsewhere in
this Agreement or are otherwise
15
reasonably necessary for the proper and efficient operation of the Inn
(including, without limitation, the costs and expenses of all functions
described in Section 2.3, to the extent such costs and expenses are not
already treated as Deductions elsewhere in this definition of Operating
Profit, unless, and to the extent that, any such costs and expenses are
specifically stated not to be Deductions under any provision of this
Agreement).
The term "Deductions" shall not include: (i) debt service payments pursuant
to any Secured Loan; nor (ii) rental payments pursuant to any ground lease of
the Site; both of the foregoing shall be paid by Owner from its own funds, and
not from Gross Revenues nor from the FF&E Reserve.
"Owner" shall have the meaning set forth in the Preamble. Subject to
-----
compliance with Articles XVIII and XIX of this Agreement, the term "Owner" shall
include all successors and assigns of the entity identified as the "Owner" in
the Preamble.
"Owner Deductions" shall mean amounts paid by Owner with respect to: (i)
----------------
premiums for the insurance policies described in Section 12.4; and (ii)
reasonable costs of any negotiations or Litigation with respect to any contest
of Impositions, as described in Section 13.1.A; provided, however, that to the
extent Owner spends in excess of Five Thousand Dollars ($5,000.00) with respect
to any contest of Impositions and has not received Management Company's consent
as provided in Section 13.1.A, then any amount in excess of such Five Thousand
Dollars ($5,000.00) or such greater amount as may be approved by Management
Company, shall not be considered an Owner Deduction. Except as specifically set
forth in Section 8.2.F.2, the amount of any Owner Deductions paid by Owner shall
be reimbursed to Owner (as a Deduction) in the Fiscal Year in which they were
paid. Owner shall give Management Company prompt notice of any amounts it has
paid which constitute
16
Owner Deductions together with such evidence of payment as Management Company
may reasonable require.
"Owner's Distribution" shall mean, with respect to each Fiscal Year or
--------------------
portion thereof during the Term, funds distributed to Owner in accordance with
the provisions of Section 5.2 hereof which shall equal Operating Profit less any
Base Management Fees, Deferred Contingent Base Management Fees and Incentive
Management Fees paid to Management Company.
"Owner's Priority" shall mean, with respect to each Fiscal Year (prorated
----------------
for any partial Fiscal Years) during the Term of this Agreement, a dollar amount
equal to ten percent (10%) of the Priority Basis for that Fiscal Year.
If the Inn has an Existing Ground Lease, the annual rental payments for such
Fiscal Year (prorated for any partial Fiscal Year), shall be added to the
Owner's Priority.
"Performance Termination Threshold" shall mean, with respect to each full
---------------------------------
Fiscal Year during the Term of this Agreement, the dollar amount set forth on
Exhibit "A-l", plus eight percent (8%) of any Additional Invested Capital
expended by Owner pursuant to clause (ii) of the definition of Priority Basis;
provided, however, that the aforesaid dollar amount shall be adjusted, as of the
tenth (l0th) anniversary of the Effective Date, in an amount equal to seventy-
five percent (75%) of the percentage change in the GDP Deflator between the
Effective Date and the tenth (l0th) anniversary of the Effective Date; provided
that, in no event will the Performance Termination Threshold be lower than it is
as of the Effective Date; and provided further, that in calculating the
aforesaid change in the GDP Deflator during such period of time, both (i) the
two (2) years having the highest annual rates of change in the GDP Deflator
during such period, and (ii) the two (2) years having the lowest annual rates of
change in the GDP Deflator during such period, shall be ignored, and such
17
percentage change in the GDP Deflator between the Effective Date and the tenth
(l0th) anniversary of the Effective Date shall be recalculated, for purposes of
this Agreement, using as the rate of change in the GDP Deflator for each of such
four (4) excluded years (i.e., those years described in clauses (i) and (ii),
above) the average annual rate of change in the GDP Deflator during the non-
excluded years; and provided further that, to the extent that certain portions
of the Performance Termination Threshold, as of immediately prior to such
tenth (l0th) anniversary adjustment, reflect expenditures which qualify as
Additional Invested Capital, the aforesaid GDP Deflator adjustment shall be
calculated with respect to such portions by using, as the base, not the GDP
Deflator as of the Effective Date, but rather the GDP Deflator as of either the
date of such expenditure or if construction is involved) the date on which the
items in question were substantially completed.
"Post-Foreclosure Decision Date" shall have the meaning set forth in
------------------------------
Section 6.6.
"Prime Rate" shall mean the "prime rate" as published in the "Money Rates"
----------
section of The Wall Street Journal; however, if such rate is, at any time during
-----------------------
the Term, no longer so published, the term "Prime Rate" shall mean the average
of the prime interest rates which are announced, from time to time, by the three
(3) largest banks (by assets) headquartered in the United States which publish a
"prime rate."
"Priority Basis" shall mean the sum total, as of any given point in time
--------------
during the Term, of: (i) the dollar amount shown on Exhibit "A-l"; plus (ii)
any Additional Invested Capital expended by Owner; provided that each
expenditure of Additional Invested Capital shall be added to the Priority Basis
at such date or dates as the expenditure occurred, taking into consideration at
what point (or points) during the Fiscal Year such expenditure occurred; less
(iii) the amount of any condemnation award received by Owner and not applied to
restoration of the Inn pursuant to Section 15.2.B.
18
"Proprietary Marks" shall mean all trademarks, trade names, symbols, logos,
-----------------
slogans, designs, insignia, emblems, devices, service marks and distinctive
designs of buildings and signs, or combinations thereof, which are used to
identify inns in the Residence Inn chain. The names "Marriott", "Residence Inn"
and "Residence Inn By Marriott", and any of the foregoing used in conjunction
with other words or names, are examples without limitation of Proprietary Marks.
The term "Proprietary Marks" shall include all present and future Proprietary
Marks, whether (ii) that such Holder is a "Qualified Lender" pursuant to the
terms of this Agreement.
"Qualified Loan" shall mean any Secured Loan in which the initial principal
--------------
amount, as of the date such Secured Loan is incurred, when added to the current
principal balance of all existing Secured Loans as of that date, is less than or
equal to the greater of the following:
(i) Seventy percent (70%) of the Loan Priority Basis; or
(ii) the result obtained by (a) dividing the Operating Profit for the
thirteen (13) most recent full Accounting Periods by the Coverage
Ratio; then, (b) multiplying the result of clause (a) by the
Capitalization Multiple; or
(iii) the existing balance of any Secured Loans encumbering the Inn
immediately prior to the date of the incurrence of such Qualified
Loan, plus commercially reasonable Transaction Costs associated with
such refinancing, up to an amount equal to four percent (4%) of the
principal amount of such Qualified Loan.
In addition, regardless of whether or not the above test set forth in clauses
(i), (ii) and (iii) is satisfied, the existing (as of the Effective Date)
balance of any Secured Loan which is secured by an Existing Mortgage shall be
deemed to be a "Qualified Loan".
"Qualified Loan Acceleration" shall mean the acceleration of the
---------------------------
indebtedness incurred pursuant to any Qualified Loan, as a result of a default
under the terms and conditions of such Qualified Loan.
19
"Renewal Terms" shall have the meaning set forth in Section 4.1.
-------------
"Residence Inn System Fee" shall during any given Fiscal Year (or portion
------------------------
thereof), be equal to four percent (4%) of Gross Revenues. It shall mean an
amount paid to Management Company for the Residence Inn System Services.
"Residence Inn System" shall mean the Residence Inn hotel system managed by
--------------------
Marriott (or one or more of its Affiliates) which is, as of the Effective Date,
operated under the trade name "Residence Inn by Marriott" or Marriott Residence
Inn".
"Residence Inn System Services" shall mean the following services which are
-----------------------------
paid for by the Residence Inn System Fee: System financial planning and policy
services; product planning and development; human resources management and
planning for the Residence Inn System (but not any particular inn within the
Residence Inn System); protection of the "Marriott Residence Inn" "Residence Inn
by Marriott," and "Residence Inn" trade names, trademarks, logos and
servicemarks; and the development and implementation of Management Company's
technical and operational programs designed for the periodic inspection and
consultation visits to the inns in the Residence Inn System (but not the
services of the personnel of the Architecture and Construction Division of
Management Company providing architectural, technical or procurement services
for the Inn, which shall be treated as a Deduction described in paragraph 6 of
the definition of "Operating Profit").
"Residence Inn System Standards" shall mean both the operational standards
------------------------------
(for example, staffing, amenities offered to guests, advertising, etc.) and the
physical standards (for example, the quality, condition, utility and age of the
FF&E, etc.) of Residence Inn hotels in the Marriott chain as such operational
and physical standards may fluctuate from time to time (provided, however, that
the Residence Inn System Standards shall in no event be lower than the
operational and physical standards, as of the date in question, of
20
comparable extended stay hotels in other hotel systems which are comparable to
the Residence Inn System).
"Restricted Area" shall mean that area which is shown on the map attached
---------------
hereto as Exhibit "D", as described in the narrative which is set forth in
Exhibit "D-1".
"Restricted Inn" shall mean any hotel whose size, facilities and market
--------------
positioning are such that, if such hotel had been operated by Management Company
or one of its Affiliates as of the Effective Date, it would have been operated
as a member of the Residence Inn System (that is, as an extended-stay hotel, as
opposed to a full service hotel or one of the other limited service brands also
operated by Affiliates of Management Company i.e. Courtyard by Marriott or
Fairfield Inn). The term "Restricted Inn" shall not include any one or more of
the following: (i) any existing (as of the Effective Date) member of the
Residence Inn System which is within the Restricted Area; (ii) any Courtyard by
Marriott (or other similar moderate-price lodging product) or any Fairfield Inn
(or other similar economy priced lodging product); (iii) any full service, suite
or resort hotel; (iv) any hotel or hotels which are members of a chain of hotels
(provided that such chain has a minimum of four (4) or more hotels in
operation), all or substantially all (but in no event less than four (4) hotels)
of which is acquired by, or merged with, or franchised by or joined through
marketing agreement with, Management Company or one of its Affiliates (or the
operation of which is transferred to Management Company or one of its
Affiliates); (v) any hotel or hotels which are members of a group of hotels
which is (in a single transaction with a single seller or transferor) acquired
by or merged with, or franchised by or joined through marketing agreement, with
Management Company or one of its Affiliates (or the operation of which is
transferred to Management Company or one of its Affiliates), provided that such
group of hotels contains no fewer than four (4) hotels; (vi) any future lodging
product developed by
21
Management Company or one of its Affiliates which is not a lodging product which
would have been included within the Residence Inn System, as such system existed
as of the Effective Date; or (vii) any existing non-Marriott hotel within the
Restricted Area which is specifically designated on Exhibit D-1 as not being a
Restricted Inn.
"Revenue Data Publication" shall mean Xxxxx'x STAR Report, a monthly
------------------------
publication distributed by Xxxxx Travel Research, Inc. of Gallatin, Tennessee or
an alternative source, reasonably satisfactory to both parties, of data
regarding the Revenue Per Room of hotels in the general trade area of the Inn.
The "competitive set" for the Inn shall be determined (with periodic
adjustments) by Management Company, subject to Owner's approval (such approval
not to be unreasonably withheld). If such Xxxxx'x STAR Report is discontinued
in the future, or ceases (in the reasonable opinion of either Owner or
Management Company) to be a satisfactory source of data regarding the Revenue
Per Room of various hotels in the general trade area of the Inn, Management
Company shall select an alternative source, subject to Owner's approval (such
approval not to be unreasonably withheld). If the parties fail to agree on
either such competitive set or such alternative source, as the case may be,
within a reasonable period of time, the matter shall be resolved by arbitration
pursuant t O Section 20.13.
"Revenue Index" shall mean that fraction which is equal to (a) the Revenue
-------------
Per Room for the Inn, divided by (b) the average Revenue Per Room for the hotels
in the Inn's competitive set (including the Inn), as set forth in the Revenue
Data Publication. Appropriate adjustments shall be made in the event of a major
renovation of the Inn.
"Revenue Index Threshold" shall mean the number set forth on Exhibit "A-l"
-----------------------
hereto. However, if the entry of a new hotel into the Inn's competitive set (or
the removal of a hotel from such competitive set) causes significant variations
in the Revenue Index which do not
22
reflect the Inn's true position in the relevant market, appropriate adjustments
shall be made to the Revenue Index Threshold by mutual consent of Owner and
Management Company (neither such consent to be unreasonably withheld).
"Revenue Per Room" shall mean, (i) the term "revenue per room" as defined
----------------
by the Revenue Data Publication or (ii) if the Revenue Data Publication is no
longer being used (as more particularly set forth in the definition of "Revenue
Data Publication"), the aggregate gross room revenues of the hotel in question
for a given period of time divided by the total room nights for such period. If
clause (ii) of the preceding sentence is being used, a "room" shall be a hotel
guest room which is keyed as a single unit, and shall include rooms which are
temporarily unavailable due to: (i) maintenance, or (ii) ongoing renovation
work.
"Sale/Leaseback Transaction" shall have the meaning set forth in Section
--------------------------
6.10.
"Sale of the Inn" shall mean any sale, assignment, transfer or other
---------------
disposition, for value or otherwise, voluntary or involuntary, of Owner's title
to the Inn or the Site (either fee or leasehold title, as the case may be), but
shall not include a collateral assignment intended to provide security for a
loan. For purposes of this Agreement, a "Sale of the Inn" shall also include a
lease (or sublease) of the entire Inn or Site. The phrase "Sale of the Inn"
shall also include any sale, transfer, or other disposition, for value or
otherwise, in a single transaction or a series of related transactions, of the
controlling interest in Owner. If Owner is a corporation, the phrase
"controlling interest" shall mean the right to exercise, directly or indirectly,
fifty percent (50%) or more of the voting rights attributable to the shares of
Owner (through ownership of such shares or by contract). If Owner is not a
corporation, the phrase "controlling interest" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of Owner. Notwithstanding the foregoing, the term "Sale
of the Inn" shall not include any sale,
23
assignment, transfer or other disposition of the Inn or the Site by Owner to an
Affiliate of Owner.
"Second Notice" shall have the meaning set forth in Section 6.2.
-------------
"Secured Loan" shall mean and include: (i) any indebtedness secured by a
------------
Mortgage encumbering the Inn or all or any part of Owner's interest therein; and
(ii) all amendments, modifications, supplements and extensions of any such
Mortgage.
"Settlement Threshold Amount" shall mean the greater of (i) One Hundred
---------------------------
Thousand Dollars ($100,000) ( as adjusted by the GDP Deflator); or (ii) a
dollar amount (to be re-determined whenever reasonably necessary) equal to the
highest amount paid in a representative sampling of Employee Claims, which have
been settled within the preceding twelve (12) months where each of such
settlements can be reasonably characterized as being (i) within the normal
course of business at the Inn, and (ii) within the range of similar settlements
at other hotels comparable to the Inn. Any dispute between the parties as to
the appropriate amount under clause (ii) of the preceding sentence shall be
submitted to arbitration under Section 20.13.
"Shuttle Vehicles" shall mean any car, van, bus or similar motor vehicle
----------------
used primarily for the purpose of transporting Inn guests.
"Site" shall mean the parcel or parcels of land described in Exhibit "A"
----
attached hereto.
"Soft Goods" shall mean all fabric, textile and flexible plastic products
----------
(not including items which are classified as "Fixed Asset Supplies" under the
Uniform System of Accounts) which are used in furnishing the Inn, including,
without limitation: carpeting, drapes, bedspreads, wall and floor coverings,
mats, shower curtains and similar items.
24
"Software" shall mean all computer software and accompanying documentation
--------
(including all future upgrades, enhancements, additions, substitutions and
modifications thereof), other than computer software which is commercially
available, which are used by Management Company in connection with the property
management system, the reservation system and all future electronic systems
developed by Management Company for use in the Inn.
"Subsequent Owner" shall mean any individual or entity which acquires title
----------------
to or possession of the Inn at or through a Foreclosure.
"Suite" shall mean a lodging unit in the Inn.
-----
"Suite Revenues" shall mean that portion of the Gross Revenues of the Inn
--------------
which is attributable to the rental of Suites.
"System Marketing Fund" shall mean that certain fund (or any successor to
---------------------
such fund) maintained by Management Company or one of its Affiliates, in its
capacity as franchisor of the System, to pay for the following System costs: all
costs associated with developing, preparing, producing, directing,
administering, conducting, maintaining and disseminating advertising, marketing,
promotional and public relations materials, programs, campaigns, sales and
marketing seminars and training programs, and similar activities of every kind
and nature, including the Residence Inn directory; conducting market research;
and paying the central operational costs of the Residence Inn reservation
system; provided, however, that any costs described in this definition of System
Marketing Fund may, at the option of the Management Company and The Residence
Inn Association, be charged directly to each inn in the System on the basis of
actual use by or benefit to each inn and, in such event, shall become
Deductions.
25
"Telephone and Office Equipment" shall mean the following equipment used in
------------------------------
the Inn and all ancillary equipment: (i) telephones; (ii) miscellaneous office
equipment such as copiers, postage meters, etc.; (iii) television sets; and (iv)
audiovisual equipment.
"Term" shall mean the Initial Term plus all Renewal Terms.
----
"Termination" shall mean the expiration or sooner cessation of this
-----------
Agreement.
"The Residence Inn Association" (TRIA) is an advisory council to owners and
-----------------------------
franchisees of the Residence Inn System with respect to advertising, marketing,
reservations and other matters relating to Residence Inn System hotels. All
owners, franchisees of the Residence Inn System and Owner shall be members of
TRIA.
"Transaction Costs" shall mean, with respect to the incurring of any
-----------------
Secured Loan, all normal transaction costs (to the extent actually incurred)
including, without limitation, the following: state and local transfer taxes;
escrow fees; recording costs; Mortgage recording taxes; costs of any survey
required by the Holder; reasonable fees of the Holder's outside attorneys and
accountants; appraisal fees; title insurance premiums; financing costs
(including "points"); reasonable attorneys' fees of Owner in connection with
such Secured Loan; environmental inspection, testing and reporting fees to the
extent required by the Holder; and brokerage commissions (provided that no such
brokerage commissions shall be recognized as "Transaction Costs" hereunder if
they are made to a person or entity affiliated with Owner, to the extent (if
any) that such payments exceed the normal customary amounts).
"Uniform System of Accounts" shall mean the Uniform System of Accounts for
--------------------------
Hotels, Eighth Revised Edition, 1986, as published by the Hotel Association of
New York City, Inc.
"Working Capital" shall mean assets which are used in the day-to-day
---------------
operation of the Inn's business, including, without limitation, amounts kept in
xxxxx cash funds,
26
amounts deposited in operating bank accounts, receivables, prepaid expenses and
funds expended to purchase Inventories, less accounts payable and accrued
current liabilities.
ARTICLE II
APPOINTMENT OF MANAGEMENT COMPANY
---------------------------------
2.1 Appointment. Owner hereby appoints and employs Management Company as
-----------
Owner's exclusive agent to supervise, direct and control the management and
operation of the Inn for the Term provided in Article IV. Management Company
accepts said appointment and agrees to manage the Inn during the Term of this
Agreement in accordance with the terms and conditions hereinafter set forth. The
performance of all activities by Management Company hereunder shall be for the
account of Owner.
2.2 Delegation of Authority. Except as otherwise specifically set forth in
-----------------------
this Agreement, Inn operations shall be under the exclusive supervision and
control of Management Company which, shall be responsible for the proper and
efficient operation of the Inn. Management Company shall have discretion and
control, free from interference, interruption or disturbance, but in all
respects subject to the provisions of this Agreement, in all matters relating to
management and operation of the Inn, including, without limitation, the
following: charges for Suites and commercial space; credit policies; food and
beverage services; employment policies; granting of leases, parking services,
licenses and concessions for shops and agencies within the Inn (provided that
the term of any such lease, license or concession shall not exceed the Term of
this Agreement and provided further that Owner's consent shall be required prior
to the execution by Management Company of any such lease, license or concession
which pertains to the Inn, and which (i) has a term of more than five (5) years;
or (ii) involves more than five hundred (500) square feet of space within the
Inn);
27
receipt, holding and disbursement of funds; maintenance of bank accounts;
procurement of Inventories, supplies and services; promotion and publicity; and,
generally, all activities necessary for operation of the Inn.
2.3 Operational Standards. In accordance with the Residence Inn System
---------------------
Standards and the other terms of this Agreement, Management Company shall, in
connection with the Inn, perform each of the following functions (provided that
in all cases, except as otherwise specifically set forth in this Agreement-, the
costs and expenses of performing such functions shall be Deductions):
A. Obtain and keep in full force and effect, either in its own name
on behalf of Owner or in Owner's name, as may be required by the Legal
Requirements, any and all Licenses to the extent same is within the control of
Management Company (or, if same is not within the control of Management Company,
Management Company shall use all due diligence and reasonable efforts to obtain
and keep same in full force and effect).
B. Recruit, employ, supervise, direct and (when appropriate)
discharge all of the employees at the Inn.
C. Establish and revise, as necessary, administrative policies and
procedures, including policies and procedures for the control of revenue and
expenditures, for the purchasing of supplies and services, for the control of
credit, and for the scheduling of maintenance, and verify that the foregoing
procedures are operating in a sound manner.
D. Plan, execute, and supervise repairs and maintenance at the Inn.
E. Procure (as agent for Owner) all Fixed Asset Supplies and
Inventories.
F. Maintain the Operating Accounts.
28
G. Prepare and deliver Accounting Period Statements, Annual Operating
Statements, Annual Operating Budgets, Building Estimates, FF&E Estimates, and
such other budgets and reports as are required by this Agreement.
H. Establish prices, rates and charges for services provided in the
Inn, including Suite rates.
I. As agent for Owner, negotiate and enter into leases, concessions
and licenses for shops and other facilities within the Inn.
J. Administer the leases, concessions and licenses for shops and
other facilities within the Inn (whether entered into pursuant to subsection I,
above, or otherwise).
K. Provide services included in the Residence Inn System Fee and the
Chain Services.
L. Provide, or cause to be provided, risk management services
relating to the types of insurance required to be obtained or provided by
Management Company under this Agreement, provided that the costs and expenses of
providing such services are to be paid as described in Section 12.4.B.
M. Reasonably cooperate with Owner concerning: (i) disputes with any
Holder regarding the Inn, (ii) contests of Impositions and Legal Requirements;
and (iii) adjustments of insurance claims and condemnation awards involving the
Inn.
N. Reasonably cooperate (provided that Management Company shall not,
except as otherwise specifically set forth in Section 6.1, be obligated to enter
into any amendments of this Agreement) with Owner in any attempt(s) by Owner to
effectuate a Sale of the Inn (provided that nothing herein shall affect the
provisions of Section 20.05), or to obtain any Secured Loan. If given
reasonable notice, such cooperation shall include, without limitation: (i)
answering any reasonable questions by prospective purchasers and Holders;
29
(ii) preparing lists and schedules of leases, concessions, FF&E, Fixed Asset
Supplies, Inventories, and similar items (but specifically excluding customer
lists); and (iii) making such certifications and representations to Owner, to
such purchasers and to such Holders, regarding the Inn and the operation
thereof, as Owner may reasonably request (taking into account the extent of
Management Company's control and responsibility provided for hereunder). Owner
shall promptly reimburse Management Company, from its own funds and not as a
Deduction, for the reasonable costs and expenses incurred by Management Company
in connection with any actions necessary to comply with the requirements of this
Section 2.3.N, provided that such actions are not otherwise required under other
provisions of this Agreement.
O. Arrange for and supervise public relations and advertising, and
prepare annual marketing plans.
P. Endeavor to manage the timing of expenditures to replenish
Inventories, Fixed Asset Supplies, payments on accounts payable and collections
of accounts receivable, so as to avoid or minimize any cash deficits with
respect to Inn operations, which deficits would otherwise require additional
funding of Working Capital by Owner.
Q. Comply with all provisions in the Existing Ground Lease and in any
Existing Mortgages which are by their terms applicable to the operation of the
Inn; provided, however, that all practices and procedures used by Management
Company in the operation of the Inn as of the Effective Date shall be deemed to
be in compliance with the Existing Ground Lease and all Existing Mortgages; and
provided further, that if either the Ground Lessor or any Holder under an
Existing Mortgage shall, from time to time, notify Management Company that it
has determined that certain practices and procedures which are used by
Management Company in the operation of the Inn are not in compliance with the
30
provisions of the Existing Ground Lease or such Existing Mortgage (as the case
may be), Management Company shall promptly alter such practices and procedures
to ensure such compliance; and provided further, that if such compliance would
require work by Management Company which is beyond the normal course of Inn
operations, or would impose additional financial burdens on the Inn which are,
beyond the normal course of Inn operations, Owner (from its own funds, not as a
Deduction) shall compensate Management Company for such work and such additional
burdens.
2.4 Limitations on Authority.
------------------------
A. Notwithstanding anything in Section 2.2 or elsewhere in this
Agreement to the contrary (unless otherwise stated in this Section 2.4), and in
addition to the various other provisions of this Agreement which prohibit
Management Company from taking certain actions or which allow certain actions
only if Owner's consent thereto has been obtained, Management Company shall not,
without the prior written approval of Owner, which approval Owner may withhold
in its sole discretion, perform any of the following actions in connection with
the Inn and on behalf of or burdening Owner:
1. Acquiring any land or interest therein;
2. Acquiring any capital assets or interest therein except: (i)
items in the approved Building Estimate, and (ii) FF&E, Fixed Asset
Supplies and Inventories (to the extent the same constitute capital assets)
in the ordinary course of business as expressly provided for in this
Agreement;
3. Financing, refinancing or mortgaging of any portion of the Inn or
the revenue due to Owner therefrom;
4. Selling (other than dispositions of FF&E, Fixed Asset Supplies
and Inventories in the ordinary course of business as expressly provided
for in this Agreement), leasing (other than as expressly provided for in
this
31
Agreement, including without limitation, Section 2.2 of this Agreement) or
other transferring of, or the pledging or placing of any lien or
encumbrance on, any part of the Inn;
5. In the event of a total or partial condemnation, consenting to any
award or participating in any condemnation proceeding, except as expressly
provided for in this Agreement;
6. Entering into, modifying or terminating any lease, concession or
License, except to the extent permitted under Section 2.2;
7. Adjusting any claim or settling any Litigation which (i) is not
covered by any of the insurance policies described in Article XII and is
not an Employee Claim, and which would result in a Deduction or payment in
excess of Two Hundred Fifty Thousand Dollars ($250,000.00) in any Fiscal
Year, as adjusted by the GDP Deflator, or (ii) would impose on Owner any
material liability or obligation other than the payment of money, or would
require Owner to make any material admission; or
8. Adjusting any claim, under the applicable property insurance
policies, regarding injury or damage to the Inn or its contents, where the
estimated cost of restoration is in excess of Five Hundred Thousand Dollars
($500,000.00), as adjusted by the GDP Deflator.
2.5 Covenants, Conditions or Restrictions
-------------------------------------
A. As of the Effective Date, there are existing covenants,
conditions, restrictions and/or agreements, including reciprocal easements or
cost-sharing arrangements (all of the foregoing types of encumbrances on the
Inn, or agreements relating to the Inn, whether existing as of the Effective
Date or not, shall be collectively referred to as "CC&R's"; those CC&R's which
are in existence as of the Effective Date shall be referred
32
to in this Agreement as "Existing CC&R's"). Management Company hereby
gives its consent to all Existing CC&R's. Except as otherwise specifically set
forth to the contrary in Exhibit "F" hereto, all costs, expenses and charges
which are imposed on the Inn under the Existing CC&R's shall be paid from Gross
Revenues as Deductions. Those certain costs, expenses and charges which are
described on Exhibit "F" hereto as "capital charges" shall be paid by Owner,
from its own funds, and all such payments shall be treated for purposes of this
Agreement as Additional Invested Capital expended by Owner.
B. CC&R's which are entered into, or become encumbrances on the Inn
and/or the Site, after the Effective Date shall be referred to in this Agreement
as "Future CC&R's". Owner agrees that it will give Management Company, for
Management Company's prior approval, written notice of its intention to execute
any Future CC&R's, such notice to be reasonably in advance of the execution
thereof. Owner covenants that, during the Term of this Agreement, there will not
be (unless Management Company has given its prior written consent thereto) any
Future CC&R's affecting the Site or the Inn- (i) which purport to impose any
material financial obligations on the Inn; (ii) which would prohibit or limit
Management Company from operating the Inn in accordance with the Residence Inn
System Standards; or (iii) which would allow Inn facilities (for example,
parking spaces) to be used by persons other than guests, invitees or employees
of the Inn.
C. All financial obligations imposed on Owner or on Management
Company or on the Inn pursuant to any Future CC&R's shall be paid by Owner from
its own funds, and not from Gross Revenues or from the FF&E Reserve, unless
Management Company has given its prior written consent to such Future CC&R's.
Management Company agrees that it will not unreasonably withhold its consent to
any such Future CC&R's; provided, however, that Management Company shall be
entitled to withhold its consent in its
33
discretion if a proposed Future CC&R would have a material impact on the
operation of the Inn, as described in clauses (i), (ii) or (iii) of Section
2.5.B. Upon receipt of such consent from Management Company, such sums shall be
Deductions in computing Operating Profit.
D. Owner shall not waive any protections which benefit the Hotel
pursuant to existing restrictive covenants without the prior written consent of
Management Company which consent shall not be unreasonably withheld, conditioned
or delayed.
2.6 Licenses and Permits
--------------------
Owner agrees that, upon request by Management Company, it will sign
promptly and without charge applications for Licenses.
ARTICLE III
OWNERSHIP OF THE INN
--------------------
3.1 Ownership of the Inn
--------------------
A. Each party acknowledges that the status of title to the Site and
to the Inn is as described on Exhibit "F" hereto; neither party will hold the
other party responsible for any defects in said status of title, and each party
hereby releases the other party from all claims stemming from any such defects.
B. Owner hereby covenants that, throughout the Term of this
Agreement, it will not change the status of title to the Site from that which is
described on Exhibit "F" hereto, except that Owner shall have the right either
(i) to effectuate of the Inn in accordance with Article XIX, or (ii) to encumber
the Site and the Inn with the following:
1. Mortgages which are given to secure any one or more Qualified
Loans;
2. Liens for Impositions or other public charges not yet due or which
are being contested in good faith; and
34
3. Easements or other encumbrances (not including those described in
subsection 1 or 2 above) which do not adversely affect the operation of the
Inn by Management Company and which are not prohibited pursuant to Section
2.5.B of this Agreement.
C. Owner shall indemnify, defend and hold Management Company and its
Affiliates harmless from claims by entities which have loaned money to Owner
that Management Company (or any of such Affiliates) owes any such lender all or
any portion of such indebtedness.
D. Management Company shall indemnify, defend and hold Owner and its
Affiliates harmless from claims by entities which have loaned money to
Management Company that Owner (or any of such Affiliates) owes any such lender
all or any portion of such indebtedness.
ARTICLE IV
TERM
----
4.1 Term
----
A. The initial term ("Initial Term") of this Agreement shall commence
with the Effective Date and, unless sooner terminated as herein provided, shall
continue until the expiration of Fiscal Year 2013. The Term shall thereafter be
automatically renewed for each of three (3) successive periods of ten (10) full
Fiscal Years each ("Renewal Terms"), unless either: (i) Management Company, at
its option, notifies Owner, in accordance with Section 20.9, at any time within
the period of eighteen (18) months prior to the expiration of the Initial Term
or the then current Renewal Term, as the case may be, of its intention not to
renew; or (ii) Management Company has committed an Event of Default, and has
been
35
notified by Owner of such Event of Default, under Article XVI of this Agreement,
as of the date of any such renewal.
B. If Management Company so notifies Owner of its intention not to
renew pursuant to Section 4.1.A, Management Company shall continue to manage the
Inn pursuant to this Agreement until the termination date set forth in such
notice, provided that such termination date shall be: (i) no less than twelve
(12) months after the date of such notice; and (ii) in no event earlier than the
expiration date of the Initial Term or the then current Renewal Term, as the
case may be. Such termination date may be after the expiration of the Initial
Term or the then current Renewal Term, as the case may be, provided that the
requirements of the preceding sentence are satisfied. However, if Management
Company has so notified Owner of its intention not to renew, Owner may, at its
option, by written notice to Management Company at least ninety (90) days prior
to the date on which Owner desires Termination to occur, reduce the period of
time prior to Termination to any shorter period of time which Owner desires,
provided that such shorter period of time shall be at least the greater of: (a)
ninety (90) days (beginning as of the date of such notice from Owner), or (b)
the minimum period of time which Management Company reasonably decides is
prudent, given the requirements of the applicable Employment Laws regarding
employee discharges. In no event shall the fact that Management Company may,
pursuant to the preceding sentence, be managing the Inn after the expiration of
the Initial Term or the then current Renewal Term, as the case may be, be
construed as an election by Management Company to renew the Term, if Management
Company has elected (in accordance with this Section 4.1) in writing not to so
renew.
C. If Owner has the right, under the provisions of the Existing
Ground Lease, to elect to renew or extend the term of the Existing Ground Lease,
Owner shall so
36
notify Management Company at least one hundred eighty (180) days (but no more
than one (1) year) prior to the expiration of the period within which Owner is
obligated to notify the Ground Lessor of its election to renew or extend the
term of the Existing Ground Lease. Such notice from Owner shall contain all of
the relevant facts about the impending election to renew or extend, including
the length of the period of renewal or extension. Unless Management Company
notifies Owner, within a period of ninety (90) days after receipt of the
foregoing notice from Owner, that Management Company disapproves the renewal or
extension of the term of the Existing Ground Lease, Owner will, by proper notice
to the Ground Lessor, within the applicable time period under the Existing
Ground Lease, elect to renew or extend the term of the Existing Ground Lease.
D. If, after proper notice from Owner in accordance with Section 4.1
C, Management Company fails to disapprove the renewal or extension of the term
of the Existing Ground Lease, the Term of this Agreement shall be deemed to be
automatically extended to the later of: (i) the expiration of the term of the
Existing Ground Lease, as renewed or extended in accordance with Section 4.1 C
or (ii) the date on which the Term Agreement would otherwise have expired absent
this sentence. If, in order to comply with the preceding sentence, it is
necessary for Management Company to waive its option not to renew with respect
to one or more Renewal Terms, such waiver shall be deemed to have been given;
however, Management Company shall retain the right not to renew (as more
particularly described in Section 4.1 A) as to any portion of such Renewal
Term(s) which would occur after the expiration of the term of the Existing-
Ground Lease, as renewed or extended in accordance with Section 4.1 C.
E. If, after proper notice from Owner in accordance with Section 4.1
C, Management Company disapproves the renewal or extension of the term of the
Existing
37
Ground Lease, the Term of this Agreement shall be deemed to be automatically
reduced to the earlier of: (i) the expiration of the term of the Existing Ground
Lease; or (ii) the date on which the Term of this Agreement would otherwise have
expired absent this sentence.
4.2 Actions to be Taken Upon Termination
------------------------------------
Upon a Termination of this Agreement, the following shall be applicable:
A. Management Company shall, within sixty (60) days after Termination
of this Agreement, prepare and deliver to Owner a final accounting statement
with respect to the Inn, as more particularly described in Section 9.1 hereof,
along with a statement of any sums due from Owner to Management Company pursuant
hereto, dated as of the date of Termination. Within thirty (30) days after the
receipt by Owner of such final accounting statement, the parties will make
whatever cash adjustments are necessary pursuant to such final statement. The
cost of preparing such final accounting statement shall be a Deduction, unless
the Termination occurs as a result of an Event of Default by either party, in
which case the defaulting party shall pay such cost. Management Company and
Owner acknowledge that there may be certain adjustments for which the necessary
information will not be available at the time of such final accounting, and the
parties agree to readjust such amounts and make the necessary cash adjustments
when such information becomes available; provided, however, that (unless there
are ongoing disputes of which each party has received notice) all accounts shall
be deemed final as of one hundred eighty (180) days after such Termination.
B. As of the date of the final accounting referred to in subsection A
above, Management Company shall release and transfer to Owner any of Owner's
funds which are held or controlled by Management Company with respect to the
Inn, with the exception of funds to be held in escrow pursuant to Section 12.4,
and Section 14.1.F.
38
During the period between the date of Termination and the date of such final
accounting, Management Company shall pay (or reserve against) all Deductions
which accrued (but were not paid) prior to the date of Termination, using for
such purpose any Gross Revenues prior to the date of Termination.
C. Management Company shall make available to Owner such books and
records respecting the Inn (including those from prior years, subject to
Management Company's reasonable records retention policies) as will be needed by
Owner to prepare the accounting statements, in accordance with the Uniform
System of Accounts, for the Inn for the year in which the Termination occurs and
for any subsequent year. Such books and records shall described in Sections 7.1,
10.2, 10.3, 10.4, 12.4.B, and 14.1.F.
D. Management Company shall peacefully vacate and surrender the Inn
to Owner.
The provisions of this Section 4.2 shall survive any Termination.
4.3 Performance Termination
-----------------------
A. Subject to the provisions of Section 4.3.B below, Owner shall have
the option to terminate this Agreement if:
1. With respect to any two (2) consecutive full Fiscal Years (not
including any Fiscal Year prior to Fiscal Year 1996), Operating Profit less
the amount of Ground Lease Rental, if applicable, for each of such two (2)
Fiscal Years is less than the Performance Termination Threshold; and
2. The Revenue Index of the Inn during each of such two (2)
consecutive Fiscal Years; is less than the Revenue Index Threshold; and
3. The fact that the Inn is not meeting the tests set forth in
Section 4.3.A(1) and (2) is not the result of either (x) Force Majeure, or
(y) any major
39
renovation of the Inn. Such option to terminate shall be exercised by
serving written notice thereof on Management Company no later than sixty
(60) days after the receipt by Owner of the annual accounting under Section
9.1 hereof for the second (2nd) of the two (2) Fiscal Years referred to in
Section 4.3.A(1). If Management Company does not elect to avoid such
Termination pursuant to Section 4.3.B below, this Agreement shall terminate
as of the end of the fourth (4th) full Accounting Period following the date
on which Management Company receives Owner's written notice of its intent
to terminate this Agreement; provided that such period of time shall be
extended as required by applicable Legal Requirements pertaining to the
termination of the employment of the employees at the Inn. Owner's failure
to exercise its right to terminate this Agreement pursuant to Section 4.3.A
with respect to any given Fiscal Year shall not be deemed an estoppel or
waiver of Owner's right to terminate this Agreement with respect to
subsequent Fiscal Years to which this Section 4.3.A may apply.
B. Upon receipt of Owner's written notice of Termination under
Section 4.3.A, Management Company shall have the option, to be exercised within
sixty (60) days after receipt of said notice, to avoid such Termination by
paying Owner an amount (the "Cure Payment") equal to one hundred five percent
(105%) of the amount by which Operating Profit less Ground Lease Rental, if any,
for either of the two (2) Fiscal Years in question (i.e., the two (2) Fiscal
Years referred to in Section 4.3.A(l)) was less than the Performance Termination
Threshold. Any such Cure Payment shall be accounted for as a fee to Owner in
connection with the avoidance of such Termination. In the event Management
Company makes a Cure Payment pursuant to this Section 4.3.B, the Fiscal Year
with respect to which such Cure Payment was made shall thereafter not be
treated, for
40
purposes of subsequent elections by Owner pursuant to Section 4.3.A, as a Fiscal
Year in which the circumstances described in Section 4.3.A(l) have occurred. If
Management Company exercises such option to make such Cure Payment, then the
foregoing Owner's election to terminate this Agreement under Section 4.3.A shall
be canceled and of no force or effect with respect to the two (2) Fiscal Years
in question and this Agreement shall not terminate. Such cancellation, however,
shall not affect the right of Owner, as to each subsequent Fiscal Year to which
Section 4.3.A applies, to again elect to terminate this Agreement pursuant to
the provisions of Section 4.3.A (which subsequent election shall again be
subject to Management Company's rights under this Section 4.3.B). If Management
Company does not exercise its option to make the Cure Payment then this
Agreement shall be terminated as of the date set forth in Section 4.3.A. Any
Cure Payment which is paid by Management Company pursuant to this Section 4.3.B
shall not be recoverable by Management Company. Any Cure Payment which is paid
by Management Company pursuant to this Section 4.3.B shall only operate to
cancel Owner's election to terminate this Agreement under Section 4.3.A, and
shall not operate to cure any outstanding Defaults by Management Company under
Article XVI.
ARTICLE V
COMPENSATION OF MANAGEMENT COMPANY: DISTRIBUTIONS
-------------------------------------------------
5.1 Management Fees
---------------
A. In consideration of services to be performed during the Term of
this Agreement, Management Company shall retain the Management Fees. Owner's
Priority and the Management Fees shall be appropriately prorated for any partial
Fiscal Year.
41
B. Notwithstanding the provisions of Article IX of this Agreement
permitting the consolidation of reports and co-mingling of certain funds with
other hotels owned by Owner, the Base Management Fee, Deferred Contingent Base
Management Fees, Residence Inn System Fee and Incentive Management Fee shall be
calculated based on the revenues generated by the Inn and not on a consolidated
basis with any other hotels which may be owned by Owner.
5.2 Distribution of Operating Profit
--------------------------------
In each Fiscal Year, Operating Profit shall be distributed to Owner and
Management Company in accordance with the following priorities:
A. Owner shall first receive an amount equal to the lesser of: (i)
Owner's Priority; or (ii) Operating Profit.
B. Management Company shall next receive the Base Management Fee;
provided, however, that if, in any Fiscal Year the Base Management Fee exceeds
Net Operating Profit, such Base Management Fee shall be deferred to the extent
of such excess and such deferred sums shall become "Deferred Contingent Base
Fees".
C. Management Company shall next receive an amount equal to the
Deferred Contingent Base Fees to the extent that Net Operating Profit is
otherwise sufficient for such purposes.
D. Management Company shall next receive an amount equal to the
Incentive Management Fee.
E. Owner shall receive all Operating Profit remaining after the
distributions made pursuant to the preceding subparagraphs of this Section 5.2.
5.3 Accounting and Interim Payments
-------------------------------
42
A. On or before the twentieth (20th) day after the close of each
Accounting Period, Management Company shall deliver to Owner a reasonably
detailed accounting statement (the "Accounting Period Statement") in
substantially the form set forth in Exhibit "B" hereto. Upon Owner's written
request therefor, Management Company shall forward copies of any such Accounting
Period Statement to any Holders or Ground Lessors, at the addresses specified by
Owner. Such Accounting Period Statement shall set forth the results of the
operations of the Inn for the preceding Accounting Period and for the Fiscal
Year-to-date, all in accordance with generally accepted accounting principles
applied on a consistent basis. Each Accounting Period Statement shall be
accompanied by a statement, by the Controller, Assistant Controller or Vice
President of the Management Company that, to the best of his or her knowledge
and belief, and subject to routine year-end audit and adjustment, such
Accounting Period Statement is true and correct in all material respects. Each
Accounting Period Statement shall include: (i) calculations of Gross Revenues,
Deductions, Operating Profit, the Management Fees; and (ii) comparisons with the
applicable categories for the prior Fiscal Year. With each such Accounting
Period Statement, Management Company shall transfer any interim Owner's
Distribution due to Owner, and shall retain any interim Management Fees due to
Management Company. Calculations and payments of the Management Fees and the
Owner's Distribution with respect to each Accounting Period within a Fiscal Year
shall be accounted for cumulatively. B. Within seventy-five (75) days after the
close of each Fiscal Year, Management Company shall submit an Annual Operating
Statement, as more fully described in Section 9.1, for such Fiscal Year to
Owner, which Annual Operating Statement shall be controlling over the interim
Accounting Period Statements. Any adjustments or payments required by any such
43
Annual Operating Statement shall be made promptly by the parties. Operating
Losses shall not be carried forward or backward to subsequent or prior Fiscal
Years.
5.4 Accounting for Period Prior to Effective Date
---------------------------------------------
A. It shall be a general principle in the accounting for the Inn that
all liabilities incurred and/or income generated prior to the Effective Date, or
properly allocated to the period prior to the Effective Date under generally
accepted accounting principles, shall be included in the Accounting Period
Statements and the Annual Operating Statements for the Inn pursuant to this
Agreement for the Fiscal Year in which such liabilities are paid or such income
is received, provided, however, that the foregoing shall not be reflected in the
computation of Operating Profit for purposes of Section 4.3.
B. As of the Effective Date, the cash on hand at the Inn shall be
deposited in one of the Operating Accounts set up by Management Company pursuant
to Section 9.2, and shall be treated as part of the Working Capital described in
Section 7.1.
ARTICLE VI
FINANCING OF THE INN
--------------------
6.1 Amendments of Management Agreement
----------------------------------
A. If requested by any Qualified Lender or prospective Qualified
Lender (in which event such amendments shall take effect as of the funding of
such Qualified Loan), Management Company agrees to execute and deliver any
amendment of this Agreement which is reasonably required by such Qualified
Lender or prospective Qualified Lender, provided that Management Company shall
be under no obligation to amend this Agreement if the result of such amendment
would be: (i) to reduce, defer or delay the amount of any payment to be made to
Management Company hereunder; (ii) to materially increase
44
Management Company's obligations under this Agreement; (iii) to change the Term
of this Agreement; (iv) to cause the Inn to be operated other than pursuant to
the Residence Inn System Standards; (v) to amend either Section 8.2 or Section
14.1; or (vi) to otherwise materially affect Management Company's rights under
this Agreement. Any such amendment shall take effect as of the funding of such
Qualified Loan.
B. In addition to the provisions of Section 6.1.A, if a Qualified
Lender or prospective Qualified Lender requests that Management Company enter
into an amendment of this Agreement, and if such amendment would impose
additional duties (for example, an increase in the reporting requirements or in
the record-keeping requirements, or adding the obligation to-prepare parallel
accounting statements using a different fiscal year) on Management Company or
would otherwise adversely affect Management Company's rights under this
Agreement, but not to the degree described in clauses (i) through (vi) of
Section 6.1.A, Management Company hereby agrees that it will execute and deliver
such requested amendment of this Agreement, provided that Owner compensates
Management Company for the additional burden imposed by such amendment out of
Owner's funds and not as a Deduction. It is understood that the word "burden",
as used in the preceding sentence, shall encompass not only additional work to
be performed by Management Company, but also any adverse effect on the Incentive
Management Fee which would be caused by requiring increased services by third
parties. Any dispute as to whether Management Company is entitled to any
compensation pursuant to this Section 6.1.B, or as to the amount of such
compensation, shall be resolved by arbitration pursuant to Section 20.13.
C. Proposed amendments to this Agreement which are requested by any
Qualified Lender or prospective Qualified Lender, and which would affect the
insurance provisions set forth in Article XII, shall be governed exclusively by
Article XII.
45
6.2 Notice and Opportunity to Cure
------------------------------
A. In the event of: (i) a Default by Owner in the performance or
observance of any of the terms and conditions of this Agreement; or (ii) any
other occurrence which entitles Management Company to terminate this Agreement,
and in-the event that Management Company gives written notice thereof to Owner
pursuant to Article XVI of this Agreement, Management Company shall also give a
duplicate copy (herein referred to as the "First Notice") of such notice to,
each Qualified Lender, at the address previously provided to Management
Company. Any such notice will be sent in the manner described in Section 2.9
hereof. In addition, in the event that such Default is not cured within the
applicable cure period under Article XVI of this Agreement, and Management
Company intends to exercise its remedy of terminating this Agreement, Management
Company shall send a second notice (the "Second Notice") to each Qualified
Lender, at the same address and in the same manner applicable to the First
Notice stating Management Company's intention to terminate this Agreement.
Management Company shall forbear from taking any action to terminate this
Agreement for a period of thirty (30) days after the service of the First
Notice, and for an additional period of thirty (30) days after the service of
the Second Notice (if such Second Notice is required, as set forth above).
B. In the event of a Default by Owner under the provisions of this
Agreement, Management Company agrees to accept performance by any Qualified
Lender with the same force and effect as if same were performed by Owner, in
accordance with the provisions and within the cure periods prescribed in this
Agreement (except that each Qualified Lender shall have such additional cure
periods, not available to Owner, as are set forth in this Section 6.2).
46
C. No notice given by Management Company to Owner shall be effective
as a notice under Article XVI of this Agreement unless the applicable duplicate
notice to each Qualified Lender which is required under Section 6.2.A (either
the First Notice or the Second Notice, as the case may be) has been given. It
is understood that any failure by Management Company to give such a duplicate
notice (either the First Notice or the Second Notice, as the case may be) to any
Qualified Lender shall not itself be a Default by Management Company under this
Agreement, but rather shall operate only to void the effectiveness of any such
notice by Management Company to Owner under Article XVI of this Agreement.
D. Except as specifically limited by this Section 6.2, nothing herein
shall preclude Management Company from exercising any of its rights or remedies
against Owner with respect to any Default by Owner under this Agreement.
6.3 Collateral Assignment of Management Agreement
---------------------------------------------
Owner shall have the right to collaterally assign to any Qualified Lender,
as additional security for the indebtedness evidenced by a Qualified Loan, all
of Owner's right, title and interest in and to distributions payable to Owner
pursuant to Article V thereof. If, pursuant to any such assignment (or
subsequent loan documentation entered into between Owner and a Qualified Lender
with a similar purpose), and provided that Management Company has previously
received a copy of such assignment and such subsequent documentation, Management
Company may receive (from time to time) a notice or notices from such Qualified
Lender directing Management Company to pay to such Qualified Lender subsequent
distributions under Article V of this Agreement which would otherwise be payable
to Owner, Management Company shall comply with any such notice. Management
Company shall continue to make payments in compliance with any such notice from
such
47
Qualified Lender until Management Company receives written instructions to the
contrary from such Qualified Lender. Owner hereby gives its consent to any such
payments by Management Company to such Qualified Lender which are in compliance
with any such notice. The foregoing consent by Owner shall be deemed to be
irrevocable until the entire Qualified Loan has been discharged, as evidenced
either by the recordation of a satisfaction or release executed by such
Qualified Lender, or by the delivery of a written statement to that effect from
such Qualified Lender to Management Company. Management Company shall comply
with the direction set forth in any such notice without any necessity to
investigate why such Qualified Lender sent such notice, or to confirm whether or
not Owner is in fact in default under the terms of such Qualified Loan. If
Management Company receives such notices from more than one Qualified Lender,
Management Company shall (at its option) either: (i) comply with the provisions
of the notice sent by the Qualified Lender whose Qualified Loan has the senior
lien priority; or (ii) institute Litigation for a declaratory judgment to
determine to whom payments under this Agreement shall be made (in which case,
the costs and expenses of such Litigation, including attorneys' fees, shall be
Deductions).
6.4 Subordination of Management Agreement
-------------------------------------
A. This Agreement, and Management Company's right to continue to
manage and operate the Inn pursuant to this Agreement, are and shall be subject
and subordinate to the lien of any Qualified Loan, (i.e., upon a Foreclosure of
any such Qualified Lender, at its option, unless such Qualified Lender has
otherwise agreed to the contrary in a Non-Disturbance Agreement shall have the
right to terminate this Agreement). Notwithstanding the foregoing, during the
Term of this Agreement, all debt service
48
(including increased or accelerated payments after a default) payable with
respect to any Qualified Loan shall be paid exclusively from Owner's
Distribution.
B. Section 6.4.A is intended to be, and is, fully effective and
binding, as between Management Company and any such Qualified Lender; however!
Management Company agrees to execute such confirmatory documentation (in
recordable form in the jurisdiction in which the Inn is located) as such
Qualified Lender shall reasonably request.
C. Notwithstanding the possible termination of this Agreement which
is set forth in the foregoing provisions of this Section 6.4, it is understood
that, until such time as this Agreement is validly terminated either (i)
pursuant to the applicable provision of this Agreement, or (ii) pursuant to a
court order in connection with the Foreclosure of a Qualified Loan (assuming
that such termination does not breach any binding Non-Disturbance Agreement),
the Holder of each Qualified Loan will honor and recognize the right of
Management Company to operate the Inn in accordance with this Agreement
(including the right of Management Company to collect all Gross Revenues and to
make expenditures in accordance with this Agreement).
6.5 Non-Disturbance Agreement
-------------------------
A. Owner agrees that, in connection with the obtaining by Owner of
any Secured Loan or Secured Loans, from time to time, Owner will use good faith
reasonable efforts to obtain a Non-Disturbance Agreement from each Holder or
Holders. The phrase "good faith reasonable efforts" shall be determined by
reference to the following: (i) normal loan underwriting procedures and
practices (including those practices relating to non-disturbance agreements)
which are generally being implemented by entities which are making loans similar
to such Secured Loan, as of that point in time; and (ii) the concessions which
Management Company is, as of that point in time, reasonably prepared to make in
49
order to satisfy the objectives of lenders in connection with the lender-manager
relationship after a Foreclosure. In no event, however, shall the failure of
Owner to obtain such a Non-Disturbance Agreement affect or modify any of the
responsibilities of Management Company toward Qualified Lenders which are
contained elsewhere in this Article VI.
B. Notwithstanding Section 6.5.A, Owner agrees that, prior to
obtaining any Qualified Loan, it will obtain from each prospective Holder or
Holders thereof a Non-Disturbance Agreement pursuant to which Management
Company's rights under this Agreement will not be disturbed as a result of a
loan default stemming from non-monetary factors which (i) relate to Owner and
(ii) are not Defaults by Management Company under Article XVI of this Agreement.
6.6 Attornment
----------
A. Management Company agrees that, subject to the provisions of
Section 6.6.B, upon a Foreclosure of any Qualified Loan, provided that this
Agreement has not expired or otherwise been earlier terminated in accordance
with its terms, Management Company shall attorn to any Subsequent Owner and
shall remain bound by all of the terms, covenants and conditions of this
Agreement for the balance of the remaining Term (including any Renewal Terms)
with the same force and effect as if such Subsequent Owner were the "Owner"
under this Agreement; provided, however, that Management Company shall be under
no such obligation to so attorn, and, to the contrary, shall thereupon have the
right to terminate this Agreement on thirty (30) days' prior written notice to
both Owner and such Subsequent Owner: (i) if such Subsequent Owner would not
qualify as a permitted transferee under Section 19.1.A of this Agreement; or
(ii) unless such Subsequent Owner, within twenty (20) days after the Foreclosure
Date (or, in the event such Subsequent Owner acquires title to the Inn after the
Foreclosure Date, within twenty (20) days after the date of
50
such acquisition of title to the Inn), assumes all of the obligations of the
"Owner" under this Agreement which arise from and after the Foreclosure Date (or
such later date of acquisition of title to the Inn), pursuant to a written
assumption agreement which shall be delivered to Management Company. Upon the
written request of any Qualified Lender, Management Company shall periodically
execute and deliver a statement, in a form reasonably satisfactory to such
Qualified Lender, reaffirming Management Company's obligation to attorn as set
forth in this Section 6.6.A.
B. It is understood by the parties that, in view of the fact that a
Qualified Lender will have the right to terminate this Agreement on a
Foreclosure under the provisions of Section 6.4, Management Company has an
interest in being informed, within a reasonable period of time after a Qualified
Loan Acceleration, of whether or not such Qualified Lender intends to exercise
such right of termination. Accordingly, if, by no later than that date (the
"Post-Foreclosure Decision Date") which is ninety (90) days after the date of
any Qualified Loan Acceleration, Management Company has not received a Non-
Disturbance Agreement executed by the Holder of such Qualified Loan, Management
Company shall, as of the Post-Foreclosure Decision Date and thereafter, no
longer be under any obligation to attorn (pursuant to the provisions of Section
6.6.A) with respect to any Foreclosure of that Qualified Loan, and Management
Company shall have the option to terminate this Agreement, by written notice to
both Owner and the Holder of each existing Qualified Loan, at any time within
the sixty (60) day period immediately following the Post-Foreclosure Decision
Date.
6.7 No Modification or Termination of Agreement
-------------------------------------------
If the documents evidencing and securing a Qualified Loan require the
consent of the Qualified Lender to any amendment or modification of this
Agreement which materially
51
affects such Qualified Lender, no such amendment or modification of this
Agreement shall be binding or effective unless such Qualified Lender shall have
consented in writing thereto.
6.8 Owner's Right to Finance the Inn.
--------------------------------
Owner shall have the right, from time to time, without Management Company's
prior consent or approval, to obtain Qualified Loans, and to encumber the Inn
with Mortgages securing such Qualified Loans. Owner shall not, without the
prior consent of Management Company, have the right to obtain Secured Loans
which are not Qualified Loans.
6.9 Cross Collateralization
-----------------------
A. In connection with obtaining Qualified Loans, Owner shall have the
right to cross collateralize the Inn with other inns which it owns in the
Residence Inn System, provided that:
1. the inns to be the subject of the Qualified Loans are owned by
Owner or an Affiliate of Owner;
2. the Qualified Loans are secured only by inns in the Residence Inn
System which are managed by Management Company or its Affiliates and are
not cross collateralized with any property other than inns managed by
Management Company or its Affiliates in the Residence Inn System;
3. the basic terms and conditions of the Qualified Loans for the Inn
and each other inn securing such loan are intended to be part of an
integrated transaction; and
4. the closing of the Qualified Loans shall take place within six (6)
months of each other.
B. Any Mortgage secured by the Inn shall contain a provision
requiring Holder to provide Management Company prior written notice of any
default under such
52
Mortgage. Further, upon receipt of any notice of default by such Holder, Owner
shall forward a copy of such notice to Management Company within three (3) days
thereafter, in accordance with the notice provisions set forth in Section 20.9.
6.10 Sale/Leaseback Transactions
---------------------------
Any single transaction or related series of transactions in which (i)
Owner's interest in the Inn is sold or transferred by the then Owner ("Seller")
to a buyer ("Buyer"), and (ii) the Buyer (as "landlord") leases the Inn to the
Seller (as "tenant"), is hereby defined as a "Sale/Leaseback Transaction".
With respect to each Sale/Leaseback Transaction during the Term of this
Agreement, the following provisions will apply: (a) the sale or transfer of the
Inn will be considered a Sale of the Inn; however, the Seller (as tenant under
the aforesaid lease), not the Buyer, shall thereafter be treated as the "Owner"
for purposes of this Agreement; (b) the purchase price will not be a Secured
Loan, but any mortgage financing placed (either at the time of the transaction
or later) on the Buyer's interest in the Inn will be treated as a Secured Loan,
and the proceeds of each such Secured Loan will be aggregated with all
outstanding Secured Loans, which encumber either the Buyer's interest in the Inn
or the Seller's leasehold interest in the Inn, for purposes of determining
whether a given Secured Loan qualifies as a Qualified Loan; (c) payments
pursuant to such lease shall not be treated as Deductions, except for
Impositions and similar items which would have been treated as Deductions in the
absence of such Sale/Leaseback Transaction; and (d) all subsequent sales,
transfers or assignments of either Buyer's interest in the Inn or Seller's
interest in the Inn will be treated as Sales of the Inn. Owner will not enter
into any Sale/Leaseback Transaction unless Management Company and the proposed
Buyer have previously executed a mutually satisfactory attornment agreement
pursuant to which, as of the date of the termination of Seller's leasehold
interest, the provisions of this Agreement
53
will (unless there has been an Event of Default or other event entitling either
party to terminate this Agreement) be binding both on Management Company and on
Buyer (as the successor "Owner"); such attornment agreement will also contain an
immediately-effective provision which will incorporate the terms of Section 6.8
of this Agreement, binding both on Management Company and on Buyer.
ARTICLE VII
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
7.1 Working Capital
---------------
A. Owner shall, from time to time during the Term of this Agreement,
provide Management Company, within thirty (30) days after Owner's receipt of
written request therefor by Management Company, with the funds necessary to
maintain Working Capital at levels determined by Management Company to be
reasonably necessary to operate the Inn in accordance with the Residence Inn
System Standards. Any such request by Management Company shall be accompanied
by a detailed explanation of the reasons for the request. If Owner fails to
respond to any such request within thirty (30) days after Owner's receipt
thereof, Management Company shall be entitled, at its option, without affecting
other remedies which may be available pursuant to Article XVI, to lend Owner the
necessary additional Working Capital from Management Company's own funds, which
loan will bear interest at the Interest Rate (compounded annually), and will be
secured by a security interest subordinate to any Qualified Loan encumbering all
Working Capital previously or thereafter provided by either Owner or Management
Company, and will be repaid in accordance with such terms and conditions as
Management Company shall at that time reasonably determine.
54
B. Management Company will manage the Working capital of the Inn
prudently and in accordance with the Residence Inn System Standards. Management
Company shall review and analyze the Working Capital needs of the Inn on an
annual basis. If Management Company reasonably determines that there is excess
Working Capital, such excess shall be returned to Owner.
C. Working Capital provided by Owner pursuant to this Section 7.1
shall remain the property of Owner throughout the Term of this Agreement. Upon
Termination, Owner shall retain any of its unused Working Capital, except for
Inventories purchased by Management Company pursuant to Section 10.2.
D. If Owner owns other inns in the Residence Inn By Marriott System
which are operated by Management Company, Management Company, at its option, may
co-mingle the Working Capital for the Inn with the Working Capital account for
Owner's other inn(s) in a single bank account.
7.2 Fixed Asset Supplies
--------------------
As of the Effective Date, Owner shall provide the Inn with the Fixed Asset
Supplies which are necessary to operate the Inn in accordance with the Residence
Inn System Standards. Owner shall, from time to time thereafter during the Term
of this Agreement, provide Management Company, within thirty (30) days after
Owner's receipt of written request therefor by Management Company, with any
additional funds necessary to maintain Fixed Asset Supplies at levels determined
by Management Company to be necessary to operate the Inn in accordance with the
Residence Inn System Standards. Fixed Asset Supplies shall remain the property
of Owner throughout the Term of this Agreement, except for Fixed Asset Supplies
purchased by Management Company pursuant to Section 10.2.
55
ARTICLE VIII
REPAIRS, MAINTENANCE AND REPLACEMENTS
-------------------------------------
8.1 Routine Repairs and Maintenance
-------------------------------
Management Company shall maintain the Inn in good repair and condition, to
a standard comparable with competitive hotels and in conformity with applicable
Legal Requirements and the Residence Inn System Standards, and shall make or
cause to be made such routine maintenance, repairs and minor alterations, the
cost of which can be expensed under generally accepted accounting principles, as
it, from time to time, deems reasonably necessary for such purposes. The cost
of such maintenance, repairs and alterations shall be paid from Gross Revenues
and shall be treated as a Deduction in determining Operating Profit.
8.2 FF&E Reserve
------------
A. Management Company shall establish a reserve account (the "FF&E
Reserve") in a bank designated by Management Company (and approved by Owner,
such approval not to be unreasonably withheld) to cover the cost of:
1. Replacements and renewals to the Inn's FF&E;
2. Certain routine repairs and maintenance to the Inn building which
are normally capitalized under generally accepted accounting principles,
such as exterior and interior repainting, resurfacing building walls,
floors, roofs and parking areas, and replacing folding walls and the like
(but which are not major repairs, alterations, improvements, renewals or
replacements to the Inn's buildings' structure, roof, or exterior facade,
or to its mechanical, electrical, heating, ventilating, air conditioning,
plumbing or vertical transportation systems, the cost of which shall be
governed exclusively by Section 8.3); and
56
3. At Management Company's option, lease payments for Telephone and
Office Equipment, Shuttle Vehicles and computer equipment used in
connection with the operation of the Inn.
Management Company agrees that it will, from time to time, execute such
reasonable documentation as may be requested by any Qualified Lender to assist
such Qualified Lender in establishing or perfecting its security interest in the
funds which are in the FF&E Reserve; provided, however, that no such
documentation shall contain any amendment or modification of any of the
provisions of this Agreement, including this Section 8.2.
B. During the period of time from the Effective Date through the
Termination of this Agreement, subject to the provisions of Sections 8.2.E and
8.2.F, Management Company shall transfer (as of the end of each Accounting
Period) into the FF&E Reserve an amount equal to five percent (5%) of Gross
Revenues for that Accounting Period. All such amounts transferred into the FF&E
Reserve after the Effective Date shall be paid from Gross Revenues and shall
constitute Deductions in determining Operating Profit.
C. Each year, at the same time as Management Company submits the
Annual Operating Budget described in Section 9.3, shall be entitled to depart
therefrom, in its reasonable discretion, provided that: (a) such departures from
the applicable FF&E Estimate result from circumstances which could not
reasonably have been foreseen at the time of the submission of such FF&E
Estimate; and (b) such departures from the applicable FF&E Estimate are in the
best interest of the Inn; and (c) if the deviations from the FF&E Estimate are
greater than Ten Thousand Dollars ($10,000) as adjusted by the GDP Deflator on
each anniversary of the Effective Date, Management Company has submitted to
Owner a revised FF&E Estimate setting forth and explaining such departures. At
the end of each
57
Fiscal Year, any amounts remaining in the FF&E Reserve shall be retained in the
FF&E Reserve, and shall be carried forward to the next Fiscal Year. Upon a Sale
of the Inn funds in the FF&E Reserve will not be affected (or, if withdrawn,
will be replaced as set forth in Section 19.1.D), and all dispositions of such
funds (both before and after such Sale of the Inn) will continue to be made
exclusively pursuant to the provisions of this Agreement. Proceeds from the sale
of FF&E no longer necessary to the operation of the Inn shall be deposited in
the FF&E Reserve, as shall any interest which accrues on amounts placed in the
FF&E Reserve. Neither (i) proceeds from the disposition of FF&E, nor (ii)
interest which accrues on amounts held in the FF&E Reserve, shall either (x)
result in any reduction in the required contributions to the FF&E Reserve set
forth in subsection B above, or (y) be included in Gross Revenues. Telephone and
Office Equipment, as well as Shuttle Vehicles and computer equipment used in
connection with the operation of the Inn are the only items of FF&E which
Management Company is authorized to lease (rather than purchase). At Management
Company's option, lease payments with respect to Telephone and Office Equipment,
and Shuttle Vehicles and computer equipment used in connection with the
operation of the Inn shall be paid out of the FF&E Reserve, as set forth in
Section 8.2.A above. If Management Company proposes that other items of FF&E
(other than Telephone and Office Equipment, as well as Shuttle Vehicles and
computer equipment used in connection with the operation of Inn) should be
leased rather than purchased, Management Company shall submit such proposal to
Owner for Owner's approval (not to be unreasonably withheld); in connection with
the foregoing, it is understood that the failure of a Qualified Lender to
approve such leasing proposal shall justify Owner in withholding its approval
thereof, regardless of whether withholding such approval would otherwise be
deemed to be unreasonable.
58
D. The percentage contribution for the FF&E Reserve which is
described in Section 8.2.B is an estimate. As the Inn ages, this percentage may
not be sufficient to keep the FF&E Reserve at the levels necessary to make the
replacements and renewals to the Inn's FF&E, or to make the repairs to the Inn
building of the nature described in Section 8.2.A.2, which are required to
maintain the Inn in accordance with the Residence Inn System Standards and
comparable with competitive hotels. If (i) any FF&E Estimate prepared in good
faith by Management Company exceeds the available funds in the FF&E Reserve or
would cause a shortfall to occur in future years , and (ii) Management Company
has prepared and delivered to Owner a financial plan describing the shortages in
the available funding in the FF&E Reserve for the Fiscal Years in question,
Management Company will have the right, during the time periods described in
such financial plan, to increase the percentage of Cross Revenues set forth in
Section 8.2.B to a higher percentage, provided that in no event will such
percentage exceed six percent (6%) of Gross Revenues per Fiscal Year.
E. If any FF&E Estimate which is prepared in accordance with clauses
(i) and (ii) of Section 8.2.E would require funding in excess of six percent
(6%) of Gross Revenues per Fiscal Year, Owner may either:
1. Agree to increase the percentages of Gross Revenues set forth in
Section 8.2.B to provide the additional funds required; or
2. Make a lump-sum contribution to the FF&E Reserve in the necessary
amount (in which case, such lump-sum contribution shall be an Owner
Deduction and shall be reimbursed to Owner in equal annual payments over
the useful life of the FF&E which is purchased, and such reimbursements
shall be deductions).
If Owner elects not to agree to either option 1 or option 2 above within
thirty (30) days after the submission of such FF&E Estimate (or, if Owner has
elected option 2, and has
59
not funded the required amount within sixty (60) days after expiration of the
aforesaid thirty (30) day period), Management Company shall be entitled, at its
option, to terminate this Agreement by written notice to Owner, (with a copy to
each Qualified Lender) which notice shall be delivered no later than ninety (90)
days after the expiration of the sixty (60) day period described in the
preceding sentence. The effective date of such Termination shall be the date set
forth in such notice, provided that in no event shall the effective date of such
Termination be less than one hundred eighty (180) days, and no more than three
hundred sixty five (365) days after the date of such notice. Such failure to
fund by Owner shall not be deemed a Default by Owner under Article XVI, and
Management Company shall not be entitled to any remedies with respect to such
failure other than such termination of this Agreement and as set forth in
Section 8.3.E. If Owner owns any other inn(s) in the Residence Inn By Marriott
System which is (are) operated by Management Company, Management Company shall
co-mingle the FF&E Reserve for the Inn with the FF&E reserve account for Owner's
other inn(s) in a single bank account unless such co-mingling is prohibited by
any Qualified Lender.
8.3 Building Alterations, Improvements, Renewals. and Replacements
--------------------------------------------------------------
A. Management Company shall prepare an annual estimate (the "Building
Estimate") of the expenditures necessary for major repairs, alterations,
improvements, renewals and replacements (which repairs, alterations,
improvements, renewals and replacements are not among those referred to in
Section 8.2.A.2) to the structure or exterior facade of the Inn mechanical,
electrical, heating, ventilating, air conditioning, plumbing, or vertical
transportation elements of the Inn building. Management Company shall submit
each such Building Estimate to Owner for its approval at the same time the
Annual Operating Budget is submitted, and Management Company shall not make any
expenditures for such
60
purposes without the prior written consent of Owner. Owner shall not
unreasonably withhold its consent with respect to such changes, repairs,
alterations, improvements, renewals or replacements to the Inn as are required
by reason of any Legal Requirement, or required under Management Company's
current life-safety standards (provided that, in order for any such life-safety
standards to be "required" within the meaning of this Section 8.3.A, such
standards must be both required and in the process of being implemented at a
majority of the inns within the Residence Inn System operated by Management
Company which are comparable to the Inn), or otherwise required for the
continued safety of guests or prevention of material damage to property,
including the removal of Hazardous Materials in compliance with all
Environmental Laws pursuant to Section 20.10).
B. In the event of the receipt by Management Company of a
governmental order or other circumstances described in Section 8.3.A above,
Management Company shall give Owner notice thereof within five (5) business days
thereafter or sooner if circumstances reasonably warrant. Management Company
shall then be authorized (but not obligated) to take appropriate remedial action
without receiving Owner's prior consent as follows: (i) in an emergency
threatening the Inn, its guests, invitees or employees; or (ii) if the
continuation of the given condition could (in Management Company's reasonable
judgment) subject Management Company and/or Owner to either criminal or more
than de minimis civil liability, and Owner has either failed to remedy the
----------
situation or has failed to take appropriate legal action to stay the
effectiveness of any applicable Legal Requirement. Management Company shall
cooperate with Owner in the pursuit of any such action and shall have the right
to participate therein. Owner shall reimburse Management Company for any costs
incurred by Management Company in connection with any such remedial action
within thirty
61
(30) days after Owner's receipt of notice from Management Company of the amount
of such costs.
C. The cost of all changes, repairs, alterations, improvements,
renewals or replacements referred to in Section 8.3.A or 8.3.B (including the
expenses incurred by either Owner or Management Company in connection with any
civil or criminal proceeding described above) shall be borne solely by Owner,
and shall not be paid from Gross Revenues or from the FF&E Reserve. Any failure
of Owner to either (i) approve and provide funding for any proposed expenditures
pursuant to the last sentence of Section 8.3.A, within seventy-five (75) days
after Management Company's request therefor, or (ii) in the case of any Legal
Requirement which is described in Section 8.3.B, to either comply therewith or
to stay the effectiveness of such Legal Requirement during the period of any
contesting thereof, shall be a Default by Owner. In such event, Management
Company shall be entitled (without affecting its other remedies under Article
XVI) to terminate this Agreement upon ninety (90) days' written notice to Owner;
(with a copy to each Qualified Lender); provided, however, that Management
Company shall have the right to stipulate such shorter period of time as may be
appropriate, given the time periods which are mandated by Legal Requirements, as
described in Section 8.3.A, or given Management Company's good faith concerns
about its own civil and/or criminal liability.
D. Management Company shall have the right, from time to time, to set
forth in any Building Estimate (in addition to the expenditures described in
Section 8.3.A) such changes, alterations or improvements to the Inn as are
required, in Management Company's reasonable judgment, to keep the Inn in a
competitive, efficient and economical operating condition, in accordance with
the Residence Inn System Standards which Management Company shall substantiate
by demonstrating a reasonable return on the
62
proposed investment to be made by Owner). The cost of all changes, alterations
or improvements referred to in this Section 8.3.D shall be paid, to the extent
reasonably possible (given the requirement, set forth in Section 8.2, that the
balance in the FF&E Reserve be maintained at a level sufficient to maintain the
Inn in accordance with the Residence Inn System Standards) from the FF&E
Reserve, and Owner shall pay such costs from its own funds only to the extent
there are not adequate funds for such purpose in the FF&E Reserve. Any failure
of Owner to approve and fund the Owner's portion of any proposed expenditures
pursuant to Section 8.3.D, as described in the preceding sentence, or provide
funding for items in Section 8.3.A (other than those items included in the last
sentence of Section 8.3.A) within sixty (60) days after Management Company's
request therefor, shall not be a Default by Owner but shall entitle Management
Company to terminate this Agreement and receive payment of the fee set forth in
Section 8.3.E. Such Termination shall be evidenced by written notice to Owner,
(with a copy to each Qualified Lender) which notice shall be delivered to Owner
no later than ninety (90) days after the expiration of the sixty (60) day period
described in the preceding sentence. The effective date of such Termination
shall be the date stated by Management Company in such notice, provided that
such effective date shall be no less than one hundred eighty (180) days, and no
more than three hundred sixty (360) days, after the date of such notice. It is
understood that "alterations" and "improvements" which either (a) increase or
decrease the number of guest rooms in the Inn, or (b) involve changing the
architectural footprint of the Inn or involve other significant changes in the
structural design of the Inn, in any case by more than a de minimis amount, are
----------
beyond the scope of this Article VIII, and would require an amendment
of this Agreement prior to implementation by either party.
63
E. Notwithstanding anything to the contrary in Section 8.2.F or
8.3.D, if Owner owns five (5) or fewer inns in the Residence Inn System which
are managed by Management Company, and Management Company elects to terminate
the Management Agreement due to: (i) Owner's failure to elect either option 1 or
2 in Section 8.2.F; (ii) Owner's failure to fund the required amount in Section
8.2.F, having elected option 2, or (iii) Owner's failure to fund pursuant to
Section 8.3.D, as applicable, then upon Management Company's election to
terminate the Management Agreement, which pursuant to both Sections 8.2.F and
8.3.D must (a) be made within ninety (90) days following the expiration of the
time period in which Owner must provide such additional funds, and (b) set forth
an effective date of such Termination which is no less than one hundred eighty
(180) days and no more than three hundred sixty five (365) days after the date
of such notice, then, Owner agrees to pay to Management Company a fee equal to
three (3) times the Base Management Fee for the prior Fiscal Year (regardless of
whether said Base Management Fee was actually paid to Management Company);
provided, however, that if, within ten (10) days from receipt of Management
Company's notice to terminate, Owner provides the funds required pursuant to
Section 8.2.F or 8.3.D, as applicable, then upon receipt of such funds by
Management Company, Management Company's notice to terminate shall be deemed
null and void and this Agreement shall continue in full force and effect. Said
fee shall be paid to Management Company upon the termination date set forth in
the written notice from Management Company to Owner terminating this Agreement.
This fee shall be compensation for lost revenue and expenses and not as a
penalty. If Owner fails to pay such fee within the time period set forth herein,
then Management Company shall have the right (without affecting Management
Company's other right under this Agreement) to withhold the amount of such fee
from Owner's Distribution.
64
8.4 Liens
-----
Management Company and Owner shall use their best efforts to prevent any
liens from being filed against the Inn which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to the Inn.
They shall cooperate fully in obtaining the release of any such liens, and the
cost thereof, if the lien was not occasioned by the fault of either party, shall
be treated the same as the cost of the matter to which it relates. If the lien
arises as a result of the fault of either party, then the party at fault shall
bear the full cost (including without limitation, all legal fees, court costs,
bonding fees and underlying debt) of obtaining the lien release.
8.5 Ownership of Replacements, Etc.
------------------------------
All repairs, alterations, improvements, renewals or replacements of the Inn
which are made pursuant to Article VIII or otherwise shall be the property of
Owner. Subject to the provisions of Section 8.2, the funds in the FF&E Reserve
shall be the property of Owner.
ARTICLE IX
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
9.1 Books and Records
-----------------
A. Books of control and account shall be kept on the accrual basis
and in material respects in accordance with the Uniform System of Accounts, with
the exceptions provided in this Agreement. Owner may at reasonable intervals
during Management Company's normal business hours examine such records. Within
seventy-five (75) days following the close of each Fiscal Year, Management
Company shall furnish Owner a statement (the "Annual Operating Statement") in
reasonable detail summarizing the Inn operations for such Fiscal Year and a
certificate of Management Company's chief accounting
65
officer (or its controller or any vice-president), certifying that to
the best of his or her knowledge and belief such year-end Annual Operating
Statement is true and correct. Owner shall have sixty (60) days after receipt
to examine or review (at Owner's sole expense, and not as a Deduction) said
Annual Operating Statement. If Owner raises no objections within said sixty
(60) day period, the Annual Operating Statement shall be deemed to have been
accepted by Owner as true and correct, and Owner shall have no further right to
question its accuracy. If Owner does raise such an objection, by notice to
Management Company, Owner shall arrange for an audit to be commenced within
sixty (60) days after the date of such objection, and shall diligently cause
such audit to be completed within a reasonable period of time. Owner shall pay
all costs and expenses of such audit at its sole expense (and not as a
Deduction); however, if such audit establishes that Management Company has
understated the Operating Profit for that Fiscal Year by five percent (5%) or
more, the reasonable costs and expenses of such audit shall be paid as a
Deduction.
B. Upon written request by Owner, but in no event more frequently
than annually, Management Company shall prepare and deliver to Owner the
Management Analysis Report. In addition, Management Company shall, in
connection with an impending Sale of the Inn or proposed commitment by a
Qualified Lender to make a Qualified Loan, within thirty (30) days after written
request therefor from Owner, prepare and deliver to Owner an updated Management
Analysis Report describing significant changes since the effective date of the
most recent Management Analysis Report; provided, however that Management
Company shall not be required to prepare such updated Management Analysis
Report if a report has been delivered within the previous one hundred twenty
(120) days. The cost and expense of preparing the Management Analysis Report
shall be paid as a Deduction.
66
C. Owner shall have the right to require that any given Annual
Operating Statement will include a reasonably detailed report setting forth the
components of Chain Services, the amounts billed for each such component during
the Fiscal Year in question and the method of allocation for each such
component; provided, however, that Owner must request Management Company to
prepare such report by no later than thirty (30) days prior to the date of such
Annual Operating Statement.
9.2 Inn Accounts. Expenditures
--------------------------
A. All funds derived from operation of the Inn shall be deposited by
Management Company in Inn bank accounts (the "Operating Accounts") in a bank or
banks designated by Management Company and approved by Owner. Withdrawals from
said accounts shall be made only by representatives of Management Company whose
signatures have been authorized. Reasonable xxxxx cash funds shall be
maintained at the Inn.
B. All payments made by Management Company hereunder shall be made
from authorized bank accounts, xxxxx cash funds, or from Working Capital
provided by Owner pursuant to Section 7.1. Management Company shall not be
required to make any advance or payment to or for the account of Owner except
out of such funds, and Management Company shall not be obligated to incur any
liability or obligation for Owner's account without assurances that necessary
funds for the discharge thereof will be provided by Owner. Debts and liabilities
incurred by Management Company as a result of its operation and management of
the Inn pursuant to the terms hereof, whether asserted before or after the
Termination of this Agreement, will be paid by Owner to the extent funds are not
available to Management Company for that purpose from Gross Revenues.
9.3 Annual Operating Budget
-----------------------
67
A. Management Company shall submit to Owner for its review, at least
thirty (30) days prior to the beginning of each full Fiscal Year after the
Effective Date, a preliminary draft of the projection of the estimated financial
results of the operation of the Inn during the next Fiscal Year (the "Annual
Operating Budget"). Such Annual Operating Budget shall project the estimated
Gross Revenues and Operating Profit for the forthcoming Fiscal Year for the Inn.
In preparing the Annual Operating Budget for each Fiscal Year, Management
Company's goal will be the maximization of the long-term Operating Profit of the
Inn, in keeping with the Residence Inn System Standards and the general
standards of the hotel industry for similar properties. At Owner's request,
Management Company agrees to take reasonable steps to ensure that qualified
personnel from Management Company's staff are available to explain the
preliminary draft of the Annual Operating Budget, including any material items
which have been budgeted at significantly different amounts from the amounts
actually experienced (or projected) for the same items in the preceding Fiscal
Year. A meeting (or meetings) for such purpose shall be held, at Owner's
request, within a reasonable period of time after the submission to Owner of the
preliminary draft of the Annual Operating Budget. Management Company will at all
times give good faith consideration to Owner's suggestions regarding any Annual
Operating Budget. Management Company shall thereafter submit to Owner, within
ten (10) days after the beginning of such Fiscal Year, the final Annual
Operating Budget.
B. Management Company shall use its best efforts to adhere to the
Annual Operating Budget. It is understood, however, that the Annual Operating
Budget is an estimate only and that unforeseen circumstances such as, but not
limited to, the costs of labor, materials, services and supplies, casualty,
operation of law, or economic and market
68
conditions may make adherence to the Annual Operating Budget impracticable, and
Management Company shall be entitled to depart therefrom for such reasons.
9.4 Operating Losses: Credit
------------------------
A. To the extent there is an Operating Loss, additional funds in the
amount of any such Operating Loss shall be provided by Owner within thirty (30)
days after Management Company has given written notice thereof to Owner;
provided, however, that if Owner has already received a request from Management
Company for additional Working Capital pursuant to Section 7.1.A, and if such
request under Section 7.1.A reflects fundamentally the same cash shortage which
resulted in a request under this Section 9.4.A, Owner and Management Company
shall mutually discuss the extent to which the requests under Section 7.1.A and
Section 9.4.A may overlap, and such requests shall be modified accordingly.
B. In no event shall either party borrow money in the name of or
pledge the credit of the other.
9.5 Consolidated Reports
--------------------
With respect to Management Company's reports, books and records required to
be kept and provided to Owner pursuant to Sections 9.1.A, 9.1.B and 9.3.A hereof
provided that Owner is also the owner of other hotels in the Residence Inn
System and that said Inns are managed by Management Company, Management Company
shall have the right, at Management Company's option, to prepare said reports on
a consolidated basis rather than by individual inn; provided, however that if
Owner reasonably determines that it requires individual reports for each
individual inn and requests individual reports from Management Company in
writing, together with Owner's reasons for requesting such individual reports,
Management Company shall comply with such request.
69
ARTICLE X
PROPRIETARY MARKS; INTELLECTUAL PROPERTY
----------------------------------------
10.1 Proprietary Marks
-----------------
A. During the Term of this Agreement, the Inn shall be known as a
"Residence Inn", "Residence Inn by Marriott" or "Marriott Residence Inn" with
such additional identification as may be agreed to by Owner and Management
Company to provide local identification. If the name of the "Residence Inn
System" is changed, Management Company shall have the right to change the name
of the Inn to conform thereto.
B. The name "Marriott", "Residence Inn", "Residence Inn by Marriott"
and "Marriott Residence Inn" whether used alone or in connection with another
word or words, and all other Proprietary Marks shall in all events remain the
exclusive property of Management Company and its Affiliates. Owner shall have no
right to use the Marriott or Residence Inn name or any other Proprietary Xxxx;
provided, however, that Owner shall have the right, during the Term of this
Agreement, to have Proprietary Signage installed (in strict conformance with the
specifications provided by Management Company prior to the Effective Date, or
subsequent specifications provided by Management Company from time to time
during the Term) in the Inn and on the Site.
C. Except as provided in Section 10.2, upon Termination, any use of
or right to use the Marriott or Residence Inn name or any other Proprietary Xxxx
under this Agreement by Owner shall immediately cease. As of the date of
Termination, Management Company shall remove all Proprietary Signage from the
Inn and from the Site (and from any
70
locations other than the Site). The cost of such removal shall be paid as set
forth in Section 4.2.E.
D. Notwithstanding the foregoing, those trademarks, trade names,
symbols, logos and designs which are specifically listed on Exhibit "E" shall be
deemed "Proprietary Marks" only during the Term of this Agreement; upon a
Termination, the exclusive control of such Proprietary Marks shall revert to
Owner.
10.2 Purchase of Inventories and Fixed Asset Supplies
------------------------------------------------
Upon Termination, Management Company shall have the option, to be exercised
no later than thirty (30) days prior to Termination, to elect to purchase, at
their then book value, any items of the Inn's Inventories and Fixed Asset
Supplies as may be marked with the Marriott or Residence Inn name or any other
Proprietary Xxxx. In the event ManagementCompany does not exercise such option,
Owner agrees that it will use any such items not so purchased exclusively in
connection with the Inn until they are consumed.
10.3 Computer Software and Equipment
-------------------------------
A. All Software is and shall remain the exclusive property of
Management Company or one of its Affiliates (or the licensor of such Software,
as the case may be), and Owner shall have no right to use, or to copy, any
Software.
B. Upon Termination, Management Company shall have the right to
remove from the Inn, without compensation to Owner, all Software. Furthermore,
upon Termination, Management Company shall be entitled to remove from the Inn
any computer equipment which is utilized as part of a centralized reservation or
property management system or is otherwise considered proprietary by Management
Company. If any of such removed computer equipment is owned by Owner,
Management Company shall reimburse
71
Owner for all previous expenditures made by Owner for the purchase of such
equipment, subject to a reasonable allowance for depreciation.
10.4 Intellectual Property
---------------------
All Intellectual Property shall at all times be proprietary to Management
Company or its Affiliates, and shall be the exclusive property of Management
Company or its Affiliates. During the Term of this Agreement, Management Company
shall be entitled to take all reasonable steps to ensure that the Intellectual
Property remains confidential and is not disclosed to anyone other than
Management Company's employees at the Inn. Upon Termination, all Intellectual
Property shall be removed from the Inn by Management Company, without
compensation to Owner.
10.5 Breach of Covenant
------------------
Management Company and/or its Affiliates shall be entitled, in case of any
breach of the covenants of Article X by Owner or others claiming through it, to
injunctive relief and to any other right or remedy available at law. Article X
shall survive Termination.
ARTICLE XI
POSSESSION AND USE OF INN
-------------------------
11.1 Quiet Enjoyment
---------------
Owner covenants that, so long as: (i) an Event of Default by Management
Company has not occurred under Article XVI of this Agreement; and (ii) Owner
does not have the right to terminate this Agreement under any other Section of
this Agreement, Management Company shall quietly hold, occupy and enjoy the Inn
throughout the Term hereof free from hindrance or ejection by Owner or other
party claiming under, through or by right of Owner (except as may be otherwise
set forth in Section 6.4). Owner agrees to pay and discharge
72
any payments and charges and, at its expense, to prosecute all appropriate
actions, judicial or otherwise, necessary to assure such free and quiet
occupation. Nothing set forth in the preceding sentence, however, shall be
deemed to create a recourse obligation by Owner to pay any payment or charge
pursuant to a contract which is non-recourse to Owner.
11.2 Use
---
A. Management Company shall use the Inn solely for the operation of a
hotel pursuant to the Residence Inn System Standards, and for all activities in
connection therewith which are customary and usual to such an operation.
B. Management Company shall comply with and abide by all applicable
Legal Requirements pertaining to its operation of the Inn, provided that: (i)
all costs and expenses (other than those which are specifically described in
clauses (ii) or (iii) of this Section 11.2.B) of such compliance shall be paid
from Gross Revenues as Deductions in the computation of Operating Profit; (ii)
all costs and expenses of compliance with Environmental Laws shall be paid as
set forth in Section 20.10; (iii) all costs and expenses of compliance with the
Legal Requirements which are described in Section 8.3.A shall be paid as set
forth in Section 8.3; and (iv) Management Company shall have the right, but not
the obligation, in its reasonable discretion, to contest or oppose, by
appropriate proceedings, any such Legal Requirements (provided that the consent
of Owner, not to be unreasonably withheld, shall be obtained prior to initiating
any such proceedings which directly involve Owner's ownership interest in the
Inn in a material manner. The reasonable expenses of any such contest shall be
paid from Gross Revenues as Deductions.
11.3 Chain Services
--------------
A. Management Company shall, beginning with the Effective Date and
thereafter during the Term of this Agreement, cause to be furnished to the Inn
certain
73
services ("Chain Services") which are furnished generally on a central or
regional basis to other Residence Inn hotels in the Residence Inn System managed
by the Manager. Chain Services shall include: (i) national sales office
services; central training services; career development; and the Residence Inn
computer payroll and central accounting services; and (ii) such additional
central or regional services as are or may be, from time to time, furnished for
the benefit of hotels in the Residence Inn System or in substitution for
services now performed at individual inns which may be more efficiently
performed on a group basis; including, but not limited to, regional managers and
accounting staff; provided, however, that services not currently included in
chain services pursuant to subsections 11.3.A(i) and 11.3.A(ii) above, shall
only be added to "Chain Services" if, and to the extent that, such services: (a)
are not services included in the Residence Inn System Fee (it being understood
that Management Company's sole compensation for providing the Residence Inn
System Services shall be receipt of the Residence Inn System Fee); (b) are not
services relating to non-routine work (it being understood that the cost and
expense of such non-routine services shall be Deductions as set forth in
paragraph 6 of the definition of Operating Profit); and (c) are either (x) new
services (i.e., not previously performed at or for the Inn) or (y) services
which theretofore had been performed at the Inn, but which can be performed more
efficiently and economically on a centralized or regional basis.
B. Costs and expenses incurred in the providing of Chain Services
shall be allocated on a fair and equitable basis among all Residence Inns owned,
leased or managed by Management Company Deductions pursuant to said paragraph 8
of the definition of "Operating Profit" without regard to the aforesaid
limitation.
11.4 Owner's Right to Inspect
------------------------
74
Owner or its agents shall have access to the Inn at all reasonable times
for the purpose of inspection or showing the Inn to prospective purchasers,
tenants or Holders.
11.5 Indemnity
---------
A. Management Company shall indemnify and hold harmless Owner (and
any officer, director, employee, advisor, partner or shareholder of Owner) in
respect of, and, at Owner's request, shall defend any action, cause of action,
suit, debt, cost, expense (including, without limitation, reasonable attorneys'
fees), claim or demand whatsoever brought or asserted by any third person
whomsoever, at law or in equity, arising by reason of: (i) liabilities stemming
from general corporate matters of Management Company or its Affiliates, to the
extent the same are not directly and primarily related to the Inn; (ii)
infringement and other claims relating to the Proprietary Marks; (iii) if
Management Company intentionally or negligently fails to maintain insurance
coverage that it is required to maintain pursuant to this Agreement, the excess
of the amount of any liability or loss that would have been covered over the
amount of any applicable deductible; and (iv) the bad faith or willful
misconduct of Management Company or its Affiliates, or any of their employees,
servants or agents or other persons for whom they are responsible, resulting in
a claim for bodily injury, death or property damage occurring on, in or in
conjunction with the business of the Inn, to the extent that such claim exceeds
the insurance proceeds (including Inn Retentions) which are available to pay
such claim.
B. If any claim, action or proceeding is made or brought against
Owner, against which claim, action or proceeding Management Company shall be
obligated to indemnify pursuant to the terms of this Agreement, then, upon
demand by the Owner, Management Company, at its sole cost and expense, shall
resist or defend such claim, action or proceeding (in Owner's name, if
necessary), using such attorneys as the Owner shall
75
approve, which approval shall not be unreasonably withheld. If, in the Owner's
reasonable opinion, (i) there exis ts a conflict of interest which would make it
inadvisable to be represented by counsel for Management Company, or (ii) there
are legal defenses available to Management Company that are different from or
inconsistent with those available to Owner, or (iii) there are claims at issue
which are not covered by Management Company's insurance, Owner shall be entitled
to retain its own attorneys, and Management Company shall pay the reasonable
fees and disbursements of such attorneys.
C. Matters with respect to which Management Company has specifically
agreed to indemnify Owner under other provisions of this Agreement (for example,
Section 14.1 regarding "Employee Claims", and Section 20.11 regarding
environmental matters) are to be treated exclusively under such other provisions
and not under this Section 11.5.
ARTICLE XII
INSURANCE
---------
12.1 Interim Insurance
-----------------
[Intentionally omitted]
12.2 Property and Operational Insurance
----------------------------------
Management Company shall, commencing with the Effective Date and thereafter
during the Term of this Agreement, procure and maintain, either with insurance
companies of recognized responsibility or by legally qualifying itself as a self
insurer, a minimum of the following insurance:
A. Property insurance on the Inn building(s) and contents against
loss or damage by fire, lightning and all other risks covered by the usual
extended coverage
76
endorsement, all in an amount not less than one hundred percent (100%) of the
replacement cost thereof (excluding the cost of foundations and excavations);
B. Boiler and machinery insurance against loss or damage from
explosion of boilers or pressure vessels to the extent applicable to the Inn;
C. Business interruption insurance covering loss of profits and
necessary continuing expenses for interruptions caused by any occurrence covered
by the insurance referred to in Section 12.2 A and B, which shall be of a type
and in such amounts that such coverage shall in no event be for less than one
(1) year) as are generally established by Management Company at similar hotels
it owns, leases or manages under the Residence Inn name in the United States;
D. General liability insurance against claims for bodily injury,
death or property damage occurring on, in, or in conjunction with the business
of the Inn, and automobile liability insurance on vehicles operated in
conjunction with the Inn, with a combined single limit for each occurrence of
not less than Twenty-Five Million Dollars ($25,000,000.00); representatives of
Management Company and Owner shall meet, at Owner's request, at intervals of
approximately once every five (5) years, to review the adequacy of such limit;
E. Workers' compensation and employer's liability insurance as may be
required under applicable laws covering all of Management Company's employees at
the Inn;
F. Fidelity bonds, with reasonable limits to be determined by
Management Company, covering its employees in job classifications normally
bonded in other similar hotels it leases or manages under the Residence Inn name
in the United States or as otherwise required by law, and comprehensive crime
insurance to the extent Management Company and Owner mutually agree it is
necessary for the Inn; and
77
G. Such other insurance in amounts as Management Company and Owner,
in their reasonable judgment, mutually deem advisable for protection against
claims, liabilities and losses arising out of or connected with the operation of
the Inn.
12.3 General Insurance Provisions
----------------------------
A. All insurance described in Section 12.2 may be obtained by
Management Company by endorsement or equivalent means under its blanket
insurance policies, provided that such blanket policies substantially fulfill
the requirements specified herein. Upon the request of either Owner or any
Qualified Lender, representatives of the requesting party shall be entitled to
examine, at Management Company's corporate headquarters, all insurance policies
maintained by Management Company regarding the Inn.
B. Management Company may self insure or otherwise retain such risks
or portions thereof as it does with respect to other similar hotels it owns,
leases or manages under the Residence Inn name in the United States.
C. All policies of insurance required under Section 12.2 shall be
carried in the name of Management Company. The policies required under Sections
12.2.A, B, C and D shall include the Owner as an additional insured. Upon notice
by the Owner, Management Company shall also have the policies required under
Sections 12.2.A, B, C and D include any Qualified Lender as an additional
insured. Any property losses thereunder shall be payable to the respective
parties as their interests may appear. Any Mortgage on the Inn shall contain
provisions to the effect that proceeds of the insurance policies required to be
carried under Section 12.2.A and B shall, with respect to any casualty involving
less than fifty percent (50%) of the replacement cost of the Inn, be available
for repair and restoration of the Inn.
78
D. Management Company shall deliver to the Owner certificates of
insurance with respect to all policies so procured and, in the case of insurance
policies about to expire, shall deliver certificates with respect to the renewal
thereof.
E. All certificates of insurance provided for under Article XII
shall, to the extent obtainable, state that the insurance shall not be canceled
or materially changed without at least thirty (30) days' prior written notice to
Owner.
F. The term "Inn Retention" shall mean the amount of any loss or
reserve under Management Company's blanket insurance or self-insurance programs
which is allocated to the Inn, not to exceed the higher of (a) the maximum per
occurrence limit established for similar hotels participating in such programs,
or (b) the insurance policy deductible on any loss which may fall within high
hazard classifications as mandated by the insurer (e.g., earthquake, flood,
windstorm on coastal properties, etc.). If the Inn is not a participant under
Management Company's blanket insurance or self-insurance programs, "Inn
Retention" shall mean the amount of any loss or reserve allocated to the Inn,
not to exceed the insurance policy deductible.
12.4 Cost and Expense
----------------
A. [Intentionally omitted]
B. Insurance premiums and any other costs or expenses with respect to
the insurance or self-insurance required under Section 12.2, including any Inn
Retention, shall be paid from Gross Revenues as Deductions. To the extent that
such costs or expenses include reimbursement by Management Company of its own
costs or expenses, or those of one of its Affiliates, such costs or expenses
shall be generally competitive (as calculated over the Term of this Agreement)
with costs and expenses of nonaffiliated entities providing similar services.
Such premiums and costs shall be allocated on an equitable basis to the hotels
79
participating under Management Company's blanket insurance or self-insurance
programs. Any reserves, losses, costs or expenses which are uninsured shall be
treated as a cost of insurance and shall be Deductions. Upon Termination, an
escrow fund in an amount reasonably acceptable to Management Company shall be
established from Gross Revenues (or, if Gross Revenues are not sufficient, with
funds provided by Owner) to cover the amount of any Inn Retention and all other
costs which will eventually have to be paid by either Owner or Management
Company with respect to pending or contingent claims, including those which
arise after Termination for causes arising during the Term of this Agreement.
Upon the final disposition of all such pending or contingent claims, any
unexpended funds remaining in such escrow shall be paid to Owner.
12.5 Owner's Option to Obtain Certain Insurance
------------------------------------------
Owner may, at its option, by written notice to Management Company which
shall be delivered no later than ninety (90) days prior to the natural
expiration of the insurance policies which Management Company has obtained
pursuant to Section 12.2.A, B and C, procure and maintain the insurance
specified in Section 12.2.A, B and C (in which case Management Company shall
allow such policies obtained by it under Section 12.2.A, B, and C to expire),
subject to the following terms and conditions:
A. All such policies of insurance shall be carried in the name of
Owner, with Management Company as an additional insured. Any property losses
thereunder shall be payable to the respective parties as their interests may
appear. The documentation with respect to each Secured Loan shall contain
provisions to the effect that proceeds of the insurance policies required to be
carried under Section 12.1.A and B shall be available for repair and restoration
of the Inn, to the extent required pursuant to Section 12.3.C. However, any
Holder of such Secured Loan shall be entitled to impose reasonable conditions
80
on the disbursement of insurance proceeds for the repair and/or restoration of
the Inn, including a demonstration by Owner and/or Management Company that the
amount of such proceeds (together with other funds Owner agrees to make
available) is sufficient for such purpose.
B. Owner shall deliver to Management Company certificates of
insurance with respect to all policies so procured and, in the case of insurance
policies about to expire, shall deliver certificates with respect to the renewal
thereof.
C. All such certificates of insurance shall, to the extent
obtainable, state that the insurance shall not be canceled or materially change
a without at least thirty (30) days' prior written notice to the certificate
holder.
D. Premiums for such insurance coverage shall be treated as
Deductions, provided that if the cost of such insurance procured by Owner
exceeds the cost of Management Company's comparable coverage by more than ten
percent (10%), all such excess costs shall be the sole responsibility of Owner
and shall not be a Deduction.
E. Should Owner exercise its option to procure the insurance
described in this Section 12.5, Owner hereby waives its rights of recovery from
Management Company or any of its Affiliates (and their respective directors,
officers, shareholders, agents and employees) for loss or damage to the Inn, and
any resultant interruption of business.
F. Should Owner exercise its right to obtain the insurance described
in this Section 12.5, Owner acknowledges that Management Company is under no
obligation to thereafter include the Inn in its blanket insurance program (with
respect to the coverage described in Section 12.2.A, B and C) for the balance of
the Term of this Agreement. However, upon a Sale of the Inn, a successor Owner
shall have the right, notwithstanding the fact that the previous Owner may have
obtained insurance in accordance with this Section
81
12.5, to have the Inn included in Management Company's blanket insurance program
(provided that the Inn, as of that point in time, satisfies the applicable
criteria for admission to such program, as established by the program's
insurance carriers) by making a written request to Management Company for such
inclusion not later than thirty (30) days after the date on which such party
becomes the Owner.
G. All insurance procured by Owner hereunder shall be obtained from
reputable insurance companies reasonably acceptable to Management Company.
ARTICLE XIII
TAXES
-----
13.1 Real Estate and Personal Property Taxes
---------------------------------------
A. Except as specifically set forth in subsection B below, all
Impositions which accrue during the Term of this Agreement (or are properly
allocable to such Term under generally accepted accounting principles) shall be
paid by Management Company from Gross Revenues, as a Deduction, before any fine,
penalty, or interest is added thereto or lien placed upon the Inn or the
Agreement, unless payment thereof is stayed; provided, however, that Management
Company shall not be responsible for any fine, penalty or interest resulting
through no fault of Management Company or caused by Owner. Owner shall within
five (5) business days after the receipt of any invoice, xxxx, assessment,
notice or other correspondence relating to any Imposition, furnish Management
Company with a copy thereof. Management Company shall, within the earlier of
thirty (30) days of payment or five (5) business days following written demand
by Owner, furnish Owner with copies of official tax bills and assessments which
Management Company has received, and evidence of payment or contest thereof.
Either Owner or Management Company (in which case each
82
party agrees to sign the required applications and otherwise cooperate with the
other party in expediting the matter) may initiate proceedings to contest any
Imposition, and all reasonable costs of any negotiations or proceedings with
respect to any such contest shall either (i) be paid from Gross Revenues and be
a Deduction in determining Operating Profit; or (ii) be considered an Owner
Deduction; provided, however that in the event either Owner or Management
Company spends in excess of Five Thousand Dollars ($5,000.00) with respect to
such contest, such party shall provide written notice to the other party and the
other party shall approve or disapprove of such expenditure within ten (10) days
following receipt of such notice. Failure of such party to approve or disapprove
such expenditure shall be deemed approval. In the event that either party's
expenditures in excess of Five Thousand Dollars ($5,000.00) are not approved by
the other party such party may nevertheless proceed to spend whatever funds are
necessary with respect to such contest; provided, however, that any amounts in
excess of Five Thousand Dollars ($5,000.00) (or such higher amount as may have
been approved by the other party) shall be at the sole cost of Owner or
Management Company, as the case may be, and shall not be considered an Owner
Deduction by Owner nor be considered a Deduction from Operating Profit by either
Owner or Management Company.
B. The word "Impositions", as used in this Agreement, shall not
include the following, all of which shall be paid solely by Owner, not from
Gross Revenues nor from the FF&E Reserve:
1. Any franchise, corporate, estate, inheritance, succession, capital
levy or transfer tax imposed on Owner, or any income tax imposed on any income
of Owner (including distributions to Owner pursuant to Article V hereof);
83
2. Special assessments (regardless of when due or whether they are paid as
a lump sum or in installments over time) imposed because of facilities which are
constructed by or on behalf of the assessing jurisdiction (for example, roads,
sidewalks, sewers, culverts, etc.) which directly benefit the Inn (regardless of
whether or not they also benefit other buildings), which assessments shall not
be treated as Deductions, but rather shall be added to the Additional Invested
Capital as of each payment by Owner with respect thereto; provided, however,
that any installments (after the Effective Date) of any assessments which were
levied or imposed prior to the Effective Date shall be Deductions;
3. "Impact Fees" (regardless of when due or whether they are paid as a
lump sum or in installments over time) which are required of Owner as a
condition to the issuance of site plan approval, zoning variances or building
permits, which impact fees shall not be treated as Deductions, but rather shall
be added to the Additional Invested Capital as of each payment by Owner with
respect thereto; provided, however, that any installments (after the Effective
Date) of any impact fees which were levied or imposed prior to the Effective
Date shall be Deductions; and
4. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Inn by temporarily reducing or abating normal Impositions in
return for substantially higher levels of Impositions at later dates.
C. Owner shall have the right to require Management Company to
establish an escrow account (with either any Qualified Lender or another entity
reasonably acceptable to both Owner and Management Company) from which
Impositions will be paid. Payments into such escrow account will be Deductions.
Any interest which accrues on
84
amounts deposited in such escrow account shall be added to the balance in such
escrow account and used to pay Impositions.
ARTICLE XIV
INN EMPLOYEES
-------------
14.1 Employees
---------
A. All personnel employed at the Inn shall be the employees of
Management Company. Management Company shall have absolute ' discretion to
hire, promote, supervise, direct, train and discharge all employees at the Inn,
to fix their compensation and, generally, establish and maintain all policies
relating to employment.
B. Management Company shall decide which, if any, of the Inn's
employees shall reside at the Inn (provided that Owner's prior approval shall be
obtained if more than one such employee and his or her immediate families reside
at the Inn), and shall be permitted to provide free accommodations and amenities
to its employees and representatives living at or visiting the Inn in connection
with its management or operation. No person shall otherwise be given gratuitous
accommodations or services without prior joint approval of Owner and Management
Company except in accordance with usual practices of the hotel and travel
industry.
C. Any proposed settlement of any Employee Claim where the amount
proposed to be offered to the employee by Management Company is in excess of the
Settlement Threshold Amount shall be jointly approved by Management Company and
Owner. Any dispute between Owner and Management Company as to whether
Management Company's settlement recommendation is reasonable, where such
proposed settlement is in excess of the Settlement Threshold Amount shall be
resolved by arbitration under Section
85
20.13 hereof; provided that Management Company shall have the right to settle
any Employee Claim (prior to the arbitration on the reasonableness of the
settlement, as described in this sentence) based on Management Company's
recommendation, which shall be Management Company's reasonable estimate, in good
faith, by using: (i) funds from Gross Revenues (as a Deduction) up to the amount
of Owner's settlement recommendation, which shall be Owner's reasonable
estimate, in good faith; and (ii) Management Company's own funds to the extent
Management Company's recommendation exceeds the amount described in subparagraph
(i) above. Following the settlement of such Employee Claim, the parties will
arbitrate under Section 20.13 the issue of whether Management Company's
settlement recommendation was reasonable under the circumstances. If the
arbitrators decide that Management Company's recommendation was reasonable,
Management Company shall be entitled to reimburse itself from Gross Revenues (as
a Deduction) in the amount of the funds advanced under subparagraph (ii) above,
together with accrued interest thereon at the Prime Rate. If the arbitrators
decide that Management Company's settlement recommendation was not reasonable,
then Management Company shall not be entitled to any reimbursement of the
amounts advanced by it under subparagraph (ii) above, nor to accrued interest
thereon.
D. Management Company shall pay from its own funds, and not from
Gross Revenues, any Employee Claim where the basis of such Employee Claim is
conduct by Management Company which: (i) is a substantial violation of the
standards of responsible labor relations as generally practiced by prudent
owners or operators of similar hotel properties in the general geographic area
of the Inn; and (ii) is not the isolated act of individual employees, but rather
is a direct result of corporate policies of Management Company which either
encourage or fail to discourage such conduct. In addition,
86
Management Company shall indemnify, defend and hold harmless Owner from and
against any fines or judgments arising out of such conduct, and all Litigation
expenses (including reasonable attorneys' fees and expenses) incurred in
connection therewith. Any dispute between Owner and Management Company as to
whether or not certain conduct by Management Company is not in accordance with
the aforesaid standards shall be resolved by arbitration under Section 20.13
hereof. The arbitration proceedings described in the preceding sentence shall be
conducted independently of any arbitration proceedings with respect to such
Employee Claim pursuant to the applicable employee-related contract and/or
pursuant to Section 14.1.C of this Agreement.
E. With respect to all Litigation or arbitration involving Employee
Claims in which both Management Company and Owner are involved as actual or
potential defendants, Management Company shall have exclusive and complete
responsibility (subject to the rights of Owner to approve certain settlements,
as set forth in Section 14.1.C) for the resolution of such Employee Claims. In
the event that any Employee Claim is made against Owner, but not against
Management Company, Owner shall give notice to Management Company of the
Employee Claim in a timely manner so as to avoid any prejudice to the defense of
the Employee Claim, provided that Management Company shall in all events be so
notified within twenty (20) days after the date such Employee Claim is made
against Owner. Management Company will thereafter assume exclusive and complete
responsibility for the resolution of such Employee Claim.
F. At Termination, other than by reason of an Event of Default of
Management Company hereunder, an escrow fund shall be established from Gross
Revenues (or, if Gross Revenues are not sufficient, with funds provided by
Owner) to reimburse Management Company for all costs and expenses incurred by
Management Company which
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arise out of either the transfer or the termination of employment of Management
Company's employees at the Inn, such as reasonable transfer costs, severance
pay, unemployment compensation and other employee liability costs.
ARTICLE XV
DAMAGE CONDEMNATION AND FORCE MAJEURE
--------------------------------------
15.1 Damage and Repair
-----------------
A. If, during the Term hereof, the Inn is damaged or destroyed by
fire, casualty or other cause, Owner shall, with all reasonable diligence, to
the extent that proceeds from the insurance described in Section 12.2 are
available (subject to the provisions of any Mortgage encumbering the Inn, but
with the limitations described in Section 12.3.C) for such purpose, repair or
replace the damaged or destroyed portion of the Inn to the same condition as
existed previously.
B. In the event damage or destruction to the Inn from any cause
materially and adversely affects the operation of the Inn and Owner fails to
timely (subject to Force Majeure, and subject to unreasonable delays caused by
Management Company, including unreasonable delays in adjusting the insurance
claim with the carriers which participate in Management Company's blanket
insurance program) commence and complete the repairing, rebuilding or
replacement of the same so that the Inn shall be substantially the same as it
was prior to such damage or destruction, such action shall be deemed an Event of
Default by Owner pursuant to Section 16.1.E and Management Company may, at its
option, elect to terminate this Agreement upon one hundred twenty (120) days'
written notice in addition to its remedies under Section 16.3.
15.2 Condemnation
------------
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A. In the event all or substantially all of the Inn shall be taken in
any eminent domain, condemnation, compulsory acquisition, or similar proceeding
by any competent authority for any public or quasi-public use or purpose, or in
the even* a portion of the Inn shall be so taken, but the result is that it is
unreasonable to continue to operate the Inn, this Agreement shall terminate.
B. In the event a portion of the Inn shall be taken by the events
described in Section 15.2.A, or the entire Inn is affected but on a temporary
basis and the result is not to make it unreasonable to continue to operate the
Inn, this Agreement shall not terminate. However, so much of any award for any
such partial taking or condemnation as shall be necessary to render the Inn
equivalent to its condition prior to such event shall be used for such purpose;
the balance of such award, if any, shall be fairly and equitably apportioned
between Owner and Management Company in accordance with their respective
interests. The amount of any award received by Owner pursuant to Section 15.2.B
and not applied to restoration of the Inn shall be deducted from the Priority
Basis and the Loan Priority Basis at such time as the award is received by
Owner. In addition, the Performance Termination Threshold shall be reduced by
an amount equal to eight percent (8%) of such total amount (if any) of any award
received by Owner pursuant to this Section 15.2.B which is not used to restore
the Inn.
C. In the event of any proceeding described in Section 15.2.A or
15.2.B, Owner and Management Company shall each have the right to initiate such
proceedings as they deem advisable to recover any damages to which they may be
entitled; provided, however, that Management Company shall be entitled to retain
the award or compensation it may obtain through proceedings which are conducted
separately from those of Owner only if such award or compensation does not
reduce the award or compensation otherwise available
89
to Owner. (For this purpose, any award or compensation received by any Holder
shall be deemed to be an award or compensation received by Owner).
15.3 Force Majeure
-------------
A. The withdrawal or revocation of any License which is material to
the operation of the Inn in accordance with the Residence Inn System Standards,
where such withdrawal or revocation: (i) is not due to the fault of either
Management Company or Owner, and (ii) is not otherwise within the reasonable
control of either Management Company or Owner, shall not be an Event of Default
under Article XVI of this Agreement. Management Company and Owner shall each, in
good faith, use all commercially reasonable efforts (including the diligent
pursuit of all available appeals), during the period of one hundred twenty (120)
days after the date of such withdrawal or revocation, to have such License
reinstated. If, notwithstanding such efforts, such License is not reinstated
prior to the expiration of the aforesaid period of one hundred twenty (120)
days, either Owner or Management Company shall have the right, at its option, to
terminate this Agreement upon no less than sixty (60) days' notice to the other
party; provided, however, that the terminating party must deliver such notice of
Termination to the other party by no later than ninety (90) days after the
expiration of such one hundred twenty (120) day period; and provided further,
that no such Termination shall be effective if, prior to the effective date of
such Termination, such License is reinstated or such withdrawal or revocation of
such License is stayed.
B. If an order, judgment or directive by a court or administrative
body is issued, in connection with any legal or Litigation involving Owner,
which order, judgement or directive restricts or prevents Management Company, in
a material adverse manner, from operating the Inn in accordance with the
Residence Inn System Standards, and which,
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in Management Company's reasonable opinion, will have a significant adverse
effect upon operations of the Inn, Management Company shall be entitled, at its
option, to terminate this Agreement upon sixty (60) days' written notice;
provided, however, that Management Company shall (if it so elects) deliver such
notice of Termination to Owner by no later than ninety (90) days after the
issuance of such order, judgment or directive (or, if such order, judgment or
directive is appealed, within ninety (90) days after the final disposition of
such appeal).
ARTICLE XVI
DEFAULTS
--------
16.1 Definition of "Default"
----------------------
Any one or more of the following shall constitute a "Default," to the
extent permitted by applicable law:
A. The filing of a voluntary petition in bankruptcy or insolvency or
a petition for reorganization under any bankruptcy law by either party, or the
admission by either party that it is unable to pay its debts as they become due;
B. The consent to an involuntary petition in bankruptcy or the
failure to vacate, within ninety (90) days from the date of entry thereof, any
order approving an involuntary petition by either party;
C. The entering of an order, judgment or decree by any court of
competent jurisdiction, on the application of a creditor, adjudicating either
party as bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree's continuing unstayed
and in effect for any period of ninety (90) days;
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D. The failure of either party to make any payment required to be
made in accordance with the terms of this Agreement, as of the due date which is
specified in this Agreement;
E. The failure of either party to perform, keep or fulfill any of the
other covenants, undertakings, obligations or conditions set forth in this
Agreement.
16.2 Definition of "Event of Default"
-------------------------------
A. Upon the occurrence of any Default by either party hereto
(hereinafter referred to as the "defaulting party") under Section 16.1.A, B or
C, such Default shall immediately and automatically, without the necessity of
any notice to the defaulting party, constitute an "Event of Default" under this
Agreement.
B. Upon the occurrence of any Default by a defaulting party under
Section 16.1.D, such Default shall constitute an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within ten (10)
days after written notice from the non-defaulting party specifying such Default
and demanding such cure.
C. Upon the occurrence of any Default by either party hereto under
Section 16.1.E, such Default shall constitute an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within thirty (30)
days after written notice from the non-defaulting party and demanding such cure,
or, if the Default is such that it cannot reasonably be cured within said thirty
(30) day period of time, if the defaulting party fails to commence the cure of
such Default within said thirty (30) day period of time or thereafter fails to
diligently pursue such efforts to completion.
16.3 Remedies Upon an Event of Default
---------------------------------
A. Upon the occurrence of an Event of Default under the provisions of
Section 16.2, the non-defaulting party shall have the right to pursue any one
or more of the
92
following courses of action: (i) in the event of a material breach by the
defaulting party of its obligations under this Agreement, to terminate this
Agreement by written notice to the defaulting party, which termination shall be
effective as of the effective date which is set forth in said notice, provided
that said effective date shall be at least thirty (30) days after the date of
said notice; and provided further that, if the defaulting party is the employer
of all or a substantial portion of the employees at the Inn, the foregoing
period of thirty (30) days shall be extended to seventy-five (75) days (or such
longer period of time as may be necessary under applicable Legal Requirements
pertaining to termination of employment); (ii) to institute forthwith any and
all proceedings permitted by law or equity, including, without limitation,
actions for specific performance and/or damages; and (iii) to avail itself of
any one or more of the other remedies described in this Section 16.3.
B. Upon the occurrence of a Default by either party under the
provisions of Section 16.1.D, the amount owed to the nondefaulting party shall
accrue interest, at the Interest Rate, from and after the date on which such
payment was originally due to the non-defaulting party.
C. The rights granted hereunder are intended to be cumulative, and
shall not be in substitution for, but shall be in addition to, any and all
rights and remedies available to the non-defaulting party (including, without
limitation, injunctive relief and damages; provided that the satisfaction of
damage awards against Owner shall be limited by the provisions of Section 16.4)
by reason of applicable provisions of law or equity.
16.4 Owner's Estate
--------------
Notwithstanding any other provision of this Agreement, in the event of any
Event of Default by Owner pursuant to the terms of this Agreement, Management
Company shall look only to Owner's estate and interest in the Site and the Inn
(which shall for this purpose,
93
include (i) amounts deposited in the Operating Accounts and the FF&E Reserve,
and (ii) accounts receivable) for the satisfaction of a money judgment against
Owner resulting from such Event of Default, and no other property or assets of
Owner, or of its partners, officers, directors, shareholders or principals,
shall be subject to levy, execution or other enforcement procedure for the
satisfaction of such judgment. Management Company's right to look to Owner's
estate and interest in the Site and the Inn for satisfaction of such a money
judgment against Owner shall survive Termination and shall not be affected by
any one or more Sales of the Inn. Nothing contained in this Section 16.4 shall
be deemed to affect or diminish Management Company's remedies under this Article
XVI other than money damages against Owner (including, without limitation,
Termination of this Agreement).
ARTICLE XVII
WAIVER AND PARTIAL INVALIDITY
-----------------------------
17.1 Waiver
------
The failure of either party to insist upon a strict performance of any of
the terms or provisions of this Agreement, or to exercise any option, right or
remedy herein contained, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.
17.2 Partial Invalidity
------------------
If any portion of this Agreement shall be declared invalid by order, decree
or judgment of a court, this Agreement shall be construed as if such portion had
not been inserted herein except when such construction would operate as an undue
hardship on
94
Management Company or Owner, or constitute a substantial deviation from the
general intent and purpose of said parties as reflected in this Agreement.
ARTICLE XVIII
ASSIGNMENT
----------
18.1 Assignment
----------
A. Management Company shall not assign or transfer its management
responsibilities under this Agreement without the prior written consent of
Owner; provided, however, that Management Company shall have the right, without
such consent, to: (i) assign its interest in this Agreement to any of its
Affiliates and any such Affiliate shall be deemed to be the Management Company
for the purposes of this Agreement, and (ii) sublease shops or grant Licenses or
concessions at the Inn so long as the terms of any such subleases, Licenses or
concessions are consistent with the provisions of Section 2.2 and provided
further that Owner's consent shall be required prior to the execution by
Management Company of any such lease, License or concession which (a) has a term
of more than five (5) years, or (b) involves more than five hundred (500) square
feet of space within the Inn. In the event of such an assignment by Management
Company of its interest in this Agreement to an Affiliate, the Management
Company which is named in the Preamble to this Agreement: (i) shall
automatically be deemed to guarantee the performance of such Affiliate under
this Agreement; (ii) shall, at the request of Owner, execute a guaranty, in form
and substance reasonably satisfactory to both parties, of the performance of
such Affiliate under this Agreement (provided that the failure of Owner to
obtain an executed guaranty pursuant to this clause (ii) shall not affect the
validity or enforceability of the guaranty which is automatically created
pursuant to clause (i); and provided further, that,
95
when Owner does so receive an executed guaranty pursuant to this clause (ii),
such executed guaranty shall be deemed to have superseded the guaranty described
in clause (i) above); and (iii) shall make available to such Affiliate, in
connection with the performance by such Affiliate under this Agreement,
Management Company's skill, personnel, facilities and resources.
B. Owner shall not assign or transfer its interest in this Agreement
other than (i) in connection with a Sale of the Inn which complies with the
provisions of Article XIX hereof; or (ii) as set forth in Section 18.1.C.
C. Nothing contained herein shall prevent: (i) the collateral
assignment of this Agreement by Owner as security for any Mortgage which
complies with the provisions of Section 3.1; or (ii) the transfer of this
Agreement in connection with a merger or consolidation or a sale of all or
substantially all of the assets of either party, provided that (x) if such
transfer is by Owner, the provisions of Article XIX hereof shall be complied
with, and (y) if such transfer is by Management Company, such transfer is being
done as a part of a merger, consolidation, etc., of all or substantially all of
the business which consists of managing the Residence Inn System.
D. In the event either party consents to an assignment of this
Agreement by the other, no further assignment shall be made without the express
consent in writing of such party, unless such assignment may otherwise be made
without such consent pursuant to the terms of this Agreement.
E. An assignment (either voluntarily or by operation of law) by Owner
of its interest in this Agreement (in compliance with Article XVIII) shall not
relieve Owner from its obligations under this Agreement which accrued prior to
the date of such assignment, but shall relieve Owner of such obligations
accruing after such date, if the
96
assignment complies with Section 18.1.B and if Management Company has received
an assumption agreement executed by the assignee (in form and substance
reasonably satisfactory to Management Company). An assignment (either
voluntarily or by operation of law) by Management Company of its interest in
this Agreement shall not relieve Management Company from its obligations under
this Agreement, unless Owner so agrees in writing.
F. Subject to the provisions of this Article XVIII, the terms and
conditions of this Agreement shall inure to the benefit of, and be binding upon,
the respective successors, heirs, legal representatives, or assigns of each of
the parties hereto.
ARTICLE XIX
SALE OF THE INN
---------------
19.1 Sale of the Inn
---------------
A. Owner shall not enter in-to any Sale of the Inn to any individual
or entity which: (i) does not have sufficient financial resources and liquidity
to fulfill Owner's obligations under this Agreement; (ii) is in control of or
controlled by persons who have been convicted of felonies involving moral
turpitude in any state or federal court; or (iii) is engaged in the business of
operating or franchising (as distinguished from owning) a branded hotel chain
having five hundred (500) or more guest rooms in competition with Management
Company. An individual or entity shall not be deemed to be in the business of
operating hotels in competition with Management Company solely by virtue of (x)
the ownership of such hotels, either directly or indirectly through
subsidiaries, affiliates and partnerships, or (y) holding a Mortgage or
Mortgages secured by one or more hotels. Notwithstanding the foregoing, if Owner
or an Affiliate of Owner is a corporation whose shares are listed on a public
stock exchange, and if a Sale of the Inn occurs as a result of purchases of such
shares,
97
through such public stock exchange, in sufficient quantities to cause a transfer
of the "controlling interest" in Owner (as described in the definition of "Sale
of the Inn"), and if such Sale of the Inn is not in compliance with the
provisions of this Section 19.1.A, Management Company shall have the right, at
its option, to terminate this Agreement by written notice to Owner (as more
particularly described in Section 19.1.B), but such non-compliance with this
Section 19.1.A shall not be an Event of Default nor shall it subject Owner to
claims for damages by Management Company pursuant to Article XVI.
B. If Owner receives a bona fide written offer to enter into a Sale
of the Inn, Owner shall give written notice thereof to Management Company,
stating the name of the prospective purchaser or tenant, as the case may be.
Such notice shall include appropriate information relating to such prospective
purchaser or tenant demonstrating compliance with the provisions of Section
19.1.A together with such additional information as Management Company shall
reasonably request. If Management Company decides that a Sale of the Inn to such
prospective purchaser or tenant would violate the provisions of Section 19.1.A,
Management Company shall so notify Owner by no later than thirty (30) days after
receipt of such notice; provided, however, that any decision by Management
Company regarding any such prospective purchaser or tenant shall not be binding
if the information furnished by Owner pursuant to the preceding sentence is
inaccurate. Concurrently with the finalization of such Sale of the Inn, the
purchaser or tenant, as the case may be, shall, by appropriate instrument
reasonably satisfactory to Management Company, assume all of Owner's obligations
hereunder. An executed copy of such assumption agreement shall be delivered to
Management Company. If the proposed Sale of the Inn would violate the provisions
of Section 19.1.A, Owner will not enter into any agreement relating to such Sale
of the Inn. However, if Owner does enter into such an
98
agreement, Management Company shall have the right to terminate this Agreement
by written notice to Owner, which notice will set an effective date for such
Termination not earlier than thirty (30) days, nor more than one hundred twenty
(120) days, following the date of the giving of such notice. Management Company
shall have the right to change such effective date of Termination to coincide
with the date of the finalization of the proposed Sale of the Inn. At Management
Company's election, said notice of Termination shall not be effective if such
Sale of the Inn is not finalized. If such Termination by Management Company
results from a Default by Owner under Section 19.1.A, such Termination shall not
relieve Owner (except as otherwise set forth to the contrary in the last
sentence of Section 19.1.A) of liability to Management Company for such Default.
C. In connection with the possibility of a Sale of the Inn achieved
by means of a transfer of the controlling interest in Owner, Owner, upon written
request of Management Company, shall (unless Owner is a publicly-traded
corporation which is registered under Section 12 or Section 15 of the Securities
Act of 1934) furnish Management Company with a list of the names and addresses
of the owners of the capital stock, (but only those owners which hold an
ownership interest of thirty percent (30%) or more), or the partnership
interests (both (i) general partner, and (ii) any limited partner holding an
ownership interest of thirty percent (30%) or more), or other ownership
interests in Owner. In addition, Owner shall notify Management Company of any
transaction or series of transactions in which Owner reduces its ownership
interest in the Inn below fifty percent (50%) or in which the former controlling
interest in Owner is reduced below fifty percent (50%). Management Company
agrees to use diligent efforts to keep all such lists confidential in accordance
with the provisions of Section 12.4.
99
D. It is understood that no Sale of the Inn (which is otherwise in
compliance with the provisions of this Article XIX) shall reduce or otherwise
affect: (i) the current level of Working Capital; (ii) the current amount
deposited in the FF&E Reserve; or (iii) any of the Operating Accounts maintained
by Management Company pursuant to this Agreement. If, in connection with any
Sale of the Inn, the selling Owner intends to withdraw, for its own use, any of
the cash deposits described in the preceding sentence, the selling Owner must
obtain the contractual obligation of the buying Owner to replenish those
deposits (in the identical amounts) simultaneously with such withdrawal. The
selling Owner is hereby contractually obligated to Management Company to ensure
that such replenishment in fact occurs. The obligations described in this
Section 19.1.D shall survive such Sale of the Inn and shall survive Termination.
E. Management Company shall have the right to terminate this
Agreement, on thirty (30) days' written notice, if title to or possession of the
Inn is transferred by judicial or administrative process (including, without
limitation, a Foreclosure, or a sale pursuant to an order of a bankruptcy court,
or a sale by a court-appointed receiver) to an individual or entity which would
not qualify as a permitted transferee under clause (i), (ii) or (iii) of Section
19.1.A, regardless of whether or not such transfer is the voluntary action of
the transferring Owner, or whether (under applicable law) the Owner is in fact
the transferor; provided, however, that Management Company shall not have the
right to so terminate this Agreement based on the assertion that a Qualified
Lender fails to so qualify as a permitted transferee under said clauses (i),
(ii) or (iii) of Section 19.1.A.
ARTICLE XX
MISCELLANEOUS
-------------
100
20.1 Right to Make Agreement
-----------------------
A. Each party warrants, with respect to itself, that neither the
execution of this Agreement nor the finalization of the transactions
contemplated hereby shall: (i) violate any provision of law or any judgment,
writ, injunction, order or decree of any court or governmental authority having
jurisdiction over it; (ii) result in or constitute a breach or default under any
indenture, contract, other commitment or restriction to which it is a party or
by which it is bound to the extent that the remedies for such breach or default
would have a material adverse effect on such party's ability to perform under
this Agreement; or (iii) require any consent, vote or approval which has not
been taken, or at the time of the transaction involved shall not have been given
or taken. Each party covenants that it has and will continue to have throughout
the Term of this Agreement and any extensions thereof, the full right to enter
into this Agreement and perform its obligations hereunder.
B. Each party agrees that it will, as of the Effective Date, provide
the other party with: (i) certified copies of the applicable resolutions of its
board of directors (if it is a corporation), or written authorization by all
general partners (if it is a partnership) or other appropriate documentation
establishing its authority to execute this Agreement; and (ii) such opinions of
counsel as the other party shall reasonably request regarding the matters
described in this Section 20.1.
20.2 Consents
--------
Wherever in this Agreement the consent or approval of Owner or Management
Company is required, such consent or approval shall (except to the extent that
such consent or approval is specifically designated as being "within the
discretion" of a party, or words to that effect, in the applicable provision)
not be unreasonably withheld, shall be in writing and shall be executed by a
duly authorized officer or agent of the party granting such consent or
101
approval. If either Owner or Management Company fails to respond within thirty
(30) days to a request by the other party for a consent or approval, such
consent or approval shall be deemed to have been given.
20.3 Agency
------
The relationship of Owner and Management Company shall be that of principal
and agent, and nothing contained in this Agreement shall be construed to create
a partnership or joint venture between them or their successors in interest.
Management Company's agency established by this Agreement is coupled with an
interest and may not be terminated by Owner until the expiration of the Term of
this Agreement, except as provided in Section 4.3 and in Articles XV or XVI.
Notwithstanding the agency relationship created by this Agreement, except to the
extent specifically set forth to the contrary in Section 20.12, nothing
contained herein shall prohibit, limit or restrict Management Company or any of
its Affiliates from developing, owning, operating, leasing, managing or
franchising hotels in the market area where the Inn is located.
The agency coupled with an interest herein was created by a complex,
single, integrated transaction between Marriott Corporation (the parent
corporation of Owner and Management Company as of the Effective Date) and its
subsidiaries whereby Marriott Corporation and its subsidiaries developed,
constructed, own and manage the Hotel. This agency is further intended to
provide security for the covenants, promises and guarantees herein. The agency
was purchased for valuable consideration, and is not terminable except as
specifically allowed by the express provisions of this Agreement. The parties
intend for this agency to be coupled with an interest, waive any right to claim
it is terminable at will, and further agree to be equitably estopped from
asserting that the agency is not coupled with an interest.
102
20.4 Confidentiality
---------------
The parties hereto agree that the matters set forth in this Agreement are
strictly confidential and each party will make every effort to ensure that such
matters are not disclosed to any outside person or entities (including the
press) without the written consent of the other party; provided, however, that
such consent will not be required with respect to: (i) legally required filings
and other disclosures mandated by Legal Requirements; and (ii) in the case of
Owner, disclosure to any Qualified Lender or prospective Qualified Lender, or to
prospective purchasers of the Inn (subject to the provisions of Section 20.5, if
applicable).
20.5 Equity Offerings
----------------
No reference to Management Company or to any of its Affiliates will be made
in any prospectus, private placement memorandum, offering circular or offering
documentation related thereto (herein collectively referred to as the
"Prospectus"), issued by Owner or one of its Affiliates, which is designed to
interest potential investors in the Inn, unless Management Company has
previously received a copy of all such references. However, regardless of
whether Management Company does or does not so receive a copy of all such
references, neither Management Company nor any of its Affiliates will be deemed
a sponsor of the offering described in the Prospectus, nor will it have any
responsibility for the Prospectus, and the Prospectus will so state. Unless
Management Company agrees in advance, the Prospectus will not include: (i) any
Proprietary Xxxx; or (ii) except as required by applicable securities laws, the
text of this Agreement. Owner shall be entitled, however, to include in the
Prospectus an accurate summary of this Agreement; If there are no Legal
Requirements pursuant to which such information must be disclosed, appropriate
measures shall be taken to ensure that entities or individuals receiving such
Prospectus shall acknowledge the confidentiality of such information. Owner
shall indemnify, defend and
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hold Management Company and its Affiliates (and their respective directors,
officers, shareholders, employees and agents) harmless from and against all
loss, costs, liability and damage (including attorneys' fees and expenses, and
the cost of Litigation) arising out of any Prospectus or the offering described
therein.
20.6 Applicable Law
--------------
This Agreement shall be construed under and shall be governed by the laws
of the state where the Inn is located.
20.7 Recordation
-----------
The terms and provisions of this Agreement shall run with the land
designated as the Site, and with Owner's interest therein, and shall be binding
upon all successors to such interest. At the request of either party, the
parties shall execute an appropriate memorandum of this Agreement in recordable
form and cause the same to be recorded in the jurisdiction where the Inn is
located. Any cost of such recordation shall be borne by Management Company.
20.8 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.
20.9 Notices
-------
Notices, statements and other communications to be given under the terms of
this Agreement shall be in writing, and shall be either: (i) delivered by hand
against receipt; or (ii) sent by certified or registered mail, postage prepaid,
return receipt requested or (iii) sent by either a nationally utilized overnight
delivery service or by "facsimile" machine (provided that, in either case, a
confirmatory copy is thereafter sent by certified or registered mail):
104
To Owner:
--------
c/o Host Marriott, Inc.
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Law Department
with a copy to:
--------------
c/o Host Marriott, Inc.
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Asset Management Department 72-lAD-2
To Management Company:
---------------------
Residence Inn by Marriott, Inc.
c/o Marriott International, Inc.
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Law Department - Hotel Operations
Residence Inn by Marriott, Inc.
c/o Marriott International, Inc.
00000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxxxxx 00000
Attn: Residence Inn, Vice President, Finance
or at such other address as is from time to time designated by the party
receiving the notice. Any such notice which is properly mailed, as described
above, shall be deemed to have been served as of three (3) business days after
said posting.
20.10 Environmental Matters
---------------------
A. Management Company shall indemnify, defend and hold Owner and its
Affiliates (and their respective directors, officers, shareholders, employees
and agents) harmless from and against all loss, cost, liability and damage
(including, without limitation, engineers' and attorneys' fees and expenses, and
the cost of Litigation) arising from the placing, discharge, leakage, use or
storage of Hazardous Materials, in violation of applicable
105
Environmental Laws, on the Site or in the Inn by Management Company's employees,
representatives or agents during the Term of this Agreement. Regardless of
whether or not a given Hazardous Material is permitted on the Site under
applicable Environmental Law, Management Company shall only bring on the Site
such Hazardous Materials as are needed in the normal course of business of the
Inn.
B. In the event of the discovery of Hazardous Materials on any
portion of the Site or in the Inn during the Term of this Agreement, Owner shall
(except to the extent such removal is Management Company's responsibility
pursuant to Section 20.10.A) promptly remove (if required by applicable
Environmental Law) such Hazardous Materials, together with all contaminated soil
and containers, and shall otherwise remedy the problem in accordance with all
Environmental Laws. Owner shall (except to the extent that the removal of such
Hazardous Materials is Management Company's responsibility pursuant to Section
20.10.A) indemnify, defend and hold Management Company and its Affiliates (and
their respective directors, officers, shareholders, employees and agents)
harmless from and against all loss, cost, liability and damage (including,
without limitation, engineers' and attorneys' fees and expenses, and the cost of
Litigation) arising from the presence of Hazardous Materials on the Site or in
the Inn.
C. All costs and expenses of the removal of Hazardous Materials from
the Site or the Inn pursuant to Section 20.10.B, and of the aforesaid compliance
with all Environmental Laws, and any amounts paid to Management Company pursuant
to the indemnity set forth in the last sentence of Section 20.10.B, shall be
paid by Owner from its own funds, not as a Deduction nor from the FF%E Reserve,
and shall be treated as an expenditure by Owner pursuant to Section 8.3.
20.11 Estoppel Certificates
---------------------
106
Each party to this Agreement shall at any time and from time to time, upon
not less than thirty (30) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (i) certifying that this Agreement is
unmodified and in full force and effect (or if there have been modifications
that the same, as modified, is in full force and effect and stating the
modifications); (ii) stating whether or not to the best knowledge of the
certifying party (a) there is a continuing default by the non-certifying party
in the performance or observance of any covenant, agreement or condition
contained in this Agreement, or (b) there shall have occurred any event which,
with the giving of notice or passage of time or both, would become such a
default, and, if so, specifying each such default or occurrence of which the
certifying party may have knowledge; and (iii) stating such other information as
the non-certifying party may reasonably request. Such statement shall be
binding upon the certifying party and may be relied upon by the non-certifying
party and/or such third party specified by the non-certifying party as
aforesaid. The obligations set forth in this Section 21.11 shall survive
Termination (that is, each party shall, on request, within the time period
described above, execute and deliver to the non-certifying party and to any such
third party a statement certifying that this Agreement has been terminated).
20.12 Trade Area Restriction
----------------------
Neither Management Company nor any of its Affiliates shall own, build,
franchise, manage or operate any Restricted Inn, under the "Residence Inn by
Marriott" or "Residence Inn" brand name, within the Restricted Area during the
period from the Effective Date through the sixth (6th) anniversary of the
Effective Date.
20.13 Arbitration
-----------
107
A. In the event of a dispute between Owner and Management Company
with respect to any issue of fact specifically mentioned herein as a matter to
be decided by arbitration, such dispute shall be determined by arbitration as
provided in this Section 20.13.
B. Disputes shall be resolved in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then pertaining. The
decision of the arbitrators shall be binding, final and conclusive on the
parties.
C. Owner and Management Company shall each appoint and pay all fees
of a fit and impartial person as arbitrator who shall have had at least ten (10)
years' recent professional experience in the general subject matter of the
dispute. Notice of such appointment shall be sent in writing by each party to
the other, and the arbitrators so appointed, in the event of their failure to
agree within thirty (30) days after the appointment of the second arbitrator
upon the matter so submitted, shall appoint a third arbitrator. If either Owner
or Management Company shall fail to appoint an arbitrator, as aforesaid, for a
period of twenty (20) days after written notice from the other party to make
such appointment, then the arbitrator appointed by the party having made such
appointment shall appoint a second arbitrator and the two so appointed shall, in
the event of their failure to agree upon any decision within thirty (30) days
thereafter, appoint a third arbitrator. If such arbitrators fail to agree upon
a third arbitrator within forty-five (45) days after the appointment of the
second arbitrator, then such third arbitrator shall be appointed by the American
Arbitration Association from its qualified panel of arbitrators, and shall be a
person having at least ten (10) years' recent professional experience as to the
subject matter in question. The fees of the third arbitrator and the expenses
incident to the proceedings shall be borne equally between Owner and Management
Company, unless the arbitrators decide otherwise. The fees of respective counsel
engaged by the parties, and the fees of expert
108
witnesses and other witnesses called for the parties, shall be paid by the
respective party engaging such counsel or calling or engaging such witnesses.
D. The decision of the arbitrators shall be rendered within thirty
(30) days after appointment of the third arbitrator. Such decision shall be in
writing and in duplicate, one counterpart thereof to be delivered to Owner and
one to Management Company. A judgment of a court of competent jurisdiction may
be entered upon the award of the arbitrators in accordance with the rules and
statutes applicable thereto then obtaining.
20.14 Entire Agreement
----------------
This Agreement, together with other writings signed by the parties which
are expressly stated to be supplemental hereto and together with any instruments
to be executed and delivered pursuant to this Agreement, constitutes the entire
agreement between the parties, and supersedes all prior written and oral
understandings. This Agreement may be amended only by a writing signed by both
parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
Attest: OWNER:
HMH PROPERTIES, INC.
_____________________________ By: _________________________________
Assistant Secretary Vice President
Attest: MANAGER:
RESIDENCE INN BY MARRIOTT, INC.
_____________________________ By: _________________________________
Assistant Secretary Vice President
109
EXHIBIT "A" TO MANAGEMENT AGREEMENT
Location of Inn; Legal Description of the Site
----------------------------------------------
EXHIBIT "A-1"
Number of Suites and Brief Description of Facilities: Priority
Basis; Performance Termination Threshold: Loan Priority Basis
(number set forth in (i) of Definition): Revenue Index Threshold:
-----------------------------------------------------------------
EXHIBIT "A-1"
RESIDENCE INN BY MARRIOTT
Priority Basis
Loan Priority Basis
Performance Termination Threshold
Revenue Index
Number of Rooms
Brief Description of Facilities:
--------------------------------
EXHIBIT "B" TO MANAGEMENT AGREEMENT
Form of Accounting Period Statement
-----------------------------------
EXHIBIT B
HOST MARRIOTT MANAGEMENT AGREEMENT
Form of Accounting Period Statement for Residence Inn
Period Last Year
------ ---------
Average Rate
Occupancy Rate
Gross Revenue ------ ---------
House Profit ------ ---------
Less:
Base Management Fee
Residence Inn System Fee
Chain Services
Property Tax
Repairs and Equipment Reserve
Other Investment Factors ------ ----------
Operating Profit
Less: Incentive Management Fee ------ ----------
Partnership Profit ------ ----------
Cash Due from (to) Management Company:
-------------------------------------
Year-to-Date Cash from Operations
Less: Cash Paid by Management Company Year-to-Date __________
Amount Due from (to) Management Company __________
The above is the interim accounting of operations for the fiscal period ended
__________.
Sincerely,
Residence Inn Management Corporation
EXHIBIT "C" TO MANAGEMENT AGREEMENT
[INTENTIONALLY DELETED]
----------------------
EXHIBIT "D" TO MANAGEMENT AGREEMENT
Map of Restricted Area
----------------------
EXHIBIT "D-1" TO MANAGEMENT AGREEMENT
Narrative Description of Restricted Area
----------------------------------------
TRADE AREA RESTRICTION
----------------------
PRODUCT: Residence Inn
STATE:
METRO AREA:
MARKET:
RECOMMENDED TRADE AREA FALLS WITHIN THE FOLLOWING BOUNDARIES:
NORTH:
SOUTH:
EAST:
WEST:
SPECIFIC EXCLUSIONS:
COMMENTS:
EXHIBIT "E" TO MANAGEMENT AGREEMENT
Proprietary Marks which will remain the property of Owner after Termination
---------------------------------------------------------------------------
NOT APPLICABLE
EXHIBIT "F" TO MANAGEMENT AGREEMENT
Title Encumbrances; Existing CC&R's
(separately describing those charges thereunder which will be
treated as capital expenditures under Section 8.03)
Existing Ground Lease (if applicable); Existing Mortgages (if any)
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