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(Commission File Number): 001-09319
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported) : May 27, 1998
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PATRIOT AMERICAN HOSPITALITY, INC. WYNDHAM INTERNATIONAL, INC.
(Exact Name of Registrant as Specified in its Charter) (Exact Name of Registrant as Specified in its Charter)
DELAWARE DELAWARE
(State or Other Jurisdiction of (State or Other Jurisdiction of
Incorporation or Organization) Incorporation or Organization)
94-0358820 94-2878485
(I.R.S. Employer Identification No.) (I.R.S. Employer Identification No.)
1950 Stemmons Freeway 1950 Stemmons Freeway
Suite 6001 Suite 6001
Dallas, Texas 75207 Dallas, Texas 75207
(214) 863-1000 (214) 863-1000
(Address, Including Zip Code, and Telephone (Address, Including Zip Code, and Telephone
Number, Including Area Code, of Number, Including Area Code, of
Registrant's Principal Executive Offices) Registrant's Principal Executive Offices)
------------------------------ ------------------------------
PAUL A. NUSSBAUM JAMES D. CARREKER
Chairman of the Board and Chief Executive Officer Chairman of the Board and Chief Executive Officer
Patriot American Hospitality, Inc. Wyndham International, Inc.
1950 Stemmons Freeway 1950 Stemmons Freeway
Suite 6001 Suite 6001
Dallas, Texas 75207 Dallas, Texas 75207
(214) 862-1000 (214) 863-1000
(Name, Address, Including Zip Code, and (Name, Address, Including Zip Code, and
Telephone Number, Including Area Code and Telephone Number, Including Area Code,
of Agent for Service) of Agent for Service)
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copies to:
GILBERT G. MENNA, P.C.
KATHRYN I. MURTAGH, ESQ.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109-2881
(617) 570-1000
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Item 7. Financial Statements and Exhibits.
This Form 8-K/A is filed as an amendment to the Current Report on Form
8-K filed by Patriot American Hospitality, Inc. ("Patriot") and Wyndham
International, Inc. ("Wyndham") on May 27, 1998 in connection with the
execution of a Settlement Agreement, dated May 27, 1998, by and among
Marriott International, Inc., Interstate Hotels Corporation, Interstate
Hotels Company, Patriot and Wyndham.
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<CAPTION>
Exhibit
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*99.1 Press Release by Patriot American Hospitality, Inc.
99.2 Settlement Agreement, dated May 27, 1998, by and among Marriott
International, Inc., Interstate Hotels Corporation, Interstate Hotels Company,
Patriot American Hospitality, Inc. and Wyndham International, Inc.
99.3 Form Submanagement Agreement
99.4 Form Amendment to Tyson's Corner Management Agreement
99.5 Form Letter to Third-Party Owners
99.6 Form Newco Charter
99.7 Form Newco Bylaws
99.8 Form IHC II, LLC Operating Agreement
99.9 Form Interstate Hotels, LLC Operating Agreement
99.10 Form Voting Agreement
99.11 Form Owners Agreement
99.12 Form Lease between Patriot and Wyndham
99.13 Form Primary Management Agreement between Patriot American
Hospitality Operating Partnership, L.P. and IHC II, LLC
99.14 Form Guaranty
99.15 Settlement Agreement (Fine)
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* Previously filed.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be filed on its behalf by the
undersigned thereunto duly authorized.
PATRIOT AMERICAN HOSPITALITY, INC.
Dated: May 28, 1998 By: /s/ William W. Evans III
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Name: William W. Evans III
Title: President and Chief Operating Officer
WYNDHAM INTERNATIONAL, INC.
By: /s/ William W. Evans III
------------------------------
Name: William W. Evans III
Title: Executive Vice President
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Exhibit 99.2
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (this "Agreement") is executed this 27th
day of May, 1998 by and among MARRIOTT INTERNATIONAL, INC., a Delaware
corporation, INTERSTATE HOTELS CORPORATION, a Pennsylvania corporation,
INTERSTATE HOTELS COMPANY, a Pennsylvania corporation, PATRIOT AMERICAN
HOSPITALITY, INC., a Delaware corporation, and WYNDHAM INTERNATIONAL, INC., a
Delaware corporation.
Preliminary Statement
A. Pursuant to certain franchise agreements or license agreements,
Interstate Hotels Corporation (together with Interstate Hotels
Company and its other Affiliates, collectively, "Interstate") is the
franchisee, licensee or operator with respect to the 62 full service
hotels and limited service hotels listed on Exhibits A, B, C and D
attached to this Agreement, except for the Troy, Michigan Marriott
hotel, for which an entity with which Patriot intends to merge
serves as the franchisee of such hotel. Marriott is the franchisor
or licensor with respect to each of such 62 hotels.
B. Patriot and Interstate have entered into an Agreement and Plan of
Merger dated as of December 2, 1997 pursuant to which Interstate
agreed to merge with and into Patriot (the "Merger") effective upon
satisfaction of certain closing conditions.
C. Marriott filed suit in the United States District Court for the
District of Maryland (the "Maryland Court") (Marriott International,
Inc. v. Interstate Hotels Company, et al. CA #MJG-98-925) (the
"Maryland Case") seeking to enjoin Interstate from transferring
control, directly or indirectly, of the franchisee under certain of
the franchise and license agreements noted above without Marriott's
consent and to obtain certain other relief, alleging that the
proposed Merger would violate the terms of such franchise agreements
and license agreements and would cause irreparable harm to Marriott.
Patriot filed suit in Dallas County, Texas state court (the "Texas
Court") (Patriot American Hospitality, Inc. et al. v. Marriott
International, Inc., Cause #98-02551-H) (the "Texas Case") alleging
that Marriott tortiously interfered with the Merger.
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D. The parties hereto desire to enter into this Agreement (i) to settle
and resolve the disputes among themselves that resulted in the
filing of the Maryland Case and the Texas Case, and (ii) to
consummate the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the mutual premises, obligations,
covenants and agreements contained herein and other valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
1. Recitals. The foregoing recitals and statements are made a part of this
Agreement.
2. Definitions. Unless otherwise provided, capitalized terms used herein
shall have the definitions specified below:
"Affiliate" means any Person that is directly or indirectly (through
one or more intermediaries) Controlled by, under common Control with, or
Controlling another Person; provided, however, that the term Affiliate shall not
include any individual.
"Agreement" means this Settlement Agreement.
"Amendment to Tyson's Corner Management Agreement" shall have the
meaning given such term in Section 3.3.1.
"Approved Operator" means, with respect to a particular point in
time, a Person in good standing as an operator of Marriott-brand hotels, then
approved to enter into franchise or license agreements with Marriott, as
determined in accordance with Marriott's then existing standards. Unless
otherwise expressly stated by Marriott, a Person shall be an Approved Operator
only with respect to the specific Marriott brand for which that Person is
approved.
"Approved Owner" means an owner who is neither (i) engaged in the
business of operating, franchising or managing (as distinguished from merely
owning or financing) its own brand or the functional equivalent of its own brand
in competition with Marriott, nor (ii) known in the community as being of bad
moral character, or has been convicted of a felony in any state or federal
court, or is in Control of, or Controlled by Persons who have been convicted of
felonies in any state or federal court.
"Certain Newco Shareholders" means, collectively, Messrs. Carreker,
D. Fine, M. Fine and Nussbaum; provided, however, that each such individual
shall be included in such term for only so long as the Voting Agreement
continues in effect with respect to such individual.
"Control" means (and any form thereof, such as "Controlled" or
"Controlling" means) the possession by one Person, directly or indirectly
(through one or more intermediaries) of the power (i) to direct or cause the
direction of the management or policies of another Person, whether through the
ownership of voting stock, by contract or otherwise; or (ii) to vote more than
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fifty percent (50%) of the voting stock of such Person in the case of a
privately owned company, or to vote more than twenty percent (20%) of the voting
stock of such Person in the case of a company whose stock is publicly traded.
"Covered Liability" shall have the meaning given such term in
Section 8.1.
"Divestiture" means the transactions required by the terms of this
Agreement involving Newco and its subsidiaries, IHC II, LLC and Interstate
Hotels, LLC, pursuant to which Newco is recapitalized through a "spin-off" of
all of Newco's common stock, other than the common stock owned by Patriot or
Marriott, on a pro-rata basis to existing holders of outstanding paired shares
of common stock of Patriot.
"Dollars" or "$" means United States Dollars.
"Effective Date of the Merger" shall have the meaning given such
term in Section 3.2.4.1.
"Exhibit A Hotels" means the Marriott-brand hotels listed on Exhibit
A, with respect to which the existing franchise agreements or license agreements
with Interstate (collectively, the "Exhibit A Hotel Franchise Agreements"),
together with any existing owner's agreements, will be terminated in accordance
with the terms of this Agreement.
"Exhibit B Hotels" means the Marriott-brand hotels listed on Exhibit
B, with respect to which (i) new submanagement agreements will be executed by
the Submanager and IHC II, LLC as more particularly described in Section 3.2.1
hereof (collectively, the "Submanagement Agreements"), and (ii) the obligations
of the parties under all existing franchise agreements or license agreements
with Interstate (collectively, the "Exhibit B Hotel Franchise Agreements"),
except for the obligations of the franchisees thereunder to continue to make
"franchise fee" payments, will be suspended, as more particularly set forth in
Section 3.2.2.
"Exhibit B Liquidated Damages" means, with respect to any Exhibit B
Hotel Franchise Agreement, liquidated damages equal to the sum of the projected
franchise fees that would have been payable under such Franchise Agreement
during its remaining term (as if such Franchise Agreement had not been
terminated) as set forth on Schedule 12.4-B, discounted to present value using a
7.3% per annum discount rate. For any partial year, that year's franchise fees
shall be determined by dividing the projected franchise fees set forth on
Schedule 12.4-B for such year by 365 and then multiplying the product by the
remaining days in such year.
"Exhibit C Hotels" means the Marriott-brand hotels listed on Exhibit
C, with respect to which the existing management agreements, franchise
agreements or license agreements
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with Interstate (or, in the case of the Troy, Michigan Marriott hotel, with an
Affiliate of Patriot) (collectively, the "Exhibit C Hotel Franchise Agreements")
will be modified, as more particularly set forth in Section 3.3.2 and as
otherwise set forth in Section 3.3.3.
"Exhibit C Liquidated Damages" means, with respect to any Exhibit C
Hotel Franchise Agreement, liquidated damages equal to the sum of the projected
franchise fees that would have been payable under such Franchise Agreement
during its remaining term (as if such Franchise Agreement had not been
terminated) as set forth on Schedule 12.4-C, discounted to present value using a
7.3% per annum discount rate. For any partial year, that year's franchise fees
shall be determined by dividing the projected franchise fees set forth on
Schedule 12.4-C for such year by 365 and then multiplying the product by the
remaining days in such year.
"Exhibit D Hotels" means the Marriott-brand hotels owned by the
third parties listed on Exhibit D, with respect to which the existing franchise
agreements or license agreements with Interstate or the Third-Party Owner
(collectively, the "Exhibit D Hotel Franchise Agreements") will remain in place,
as more particularly set forth in Section 4.1.
"Exhibit D Liquidated Damages" means, with respect to any Exhibit D
Hotel Franchise Agreement, liquidated damages equal to the sum of the projected
franchise fees that would have been payable under such Franchise Agreement
during its remaining term (as if such Franchise Agreement had not been
terminated) as set forth on Schedule 12.4-D, discounted to present value using a
7.3% per annum discount rate. For any partial year, that year's franchise fees
shall be determined by dividing the projected franchise fees set forth on
Schedule 12.4-D for such year by 365 and then multiplying the product by the
remaining days in such year.
"Existing Franchise Agreement Liquidated Damages" means, following
consummation of the Divestiture, the liquidated damages or termination fees set
forth in a Franchise Agreement and payable in connection with the termination of
a Franchise Agreement but shall not include (i) any fees or changes due at the
time of termination under or in connection with the Franchise Agreement other
than as a result of such termination and (ii) and claims related to the failure
to de-identify the hotel.
"Filing Date" means the earlier to occur of (i) ninety (90) days
following the Effective Date of the Merger, or (ii) one hundred twenty (120)
days following the date of this Agreement.
"Forbearance Termination Event" means that Patriot shall not have
caused (i) all filings to be made pursuant to Section 5.11 by the Filing Date or
(ii) the Divestiture to occur prior to the Final Divestiture Date.
"Final Divestiture Date" means January 29, 1999.
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"Franchise Agreements" mean, collectively, the Exhibit A Hotel
Franchise Agreements, the Exhibit B Hotel Franchise Agreements, the Exhibit C
Hotel Franchise Agreements and the Exhibit D Hotel Franchise Agreements and,
individually, any of such Franchise Agreements.
"Indemnified Party" shall have the meaning given such term in
Section 8.1.
"IHC II, LLC" means IHC II, LLC, a Delaware limited liability
company to be owned 99.99% by Newco and 0.01% by Marriott.
"Interstate" has the meaning given in Preliminary Statement (A).
"Interstate Hotels, LLC" means Interstate Hotels, LLC, a Delaware
limited liability company and successor-by-merger to Interstate Hotels
Corporation, the ownership of which, subject to consummation of the Divestiture,
is currently contemplated to be approximately 65% by Patriot and 35% by Newco.
"Interstate Releasors" shall have the meaning given such term in
Section 10.4.
"Marks" shall have the meaning given such term in Section 12.1.
"Marriott" means and includes Marriott International, Inc. and its
Affiliates.
"Marriott Released Parties" shall have the meaning given such term
in Section 10.3.
"Marriott Releasors" shall have the meaning given such term in
Section 10.2.
"Merger" means the merger of Interstate with and into Patriot
pursuant to the terms and conditions of the Agreement and Plan of Merger dated
as of December 2, 1997, as amended.
"Newco" means a Maryland corporation to be formed in accordance with
Section 5.1 hereof.
"Patriot" means and includes Patriot American Hospitality, Inc.,
Patriot Partnership, Wyndham International, Inc. and their Affiliates and, upon
the Merger, shall include Interstate.
"Patriot and Interstate Released Parties" shall have the meaning
given such term in Section 10.2.
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"Patriot Interest" means, effective upon consummation of the Merger
(except for the Troy, Michigan Marriott hotel, which is currently owned by
Patriot) with respect to Patriot's ownership of an Exhibit B Hotel or an Exhibit
C Hotel (as the case may be): (i) the hotel, or the Person owning the hotel, in
all cases where Patriot, directly or indirectly, owns 100% of the hotel; and
(ii) in all cases where Patriot (directly or indirectly) owns less than 100% of
the hotel, Patriot's actual ownership interest in the hotel or the Person that
owns the hotel.
"Patriot Partnership" means Patriot American Hospitality
Partnership, L.P., a Virginia limited partnership.
"Patriot Releasors" shall have the meaning given such term in
Section 10.3.
"Person" means an individual, a partnership, a corporation, a
limited liability company, a government agency or department, a trust, or any
unincorporated organization.
"Primary Manager" means IHC II, LLC.
"Primary Management Agreement" means the management agreement
between IHC II, LLC and Wyndham as described in Section 5.15.
"REIT" shall have the meaning given such term in Section 3.2.4.5.
"Restricted Purchasers" means Patriot, any Affiliate of Patriot,
directors who are then employed by Patriot or were so employed within one (1)
year prior to the proposed sale or transfer to such Person, senior executive
officers, or principal shareholders of Patriot or its Affiliates who are then
employed by Patriot or were so employed within one (1) year prior to such sale
or transfer, the Certain Newco Shareholders and any joint venture or partnership
in which any of the foregoing have a Controlling interest.
"Right of First Refusal" shall have the meaning given such term in
Section 3.2.4.3.
"Securities Filings" shall have the meaning given such term in
Section 12.1.
"Sensitive Information" shall have the meaning given such term in
Section 12.2.
"Special Fee" means the fee, payable to the Submanager in connection
with the termination of a Submanagement Agreement as provided herein, equal to
2.35%, which already reflects a reduction for a 0.5% cost factor and which is
subject to adjustment pursuant to Section 5.11, multiplied by the projected
gross revenues that would have been generated by the hotel under such terminated
Submanagement Agreement during its remaining term as set forth on Schedule 2
(had such Submanagement Agreement not been terminated) (the "Remaining Projected
Fees"). Schedule 2 reflects whole calendar years, and any partial year shall be
determined by dividing the relevant year's projected revenue in Schedule 2 by
365 and then multiplying the product by the
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remaining days in such partial year. Marriott has the option to receive the
Remaining Projected Fees as either (i) a lump sum determined by discounting the
Remaining Projected Fees to present value using a 7.3% per annum discount rate,
or (ii) increased "Base Management Fees" under the not terminated Submanagement
Agreements equal to 2.35% (subject to Section 5.11) of the Remaining Projected
Fees of the terminated Submanagement Agreement spread pro rata among the hotels
in which Patriot holds 100% of the ownership interests. Marriott shall elect
option (i) or (ii) within sixty (60) days after such fee becomes payable
pursuant to the terms of this Agreement.
"Submanagement Agreement" shall have the meaning given such term in
Section 3.2.1.
"Submanager" means Marriott International, Inc. or a wholly-owned
subsidiary (direct or indirect) of Marriott International, Inc., as the case may
be, as the submanager under the various Submanagement Agreements.
"Territory" means an Exhibit B Territory as defined in Section
3.2.2.2 or an Exhibit C Territory as defined in Section 3.3.2.
"Third-Party Owner" means with respect to any hotel listed on
Exhibit D, any person who owns such hotel.
"Wyndham" means, collectively, Wyndham International, Inc., a
Delaware corporation, and Patriot American Hospitality Operating Partnership,
L.P., a Delaware limited partnership.
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3. Interstate-Owned Hotels.
3.1 Exhibit A Hotels.
3.1.1 Termination of Franchise Agreements. Patriot shall use
its reasonable best efforts to obtain all necessary consents and approvals
required in order to permit the termination of the Exhibit A Hotel Franchise
Agreements (and the existing related owner's agreements). All such Exhibit A
Hotel Franchise Agreements (and the existing related owner's agreements) with
respect to which the necessary consents and approvals have been obtained by
Patriot shall be terminated on the dates set forth on Exhibit A; provided,
however, that prior to such termination such Franchise Agreements shall be held
by Patriot as franchisee thereunder, and the corresponding hotel shall be
managed by an Affiliate of Patriot. In connection with any such termination,
Patriot and its Affiliates shall fully and timely "de-identify" each of the
relevant Exhibit A Hotels as Marriott hotels, and all amounts payable by
Interstate, Patriot, Wyndham or any Affiliate thereof under any existing Exhibit
A Hotel Franchise Agreement (subject to Section 3.1.3) shall be paid to Marriott
on or prior to the termination date of the relevant Exhibit A Hotel Franchise
Agreement or within fifteen (15) days after the date of any subsequent invoice.
Until such termination, each such Exhibit A Hotel Franchise Agreement (and the
existing related owner's agreement) shall continue in full force and effect, and
the franchisee thereunder shall be obligated to continue to make all payments to
Marriott or its Affiliates and otherwise to continue to perform all of its
obligations under such Franchise Agreement, and the franchisor thereunder shall
continue to perform all of its obligations under such Franchise Agreement. Until
any such Exhibit A Hotel Franchise Agreement is terminated or expires, such
agreement shall be subject to Section 12 hereof. The parties agree that
effective upon the Merger, each Exhibit A Hotel Franchise Agreement for which
the relevant consents referred to on Schedule 6.2.6 have been obtained is hereby
amended so that there are no restrictions on Patriot or the Primary Manager from
developing, owning, franchising or operating other hotels within a designated
area around the relevant Exhibit A Hotel.
3.1.2 Failure to Terminate. If, despite Patriot's reasonable
best efforts, any such Exhibit A Hotel Franchise Agreement is not terminated on
the date set forth on Exhibit A solely because the relevant consents and
approvals listed on Schedule 6.2.6 have not been obtained, the management fees
payable to Marriott pursuant to the Submanagement Agreements shall be adjusted
downward (pro-rata, with respect to all Submanagement Agreements) to reflect the
continuation of such Exhibit A Hotel Franchise Agreements beyond such agreed
upon termination date. If Patriot ultimately obtains such missing consent within
one (1) year after the scheduled termination of the relevant Exhibit A Hotel
Franchise Agreement, then such Franchise Agreement (and the related owner's
agreement) shall be terminated as of the date of such consent and the management
fees under the related Submanagement Agreements shall be re-adjusted upward
(pro-rata, with respect to all Submanagement Agreements) to reflect such
termination as of such date. Adjustments under this Section 3.1.2 shall be
effected in a manner that is designed to achieve fee neutrality on a net present
value basis, assuming a 7.3% per annum discount rate, between the termination
fees otherwise payable in connection with the termination of the Exhibit A Hotel
Franchise Agreement and the fees to be earned under the Submanagement Agreements
relating to the Exhibit B Hotels in which Patriot holds a 100% ownership
interest. If Patriot does not obtain
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such consent within one (1) year after the scheduled termination of the relevant
Exhibit A Hotel Franchise Agreement, then the initial adjustment to the
management fees to reflect the continuation of such Franchise Agreement shall
become permanent, and the management of such hotel shall then be transferred to
the Primary Manager.
3.1.3 Waiver of Termination Fees. Effective upon the
respective termination date of each of the Exhibit A Hotel Franchise Agreements
terminated pursuant to Section 3.1.1 or 3.1.2 hereof, Marriott hereby waives any
right to receive any liquidated damages or termination fees payable to it
pursuant to the terms of such Exhibit A Hotel Franchise Agreements (or the
related owner's agreements) as a result of such termination. Additionally, the
parties agree as follows:
a. The following definitions will apply to this Section 3.1.3:
"Termination Fee Payment Agreement" shall mean that certain
agreement dated December 15, 1995, by and between
Interstone/CGL Partners L.P. ("Interstone/CGL") and Marriott
Hotel Services, Inc. ("MHSI").
"Franchise Agreements" shall have the meaning given in the
fourth "Whereas" clause of the Termination Fee Payment
Agreement.
"Payment Event" shall have the meaning given in Section 1(a)
of the Termination Fee Payment Agreement.
b. Marriott agrees that the termination of any of the Franchise
Agreements pursuant to the terms of this Agreement shall not constitute a
Payment Event under the Termination Fee Payment Agreement.
c. The parties acknowledge and agree that the remaining terms of the
Termination Fee Payment Agreement shall remain in effect.
3.1.4 Termination and Payments If No Divestiture. If a
Forbearance Termination Event occurs, in addition to its other rights pursuant
to this Section 3.1, Marriott shall have the right to terminate all Exhibit A
Franchise Agreements (and the related owner's agreement), and Patriot agrees to
pay Marriott the amounts described on Schedule 3.1.4 hereof for each Exhibit A
Hotel.
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3.2 Exhibit B Hotels.
3.2.1 Execution of Submanagement Agreements. On or before the
Divestiture, the Submanager and IHC II, LLC will execute Submanagement
Agreements for each of the Exhibit B Hotels in the form attached as Exhibit B,
which Submanagement Agreements shall become effective immediately upon execution
for a term commencing on the "Take-Over Dates" (as defined in the Submanagement
Agreements), and pursuant to which the Submanager shall submanage (as more
particularly set forth therein) the relevant Exhibit B Hotel (each a
"Submanagement Agreement" and collectively, the "Submanagement Agreements") as
of the "Take-Over Dates" (as defined in such Submanagement Agreements), which
dates correspond to the dates set forth on Exhibit B. For any hotel listed on
Schedule 6.2.6, the terms of this Section 3.2.1 shall not apply to such hotel
until the consent set forth in Schedule 6.2.6 for such hotel is obtained. The
management fees of 2.85% payable to the Submanager for its submanagement
services under the Submanagement Agreements (on a collective basis), subject to
adjustment under Sections 3.1.2 and 5.11, reflect the value of Marriott
management (including costs), and the loss in economic value resulting from the
termination of the Exhibit A Hotel Franchise Agreements.
If, despite Patriot's reasonable best efforts and Marriott's efforts to
obtain the relevant consents referred to on Schedule 6.2.6, the execution and
effectiveness of any of the Submanagement Agreements must be delayed beyond such
Take-Over Dates because the relevant consents and approvals listed on Schedule
6.2.6 have not been obtained (the "Delayed Submanagement Agreements"), the
management fees payable to Marriott pursuant to those Submanagement Agreements
which do become effective as of such Take-Over Dates and with respect to which
Patriot owns 100% of the related Exhibit B Hotel (the "Timely Submanagement
Agreements") shall be adjusted upward (pro-rata, with respect to all such Timely
Submanagement Agreements) to reflect the delayed effectiveness of the Delayed
Submanagement Agreements beyond their Take-Over Dates. If Patriot ultimately
obtains such missing consent within one (1) year after such Take-Over Date, then
such Delayed Submanagement Agreement shall be executed and become effective
within sixty (60) days after the date of such consent and the management fees
under the Timely Submanagement Agreements shall be re-adjusted downward
(pro-rata, with respect to all such Timely Submanagement Agreements) to reflect
such execution and effectiveness as of such date. If Patriot does not obtain
such consent within one (1) year after the scheduled Take-Over Date of a
particular Delayed Submanagement Agreement, then the initial adjustment to the
Timely Submanagement Agreements to reflect such failure to obtain a required
consent shall become permanent.
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3.2.2 Suspension of Obligations, Modification of Franchise
Agreements.
3.2.2.1 Suspension. Beginning on the "Take-Over Date"
(as defined therein) of each Submanagement Agreement and continuing during the
period when the Submanager has possession of the relevant Exhibit B Hotel under
the relevant Submanagement Agreement, the rights and obligations of the
franchisee and franchisor under the related Exhibit B Franchise Agreement shall
be suspended for all purposes, except as modified by this Agreement and except
for the obligation of the franchisee thereunder to make "franchise fee" payments
(i.e., payments to Marriott of a percentage of gross room sales and, in certain
agreements, gross food and beverage sales, which are not designated for
marketing, purchasing or other ancillary services), which obligation shall
continue in full force and effect. In connection with any such suspension, all
amounts not then in dispute that are then currently past due under the relevant
Exhibit B Hotel Franchise Agreements shall be paid to Marriott on or prior to
the date of suspension or within fifteen (15) days after the date of any
subsequent invoice.
3.2.2.2 Modifications. Each of the Exhibit B Hotel
Franchise Agreements is amended, effective upon the consummation of the Merger,
to provide that upon the termination (but not the expiration) of any such
Franchise Agreement by the franchisee or, upon the default by such franchisee,
by Marriott, Marriott shall have the right to acquire from Patriot or its
Affiliate the Patriot Interest in the relevant Exhibit B Hotel at a price
determined pursuant to Section 3.2.2.3, less the amount of the Special Fee
otherwise payable as a result of the termination of the underlying Submanagement
Agreement (to the extent not paid); provided, however, that Marriott shall have
no such right to acquire such Patriot Interest in the event of the termination
of a Submanagement Agreement (and related Franchise Agreement) pursuant to
Section 11.22 of such Submanagement Agreement. For any hotel listed on Schedule
6.2.6, the terms of this Section 3.2.2.2 shall not apply to such hotel until the
consent set forth in Schedule 6.2.6 for such hotel is obtained. Marriott shall
elect to exercise such right to purchase (if at all) within thirty (30) days
after the termination of such Franchise Agreement, and the parties shall use
their reasonable best efforts to close the related purchase transaction within
ninety (90) days after the determination, pursuant to Section 3.2.2.3, of the
purchase price for such Patriot Interest. In addition, each Exhibit B Hotel
Franchise Agreement is hereby amended, effective upon consummation of the
Merger, (i) to delete any provision that limits, restricts or in any way
modifies Marriott's ability to develop, operate, manage or franchise any hotel
(including any provisions requiring Marriott to provide franchisee with notice
and/or an opportunity to develop other hotels) within a restricted geographic
area or territory as set forth in such agreement (an "Exhibit B Territory"), and
(ii) to amend each such Franchise Agreement to incorporate by reference Sections
11.13 and 11.22 of the Submanagement Agreement for the relevant Exhibit B Hotel
regardless of whether the relevant Submanagement Agreement has been executed or
terminated, and to interpret the defined terms of Sections 11.13 and 11.22 of
the Submanagement Agreement to give effect to and make binding on themselves the
provisions of Sections 11.13 and 11.22 solely for the purpose of defining
Marriott's rights to operate
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or manage (or franchise another party to operate or manage) any hotel in/or
around a "Restricted Area" as defined in a Submanagement Agreement. Upon any
termination of any such Submanagement Agreement pursuant to Section 11.22
thereof (and the termination of the corresponding Franchise Agreement), neither
the Special Fee nor the liquidated damages set forth on Schedule 3.2.7 shall be
payable. The parties agree that effective upon the Merger, each Exhibit B Hotel
Franchise Agreement is hereby amended so that there are no restrictions on
Patriot or the Primary Manager from developing, owning, franchising or operating
other hotels within a designated area around the relevant Exhibit B Hotel.
3.2.2.3 Determination of Purchase Price. The parties
shall attempt by good faith negotiation to arrive at a fair market value
purchase price for Patriot Interest to be acquired by Marriott pursuant to
Section 3.2.2.2. In the event that pursuant to such negotiations, Marriott and
Patriot do not agree upon a price for such Patriot Interest, Marriott and
Patriot each shall, at its own expense and within thirty (30) days thereafter,
obtain an appraisal of the fair market value of such Patriot Interest from a
nationally recognized appraiser of hotel properties comparable to such hotel. In
determining the fair market value of such hotel, the appraisers shall be
instructed to assume that the hotel is not subject to a management agreement but
is subject to the existing Franchise Agreement. If such appraisals differ, then
the determination of the purchase price for such Patriot Interest shall be
submitted to arbitration in Washington, D.C. in accordance with the arbitration
rules of the American Arbitration Association then in effect. The parties shall
jointly select a single arbitrator. If the parties are unable to agree upon an
arbitrator within ten (10) days following the 30-day period during which the
appraisals were obtained, the arbitrator shall be selected by the respective
appraisers selected by each party within ten (10) days of such initial 10-day
period. Such arbitrator whether selected by the parties or by their appraisers,
shall be knowledgeable with respect to the appraisal of hotel properties and
shall be instructed and obligated to decide, within thirty (30) days after such
submission, whether the appraisal submitted by Marriott or the appraisal
submitted by Patriot most accurately reflects the fair market value of such
Patriot Interest, and the written decision of the arbitrator shall be conclusive
and binding on the parties and enforceable by a court of competent jurisdiction.
The expenses of the arbitration shall be borne equally by the parties to the
arbitration.
3.2.3 Intentionally Omitted
3.2.4 Limitations on Sale of Exhibit B Hotels. Sales or other
transfers by Patriot of a Patriot Interest in an Exhibit B Hotel may be made to
Restricted Purchasers only with Marriott's prior written consent (which consent
shall not be unreasonably withheld or delayed) and only upon the Restricted
Purchaser providing a replacement guaranty, owner agreement, and corporate
structure, all of which give Marriott protections and rights that Marriott
reasonably believes are substantially identical to or better than Marriott had
prior to such transfer. Any transfers of all Patriot Interests in connection
with any merger, sale by Patriot of all or substantially all of its assets, or
other similar business combination of Patriot, Wyndham and their respective
Affiliates, shall not constitute a "sale" or "transfer" of a Patriot Interest
for purposes of this Section 3.2.4. Any sale or other transfer of a Patriot
Interest in an Exhibit B Hotel to any Person who is not a Restricted Purchaser
may only be made as follows:
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3.2.4.1 Prior to the fifth anniversary of the date on
which the effective time of the Merger occurs (the "Effective Date of the
Merger"), no sale or other transfer of any Patriot Interest shall be permitted
without Marriott's prior written consent, which consent may be withheld by
Marriott in its sole and absolute discretion, and such consent, if granted, will
be granted only if (i) Marriott has received written notice of such transaction
at least thirty (30) days prior thereto and such notice gives Marriott
reasonably sufficient detail about the proposed transaction to understand how
the transaction will affect the Marriott hotel, and (ii) the transferee assumes
the Submanagement Agreement and the suspended Exhibit B Hotel Franchise
Agreement pursuant to documentation reasonably acceptable in form and substance
to Marriott relating to such hotel. For any hotel listed on Schedule 6.2.6, the
terms of this Section 3.2.4.1 shall not apply to such hotel until the consent
set forth in Schedule 6.2.6 for such hotel is obtained.
3.2.4.2 Beginning with the fifth anniversary of the
Effective Date of the Merger and ending with the seventh anniversary thereof,
any Patriot Interest may be sold or otherwise transferred to an Approved Owner
without the prior written consent of Marriott, if immediately prior to such
transfer, Patriot cures all outstanding breaches (if any) by IHC II, LLC under
the Submanagement Agreement and if the transferee assumes the Submanagement
Agreement and the suspended Exhibit B Hotel Franchise Agreement pursuant to
documentation reasonably acceptable in form and substance to Marriott relating
to such hotel and provided that Marriott has received written notice of such
transaction at least thirty (30) days prior thereto and that Marriott has not
stated within such 30-day period that such transferee is not an Approved Owner.
For any hotel listed on Schedule 6.2.6, the terms of this Section 3.2.4.2 shall
not apply to such hotel until the consent set forth in Schedule 6.2.6 for such
hotel is obtained.
3.2.4.3 The provisions of this Section 3.2.4.3 and
Sections 3.2.4.1 and 3.2.4.2 shall not prohibit or limit a sale by Patriot to
its joint venture partner pursuant to the exercise by such partner of a buy-sell
or similar right currently held by such partner with respect to Patriot's
Interest in Warner Center. Following the seventh anniversary of the Effective
Date of the Merger, any Patriot Interest may be sold or otherwise transferred to
an Approved Owner without the prior written consent of Marriott, provided that
Marriott shall have a right of first refusal, pursuant to Section 3.2.4.3.1 (the
"Right of First Refusal"), with respect to such sale (for as long as the Exhibit
B Hotel Franchise Agreement remains in place) and provided further, that
Marriott has received written notice of such transaction at least thirty (30)
days prior thereto and that Marriott has not stated within such 30-day period
that such transferee is not an Approved Owner. For any hotel listed on Schedule
6.2.6, the terms of this Section 3.2.4.3 shall not apply to such hotel until the
consent set forth in Schedule 6.2.6 for such hotel is obtained. If Marriott
elects not to exercise such Right of First Refusal, IHC II, LLC (at the
direction of Wyndham) may
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terminate the Submanagement Agreement relating to such hotel in connection with
the sale or transfer if an Approved Operator replaces Marriott as the operator
of such hotel, provided that (i) Patriot shall pay to Marriott in connection
with any such sale, the Special Fee and (ii) such new owner assumes, pursuant to
documentation reasonably acceptable in form and substance to Marriott, the
relevant Exhibit B Hotel Franchise Agreement, with the suspended obligations of
the franchisee thereunder being reinstated at such time with the same terms and
provisions, except as amended by this Agreement, as existed immediately prior to
such suspension, provided however, that if such owner is not an Approved
Operator, such new owner shall enter into a management contract with an Approved
Operator to operate the hotel.
3.2.4.3.1 Following the seventh anniversary of the
Effective Date of the Merger, prior to accepting an offer to buy a Patriot
Interest, Patriot shall send Marriott two copies of a contract for the sale of
the Patriot Interest embodying the terms of an offer which Patriot has received
from a third party regarding Patriot's sale of such Patriot Interest, both
copies of which have been duly executed by Patriot, together with a written
notification from Patriot of its intention to sell the Patriot Interest to such
third party. Marriott shall have the right, within thirty (30) days after its
receipt of the contract and the written notice, to elect to purchase the Patriot
Interest on the terms and conditions set forth in the contract. In the event
Marriott elects to accept the offer embodied in the contract, Marriott must do
so by executing one copy of the contract and returning it to Patriot within such
thirty (30) day period, and in such case, the closing of such purchase
transaction shall occur within ninety (90) days after such election by Marriott,
subject to the terms of such contract. If Marriott defaults under its
obligations under such contract to purchase such Patriot Interest, Marriott
shall no longer have a Right of First Refusal with respect to such Patriot
Interest. If Marriott elects not to exercise its Right of First Refusal within
such thirty (30) day period, then the offer embodied in the contract shall be
deemed withdrawn and Patriot may accept the offer which it received from such
third party and close as set forth in its contract. If for any reason such
purchase does not close as set forth in the contract, then any subsequent offer
must first be submitted to Marriott in accordance with the provisions of this
Section 3.2.4.3.1. If Marriott purchases under this Section 3.2.4.3.1, the price
will be reduced by the amount of the Special Fee, and if it does not, and if the
respective Submanagement Agreement terminates, Marriott will be paid such amount
by Patriot pursuant to Section 3.2.6. If an Exhibit B Hotel (or Tyson's Corner)
is sold and the Submanagement Agreement is not terminated, then Patriot shall
cause the purchaser to assume the rights and obligations of the "Primary
Manager" thereunder, unless a different structure is agreed to by Marriott.
3.2.4.4 Notwithstanding the provisions of Sections
3.2.4.1 and 3.2.4.2, Patriot shall have the right to sell or transfer a Patriot
Interest relating to the Exhibit B Hotels located in Houston, Harrisburg or
Atlanta, provided that any such sale or transfer shall be governed by the
procedures set forth in Section 3.2.4.3 (including without limitation Section
3.2.4.3.1), regardless of when such Patriot Interest is sold or transferred.
Wyndham shall have the right to terminate the Primary Management Agreement and
to cause IHC II, LLC to terminate the
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relevant Exhibit B Hotel Franchise Agreement, and the relevant Submanagement
Agreement, upon any sale of the Patriot Interest in the Exhibit B Hotel located
in Houston and in connection with such termination, and Patriot shall pay to
Marriott the Exhibit B Liquidated Damages for such hotel.
3.2.4.5 Any other provision of this Section 3.2.4
notwithstanding, Patriot shall be permitted to sell or transfer a Patriot
Interest in an Exhibit B Hotel if, in the opinion of counsel for Patriot, such
sale or transfer is reasonably necessary in order to satisfy the Real Estate
Investment Trust ("REIT") qualification provisions of Internal Revenue Code
ss.ss.856 and 857 relating to Patriot's income tests and quarterly asset tests
(including under proposed legislation not currently enacted), provided that the
transferee is acceptable to Marriott in the exercise of its reasonable
discretion (considering the effect on Patriot of not transferring such Interest)
and further provided that (A) if all of the Patriot Interest is transferred, (i)
the transferee shall execute a replacement guarantee, owner agreement and
corporate structure, all of which give Marriott protection and rights that
Marriott reasonably believes are substantially identical to or better than
Marriott had prior to such transfer, and (ii) the transferee shall execute a
written agreement, in form and substance reasonably acceptable by Marriott, to
be bound by the restrictions on transfer set forth in this Section 3.2.4, and
(B) if less than all of the Patriot Interest is transferred, Marriott shall be
reasonably satisfied that its rights and remedies immediately following the
transfer are substantially identical to or better than such rights and remedies
immediately prior to such transfer.
3.2.4.6 The provisions of this Section 3.2.4 (including
Sections 3.2.4.1 through 3.2.4.5) shall be effective only upon consummation of
the Divestiture and shall expire with respect to each Exhibit B Hotel upon the
termination or expiration of the respective Exhibit B Hotel Franchise Agreement;
provided, however, that prior to such time and before the earlier of the
consummation of the Divestiture or a Forbearance Termination Event, Patriot
shall take no action with respect to the sale or transfer of any Patriot
Interest in an Exhibit B Hotel that would in any way deprive or prejudice
Marriott's rights to purchase any such Patriot Interest under Sections 3.2.2.2.,
3.2.4.3, and 3.2.7.
3.2.5 Substitution.
3.2.5.1 Failure to Obtain Warner Center Consents.
Patriot shall use its reasonable best efforts to obtain all necessary consents
and approvals required in order to permit the extension through December 31,
2015 of the Franchise Agreement on Warner Center, the Right of First Refusal of
Marriott pursuant to Section 3.2.4.3, and to the other arrangements set forth in
this Agreement relating to Warner Center. If Patriot fails to obtain such
consents within one year after the consummation of the Divestiture, Marriott and
Patriot agree that IHC II, LLC shall instead (i) enter into an extension through
December 31, 2015 with Marriott of the Franchise Agreement on Casa Marina and
(ii) enter into a Submanagement Agreement with the Submanager providing for the
submanagement of Casa Marina through December 31, 2015. In connection with
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any such extension of the Franchise Agreement on Casa Marina and the entering
into of a Submanagement Agreement regarding Casa Marina, Exhibits A, B and C
hereto shall be deemed to be amended so that Casa Marina shall be included on
Exhibit B and Warner Center shall be included on Exhibit C. If Patriot fails to
obtain any necessary consent to the submanagement of Warner Center by the
Submanager, then Marriott shall have the option, subject to Marriott's obtaining
any necessary consents of Host Marriott, of entering into a Submanagement
Agreement relating to any one of the following Marriott hotels, subject to
Section 3.2.5.3: San Francisco -- Fisherman's Wharf, Charlotte Executive Park,
Manhattan Beach, Pittsburgh City Center, Ontario Airport, or Waterford Oklahoma
City.
3.2.5.2 [Intentionally Omitted].
3.2.5.3 Fee Neutrality. The terms of any Submanagement
Agreement entered into pursuant to this Section 3.2.5 shall be designed to
achieve fee neutrality on a net present value basis, assuming a 7.3% per annum
discount rate, with respect to the Submanagement Agreement it is designed to
replace.
3.2.6 Marriott Rights Upon Termination of the Submanagement
Agreements. If a Submanagement Agreement is terminated (but not upon expiration
or termination pursuant to Section 11.22 of the Submanagement Agreement
("Restricted Area Right of Termination")) by IHC II, LLC or, upon a default by
IHC II, LLC thereunder, by the Submanager, and either Newco or one of its
Affiliates is then an Approved Operator under Marriott's continuing system
standards after the Divestiture, then such Approved Operator shall assume,
pursuant to documentation reasonably acceptable in form and substance to
Marriott, the relevant Exhibit B Hotel Franchise Agreement, with the suspended
obligations of such Approved Operator as the new franchisee thereunder being
reinstated at such time with the same terms and provisions, except as amended by
this Agreement, as existed immediately prior to such suspension. If upon such
termination, neither Newco nor any of its Affiliates is then an Approved
Operator under Marriott's continuing system standards, then Patriot shall secure
such an Approved Operator, and such Approved Operator shall assume the relevant
Exhibit B Hotel Franchise Agreement as set forth immediately above.
If a Submanagement Agreement is terminated (but not upon expiration or
termination pursuant to Section 11.22 of the Submanagement Agreement
("Restricted Area Right of Termination")) by IHC II, LLC or, upon a default by
IHC II, LLC thereunder, by the Submanager, Patriot shall be obligated to pay the
Special Fee to Marriott.
3.2.7 Further Rights to Acquire Exhibit B Hotels and
Termination Rights. If a Forbearance Termination Event occurs, in addition to
its other rights pursuant to this Section 3.2, Marriott also shall have the
right with respect to each Exhibit B Hotel, (i) to acquire the Patriot Interest
in such Exhibit B Hotel at a purchase price arrived at pursuant to a process
consistent with that provided in Section 3.2.2.3 hereof, and paid in accordance
with the provisions of Section 3.2.2.2 (in which case, the amounts set forth on
Schedule 3.2.7 shall not be payable for such hotel), or (ii) to terminate the
respective Exhibit B Hotel Franchise Agreement and in connection therewith
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Patriot agrees to pay to Marriott the amounts set forth on Schedule 3.2.7 hereof
for such hotel. For any hotel listed on Schedule 6.2.6, the terms of this
Section 3.2.7 shall not apply to such hotel until the consent set forth in
Schedule 6.2.6 for such hotel is obtained. Marriott shall elect to exercise such
right to purchase (if at all) within thirty (30) days after the Final
Divestiture Date, and the parties shall use their reasonable best efforts to
close each such related purchase transaction within 120 days after the
respective determination, pursuant to Section 3.2.2.3, of the purchase price(s)
for such Patriot Interest(s). With respect to each Patriot Interest that
Marriott elects not to purchase under this Section 3.2.7 (or otherwise breaches
any contract entered into with Patriot pursuant to an affirmative election to
purchase), Marriott's right to purchase such Patriot Interest shall then be
terminated.
3.2.8 Funding of Capital Plan Shortfalls. Contemporaneously
with the Merger, Patriot shall cause the escrow funds set forth in Exhibit B-2
to the Submanagement Agreements (including, to the extent not previously funded,
all loans/advances referenced in the last parenthetical thereof) for Exhibit B
Hotels to be funded into a separate account.
Upon execution of Submanagement Agreements, Patriot shall cause such
accounts to be transferred to Wyndham pursuant to its lease agreement with IHC
II, LLC and from Wyndham to IHC II, LLC pursuant to the Primary Management
Agreement.
3.2.9 Obligation to Obtain Consents. Except with respect to
any consent or approval required from Host Marriott relating to an Exhibit B
Hotel, where Patriot shall not be obligated to use reasonable best efforts to
obtain such consent, Patriot shall be obligated to use its reasonable best
efforts to obtain all consents and approvals referred to on Schedule 6.2.6.
Patriot agrees that with respect to Marriott's efforts to obtain Host Marriott's
consent relating to Exhibit B Hotels partially owned by Host Marriott, Patriot
shall provide adequate assurances to Host Marriott that it shall not be
economically disadvantaged as a result of the fee differentials (including chain
services differentials) between the Submanagement Agreement and the existing
Franchise Agreement and the existing management agreement.
3.2.10 Current Defaults. Marriott hereby acknowledges that, to
its knowledge, no current or past defaults by the franchisees exist under the
Exhibit B Hotel Franchise Agreements (excluding life safety and ADA issues), nor
has Marriott issued any formal "red zone" notifications with respect to the
Exhibit B Hotels. The parties agree that any default thereunder declared or
occurring subsequent to the date hereof shall be addressed pursuant to the terms
of such Franchise Agreements.
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3.3 Exhibit C Hotels.
3.3.1 Modification of Tyson's Corner Management Agreement. The
provisions of this Section 3.3.1 shall not prohibit or limit a sale by Patriot
to its joint venture partner pursuant to the exercise by such partner of a
buy-sell or similar right currently held by such partner with respect to
Patriot's Interest in Tyson's Corner. On or before the Divestiture, Patriot
shall use its reasonable best efforts to cause Interstone/CGL Partners, L.P. to
enter into the First Amendment to Hotel Management Agreement -- Tyson's Corner
Marriott Hotel with Marriott in the form attached hereto as Exhibit C-1 (the
"Amendment to Tyson's Corner Management Agreement"), pursuant to which, as more
particularly set forth therein, the Submanager shall continue to manage the
Tyson's Corner Marriott. Patriot acknowledges that Cigna must consent to the
execution of such Amendment to Tyson's Corner Management Agreement and commits
to use its reasonable best efforts to obtain such consent. If Patriot fails to
secure such consent, then during the term of such underlying Tyson's Corner
Hotel Management Agreement, Patriot shall be prohibited from selling or
otherwise transferring its ownership interest in the Tyson's Corner Marriott
without the prior written consent of Marriott, unless and until it obtains the
consent of Cigna.
3.3.2 Modification of Exhibit C Hotel Franchise Agreements.
Each of the Exhibit C Hotel Franchise Agreements (except for Troy and Tyson's
Corner, as to which the provisions of this Section 3.3.2 shall not apply) is
amended, effective as of the date hereof to provide that upon the termination of
such Franchise Agreement by either party thereto (but not the expiration),
Marriott shall have the right to acquire from Patriot or its Affiliate the
Patriot Interest in the relevant Exhibit C Hotel at a price determined pursuant
to Section 3.2.2.3, and paid in accordance with the provisions of Section
3.2.2.2. Marriott shall elect to exercise such right to purchase (if at all)
within thirty (30) days after the termination of such Franchise Agreement, and
the parties shall use their reasonable best efforts to close the related
purchase transaction within ninety (90) days after such determination, pursuant
to Section 3.2.2.3, of the purchase price for such Patriot Interest. In
addition, each Exhibit C Hotel Franchise Agreement is hereby amended effective
upon consummation of the Merger, (i) to delete any provision that limits,
restricts or in any way modifies Marriott's ability to develop, operate, manage
or franchise any hotel (including any provisions requiring Marriott to provide
franchisee with notice and/or an opportunity to develop other hotels) within a
restricted geographic area or territory as set forth in such Franchise Agreement
(an "Exhibit C Territory") (regardless of whether the applicable provision has
or shall lapse or terminate pursuant to its terms) and (ii) to amend such
Franchise Agreement as provided in Section 3.3.3. For any hotel listed on
Schedule 6.2.6, the terms of this Section 3.3.2 shall not apply to such hotel
until the consent set forth in Schedule 6.2.6 for such hotel is obtained.
Patriot has agreed that it will amend the Troy Marriott Franchise
Agreement to reduce the Territory as set forth on Exhibit P, but has represented
that it cannot at this time execute such Amendment because Patriot's acquisition
of the Troy Marriott by merger has not been completed. Concurrent with the
merger of Patriot and an affiliate of CHC Lease Partners, Patriot shall cause
CHC Lease Partners to execute and deliver to Marriott that certain Amendment to
Marriott Inn Franchise Agreement attached hereto as Exhibit P.
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3.3.3 Modification of Territory Rights; Termination Rights if
New Marriott Competitor. Each of the Exhibit B Franchise Agreement is hereby
amended to provide that Marriott shall be entitled to engage in any or all of
the following activities, which are acknowledged to be reasonable, within any
geographic area described in an Exhibit C Territory (notwithstanding the
deletion of a territorial provision pursuant to Section 3.3.2): (i) to develop,
own, operate, manage, license, franchise, and solicit others to operate or
develop hotels under any Marriott-owned or controlled trade name; service marks,
trademarks, or system; (ii) to publicize and promote such hotels prior to
opening and solicit and accept reservations for such hotels. The parties agree
that such Territory provision is hereby amended, subject to obtaining the
relevant consents referred to on Schedule 6.2.6, to permit Marriott to engage in
the activities described above in this Section 3.3.3 and if such hotel is of the
same Marriott brand (e.g., "Marriott Hotel" or "Courtyard by Marriott") as the
relevant Exhibit C Hotel, then either Marriott or Interstate Hotels LLC shall
have the right to terminate, or cause to be terminated, the relevant Exhibit C
Hotel Franchise Agreement (and the related owner's agreement) as set forth
below, and Wyndham shall have the right to terminate the relevant management
agreement between it and Interstate Hotels LLC (in which case the related
Franchise Agreement shall be terminated); provided, however, that there is no
such right to terminate if the hotel of the same Marriott brand is acquired in
connection with a chain acquisition that is allowed by the "Territory" provision
in the pre-Merger Franchise Agreement for the New Haven Orange Courtyard, St.
Louis Courtyard, Westborough Courtyard, Tyson's Corner Marriott, and the
Pittsburgh Airport Residence Inn. Such termination right shall be the sole
remedy (with respect to such activity) of both Patriot or Marriott in such
event, and Patriot and Marriott agree not to institute suit against the other
with respect to a violation of any implied covenant of good faith or fair
dealing or any other statutory or common law theory claiming harm for such
actions. Marriott shall notify Patriot upon the earlier to occur of (x) thirty
(30) days following execution of a purchase agreement, management agreement, or
license agreement or franchise agreement, as the case may be, or (y) the opening
of such hotel (including any so-called "soft opening" of the hotel). Upon
receipt by Patriot from Marriott of this written notice, Patriot and Marriott
shall each have the right to notify the other of the termination of the relevant
Franchise Agreement within sixty (60) days, which termination shall not be
effective until the opening date of such hotel. Subject to Section 12.2, Patriot
agrees to pay all amounts due to Marriott with respect to the operation of the
hotel under the Exhibit C Hotel Franchise Agreement up to and including the
termination date (excluding the fees set forth on Schedule 3.3.5, which shall
not be payable in such instance), and to fully complete all aspects of the
termination other than the payment of any damages in accordance with the terms
of the Exhibit C Hotel Franchise Agreement within thirty (30) days of the
effective date of termination or within fifteen (15) days after the date of any
subsequent invoice. Any termination by Patriot or Marriott pursuant to this
Section 3.3.3 shall not give Marriott the right to acquire the Patriot Interest
in such Exhibit C Hotel pursuant to Section 3.3.2. The parties agree that
effective upon the Merger, each Exhibit C Hotel Franchise Agreement for which
the relevant consents referred to on Schedule 6.2.6 have been obtained is hereby
amended so that there are no restrictions on Patriot or the Primary
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Manager from developing, owning, franchising or operating other hotels within a
designated area around the relevant Exhibit C Hotel.
3.3.4 Limitations on Sale of Exhibit C Hotels. Sales or other
transfers by Patriot of a Patriot Interest in an Exhibit C Hotel (except for
Tyson's Corner and Troy) may be made to Restricted Purchasers only with
Marriott's prior written consent (which consent shall not be unreasonably
withheld or delayed) and only upon (i) the assumption by the transferee of the
Franchise Agreement (if Patriot is the franchisee immediately prior to such
transfer), such assumption to be in writing and in form and substance reasonably
acceptable to Marriott and (ii) a replacement guaranty, owner agreement, and
corporate structure, both of which give Marriott protections and rights that
Marriott reasonably believes are substantially identical to or better than those
that Marriott had prior to such transfer. Any transfers of all Patriot Interests
in connection with any merger, sale by Patriot of all or substantially all of
its assets, or other similar business combination of Patriot, Wyndham and their
respective Affiliates, shall not constitute a "sale" or "transfer" of a Patriot
Interest for purposes of this Section 3.2.4. Any sale or other transfer of a
Patriot Interest in an Exhibit C Hotel (except for Tyson's Corner and Troy) to
any Person who is not a Restricted Purchaser may only be made as follows:
3.3.4.1 Following consummation of the Divestiture, prior
to accepting an offer to buy a Patriot Interest, Patriot shall send Marriott two
copies of a contract for the sale of the Patriot Interest embodying the terms of
an offer which Patriot has received from a third party regarding Patriot's sale
of such Patriot Interest, both copies of which have been duly executed by
Patriot, together with a written notification from Patriot of its intention to
sell the Patriot Interest to such third party. Marriott shall have the right,
within thirty (30) days after its receipt of the contract and the written
notice, to elect to purchase the Patriot Interest on the terms and conditions
set forth in the contract. In the event Marriott elects to accept the offer
embodied in the contract, Marriott must do so by executing one copy of the
contract and returning it to Patriot within such thirty (30) day period, and in
such case, the closing of such purchase transaction shall occur within ninety
(90) days after such election by Marriott, subject to the terms of such
contract. If Marriott defaults under its obligation under such contract to
purchase such Patriot Interest, Marriott shall no longer have a Right of First
Refusal with respect to such Patriot Interest. If Marriott elects not to
exercise its Right of First Refusal within such thirty (30) day period, then the
offer embodied in the contract shall be deemed withdrawn and Patriot may accept
the offer which it received from such third party and close as set forth in its
contract. If for any reason such purchase does not close as set forth in the
contract, then any subsequent offer must first be submitted to Marriott in
accordance with the provisions of this Section 3.3.4.1. If Marriott does not
purchase under this Section 3.3.4.1, and the Franchise Agreement terminates,
Marriott will be paid the Exhibit C Liquidated Damages. For any hotel listed on
Schedule 6.2.6, the terms of this Section 3.3.4.1 shall not apply to such hotel
until the consent set forth in Schedule 6.2.6 for such hotel is obtained.
3.3.4.2 Any other provision of this Section 3.3.4
notwithstanding, Patriot shall be permitted to sell or transfer a Patriot
Interest in an Exhibit C Hotel if, in the opinion of counsel for Patriot,
such sale or transfer is reasonably necessary in order to satisfy the REIT
qualification provisions of Internal Revenue Code Sections 856 and 857
relating to
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Patriot's income tests and quarterly asset tests (including under proposed
legislation not currently enacted), provided that the transferee is acceptable
to Marriott in the exercise of its reasonable discretion (considering the effect
on Patriot of not transferring such Interest) and further provided that (A) if
all of the Patriot Interest is transferred, (i) the transferee shall execute a
replacement guarantee, owner agreement and corporate structure, all of which
give Marriott protection and rights that Marriott reasonably believes are
substantially identical to or better than Marriott had prior to such transfer;
(ii) the transferee shall execute a written agreement, in form and substance
reasonably acceptable by Marriott, to be bound by the restrictions on transfer
set forth in this Section 3.3.4, and (B) if less than all of the Patriot
Interest is transferred, Marriott shall be reasonably satisfied that its rights
and remedies immediately following the transfer are substantially identical to
or better than such rights and remedies immediately prior to such transfer.
3.3.4.3. The provisions of this Section 3.3.4 (including
Sections 3.3.4.1 and 3.3.4.2) shall be effective only upon consummation of the
Divestiture and shall expire with respect to each Exhibit C Hotel upon the
termination or expiration of the respective Exhibit C Hotel Franchise Agreement;
provided, however, that prior to such time and before the earlier of the
consummation of the Divestiture or a Forbearance Termination Event, Patriot
shall take no action with respect to the sale or transfer of any Patriot
Interest in an Exhibit C Hotel that would in any way deprive or prejudice
Marriott's rights to purchase any such Patriot Interest under Sections 3.3.2,
3.3.4.1, and 3.3.5.
3.3.5 Further Right to Acquire Exhibit C Hotels and
Termination Rights. If a Forbearance Termination Event occurs, in addition to
its other rights pursuant to this Section 3.3, Marriott shall also have the
right, (i) to acquire any or all Patriot Interests in the Exhibit C Hotels,
except for Tyson's Corner or Troy, at a purchase price arrived at pursuant to a
process consistent with that provided in Section 3.2.2.3 hereof, and paid in
accordance with the provisions of Section 3.2.2.2, and (ii) to terminate all
Exhibit C Hotel Franchise Agreements (and related owner's agreements) and
Patriot agrees to pay Marriott the amounts set forth on Schedule 3.3.5 hereof.
Marriott shall elect to exercise such right to purchase (if at all) within
thirty (30) days after the Final Divestiture Date, and the parties shall use
their reasonable best efforts to close each such related purchase transaction
within 120 days after their respective determination, pursuant to Sections 3.3.2
and 3.2.2.3 of the purchase price(s) for such Patriot Interest(s). With respect
to each Patriot Interest that Marriott elects not to purchase under this Section
3.3.5 (or otherwise breaches any contract entered into with Patriot pursuant to
an affirmative election to purchase), Marriott's right to purchase such Patriot
Interest shall then be terminated. For any hotel listed on Schedule 6.2.6, the
terms of this Section 3.3.5 shall not apply to such hotel until the consent set
forth in Schedule 6.2.6 for such hotel is obtained.
3.3.6 Current Defaults. Marriott hereby acknowledges that, to
its knowledge, no current or past defaults by the franchisees exist under the
Exhibit C Hotel Franchise
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Agreements (excluding life safety and ADA issues), nor has Marriott issued any
formal "red zone" notifications with respect to the Exhibit C Hotels. The
parties agree that any default thereunder declared or occurring subsequent to
the date hereof shall be addressed pursuant to the terms of such Franchise
Agreements.
3.3.7 [Intentionally Omitted]
4. Third Party-Owned Hotels.
4.1 Continuation of Exhibit D Hotel Franchise Agreements. Each
Exhibit D Hotel Franchise Agreement shall continue in full force and effect
pursuant to the provisions thereof. In addition, each such Franchise Agreement
where Patriot or Interstate is the franchisee shall be amended by this
Agreement, as provided in Section 12 hereof.
4.2 Communication with Third-Party Owners. The parties hereby agree
that simultaneously with the execution of this Agreement, a letter in the form
attached as Exhibit D-1, shall be sent to the Third-Party Owners (and/or any
party Controlling or managing such Third-Party Owner).
4.3 Marriott Forbearance. Marriott and Patriot shall each retain
their respective rights against the other upon a Forbearance Termination Event.
However, subject to Sections 3.1.4, 3.2.7 and 3.3.5, until consummation of the
Divestiture, Marriott hereby agrees to forbear from exercising any of its rights
or remedies, if any, that arise from or with respect to the Merger under any of
the Franchise Agreements. This Agreement shall constitute a "settlement of this
action" permitting Interstate and Patriot to transfer control in the twenty-nine
(29) Marriott-franchised hotels covered by the Order dated April 8, 1998, of the
United States Court of Appeals for the Fourth Circuit in the Maryland Case.
Although Marriott is not consenting to the Merger and asserts that its consent
to the Merger is otherwise required, Marriott agrees that (a) upon execution of
this Agreement, it will seek a stay of the Maryland Case as set forth in Section
9.1 hereof and (b) subsequent to seeking the stay, it will not seek the enjoin
the Merger until a Forbearance Termination Event. Patriot does not agree that
Marriott's consent is necessary to consummate the Merger. If the Divestiture
occurs on or prior to the Final Divestiture Date, Marriott shall be deemed to
have consented to the Divestiture and the Merger, and shall be deemed to have
waived any right to claim that the Divestiture or Merger constitutes a breach,
default, wrongful, unlawful or improper act of any kind, including without
limitation any default under the terms of the Franchise Agreements, including
without limitation, the trademark license granted therein. Marriott may cease
its forbearance if a Forbearance Termination Event occurs, and upon any such
occurrence, Marriott shall have its rights under Sections 3.1.4, 3.2.7, and
3.3.5. In addition, if a Forbearance Termination Event occurs, Marriott shall
have all rights, if any, that it presently has to issue a notice of default
under each of the Franchise Agreements (without this statement constituting an
acknowledgment or admission by Patriot, Wyndham or Interstate that such rights
exist). Subject to Sections 9.1, 9.2 and 10.4, if the Merger is not consummated,
nothing in this Agreement or otherwise shall modify any now existing rights,
claims or agreements among Marriott, Patriot, Wyndham or Interstate. Immediately
following the execution hereof, Marriott will send to the Third-Party Owners
(and/or
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any Person Controlling or managing such Third-Party Owner) the letter attached
as Exhibit D-1, which describes the Forbearance.
4.3.1 Third Party Owner Forbearance Damages. Upon the
occurrence of a Forbearance Termination Event, if a Third-Party Owner elects to
terminate its management agreement with Interstate but executes a franchise or
license agreement with Marriott containing substantially similar terms and
conditions, or agrees to continue to have the hotel operated pursuant to the
terms of the existing Exhibit D Hotel Franchise Agreement, with a new Approved
Operator, Patriot shall have no obligation to pay any damages, termination fees
or other amounts to Marriott with respect to its alleged default under the
Exhibit D Hotel Franchise Agreement if Patriot has paid to Marriott any other
amounts owed under the relevant Franchise Agreement.
If (i) Marriott and a Third-Party Owner, with respect to which Patriot or
Interstate is the franchisee, are unable to agree upon a new operator, or (ii) a
Third-Party Owner, with respect to which Patriot or Interstate is the
franchisee, elects not to continue to operate its hotel as a Marriott-brand
hotel as a result of the alleged default by Patriot under the Exhibit D Hotel
Franchise Agreement, then in either such case, Patriot shall pay to Marriott the
amounts for the applicable hotel set forth on Schedule 4.3.1. The alleged
default giving rise to such liquidated damage amount shall be subject to
Patriot's right to claim that Marriott or the Third-Party Owner is not entitled
to terminate the subject Exhibit D Hotel Franchise Agreement.
4.4 Third-Party Owner Communications. Marriott shall be entitled to
provide Third-Party Owners (and/or any Person Controlling or managing such
Third-Party Owner) with copies of any of the reports or hotel performance
information regarding the relevant hotel. Marriott also shall be permitted to
discuss such information and/or issues concerning such hotel's continued
participation in the Marriott system with Third-Party Owners at any time.
Marriott shall provide a copy of any information provided to Third-Party Owners
(and/or any Person Controlling or managing such Third-Party Owners) to Patriot,
prior to the Divestiture, and to Newco thereafter, concurrently with its
provision to Third-Party Owners (and/or any Person Controlling or managing such
Third-Party Owners). Similarly, Patriot agrees to provide a copy of any
information provided to Third-Party Owners (and/or any Person Controlling or
managing such Third-Party Owners) to Marriott concurrently with its provision to
Third-Party Owners. Each of the parties agrees not to interfere, either directly
or indirectly, with any other party's contractual relationships with Third-Party
Owners, it being acknowledged and agreed that the mere provision of such
information as set forth above (but not necessarily the content of such
information), as well as the act of discussing such information (but not
necessarily the content of such discussions), shall not in and of itself
constitute such prohibited interference.
4.5. Current Defaults. Marriott hereby acknowledges that, to its
knowledge, except for the Exhibit D Hotels in Cincinnati, Ohio and Orlando I
Drive, Florida, and the Omaha and
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Princeton Residence Inns, no current or past defaults by the franchisees exist
under the Exhibit D Hotel Franchise Agreements (excluding life safety or ADA
issues), nor has Marriott issued any formal "red zone" notifications with
respect to the Exhibit D Hotels. The parties agree that any default thereunder
declared or occurring subsequent to the date hereof shall be addressed pursuant
to the terms of such Franchise Agreements; provided, however, that
notwithstanding anything in this Agreement or the relevant Exhibit D Hotel
Franchise Agreement to the contrary, Patriot shall not be obligated to Marriott
for liquidated damages relating to any current or past defaults by the
franchisee on the Exhibit D Hotels in Cincinnati, Ohio or Orlando I Drive,
Florida.
5. Newco Structure and Interim Operations.
5.1 Formation of Newco. All Exhibit B Hotels submanaged by Marriott
shall be subject to the structure described on Exhibit I. Patriot shall form
Newco, and shall merge into Interstate Hotels, LLC all of the third party
management business currently operated by Interstate and its Affiliates which it
conducts with Marriott and substantially all of Interstate's non-Marriott third
party-owned hotel management business which does not require consent for its
transfer to Interstate Hotels, LLC. Patriot estimates that consent for transfer
to Interstate Hotels, LLC is only required with respect to the non-Marriott
third party hotel management business representing 25% or less of the revenues
and profits of such non-Marriott third party hotel management business.
The restated articles of incorporation and bylaws of Newco at the time of
the Divestiture shall in all material respects be in the forms attached hereto
as Exhibits E-1 and E-2, respectively. In addition, prior to consummation of the
Divestiture, the articles of incorporation of Newco shall be amended upon the
mutual agreement of Patriot and Marriott, to provide that either Patriot or
Marriott may forfeit its seat on the Board of Directors of Newco, if certain
agreed upon performance criteria related to Newco's subsidiaries are not
satisfied.
The restated articles of incorporation of Newco will also provide for a
class of preferred stock to be issuable to holders of Newco common stock
pursuant to a Rights Plan upon the occurrence of certain events to be agreed
upon between Patriot and Marriott and containing, among other things, a ten
percent (10%) trigger.
Patriot and Marriott shall have no obligation to offer to Newco the
opportunity to manage hotels or any other business opportunity, other than as
expressly provided in this Agreement; provided, however, that Patriot and
Marriott shall have the right to enter into management agreements with Newco for
the management by Newco of hotels other than as expressly provided herein,
pursuant to terms and conditions mutually agreed to by Patriot or Marriott, as
the case may be, and Newco.
5.2 Formation of IHC II, LLC. Newco shall form IHC II, LLC as a
bankruptcy remote special purpose entity, which entity shall enter into the
Primary Management Agreements in the form attached hereto as Exhibit K and the
Submanagement Agreements. Patriot, Patriot Partnership and Wyndham are not
parties to and will not have recourse against Marriott (or any of its
Affiliates) with respect to breaches of the Submanagement Agreements or
Franchise
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Agreements (other than with respect to breaches of Section 11.22 of the
Submanagement Agreement); only IHC II, LLC will have recourse against Marriott
with respect to breaches of such Agreements. Effective upon the consummation of
Divestiture, IHC II, LLC shall assume each Exhibit B Hotel Franchise Agreement
and Interstate Hotels, LLC shall, as successor by merger to Interstate Hotels
Corporation, continue to be obligated under each Exhibit C Hotel Franchise
Agreement and Exhibit D Hotel Franchise Agreement, to the extent in each case
that Interstate is currently the franchisee thereunder.
The operating agreement of IHC II, LLC shall in all material respects be
in the form attached hereto as Exhibit F-1 upon consummation of the Divestiture.
5.3 Formation of Interstate Hotels, LLC. Patriot, prior to
consummation of the Merger, will form Interstate Hotels, LLC .
The operating agreement of Interstate Hotels, LLC shall in all material
respects be in the form attached hereto as Exhibit F-2 upon consummation of the
Divestiture.
5.4 Newco Requirements. The parties desire for Newco to be a strong,
viable independent entity, and in order to accomplish such goal, Patriot
covenants and agrees that upon consummation of the Divestiture Newco shall have
a minimum initial capitalization of at least $50,000,000, and "current assets"
in an amount at least equal to "current liabilities" at the time of the
Divestiture, and total indebtedness which does not generate annual debt service
in excess of one-third EBITDA (i.e., earnings before interest, taxes,
depreciation and amortization) on a pro-forma basis.
5.5 Voting Agreement. Simultaneously with the Divestiture, the
Certain Newco Shareholders shall enter into the Voting Agreement in the form
attached as Exhibit G, which Voting Agreement shall become effective immediately
upon consummation of the Divestiture.
5.6 Owners Agreement. Simultaneously with the Divestiture, the
respective owners of the Exhibit B Hotels, Wyndham, IHC II, LLC and Marriott
shall enter into Owner Agreements in the form attached as Exhibit H hereto, and
shall use reasonable best efforts to provide written consents from all entities
(other than Patriot) which own or have any mortgage interest in the Exhibit B
Hotels to provide non-disturbance assurances as set forth in the Submanagement
Agreement with respect to such hotels.
5.7 Compliance with Real Estate Investment Trust ("REIT")
Requirements. In order to satisfy the REIT qualification provisions of Internal
Revenue Code ss.ss.856 and 857 relating to Patriot's income tests and quarterly
asset tests (including under proposed legislation not currently enacted), at any
time prior to the Final Divestiture Date, either Patriot or its operating
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partnership may transfer all or any portion of its respective ownership interest
in Newco to an Affiliate of Patriot or Wyndham, including individual members of
Patriot's or Wyndham's senior management team or Persons Controlled by one or
more of such individuals. Any such transfer shall be subject to any restrictions
set forth in the charter and bylaws of Newco as of the time of the Divestiture,
as well as the terms and conditions of the Voting Agreement, and the transferee
being subject to all of the obligations of the transferor hereunder. After
consummation of the Divestiture, there shall be no restrictions on Patriot's or
Marriott's rights to transfer their interests in Newco, IHC II, LLC or
Interstate Hotels, LLC other than as set forth in the organizational documents
for such entities as they exist upon such consummation.
5.8 [Intentionally Omitted].
5.9 Cost of Formation. All costs related to filing fees, legal,
accounting and other fees of advisors and consultants (such as Newco's
accountants, attorneys and financial advisors, if any), and financial printing
fees incurred in connection with the formation and implementation of the Newco
structure shall be borne solely by Patriot or its Affiliate.
5.10 Investment in Newco. Immediately prior to the consummation of
the Divestiture, Marriott shall acquire for cash four percent (4%) of the Newco
common stock at the economic equivalent value which Patriot acquired its voting
common stock in Newco (on a per share basis) and Patriot shall retain, as of the
consummation of the Divestiture, four percent (4%) of such Newco common stock;
provided however, that the maximum amount of Marriott's capital contribution to
acquire from Newco for cash such four percent (4%) ownership interest shall be
$3,000,000.
5.11 Divestiture of Newco. The parties acknowledge and agree that a
fundamental condition of the execution of this Agreement by Marriott is the
agreement by Patriot to cause the Divestiture within the time periods set forth
below. Patriot shall cause all necessary filings (excluding amendments or
supplements to such filings) to be made by Patriot or its Affiliates with
federal and state governmental authorities and agencies to occur on or prior to
the Filing Date, other than routine filings not customarily made prior to
consummation of a "spin-off," such as, by way of example only, the filing of
amendments to charter documents.
If the Divestiture is consummated after November 30, 1998, but on or prior
to the Final Divestiture Date, Patriot shall pay to Marriott fees which are ten
(10) basis points greater than the fees otherwise due under the Submanagement
Agreements (as modified hereby) for the entire term of each such Submanagement
Agreement and upon their termination the 2.35% referenced in the definition of
Special Fee shall be increased by ten (10) basis points. In no event shall the
Divestiture be consummated after the Final Divestiture Date. Failure to
consummate the Divestiture on or prior to the Final Divestiture Date shall
constitute a Forbearance Termination Event hereunder.
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On or prior to the consummation of the Divestiture, the Board of Directors
of Newco shall be elected in accordance with the terms of the Charter and Bylaws
of Newco, and the Voting Agreement.
5.12 Marriott Approval Rights. All material aspects of the formation
of Newco (and subsidiary entities) as they exist at the time of the Divestiture,
and the Divestiture, shall be subject to Marriott's prior approval, which
approval shall not be unreasonably withheld or delayed.
5.13 Interim Operations. Prior to the Final Divestiture Date, each
of Newco and Patriot shall, subject to compliance with this Agreement, and
subject to ongoing compliance with Marriott's continuing system standards, be an
Approved Operator with respect to all Marriott-brand hotels. In the event that
the Divestiture is not consummated on or prior to Final Divestiture Date, the
status of Newco and Patriot as Approved Operators shall be at Marriott's sole
discretion. Any agreement entered into prior to the Final Divestiture Date will
clearly reflect the temporary status of Patriot and Newco as Approved Operators.
5.14 Lease(s) between Patriot and Wyndham. Subject to the consents
set forth on Schedule 6.2.6, Patriot (or in the case of hotels owned by joint
ventures with third parties, the joint venture) and Wyndham shall, upon the
consummation of the Merger, execute one or more lease agreements covering the
Exhibit A Hotels, the Exhibit B Hotels, and the Exhibit C Hotels; the leases for
the Exhibit B Hotels and shall, upon the consummation of Divestiture, be in the
form attached as Exhibit J. The Tyson's Corner Marriott, subject to obtaining
the relevant consents listed on Schedule 6.2.6, shall be leased to Wyndham,
managed by IHC II, LLC, and submanaged by the Submanager pursuant to
documentation similar to the corresponding Exhibit B Hotel documentation, with
appropriate changes to correspond to the terms and conditions of the existing
Tyson's Corner management agreement.
5.15 Management Agreements between Wyndham and IHC II, LLC.
Simultaneously with the consummation of the Divestiture, in connection with the
Exhibit B Hotels, Wyndham and IHC II, LLC shall enter into the Primary
Management Agreements attached as Exhibit K, pursuant to which the Primary
Manager shall manage the Exhibit B Hotels as of the respective "Take-Over Dates"
specified therein.
5.16 Divestiture Payments. At the Divestiture, Patriot will pay or
cause to be paid all amounts not in dispute that are then currently past due to
Marriott or any other franchisor under any franchise or license agreement for
all Patriot-owned hotels to be operated by Newco.
5.17 Guarantees; Funding Obligations.
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5.17.1 Guarantees. All of the obligations of IHC II, LLC, and
Interstate Hotels, LLC to Marriott hereunder or under any of the Franchise
Agreements, are, jointly and severally, irrevocably and unconditionally
guaranteed by Newco, pursuant to a separate Guaranty in the form attached hereto
as Exhibit L.
5.17.2 Funding Obligations. The following obligations apply to
all hotels submanaged by Marriott as listed on Exhibit B from and after the
respective "Take-Over Dates" (as defined in the relevant Submangement Agreement
(other than with respect to preliminary installation of equipment pursuant to
Section 1.02.B)). Patriot and Wyndham hereby acknowledge, unless otherwise noted
below, that each of the funding obligations (the "Owner/Lessee Funding
Obligations") listed below are required to be funded by the owner of each of the
properties ("Owner") to Wyndham under the leases for the properties and, in
turn, Wyndham is obligated to fund such obligation to the Primary Manager under
the terms of the Primary Management Agreement. Patriot agrees that, to the
extent of its interest in the properties (as shown on Exhibit M), each of
Primary Manager and Marriott are third party beneficiaries of Owner's obligation
to fund the Owner/Lessee Funding Obligations under the leases. Wyndham hereby
acknowledges that Marriott is a third party beneficiary of its obligation to
fund any Owner/Lessee Funding Obligation under the Primary Management
Agreements. Patriot agrees that Primary Manager and Marriott can initiate legal
proceedings directly against Patriot if any Owner fails to fund the Owner/Lessee
Funding Obligations, and Wyndham agrees that Marriott can initiate legal
proceedings directly against Wyndham if Wyndham fails to fund any Owner/Lessee
Funding Obligation under the Primary Management Agreement. Patriot and Wyndham
agree to satisfy any such claim without regard to any claims, defenses or right
of set-off or similar rights (except payment) that may be available to the Owner
or Wyndham in connection with the enforcement of the corresponding obligations
of the Owner or Wyndham under the lease or the Primary Management Agreement and
Marriott shall not be required to exhaust any of its remedies against the
Primary Manager. The Owner/Lessee Funding Obligations are the following (section
references and defined terms are to sections and defined terms in the
Submanagement Agreement, although the lease agreements between Patriot and
Wyndham for the applicable hotels and the Primary Management Agreement shall
contain corresponding provisions):
1. Preliminary installation of equipment (ss.1.02.B) and funding
of Initial FF&E Reserve and FF&E funding shortfalls described
in 5- year capital plans set forth in Exhibit B-1 to the
Submanagement Agreement (ss.5.02)
2. Restoration obligation in the event of casualty (ss.6.03)
3. Funding of Capital Expenditures, including the Capital
Expenditures described in Exhibit B-2 to the Submanagement
Agreement (ss.5.03)
4. Funding of program for ADA and life-safety compliance
(ss.5.03.C and ss.5.03.E)
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5. Assessments under CC&R's (ss.8.04) (all non-capital costs to
be funded solely by Wyndham)
6. Additional insurance premiums required to be paid out of funds
other than Gross Revenues (ss.6.02.D)
7. Funding necessary to maintain a reasonable amount of Working
Capital (ss.4.06) (funded solely by Wyndham after initial
working capital)
8. Payment of Impositions to the extent provided in Sections
7.01.A and 7.01.B of the Submanagement Agreement
9. Costs required to be funded by Primary Manager pursuant to
Section 11.12 of the Submanagement Agreement
10. Obligations upon termination under Section 11.11 of the
Submanagement Agreement (funded solely by Wyndham)
11. Environmental removal and remediation costs (ss.11.08)
12. Costs incurred due to default by Primary Manager (ss.9.03) (as
a result of the failure of Patriot or Wyndham to perform their
respective obligations, as applicable, under the lease
agreement and Primary Management Agreement)
13. Reimbursement for reasonable operating costs (ss.4.01.C and
ss.4.03.C) (funded solely by Wyndham)
5.18 Troy Management. The parties acknowledge and agree that
Marriott intends to assume the management of the Marriott Hotel located in Troy,
Michigan, subject to and in accordance with the terms of the Franchise Agreement
and existing management agreement for such hotel. If Marriott does not assume
management of such hotel, then the Franchise Agreement and management agreement
shall be assumed by Newco.
5.19 Debt Repayment. On or prior to the Divestiture, Patriot shall
cause Newco, IHC II, LLC or Interstate Hotels LLC, as the case may be, to pay
off in full, refinance or purchase all presently existing third party
indebtedness due and owing with respect to any Exhibit A, B or C Hotel, except
for indebtedness in favor of the lenders Lincoln National relating to St. Louis
Marriott, Credit Lyonnais relating to Casa Marina and Harrisburg and
Massachusetts Mutual
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Life Insurance Company relating to the Reach, Syracuse and Pittsburgh Airport
Marriott, Harrisburg and Casa Marina.
6. Representations and Warranties.
6.1 Representations and Warranties of Marriott. Marriott
International, Inc. hereby makes the following representations and warranties to
Patriot and Interstate as of the date hereof:
6.1.1 Organization and Authority; Good Standing. Marriott
International, Inc. is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and is duly licensed or
qualified to do business in all jurisdictions where in the nature of its
business or the character of its properties requires such licensing or
qualification, except where the failure to be so qualified could not reasonably
be expected to have a material adverse effect on its business, operations or
financial condition. Marriott has full and adequate corporate power to own its
property and to carry on its business as now conducted.
6.1.2 Due Authorization. All necessary corporate action has
been taken to authorize the execution and delivery of this Agreement by Marriott
International Inc., and the performance of this Agreement by Marriott, and this
Agreement has been duly executed and delivered by Marriott International, Inc.
6.1.3 Non-Contravention. Neither the execution and the
delivery of this Agreement by Marriott International, Inc., nor the consummation
by Marriott of the transactions contemplated hereby, will (i) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which Marriott is subject, (ii) violate any provision of its charter or
bylaws, or (iii) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, any material agreement, contract,
lease, license, instrument, or other arrangement to which Marriott is a party,
by which it is bound or to which any of its assets is subject.
6.1.4 Enforceability. This Agreement is the legal, valid and
binding obligation of Marriott, enforceable against Marriott in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general application relating
to or affecting the enforcement of creditor's rights and by general principles
of equity.
6.1.5 Litigation. Other than the Maryland Case and the Texas
Case, there is no litigation, investigation, suit, action or other proceeding by
or against Marriott, pending or, to the knowledge of Marriott, threatened,
before any court of competent jurisdiction or governmental agency that seeks the
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby, or which
otherwise challenges or would affect the validity or enforceability of this
Agreement or such transactions.
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6.2 Representations and Warranties of Patriot. Patriot American
Hospitality, Inc. hereby makes the following representations and warranties to
Marriott and Interstate as of the date hereof:
6.2.1 Organization and Authority; Good Standing. Patriot
American Hospitality, Inc. is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and is duly licensed or
qualified to do business in all jurisdictions where in the nature of its
business or the character of its properties requires such licensing or
qualification, except where the failure to be so qualified could not reasonably
be expected to have a material adverse effect on its business, operations or
financial condition. Patriot has full and adequate corporate power to own its
property and to carry on its business as now conducted.
6.2.2 Due Authorization. All necessary corporate action has
been taken to authorize the execution and delivery of this Agreement by Patriot
American Hospitality, Inc., and the performance of this Agreement by Patriot,
and this Agreement has been duly executed and delivered by Patriot American
Hospitality, Inc.
6.2.3 Non-Contravention. Neither the execution and the
delivery of this Agreement by Patriot American Hospitality, Inc., nor the
consummation by Patriot of the transactions contemplated hereby, will (i)
violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which Patriot is subject, (ii) violate any
provision of its charter or bylaws, or (iii) except for its agreements with
Equity Inns, conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, any material agreement, contract, lease, license,
instrument, or other arrangement to which Patriot is a party, by which it is
bound or to which any of its assets is subject.
6.2.4 Enforceability. This Agreement is the legal, valid and
binding obligation of Patriot, enforceable against Patriot in accordance with
its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general application relating
to or affecting the enforcement of creditor's rights and by general principles
of equity.
6.2.5 Litigation. Other than the Maryland Case and the Texas
Case, there is no litigation, investigation, suit, action or other proceeding by
or against Patriot, pending or, to the knowledge of Patriot, threatened, before
any court of competent jurisdiction or governmental agency that seeks the
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby, or which
otherwise challenges or would affect the validity or enforceability of this
Agreement or such transactions.
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6.2.6 Consents. Except as set forth on Schedule 6.2.6 and
except for (x) the consent of Massachusetts Mutual Life Insurance Company
(secured lender) as to Pittsburgh Airport, (y) the consent of Credit Lyonnais
(secured lender) as to Harrisburg, and (z) the consent of Credit Lyonnais
(secured lender) as to Casa Marina, all necessary consents and approvals
required (i) in order for the Submanager to acquire the rights to submanage the
Exhibit B Hotels pursuant to the Submanagement Agreements, (ii) to extend the
Franchise Agreement relating to Warner Center and to accomplish the other
arrangements contemplated herein relating to Warner Center, (iii) to terminate
the Exhibit A Hotel Franchise Agreements pursuant to Section 3.1.1, (iv) in
order for Marriott to acquire the rights to continue to manage the Tyson's
Corner Marriott pursuant to the Amendment to Tyson's Corner Management
Agreement, and (v) to continue the effectiveness of the Franchise Agreements (as
modified pursuant to the express provisions of this Agreement) until otherwise
terminated by their terms or pursuant hereto, have in all cases been obtained
prior to the date hereof.
6.2.7 Voting Agreement. Exhibit C to the Voting Agreement
accurately includes all directors, officers (as defined in Rule 16a-1(f) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) and
holders of greater than 10% of the outstanding capital stock (other than holders
who are eligible to file Information Statements on Schedule 13G (rather than
Schedule 13D) pursuant to Rule 13d-1 under the Exchange Act) of Patriot American
Hospitality, Inc. and Wyndham International, Inc. For purposes of stating and
calculating the share ownership to be reflected on Exhibit C to the Voting
Agreement, each such director and executive officer shall be deemed to own all
shares beneficially owned by the members of such individual's immediate family
(including spouses), the spouses of the immediate family members of such
individual, trust, partnerships, corporations or similar entities controlled by
such individual, and any other Affiliates of such individual.
6.3 Representations and Warranties of Interstate. Interstate Hotels
Company and Interstate Hotels Corporation hereby make the following
representations and warranties to Marriott and Patriot as of the date hereof:
6.3.1 Organization and Authority; Good Standing. Each of
Interstate Hotels Company and Interstate Hotels Corporation is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Pennsylvania and is duly licensed or qualified to do business in all
jurisdictions where in the nature of its business or the character of its
properties requires such licensing or qualification, except where the failure to
be so qualified could not reasonably be expected to have a material adverse
effect on its business, operations or financial condition. Interstate has full
and adequate corporate power to own its property and to carry on its business as
now conducted.
6.3.2 Due Authorization. All necessary corporate action has
been taken to authorize the execution and delivery of this Agreement by each of
Interstate Hotels Company and Interstate Hotels Corporation, and the performance
of this Agreement by Interstate, and this Agreement has been duly executed and
delivered by each of Interstate Hotels Company and Interstate Hotels
Corporation.
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6.3.3 Non-Contravention. Neither the execution and the
delivery of this Agreement by either Interstate Hotels Company or Interstate
Hotels Corporation, nor the consummation by Interstate of the transactions
contemplated hereby, will (i) except with respect to the Maryland case, violate
any constitution, statute, regulation, rule, injunction, judgment, order,
decree, ruling, charge, or other restriction of any government, governmental
agency, or court to which Interstate is subject, (ii) violate any provision of
its charter or bylaws or (iii) except for its agreements with Promus, Patriot,
Marriott and Equity Inns, conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, any material agreement, contract,
lease, license, instrument, or other arrangement to which Interstate is a party,
by which it is bound or to which any of its assets is subject.
6.3.4 Enforceability. This Agreement is the legal, valid and
binding obligation of Interstate, enforceable against Interstate in accordance
with its terms, except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws of general application relating
to or affecting the enforcement of creditor's rights and by general principles
of equity.
6.3.5 Litigation. Other than the Maryland Case and the Texas
Case, there is no litigation, investigation, suit, action or other proceeding by
or against Interstate, pending or, to the knowledge of Interstate, threatened,
before any court of competent jurisdiction or governmental agency that seeks the
restraint, prohibition, damages or other relief in connection with this
Agreement or the consummation of the transactions contemplated hereby, or which
otherwise challenges or would affect the validity or enforceability of this
Agreement or such transactions.
6.4 Survival. The representations and warranties of the parties set
forth in this Section 6 and elsewhere in this Agreement shall survive the
execution of this Agreement.
7. Conditions and Deliveries.
7.1 Deliveries in Connection with the Execution of this Agreement.
Simultaneously with the execution and delivery of this Agreement, the following
agreements, documents, instruments, obligations, payments and other items shall
have been executed, delivered, made and/or performed as provided below:
7.1.1 [Intentionally Omitted].
7.1.2 [Intentionally Omitted].
7.1.3 Payments to Marriott under Existing Management
Agreements and Franchise Agreements. All amounts not in dispute that are
currently past due and payable by
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Interstate or any Affiliate thereof under the existing Franchise Agreements, and
under the existing management agreement governing the management of the Tyson's
Corner Marriott, substantially all of which amounts are set forth on Schedule
7.1.3 hereof, shall be paid by Interstate to Marriott as follows: (1) a check
for the Fort Lauderdale receivable in the amount of $415,035.05 shall be sent to
Marriott by overnight courier on May 27, 1998 for delivery on May 28, 1998 and
(2) all remaining amounts set forth on Schedule 7.1.3 shall be paid in full by
Interstate on or before May 29, 1998.
7.1.4 Opinion Letters. Marriott shall have received opinions
of Goodwin, Procter & Hoar LLP, counsel to Patriot, and Jones, Day, Reavis &
Pogue, counsel to Interstate, in the forms attached as Exhibits N-1 and N-2,
respectively.
8. Indemnification.
8.1 Indemnification by Patriot. Subject in all respects to Section
8.2, Patriot hereby agrees to indemnify and hold harmless Marriott and its
Affiliates, and each of their respective directors, officers, employees,
successors and assigns (individually an "Indemnified Party" and collectively,
the "Indemnified Parties") from and against, any and all losses, liabilities,
claims, damages (including consequential, punitive or treble damages),
obligations, liens, assessments, judgments, awards, fines, costs or expenses
(including reasonable attorney's fees) (individually a "Covered Liability" and
collectively, the "Covered Liabilities") which any of the Indemnified Parties
may sustain by reason of:
(a) the execution and delivery of this Agreement (or any agreements
contemplated herein) by Marriott, the performance by Marriott of its obligations
under this Agreement (provided such obligations are performed in accordance with
the terms of this Agreement), or the consummation of any of the transactions
contemplated herein;
(b) any and all actions of any of the Indemnified Parties taken in
furtherance of this Agreement;
(c) the Merger;
(d) the Divestiture;
(e) any alleged negligent, grossly negligent, reckless or
intentionally tortious or other misconduct (including, but not limited to,
intentional interference with contract or intentional interference with economic
relations) of any of the Indemnified Parties arising out of or related to (a)
through (d) above.
(f) any and all Covered Liabilities resulting from the termination
of the Franchise Agreements on the Exhibit A Hotels.
The remedies provided in this Section 8.1 will not be exclusive of or
limit any other remedies that may be available to Marriott or the other
Indemnified Parties. Notwithstanding anything to the
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contrary in clauses (a) through (f) above, if a court of competent jurisdiction
determines that an Indemnified Party in (a) through (f) above was grossly
negligent or acted fraudulently, then this Section 8 shall not apply.
8.2 Limitation on Indemnification. The obligations of Patriot under
this Section 8 shall apply only to claims made or actions brought by or on
behalf of (i) both the stockholders of Patriot or Interstate, as well as
third-party owners of hotels on Exhibit D only, with respect to Sections 8.1(a)
- - 8.1(e), and (ii) the third-party owners of Exhibit A Hotels with respect to
Section 8.2(f).
8.3 Procedure.
(a) Except as provided in subparagraph (b) below, if any Covered
Liability for which Patriot will be liable pursuant to this Section 8 is
asserted against or sought to be collected from any of the Indemnified Parties,
Marriott shall promptly notify Patriot in writing. No delay on the part of
Marriott (or any of the Indemnified Parties) in notifying Patriot shall relieve
Patriot or its Affiliates from any obligation hereunder unless (and then solely
to the extent) Patriot is prejudiced. Patriot shall, at its sole cost and
expense, defend against such claim or demand. Marriott may elect, at its sole
cost and expense, to retain its own counsel and participate in any such defense,
but the control of such defense and its settlement and resolution shall rest
with Patriot. Patriot shall keep Marriott fully informed of the status of the
defense of any such claims.
(b) If any Covered Liability for which Patriot is liable pursuant to
this Section 8 is asserted against or sought to be collected from any of the
Indemnified Parties and such claim arises out of or in connection with an
agreement between Marriott and a third party, Marriott shall have the right, but
not the duty, to defend against any claim or demand at its sole cost and
expense, provided, however, that Marriott's right to defend against any such
claim shall be conditioned upon Marriott's notification to Patriot as set forth
in the immediately succeeding sentence within twenty (20) business days of the
date on which such claim is first asserted against Marriott. In the event that
Marriott elects to exercise its right under this Section 8.3(b) to defend
against such claim or demand, Marriott shall promptly notify Patriot of its
election to defend against such claim or demand. Marriott shall have the right
to control and defend against such claim or demand by appropriate proceedings,
but Marriott will be responsible for its expenses and the cost of any judgment
against any Indemnified Party or any settlement of a demand or claim against any
Indemnified Party.
(c) Notwithstanding any other statement herein to the contrary,
neither Patriot nor any of its Affiliates shall, without the written consent of
Marriott, settle or compromise or consent to the entry of any judgment with
respect to any action or third party claim if the effect thereof is to admit any
criminal liability by Marriott, or to permit any injunctive relief or other
order providing non-monetary relief to be entered against Marriott.
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8.4 Duty of Mitigation. Notwithstanding any language to the contrary
contained herein, in the case of any claims or demands made by Third-Party
Owners of Marriott brand hotels, Marriott shall attempt to mitigate such claim
or demand by offering to, and negotiating in good faith with, any such claimant
that has a management or franchise agreement with Interstate, a Marriott
management or franchise agreement containing terms and conditions comparable to
the terms of Marriott's standard franchise or management agreement.
8.5 Payment of Indemnity. If Patriot and its Affiliates elect not to
defend against such claim or demand for which they do not dispute indemnity is
due, the amount of such claim or demand, or if the same be defended by Patriot
or its Affiliates, that portion thereof as to which such defense is
unsuccessful, or any amount agreed to be paid in settlement of such claim, shall
be payable by wire transfer of immediately available funds by Patriot (jointly
and severally, in the event Patriot's Affiliates are also indemnifying parties)
to the party making demand for payment immediately upon receipt of a final
judgment, order or settlement.
9. Litigation.
9.1 State of the Maryland Case; Retention of Federal Jurisdiction.
Simultaneously with the execution of this Agreement, the parties shall jointly
request that the Maryland Case be stayed, pending consummation of the
transactions contemplated by this Agreement. Upon Divestiture, the parties will
file a joint request for an Order of Dismissal pursuant to Fed. R. Civ. Pro.
41(a)(2), in the form attached as Exhibit O-1, attaching this Agreement as part
of the Order of Dismissal, conditioning dismissal on compliance with the terms
of this Agreement and providing that the Maryland Court retains jurisdiction to
enforce the terms of this Agreement and resolve any disputes relating to this
Agreement with the express purpose that the Maryland Court retain ancillary
jurisdiction over matters relating to this Agreement pursuant to the Supreme
Court's decision in Kokkomen v. Guardian Life Insurance Company of America, 511
U.S. 375 (1994).
9.2 Status of Texas Case. Immediately following the approval of this
Agreement by the Maryland Court, Patriot shall move to have its claims in the
Texas Case, which claims are based on the fact that Marriott sought to enjoin
the Merger, dismissed with prejudice, pursuant to an Order of Dismissal in the
form attached as Exhibit O-2, provided, however, that the parties agree and will
so stipulate that said dismissal will not have any claim preclusion or res
judicata effect with respect to any other, unasserted claims, not based on the
fact that Marriott sought to enjoin the Merger.
9.3 Further Assurances. The parties agree in good faith to take any
and all such further action, and to execute and deliver such other notices,
documents, instruments, certificates, or agreements as may be necessary to
implement the purposes of the foregoing provisions of this Section 9.
10. Factual Acknowledgments; Releases. The following releases, and factual
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acknowledgments concerning the operation of the Marriott system, shall be
conditioned upon and subject to the satisfaction by each of the parties of its
material obligations hereunder and the consummation of the transactions set
forth in this Agreement.
10.1 Factual Acknowledgments. Marriott and Patriot acknowledge that
the charges and monetary allocations of costs as set forth in the Submanagement
Agreements, the Amendment to Tyson's Corner Management Agreement and Franchise
Agreements are legally enforceable, appropriate, fair and equitable. In
addition, without limiting the foregoing, Patriot further acknowledges that it
is aware of Marriott's chain services, reservations system, and marketing
programs, charges, allocations and protocols. Upon the occurrence of a
Forbearance Termination Event, the factual acknowledgments in this Section 10.1
shall be null and void in all respects.
10.2 Marriott Release. Effective only upon consummation of the
Divestiture, Marriott, for itself and its directors, officers, employees,
stockholders, agents, successors, assigns, attorneys and trustees (collectively,
the "Marriott Releasors"), does hereby irrevocably and unconditionally remise,
release, acquit, exonerate and forever discharge Patriot and Interstate and
their respective directors, officers, employees, stockholders, agents,
successors, assigns, attorneys, financial advisors, investment bankers, lenders
and trustees (collectively, the "Patriot and Interstate Released Parties"), of
and from any or all actions, causes of action, suits, debts, dues, sums of
money, accounts, claims, demands, covenants, contracts, controversies, promises,
agreements, damages, attorney's fees, costs and expenses of suit, obligations,
liabilities and judgments, of whatever kind or nature, known or unknown, now
existing or which may develop in the future, in law or in equity, which Marriott
ever had against the Patriot and Interstate Released Parties, now has or which
any of the Marriott Releasors hereafter can, shall or may have, upon or by
reason of any act, omission, matter, cause or thing whatsoever, from the
beginning of time through the date of this Agreement, arising out of, related
to, or in connection with the Merger, including without limitation, claims
arising under any statute or law of the United States and any franchise law of
any state (excepting only such state statutory claims as may not be released,
regardless of the agreement of the parties, as a matter of law). This release of
all claims shall survive the assignment or termination of any of the Franchise
Agreements entered into by and between Marriott and Interstate or Patriot. This
release shall not apply to (a) any accrued fees, costs, or charges, whether
billed or unbilled, that Interstate would be obligated to pay under or in
connection with the Franchise Agreements or management contracts with respect to
the period occurring after the Divestiture Date, except for amounts due pursuant
to Section 7.1.3; (b) any claim for indemnification of Marriott and others under
the Franchise Agreements or management contracts; and (c) the $2,426,000 fee
payable pursuant to the Tyson's Corner Management Agreement (subject to (i) the
acknowledgment by Marriott herein that neither the consummation of the Merger,
nor the consummation of the Divestiture, causes such fee to be due or payable,
and (ii) the agreement by Marriott hereby that if Patriot successfully obtains
an Amendment to Tyson's Corner Management Agreement which
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deletes the "termination on sale" provision, this fee shall no longer be
payable, and (iii) the termination of the Submanagement Agreement.
10.3 Patriot and Wyndham Release. Effective only upon consummation
of the Divestiture, each of Patriot and Wyndham, for itself and its respective
directors, officers, employees, stockholders, agents, successors, assigns,
attorneys and trustees (collectively, the "Patriot Releasors"), does hereby
irrevocably and unconditionally remise, release, acquit, exonerate and forever
discharge Marriott and its respective directors, officers, employees,
stockholders, agents, successors, assigns, attorneys, financial advisors,
investment bankers, lenders and trustees (collectively, the "Marriott Released
Parties"), of and from any or all actions, causes of action, suits, debts, dues,
sums of money, accounts, claims, demands, covenants, contracts, controversies,
promises, agreements, damages, attorney's fees, costs and expenses of suit,
obligations, liabilities and judgments, of whatever kind or nature, known or
unknown, now existing or which may develop in the future, in law or in equity,
which Patriot or Wyndham ever had against the Marriott Released Parties, now has
or which any of the Patriot Releasors hereafter can, shall or may have, upon or
by reason of any act, omission, matter, cause or thing whatsoever, from the
beginning of time through the date of this Agreement, arising out of, relating
to, or in connection with (i) the factual acknowledgments contained in Section
10.1, (ii) the Franchise Agreements or any agreements related thereto, other
than amounts thereunder that are being disputed in good faith, or (iii) the
Merger, including specifically claims arising under any statute or law of the
United States and any franchise law of any state (excepting only such state
statutory claims as may not be released, regardless of the agreement of the
parties, as a matter of law). This release of all claims shall survive the
assignment or termination of any of the Franchise Agreements entered into by and
between Marriott and Interstate or Patriot.
10.4 Interstate Release. Effective only upon consummation of the
Divestiture, Interstate, for itself and its directors, officers, employees,
stockholders, agents, successors, assigns, attorneys and trustees (collectively,
the "Interstate Releasors"), does hereby irrevocably and unconditionally remise,
release, acquit, exonerate and forever discharge the Marriott Released Parties
of and from any or all actions, causes of action, suits, debts, dues, sums of
money, accounts, claims, demands, covenants, contracts, controversies, promises,
agreements, damages, attorney's fees, costs and expenses of suit, obligations,
liabilities and judgments, of whatever kind or nature, known or unknown, now
existing or which may develop in the future, in law or in equity, which
Interstate ever had against the Marriott Released Parties, now has or which any
of the Interstate Releasors hereafter can, shall or may have, upon or by reason
of any act, omission, matter, cause or thing whatsoever, from the beginning of
time through the date of this Agreement, arising out of, related to, or in
connection with (i) the factual acknowledgments contained in Section 10.1, (ii)
the Franchise Agreements or any agreements related thereto, or (iii) the Merger.
Additionally, upon the execution hereof, Interstate, for itself and the
Interstate Releasors, does hereby irrevocably and unconditionally remise,
release, acquit, exonerate and forever discharge the Marriott Released Parties
of and from any or all actions, causes of action, suits, debts, dues, sums of
money, amounts, claims, demands, damages, attorney's fees, costs and expenses of
suit, obligations, liabilities and judgments, of whatever kind or nature, known
or unknown, now existing
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or which may develop in the future, in law or in equity, which Interstate ever
had against the Marriott Released Parties, now has or which any of the
Interstate Releasers hereafter can, shall or may have, upon or by reason of any
act, omission, matter, cause or thing whatsoever, from the beginning of time
through the date of this Agreement, arising out of, related to, or in connection
with, Marriott's actions in attempting to enjoin the Merger or which otherwise
form the basis of the Texas Case.
10.5 California. Insofar as the releases given in this Section 10
apply to any hotel, conduct or cause of action in the State of California (or
any jurisdiction in which principles comparable to California Civil Code Section
1542, quoted below, apply by reason of statute or precedent), the following is
included in such release:
Interstate, Patriot and Marriott have each been informed of and are aware
of the provisions of California Civil Code Section 1542, which reads as
follows:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES
NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS
SETTLEMENT WITH THE DEBTOR."
Interstate, Patriot and Marriott each understand that Section 1542 gives
them the right not to release existing claims of which they are not aware,
unless they voluntarily choose to waive this right. Having been so
apprised, they nevertheless hereby voluntarily elect to, and do, waive the
rights described in Section 1542 and agree that the Release stated in this
Section 10 applies to any and all liabilities, claims, damages, demands,
costs, indebtedness, expenses, indemnities, compensation, actions and
causes of action of any kind whatsoever, whether developed or undeveloped,
known or unknown, suspected or unsuspected.
11. [Intentionally Omitted].
12. Patriot and Newco Franchise Agreement Commitments and General
Modifications of Franchise Agreements. Patriot and Marriott each agrees that it
shall perform under the Franchise Agreements in accordance with the terms of
each and in accordance with the further provisions of this Agreement, including
without limitation, this Section 12. Patriot shall cause these same obligations
to be binding upon Newco, Interstate Hotels, LLC and IHC II, LLC (prior to the
Divestiture) and upon Patriot's Affiliates (prior to and following the
Divestiture). Finally, Patriot shall take all actions necessary in order to
cause such Affiliates to be bound by all
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of the terms and provisions of this Agreement, and, to the extent an Affiliate
is a party thereto, the Franchise Agreements, Submanagement Agreements, and the
Amendment to Tyson's Corner Management Agreement (as such Agreements are
modified hereby), as though such Affiliates were parties hereto. For any
Franchise Agreement to which Interstate is a party, this Agreement shall be
deemed an amendment to each such Franchise Agreement. Notwithstanding anything
to the contrary, no Franchise Agreement shall be amended, and no owner of a
hotel whose joint venture partner or lender has the right to consent to any
amendment of a Franchise Agreement, as indicated on Schedule 6.2.6, shall be
bound by the terms hereof.
12.1 Use of Marks. Patriot shall use Marriott's trade names, service
marks, trademarks, and other proprietary rights (the "Marks") only as allowed
and required by the applicable Franchise Agreements relating to such Marks and
Marriott's standards and policies. Patriot will not market or advertise the
Marks or Marriott hotels with any trademarks, tradename or service mark not
approved by Marriott. Patriot will further agree not to use Marriott hotel
customers or customer information generated by the Marriott system to sell or
market other business activities in which Patriot is engaged and which compete
with Marriott (except that Patriot may use such customer information if legally
obtained from a third party). Patriot will cause its employees not to use the
Marks, or any other proprietary information concerning Marriott, the Marks or
the Marriott system, in any way, directly or indirectly, other than for the
purpose of managing and operating Marriott hotels. In connection with Patriot's
operation of its Marriott hotels, Patriot will not direct customers or business
that originates at a Marriott hotel or in or through the Marriott system to any
other lodging system or chain or to any hotel not in the Marriott system.
Marriott shall be entitled to injunctive relief to enforce its rights under this
section in addition to any other remedies at law it may have. Marriott shall
additionally have the right to recover an additional amount equal to 300% of the
liquidated damages for the hotel in question (as set forth on Schedules 3.1.4,
3.2.7, 3.3.5, and 4.3.1); provided, however, that these damage provisions shall
not apply to any documents filed pursuant to the Securities Exchange Act of
1934, as amended, or the Securities Act of 1933, as amended (collectively,
"Securities Filings"). Patriot shall have no obligation to obtain Marriott's
prior approval of the use of Marriott's Marks, which use shall be pursuant to
the Marriott standards, in any table or chart describing Marriott hotels used in
a Securities Filing, and Marriott shall not unreasonably withhold or delay its
consent to any other use of its Marks (in a non-derogatory manner) in such a
Securities Filing.
12.2 Treatment of Sensitive Information. Patriot acknowledges that
Marriott may provide its franchisees with certain sensitive and confidential
hotel operating and trademark information, including information concerning
pricing, market strategy, hotel rate structures, Marriott customers and customer
accounts (the "Sensitive Information"). Patriot agrees that if Marriott provides
Sensitive Information to the management team of a Marriott hotel in which
Patriot has an interest, or to a regional manager of such Marriott hotel,
Patriot shall treat such Sensitive Information as confidential and shall not
disclose any such Sensitive Information to any person involved in the operation
of any competing hotels that are not Marriott hotels (or use such Sensitive
Information for the benefit of same), and shall not disclose such Sensitive
Information to any person directly involved in the operation of Wyndham Hotels.
Sensitive information shall not include any information that: (i) was publicly
known or generally known within the trade at the time of the
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disclosure; (ii) is obtained from a third party who is under no obligation of
confidentiality with respect to such information, or (iii) is required to be
disclosed by applicable law. Patriot agrees that Marriott may, in its sole
discretion, decide either to provide Sensitive Information directly to Patriot
or provide similar or replacement information or services in a way that has the
effect of giving the Sensitive Information to the management teams of hotels but
does not give Patriot access to the Sensitive Information.
12.3 Operation. Prior to the Merger, Interstate shall (i) be
responsible for causing all Marriott franchised hotels to be managed in a good
faith manner as a full participant in the Marriott system, consistent with
Marriott's standards, policies and capital and expenditure requirements,
including participation in all mandatory national, regional and area-wide
marketing or promotional programs being implemented for hotels in the Marriott
system, all in accordance with the applicable Franchise Agreements, and (ii)
fund any and all capital expenditures required to maintain each such hotel to
Marriott standards in accordance with the applicable Franchise Agreements.
Following the Merger and prior to (x) the consummation of the Divestiture or (y)
the Final Divestiture Date, whichever comes first, the obligations imposed on
Interstate by this Section 12.3 shall instead be those of Patriot or its
Affiliates, and following the Divestiture, such obligations shall instead be
those of Newco and its Affiliates (including without limitation IHC II, LLC and
Interstate Hotels, LLC).
12.4 Liquidated Damages.
12.4.1 Effective on the Divestiture Date and subject to
Sections 3.2.2.2 and 3.3.3 and the consents set forth on Schedule 6.2.6, the
Exhibit B Hotel Franchise Agreements are hereby amended to delete the Existing
Franchise Agreement Liquidated Damages payable under the Exhibit B Hotel
Franchise Agreements and the Exhibit B Liquidated Damages are hereby substituted
in lieu thereof. Except for the substitution of Exhibit B Liquidated Damages for
Existing Franchise Agreement Liquidated Damages, the provisions relating to the
payment of liquidated damages under the Exhibit B Hotel Franchise Agreements
shall remain in full force and effect, subject to the other sections of this
Agreement.
12.4.2 Effective on the Divestiture Date and subject to
Sections 3.2.2.2 and 3.3.3 and the consents set forth on Schedule 6.2.6, the
Exhibit C Hotel Franchise Agreements are hereby amended to delete the Existing
Franchise Agreement Liquidated Damages payable under the Exhibit C Hotel
Franchise Agreements and the Exhibit C Liquidated Damages are hereby substituted
in lieu thereof. Except for the substitution of Exhibit C Liquidated Damages for
Existing Franchise Agreement Liquidated Damages, the provisions relating to the
payment of liquidated damages under the Exhibit C Hotel Franchise Agreements
shall remain in full force and effect, subject to the other sections of this
Agreement.
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12.4.3 Effective on the Divestiture Date and subject to the
consents of the respective Third-Party Owners, the Exhibit D Hotel Franchise
Agreements as to which Patriot or Interstate is the franchisee are hereby
amended to delete the Existing Franchise Agreement Liquidated Damages payable
under the Exhibit D Hotel Franchise Agreements and the Exhibit D Liquidated
Damages are hereby substituted in lieu thereof. Except for the substitution of
Exhibit D Liquidated Damages for Existing Franchise Agreement Liquidated
Damages, the provisions relating to the payment of liquidated damages under the
Exhibit D Hotel Franchise Agreements shall remain in full force and effect,
subject to the other sections of this Agreement.
13. Press Releases. Unless otherwise required by law, no party will issue
any press release relating to this Agreement, or the Divestiture, without each
of the other party's reasonable consent to such release. The parties designate
the following individuals for purpose of reviewing such press releases: Marriott
- -- Steve Joyce; Patriot -- Bill Evans; and prior to the Merger, Interstate --
Bill Richardson.
14. Cooperation. The parties mutually agree to cooperate in good faith and
to deal fairly with one another to accomplish the terms of this Agreement,
including the Divestiture and the parties agree to take all actions reasonably
necessary to implement the Divestiture. No party hereto shall object to,
directly or indirectly, interfere with, or delay, the consummation of the
Divestiture, provided that the Divestiture is effected in accordance with the
provisions of this Agreement.
15. [Intentionally Omitted].
16. [Intentionally Omitted].
17. Miscellaneous.
17.1 Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Maryland, without regard
to principles of conflict of laws.
17.2 Notices. All notices, requests, demands, statements and other
communications required or permitted to be given under the terms of this
Agreement shall be in writing and delivered by hand against receipt, sent by
certified mail (postage prepaid and return receipt requested), or carried by
reputable overnight/ international courier service, to the respective party at
the following addresses:
42
<PAGE>
If to Marriott:
Marriott International, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department
with a copy to:
Bryson L. Cook, Esq.
Venable, Baetjer and Howard, LLP
Two Hopkins Plaza, Suite 1800
Baltimore, Maryland 21201
If to Interstate:
Milton Fine
Interstate Hotels Corporation
680 Anderson Drive
Foster Plaza Ten
Pittsburgh, PA 15220
with a copy to:
Marvin I. Droz
Senior Vice President and General Counsel
Interstate Hotels Corporation
680 Anderson Drive
Foster Plaza Ten
Pittsburgh, PA 15220
43
<PAGE>
If to Patriot:
Paul A. Nussbaum
Patriot American Hospitality, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, TX 75207
with a copy to:
Gilbert G. Menna, P.C. and
Kathryn I. Murtagh, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
If to Wyndham:
James D. Carreker
1950 Stemmons Freeway
Suite 6001
Dallas, TX 75207
with a copy to:
Gilbert G. Menna, P.C. and
Kathryn I. Murtagh, Esq.
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
or to such other address as a party provides to the other parties from time to
time. Any such notice or communication shall be deemed to have been given at the
date and time of: (A) receipt of or first refusal of delivery, if sent via
certified mail or delivered by hand; or (B) one day after the posting thereof,
if sent via reputable overnight/international courier service.
17.3 Entire Agreement; Amendment. All Exhibits, Schedules and other
documents attached hereto or delivered in connection herewith are deemed to be
an integral part of the parties agreement with respect to the subject matter
hereof, and are incorporated herein by reference. This Agreement, such Exhibits
and Schedules, and all documents delivered in connection herewith shall
constitute the entire Agreement between the parties pertaining to the subject
matter
44
<PAGE>
hereof, and shall supersede any and all prior and contemporaneous agreements,
understandings, negotiations, and discussions of the parties, whether oral or
written. No amendment, modification, waiver or termination of this Agreement
shall be binding unless executed in writing by all of the parties hereto, or in
the case of a waiver, by the party for whom such benefit was intended.
17.4 Waiver. The failure of any party to enforce at any time the
provisions of this Agreement shall in no way be construed to be a waiver of any
such provision nor in any way to affect the validity of this Agreement nor any
part hereof, or the rights of any party to enforce thereafter each and every
such provision. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provision of this Agreement,
whether or not similar, nor shall such waiver constitute a continuing waiver
unless otherwise expressly so provided in writing.
17.5 Expenses. Except as expressly stated otherwise herein, each
party shall pay the fees of its legal counsel, accountants, advisors and any
other expenses incurred by it in connection with the negotiation and preparation
of this Agreement and the consummation of the transactions contemplated by this
Agreement.
17.6 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. No party shall assign any of its rights or obligations
hereunder without the prior written consent of each of the other parties.
17.7 Severability. If any provision or clause of this Agreement is
determined by a court of competent jurisdiction to be invalid or unenforceable,
the validity of the rest of the Agreement shall not be affected and the rights
and obligations of the parties shall be construed and enforced as if this
Agreement did not contain the particular part held to be invalid or
unenforceable.
17.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same Agreement.
17.9 No Third Party Beneficiaries. Nothing contained in this
Agreement shall be deemed to confer any rights or benefits upon any third
parties.
17.10 Captions. Caption and section headings are used herein for
convenience of reference only. They are not part of this Agreement and shall not
be used in construing it.
17.11 Personal Jurisdiction. Each party hereby expressly and
irrevocably
45
<PAGE>
submits itself to the exclusive jurisdiction of the Maryland Court in any suit,
action, or proceeding arising, directly or indirectly, out of or relating to
this Agreement, and to the maximum extent permitted under applicable law, this
consent to personal jurisdiction shall be self-operative; provided that nothing
in this Section 17.11 shall preclude Patriot from maintaining the Texas Case
referred to in Section 9.2 to the extent such case is not ultimately dismissed
in accordance with Section 9.2.
17.12 Interpretation. The parties each acknowledge that they and
their respective legal counsel have actively participated in the negotiation and
drafting of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any of the provisions of
this Agreement.
17.13 Specific Performance. Each party agrees that a breach of any
of the terms, conditions, representations or warranties, or other obligations
under this Agreement, may result in irreparable harm to the non-breaching party,
and shall give rise to a right in the non-breaching party to seek enforcement of
this Agreement in a court of equity by a decree of specific performance. This
remedy is intended to be cumulative and in addition to any other remedy a party
may have.
17.14 Confidentiality. Except as required by law or judicial or
administrative proceedings, including proceedings between the parties with
respect to the transactions contemplated hereby, and then only to the extent
specifically required in any such proceedings, each of the parties agrees (i) to
take any and all action reasonably necessary to preserve the confidentiality of
the terms of this Agreement, and all settlement discussions and negotiations
held prior to the execution of this Agreement, including any and all oral and
written communications exchanged by the parties hereto (or their legal counsel)
as part of such discussions and negotiations, (ii) not to disclose any
confidential or proprietary information ("Confidential Information") obtained
from any other party in connection with the transactions contemplated hereby, to
any individual or entity (other than its directors, officers, employees, agents
and representatives with a need to know such Confidential Information in order
to consummate the transactions contemplated hereby), and (iii) not to use any
Confidential Information for any purpose. If the parties fail to close the
transactions contemplated hereby, each party agrees to return to the other party
or to destroy all Confidential Information obtained from the other party in its
possession upon the written request of the other party. Notwithstanding anything
in this Section 17.14 to the contrary, the parties acknowledge and agree that
(x) Patriot may file a copy of this Agreement or any part hereof (including the
Exhibits and Schedules hereto) with the Securities and Exchange Commission as a
part of any Form 8-K filing of Patriot; provided, however, that Patriot shall
avoid including the Exhibits and Schedules attached hereto as a part of any such
Form 8-K filing if it determines in good faith that such Exhibits and Schedules
are not necessary or appropriate in connection with such filing and (y) each of
Marriott and Patriot may provide a copy of this Agreement to any party from whom
it is obligated to seek to obtain a consent or approval in connection herewith.
17.15 Dispute Resolution. The parties intend and desire for the
United States District Court for the District of Maryland to have sole and
exclusive jurisdiction to resolve any and all disputes that may arise under or
in connection with this Agreement and the transactions
46
<PAGE>
contemplated herein; provided that nothing in this Section 17.11 shall preclude
Patriot from maintaining the Texas Case referred to in Section 9.2 to the extent
such case is not ultimately dismissed in accordance with Section 9.2.
17.16 Operation of this Agreement. Interstate has entered into this
Agreement solely to facilitate the consummation of the Merger in accordance with
the terms of the Agreement and Plan of Merger dated December 2, 1997.
Accordingly, Sections 3 and 4 (except for Section 4.3) of this Agreement will
not impose any obligations or otherwise be binding on Interstate, Patriot, or
Marriott unless and until the Merger is completed in accordance with the terms
of such Agreement and Plan of Merger. In the event that the Merger does not
occur on or prior to the date and time specified in the Agreement and Plan of
Merger, then, as between Interstate and each of the other parties hereto,
Interstate will be restored to the position it had prior to the execution of
this Agreement. Each of Marriott, Patriot and Wyndham acknowledges and agrees
that neither the existence of this Agreement, the discussions giving rise
thereto nor any event referred to herein or contemplated hereby will limit or
otherwise affect Interstate's rights under or in respect of the Agreement and
Plan of Merger or otherwise or Marriott's rights with respect to the Franchise
Agreements.
47
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused its duly
authorized representatives to execute this Agreement as of the day and year
first written above.
ATTEST: MARRIOTT INTERNATIONAL, INC.
________________________________ By: /s/ John L. Williams (SEAL)
---------------------------------
John L. Williams,
Senior Vice President
INTERSTATE HOTELS CORPORATION
________________________________ By: /s/ J. William Richardson (SEAL)
---------------------------------
J. William Richardson,
Executive Vice President
INTERSTATE HOTELS COMPANY
________________________________ By: /s/ J. William Richardson (SEAL)
---------------------------------
J. William Richardson,
Executive Vice President
PATRIOT AMERICAN HOSPITALITY, INC.
________________________________ By: /s/ William W. Evans III (SEAL)
---------------------------------
William W. Evans III
President and Chief Operating Officer
S- 1
<PAGE>
WYNDHAM INTERNATIONAL, INC.
________________________________ By: /s/ William W. Evans III (SEAL)
---------------------------------
William W. Evans III
Executive Vice President
S- 2
<PAGE>
List Of Exhibits
Exhibit A Exhibit A Hotels
B Exhibit B Hotels
B-1 Form Submanagement Agreement
C Exhibit C Hotels
C-1 Form Amendment to Tyson's Corner Management Agreement
D Exhibit D Hotels
D-1 Form Letter to Third-Party Owners
E-1 Form Newco Charter
E-2 Form Newco Bylaws
F-1 Form IHC II, LLC Operating Agreement
F-2 Form Interstate Hotels, LLC Operating Agreement
G Form Voting Agreement
H Form Owners Agreement
I Hotel Management Structure
J Form Lease between Patriot and Wyndham
K Form Primary Management Agreement between Wyndham and IHC II, LLC
L Form Guarantee
M Patriot Interests in Exhibit B Hotels
N-1 Form Opinion of Goodwin, Procter & Hoar LLP
N-2 Form Opinion of Jones, Day, Reavis & Pogue
O-1 Form Order of Dismissal of Maryland Case
O-2 Form Order of Dismissal of Texas Case
P Form Amendment to Marriott Inn Franchise Agreement
S- 3
<PAGE>
List Of Schedules
Schedule 2 Special Fee
3.1.4 Liquidated Damages (Exhibit A Hotels)
3.2.7 Forbearance Termination Event Liquidated Damages
(Exhibit B Hotels)
3.3.5 Forbearance Termination Event Liquidated Damages
(Exhibit C Hotels)
4.3.1 Forbearance Termination Event Liquidated Damages
(Exhibit D Hotels)
6.2.6 Required Consents
7.1.3 Settlement Agreement Payments
12.4-B Exhibit B Liquidated Damages
12.4-C Exhibit C Liquidated Damages
12.4-D Exhibit D Liquidated Damages
S- 4
<PAGE>
Exhibit A
Hotels Terminated by Patriot
Hotel Termination Date Brand
----- ---------------- -----
1. Andover, MA One Year After MHRS
Date of Divestiture
2. Arlington, TX Date of Divestiture MHRS
3. Casa Marina, FL One Year After MHRS
Date of Divestiture
4. Colorado Springs, CO One Year After MHRS
Date of Divestiture
5. Valley Forge, PA One Year After MHRS
Date of Divestiture
6. Reach, FL Date of Divestiture MHRS
7. Roanoke, VA Date of Divestiture MHRS
8. St. Louis, One Year After MHRS
Date of Divestiture
9. Syracuse, NY Date of Divestiture MHRS
10. Westborough, MA Date of Divestiture MHRS
S- 5
<PAGE>
Exhibit B
Hotels Managed by Marriott
Hotel Effective Date Brand
----- -------------- -----
1. Albany, NY Date of Divestiture MHRS
2. Atlanta North, GA 1 Year after Date of MHRS
Divestiture
3. Conshohocken, PA 1 Year after Date of MHRS
Divestiture
4. Harrisburg, PA 1 Year after Date of MHRS
Divestiture
5. Houston, TX 1 Year after Date of MHRS
Divestiture
6. Indian River Plantation, FL Date of Divestiture MHRS
7. San Diego Mission Valley, CA Date of Divestiture MHRS
8. Minneapolis, MN 1 Year after Date of MHRS
Divestiture
9. Warner Center, CA Date of Divestiture MHRS
10. Pittsburgh Airport, PA Date of Divestiture MHRS
S- 6
<PAGE>
Exhibit C
Hotels with Contracts Assumed
Hotel Brand
----- -----
1. New Haven Orange, CT CY
2. Tyson's Corner, VA MHRS
3. Troy, MI MHRS
4. Westborough, MA CY
5. St. Louis, MO CY
6. Pittsburgh Airport, PA RI
S- 7
<PAGE>
Exhibit D
Hotels Owned by 3rd Parties
Hotel Brand
----- -----
1. Boca Raton, FL MHRS
2. Charlotte Executive Park, NC MHRS
3. Cincinnati, OH* MHRS
4. Ft. Lauderdale North, FL MHRS
5. Laguna Cliffs Dana Point, CA MHRS
6. Manhattan Beach, CA MHRS
7. Memphis, TN MHRS
8. Ontario Airport, CA MHRS
9. Orlando Airport, FL MHRS
10. Pittsburgh City Center, PA MHRS
11. Pittsburgh Green Tree, PA MHRS
12. Providence, RI MHRS
13. San Francisco, CA MHRS
14. Sawgrass, FL MHRS
15. Trumbull, CT MHRS
16. Waterford Oklahoma City, OK MHRS
17. Orlando I Drive, FL* MHRS
18. Moscow, Russia MHRS
19. Albany, NY (CY) CY
20. Burlington, VT (RI) RI
21. Chambersberg, PA (FFI) FFI
22. Colorado Springs, CO (RI) RI
23. Eagan Minneapolis, MN (RI) RI
24. Jackson, MS (FFI) FFI
25. Madison, WI (RI) RI
26. Manhattan, NY (CY) CY
27. Memphis, MS (FFI) FFI
28. Mobile Gulf, AL (CY) CY
29. Oklahoma City, OK (RI) RI
30. Omaha Central NE (RI) RI
31. Princeton, NJ (RI) RI
32. Tinton Falls, NJ (RI) RI
33. Tucson, AZ (RI) RI
34. Vicksburg, MS (FFI) FFI
S- 8
<PAGE>
35. Boise, Idaho RI
36. Portland, Oregon RI
* The parties acknowledge that these hotels will exit the system without
any payments to either party.
S- 9
<PAGE>
SUBMANAGEMENT AGREEMENT
by and between
[MARRIOTT INTERNATIONAL, INC./MARRIOTT HOTEL SERVICES, INC.]
(as "SUBMANAGER")
and
IHC II, LLC
(as "Primary Manager")
Dated as of , 1998
-------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
MANAGEMENT OF THE HOTEL............................................... 2
1.01 Acceptance of the Hotel...................................... 2
1.02 Conversion of the Hotel...................................... 2
1.03 Management Responsibilities.................................. 3
1.04 Chain Services............................................... 4
1.05 Employees.................................................... 5
1.06 Primary Manager's Right to Inspect........................... 5
1.07 Conditions to Take-Over of Hotel............................. 5
ARTICLE II
TERM
..................................................................... 6
2.01 Term......................................................... 6
2.02 Performance Termination...................................... 6
ARTICLE III
COMPENSATION OF SUBMANAGER............................................ 7
3.01 Management Fees.............................................. 7
3.02 Operating Profit............................................. 7
ARTICLE IV
ACCOUNTING MATTERS.................................................... 7
4.01 Accounting, Distributions and Annual Reconciliation.......... 7
4.02 Books and Records............................................ 8
4.03 Accounts, Expenditures....................................... 9
4.04 Accounting for Conversion of Hotel........................... 9
4.05 Business Plan................................................ 9
4.06 Working Capital............................................. 11
4.07 Fixed Asset Supplies........................................ 11
ARTICLE V
REPAIRS, MAINTENANCE AND REPLACEMENTS................................ 11
5.01 Repairs and Maintenance Costs Which Are Expensed............ 11
5.02 FF&E Reserve................................................ 12
5.03 Capital Expenditures........................................ 13
5.04 Ownership of Replacements................................... 14
ARTICLE VI
INSURANCE, DAMAGE, CONDEMNATION, AND FORCE MAJEURE................... 14
6.01 Insurance................................................... 14
6.02 Owner's Option to Obtain Property Insurance................. 16
i
<PAGE>
Page
----
6.03 Damage and Repair........................................... 17
6.04 Condemnation................................................ 17
ARTICLE VII
TAXES................................................................ 18
7.01 Real Estate and Personal Property Taxes..................... 18
ARTICLE VIII
MANAGEMENT OF THE HOTEL.............................................. 18
8.01 Ownership of the Hotel...................................... 18
8.02 Mortgages................................................... 19
8.03 Subordination, Non-Disturbance and Attornment............... 20
8.04 No Covenants, Conditions or Restrictions.................... 21
8.05 Liens; Credit............................................... 21
8.06 Amendments Requested by Mortgagee........................... 21
ARTICLE IX
DEFAULTS............................................................. 22
9.01 Events of Default........................................... 22
9.02 Remedies.................................................... 23
9.03 Additional Remedies......................................... 23
ARTICLE X
ASSIGNMENT AND SALE.................................................. 23
10.01 Assignment.................................................. 23
ARTICLE XI
MISCELLANEOUS........................................................ 25
11.01 Right to Make Agreement..................................... 25
11.02 Consents and Cooperation.................................... 25
11.03 Relationship................................................ 25
11.04 Applicable Law.............................................. 25
11.05 Recordation................................................. 25
11.06 Headings.................................................... 26
11.07 Notices..................................................... 26
11.08 Environmental Matters....................................... 27
11.09 Confidentiality............................................. 28
11.10 Projections................................................. 28
11.11 Actions to be Taken Upon Termination........................ 29
11.12 Trademarks, Trade Names and Intellectual Property........... 31
11.13 Competing Facilities........................................ 31
11.14 Waiver...................................................... 32
ii
<PAGE>
Page
----
11.15 Partial Invalidity.......................................... 32
11.16 Survival.................................................... 32
11.17 Affiliates.................................................. 32
11.18 Negotiation of Agreement.................................... 32
11.19 Estoppel Certificates....................................... 32
11.20 System Standards............................................ 33
11.21 Arbitration................................................. 33
11.22 Restricted Area Right of Termination........................ 33
11.23 Entire Agreement............................................ 34
11.24 Expert Resolution Process................................... 34
ARTICLE XII
DEFINITION OF TERMS ................................................. 35
12.01 Definition of Terms......................................... 35
iii
<PAGE>
Exhibit "A-1" Name and Location of Hotel
Manager
Take-Over Date
Term Expiration Date
Base Management Fee
Initial FF&E Reserve Balance
FF&E Reserve Contribution
Restricted Area
Trade Area Expiration Date
Exhibit "A-2" Trade Area Description
Exhibit "B-1" Five-Year Plan
Exhibit "B-2" Additional Capital Expenditures
Exhibit "C" Memorandum of Management Agreement
iv
<PAGE>
SUBMANAGEMENT AGREEMENT
This Submanagement Agreement ("Agreement") is executed as of the ____ day
of __________, 1998 ("Effective Date"), by IHC II, LLC ("Primary Manager"), a
_________ limited liability company with a mailing address at
________________________________, and [MARRIOTT HOTEL SERVICES, INC or MARRIOTT
INTERNATIONAL, INC.] (as specified on Exhibit "A-1")("Submanager"), a Delaware
corporation, with a mailing address at c/o Marriott International, Inc., 10400
Fernwood Road, Bethesda, Maryland 20817.
R E C I T A L S :
A. Patriot American Hospitality Partnership, L.P., an Affiliate thereof,
or an entity in which Patriot American Hospitality Partnership, L.P. or an
Affiliate thereof owns an interest ("Owner") is the owner of fee title
[leasehold title in the case of Atlanta] to the parcel of real property (the
"Site") containing a hotel building or buildings located at the address as set
forth in Exhibit "A-1," together with a lobby, restaurants, meeting rooms,
administrative offices, and certain other amenities and related facilities
(collectively, the "Hotel Improvements" or the "Improvements"). The Site and the
Hotel Improvements, in addition to certain other rights, improvements, and
personal property as more particularly described in the definition of "Hotel" in
Section 12.01 hereof, are collectively referred to as the "Hotel."
B. Owner and Patriot American Hospitality Operating Partnership, L.P.
("Wyndham") have entered into a lease of the Hotel to Wyndham.
C. Wyndham and Primary Manager have entered into a management agreement
(the "Primary Management Agreement") for the management of the Hotel by Primary
Manager.
D. The Hotel is presently (as of the Effective Date) being managed by
Primary Manager (the "Primary Manager").
E. The Hotel is presently operated as a Marriott Hotel pursuant to a
franchise agreement (the "Franchise Agreement") between Marriott International,
Inc., or one or its Affiliates, as franchisor and Interstate Hotels Corporation,
or one of its Affiliates, as franchisee, which franchisee interest has been
assumed by Primary Manager.
F. Owner, Wyndham, Marriott International, Inc. and Interstate Hotel
Company have previously entered into a settlement agreement (the "Settlement
Agreement") concerning the resolution of disputes among the parties, pursuant to
which this Agreement is being executed .
G. Owner, Wyndham, Primary Manager and Submanager, simultaneously with the
execution of this Agreement and effective as of the Take-Over Date, have entered
into an Owner's Agreement (the "Owner's Agreement") which sets forth certain
rights and responsibilities among Owner, Wyndham and Submanager.
H. Primary Manager desires to engage Submanager effective as of the
Take-Over Date to manage and operate the Hotel and Submanager desires to accept
such engagement upon the terms and conditions set forth in this Agreement.
I. All capitalized terms used in this Agreement shall have the meaning set
forth in Article XII hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement and other good and valuable consideration, the receipt of which is
hereby acknowledged, Primary Manager and Submanager agree as follows:
<PAGE>
ARTICLE I
MANAGEMENT OF THE HOTEL
1.01 Acceptance of the Hotel
Submanager represents that, due to the fact that the Hotel has been
operated as a Marriott franchised property, it is familiar with the condition
and operation of the Hotel and, subject to the provisions of the Agreement,
Submanager accepts the Hotel "AS IS." Such acceptance is based on the assumption
that the Hotel will continue to be operated by Primary Manager in accordance
with System Standards up to the Take-Over Date. Such acceptance includes:
A. Submanager's agreement to hire all current Hotel employees,
except as provided in Section 1.02A;
B. Submanager's acceptance of all hotel operating systems, subject
to conversion as provided in Section 1.02B;
C. Submanager's acceptance of all existing service and supply
contracts and bookings;
D. Submanager's acceptance of the Improvements and all FF&E,
Inventories, Fixed Asset Supplies, Softgoods and Case Goods, subject to Section
5.02, Section 5.03 and Exhibit A-1.
1.02 Conversion of the Hotel
A. Based on interviews conducted prior to the Take-Over Date,
Submanager shall determine which members of the Hotel Executive Committee will
not be accepted by Submanager for employment with Submanager. In addition,
Submanager will perform (i) drug-testing on all persons applying for employment
with Submanager, and (ii) SRI testing on all managerial applicants. Submanager
and Primary Manager will jointly arrange that such interviewing and such testing
will occur on a schedule which will permit Submanager to give Primary Manager a
notice, at least thirty (30) days prior to the Take-Over Date, as to which
individuals have not been accepted for employment by Submanager. In connection
with the foregoing, Submanager agrees that: (i) Submanager will hire a
sufficient number of the existing employees at the Hotel to avoid the occurrence
of a "closing" under the WARN Act; and (ii) Submanager will hire at least eighty
percent of the existing managerial staff who apply for positions with
Submanager. Primary Manager shall make arrangements so that, prior to the
TakeOver Date, the employment of all such employees who are not accepted for
employment by Submanager is terminated or that such employees have been
transferred to another location. All severance pay due to such employees shall
be paid by the employer who terminates them; provided, however, that severance
costs required to be paid for employees terminated by Submanager will be treated
as Deductions in accordance with the terms of this Agreement. Primary Manager
agrees to indemnify, defend and hold harmless Submanager and its Affiliates (and
their respective directors, officers, shareholders, employees and agents) from
any and all claims, causes of action, costs, expenses and liabilities resulting
from such termination of employment of such employees and/or the failure of
Submanager to hire such employees (including, without limitation, severance pay,
wrongful discharge claims, claims and other costs under the WARN Act, and claims
and/or fines under other applicable Legal Requirements) and/or resulting from
the employment of such individuals prior to such termination (including, without
limitation, disability claims, vacation, sick leave, wages, salaries and other
benefits).
B. Prior to the Take-Over Date, Submanager will install in the Hotel
(at Primary Manager's cost) the Accounting, Payroll and Human Resources Systems
(both hardware and software) necessary for Submanager to operate the Hotel. The
parties estimate that (assuming that the Hotel has the RS-6000 computer system)
the cost of such equipment will be approximately One Hundred and Six Thousand
Dollars ($106,000). Such amount is separate from and in addition to the Initial
FF&E Reserve Balance set forth in Exhibit A-1. Primary
2
<PAGE>
Manager shall reimburse Submanager for such costs within thirty (30) days after
being invoiced by Submanager; if Primary Manager fails to do so, Submanager
shall have the right to deduct such amounts from distributions to Primary
Manager under Section 3.02.A.
C. Prior to the Take-Over Date, Submanager shall have access to the
Hotel at reasonable times in order to inspect Hotel and the physical plant, to
familiarize itself with the systems and maintenance, to review maintenance
records and otherwise to perform its customary due diligence prior to a
take-over of a hotel; provided, however, that such access shall not materially
interfere with the operation of the Hotel.
D. Prior to and after the Take-Over Date, Primary Manager shall (and
shall cause Wyndham and Owner to) cooperate with Submanager in obtaining and
transferring such licenses, permits and approvals necessary for the operation of
the Hotel (subject to the provision contained in Section 1.07A.1).
1.03 Management Responsibilities
A. From and after the Take-Over Date, Submanager shall, and Primary
Manager hereby authorizes and engages Submanager to, supervise, direct and
control the management and operation of the Hotel in accordance with the terms
and conditions of this Agreement. During the Term, the Hotel shall be known as a
Marriott Hotel, with such additional identification determined by Submanager as
may be necessary to provide local identification.
B. Submanager shall manage the Hotel in accordance with System
Standards and shall, subject to the terms of this Agreement, perform each of the
following functions (the costs and expenses of which shall be Deductions) with
respect to the Hotel:
1. Recruit, employ, supervise, direct and discharge the
employees at the Hotel.
2. Establish prices, rates and charges for services provided
in the Hotel, including Guest Room rates.
3. 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.
4. Make payments on accounts payable and handle collections of
accounts receivable.
5. Arrange for and supervise public relations and advertising,
prepare marketing plans, and make available to the Hotel the benefits of various
marketing programs in use in the Marriott System as they may exist from time to
time, such as the Marriott Rewards Program.
6. Procure all Inventories and replacement of Fixed Asset
Supplies.
7. Prepare and deliver interim accountings, annual
accountings, Annual Operating Statements, Building Estimates, FF&E Estimates,
Proposed Business Plans, and such other information as is required by this
Agreement and be available at reasonable times to discuss the above-listed items
as well as the operations at the Hotel generally with Primary Manager.
8. Plan, execute and supervise repairs, maintenance, and FF&E
purchases at the Hotel.
9. Provide, or cause to be provided, risk management services
relating to the types of insurance required to be obtained or provided by
Submanager under this Agreement.
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10. Obtain and keep in full force and effect, either in
Owner's or Wyndham's name, as may be required by applicable law, any and all
licenses and permits to the extent same is within the control of Submanager (or,
if same is not within the control of Submanager, Submanager shall use due
diligence and reasonable efforts to obtain and keep same in full force and
effect).
C. The operation of the Hotel from and after the Take-Over Date
shall be under the exclusive supervision and control of Submanager which, except
as otherwise specifically provided in this Agreement, shall be responsible for
the proper and efficient operation of the Hotel. In fulfilling its obligations
under this Agreement, Submanager shall act as a reasonable and prudent manager
of the Hotel, having regard for the status of the Hotel and maintaining the
System Standards. Submanager shall have discretion and control in all matters
relating to management and operation of the Hotel, including, without
limitation, the following: charges for Guest Rooms, commercial space, and
services provided by the Hotel; food and beverage services; employment policies;
credit policies; granting of leases, subleases, licenses and concessions for
shops and businesses within the Hotel, provided that the term of any such lease,
sublease, license or concession shall not exceed the Term of this Agreement and
rent under any such lease or sublease or payments under any license or
concession agreement shall not be computed based upon the net income or profits
derived from the business activities of the tenant or licensee or concessionaire
at the Hotel; receipt, holding and disbursement of funds; maintenance of bank
accounts; procurement of Inventories (including initial Inventories), supplies
and services; payment of costs and expenses specifically provided for in this
Agreement or otherwise reasonably necessary for the proper and efficient
operation of the Hotel; and, generally, all activities necessary for operation
of the Hotel. Submanager agrees that it shall consult with Primary Manager prior
to the hiring of any general manager of the Hotel
D. Submanager will comply with and abide by all applicable Legal
Requirements (except for certain Legal Requirements which are Primary Manager's,
Wyndham's or Owner's responsibility under Section 5.03 and Section 11.08 hereof)
pertaining to its operation of the Hotel, including in connection with any drug
testing or SRI testing of employees and applicants. Primary Manager shall cause
Wyndham to comply (or shall cause Wyndham to cause Owner to comply, as
applicable) with and abide by all applicable Legal Requirements pertaining to
the Hotel Improvements or to Owner's or Wyndham's ownership interest in the
Hotel (including, without limitation, Primary Manager's, Wyndham's or Owner's
obligations under Sections 5.03 and 11.08 hereof). Either Owner, Wyndham,
Primary Manager or Submanager shall have the right, but not the obligation, in
its reasonable discretion, to contest or oppose, by appropriate proceedings, any
such Legal Requirements. The reasonable expenses of any such contest of a Legal
Requirement shall be paid from Gross Revenues as Deductions.
E. Submanager will indemnify, defend and hold Owner, Wyndham and
Primary Manager harmless from and against all claims, loss, cost, liability and
damage (including, without limitation, attorneys' fees and expenses, and the
cost of litigation) arising from any willful or grossly negligent violation of
any of Submanager's corporate policies by any member of the Hotel Executive
Committee, if said claims, loss, cost, liability or damage is not insured.
1.04 Chain Services
Commencing with the Take-Over Date and thereafter during the Term of this
Agreement, Submanager shall cause to be furnished to the Hotel certain services
(collectively referred to herein as "Chain Services") that are furnished
generally on a central, regional or other group basis to other hotels in the
Marriott System and which benefit such hotels such as: (i) national sales office
services; central training services; career development and relocation of
management personnel; central advertising and promotion (including direct and
image media and advertising administration); the Marriott national reservations
system services and the Marriott computer payroll and accounting services;
benefits administration; gift shop merchandise handling; and (ii) such
additional central, regional or other group services as are or may be, from time
to time, furnished for the benefit of hotels in the Marriott System or in
substitution for services now performed at individual hotels which may be more
efficiently performed on a group basis. The charges for Chain Services shall
include, as applicable, allocation of salaries, wages, and overhead related to
the employees of Submanager, Marriott, or any Affiliate involved in providing
any of the Chain Services and shall be allocated on a fair basis among all
hotels receiving such services. At the time of the delivery of each Annual
Operating Statement, Submanager shall deliver to Primary Manager a certification
executed
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by an officer of Marriott that (i) the allocation of charges for Chain Services
is consistent with GAAP and generally accepted hotel practices, (ii) such
charges are allocated among the hotels in the Marriott System in a fair and
equitable manner, and (iii) the method of allocation of such expenses has not
been changed since the date of this Agreement or, if they have changed, advising
Primary Manager of the details of such change.
1.05 Employees
All personnel employed at the Hotel shall, at all times from and after the
Take-Over Date, be the employees of Submanager. Submanager shall have absolute
discretion with respect to all personnel employed at the Hotel, including,
without limitation, decisions regarding hiring, promoting, transferring,
compensating, supervising, terminating, directing and training all employees at
the Hotel, and, generally, establishing and maintaining all policies relating to
employment. Submanager shall be permitted to provide free accommodations and
amenities to its employees and representatives living at or visiting the Hotel
in connection with its management or operation of the Hotel to the extent such
provision of accommodations and amenities is customary with System Standards. No
person shall otherwise be given gratuitous accommodations or services without
prior approval of Primary Manager and Submanager, except in accordance with
usual practices of the hotel and travel industry.
1.06 Primary Manager's Right to Inspect
Primary Manager and its respective agents and Owner and its respective
agents shall have access to the Hotel at any and all reasonable times for the
purpose of inspection. Owner and Wyndham shall have access to the Hotel at any
and all reasonable times upon prior advance notice to the general manager of the
Hotel for the purpose of showing the Hotel to prospective purchasers, tenants or
Mortgagees.
1.07 Conditions to Take-Over of Hotel
A. The obligation of Submanager to assume operation of the Hotel
hereunder shall be conditioned upon each of the following:
1. That Submanager has received, prior to the Take-Over Date,
all licenses, permits, and all other approvals necessary for operation of the
Hotel by Submanager (or valid transfers of such licenses, etc., to Submanager);
provided, however, that to the extent such licenses, permits and other approvals
are held by Owner, Wyndham or Primary Manager and Submanager can operate the
hotel with such licenses, permits and other approvals in the name of Owner,
Wyndham or Primary Manager, then such licenses, permits and other approvals
shall remain in the name of Owner, Wyndham or Primary Manager, as applicable;
2. If required under Article VIII, that Submanager and each
Mortgagee have executed the "Subordination Agreement" described in Section 8.03;
3. That the Initial FF&E Reserve Balance, as described in
Section 5.02.A, shall have been deposited in the FF&E Reserve.
4. That the Primary Manager has provided the necessary initial
Working Capital, as described in Section 4.06.
B. Notwithstanding any other provision of this Agreement, Submanager
shall have the right to terminate this Agreement, on thirty (30) days' written
notice to Primary Manager, if (i) the conditions to the take-over of the Hotel
by Submanager which are listed in Section 1.07.A.1 and 2 have not been satisfied
within thirty (30) days after receipt of notice from Submanager that such
conditions remain unsatisfied at the time Submanager provides such notice (which
notice may be given by Submanager at any time on or after the Take-Over Date),
or (ii) if the conditions to the takeover of the Hotel by Submanager which are
listed in Section 1.07.A.3 and 4 have not been satisfied within ten (10) days
after receipt of notice from Submanager that such conditions remain unsatisfied
at the time Submanager provides such notice (which notice may be given by
Submanager at any time on or after the
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Takeover Date). Any such termination shall not be exclusive of any other rights
or remedies of Submanager under this Agreement, the Owners Agreement or the
Settlement Agreement.
ARTICLE II
TERM
2.01 Term
A. The term ("Term") of this Agreement shall begin on the Take-Over
Date and shall continue until the Term Expiration Date. Pursuant to the terms of
the Settlement Agreement, during the Term of this Agreement, the Franchise
Agreement shall be suspended without penalty (except for the royalty fee
provisions thereof, and the royalty fees payable thereunder shall continue to be
paid to Marriott International, Inc.) and is of no force or effect until such
time as the Franchise Agreement may be reinstated pursuant to the provisions of
Section 2.01.B below. Such royalty fee payments under the Franchise Agreement
shall be paid out of Gross Revenues hereunder, and Submanager is hereby
authorized and directed to make such payments, which shall be treated as
Deductions hereunder for all purposes.
B. In the event of any Termination of this Agreement (but excluding:
(i) natural expiration at the Term Expiration Date, or (ii) Termination pursuant
to Section 11.22), Primary Manager shall, as of the effective date of said
Termination (the "Termination Effective Date") reinstate the Franchise Agreement
(the "Reinstated Franchise Agreement"), modified as follows: (w) such Reinstated
Franchise Agreement shall be in effect from and after the Termination Effective
Date, and shall continue until the Term Expiration Date, (x) the franchise fees
under such Reinstated Franchise Agreement shall continue until the Term
Expiration Date, (y) the restrictions on Owner, Lessee or Primary Manager from
developing, owning, franchising or operating other hotels within a designated
area around the Hotel shall not be effective, and (z) such other modifications
to the Franchise Agreement as are provided in the Settlement Agreement. In
addition, upon such Termination (i.e. other than a Termination which is excluded
in the parenthetical clause in the first sentence of this Section 2.01.B),
Submanager shall be paid the "Special Fee" as defined herein, which, in the
event the lump sum payment option is selected, shall be paid on or before the
effective date of Termination, to the extent not paid pursuant to the Settlement
Agreement. In the event of any Termination of this Agreement pursuant to Section
11.22, the Franchise Agreement shall not be reinstated and as of the date of
such Termination, no further royalty fees shall be payable under the Franchise
Agreement, and the Franchise Agreement will not be of any further force or
effect.
2.02 Performance Termination
A. Subject to the provisions of Section 2.02.B below, Primary
Manager shall have the option to terminate this Agreement, if:
1. With respect to any two (2) Fiscal Years within any three
(3) Fiscal Year period (not including any portion of any Fiscal Year prior to
the expiration of the first (1st) full Fiscal Year after the TakeOver Date)
Operating Profit is less than the applicable Performance Termination Threshold;
and
2. The Revenue Index of the Hotel during each of such Fiscal
Years (i.e. any two (2) Fiscals Years within three (3) Fiscal Year period) is
less than the Revenue Index Threshold.
Such option to terminate shall be exercised by serving written notice thereof on
Submanager no later than sixty (60) days after the receipt by Primary Manager of
the annual accounting under Section 4.01.B hereof for the second of the two (2)
Fiscal Years referred to in Section 2.02.A.1. If Submanager does not elect to
avoid such Termination pursuant to Section 2.02.B below, this Agreement shall
terminate as of the end of the fourth (4th) full Accounting Period following the
date on which Submanager receives Primary Manager'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 Hotel. Primary Manager's failure to
exercise
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its right to terminate this Agreement pursuant to Section 2.02.A with respect to
any given Fiscal Year shall not be deemed an estoppel or waiver of Primary
Manager's right to terminate this Agreement with respect to subsequent Fiscal
Years to which this Section 2.02.A may apply.
B. Upon receipt of Primary Manager's written notice of Termination
under Section 2.02.A, Submanager shall have the option, to be exercised within
sixty (60) days after receipt of said notice, to avoid such Termination by
electing (in a notice to Primary Manager) to waive the payment of the Base
Management Fee and the payment of franchise fees under the Franchise Agreement
(beginning as of the first day of the next full Accounting Period after the date
of such notice from Submanager) until such time as the total cumulative amount
(the "Cumulative Waived Base Fees") of such waived Base Management Fee and
franchise fees equals the total amount (the "Cure Payment") by which Operating
Profit for each of the Fiscal Years in question (i.e., the Fiscal Years referred
to in Section 2.02.A.1) was less than the Performance Termination Threshold. [
In the case of the Houston, the following applies: Upon receipt of Primary
Manager's written notice of Termination under Section 2.02.A, Submanager shall
have the option, to be exercised within sixty (60) days after receipt of said
notice, to avoid such Termination by electing (in a notice to Primary Manager)
to pay an amount equal to the amount (the "Cure Payment") by which Operating
Profit for each of the Fiscal Years in question (i.e., the Fiscal Years referred
to in Section 2.02.A.1) was less than the Performance Termination Threshold, and
shall pay the Cure Payment within thirty (30) days of providing such notice to
Primary Manager.] In the event Submanager makes a Cure Payment pursuant to this
Section 2.02.B, the Fiscal Years with respect to which such Cure Payment was
made shall thereafter not be treated, for purposes of subsequent elections by
Primary Manager pursuant to Section 2.02.A, as Fiscal Years in which the
circumstances described in Section 2.02.A.1 have occurred. If Submanager
exercises such option to make such Cure Payment, then the foregoing Primary
Manager's election to terminate this Agreement under Section 2.02.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 Primary Manager, as to each subsequent Fiscal Year
to which Section 2.02.A applies, to again elect to terminate this Agreement
pursuant to the provisions of Section 2.02.A. If Submanager does not exercise
its option to make a Cure Payment as aforesaid, then this Agreement shall be
terminated as of the date set forth in Section 2.02.A. Submanager may not elect
to make a Cure Payment more than one (1) time during the Term hereof.
ARTICLE III
COMPENSATION OF SUBMANAGER
3.01 Management Fees
Submanager shall be paid the Base Management Fee, which shall be retained
by Submanager from Gross Revenues.
3.02 Operating Profit
Operating Profit shall be distributed to Primary Manager in accordance
with Article IV.
ARTICLE IV
ACCOUNTING MATTERS
4.01 Accounting, Distributions and Annual Reconciliation
A. Submanager agrees that it shall institute (as soon as reasonably
practicable after the TakeOver Date, but in no event more than sixty (60) days
after the Take-Over Date) cash management protocols at the Hotel in order to
distribute to an account designated and owned by Primary Manager on a daily
basis (to the extent possible, subject to holidays, banking holidays, and other
days in which account transfers cannot be effected by
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banks) all amounts in the Operating Accounts that are in excess of the
Reasonable Amount of Working Capital and amounts due Submanager. During the up
to 60 day period when such daily sweep is being implemented, Submanager shall
sweep weekly to Primary Manager's account on a manual basis. Within twenty (20)
days after the close of each Accounting Period (Submanager hereby agreeing to
use reasonable best efforts to deliver reports in fifteen (15) days), Submanager
shall deliver an interim accounting (the "Accounting Period Statement") to
Primary Manager showing Gross Revenues, Deductions, Operating Profit, and
applications and distributions thereof for the preceding Accounting Period.
B. Calculations and payments of the Base Management Fee, and
distributions of Operating Profit made with respect to each Accounting Period
within a Fiscal Year shall be accounted for cumulatively. Within seventy-five
(75) days after the end of each Fiscal Year, Submanager shall deliver to Primary
Manager a statement (the "Annual Operating Statement") in reasonable detail
summarizing the operations of the Hotel for the immediately preceding Fiscal
Year and a certificate of Submanager's chief accounting officer certifying that,
to the best of his or her knowledge, such Annual Operating Statement is true and
correct. The parties shall, within five (5) business days after Primary
Manager's receipt of such Annual Operating Statement, make any adjustments, by
cash payment, in the amounts paid or retained for such Fiscal Year as are needed
because of the final figures set forth in such Annual Operating Statement. Such
Annual Operating Statement shall be controlling over the preceding Accounting
Period Statements. No adjustments shall be made for any Operating Loss in any
preceding Fiscal Year.
C. To the extent there is an Operating Loss for any Accounting
Period, additional funds in the amount of any such Operating Loss shall be
provided by Primary Manager within thirty (30) days after Submanager has
delivered written notice thereof to Primary Manager. If Primary Manager does not
so fund such Operating Loss within the thirty (30) day time period, Submanager
shall have the right (without affecting Submanager's other remedies under this
Agreement) to withdraw an amount equal to such Operating Loss from future
distributions of funds otherwise due to Primary Manager.
4.02 Books and Records
Books of control and account pertaining to operations at the Hotel shall
be kept on the accrual basis and in all material respects in accordance with the
Uniform System of Accounts. Primary Manager may at reasonable intervals during
Submanager's normal business hours examine such records. If Primary Manager
desires, at its own expense, to audit, examine, or review the Annual Operating
Statement, Primary Manager shall notify Submanager in writing within sixty (60)
days after receipt of such Annual Operating Statement of its intention to audit
and begin such audit no sooner than thirty (30) days and no later than sixty
(60) days after Submanager's receipt of such notice. Primary Manager shall
complete such audit within ninety (90) days after commencement thereof. If
Primary Manager does not make such an audit, then such Annual Operating
Statement shall be deemed to be conclusively accepted by Primary Manager as
being correct, and Primary Manager shall have no right thereafter, except in the
event of fraud by Submanager, to question or examine the same. If any audit by
Primary Manager discloses an understatement of any amounts due Primary Manager,
Submanager shall promptly pay Primary Manager such amounts found to be due, plus
interest thereon (at the Prime Rate plus one percent (1%) per annum) from the
date such amounts should originally have been paid. If any audit discloses that
Submanager has not received any amounts due it, Primary Manager shall pay
Submanager such amounts, plus interest thereon (at the Prime Rate plus one
percent (1%) per annum) from the date such amounts should originally have been
paid. Any dispute concerning the correctness of an audit shall be settled by
arbitration, in accordance with Section 11.21. Notwithstanding anything to the
contrary contained in this Agreement, Primary Manager's auditors (which may be
Owner's auditors) shall have the right upon reasonable advance notice to conduct
preliminary audit procedures prior to the end of a Fiscal Year in preparation
for the annual audit outlined above (e.g. , such auditors would have the right
to audit during the fourth quarter of a Fiscal Year the first three quarters of
such Fiscal Year), and Submanager shall provide access to the books and control
of account for the Hotel for such purpose. Submanager also agrees to make
available in connection with Primary Manager's audit such other information as
it may have in order that Primary Manager can prepare or furnish Wyndham with
the information for Wyndham to prepare such reports as may be required under the
Lease and so that Owner and Wyndham can make filings required under any
applicable securities laws and regulations or requirements of any applicable
stock exchange. Submanager agrees to retain all accounting records for each
Fiscal Year for at least three (3) years after the expiration of such Fiscal
Year.
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4.03 Accounts, Expenditures
A. All funds derived from operation of the Hotel shall be deposited
on a daily basis (to the extent possible, subject to holidays, banking holidays
and other days in which deposits to banks cannot be effected) by Submanager in
bank accounts (the "Operating Accounts") in a bank or banks designated by
Submanager, subject to Primary Manager's reasonable approval. Withdrawals from
said Operating Accounts shall be made solely by representatives of Submanager
whose signatures have been authorized. Submanager shall assume the
responsibilities of a fiduciary with respect to Submanager's handling of Primary
Manager's funds which are derived from the operation of the Hotel. Reasonable
petty cash funds shall be maintained at the Hotel.
B. All payments made by Submanager hereunder shall be made from the
Operating Accounts, petty cash funds, or from the FF&E Reserve (in accordance
with Section 5.02). Submanager shall not be required to make any advance or
payment with respect to the Hotel except out of such funds, and Submanager shall
not be obligated to incur any liability or obligation with respect to the Hotel
without assurances that the necessary funds for the discharge thereof will be
provided by Primary Manager. In any event, if any such liability or obligation
is incurred by Submanager with respect to the Hotel, Submanager shall have the
option to deduct such amounts from Primary Manager's share of Operating Profit
if Primary Manager has not fully reimbursed Submanager for said amounts within
ten (10) days after Primary Manager's receipt of notice from Submanager that
said amounts are due.
C. Debts and liabilities incurred by Submanager as a result of its
operation and management of the Hotel pursuant to the terms hereof, whether
asserted before or after Termination, will be paid by Primary Manager to the
extent funds are not available for that purpose from Gross Revenues. The
provisions of this Section 4.03 C shall survive Termination.
4.04 Accounting for Conversion of Hotel
A. It shall be a general principle in the accounting for the Hotel
that all liabilities (including, without limitation, all Previously-Accrued
Payables) incurred prior to the Take-Over Date, or properly allocated to the
period prior to the Take-Over Date under generally accepted accounting
principles, shall be paid by Primary Manager from its own funds, and not from
Gross Revenues nor from the FF&E Reserve. Primary Manager agrees to indemnify,
defend and hold Submanager and its Affiliates (and their respective directors,
officers, shareholders, employees and agents) harmless from and against all
claims, causes of action, costs, expenses and damages arising from such
liabilities.
B. As a convenience to the Primary Manager, Submanager agrees to
apply any Previously- Accrued Receivables which Submanager receives at the Hotel
to pay those Previously-Accrued Payables which Primary Manager has confirmed in
writing to Submanager. Submanager shall use commercially reasonable procedures
to collect such Previously-Accrued Receivables, but shall not be obligated to
institute any legal actions with respect to any Previously-Accrued Receivables.
If the Previously-Accrued Payables exceed the Previously- Accrued Receivables,
Primary Manager shall be responsible for the payment of such excess. Any surplus
of the Previously-Accrued Receivables received by Submanager over such
Previously-Accrued Payables shall be promptly remitted by Submanager to Primary
Manager.
C. As of the Take-Over Date, the cash on hand at the Hotel shall be
deposited in one of the Operating Accounts set up by Submanager pursuant to
Section 4.03, and shall be treated as part of the Working Capital described in
Section 4.06. The term "cash on hand" shall not be deemed to include amounts
remaining in the FF&E Reserve which was maintained by Primary Manager.
4.05 Business Plan
A. Submanager shall submit to Primary Manager for its approval
(which shall not be unreasonably withheld or delayed), at least forty-five (45)
days prior to the beginning of each Fiscal Year which begins after the Take-Over
Date, a preliminary draft (the "Proposed Business Plan") of the budget of the
estimated
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financial results of the operation of the Hotel during the next Fiscal Year.
Primary Manager's approval shall be deemed to have been given if Submanager has
received no notice from Primary Manager to the contrary within forty-five (45)
days after Primary Manager's receipt of such Proposed Business Plan. Such
Proposed Business Plan shall project the estimated Gross Revenues, departmental
profits, Deductions, and Operating Profit for the forthcoming Fiscal Year for
the Hotel. In preparing the Proposed Business Plan for each Fiscal Year,
Submanager's goal will be the maximization of the long-term Operating Profit of
the Hotel, in keeping with System Standards and the general standards of the
hotel industry for similar properties. If there are material items in any given
Proposed Business Plan which have been budgeted at significantly different
amounts from the amounts actually experienced (or projected) for the same items
in the preceding Fiscal Year, Submanager agrees to take reasonable steps to
ensure that, at Primary Manager's request, qualified personnel from Submanager's
staff are available at the Hotel to explain these differences to Primary
Manager. A meeting (or meetings) for such purpose shall be held, at the Hotel,
at Primary Manager's request, within a reasonable period of time after the
submission to Primary Manager of the Proposed Business Plan. Submanager will at
all times give good faith consideration to Primary Manager's suggestions
regarding any Proposed Business Plan, and in any event each Proposed Business
Plan is subject to the approval of Primary Manager as set forth in Section
4.05.B.
B. Primary Manager shall not be entitled to withhold its approval of
any Proposed Business Plan based on its objection to: (i) Submanager's
reasonable projections of either Gross Revenues or the components thereof; (ii)
projected costs and expenses which are "system charges" ( that is, costs and
expenses which are generally uniform throughout the Marriott System, such as:
the charges for Chain Services; the costs of the Marriott frequent guest program
or, if applicable, the "Marriott Rewards Program" and other chain-wide marketing
programs; employee benefits and other compensation programs); (iii) costs and
expenses which are not within the control of either Owner, Wyndham, Primary
Manager or Submanager, such as Impositions and the cost of utilities; or (iv)
increases in projected costs and expenses of operating the Hotel, which
increases are primarily caused by projected increases in Gross Revenues. The
approval of Primary Manager (as set forth in the first sentence of Section
4.05.A) shall not be required if, and to the extent that, the Proposed Business
Plan for a given Fiscal Year is, in all material respects, the same as the
Proposed Business Plan for the preceding Fiscal Year, as adjusted by the GDP
Deflator; provided, however, that in any event (x) the FF&E Reserve expenditures
and Capital Expenditures components of such Proposed Business Plan shall be
subject to Primary Manager's approval and (y) if there were, in the prior Fiscal
Year, expenditures from the FF&E Reserve or Capital Expenditures which affect
operating costs or revenues, then the Proposed Business Plan shall be subject to
the approval of the Primary Manager as set forth in Section 4.05.A. If Primary
Manager and Submanager fail to mutually agree on the Proposed Business Plan
within sixty (60) days after the submission to Primary Manager of the Proposed
Business Plan, as described in the first sentence of Section 4.05.A, either
party shall have the right to submit to the Expert Resolution Process the issue
of whether or not the Proposed Business Plan submitted by Submanager is
unreasonable, given the goals which are set forth in the fourth sentence of
Section 4.05.A. While such determination by the Expert is pending, Submanager
shall operate the Hotel, in all material respects, based on the Business Plan
for the preceding Fiscal Year (as adjusted by the GDP Deflator), with
adjustments for those items over which there is no disagreement between Primary
Manager and Submanager, and with adjustments for those items listed in clauses
(i), (ii), (iii), and (iv) above. The Proposed Business Plan, as approved by
Primary Manager (or deemed approved pursuant to the Expert Resolution Process),
is herein referred to as the "Business Plan".
C. With respect to the "stub year" (if any) immediately following
the Take-Over Date, Submanager shall submit the Proposed Business Plan to
Primary Manager by no later than thirty (30) days prior to the Take-Over Date.
D. Submanager shall diligently operate the Hotel in accordance with
the Business Plan. It is understood, however, that the Business Plan is an
estimate only and that unforeseen circumstances such as the costs of labor,
material, services and supplies, casualty, operation of law, or economic and
market conditions, may make adherence to the Business Plan impracticable, and
Submanager shall be entitled to depart therefrom due to causes of the foregoing
nature. In the event that Submanager determines that circumstances require that
there will be material changes in the Business Plan, Submanager shall so notify
Primary Manager, and, as to any components of a Business Plan over which Primary
Manager has approval rights under this Agreement, Primary Manager shall have the
right to reasonably approve such proposed material changes. Primary Manager's
approval shall be deemed to have been
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given if Submanager has received no notice from Primary Manager to the contrary
within twenty (20) days after Primary Manager's receipt of such notice of
proposed material changes in the Business Plan.
E. Submanager shall provide to Primary Manager with fifteen (15)
days after the expiration of each fiscal quarter a reforecast of the Business
Plan for such Fiscal Year.
4.06 Working Capital
A. On or prior to the Take-Over Date, Primary Manager shall provide
Submanager with initial Working Capital for the Hotel in the amount of One
Thousand Two Hundred Fifty Dollars ($1,250) per guest room, as adjusted by the
GDP Deflator, per Guest Room, less cash on hand at the Hotel as of the Take-Over
Date. If Primary Manager fails to provide any Working Capital as required under
this Section 4.06.A, Submanager shall have the right (after first giving Primary
Manager ten (10) days written notice thereof) to deduct the required amounts
from Gross Revenues.
B. Primary Manager shall, from time to time during the Term,
promptly, but no later than thirty (30) days after written request by
Submanager, advance any additional funds, over and above those required pursuant
to Section 4.06.A, necessary to maintain a Reasonable Amount of Working Capital.
If Primary Manager does not so fund additional Working Capital within the said
thirty (30) day time period, Submanager shall have the right (without affecting
Submanager's other remedies under this Agreement) to withdraw an amount equal to
the funds requested in order to maintain a Reasonable Amount of Working Capital
from future distributions of funds otherwise due to Primary Manager. All funds
so advanced for Working Capital shall be utilized by Submanager for the purposes
of this Agreement pursuant to cash management policies established for the
Marriott System. Upon Termination, Submanager shall, except as otherwise
provided in this Agreement, return the outstanding balance of the Working
Capital to Primary Manager.
4.07 Fixed Asset Supplies
Primary Manager shall, within thirty (30) days after request by
Submanager, provide funds that are necessary to increase the level of Fixed
Asset Supplies to levels determined by Submanager, in its good faith judgment,
to be necessary to satisfy the needs of the Hotel as its operation may, from
time to time, require. The cost of Fixed Asset Supplies consumed in the
operation of the Hotel shall constitute a Deduction. Fixed Asset Supplies shall
remain the property of Hotel throughout the term of the Agreement and upon
Termination (except for those Fixed Asset Supplies which are purchased by
Submanager pursuant to Section 11.11.E).
4.08 Litigation
Submanager shall give notice to Primary Manager from time to time of any
material litigation affecting the Hotel, together with such additional
information within the possession or control of Submanager or the applicable
insurance carrier as Primary Manager may reasonably request.
ARTICLE V
REPAIRS, MAINTENANCE AND REPLACEMENTS
5.01 Repairs and Maintenance Costs Which Are Expensed
Submanager shall maintain the Hotel in good repair and condition, and
shall make or cause to be made such routine maintenance, repairs and minor
alterations as it determines are necessary for such purposes. The phrase
"routine maintenance, repairs, and minor alterations" as used in this Section
5.01 shall include only those which are normally expensed under generally
accepted accounting principles. The cost of such maintenance, repairs and
alterations shall be paid from Gross Revenues (and not from the FF&E Reserve)
and shall be treated as a Deduction in determining Operating Profit.
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5.02 FF&E Reserve
A. Submanager shall establish a reserve account (the "FF&E
Reserve"), in a bank or similar institution reasonably acceptable to both
Submanager and Primary Manager, to cover the cost of: (i) replacements, renewals
and additions to the FF&E at the Hotel; and (ii) Special Capital Expenditures.
Withdrawals from the FF&E Reserve shall be made solely by representatives of
Submanager whose signatures have been authorized. Primary Manager covenants
that, as of the Take-Over Date, the dollar amount in the FF&E Reserve shall be
no less than the Initial FF&E Reserve Balance. If Primary Manager fails to
provide the dollar amount in the FF&E Reserve in an amount no less than the
Initial FF&E Reserve Balance as required under this Section 5.02.A, Submanager
shall have the right (after first giving Primary Manager ten (10) days written
notice thereof) to deduct the required amounts from Gross Revenues. In addition,
Primary Manager covenants that the Five-Year Plan attached hereto as Exhibit
"B-1" shall be implemented, subject to any mutually-approved changes, as Special
Capital Expenditures from the FF&E Reserve.
B. During the Term of this Agreement, subject to the provisions of
subsection E, below, Submanager shall transfer into the FF&E Reserve an amount
set forth on Exhibit "A-1" (except to the extent that the Five-Year Plan sets
forth different percentage(s) applicable to certain periods in the Term, in
which event such percentage(s) in the Five-Year Plan shall be controlling during
such periods) for each such Accounting Period. Transfers into the FF&E Reserve
shall be made at the time of each interim accounting described in Section 4.01
hereof. All amounts transferred into the FF&E Reserve pursuant to this Section
5.02.B shall be paid from Gross Revenues as Deductions.
C. Submanager shall prepare an annual estimate (the "FF&E Estimate")
of the expenditures necessary for (1) replacements, renewals and additions to
the FF&E of the Hotel, and (2) Special Capital Expenditures, during the ensuing
Fiscal Year and shall deliver the FF&E Estimate to Primary Manager for its
approval (which shall not be unreasonably withheld or delayed), at the same time
as Submanager submits the Proposed Business Plan described in Section 4.05.A.
The FF&E Estimate shall also indicate the estimated time schedule for making
such replacements, renewals, and additions. In preparing the FF&E Estimate for
each Fiscal Year, Submanager's goal will be to maintain the Hotel in accordance
with System Standards and the general standards of the hotel industry for
similar properties. Primary Manager shall not be entitled to withhold its
approval of any FF&E Estimate based on its objection to: (i) items already
agreed upon in the Five-Year Plan; (ii) costs and expenses which are consistent
throughout the Marriott System for similarly situated hotels (such as periodic
hard and soft good replacement schedules); (iii) costs and expenses of items
that fall within the "under $25,000" category of expenditures (namely, that a
given order or related series of orders for FF&E purchases is less than $25,000)
that are characterized as such in the FF&E Estimate; or (iv) costs and expenses
of items that are introduced into the Marriott System as part of System
Standards. If Primary Manager and Submanager fail to mutually agree on the FF&E
Estimate within forty-five (45) days after the submission to Primary Manager,
either party shall have the right to submit to the Expert Resolution Process the
issue of whether or not Submanager's proposed FF&E Estimate is unreasonable,
given the goals which are set forth in the third sentence of this Section
5.02.C. While such determination by the Expert is pending, Submanager shall
operate the Hotel, in all material respects, based on the FF&E Estimate for the
preceding Fiscal Year (as adjusted by the GDP Deflator), with adjustments for
those items over which there is no disagreement between Primary Manager and
Submanager, and for those items listed above over which Primary Manager has no
right of approval.
D. Submanager shall, consistent with the applicable FF&E Estimate,
from time to time make such (1) replacements, renewals and additions to the FF&E
of the Hotel, and (2) Special Capital Expenditures, as Submanager deems
necessary, up to the balance in the FF&E Reserve. No expenditures will be made
that are in excess of the FF&E Reserve without the approval of Primary Manager
and Submanager shall diligently operate the Hotel in accordance with the FF&E
Estimate approved (or deemed approved through the Expert Resolution Process) by
Primary Manager, provided that, to the extent not included in the applicable
FF&E Estimate or not otherwise approved by Primary Manager, Submanager shall be
allowed to use the funds in the FF&E Reserve for expenditures deemed reasonably
necessary by Submanager to repair or correct any condition on or about the Hotel
which (i) constitutes a violation of any applicable Legal Requirement which
imposes liability or potential liability on the Submanager, or (ii) presents a
threat to life or property of Submanager or any guest, employee or invitee on or
about
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the Hotel; provided, however, that Submanager shall give notice of any such
expenditure made by Submanager reasonably promptly following such expenditure.
At the end of each Fiscal Year, any amounts remaining in the FF&E Reserve shall
be carried forward to the next Fiscal Year. Proceeds from the sale of FF&E no
longer necessary to the operation of the Hotel shall be added to the FF&E
Reserve. The FF&E Reserve will be kept in an interest-bearing account, and any
interest which accrues thereon shall be retained in the FF&E Reserve. Neither
(1) proceeds from the disposition of FF&E, nor (2) interest which accrues on
amounts held in the FF&E Reserve, shall (a) result in any reduction in the
required transfers to the FF&E Reserve set forth in subsection B above, nor (b)
be included in Gross Revenues.
E. As the Hotel ages, the percentages of Gross Revenues which are
set forth in Section 5.02.B may not be sufficient to keep the FF&E Reserve at
the levels necessary to make the replacements, renewals, and additions to the
FF&E of the Hotel, or to make the Special Capital Expenditures, which are
required to maintain the Hotel in accordance with the System Standards. If
Submanager reasonably believes that the funding of the FF&E Reserve (with
respect to the following Fiscal Year or any subsequent Fiscal Year) will not be
adequate to maintain the Hotel in accordance with System Standards, Submanager
shall give notice to Primary Manager of a proposed increase in the annual
percentage in Section 5.02.B to provide the additional funds required, which
increase in the annual percentage shall require the approval of Primary Manager.
If Primary Manager and Submanager fail to agree on a requested increase in the
annual percentage Section 5.02.B within forty-five (45) days after the
submission to Primary Manager, either party shall have the right to submit to
the Expert Resolution Process the issue of whether or not Primary Manager's
proposed increase in the annual percentage is reasonable. Until such time as an
increase in the annual percentage in this Section 5.02.B has been approved (or
deemed approved through the Expert Resolution Process) by Primary Manager, the
reserve set forth in this Section 5.02.B (as the same may have been previously
increased pursuant to the procedures set forth in Section 5.02.E) shall continue
to apply. Notwithstanding the foregoing, in the event the FF&E Reserve is not
increased through the procedures described in this Section 5.02 E, and such
failure shall result in the Submanager being unable to maintain the Hotel in
accordance with the System Standards, Submanager may, on sixty (60) days written
notice to Primary Manager, terminate this Agreement. Finally, the placing of any
restrictions on the expenditure by Submanager of funds from the FF&E Reserve
other than as set forth in this Section 5.02 (including, without limitation,
restrictions resulting from (i) any Litigation involving Owner, Wyndham, Primary
Manager or the Hotel, or (ii) a Foreclosure) shall entitle Submanager, on sixty
(60) days written notice to Primary Manager, to terminate this Agreement.
F. Submanager covenants that it shall utilize amounts in the FF&E
Reserve solely for replacements, renewals and additions to the FF&E at the Hotel
and Special Capital Expenditures, as provided in the foregoing provisions of
this Section 5.02, and shall not be subject to setoff for any other amounts
alleged by Submanager to be owed by Primary Manager to Submanager.
5.03 Capital Expenditures
A. Submanager shall prepare an annual estimate (the "Building
Estimate") of all Capital Expenditures. Submanager shall submit the Building
Estimate to Primary Manager for its approval at the same time as Submanager
submits the Proposed Business Plan described in Section 4.05.A. Submanager shall
not make any Capital Expenditures without the prior written Approval of Primary
Manager, unless otherwise permitted herein. Primary Manager shall (or shall
cause Wyndham under the Primary Management Agreement (or cause Wyndham to cause
Owner, as applicable), to) make Capital Expenditures to allow the completion of
the work described on Exhibit "B-2" hereto at Primary Manager's, or Wyndham's or
Owner's, as applicable, sole cost and expense and not from Gross Revenues or the
FF&E Reserves.
B. Notwithstanding the provisions of Section 5.03A, Submanager shall
be authorized to take appropriate remedial action (including making any
necessary Capital Expenditures) without receiving Primary Manager's prior
consent in the following circumstances: (i) if there is an emergency threatening
the Hotel, its guests, invitees or employees; or (ii) if the continuation of the
given condition would subject Submanager and/or Primary Manager and/or Owner
and/or Wyndham to civil or criminal liability, and if Primary Manager has either
failed to remedy the situation or has failed to take appropriate legal action to
stay the effectiveness of any applicable Legal Requirement. Submanager shall
cooperate with Primary Manager in the pursuit of any such action and shall have
the
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right to participate therein. Primary Manager shall, upon written request by
Submanager, promptly reimburse all expenditures made by Submanager pursuant to
this Section 5.03.B.
C. The cost of all Capital Expenditures (including the expenses
incurred by either Primary Manager or Submanager in connection with any civil or
criminal proceeding described above) shall be borne solely by Primary Manager,
and shall not be paid from Gross Revenues nor from the FF&E Reserve.
D. Primary Manager shall not unreasonably withhold its Approval with
respect to Capital Expenditures as are: (i) required, in Submanager's reasonable
judgment, to keep the Hotel in a first-class, competitive, efficient and
economical operating condition in accordance with System Standards; or (ii)
required by reason of any Legal Requirement, or otherwise required for the
continued safe and orderly operation of the Hotel. Submanager shall be entitled
to terminate this Agreement, on sixty (60) days' notice to Primary Manager, if:
Primary Manager either (a) fails to approve any Capital Expenditure described in
the preceding sentence, or (b) fails to provide funding for any such Capital
Expenditure within sixty (60) days after the submission to Primary Manager of
the Building Estimate requesting such Capital Expenditure.
E. Submanager will not make a detailed inspection of the ADA
compliance and life-safety elements of the Hotel prior to the Take-Over Date. To
the extent that any of such elements are not in compliance with System
Standards, Primary Manager shall be obligated (or shall cause Wyndham under the
Primary Management Agreement (or cause Wyndham to cause Owner, as applicable))
to fund any necessary remedial measures promptly after the Take-Over Date in
accordance with a schedule for such measures and the funding thereof proposed by
Submanager. Submanager shall review any such elements and the schedule of
compliance and funding with Primary Manager, and shall consider in good faith
any comments of Primary Manager as to methods of compliance with ADA and
priority of compliance efforts.
F. On the Effective Date, Primary Manager shall fund an escrow
account as provided in Section 3.2.8 of the Settlement Agreement.
5.04 Ownership of Replacements
All repairs, alterations, improvements, renewals or replacements made
pursuant to Article V, and all amounts kept in the FF&E Reserve, shall, except
as otherwise provided in this Agreement, be the property of Primary Manager or
Wyndham, as applicable.
ARTICLE VI
INSURANCE, DAMAGE, CONDEMNATION, AND FORCE MAJEURE
6.01 Insurance
A. Subject to Section 6.02, Submanager shall, commencing with the
Take-Over Date and thereafter during the Term of the Agreement, procure and
maintain, either with insurance companies of recognized responsibility
reasonably approved by Primary Manager or by legally qualifying itself as a self
insurer, a minimum of the following insurance:
1. Property insurance on the Improvements and contents against
loss or damage by fire, lightning and all other risks covered by the usual
extended coverage endorsement, all in an amount not less than ninety percent
(90%) of the replacement cost thereof;
2. Boiler and machinery insurance against loss or damage from
explosion of boilers or pressure vessels to the extent applicable to the Hotel;
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3. Business interruption insurance covering loss of profits
and necessary continuing expenses for interruptions caused by any occurrence
covered by the insurance referred to in Sections 6.01.A.1 and 2 of a type and in
amounts as are generally established by Submanager at similar hotels it owns,
leases or manages under the Marriott name in the United States;
4. General liability insurance against claims for bodily
injury, death or property damage occurring on, in, or about the Hotel, and
automobile liability insurance on vehicles operated in conjunction with the
Hotel, with a combined single limit for each occurrence of not less than One
Hundred Million Dollars ($100,000,000);
5. Workers' compensation as may be required under applicable
laws covering all of Submanager's employees at the Hotel;
6. Fidelity bonds, with reasonable limits to be determined by
Submanager, covering its employees in job classifications normally bonded in
other similar hotels it leases or manages under the Marriott name in the United
States or as otherwise required by law, and comprehensive crime insurance to the
extent Submanager and Primary Manager mutually and reasonably agree it is
necessary for the Hotel;
7. Employer's liability insurance in accordance with
Submanager's standard practices and policies (it being agreed that, in the event
Primary Manager requests an increase in the coverage or limits of such
insurance, and provided that such increased coverage or limit is available,
Submanager shall obtain such increased coverage or limit, with the additional
cost thereof being a Deduction hereunder for all purposes other than the
calculation of Operating Profit for purposes of Section 2.02 hereof).
8. Such other insurance in amounts as Submanager in its
reasonable judgment deems advisable for protection against claims, liabilities
and losses arising out of or connected with the operation of the Hotel.
B. All insurance described in Section 6.01.A may be obtained by
Submanager by endorsement or equivalent means under its blanket insurance
policies, provided that such blanket policies substantially fulfill the
requirements specified in this Agreement.
C. Submanager 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 Marriott name in the United States.
D. All policies of insurance required under Section 6.01.A shall be
carried in the name of Submanager. The policies required under Sections
6.01.A.1, 2, 3, and 4 shall include the Owner, Wyndham and Primary Manager as an
additional insured. Upon notice by the Primary Manager, Submanager shall also
have the policies required under Sections 6.01.A.1, 2, and 3 include any
Mortgagee as an additional insured. Any property losses thereunder shall be
payable to the respective parties as their interests may appear. Any Mortgage
encumbering the Hotel shall contain provisions to the effect that proceeds of
the insurance policies required to be carried under Sections 6.01.A.1 and 2
shall be available for repair and restoration of the Hotel, subject to
exceptions customarily included in institutional hotel mortgages.
E. Submanager shall deliver to Owner, Wyndham and Primary Manager
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. All certificates of insurance provided for under
this Section 6.01 shall, to the extent obtainable, state that the insurance
shall not be canceled or materially changed without at least thirty (30) days'
prior written notice to the certificate holder .
F. Insurance premiums and any other costs or expenses with respect
to the insurance or self-insurance required under Section 6.01.A., including any
Insurance Retention (as defined below), shall be paid from Gross Revenues
(except as otherwise set forth to the contrary in Section 1.03.E) as Deductions.
Such premiums and costs shall be allocated on an equitable basis to the hotels
participating under Submanager's blanket
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insurance or self-insurance programs, as applicable. Except as otherwise set
forth in Section 1.03.E and except for any self-insurance retained by Submanager
or any of its Affiliates, any reserves, losses, costs or expenses which are
uninsured shall be treated as a cost of insurance and shall be Deductions. Upon
Termination, a reserve in an amount which is acceptable to Submanager, and which
is in accordance with generally accepted practices in the insurance industry,
shall be established from Gross Revenues (or, if Gross Revenues are
insufficient, from Working Capital) to cover the amount of any Insurance
Retention and all other costs which will eventually have to be paid by either
Primary Manager or Submanager with respect to pending or contingent claims,
including those which arise after Termination for causes arising during the Term
of the Agreement. For purposes of this Section 6.01.F, "Insurance Retention"
shall mean the amount of any loss or reserve under Submanager's blanket
insurance or self-insurance programs which is allocated to the Hotel, 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 Hotel is not a participant under Submanager's blanket
insurance or self-insurance programs, "Insurance Retention" shall mean the
amount of any loss or reserve allocated to the Hotel, not to exceed the
insurance policy deductible.
G. Submanager agrees that the charge to the Hotel for insurance that
it obtains pursuant to the foregoing provisions shall not incorporate a profit
to Submanager or any of its Affiliates, or, if a profit is incorporated, that
the charge therefor to the Hotel shall not be in excess of the competitive
market rate for comparable insurance.
6.02 Owner's Option to Obtain Property Insurance.
At any time, and from time to time, within ten (10) days after receipt of
Primary Manager's written request, Submanager will provide Primary Manager with
its best estimate of the renewal cost of Submanager's blanket insurance as
required in Section 6.01.A.(1), (2) and (3). Primary Manager may, at its option,
by written notice to Submanager which shall be delivered no later than ninety
(90) days prior to the natural expiration of the insurance policies which
Submanager has obtained pursuant to Section 6.01.A(1), (2) and (3), advise
Submanager that Owner or Wyndham shall procure and maintain the insurance
specified in Section 6.01.A(1), (2) and (3) (in which case Submanager shall
allow such policies obtained by it under Section 6.01.A(1), (2) and (3) to
expire), subject to the following terms and conditions:
A. All such policies of insurance shall be carried in the name of
Owner and/or Wyndham as applicable, with Submanager as additional insureds. Any
property losses thereunder shall be payable to the respective parties as their
interests may appear. The documentation with respect to each Mortgage shall
contain provisions to the effect that proceeds of the insurance policies
required to be carried under Section 6.01.A(1), (2) and (3) shall be available
for repair and restoration of the Hotel, to the extent required pursuant to
Section 6.01.D. However, any Mortgagee shall be entitled to impose reasonable
conditions on the disbursement of insurance proceeds for the repair and/or
restoration of the Hotel, including a demonstration by Owner or Wyndham that the
amount of such proceeds (together with other funds Owner or Wyndham agrees to
make available) is sufficient for such purpose.
B. Primary Manager shall deliver to Submanager certificates of
insurance with respect to all policies so procured and, in the case of insurance
policies about to expire, shall deliver certificates with respect to the renewal
thereof.
C. All such certificates of insurance shall, to the extent
obtainable, state that the insurance shall not be canceled or materially changed
without at least thirty (30) days' prior written notice to the certificate
holder.
D. Premiums for such insurance coverage shall be treated as
Deductions, provided that if the cost of such insurance procured by Owner or
Wyndham exceeds the cost of Submanager's comparable coverage by more than ten
percent (10%), all such excess costs shall be the sole responsibility of Primary
Manager and shall not be a Deduction.
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E. Should Primary Manager exercise its option to have the insurance
described in this Section 6.02 procured by Owner or Wyndham, Primary Manager
hereby waives and shall cause Owner and Wyndham to waive in writing to
Submanager their rights of recovery from Submanager or any of its Affiliates
(and their respective directors, officers, shareholders, agents and employees)
for loss or damage to the Hotel, and any resultant interruption of business.
F. All insurance procured by Owner or Wyndham shall be obtained from
reputable insurance companies reasonably acceptable to Submanager.
G. Should Primary Manager exercise its right to have Owner or
Wyndham obtain the insurance described in this Section 6.02, Primary Manager
acknowledges that Submanager is under no obligation to thereafter include the
Hotel in its blanket insurance program (with respect to the insurance described
in Section 6.01.A(1), (2) and (3)) for the balance of the Term.
6.03 Damage and Repair
A. If, during the Term, the Hotel is damaged by a Minor Casualty,
Submanager shall, with all reasonable diligence, proceed to process the claim
with the applicable insurance carriers, including settling such claim, and to
make the necessary arrangements with appropriate contractors and suppliers to
repair and/or replace the damaged portion of the Hotel. Primary Manager's
consent shall not be needed for Submanager to perform any of the foregoing, all
of which shall be performed in accordance with Submanager's reasonable judgment.
Primary Manager agrees to sign promptly any documents which are necessary to
process and/or adjust the claim with the insurance carriers, as well as any
contracts with such contractors and/or suppliers.
B. If, during the Term, the Hotel suffers a Total Casualty, this
Agreement shall be terminable at the option of either party upon ninety (90)
days' written notice to the other party. Such notice must be sent within thirty
(30) days after the date of the Total Casualty.
C. If, during the Term, the Hotel is damaged by fire, casualty or
other cause to a greater extent than a Minor Casualty, but not to the extent of
a Total Casualty, or if the Hotel suffers a Total Casualty but neither party
elects to terminate under Section 6.04.A, Primary Manager shall cause Wyndham
(or shall cause Wyndham to cause Owner, as applicable), at such party's cost and
expense and with all reasonable diligence, repair and/or replace the damaged
portion of the Hotel to the same condition as existed previously. Submanager
shall have the right to discontinue operating the Hotel to the extent it deems
necessary to comply with applicable Legal Requirements or as necessary for the
safe and orderly operation of the Hotel. To the extent available, proceeds from
the insurance described in Section 6.01 of this Agreement shall be applied to
such repairs and/or replacements. If Owner or Wyndham, as applicable, fails to
so promptly commence and complete the repairing and/or replacement of the Hotel
so that it shall be substantially the same as it was prior to such damage or
destruction, such failure shall be an Event of Default by Primary Manager.
6.04 Condemnation
A. In the event all or substantially all of the Hotel shall be taken
in any eminent domain, condemnation, compulsory acquisition, or similar
proceeding by any competent authority for any public or quasi-public use or
purpose, or in the event a portion of the Hotel shall be so taken, but the
result is that it is unreasonable to continue to operate the Hotel in accordance
with the standards required by this Agreement, this Agreement shall terminate.
B. In the event a portion of the Hotel shall be taken by the events
described in Section 6.03.A, or the entire Hotel is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate the
Hotel, 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 Hotel
equivalent to its condition prior to such event shall be used for such purpose;
and Submanager shall have the right to discontinue operating the Hotel to the
extent it deems necessary for the safe and orderly operation of the Hotel.
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ARTICLE VII
TAXES
7.01 Real Estate and Personal Property Taxes
A. Except as specifically set forth in subsection B below, all real
estate and personal property taxes, levies, assessments and similar charges on
or relating to the Hotel ("Impositions") during the Term shall be paid by
Submanager from Gross Revenues, before any fine, penalty, or interest is added
thereto or lien placed upon the Hotel or upon the Agreement, unless payment
thereof is in good faith being contested and enforcement thereof is stayed. Any
such payments shall be Deductions in determining Operating Profit. Primary
Manager shall, within five (5) days after receipt, furnish Submanager with
copies of official tax bills and assessments which it may receive with respect
to the Hotel. Any of Owner, Wyndham, Primary Manager or Submanager (in which
case Primary Manager agrees to cause Owner or Wyndham to sign, as applicable,
the required applications and otherwise cooperate with Submanager in expediting
the matter) may initiate proceedings to contest any negotiations or proceedings
with respect to any Imposition, and all reasonable costs of any such contest
shall be paid from Gross Revenues and shall be a Deduction in determining
Operating Profit. Submanager shall, as part of its contest or negotiation of any
Imposition, be entitled, on Owner's or Wyndham's behalf, to waive any applicable
statute of limitations in order to avoid paying the Imposition during the
pendency of any proceedings or negotiations with applicable authorities.
B. The word "Impositions" as used in this Agreement shall not
include the following, all of which shall be paid solely by Primary Manager,
Owner or Wyndham, as applicable, 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, Wyndham or Primary Manager, or
any income tax imposed on any income of Owner, Wyndham or Primary Manager
(including distributions to Primary Manager pursuant to Article III hereof);
2. Special assessments (regardless of when due or whether they
are paid as a lump sum or in installments over time) imposed because of
facilities which are constructed by or on behalf of the assessing jurisdiction
(for example, roads, sidewalks, sewers, culverts, etc.) which directly benefit
the Hotel (regardless of whether or not they also benefit other buildings),
which assessments shall be treated as capital costs of construction and not as
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,
Wyndham or Primary Manager as a condition to the issuance of site plan approval,
zoning variances or building permits, which impact fees shall be treated as
capital costs of construction and not as Deductions; or
4. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Hotel by temporarily reducing or abating normal Impositions
in return for substantially higher levels of Impositions at later dates.
ARTICLE VIII
MANAGEMENT OF THE HOTEL
8.01 Ownership of the Hotel
A. Primary Manager hereby covenants that it will exercise its rights
under the Primary Management Agreement (i) to cause Wyndham to have, keep, and
maintain good and marketable leasehold title to
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the Hotel (ii) to cause Wyndham to cause Owner to have, keep and maintain good
and marketable fee title to the Site, in each case free and clear of any and all
liens, encumbrances or other charges, except as follows:
1. easements or other encumbrances (other than those described
in subsections 2 and 3 hereof) that do not adversely affect the operation of the
Hotel by Submanager and that are not prohibited pursuant to Section 8.04 of this
Agreement;
2. Qualified Mortgages; or
3. liens for taxes, assessments, levies or other public
charges not yet due or due but not yet payable.
B. Primary Manager shall exercise its rights under the Primary
Management Agreement to cause Wyndham (or to cause Wyndham to cause Owner) to
pay and discharge, on or before the due date, any and all payments due under any
Mortgage. Primary Manager shall exercise its rights under the Primary Management
Agreement to cause Wyndham (or to cause Wyndham to cause Owner) to indemnify,
defend, and hold Submanager harmless from and against all claims, litigation and
damages arising from the failure of Owner or Wyndham, as applicable, to make any
such payments as and when required; and this obligation of Primary Manager shall
survive Termination. Submanager shall have no responsibility for payment of debt
service due with respect to the Hotel, from Gross Revenues or otherwise, and
such responsibility shall be solely that of Owner or Wyndham.
C. Primary Manager covenants and shall exercise its rights under the
Primary Management Agreement to cause Wyndham (or to cause Wyndham to cause
Owner) to covenant that, so long as Submanager is not in Default under this
Agreement or any Subordination Agreement, Submanager shall quietly hold, occupy
and enjoy the Hotel throughout the Term hereof free from hindrance, ejection or
molestation by Owner, Wyndham or Primary Manager or other party claiming under,
through or by right of Owner, Wyndham or Primary Manager. Primary Manager shall
exercise its rights under the Primary Management Agreement to cause Wyndham (or
to cause Wyndham to cause Owner) to pay and discharge any payments and charges
and, at such party's expense, to prosecute all appropriate actions, judicial or
otherwise, necessary to assure such free and quiet occupation; provided,
however, that Owner or Wyndham, as applicable, shall have the right to contest
by appropriate action any such payments or charges as long as such contest does
not disturb such free and quiet occupation by Submanager.
8.02 Mortgages
A. Owner or Wyndham shall be permitted to encumber the Hotel and/or
the Site with any Mortgage which is a Qualified Mortgage. Primary Manager
covenants that it shall exercise its rights under the Primary Management
Agreement to cause Wyndham (or to cause Wyndham to cause Owner) not to encumber
the Hotel and/or the Site with any Mortgage which is not a Qualified Mortgage.
B. Any Mortgage which meets all of the following requirements shall
be referred to in this Agreement as a "Qualified Mortgage":
1. The proposed Mortgage is from an Institutional Lender; and
2. Owner or Wyndham (as applicable) and Primary Manager and
Submanager and the holder of such Mortgage shall have entered into a
Subordination Agreement (to be recorded in the real property records in the
jurisdiction where the Site is located) as further described in Section 8.03
below. Submanager agrees to enter into a Subordination Agreement which satisfies
the requirements of Section 8.03 in connection with a proposed Mortgage which is
otherwise a Qualified Mortagage.
In addition, any Mortgage which encumbers the Hotel as of the date of the
Settlement Agreement and which continues to encumber the Hotel as of the
Take-Over Date shall be deemed to constitute a Qualified Mortgage whether or not
it meets the requirements set forth in 1 and 2 above.
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8.03 Subordination, Non-Disturbance and Attornment
A. Primary Manager shall exercise its rights under the Primary
Management Agreement to cause Wyndham (or to cause Wyndham to cause Owner) (i)
to use best reasonable efforts to obtain from any Mortgagee which holds a
Mortgage as of the Take-Over Date and (ii) to obtain from any Mortgagee which is
granted a Mortgage after the Take-Over Date an instrument (the "Subordination
Agreement"), reasonably satisfactory in all respects to Submanager and such
Mortgagee, which shall be recordable in the jurisdiction where the Hotel is
located, pursuant to which:
1. This Agreement and any extensions, renewals, replacements
or modifications thereto, and all right and interest of Primary Manager and
Submanager in and to the Hotel, shall be subject and subordinate to such
Mortgage;
2. Primary Manager and Submanager shall be obligated to each
of the Subsequent Owners (as defined below) to perform all of the terms and
conditions of this Agreement for the balance of the remaining Term hereof, with
the same force and effect as if such Subsequent Owners were the Owner or
Wyndham, as applicable; and
3. In the event that there is a Foreclosure of such Mortgage
(or a deed in lieu of Foreclosure), or other exercise by such Mortgagee (or its
successor) of its remedies in the event of default, in connection with which
title or possession of the Hotel is transferred to the Mortgagee (or its
designee) or to a purchaser at Foreclosure or to a subsequent purchaser from the
Mortgagee (or from its designee) (all of the foregoing shall collectively be
referred to as "Subsequent Owners"), then regardless of whether the Lease is
terminated or survives such Foreclosure, Primary Manager shall not be disturbed
in its rights under the Primary Management Agreement and Submanager shall not be
disturbed in its rights under this Agreement so long as Primary Manager is not
in default under the Primary Management Agreement and Submanager is not in
Default hereunder.
B. In the event that the Subordination Agreement contains provisions
requiring Submanager (upon a default under the Mortgage, or upon various other
stipulated conditions) to pay certain amounts which are otherwise due to Primary
Manager under this Agreement to the Mortgagee or its designee (rather than to
Primary Manager), Primary Manager hereby gives its consent to such provisions,
which consent shall be deemed to be irrevocable until the entire debt secured by
the Mortgage has been discharged.
C. Prior to any encumbrance of the Hotel or the Site with any
Mortgage after the Take-Over Date, Primary Manager shall be obligated to
exercise its rights under the Primary Management Agreement to cause Wyndham (or
to cause Wyndham to cause Owner) to obtain from the proposed Mortgagee an
executed, recordable Subordination Agreement. Primary Manager and Submanager
agree to execute such Subordination Agreement for the benefit of such proposed
Mortgagee. If Owner or Wyndham encumbers the Hotel or the Site with a Mortgage
after the Take-Over Date without first obtaining such a Subordination Agreement
from the Mortgagee: (i) it shall be a Default of Primary Manager under this
Agreement, entitling Submanager to all of the remedies set forth in Article IX;
and (ii) in addition, Submanager shall thereafter have a continuing right to
terminate this Agreement upon sixty (60) days' prior written notice to Primary
Manager.
D. Notwithstanding the subordination of this Agreement which is
described in Section 8.03.A.1 (or any subsequent subordination to any other
Mortgage), if, in connection with the exercise by any Mortgagee of its remedies
under any Mortgage, there is a material adverse impact upon the operation of the
Hotel by Submanager in accordance with the System Standards (such as, for
example, the imposition of restrictions upon expenditures from the FF&E Reserve
by Submanager, where such restrictions are not set forth in this Agreement), the
foregoing shall be deemed to be an Event of Default by Primary Manager entitling
Submanager to all of the remedies set forth in Article IX.
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8.04 No Covenants, Conditions or Restrictions
A. Primary Manager covenants that it will exercise its rights under
the Primary Management Agreement to cause Wyndham (or to cause Wyndham to cause
Owner) to not (unless Submanager has given its prior written consent thereto)
enter into any covenants, conditions or restrictions, including reciprocal
easement agreements or cost-sharing arrangements (collectively referred to as
"CC&R's") affecting the Site or the Hotel (i) which would prohibit or limit in
any material respect Submanager from operating the Hotel in accordance with the
System Standards, including related amenities proposed for the Hotel pursuant to
the Five Year Plan; (ii) which would allow the Hotel facilities (for example,
parking spaces) to be used by persons other than guests, invitees or employees
of the Hotel; (iii) which would allow the Hotel facilities to be used for
specified charges or rates which have not been approved by Submanager; or (iv)
which would subject the Hotel to exclusive arrangements regarding food and
beverage operation or retail merchandise. To Primary Manager's knowledge, any
existing CC&R's affecting the Site or the Hotel are effected in instruments
which have been provided by Primary Manager, Owner or Wyndham to Submanager.
B. Unless otherwise agreed by both Primary Manager and Submanager,
all financial obligations imposed on Owner, Wyndham or Primary Manager or on the
Hotel pursuant to any CC&R's shall be paid by Primary Manager (or Primary
Manager shall cause to be paid by Primary Manager or Wyndham) from its own
funds, and not from Gross Revenues or from the FF&E Reserve. Submanager's
consent to any such CC&R's shall be conditioned (among other things) on
satisfactory evidence that: (i) the CC&R in question provides a reasonable and
cost-effective benefit to the operation of the Hotel; (ii) the costs incurred
(including administrative expenses) pursuant to such CC&R will be both
reasonable and allocated to the Hotel on a reasonable basis; and (iii) no
capital expenditures incurred pursuant to said CC&R will be paid as a Deduction
(but rather, such capital expenditures will be paid separately by Primary
Manager or by Owner or Wyndham).
8.05 Liens; Credit
Submanager and Primary Manager shall use commercially reasonable
efforts, and Primary Manager shall exercise its rights under the Primary
Management Agreement to cause Wyndham (or to cause Wyndham to cause Owner) to
use commercially reasonable efforts to prevent any liens from being filed
against the Hotel which arise from any maintenance, repairs, alterations,
improvements, renewals or replacements in or to the Hotel. Submanager and
Primary Manager shall cooperate fully, and Primary Manager shall exercise its
rights under the Primary Management Agreement to cause Wyndham to cooperate
fully (or to cause Owner to cooperate fully, as applicable) in obtaining the
release of any such liens, and the cost thereof, if the lien was not occasioned
by the fault of either party, shall be treated the same as the cost of the
matter to which it relates. If the lien arises as a result of the fault of
either party, then the party at fault shall bear the cost of obtaining the lien
release. In no event shall either party borrow money in the name of or pledge
the credit of the other.
8.06 Amendments Requested by Mortgagee
A. If requested by any Mortgagee or prospective Mortgagee,
Submanager agrees to execute and deliver any amendment of this Agreement that is
reasonably required by such Mortgagee or prospective Mortgagee, provided that
Submanager 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 Submanager hereunder; (ii) to materially and adversely increase
Submanager's obligations or affect Submanager's rights under this Agreement;
(iii) to change the Term of this Agreement; (iv) to cause the Hotel to be
operated other than pursuant to the System Standards and other provisions
hereof; or (v) to amend Section 5.02 or Section 5.03. Any such amendment shall
be in effect only for the period of time in which such Mortgage is outstanding.
B. Notwithstanding the provisions of Section 8.06.A, if a Mortgagee
or prospective Mortgagee requests that Submanager enter into an amendment of
this Agreement which 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 Submanager, or would otherwise adversely affect Submanager's rights
under this Agreement, but not to the degree of materiality which would be
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prohibited under Section 8.06.A, and with respect to which Submanager believes,
in its good faith judgment, that it can be adequately compensated, Submanager
hereby agrees that it will execute and deliver such requested amendment of this
Agreement, provided that Primary Manager agrees to compensate Submanager for the
additional burden imposed by such amendment. It is understood that the word
"burden", as used in the preceding sentence, shall encompass not only additional
work to be performed by Submanager, but also the adverse effect on the
achievement of the Performance Termination Threshold which would be caused by
requiring increased services to be provided to the Hotel by third parties and by
paying from Gross Revenues any other expenses incurred by Submanager in meeting
such additional obligations. Any dispute as to the additional compensation to
which Submanager is entitled pursuant to this Section 8.06.B. shall be resolved
by arbitration pursuant to Section 11.21.
ARTICLE IX
DEFAULTS
9.01 Events of Default
Each of the following shall constitute a "Default" under this Agreement.
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.
Upon the occurrence of any Default by either party (referred to as the
"defaulting party") as described under this subsection A, said Default shall be
deemed an "Event of Default" under this Agreement.
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. Upon the occurrence of
any Default by either party as described under this subsection B, said Default
shall be deemed an "Event of Default" under this Agreement.
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 an aggregate of sixty (60) days (whether or not consecutive).
Upon the occurrence of any Default by either party as described under this
subsection C, said Default shall be deemed an "Event of Default" under this
Agreement. Notwithstanding the foregoing, the Defaults described in subsection
A-C herein, shall not constitute an Event of Default triggering Submanager's
remedies under Section 9.02 in the event that Wyndham and Owner select a
replacement Primary Manager pursuant to the terms of the Owner's Agreement.
D. The failure of either party to make (or in the case of Primary
Manager, the failure of Primary Manager to make or to cause Wyndham, (or to
cause Wyndham to cause Owner, as applicable) to make any payment required to be
made in accordance with the terms of this Agreement. Upon the occurrence of any
Default by either party as described under this subsection D, said Default shall
be deemed an "Event of Default" under this Agreement if the defaulting party
fails to cure such Default within ten (10) business days after receipt of
written notice from the non-defaulting party demanding such cure.
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, and the continuance of such default for a period of thirty (30) days
after the defaulting party's receipt of written notice from the non-defaulting
party of said failure. Upon the occurrence of any Default by either party as
described under this subsection E, said Default shall be deemed an "Event of
Default" under this Agreement if the defaulting party fails to cure the Default
within thirty (30) days after receipt of written notice from the non-defaulting
party 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
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cure of such Default within said thirty (30) day period of time or thereafter
fails to diligently pursue such efforts to completion.
9.02 Remedies
Upon the occurrence of an Event of Default, the non-defaulting party shall
have the right to pursue any one or more of the following courses of action: (1)
if the Event of Default has a material adverse impact on the non-defaulting
party, 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 further provided that, if the defaulting
party is Submanager, 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 Legal Requirements pertaining to termination of employment); (2) to
institute forthwith any and all proceedings permitted by law or equity
including, without limitation, actions for specific performance and/or damages;
and/or (3) to avail itself of the remedies described in Section 9.03.
9.03 Additional Remedies
A. Upon the occurrence of a Default by either party under the
provisions of Section 9.01.D, the amount owed to the non-defaulting party shall
accrue interest, at an annual rate equal to the Prime Rate plus three (3)
percentage points, from and after the date on which the Default occurred.
B. Upon the occurrence of an Event of Default by Primary Manager
under the provisions of Section 9.01.D, Submanager shall have the right (without
affecting Submanager's other remedies under this Agreement) to withdraw the
amount (plus accrued interest as described in 9.03.A above) owed to Submanager
by Primary Manager from distributions otherwise payable to Primary Manager
pursuant to Sections 3.01 and 4.01 of this Agreement.
C. Submanager and/or any Affiliate shall be entitled, in case of any
breach of the covenants of Sections 11.11.E, F, or G or of Section 11.12 by
Primary Manager or others claiming through it, to injunctive relief and to any
other right or remedy available at law.
D. The remedies granted under Sections 9.02 and 9.03 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) by reason of applicable provisions of law or equity and
shall survive Termination.
9.04 Default under Owner's Agreement
In the event of a Default by Owner or Wyndham under the Owner's Agreement,
Submanager shall be entitled to terminate this Agreement, provided that such
Termination shall not be an exclusive remedy and Submanager shall be entitled to
pursue any remedies it may have under the Owner's Agreement or under this
Agreement against Primary Manager.
ARTICLE X
ASSIGNMENT AND SALE
10.01 Assignment
A. Submanager shall not directly or indirectly assign or transfer
its interest in this Agreement without the prior written consent of Primary
Manager; provided, however, that Submanager shall have the right, without
Primary Manager's consent, to (1) assign its interest in this Agreement to
Marriott or any Affiliate (provided
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such Affiliate has the right to use the Marriott Trade Names and Marriott
Trademark, and otherwise is of sufficient financial capacity to perform
Submanager's duties hereunder), (2) lease shops or grant concessions at the
Hotel so long as the terms of any such leases or concessions do not exceed the
Term of this Agreement, (3) assign its interest in this Agreement to any entity
into or with which Submanager is merged or consolidated or to which all or
substantially all of the assets of Submanager or Marriott are sold, and (4)
assign its interest in this Agreement to any entity to which there is a sale of
all or substantially all of the Marriott System assets owned by Submanage or
Marriott.
B. Primary Manager shall not assign or transfer its interest in this
Agreement without the prior written consent of Submanager; provided, however,
that Primary Manager shall have the right, without such consent, to (1) cause
this Agreement to be conditionally assigned as security for a Mortgage of the
Hotel in accordance with this Agreement, (2) assign its interest in this
Agreement to any Affiliate of Primary Manager (provided such Affiliate is no
less financially sound than Primary Manager at the time of assignment), (3)
assign its interest in this Agreement to any entity into or with which Primary
Manager is merged or consolidated or to which all or substantially all of the
assets of Primary Manager or its parent company are sold, and (4) assign its
interest in this Agreement pursuant to or as a result of a Sale of the Hotel
which complies with the provisions of the Settlement Agreement.
C. In the event either party consents to an assignment of this
Agreement by the other, no further assignment shall be made without the express
consent in writing of such party, unless such assignment may otherwise be made
without such consent pursuant to the terms of this Agreement. An assignment by
either Primary Manager or Submanager of its interest in this Agreement shall not
relieve Primary Manager or Submanager, as the case may be, from its respective
obligations under this Agreement, and shall inure to the benefit of, and be
binding upon, its respective successors, heirs, legal representatives, or
assigns.
D. Submanager shall have the right to terminate this Agreement, on
thirty (30) days' written notice, if title to or possession of the Hotel 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 is not
a Qualified Person (as defined in Section 10.02A), regardless of whether or not
such transfer is the voluntary action of Owner or Wyndham (or successor owner of
the Hotel or leasehold interest therein) or whether (under applicable law) Owner
or Wyndham (or successor owner of the Hotel or leasehold interest therein) is in
fact the transferor.
E. The foregoing provisions of this Section 10.01 are not intended
to limit or modify the provisions of the Settlement Agreement relating to an
assignment of this Agreement.
10.02 Sale of the Hotel.
A. Primary Manager shall not without the express prior written
consent of Submanager, which consent may be unreasonably withheld or delayed,
enter into a Sale of the Hotel with any Person other than a Qualified Person.
For purposes hereof, "Qualified Person" shall mean a Person that is not, and is
not an Affiliate of, (i) a hotel management entity which is a competitor of
Manager or any of its Affiliates in the management of hotels, (ii) a Person
controlled by, or associated with, organized crime, or (iii) a repeat felon or a
Person convicted of a capital crime.
B. Upon closing of any Sale of the Hotel, except as otherwise set
forth in the Settlement Agreement Primary Manager shall cause the purchaser of
the Hotel to enter into an agreement with Submanager, in form and substance
reasonably satisfactory to Submanager, agreeing that this Agreement continue in
full force and effect after such sale, assignment, transfer or other
disposition; and to assume all of the contractual obligations of Primary Manager
contained in this Agreement and accruing after the date of the Sale of the
Hotel. Except as otherwise provided in the Settlement Agreement, this Agreement
is not terminable due to or in connection with any Sale of the Hotel. In
addition to the assumption of this Agreement, Primary Manager shall cause the
purchaser of the
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Hotel to assume the Franchise Agreement (which shall remain suspended absent an
event that causes a Reinstated Franchise Agreement to become effective).
C. The foregoing provisions of this Section 10.02 are not intended
to limit or modify the provisions of the Settlement Agreement relating to the
Sale of the Hotel, including Section 3.2.4 thereof.
ARTICLE XI
MISCELLANEOUS
11.01 Right to Make Agreement
Each party warrants, with respect to itself, that neither the execution of
the Agreement nor the finalization of the transactions contemplated hereby shall
violate any provision of law or judgment, writ, injunction, order or decree of
any court or governmental authority having jurisdiction over it; result in or
constitute a breach or default under any indenture, contract, other commitment
or restriction to which it is a party or by which it is bound; or require any
consent, vote or approval which has not been taken, or at the time of the
transaction involved shall not have been given or taken. Each party covenants
that it has and will continue to have throughout the term of the Agreement and
any extensions thereof, the full right to enter into the Agreement and perform
its obligations hereunder.
11.02 Consents and Cooperation
Wherever in the Agreement the consent or approval of Primary Manager or
Submanager is required, such consent or approval shall not be unreasonably
withheld, delayed or conditioned, shall be in writing and shall be executed by a
duly authorized officer or agent of the party granting such consent or approval
subject, however, to the provisions of the Owner's Agreement. If either Primary
Manager or Submanager fails to respond within thirty (30) days to a request by
the other party for a consent or approval, such consent or approval shall be
deemed to have been given (except as otherwise provided in this Agreement).
Additionally, Primary Manager agrees to cooperate with Submanager by exercising
its rights under the Primary Management Agreement to cause Wyndham to execute
such leases, subleases, licenses, concessions, equipment leases, service
contracts and other agreements negotiated in good faith by Submanager and
pertaining to the Hotel that, in Submanager's reasonable judgment, should be
made in the name of the lessee of the Hotel.
11.03 Relationship
In the performance of this Agreement, Submanager shall act solely as an
independent contractor. Neither this Agreement nor any agreements, instruments,
documents, or transactions contemplated hereby shall in any respect be
interpreted, deemed or construed as making Submanager a partner, joint venturer
with, or agent of, Primary Manager, Owner or Wyndham. Primary Manager and
Submanager agree that neither party will make any contrary assertion, claim or
counterclaim in any action, suit, arbitration or other legal proceedings
involving Primary Manager (or Owner or Wyndham) and Submanager.
11.04 Applicable Law
The Agreement shall be construed under and shall be governed by the laws
of the state in which the Hotel is located.
11.05 Recordation
The terms and provisions of the Agreement shall run with Wyndham's
leasehold and Owner's fee interest in the parcel of land designated as the Site,
and with Wyndham's and Owner's interests therein, and shall be binding upon all
successors to such interest. Simultaneously with the execution of this
Agreement, Primary Manager shall exercise its rights under the Primary
Management Agreement to cause Wyndham to cause Owner to execute a recordable
"Memorandum of Management Agreement", in the form which is attached hereto as
Exhibit "D". The
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Memorandum shall be recorded or registered promptly following the Effective Date
in the jurisdiction in which the Hotel is located. Any cost of such recordation
shall be reimbursed from Gross Revenues and treated as a Deduction. Upon a
termination of this Agreement in accordance with the provisions of this
Agreement, Submanager agrees to execute a recordable termination of such
Memorandum of Management Agreement in form reasonably agreed to by Primary
Manager (it being acknowledged that pursuant to the Primary Management Agreement
Primary Manager is required to obtain the agreement of Wyndham to such form).
11.06 Headings
Headings of articles and sections are inserted only for convenience and
are in no way to be construed as a limitation on the scope of the particular
articles or sections to which they refer.
11.07 Notices
Notices, statements and other communications to be given under the terms
of the Agreement shall be in writing and delivered by hand against receipt or
sent by certified or registered mail, postage prepaid, return receipt requested
or by nationally utilized overnight delivery service, addressed to the parties
as follows:
To Primary Manager:
IHC II, LLC
---------------------------
---------------------------
---------------------------
FAX:
-----------------------
with copy to:
---------------------------
---------------------------
---------------------------
FAX:
-----------------------
To Submanager:
Marriott Hotel Services, Inc.
c/o Marriott International, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department 52/923 -- Hotel Operations
FAX: 301/380-6727
with copy to:
Marriott Hotel Services, Inc.
c/o Marriott International, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Lodging Financial Analysis Dept. 911.10
FAX: 301/380-3667
or at such other address as is from time to time designated by the party
receiving the notice. Any such notice that is mailed in accordance herewith
shall be deemed received when delivery is received or refused, as the case may
be. Additionally, notices may be given by telephone facsimile transmission,
provided that an original copy of said transmission shall be delivered to the
addressee by nationally utilized overnight delivery service by no later than the
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second business day following such transmission. Telephone facsimiles shall be
deemed delivered on the date of such transmission.
11.08 Environmental Matters
A. Primary Manager hereby represents and warrants to Submanager
that, to the best of its knowledge except as set forth in any environmental
assessment reports provided by Owner, Wyndham or Primary Manager to Submanager,
as of the Effective Date, there are no Hazardous Materials on any portion of the
Site or the Hotel, nor have any Hazardous Materials been released or discharged
on any portion of the Site or the Hotel. In addition, Primary Manager hereby
represents and warrants that it has previously delivered or has caused Owner or
Wyndham to have delivered to Submanager copies of all reports concerning
environmental conditions which have been received by Primary Manager or any of
its Affiliates. Prior to the Take-Over Date, Submanager shall have the right to
terminate this Agreement, at its option, if Hazardous Materials are found on the
Site and/or the Hotel in quantities sufficient to create a danger (in
Submanager's good-faith judgment) of possible adverse legal consequences to
Submanager if it were to assume operation of the Hotel.
B. In the event of the discovery of Hazardous Materials (as defined
below) on any portion of the Site or in the Hotel during the Term of this
Agreement, Primary Manager shall (except as otherwise set forth to the contrary
in Section 11.08.C) exercise its rights under the Primary Management Agreement
to cause Wyndham (or to cause Wyndham to cause Owner) to promptly remove such
Hazardous Materials, together with all contaminated soil and containers, and
shall otherwise remedy the problem in accordance with (1) the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601
et seq., as amended; (2) the regulations promulgated thereunder, from time to
time; (3) 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 (4) the regulations
promulgated thereunder, from time to time (collectively referred to as
"Environmental Laws"). Primary Manager shall (except as otherwise set forth to
the contrary in Section 11.08.C) exercise its rights under the Primary
Management Agreement to cause Wyndham (or cause Wyndham to cause Owner) to
indemnify, defend and hold Submanager harmless from and against all loss, costs,
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 Hotel; and this obligation of Primary
Manager shall survive Termination of this Agreement. "Hazardous Materials" shall
mean and include any substance or material containing one or more of any of the
following: "hazardous material", "hazardous waste", "hazardous substance",
"regulated substance", "petroleum", "pollutant", "contaminant", "polychlorinated
biphenyls", "lead or lead-based paint" or "asbestos" as such terms are defined
in any applicable Environmental Law in such concentration(s) or amount(s) as may
impose clean-up, removal, monitoring or other responsibility under the
Environmental Laws, as the same may be amended from time to time, or which may
present a significant risk of harm to guests, invitees or employees of the
Hotel.
C. In the event that Hazardous Materials are released on any portion
of the Site or in the Hotel during the Term of this Agreement as a result of the
actions of Submanager's employees, then Submanager shall promptly remove such
Hazardous Materials, together with all contaminated soil and containers, and
shall otherwise remedy the problem in accordance with all Environmental Laws.
All costs and expenses of the removal by Submanager (pursuant to this Section
11.08.C) of Hazardous Materials, and of the aforesaid compliance with
Environmental Laws shall (to the extent such costs exceed Ten Thousand Dollars
($10,000), as adjusted by the GDP Deflator, with respect to any given incident
or related series of incidents in which such a release occurred) be paid from
Submanager's own funds and not as a Deduction, and Submanager shall indemnify,
defend and hold Owner, Wyndham, Primary Manager and any Mortgagee harmless from
and against all loss, costs, liability and damage (including, without
limitation, engineers' and attorneys' fees and expenses, and the cost of
litigation) arising from the actions described in this Section 11.08.C. In the
event that the costs and expenses of said removal by Submanager, and of the
aforesaid compliance, are less than Ten Thousand Dollars ($10,000), as adjusted
by the GDP Deflator, with respect to any such incident, said costs and expenses
shall be paid from Gross Revenues as a Deduction, and the foregoing indemnity by
Submanager shall not apply. Submanager shall be able to retain in the Hotel
reasonable quantities of cleansers, solvents and other materials used in the
ordinary course of hotel operations, notwithstanding
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that such materials may contain or be Hazardous Materials, provided that
Submanager complies with all Environmental Laws with regard to the storage, use
and disposal thereof.
D. Except as otherwise set forth to the contrary in Section 11.08.C,
all costs and expenses of the aforesaid removal of Hazardous Materials from the
Site or the Hotel, and of the aforesaid compliance with all Environmental Laws,
and any amounts paid to Submanager pursuant to the indemnity set forth in
Section 11.08.B, shall be paid by Primary Manager from its own funds, not as a
Deduction nor from the FF&E Reserve, and shall be treated as an expenditure by
Primary Manager pursuant to Section 5.03.
11.09 Confidentiality
A. The parties hereto agree that the matters set forth in this
Agreement and all statements, reports, projections, and other information
relating to the operation of the Hotel are strictly confidential and each party
will make every effort to ensure (including, in the case Primary Manager,
exercising its rights under the Primary Management Agreement and causing Wyndham
to exercise its rights under the Lease) that the information is not disclosed to
any outside person or entities (including the press) without the prior written
consent of the other party except as may be required by law and as may be
reasonably necessary to obtain licenses, permits, and other public approvals
necessary for the refurbishment or operation of the Hotel, or in connection with
Owner's or Wyndham's financing of the Hotel, a Sale of the Hotel, or a sale of a
controlling interest in Owner, Wyndham, Submanager, or Marriott (except any
financing or sale involving a private or public offering of securities).
B. Primary Manager shall not include and shall exercise its rights
under the Primary Management Agreement to cause Wyndham (or to cause Wyndham to
cause Owner) not to include any reference to Submanager or to any Affiliate of
Submanager in any prospectus, private placement memorandum, offering circular or
offering documentation related thereto (collectively referred to as the "Primary
Manager Prospectus"), issued by Owner, Wyndham or Primary Manager or by one of
their respective Affiliates or by one or more Mortgagees, which is designated to
interest potential investors in debt or equity securities related to the Hotel,
unless Submanager has previously received a copy of all such references.
However, regardless of whether Submanager does or does not so receive a copy of
all such references, neither Submanager nor any Affiliate of Submanager will be
deemed a sponsor of the offering described in the Primary Manager Prospectus,
nor will it have any responsibility for the Primary Manager Prospectus. Unless
Submanager agrees in advance, the Primary Manager Prospectus will not include
any Marriott Trade Names or Marriott Trademarks. Primary Manager shall
indemnify, defend and hold Submanager harmless from and against all loss, costs,
liability and damage (including attorneys' fees and expenses, and the cost of
litigation) arising out of any Primary Manager Prospectus or the offering
described therein; and this obligation of Primary Manager shall survive
Termination of this Agreement.
C. No reference to Owner, Wyndham or Primary Manager or to any
Affiliate of any of them will be made in any prospectus, private placement
memorandum, offering circular or offering documentation related thereto
(collectively referred to as the "Submanager Prospectus"), issued by Submanager
or by one of Submanager's Affiliates, which is designated to interest potential
investors in debt or equity securities, unless Owner, Wyndham or Primary
Manager, as applicable, has previously received a copy of all such references.
However, regardless of whether Owner, Wyndham or Primary Manager does or does
not so receive a copy of all such references, neither Primary Manager nor any
Affiliate of any of them will be deemed a sponsor of the offering described in
the Submanager Prospectus, nor will it have any responsibility for the
Submanager Prospectus. Unless Owner, Wyndham or Primary Manager, as applicable,
agrees in advance, the Submanager Prospectus will not include any Trade Names or
Trademarks of Owner, Wyndham or Primary Manager. Submanager shall indemnify,
defend and hold Owner, Wyndham and Primary Manager harmless from and against all
loss, costs, liability and damage (including attorneys' fees and expenses, and
the cost of litigation) arising out of any Submanager Prospectus or the offering
described therein; and this obligation of Submanager shall survive Termination
of this Agreement.
11.10 Projections
Primary Manager acknowledges that any written or oral projections,
proformas, or other similar information that has been (prior to execution of
this Agreement) or will (during the Term of this Agreement) be provided by
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Submanager or Marriott (or any Affiliate of either) to Primary Manager is for
information purposes only, and that Submanager, Marriott, and any such Affiliate
do not guarantee that the Hotel will achieve the results set forth in any such
projections, proformas, or other similar information. Any such projections,
proformas, or other similar information are based on assumptions and estimates.
Unanticipated events may occur subsequent to the date of preparation of such
projections, proformas, and other similar information. Therefore, the actual
results achieved by the Hotel are likely to vary from the estimates contained in
any such projections, proformas, or other similar information and such
variations might be material.
11.11 Actions to be Taken Upon Termination
Upon a Termination of this Agreement, the following shall be applicable:
A. Submanager shall, within ninety (90) days after Termination of
this Agreement, prepare and deliver to Primary Manager a final accounting
statement with respect to the Hotel, as more particularly described in Section
4.02 hereof, along with a statement of any sums due from Primary Manager to
Submanager pursuant hereto, dated as of the date of Termination. Within thirty
(30) days of the receipt by Primary Manager of such final accounting statement,
the parties will make whatever cash adjustments are necessary pursuant to such
final statement. The cost of preparing such final accounting statement shall be
a Deduction, unless the Termination occurs as a result of a Default by either
party, in which case the defaulting party shall pay such cost. Submanager and
Primary Manager acknowledge that there may be certain adjustments for which the
information will not be available at the time of the final accounting and the
parties agree to readjust such amounts and make the necessary cash adjustments
when such information becomes available; provided, however, that all accounts
shall be deemed final as of the first (1st) anniversary of the effective date of
Termination.
B. Submanager shall release and transfer to Primary Manager (i) any
of Primary Manager's funds which are held or controlled by Submanager with
respect to the Hotel with the exception of funds to be held in escrow pursuant
to Sections 6.01.F and 11.11.H and otherwise in accordance herewith and (ii) to
the extent not previously provided to Primary Manager, the guest history of the
Hotel, (including names, addresses and other information with respect to Hotel
guests, but not information as to national or regional accounts of Submanager,
Marriott or their Affiliates other than names, addresses and other information
of guests which stayed at the Hotel pursuant to such accounts.
C. Submanager shall make available to Primary Manager such books and
records respecting the Hotel (including those from prior years, subject to
Submanager's reasonable records retention policies) as will be needed by Primary
Manager to prepare the accounting statements, in accordance with the Uniform
System of Accounts, for the Hotel for the year in which the Termination occurs
and for any subsequent year.
D. Submanager shall (to the extent permitted by law) assign to
Primary Manager or to the new submanager all operating licenses and permits for
the Hotel which have been issued in Submanager's name (including liquor and
restaurant licenses, if any); provided that if Submanager has expended any of
its own funds in the acquisition of any of such licenses or permits, Primary
Manager shall reimburse Submanager therefor if it has not done so already.
E. Submanager shall have the option, to be exercised within thirty
(30) days after Termination, to purchase, at their then fair market value, any
items of the Hotel's Inventories and Fixed Asset Supplies as may be marked with
any Marriott Trade Name or any Marriott Trademark. In the event Submanager does
not exercise such option, Primary Manager agrees that any such items which are
not so purchased shall be used exclusively in connection with the Hotel until
they are consumed.
F. Primary Manager shall have the right to operate the improvements
on the Site without modifying the architectural design of same, notwithstanding
the fact that such design or certain features thereof may be proprietary to
Submanager and/or protected by trade marks or service marks held by Submanager
or an Affiliate, provided that such use shall be confined to the Site.
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G. All Software used at the Hotel which is owned by any of the
Marriott Companies (or any Affiliates thereof) or the licensor of any of them is
proprietary to such Marriott Company (or such Affiliate) or the licensor of any
of them, and shall in all events remain the exclusive property of such Marriott
Company (or such Affiliate) or the licensor of any of them, as the case may be,
and nothing contained in this Agreement shall confer on Primary Manager, Owner
or Wyndham the right to use any of such Software. Submanager shall have the
right to remove from the Hotel without compensation to Primary Manager, Owner or
Wyndham any Software (including upgrades and replacements), including, without
limitation, Software in general use throughout the Marriott System, which is
owned by any of the Marriott Companies (or any Affiliates thereof) or the
licensor of any of them. Furthermore, upon Termination, notwithstanding Section
5.04 hereof, Submanager shall be entitled to remove from the Hotel any computer
equipment which is: (i) owned by Submanager (without reimbursement to Primary
Manager, Owner or Wyndham); or (ii) owned by Primary Manager, Owner or Wyndham,
but utilized as part of a Marriott centralized reservation or property
management system (with reimbursement to Primary Manager, Owner or Wyndham, as
applicable, of all previous expenditures made by Primary Manager, Owner or
Wyndham with respect to such equipment, subject to a reasonable allowance for
depreciation).
H. A reserve fund shall be established from Gross Revenues to
reimburse Submanager for all costs and expenses incurred by Submanager in
terminating its employees at the Hotel, such as reasonable severance pay,
unemployment compensation, employment relocation (however, Submanager shall be
responsible for relocation costs of any executive committee member relocating to
another hotel managed by Submanager or its affiliates, arising from a
Termination elected by Submanager, and in no event shall Submanager be
reimbursed for the cost of relocating any hourly (as opposed to salaried
managerial) employees of the Hotel), and other employee liability costs arising
out of the termination of employment of Submanager's employees at the Hotel.
Submanager agrees to use its reasonable efforts to mitigate such costs and
expenses. If Gross Revenues are insufficient to meet the requirements of such
reserve fund, then Primary Manager shall deliver to Submanager, within ten (10)
days after receipt of Submanager's written request therefor, the sums necessary
to establish such reserve fund; and if Primary Manager fails to timely deliver
such sums to Submanager, Submanager shall have the right (without affecting
Submanager's other remedies under this Agreement) to withdraw the amount of such
expenses from the Operating Accounts or any other funds of Primary Manager held
by or under the control of Submanager other than the FF&E Reserve.
Notwithstanding the foregoing, Wyndham, Owner, Primary Manager and any successor
manager shall have the right to interview and continue the employment of any of
Submanager's employees at the Hotel; provided, however, that Wyndham, Owner or
Primary Manager or such successor manager shall have the right to interview and
continue the employment of members of the Hotel Executive Committee only if such
persons will be terminated by Submanager. If this Agreement is terminated by
reason of Default of Submanager hereunder, then no such reserve fund shall be
established and Submanager shall pay from its own funds all costs and expenses
incurred by Submanager in terminating its employees at the Hotel.
I. Primary Manager shall cause the entity which shall succeed
Submanager as the operator of the Hotel to hire a sufficient number of the
employees at the Hotel to avoid the occurrence, in connection with such
Termination, of a "closing" under the WARN Act.
J. Various other actions shall be taken, as described in this
Agreement, including, but not limited to, the actions described in Sections 4.06
and 6.01.F.
K. In the event of a Termination pursuant to Section 2.02, Section
11.22, ordinary expiration of the Term or as a result of an Event of Default by
Submanager, then (i) Submanager shall not transfer any then existing bookings of
rooms or functions at the Hotel to any other hotel of Submanager, Marriott or
any Affiliate thereof or otherwise cancel any such bookings; however,
Submanager, acting in good faith, shall not be prohibited from responding
affirmatively to inquiries or requests by individuals or groups desiring to
transfer bookings of rooms or functions at the Hotel to any other hotel of
Submanager or its affiliates, and (ii) Submanager shall act reasonably and in
good faith to allow a transition of management and operations, including,
without limitation, by allowing representatives of Primary Manager or
replacement submanager to market the Hotel to potential guests for a period of
120 days (or such lesser period of time between the applicable notice of
Termination and actual Termination); provided, however, that such participation
by Primary Manager or replacement submanager shall not (x) unreasonably
interfere with Submanager's operation of the Hotel and (y) Submanager shall have
the right to take
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such measures it reasonably deems appropriate to protect its proprietary
information with respect to the Marriott System and its national and regional
accounts.
L. Submanager shall peacefully vacate and surrender the Hotel to
Primary Manager.
The provisions of this Section 11.11 shall survive Termination.
11.12 Trademarks, Trade Names and Intellectual Property
A. All Marriott Trade Names and Marriott Trademarks shall in all
events remain the exclusive property of Submanager (or one of its Affiliates),
and nothing contained in this Agreement shall confer on Owner, Wyndham or
Primary Manager the right to use any of the Marriott Trade Names or Marriott
Trademarks otherwise than in strict accordance with the terms of this Agreement.
Except as provided in Section 11.11.E, upon Termination, any use of or right to
use any of the Marriott Trade Names or Marriott Trademarks by Owner, Wyndham or
Primary Manager shall cease forthwith, and Primary Manager (i) shall
immediately, as of the date of such Termination, place coverings over any signs
or similar identification which contain any of said Marriott Trade Names or
Marriott Trademarks, or shall otherwise render such signs or other similar
identification not visible to the public; and (ii) shall remove any such signs
or similar identification from the Hotel by no later than ten (10) days after
the date of Termination. If Primary Manager has not removed such signs or
similar items within ten (10) days after Termination, Submanager shall have the
right to do so at Primary Manager's expense; and if Primary Manager fails to
reimburse Submanager for such expense within ten (10) days after receipt of
written notice thereof from Submanager to Primary Manager, then Submanager shall
have the right (without affecting Submanager's other remedies under this
Agreement) to withdraw the amount of such expenses from the Operating Accounts
or any other funds of Primary Manager held by or under the control of Submanager
other than the FF&E Reserve. For purposes of this Section 11.12, the term
"Marriott Trademarks" shall include, without limitation, all Trademarks and
Trade Names used in conjunction with the Hotel, including but not limited to
restaurant names, lounge names, etc. (other than Trademarks and Trade Names of
third party tenants, licensees or concessionaires at the Hotel), whether or not
the marks contain the "Marriott" name. The right to use or authorize others to
use Marriott Trade Names or Marriott Trademarks belongs exclusively to
Submanager and/or its Affiliates, whether or not the same are registered and
regardless of the source of the same. The provisions of this Section 11.12 shall
survive Termination. Notwithstanding Section 1.02.A, if the name of the Marriott
System is changed, Submanager will change the name of the Hotel to conform
thereto.
B. All Intellectual Property shall at all times be proprietary to
Submanager or its Affiliates, and shall be the exclusive property of Submanager
or its Affiliates. During the Term of this Agreement, Submanager shall be
entitled to take all reasonable steps to ensure that the Intellectual Property
remains confidential and is not disclosed to anyone other than Submanager's
employees at the Hotel. Upon Termination, all Intellectual Property shall be
removed from the Hotel by Submanager, without compensation to Owner, Wyndham or
Primary Manager, subject to the provisions of Section 11.11.G regarding
Software.
C. Submanager and/or its Affiliates shall be entitled, in case of
any breach by Primary Manager of any of the covenants of this Section 11.12, to
injunctive relief and to any other right or remedy available at law. Section
11.12 shall survive Termination.
11.13 Competing Facilities
Subject to the parties' rights of termination set forth in Section 11.22,
neither this Agreement nor anything implied by the relationship between
Submanager and Primary Manager shall prohibit Submanager or any of the Marriott
Companies from developing, constructing, operating, promoting, and/or
authorizing others to develop, construct, operate, or promote one or more
hotels, or any other lodging products, time-share facilities, restaurants, or
other business operations of any type, using any brand name available to the
Marriott Companies, at any location, including a location proximate to the Site,
and Primary Manager hereby acknowledges and agrees that Submanager and any of
the Marriott Companies have the unconditional right to engage in such
activities.
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11.14 Waiver
The failure of either party to insist upon a strict performance of any of
the terms or provisions of the Agreement, or to exercise any option, right or
remedy contained in this Agreement, 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.
11.15 Partial Invalidity
If any portion of the Agreement shall be declared invalid by order, decree
or judgment of a court, the Agreement shall be construed as if such portion had
not been so inserted except when such construction would operate as an undue
hardship on Submanager or Primary Manager or constitute a substantial deviation
from the general intent and purpose of said parties as reflected in the
Agreement.
11.16 Survival
Except as otherwise specifically provided in this Agreement, the rights
and obligations of the parties herein shall not survive any Termination of this
Agreement. To the extent not paid pursuant to the Settlement Agreement, any
obligation of Primary Manager to pay the Special Fee, pursuant to Section 2.01
B, shall survive Termination of this Agreement.
11.17 Affiliates
Submanager shall be entitled to contract with one or more of its
Affiliates to provide goods and/or services to the Hotel, provided that the
prices and/or fees paid to any such Affiliate are competitive with the prices
and/or fees which would be charged by reputable and qualified parties which are
not Affiliates of Submanager for similar goods and/or services. The prices
and/or fees paid to Affiliates may include overhead and the allowance of a
reasonable return which is customary for the goods and/or services to be
provided. In determining, pursuant to the foregoing, whether such prices and/or
fees are competitive, the goods and/or services which are being purchased shall
be grouped in reasonable categories, rather than being compared item by item.
11.18 Negotiation of Agreement
Primary Manager and Submanager are both business entities having
substantial experience with the subject matter of this Agreement, and each has
fully participated in the negotiation and drafting of this Agreement.
Accordingly, this Agreement shall be construed without regard to the rule that
ambiguities in a document are to be construed against the draftsman. No
inferences shall be drawn from the fact that the final, duly executed Agreement
differs in any respect from any previous draft hereof.
11.19 Estoppel Certificates
Each party to this Agreement shall at any time and from time to time, upon
not less than thirty (30) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (a) 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); (b) stating whether or not to the best knowledge of the
certifying party (i) there is a continuing Default or Event of Default by the
non-certifying party in the performance or observance of any covenant, agreement
or condition contained in this Agreement, or (ii) there shall have occurred any
event which, with the giving of notice or passage of time or both, would become
a Default or Event of Default, and, if so, specifying each such Default or Event
of Default or occurrence of which the certifying party may have knowledge; and
(c) 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
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as aforesaid. In addition, upon written request after a Termination, each party
agrees to execute and deliver to the non-certifying party and to any such third
party a statement certifying that this Agreement has been terminated.
11.20 System Standards
In the event of either (i) a Legal Requirement, including an order,
judgment or directive by a court or administrative body which is issued in
connection with any Litigation involving Primary Manager, Owner or Wyndham, or
(ii) any action taken by a Mortgagee in connection with a Foreclosure, which in
either case restricts or prevents Submanager, in a material and adverse manner,
from operating the Hotel in accordance with System Standards (including without
limitation, any restrictions on expenditures by Submanager from the Operating
Accounts or from the FF&E Reserve, other than restrictions which are set forth
in this Agreement), Submanager shall be entitled, at its option, to terminate
this Agreement upon sixty (60) days' written notice to Primary Manager. The
foregoing shall not reduce or otherwise affect the rights of the parties under
either Article IX or Section 11.11.I.
11.21 Arbitration
A. In the event of a dispute between Primary Manager and Submanager
with respect to any issue which is specifically described in this Agreement as a
matter to be decided by arbitration, such dispute shall be determined by
arbitration as provided in this Section 11.21.
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. Primary Manager and Submanager 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 upon the resolution of the dispute within thirty (30) days after the
appointment of the second arbitrator, shall appoint a third arbitrator. If
either Primary Manager or Submanager 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. The two
arbitrators so appointed shall, in the event of their failure to agree upon
resolution of the dispute 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 Primary Manager and Submanager, unless the
arbitrators decide otherwise. The fees of respective counsel engaged by the
parties, and the fees of expert witnesses and other witnesses called for the
parties, shall be paid by the respective party engaging such counsel or calling
or engaging such witnesses.
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 Primary
Manager and one to Submanager. 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.
11.22 Restricted Area Right of Termination
In the event that Submanager or any of its Affiliates, during the Term,
operates or manages (or franchises another party to operate or manage) a
Restricted MHRS Hotel, within the Restricted Area, Primary Manager and
Submanager shall each have the right to terminate this Agreement as follows:
Submanager shall provide Primary Manager notice upon the earlier to occur of (i)
thirty (30) days following the date on which Submanager or its Affiliate
executes a purchase agreement, management agreement, or license agreement or
franchise agreement, as the case may be, relating to a Restricted MHRS Hotel in
the Restricted Area, or (ii) upon the opening of such Restricted
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MHRS Hotel (meaning the date that the Restricted MHRS Hotel first accepts paying
customers). Submanager shall act in good faith with respect to the giving of
such notice, if practicable, at least ninety (90) days prior to the opening of a
Restricted MHRS Hotel. Within sixty (60) days after Primary Manager's receipt of
written notice that it will purchase, manage, license or franchise a Restricted
MHRS Hotel, Primary Manager shall give Submanager (or Submanager shall give to
Primary Manager) written notice (a "Termination Notice") that it elects to
terminate this Agreement, which termination shall be effective upon the opening
of the Restricted MHRS Hotel. Failure to deliver the Termination Notice within
such sixty (60) day period by either party shall constitute a waiver by such
party to exercise such termination right. Such Termination pursuant to this
Section 11.22 shall be without penalty or cost to either party. The preceding
sentence shall not be deemed to affect the accounting and other termination
procedures set forth in Section 11.11. In the event of any Termination of this
Agreement pursuant to this Section 11.22, the related Franchise Agreement shall
not be reinstated and, subject to payment of any royalty fees theretofore
accrued thereunder, shall be of no further force or effect. If indicated on
Exhibit A-1 as "yes" next to "Chain Exception," the foregoing shall not apply to
any hotel, the management or ownership of which Submanager (or an Affiliate)
acquires in connection with the acquisition of, or the right to operate, a chain
or group of three (3) or more hotels, in each case in a single transaction.
11.23 Entire Agreement
The Agreement, together with any other writings signed by the parties
expressly stated to be supplemental hereto and together with any instruments to
be executed and delivered pursuant to the Agreement, constitutes the entire
agreement between the parties and supersedes all prior understandings and
writings, and may be changed only by a writing signed by the parties hereto.
11.24 Expert Resolution Process
If, under the applicable provisions of this Agreement, a matter is to be
referred to an Expert for determination, the following provisions shall apply:
A. The decision of the Expert shall be final and binding on the
parties and shall not be subject to challenge, whether by arbitration, in court
or otherwise.
B. Each party shall be entitled to make written submissions to the
Expert. If either party makes any submission to the Expert, such party shall
also provide a copy of such submission to the other party, and the other party
shall have the right to comment on such submission. The parties shall make
available to the Expert all books and records relating to the issue in dispute,
and shall render to the Expert any assistance requested of the parties. The
costs of the Expert and of the proceedings shall be borne as directed by the
Expert unless otherwise provided for herein. The Expert may direct that such
costs be treated as Deductions.
C. The terms of engagement of the Expert shall include an obligation
on the part of the Expert to:
1. establish a timetable for the making of submissions and replies;
2. apply the standards applicable to first-class hotels in
accordance with System Standards; and
3. notify the parties in writing of the Expert's decision within
forty-five (45) days after the date on which the Expert has been selected
(or within such other period as the parties may mutually agree upon and
which is acceptable to the Expert).
ARTICLE XII
DEFINITION OF TERMS
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12.01 Definition of Terms
The following terms when used in the Agreement and the Addendum attached
hereto shall have the meanings indicated:
"Accounting Period" shall mean the four (4) week accounting periods having
the same beginning and ending dates as Submanager's four (4) week accounting
periods, except that an Accounting Period may occasionally contain five (5)
weeks when necessary to conform Submanager's accounting system to the calendar.
"Accounting Period Statement" shall have the meaning set forth in Section
4.01.A.
"Affiliate" shall mean, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with such
Person. For purposes of this definition, the term "control" (including the terms
"controlling", "controlled by" and "under common control with") of a Person
means the possession, directly or indirectly, of the power: (i) to vote more
than fifty percent (50%) of the voting stock of such Person; or (ii) to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting stock, by contract or otherwise.
"Agreement" shall mean this Submanagement Agreement between Primary
Manager and Submanager, including the exhibits attached hereto.
"Annual Operating Statement" shall have the meaning set forth in Section
4.01.
"Approval" shall mean prior written approval or consent, which, unless
otherwise specified herein, shall not be unreasonably withheld, conditioned or
delayed.
"Base Management Fee" shall mean an amount payable to Submanager (as a
Deduction from Gross Revenues) which is set forth on Exhibit "A-1" attached
hereto.
"Building Estimate" shall have the meaning ascribed to it in Section 5.03.
"Business Plan" shall have the meaning set forth in Section 4.05.
"Capital Expenditure" shall mean the expenses necessary for non-routine,
major repairs, alterations, improvements, renewals, replacements, and additions
to the Hotel including, without limitation, to the structure, the exterior
facade and all of the mechanical, electrical, heating, ventilating, air
conditioning, plumbing or vertical transportation elements of the Hotel
building, together with all other expenditures which are classified as "capital
expenditures" under generally-accepted accounting principles.
"Capitalization Multiple" shall mean the number ten (10).
"Case Goods" shall mean furniture and furnishings used in the Hotel,
including, without limitation: chairs, beds, chests, headboards, desks, lamps,
tables, television sets, mirrors, pictures, wall decorations and similar items.
"CC&R's" shall have the meaning ascribed to it in Section 8.04.
"Chain Services" shall have the meaning set forth in Section 1.04.
"Competitive Set"shall mean the five (5) most comparable hotels in the
general trade area of the Hotel. The term "comparable hotels" shall mean hotels
which have a comparable rating to the Hotel in recognized travel guides (e.g.,
Mobil "star" or AAA "diamond" rating systems). If, in the reasonable opinion of
either Primary Manager or Submanager, such Smith's STAR Report ceases to be a
satisfactory source of data regarding the rooms revenues of various hotels in
the general trade area of the Hotel, or if the "competitive set" requires
adjustment due to changes in
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the market, then either Primary Manager or Submanager shall suggest an
alternative competitive set or source of data for the other party's approval. If
the parties fail to agree on either such alternate competitive set or source, as
the case may be, within a reasonable period of time, then at the election of the
suggesting party, the matter shall be resolved by the Expert Resolution Process.
"Coverage Ratio" shall mean the number one and four-tenths (1.4).
"Deductions" shall mean the following expenses incurred by Submanager in
operating the Hotel:
1. the cost of sales, including, without limitation,
compensation, fringe benefits, payroll taxes, ERISA-related liabilities,
pension-fund withdrawal liabilities, and other costs related to employees of
Submanager (or one of its Affiliates) who are working for the benefit of the
Hotel (regardless of whether such employees are located at the Hotel or
elsewhere); provided that the foregoing costs shall not include the salary and
other employee costs of Submanager's or any Affiliate's corporate executive
staff who are located at Submanager's or such Affiliate's corporate
headquarters, and that the termination-related costs of regional employees shall
only apply in the case such termination was in connection with the Hotel or as a
result of the termination of this Agreement;
2. departmental expenses incurred at departments within the
Hotel; administrative and general expenses; the cost of marketing incurred by
the Hotel; advertising and business promotion incurred by the Hotel; heat,
light, and power; computer line charges; and routine repairs, maintenance and
minor alterations treated as Deductions under Section 5.01;
3. the cost of Inventories and Fixed Asset Supplies consumed
in the operation of the Hotel;
4. a reasonable reserve for uncollectible accounts receivable
as determined by Submanager;
5. all costs and fees of independent professionals or other
third parties who are retained by Submanager to perform services required or
permitted hereunder;
6. all costs and fees of technical consultants, professionals
and operational experts who are retained or employed by Submanager, Marriott,
and Affiliates for specialized services (including, without limitation, quality
assurance inspectors, personnel providing architectural, technical or
procurement services for the Hotel, tax consultants, and personnel providing
legal services in connection with matters directly involving the Hotel) and the
cost of attendance by employees of the Hotel at training and manpower
development programs designated by Submanager;
7. the Base Management Fee;
8. insurance costs and expenses as provided in Sections 6.01;
9. taxes, if any, payable by or assessed against Submanager
related to this Agreement or to Submanager's operation of the Hotel (exclusive
of Submanager's income taxes or franchise taxes);
10. all Impositions;
11. the amount of any transfers into the FF&E Reserve required
pursuant to Section 5.02;
12. the Hotel's pro rata share of costs and expenses incurred
in connection with marketing programs developed for the Marriott System where
such expenses are not deducted as either departmental expenses under paragraph 2
above or as Chain Services under paragraph 12 below, including, without
limitation, the Marriott Rewards Program;
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13. the Hotel's pro rata share of the charges for Chain
Services;
14. all costs and expenses of compliance by Submanager with
applicable Legal Requirements pertaining to the operation of the Hotel;
15. such other costs and expenses incurred by Submanager
(either at the Hotel or elsewhere) as are specifically provided for elsewhere in
this Agreement or are otherwise reasonably necessary for the proper and
efficient operation of the Hotel; and
16. royalty or franchise fees under the Franchise Agreement.
The term "Deductions" shall not include: (a) debt service payments
pursuant to any Mortgage on the Hotel; (b) payments pursuant to equipment leases
or other forms of financing obtained for the FF&E located in or connected with
the Hotel, unless Submanager has previously given its written consent to such
equipment lease and/or financing; (c) rental payments pursuant to any ground
lease of the Site; or (d) depreciation on the Hotel or any of its contents. All
of the foregoing items listed in this paragraph shall be paid by Primary Manager
from its own funds.
"Default" shall have the meaning ascribed to it in Section 9.01.
"Divestiture Date" shall have the meaning set forth in the Settlement
Agreement.
"Effective Date" shall have the meaning ascribed to it in the Preamble.
"Environmental Laws" shall have the meaning ascribed to it in Section
11.08.
"Event of Default" shall have the meaning ascribed to it in Section 9.01.
"Expert" shall mean an independent nationally recognized consulting firm
or individual who is qualified to resolve the issue in question, and who is
appointed in each instance by agreement of the parties. Failing such agreement,
each party shall select one (1) such nationally recognized consulting firm or
individual, and the two (2) respective firms and/or individuals so selected
shall select another such nationally recognized consulting firm or individual to
be the Expert.
"Expert Resolution Process" shall mean the process for Expert resolution
described in Section 11.24 herein.
"FF&E" shall mean furniture, furnishings, fixtures, Soft Goods, Case
Goods, signage, audio-visual equipment, kitchen appliances, vehicles, carpeting
and equipment, including front desk and back-of-the house computer equipment,
but shall not include Fixed Asset Supplies or Software.
"FF&E Estimate" shall have the meaning ascribed to it in Section 5.02.C.
"FF&E Reserve" shall have the meaning ascribed to it in Section 5.02.A.
"Fiscal Year" shall mean Submanager's Fiscal Year which, as of the
Effective Date, ends at midnight on the Friday closest to December 31 in each
calendar year; the new Fiscal Year begins on the Saturday immediately following
said Friday. Any partial Fiscal Year between the Take-Over Date and the
commencement of the first full Fiscal Year shall constitute a separate Fiscal
Year. A partial Fiscal Year between the end of the last full Fiscal Year and the
Termination of this Agreement shall also constitute a separate Fiscal Year. If
Submanager's Fiscal Year is changed in the future, appropriate adjustment to
this Agreement's reporting and accounting procedures shall be made; provided,
however, that no such change or adjustment shall alter the Term of this
Agreement or in any way reduce the distributions of Operating Profit or other
payments due hereunder.
"Five-Year Plan" shall mean the "FF&E Budget Approval for 1998-2002" which
is attached hereto as Exhibit "B-1".
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"Fixed Asset Supplies" shall mean items included within "Property and
Equipment" under the Uniform System of Accounts including, but not limited to,
linen, china, glassware, tableware, uniforms, and similar items, whether used in
connection with public space or Guest Rooms.
"Food and Beverage Operation" means all of the following Hotel services,
whether performed inside or outside the Hotel: (1) all restaurant, dining, bar
and lounge food and beverage services; (2) all banquet, meeting, convention,
event, catering, and room services food and beverage services; and (3) any other
food, beverage or related services of the Hotel.
"Force Majeure" shall mean acts of God, acts of war, civil disturbance,
governmental action (including the revocation or refusal to grant licenses or
permits, 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
Mortgagee, upon a default under the Mortgage held by such Mortgagee, which
results in a transfer of title to or possession of the Hotel. 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 Mortgage:
(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 Hotel; (iv) a transfer of either Owner or Wyndham or control of an Owner
or Wyndham, by exercise of a stock pledge or otherwise; (v) if title to the
Hotel is held by a tenant under a ground lease, an assignment of the tenant's
interest in such ground lease; or (vi) any similar judicial or non-judicial
exercise of the remedies held by the Mortgagee.
"Franchise Agreement" shall have the meaning ascribed to it in the
Recitals.
"GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Primary
Manager and reasonably satisfactory to Submanager (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 11.21. 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 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 Food and Beverage Sales" shall mean all sales and receipts of every
kind and nature, including, among other items, credit charges, charge backs and
uncollectible amounts, from the Food and Beverage Operations, but shall not be
deemed to include any sales, hotel, entertainment tax or similar taxes collected
from patrons or guests. Gross Food and Beverage Sales shall be accounted for on
an accrual basis and in accordance with the Uniform System.
"Gross Revenues" shall mean all revenues and receipts of every kind
derived from operating the Hotel and all departments and parts thereof,
including, but not limited to: income (from both cash and credit transactions)
from rental of Guest Rooms, telephone charges, stores, offices, exhibit or sales
space of every kind; license, lease and concession fees and rentals (not
including gross receipts of licensees, lessees and concessionaires); income from
vending machines; income from parking; health club membership fees; food and
beverage sales; wholesale and retail sales of merchandise; service charges; 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 employees of the Hotel; federal, state or municipal excise, sales
or use taxes or any other taxes collected directly from patrons or guests or
included as part of the sales price of any goods or services; proceeds from the
sale of FF&E; interest
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received or accrued with respect to the funds in the FF&E Reserve or the other
operating accounts of the Hotel; any refunds, rebates, discounts and credits of
a similar nature, given, paid or returned in the course of obtaining Gross
Revenues or components thereof; insurance proceeds (other than proceeds from
business interruption or other loss of income insurance; condemnation proceeds
(other than for a temporary taking); or any proceeds from any Sale of the Hotel
or from the refinancing of any debt encumbering the Hotel.
"Gross Room Sales" shall mean all sales and receipts of every kind and
nature which accrue from the rental of Guest Rooms including, among other items,
credit charges, charge backs and uncollectible amounts, but shall not be deemed
to include any sales tax, value added tax, or similar taxes collected from
patrons or guests. Gross Room Sales shall be accounted for on an accrual basis
and in accordance with the Uniform System.
"Guest Profile Data" shall mean personal guest profiles and information
regarding guest preferences.
"Guest Room" shall mean a separately-keyed lodging unit in the Hotel.
"Hazardous Materials" shall have the meaning ascribed to it in Section
11.08.B.
"Hotel" shall mean the Site together with the following: (i) the Hotel
Improvements and all other improvements constructed or to be constructed on the
Site pursuant to this Agreement; (ii) all FF&E, Fixed Asset Supplies and
Inventories installed or located on the Site or in the Hotel Improvements; and
(iii) all easements or other appurtenant rights thereto.
"Hotel Executive Committee" shall mean the following individuals employed
by Submanager at the Hotel: general manager, resident manager, controller,
director of marketing, food and beverage director, the human resources director,
and the chief engineer, or similar titled positions.
"Hotel Improvements" shall have the meaning set forth in the Recitals.
"Impositions" shall have the meaning set forth in Section 7.01.
"Improvements" shall have the meaning set forth in the Recitals.
"Initial FF&E Reserve Balance" shall mean the dollar amount set forth on
Exhibit "A-1" attached hereto.
"Institutional Lender" shall mean a foreign or domestic commercial bank,
trust company, savings bank, savings and loan association, life insurance
company, real estate investment trust, pension trust, pension plan or pension
fund, a public or privately-held fund engaged in real estate and/or corporate
lending, or any other financial institution commonly known as an institutional
lender (or any Affiliate thereof) having a minimum paid up capital (or net
assets in the case of a pension fund) of One Hundred Million Dollars
($100,000,000).
"Insurance Retention" shall have the meaning ascribed to it in Section
6.01.F.
"Intellectual Property" shall mean: (i) all Software; (ii) all manuals,
brochures and directives issued by Submanager to its employees at the Hotel
regarding the procedures and techniques to be used in operating the Hotel; and
(iii) customer lists and Guest Profile Data.
"Inventories" shall mean "Inventories" as defined in the Uniform System of
Accounts, such as, but not limited to, 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, ordinance, regulation or order of any governmental authority or agency
having jurisdiction over the business or operation of the Hotel 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.
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"Litigation" shall mean: (i) any cause of action (including, without
limitation, bankruptcy or other debtor/creditor proceedings) commenced in a
federal, state or local court; or (ii) any claim brought before an
administrative agency or body (for example, without limitation, employment
discrimination claims).
"Marriott" shall mean Marriott International, Inc., a Delaware
corporation.
"Marriott Companies" shall mean Submanager, Marriott, and any Affiliate of
Submanager or Marriott.
"Marriott System" shall mean the chain of full-service hotels in the
United States which are operated by Submanager (or one of its Affiliates) under
the Trade Name of "Marriott".
"Marriott Trade Names" shall mean both the name "Marriott" (when used
alone or in connection with another word or words) and any other Trade Names
which contain the word "Marriott".
"Marriott Trademark" shall mean any Trademark which is used in the
operation of hotels in the Marriott System.
"Minor Casualty" shall mean any fire or other casualty which results in
damage to the Hotel and/or its contents, to the extent that the total cost (in
Submanager's reasonable judgment) of repairing and/or replacing of the damaged
portion of the Hotel to the same condition as existed previously does not exceed
the dollar amount of Two Hundred Fifty Thousand Dollars ($250,000), said dollar
amount to be adjusted by the GDP Deflator.
"Mortgage" shall mean any mortgage, deed of trust, or security document
encumbering the Hotel and/or the Site or the interest of Owner or Wyndham
therein.
"Mortgagee" shall mean the holder of any Mortgage.
"Notice of Proposed Sale" shall have the meaning set forth in Section
10.02.B.
"Operating Accounts" shall have the meaning set forth in Section 4.03.A.
"Operating Loss" shall mean a negative Operating Profit.
"Operating Profit" shall mean, with respect to any given period of time,
the excess of Gross Revenues over Deductions (each calculated in accordance with
this Agreement and the Uniform System).
"Owner's Agreement" shall have the meaning ascribed to it in the Recitals.
"Primary Management Agreement" shall have the meaning ascribed to it in
the Recitals."
"Primary Manager" shall have the meaning ascribed to it in the Preamble or
shall mean any successor or permitted assign, as applicable.
"Primary Manager Prospectus" shall have the meaning set forth in Section
11.09.
"Performance Termination Period" shall mean the twelve (12) month period
consisting of the six (6) months immediately prior to and including the month in
which the Take-Over Date occurs, and the six (6) months immediately thereafter.
"Performance Termination Threshold" shall mean the average Operating
Profit over the Performance Termination Period; provided, however, that for the
purpose of calculating the Performance Termination Threshold, the following
adjustments shall be made in calculating the average Operating Profit over the
Performance Termination Period: (i) so-called one-time charges in connection
with its take-over of the Hotel shall not be included as Deductions, and (ii)
costs that would have been incurred during the first six (6) months of the
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Performance Termination Period had the Hotel been operating in accordance with
System Standards (i.e. costs of guest complementaries such as newspapers, front
desk staffing and other similar recurring operating costs to the extent not
incurred during such six first (6) month period) and management fees in a deemed
amount equal to the Base Management Fee (in lieu of any actual management fees)
shall be included in Deductions. Within sixty (60) days after the end of the
Performance Termination Period, Submanager shall deliver to Primary Manager a
statement of the Performance Termination Threshold, and therein shall describe
any adjustments made pursuant to subsections (i) and/or (ii) above. Any
adjustments made pursuant to subsection (ii) shall be made in good faith by
Submanager and shall reflect the costs reasonably incurred at similar hotels
managed by Submanager. Commencing as of first day of the fourth (4th) full
Fiscal Year during the Term, and for each Fiscal Year thereafter, the
Performance Termination Threshold (as originally calculated) applicable to such
year shall be adjusted by adding (or subtracting) thereto (or therefrom) an
amount equal to the product of (i) 75% of the percentage change in the GDP
Deflator from the Effective Date to the date of adjustment, times (ii) the
Performance Termination Threshold (as originally calculated).
"Person" means an individual (and the heirs, executors, administrators, or
other legal representatives of an individual), a partnership, a corporation,
limited liability company, a government or any department or agency thereof, a
trustee, a trust and any unincorporated organization.
"Previously-Accrued Payables" shall mean all liabilities incurred with
respect to the operation of the Hotel prior to the Take-Over Date (or allocable
to the period prior to the Take-Over Date, under generally accepted accounting
principles). The term "Previously-Accrued Payables" shall include, without
limitation: (i) all accounts payable and accrued liabilities shown on the
Hotel's balance sheet (current copies of which, through the Take-Over Date,
shall be delivered to Submanager); and (ii) all accrued employee benefits.
"Previously-Accrued Receivables" shall mean all receivables accrued in
connection with the operation of the Hotel prior to the Take-Over Date,
including (i) those accounts receivable which are shown on Primary Manager's
balance sheet (current copies of which, through the Take-Over Date, shall be
delivered to Submanager); and (ii) all other receivables.
"Primary Manager" shall have the meaning set forth in the Recitals.
"Prime Rate" shall mean the "base rate" of interest announced from time to
time by Bankers Trust Company, New York, New York.
"Proposed Business Plan" shall have the meaning set forth in Section 4.05.
"Qualified Mortgage" shall have the meaning set forth in Section 8.02.
"Reasonable Amount of Working Capital" shall mean an amount equal to
$1,250 times the number of Guest Rooms in the Hotel, plus 1/26 of the annual
payroll costs of the Hotel., such amount to be subject to adjustment after the
first Fiscal Year of operation of the Hotel (either upward or downward) as the
parties may reasonably agree to account for individual characteristics of the
operations of the Hotel, such as seasonality of revenues and expenses. Following
the first Fiscal Year of operation of the Hotel, such amount shall be subject to
adjustment as part of the Proposed Business Plan approval process, provided that
Primary Manager shall not disapprove a Reasonable Amount of Working Capital that
is no more than the amount arrived at pursuant to the first sentence hereof, as
modified to adjust the amount of $1,250 in proportion to any percentage change
in the Revenue per Room for the Hotel for the previous Fiscal Year.
"Reinstated Franchise Agreement" shall have the meaning set forth in
Section 2.01.B.
"Restricted Area" shall mean the area described in Exhibit "A-1" attached
hereto.
"Restricted MHRS Hotel" shall mean any full-service hotel operating
(either managed or franchised) under the "Marriott" trade name. The term
"Restricted Hotel" shall not include any one or more of the following: (i) any
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existing (as of the Effective Date) full-service hotel operating under the
"Marriott" trade name within the Restricted Area; (ii) any Ritz-Carlton hotel,
Courtyard by Marriott Hotel, Renaissance Hotel, Conference Center by Marriott,
Residence Inn by Marriott, Fairfield Inn, Fairfield Suites, TownePlace Suites or
any other lodging product which is not operated as a full-service hotel under
the "Marriott" trade name; or (iii) any future lodging product developed by
Manager or one of its Affiliates which is not operated under the "Marriott"
tradename.
"Revenue Data Publication" shall mean Smith's STAR Report, a monthly
publication distributed by Smith 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 Hotel.
If such Smith's STAR Report is discontinued in the future, or ceases (in the
reasonable opinion of either Primary Manager or Submanager) to be a satisfactory
source of data regarding the Revenue Per Room of various hotels in the general
trade area of the Hotel, Submanager shall select an alternative source, subject
to Primary Manager's approval (such approval not to be unreasonably withheld).
If the parties fail to agree on such alternative source within a reasonable
period of time, the matter shall be resolved by determination by arbitration
pursuant to Section 11.21.
"Revenue Index" shall mean that fraction which is equal to (a) the Revenue
Per Room for the Hotel, divided by (b) the average Revenue Per Room for the
hotels in the Competitive Set, as set forth in the Revenue Data Publication.
Appropriate adjustments shall be made in the event of Force Majeure or a major
renovation of the Hotel.
"Revenue Index Threshold" shall mean ninety percent (90%) of the Revenue
Index as calculated over the Performance Termination Period.
"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
guestroom which is keyed as a single unit.
"Sale of the Hotel" shall mean any sale, assignment, transfer or other
disposition, for value or otherwise, voluntary or involuntary, of the fee simple
title to the Site and/or the Hotel [for Atlanta, leasehold interest]. For
purposes of this Agreement, a Sale of the Hotel shall also include a lease (or
sublease) of all or substantially all of the Hotel or Site and any sale,
assignment, transfer or other disposition, for value or otherwise, voluntary or
involuntary, in a single transaction or a series of 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,
more than fifty percent (50%) 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.
"Settlement Agreement" shall have the meaning ascribed to it in the
Recitals.
"Site" shall have the meaning ascribed to it in Section A of the Recitals.
"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 Hotel, including,
without limitation: carpeting, drapes, bedspreads, wall and floor coverings,
mats, shower curtains and similar items.
"Software" shall mean all computer software and accompanying documentation
(including all future upgrades, enhancements, additions, substitutions and
modifications thereof), other than computer software which is commercially
available, which are used by Submanager in connection with the property
management system, the reservation system and all future electronic systems
developed by Submanager for use in the Hotel.
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"Special Capital Expenditures" shall mean certain routine, non-major
expenditures which are classified as "capital expenditures" under
generally-accepted accounting principles, but which will be funded from the FF&E
Reserve (pursuant to Section 5.02), rather than pursuant to the provisions of
Section 5.03. Special Capital Expenditures consist of the following types of
expenditures: exterior and interior repainting; resurfacing building walls and
floors; resurfacing parking areas; replacing folding walls; and miscellaneous
similar expenditures.
"Special Fee" shall have the meaning set forth for such term in the
Settlement Agreement.
"Submanager" shall have the meaning ascribed to it in the Preamble hereto
or shall mean any successor or permitted assign, as applicable.
"Submanager Prospectus" shall have the meaning set forth in Section 11.09.
"Subordination Agreement" shall have the meaning ascribed to it in Section
8.03.
"Subsequent Primary Managers" shall have the meaning ascribed to it in
Section 8.03.
"System Standards" shall mean either (or both, as the context requires) of
the following two (2) categories of standards: (i) the operational standards
(for example, services offered to guests, quality of food and beverages,
cleanliness, staffing and employee compensation and benefits, Chain Services,
the Marriott Rewards Program and other similar programs, etc.); and (ii) the
physical standards (for example, quality of the Improvements, FF&E, and Fixed
Asset Supplies, frequency of FF&E replacements, etc.); each of such standards
shall be the standard which is generally prevailing or in the process of being
implemented at other hotels in the Marriott System, including all services and
facilities in connection therewith that are customary and usual at comparable
hotels in the Marriott System.
"Take-Over Date" shall mean the date which is set forth on Exhibit "A-1"
hereto.
"Term" shall have the meaning ascribed to it in Section 2.01.
"Term Expiration Date" shall mean the date set forth on Exhibit "A-1"
attached hereto.
"Termination" shall mean the expiration or sooner cessation of this
Agreement.
"Termination Effective Date" shall have the meaning set forth in Section
2.01.B.
"Total Casualty" shall mean any fire or other casualty which results in
damage to the Hotel and its contents to the extent that the total cost of
repairing and/or replacing the damaged portion of the Hotel to the same
condition as existed previously would be thirty percent (30%) or more of the
then total replacement cost of the Hotel.
"Trade Area Expiration Date" shall mean the date which is set forth in
Exhibit "A-1" attached hereto.
"Trade Names" shall mean any name, whether informal (such as a fictitious
name or d/b/a) or formal (such as the full legal name of a corporation or
partnership) which is used to identify an entity.
"Trademark" shall mean any word, name, device, symbol, logo, design,
brand, servicemark, other distinctive feature or any combination of the
foregoing which is used to identify or symbolize a party's goods and/or services
and to distinguish them from the goods and/or services of others.
"Uniform System of Accounts" shall mean the Uniform System of Accounts for
the Lodging Industry, Ninth Revised Edition, 1996, as published by the Hotel
Association of New York City, Inc.
"Working Capital" shall mean funds that are used in the day-to-day
operation of the business of the Hotel, including, without limitation, amounts
sufficient for the maintenance of change and petty cash funds, amounts
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deposited in operating bank accounts, receivables, amounts deposited in payroll
accounts, prepaid expenses and funds required to maintain Inventories, less
accounts payable and accrued current liabilities.
"WARN Act" shall mean the "Worker Adjustment and Retraining Notification
Act, 29 U.S.C. 2101 et seq.
END OF ARTICLE XII
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
executed under seal as of the day and year first written above.
PRIMARY MANAGER:
IHC II, LLC
Attest:
By: By:
------------------------------- -------------------------------
Title: Title:
SUBMANAGER:
Attest: MARRIOTT INTERNATIONAL, INC./MARRIOTT
HOTEL SERVICES, INC.
a Delaware corporation
By: By:
------------------------------- -------------------------------
Title: Title:
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EXHIBIT A-1
Name and Location of Hotel: Albany Marriott
189 Wolf Road
Albany, New York 12205
Submanager: Marriott International, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: February 22, 2009
Base Management Fee: Two and 85/100 percent (2.85%) of
Gross Revenues. [subject to
adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $754,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
Description of "Restricted Area": See Exhibit "A-2"
Trade Area Expiration Date: February 22, 2009
Chain Exception: Yes
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Atlanta Marriott North Central
2000 Century Boulevard, N.E.
Atlanta, Georgia 30345
Submanager: Marriott Hotel Services, Inc
Take-Over Date: One Year after Divestiture Date
Term Expiration Date: September 1, 2005
Base Management Fee: Two and 85/100 percent (2.85%) of
Gross Revenues [subject to adjustment
per the Settlement Agreement]
Initial FF&E Reserve Balance: $327,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
Description of "Restricted Area": See Exhibit "A-2"
Trade Area Expiration Date: September 1, 2005
Chain Exception: Yes
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Pittsburgh Airport Marriott
100 Aten Road
Pittsburgh, PA 15108
Submanager: Marriott Hotel Services, Inc
Take-Over Date: One Year after Divestiture Date
Term Expiration Date: September 2, 2011
Base Management Fee: Two and 85/100 percent (2.85%) of
Gross Revenues [subject to adjustment
per the Settlement Agreement]
Initial FF&E Reserve Balance: $18,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
Description of "Restricted Area": See Exhibit "A-2"
Trade Area Expiration Date: September 2, 2011
Chain Exception: No
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Harrisburg Marriott
4650 Lindle Road
Harrisburg, Pennsylvania 17111
Submanager: Marriott Hotel Services, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: March 30, 2004
Base Management Fee: Two and 85/100 percent (2.85%) of
Gross Revenues. [subject to adjustment
per the Settlement Agreement]
Initial FF&E Reserve Balance: $144,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
Description of "Restricted Area": See Exhibit "A-2"
Trade Area Expiration Date: March 30, 2004
Chain Exception: No
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Houston Marriott North at Greenspoint
255 No. Sam Houston Parkway, East
Houston, Texas 77060
Submanager: Marriott Hotel Services, Inc.
Take-Over Date: One year after Divestiture Date
Term Expiration Date: January 31, 2011
Base Management Fee: Zero (i.e. no Base Management Fee)
[subject to adjustment per
the Settlement Agreement]
Initial FF&E Reserve Balance: $660,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
Description of "Restricted Area" See Exhibit "A-2"
Trade Area Expiration Date: January 31, 2011
Chain Exception: No
*Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Indian River Plantation Marriott Resort
555 N.E. Ocean Boulevard
Stuart, Florida 34996
Submanager: Marriott International, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: December 31, 2017
Base Management Fee: Two and 85/100 percent (2.85%) of
Gross Revenues. [subject to adjustment
per the Settlement Agreement]
Initial FF&E Reserve Balance: $1,075,000*
FF&E Reserve Contribution: Through December, 1999: Four percent
of Gross Revenues 2000 and thereafter:
Five percent of Gross Revenues
Description of "Restricted Area": See Exhibit "A-2"
Trade Area Expiration Date: December 31, 2017
Chain Exception: No
*Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Philadelphia Marriott West
Matson Ford at Front Street
111 Crawford Avenue
West Conshohocken, Pennsylvania 19428
Submanager: Marriott Hotel Services, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: August 28, 2014
Base Management Fee: Two and 85/100 percent (2.85%) of
Gross Revenues [subject to adjustment
per the Settlement Agreement]
Initial FF&E Reserve Balance: $26,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
Description of "Restricted Area": See Exhibit "A-2"
Trade Area Expiration Date: August 28, 2014
Chain Exception: Yes
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: San Diego Marriott Mission Valley
8757 Rio San Diego Drive
San Diego, California 92108
Submanager Marriott International, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: June 1, 2012
Base Management Fee: Two and 85/100 percent (2.85%) of
Gross Revenues. [subject to adjustment
per the Settlement Agreement]
Initial FF&E Reserve Balance: $451,000
FF&E Reserve Contribution: Through May, 1999: Four percent of
Gross Revenues June 1999 and thereafter:
Five percent of Gross Revenues
Description of "Restricted Area" See Exhibit "A-2"
Trade Area Expiration Date: June 1, 2012
Chain Exception: No
*Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Minneapolis Marriott Southwest
5801 Opus Parkway
Minnetonka, Minnesota 55343
Submanager: Marriott Hotel Services, Inc.
Take-Over Date: One Year after Divestiture Date
Term Expiration Date: April 22, 2013
Base Management Fee: Two and 85/100 percent (2.85%) of
Gross Revenues. [subject to adjustment
per the Settlement Agreement]
Initial FF&E Reserve Balance: $148,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
Description of "Restricted Area" See Exhibit "A-2"
Trade Area Expiration Date: April 22, 2013
Chain Exception: No
*Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Warner Center Marriott Woodland Hills
21850 Oxnard Street
Woodland Hills, California 91367
Submanager: Marriott International, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: December 15, 2005
Base Management Fee: Two and 85/100 percent (2.85%) of
Gross Revenues. [subject to adjustment
per the Settlement Agreement]
Initial FF&E Reserve Balance: $1,336,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
Description of "Restricted Area" See Exhibit "A-2"
Trade Area Expiration Date: December 15, 2005
Chain Exception: Yes
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT "A-2"
Atlanta Marriott North Central
Two (2) mile radius from the Hotel, as shown on the attached map.
<PAGE>
EXHIBIT "A-2"
Harrisburg Marriott
Dauphin County plus triangle of area bounded by the Pennsylvania Turnpike on the
south to a point west of Harrisburg where it connects with I-81 then northwest
on I-81 to the Susquehanna River south to the Pennsylvania Turnpike plus one (1)
mile outside the triangle at each interstate intersection. All as more
specifically indicated on the attached map.
For purposes of delineating the boundary of the area described above, such
boundary shall be the center line of the specified road or highway. If there
exists a conflict between the map and the narrative description set forth above,
the narrative shall control.
<PAGE>
EXHIBIT "A-2"
Houston Marriott North at Greenspoint
The area outlined on the attached map.
<PAGE>
EXHIBIT "A-2"
Indian River Plantation Marriott Resort
Ten (10) mile radius from the Hotel.
<PAGE>
EXHIBIT "A-2"
Philadelphia Marriott West (Conshohoken)
Three (3) mile radius from the Hotel, as shown on the attached map.
<PAGE>
EXHIBIT "A-2"
San Diego Marriott Mission Valley
That area outlined on the attached map which is described as follows:
At the intersection of Interstate 5 and 274, continue due east crossing
Genesee Avenue, 163, and Interstate 805 until Mission Gorge Road. Continue south
on Mission Gorge Road to Fairmont Avenue. Follow Fairmont Avenue south to
University. Head west on University until intersecting Park Boulevard. Continue
south on Park Boulevard turning south on Upas Street. Proceed on Upas Street to
Richmond. Continue south on Richmond until 163. Head south on 163 to El Prado.
Follow El Prado to Interstate 5. At the intersection of El Prado and Interstate
5 continue north on Interstate 5 until reaching 274.
For purposes of delineating the boundary of the area described above, such
boundary shall be the center line of the specified road or highway. If there
exists a conflict between the map and the narrative description set forth above,
the narrative shall control.
<PAGE>
EXHIBIT "A-2"
Warner Center Marriott Woodland Hills
That area outlined on the attached map which is described as follows:
Five (5) mile radius from the Hotel as extended to an area bounded by Victory
Boulevard, Interstate 405, Mulholland Drive, Triunfo Canyon Road, Kanan Road and
the Ventura County Line.
For purposes of delineating the boundary of the area described above, such
boundary shall be the center line of the specified road or highway. If there
exists a conflict between the map and the narrative description set forth above,
the narrative shall control.
<PAGE>
EXHIBIT "A-2"
Minneapolis, Minnesota
Three (3) mile radius from the Hotel, as shown on the attached map.
<PAGE>
EXHIBIT "A-2"
Pittsburgh Airport
In Pittsburgh, Pennsylvania, that certain area bounded on the south by the
Allegheny/Washington county line, on the west by the Beaver/Allegheny county
line, on the north by the Ohio River, and on the east by Interstate 79, as shown
on the attached map.
For purposes of delineating the boundary of the area described above, such
boundary shall be the center line of the specified road or highway. If there
exists a conflict between the map and the narrative description set forth above,
the narrative shall control.
<PAGE>
EXHIBIT B-1
Five-Year Plan
<PAGE>
EXHIBIT B-2
Additional Capital Expenditures
<PAGE>
EXHIBIT C
Memorandum of Management Agreement
WHEN RECORDED MAIL TO:
MARRIOTT INTERNATIONAL, INC.
[Attorney] - Dept. 52/923
Marriott Drive
Washington, DC 20058
MEMORANDUM OF MANAGEMENT AGREEMENT
THIS MEMORANDUM OF MANAGEMENT AGREEMENT (the "Memorandum") is made
and entered into as of this ______ day of _____, 19__ by and between
_______________, a _________________ ("Owner"), with a mailing address of
_________________ and ___________________, a ___________________ ("Manager"),
with a mailing address at 10400 Fernwood Road, Bethesda, Maryland 20817.
WITNESSETH:
Owner acknowledges that Manager has entered into that certain
Submanagement Agreement dated ______________ (herein the "Management Agreement")
with respect to operation of a hotel on the premises located in ______________
County, _______________, as more particularly described on Exhibit A attached
hereto (the "Premises").
The Management Agreement is in effect. The term of the Management
Agreement expires on _____________________________, subject to early termination
as set forth therein.
Article 8 of the Management Agreement contains certain terms and
restrictions relating to financing of the Premises. Article 10 of the Management
Agreement also contains terms and conditions relating to Owner's ability to sell
or transfer interests in itself or the Premises.
This Memorandum is not intended to alter or modify in any way the
terms and conditions of the Management Agreement.
IN WITNESS WHEREOF, Owner and Manager have caused this Memorandum to be
executed under seal by their duly authorized representatives as of the day,
month and year first above written, for the purpose of providing an instrument
for recording and giving notice of the Management Agreement and certain of the
terms and conditions therein.
OWNER:
------
Witnesses:
---------------------------------
By:
- --------------------------------- ---------------------------------
Printed: Name:
------------------------- ---------------------------------
Title:
---------------------------------
<PAGE>
MANAGER:
--------
Witnesses:
---------------------------------
By:
- --------------------------------- ---------------------------------
Printed: Name:
------------------------- ---------------------------------
Title:
---------------------------------
STATE OF
-------------------------
COUNTY OF
-------------------------
On this the _____ day of ______________, 19__, before me, the undersigned
officer, personally appeared _____________________________ who acknowledged
himself to be the _________________ of __________________, a
_____________________ and that he as such officer being authorized so to do,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the ___________________ by himself as _____________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
---------------------------------
Notary Public
My Commission Expires:
----------
STATE OF
-----------------------
COUNTY OF
-----------------------
On this the _____ day of ______________, 19__, before me, the undersigned
officer, personally appeared _____________________________ who acknowledged
himself to be the _________________ of __________________, a
_____________________ and that he as such officer being authorized so to do,
executed the foregoing instrument for the purposes therein contained, by signing
the name of the ___________________ by himself as _____________________.
IN WITNESS WHEREOF, I have hereunto set my hand and official seal.
---------------------------------
Notary Public
My Commission Expires:
----------
<PAGE>
EXHIBIT A TO MEMORANDUM OF MANAGEMENT AGREEMENT
LEGAL DESCRIPTION
[To Be Added]
<PAGE>
Exhibit 99.4
FIRST AMENDMENT
TO HOTEL MANAGEMENT AGREEMENT
TYSONS CORNER MARRIOTT HOTEL
This First Amendment (the "First Amendment") to the Hotel Management
Agreement for the Tysons Corner Marriott Hotel dated December 24, 1996, amended
by the Supplemental Agreement to the Hotel Management Agreement dated December
24, 1996 (the "Management Agreement") is executed on this ___ day of May, 1998,
and made effective as of ___________, 1998 (the "Effective Date"), by and
between INTERSTONE/GGL PARTNERS L.P. ("Owner"), a Delaware limited partnership
with a mailing address at c/o Interstate Hotels Corporation, Foster Plaza Ten,
680 Andersen Drive, Pittsburgh, Pennsylvania 15220-8126 and MARRIOTT HOTEL
SERVICES, INC. ("Management Company"), a Delaware corporation, with a mailing
address at 10400 Fernwood Road, Bethesda, Maryland 20817.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
A. Sections 19.01 A.1. and A.2. and the first line of Section
19.01 B. relating to Owner's right to terminate this Agreement
upon the Sale of the Hotel, are hereby deleted.
B. Except as modified by this First Amendment, all of the terms
and provisions of the Management Agreement as written shall
remain in full force and effect and, as specifically modified
herein, the Management Agreement is hereby ratified and confirmed
in all respects.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
the day and year first above written.
OWNER: MANAGEMENT COMPANY:
INTERSTONE/GGL PARTNERS L.P. MARRIOTT HOTEL SERVICES, INC.
By: IHC/CG Portfolio Corporation
a general partner
By:_____________________________ By:______________________________
Name: Name:
Title: Title:
<PAGE>
Exhibit 99.5
FORM OF LETTER TO THIRD-PARTY OWNERS
May __, 1998
Dear :
As you are probably aware, Interstate Hotels Company, the parent company of
the manager of your Marriott hotel, had previously announced its merger with and
into Patriot American Hospitality, Inc. and Wyndham International, Inc.
Following this announcement, Marriott International, Inc., the franchisor of
your hotel, had obtained a preliminary injunction enjoining the merger pending
trial based on Marriott's assertion of certain rights it claimed to have under
the franchise agreements. This was done because the merger, as originally
contemplated, would result in a direct competitor operating Marriott hotels.
We are pleased to announce that the parties have settled this dispute. As a
result, an independent, publicly-traded company encompassing the Interstate
Hotels Company third party management business will be spun off following the
merger. This new company will be managed by the current management team of
Interstate Hotels Company. Patriot and Marriott are actively supporting this
company by each initially owning 4% of the shares and by each holding two of the
nine initial seats on the board of directors. This is a creative solution to
issues created by the merger and we are encouraged about the ability of this
company to manage your assets and provide additional growth opportunities for
the Marriott brands.
Patriot has agreed to spin-off this company within 240 days of the merger,
which is now scheduled to occur June 2, 1998. Marriott has agreed that it will
not interfere with the merger, but Marriott will retain its rights under its
franchise agreements until the spin-off of this company. If the spin-off does
not occur, Marriott will not approve Patriot or any of its affiliates as an
operator of Marriott hotels, which might result in a default under your Marriott
franchise agreement. Marriott believes that it has this right to declare a
default. Patriot and Interstate dispute that Marriott has this right. In any
event, what this could ultimately mean for you is that if Patriot does not
spin-off this company, you may be required to find a mutually acceptable
operator to replace Interstate. Marriott would, in that event, make available to
you a list of approved Marriott operators, including Marriott International.
We again fully support the rebirth of Interstate Hotels Company and are
extremely excited about its prospects. We look forward to working with
Interstate Hotels Company and you in the future.
<PAGE>
Thank you for your continued support of the Marriott brands.
Steve Joyce John Williams
Tom Parrington Bill Evans
<PAGE>
Exhibit 99.6
ARTICLES OF
AMENDMENT AND RESTATEMENT
OF
NEWCO
<PAGE>
THIS IS TO CERTIFY THAT:
FIRST: [Newco], a Maryland corporation with its principal office in the
State of Maryland, and its resident agent, as set forth below in ARTICLES IV and
V, respectively, of these Articles of Amendment and Restatement desires to amend
and restate its charter as filed with the State Department of Assessments and
Taxation on ________, 1998, as set forth in these Articles of Amendment and
Restatement.
SECOND: The following provisions are all of the provisions of the charter
currently in effect as hereinafter amended:
ARTICLE I
INCORPORATION
The undersigned, Michael J. O'Connor, whose post office address is c/o
Goodwin, Procter & Hoar LLP, 53 State Street, Boston, Massachusetts, 02109,
being at least eighteen (18) years of age, does hereby form a corporation under
the Maryland General Corporation Law (the "MGCL").
ARTICLE II
NAME
The name of the corporation (the "Corporation") is:
NEWCO
ARTICLE III
PURPOSES
The Corporation is being formed to operate and manage hotels and to engage
in any lawful act or activity for which a corporation may be organized under the
MGCL. The foregoing purposes shall be in no way limited or restricted by
reference to, or inference from, the terms of any other clause of these Articles
of Incorporation, as amended from time to time, and each shall be regarded as
independent. The foregoing purposes are also to be construed as powers of the
Corporation, and shall be in addition to and not in limitation of the general
powers of corporations under the laws of the State of Maryland.
<PAGE>
ARTICLE IV
PRINCIPAL OFFICE ADDRESS
The address of the principal office of the Corporation in Maryland is c/o
The Corporation Trust, Inc., 300 East Lombard Street, Suite 1400, Baltimore,
Maryland 21202.
ARTICLE V
THE RESIDENT AGENT
The resident agent of the Corporation in Maryland is The Corporation
Trust, Inc., whose address is 300 East Lombard Street, Suite 1400, Baltimore,
Maryland 21202.
ARTICLE VI
BOARD OF DIRECTORS
6.1 General Powers; Action by Committee. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors and,
except as otherwise expressly provided by law, these Articles or the bylaws, as
amended from time to time (the "Bylaws"), of the Corporation, all of the powers
of the Corporation shall be vested in such Board of Directors. Any action which
the Board of Directors is empowered to take may be taken on behalf of the Board
of Directors by a duly authorized committee thereof except (i) to the extent
limited by Maryland law, these Articles or the Bylaws and (ii) for any action
which requires the affirmative vote or approval of a majority of all Directors
then in office (unless, in such case, these Articles or the Bylaws specifically
provide that a duly authorized committee can take such action on behalf of the
Board of Directors). A majority of the Board of Directors shall constitute a
quorum and, except as otherwise specifically provided in these Articles, the
affirmative vote of a majority of the Directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
6.2 Number. Until the earliest to occur of (i) such time that there are no
shares of Class B Common Stock outstanding, (ii) such time that there are no
shares of Class C Common Stock outstanding and (iii) September 30, 2003, the
number of Directors of the Corporation shall be fixed at nine. After the
earliest to occur of (A) such time that there are no shares of Class B Common
Stock outstanding, (B) such time that there are no shares of Class C Common
Stock outstanding, and (C) September 30, 2003, the number of Directors of the
Corporation shall be fixed from time to time by a resolution duly adopted by the
Board of Directors; provided, however, that the total number of Directors shall
not be increased above nine prior to September 30, 2003 without the consent of
each Class B Director, if any, or Class C Director, if any, then serving on the
Board of Directors; and provided, further, that
2
<PAGE>
the total number of Directors shall be not fewer than three unless there are
fewer than three stockholders at the time. No reduction in the number of
Directors shall cause the removal of any Director from office prior to the
expiration of his or her term.
6.3 Initial Board; Term; Election. The initial Directors of the
Corporation (hereinafter referred to, together with their direct and indirect
successors, as the "Class A Directors") shall be W. Thomas Parrington, Jr.,
__________, ___________, ___________ and __________. The Class A Directors shall
be further classified, with respect to the term for which they severally hold
office, into three classes, as nearly equal in number as possible. The initial
Class A-I Director of the Corporation, who shall serve a term expiring at the
annual meeting of stockholders to be held in 1999, shall be __________; the
initial Class A-II Directors of the Corporation, who shall serve terms expiring
at the annual meeting of stockholders to be held in 2000, shall be __________
and ____________; and the initial Class A-III Directors of the Corporation, who
shall serve terms expiring at the annual meeting of stockholders to be held in
2001, shall be __________ and _________. At each annual meeting of stockholders,
the successor or successors of the group of Class A Directors whose term expires
at that meeting shall be elected by the vote of holders of a plurality of the
shares of Class A Common Stock present in person or represented by proxy at such
meeting and entitled to vote on the election of Class A Directors, and shall
hold office for a term expiring at the annual meeting of stockholders held in
the third year following the year of his or their election. Two Directors of the
Corporation (hereinafter referred to, together with their respective direct and
indirect successors, as the "Class B Directors") shall, in accordance with and
subject to Section 7.5 hereof, be elected by the holders of shares of Class B
Common Stock. The initial Class B Directors of the Corporation shall be elected
at either a meeting of holders of shares of Class B Common Stock or by the
unanimous written consent of such holders, within ten days after the initial
issuance of shares of Class B Common Stock, and shall serve terms expiring at
the annual meeting of stockholders to be held in 2001. Thereafter, the Class B
Directors shall serve one-year terms expiring at each subsequent annual meeting
of stockholders. At each meeting of stockholders at which Class B Directors are
to be elected, each Class B Director shall be elected by the vote of holders of
a plurality of the shares of Class B Common Stock present in person or
represented by proxy at such meeting and entitled to vote on the election of
Class B Directors. Two Directors of the Corporation (hereinafter referred to,
together with their respective direct and indirect successors, as the "Class C
Directors") shall, in accordance with and subject to Section 7.6 hereof, be
elected by the holders of shares of Class C Common Stock. The initial Class C
Directors of the Corporation shall be elected at either a meeting of holders of
shares of Class C Common Stock or by the unanimous written consent of such
holders, within ten days after the initial issuance of shares of Class C Common
Stock, and shall serve terms expiring at the annual meeting of stockholders to
be held in 2001. Thereafter, the Class C Directors shall serve one-year terms
expiring at each subsequent annual meeting of stockholders. At each meeting of
stockholders at which Class C Directors are to be elected, each Class C Director
shall be elected by the vote of holders of a plurality of the shares of Class C
Common Stock present in person or represented by proxy at such meeting and
entitled to vote on the election of Class C Directors.
3
<PAGE>
The Directors shall hold office until their successors are duly elected and
qualified or until their earlier death, disqualification, resignation or
removal.
Notwithstanding the foregoing, whenever, pursuant to the provisions of
these Articles or any articles supplementary thereto, the holders of any one or
more series of Stock shall have the right, voting separately as a series or
together with holders of other such series, to elect Directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of such provisions and any articles supplementary applicable thereto, to
the extent applicable, and, except for Class A Directors, such Directors so
elected shall not be divided into classes pursuant to this Section 6.3.
During any period when the holders of any series of Stock have the right
to elect additional Directors as provided for or fixed pursuant to the
provisions of these Articles or any articles supplementary thereto, then upon
commencement and for the duration of the period during which such right
continues: (a) the then otherwise total authorized number of Directors of the
Corporation shall automatically be increased by such specified number of
Directors, and the holders of such Stock shall be entitled to elect the
additional Directors so provided for or fixed pursuant to said provisions and
(b) each such additional Director shall serve until such Director's successor
shall have been duly elected and qualified, or until such Director's right to
hold such office terminates pursuant to said provisions, whichever occurs
earlier, subject to such Director's earlier death, disqualification, resignation
or removal. Except as otherwise provided by the Board of Directors in the
resolution or resolutions establishing such series, whenever the holders of any
series of Stock having such right to elect additional Directors are divested of
such right pursuant to the provisions of such Stock, the terms of office of all
such additional Directors elected by the holders of such Stock, or elected to
fill any vacancies resulting from the death, resignation, disqualification or
removal of such additional Directors, shall forthwith terminate and the total
authorized number of Directors of the Corporation shall be reduced accordingly.
6.4 Resignation or Removal of Directors. Any Director may resign from the
Board of Directors or any committee thereof at any time by written notice to the
Board of Directors, effective upon execution and delivery to the Corporation of
such notice or upon any future date specified in the notice. Subject to the
rights, if any, of the holders of any class or series of Stock to elect
Directors and to remove any Director whom such holders have the right to elect,
and except as otherwise provided in Sections 7.5.1 and 7.6.1, any Director
(including persons elected by Directors to fill vacancies in the Board of
Directors) may be removed from office (a) only with cause and (b) only by the
affirmative vote of the holders of at least 75% of the shares then entitled to
vote at a meeting of the stockholders called for that purpose. At least 30 days
prior to any meeting of stockholders at which it is proposed that any Director
be removed from office, written notice of such proposed removal shall be sent to
the Director whose removal will be considered at the meeting. For purposes of
these Articles, "cause," with respect to the removal of any Director, shall mean
only (i) conviction of a felony, (ii) declaration of unsound mind by order of a
court, (iii) gross dereliction of duty, (iv)
4
<PAGE>
commission of any act involving moral turpitude or (v) commission of an act that
constitutes intentional misconduct or a knowing violation of law if such action
in either event results both in an improper substantial personal benefit to such
Director and a material injury to the Corporation.
6.5 Vacancies. Subject to the rights, if any, of the holders of any class
or series of Stock to elect Directors and to fill vacancies on the Board of
Directors relating thereto, (i) any vacancy on the Board of Directors which
results from the removal of a Director for cause may be filled by the
affirmative vote of a majority of votes cast by the holders of Class A Common
Stock, (ii) any vacancy occurring on the Board of Directors for any reason,
except as a result of an increase in the number of Directors, may be filled by a
majority vote of the remaining Directors, notwithstanding that such majority is
less than a quorum, and (iii) any vacancy occurring on the Board of Directors as
a result of an increase in the number of Directors may be filled by a majority
vote of the entire Board of Directors. A Director elected by the Board of
Directors to fill a vacancy shall hold office until the next annual meeting of
stockholders and until his or her successor is elected and qualified. A Director
elected by the stockholders to fill a vacancy which results from the removal of
a Director shall hold office for the balance of the term of the removed
Director. In the event of a vacancy in the Board of Directors, the remaining
Directors, except as otherwise provided by law or by these Articles or by the
Bylaws, may exercise the powers of the full Board of Directors until such
vacancy is filled.
6.6 Powers. These Articles, as amended or supplemented from time to time,
shall be construed with a presumption in favor of the grant of power and
authority to the Directors. The determination as to any of the following
matters, made in good faith by or pursuant to the direction of the Board of
Directors consistent with these Articles and in the absence of actual receipt of
an improper benefit in money, property or services or active and deliberate
dishonesty established by a court, shall be final and conclusive and shall be
binding upon the Corporation and every holder of shares of its Stock: the amount
of the net income of the Corporation for any period and the amount of assets at
any time legally available for the payment of dividends, redemption of its Stock
or the payment of other distributions on its Stock; the amount of paid-in
surplus, net assets, other surplus, annual or other net profit, net assets in
excess of capital, undivided profits or excess of profits over losses on sales
of assets; the amount, purpose, time of creation, increase or decrease,
alteration or cancellation of any reserves or charges and the propriety thereof
(whether or not any obligation or liability for which such reserves or charges
shall have been created shall have been paid or discharged); the fair value, or
any sale, bid or asked price to be applied in determining the fair value, of any
asset owned or held by the Corporation; any matter relating to the acquisition,
holding and disposition of any assets by the Corporation; or any other matter
relating to the business and affairs of the Corporation.
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ARTICLE VII
STOCK
7.1 Authorized Stock. The total number of shares of stock ("Stock") which
the Corporation has authority to issue is ________________ million
(____________) shares, initially consisting of (i) ______ million (____________)
shares of Preferred Stock, par value $.01 per share; (ii) ______ million
(____________) shares of Class A Common Stock, par value $.01 per share ("Class
A Common Stock"); (iii) ________ (_______) shares of Class B Common Stock, par
value $.01 per share ("Class B Common Stock"); (iv) _________ (________) shares
of Class C Common Stock, par value $.01 per share ("Class C Common Stock" and,
together with the Class A Common Stock and the Class B Common Stock, the "Common
Stock"); and (v) ______ million (____________) shares of Excess Stock, par value
$.01 per share. The aggregate par value of all the shares of all classes of
Stock is $__________. If shares of one class of Stock are classified or
reclassified into shares of another class of Stock pursuant to this Article VII,
the number of authorized shares of the former class shall be automatically
decreased and the number of shares of the latter class shall be automatically
increased, in each case by the number of shares so classified or reclassified,
so that the aggregate number of shares of Stock of all classes that the
Corporation has authority to issue shall not be more than the total number of
shares of Stock set forth in the first sentence of this paragraph.
7.2 Preferred Stock. Subject to any limitations prescribed by law, the
Board of Directors is expressly authorized to classify any unissued shares of
Preferred Stock and reclassify any previously classified but unissued shares of
Preferred Stock of any series from time to time, in one or more classes or
series of such Stock and, by filing articles supplementary with the State
Department of Assessments and Taxation of the State of Maryland, to establish or
change from time to time the number of shares to be included in each such class
or series, and to fix the preferences, conversion or other rights, voting
powers, restrictions, limitations as to dividends and other distributions,
qualifications and terms and conditions of redemption of each class or series.
Any action by the Board of Directors under this Section 7.2 shall require the
affirmative vote of a majority of the Directors then in office; provided,
however, that by the affirmative vote of a majority of the Directors then in
office, the Board of Directors may appoint a committee to act on behalf of the
Board of Directors under this Section 7.2, and in such event the affirmative
vote of a majority of the members of such committee then in office shall be
required for any action under this Section 7.2.
7.3 Common Stock. Except as otherwise expressly provided herein, all
shares of Common Stock shall be identical and shall entitle the holders thereof
to the same rights and privileges. Subject to all of the rights, powers and
preferences of the Preferred Stock and except as provided by law or in these
Articles (or in any articles supplementary regarding any class or series of
Preferred Stock):
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7.3.1 Voting Rights. Except as otherwise provided herein, the
holders of shares of Common Stock shall be entitled to vote on all matters
requiring stockholder action, and each holder of shares of Common Stock
shall be entitled to one vote for each share of Common Stock held by such
stockholder. Except as required by law or as set forth herein, the holders
of Common Stock shall vote together as a single class on all matters
submitted to stockholders for a vote.
7.3.2 Dividend Rights. Holders of Common Stock shall be entitled to
receive such dividends and other distributions in cash, Stock or property
of the Corporation as may be authorized and declared by the Board of
Directors upon the Common Stock and, if any Excess Stock resulting from
the conversion of Common Stock is then outstanding, such Excess Stock, out
of any assets or funds of the Corporation legally available therefor, but
only when and as authorized by the Board of Directors or any authorized
committee thereof from time to time, and shall share ratably with the
holders of such Excess Stock resulting from the conversion of Common Stock
in any such dividend or distribution.
Before payment of any dividends or other distributions, there may be
set aside out of any assets of the Corporation available for dividends or
other distributions such sum or sums as the Board of Directors may from to
time, in its absolute discretion, think proper as a reserve fund for
contingencies, for equalizing dividends or other distributions, for
repairing or maintaining any property of the Corporation or for such other
purpose as the Board of Directors shall determine to be in the best
interests of the Corporation, and the Board of Directors may modify or
abolish any such reserve in the manner in which it was created.
Notwithstanding any other provision of these Articles, no dividend
or other distribution may be declared or paid upon any class of Common
Stock, whether payable in cash or in shares of such class or any other
class of Common Stock or otherwise, unless a comparable dividend shall be
declared and paid upon each other class of Common Stock then outstanding.
If a dividend declared upon Class A Common Stock is payable in shares of
Class A Common Stock, the comparable dividend declared upon Class B Common
Stock shall be payable in shares of Class B Common Stock and the
comparable dividend declared upon Class C Common Stock shall be payable in
shares of Class C Common Stock, and vice versa.
7.3.3 Rights Upon Liquidation. Upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, subject to the
rights of holders of any shares of Preferred Stock and Excess Stock
resulting from the conversion of Preferred Stock, the net assets of the
Corporation available for distribution to the holders of Common Stock,
and, if any Excess Stock resulting from the conversion of Common Stock is
then outstanding, such Excess Stock, shall be distributed pro rata to such
holders in proportion to the number of shares of Common Stock and such
Excess Stock held by each.
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7.4 Class A Common Stock. The holders of the outstanding shares of Class A
Common Stock shall be entitled, as a class, to elect three Class A Directors of
the Corporation. At each annual meeting of stockholders, the presence in person
or by proxy of the holders of a majority of the outstanding shares of Class A
Common Stock shall be required and be sufficient to constitute a quorum of such
class for the election of Directors by such class. Class A Directors may be
removed from office in accordance with Section 6.4. In addition, the holders of
the outstanding shares of Class A Common Stock shall be entitled, as a class, to
elect additional Class A Directors of the Corporation if so permitted by these
Articles, including, without limitation, as permitted by Section 7.5 and Section
7.6.
7.5 Class B Common Stock.
7.5.1 Voting Rights.
(a) The holders of the outstanding shares of Class B Common
Stock shall be entitled, as a class, to elect two Class B Directors
of the Corporation. A Class B Director shall be removed from office
(i) with or without cause only by the affirmative vote of the
holders of a majority of the shares of Class B Common Stock then
entitled to vote at a meeting of such stockholders called for the
purpose or by the unanimous written consent of holders of shares of
Class B Common Stock, (ii) automatically upon the occurrence of a
Class B Conversion Event (as defined below) (in which case each
Class B Director then serving shall be removed from office) or (iii)
in accordance with Section 6.4. Upon the occurrence of a Class B
Conversion Event, the number of Class A Directors shall be
automatically increased by two and the vacancies created thereby may
be filled in accordance with Section 6.5 either by the remaining
Directors or by the holders of Class A Common Stock. If such
vacancies are filled by the remaining Directors, such remaining
Directors shall classify the new Directors into the class of
Directors whose terms expire at the next annual meeting of
stockholders. If such vacancies are filled by the holders of Class A
Common Stock, the remaining Directors shall classify the new
Directors into appropriate classes so that the classes of the Board
of Directors will thereafter be as nearly equal in number as
possible. Any Class B Director who dies, resigns, is removed in
accordance with Section 6.4 or otherwise ceases to be a Director for
any reason other than a Class B Conversion Event shall be replaced
by the vote of holders of a plurality of the shares of Class B
Common Stock then entitled to vote at a meeting of such stockholders
called for the purpose or by the unanimous written consent of
holders of Class B Common Stock.
(b) So long as any shares of Class B Common Stock are
outstanding, the Corporation shall not, without the affirmative vote
of the holders of a majority of the shares of Class B Common Stock
then entitled to vote, voting as a class, at a meeting of such
stockholders called for the purpose or by the unanimous written
consent of holders of shares of Class B Common Stock, enter
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into a definitive agreement with respect to, or authorize the
corporate action necessary to carry out, a Patriot Related
Transaction (as defined below), if at the time of the vote of the
Board of Directors authorizing the entry into such agreement or the
effectuation of such corporate action Patriot American Hospitality,
Inc., a Delaware corporation ("Patriot"), and Wyndham International,
Inc., a Delaware corporation ("Wyndham"), together with the
respective Affiliates (as defined below) of Patriot and Wyndham, own
in the aggregate at least 10% of the outstanding Common Stock. For
purposes of this Article VII, "Patriot Related Transaction" shall
mean (i) a merger, consolidation, or share exchange with Patriot or
Wyndham or any Affiliate of Patriot or Wyndham; (ii) the sale,
lease, transfer or other disposition of a substantial portion of the
Corporation's assets to Patriot or Wyndham or any Affiliate of
Patriot or Wyndham in one transaction or a series of transactions
within a 12 month period; (iii) the issuance or transfer by the
Corporation, in one transaction or a series of transactions, of any
equity securities of the Corporation which have an aggregate market
value of 10% or more of the total market value of the outstanding
Stock of the Corporation to Patriot or Wyndham or any Affiliate of
Patriot or Wyndham; (iv) the adoption of any plan or proposal for
the liquidation or dissolution of the Corporation in which anything
other than cash or a pro rata distribution of assets will be
received by Patriot or Wyndham or any Affiliate of Patriot or
Wyndham; or (v) a reverse stock split which has the effect, directly
or indirectly, in one transaction or a series of transactions, of
increasing by 5% or more the proportionate amount of the outstanding
shares of Common Stock owned by Patriot or Wyndham or any Affiliate
of Patriot or Wyndham. For purposes of this Article VII, an
"Affiliate" of a specified individual or entity is an individual or
entity that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common
control with, such specified individual or entity.
(c) For the purposes of taking the actions specified in this
Section 7.5.1, special meetings of holders of Class B Common Stock
shall be called by the Secretary of the Corporation upon the written
request of the holders of not less than a majority of the shares of
Class B Common Stock then outstanding. Any such request shall state
the purpose of such meeting and the matters proposed to be acted
upon at such meeting. The Secretary shall inform such holders of
Class B Common Stock of the reasonably estimated cost of preparing
and mailing notice of the meeting and, upon payment to the
Corporation by such stockholders of such costs, the Secretary shall
give notice to each holder of Class B Common Stock entitled to
notice of the meeting. At any such meeting, the presence in person
or by proxy of holders of a majority of the outstanding shares of
Class B Common Stock shall be required and be sufficient to
constitute a quorum for the taking of action at such meeting.
Holders of Class B Common Stock shall also be entitled to take any
action specified in this Section 7.5.1
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without a meeting upon the unanimous written consent of holders of
Class B Common Stock.
7.5.2 Voluntary Conversion into Class A Common Stock. Subject to and
upon compliance with the provisions of Section 7.7, each share of Class B
Common Stock shall be convertible, at the option of the holder thereof,
into one fully paid and non-assessable share of Class A Common Stock. Each
holder of Class B Common Stock shall be entitled to convert shares of
Class B Common Stock if such holder provides a written request for
conversion to the Corporation at least ten business days prior to the date
on which such holder desires to convert his Class B Common Stock stating
the date on which such holder desires to convert his Class B Common Stock,
which notice shall be binding and irrevocable on the holder and, to the
extent the holder otherwise complies with the provisions of Section 7.7,
the Corporation.
7.5.3 Automatic Conversion into Class A Common Stock. Each share of
Class B Common Stock shall automatically be converted into one fully paid
and non-assessable share of Class A Common Stock upon the sale or other
transfer, whether by operation of law or otherwise, of such share of Class
B Common Stock to any individual or entity other than an Affiliate of
Marriott International, Inc., a Delaware corporation ("Marriott"), or any
successor of Marriott or of any Affiliate of Marriott. In addition, each
share of Class B Common Stock then outstanding shall automatically be
converted into one fully paid and non-assessable share of Class A Common
Stock upon the occurrence of a Class B Conversion Event. A "Class B
Conversion Event" shall mean the earlier to occur of (a) such time that
Marriott, together with its Affiliates, shall cease to own at least _____%
[50% of the percentage owned upon divestiture] of the outstanding Common
Stock and (b) [additional test specified in Section 5.1 of the Settlement
Agreement]. Each owner of record of shares of Class B Common Stock shall
provide to the Corporation, as promptly as practicable, a written
statement or affidavit stating such information as the Corporation may
request in order to determine whether a Class B Conversion Event has
occurred (including, if requested by the Corporation, information relating
to the level of Beneficial Ownership (as defined in Section 9.1) of any
class of Common Stock by such owner of record and such other party or
parties necessary to determine whether a Class B Conversion Event has
occurred (to the extent such information is known to such owner of
record)).
7.5.4 Record Ownership. All shares of Class B Common Stock
outstanding shall be owned of record at all times by Marriott, an
Affiliate of Marriott, or a successor of Marriott or of an Affiliate of
Marriott. The direct Beneficial Owner (as defined in Section 9.1) of
shares of Class B Common Stock shall at all times be the owner of record
of such shares.
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7.6 Class C Common Stock.
7.6.1 Voting Rights.
(a) The holders of the outstanding shares of Class C Common
Stock shall be entitled, as a class, to elect two Class C Directors
of the Corporation. A Class C Director shall be removed from office
(a) with or without cause only by the affirmative vote of the
holders of a majority of the shares of Class C Common Stock then
entitled to vote at a meeting of such stockholders called for the
purpose or by the unanimous written consent of holders of shares of
Class C Common Stock, (b) automatically upon the occurrence of a
Class C Conversion Event (as defined below) (in which case each
Class C Director then serving shall be removed from office) or (c)
in accordance with Section 6.4. Upon the occurrence of a Class C
Conversion Event, the number of Class A Directors shall be
automatically increased by two and the vacancies created thereby may
be filled in accordance with Section 6.5 either by the remaining
Directors or by the holders of Class A Common Stock. If such
vacancies are filled by the remaining Directors, such remaining
Directors shall classify the new Directors into the class of
Directors whose terms expire at the next annual meeting of
stockholders. If such vacancies are filled by the holders of Class A
Common Stock, the remaining Directors shall classify the new
Directors into appropriate classes so that the classes of the Board
of Directors will thereafter be as nearly equal in number as
possible. Any Class C Director who dies, resigns, is removed in
accordance with Section 6.4 or otherwise ceases to be a Director for
any reason other than a Class C Conversion Event shall be replaced
by the vote of holders of a plurality of the shares of Class C
Common Stock then entitled to vote at a meeting of such stockholders
called for the purpose or by the unanimous written consent of
holders of Class C Common Stock.
(b) Notwithstanding any provision in Article III hereof to the
contrary, so long as any shares of Class C Common Stock are
outstanding, the Corporation shall not, without the affirmative vote
of the holders of a majority of the shares of Class C Common Stock
then entitled to vote, voting as a class, at a meeting of such
stockholders called for the purpose or by the unanimous written
consent of holders of shares of Class C Common Stock, (i) directly
or indirectly own or lease any interest in real property that could
(including under proposed legislation not currently in effect on the
date hereof) cause a "real estate investment trust" (within the
meaning of Section 856 of the Internal Revenue Code of 1986, as
amended (the "Code")) (a "REIT"), that is exempt from the provisions
of Section 269B of the Code to recognize income attributable or
allocable to such real property as a result of the direct or
indirect ownership of the Class C Common Stock by the REIT or any of
its Affiliates (including, for these purposes, a corporation whose
stock is "stapled" to the REIT within the meaning of Section 269B of
the Code) or (ii) enter into a
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definitive agreement with respect to, or authorize the corporate
action necessary to carry out, a Marriott Related Transaction (as
defined below), if at the time of the vote of the Board of Directors
authorizing the entry into such agreement or the effectuation of
such corporate action Marriott, together with its Affiliates, owns
in the aggregate at least 10% of the outstanding Common Stock. For
purposes of this Article VII, "Marriott Related Transaction" shall
mean (i) a merger, consolidation, or share exchange with Marriott or
any Affiliate of Marriott; (ii) the sale, lease, transfer or other
disposition of a substantial portion of the Corporation's assets to
Marriott or any Affiliate of Marriott in one transaction or a series
of transactions within a 12 month period; (iii) the issuance or
transfer by the Corporation, in one transaction or a series of
transactions, of any equity securities of the Corporation which have
an aggregate market value of 10% or more of the total market value
of the outstanding Stock of the Corporation to Marriott or any
Affiliate of Marriott; (iv) the adoption of any plan or proposal for
the liquidation or dissolution of the Corporation in which anything
other than cash or a pro rata distribution of assets will be
received by Marriott or any Affiliate of Marriott; or (v) a reverse
stock split which has the effect, directly or indirectly, in one
transaction or a series of transactions, of increasing by 5% or more
the proportionate amount of the outstanding shares of Common Stock
owned by Marriott or any Affiliate of Marriott.
(c) For the purposes of taking the actions specified in this
Section 7.6.1, special meetings of holders of Class C Common Stock
shall be called by the Secretary of the Corporation upon the written
request of the holders of not less than a majority of the shares of
Class C Common Stock then outstanding. Any such request shall state
the purpose of such meeting and the matters proposed to be acted
upon at such meeting. The Secretary shall inform such holders of
Class C Common Stock of the reasonably estimated cost of preparing
and mailing notice of the meeting and, upon payment to the
Corporation by such stockholders of such costs, the Secretary shall
give notice to each holder of Class C Common Stock entitled to
notice of the meeting. At any such meeting, the presence in person
or by proxy of holders of a majority of the outstanding shares of
Class C Common Stock shall be required and be sufficient to
constitute a quorum for the taking of action at such meeting.
Holders of Class C Common Stock shall also be entitled to take any
action specified in this Section 7.6.1 without a meeting upon the
unanimous written consent of holders of Class C Common Stock.
7.6.2 Voluntary Conversion into Class A Common Stock. Subject to and
upon compliance with the provisions of Section 7.7, each share of Class C
Common Stock shall be convertible, at the option of the holder thereof,
into one fully paid and non-assessable share of Class A Common Stock. Each
holder of Class C Common Stock shall be entitled to convert shares of
Class C Common Stock if such holder
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provides a written request for conversion to the Corporation at least ten
business days prior to the date on which such holder desires to convert
his Class C Common Stock stating the date on which such holder desires to
convert his Class C Common Stock, which notice shall be binding and
irrevocable on the holder and, to the extent the holder otherwise complies
with the provisions of Section 7.7, the Corporation.
7.6.3 Automatic Conversion into Class A Common Stock. Each share of
Class C Common Stock shall automatically be converted into one fully paid
and non-assessable share of Class A Common Stock upon the sale or other
transfer, whether by operation of law or otherwise, of such share of Class
C Common Stock to any individual or entity other than Patriot, Wyndham,
any Affiliate of Patriot or Wyndham, or any successor of Patriot or
Wyndham or of any Affiliate of Patriot or Wyndham. In addition, each share
of Class C Common Stock then outstanding shall automatically be converted
into one fully paid and non-assessable share of Class A Common Stock upon
the occurrence of a Class C Conversion Event. A "Class C Conversion Event"
shall mean the earlier to occur of (a) such time that Patriot and Wyndham,
together with their respective Affiliates and the successors of Patriot
and Wyndham and their respective Affiliates, shall cease to own at least
_____ % [50% of the percentage owned upon divestiture] of the outstanding
Common Stock and (b) [additional test specified in Section 5.1 of the
Settlement Agreement]. Each owner of record of shares of Class C Common
Stock shall provide to the Corporation, as promptly as practicable, a
written statement or affidavit stating such information as the Corporation
may request in order to determine whether a Class C Conversion Event has
occurred (including, if requested by the Corporation, information relating
to the level of Beneficial Ownership of any class of Common Stock by such
owner of record and such other party or parties necessary to determine
whether a Class C Conversion Event has occurred (to the extent such
information is known to such owner of record)).
7.6.4 Record Ownership. All shares of Class C Common Stock
outstanding shall be owned of record at all times by Patriot, Wyndham, an
Affiliate of Patriot or Wyndham, or a successor of Patriot or Wyndham or
of an Affiliate of Patriot or Wyndham. The direct Beneficial Owner (as
defined in Section 9.1) of shares of Class C Common Stock shall at all
times be the owner of record of such shares.
7.7 Voluntary Conversion Procedures.
7.7.1 Surrender of Certificates. Each conversion of shares of Class
B or Class C Common Stock into shares of Class A Common Stock pursuant to
Section 7.5.2 or Section 7.6.2 shall be effected by the surrender of the
certificate or certificates representing the shares of Class B or Class C
Common Stock to be converted, duly assigned or endorsed for transfer to
the Corporation (or accompanied by duly executed stock powers relating
thereto), at the principal executive office of the Corporation or the
offices of the transfer agent for the Common Stock or such office or
offices in the continental United States of an agent for conversion as may
from time to time be
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designated by notice to the holders of the Class B and/or Class C Common
Stock by the Corporation, together with written notice by the holder of
such Class B or Class C Common Stock stating that such holder desires to
convert the shares, or a stated number of the shares, of Class B or Class
C Common Stock represented by such certificate(s) into Class A Common
Stock, which notice shall also state the name or names (with addresses)
and denominations in which the certificate or certificates for Class A
Common Stock shall be issued and shall include instructions for delivery
thereof. Upon surrender of a certificate representing Class B or Class C
Common Stock for conversion, the Corporation shall issue and send by hand
delivery, by courier or by first class mail (postage prepaid) to the
holder thereof or to such holder's designee, at the address designated by
such holder, a certificate or certificates for the number of shares of
Class A Common Stock to which such holder shall be entitled upon
conversion. In the event that there shall have been surrendered a
certificate or certificates representing Class B or Class C Common Stock,
only part of which are to be converted, the Corporation shall issue and
send to such holder or such holder's designee, in the manner set forth in
the preceding sentence, a new certificate or certificates representing the
number of shares of Class B or Class C Common Stock which shall not have
been converted. If the certificate or certificates for Class A Common
Stock are to be issued in a name other than the name of the registered
holder of the stock surrendered for conversion, the Corporation shall not
be obligated to issue or deliver any certificate unless and until the
holder of the stock surrendered has paid to the Corporation the amount of
any tax that may be payable in respect of any transfer involved in such
issuance or shall establish to the satisfaction of the Corporation that
such tax has been paid.
7.7.2 Date of Conversion. Such conversion shall be deemed to have
been effected as of the later of (i) the close of business on the date on
which such certificate or certificates shall have been surrendered or (ii)
the date on which the holder shall have fully complied with the provisions
of this Section 7.7, and at such time the rights of the holder of such
Class B or Class C Common Stock (or specified portion thereof) as to such
converted shares shall cease and the person or persons in whose name or
names any certificate or certificates for shares of Class A Common Stock
are to be issued upon such conversion shall be deemed to have become the
holder or holders of record of the shares of Class A Common Stock
represented thereby.
7.7.3 Reservation of Class A Common Stock. The Corporation shall at
all times reserve and keep available out of its authorized but unissued
shares of Class A Common Stock, solely for the purpose of issuance upon
the conversion of the Class B and Class C Common Stock, such number of
shares of Class A Common Stock as are issuable upon the conversion of all
outstanding shares of Class B and Class C Common Stock.
7.7.4 No Reissuance. No share or shares of the Class B or Class C
Common Stock acquired by the Corporation by reason of conversion or
otherwise shall be
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reissued, and all such shares shall be canceled, retired and eliminated
from the shares which the Corporation shall be authorized to issue. The
Corporation may from time to time take such appropriate corporate action
as may be necessary to reduce the authorized number of shares of the Class
B or Class C Common Stock accordingly.
7.7.5 No Limitation of Automatic Conversion. Nothing in this Section
7.7 or otherwise shall in any way limit the right of the Corporation to
effect the automatic conversion of shares of Class B or Class C Common
Stock in accordance with the provisions of Sections 7.5.3 and 7.6.3
hereof, and all of such shares shall be deemed automatically converted
into shares of Class A Common Stock in accordance with such Sections
regardless of whether any holder of Class B or Class C Common Stock to be
converted surrenders his or her stock certificates or otherwise complies
with this Section 7.7.
7.8 Excess Stock. For the purposes of this Section 7.8, terms not
otherwise defined shall have the meanings set forth in Article IX.
7.8.1 Conversion into Excess Stock.
(a) If, notwithstanding the other provisions contained in
these Articles, there is a purported Transfer or Non-Transfer Event
such that any Person (other than a Look-Through Entity) would
Beneficially Own shares of Equity Stock in excess of the Ownership
Limit, or such that any Person that is a Look-Through Entity would
Beneficially Own shares of Equity Stock in excess of the
Look-Through Limit, then (i) except as otherwise provided in Section
9.4 of Article IX, the purported transferee shall be deemed to be a
Prohibited Owner and shall acquire no right or interest (or, in the
case of a Non-Transfer Event, the Person holding record title to the
shares of Equity Stock Beneficially Owned by such Beneficial Owner
shall cease to own any right or interest) in such number of shares
of Equity Stock which would cause such Beneficial Owner to
Beneficially Own shares of Equity Stock in excess of the Ownership
Limit or the Look-Through Limit, as the case may be, (ii) such
number of shares of Equity Stock in excess of the Ownership Limit or
the Look-Through Limit, as the case may be (rounded up to the
nearest whole share), shall be automatically converted into an equal
number of shares of Excess Stock and transferred to a Trust in
accordance with Section 7.8.4 of this Article VII and (iii) the
Prohibited Owner shall submit the certificates representing such
number of shares of Equity Stock to the Corporation, accompanied by
all requisite and duly executed assignments of transfer thereof, for
registration in the name of the Trustee of the Trust. If the shares
of Equity Stock that are converted into Excess Stock are not shares
of Class A Common Stock, then the Excess Stock into which they are
converted shall be deemed to be a separate series of Excess Stock
with a designation and title corresponding to the designation and
title of the shares that have been converted into the Excess Stock.
Such conversion into
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Excess Stock and transfer to a Trust shall be effective as of the
close of trading on the Trading Day prior to the date of the
purported Transfer or Non-Transfer Event, as the case may be, even
though the certificates representing the shares of Equity Stock so
converted may be submitted to the Corporation at a later date or may
never be so submitted.
(b) Upon the occurrence of such a conversion of shares of
Equity Stock into an equal number of shares of Excess Stock, such
shares of Equity Stock shall be automatically retired and canceled,
without any action required by the Board of Directors of the
Corporation, and shall thereupon be restored to the status of
authorized but unissued shares of the particular class or series of
Equity Stock from which such Excess Stock was converted and may be
reissued by the Corporation as that particular class or series of
Equity Stock.
7.8.2 Remedies for Breach. If the Corporation, or its designees,
shall at any time determine in good faith that a Transfer has taken place
in violation of Section 9.2 of Article IX or that a Person intends to
acquire or has attempted to acquire Beneficial Ownership or Constructive
Ownership of any shares of Equity Stock in violation of Section 9.2 of
Article IX, the Corporation shall take such action as it deems advisable
to refuse to give effect to or to prevent such Transfer or acquisition,
including, but not limited to, refusing to give effect to such Transfer on
the stock transfer books of the Corporation or instituting proceedings to
enjoin such Transfer or acquisition, but the failure to take any such
action shall not affect the automatic conversion of shares of Equity Stock
into Excess Stock and their transfer to a Trust in accordance with Section
7.8.4.
7.8.3 Notice of Restricted Transfer. Any Person who acquires or
attempts to acquire shares of Equity Stock in violation of Section 9.2 of
Article IX, or any Person who owns shares of Equity Stock that were
converted into shares of Excess Stock and transferred to a Trust pursuant
to Sections 7.8.1 and 7.8.4 of this Article VII, shall immediately give
written notice to the Corporation of such event.
7.8.4 Ownership in Trust. Upon any purported Transfer or
Non-Transfer Event that results in Excess Stock pursuant to Section 7.8.1
of this Article VII, (i) the Corporation shall create, or cause to be
created, a Trust, and shall designate a Trustee and name a Beneficiary
thereof and (ii) such Excess Stock shall be automatically transferred to
such Trust to be held for the exclusive benefit of the Beneficiary. Any
conversion of shares of Equity Stock into shares of Excess Stock and
transfer to a Trust shall be effective as of the close of trading on the
Trading Day prior to the date of the purported Transfer or Non-Transfer
Event that results in the conversion. Shares of Excess Stock so held in
trust shall remain issued and outstanding shares of Stock of the
Corporation.
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7.8.5 Dividend Rights. Each share of Excess Stock shall be entitled
to the same dividends and distributions (as to both timing and amount) as
may be authorized by the Board of Directors with respect to shares of the
same class and series as the shares of Equity Stock that were converted
into such Excess Stock. The Trustee, as record holder of the shares of
Excess Stock, shall be entitled to receive all dividends and distributions
and shall hold all such dividends or distributions in trust for the
benefit of the Beneficiary. The Prohibited Owner with respect to such
shares of Excess Stock shall repay to the Trust the amount of any
dividends or distributions received by it that are (i) attributable to any
shares of Equity Stock that have been converted into shares of Excess
Stock and (ii) dividends or distributions which were distributed by the
Corporation to stockholders of record on a record date which was on or
after the date that such shares were converted into shares of Excess
Stock. The Corporation shall take all measures that it determines
reasonably necessary to recover the amount of any such dividend or
distribution paid to a Prohibited Owner, including, if necessary,
withholding any portion of future dividends or distributions payable on
shares of Equity Stock Beneficially Owned by the Person who, but for the
provisions of Articles VII and IX, would Constructively Own or
Beneficially Own the shares of Equity Stock that were converted into
shares of Excess Stock, and, as soon as reasonably practicable following
the Corporation's receipt or withholding thereof, shall pay over to the
Trust for the benefit of the Beneficiary the dividends so received or
withheld, as the case may be.
7.8.6 Rights upon Liquidation. In the event of any voluntary or
involuntary liquidation of, dissolution or winding up of, or any
distribution of the assets of, the Corporation, each holder of shares of
Excess Stock shall be entitled to receive, ratably with each other holder
of shares of Equity Stock of the same class and series as the shares which
were converted into such Excess Stock and other holders of such Excess
Stock, that portion of the assets of the Corporation that is available for
distribution to the holders of shares of such class and series of Equity
Stock and such Excess Stock. The Trust shall distribute to the Prohibited
Owner the amounts received upon such liquidation, dissolution or winding
up, or distribution; provided, however, that the Prohibited Owner shall
not be entitled to receive amounts in excess of, in the case of a
purported Transfer in which the Prohibited Owner gave value for shares of
Equity Stock and which Transfer resulted in the conversion of the shares
into shares of Excess Stock, the product of (x) the price per share, if
any, such Prohibited Owner paid for the shares of Equity Stock and (y) the
number of shares of Equity Stock which were so converted into Excess
Stock, and, in the case of a Non-Transfer Event or purported Transfer in
which the Prohibited Owner did not give value for such shares (e.g., if
the shares were received through a gift or devise) and which Non-Transfer
Event or purported Transfer, as the case may be, resulted in the
conversion of the shares into shares of Excess Stock, the product of (x)
the price per share equal to the Market Price on the date of such
Non-Transfer Event or purported Transfer and (y) the number of shares of
Equity Stock which were so converted into Excess Stock. Any remaining
amount in such Trust shall be distributed to the Beneficiary.
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7.8.7 Voting Rights. Each share of Excess Stock shall entitle the
holder to no voting rights other than those voting rights which must
accompany a class of Stock under Maryland law. The Trustee, as record
holder of the Excess Stock, shall be entitled to vote all shares of Excess
Stock in the event voting rights are mandated by Maryland law. Any vote by
a Prohibited Owner as a purported holder of shares of Equity Stock prior
to the discovery by the Corporation that such shares of Equity Stock have
been converted into shares of Excess Stock may, subject to applicable law,
(i) be rescinded by the Trustee and shall be void ab initio with respect
to such shares of Excess Stock and (ii) be recast in accordance with the
desires of the Trustee acting for the benefit of the Beneficiary;
provided, however, that if the Corporation has already taken irreversible
corporate action, then the Trustee shall not have the authority to rescind
and recast such vote.
7.8.8 Designation of Permitted Transferee.
(a) As soon as practicable after the Trustee acquires Excess
Stock, but in an orderly fashion so as not to materially adversely
affect the trading price of Common Stock, the Trustee shall
designate one or more Persons as Permitted Transferees and sell to
such Permitted Transferees any shares of Excess Stock held by the
Trustee; provided, however, that (i) any Permitted Transferee so
designated purchases for valuable consideration (whether in a public
or private sale) the shares of Excess Stock and (ii) any Permitted
Transferee so designated may acquire such shares of Excess Stock
without violating any of the restrictions set forth in Section 9.2
of Article IX and without such acquisition resulting in the
conversion of the shares of Equity Stock so acquired into shares of
Excess Stock and the transfer of such shares to a Trust pursuant to
Sections 7.8.1 and 7.8.4 of this Article VII. The Trustee shall have
the exclusive and absolute right to designate Permitted Transferees
of any and all shares of Excess Stock in accordance with the
provisions of this Section 7.8.8. Prior to any transfer by the
Trustee of shares of Excess Stock to a Permitted Transferee, the
Trustee shall give not less than five Trading Days' prior written
notice to the Corporation of such intended transfer and the
Corporation must have waived in writing its purchase rights, if any,
under Section 7.8.10 of this Article VII.
(b) Subject to this Section 7.8.8, upon the designation by the
Trustee of a Permitted Transferee in accordance with the provisions
of this Section 7.8.8, the Trustee shall cause to be transferred to
the Permitted Transferee shares of Excess Stock acquired by the
Trustee pursuant to Section 7.8.4 of this Article VII. Upon such
transfer of shares of Excess Stock to the Permitted Transferee, such
shares of Excess Stock shall be automatically converted into an
equal number of shares of Equity Stock of the same class and series
which was converted into such Excess Stock. Upon the occurrence of
such a conversion of shares of Excess Stock into an equal number of
shares of Equity Stock, such
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shares of Excess Stock shall be automatically retired and canceled,
without any action required by the Board of Directors of the
Corporation, and shall thereupon be restored to the status of
authorized but unissued shares of Excess Stock and may be reissued
by the Corporation as Excess Stock. The Trustee shall (i) cause to
be recorded on the stock transfer books of the Corporation that the
Permitted Transferee is the holder of record of such number of
shares of Equity Stock, and (ii) distribute to the Beneficiary any
and all amounts held with respect to such shares of Excess Stock
after making payment to the Prohibited Owner pursuant to Section
7.8.9 of this Article VII.
(c) If the Transfer of shares of Excess Stock to a purported
Permitted Transferee would or does violate any of the transfer
restrictions set forth in Section 9.2 of Article IX, such Transfer
shall be void ab initio as to that number of shares of Excess Stock
that cause the violation of any such restriction when such shares
are converted into shares of Equity Stock (as described in clause
(b) above) and the purported Permitted Transferee shall be deemed to
be a Prohibited Owner and shall acquire no rights in such shares of
Excess Stock or Equity Stock. Such shares of Equity Stock shall be
automatically re-converted into Excess Stock and transferred to the
Trust from which they were originally Transferred. Such conversion
and transfer to the Trust shall be effective as of the close of
trading on the Trading Day prior to the date of the Transfer to the
purported Permitted Transferee and the provisions of this Article
VII shall apply to such shares, including, without limitation, the
provisions of Sections 7.8.8 through 7.8.10 with respect to any
future Transfer of such shares by the Trust.
7.8.9 Compensation to Record Holder of Shares of Equity Stock That
Are Converted into Shares of Excess Stock. Any Prohibited Owner shall be
entitled (following acquisition of the shares of Excess Stock and
subsequent designation of and sale of Excess Stock to a Permitted
Transferee in accordance with Section 7.8.8 of this Article VII or
following the purchase of such shares in accordance with Section 7.8.10 of
this Article VII) to receive from the Trustee following the sale or other
disposition of such shares of Excess Stock the lesser of (i) (a) in the
case of a purported Transfer in which the Prohibited Owner gave value for
shares of Equity Stock and which Transfer resulted in the conversion of
such shares into shares of Excess Stock, the product of (x) the price per
share, if any, such Prohibited Owner paid for the shares of Equity Stock
and (y) the number of shares of Equity Stock which were so converted into
Excess Stock and (b) in the case of a Non-Transfer Event or purported
Transfer in which the Prohibited Owner did not give value for such shares
(e.g., if the shares were received through a gift or devise) and which
Non-Transfer Event or purported Transfer, as the case may be, resulted in
the conversion of such shares into shares of Excess Stock, the product of
(x) the price per share equal to the Market Price on the date of such Non-
Transfer Event or purported Transfer and (y) the number of shares of
Equity Stock which were so converted into Excess Stock or (ii) the
proceeds received by the Trustee from the sale or other disposition of
such shares of Excess Stock in accordance with
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Section 7.8.8 or Section 7.8.10 of this Article VII. Any amounts received
by the Trustee in respect of such shares of Excess Stock and in excess of
such amounts to be paid to the Prohibited Owner pursuant to this Section
7.8.9 shall be distributed to the Beneficiary in accordance with the
provisions of Section 7.8.8 of this Article VII. Each Beneficiary and
Prohibited Owner shall be deemed to have waived any and all claims that it
may have against the Trustee and the Trust arising out of the disposition
of shares of Excess Stock, except for claims arising out of the gross
negligence or willful misconduct of, or any failure to make payments in
accordance with this Section 7.8 of this Article VII by, such Trustee.
7.8.10 Purchase Right in Excess Stock. Shares of Excess Stock shall
be deemed to be offered for sale to the Corporation or its designee, at a
price per share equal to the lesser of (i) the price per share in the
transaction that created such shares of Excess Stock (or, in the case of a
Non-Transfer Event or Transfer in which the Prohibited Owner did not give
value for the shares (e.g., if the shares were received through a gift or
devise), the Market Price on the date of such Non-Transfer Event or
Transfer in which the Prohibited Owner did not give value for the shares)
or (ii) the Market Price on the date the Corporation, or its designee,
accepts such offer. The Corporation shall have the right to accept such
offer for a period of 90 days following the later of (a) the date of the
Non-Transfer Event or purported Transfer which results in such shares of
Excess Stock or (b) the date the Board of Directors first determines that
a Transfer or Non-Transfer Event resulting in shares of Excess Stock has
occurred, if the Corporation does not receive a notice of such Transfer or
Non-Transfer Event pursuant to Section 7.8.3 of this Article VII.
7.9 Classification of Stock. The Board of Directors may classify or
reclassify any unissued shares of Stock from time to time by setting or changing
the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications, and terms
and conditions of redemption for each class or series, including, but not
limited to, the reclassification of unissued shares of Common Stock to shares of
Preferred Stock or unissued shares of Preferred Stock to shares of Common Stock
or the issuance of any rights plan or similar plan.
7.10 Issuance of Stock. The Board of Directors may authorize the issuance
from time to time of shares of Stock of any class or series, whether now or
hereafter authorized, or securities or rights convertible into shares of Stock,
for such consideration as the Board of Directors may deem advisable (or without
consideration in the case of a share split or dividend), subject to such
restrictions or limitations, if any, as may be set forth in these Articles or
the Bylaws of the Corporation.
7.11 Dividends or Distributions. The Directors may from time to time
authorize and declare and pay to stockholders such dividends or distributions in
cash, property or other assets of the Corporation or in securities of the
Corporation or any other entity or from any other source as the Directors in
their discretion shall determine.
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7.12 Ambiguity. In the case of an ambiguity in the application of any of
the provisions of this Article VII, the Board of Directors shall have the power
to determine the application of the provisions of this Article VII with respect
to any situation based on the facts known to it.
7.13 Legend. Except as otherwise determined by the Board of Directors,
each certificate for shares of Equity Stock shall bear substantially the
following legend:
"The shares of NEWCO (the "Corporation") represented by this
certificate are subject to restrictions set forth in the
Corporation's charter, as the same may be amended from time to time,
which prohibit in general (a) any Person (other than a Look-Through
Entity) from Beneficially Owning shares of Equity Stock in excess of
the Ownership Limit, (b) any Look-Through Entity from Beneficially
Owning shares of Equity Stock in excess of the Look-Through
Ownership Limit and (c) any Person from acquiring or maintaining any
ownership interest in the stock of the Corporation that is
inconsistent with the charter of the Corporation, and the holder of
this certificate by his, her or its acceptance hereof consents to be
bound by such restrictions. Capitalized terms used in this paragraph
and not defined herein are defined in the Corporation's charter, as
the same may be amended from time to time.
The Corporation will furnish without charge, to each stockholder who
so requests, a copy of the relevant provisions of the charter and
the bylaws, each as amended, of the Corporation, a copy of the
provisions setting forth the designations, preferences, privileges
and rights of each class of stock or series thereof that the
Corporation is authorized to issue and the qualifications,
limitations and restrictions of such preferences and/or rights. Any
such request may be addressed to the Secretary of the Corporation or
to the transfer agent named on the face hereof."
7.14 Severability. Each provision of this Article VII shall be severable
and an adverse determination as to any such provision shall in no way affect the
validity of any other provision of this Article VII or any other Article.
7.15 Articles and Bylaws. All persons who shall acquire Stock in the
Corporation shall acquire the same subject to the provisions of these Articles
and the Bylaws.
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ARTICLE VIII
LIMITATION ON PREEMPTIVE RIGHTS
No holder of any Stock or any other securities of the Corporation, whether
now or hereafter authorized, shall have any preferential or preemptive rights to
subscribe for or purchase any Stock or any other securities of the Corporation
other than such rights, if any, as the Board of Directors, in its sole
discretion, may fix by articles supplementary, by contract or otherwise; and any
Stock or other securities which the Board of Directors may determine to offer
for subscription may, within the Board of Directors' sole discretion, be offered
to one or more of the holders of any class, series or type of Stock or other
securities at the time outstanding to the exclusion of other holders of such
class, series or type of Stock or other securities or the holders of any or all
other classes, series or types of Stock or other securities at the time
outstanding.
ARTICLE IX
LIMITATIONS ON TRANSFER AND OWNERSHIP OF EQUITY STOCK
9.1 Definitions. For purposes of this Article IX, the following terms
shall have the meanings set forth below:
"Beneficial Ownership," when used with respect to ownership of
shares of Equity Stock by any Person, shall mean all shares of Equity Stock
which are (i) directly owned by such Person or (ii) beneficially owned by such
Person pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); provided, however, that in determining the number
of shares Beneficially Owned by a Person or group, no share shall be counted
more than once although applicable to both clauses (i) and (ii) of this
definition or (in the case of a group) although Beneficially Owned by more than
one Person in such group. If a Person Beneficially Owns shares of Equity Stock
that are not actually outstanding (e.g., shares issuable upon the exercise of an
option or convertible security) ("Option Shares"), then, whenever these Articles
require a determination of the percentage of outstanding shares of a class of
Equity Stock Beneficially Owned by that Person, the Option Shares Beneficially
Owned by that Person shall also be deemed to be outstanding.
"Beneficiary" shall mean, with respect to any Trust, one or more
organizations described in each of Section 170(b)(1)(A) (other than clauses
(vii) and (viii) thereof) and Section 170(c)(2) of the Code that are named by
the Corporation as the beneficiary or beneficiaries of such Trust, in accordance
with the provisions of Section 7.8.4 of Article VII.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
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"Equity Stock" shall mean a particular class (other than Excess
Stock) or series of stock of the Corporation. The use of the term "Equity Stock"
or any term defined by reference to the term "Equity Stock" shall refer to the
particular class or series of stock which is appropriate under the context.
"Look-Through Entity" shall mean a Person that is either (i) a trust
described in Section 401(a) of the Code and exempt from tax under Section 501(a)
of the Code as modified by Section 856(h)(3) of the Code or (ii) registered
under the Investment Company Act of 1940.
"Look-Through Ownership Limit" shall mean, with respect to a class
or series of Equity Stock, 15% of the number of outstanding shares of such
Equity Stock.
"Market Price" of Equity Stock on any date shall mean the average of
the Closing Price for shares of such Equity Stock for the five consecutive
Trading Days ending on such date. The "Closing Price" on any date shall mean (A)
where there exists a public market for the Corporation's Equity Stock, the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the shares of Equity Stock are not listed or admitted to trading on the New
York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the shares of Equity Stock are listed or admitted
to trading or, if the shares of Equity Stock are not listed or admitted to
trading on any national securities exchange, the last quoted price, or if not so
quoted, the average of the high bid and low asked prices in the over-the-counter
market, as reported by the Nasdaq Stock Market, Inc. or, if such system is no
longer in use, the principal other automated quotation system that may then be
in use or (B) if no public market for the Equity Stock exists, the Closing Price
will be determined by a single, independent appraiser selected by the Board of
Directors, which appraiser shall appraise the Market Price for such Equity Stock
within such guidelines as shall be determined by the Board of Directors.
"Non-Transfer Event" shall mean an event other than a purported
Transfer that would cause (a) any Person (other than a Look-Through Entity) to
Beneficially Own shares of Equity Stock in excess of the Ownership Limit or (b)
any Look-Through Entity to Beneficially Own shares of Equity Stock in excess of
the Look-Through Ownership Limit. Non-Transfer Events include but are not
limited to (i) the granting of any option or entering into any agreement for the
sale, transfer or other disposition of shares (or of Beneficial Ownership of
shares) of Equity Stock or (ii) the sale, transfer, assignment or other
disposition of interests in any Person or of any securities or rights
convertible into or exchangeable for shares of Equity Stock or for interests in
any Person that results in changes in Beneficial Ownership of shares of Equity
Stock.
"Ownership Limit" shall mean, with respect to a class or series of
Equity Stock, 9.9% of the number of outstanding shares of such Equity Stock.
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"Permitted Transferee" shall mean any Person designated as a
Permitted Transferee in accordance with the provisions of Section 7.8.8 of
Article VII.
"Person" shall mean (a) an individual or any corporation,
partnership, estate, trust, association, private foundation, joint stock company
or any other entity and (b) a "group" as that term is used for purposes of
Section 13(d)(3) of the Exchange Act, but shall exclude an underwriter that
participates in a public offering of Equity Stock, such exclusion to be in
effect for the period of 90 days immediately following purchase by such
underwriter of such Equity Stock.
"Prohibited Owner" shall mean, with respect to any purported
Transfer or Non- Transfer Event, any Person who is prevented from becoming or
remaining the owner of record title to shares of Equity Stock by the provisions
of Section 7.8.1 of Article VII.
"Trading Day" shall mean a day on which the principal national
securities exchange on which any of the shares of Equity Stock are listed or
admitted to trading is open for the transaction of business or, if none of the
shares of Equity Stock are listed or admitted to trading on any national
securities exchange, any day other than a Saturday, a Sunday or a day on which
banking institutions in the State of New York are authorized or obligated by law
or executive order to close.
"Transfer" (as a noun) shall mean any sale, transfer, gift,
assignment, devise or other disposition of shares (or of Beneficial Ownership of
shares) of Equity Stock, whether voluntary or involuntary, whether of record,
constructively or beneficially and whether by operation of law or otherwise.
"Transfer" (as a verb) shall have the correlative meaning.
"Trust" shall mean any separate trust created and administered in
accordance with the terms of Section 7.8 of Article VII, for the exclusive
benefit of any Beneficiary.
"Trustee" shall mean any Person or entity, unaffiliated with both
the Corporation and any Prohibited Owner (and, if different than the Prohibited
Owner, the Person who would have had Beneficial Ownership of the Shares that
would have been owned of record by the Prohibited Owner), designated by the
Corporation to act as trustee of any Trust, or any successor trustee thereof.
9.2 Restriction on Ownership and Transfer.
(a) Except as provided in Section 9.4 of this Article IX, (i) no
Person (other than a Look-Through Entity) shall Beneficially Own shares of
Equity Stock in excess of the Ownership Limit and (ii) no Look-Through Entity
shall Beneficially Own shares of Equity Stock in excess of the Look-Through
Ownership Limit.
(b) Except as provided in Section 9.4 of this Article IX, any
purported Transfer (whether or not the result of a transaction entered into
through the facilities of the
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New York Stock Exchange or any other national securities exchange or the Nasdaq
Stock Market, Inc. or any other automated quotation system) that, if effective,
would result in any Person (but not including a Look-Through Entity)
Beneficially Owning shares of Equity Stock in excess of the Ownership Limit
shall be void ab initio as to the Transfer of that number of shares of Equity
Stock which would be otherwise Beneficially Owned by such Person in excess of
the Ownership Limit, and the intended transferee shall acquire no rights in such
shares of Equity Stock.
(c) Except as provided in Section 9.4 of this Article IX, any
purported Transfer (whether or not the result of a transaction entered into
through the facilities of the New York Stock Exchange or any other national
securities exchange or the Nasdaq Stock Market, Inc. or any other automated
quotation system) that, if effective, would result in any Look-Through Entity
Beneficially Owning shares of Equity Stock in excess of the Look- Through
Ownership Limit shall be void ab initio as to the Transfer of that number of
shares of Equity Stock which would be otherwise Beneficially Owned by such
Look-Through Ownership Entity in excess of the Look-Through Ownership Limit, and
the intended transferee Look- Through Entity shall acquire no rights in such
shares of Equity Stock.
9.3 Owners Required to Provide Information. Each Person who is a
Beneficial Owner of shares of Equity Stock and each Person (including the
stockholder of record) who is holding shares of Equity Stock for a Beneficial
Owner shall provide to the Corporation a written statement or affidavit stating
such information as the Corporation may request in order to ensure compliance
with the Ownership Limit.
9.4. Exception. The Board of Directors may, in its sole discretion, waive
the application of the Ownership Limit or the Look-Through Ownership Limit to a
Person (other than Marriott or Patriot or any entity directly or indirectly
controlled by either of them) subject, as the case may be, to any such limit and
may, in connection with or as a condition to granting any such waiver, require
such Person and one or more other Persons to make such representations and
warranties and enter into such agreements as the Board of Directors in its sole
discretion determines to be appropriate or advisable.
9.5 New York Stock Exchange Transactions. Notwithstanding any provision
contained herein to the contrary, nothing in these Articles shall preclude the
settlement of any transaction entered into through the facilities of the New
York Stock Exchange or any other national securities exchange or the Nasdaq
Stock Market, Inc. or any other automated quotation system. In no event shall
the existence or application of the preceding sentence have the effect of
deterring or preventing the conversion of Equity Stock into Excess Stock as
contemplated herein.
9.6 Ambiguity. In the case of an ambiguity in the application of any of
the provisions of this Article IX, including any definition contained in Section
9.1 of this Article IX, the Board of Directors shall have the power to determine
the application of the provisions of this Article IX with respect to any
situation based on the facts known to it.
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9.7 Remedies Not Limited. Except as set forth in Section 9.5 of this
Article IX, nothing contained in this Article IX or Article VII shall limit the
authority of the Corporation to take such other action as it deems necessary or
advisable to protect the Corporation and the interests of its stockholders and
to ensure compliance with the Ownership Limit or the Look- Through Ownership
Limit.
ARTICLE X
RIGHTS AND POWERS OF CORPORATION,
BOARD OF DIRECTORS AND OFFICERS
In carrying on its business, or for the purpose of attaining or furthering
any of its objects, the Corporation shall have all of the rights, powers and
privileges granted to corporations by the laws of the State of Maryland, as well
as the power to do any and all acts and things that a natural person or
partnership could do as now or hereafter authorized by law, either alone or in
partnership or conjunction with others. In furtherance and not in limitation of
the powers conferred by statute, the powers of the Corporation and of the
Directors and stockholders shall include the following:
10.1 Conflicts of Interest. Any Director or officer individually, or any
firm of which any Director or officer may be a member, or any corporation or
association of which any Director or officer may be a director or officer or in
which any Director or officer may be interested as the holder of any amount of
its Stock or otherwise, may be a party to, or may be pecuniarily or otherwise
interested in, any contract or transaction of the Corporation, and, in the
absence of fraud, no contract or other transaction shall be thereby affected or
invalidated; provided, however, that (a) such fact shall have been disclosed or
shall have been known to the Board of Directors or the committee thereof that
approved such contract or transaction and such contract or transaction shall
have been approved or ratified by the affirmative vote of a majority of the
disinterested Directors, or (b) such fact shall have been disclosed or shall
have been known to the stockholders entitled to vote, and such contract or
transaction shall have been approved or ratified by a majority of the votes cast
by the stockholders entitled to vote, other than the votes of shares owned of
record or beneficially by the interested Director or officer or corporation,
firm or other entity, or (c) the contract or transaction is fair and reasonable
to the Corporation. Any Director of the Corporation who is also a director or
officer of or interested in such other corporation or association, or who, or
the firm of which he is a member, is so interested, may be counted in
determining the existence of a quorum at any meeting of the Board of Directors
of the Corporation which shall authorize any such contract or transaction, with
like force and effect as if he were not such director or officer of such other
corporation or association or were not so interested or were not a member of a
firm so interested.
10.2 Amendment of Articles. The Corporation reserves the right, from time
to time, to make any amendment of its Articles, now or hereafter authorized by
law, including any
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amendment which alters the contract rights, as expressly set forth in its
Articles, of any outstanding Stock.
No amendment or repeal of these Articles shall be made unless the same is
first approved by the Board of Directors pursuant to a resolution adopted by the
Board of Directors in accordance with the MGCL, and, except as otherwise
provided by law, thereafter approved by the stockholders.
Whenever any vote of the holders of voting stock is required to amend or
repeal any provision of these Articles, then in addition to any other vote of
the holders of voting stock that is required by these Articles, the affirmative
vote of the holders of a majority of the outstanding shares of Stock of the
Corporation entitled to vote on such amendment or repeal, voting together as a
single class, and the affirmative vote of the holders of a majority of the
outstanding shares of each class entitled to vote thereon as a class, shall be
required to amend or repeal any provision of these Articles; provided, however,
that the affirmative vote of the holders of not less than two-thirds of the
outstanding shares entitled to vote on such amendment or repeal, voting together
as a single class, and the affirmative vote of the holders of not less than
two-thirds of the outstanding shares of Class B Common Stock, voting as a single
class, and Class C Common Stock, voting as a single class, shall be required to
amend or repeal any of the provisions of Sections 6.2, 6.3, 6.4 or 6.5 of
Article VI, Sections 7.3, 7.5, 7.6, 7.7 or 7.8 of Article VII, Article IX,
Article X or Article XII of these Articles.
ARTICLE XI
INDEMNIFICATION
The Corporation (which for the purpose of this Article XI shall include
predecessor entities of the Corporation as set forth in Section 2-418 of the
MGCL) shall have the power to the maximum extent permitted by Maryland law in
effect from time to time, to obligate itself to indemnify, and to pay or
reimburse reasonable expenses in advance of final disposition of a proceeding
to, (a) any individual who is a present or former Director or officer of the
Corporation or (b) any individual who, while a Director of the Corporation and
at the request of the Corporation, serves or has served as a director, officer,
partner or trustee of another corporation, real estate investment trust,
partnership, joint venture, trust, employee benefit plan or any other enterprise
from and against any claim or liability to which such person may become subject
or which such person may incur by reason of his status as a present or former
Director or officer of the Corporation. The Corporation shall have the power,
with the approval of the Board of Directors, to provide such indemnification and
advancement of expenses to a person who served a predecessor of the Corporation
in any of the capacities described in (a) or (b) above and to any employee or
agent of the Corporation or a predecessor of the Corporation.
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ARTICLE XII
LIMITATION OF LIABILITY
To the fullest extent permitted under the MGCL as in effect on the date of
filing these Articles or as the MGCL is thereafter amended from time to time, no
Director or officer shall be liable to the Corporation or its stockholders for
money damages. Neither the amendment or the repeal of this Article, nor the
adoption of any other provision in the Corporation's Articles inconsistent with
this Article, shall eliminate or reduce the protection afforded by this Article
to a Director or officer of the Corporation with respect to any matter which
occurred, or any cause of action, suit or claim which but for this Article would
have accrued or arisen, prior to such amendment, repeal or adoption.
ARTICLE XIII
EXEMPTION FROM BUSINESS COMBINATION STATUTE
Pursuant to Section 3-603(e)(1)(iii) of the MGCL, the Corporation
expressly elects not to be governed by the provisions of Section 3-602 of the
MGCL with respect to any business combination (as defined in Section 3-601 of
the MGCL).
ARTICLE XIV
MISCELLANEOUS
14.1 Provisions in Conflict with Law or Regulations.
(a) The provisions of these Articles are severable, and if the Board
of Directors shall determine that any one or more of such provisions are in
conflict with applicable federal or state laws, the conflicting provisions shall
be deemed never to have constituted a part of these Articles, even without any
amendment of these Articles pursuant to Section 10.2 hereof; provided, however,
that such determination by the Directors shall not affect or impair any of the
remaining provisions of these Articles or render invalid or improper any action
taken or omitted prior to such determination. No Director shall be liable for
making or failing to make such a determination.
(b) If any provision of these Articles or any application of such
provision shall be held invalid or unenforceable by any federal or state court
having jurisdiction, such holding shall not in any manner affect or render
invalid or unenforceable such provision in any other jurisdiction, and the
validity of the remaining provisions of these Articles shall not be affected.
Other applications of such provision shall be affected only to the extent
necessary to comply with the determination of such court.
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THIRD: The amendment to and restatement of the Charter as hereinabove set
forth has been duly advised by the Board of Directors and approved by the
stockholders of the Corporation as required by law.
FOURTH: The current address of the principal office of the Corporation is
as set forth in Article IV of the foregoing amendment and restatement of the
charter.
FIFTH: The name and address of the Corporation's current resident agent
is as set forth in Article V of the foregoing amendment and restatement of the
charter.
SIXTH: The number of directors of the Corporation and the names of those
currently in office are as set forth in Article VI of the foregoing amendment
and restatement of the Charter.
SEVENTH: The undersigned President acknowledges these Articles of
Amendment and Restatement to be the corporate act of the Corporation and as to
all matters or facts required to be verified under oath, the undersigned
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that this
statement is made under the penalties for perjury.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
and Restatement to be signed in its name and on its behalf by its President and
attested to by its Secretary on this _____ day of _____________, 1998.
ATTEST: NEWCO
________________________________ By: ______________________________________
Secretary President
[SEAL]
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Exhibit 99.7
AMENDED AND RESTATED
BYLAWS
OF
NEWCO
ARTICLE I
Definitions and Offices
1.1 Definitions For purposes of these Bylaws, the following words shall
have the meanings set forth below:
(a) "Articles" shall mean the Articles of Incorporation of the
Corporation, as amended from time to time.
(b) "Corporation" shall mean [Newco].
(c) "Public Announcement" shall mean: (i) disclosure in a press
release reported by the Dow Jones News Service, Associated Press or other
similar national news service, (ii) a report or other document filed publicly
with the Securities and Exchange Commission (including, without limitation, a
Form 8-K) or (iii) a letter or report sent to stockholders of record of the
Corporation at the time of the mailing of such letter or report.
(d) "MGCL" shall mean the Maryland General Corporation Law, as
amended from time to time.
1.2 Principal Executive Office. The principal executive office of the
Corporation shall be located at such place or places as the Board of Directors
may designate.
1.3 Additional Offices. The Corporation may have additional offices at
such places as the Board of Directors may from time to time determine or the
business of the Corporation may require.
<PAGE>
ARTICLE II
Meetings of Stockholders
2.1 Places of Meetings. All meetings of stockholders shall be held at
such place, either within or without the State of Maryland but within the
United States, as from time to time may be fixed by the majority of the Board
of Directors, the Chairman of the Board, if one is elected, or the Chief
Executive Officer, or if no such Chief Executive Officer is then in office,
the President, which place may subsequently be changed at any time by vote of
the Board of Directors.
2.2 Annual Meeting. The annual meeting of stockholders, for the election
of Directors and the transaction of such other business as may come properly
before the meeting, shall be held each year during the month of May at such date
and time as shall be determined by a majority of the Board of Directors, the
Chairman of the Board, if one is elected, or the Chief Executive Officer, or if
no Chief Executive Officer is then in office, the President, which date and time
may subsequently be changed at any time by vote of the Board of Directors. If no
annual meeting has been held for a period of thirteen months after the
Corporation's last annual meeting of stockholders, a special meeting in lieu
thereof may be held, and such special meeting shall have, for the purposes of
these Bylaws or otherwise, all the force and effect of an annual meeting. Any
and all references hereafter in these Bylaws to an annual meeting or annual
meetings also shall be deemed to refer to any special meeting(s) in lieu
thereof.
At any annual meeting of stockholders or any special meeting in lieu of an
annual meeting of stockholders, only such business shall be conducted, and only
such proposals shall be acted upon, as shall have been properly brought before
such annual meeting. To be considered as properly brought before an annual
meeting, business must be: (a) specified in the notice of meeting, (b) otherwise
properly brought before the meeting by, or at the direction of, the Board of
Directors, or (c) otherwise properly brought before the meeting by any holder of
record (both as of the time notice of such proposal is given by the stockholder
as set forth below and as of the record date for the annual meeting in question)
of any shares of stock of the Corporation entitled to vote at such annual
meeting who complies with the requirements set forth in Section 2.9.
2.3 Special Meetings. Except as otherwise required by law or by the
Articles and subject to the rights, if any, of the holders of any class or
series of stock of the Corporation, special meetings of the stockholders may be
called only by the Board of Directors pursuant to a resolution approved by the
affirmative vote of a majority of the Directors then in office, by the Chairman
of the Board, if one is elected, or by the Chief Executive Officer, or if no
Chief Executive Officer is then in office, the President. Only those matters set
forth in the notice of the special meeting may be considered or acted upon at a
special meeting of stockholders of the Corporation, unless otherwise provided by
law. Special meetings of stockholders shall also be
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called by the Secretary of the Corporation upon the written request of the
holders of shares entitled to cast not less than a majority of all the votes
entitled to be cast at such meeting. Such request shall state the purpose of
such meeting and the matters proposed to be acted on at such meeting. The
secretary shall inform such stockholders of the reasonably estimated cost of
preparing and mailing notice of the meeting and, upon payment to the Corporation
by such stockholders of such costs, the secretary shall give notice to each
stockholder entitled to notice of the meeting.
2.4 Notice of Meetings; Adjournments. A written notice of each annual
meeting stating the hour, date and place of such annual meeting shall be given
by the Secretary or an Assistant Secretary of the Corporation (or other person
authorized by these Bylaws or by law), not less than 10 days nor more than 90
days before the annual meeting, to each stockholder entitled to vote thereat and
to each stockholder who, by law or under the Articles or under these Bylaws, is
entitled to such notice, by personally delivering such notice to him or her, by
leaving such notice at his or her residence or usual place of business or by
mail, postage prepaid, addressed to such stockholder at the address of such
stockholder as it appears on the stock transfer books of the Corporation. Such
notice shall be deemed to be delivered when hand-delivered to such address or
deposited in the mail so addressed, with postage prepaid.
Notice of all special meetings of stockholders shall be given in the same
manner as provided for annual meetings, except that the written notice of all
special meetings shall state the purpose or purposes for which the meeting has
been called.
Notice of an annual meeting or special meeting of stockholders need not be
given to a stockholder if a written waiver of notice is signed before or after
such meeting by such stockholder or if such stockholder attends such meeting,
unless such attendance was for the express purpose of objecting at the beginning
of the meeting to the transaction of any business because the meeting was not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any annual meeting or special meeting of stockholders need be
specified in any written waiver of notice.
The Board of Directors may postpone and reschedule any previously
scheduled annual meeting or special meeting of stockholders and any record date
with respect thereto, regardless of whether any notice or public disclosure with
respect to any such meeting has been sent or made pursuant to this Section 2.4
or otherwise. In no event shall the Public Announcement of an adjournment,
postponement or rescheduling of any previously scheduled meeting of stockholders
commence a new time period for the giving of a stockholder's notice under
Section 2.9 of these Bylaws.
When any meeting is convened, the presiding officer of the meeting may
adjourn the meeting if (a) no quorum is present for the transaction of business,
(b) the Board of Directors determines that adjournment is necessary or
appropriate to enable the stockholders to consider fully information that the
Board of Directors determines has not been made sufficiently or timely available
to stockholders or (c) the Board of Directors determines that adjournment is
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otherwise in the best interests of the Corporation. When any annual meeting or
special meeting of stockholders is adjourned to another hour, date or place,
notice need not be given of the adjourned meeting, other than an announcement at
the meeting at which the adjournment is taken, of the hour, date and place to
which the meeting is adjourned; provided, however, that if the adjournment is
for more than 30 days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote thereat and each stockholder who, by
law or under the Articles or under these Bylaws, is entitled to such notice.
2.5 Quorum. Except as otherwise required by law or by the Articles, any
number of stockholders together holding at least a majority of the outstanding
shares of capital stock entitled to vote with respect to the business to be
transacted, who shall be present in person or represented by proxy at any
meeting duly called, shall constitute a quorum for the transaction of business
at such meeting. Where a separate vote by a class or classes is required, a
majority of the outstanding shares of such class or classes, present in person
or represented by proxy, shall constitute a quorum entitled to take action with
respect to that matter. If, however, such quorum shall not be present at any
meeting of the stockholders, the stockholders entitled to vote at such meeting,
present in person or by proxy, shall have the power to adjourn the meeting from
time to time to a date not more than 120 days after the original record date
without notice other than announcement at the meeting. At such adjourned meeting
at which a quorum is present, any business may be transacted which might have
been transacted at the meeting as originally noticed. The stockholders present
at a duly constituted meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
2.6 Voting and Proxies. Stockholders shall have one vote for each
share of stock entitled to vote owned by them of record according to the
stock transfer books of the Corporation, unless otherwise provided by law or
by the Articles. A stockholder may cast the votes entitled to be cast by the
shares of stock owned of record by him either in person or by proxy executed
in writing by the stockholder or by his duly authorized agent. Such proxy
shall be filed with the Secretary of the Corporation before or at the time of
the meeting. No proxy shall be valid after eleven months from the date of its
execution, unless otherwise provided in the proxy. Proxies shall be filed
with the Secretary of the Corporation before being voted. Except as otherwise
limited therein or as otherwise provided by law, proxies authorizing a person
to vote at a specific meeting shall entitle the persons authorized thereby to
vote at any adjournment of such meeting, but they shall not be valid after
final adjournment of such meeting. A proxy with respect to stock held in the
name of two or more persons shall be valid if executed by or on behalf of any
one of them unless at or prior to the exercise of the proxy the Corporation
receives specific written notice to the contrary from any one of them. A
proxy purporting to be executed by or on behalf of a stockholder shall be
deemed valid, and the burden of proving invalidity shall rest on the
challenger.
2.7 Action at Meeting. When a quorum is present, any matter before any
meeting of stockholders (other than the election of Directors) shall be decided
by the affirmative vote of
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the majority of shares present in person or represented by proxy at such meeting
and entitled to vote on such matter, except where a larger vote is required by
law, by the Articles or by these Bylaws. Where a separate vote by a class or
classes is required, the affirmative vote of the majority of shares of such
class or classes present in person or represented by proxy at the meeting shall
be the act of such class. Any election or Directors by stockholders shall be
determined by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of
Directors, except where a larger vote is required by law, by the Articles or by
these Bylaws. The Corporation shall not directly or indirectly vote any shares
of its own stock; provided, however, that the Corporation may vote shares which
it holds in a fiduciary capacity to the extent permitted by law.
2.8 Stockholder List. The officer or agent having charge of the stock
transfer books of the Corporation shall make, at least 10 days before every
annual meeting or special meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting or any adjournment thereof, in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the hour, date and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
2.9 Stockholder Proposals. In addition to any other applicable
requirements, for business to be properly brought before an annual meeting by a
stockholder of record (both as of the time notice of such proposal is given by
the stockholder as set forth below and as of the record date for the annual
meeting in question) of any shares of capital stock entitled to vote at such
annual meeting, such stockholder shall: (i) give timely written notice as
required by this Section 2.9 to the Secretary of the Corporation and (ii) be
present at such meeting, either in person or by a representative. For the first
annual meeting following the initial registration of the Common Stock of the
Corporation under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), a stockholder's notice shall be timely if delivered to, or mailed to and
received by, the Corporation at its principal executive office not later than
the close of business on the later of (x) the 15th day following the day on
which the Public Announcement of the date of such annual meeting is first made
by the Corporation or (y) the 75th day prior to the scheduled date of such
annual meeting as set forth in the Public Announcement. For all subsequent
annual meetings, a stockholder's notice shall be timely if delivered to, or
mailed to and received by, the Corporation at its principal executive office not
less than 75 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting (the "Anniversary Date"); provided,
however, that in the event the annual meeting is scheduled to be held on a date
more than 30 days before the Anniversary Date or more than 60 days after the
Anniversary Date, a stockholder's notice shall be timely if delivered to, or
mailed to and received by, the Corporation at its principal executive office not
later than the close of business on the later of (1) the 15th day following the
day on which Public
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Announcement of the date of such annual meeting is first made by the Corporation
or (2) the 75th day prior to the scheduled date of such annual meeting as set
forth in the Public Announcement.
A stockholder's notice to the Secretary of the Corporation shall set forth
as to each matter proposed to be brought before an annual meeting: (i) a brief
description of the business the stockholder desires to bring before such annual
meeting and the reasons for conducting such business at such annual meeting,
(ii) the name and address, as they appear on the stock transfer books of the
Corporation, of the stockholder proposing such business, (iii) the class and
number of shares of the capital stock of the Corporation beneficially owned by
the stockholder proposing such business, (iv) the names and addresses of the
beneficial owners, if any, of any capital stock of the Corporation registered in
such stockholder's name on such books, and the class and number of shares of the
capital stock of the Corporation beneficially owned by such beneficial owners,
(v) the names and addresses of other stockholders known by the stockholder
proposing such business to support such proposal, and the class and number of
shares of the capital stock of the Corporation beneficially owned by such other
stockholders and (vi) any material interest of the stockholder proposing to
bring such business before such meeting (or any other stockholders known to be
supporting such proposal) in such proposal.
If the Board of Directors or a designated committee thereof determines
that any stockholder proposal was not made in a timely fashion in accordance
with the provisions of this Section 2.9 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2.9 in any material respect, such proposal shall not be presented for
action at the annual meeting in question. If neither the Board of Directors nor
such committee makes a determination as to the validity of any stockholder
proposal in the manner set forth above, the presiding officer of the annual
meeting shall determine whether the stockholder proposal was made in accordance
with the terms of this Section 2.9. If the presiding officer determines that any
stockholder proposal was not made in a timely fashion in accordance with the
provisions of this Section 2.9 or that the information provided in a
stockholder's notice does not satisfy the information requirements of this
Section 2.9 in any material respect, such proposal shall not be presented for
action at the annual meeting in question. If the Board of Directors, a
designated committee thereof or the presiding officer determines that a
stockholder proposal was made in accordance with the requirements of this
Section 2.9, the presiding officer shall so declare at the annual meeting and
ballots shall be provided for use at the meeting with respect to such proposal.
Notwithstanding the foregoing provisions of this Section 2.9, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 2.9, and nothing in this Section 2.9 shall be deemed to
affect any rights of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act (or
any successor provision thereof).
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2.10 Voting Procedures and Inspectors of Elections. The Corporation
shall, in advance of any meeting of stockholders, appoint one or more
inspectors to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able
to act at a meeting of stockholders, the presiding officer shall appoint one
or more inspectors to act at the meeting. Any inspector may, but need not, be
an officer, employee or agent of the Corporation. Each inspector, before
entering upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspectors shall perform
such duties as are required by the MGCL, including the counting of all votes
and ballots. The inspectors may appoint or retain other persons or entities
to assist the inspectors in the performance of the duties of the inspectors.
The presiding officer may review all determinations made by the inspectors,
and in so doing the presiding officer shall be entitled to exercise his or
her sole judgment and discretion and he or she shall not be bound by any
determinations made by the inspectors. All determinations by the inspectors
and, if applicable, the presiding officer, shall be subject to further review
by any court of competent jurisdiction.
2.11 Presiding Officer. The Chairman of the Board, if one is elected, or
if not elected or in his or her absence, the Chief Executive Officer, or if no
Chief Executive Officer is then in office, the President, shall preside at all
annual meetings or special meetings of stockholders and shall have the power,
among other things, to adjourn such meetings at any time and from time to time,
subject to Sections 2.4 and 2.5 of this Article II. The order of business and
all other matters of procedure at any meeting of the stockholders shall be
determined by the presiding officer.
ARTICLE III
Directors
3.1 General Powers. The business and affairs of the Corporation shall be
managed under the direction of the Board of Directors and, except as otherwise
expressly provided by law, the Articles or these Bylaws, all of the powers of
the Corporation shall be vested in such Board.
3.2 Number of Directors. The number of Directors shall be determined as
provided in the Articles. The Directors shall hold office in the manner provided
in the Articles.
3.3 Election and Removal of Directors; Quorum.
(a) Directors shall be elected and removed in the manner provided
for in the Articles.
(b) Vacancies in the Board of Directors shall be filled in the
manner provided for in the Articles.
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(c) At any meeting of the Board of Directors, a majority of the
number of Directors then in office shall constitute a quorum for the transaction
of business. However, if less than a quorum is present at a meeting, a majority
of the Directors present may adjourn the meeting from time to time, and the
meeting may be held as adjourned without further notice, except as provided in
Section 3.6 of this Article III. Any business which might have been transacted
at the meeting as originally noticed may be transacted at such adjourned meeting
at which a quorum is present.
(d) No Director need be a stockholder of the Corporation.
(e) A Director may resign in the manner provided for in the
Articles.
3.4 Regular Meetings. The regular annual meeting of the Board of
Directors shall be held, without notice other than this Section 3.4, on the
same date and at the same place as the annual meeting of stockholders
following the close of such meeting of stockholders. Other regular meetings
of the Board of Directors may be held at such hour, date and place as the
Board of Directors may by resolution from time to time determine without
notice other than such resolution.
3.5 Special Meetings. Special meetings of the Board of Directors may be
called, orally or in writing, by or at the request of a majority of the
Directors, the Chairman of the Board, if one is elected, or the Chief Executive
Officer, or if no Chief Executive Officer is then in office, the President. The
person calling any such special meeting of the Board of Directors may fix the
hour, date and place thereof.
3.6 Notice of Meetings. Notice of the hour, date and place of all
special meetings of the Board of Directors shall be given to each Director by
the Secretary or an Assistant Secretary, or in case of the death, absence,
incapacity or refusal of such persons, by the Chairman of the Board, if one
is elected, or the Chief Executive Officer, or if no Chief Executive Officer
is then in office, the President or such other officer designated by the
Chairman of the Board, if one is elected, or the Chief Executive Officer, or
if no Chief Executive Officer is then in office, the President. Notice of any
special meeting of the Board of Directors shall be given to each Director in
person, by telephone, or by facsimile, telex, telecopy, telegram, or other
written form of electronic communication, sent to his or her business or home
address at least three business days in advance of the meeting, or by written
notice mailed to his or her business or home address at least three business
days in advance of the meeting. Such notice shall be deemed to be delivered
when hand delivered to such address, read to such Director by telephone,
deposited in the mail so addressed, with postage thereon prepaid if mailed,
dispatched or transmitted if faxed, telexed or telecopied, or when delivered
to the telegraph company if sent by telegram.
When any Board of Directors meeting, either regular or special, is
adjourned for 30 days or more, notice of the adjourned meeting shall be given as
in the case of an original meeting. It shall not be necessary to give any notice
of the hour, date or place of any meeting
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adjourned for less than 30 days or of the business to be transacted thereat,
other than an announcement at the meeting at which such adjournment is taken of
the hour, date and place to which the meeting is adjourned.
A written waiver of notice signed before or after a meeting by a Director
and filed with the records of the meeting shall be deemed to be equivalent to
notice of the meeting. The attendance of a Director at a meeting shall
constitute a waiver of notice of such meeting, except where a Director attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because such meeting is not lawfully called or
convened. Except as otherwise required by law, by the Articles or by these
Bylaws, neither the business to be transacted at, nor the purpose of, any
meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
3.7 Nominations. Except as otherwise provided in the Articles,
nominations of candidates for election as Directors of the Corporation at any
annual meeting may be made only (a) by, or at the direction of, a majority of
the Board of Directors or (b) by any stockholder of record (both as of the
time notice of such nomination is given by the stockholder as set forth below
and as of the record date for the annual meeting in question) of any shares
of the stock of the Corporation entitled to vote at such annual meeting who
complies with the timing, informational and other requirements set forth in
this Section 3.7. Any stockholder who has complied with the timing,
informational and other requirements set forth in this Section 3.7 and who
seeks to make such a nomination must be, or his, her or its representative
must be, present in person at the annual meeting. Only persons nominated in
accordance with the procedures set forth in this Section 3.7 shall be
eligible for election as Directors at an annual meeting.
Nominations, other than those made by, or at the direction of, the Board
of Directors shall be made pursuant to timely notice in writing to the Secretary
of the Corporation as set forth in this Section 3.7. For the first annual
meeting following the initial registration of the Common Stock of the
Corporation under the Exchange Act, a stockholder's notice shall be timely if
delivered to, or mailed to and received by, the Corporation at its principal
executive office not later than the close of business on the later of (i) the
15th day following the day on which the Public Announcement of the date of such
annual meeting is first made by the Corporation or (ii) the 75th day prior to
the scheduled date of such annual meeting as set forth in the Public
Announcement. For all subsequent annual meetings, a stockholder's notice shall
be timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not less than 75 days nor more than 120 days prior to
the Anniversary Date; provided, however, that in the event the annual meeting is
scheduled to be held on a date more than 30 days before the Anniversary Date or
more than 60 days after the Anniversary Date, a stockholder's notice shall be
timely if delivered to, or mailed to and received by, the Corporation at its
principal executive office not later than the close of business on the later of
(x) the 15th day following the day on which Public Announcement of the date of
such annual meeting is first made by the Corporation or (y) the 75th day prior
to the scheduled date of such annual meeting as set forth in the Public
Announcement.
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A stockholder's notice to the Secretary of the Corporation shall set forth
as to each person whom the stockholder proposes to nominate for election or
re-election as a Director: (1) the name, age, business address and residence
address of such person; (2) the principal occupation or employment of such
person; (3) the class and number of shares of the capital stock of the
Corporation which are beneficially owned by such person on the date of such
stockholder notice; and (4) the consent of each nominee to serve as a Director
if elected. A stockholder's notice to the Secretary of the Corporation shall
further set forth as to the stockholder giving such notice: (a) the name and
address, as they appear on the stock transfer books of the Corporation, of such
stockholder and of the beneficial owners (if any) of the capital stock of the
Corporation registered in such stockholder's name and the name and address of
other stockholders known by such stockholder to be supporting such nominee(s);
(b) the class and number of shares of the capital stock of the Corporation which
are held of record, beneficially owned or represented by proxy by such
stockholder and by any other stockholders known by such stockholder to be
supporting such nominee(s) on the record date for the annual meeting in question
(if such date shall then have been made publicly available and shall be earlier
than the date of such stockholder notice) and on the date of such stockholder's
notice; and (c) a description of all arrangements or understandings between such
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
such stockholder.
If the Board of Directors or a designated committee thereof determines
that any stockholder nomination was not made in accordance with the terms of
this Section 3.7 or that the information provided in a stockholder's notice does
not satisfy the informational requirements of this Section 3.7 in any material
respect, then such nomination shall not be considered at the annual meeting in
question. If neither the Board of Directors nor such committee makes a
determination as to whether a nomination was made in accordance with the
provisions of this Section 3.7, the presiding officer of the annual meeting
shall determine whether a nomination was made in accordance with such
provisions. If the presiding officer determines that any stockholder nomination
was not made in accordance with the terms of this Section 3.7 or that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Section 3.7 in any material respect, then
such nomination shall not be considered at the annual meeting in question. If
the Board of Directors, a designated committee thereof or the presiding officer
determines that a nomination was made in accordance with the terms of this
Section 3.7, the presiding officer shall so declare at the annual meeting and
ballots shall be provided for use at the meeting with respect to such nominee.
Notwithstanding anything to the contrary in the second paragraph of this
Section 3.7, in the event that the number of Directors to be elected to the
Board of Directors is increased and there is no Public Announcement by the
Corporation naming all of the nominees for Director or specifying the size of
the increased Board of Directors at least 75 days prior to the Anniversary Date,
a stockholder's notice required by this Section 3.7 shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if such notice shall be delivered to, or mailed to and received by,
the Corporation at its principal
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executive office not later than the close of business on the 15th day following
the day on which such Public Announcement is first made by the Corporation.
Except as otherwise provided in the Articles, no person shall be elected
by the stockholders as a Director of the Corporation unless nominated in
accordance with the procedures set forth in this Section 3.7. Election of
Directors at an annual meeting need not be by written ballot, unless otherwise
provided by the Board of Directors or presiding officer at such annual meeting.
If written ballots are to be used, ballots bearing the names of all the persons
who have been nominated for election as Directors at the annual meeting in
accordance with the procedures set forth in this Section 3.7 shall be provided
for use at the annual meeting.
3.8 Action at Meeting and by Consent.
(a) At any meeting of the Board of Directors at which a quorum is
present, a majority of the Directors present may take any action on behalf of
the Board of Directors, unless otherwise required by law, by the Articles or by
these Bylaws.
(b) Except as expressly provided in Section 3.9 hereof and except as
may be provided elsewhere herein, any action required or permitted to be taken
at any meeting of the Board of Directors may be taken without a meeting if all
members of the Board of Directors consent thereto in writing. Such written
consent shall be filed with the records of the meetings of the Board of
Directors and shall be treated for all purposes as a vote at a meeting of the
Board of Directors.
3.9 Certain Matters. The Board of Directors shall, on a quarterly basis,
review a report prepared by management of the Corporation summarizing for each
hotel in which the Corporation holds an interest (i) the status of renovations
and maintenance projects being conducted, (ii) the level of guest satisfaction,
(iii) quality scores, and (iv) financial performance.
In addition, and notwithstanding anything to the contrary in these
Bylaws, the following actions by the Corporation shall require the approval of
(i) a majority of the Board of Directors and (ii) a majority of the Class A
Directors (as defined in the Articles) who vote on the action, which approvals
shall be obtained at a meeting of the Board of Directors at which a quorum is
present (and shall not be obtained by written consent in lieu thereof):
(a) The entry by the Corporation into any transaction, or series of
related transactions, in which the amount involved is expected to exceed one
hundred thousand dollars ($100,000), with either Marriott International, Inc., a
Delaware corporation ("Marriott"), Patriot American Hospitality, Inc., a
Delaware corporation ("Patriot"), Wyndham International, Inc., a Delaware
corporation ("Wyndham"), or any entity controlled by Marriott, Patriot or
Wyndham. In addition, to the extent the Corporation serves as the managing
member of Interstate Hotels, LLC, a Delaware limited liability company
("Interstate
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LLC"), or IHC II, LLC, a Delaware limited liability company ("IHC LLC" and,
together with Interstate LLC, the "LLCs"), any transaction or series of related
transactions proposed to be entered into by either LLC that would, if such
transaction or transactions were to be entered into by the Corporation, require
the approval of the Board of Directors under this Section 3.9(a), shall, as a
condition to the Corporation's approving such transaction or transactions in its
capacity as managing member of such LLC, require the approval of the Board of
Directors under this Section 3.9(a) as if such transaction or transactions were
proposed to be entered into by the Corporation.
(b) The modification or termination by the Corporation of any
franchise agreement relating to a Marriott-branded hotel.
(c) The commencement by the Corporation of any legal action, whether
in a court of law, arbitration tribunal or otherwise, or the filing of a claim
or counterclaim by the Corporation in any such legal action, against Marriott,
Patriot or Wyndham or any entity controlled by Marriott, Patriot or Wyndham or
any officer or director of Marriott, Patriot or Wyndham or of any entity
controlled by Marriott, Patriot or Wyndham.
3.10 Manner of Participation. Directors may participate in meetings
of the Board of Directors by means of conference telephone or similar
communications equipment by means of which all Directors participating in the
meeting can hear each other, and participation in a meeting in accordance
herewith shall constitute presence in person at such meeting for purposes of
these Bylaws.
3.11 Compensation of Directors. By resolution of the Board of Directors,
Directors may be allowed a fee or other compensation for serving as a Director
and/or for serving on any committee of the Board of Directors and a fee or other
compensation and expenses for attendance at a meeting of the Board and/or any
committee thereof, but nothing herein shall preclude Directors from serving the
Corporation in other capacities and receiving compensation for such other
services.
3.12 Reliance. Each Director, officer, employee and agent of the
Corporation shall, in the performance of his duties with respect to the
Corporation, be fully justified and protected with regard to any act or failure
to act in reliance in good faith upon the books of account or other records of
the Corporation, upon an opinion of counsel or upon reports made to the
Corporation by any of its officers or employees or by the adviser, accountants,
appraisers or other experts or consultants selected by the Board of Directors or
officers of the Corporation, regardless of whether such counsel or expert may
also be a Director.
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ARTICLE IV
Committees
4.1 Number, Tenure and Qualifications. The Board of Directors may
appoint from among its members committees, composed of two or more Directors,
to serve at the pleasure of the Board of Directors; provided, however, that
no committee shall be created by the Board of Directors, nor shall any member
be appointed to or removed from any committee, without the approval of each
Class B and Class C Director (as defined in the Articles) then serving on the
Board of Directors.
4.2 Powers. The Board of Directors may delegate to committees appointed
under Section 4.1 of this Article any of the powers of the Board of Directors,
except for the matters specified in Section 3.9 hereof as requiring Board
approval at a Board meeting and except as prohibited by law, by the Articles or
by these Bylaws.
4.3 Meetings. Notice of committee meetings shall be given in the same
manner as notice for special meetings of the Board of Directors. A majority of
the members of the committee shall constitute a quorum for the transaction of
business at any meeting of the committee. The act of a majority of the committee
members present at a meeting shall be the act of such committee. The Board of
Directors may designate a chairman of any committee, and such chairman or any
two members of any committee may fix the time and place of its meeting unless
the Board shall otherwise provide. In the absence of any member of any such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint another Director to act in the place of such
absent member. Each committee shall keep minutes of its proceedings.
4.4 Telephone Meetings. Members of a committee of the Board of Directors
may participate in a meeting by means of a conference telephone or similar
communications equipment if all persons participating in the meeting can hear
each other at the same time. Participation in a meeting by these means shall
constitute presence in person at the meeting.
4.5 Informal Action by Committees. Any action required or permitted
to be taken at any meeting of a committee of the Board of Directors may be
taken without a meeting, if consent in writing to such action is signed by
each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
4.6 Vacancies. Subject to the provisions hereof, the Board of Directors
shall have the power at any time to change the membership of any committee, to
fill all vacancies, to designate alternate members, to replace any absent or
disqualified member or to dissolve any such committee.
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ARTICLE V
Officers
5.1 Enumeration. The officers of the Corporation shall consist of a
President, a Treasurer, a Secretary and such other officers, including, without
limitation, a Chairman of the Board of Directors, a Chief Executive Officer, a
Chief Operating Officer and one or more Vice Presidents (including Executive
Vice Presidents or Senior Vice Presidents), Assistant Vice Presidents, Assistant
Treasurers and Assistant Secretaries, and such other officers as the Board of
Directors may determine.
5.2 Election. At the regular annual meeting of the Board following the
annual meeting of stockholders, the Board of Directors shall elect the
President, the Treasurer and the Secretary. Other officers may be elected by the
Board of Directors in accordance with this Article V at such regular annual
meeting of the Board of Directors or at any other regular or special meeting.
5.3 Qualification. No officer need be a stockholder or a Director. Any
person may occupy more than one office of the Corporation at any time; provided,
that such officer does not serve concurrently as both President and Vice
President. Any officer may be required by the Board of Directors to give bond
for the faithful performance of his or her duties in such amount and with such
sureties as the Board of Directors may determine.
5.4 Tenure. Except as otherwise provided by the Articles or by these
Bylaws, each of the officers of the Corporation shall hold office until the
regular annual meeting of the Board of Directors following the next annual
meeting of stockholders and until his or her successor is elected and qualified
or until his or her earlier resignation or removal.
5.5 Resignation. Any officer may resign by delivering his or her written
resignation to the Corporation addressed to the President or the Secretary, and
such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
5.6 Removal. Except as otherwise provided by law, if the Board of
Directors in its judgement finds that the best interests of the Corporation will
be served, it may remove any officer by the affirmative vote of a majority of
the Directors then in office; provided however, that such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
5.7 Absence or Disability. In the event of the absence or disability of
any officer, the Board of Directors may designate another officer to act
temporarily in place of such absent or disabled officer.
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5.8 Vacancies. Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
5.9 President. The President shall, subject to the direction of the
Board of Directors, have general supervision and control of the Corporation's
business. If there is no Chairman of the Board or if he or she is absent, the
President shall preside, when present, at all meetings of stockholders and of
the Board of Directors. The President shall have such other powers and
perform such other duties as the Board of Directors may from time to time
designate.
5.10 Chairman of the Board. The Chairman of the Board, if one is
elected, shall preside, when present, at all meetings of the stockholders and
of the Board of Directors. The Chairman of the Board shall have such other
powers and shall perform such other duties as the Board of Directors may from
time to time designate.
5.11 Chief Executive Officer.
(a) The Chief Executive Officer, if one is elected, shall have such
powers and shall perform such duties as the Board of Directors may from time to
time designate. If there shall be a Chief Executive Officer at any time, such
officer shall have authority to take any action that the President is authorized
to take by these Bylaws (other than the execution of stock certificates).
(b) The initial Chief Executive Officer shall be _____________, who
shall serve a one-year term commencing on ____________, subject to his earlier
resignation or removal in accordance with these Bylaws. Any renewal of the
initial term of such initial Chief Executive Officer, and any removal or
replacement of such initial Chief Executive Officer prior to the expiration of
the initial term, shall require the approval of a majority of the Board of
Directors, which majority must include the approval of all Class B and Class C
Directors (as defined in the Articles) then serving on the Board of Directors.
Thereafter, the Chief Executive Officer shall be selected by vote of the full
Board of Directors. Until September 30, 2003, all candidates for Chief Executive
Officer shall be identified for the full Board by a special committee (the
"Search Committee") of the Board comprised of all Class B and Class C Directors.
5.12 Chief Operating Officer.
(a) The Chief Operating Officer, if one is elected, shall have such
powers and shall perform such duties as the Board of Directors may from time to
time designate.
(b) The President and Chief Operating Officer, if any is in office
on the date hereof, is hereby removed and the first person appointed to these
offices after the date hereof shall be selected by vote of the full Board of
Directors. Until September 30, 2003, all candidates for President and Chief
Operating Officer (including the first President and Chief
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Operating Officer after the date hereof) shall be identified for the full Board
by the Search Committee. The Search Committee will use its reasonable best
efforts to identify a candidate to be the first President and Chief Operating
Officer after the date hereof by February 27, 1999.
5.13 Vice Presidents and Assistant Vice Presidents. Any Vice President
(including any Executive Vice President or Senior Vice President) and any
Assistant Vice President shall have such powers and shall perform such duties as
the Board of Directors or the Chief Executive Officer, or if no Chief Executive
Officer is then in office, the President, may from time to time designate.
5.14 Treasurer and Assistant Treasurers. The Treasurer shall, subject to
the direction of the Board of Directors and except as the Board of Directors,
the Chief Executive Officer or, if no Chief Executive Officer is then in office,
the President may otherwise provide, have general charge of the financial
affairs of the Corporation and shall cause to be kept accurate books of account.
The Treasurer shall have custody of all funds, securities, and valuable
documents of the Corporation. He or she shall have such other duties and powers
as may be designated from time to time by the Board of Directors or the Chief
Executive Officer, or if no Chief Executive Officer is then in office, the
President.
Any Assistant Treasurer shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer, or if no Chief Executive
Officer is then in office, the President may from time to time designate.
5.15 Secretary and Assistant Secretaries. The Secretary shall record all
the proceedings of the meetings of the stockholders and the Board of Directors
(including committees of the Board) in books kept for that purpose. In his or
her absence from any such meeting, a temporary secretary chosen at the meeting
shall record the proceedings thereof. The Secretary shall have charge of the
stock ledger (which may, however, be kept by any transfer or other agent of the
Corporation). The Secretary shall have custody of the seal of the Corporation,
and the Secretary, or an Assistant Secretary, shall have authority to affix it
to any instrument requiring it, and, when so affixed, the seal may be attested
by his or her signature or that of an Assistant Secretary. The Secretary shall
have such other duties and powers as may be designated from time to time by the
Board of Directors or the Chief Executive Officer, or if no Chief Executive
Officer is then in office, the President. In the absence of the Secretary, any
Assistant Secretary may perform his or her duties and responsibilities.
Any Assistant Secretary shall have such powers and perform such duties as
the Board of Directors or the Chief Executive Officer, or if no Chief Executive
Officer is then in office, the President may from time to time designate.
5.16 Other Powers and Duties. Subject to these Bylaws and to such
limitations as the Board of Directors may from time to time prescribe, the
officers of the Corporation shall each have such powers and duties as generally
pertain to their respective offices, as well as such
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powers and duties as from time to time may be conferred by the Board of
Directors. Except as otherwise provided in these Bylaws, the Chief Executive
Officer, if one is then serving in office, shall report to the Board of
Directors, the President shall report to the Board of Directors and the Chief
Executive Officer (at any time one is serving in office), and the Chief
Operating Officer shall report to the Board of Directors and the Chief Executive
Officer (at any time one is serving in office).
5.17 No Right to Employment. No provision of these Bylaws shall confer
upon any officer or other employee of the Corporation any right with respect to
the continuance of employment by the Corporation, nor shall any provision of
these Bylaws interfere in any way with the right of the Corporation to terminate
the employment of any officer or other employee at any time.
ARTICLE VI
Stock
6.1 Certificates. Each stockholder shall be entitled to a certificate of
the stock of the Corporation, which shall represent and certify the number of
shares of each class held by such stockholder in the Corporation, in such form
as may from time to time be prescribed by the Board of Directors. Such
certificate shall be signed by the Chairman of the Board, the President or a
Vice President and countersigned by the Treasurer or an Assistant Treasurer, or
the Secretary or an Assistant Secretary. The Corporation seal and the signatures
by the Corporation's officers, the transfer agent or the registrar may be either
manual or facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed on such certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, the certificate may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent or registrar at
the time of its issue. Each certificate representing shares which are restricted
as to their transferability or voting powers, which are preferred or limited as
to their dividends or as to their allocable portion of the assets upon
liquidation or which are redeemable at the option of the Corporation, shall have
a statement of such restriction, limitation, preference or redemption provision,
or a summary thereof, plainly stated on the certificate. If the Corporation has
authority to issue stock of more than one class, the certificate shall contain
on the face or back a full statement or summary of the designations and any
preferences, conversion on other rights, voting powers, restrictions,
limitations as to dividends and other distributions, qualifications and terms
and conditions of redemption of each class of stock and, if the Corporation is
authorized to issue any preferred or special class in series, the differences in
the relative rights and preferences between the shares of each series to the
extent they have been set and the authority of the Board of Directors to set the
relative rights and preferences of subsequent series. In lieu of such statement
or summary, the certificate may state that the Corporation will furnish a full
statement of such information to any stockholder upon request and without
charge. If any class of stock is restricted by the Corporation as to
transferability, the certificate shall contain a full statement of the
restriction or state that the Corporation will furnish information about the
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restrictions to the stockholder on request and without charge. Every certificate
for shares of stock which are subject to a restriction on transfer (as provided
in Article IX of the Articles) and every certificate issued when the Corporation
is authorized to issue more than one class or series of stock shall contain such
legend (as provided in Article VII of the Articles) with respect thereto as is
required by law.
6.2 Lost, Destroyed and Mutilated Certificates. Holders of the shares of
the stock of the Corporation shall immediately notify the Corporation of any
loss, destruction or mutilation of the certificate therefor, and the Board of
Directors may in its discretion cause one or more new certificates for the same
number of shares in the aggregate to be issued to such stockholder upon the
surrender of the mutilated certificate or upon satisfactory proof of such loss
or destruction, and the deposit of a bond in such form and amount and with such
surety as the Board of Directors may require.
6.3 Transfer of Stock. Subject to the restrictions on the transfer of
stock described in Article IX of the Articles, shares of stock of the
Corporation shall be transferable or assignable only on the stock transfer books
of the Corporation by the holder in person or by attorney upon surrender to the
Corporation or its transfer agent of the certificate theretofore properly
endorsed or, if sought to be transferred by attorney, accompanied by a written
assignment or power of attorney properly executed, with transfer stamps (if
necessary) affixed, and with such proof of the authenticity of signatures as the
Corporation or its transfer agent may reasonably require.
6.4 Record Holders. Except as may otherwise be required by law, by the
Articles or by these Bylaws, the Corporation shall be entitled to treat the
record holder of stock as shown on its books as the owner of such stock for all
purposes, including the payment of dividends and the right to vote with respect
thereto, regardless of any transfer, pledge or other disposition of such stock,
until the shares have been transferred on the books of the Corporation in
accordance with the requirements of these Bylaws.
It shall be the duty of each stockholder to notify the Corporation of his
or her postal address and any changes thereto.
6.5 Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix a record date, which record
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date: (a) in the case of
determination of stockholders entitled to vote at any meeting of stockholders,
shall, unless otherwise required by law, not be more than 90 nor less than 10
days before the date of such meeting and (b) in the case of any other action,
shall not be more than 90 days prior to such other action. If no record date is
fixed: (i) the record date for determining stockholders entitled to notice of or
to
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vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is held
and (ii) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
ARTICLE VII
Indemnification
7.1 Indemnification to the Extent Permitted by Law. The Corporation shall
indemnify, to the full extent authorized or permitted by Maryland statutory or
decisional law or any other applicable law, any person made, or threatened to be
made, a party to any action or proceeding (whether civil or criminal or
otherwise) by reason of the fact he, his testator or intestate is or was a
Director or officer of the Corporation or any predecessor of the Corporation, or
is or was serving at the request of the Corporation or any predecessor of the
Corporation as a director or officer of, or in any other capacity with respect
to, any other corporation, partnership, joint venture, trust, employee benefit
plan, or other enterprise (an "Indemnified Person"), including the advancement
of expenses under procedures provided under such law. The Corporation shall
indemnify any Indemnified Person's spouse (whether by statute or at common law
and without regard to the location of the governing jurisdiction) and children
to the same extent and subject to the same limitations applicable to any
Indemnified Person hereunder for claims arising out of the status of such person
as a spouse or child of such Indemnified Person, including claims seeking
damages from marital property (including community property) or property held by
such Indemnified Person and such spouse or property transferred to such spouse
or child, but such indemnity shall not otherwise extend to protect the spouse or
child against liabilities caused by the spouse's or child's own acts. The
provisions of this Section 7.1 shall constitute a contract with each Indemnified
Person who serves at any time while these provisions are in effect and may be
modified adversely only with the consent of affected Indemnified Persons and
each such Indemnified Person shall be deemed to be serving as such in reliance
on these provisions.
7.2 Indemnification of Employees and Agents of the Corporation. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses,
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article VII with respect to the indemnification of and
advancement of expenses to Directors and officers of the Corporation.
7.3 Insurance. The Corporation shall have the power to purchase and
maintain insurance to protect itself and any Indemnified Person, employee or
agent of the Corporation against any liability, whether or not the Corporation
would have the power to indemnify him or her against such liability.
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7.4 Non-Exclusive Rights to Indemnify; Heirs and Personal
Representatives. The rights to indemnification set forth in this Article VII
are in addition to all rights which any Indemnified Person may be entitled as
a matter of law or by contract, and shall inure to the benefit of the heirs
and personal representatives of each Indemnified Person.
7.5 No Limitation. In addition to any indemnification permitted by
these Bylaws, the Board of Directors shall, in its sole discretion, have the
power to grant such indemnification to such persons as it deems in the
interest of the Corporation to the full extent permitted by law. This Article
shall not limit the Corporation's power to indemnify against liabilities
other than those arising from a person's serving the Corporation as a
Director or officer.
7.6 Amendment, Repeal or Modification. Any amendment, repeal or
modification of any provision of this Article VII by the stockholders or the
Directors of the Corporation is effective on a prospective basis only and
neither repeal nor modification of such provisions shall adversely affect any
right or protection of a Director or officer of the Corporation under this
Article VII existing at the time of such amendment, repeal or modification.
7.7 Right of Claimant to Bring Suit. If a claim under Section 7.1 of
this Article VII is not paid in full by the Corporation within ninety (90)
days after a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if successful in whole or in part, the
claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in
advance of its final disposition where the required undertaking, if any, has
been tendered to the Corporation) that the claimant has not met the standards
of conduct which make it permissible under the MGCL for the Corporation to
indemnify the claimant for the amount claimed, but the burden of proving such
defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
MGCL, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the
action or create a presumption that claimant has not met the applicable
standard of conduct.
7.8 Partial Indemnification. If any Indemnified Person is entitled under
any provision of these Bylaws to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred by him or her in the investigation, defense, appeal or settlement of
any civil or criminal action or proceeding, but not, however, for the total
amount thereof, the Corporation shall nevertheless indemnify such Indemnified
Person for the portion of such expenses, judgments, fines or penalties to which
such Indemnified Person is entitled.
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ARTICLE VIII
Miscellaneous Provisions
8.1 Exemption From Control Share Acquisition Statute. Subject to
amendment or repeal of this Section 8.1, pursuant to Section 3-702 of the
MGCL, the provisions of Title 3, Subtitle 7 of the MGCL, which relates to
voting rights of certain control shares, shall not apply to any share of
stock of the corporation now or hereafter issued.
8.2 Seal. The seal of the Corporation shall consist of a flat-faced
circular die, of which there may be any number of counterparts, on which there
shall be engraved the word "Seal" and the name of the Corporation. The Board of
Directors shall have the power to adopt and alter the seal of the Corporation.
8.3 Fiscal Year. The fiscal year of the Corporation shall be a calendar
year or as may otherwise be fixed by the Board of Directors.
8.4 Checks, Notes and Drafts. Checks, notes, drafts and other orders for
the payment of money shall be signed by such persons as the Board of Directors
from time to time may authorize. When the Board of Directors so authorizes,
however, the signature of any such person may be a facsimile.
8.5 Execution of Instruments. All deeds, leases, transfers, contracts,
bonds, notes and other obligations to be entered into by the Corporation in the
ordinary course of its business without Director action may be executed on
behalf of the Corporation by the Chairman of the Board, if one is elected, the
Chief Executive Officer, or if no Chief Executive Officer is then in office, the
President or the Treasurer or any other officer, employee or agent of the
Corporation as the Board of Directors may authorize.
8.6 Resident Agent. The Board of Directors may appoint a resident agent
upon whom legal process may be served in any action or proceeding against the
Corporation.
8.7 Corporate Records. The original or attested copies of the Articles,
Bylaws and records of all meetings of the incorporators, stockholders and the
Board of Directors and the stock transfer books, which shall contain the names
of all stockholders, their record addresses and the amount of stock held by
each, may be kept outside the State of Maryland and shall be kept at the
principal office of the Corporation, at the office of its counsel or at an
office of its transfer agent or at such other place or places as may be
designated from time to time by the Board of Directors.
8.8 Amendment of Bylaws. Except as provided otherwise by law, these
Bylaws may be amended or repealed solely by the Board of Directors by the
affirmative vote of a majority of the Directors then in office; provided,
however, that the amendment or repeal of any of the provisions of Section 3.9
or Section 4.1 of these Bylaws shall require (a) if at the
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time such amendment or repeal is proposed there is both a Class B and Class C
Director (as defined in the Articles) in office, the affirmative vote of a
majority of the Directors then in office, including the affirmative vote of each
of the Class B and Class C Directors, or (b) the affirmative vote of the holders
of a majority of the outstanding shares entitled to vote on such matter.
8.9 Voting of Stock Held. Unless otherwise provided by resolution of the
Board of Directors, the Chairman of the Board, if one is elected, the Chief
Executive Officer, the President or the Treasurer may from time to time waive
notice of and act on behalf of this Corporation, or appoint an attorney or
attorneys or agent or agents of the Corporation, in the name and on behalf of
the Corporation, to cast the vote that the Corporation may be entitled to cast
as a stockholder or otherwise in any other corporation, any of whose securities
may be held by the Corporation, at meetings of the holders of the shares or
other securities of such other corporation, or to consent in writing to any
action by any such other corporation; and the Chairman of the Board, if one is
elected, the Chief Executive Officer, the President or the Treasurer shall
instruct the person or persons so appointed as to the manner of casting such
votes or giving such consent and may execute or cause to be executed on behalf
of the Corporation, and under its corporate seal or otherwise, such written
proxies, consents, waivers or other instruments as may be necessary or proper in
the premises. In lieu of such appointment, the Chairman of the Board, if one is
elected, the Chief Executive Officer, the President or the Treasurer may himself
or herself attend any meetings of the holders of shares or other securities of
any such other corporation and there vote or exercise any or all power of the
Corporation as the holder of such shares or other securities of such other
corporation.
Adopted and effective as of ____________, 1998.
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Exhibit 99.8
LIMITED LIABILITY COMPANY AGREEMENT
OF
[IHC II, LLC]
Dated as of May __, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS..............................................................1
ARTICLE 2
FORMATION, DURATION AND PURPOSES.........................................7
Section 2.1 Formation..................................................7
Section 2.2 Name; Registered Agent and Registered Office...............7
Section 2.3 Principal Office...........................................7
Section 2.5 Purposes and Business......................................8
ARTICLE 3
RIGHTS AND OBLIGATIONS OF MEMBERS........................................8
Section 3.1 Limited Liability..........................................9
Section 3.2 Admission of Members.......................................9
Section 3.3 Bankruptcy of a Member.....................................9
Section 3.4 No Withdrawal..............................................9
Section 3.5 Remuneration To Members....................................9
Section 3.6 Duties and Conflicts.......................................9
ARTICLE 4
MANAGEMENT..............................................................10
Section 4.1 Management by the Class A Member; Members.................10
Section 4.2 Bank Accounts.............................................12
Section 4.3 Liability; Indemnification................................12
Section 4.4 Limitation on Sale of Assets..............................12
ARTICLE 5
BOOKS AND RECORDS.......................................................13
Section 5.1 Books and Records.........................................13
Section 5.2 Accounting and Fiscal Year................................13
Section 5.3 Reports...................................................13
Section 5.4 The Company Accountant....................................14
ARTICLE 6
CONTRIBUTIONS...........................................................15
Section 6.1 Initial Capital Contributions.............................15
Section 6.2 Additional Capital Contributions..........................15
Section 6.3 No Third Party Beneficiary................................15
Section 6.5 Withdrawal of Capital.....................................16
Section 6.6 Negative Capital Accounts.................................16
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ARTICLE 7
ALLOCATION OF PROFITS AND LOSSES; TAX MATTERS
.......................................................................16
Section 7.1 Profits and Losses........................................16
Section 7.2 Regulatory Allocations....................................16
Section 7.3 Tax Allocations...........................................17
Section 7.4 Tax Matters Member........................................17
Section 7.5 Tax Elections.............................................17
Section 7.6 Intention of the Members..................................17
ARTICLE 8
DISTRIBUTIONS...........................................................17
Section 8.1 Cash Available for Distributions..........................17
ARTICLE 9
TRANSFER................................................................18
Section 9.1 No Transfer of Interests..................................18
Section 9.2 [Reserved]................................................18
Section 9.3 Transferees...............................................18
Section 9.4 Admission of Additional Members...........................19
ARTICLE 10
TERMINATION... ........................................................19
Section 10.1 Dissolution...............................................19
Section 10.2 Termination...............................................20
Section 10.3 Acts in Furtherance of Liquidation........................21
ARTICLE 11
INTENTIONALLY RESERVED..................................................21
ARTICLE 12
GENERAL PROVISIONS......................................................21
Section 12.1 Covenants, Representations and Warranties of the Members..21
Section 12.2 Notices...................................................22
Section 12.3 Governing Laws; Jurisdiction; Venue.......................23
Section 12.4 Entire Agreement..........................................24
Section 12.5 Waiver....................................................24
Section 12.6 Severability..............................................24
Section 12.7 Terminology...............................................24
Section 12.8 Action by the Members.....................................25
Section 12.9 Amendments................................................25
Section 12.10 Binding Agreement.........................................25
Section 12.11 Further Assurances........................................25
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SCHEDULES & EXHIBITS:
Schedule 1.1 - Initial Capital Account of Class Member
Schedule 1.3 - List of Submanagement Agreements
Schedule 2.4.1 - List of Management Agreements
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<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement"),
made and entered into as of this _____ day of May ___, 1998 by and among [New
Interstate Hotels Company] , a Maryland corporation (together with its permitted
successors and assigns hereunder "[Newco]"), and [MARRIOTT MEMBER], a [Delaware
] corporation (together with its permitted successors and assigns hereunder
"MM"). Newco and MM are each sometimes referred to herein individually as a
"Member" and collectively as the "Members."
R E C I T A L S
WHEREAS, the Members have formed a limited liability company with the name
"[IHC II, LLC]" (the "Company") under the Act (as defined below) by the filing
of a Certificate of Formation (the "Certificate of Formation") with the Delaware
Secretary of State as of __________, __, 1998; and
WHEREAS, the Members now desire to enter into this Agreement in order to
govern the operations of the Company and the rights and obligations of the
Members.
NOW, THEREFORE, in consideration of the recitals and the covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Members hereby
agree as follows:
ARTICLE 1
DEFINITIONS
For purposes of this Agreement, initially capitalized terms used herein
shall have the following meanings:
"Act" as defined in Section 2.1.
"Additional Member" as defined in subsection 9.4.2.
"Affiliate" means, when used with respect to any Person, any other Person
controlling or controlled by or under common control with such Person. For
purposes of this definition, the term "control," with respect to any Person,
means possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or of other beneficial interests or by contract
or otherwise.
"Agreement" as defined in the Preamble.
<PAGE>
"Bankruptcy" means, with respect to any Person, (i) the commencement by
such Person of a proceeding seeking relief under any provision or chapter of the
Bankruptcy Code or any other federal or state law relating to insolvency,
bankruptcy or reorganization; (ii) an adjudication that such Person is insolvent
or bankrupt; (iii) the entry of an order for relief under the Bankruptcy Code
with respect to such Person; (iv) the filing of any such petition or the
commencement of any such case or proceeding against such Person, unless such
petition and the case or proceeding initiated thereby are dismissed within
seventy-five (75) days from the date of such filing; (v) the filing of an answer
by such Person admitting the material allegations of any such petition; (vi) the
appointment of a trustee, receiver or custodian for all or substantially all of
the assets of such Person unless such appointment is vacated or dismissed within
seventy-five (75) days from the date of such appointment but not less than five
(5) days before the proposed sale of any assets of such Person; (vii) the
insolvency of such Person or the execution by such Person of a general
assignment for the benefit of creditors; (viii) the convening by such Person of
a meeting of its creditors, or any class thereof, for purposes of effecting a
moratorium upon or composition of its debts or an extension of its debts; (ix)
the failure of such Person to pay its debts generally as they mature; (x) the
levy, attachment, execution or other seizure of substantially all of the assets
of such Person where such seizure is not discharged within ten (10) days
thereafter; or (xi) the admission by such Person in writing of its inability to
pay its debts generally as they mature or that it is generally not paying its
debts as they become due.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy," as now and hereafter in effect, or any successor statute.
"Book Depreciation" means, for each fiscal year, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such year, except that if the Book Value of an asset
differs from its adjusted basis for federal income tax purposes at the beginning
of such year, Book Depreciation shall be an amount which bears the same ratio to
such beginning Book Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year bears to such beginning adjusted
tax basis; provided, however, that if the adjusted basis for federal income tax
purposes of an asset at the beginning of such year is zero, Book Depreciation
shall be determined with reference to such beginning Book Value using a method
reasonably selected by the Managing Member.
"Book Value" means, with respect to any asset of the Company, the asset's
adjusted basis for federal income tax purposes, except as follows:
(i) the initial Book Value of any asset contributed by a Member to the
Company shall be the gross fair market value of such assets;
(ii) the Book Values of all Company assets shall be adjusted to equal
their respective fair market values as permitted pursuant to Section
1.704-1(b)(2)(iv)(f) of the Treasury Regulations;
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(iii) the Book Value of any asset of the Company distributed to any Member
shall be adjusted to equal the gross fair market value of such asset as of the
date of distribution; and
(iv) the Book Value of Company assets shall be increased (or decreased) to
reflect any adjustments to the adjusted basis of such assets pursuant to Code
Section 734(b) or 743(b) to the extent such adjustments are taken into account
in determining Capital Accounts and are not otherwise reflected in an adjustment
made pursuant to this definition of "Book Value."
If the Book Value of an asset has been determined or adjusted pursuant to
this definition of Book Value, then such Book Value shall thereafter be adjusted
by Book Depreciation taken into account with respect to such asset for purposes
of computing Profits and Losses.
"Business Day" means any day other than a Legal Holiday.
"Capital Account" means, with respect to any Member, the separate "book"
account which the Company shall establish and maintain for such Member in
accordance with Section 704(b) of the Code and Regulations Section
1.704-1(b)(2)(iv) and such other provisions of Section 1.704-1(b) of the
Regulations as must be complied with in order for the Capital Accounts to be
determined in accordance with the provisions of said Regulations. In furtherance
of the foregoing, the Capital Accounts shall be maintained in compliance with
Section 1.704-1(b)(2)(iv) of the Regulations, and the provisions hereof shall be
interpreted and applied in a manner consistent therewith.
"Capital Call Due Date" as defined in subsection 6.2.2.
"Capital Call Notice" as defined in subsection 6.2.2.
"Capital Contributions" as defined in subsection 6.2.1.
"Certificate of Formation" as defined in the Preamble.
"Class A Member" means Newco, and any successor to Newco appointed as
Class A Member in accordance with the provisions of this Agreement.
"Class B Member" means MM, and any successor to MM as permitted in
accordance with the terms of this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.
"Company" as defined in the Preamble.
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"Company Accountant" as defined in Section 5.4.
"Contracts" means collectively, the Management Agreements and the
Submanagement Agreements and the Marriott franchise agreements assumed by the
Company as franchisee in connection with the Management Agreements.
"Hotels" means those hotels listed on Schedule 1.1 hereto.
"Initial Capital Contributions" as defined in Section 6.1.
"Interest" means, with respect to any Member at any time, the interest of
such Member in the Company at such time, including the right of such Member to
any and all of the benefits to which such Member may be entitled as provided in
this Agreement, together with the obligations of such Member to comply with all
of the terms and provisions of this Agreement.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York are authorized by law, regulation or
executive order to remain closed. If a date is a Legal Holiday, the date set for
any action hereunder shall be the next succeeding day that is not a Legal
Holiday.
"Liquidating Member" means the Class A Member; provided, however, if the
Class A Member's bankruptcy, withdrawal or liquidation shall have preceded the
liquidation of the Company, the Class B Member shall be the Liquidating Member.
"Management Agreements" means those certain Management Agreements entered
into by and among the Company and [Wyndham] as more fully described therein, as
the same may be amended, modified, restated or otherwise modified from time to
time.
"Member" or "Members" means, initially, the Persons identified as Members
in the preamble to this Agreement, and thereafter shall include any Person
admitted as Substitute Member or an Additional Member.
"Necessary Costs" as defined in subsection 6.2.3.
"Net Capital Proceeds" means (i) the net cash proceeds arising out of the
refinancing or refunding of any Company indebtedness or any additional
indebtedness, and (ii) gross receipts (including condemnation and casualty
insurance proceeds) from the sale, exchange or other disposition (excluding
leasing in the ordinary course of business) of any Company assets, less (A) any
indebtedness relating to or secured by such assets which is paid out of such
gross receipts, (B) the costs and expenses of the sale, exchange or disposition
including brokerage commissions, and (C) in the case of condemnation or
casualty, the cost of any collection, repair or restoration.
4
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"Net Operating Cash Flow" means, for any period, the excess of cash
receipts of all kinds for that period (including disbursements from reserves
previously established by the Managing Member) over cash disbursements of all
kinds for that period (including reasonable reserves established by the Managing
Member), but excluding Net Capital Proceeds.
"Percentage Interest" means, with respect to each Member, the percentage
set forth below opposite its name, in each case, subject to adjustment as
provided in this Agreement:
Newco 99.99%
MM .01%
"Permitted Transfer" means any Transfer expressly permitted by the terms
of this Agreement.
"Person" means any individual, partnership, limited partnership, trust,
estate, association, corporation, limited liability company, or other entity
whether domestic or foreign.
"Profits"and "Losses" means, for each fiscal year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to be stated separately pursuant to
Code Section 703(a)(1) shall be included in taxable income or loss), with the
following adjustments:
(a) any depreciation, amortization and/or cost recovery deductions
with respect to any asset shall be deemed to be equal to the Book
Depreciation available with respect to such asset;
(b) any income or gain of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profits or
Losses shall be added to such taxable income or loss;
(c) any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Profits or Losses, shall be subtracted from such
taxable income or loss;
(d) to the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Section 734(b) or 743(b) of the Code is required
to be taken into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Member's Interest, the amount
of such adjustment shall be treated as an
5
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item of gain (if the adjustment increases the basis of the asset) or loss
(if the adjustment decreases the basis of the asset) from the disposition
of the asset and shall be taken into account for purposes of computing
Profits or Losses;
(e) in the event the Book Value of any Company asset is adjusted
pursuant to the definition of Book Value, the amount of such adjustment
shall be taken into account as gain or loss from the disposition of such
asset for purposes of computing Profits or Losses;
(f) gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Book Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Book Value; and
(g) any items of income, gain, loss or deduction which are allocated
individually specially pursuant to the provisions of Section 7.2 shall not
be taken into account in computing Profits and Losses for any taxable
year.
"Remaining Members" as defined in subsection 10.1.1.
"Required Funds" as defined in subsection 6.2.2.
"Securities Act" as defined in subsection 12.1.6.
"Securities Laws" as defined in subsection 12.1.6.
"Special Tax Event" means a sale or transfer of all or part of a Member's
Percentage Interest that would cause Newco to recognize any of the "built-in
gain" with respect to its interests in the Company.
"Submanagement Agreements" means those certain Submanagement Agreements
entered into by and among the Company and the Submanager with respect to the
Hotels, as the same may be amended, modified, restated or supplemented from time
to time.
"Substitute Member" as defined in Section 9.3.
"Submanager" means [Marriott or Marriott wholly owned entity].
"Tax Matters Member" as defined in Section 7.4.
"Transfer" as defined in subsection 9.1.1.
"Treasury Regulations" means the income tax regulations promulgated under
the Code, whether temporary, proposed or finalized, as such regulations may be
amended from
6
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time to time (including corresponding provisions of succeeding regulations).
ARTICLE 2
FORMATION, DURATION AND PURPOSES
Section 2.1 Formation. Pursuant to the Delaware Limited Liability Company
Act, codified in the Delaware Code Annotated, Title 6, Sections 18-101 to
18-1109, as the same may be amended from time to time (the "Act"), the Members
have formed a limited liability company by filing the Certificate of Formation
with the Secretary of State of the State of Delaware. The rights and liabilities
of the Members, and the operation of the Company, shall be governed by and
determined pursuant to the Act and this Agreement. To the extent the rights and
obligations of any Member are different by reason of any provision of this
Agreement than they would be in the absence of such provision, this Agreement,
to the extent permitted by the Act, shall control.
Section 2.2 Name; Registered Agent and Registered Office. The name of the
Company, and the name under which the business of the Company shall be conducted
shall be [IHC II], LLC or such other name as hereafter may be adopted by the
Class A Member. The Registered Agent of the Company shall be [Corporation
Service Company], or such other Person as may be selected from time to time by
the Class A Member. The registered office of the Company shall be at [1013
Centre Road, Wilmington, Delaware 19805].
Section 2.3 Principal Office. The principal place of business and office
of the Company shall be located c/o [_______________________], or at such other
place as may be determined by the Class A Member.
Section 2.4 Purposes and Business.
2.4.1 The purpose and nature of the business of the Company shall be:
(i) to directly or indirectly own, hold, manage, terminate,
extend, amend, amend and restate or otherwise modify, or renew
or replace (provided such renewal or replacement relates
solely to the hotels referenced in the Contracts) the
Contracts;
(ii) to exercise the rights and perform the obligations of the
Company under and pursuant to the Contracts, including to act
as managers and franchisees under such Contracts or any
renewals or replacements thereof with respect to the hotels
referenced in such Contracts; and
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(iv) to conduct all activities necessary or desirable to
accomplish the foregoing purposes.
2.4.2 For so long as the Management Agreement remains in place, the
Company shall not:
(i) employ any individual other than as an independent
contractor;
(ii) enter into any contract or agreement other than as
permitted under subsection 2.4.1;
(iii) enter into or conduct any business other than as set
forth subsection 2.4.1;
(iv) fail to correct any known misunderstanding regarding
its separate identity;
(v) commingle its funds or other assets with those of any
other Person (except as specifically contemplated in
the Contracts);
(vi) guarantee or become obligated for the debts of any
other person or hold its credit as being available to
satisfy the obligations of any other person;
(vii) pledge any of its assets for the benefit of any other
Person other than in connection with the Management
Agreement; or
(viii) make any loans to any other person;
Section 2.5 Purposes and Business. The Members acknowledge and agree that
they intend for all management and franchise activities, other than franchise or
management activities permitted under subsection 2.4.1 or relating to the hotels
currently managed under the Contracts, to be conducted by Newco, as opposed to
the Company, and neither the Class A Member or the Class B Member shall have any
obligation, fiduciary or otherwise, to offer or bring to the Company any
opportunities relating to any business activities not contemplated in subsection
2.4.1. It is anticipated that all such opportunities not contemplated by
subsection 2.4.1 shall be transferred to Newco.
ARTICLE 3
RIGHTS AND OBLIGATIONS OF MEMBERS
8
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Section 3.1 Limited Liability. Except as required under the Act or as
expressly set forth in this Agreement, the debts, obligations and liabilities of
the Company, whether arising in contract, tort or otherwise, will be solely the
debts, obligations and liabilities of the Company, and no Member will be
obligated personally for any debt, obligation or liability of the Company solely
by reason of being a member of the Company.
Section 3.2 Admission of Members. Newco is the sole Class A Member and MM
is the sole Class B Member of the Company and shall be shown as such on the
books and records of the Company. Except as expressly permitted by this
Agreement, no other Person will be admitted as a member of the Company, and no
additional Interests will be issued, without the approval of Newco and MM.
Section 3.3 Bankruptcy of a Member. Except as provided in Section 10.1,
the Bankruptcy of any Member shall not cause a dissolution of the Company, and
the rights of such Member to share in the profits or losses of the Company and
to receive distributions of Company funds shall, on the happening of such event,
devolve on its successors or assigns, subject to the terms and conditions of
this Agreement, and the Company shall continue as a limited liability company.
However, in no event shall any such assignee become a substitute Member or
succeed to any right to vote or participate in the management of the business,
property and affairs of the Company or to exercise any rights of a Member,
unless such assignee shall otherwise be entitled to become a Substitute Member
under the terms of this Agreement.
Section 3.4 No Withdrawal. No Member may withdraw from the Company without
the prior consent of the other Members (which may be granted or withheld in the
sole discretion of such Members), other than as expressly provided in this
Agreement.
Section 3.5 Remuneration To Members. Except as expressly otherwise
authorized in, or pursuant to, this Agreement, no Member shall be entitled to
remuneration for acting in the Company business.
Section 3.6 Duties and Conflicts. Notwithstanding anything to the contrary
contained in this Agreement, (i) each Member recognizes that the other Member
and its Affiliates have or may have other business interests, activities and
investments, some of which may be in conflict or competition with the business
of the Company, and that such Persons are entitled to carry on such other
business interests, activities and investments; (ii) the Members and their
Affiliates may engage in or possess an interest in any other business or venture
of any kind, independently or with others, on their own behalf or on behalf of
other entities with which they are affiliated or associated, and such Persons
may engage in any activities, whether or not competitive with the Company,
without any obligation to offer any interest in such activities to the Company
or to any Member; and (iii) neither the Company nor any Member shall have any
right, by virtue of this Agreement, in or to such activities, or the income or
profits derived therefrom, and the pursuit of such activities, even if
competitive with the business of the Company, shall not be deemed wrongful or
improper.
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ARTICLE 4
MANAGEMENT
Section 4.1 Management by the Class A Member; Members.
4.1.1 Management by the Class A Member. Subject to the limitations
contained in subsection 4.1.3, the overall management and control of the
business and affairs of the Company shall be overseen by the Class A
Member, in the form and manner described below. Except as otherwise
expressly provided in this Agreement, the Class A Member shall have the
exclusive power and authority to take such action for and on behalf of the
Company as the Class A Member shall from time to time deem necessary or
appropriate to carry on the Company business and to carry out the purposes
for which the Company was organized.
4.1.2 Involvement in Company Business. The Class A Member shall
devote such time to the Company business as it deems to be necessary or
desirable in connection with its respective duties and responsibilities
hereunder.
4.1.3 Actions Requiring the Consent of the Class B Member.
Notwithstanding any other provision hereof to the contrary, for so long as
the Submanagement Agreements remain in effect, the Company shall not,
without the prior written consent of both the Class A Member and the Class
B Member:
(a) dissolve, liquidate, consolidate or merge or sell all or
substantially all of its assets;
(b) engage in any business other than that specified in Section 2.4;
(c) acquire any assets or incur any liabilities not reasonably related
to the conduct of the business specified in Section 2.4;
(d) institute proceedings to have the Company adjudicated as bankrupt or
insolvent, or consent to the institution of bankruptcy or insolvency
proceedings against it, or file a petition with respect to the
Company or consent to a petition with respect to the Company seeking
reorganization or relief under any applicable Federal or state laws
relating to bankruptcy or insolvency, or consent to the appointment
of receiver, liquidator, assignee, trustee, sequestrator (or other
similar official) of the Company or a substantial portion of its
assets, or make any assignment for the benefit of creditors by the
Company, or except as required by law, admit in writing the
inability of the Company to pay its debts generally as they become
due, or take any action as a limited liability company
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in furtherance of any such action;
(e) terminate (or assert, either directly to the Submanager or in any
judicial or administrative proceeding involving the Submanagement
Agreements, the right to terminate) the Submanagement Agreement
except (A) as a result of a breach by the Submanager of any of the
Submanager's duties or obligations under the Submanagement
Agreements (subject to the conditions and limitations set forth in
the Submanagement Agreements); or (B) pursuant to the exercise of an
express termination right set forth in the Submanagement Agreement;
(f) assert, either directly to the Submanager or in any judicial or
administrative proceeding involving the Submanagement Agreement, (A)
that the status of the Submanager with respect to the Company under
the Submanagement Agreements is other than that of an "independent
contractor" with the rights and obligations expressly set forth in
the Submanagement Agreement, or (B) that the Submanager is not
entitled to injunctive relief preventing a termination of the
Submanagement Agreements (except in accordance with the express
terms thereof or as a result of a breach by the Submanager of any of
the Submanager's duties or obligations under the Submanagement
Agreement (subject to the conditions and limitations set forth in
the Submanagement Agreement)) by reason of the fact that the
Submanager would have an adequate remedy at law for money damages by
reason of such wrongful termination; or
(g) assert, either directly to the Class B Member or in any judicial or
administrative proceeding, that the provisions of this Section are
invalid or otherwise not enforceable strictly in accordance with
their express terms.
If either Member shall at any time violate, or attempt to violate, any of
the provisions of this subsection 4.1.3 and any rights hereby granted, then the
other Member shall, in addition to all rights and remedies at law and in equity,
be entitled to a decree or order restraining such violation.
4.1.4 In exercising voting and other management rights under this LLC
Agreement (including, those set forth in Subsection 4.1.4), no Member, (i)
shall have any fiduciary duty to the Company or the other Member or (ii)
shall be liable for (or otherwise prevented from) exercising such rights
in a manner that solely benefits its economic and business interests,
without regard to the interests of the Company or the other Member.
4.1.5 Notwithstanding the foregoing provisions of this Section 4.1 or any
other provision of this Agreement to the contrary, the Members shall not
be empowered to, and shall not (i) undertake any act in violation of this
Agreement; (ii) possess or take title to any assets of the Company; or
(iii) take any action that makes it illegal or impossible for the Company
to carry on its business.
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Section 4.2 Bank Accounts. The Class A Member shall open and thereafter
maintain, for the Company, a commercial checking account and such other accounts
at one or more banks or trust companies organized and existing under the laws of
the United States or any state thereof, each having combined capital and surplus
aggregating at least $500,000,000 and none of which is an Affiliate of any
Member, which accounts shall be interest bearing to the extent practicable. All
funds of the Company shall be promptly deposited in said accounts.
Section 4.3 Liability; Indemnification. Except as set forth in Section
4.4, no Member (including the Class A Member) shall be liable to the Company or
any Member for any act or omission by it in the conduct of its duties as a Class
A Member or Member, as the case may be, which is within the scope of such
Person's authority hereunder and which is performed or omitted in good faith and
without gross negligence or willful misconduct on its part. The Company shall
indemnify, defend and hold harmless each such Person and their respective
Affiliates and agents from and against any personal liability, claim, loss,
damage, cost or expenses, including attorneys' fees and expenses, incurred or
sustained by such Person or such Affiliate or agent by reason of any act or
omission by it which is within the scope of its authority hereunder and which is
performed or omitted in good faith and without gross negligence or willful
misconduct on its part. The indemnification provided under this Section 4.3
shall be in addition to, and shall not limit or diminish, the coverage of any
such Person or Affiliate or agent under any insurance covering the Company. The
provisions of this Section 4.3 shall survive any termination of the Company or
this Agreement.
Section 4.4 Limitation on Sale of Assets. The Members acknowledge that a
portion of the stock of Newco is held by PAH Interstate Holdings, Inc. ("PAH"),
an entity that is a "real estate investment trust" for Federal income tax
purposes (a "REIT") that must comply with certain requirements to continue to
qualify as a REIT, including proposed legislation affecting the operations and
activities of "stapled" REITs entitled to grandfathering relief under Section
269B of the Code. Accordingly, without the prior written consent of Newco, the
Company shall not, and the Managing Member shall cause the Company not to, (i)
acquire any real property or other interests in real estate (including leasehold
interests), or acquire interests in, or substantially all of the assets of, any
other person or entity or (ii) change the nature of the Company's business in a
manner not contemplated by this Agreement.
Section 4.5 Allocation of Costs and Expenses. The Company and Newco
acknowledge that certain services may be provided by Newco for the benefit of
the Company. All costs and expenses relating to services provided by Newco for,
in whole or in part, the benefit of Company (the "Shared Expenses") shall be
allocated between the Company and Newco, based on generally accepted accounting
principles consistently applied, on the basis of which party benefited from the
expenditure of such Shared Expenses. To the extent the allocation of any Shared
Expenses cannot be fairly or equitably apportioned (including general and
administrative expenses), the Company and Newco shall allocate Shared Expenses
based on respective gross revenues so that each party's profit margins are
substantially the same for
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similar services. The Managing Member and the Non-Managing Member may mutually
agree to apportion Shared Expenses between the Company and Newco other than as
set forth above.
ARTICLE 5
BOOKS AND RECORDS
Section 5.1 Books and Records. The Class A Member shall maintain or cause
to be maintained, at the expense of the Company, in a manner customary and
consistent with good accounting principles, practices and procedures, a
comprehensive system of office records, books and accounts (which records, books
and accounts shall be and remain the property of the Company) in which shall be
entered fully and accurately each and every financial transaction with respect
to the operations of the Company. Bills, receipts and vouchers shall be
maintained on file by the Company. The Class A Member shall maintain or caused
to be maintained said books and accounts in a safe manner and separate from any
records not having to do directly with the Company. The Class A Member shall
cause audits to be performed and audited financial statements and income tax
returns to be prepared as it deems necessary. Such books and records of account
shall be prepared and maintained by the Class A Member at a location or
locations designated by the Class A Member. Each Member or its duly authorized
representative shall have the right to inspect, examine and copy such books and
records of account at the Company's office during reasonable business hours.
Section 5.2 Accounting and Fiscal Year. The books of the Company shall be
kept on the accrual basis and the Company shall report its operations for tax
purposes on the accrual method. The taxable year of the Company shall end on
December 31 of each year, unless a different taxable year shall be required by
the Code.
Section 5.3 Reports.
5.3.1 The Class A Member shall prepare, or cause to be prepared, at
Company expense, the financial reports and other information, including,
without limitation, audited financial statements, that the Class A Member
may determine are appropriate. The Class A Member shall prepare or cause
to be prepared at the expense of the Company and furnished to each of the
Members the following:
5.3.1.1 Within sixty (60) calendar days after the close of
each calendar year of the Company, audited financial statements,
including, without limitation, related notes to financial statements, a
balance sheet of the Company dated as of the end of the calendar year, a
related statement of income and expense, a statement of cash flow and a
statement of changes in Members' capital for the Company for the calendar
year and information for the calendar year as to the balance in each
Member's Capital Account, and all other information deemed reasonably
necessary by the Class A Member, certified to by an independent accounting
firm as, to the best of its knowledge, true and correct and prepared in
accordance with generally accepted
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accounting principles applied on a consistent basis, and all of which
shall otherwise be certified in such manner as is customary;
5.3.1.2 Within twenty (20) calendar days after the close of
each calendar quarter of the Company (other than the last calendar quarter
in any calendar year), a balance sheet of the Company dated as of the end
of the calendar quarter, a related statement of income and expense, a
statement of cash flow and a statement of changes in Members' capital for
the calendar quarter and information for the calendar quarter as to the
balance in each Member's Capital Account, and all other information,
including a market update, as is deemed reasonable by the Class A Member,
all of which shall be certified to by the Person preparing or responsible
for preparing such statements as being, to the best of its knowledge, true
and correct;
5.3.1.3 Within twenty (20) calendar days after the end of
each calendar month, an income statement (with budget variance
explanations) and statement of cash flow; and
5.3.1.4 Promptly after the end of each calendar year the
Class A Member will use its best efforts to have the Company Accountant
prepare and deliver to each Member a report setting forth in sufficient
detail all such information and data with respect to business transactions
effected by or involving the Company during the calendar year as will
enable the Company and each Member to timely prepare its federal, state
and local income tax returns in accordance with the laws, rules and
regulations then prevailing. The Class A Member will use its reasonable
efforts to have the Company Accountant also prepare federal, state and
local tax returns required of the Company, submit those returns to the
Company for its approval no later than 30 calendar days prior to the date
required for the filing thereof (including any extensions granted) and
will file the tax returns after they have been approved by the Class A
Member. In the event the Class A Member shall not desire or be able to
approve any such tax return prior to the date required for the filing
thereof (including any extensions granted), the Company will timely obtain
an extension of such date if such extension is available under applicable
law. In all cases, tax returns shall be prepared and filed in accordance
with applicable law.
5.3.2 All decisions as to accounting principles shall be made by the
Class A Member subject to the provisions of this Agreement.
Section 5.4 The Company Accountant. The Company shall retain as the
regular accountant and auditor for the Company (the "Company Accountant") a
nationally-recognized accounting firm or any other accounting firm acceptable to
the Class A Member in its sole discretion. The fees and expenses of the Company
Accountant shall be a Company expense.
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ARTICLE 6
CONTRIBUTIONS
Section 6.1 Initial Capital Contributions. The "Initial Capital
Contributions" of the Class A Member and initial Capital Account balance for the
Class A Member shall be as described on Schedule 1.1 attached hereto.
Section 6.2 Additional Capital Contributions.
6.2.1 No Member shall be obligated to make any additional
contributions of capital (all contributions of capital to the Company,
including the Initial Capital Contributions, "Capital Contributions") to
the Company (including upon dissolution and liquidation of the Company).
6.2.2 The Class A Member shall monitor the finances of the Company
in an attempt to determine whether or not, and when, the cash receipts of
the Company are insufficient to pay all costs and expenses of the Company
(such costs and expenses, the "Necessary Costs"). The Class A Member shall
have the right, but not the obligation, to contribute capital to the
Company to cover Necessary Costs. If the Class A Member makes such
additional contributions of capital, its Capital Account shall be adjusted
accordingly.
6.2.3 [Reserved]
Section 6.3 No Third Party Beneficiary. The provisions hereof are intended
for the benefit of the Members and the Company only and shall not confer any
right or claim upon, or otherwise inure to the benefit of, any officer or
creditor of, or other third party having dealings with, the Company.
Section 6.4 Capital Accounts. A Capital Account shall be maintained for
the Class A Member. Initially, the Capital Account of the Class A Member shall
be credited with the amounts referred to in Schedule 1.1. Thereafter, the Class
A Member's Capital Account shall be credited with the Profits, any individual
items of income and gain allocated to such Member pursuant to the provisions of
Article 7, the amount of additional cash, and the Book Value of any asset (net
of any liabilities assumed by the Company and liabilities to which the asset is
subject), contributed to the Company by such Member (an "Additional Capital
Contribution"), and shall be debited with the Losses, any individual items of
deduction and loss allocated to such Member pursuant to the provisions of
Article 7, the amount of any cash distributed to such Member and the Book Value
of any asset distributed to such Member (net of any liabilities assumed by the
Member and liabilities to which the asset is subject). In the event that all or
a portion of an interest in the Company is transferred in accordance with the
terms of this Agreement, the transferee shall succeed to the Capital Account of
the transferor to the extent it relates to the transferred interest.
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It is the intention of the Members that the Class B Member have no
economic interest in the assets of the Company, but rather has the consent
rights specifically set forth herein. Accordingly, no Capital Account shall be
maintained for the Class B Member.
Section 6.5 Withdrawal of Capital. Except as provided herein, (i) no
Member shall be entitled to withdraw any part of its Capital Account, (ii) no
Member shall be entitled to receive any interest on its Capital Account or
distributions from the Company, and (iii) no Member shall be entitled to demand
or receive any property from the Company other than cash.
Section 6.6 Negative Capital Accounts. In no event shall the Class A
Member be obligated to make any capital contribution to the Company solely as a
result of the existence at any time of a negative Capital Account balance.
ARTICLE 7
ALLOCATION OF PROFITS AND LOSSES; TAX MATTERS
Section 7.1 Profits and Losses. Profits and Losses for each fiscal year of
the Company shall be allocated to the Class A Member.
Section 7.2 Regulatory Allocations.
7.2.1 Notwithstanding subsection 7.1, the following special
allocations shall be made each taxable year, to the extent required, in the
following order:
(i) Minimum Gain Chargebacks and Qualified Income Offset. Items of
Company income and gain shall be allocated to the extent of,
and in an amount sufficient to satisfy, the "minimum gain
chargeback" requirements of Treasury Regulations Section
1.704-2(f) and (i)(4) and the "qualified income offset"
requirement of Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(3).
(ii) Nonrecourse and Partner Nonrecourse Deductions. "Nonrecourse
deductions" of the Company (within the meaning of Treasury
Regulations Section 1.704-2(b)(1)) shall be allocated among
the Members in proportion to their respective Capital
Contributions. "Partner nonrecourse deductions" (within the
meaning of Treasury Regulations Section 1.704-2(i)) shall be
allocated to the Member who bears the economic risk of loss
associated with such deductions, in accordance with Treasury
Regulations Section 1.704-2(i).
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(iii) Any Other Allocations of Items Which Cannot Have Economic
Effect. Unless otherwise required by Code Section 704(b) or
the Treasury Regulations promulgated thereunder or otherwise
provided in this subsection 7.2.2, any allocations of Company
items of income, gain, loss, deduction or credit that cannot
have "economic effect" (within the meaning of Treasury
Regulations Section 1.704-1 and 1.704-2) shall be allocated
among the Members in proportion to their respective Percentage
Interests.
Section 7.3 Tax Allocations. The Company's ordinary income and losses and
capital gain as determined for tax purposes (and each item of income, gain, loss
or deduction entering into the computation thereof) shall be allocated to the
Members in the same proportions as the corresponding "book" items are allocated
pursuant to Sections 7.1 and 7.2 of this Agreement. Notwithstanding the
foregoing, tax items relating to property with an adjusted tax basis that is
different from its Book Value shall be allocated among the Members in accordance
with Section 704(c) of the Code and the Treasury Regulations issued thereunder.
Items described in this Section 7.3 shall neither be credited nor charged to the
Member's Capital Accounts.
Section 7.4 Tax Matters Member. The Class A Member is hereby designated as
the "Tax Matters Member" for the Company (as such term is defined in Section
6231(a)(7) of the Code), and all federal, state and local tax audits and
litigation shall be conducted under the direction of the Tax Matters Member.
Section 7.5 Tax Elections. All elections required or permitted to be made
by the Code or other applicable tax laws, and all material decisions with
respect to the calculation of taxable income or tax loss under the Code or any
other applicable tax laws, shall be made by the Tax Matters Member.
Section 7.6 Intention of the Members. It is the intention of the Members
that the Class A Member is the sole member of the Company for Federal, state and
local income tax purposes, the Tax Matters Member shall perform its duties
consistent with such intent and the Members agree to take no action inconsistent
with that intent.
ARTICLE 8
DISTRIBUTIONS
Section 8.1 Cash Available for Distributions.
8.1.1 At such times as are determined by the Class A Member (but no
less frequently than quarterly), the Company shall make a distribution of
Net Operating Cash Flow of the Company (to the extent positive). Net
Operating Cash Flow distributions shall be made to the Class A Member.
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8.1.2 Except upon the liquidation of the Company (in which event Net
Capital Proceeds shall be distributed pursuant to Section 10.2) any Net
Capital Proceeds shall be distributed within thirty (30) days following
receipt by the Company to the Class A Member.
8.1.3 Except as provided in subsection 8.1.1 and subsection 8.1.2
above, no portion of any capital contribution made by any Member to the
Company may be withdrawn or distributed at any time.
ARTICLE 9
TRANSFER
Section 9.1 No Transfer of Interests.
9.1.1 Except as expressly permitted or contemplated by this
Agreement: no Member may sell, assign, give, hypothecate, pledge, encumber
or otherwise transfer ("Transfer") all or any portion of its Interest,
whether directly or indirectly without the written consent of the other
Members of the Company.
9.1.2 Any Transfer by a Member of its Interest in contravention of
this Article 9 shall be null and void. No Member shall withdraw from the
Company except in connection with a Permitted Transfer or in accordance
with Section 3.4.
Section 9.2 [Reserved]
Section 9.3 Transferees. Notwithstanding anything to the contrary
contained in this Agreement, no transfer of all or any part of any Interest
shall be made if, as a result thereof, any income of the Company will be subject
to corporate federal income tax. No transferee of all or any portion of any
Interest shall be admitted as a Member unless such Interest is transferred in
compliance with the applicable provisions of this Agreement, such transferee
shall have furnished evidence of satisfaction of the requirements of Section 9.2
reasonably satisfactory to the remaining Members, and such transferee shall have
executed and delivered to the Company such instruments necessary to effectuate
the admission of such transferee as a Member and to confirm the agreement of
such transferee to be bound by all of the terms and provisions of this Agreement
with respect to such Interest. At the request of the remaining Members prior to
such transfer, each such transferee shall also cause to be delivered to the
Company, at the transferee's sole cost and expense, a favorable opinion of legal
counsel reasonably acceptable to the Company, to the effect that such transferee
has the legal right, power and capacity to own the Interest proposed to be
transferred. As promptly as practicable after the admission of any Person as a
Member, the books and records of the Company shall be changed to reflect such
admission. Upon satisfaction of the requirements of this Section 9.3 and any
other applicable provisions of this Agreement), such transferee shall be a
substitute
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Member (a "Substitute Member") of the Company. All reasonable costs and expenses
incurred by the Company in connection with any Transfer of any Interest and, if
applicable, the admission of any transferee as a Member shall be paid by such
transferee.
Section 9.4 Admission of Additional Members.
9.4.1 No person may be admitted as an additional Member of the
Company (in contrast with admission as a Substitute Member in connection
with a Permitted Transfer) without the prior written consent of the
Members.
9.4.2 Any additional Member admitted to the Company shall execute
and deliver documentation in form satisfactory to the Class A Member or
the Members, as the case may be, accepting and agreeing to be bound by
this Agreement, and such other documentation as the Class A Member or the
Members, as the case may be, shall require in order to effect such
person's admission as an additional Member. The admission of any person as
an additional Member (an "Additional Member") shall become effective as of
the date upon which the name of such person is recorded on the books and
records of the Company following the consent of the Class A Member or the
Members, as the case may be, to such admission.
Section 9.5 Mandatory Redemption of Class B Interests. Promptly following
the termination of the last Submanagement Agreement, the Class A Member shall be
required to purchase the Interest of the Class B Member (and the Class B Member
shall be required to sell its Interest to the Class A Member) in the Company for
One Dollar ($1.00).
ARTICLE 10
TERMINATION
Section 10.1 Dissolution. The Company shall be dissolved and its business
wound up upon the happening of any of the following events, whichever shall
first occur:
10.1.1 the Bankruptcy of any Member, if within ninety (90) days
thereafter, a majority in interest of the remaining Members (the
"Remaining Members") shall not have elected to continue the Company, which
right of election is hereby granted to them; or
10.1.2 entry of a decree of judicial dissolution of the Company.
In no event shall the Company dissolve prior to the occurrence of one of the
events set forth above.
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Section 10.2 Termination. In cases of dissolution of the Company, the
business of the Company shall be wound up and the Company terminated as promptly
as practicable thereafter, and each of the following shall be accomplished:
10.2.1 The Liquidating Member shall cause to be prepared a statement
setting forth the assets and liabilities of the Company as of the date of
dissolution, a copy of which statement shall be furnished to all of the
Members.
10.2.2 The property and assets of the Company shall be liquidated by
the Liquidating Member as promptly as possible, but in an orderly and
businesslike and commercially reasonable manner. The Liquidating Member
may, in the exercise of its business judgment and if commercially
reasonable, determine not to sell all or any portion of the property and
assets of the Company, in which event such property and assets shall be
distributed in kind pursuant to subsection 10.2.4 below.
10.2.3 Any income, gain, profit or loss realized by the Company upon
the sale or other disposition of its property pursuant to subsection
10.2.2 shall be allocated to the Class A Member as and to the extent
required by Article 7 hereof.
10.2.4 The proceeds of sale and all other assets of the Company
shall be applied and distributed as follows and in the following order of
priority:
(i) To the payment of the Company's outstanding liabilities, which
shall be set forth on a statement as provided in subsection
10.2.1.
(ii) To the setting up of any reserves which the Liquidating Member
shall determine to be reasonably necessary for contingent,
unliquidated or unforseen liabilities or obligations of the
Company or the Members arising out of or in connection with
the Company. Such reserves, may, in the discretion of the
Liquidating Member, be paid over to a national bank or
national title with the Company as escrowee for the purposes
of disbursing such reserves to satisfy the liabilities and
obligations described above, and at the expiration of such
period as the Liquidating Member may reasonably deem
advisable, distribute any remaining balance in the manner set
forth below.
(iii) To the Class A Member.
No payment or distribution in any of the foregoing categories shall be
made until all payments in each prior category shall have been made in
full. If the payments due to be made in any of the foregoing categories
exceed the remaining assets available for such purpose, such payment shall
be made to the Persons entitled to receive the same pro rata in accordance
with the respective amount due to each such Person. Payments described in
clause (ii) above may be made in cash or in assets of the Company in
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kind. Any asset distributed in kind shall be valued at its fair market
value and for all purposes of this Agreement shall be treated as if such
asset had been sold at such value and the net cash proceeds therefrom
distributed to the Class A Member. Without limiting the foregoing, with
respect to any assets distributed in kind, there shall be a calculation of
the amount of Profit or Loss that would have been realized by the Company
with respect to such assets if such assets had been sold at fair market
value.
Section 10.3 Acts in Furtherance of Liquidation. Each Member, upon the
request of the Liquidating Member, shall promptly execute, acknowledge and
deliver all documents and other instruments as the Liquidating Member shall
reasonably request to effectuate the proper dissolution and termination of the
Company, including the winding up of the business of the Company.
ARTICLE 11
INTENTIONALLY RESERVED
[Reserved]
ARTICLE 12
GENERAL PROVISIONS
Section 12.1 Covenants, Representations and Warranties of the Members.
Each Member represents and warrants to the other Members as follows:
12.1.1 It is duly organized, validly existing and in good standing
under the laws of its jurisdiction of formation with all requisite power
and authority to enter into this Agreement.
12.1.2 This Agreement constitutes the legal, valid and binding
obligation of the Member enforceable in accordance with its terms, subject
to the application of principles of equity and laws governing insolvency
and creditors' rights generally.
12.1.3 No consents or approvals are required from any governmental
authority or other Person for the Member to enter into this Agreement. All
limited liability company, corporate or partnership action on the part of
the Member necessary for the authorization, execution and delivery of this
Agreement, and the consummation of the transactions contemplated under
this Agreement, have been duly taken.
12.1.4 The execution and delivery of this Agreement by the Member,
and the consummation of the transactions contemplated under this
Agreement, do not conflict with or contravene the provision of the
Member's organizational documents or any
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agreement or instrument by which it or its properties are bound or any
law, rule, regulations, order or decree to which it or its properties are
subject.
12.1.5 No Member has retained any broker, finder or other commission
or fee agent, and no such person has acted on its behalf in connection
with the execution and delivery of this Agreement.
12.1.6 Each Member is acquiring its interest in the Company for
investment, solely for its own account, with the intention of holding such
interest for investment and not with a view to, or for resale in
connection with, any distribution or public offering or resale of any
portion of such interest within the meaning of the Securities Act of 1933
(the "Securities Act") or any other applicable federal or state securities
law, rule or regulation ("Securities Laws").
12.1.7 Each Member acknowledges that it is aware that its interest
in the Company has not been registered under the Securities Act or under
any other Securities Law in reliance upon exemption contained therein.
Each Member understands and acknowledges that its representations and
warranties contained herein are being relied upon by the Company, the
other Members and the constituent owners of such other Members as the
basis for exemption of the issuance of interest in the Company from
registration requirements of the Securities Act and other Securities Laws.
Each Member acknowledges that the Company will not and has no obligation
to register any interest in the Company under the Securities Act or other
Securities Laws.
12.1.8 Each Member acknowledges that prior to its execution of this
Agreement, it received a copy of this Agreement and that it examined this
document or caused this document to be examined by its representative or
attorney. Each Member further acknowledges that it or its representative
or attorney is familiar with this Agreement, and with the business and
affairs of the Company, and that except as otherwise specifically provided
in this Agreement, it does not desire any further information or data
relating to the Company, the Assets or the other Members. Each Member
acknowledges that it understand that the acquisition of its interest in
the Company is a speculative investment involving a high degree of risks
and represents that it has a net worth sufficient to bear the economic
risk of its investment in the Company and to justify its investing in a
highly speculative Company of this type.
Section 12.2 Notices. All notices, demands, approvals, consents or
requests provided for or permitted to be given pursuant to this Agreement must
be in writing.
12.2.1 All notices, demands, approvals, consents and requests to be
sent to the Company pursuant to the terms hereof shall be deemed to have
been properly given or served by personal delivery or by a nationally
recognized overnight courier or by registered or certified mail, return
receipt requested, postage prepaid and addressed as follows:
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If to the Company:
c/o [Newco]
With a copy to:
[Newco]
With a copy to:
[MM]
If to Newco:
[Newco]
If to MM:
[MM]
12.2.2 All notices, demands and requests shall be effective upon
personal delivery or upon the date of receipt by the addressee as shown on
the return receipt or upon the date of acknowledgment or confirmation of
receipt with respect to delivery by or nationally recognized overnight
courier. Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was given shall be deemed to
be receipt of the notice, demand or request sent.
12.2.3 By giving to the other parties at least ten (10) days prior
written notice thereof, the parties hereto and their respective successors
and assigns shall have the right from time to time and at any time during
the term of this Agreement to change their respective addresses.
Section 12.3 Governing Laws; Jurisdiction; Venue.
12.3.1 Governing Laws. This Agreement and the obligations of the
Members hereunder shall be interpreted, construed and enforced in
accordance with the laws of the State of Delaware without regard to
conflicts of law principles.
12.3.2 Jurisdiction; Venue. Each of the Members hereby irrevocably
submits to the exclusive jurisdiction of any state court located in the
City of Wilmington,
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Delaware and any federal court in the State of Delaware and any other
court with jurisdiction to hear appeals from such courts for the purposes
of any suit, action or other proceeding of any type whatsoever arising out
of this Agreement or the subject matter hereof, and to the extent
permitted by applicable law, hereby waives, and agrees not to assert, by
way of motion, as a defense, or otherwise, in any such suit, action or
proceeding any claim that it is not personally subject to the jurisdiction
of the above-named courts, that the suit, action or proceeding is brought
in an inconvenient forum, that the venue of the suit, action or proceeding
is improper or that this Agreement or the subject matter hereof may not be
enforced in or by such court.
Section 12.4 Entire Agreement. This Agreement contains the entire
agreement between the parties hereto relative to the formation and operation of
the Company. No variations, modifications, or changes herein or hereof shall be
binding upon any party hereto unless set forth in a document duly executed by or
on behalf of such party.
Section 12.5 Waiver. No consent or waiver, express or implied, by any
Member to or of any breach or default by any other Member in the performance by
the other Member of its obligations hereunder shall be deemed or construed to be
a consent or waiver to or of any other breach or default in the performance by
such other Member of the same or any other obligations of such other Member
hereunder. Failure on the part of any Member to complain of any act or failure
to act of any of the other Members or to declare any of the other Members in
default, irrespective of how long such failure continues, shall not constitute a
waiver by such Member of its rights hereunder.
Section 12.6 Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance shall be invalid or
enforceable to any extent, the remainder of this Agreement and the application
of such provisions to other Persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
Section 12.7 Terminology. All personal pronouns used in this Agreement,
whether used in the masculine, feminine, or neuter gender, shall include all
other genders; the singular shall include the plural, and vice versa and shall
refer solely to the parties signatory thereto except where otherwise
specifically provided. Titles of Articles and Sections are for convenience only,
and neither limit nor amplify the provisions of the Agreement itself, and all
references herein to Articles, Sections or subdivisions thereof shall refer to
the corresponding Articles, Sections or subdivisions thereof of this Agreement
unless specific reference is made to such Articles, Sections or subdivisions of
another document or instrument. Any use of the word "including" herein shall,
unless the context clearly requires otherwise, be deemed to mean "including
without limitation."
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Section 12.8 Action by the Members. No approval, consent, designation or
other action by a Member shall be binding upon such Member unless the same is in
writing and executed on behalf of such Member by a duly authorized
representative of such Member.
Section 12.9 Amendments. No change, modification or amendment of this
Agreement shall be valid or binding unless such change, modification or
amendment shall be in writing and duly executed by all of the Members.
Section 12.10 Binding Agreement. Subject to the restrictions on transfers
and encumbrances set forth herein, this Agreement shall inure to the benefit of
and be binding upon the undersigned Members and their respective heirs,
executors, legal representatives, successors and assigns. Whenever, in this
instrument, a reference to any party or Member is made, such reference shall be
deemed to include a reference to the heirs, executors, legal representatives,
successors and assigns of such party or Member.
Section 12.11 Further Assurances. Each of the Members shall hereafter
execute and deliver such further instruments and do such further acts and things
as may be reasonably necessary to carry out the intent and purpose of this
Agreement and as are not inconsistent with the terms hereof.
[The Remainder of This Page Has Been Intentionally Left Blank]
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IN WITNESS WHEREOF, this Agreement is executed effective as of the date
first set forth above.
NEWCO
a Maryland corporation
By: ________________________
Name:
Title:
MARRIOTT MEMBER
a [** Delaware **] corporation
By: ____________________________
Name:
Title:
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SCHEDULE 1.1
INITIAL CAPITAL ACCOUNT OF CLASS A MEMBER
<PAGE>
SCHEDULE 1.3
LIST OF SUBMANAGEMENT AGREEMENTS
<PAGE>
SCHEDULE 2.4.1
LIST OF MANAGEMENT CONTRACTS
<PAGE>
EXHIBIT 99.9
LIMITED LIABILITY COMPANY AGREEMENT
OF
[INTERSTATE HOTELS, LLC]
Dated as of May __, 1998
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS..............................................................2
ARTICLE 2
FORMATION, DURATION AND PURPOSES.........................................7
Section 2.1 Formation..................................................7
Section 2.2 Name; Registered Agent and Registered Office...............7
Section 2.3 Principal Office...........................................7
Section 2.4 Purposes and Business......................................8
Section 2.5 Future Business............................................8
ARTICLE 3
RIGHTS AND OBLIGATIONS OF MEMBERS........................................9
Section 3.1 Limited Liability..........................................9
Section 3.2 Admission of Members.......................................9
Section 3.3 Bankruptcy of a Member.....................................9
Section 3.4 No Withdrawal..............................................9
Section 3.5 Remuneration To Members....................................9
Section 3.6 Duties and Conflicts.......................................9
ARTICLE 4
MANAGEMENT..............................................................10
Section 4.1 Management by the Managing Member; Members................10
Section 4.2 Bank Accounts.............................................10
Section 4.3 Liability; Indemnification................................11
Section 4.4 Limitations on Sale of Assets; Indemnification............11
ARTICLE 5
BOOKS AND RECORDS.......................................................12
Section 5.1 Books and Records.........................................12
Section 5.2 Accounting and Fiscal Year................................13
Section 5.3 Reports...................................................13
Section 5.4 The Company Accountant....................................14
ARTICLE 6
CONTRIBUTIONS...........................................................14
Section 6.1 Initial Capital Contributions.............................14
Section 6.2 Additional Capital Contributions..........................14
Section 6.3 No Third Party Beneficiary................................15
Section 6.5 Withdrawal of Capital.....................................16
Section 6.6 Negative Capital Accounts.................................16
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ARTICLE 7
ALLOCATION OF PROFITS AND LOSSES; TAX MATTERS
.......................................................................16
Section 7.1 Profits and Losses........................................16
Section 7.2 Regulatory Allocations....................................16
Section 7.3 Tax Allocations...........................................17
Section 7.4 Tax Matters Member........................................17
Section 7.5 Tax Elections.............................................17
ARTICLE 8
DISTRIBUTIONS...........................................................17
Section 8.1 Cash Available for Distributions..........................17
ARTICLE 9
TRANSFER................................................................18
Section 9.1 No Transfer of Interests..................................18
Section 9.2 Permitted Transfers of Interests; Right of First Offer....19
Section 9.3 Transferees...............................................20
Section 9.4 Admission of Additional Members...........................20
ARTICLE 10
TERMINATION.............................................................21
Section 10.1 Dissolution...............................................21
Section 10.2 Termination...............................................21
Section 10.3 Acts in Furtherance of Liquidation........................22
ARTICLE 11
INTENTIONALLY RESERVED..................................................23
ARTICLE 12
GENERAL PROVISIONS......................................................23
Section 12.1 Covenants, Representations and Warranties of the Members..23
Section 12.2 Notices...................................................24
Section 12.3 Governing Laws; Jurisdiction; Venue.......................25
Section 12.4 Entire Agreement..........................................26
Section 12.5 Waiver....................................................26
Section 12.6 Severability..............................................26
Section 12.7 Terminology...............................................26
Section 12.8 Action by the Members.....................................26
Section 12.9 Amendments................................................26
Section 12.10 Binding Agreement.........................................27
Section 12.11 Further Assurances........................................27
SCHEDULES & EXHIBITS:
ii
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Schedule 1.1 - Initial Capital Contributions, Capital Account Balances
Schedule 1.2 - Existing Subsidiaries
Schedule 2.4.1 - List of Existing Contracts
iii
<PAGE>
LIMITED LIABILITY COMPANY AGREEMENT
THIS LIMITED LIABILITY COMPANY AGREEMENT (this "Agreement"), made and
entered into as of this _____ day of May, 1998 by and among [New Interstate
Hotels Company] , a Maryland corporation (together with its permitted successors
and assigns hereunder "[Newco]"), and PAH-Interstate Holdings, Inc., a Delaware
corporation (together with its permitted successors and assigns hereunder
"PAH"). Newco and PAH are each sometimes referred to herein individually as a
"Member" and collectively as the "Members".
R E C I T A L S
WHEREAS, [Patriot American Hospitality, Inc. ("Patriot REIT")] has formed
a limited liability company with the name "[Interstate Hotels, LLC]" (the
"Company") under the Act (as defined below) by the filing of a Certificate of
Formation (the "Certificate of Formation") with the Delaware Secretary of State
as of __________, __, 1998; and
WHEREAS, Patriot REIT and Interstate Hotels Company, a Pennsylvania
corporation ("Interstate"), have entered into an Agreement and Plan of Merger
dated as of December __, 1997, pursuant to which Interstate will merge with and
into Patriot REIT (the "Interstate Merger");
WHEREAS, following the Interstate Merger and certain internal
restructuring transactions, Patriot REIT intends to cause Interstate Hotels
Corporation, a Pennsylvania corporation and a wholly owned subsidiary of
Interstate, to merge with and into the Company;
WHEREAS, Patriot REIT intends to make capital contributions to PAH and
Newco, who will become the sole Members of the Company, such that PAH will own
[65%- SUBJECT TO THE TERMS OF THE SETTLEMENT AGREEMENT] of the interests in the
Company and Newco will own [approximately 35%- SUBJECT TO THE TERMS OF THE
SETTLEMENT AGREEMENT] of the interests in the Company;
WHEREAS, the Members now desire to enter into this Agreement in order to
govern the operations of the Company and the rights and obligations of the
Members.
NOW, THEREFORE, in consideration of the recitals and the covenants and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Members hereby
agree as follows:
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ARTICLE 1
DEFINITIONS
For purposes of this Agreement, initially capitalized terms used herein
shall have the following meanings:
"Act" as defined in Section 2.1.
"Additional Member" as defined in subsection 9.4.2.
"Affiliate" means, when used with respect to any Person, any other Person
controlling or controlled by or under common control with such Person. For
purposes of this definition, the term "control", with respect to any Person,
means possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or of other beneficial interests or by contract
or otherwise.
"Agreement" as defined in the Preamble.
"Bankruptcy" means, with respect to any Person, (i) the commencement by
such Person of a proceeding seeking relief under any provision or chapter of the
Bankruptcy Code or any other federal or state law relating to insolvency,
bankruptcy or reorganization; (ii) an adjudication that such Person is insolvent
or bankrupt; (iii) the entry of an order for relief under the Bankruptcy Code
with respect to such Person; (iv) the filing of any such petition or the
commencement of any such case or proceeding against such Person, unless such
petition and the case or proceeding initiated thereby are dismissed within
seventy-five (75) days from the date of such filing; (v) the filing of an answer
by such Person admitting the material allegations of any such petition; (vi) the
appointment of a trustee, receiver or custodian for all or substantially all of
the assets of such Person unless such appointment is vacated or dismissed within
seventy-five (75) days from the date of such appointment but not less than five
(5) days before the proposed sale of any assets of such Person; (vii) the
insolvency of such Person or the execution by such Person of a general
assignment for the benefit of creditors; (viii) the convening by such Person of
a meeting of its creditors, or any class thereof, for purposes of effecting a
moratorium upon or composition of its debts or an extension of its debts; (ix)
the failure of such Person to pay its debts generally as they mature; (x) the
levy, attachment, execution or other seizure of substantially all of the assets
of such Person where such seizure is not discharged within ten (10) days
thereafter; or (xi) the admission by such Person in writing of its inability to
pay its debts generally as they mature or that it is generally not paying its
debts as they become due.
"Bankruptcy Code" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
2
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"Book Depreciation" means, for each fiscal year, an amount equal to the
depreciation, amortization or other cost recovery deduction allowable with
respect to an asset for such year, except that if the Book Value of an asset
differs from its adjusted basis for federal income tax purposes at the beginning
of such year, Book Depreciation shall be an amount which bears the same ratio to
such beginning Book Value as the federal income tax depreciation, amortization
or other cost recovery deduction for such year bears to such beginning adjusted
tax basis; provided, however, that if the adjusted basis for federal income tax
purposes of an asset at the beginning of such year is zero, Book Depreciation
shall be determined with reference to such beginning Book Value using a method
reasonably selected by the Managing Member.
"Book Value" means, with respect to any asset of the Company, the asset's
adjusted basis for federal income tax purposes, except as follows:
(i) the initial Book Value of any asset contributed by a Member to the
Company shall be the gross fair market value of such assets;
(ii) the Book Values of all Company assets shall be adjusted to equal
their respective fair market values as permitted pursuant to Section
1.704-1(b)(2)(iv)(f) of the Treasury Regulations;
(iii) the Book Value of any asset of the Company distributed to any Member
shall be adjusted to equal the gross fair market value of such asset as of the
date of distribution; and
(iv) the Book Value of Company assets shall be increased (or decreased) to
reflect any adjustments to the adjusted basis of such assets pursuant to Code
Section 734(b) or 743(b) to the extent such adjustments are taken into account
in determining Capital Accounts and are not otherwise reflected in an adjustment
made pursuant to this definition of "Book Value".
If the Book Value of an asset has been determined or adjusted pursuant to
this definition of Book Value, then such Book Value shall thereafter be adjusted
by Book Depreciation taken into account with respect to such asset for purposes
of computing Profits and Losses.
"Business Day" means any day other than a Legal Holiday.
"Capital Account" means, with respect to any Member, the separate "book"
account which the Company shall establish and maintain for such Member in
accordance with Section 704(b) of the Code and Regulations Section
1.704-1(b)(2)(iv) and such other provisions of Section 1.704-1(b) of the
Regulations as must be complied with in order for the Capital Accounts to be
determined in accordance with the provisions of said Regulations. In furtherance
of the foregoing, the Capital Accounts shall be maintained in compliance with
Section 1.704-1(b)(2)(iv) of the Regulations, and the provisions hereof shall be
interpreted and applied in a manner consistent therewith.
"Capital Call Due Date" as defined in subsection 6.2.2.
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"Capital Call Notice" as defined in subsection 6.2.2.
"Capital Contributions" as defined in subsection 6.2.1.
"Certificate of Formation" as defined in the Preamble.
"Code" means the Internal Revenue Code of 1986, as amended, and as
hereafter amended from time to time. Reference to any particular provision of
the Code shall mean that provision in the Code at the date hereof and any
successor provision of the Code.
"Company" as defined in the Preamble.
"Company Accountant" as defined in Section 5.4.
"Existing Contracts" means those agreements held by the Company or the
Existing Subsidiaries, each as more fully identified on Schedule 2.4.1 hereto.
"Existing Subsidiary Contracts" means those agreements held by the
Existing Subsidiaries, each as more fully identified on Schedule 2.4.1 hereto.
"Existing Subsidiaries" means those entities listed on Schedule 1.2
hereto.
"First Offer Notice" as defined in subsection 9.2.2.1.
"First Offer Price" as defined in subsection 9.2.2.1.
"Initial Capital Contributions" as defined in Section 6.1.
"Interest" means, with respect to any Member at any time, the interest of
such Member in the Company at such time, including the right of such Member to
any and all of the benefits to which such Member may be entitled as provided in
this Agreement, together with the obligations of such Member to comply with all
of the terms and provisions of this Agreement.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York are authorized by law, regulation or
executive order to remain closed. If a date is a Legal Holiday, the date set for
any action hereunder shall be the next succeeding day that is not a Legal
Holiday.
"Liquidating Member" means the Managing Member; provided, however, if the
Managing Member's bankruptcy, withdrawal or liquidation shall have preceded the
liquidation of the Company, the Non-Managing Member shall be the Liquidating
Member.
"Managing Member" means Newco, and any successor to Newco appointed as
Managing Member in accordance with the provisions of this Agreement.
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"Member" or "Members" means, initially, the Persons identified as Members
in the preamble to this Agreement, and thereafter shall include any Person
admitted as a Substitute Member or an Additional Member.
"Necessary Costs" as defined in subsection 6.2.3.
"Net Capital Proceeds" means (i) the net cash proceeds arising out of the
refinancing or refunding of any Company indebtedness or any additional
indebtedness, and (ii) gross receipts (including condemnation and casualty
insurance proceeds) from the sale, exchange or other disposition (excluding
leasing in the ordinary course of business) of any Company assets, less (A) any
indebtedness relating to or secured by such assets which is paid out of such
gross receipts, (B) the costs and expenses of the sale, exchange or disposition
including brokerage commissions, and (C) in the case of condemnation or
casualty, the cost of any collection, repair or restoration.
"Net Operating Cash Flow" means, for any period, the excess of cash
receipts of all kinds for that period (including disbursements from reserves
previously established by the Managing Member) over cash disbursements of all
kinds for that period (including reasonable reserves established by the Managing
Member), but excluding Net Capital Proceeds.
"Non-Managing Member" means PAH, and any successor to PAH as permitted in
accordance with the terms of this Agreement.
"Offered Percentage Interest" as defined in subsection 9.2.2.1.
"Percentage Interest" means, with respect to each Member, the percentage
set forth below opposite its name, in each case, subject to adjustment as
provided in this Agreement:
Newco [ ]
PAH [the difference between 100% and Newco's interest]
Upon the making of any additional Capital Contribution each Member's Percentage
Interest shall thereafter be adjusted in accordance with Section 6.2.
"Permitted Transfer" means any Transfer expressly permitted by the terms
of this Agreement.
"Person" means any individual, partnership, limited partnership, trust,
estate, association, corporation, limited liability company, or other entity
whether domestic or foreign.
"Profits"and "Losses" means, for each fiscal year or other period, an
amount equal to the Company's taxable income or loss for such year or period,
determined in accordance with Code Section 703(a) (for this purpose, all items
of income, gain, loss or deduction required to
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be stated separately pursuant to Code Section 703(a)(1) shall be included in
taxable income or loss), with the following adjustments:
(a) any depreciation, amortization and/or cost recovery deductions
with respect to any asset shall be deemed to be equal to the Book
Depreciation available with respect to such asset;
(b) any income or gain of the Company that is exempt from federal
income tax and not otherwise taken into account in computing Profits or
Losses shall be added to such taxable income or loss;
(c) any expenditures of the Company described in Code Section
705(a)(2)(B) or treated as Code Section 705(a)(2)(B) expenditures pursuant
to Regulations Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into
account in computing Profits or Losses, shall be subtracted from such
taxable income or loss;
(d) to the extent an adjustment to the adjusted tax basis of any
Company asset pursuant to Section 734(b) or 743(b) of the Code is required
to be taken into account in determining Capital Accounts as a result of a
distribution other than in liquidation of a Member's Interest, the amount
of such adjustment shall be treated as an item of gain (if the adjustment
increases the basis of the asset) or loss (if the adjustment decreases the
basis of the asset) from the disposition of the asset and shall be taken
into account for purposes of computing Profits or Losses;
(e) in the event the Book Value of any Company asset is adjusted
pursuant to the definition of Book Value, the amount of such adjustment
shall be taken into account as gain or loss from the disposition of such
asset for purposes of computing Profits or Losses;
(f) gain or loss resulting from any disposition of property with
respect to which gain or loss is recognized for federal income tax
purposes shall be computed by reference to the Book Value of the property
disposed of, notwithstanding that the adjusted tax basis of such property
differs from its Book Value; and
(g) any items of income, gain, loss or deduction which are
individually specially allocated pursuant to the provisions of Section 7.2
shall not be taken into account in computing Profits and Losses for any
taxable year.
"Remaining Members" as defined in subsection 10.1.1.
"Required Funds" as defined in subsection 6.2.2.
"Securities Act" as defined in subsection 12.1.6.
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"Securities Laws" as defined in subsection 12.1.6.
"Special Tax Event" means a sale or transfer of all or part of a Member's
Percentage Interest that would cause PAH to recognize any of the "built-in
gain" with respect to its interests in the Company or the assets of the
Company.
"Substitute Member" as defined in Section 9.3.
"Tax Matters Member" as defined in Section 7.4.
"Transfer" as defined in subsection 9.1.1.
"Treasury Regulations" means the income tax regulations promulgated under
the Code, whether temporary, proposed or finalized, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
ARTICLE 2
FORMATION, DURATION AND PURPOSES
Section 2.1 Formation. Pursuant to the Delaware Limited Liability Company
Act, codified in the Delaware Code Annotated, Title 6, Sections 18-101 to
18-1109, as the same may be amended from time to time (the "Act"), the Members
have formed a limited liability company by filing the Certificate of Formation
with the Secretary of State of the State of Delaware. The rights and liabilities
of the Members, and the operation of the Company, shall be governed by and
determined pursuant to the Act and this Agreement. To the extent the rights and
obligations of any Member are different by reason of any provision of this
Agreement than they would be in the absence of such provision, this Agreement,
to the extent permitted by the Act, shall control.
Section 2.2 Name; Registered Agent and Registered Office. The name of the
Company, and the name under which the business of the Company shall be conducted
shall be [Interstate Hotels], LLC or such other name as hereafter may be adopted
by the Managing Member. The Registered Agent of the Company shall be
[Corporation Service Company], or such other Person as may be selected from time
to time by the Managing Member. The registered office of the Company shall be at
[1013 Centre Road, Wilmington, Delaware 19805].
Section 2.3 Principal Office. The principal place of business and office
of the Company shall be located c/o [______________________________], or at such
other place as may be determined by the Managing Member.
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Section 2.4 Purposes and Business.
2.4.1 The purpose and nature of the business of the Company shall
be:
(i) to directly or indirectly own, hold, manage, terminate,
extend, amend, amend and restate or otherwise modify, or renew
or replace (provided such renewal or replacement relates
solely to the hotels referenced in the Existing Contracts) the
Existing Contracts;
(ii) to own and hold ownership interests in the Existing
Subsidiaries of the Company for the purpose of causing said
subsidiaries to own, hold, manage, terminate, extend, amend,
amend and restate or otherwise modify, or renew or replace
(provided such renewal or replacement relates solely to the
hotels referenced in the Existing Subsidiary Contracts) the
Existing Subsidiary Contracts to which they are a party;
(iii) to exercise the rights and perform the obligations of
the Company and to cause the Existing Subsidiaries to exercise
their respective rights and perform their respective
obligations under and pursuant to the Existing Contracts,
including to act as managers and franchisees under such
Existing Contracts or any renewals or replacements thereof
with respect to the hotels referenced in such Existing
Contracts; and
(iv) to conduct all activities necessary or desirable to
accomplish the foregoing purposes, including, without
limitation, retaining such employees as the Managing Member
deems reasonably necessary.
2.4.2 The Company shall not:
(i) enter into or permit any Existing Subsidiary to enter
into any contract or agreement other than as permitted
under subsection 2.4.1;
(ii) enter into or permit any Existing Subsidiary to enter
into or conduct any business, other than as set forth
subsection 2.4.1;
(iii) create, acquire or retain any equity interest in any
legal entity, other than the Existing Subsidiaries; or
(iv) permit any Person other than the Company to have any
ownership interest in any Existing Subsidiary.
Section 2.5 Future Business. The Members acknowledge and agree that they
intend for all management and franchise activities, other than franchise or
management
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activities permitted under subsection 2.4.1 or relating to the hotels currently
managed under the Existing Contracts, to be conducted by Newco, as opposed to
the Company, and neither the Managing Member or the Non-Managing Member shall
have any obligation, fiduciary or otherwise, to offer or bring to the Company
any opportunities relating to any business activities not contemplated in
subsection 2.4.1. It is anticipated that all such opportunities not contemplated
by subsection 2.4.1 shall be transferred to Newco.
ARTICLE 3
RIGHTS AND OBLIGATIONS OF MEMBERS
Section 3.1 Limited Liability. Except as required under the Act or as
expressly set forth in this Agreement, the debts, obligations and liabilities of
the Company, whether arising in contract, tort or otherwise, will be solely the
debts, obligations and liabilities of the Company, and no Member will be
obligated personally for any debt, obligation or liability of the Company solely
by reason of being a member of the Company.
Section 3.2 Admission of Members. Newco and PAH are Members of the Company
and shall be shown as such on the books and records of the Company. Except as
expressly permitted by this Agreement, no other Person will be admitted as a
member of the Company, and no additional Interests will be issued, without the
approval of Newco and PAH.
Section 3.3 Bankruptcy of a Member. Except as provided in Section 10.1,
the Bankruptcy of any Member shall not cause a dissolution of the Company, and
the rights of such Member to share in the profits or losses of the Company and
to receive distributions of Company funds shall, on the happening of such event,
devolve on its successors or assigns, subject to the terms and conditions of
this Agreement, and the Company shall continue as a limited liability company.
However, in no event shall any such assignee become a substitute Member or
succeed to any right to vote or participate in the management of the business,
property and affairs of the Company or to exercise any rights of a Member,
unless such assignee shall otherwise be entitled to become a Substitute Member
under the terms of this Agreement..
Section 3.4 No Withdrawal. No Member may withdraw from the Company without
the prior consent of the other Members (which may be granted or withheld in the
sole discretion of such Members), other than as expressly provided in this
Agreement.
Section 3.5 Remuneration To Members. Except as expressly otherwise
authorized in, or pursuant to, this Agreement, no Member shall be entitled to
remuneration for acting in the Company business.
Section 3.6 Duties and Conflicts. Notwithstanding anything to the contrary
contained in this Agreement, (i) each Member recognizes that the other Member
and its Affiliates have or may have other business interests, activities and
investments, some of which may be in conflict or competition with the business
of the Company, and that such Persons are
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entitled to carry on such other business interests, activities and investments;
(ii) the Members and their Affiliates may engage in or possess an interest in
any other business or venture of any kind, independently or with others, on
their own behalf or on behalf of other entities with which they are affiliated
or associated, and such Persons may engage in any activities, whether or not
competitive with the Company, without any obligation to offer any interest in
such activities to the Company or to any Member; and (iii) neither the Company
nor any Member shall have any right, by virtue of this Agreement, in or to such
activities, or the income or profits derived therefrom, and the pursuit of such
activities, even if competitive with the business of the Company, shall not be
deemed wrongful or improper.
ARTICLE 4
MANAGEMENT
Section 4.1 Management by the Managing Member; Members.
4.1.1 Management by the Managing Member. The overall management and
control of the business and affairs of the Company shall be overseen by
the Managing Member, in the form and manner described below. Except as
otherwise expressly provided in this Agreement, the Managing Member shall
have the exclusive power and authority to take such action for and on
behalf of the Company as the Managing Member shall from time to time deem
necessary or appropriate to carry on the Company business and to carry out
the purposes for which the Company was organized. The Managing Member
shall in good faith use reasonable efforts to extend or renew the Existing
Contracts with the respective third party owners and shall cause the
Existing Subsidiaries to use good faith efforts to extend or renew the
Existing Subsidiary Contracts with the respective third party owners, in
each case upon the expiration thereof, and shall not allow or cause,
directly or indirectly, Newco or any other affiliate of Newco (other than
the Company) to become the Manager of the hotels currently managed under
the Existing Contracts.
4.1.2 Involvement in Company Business. The Managing Member shall
devote such time to the Company business as it deems to be necessary or
desirable in connection with its respective duties and responsibilities
hereunder.
4.1.3 Limitations on Powers of the Members. Notwithstanding the
foregoing provisions of this Section 4.1 or any other provision of this
Agreement to the contrary, the Members shall not be empowered to, and
shall not (i) undertake any act in violation of this Agreement; (ii)
possess or take title to any assets of the Company; or (iii) take any
action that makes it illegal or impossible for the Company to carry on its
business.
Section 4.2 Bank Accounts. The Managing Member shall open and thereafter
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maintain, for the Company, a commercial checking account and such other accounts
at one or more banks or trust companies organized and existing under the laws of
the United States or any state thereof, each having combined capital and surplus
aggregating at least $500,000,000 and none of which is an Affiliate of any
Member, which accounts shall be interest bearing to the extent practicable. All
funds of the Company shall be promptly deposited in said accounts.
Section 4.3 Liability; Indemnification. Except as set forth in Section
4.4, no Member (including the Managing Member) shall be liable to the Company or
any Member for any act or omission by it in the conduct of its duties as a
Managing Member or Member, as the case may be, which is within the scope of such
Person's authority hereunder and which is performed or omitted in good faith and
without gross negligence or willful misconduct on its part. The Company shall
indemnify, defend and hold harmless each such Person and their respective
Affiliates and agents from and against any personal liability, claim, loss,
damage, cost or expenses, including attorneys' fees and expenses, incurred or
sustained by such Person or such Affiliate or agent by reason of any act or
omission by it which is within the scope of its authority hereunder and which is
performed or omitted in good faith and without gross negligence or willful
misconduct on its part. The indemnification provided under this Section 4.3
shall be in addition to, and shall not limit or diminish, the coverage of any
such Person or Affiliate or agent under any insurance covering the Company. The
provisions of this Section 4.3 shall survive any termination of the Company or
this Agreement.
Section 4.4 Limitations on Sale of Assets; Indemnification.
4.4.1 The Members acknowledge that if any or all of the Existing Contracts
or other assets of the Company were sold or otherwise transferred or
disposed of by the Company, or if the Company were merged with or
acquired by another entity or otherwise engaged in a corporate
transaction in which taxable gain could be recognized in whole or in
part, PAH would suffer significant adverse tax consequences. The
Members also acknowledge that the stock of PAH is held by an entity
that is a "real estate investment trust" for Federal income tax
purposes (a "REIT") that must comply with certain requirements to
continue to qualify as a REIT, including proposed legislation
affecting the operations and activities of "stapled" REITs entitled
to grandfathering relief under Section 269B of the Code.
Accordingly, without the prior written consent of PAH, the Company
shall not, and the Managing Member shall cause the Company not to,
(i) sell or otherwise dispose of any of the Existing Contracts or
other assets of the Company or the Existing Subsidiaries (except for
sale or disposals of the Existing Contracts or other assets pursuant
to the performance of obligations of the Company which are required
(as distinguished from permitted) under the Existing Contracts),
(ii) merge with, be acquired by or enter into a corporate
acquisition or reorganization transaction with any other person or
entity, or to allow any of the Existing Subsidiaries to merge with,
be acquired by or enter into a corporate acquisition or
reorganization transaction with any other person or entity, (iii)
knowingly cause PAH to recognize any of the "built-in gain" with
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respect to its interest in the Company or the Company's assets, (iv)
acquire any real property or other interests in real estate
(including leasehold interests), or acquire interests in, or
substantially all of the assets of, any other person or entity
(other than the Existing Subsidiaries), or to allow any of the
Existing Subsidiaries to acquire any real property or other
interests in real estate, or acquire interests in, or substantially
all of the assets of, any other person or entity (including
leasehold interests) or (v) change the nature of the Company's
business, or allow any of the Existing Subsidiaries to change the
nature of any of the Existing Subsidiaries' business, in a manner
not contemplated by this Agreement.
4.4.2 The Company and the Managing Member, jointly and severally, hereby
indemnify and hold harmless PAH, its shareholders, officers,
directors, agents and other indirect owners from and against any
personal liability, claim, loss, damage, cost or expenses, including
attorneys' fees and expenses, incurred or sustained by any breach of
the obligations set forth in subsections 4.4.1(i) through
4.4.1(iii), including the amount of any such adverse tax
consequences.
Section 4.5 Allocation of Costs and Expenses. The Company and Newco
acknowledge that certain employees, equipment and services may be provided by
the Company for the benefit of Newco (including any subsidiary of Newco, other
than the Company), or vice versa. All costs and expenses relating to services
provided by one party for, in whole or in part, the benefit of the other (the
"Shared Expenses") shall be allocated between the Company and Newco, based on
generally accepted accounting principles consistently applied, on the basis of
which party benefited from the expenditure of such Shared Expenses. To the
extent the allocation of any Shared Expenses cannot be fairly or equitably
apportioned (including general and administrative expenses), the Company and
Newco shall allocate Shared Expenses based on respective gross revenues so that
each party's profit margins are substantially the same for similar services. The
Managing Member and the Non-Managing Member may mutually agree to apportion
Shared Expenses between the Company and Newco other than as set forth above.
ARTICLE 5
BOOKS AND RECORDS
Section 5.1 Books and Records. The Managing Member shall maintain or cause
to be maintained, at the expense of the Company, in a manner customary and
consistent with good accounting principles, practices and procedures, a
comprehensive system of office records, books and accounts (which records, books
and accounts shall be and remain the property of the Company) in which shall be
entered fully and accurately each and every financial transaction with respect
to the operations of the Company. Bills, receipts and vouchers shall be
maintained on file by the Company. The Managing Member shall maintain or caused
to be maintained said books and accounts in a safe manner and separate from any
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records not having to do directly with the Company. The Managing Member shall
cause audits to be performed and audited financial statements and income tax
returns to be prepared as it deems necessary. Such books and records of account
shall be prepared and maintained by the Managing Member at a location or
locations designated by the Managing Member. Each Member or its duly authorized
representative shall have the right to inspect, examine and copy such books and
records of account at the Company's office during reasonable business hours.
Section 5.2 Accounting and Fiscal Year. The books of the Company shall be
kept on the accrual basis and the Company shall report its operations for tax
purposes on the accrual method. The taxable year of the Company shall end on
December 31 of each year, unless a different taxable year shall be required by
the Code.
Section 5.3 Reports.
5.3.1 The Managing Member shall prepare, or cause to be prepared, at
Company expense, the financial reports and other information, including,
without limitation, audited financial statements, that the Managing Member
may determine are appropriate. The Managing Member shall prepare or cause
to be prepared at the expense of the Company and furnished to each of the
Members the following:
5.3.1.1 Within sixty (60) calendar days after the close of
each calendar year of the Company, audited financial statements,
including, without limitation, related notes to financial statements, a
balance sheet of the Company dated as of the end of the calendar year, a
related statement of income and expense, a statement of cash flow and a
statement of changes in Members' capital for the Company for the calendar
year and information for the calendar year as to the balance in each
Member's Capital Account, and all other information deemed reasonably
necessary by the Managing Member, certified to by the an independent
accounting firm as being, to the best of its knowledge, true and correct
and prepared in accordance with generally accepted accounting principles
applied on a consistent basis, and all of which shall otherwise be
certified in such manner as is customary;
5.3.1.2 Within twenty (20) calendar days after the close of
each calendar quarter of the Company (other than the last calendar quarter
in any calendar year), a balance sheet of the Company dated as of the end
of the calendar quarter, a related statement of income and expense, a
statement of cash flow and a statement of changes in Members' capital for
the calendar quarter and information for the calendar quarter as to the
balance in each Member's Capital Account, and all other information,
including a market update, as is deemed reasonable by the Managing Member,
all of which shall be certified to by the Person preparing or responsible
for preparing such statements as being, to the best of its knowledge, true
and correct;
5.3.1.3 Within twenty (20) calendar days after the end of
each calendar month, an income statement (with budget variance
explanations) and
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statement of cash flow; and
5.3.1.4 Promptly after the end of each calendar year the
Managing Member will use its best efforts to have the Company Accountant
prepare and deliver to each Member a report setting forth in sufficient
detail all such information and data with respect to business transactions
effected by or involving the Company during the calendar year as will
enable the Company and each Member to timely prepare its federal, state
and local income tax returns in accordance with the laws, rules and
regulations then prevailing. The Managing Member will use its reasonable
efforts to have the Company Accountant also prepare federal, state and
local tax returns required of the Company and submit those returns to the
Company for its approval no later than 30 calendar days prior to the date
required for the filing thereof (including any extensions granted) and
will file the tax returns after they have been approved by the Managing
Member. In the event the Managing Member shall not desire or be able to
approve any such tax return prior to the date required for the filing
thereof (including any extensions granted), the Company will timely obtain
an extension of such date if such extension is available under applicable
law. In all cases, tax returns shall be prepared and filed in accordance
with applicable law.
5.3.2 All decisions as to accounting principles shall be made by the
Managing Member subject to the provisions of this Agreement.
Section 5.4 The Company Accountant. The Company shall retain as the
regular accountant and auditor for the Company (the "Company Accountant") a
nationally-recognized accounting firm or any other accounting firm acceptable to
the Managing Member in its sole discretion. The fees and expenses of the Company
Accountant shall be a Company expense.
ARTICLE 6
CONTRIBUTIONS
Section 6.1 Initial Capital Contributions. The "Initial Capital
Contributions" of the Members and initial Capital Account balances shall be as
described on Schedule 1.1 attached hereto.
Section 6.2 Additional Capital Contributions.
6.2.1 Except as otherwise provided herein, no Member shall be
obligated to make any additional contributions of capital (all
contributions of capital to the Company, including the Initial Capital
Contributions, "Capital Contributions") to the Company (including upon
dissolution and liquidation of the Company). Upon the
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making of any additional Capital Contributions, each Member's Percentage
Interest shall thereafter be equal to the ratio, expressed as a
percentage, equal to the aggregate Capital Contributions made by such
Member divided by the aggregate Capital Contributions made by all Members
to the Company.
6.2.2 The Managing Member shall monitor the finances of the Company
in an attempt to determine whether or not, and when, the cash receipts of
the Company are insufficient to pay all costs and expenses of the Company
(such costs and expenses, the "Necessary Costs"). Prior to the Managing
Member contributing any capital to the Company (other than the Managing
Member's Initial Capital Contribution), the Managing Member shall issue
capital calls to the Members to fund shortfalls related to the Company
(the "Capital Call Notice"). Such Capital Call Notice shall set forth the
amount of the required funds (the "Required Funds") and a list of
Necessary Costs, and shall specify a date (the "Capital Call Due Date")
for contribution of such funds. Upon receipt of the Capital Call Notice,
the Non-Managing Member shall have the right, but not the obligation, be
required to fund its proportionate share (based on its respective
Percentage Interest) of the total funds specified in the Capital Call
Notice. The Capital Call Due Date shall be at least thirty (30) days after
receipt of the Capital Call Notice unless a shorter time is agreed to by
the Non-Managing Member. All additional Capital Contributions shall be
made by wire transfer of immediately available funds to an account of the
Company.
6.2.3 To the extent the Non-Managing Member elects not to fund its
proportional share of the Required Funds, the Managing Member shall have
the right, but not the obligation, to contribute the unfunded amount to
the Company. Should the Managing Member elect to fund such amount, then
the Members' Percentage Interests will be adjusted as described in
subsection 6.2.1.
Section 6.3 No Third Party Beneficiary. The provisions hereof are intended
for the benefit of the Members and the Company only and shall not confer any
right or claim upon, or otherwise inure to the benefit of, any officer or
creditor of, or other third party having dealings with, the Company.
Section 6.4 Capital Accounts. A Capital Account shall be maintained for
each Member. Initially, the Capital Account of each Member shall be credited
with the amounts referred to in Schedule 1.1. Thereafter, each Member's Capital
Account shall be credited with such Member's share of Profits, any individual
items of income and gain allocated to such Member pursuant to the provisions of
Article 7, the amount of additional cash, and the Book Value of any asset (net
of any liabilities assumed by the Company and liabilities to which the asset is
subject), contributed to the Company by such Member (an "Additional Capital
Contribution"), and shall be debited with the Member's share of Losses, any
individual items of deduction and loss allocated to such Member pursuant to the
provisions of Article 7, the amount of any cash distributed to such Member and
the Book Value of any asset distributed to such Member (net of any liabilities
assumed by the Member and liabilities to which the asset is
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subject). In the event that all or a portion of an interest in the Company is
transferred in accordance with the terms of this Agreement, the transferee shall
succeed to the Capital Account of the transferor to the extent it related to the
transferred interest.
Section 6.5 Withdrawal of Capital. Except as provided herein, (i) no
Member shall be entitled to withdraw any part of its Capital Account, (ii) no
Member shall be entitled to receive any interest on its Capital Account or
distributions from the Company, and (iii) no Member shall be entitled to demand
or receive any property from the Company other than cash.
Section 6.6 Negative Capital Accounts. In no event shall any Member be
obligated to make any capital contribution to the Company solely as a result of
the existence at any time of a negative Capital Account balance for such Member.
ARTICLE 7
ALLOCATION OF PROFITS AND LOSSES; TAX MATTERS
Section 7.1 Profits and Losses. Profits and Losses for each fiscal year of
the Company shall allocated to the Members in accordance with their respective
Percentage Interests as determined from time to time. The Percentage Interests
of the Members shall be appropriately adjusted to reflect any disproportionate
contribution made by one or more of the Members.
Section 7.2 Regulatory Allocations.
7.2.1 Notwithstanding subsection 7.1, the following special
allocations shall be made each taxable year, to the extent required, in the
following order:
(i) Minimum Gain Chargebacks and Qualified Income Offset. Items of
Company income and gain shall be allocated to the extent of,
and in an amount sufficient to satisfy, the "minimum gain
chargeback" requirements of Treasury Regulations Section
1.704-2(f) and (i)(4) and the "qualified income offset"
requirement of Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(3).
(ii) Nonrecourse and Partner Nonrecourse Deductions. "Nonrecourse
deductions" of the Company (within the meaning of Treasury
Regulations Section 1.704-2(b)(1)) shall be allocated among
the Members in proportion to their respective Percentage
Interests. "Partner nonrecourse deductions" (within the
meaning of Treasury Regulations Section 1.704-2(i)) shall be
allocated to the Member who
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bears the economic risk of loss associated with such
deductions, in accordance with Treasury Regulations Section
1.704-2(i).
(iii) Any Other Allocations of Items Which Cannot Have Economic
Effect. Unless otherwise required by Code Section 704(b) or
the Treasury Regulations promulgated thereunder or otherwise
provided in this subsection 7.2.2, any allocations of Company
items of income, gain, loss, deduction or credit that cannot
have "economic effect" (within the meaning of Treasury
Regulations Section 1.704-1 and 1.704-2) shall be allocated
among the Members in proportion to their respective Percentage
Interests.
Section 7.3 Tax Allocations. The Company's ordinary income and losses and
capital gain as determined for tax purposes (and each item of income, gain, loss
or deduction entering into the computation thereof) shall be allocated to the
Members in the same proportions as the corresponding "book" items are allocated
pursuant to Sections 7.1 and 7.2 of this Agreement. Notwithstanding the
foregoing, tax items relating to property with an adjusted tax basis that is
different from its Book Value shall be allocated among the Members in accordance
with Section 704(c) of the Code and the Treasury Regulations issued thereunder.
Items described in this Section 7.3 shall neither be credited nor charged to the
Member's Capital Accounts.
Section 7.4 Tax Matters Member. The Managing Member is hereby designated
as the "Tax Matters Member" for the Company (as such term is defined in Section
6231(a)(7) of the Code), and all federal, state and local tax audits and
litigation shall be conducted under the direction of the Tax Matters Member. Any
action taken by the Tax Matters Member shall be made as a fiduciary with respect
to the interests of all Members notwithstanding any other provision contained
herein.
Section 7.5 Tax Elections. All elections required or permitted to be made
by the Code or other applicable tax laws, and all material decisions with
respect to the calculation of taxable income or tax loss under the Code or any
other applicable tax laws, shall be made by the Tax Matters Member; provided
that the Tax Matters Member shall consult with and obtain the consent of the
other Member(s) (such consent not to be unreasonably withheld) to the extent
that any such election or decision could adversely impact the other Member(s).
ARTICLE 8
DISTRIBUTIONS
Section 8.1 Cash Available for Distributions.
8.1.1 At such times as are determined by the Managing Member (but no
less frequently than quarterly), the Company shall make a distribution of
Net Operating
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Cash Flow of the Company (to the extent positive). Net Operating Cash Flow
distributions shall be made pro rata to the Members, in accordance with
their Percentage Interests.
8.1.2 Except upon the liquidation of the Company (in which event Net
Capital Proceeds shall be distributed pursuant to Section 10.2) any Net
Capital Proceeds shall be distributed within thirty (30) days following
receipt by the Company to the Members pro rata to the Members, in
accordance with their Percentage Interests.
8.1.3 Except as provided in subsection 8.1.1 and subsection 8.1.2
above, no portion of any capital contribution made by any Member to the
Company may be withdrawn or distributed at any time.
8.1.4 If the Percentage Interests of the Members are adjusted
effective at any time or times during any fiscal year of the Company, all
distributions of cash made to the Members during such fiscal year (without
regard to the actual timing of such distributions) shall be allocated to
each portion of such fiscal year during which different Percentage
Interests are in effect in the proportion that the number of days in such
portion bears to the total number of days in such fiscal year except with
respect to Net Capital Proceeds, in which case such proceeds shall be
distributed in accordance with the Percentage Interests on the date of the
applicable transaction. The amounts so allocated to each such portion of
said fiscal year shall be divided among the Members in proportion to their
respective Percentage Interests in effect during each such portion of the
fiscal year in question. Such allocations to such portions of a fiscal
year, and the adjustments, if any, of such cash distributions made during
such year, shall be determined with reasonable promptness after the close
of each such fiscal year by the Company's accountant. The Members will
promptly make any adjusting payments between them as may be required in
order to effect any adjustments of such cash distributions as determined
by the Company Accountant.
ARTICLE 9
TRANSFER
Section 9.1 No Transfer of Interests.
9.1.1 Except as expressly permitted or contemplated by this
Agreement, no Member may sell, assign, give, hypothecate, pledge, encumber
or otherwise transfer ("Transfer") all or any portion of its Interest,
whether directly or indirectly, without the written consent of the other
Members.
9.1.2 Any Transfer by a Member of its Interest in contravention of
this Article 9 shall be null and void. No Member shall withdraw from the
Company except in connection with a Permitted Transfer or in accordance
with Section 3.4.
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Section 9.2 Permitted Transfers of Interests; Right of First Offer.
9.2.1 The Non-Managing Member, from time to time and in its sole
discretion, without the consent of the Managing Member, may Transfer its
Interest in whole, or in part, to any party, provided such transferee
agrees to be bound by all the terms, conditions and provisions of this
Agreement (including the provisions of this Article 9). Any Transfer of
the Non-Managing Member's Interest to a third party shall be deemed a
Permitted Transfer, and if such transferee acquires all of the
Non-Managing Member's Interest, such transferee shall be admitted as a
Substitute Member pursuant to Section 9.3. If the Non-Managing Member
elects to sell its interest to the Managing
9.2.2 Notwithstanding the foregoing, if a transfer of all or part of
the Non-Managing Member's Interest would result in a Special Tax Event,
the following procedures shall apply:
9.2.2.1 The Non-Managing Member shall, prior to any transfer
permitted under subsection 9.2.1, offer in writing (the "First Offer
Notice") to sell to the Managing Member all or any part of its
Percentage Interest (the "Offered Percentage Interest"). The
Managing Member shall notify the Non-Managing Member within fifteen
(15) Business Days of receipt of the First Offer Notice that the
Managing Member either: a) is willing to purchase the Offered
Percentage Interest at a given price (the "First Offer Price"), or
b) is unwilling to purchase the Offered Percentage Interest. A
failure to respond to a First Offer Notice within such fifteen (15)
Business Day period shall be deemed to be an election not to
purchase the Percentage Interest.
9.2.2.2 If the Managing Member has timely offered elected to
purchase the Percentage Interest specified in the First Offer Notice, then
the Non-Managing Member may: a) sell the Offered Percentage Interest to
the Managing Member at the First Offer Price (which, the sale shall be
without recourse, representation or warranty, except that the Non-Managing
Member shall represent and warrant that it has authority to sell, and owns
the Interest free and clear of liens or claims of third parties) or b)
elect to market and sell the Offered Percentage Interest to third parties
within 180 days of receiving the First Offer Price at a price not less
than ninety-eight percent (98%) of the First Offer Price. If the
Non-Managing Member does not transfer its interest within such 180 day
period, then prior to any transfer which would result in a Special Tax
Event, the Non-Managing Member shall again comply with the terms of this
subsection 9.2.2.
9.2.3 Any Permitted Transfer shall not relieve the transferor of any
of its obligations prior to such Transfer. Nothing contained in this
Article 9 shall prohibit a Transfer indirectly of a Member's Interest in
the Company if a direct Transfer would
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otherwise be permitted under this Section 9.2. Subject to Section 9.3, any
transferee of a direct Interest pursuant to this Section 9.2 shall become
a Substitute Member of the Company. Each Member and its permitted
transferees shall be treated as one Member for all purposes of this
Agreement. The provisions of this Section 9.2 will not apply to or be
deemed to authorize or permit any collateral transfer of, or grant of a
security interest in, a Member's interest in the Company or in any asset
of the Company (which transfer or grant shall be subject to the other
provisions of this Agreement).
Section 9.3 Transferees. Notwithstanding anything to the contrary
contained in this Agreement, no transfer of all or any part of any Interest
shall be made if, as a result thereof, any income of the Company will be subject
to corporate federal income tax. No transferee of all or any portion of any
Interest shall be admitted as a Member unless such Interest is transferred in
compliance with the applicable provisions of this Agreement, such transferee
shall have furnished evidence of satisfaction of the requirements of Section 9.2
reasonably satisfactory to the remaining Members, and such transferee shall have
executed and delivered to the Company such instruments necessary to effectuate
the admission of such transferee as a Member and to confirm the agreement of
such transferee to be bound by all of the terms and provisions of this Agreement
with respect to such Interest. At the request of the remaining Members prior to
such transfer, each such transferee shall also cause to be delivered to the
Company, at the transferee's sole cost and expense, a favorable opinion of legal
counsel reasonably acceptable to the Company, to the effect that such transferee
has the legal right, power and capacity to own the Interest proposed to be
transferred. As promptly as practicable after the admission of any Person as a
Member, the books and records of the Company shall be changed to reflect such
admission. Upon satisfaction of the requirements of this Section 9.3 and any
other applicable provisions of this Agreement), such transferee shall be a
substitute Member (a "Substitute Member") of the Company. All reasonable costs
and expenses incurred by the Company in connection with any Transfer of any
Interest and, if applicable, the admission of any transferee as a Member shall
be paid by such transferee.
Section 9.4 Admission of Additional Members.
9.4.1 No person may be admitted as an additional Member of the
Company (in contrast with admission as a Substitute Member in connection
with a Permitted Transfer) without the prior written consent of the
Members.
9.4.2 Any additional Member admitted to the Company shall execute
and deliver documentation in form satisfactory to the Managing Member or
the Members, as the case may be, accepting and agreeing to be bound by
this Agreement, and such other documentation as the Managing Member or the
Members, as the case may be, shall require in order to effect such
person's admission as an additional Member. The admission of any person as
an additional Member (an "Additional Member") shall become effective as of
the date upon which the name of such person is recorded on the books and
records of the Company following the consent of the Managing Member or
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the Members, as the case may be, to such admission.
ARTICLE 10
TERMINATION
Section 10.1 Dissolution. The Company shall be dissolved and its business
wound up upon the happening of any of the following events, whichever shall
first occur:
10.1.1 the Bankruptcy of any Member, if within ninety (90) days
thereafter a majority in interest of the remaining Members (the "Remaining
Members") shall not have elected to continue the Company, which right of
election is hereby granted to them;
10.1.2 entry of a decree of judicial dissolution of the Company; or
10.1.3 the termination of all of the Existing Contracts and any
renewals or replacements thereof entered into in accordance with
subsection 2.4.1.
In no event shall the Company dissolve prior to the occurrence of one of the
events set forth above.
Section 10.2 Termination. In cases of dissolution of the Company, the
business of the Company shall be wound up and the Company terminated (and the
Company shall cause the Existing Subsidiaries to be wound up and the business of
the Existing Subsidiaries to be terminated) as promptly as practicable
thereafter, and each of the following shall be accomplished:
10.2.1 The Liquidating Member shall cause to be prepared a statement
setting forth the assets and liabilities of the Company (as consolidated
with the Existing Subsidiaries) as of the date of dissolution, a copy of
which statement shall be furnished to all of the Members.
10.2.2 The property and assets of the Company (including those held
by the Existing Subsidiaries) shall be liquidated by the Liquidating
Member as promptly as possible, but in an orderly and businesslike and
commercially reasonable manner. The Liquidating Member may, in the
exercise of its business judgment and if commercially reasonable,
determine not to sell all or any portion of the property and assets of the
Company, in which event such property and assets shall be distributed in
kind pursuant to subsection 10.2.4 below.
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10.2.3 Any income, gain, profit or loss realized by the Company upon
the sale or other disposition of its property pursuant to subsection
10.2.2 shall be allocated to the Members as and to the extent required by
Article 7 hereof.
10.2.4 The proceeds of sale and all other assets of the Company
shall be applied and distributed as follows and in the following order of
priority:
(i) To the payment of the Company's outstanding liabilities, which
shall be set forth on a statement as provided in subsection
10.2.1.
(ii) To the setting up of any reserves which the Liquidating Member
shall determine to be reasonably necessary for contingent,
unliquidated or unforseen liabilities or obligations of the
Company or the Members arising out of or in connection with
the Company. Such reserves, may, in the discretion of the
Liquidating Member, be paid over to a national bank or
national title with the Company as escrowee for the purposes
of disbursing such reserves to satisfy the liabilities and
obligations described above, and at the expiration of such
period as the Liquidating Member may reasonably deem
advisable, distribute any remaining balance in the manner set
forth below.
(iii) To each Member in accordance with their respective capital
account balances.
No payment or distribution in any of the foregoing categories shall be
made until all payments in each prior category shall have been made in
full. If the payments due to be made in any of the foregoing categories
exceed the remaining assets available for such purpose, such payment shall
be made to the Persons entitled to receive the same pro rata in accordance
with the respective amount due to each such Person. Payments described in
clause (ii) above may be made in cash or in assets of the Company in kind.
Any asset distributed in kind shall be distributed pro-rata unless the
Members otherwise agree in writing and shall be valued at its fair market
value and for all purposes of this Agreement shall be treated as if such
asset had been sold at such value and the net cash proceeds therefrom
distributed to the Members. Without limiting the foregoing, with respect
to any assets distributed in kind, there shall be a calculation of the
amount of income, gain, profit or loss that would have been realized by
the Company with respect to such assets if such assets had been sold at
fair market value.
Section 10.3 Acts in Furtherance of Liquidation. Each Member, upon the
request of the Liquidating Member, shall promptly execute, acknowledge and
deliver all documents and other instruments as the Liquidating Member shall
reasonably request to effectuate the proper dissolution and termination of the
Company, including the winding up of the business of the Company.
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ARTICLE 11
INTENTIONALLY RESERVED
[Reserved]
ARTICLE 12
GENERAL PROVISIONS
Section 12.1 Covenants, Representations and Warranties of the Members.
Each Member represents and warrants to the other Members as follows:
12.1.1 It is duly organized, validly existing and in good standing
under the laws of its jurisdiction of formation with all requisite power
and authority to enter into this Agreement.
12.1.2 This Agreement constitutes the legal, valid and binding
obligation of the Member enforceable in accordance with its terms, subject
to the application of principles of equity and laws governing insolvency
and creditors' rights generally.
12.1.3 No consents or approvals are required from any governmental
authority or other Person for the Member to enter into this Agreement. All
limited liability company, corporate or partnership action on the part of
the Member necessary for the authorization, execution and delivery of this
Agreement, and the consummation of the transactions contemplated under
this Agreement, have been duly taken.
12.1.4 The execution and delivery of this Agreement by the Member,
and the consummation of the transactions contemplated under this
Agreement, do not conflict with or contravene the provision of the
Member's organizational documents or any agreement or instrument by which
it or its properties are bound or any law, rule, regulations, order or
decree to which it or its properties are subject.
12.1.5 No Member has retained any broker, finder or other commission
or fee agent, and no such person has acted on its behalf in connection
with the execution and delivery of this Agreement.
12.1.6 Each Member is acquiring its interest in the Company for
investment, solely for its own account, with the intention of holding such
interest for investment and not with a view to, or for resale in
connection with, any distribution or public offering or resale of any
portion of such interest within the meaning of the Securities Act of 1933
(the "Securities Act") or any other applicable federal or state securities
law, rule or regulation ("Securities Laws").
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12.1.7 Each Member acknowledges that it is aware that its interest
in the Company has not been registered under the Securities Act or under
any other Securities Law in reliance upon exemption contained therein.
Each Member understands and acknowledges that its representations and
warranties contained herein are being relied upon by the Company, the
other Members and the constituent owners of such other Members as the
basis for exemption of the issuance of interest in the Company from
registration requirements of the Securities Act and other Securities Laws.
Each Member acknowledges that the Company will not and has no obligation
to register any interest in the Company under the Securities Act or other
Securities Laws.
12.1.8 Each Member acknowledges that prior to its execution of this
Agreement, it received a copy of this Agreement and that it examined this
document or caused this document to be examined by its representative or
attorney. Each Member further acknowledges that it or its representative
or attorney is familiar with this Agreement, and with the business and
affairs of the Company, and that except as otherwise specifically provided
in this Agreement, it does not desire any further information or data
relating to the Company, the Assets or the other Members. Each Member
acknowledges that it understand that the acquisition of its interest in
the Company is a speculative investment involving a high degree of risks
and represents that it has a net worth sufficient to bear the economic
risk of its investment in the Company and to justify its investing in a
highly speculative Company of this type.
Section 12.2 Notices. All notices, demands, approvals, consents or
requests provided for or permitted to be given pursuant to this Agreement must
be in writing.
12.2.1 All notices, demands, approvals, consents and requests to be
sent to the Company pursuant to the terms hereof shall be deemed to have
been properly given or served by personal delivery or by a nationally
recognized overnight courier or by registered or certified mail, return
receipt requested, postage prepaid and addressed as follows:
If to the Company:
c/o [Newco]
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With a copy to:
[NEWCO]
With a copy to:
[PAH]
If to Newco:
[Newco]
If to PAH:
[PAH]
12.2.2 All notices, demands and requests shall be effective upon
personal delivery or upon the date of receipt by the addressee as shown on
the return receipt or upon the date of acknowledgment or confirmation of
receipt with respect to delivery by or nationally recognized overnight
courier. Rejection or other refusal to accept or the inability to deliver
because of changed address of which no notice was given shall be deemed to
be receipt of the notice, demand or request sent.
12.2.3 By giving to the other parties at least ten (10) days prior
written notice thereof, the parties hereto and their respective successors
and assigns shall have the right from time to time and at any time during
the term of this Agreement to change their respective addresses.
Section 12.3 Governing Laws; Jurisdiction; Venue.
12.3.1 Governing Laws. This Agreement and the obligations of the
Members hereunder shall be interpreted, construed and enforced in
accordance with the laws of the State of Delaware without regard to
conflicts of law principles.
12.3.2 Jurisdiction; Venue. Each of the Members hereby irrevocably
submits to the exclusive jurisdiction of any state court located in the
City of Wilmington, Delaware and any federal court in the State of
Delaware and any other court with jurisdiction to hear appeals from such
courts for the purposes of any suit, action or other proceeding of any
type whatsoever arising out of this Agreement or the subject matter
hereof, and to the extent permitted by applicable law, hereby waives, and
agrees not to assert, by way of motion, as a defense, or otherwise, in any
such suit, action or proceeding
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any claim that it is not personally subject to the jurisdiction of the
above-named courts, that the suit, action or proceeding is brought in an
inconvenient forum, that the venue of the suit, action or proceeding is
improper or that this Agreement or the subject matter hereof may not be
enforced in or by such court.
Section 12.4 Entire Agreement. This Agreement contains the entire
agreement between the parties hereto relative to the formation and operation of
the Company. No variations, modifications, or changes herein or hereof shall be
binding upon any party hereto unless set forth in a document duly executed by or
on behalf of such party.
Section 12.5 Waiver. No consent or waiver, express or implied, by any
Member to or of any breach or default by any other Member in the performance by
the other Member of its obligations hereunder shall be deemed or construed to be
a consent or waiver to or of any other breach or default in the performance by
such other Member of the same or any other obligations of such other Member
hereunder. Failure on the part of any Member to complain of any act or failure
to act of any of the other Members or to declare any of the other Members in
default, irrespective of how long such failure continues, shall not constitute a
waiver by such Member of its rights hereunder.
Section 12.6 Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance shall be invalid or
enforceable to any extent, the remainder of this Agreement and the application
of such provisions to other Persons or circumstances shall not be affected
thereby and shall be enforced to the greatest extent permitted by law.
Section 12.7 Terminology. All personal pronouns used in this Agreement,
whether used in the masculine, feminine, or neuter gender, shall include all
other genders; the singular shall include the plural, and vice versa and shall
refer solely to the parties signatory thereto except where otherwise
specifically provided. Titles of Articles and Sections are for convenience only,
and neither limit nor amplify the provisions of the Agreement itself, and all
references herein to Articles, Sections or subdivisions thereof shall refer to
the corresponding Articles, Sections or subdivisions thereof of this Agreement
unless specific reference is made to such Articles, Sections or subdivisions of
another document or instrument. Any use of the word "including" herein shall,
unless the context clearly requires otherwise, be deemed to mean "including
without limitation."
Section 12.8 Action by the Members. No approval, consent, designation or
other action by a Member shall be binding upon such Member unless the same is in
writing and executed on behalf of such Member by a duly authorized
representative of such Member.
Section 12.9 Amendments. No change, modification or amendment of this
Agreement shall be valid or binding unless such change, modification or
amendment shall be in writing and duly executed by all of the Members.
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Section 12.10 Binding Agreement. Subject to the restrictions on transfers
and encumbrances set forth herein, this Agreement shall inure to the benefit of
and be binding upon the undersigned Members and their respective heirs,
executors, legal representatives, successors and assigns. Whenever, in this
instrument, a reference to any party or Member is made, such reference shall be
deemed to include a reference to the heirs, executors, legal representatives,
successors and assigns of such party or Member.
Section 12.11 Further Assurances. Each of the Members shall hereafter
execute and deliver such further instruments and do such further acts and things
as may be reasonably necessary to carry out the intent and purpose of this
Agreement and as are not inconsistent with the terms hereof.
[The Remainder of This Page Has Been Intentionally Left Blank]
27
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IN WITNESS WHEREOF, this Agreement is executed effective as of the date
first set forth above.
NEWCO
a Maryland corporation
By: ________________________
Name:
Title:
PAH-INTERSTATE HOLDINGS, INC.
a Delaware corporation
By: ____________________________
Name:
Title:
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SCHEDULE 1.1
INITIAL CAPITAL ACCOUNTS
Sch. 1.1
<PAGE>
SCHEDULE 1.2
EXISTING SUBSIDIARIES
Sch. 1.2
<PAGE>
SCHEDULE 2.4.1
LIST OF EXISTING CONTRACTS
(INCLUDING EXISTING SUBSIDIARY CONTRACTS)
Sch. 2.4.1
<PAGE>
Exhibit 99.10
VOTING AGREEMENT
This Voting Agreement, dated as of ___________, 1998 (this "Agreement"),
is among [New Interstate Hotels Company], a Maryland corporation ("Newco"), and
the shareholders of Newco named on the signature pages hereto (individually, a
"Shareholder" and collectively, the "Shareholders").
RECITALS:
A. On the date hereof, Patriot American Hospitality, Inc., a Delaware
corporation ("Patriot"), has distributed shares of Common Stock, par value $0.01
per share ("Newco Stock"), of Newco to its stockholders; and
B. Upon consummation of such distribution, each Shareholder owns the
number of shares (the "Shares") of Newco Stock set forth on Exhibit A hereto.
NOW, THEREFORE, the parties hereto agree as follows:
I. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each of the Shareholders hereby represents and warrants to Newco with
respect to himself but not the other Shareholders as follows:
1.1 Due Authority. The Shareholder has full power and authority to execute
and deliver this Agreement and to perform his obligations hereunder. This
Agreement has been duly executed and delivered by or on behalf of such
Shareholder and, assuming its due authorization, execution and delivery by Newco
and the other Shareholders, constitutes a legal, valid and binding obligation of
such Shareholder.
1.2 No Conflict; Consents. (a) The execution and delivery of this
Agreement by the Shareholder do not, and the performance by such Shareholder of
his obligations under this Agreement and the compliance by such Shareholder with
any provisions hereof do not and will not, (i) conflict with or violate any law,
statute, rule, regulation, order, writ, judgment or decree applicable to such
Shareholder or the Shares owned by such Shareholder, or (ii) result in any
breach of or constitute a default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the Shares owned by such Shareholder
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which such
Shareholder is a party or by which such Shareholder or any of the Shares owned
by such Shareholder are bound.
(b) The execution and delivery of this Agreement by the Shareholder do
not, and the performance of this Agreement by such Shareholder will not, require
any consent, approval, authorization or permit of, or filing with (except for
applicable requirements, if any, of the
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Securities Exchange Act of 1934, as amended (the "Exchange Act")) or
notification to, any government or regulatory authority by such Shareholder.
1.3 Title to Shares. The Shareholder is the record or beneficial owner of
the Shares as listed on Exhibit A free and clear of any proxy or voting
restriction other than pursuant to this Agreement.
II. REPRESENTATIONS AND WARRANTIES OF NEWCO
Newco hereby represents and warrants to the Shareholders as follows:
2.1 Due Authority. Newco has full power, corporate or otherwise, and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. This Agreement has been duly executed and delivered by or on behalf
of Newco and, assuming its due authorization, execution and delivery by the
Shareholders, constitutes a legal, valid and binding obligation of Newco,
enforceable against Newco in accordance with its terms.
2.2 No Conflict; Consents. (a) The execution and delivery of this
Agreement by Newco do not, and the performance by Newco of its obligations
contemplated by this Agreement and the compliance by Newco with any provisions
hereof do not and will not, (i) conflict with or violate any law, statute, rule,
regulation, order, writ, judgment or decree applicable to Newco, (ii) conflict
with or violate Newco's charter or bylaws, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Newco is a party or by which Newco is bound.
(b) The execution and delivery of this Agreement by Newco do not, and the
performance of this Agreement by Newco will not, require any consent, approval,
authorization or permit of, or filing with (except for applicable requirements,
if any, of the Exchange Act) or notification to, any governmental or regulatory
authority by Newco.
III. CERTAIN COVENANTS OF THE SHAREHOLDERS
Each of the Shareholders hereby covenants and agrees with Newco as
follows:
3.1 Voting. (a) Each Shareholder hereby agrees, if as of the record date
for any meeting of shareholders of Newco the Shareholders and those individuals
and entities (the "Affiliated Shareholders") identified on Exhibit C hereto own
in the aggregate more than 9.9% of the outstanding Newco Stock, to vote, or to
use all practicable efforts to direct the record owner thereof to vote, each of
the Shares owned by such Shareholder at such meeting or any adjournment thereof
in accordance with Paragraph 3.1(b) below, and in connection therewith, at
Newco's written request, to execute, if necessary, proxies to effectuate the
foregoing.
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(b) Immediately prior to the closing of the polls on a particular
proposal, the inspector of elections for the meeting of Newco shareholders at
which such proposal is being voted upon or, if no such inspector has been
appointed, such other individual as may be designated by Newco, shall (i)
determine the number of shares of Newco Stock as to which votes were cast
(including abstentions) with respect to such proposal (other than votes cast by
the Shareholders or the Affiliated Shareholders), (ii) count such votes, and
(iii) submit to each Shareholder (A) a fraction (the "Affirmative Multiple"),
the numerator of which is the total number of votes cast in favor of such
proposal (other than votes cast by the Shareholders or the Affiliated
Shareholders) and the denominator of which is the total number of votes cast,
including abstentions, with respect to such proposal (other than votes cast,
including abstentions, by the Shareholders or the Affiliated Shareholders), and
(B) a fraction (the "Abstention Multiple"), the numerator of which is the total
number of shares of Newco Stock which the holders of the Newco Stock voted to
abstain with respect to such proposal (other than those made by the Shareholders
or the Affiliated Shareholders) and the denominator of which is the total number
of votes cast, including abstentions (other than votes cast, including
abstentions, by the Shareholders or the Affiliated Shareholders), with respect
to such proposal. Each Shareholder agrees that he shall then (a) multiply the
number of Shares owned by him as of the applicable record date by the
Affirmative Multiple and vote, or use all practicable efforts to direct the
record owner thereof to vote, the resulting number (rounded up to the nearest
whole share) of Shares of Newco Stock in favor of such proposal, (b) multiply
the number of Shares owned by him as of the applicable record date by the
Abstention Multiple and abstain, or use all practicable efforts to direct the
record owner thereof to abstain, with respect to the resulting number (rounded
up to the nearest whole share) of Shares of Newco Stock, and (c) vote, or use
all practicable efforts to direct the record owner thereof to vote, the
remaining number of Shares of Newco Stock owned by him as of the applicable
record date, if any, against such proposal. "Broker non-votes" shall not be
considered votes "cast" for the purposes of this Agreement.
3.2 Disposition of Shares. (a) Each Shareholder hereby agrees to use
reasonable efforts to sell or otherwise dispose of the number of shares of Newco
Stock necessary so that on or prior to the first anniversary of the date hereof
(such anniversary being the "Disposition Date"), the percentage of the
outstanding shares of Newco Stock owned in the aggregate by the Shareholders and
the Affiliated Shareholders shall be equal to or less than 9.9% of the then
outstanding shares of Newco Stock; provided, however, that no Shareholder shall
be required hereby to sell or otherwise dispose of, on or prior to the
Disposition Date, a number of shares of Newco Stock greater than the product of
(x) the sum of the total number of shares of Newco Stock distributed to the
Shareholders and the Affiliated Shareholders on the date hereof minus the number
of shares that equals 9.9% of the total number of shares of Newco Stock
outstanding after such distribution multiplied by (y) such Shareholder's
"Ownership Percentage," as set forth on Exhibit B hereto. From and after the
Disposition Date, each Shareholder hereby agrees that, upon the written request
of Newco after a determination by Newco pursuant to Section 3.3(b) below that,
as of the last day of the most recent fiscal quarter, such Shareholders and the
Affiliated Shareholders own more than 9.9% of the outstanding shares of Newco
Stock (any such date a "Measurement Date"), he shall use reasonable efforts to
sell the number of shares of
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Newco Stock necessary so that on or prior to the last day of the following
fiscal quarter, the percentage of the outstanding shares of Newco Stock owned in
the aggregate by the Shareholders and the Affiliated Shareholders shall be equal
to or less than 9.9% of the then outstanding shares of Newco Stock; provided,
however, that no Shareholder shall be required hereby to sell, on or prior to
the last day of the fiscal quarter following any Measurement Date, a number of
shares of Newco Stock greater than the product of (x) the sum of the total
number of shares of Newco Stock owned by the Shareholders and the Affiliated
Shareholders on such Measurement Date minus the number of shares that equals
9.9% of the total number of shares of Newco Stock outstanding on such
Measurement Date multiplied by (y) such Shareholder's Ownership Percentage.
(b) Each Shareholder's obligations under this Section 3.2 are individual
and no Shareholder shall be liable for the failure of any other Shareholder to
use reasonable efforts to sell or otherwise dispose of such Shareholder's
Shares.
(c) Notwithstanding any other provision of this Agreement, no Shareholder
shall be obligated (i) to sell any Share which such Shareholder does not have
the authority to dispose of at that time, or (ii) to sell any Shares at any time
when such sale could reasonably be expected to (A) violate any federal or state
statute or other law, rule or regulation or (B) subject such Shareholder to any
liability to Newco, any governmental entity or any other entity or individual
under any such statute, law, rule or regulation, including, without limitation,
liability under Section 16(b) of the Exchange Act and the rules promulgated
thereunder (collectively, "Section 16(b)") (and no other Shareholder shall be
required to sell any additional shares of Newco Stock as a result of either
clause (i) or clause (ii) of this Section 3.2(c)). Each Shareholder hereby
agrees, on each date when it is reasonably foreseeable that such Shareholder
will have the obligation to use reasonable efforts to sell Shares pursuant to
Section 3.2(a) during the six months following such date, to use reasonable good
faith efforts to refrain from making any purchases of Newco Stock if the
reasonably foreseeable result of any such purchase would be that any sale of
Shares by such Shareholder during the six months following such purchase would
result in the incurrence of liability under Section 16(b).
(d) No provision of this Section 3.2 shall be deemed to limit Newco's
rights under Section 3.3 below.
3.3 Call Right. (a) If the Shareholders do not satisfy their obligations
pursuant to Section 3.2, Newco shall have the right (the "Call Right") (in
addition to any other remedies available under Section 4.6 hereof) to purchase
from the Shareholders from time to time after the Disposition Date all or any
portion of the Callable Shares (as defined below), subject to the terms set
forth below.
(b) Newco shall determine after the Disposition Date and after the last
day of each fiscal quarter after the Disposition Date (i) the percentage of the
outstanding shares of Newco Stock owned by the Affiliated Shareholders (the
"Affiliate Percentage") on such date by dividing
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the number of shares of Newco Stock owned by the Affiliated Shareholders on such
date by the total number of shares of Newco Stock outstanding on such date; and
(ii) the percentage of the outstanding shares of Newco Stock owned by the
Shareholders on such date (the "Shareholder Percentage") by dividing the number
of shares of Newco Stock owned by the Shareholders on such date by the total
number of shares of Newco Stock outstanding on such date. Each Shareholder
agrees that he shall provide to Newco, as promptly as practicable upon the
written request of Newco, such information regarding such Shareholder's
ownership of Newco Stock as Newco may reasonably request in order to make the
determinations contemplated by this Section 3.3(b).
(c) "Callable Shares" shall mean (i) in the event that the Affiliate
Percentage as determined pursuant to subparagraph (b) above exceeds 9.9%, all
Shares owned by the Shareholders, (ii) in the event that the Affiliate
Percentage as so determined is less than 9.9% but the sum of the Affiliate
Percentage plus the Shareholder Percentage exceeds 9.9%, the lesser of (x) the
sum of the total number of shares of Newco Stock owned by all Shareholders and
all Affiliated Shareholders on the Disposition Date and any Measurement Date
minus the number of shares of Newco Stock (rounded to the nearest whole number)
that equals 9.9% of the total number of shares of Newco Stock outstanding on
such date and (y) the sum of the total number of shares of Newco Stock owned by
all Shareholders and all Affiliated Shareholders on the date notice of the
exercise of the Call Right is sent by Newco to the Shareholders (the "Call
Notice Date") minus the number of shares of Newco Stock (rounded to the nearest
whole number) that equals 9.9% of the total number of shares of Newco Stock
outstanding on the Call Notice Date, and (iii) in the event that the sum of the
Affiliate Percentage plus the Shareholder Percentage is equal to or less than
9.9%, zero Shares.
(d) Upon exercise of the Call Right, Newco shall determine the number of
Callable Shares to be purchased from each Shareholder by multiplying the number
of Shares as to which the Call Right is being exercised (the "Called Shares") by
such Shareholder's Ownership Percentage, as set forth on Exhibit B hereto. In
the event the aggregate number of Shares to be purchased by Newco from all
Shareholders after operation of the previous sentence (the "Initial Shares") is
less than the number of Called Shares, Newco shall purchase an additional number
of Shares equal to the difference between the Called Shares and the Initial
Shares by allocating such purchases among the Shareholders in proportion to the
Ownership Percentage of each Shareholder who continues to own Shares after
operation of the previous sentence.
(e) The per share price to be paid to each Shareholder upon exercise of
the Call Right shall be the average of the Closing Price of Newco Stock for the
ten consecutive Trading Days ending with the Trading Day immediately preceding
the Call Notice Date. The "Closing Price" on any date shall mean (A) where there
exists a public market for the Newco Stock, the last sale price, regular way,
or, in case no such sale takes place on such day, the average of the closing bid
and asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed or
admitted to trading on the New York Stock Exchange or, if the shares of Newco
Stock are not listed or admitted to
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trading on the New York Stock Exchange, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange on which the shares of Newco Stock
are listed or admitted to trading or, if the shares of Newco Stock are not
listed or admitted to trading on any national securities exchange, the last
quoted price, or if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the Nasdaq Stock Market,
Inc. or, if such system is no longer in use, the principal other automated
quotation system that may then be in use or (B) if no public market for the
Newco Stock exists, the Closing Price will be determined by a single,
independent appraiser selected by Newco's Board of Directors, which appraiser
shall appraise the fair value for such Newco Stock within such guidelines as
shall be determined by the Board of Directors. "Trading Day" shall mean a day on
which the principal national securities exchange on which the shares of Newco
Stock are listed or admitted to trading is open for the transaction of business
or, if the shares of Newco Stock are not listed or admitted to trading on any
national securities exchange, any day other than a Saturday, a Sunday or a day
on which banking institutions in the State of New York are authorized or
obligated by law or executive order to close.
(f) The Call Right may be exercised by Newco at any time within 60 days
after the Disposition Date and each Measurement Date, on no more than one
occasion with respect to each such date, by written notice to each Shareholder,
which notice shall be delivered via facsimile to the number and by mail to the
address set forth for each Shareholder on Exhibit A hereto (or such other
facsimile number or address as such Shareholder may notify Newco of) and which
notice shall specify (i) evidence of the calculations made by Newco pursuant to
subparagraphs (b) and (c) of this Section 3.3, (ii) the total number of Shares
as to which the Call Right is being exercised, (iii) the number of Shares being
purchased from such Shareholder (including evidence of the calculation made by
Newco pursuant to subparagraph (d) of this Section 3.3), and (iv) the per share
price to be paid to such Shareholder, including notification of the particular
clause of subparagraph (e) of this Section 3.3 pursuant to which such price was
determined.
(g) Each Shareholder shall, within ten days of the Call Notice Date,
deliver to Newco a stock certificate or stock certificates, duly assigned or
endorsed for transfer to Newco (or accompanied by duly executed stock powers
relating thereto), representing the Shares being sold to Newco pursuant to the
exercise of the Call Right. Newco shall, not later than one business day after
receipt of such stock certificate or stock certificates, mail via first class
mail to such Shareholder a certified check in the amount equal to the purchase
price of such Shares. In the event a Shareholder delivers to Newco a stock
certificate or stock certificates in a denomination or denominations exceeding
the number of Shares being sold by such Shareholder to Newco, Newco shall,
within ten days of receipt of such stock certificate, deliver to such
Shareholder a new stock certificate or new stock certificates representing the
number of shares of Newco Stock represented by such delivered stock certificate
or stock certificates which are not being sold to Newco pursuant to the Call
Right.
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(h) If, upon the expiration of the 45-day period after the Disposition
Date or any Measurement Date, Newco shall have failed to exercise the Call
Right, Marriott International, Inc., a Delaware corporation, shall have the
right to deliver, within ten days after the expiration of such 45-day period,
written notice (the "Marriott Notice") to Newco indicating its desire for Newco
to exercise the Call Right and specifying the total number of Shares as to which
the Call Right should be exercised. Upon receipt of the Marriott Notice, Newco
shall be obligated, within five days after the receipt of such notice, to
exercise the Call Right pursuant to Section 3.3(f) above for the number of
Shares specified in the Marriott Notice.
3.4 Certain Events. This Agreement and the obligations hereunder will
terminate with respect to each Share sold, transferred or otherwise disposed of
by any means by any Shareholder; provided, that the provisions and obligations
of this Agreement shall continue to attach to any Shares sold or otherwise
transferred by a Shareholder to another Shareholder or to an Affiliated
Shareholder and such Shareholder or Affiliated Shareholder will be bound by such
provisions and obligations with respect to such Shares. Each Shareholder shall
cease to be a Shareholder under this Agreement and each Affiliated Shareholder
shall cease to be an Affiliated Shareholder under this Agreement (including,
without limitation in either such case, for the purposes of making all
computations under this Agreement) at such time that such Shareholder or
Affiliated Shareholder is no longer an officer, director or 10% shareholder of
Patriot, Wyndham International, Inc., a Delaware corporation ("Wyndham"), or any
entity controlled by Patriot or Wyndham. This Agreement and the obligations
hereunder shall be suspended at any time that the percentage of the outstanding
shares of Newco Stock owned in the aggregate by the Shareholders and the
Affiliated Shareholders is less than 9.9%; and this Agreement and the
obligations hereunder shall in any event terminate on the fifth anniversary of
the date of this Agreement.
3.5 Absence of Group. Newco and the Shareholders hereby agree that neither
the execution nor the performance of this Agreement by the Shareholders shall
mean (or be used as evidence) that any Shareholder is a member of a group (as
that term is used for any purpose) with any other Shareholder or Affiliated
Shareholder or that any Affiliated Shareholder is a member of any group with a
Shareholder or any other Affiliated Shareholder.
IV. MISCELLANEOUS; GENERAL PROVISIONS
4.1 Severability. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement will
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
will negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible to the fullest extent
permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
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4.2 Entire Agreement. This Agreement constitutes the entire agreement of
the parties and supersedes all prior agreements and undertakings, both written
and oral, between the parties with respect to the subject matter hereof.
4.3 Amendments. This Agreement may not be modified, amended, waived,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
4.4 Assignment. This Agreement may not be assigned by operation of law or
otherwise.
4.5 Parties in Interest. Except as provided in Section 3.3(h) hereof, this
Agreement is binding upon, and shall inure solely to the benefit of, each party
hereto and nothing in this Agreement, express or implied, is intended to or will
confer upon any other person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement.
4.6 Specific Performance. The parties hereto agree that irreparable damage
would occur in the event any provision of this Agreement was not performed in
accordance with the terms hereof or was otherwise breached. It is accordingly
agreed that the parties will be entitled to specific relief hereunder,
including, without limitation, an injunction or injunctions to prevent and
enjoin breaches of the provisions of this Agreement and to enforce specifically
the terms and provisions hereof, in any state or federal court in the State of
Maryland, in addition to any other remedy to which they may be entitled at law
or in equity. Any requirements for the securing or posting of any bond with
respect to any such remedy are hereby waived.
4.7 Governing Law; Jurisdiction and Venue. This Agreement will be governed
by, and construed in accordance with, the internal laws of the State of Maryland
without regard to its rules of conflict of laws. The parties hereto hereby
irrevocably and unconditionally consent to and submit to the exclusive
jurisdiction of the courts of the State of Maryland for any litigation arising
out of or relating to this Agreement and the transactions contemplated hereby
(and agrees not to commence any litigation relating thereto except in such
courts), waives any objection to the laying of venue of any such litigation in
the State of Maryland and agrees not to plead or claim in any court in the State
of Maryland that such litigation brought therein has been brought in any
inconvenient forum.
4.8 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed will be deemed to be an original but all of which taken
together will constitute one and the same agreement.
4.9 Directors and Officers. Notwithstanding anything herein to the
contrary, the covenants and agreements set forth herein shall not prevent any
Shareholder who is serving on
8
<PAGE>
the Board of Directors of Newco or who is an officer of Newco from taking any
action in his or her capacity as a director or officer of Newco.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first written above.
[NEWCO]
By:
----------------------------
Name:
Title:
----------------------------
Paul A. Nussbaum*
----------------------------
James D. Carreker*
----------------------------
[Fine Entities]*
* No individual shall execute this Agreement and become a Shareholder
hereunder unless, on the execution date of this Agreement, such individual
is an officer, director or 10% shareholder of Patriot, Wyndham or any
entity controlled by Patriot or Wyndham (an "Affiliated Person"). The Fine
Entities shall execute this Agreement if Milton Fine is an Affiliated
Person on such date.
10
<PAGE>
EXHIBIT A
Number of Shares of Percentage of
Name and Address* Newco Stock Owned Newco Stock Outstanding
of Shareholder by Shareholder on Date Hereof
- -------------- -------------- --------------
Paul A. Nussbaum
James D. Carreker
[Fine Entities]**
Total
*to include facsimile number
**will include some or all of the following individuals and entities: Milton
Fine; David J. Fine; Milton Fine, Trustee U/A dated 11/11/94 FBO Milton Fine;
Milton Fine, Trustee under the Milton Fine 1997 Charitable Remainder Unitrust;
David Fine, Trustee for the Milton Fine Grantor Annuity Trust U/A dated 3/31/96;
David Fine, Trustee U/A dated 12/15/89 FBO David J. Fine; David Fine, Trustee
U/A dated 12/15/89 FBO Carolyn Fine Friedman; David Fine, Trustee U/A dated
12/15/89 FBO Sibyl Fine King; FFC Partnership, L.P.; FCT-C DelCo 1 Trust; FCT-C
DelCo 2 Trust; FCT-C DelCo 3 Trust; FCT-D DelCo 1 Trust; FCT-D DelCo 2 Trust;
FCT-D DelCo 3 Trust; FCT-S DelCo 1 Trust; FCT-S DelCo 2 Trust; and FCT-S DelCo 3
Trust
11
<PAGE>
EXHIBIT B
SHAREHOLDER OWNERSHIP PERCENTAGES
Shareholder Ownership Percentage
----------- --------------------
Paul A. Nussbaum
James D. Carreker
[Fine Entities]
Total 100%
12
<PAGE>
EXHIBIT C
AFFILIATED SHAREHOLDERS
Number of Shares of Percentage of
Newco Stock Owned Newco Stock
Name by Affiliated Shareholder Outstanding on Date Hereof
---- ------------------------- --------------------------
Karim Alibhai
Leslie V. Bentley
John P. Bohlmann
Leonard Boxer
Harlan R. Crow
John H. Daniels
John C. Deterding
Gregory R. Dillon
Burton C. Einspruch, M.D.
William W. Evans III
Susan T. Groenteman
Michael Grossman
Arch K. Jacobson
Lawrence S. Jones
Stanley M. Koonce, Jr.
Thomas W. Lattin
James C. Leslie
Carla S. Moreland
Leslie Ng
Paul Novak
Anne L. Raymond
Philip J. Ward
Patriot American Hospitality, Inc.
Wyndham International, Inc.
Total
*less than 0.01%
13
<PAGE>
Exhibit 99.11
FINAL DATED MAY 26, 1998
OWNER AGREEMENT
THIS OWNER AGREEMENT (this "Agreement") is dated as of ________ ___, 1998,
by and between [Patriot American Hospitality Partnership, L.P., a Virginia
limited partnership with an address of 1950 Stemmons Freeway, Suite 6001,
Dallas, Texas 75207 or the name of the joint venture ownership entity for those
properties not owned solely by Patriot ] (together with its successors and/or
assigns, "Owner"), Patriot American Hospitality Operating Partnership, L.P., a
Delaware limited partnership with an address of 1950 Stemmons Freeway, Suite
6001, Dallas, Texas 75207(together with its successors and/or assigns,
"Lessee"), and IHC II, LLC, a [Delaware] limited liability company with an
address of ___________ (together with its successors and/or assigns, "Primary
Manager"), and [Marriott International, Inc./Marriott Hotel Services, Inc.], a
Delaware corporation, having an address at 10400 Fernwood Road, Bethesda, MD
20817 (together with its successors and/or assigns, "Submanager" or "Marriott")
WITNESSETH:
WHEREAS, Owner represents and warrants that it holds fee title [leasehold
interest for Atlanta North Marriott] to the parcel of real property described or
shown on Exhibit A attached to this Agreement containing a hotel building or
buildings and certain related facilities (collectively, the "Hotel");
WHEREAS, simultaneously with the execution of this Agreement, Owner and
Lessee have entered into a lease (the "Lease") of the Hotel to Lessee;
WHEREAS, simultaneously with the execution of this Agreement, Lessee has
entered into a management agreement (the "Primary Management Agreement") with
Primary Manager for the management of the Hotel by Primary Manager;
WHEREAS, simultaneously with the execution of this Agreement, Primary
Manager and Marriott have entered into a Submanagement Agreement (the
"Submanagement Agreement") for the management of the Hotel by Marriott on behalf
of Primary Manager;
WHEREAS, the management of the Hotel pursuant to the Primary Management
Agreement and the Submanagement Agreement is of material benefit to Lessee and
Owner, and Lessee and Owner desire that the Hotel be so managed;
<PAGE>
WHEREAS, Primary Manager and Submanager would not enter into the
management arrangements provided for in the Primary Management Agreement and the
Submanagement Agreement without Owner and Lessee entering into this Owner
Agreement, and Owner and Lessee desire to so enter into this Owner Agreement;
WHEREAS, all of the above transactions are being entered into pursuant to
a Settlement Agreement dated as of __________ by and among Patriot American
Hospitality, Inc., Lessee, Marriott and others relating to litigation involving
matters relating to the Hotel and other properties (the "Settlement Agreement");
and
WHEREAS, Owner, Lessee, Primary Manager and Marriott desire to set forth
certain obligations of the parties with respect to the operation of the Hotel.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency which is hereby acknowledged by the parties, the parties hereto
agree as follows:
1. Termination of the Lease. If the Lease is terminated for any reason (a
"Lease Termination"), Owner shall at the time of or prior to such Lease
Termination either (i) designate another party to succeed to and assume Lessee's
rights and obligations under the Lease, the Primary Management Agreement and
this Agreement, or (ii) enter into a new Lease with such designated party, and
in each such case shall require that such designated party expressly succeed to
and assume the rights and obligations of Lessee under the Primary Management
Agreement and this Agreement. Notwithstanding the foregoing, any such successor
to Lessee shall be subject to Marriott's approval (Primary Manager hereby
agreeing that as long as the Submanagement Agreement remains in effect, Primary
Manager shall have no approval right with respect to such successor to Lessee),
which approval shall not be unreasonably withheld or delayed if such successor
to Lessee meets the criteria set forth below. Such approval or disapproval will
be made within ten (10) business days of request by Owner, provided Owner has
previously provided to Marriott all information reasonably necessary (or as
reasonably requested by Marriott) in order for Marriott to make its decision.
Such successor shall (x) have the financial capability to provide adequate
financial support for the Hotel (Marriott hereby agreeing that a successor which
has the same financial capability as Lessee as of the date of this Agreement
shall be deemed to have such financial capability), (y) be of good character and
reputation, and (z) agree to assume in writing the obligations of Lessee under
the Primary Management Agreement. Marriott's failure to approve or disapprove
such successor to Lessee within ten (10) business days shall be deemed to
constitute Marriott's approval of such replacement to Lessee. If such successor
to Lessee is disapproved by Marriott, Owner shall within thirty (30) days after
such disapproval designate another successor to Lessee, subject to Marriott's
approval rights as stated above. Until such time as a new successor Lessee is
approved and in place as such successor, the disapproved successor shall
continue as successor to Lessee and such continuation shall not constitute a
default under
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<PAGE>
this Agreement, the Primary Management Agreement or the Submanagement Agreement;
so long as Owner is diligently continuing to exercise Owner's reasonable best
efforts to designate a successor which is acceptable to Submanager. If required
by Primary Manager, any such successor shall enter into a new management
agreement on the same terms and conditions as the Primary Management Agreement
for the unexpired term of the Primary Management Agreement. Any replacement of
Lessee or any new Lease pursuant to this Section 1 shall be effected without any
interruption or disturbance of rights of Primary Manager under the Primary
Management Agreement or Marriott under the Submanagement Agreement,
respectively, as long as at such time the applicable agreement has not been
terminated in accordance with its terms.
2. Termination of Primary Management Agreement. If the Primary Management
Agreement is terminated for any reason other than as a result of termination of
the Submanagement Agreement (a "Primary Management Agreement Termination"),
Lessee shall at the time of or prior to such Primary Management Agreement
Termination either (i) designate a third party to succeed to and assume the
rights and obligations of Primary Manager under the Primary Management
Agreement, the Submanagement Agreement and this Agreement or (ii) designate
another third party to enter into a new management agreement in the form of the
Primary Management Agreement. Notwithstanding the foregoing, if a Primary
Management Agreement Termination has occurred and, for reasons beyond the
reasonable control of Lessee, the Lessee has not, notwithstanding the exercise
of its reasonable best efforts, been able to designate a successor to Primary
Manager to assume the Primary Management Agreement, the Submanagement Agreement,
and this Agreement or a successor Primary Manager has not entered into a new
management agreement prior to such Primary Management Agreement Termination as
set forth above, then Lessee shall automatically succeed to and assume the
rights and obligations of Primary Manager under the Submanagement Agreement, and
Lessee hereby accepts assignment of Primary Manager's rights and obligations
under the Submanagement Agreement. In such circumstances, it shall not be a
default of Lessee hereunder so long as Lessee, while acting as successor to
Primary Manager, diligently continues to exercise its reasonable best efforts to
designate a third party to succeed to and assume the rights and obligations of
Primary Manager under this Agreement, the Primary Management Agreement and the
Submanagement Agreement or enter into a new management agreement consistent with
the provisions hereof. In addition, Marriott shall have the right to direct
Lessee to cause a Primary Management Agreement Termination and to cause lessee
to designate a successor to the Primary Manager as set forth above if a change
of control of Primary Manager or its parent occurs which would entitle Lessee to
terminate Primary Manager under Section 10.03 of the Primary Management
Agreement, and Lessee and Marriott agree to cooperate to accomplish the
completion of the designation and acceptance of a successor to Primary Manager
hereunder if the Primary Manager is so terminated pursuant to such Section 10.03
of the Primary Management Agreement. Notwithstanding anything to the contrary
set forth above, any successor to Primary Manager shall be subject to Marriott's
approval, which approval shall not be unreasonably withheld or delayed if such
replacement to
3
<PAGE>
Primary Manager meets the criteria set forth below. Such approval or disapproval
will be made within ten (10) business days of a request by Lessee, provided
Lessee has previously provided to Marriott all information reasonably necessary
(or as reasonably requested by Marriott) in order for Marriott to make its
decision. Such successor shall (v) have at least the same level of financial and
managerial independence as Primary Manager currently has from Owner, Lessee and
Marriott and Marriott shall have or been given the opportunity to have, at
nominal cost, the same level of ownership interest and control as Marriott has
directly with respect to Primary Manager as of the date of the Primary
Management Agreement Termination, (w) have the operational capability to perform
its obligations under the Primary Submanagement Agreement, (x) be of good
character and reputation, (y) be a person in good standing as an operator of
Marriott-brand hotels of the brand for which the Hotel is currently operated, or
approved to enter into franchise or license agreements with Marriott, as
determined in accordance with Marriott's then existing standards, and (z) agree
to assume in writing the obligations of Primary Manager under the Submanagement
Agreement. Marriott shall be deemed to have approved such successor to Primary
Manager if it fails to approve or disapprove such successor within ten (10)
business days. If and when Marriott approves such successor to Primary Manager,
Lessee shall (subject to the occurrence of a subsequent Primary Management
Agreement Termination), cause such approved successor to become the successor to
Primary Manager under the Submanagement Agreement. If despite reasonable best
efforts Lessee has failed to designate a third party to succeed to and assume
the rights and obligations of Primary Manager which has been approved by
Marriott within sixty (60) days of a Primary Management Agreement Termination,
then Owner and Marriott shall act reasonably and in good faith to organize a new
entity to act as successor to Primary Manager which is independent from Owner
and Marriott but with respect to which Owner and Marriott will own equity
interests and have control rights commensurate with their respective ownership
interests and control rights in Primary Manager as of the date of this
Agreement. If required by Marriott, any successor to Primary Manager shall enter
into a new submanagement agreement on the same terms and conditions as the
Submanagement Agreement for the unexpired term of the Submanagement Agreement.
Notwithstanding anything to the contrary set forth above in this Section
2, as long as [NEWCO] does not itself engage in the business of operating,
franchising or managing its own hotel brand, or the functional equivalent of a
hotel brand, and there is not hereafter a change in control of Primary Manager
or its parent which would entitle Lessee to terminate Primary Manager under
Section 10.03 of the Primary Management Agreement, Marriott shall approve a
subsidiary of [NEWCO] (in which Marriott otherwise has the same level of control
or ownership as it owns directly in the Primary Manager as of the date of any
designation of the subsidiary as a successor Primary Manager) as a successor
Primary Manager.
Without limiting the provisions set forth in Sections 1 and 2 of this
Agreement, the parties acknowledge that the intent of the provisions in such
Sections is that the Submanagment Agreement and the rights and benefits of the
Submanager thereunder shall not be terminated or
4
<PAGE>
disturbed in any respect except upon termination of the Submanagment Agreement
in accordance with the terms of the Submanagment Agreement, and not as a result
of any default, termination, action or failure to act by or with respect to any
of the parties to or under the Lease or the Primary Management Agreement.
3. Owner's Option to Cure Lessee's Default. Subject to the provisions of
this Agreement, including Section 1 above, Owner shall have the option, within a
reasonable time, but not less than thirty (30) days in the case of monetary
defaults and ninety (90) days in the case of non-monetary defaults following
receipt by Owner of notice from Primary Manager or Submanager of a default under
the Primary Management Agreement by Lessee, to cure any such breach or default
of Lessee under the Primary Management Agreement, including, if necessary, the
commencement and prosecution of eviction proceedings and the replacement of
Lessee as tenant, and Primary Manager agrees to accept the performance of Owner
in lieu of the performance of Lessee and to keep the Primary Management
Agreement in full force and effect. Any default which is not, by its nature,
susceptible of being cured by Owner irrespective of having possession of the
Hotel shall be deemed cured by Owner terminating the Lease and assuming all of
the rights and obligations of the Lessee thereunder and under the Primary
Management Agreement. Primary Manager shall not exercise any right to terminate
the Primary Management Agreement or any other rights or remedies available under
the Primary Management Agreement or at law or in equity for breach of the
Primary Management Agreement unless and until Primary Manager has notified Owner
of such breach or default and given Owner the time described above to cure such
breach or default.
4. Lessee's Option to Cure Primary Manager's Default. Lessee shall have
the option to cure any breach or default of Primary Manager under the
Submanagement Agreement, including if necessary, the commencement and
prosecution of termination proceedings and replacement of Primary Manager under
the Primary Management Agreement, and Marriott agrees to accept the performance
of Lessee in lieu of the performance of Primary Manager and to keep the
Submanagement Agreement in full force and effect if such performance occurs
within the applicable grace period provided for in the Submanagement Agreement,
subject, however, to the provisions of Section 2 above. Any breach or default
which is not, by its nature, susceptible of being cured by Lessee irrespective
of having terminated the Primary Management Agreement shall be deemed cured by
Lessee terminating the Primary Management Agreement and replacing the Primary
Manager as permitted under Section 2 above. Marriott shall provide Lessee with a
copy of any notice of such breach or default at the time any such notice is
given to the Primary Manager, and if Lessee shall thereafter (but prior to the
expiration of any applicable grace period under the Primary Management
Agreement) give Submanager written notice of Lessee's intent to take curative
action, Submanager shall not exercise any right to terminate or any other rights
or remedies available under the Submanagement Agreement, the Settlement
Agreement or at law or in equity for breach of the Submanagement Agreement until
the expiration of the applicable cure period under the Submanagement Agreement
plus five (5) business days.
5
<PAGE>
5. Lease Modification. Primary Manager and Marriott agree that the Lease
may be amended, restated, replaced, renewed, extended and/or modified from time
to time by agreement between Owner and Lessee, and Owner may exercise any one or
more of its rights under the Lease from time to time at Owner's discretion, all
without consent of Primary Manager or Marriott, and this Agreement shall
continue in full force and effect as to all such renewals, extensions and/or
modifications and all such exercise of rights; provided, however, that the prior
consent of Primary Manager and Marriott shall be required for any amendment or
modification to the Lease with respect to (a) any provisions which require the
Lessee or the Owner to provide funds or to pay any obligations with respect to
the operation, improvement or repairs to the Hotel (including reimbursement of
costs, capital expenditures, funding of FF&E reserves, paying costs incurred in
connection with the operation of the Hotel for which Primary Manager is
obligated to pay or fund under the Submanagement Agreement, or the provision of
working capital), or (b) any provisions which require performance by Lessee
under the Primary Management Agreement or hereunder, or (c) any provision which,
if amended, would be inconsistent with the obligations of the Owner or Lessee
hereunder. Lessee agrees to deliver copies of any amendments or modifications of
the Lease promptly following the execution and delivery thereof to Primary
Manager and Marriott.
6. Primary Management Agreement and Submanagement Agreement Modification.
(a) Any amendment, modification, waiver, replacement, extension or renewal of
the Primary Management Agreement shall not be effective without the prior
written consent of Marriott, except that no such consent will be required to (a)
extend the term of the Primary Management Agreement, or (b) to modify the
provisions relating to the payment of fees to be retained by the Primary
Manager. Lessee may exercise any one or more of its rights under the Primary
Management Agreement from time to time at Lessee's discretion, and without
notice to or consent of Marriott except as required under this Agreement;
provided Lessee shall not terminate the Primary Management Agreement without the
consent of Marriott, which consent shall not be unreasonably withheld and which
consent shall in any event be granted if an acceptable successor has been
approved under Section 2 hereof. Lessee agrees to deliver copies of any
amendments, modifications, waivers, replacements or extensions of the Primary
Management Agreement following the execution and delivery thereof to Marriott
which do not require the consent of Marriott.
(b) Any amendment, replacement, extension, renewal, termination,
surrender or other modification of the Submanagement Agreement (other than a
termination by Marriott in accordance with the provisions of the Submanagement
Agreement) shall not be effective without the prior written consent of Owner.
(c) Marriott acknowledges and agrees that Owner is a third-party
beneficiary of the provisions of Section 11.22 of the Submanagement Agreement.
Without limiting the foregoing, if Primary Manager fails to terminate the
Submanagement Agreement pursuant to
6
<PAGE>
such Section 11.22 notwithstanding notice by Owner or Lessee to Primary Manager
to so terminate the Submanagement Agreement, then Owner shall have the right to
cause the termination of the Submanagement Agreement directly by notice to such
effect to Marriott and to bring an action directly against Marriott to cause
such termination; provided notice of such termination is delivered within sixty
(60) days after receipt by Primary Manager (and Owner pursuant to this
Agreement) of written notice from Marriott under Section 11.22 of the
Submanagement Agreement.
7. Obligations of Owner and Lessee; Title; Provisions on Mortgages; Liens
and Other Encumbrances; Recordation. Owner or Lessee shall maintain and comply
with all obligations which are contemplated or provided to be maintained or
performed by Owner or Lessee under Sections 8.01, 8.02, 8.03, 8.04, 8.05 and
11.05 of the Submanagement Agreement.
8. Approval Rights. The parties hereto acknowledge that the Lessee has
retained Primary Manager to be solely responsible for providing all instructions
and approvals to Submanager and monitoring the performance of Submanager under
the Submanagement Agreement, including the making of any elections which Primary
Manager may be entitled to make under the Primary Management Agreement, subject
to the following provisions for participation by Owner. Primary Manager has
personnel with experience in the management of hotels and is familiar with the
Hotel. Lessee hereby delegates and appoints Primary Manager as Lessee's agent to
exercise all rights of Lessee under the Lease in circumstances in which the
Lessee is required to obtain the approval or decision of the Owner under the
Lease or consult with Owner with respect to any matter related to the Hotel,
which delegation and appointment shall not be revoked and shall remain in place
so long as the Primary Management Agreement (or a successor Primary Management
Agreement) remains in force. It is the intent of the parties that pursuant to
such delegation and appointment all Owner approval, consent rights and
consultations which are set forth in the Lease and all elections to be made
under the Lease, the Primary Management Agreement and the Submanagement
Agreement shall be given or made by Primary Manager, with the approval or
participation of the Owner if required under the Lease, but without the
participation of Lessee or any person who reports to a person employed by
Lessee. Owner agrees to designate an individual employed by Owner as the person
responsible for processing and granting all such approvals and with respect to
any consultation with Primary Manager. Such representative shall in no event be
employed by Lessee or report to, or be supervised by, an employee of Lessee.
Owner and Primary Manager shall process all decisions (whether for the granting
of approvals, the making of elections, giving instructions or otherwise) based
on their respective good faith judgment as to the best interests of the Hotel
(i.e. the maximization of the long term operating profit of the Hotel). Without
limiting the foregoing, Primary Manager may consult with or shall obtain the
approval of Owner, if required under the terms of the Lease but Lessee will not
be involved in any review, approval or consent process on the following matters:
(a) Business Plans
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<PAGE>
(b) Building Estimates
(c) FF&E Estimates
(d) Capital Expenditures in excess of amounts in the FF& E Reserve
(e) Increases in deposits to FF&E Reserve
(f) Changes to 5-Year Plans
(g) Designation of arbitrators or Experts and submittals made to
any arbitrator or Expert
(h) Decision to restore or terminate in the event of Casualty
(i) Approval of insurance companies
(j) Decision of Owner to obtain property insurance
(k) Consent to Assignment or transfer of Primary Manager's or
Submanager's interest
(l) Audits of Annual Operating Statements
(m) Agreement on any alternative "Competitive Set" or source of
information regarding the same under the Submanagement
Agreement.
The parties hereto understand and agree that Submanager shall, in
any event, be entitled to rely and act on all approvals obtained or received
from, or elections made by, Primary Manager without any obligation to confirm
the granting of any approval or consent by Owner or to obtain the signature of
any representative of Owner and that, notwithstanding the above, the Submanager
shall not be required to grant any additional time for Owner to instruct Primary
Manager with respect to such matters. Lessee acknowledges and agrees that
pursuant to its delegation of authority to the Primary Manager, it will not
participate in any approval, consent or election process and will rely on the
experience and judgment of the Owner and the Primary Manager. In connection with
any dispute resolution procedures under the Submanagement Agreement, Submanager
shall be entitled to rely upon, and act on, decisions and selections made by
Primary Manager, but Submanager shall not be required to permit Lessee to
participate in any such dispute resolution procedures. Submanager shall permit
Owner to participate in any such dispute resolution procedures for which the
Owner has a right of approval or consultation under the Lease.
8
<PAGE>
9. Notices of Default. From and after the date hereof, (i) Primary Manager
shall send a copy of any notice of default on the Primary Management Agreement
or any notices of any intention to terminate the Primary Management Agreement to
each of Owner and Submanager (i. e., in addition to Lessee) in accordance with
the notice provisions set forth herein, and (ii) Marriott shall send a copy of
any notice of default under the Submanagement Agreement or any notices of any
intention to cancel or terminate the Submanagement Agreement or any notice to
Primary Manager pursuant to Section 11.22 of the Submanagement Agreement to each
of Owner and Lessee (i.e. in addition to Primary Manager) in accordance with the
notice provisions set forth herein.
10. Limitation of Actions Against Submanager. The parties hereto recognize
that this Agreement has been entered into to provide certain assurances to
Marriott and to provide for certain obligations of Primary Manager to Owner and
Lessee. In addition, Marriott has executed this Agreement to acknowledge certain
matters, subject to the understanding that Marriott's obligations with respect
to the management of the Hotel are governed solely by the Submanagement
Agreement and that except as provided in Section 6(c) of this Agreement nothing
in the Submanagement Agreement or this Agreement is intended to give rise to any
right, claim, action, causes of action, suit, proceeding, damages, demand or any
other liability, of any kind or nature of or against Marriott in favor of the
Owner or Lessee. To that end, Owner and Lessee acknowledge and agree that except
as provided in Section 6(c) of this Agreement they release, acquit, exonerate
and forever discharge Marriott and its current and future parents, subsidiaries,
affiliates, assigns, trustees, directors, officers, partners, stockholders,
agents, representatives and employees of any of the foregoing from any right,
claim, action, causes of action, suit, proceeding, damages, demand or any other
liability, of any kind or nature, hereafter arising, which Owner or Lessee may
have the right to bring directly, whether as a third party beneficiary or
otherwise, against any of the foregoing for breach of fiduciary duty,
mismanagement, failure to comply with the terms of the Submanagement Agreement
with respect to Marriott's duties as Submanager. Notwithstanding the above,
nothing contained herein shall in any way or manner affect the rights of Primary
Manager to maintain any cause of action Primary Manager may have against
Marriott under or related to Marriott's performance under the Submanagement
Agreement, including any right of contribution or indemnification or any right
or obligation of Marriott to Owner or Lessee under the Settlement Agreement, or
affect the rights of Owner or Lessee to maintain any cause of action Owner or
Lessee may have against the Primary Manager.
11. Limitation of Recourse Against Owner and Lessee. In the event of any
default by Owner or Lessee pursuant to the terms of this Agreement, the
aggregate liability of the Owner and Lessee, jointly and severally, shall be
limited to an amount which is the greater of (a) thirty percent (30%) of the
fair market value of the Hotel, or (b) the fair market value of their respective
interest (whether fee simple or leasehold, or both) in the Hotel. Fair market
value shall be determined in accordance with the process set forth on Exhibit B
hereto.
9
<PAGE>
Nothing set forth in this Section shall in any way limit, prevent or affect any
right of Marriott to seek any remedy other than money damages.
12. Control of Restoration and Capital Expenditures. Lessee, Primary
Manager and Submanager acknowledge and agree that any restoration of Hotel
following a casualty pursuant to the provisions of Section 6.03 of the
Submanagement Agreement and any Capital Expenditures (other than replacements,
renewals and additions to FF&E (as defined in the Submanagement Agreement) at
the Hotel) shall be performed by and under the direction of Owner; provided,
however, that unless otherwise agreed by Marriott, Marriott shall be retained to
provide technical services in order to assure that the restoration or such
expenditures are in accordance with the current System Standards. Marriott shall
be paid a reasonable technical services fee for such services.
13. Publicity. Each party agrees that in the event of any press release or
any public announcement concerning the Hotel which is material and out of the
ordinary course (e.g. in connection with a major casualty or accident at the
Hotel), the parties shall consult with each other and act in good faith to agree
on such press release or announcement; provided, however, that any party shall
have the right to make such announcement as it reasonably deems necessary in
order to comply with applicable securities laws.
14. General
A. Multiple Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original.
B. Modification. This Agreement may not be modified orally or in any
other manner other by an agreement in writing signed by the parties hereto
or their respective successors in interest. This Agreement shall inure to
the benefit of and be binding upon the parties hereto, and their
respective heirs, successors and assigns.
C. Notices. Notices under this Agreement shall be delivered via
prepaid, nationally recognized overnight courier or U.S. Certified Mail,
return receipt requested, to the parties as follows:
if to Owner:
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75297
Attention: General Counsel
if to Lessee:
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<PAGE>
1950 Stemmons Freeway
Suite 6001
Dallas, Texas 75297
Attention: General Counsel
11
<PAGE>
If to Primary Manager:
IHC II, LLC
--------------------
--------------------
--------------------
if to Marriott:
Marriott Hotel Services, Inc.
10400 Fernwood Road
Bethesda, MD 20817
ATTN: Law Department (Hotel Operations)
and shall be effective on the earlier to occur, the first business day after
having been deposited with the said overnight courier or three business days
after being deposited with the U.S. Postal Service. Any party may change its
address for notices in the manner for giving notice under this paragraph.
15. Environmental Representations. Lessee and Owner hereby each
represent and warrant to Submanager that, to the best of their respective
knowledge and except as set forth in any environmental assessment reports
provided by Owner, Lessee or Primary Manager to Submanager, as of the Effective
Date, there are no Hazardous Materials on any portion of the Site or the Hotel,
nor have any Hazardous Materials been released or discharged on any portion of
the Site or the Hotel. In addition, Owner or Lessee each hereby represent and
warrant to have delivered to Submanager copies of all reports concerning
environmental conditions which have been received by Owner or Lessee or any of
its Affiliates.
16. Confidentiality
(a) The parties hereto agree that the matters set forth in
this Agreement and the Submanagement Agreement and all statements, reports,
projections, and other information relating to the operation of the Hotel are
strictly confidential and each party will make every effort to ensure that the
information is not disclosed to any outside person or entities (including the
press) without the prior written consent of the other parties except as may be
required by law and as may be reasonably necessary to obtain licenses, permits,
and other public approvals necessary for the refurbishment or operation of the
Hotel, or in connection with Owner's or Lessee's financing of the Hotel, a Sale
of the Hotel, or a sale of a controlling interest in Owner, Lessee, Submanager,
or Marriott (except any financing or sale involving a private or public offering
of securities).
12
<PAGE>
(b) Owner and Lessee shall not include any reference to
Submanager or to any Affiliate of Submanager in any prospectus, private
placement memorandum, offering circular or offering documentation related
thereto (collectively referred to as the "Lessee and Owner Prospectus"), issued
by Owner or Lessee or by one of their respective Affiliates or by one or more
Mortgagees, which is designated to interest potential investors in debt or
equity securities related to the Hotel, unless Submanager has previously
received a copy of all such references. However, regardless of whether
Submanager does or does not so receive a copy of all such references, neither
Submanager nor any Affiliate of Submanager will be deemed a sponsor of the
offering described in the Owner and Lessee Prospectus, nor will it have any
responsibility for the Owner and Lessee Prospectus. Unless Submanager agrees in
advance, the Owner and Lessee Prospectus will not include any Marriott Trade
Names or Marriott Trademarks. Owner and Lessee shall indemnify, defend and hold
Submanager harmless from and against all loss, costs, liability and damage
(including attorneys' fees and expenses, and the cost of litigation) arising out
of any Owner and Lessee Prospectus or the offering described therein; and this
obligation of Owner and Lessee shall survive Termination of this Agreement.
17. Projections. Owner and Lessee acknowledge that any written or
oral projections, proformas, or other similar information that has been (prior
to execution of this Agreement) or will (during the Term of this Agreement) be
provided by Submanager or Marriott (or any Affiliate of either) to Primary
Manager is for information purposes only, and that Submanager, Marriott, and any
such Affiliate do not guarantee that the Hotel will achieve the results set
forth in any such projections, proformas, or other similar information. Any such
projections, proformas, or other similar information are based on assumptions
and estimates. Unanticipated events may occur subsequent to the date of
preparation of such projections, proformas, and other similar information.
Therefore, the actual results achieved by the Hotel are likely to vary from the
estimates contained in any such projections, proformas, or other similar
information and such variations might be material.
18. Trademarks, Trade Names and Intellectual Property. Owner and
Lessee agree and acknowledge that the provisions of Section 11.12 of the
Submanagement Agreement shall apply to Lessee and Owner and that Owner and
Lessee shall comply with the provisions thereof.
19. Defaults
(a) Each of the following shall constitute a "Default" by
Owner or Lessee, as applicable, under this Agreement.
(i) The filing of a voluntary petition in bankruptcy
or insolvency or a petition for reorganization under any bankruptcy law by Owner
or Lessee, or the admission by either party that it is unable to pay its debts
as they become due. Upon the occurrence of any Default by Owner or Lessee
(referred to as the "defaulting party") as described
13
<PAGE>
under this subsection (I), said Default shall be deemed an "Event of Default"
under this Agreement.
(ii). 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 Owner or Lessee.
Upon the occurrence of any Default by either party as described under this
subsection (ii), said Default shall be deemed an "Event of Default" under this
Agreement.
(iii). 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 either the Lessee's and Owner's assets, and such order,
judgment or decree's continuing unstayed and in effect for an aggregate of sixty
(60) days (whether or not consecutive). Upon the occurrence of any Default Owner
or Lessee as described under this subsection (iii), said Default shall be deemed
an "Event of Default".
(iv). The failure of Lessee or Owner to perform, keep or
fulfill any of the other covenants, undertakings, obligations or conditions set
forth in this Agreement, and the continuance of such default for a period of
thirty (30) days after the defaulting party's receipt of written notice from a
non-defaulting party of said failure. Upon the occurrence of any Default by
either party as described under this subsection (iv), said Default shall be
deemed an "Event of Default" under this Agreement if the defaulting party fails
to cure the Default within thirty (30) days after receipt of written notice from
the non-defaulting party 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.
(b) Upon the occurrence of an Event of Default of the Owner or
Lessee hereunder, the non-defaulting party shall be entitled to specific
enforcement of the obligations hereunder and to injunctive relief and to any
other right or remedy available at law or under the terms of the Primary
Management Agreement or the Submanagement Agreement, as applicable, and the
provisions hereunder shall survive a termination of the Submanagement Agreement
and the Primary Management Agreement, as applicable.
20. General
(a) The term of this Agreement shall commence on the dates set forth
above and shall terminate on the date of termination of the Submanagment
Agreement in accordance with its terms.
(b) Except as otherwise expressly provided in this Agreement,
whenever in this Agreement the consent or approval of any party is required,
such consent or approval shall
14
<PAGE>
not be unreasonably withheld, delayed or conditioned, shall be in writing, and
shall be executed by a duly authorized officer or agent of the party granting
such consent or approval, and if a party fails to respond to such request within
thirty (30) days, such consent of approval shall be deemed to have been given.
21. Definitions. All capitalized terms used herein and not otherwise
defined herein shall have the meaning set forth in the Submanagement Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
15
<PAGE>
IN WITNESS WHEREOF, the parties have caused their duly authorized
representatives to execute this Agreement as of the date first above written.
OWNER:
------------------
------------------
By:
By:
- --------------------------- ------------------------------
Name: Name:
Title: Title:
LESSEE: PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP, L.P.
WITNESS:
By:
- --------------------------- ------------------------------
Name: Name:
Title: Title:
PRIMARY MANAGER
IHC II, LLC
By:
By:
- --------------------------- ------------------------------
Name: Name:
Title: Title:
16
<PAGE>
MARRIOTT:
MARRIOTT HOTEL SERVICES, INC.
[Marriott International, Inc.]
ATTEST:
By:
- --------------------------- ------------------------------
Name: Name:
Title: Title: Vice President
17
<PAGE>
EXHIBIT A - PROPERTY DESCRIPTION
18
<PAGE>
EXHIBIT B - DETERMINATION OF FAIR MARKET VALUE
The Owner and Marriott may agree to a fair market value for the Hotel. In
the event that pursuant to such negotiations, the parties hereto do not agree
upon the fair market value of the Hotel, Marriott and Owner each shall, at its
own expense and within thirty (30) days thereafter, obtain an appraisal of the
fair market value of such Hotel from a nationally recognized appraiser of hotel
properties comparable to such hotel. In determining the fair market value of
such hotel, the appraisers shall be instructed to assume that the Hotel is not
subject to a management agreement but is subject to the existing Franchise
Agreement. If such appraisals differ, then the determination of the purchase
price for such Hotel shall be submitted to arbitration in Washington, D.C. in
accordance with the arbitration rules of the American Arbitration Association
then in effect. The parties shall jointly select a single arbitrator. If the
parties are unable to agree upon an arbitrator within ten (10) days following
the 30-day period during which the appraisals were obtained, the arbitrator
shall be selected by the respective appraisers selected by each party within ten
(10) days of such initial 10-day period. Such arbitrator whether selected by the
parties or by their appraisers, shall be knowledgeable with respect to the
appraisal of hotel properties and shall be instructed and obligated to decide,
within thirty (30) days after such submission, whether the appraisal submitted
by Marriott or the appraisal submitted by Owner most accurately reflects the
fair market value of the Hotel, and the written decision of the arbitrator shall
be conclusive and binding on the parties and enforceable by a court of competent
jurisdiction. The expenses of the arbitration shall be borne equally by the
parties to the arbitration.
19
<PAGE>
Exhibit 99.12
LEASE AGREEMENT
DATED AS OF _____________________
BETWEEN
_______________________________________________
AS LESSOR
AND
_______________________________________________
AS LESSEE
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
LEASE..................................................................1
1.1 Leased Property............................................1
1.2 Term.......................................................2
1.3 Initial Transition.........................................3
ARTICLE II
DEFINITIONS............................................................3
2.1 Definitions................................................3
ARTICLE III
RENT..................................................................16
3.1 Rent......................................................16
3.2 Confirmation of Percentage Rent...........................22
3.3 Additional Charges........................................23
3.4 No Set Off................................................23
3.5 Annual Budget.............................................23
3.6 Books and Records.........................................25
3.7 Changes in Operations.....................................25
3.8 Allocation of Revenues....................................26
ARTICLE IV
IMPOSITIONS...........................................................26
4.1 Payment of Impositions....................................26
4.2 Notice of Impositions.....................................27
4.3 Adjustment of Impositions.................................27
4.4 Utility Charges...........................................27
ARTICLE V
NO TERMINATION, ABATEMENT.............................................28
5.1 No Termination, Abatement.................................28
ARTICLE VI
PROPERTY OWNERSHIP....................................................28
6.1 Ownership of the Leased Property..........................28
6.2 Lessee's Personal Property................................28
6.3 Equipment Lease Property..................................29
(i)
<PAGE>
ARTICLE VII
CONDITION, USE........................................................29
7.1 Condition of the Leased Property..........................29
7.2 Use of the Leased Property................................30
ARTICLE VIII
LEGAL REQUIREMENTS....................................................32
8.1 Compliance with Legal and Insurance Requirements..........32
8.2 Legal Requirement Covenants...............................32
8.3 Environmental Covenants...................................32
ARTICLE IX
MAINTENANCE AND REPAIRS...............................................35
9.1 Maintenance and Repair....................................35
ARTICLE X
ALTERATIONS...........................................................37
10.1 Alterations...............................................37
10.2 Salvage...................................................37
10.3 Lessor Alterations........................................37
ARTICLE XI
LIENS.................................................................38
11.1 Liens.....................................................38
ARTICLE XII
PERMITTED CONTESTS....................................................38
12.1 Permitted Contests........................................38
ARTICLE XIII
INSURANCE.............................................................39
13.1 General Insurance Requirements............................39
13.2 Replacement Cost..........................................42
13.3 Waiver of Subrogation.....................................42
13.4 Form Satisfactory, etc....................................42
13.5 Increase in Limits........................................43
13.6 Blanket Policy............................................43
13.7 Separate Insurance........................................43
13.8 Reports On Insurance Claims...............................43
(ii)
<PAGE>
13.9 Alternate Provisions for Insurance........................44
ARTICLE XIV
DAMAGE AND RECONSTRUCTION.............................................44
14.1 Insurance Proceeds........................................44
14.2 Reconstruction in the Event of Damage or Destruction
Covered by Insurance......................................44
14.3 Reconstruction in the Event of Damage or Destruction Not
Covered by Insurance......................................45
14.4 Lessee's Property and Business Interruption Insurance.....46
14.5 Abatement of Rent.........................................46
ARTICLE XV
CONDEMNATION..........................................................46
15.1 Definitions...............................................46
15.2 Parties' Rights and Obligations...........................47
15.3 Total Taking..............................................47
15.4 Allocation of Award.......................................47
15.5 Partial Taking............................................47
15.6 Temporary Taking..........................................48
ARTICLE XVI
DEFAULTS..............................................................49
16.1 Events of Default.........................................49
16.2 Remedies..................................................51
16.3 Waiver....................................................52
16.4 Application of Funds......................................52
ARTICLE XVII
LESSOR'S RIGHT TO CURE................................................52
17.1 Lessor's Right to Cure Lessee's Default...................52
ARTICLE XVIII
LIMITATIONS...........................................................52
18.1 Personal Property Limitation..............................52
18.2 Sublease Rent Limitation..................................53
18.3 Sublease Lessee Limitation................................53
18.4 Lessee Ownership Limitation...............................53
ARTICLE XIX
HOLDING OVER..........................................................54
(iii)
<PAGE>
19.1 Holding Over..............................................54
ARTICLE XX
INDEMNITIES...........................................................54
20.1 Indemnification...........................................54
ARTICLE XXI
SUBLETTING AND ASSIGNMENT.............................................56
21.1 Subletting and Assignment.................................56
21.2 Management Agreement......................................56
21.3 Primary Manager and Submanager............................56
ARTICLE XXII
ESTOPPEL CERTIFICATES.................................................57
22.1 Officer's Certificates; Financial Statements; Lessor's
Estoppel Certificates and Covenants.......................57
ARTICLE XXIII
INSPECTIONS...........................................................59
23.1 Regular Meetings; Lessor's Right to Inspect...............59
ARTICLE XXIV
NO WAIVER.............................................................59
24.1 No Waiver.................................................59
ARTICLE XXV
CUMULATIVE REMEDIES...................................................60
25.1 Remedies Cumulative.......................................60
ARTICLE XXVI
SURRENDER.............................................................60
26.1 Acceptance of Surrender...................................60
ARTICLE XXVII
NO MERGER.............................................................60
27.1 No Merger of Title........................................60
(iv)
<PAGE>
ARTICLE XXVIII
CONVEYANCE BY LESSOR..................................................60
28.1 Conveyance by Lessor......................................60
28.2 Lessor May Grant Liens....................................61
ARTICLE XXIX
QUIET ENJOYMENT.......................................................62
29.1 Quiet Enjoyment...........................................62
ARTICLE XXX
NOTICES...............................................................62
30.1 Notices...................................................62
ARTICLE XXXI
INTENTIONALLY DELETED.................................................63
ARTICLE XXXII
LESSEE CAPITALIZATION REQUIREMENTS....................................63
32.1 Lessee's Net Worth........................................63
32.2 Verification of Net Worth.................................63
ARTICLE XXXIII
TERMINATION OF LEASE DUE TO SALE OF LEASED PROPERTY...................63
33.1 Termination of Lease Due to Sale of Leased Property.......63
ARTICLE XXXIV
FRANCHISE AGREEMENT, BRAND STANDARDS, AND GROUND LEASES
.....................................................................64
34.1 Compliance................................................64
ARTICLE XXXV
CAPITAL EXPENDITURES..................................................65
35.1 Capital Expenditures......................................65
ARTICLE XXXVI
LESSOR'S DEFAULT......................................................66
36.1 Lessor's Default..........................................66
(v)
<PAGE>
ARTICLE XXXVII
ARBITRATION...........................................................67
37.1 Arbitration...............................................67
37.2 Alternative Arbitration...................................67
37.3 Arbitration Procedures....................................67
ARTICLE XXXVIII
TRADE-OUTS............................................................68
ARTICLE XXXIX
MISCELLANEOUS.........................................................68
39.1 Miscellaneous.............................................68
39.2 Transition Procedures.....................................69
39.3 Waiver of Presentment, etc................................70
39.4 Standard of Discretion....................................70
39.5 Action for Damages........................................70
Exhibits:
Exhibit A - Property Description
Exhibit B - Base Rent Revenue Percentages and Breakdowns
Exhibit C - Capital Expenditures Policy
Exhibit D - Additional Provisions
(vi)
<PAGE>
LEASE AGREEMENT
THIS LEASE AGREEMENT (hereinafter called "Lease") is made as of the _____
day of __________________, 1998, by and between ____________________________, a
___________________ (hereinafter called "Lessor"), and
____________________________________________________, a
__________________________ (hereinafter called "Lessee"):
R E C I T A L S
A. The Leased Property is presently operated as a Marriott Hotel pursuant
to a franchise agreement (the "Franchise Agreement") between Marriott
International, Inc., or one or its Affiliates, as franchisor and Interstate
Hotels Corporation, or one of its Affiliates, as franchisee, which franchisee
interest will be assumed by IHC II, LLC ("Primary Manager") in connection with
the execution of this Lease pursuant to an agreement by and between Lessee and
Primary Manager (the "Primary Management Agreement").
B. Patriot American Hospitality Partnership, L.P. ("REIT OP"), Lessee,
Marriott International, Inc. and Interstate Hotel Company have previously
entered into a settlement agreement (the "Settlement Agreement") concerning the
resolution of disputes among the parties, pursuant to which this Agreement is
being executed.
C. REIT OP, Lessee, Primary Manager and [Marriott Hotel Services, Inc. or
Marriott International, Inc.] ("Submanager"), simultaneously with the execution
of this Agreement and effective as of the date on which Submanager will assume
management of the Leased Property (as hereinafter defined), have entered into an
Owner's Agreement (the "Owner's Agreement") which sets forth certain rights and
responsibilities among REIT OP, Lessee and Submanager.
D. Lessor desires to lease the Leased Property to Lessee and approve the
terms on which the Leased Property will be managed by Primary Manager and
Submanager, and Lessee desires to lease the Leased Property from Lessor and
engage the Primary Manager and Submanager to manage the Leased Property.
NOW, THEREFORE, Lessor, in consideration of the payment of rent by Lessee
to Lessor, the covenants and agreements to be performed by Lessee, and upon the
terms and conditions hereinafter stated, does hereby rent and lease unto Lessee,
and Lessee does hereby rent and lease from Lessor, the Leased Property.
ARTICLE I
LEASE
1.1 Leased Property. The Leased Property (herein so called) is comprised
of Lessor's interest in the following:
1
<PAGE>
(a) the land described in Exhibit A attached hereto and by reference
incorporated herein (the "Land");
(b) all buildings, structures and other improvements of every kind
including, but not limited to, alleyways and connecting tunnels, sidewalks,
utility pipes, conduits and lines (on-site and off-site), parking areas and
roadways appurtenant to such buildings and structures presently or hereafter
situated upon the Land (collectively, the "Leased Improvements");
(c) all easements, rights and appurtenances relating to the Land and
the Leased Improvements;
(d) all equipment, machinery, fixtures, and other items of property
required for or incidental to the use of the Leased Improvements as a hotel,
including all components thereof, now and hereafter permanently affixed to or
incorporated into the Leased Improvements, including, without limitation, all
furnaces, boilers, heaters, electrical equipment, heating, plumbing, lighting,
ventilating, refrigerating, incineration, air and water pollution control, waste
disposal, air-cooling and air-conditioning systems and apparatus, sprinkler
systems and fire and theft protection equipment, all of which to the greatest
extent permitted by law are hereby deemed by the parties hereto to constitute
real estate, together with all replacements, modifications, alterations and
additions thereto (collectively, the "Fixtures");
(e) all furniture and furnishings and all other items of personal
property (excluding Inventory and personal property owned by Lessee) located on,
and used in connection with, the operation of the Leased Improvements as a
hotel, together with all replacements, modifications, alterations and additions
thereto; and
(f) all existing occupancy leases of the Leased Property (including
any security deposits or collateral held by Lessor pursuant thereto).
THE LEASED PROPERTY IS DEMISED IN ITS PRESENT CONDITION WITHOUT REPRESENTATION
OR WARRANTY (EXPRESSED OR IMPLIED) BY LESSOR AND SUBJECT TO THE RIGHTS OF
PARTIES IN POSSESSION, AND TO THE EXISTING STATE OF TITLE INCLUDING ALL
COVENANTS, CONDITIONS, RESTRICTIONS, EASEMENTS AND OTHER MATTERS OF RECORD
INCLUDING ALL APPLICABLE LEGAL REQUIREMENTS AND MATTERS WHICH WOULD BE DISCLOSED
BY AN INSPECTION OF THE LEASED PROPERTY OR BY AN ACCURATE SURVEY THEREOF.
1.2 Term. The term of this Lease (the "Term") shall commence on
________________________ (the "Commencement Date") and shall end on the day
which is three (3) years thereafter, unless sooner terminated in accordance with
the provisions hereof.
2
<PAGE>
1.3 Initial Transition.
(a) Lessee has assumed or shall assume all occupancy agreements and
operating agreements to which the Leased Property remains subject on the
Commencement Date.
(b) All Inventory is or shall be owned by Lessee, Primary Manager or
Submanager. Schedule 1.3 contains provisions relating to the terms on which any
Inventory transferred to Lessee by Lessor was acquired by Lessee and certain
other accounting issues with respect thereto.
(c) Rights and obligations with respect to accrued revenues,
expenses, cash on hand and similar items have been allocated between Lessor and
Lessee as of the Commencement Date, as agreed to by, and reflected in the books
and records of, Lessor and Lessee.
(d) Lessor shall lend to Lessee an amount of cash equal to the
Initial Working Capital. Such loan shall bear interest at the [Base Rate], shall
amortize over the [Term], and shall in any event be due and payable in full upon
the termination of the Lease for any reason. Interest shall accrue, and payments
of interest and principal shall be payable as an Additional Charge, on each date
on which Base Rent is due and payable hereunder.
(e) Lessor shall also provide to Lessee, as an additional capital
expenditure obligation of Lessor, any amounts required to be paid by Lessee for
computer systems as provided in Section 1.02B of the Primary Management
Agreement and for additional Fixed Asset Supplies as provided in Section 4.07 of
the Primary Management Agreement.
ARTICLE II
DEFINITIONS
2.1 Definitions. For all purposes of this Lease, except as otherwise
expressly provided or unless the context otherwise requires, (a) the terms
defined in this Article have the meanings assigned to them in this Article and
include the plural as well as the singular, (b) all accounting terms not
otherwise defined herein have the meanings assigned to them in accordance with
GAAP, (c) all references in this Lease to designated "Articles", "Sections" and
other subdivisions are to the designated Articles, Sections and other
subdivisions of this Lease and (d) the words "herein," "hereof" and "hereunder"
and other words of similar import refer to this Lease as a whole and not to any
particular Article, Section or other subdivision:
Additional Charges: As defined in Section 3.3.
Affiliate: As used in this Lease the term "Affiliate" of a person shall
mean (a) any person that, directly or indirectly, controls or is controlled by
or is under common control with such person, (b) any other person that owns,
beneficially, directly or indirectly, ten percent or more of the outstanding
capital stock, shares or equity interests of such person, or (c) any
3
<PAGE>
officer, director, employee, partner or trustee of such person or any person
controlling, controlled by or under common control with such person (excluding
trustees and persons serving in similar capacities who are not otherwise an
Affiliate of such person). The term "person" means and includes individuals,
corporations, general and limited partnerships, limited liability companies,
stock companies or associations, joint ventures, associations, companies,
trusts, banks, trust companies, land trusts, business trusts, or other entities
and governments and agencies and political subdivisions thereof. For the
purposes of this definition, "control" (including the correlative meanings of
the terms "controlled by" and "under common control with"), as used with respect
to any person, shall mean the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of such person,
through the ownership of voting securities, partnership interests or other
equity interests, by contract or otherwise.
Annual Budget: As used in this Lease, the term "Annual Budget" shall mean
an operating budget and a capital budget prepared by or on behalf of Lessee and
approved by Lessor in accordance with Section 3.5(a). For purposes of Section
22.1, Annual Budget shall also mean the Business Plan, the FF&E Estimate and the
Building Estimate to the extent that such items substitute for an Annual Budget
pursuant to Section 3.5(b).
Annual Food Sales Break Point: As defined in Section 3.1(b)(ii) and
Exhibit B.
Annual Room Revenues Break Point(s): As defined in Section 3.1(b)(ii) and
Exhibit B.
Annual Room Revenues First Break Point: As defined in Section 3.1(b)(ii)
and Exhibit B.
Annual Room Revenues Second Break Point: As defined in Section 3.1(b)(ii)
and Exhibit B.
Approval: As defined in Section 39.4.
Award: As defined in Section 15.1(c).
Base Rent: As defined in Section 3.1.
Base Rate: The "base rate" of interest announced from time to time by
Bankers Trust Company, New York, New York or any successor thereto.
Beverage Sales: Shall mean gross revenue from the sale of (i) wine, beer,
liquor or other alcoholic beverages, whether sold in a bar or lounge, delivered
to or available in a guest room, sold at meetings or banquets or at any other
location at the Leased Property and (ii) nonalcoholic beverages sold in a bar or
lounge. Such gross revenue constituting Beverage Sales shall include sales by
Lessee and its permitted subtenants, licensees and concessionaires, but revenues
from subleases, licenses or similar arrangements for alcoholic beverage sales
which are entered into by Lessor, by any prior owner of the Leased Property, or
by Lessee (but as to
4
<PAGE>
Lessee, only such subleases, licenses or similar arrangements entered into in
compliance, but only in compliance, with Section 21.1 with parties who are not
Affiliates of Lessee) shall be classified as Other Income and shall only include
rents received by Lessee under such existing subleases, licenses or similar
arrangements, which must comply with Section 18.2 hereof. Such revenue shall be
determined in a manner consistent with the Uniform System and shall not include
the following:
(a) Any gratuity or service charge added to a customer's bill or
statement in lieu of a gratuity which is paid directly to an employee;
(b) Credits, rebates or refunds; and
(c) Sales taxes or taxes of any other kind imposed on the sale of
alcoholic or other beverages.
Brand Standards: Shall mean either (or both, as the context requires) of
the following two (2) categories of standards: (i) the operational standards
(for example, services offered to guests, quality of food and beverages,
cleanliness, staffing and employee compensation and benefits, Chain Services,
the Marriott Rewards Program and other similar programs, etc.); and (ii) the
physical standards (for example, quality of the Leased Improvements, Fixtures,
Furniture and Equipment, Fixed Asset Supplies and frequency of replacements of
Fixtures, Furniture and Equipment, etc.); each of such standards shall be the
standard which is generally prevailing or in the process of being implemented at
other hotels in the Marriott System, including all services and facilities in
connection therewith that are customary and usual at comparable hotels in the
Marriott System.
Break Points: As defined in Section 3.1(b).
Business Day: Each Monday, Tuesday, Wednesday, Thursday and Friday that is
not a day on which national banks in the City of Dallas, Texas or in the
municipality wherein the Leased Property is located are closed.
Capital Budget: As defined in Section 3.5.
Capital Expenditures: Amounts advanced to pay the costs of Capital
Improvements.
Capital Expenditures Reserve: An amount equal to 4% of Gross Revenues for
each Lease Year, to be accrued by Lessor in accordance with the provisions of
Article XXXV hereof.
Capital Impositions: Taxes, assessments or similar charges imposed upon or
levied against the Leased Property for the costs of public improvements,
including, without
5
<PAGE>
limitation, roads, sidewalks, public lighting fixtures, utility lines, storm
sewers drainage facilities, and similar improvements; and assessments or charges
in the nature of rent for the use of any easement or facility. Notwithstanding
the foregoing, while the Submanagement Agreement is in effect, Capital
Impositions shall also include each of the items referenced in Sections 7.01
B(2), (3) and (4) of the Submanagement Agreement.
Capital Improvements: Subject to Exhibit C attached hereto, improvements
to (a) the external walls and internal load bearing walls (other than windows
and plate glass), (b) the roof of the Facility, (c) private roadways, parking
areas, sidewalks and curbs appurtenant thereto that are under Lessee's control
(other than cleaning, patching and striping), (d) mechanical, electrical and
plumbing systems that service common areas, entire wings of the Facility or the
entire Facility, including conduit and ductware connected thereto, and (e) items
of the types described on Exhibit C attached hereto as "capital". Any dispute as
to whether an improvement is a capital or non-capital improvement shall be
resolved by arbitration pursuant to Section 37.2.
CERCLA: The Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended.
Chain Services: Services that are furnished generally on a central,
regional or other group basis to other hotels in the Marriott System and which
benefit such hotels.
CPI Factor: As defined in Section 3.5.
Claims: As defined in Section 12.1.
COBRA: The Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended.
Code: The Internal Revenue Code of 1986, as amended.
Commencement Date: As defined in Section 1.2.
Company: Patriot American Hospitality, Inc., a Delaware corporation.
Condemnation, Condemnor: As defined in Section 15.1.
Consolidated Financials: For any fiscal year or other accounting period
for Lessee and its consolidated Subsidiaries, statements of operations,
partners' capital and cash flow (or, in the case of a corporation, statements of
operations, retained earnings and cash flow) for such period and for the period
from the beginning of the respective fiscal year to the end of such period and
the related balance sheet as at the end of such period, together with the notes
to any such yearly statement, all in such detail as may be required by the SEC
with respect to filings made by the Company, and setting forth in comparative
form the corresponding figures for the corresponding period in the preceding
fiscal year, and prepared in accordance with GAAP and audited annually (and
quarterly if required by the SEC with respect to filings made by the Company) by
Ernst & Young or another so called "Big Six" firm of independent certified
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public accountants designated by Lessee and approved by Lessor, such approval
not to be unreasonably withheld or delayed. Consolidated Financials shall be
prepared on the basis of a December 31 fiscal year of Lessee.
Consumable Supplies: Office supplies, cleaning supplies, uniforms, laundry
and valet supplies, engineering supplies, fuel, stationery, soap, matches,
toilet and facial tissues, and such other supplies as are consumed customarily
on a recurring basis in the operation of the Facility, together with food and
beverages that are to be offered for sale to guests and to the public.
Consumer Price Index: The "Consumer Price Index" published by the Bureau
of Labor Statistics of the United States Department of Labor, U.S. City Average,
All Item for Urban Wage Earners and Clerical Workers (1982-1984=100).
Cumulative Monthly Portion: As defined in Section 3.1(b)(ii).
Date of Taking: As defined in Section 15.1(b).
Emergency Expenditures: Expenditures required to take necessary or
appropriate actions to respond to Emergency Situations.
Emergency Situations: An emergency threatening the Facility, its guests,
invitees or employees or any other circumstances or conditions (including,
without limitation, those involving Hazardous Materials) which, if continued,
would subject Lessor, Lessee, Primary Manager and/or Submanager to civil or
criminal liability.
Environmental Authority: Any department, agency or other body or component
of any Government that exercises any form of jurisdiction or authority under any
Environmental Law.
Environmental Authorization: Any license, permit, order, approval,
consent, notice, registration, filing or other form of permission or
authorization required under any Environmental Law.
Environmental Laws: (1) CERCLA; (2) the regulations promulgated
thereunder, from time to time; (3) 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 (4) the
regulations promulgated thereunder from time to time.
Environmental Liabilities: Any and all obligations to pay the amount of
any judgment or settlement, the cost of complying with any settlement, judgment
or order for injunctive or other equitable relief, the cost of compliance or
corrective action in response to any notice, demand or request from an
Environmental Authority, the amount of any civil penalty or criminal fine, and
any court costs and reasonable amounts for attorney's fees, fees for witnesses
and experts, and costs of investigation and preparation for defense of any claim
or any Proceeding, regardless of whether such Proceeding is threatened, pending
or completed,
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that may be or have been asserted against or imposed upon Lessor, Lessee, any
Predecessor, the Leased Property or any property used therein and arising out
of:
(a) the failure to comply at any time with all Environmental Laws
applicable to the Leased Property;
(b) the presence of any Hazardous Materials on, in, under, at or in
any way affecting the Leased Property;
(c) a Release or threatened Release of any Hazardous Materials on,
in, at, under or in any way affecting the Leased Property;
(d) the identification of Lessee, Lessor or any Predecessor as a
potentially responsible party under CERCLA or under any other Environmental Law;
(e) the presence at any time of any above-ground and/or underground
storage tanks, as defined in RCRA or in any applicable Environmental Law on, in,
at or under the Leased Property or any adjacent site or facility; or
(f) any and all claims for injury or damage to persons or property
arising out of exposure to Hazardous Materials originating or located at the
Leased Property, or resulting from operation thereof or any adjoining property.
Event of Default: As defined in Section 16.1.
Executive Committee: Shall mean the general manager, resident manager,
director of marketing, controller, food and beverage director, human resources
director and chief engineer, or similar titled positions.
Executive Person and/or Executive Personnel: Shall mean a member of the
Executive Committee or a supervisory or executive member of the home office or
regional staff of Manager.
Facility: The hotel and/or other facility offering lodging and other
services or amenities being operated or proposed to be operated on the Leased
Property.
First Tier Food Sales Percentage: As defined in Section 3.1(b)(ii) and
Exhibit B.
First Tier Room Revenue Percentage: As defined in Section 3.1(b)(ii) and
Exhibit B.
Fixed Asset Supplies: Shall mean items included within "Property and
Equipment" under the Uniform System including, but not limited to, linen, china,
glassware, tableware, uniforms, and similar items, whether used in connection
with public space or guest rooms.
Fixtures: As defined in Section 1.1.
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Food Sales: Shall mean (i) gross revenue from the sale of food and
non-alcoholic beverages that are prepared at the Facility and sold or delivered
on or off the Facility by Lessee, its permitted subtenants, licensees, or
concessionaires whether for cash or for credit, including in respect of guest
rooms, banquet rooms, meeting rooms and other similar rooms, and (ii) gross
revenue from the rental of banquet, meeting and other similar rooms. Such gross
revenue constituting Food Sales shall include sales by Lessee and its permitted
subtenants, licensees and concessionaires, but revenues from subleases, licenses
or similar arrangements for food and non-alcoholic beverage sales which are
entered into by Lessor, by any prior owner of the Leased Property, or by Lessee,
(but as to Lessee, only such subleases, licenses or similar arrangements entered
into in compliance, but only in compliance with Section 21.1 with parties who
are not Affiliates of Lessee) shall be classified as Other Income and shall only
include rents received by Lessee under such existing subleases, licenses or
similar arrangements, which must comply with Section 18.2 hereof. Such revenue
shall be determined in a manner consistent with the Uniform System and shall not
include the following:
(a) Vending machine sales;
(b) Any gratuities or service charges added to a customer's bill or
statement in lieu of a gratuity which is paid directly to an employee;
(c) Non-alcoholic beverages sold from a bar or lounge;
(d) Credits, rebates or refunds; and
(e) Sales taxes or taxes of any other kind imposed on the sale of
food or non-alcoholic beverages.
Franchise Agreement: Any franchise agreement, license agreement or other
agreement pursuant to which the Facility is operated under, or entitled to use a
brand or other name, identifying trademarks and/or tradenames and reservations
system (including those portions of the Primary Management Agreement and
Submanagement Agreement relating thereto).
Furniture and Equipment: For purposes of this Lease, the terms "furniture
and equipment" shall mean collectively all furniture, furnishings, wall
coverings, fixtures and hotel equipment and systems owned by Lessor and located
at, or used in connection with, the Facility, together with all replacements
therefor and additions thereto, including, without limitation, (i) all equipment
and systems required for the operation of kitchens, bars and restaurants, and
laundry and dry cleaning facilities, (ii) office equipment, (iii) dining room
wagons, materials handling equipment, and cleaning and engineering equipment,
(iv) telephone and computerized accounting systems, and (v) vehicles.
GAAP: Generally accepted accounting principles as are at the time
applicable and otherwise consistently applied.
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GDP Deflator: As defined in the Submanagement Agreement.
Government: The United States of America, any city, county, state,
district or territory thereof, any foreign nation, any city, county, state,
province, dominion, district, department, territory or other political division
thereof, or any political subdivision of any of the foregoing, in any case
having jurisdiction over the Facility, the Leased Property, Lessor or Lessee.
Gross Revenues: All revenues, receipts, and income of any kind derived
directly or indirectly by Lessee from or in connection with the Facility whether
on a cash basis or credit, paid or collected, determined in accordance with GAAP
and the Uniform System, including but not limited to golf course membership
fees, greens fees and other revenues arising out of the operation of any golf
courses on the Facility, but excluding, however: (i) funds furnished by Lessor,
(ii) federal, state and municipal excise, sales, and use taxes collected
directly from patrons and guests or as a part of the sales price of any goods,
services or displays, such as gross receipts, admissions, cabaret or similar or
equivalent taxes and paid over to federal, state or municipal governments, (iii)
gratuities, (iv) proceeds of insurance and condemnation, (v) proceeds from sales
other than sales in the ordinary course of business, (vi) all loan proceeds from
financing or refinancings of the Facility or interests therein or components
thereof, (vii) judgments and awards, except any portion thereof arising from
normal business operations of the Facility, and (viii) items constituting
"allowances" under the Uniform System.
Hazardous Materials: Any substance or material containing one or more of
any of the following: "hazardous material", "hazardous waste", "hazardous
substance", "regulated substance", "petroleum", "pollutant", "contaminant",
"polychlorinated biphenyls", "lead or lead-based paint" or "asbestos" as such
terms are defined in any applicable Environmental Law in such concentration(s)
or amount(s) as may impose clean-up, removal, monitoring or other responsibility
under the Environmental Laws, as the same may be amended from time to time, or
which may present a significant risk of harm to guests, invitees or employees of
the Facility.
Holder: Any holder of any indebtedness of the Lessor, or of the Company,
the REIT OP or any of their Affiliates, any holder of a Mortgage, any purchaser
of the Leased Property or any portion thereof at a foreclosure sale or any sale
in lieu thereof, or any designee of any of the foregoing.
Impositions: Collectively, all taxes (including, without limitation, all
ad valorem, sales and use, occupancy, single business, gross receipts,
transaction privilege, rent or similar taxes as the same relate to or are
imposed upon Lessee or Lessor or Lessee's business conducted upon the Leased
Property), assessments (including, without limitation, all assessments for
public improvements or benefit, whether or not commenced or completed prior to
the date hereof and whether or not to be completed within the Term), ground
rents, water, sewer or other rents and charges, excises, tax inspection,
authorization and similar fees and all other governmental charges, as well as
financial obligations with respect to any covenants, conditions or restrictions,
including reciprocal easement agreements or cost-sharing arrangements affecting
the Leased Property, in each case whether general or special, ordinary
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<PAGE>
or extraordinary, or foreseen or unforeseen, of every character in respect of
the Leased Property or the business conducted thereon by Lessee (including all
interest and penalties thereon caused by any failure in payment by Lessee),
which at any time prior to, during or with respect to the Term hereof may be
assessed or imposed on or with respect to or be a lien upon (a) Lessor's
interest in the Leased Property, (b) the Leased Property, or any part thereof or
any rent therefrom or any estate, right, title or interest therein, or (c) any
occupancy, operation, use or possession of, or sales from, or activity conducted
on or in connection with the Leased Property, or the leasing or use of the
Leased Property or any part thereof by Lessee. Nothing contained in this
definition of Impositions shall be construed to require Lessee to pay (1) any
tax based on net income (whether denominated as a franchise or capital stock or
other tax) imposed on Lessor or any other person, or (2) any net revenue tax of
Lessor or any other person, or (3) any tax imposed with respect to the sale,
exchange or other disposition by Lessor of any Leased Property or the proceeds
thereof.
Indemnified Party: Either of a Lessee Indemnified Party or a Lessor
Indemnified Party.
Indemnifying Party: Any party obligated to indemnify an Indemnified Party
pursuant to any provision of this Lease.
Initial Working Capital: An amount equal to One Thousand Two Hundred Fifty
Dollars ($1,250) per guest room, adjusted by the GDP Deflator, less cash on hand
at the Facility as of the Take-Over Date (and as defined Primary Agreement),
plus the Initial FF&E Reserve Balance (as that term is defined in the Primary
Management Agreement).
Insurance Requirements: All terms of any insurance policy required by this
Lease and all requirements of the issuer of any such policy.
Inventory: All "Inventories of Merchandise" and "Inventories of Supplies"
as defined in the Uniform System, including, but not limited to, linens, china,
silver, glassware and other non-depreciable personal property, and any property
of the type described in Section 1221(1) of the Code.
Land: As defined in Article I.
Lease: This Lease.
Lease Year: Any twelve-month period from January 1 to December 31 during
the Term; provided that the initial Lease Year shall be the period beginning on
the Commencement Date and ending on December 31st of the calendar year which
includes the Commencement Date, and the last Lease Year shall be the period
beginning on January 1 of the calendar year in which the Term expires or
terminates and ending on the expiration or termination date (to the extent any
computation or other provision hereof provides for an action to be taken on a
Lease Year basis, an appropriate proration or other adjustment shall be made in
respect of the initial and final Lease Years to reflect that such periods are
less than full calendar year periods).
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Leased Improvements; Leased Property: Each as defined in Article I.
Legal Requirements: Any federal, state or local law, code, rule,
ordinance, regulation or order of any governmental authority or agency having
jurisdiction over the business or operation of the Facility 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.
Lessee: The Lessee designated on this Lease and its permitted successors
and assigns.
Lessee Indemnified Party: Lessee, any Affiliate of Lessee (other than the
Company and its direct and indirect subsidiaries, including Lessor), any other
Person against whom any claim for indemnification may be asserted hereunder as a
result of a direct or indirect ownership interest in Lessee, the officers,
directors, stockholders, partners, members, employees, agents and
representatives of any of the foregoing Persons and any corporate stockholder,
agent, or representative of any of the foregoing Persons, and the respective
heirs, personal representatives, successors and assigns of any such officer,
director, stockholder, employee, agent or representative.
Lessee's Personal Property: As defined in Section 6.2.
Lessor: The Lessor designated on this Lease and its respective successors
and assigns.
Lessor Impositions: With respect to each Lease Year, an amount equal to
the aggregate amount of ground rents, if any, Capital Impositions, Real Estate
Taxes and Personal Property Taxes due and payable for such Lease Year.
Lessor Indemnified Party: The Company and its direct and indirect
subsidiaries, including Lessor, and any other Person against whom any claim for
indemnification may be asserted hereunder as a result of a direct or indirect
ownership interest in Lessor, the officers, directors, stockholders, partners,
members, employees, agents and representatives of any of the foregoing Persons
and of any stockholder, partner, member, agent, or representative of any of the
foregoing Persons, and the respective heirs, personal representatives,
successors and assigns of any such officer, director, partner, stockholder,
employee, agent or representative.
Lessor Insurance Costs: The costs to be borne by Lessor for insurance
coverages contemplated by Article XIII hereof.
Lessor's Audit: An audit by Lessor's independent certified public
accountants of the operation of the Leased Property during any Lease Year, which
audit may, at Lessor's election, be either a complete audit of the Leased
Property's operations or an audit of Room Revenues, Food Sales, Beverage Sales
and Other Income realized from the operation of the Leased Property during such
Lease Year.
Management Agreement: The Primary Management Agreement and the
Submanagement Agreement, taken together, or, following the termination of the
Primary
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Management Agreement and the Submanagement Agreement, shall have the meaning set
forth in Section 21.2.
Manager: Primary Manager, as defined in the recitals hereto, or the
Submanager, to the extent that the rights and obligations of Primary Manager
with respect to this Lease have been assigned to and/or assumed by Submanager
pursuant to the Submanagement Agreement. Following termination of the Primary
Management Agreement and the Submanagement Agreement for any reason, Manager
shall have the meaning set forth in Section 21.2.
Marriott System: The chain of full-service hotels in the United States
which are operated by Submanager (or one of its Affiliates) under the Trade Name
of "Marriott".
Measurement Date: As defined in Section 3.1(d).
Minimum Net Worth: As defined in Section 32.1.
Monthly Revenues Computation: As defined in Section 3.1(b).
Mortgage: As defined in Section 28.2.
Net Worth: As defined in Section 32.1.
Notice: A notice given pursuant to Article XXX.
Officer's Certificate: A certificate of Lessee reasonably acceptable to
Lessor, signed by the chief financial officer or another officer duly authorized
so to sign by Lessee or a general partner of Lessee, or any other person whose
power and authority to act has been authorized by delegation in writing by any
such officer.
Operating Budget: As defined in Section 3.5.
Other Income: All revenues, receipts, and income of any kind derived
directly or indirectly from or in connection with the Facility and included in
Gross Revenues other than Room Revenues, Food Sales or Beverage Sales.
Other Income Percentage: As defined in Section 3.1(b)(ii) and Exhibit B.
Overdue Rate: On any date, a rate equal to the Base Rate plus 4% per
annum, but in no event greater than the maximum rate then permitted under
applicable law.
Payment Date: Any due date for the payment of any installment of Rent.
Percentage Rent: As defined in Section 3.1(b).
Person: Any Government, natural person, corporation, partnership or other
legal entity.
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Personal Property Limitation: As defined in Section 18.1.
Personal Property Taxes: All personal property taxes imposed on the
furniture, furnishings or other items of personal property located on, and used
in connection with, the operation of the Leased Improvements as a hotel (other
than Inventory and other personal property owned by the Lessee and/or its
tenants, licensees, concessionaires, agents or contractors), together with all
replacements, modifications, alterations and additions thereto.
Predecessor: Any Person whose liabilities arising under any Environmental
Law have or may have been retained or assumed by Lessor or Lessee pursuant to
the provisions of this Lease.
Primary Intended Use: As defined in Section 7.2(b).
Primary Manager and Primary Management Agreement: As defined in the
recitals hereto.
Proceeding: Any judicial action, suit or proceeding (whether civil or
criminal), any administrative proceeding (whether formal or informal), any
investigation by a governmental authority or entity (including a grand jury),
and any arbitration, mediation or other non-judicial process for dispute
resolution.
RCRA: The Resource Conservation and Recovery Act, as amended.
Real Estate Taxes: All real estate and other ad valorem taxes, including
general and special assessments (including, without limitation, all assessments
for public improvements or benefits, whether or not commenced or completed prior
to the date hereof and whether or not completed within the Term), if any, which
are imposed upon the Land, the Leased Improvements, the Fixtures and Lessor's
and Lessee's estates in any easements, rights and appurtenances relating to the
Land and the Leased Improvements, in each case whether general or special,
ordinary or extraordinary, or foreseen or unforeseen, in every character
(including all interest and penalties thereon caused by any failure in payment
by Lessor). Real Estate Taxes shall also include all other taxes imposed in lieu
of real estate taxes as described in the preceding sentence. Real Estate Taxes
shall not include taxes on the property of Lessee or its tenants, licensees,
concessionaires, agents or contractors, including, without limitation, on
Inventory.
REIT OP: Patriot American Hospitality Partnership, L.P., a Virginia
limited partnership.
Reasonable Amount of Working Capital: As defined in the Submanagement
Agreement.
Release: A "Release" as defined in CERCLA or in any Environmental Law,
unless such Release has been properly authorized and permitted in writing by all
applicable
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Environmental Authorities or is allowed by such Environmental Law without
authorizations or permits.
Rent: Collectively, the Base Rent, Percentage Rent and Additional Charges.
Revenues Computation: As defined in Section 3.1(b).
Room Revenues: Gross revenue from the rental of guest rooms, whether to
individuals, groups or transients, at the Facility, determined in a manner
consistent with the Uniform System, excluding the following:
(a) The amount of all credits, rebates or refunds to customers,
guests or patrons; and
(b) All sales taxes or any other taxes imposed on the rental of such
guest rooms; and
(c) any fees collected for amenities including, but not limited to,
telephone, laundry, movies or concessions.
SEC: The U.S. Securities and Exchange Commission or any successor agency.
Second Tier Food Sales Percentage: As defined in Section 3.1(b)(ii) and
Exhibit B.
Second Tier Room Revenue Percentage: As defined in Section 3.1(b)(ii) and
Exhibit B.
State: The State or Commonwealth of the United States in which the Leased
Property is located, or, if the Leased Property is located outside of the United
States, the state, province, dominion or other similar jurisdiction in which the
Leased Property is located.
Submanager and Submanagement Agreement: As defined in the recitals hereto.
Subsidiaries: Corporations or other entities in which Lessee owns,
directly or indirectly, 50% or more of the voting rights or control, as
applicable (individually, a "Subsidiary").
Taking: A permanent or temporary taking or voluntary conveyance during the
Term hereof of all or part of the Leased Property, or any interest therein or
right accruing thereto or use thereof, as the result of, or in settlement of,
any Condemnation or other eminent domain proceeding affecting the Leased
Property whether or not the same shall have actually been commenced.
Term: As defined in Section 1.2.
Termination Fee: As defined in Section 33.1(c).
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Third Tier Room Revenue Percentage: As defined in Section 3.1(b)(ii) and
Exhibit B.
Unavoidable Delay: Delay due to strikes, lock-outs, labor unrest,
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, unavoidable casualty,
condemnation or other similar causes beyond the reasonable control of the party
responsible for performing an obligation hereunder, provided that lack of funds
shall not be deemed a cause beyond the reasonable control of either party hereto
unless such lack of funds is caused by the breach of the other party's
obligation to perform any obligations of such other party under this Lease.
Unavoidable Occurrence: The occurrence of strikes, lockouts, labor unrest,
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action, civil commotion, fire, casualty, condemnation or
other similar causes beyond the reasonable control of Lessee, provided, that any
such occurrence is an extraordinary (as opposed to a routine or cyclical)
material event.
Uneconomic for its Primary Intended Use: A state or condition of the
Facility such that in the good faith judgment of Lessee or Lessor, exercised
reasonably, the Facility cannot be reconstructed or repaired within a reasonable
period of time after the damage or loss, so as to be capable of being operated
on a commercially practicable basis for its Primary Intended Use.
Uniform System: The Uniform System of Accounts for the Lodging Industry
(9th Revised Edition, 1996) as published by the Hotel Association of New York
City, Inc.
Unsuitable for its Primary Intended Use: A state or condition of the
Facility such that in the good faith judgment of Lessee or Lessor, exercised
reasonably, the Facility cannot be reconstructed or repaired within a reasonable
period of time after the damage or loss, so as to be capable of functioning as
an integrated hotel facility consistent with standards applicable to a well
maintained and operated hotel comparable in quality and function to that of the
Facility prior to the damage or loss.
ARTICLE III
RENT
3.1 Rent. Lessee will pay to Lessor in lawful money of the United States
of America which shall be legal tender for the payment of public and private
debts, at Lessor's address set forth in Article XXX hereof or at such other
place or to such other Person, as Lessor from time to time may designate in a
Notice, all Rent contemplated hereby during the Term on the basis hereinafter
set forth. If there is a dispute as to the amount of Rent to be paid by Lessee,
either party may submit the dispute to arbitration pursuant to Section 37.2.
However, Lessee shall be required to pay, as and when Rent is due and payable
hereunder, the amount of Rent calculated by Lessor to be due and payable until
such time as the dispute is resolved by agreement between the parties or by
arbitration pursuant to Section 37.2:
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(a) Base Rent: During the Term, Lessee shall pay to Lessor as Base
Rent (herein so called) the annual sum set forth on Exhibit B attached hereto,
which shall be payable in arrears in equal monthly installments in the amount
set forth on Exhibit B attached hereto on or before the first day of the
calendar month following the calendar month in which the Commencement Date
occurs and on or before the first day of each calendar month thereafter;
provided, however, the monthly payment of Base Rent shall be prorated as to any
partial month.
(b) Percentage Rent: In addition to the sums payable pursuant to
subparagraph (a) above, Lessee shall, within ten (10) days after the last day of
each month during the Term hereof, pay to Lessor an amount equal to the
Percentage Rent (herein so called) payable in accordance with the provisions of
this subparagraph (b). Percentage Rent shall be calculated by the following
formula (the "Revenues Computation"):
(i) For any calendar month, Percentage Rent shall equal:
(1) An amount equal to the Monthly Revenues
Computation (defined below), for the Lease Year in
question
less
(2) An amount equal to the Base Rent paid by Lessee to
Lessor for the Lease Year to date
less
(3) An amount equal to the Percentage Rent theretofore
paid for the Lease Year in question to date.
(ii) "Monthly Revenues Computation" shall be computed
utilizing the following definitions:
(1) "Cumulative Monthly Portion" shall mean a fraction
having as its numerator the total number of calendar months
(including partial months) in a Lease Year which have elapsed prior
to the month in which a monthly payment of Percentage Rent is due,
and having as its denominator the total number of calendar months
(including partial months) in the Lease Year. For example, the
Cumulative Monthly Portion in a 12-month Lease Year for the January
Percentage Rent payment due February 10 will be 1/12 and for the
February Percentage Rent payment due March 10 will be 2/12, and such
progression shall continue for each successive calendar month so
that the Cumulative Monthly Portion for the December Percentage Rent
payment due January 10 of the next Lease Year will be 12/12 or 100%.
(2) "First Tier Room Revenue Percentage," "Second Tier
Room Revenue Percentage," "Third Tier Room Revenue Percentage,"
"First
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<PAGE>
Tier Food Sales Percentage," "Second Tier Food Sales Percentage" and
"Other Income Percentage" shall mean the percentages corresponding
to each of such terms as set forth on Exhibit B.
(3) "Annual Room Revenues First Break Point" and "Annual
Room Revenues Second Break Point" shall mean the amount of annual
Room Revenues corresponding to each of such terms as set forth on
Exhibit B.
(4) "Annual Food Sales Break Point" shall mean the
amount of annual Food Sales and Beverage Sales corresponding to such
term as set forth on Exhibit B.
(iii) The Monthly Revenues Computation shall be the amount
obtained by adding, for the applicable Lease Year the following sums:
(1) an amount equal to the First Tier Room Revenue
Percentage of all year to date Room Revenues up to (but not
exceeding) the Cumulative Monthly Portion of the Annual Room
Revenues First Break Point,
(2) an amount equal to the Second Tier Room Revenue
Percentage of all year to date Room Revenues in excess of the
Cumulative Monthly Portion of the Annual Room Revenues First Break
Point up to (but not exceeding) the Cumulative Monthly Portion of
the Annual Room Revenues Second Break Point,
(3) an amount equal to the Third Tier Room Revenue
Percentage of all year to date Room Revenues in excess of the
Cumulative Monthly Portion of the Annual Room Revenues Second Break
Point,
(4) an amount equal to the First Tier Food Sales
Percentage of the Cumulative Monthly Portion of all year to date
Food Sales and Beverage Sales up to (but not exceeding) the
Cumulative Monthly Portion of the Annual Food Sales Break Point,
(5) an amount equal to the Second Tier Food Sales
Percentage of all year to date Food Sales and Beverage Sales in
excess of the Cumulative Monthly Portion of the Annual Food Sales
Break Point, and
(6) an amount equal to the Other Income Percentage of
year to date revenues from Other Income.
(iv) If the Term begins or ends in the middle of a calendar
year, then the number of months falling within the Term during such
calendar year shall constitute a separate Lease Year. In that event, the
Annual Room Revenues First Break Point, the Annual Room Revenues Second
Break Point, and the Annual Food Sales Break Point
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(collectively, the "Break Points") shall each be multiplied by a fraction
equal to (A) the number of months (including partial months) in the Lease
Year divided by (B) twelve (12), and the Cumulative Monthly Portion for
each of the months in such Lease Year shall be determined as set forth in
the definition of Cumulative Monthly Portion above.
(v) The obligation to pay Percentage Rent accrued through the
expiration or earlier termination of the Term shall survive such
expiration or termination, and a final reconciliation, taking into
account, among other relevant adjustments, any adjustments which are
accrued after such expiration or termination date but which related to
Percentage Rent accrued prior to such termination date, shall be made not
later than sixty (60) days after such expiration or termination date.
(c) Officer's Certificates. An Officer's Certificate shall be
delivered to Lessor monthly setting forth the calculation of the Percentage Rent
payment for the most recently completed month within 10 days after each month of
each Lease Year during the Term. There shall be no reduction in Base Rent
regardless of the results of the Monthly or Annual Revenues Computation.
Percentage Rent shall be subject to confirmation and adjustment, if applicable,
as set forth in Section 3.2. Notwithstanding the amounts of Percentage Rent paid
monthly pursuant to the formula set forth above, for each Lease Year during the
Term commencing with the Lease Year in which the Commencement Date occurs, the
Percentage Rent payable under this Lease shall be equal to the amount determined
by the following formula:
The amount equal to the Annual Revenues Computation (as
defined below) for the Lease Year in question
less
An amount equal to the Base Rent paid for the applicable Lease
Year
equals
Percentage Rent for the applicable Lease Year.
The Annual Revenues Computation (herein so called) shall be the amount obtained
by adding, for the applicable Lease Year, the following sums:
(1) an amount equal to the First Tier Room Revenue
Percentage of Room Revenues for the applicable Lease Year up to (but
not exceeding) the Annual Room Revenues First Break Point,
(2) an amount equal to the Second Tier Room Revenue
Percentage of Room Revenues for the applicable Lease Year in excess
of the Annual Room Revenues First Break Point up to (but not
exceeding) the Annual Room Revenues Second Break Point,
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(3) an amount equal to the Third Tier Room Revenue
Percentage of Room Revenues for the applicable Lease Year in excess
of the Annual Room Revenues Second Break Point,
(4) an amount equal to the First Tier Food Sales
Percentage of Food Sales and Beverage Sales for the applicable Lease
Year up to (but not exceeding) the Annual Food Sales Break Point,
(5) an amount equal to the Second Tier Food Sales
Percentage of Food Sales and Beverage Sales for the applicable Lease
Year in excess of the Annual Food Sales Break Point, and
(6) an amount equal to the Other Income Percentage of
revenues from Other Income for the applicable Lease Year.
If the annual Percentage Rent due and payable for any Lease Year (as shown in
the applicable Officer's Certificate) exceeds the amount actually paid as
Percentage Rent by Lessee for such year, Lessee also shall pay such excess to
Lessor within sixty (60) days after the end of the applicable Lease Year. If the
Percentage Rent actually due and payable for such Lease Year is shown by such
certificate to be less than the amount actually paid as Percentage Rent for the
applicable Lease Year, Lessee shall be entitled to a credit in the amount of
such overpayment against the next ensuing payment of Base Rent and/or Percentage
Rent, provided, however, if such overpayment is greater than a monthly payment
of Base Rent, Lessor shall pay the amount which is over and above the monthly
payment of Base Rent to Lessee within thirty (30) days of such determination.
Notwithstanding the foregoing, if the Annual Revenues Computation is less than
the Base Rent for the applicable Lease Year, Lessee shall not be entitled to any
credit or refund.
(d) CPI Adjustments.
(i) For the Lease Year commencing January 1, 1999, and for
each Lease Year thereafter during the Term, the Base Rent then in effect shall
be increased in the following manner:
(a) The Base Rent for the Lease Year in question shall
be an amount equal to (1) the prior year's Base Rent, plus (2) the product of
(aa) an amount equal to (x) the prior year's Base Rent multiplied by the CPI
Factor, less (y) the prior year's Base Rent, times (bb) the Fixed Rent Factor.
(b) The term "CPI Factor" shall mean a percentage
computed by dividing the Consumer Price Index for the day before the day that
the new Lease Year commences ("Measurement Date") by the Consumer Price Index
for the day that is twelve months preceding the Measurement Date.
(c) The term "Fixed Rent Factor" shall mean a percentage
computed by dividing the actual Lessor Impositions (on an annualized basis) plus
the Lessor
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Insurance Costs (on an annualized basis) for Lease Year 1998 by the Base Rent
for Lease Year 1999.
(d) For example, if the prior years' Base Rent was
$500,000.00, the CPI Factor was 1.03 and the Fixed Rent Factor is .20, then the
Base Rent for the Lease Year in question would be $503,000.00: $500,000 +
[($500,000 X 1.03 - $500,000) X .2)].
(ii) For each Lease Year during the Term beginning with the
Lease Year commencing January 1, 1999, the Annual Room Revenues First Break
Point and the Annual Room Revenues Second Break Point (together, the "Annual
Room Revenues Break Points"), and the Annual Food Sales Break Point then
included in the Revenues Computation set forth above, shall be increased as
follows:
(a) The new Annual Room Revenues Break Points in the
Revenues Computation described above for the Lease Year commencing January 1,
1999, and for each Lease Year thereafter shall be the product of (i) the Annual
Room Revenues Break Points in effect in the most recently ended Lease Year times
(ii) the CPI Factor plus the percentage amount set forth on Exhibit B; and
(b) The new Annual Food Sales Break Point in the
Revenues Computation described above for the Lease Year commencing January 1,
1999, and for each Lease Year thereafter during the Term, shall be the product
of (i) the Annual Food Sales Break Point in effect in the most recently ended
Lease Year times (ii) the CPI Factor plus the percentage amount set forth on
Exhibit B.
(iii) In no event shall the Base Rent, the Annual Room
Revenues Break Points or the Annual Food Sales Break Point then in effect be
reduced as a result of any changes in the Consumer Price Index or any
calculations made pursuant to this Subparagraph (d).
(iv) Adjustments calculated as set forth above in the Base
Rent, Annual Room Revenues Break Points and the Annual Food Sales Break Point
shall be effective on the first day of each calendar Lease Year to which such
adjusted amounts apply. If Base Rent or Percentage Rent is paid prior to the
determination of the amount of any adjustment to Base Rent, Percentage Rent, the
Annual Room Revenues Break Points or the Annual Food Sales Break Point
applicable for such period, whether because of a delay in the publication of the
Consumer Price Index for the Measurement Date or because of any other reason,
payment adjustments for any shortfall in or overpayment of Percentage Rent paid
shall be made with first Base Rent and Percentage Rent payments due after the
amount of the adjustments are determined.
(v) If (a) a significant change is made in the number or
nature (or both) of items used in determining the Consumer Price Index, or (b)
the Consumer Price Index shall be discontinued for any reason, the Bureau of
Labor Statistics shall be requested to furnish a new index comparable to the
Consumer Price Index, together with information which
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will make possible a conversion to the new index in computing the adjusted Base
Rent, Annual Room Revenues Break Points and Annual Food Sales Break Point
hereunder. If for any reason the Bureau of Labor Statistics does not furnish
such an index and such information, the parties will instead mutually select,
accept and use such other index or comparable statistics on the cost of living
in various U.S. cities that is computed and published by an agency of the United
States or a responsible financial periodical of recognized authority.
(vi) To the extent that, at the end of any Lease Year,
Percentage Rent has been overpaid, Lessee shall be entitled to a credit against
the next ensuing payments of Base Rent and/or Percentage Rent.
3.2 Confirmation of Percentage Rent.
(a) Lessee shall utilize, or cause to be utilized, an accounting
system for the Leased Property in accordance with its usual and customary
practices, and in accordance with GAAP and the Uniform System, that will
accurately record all data necessary to compute Percentage Rent, and Lessee
shall retain, for at least three (3) years after the expiration of each Lease
Year, reasonably adequate records conforming to such accounting system showing
all data necessary to conduct Lessor's Audit and to compute Percentage Rent for
the applicable Lease Years.
(b) Lessor shall have the right from time to time by its accountants
or representatives to audit such information in connection with Lessor's Audit,
and to examine all Lessee's records (including supporting data and sales and
excise tax returns) reasonably required to complete Lessor's Audit and to verify
Percentage Rent, subject to any prohibitions or limitations on disclosure of any
such data under Legal Requirements. For this purpose, Lessee's records shall
include all records maintained with respect to the Leased Property on Lessee's
behalf by Manager. If any Lessor's Audit discloses a deficiency in the payment
of Percentage Rent, and either Lessee agrees with the result of Lessor's Audit
or the matter is otherwise determined or compromised, Lessee shall forthwith pay
to Lessor the amount of the deficiency, as finally agreed or determined,
together with interest at the Overdue Rate from the date when said payment
should have been made to the date of payment thereof; provided, however, that as
to any Lessor's Audit that is commenced more than one (1) year after the end of
any Lease Year, the deficiency, if any, with respect to such Percentage Rent
shall bear interest at the Overdue Rate only from the date such determination of
deficiency is made unless such deficiency is the result of the gross negligence
or willful misconduct of the Lessee, in which case interest at the Overdue Rate
will accrue from the date such payment should have been made to the date of
payment thereof. In the event the Revenue Audit discloses an overpayment by
Lessee, Lessee shall be entitled to a credit in the amount of such overpayment
against the next ensuing payment of Percentage Rent. In no event shall Lessor
undertake a Lessor's Audit more than three (3) years after the last day of the
Lease Year for which such audit is requested.
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(c) Any proprietary information obtained by Lessor pursuant to the
provisions of this Section shall be treated as confidential, except that such
information may be used, subject to appropriate confidentiality safeguards, in
any litigation between the parties and except further that Lessor may disclose
such information to prospective lenders and investors and to any other persons
to whom disclosure is necessary to comply with applicable laws, regulations and
government requirements.
(d) The obligations of Lessee and Lessor contained in this Section
shall survive the expiration or earlier termination of this Lease. Any dispute
as to the existence or amount of any deficiency in the payment of Percentage
Rent as disclosed by Lessor's Audit shall, if not otherwise settled by the
parties, be submitted to arbitration pursuant to the provisions of Section 37.2.
3.3 Additional Charges. In addition to the Base Rent and Percentage Rent,
Lessee also will pay and discharge as and when due and payable the following:
(a) all other amounts, liabilities, obligations and Impositions that Lessee
assumes or agrees to pay under this Lease, and (b) in the event of any failure
on the part of Lessee to pay any of those items referred to in clause (a) of
this Section 3.3, Lessee also will promptly pay and discharge every fine,
penalty, interest and cost that may be added for non-payment or late payment of
such items. The items referred to in clauses (a) and (b) of this Section 3.3
shall be additional rent hereunder and shall be referred to herein collectively
as the "Additional Charges". Lessor shall have all legal, equitable and
contractual rights, powers and remedies provided either in this Lease or by
statute or otherwise in the case of non-payment of the Additional Charges as in
the case of non-payment of the Base Rent. If any installment of Base Rent,
Percentage Rent or Additional Charges (but only as to those Additional Charges
that are payable directly to Lessor) shall not be paid on its due date, Lessee
will pay Lessor within ten (10) days of demand, as Additional Charges, a late
charge (to the extent permitted by law) equal to the greater of (i) interest
computed at the Overdue Rate on the amount of such installment, from the due
date of such installment to the date of payment thereof, or, (ii) in the event
Lessee has failed to pay the amount of such installment, within ten (10) days
after receipt by the Lessee of Notice from Lessor (provided, however, that after
Lessor has given one (1) such Notice in a Lease Year, the ten (10) days' Notice
and cure period shall not be required for the remainder of such Lease Year),
five percent (5%) of such amount. To the extent that Lessee pays any Additional
Charges to Lessor pursuant to any requirement of this Lease, Lessee shall be
relieved of its obligation to pay such Additional Charges to the entity to which
they would otherwise be due and Lessor shall pay the same from monies received
from Lessee.
3.4 No Set Off. Rent shall be paid to Lessor without set off, deduction or
counterclaim; provided, however, that Lessee shall have the right of offset to
the extent specifically provided in Section 36.1 and the right to assert any
claim or counterclaim in a separate action brought by Lessee under this Lease or
to assert any mandatory counterclaim in any action brought by Lessor under this
Lease.
3.5 Annual Budget.
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(a) Not later than sixty (60) days prior to the commencement of each
Lease Year, Lessee shall prepare and submit to Lessor an operating budget (the
"Operating Budget") and a capital budget (the "Capital Budget") prepared in
accordance with the requirements of this Section 3.5. The Operating Budget and
the Capital Budget (together, the "Annual Budget") shall be prepared in
accordance with the Uniform System to the extent applicable and show by month
and quarter and for the year as a whole in the degree of detail specified by the
Uniform System for monthly statements, and in accordance with the detail level
of monthly financial statements, the following:
(i) Lessee's reasonable estimate of Gross Revenues (including
room rates and Room Revenues) for the forthcoming Lease Year itemized on
schedules on a monthly and quarterly basis as approved by Lessor and Lessee,
together with the assumptions, in narrative form, forming the basis of such
schedules.
(ii) An estimate of any amounts Lessor will be requested to
provide for Capital Improvements during the current and the next four (4) Lease
Years, subject to the limitations set forth in Article XXXV.
(iii) A cash flow projection.
(iv) A narrative description of the program for marketing and
managing the Facility for the forthcoming Lease Year and containing a detailed
budget itemization of proposed expenditures by category.
(v) Lessee's reasonable estimate for each month of the Lease
Year of Percentage Rent, including Room Revenues, Food Sales, Beverage Sales and
Other Income.
Lessor shall have thirty (30) days after the date on which it
receives the Annual Budget to review, approve, disapprove or request changes to
the Annual Budget. If the parties are not able to reach agreement on the Annual
Budget for any Lease Year during Lessor's thirty (30) day review period, the
parties shall attempt in good faith during the subsequent thirty (30) day period
to resolve any disputes, which attempt shall include, if requested by either
party, at least one (1) meeting of executive-level officers of Lessor and
Lessee. In the event the parties are still not able to reach agreement on the
Annual Budget for any particular Lease Year after complying with the foregoing
requirements of this Section 3.5, the parties shall adopt such portions of the
Operating Budget and the Capital Budget as they may have agreed upon and any
matters not agreed upon shall be referred to arbitration as provided for in
Section 37.2 hereof.. Pending the results of such arbitration or the agreement
of the parties, (i) if the Operating Budget has not been agreed upon, the Leased
Property will be operated in a manner consistent with the prior Lease Year's
Operating Budget without adjustment until a new Operating Budget is adopted, and
(ii) if the Capital Budget has not been agreed upon, no Capital Expenditures
shall be made unless the same are set forth in a previously approved Capital
Budget or are agreed to by Lessor and Lessee or are otherwise required to comply
with Legal Requirements, the Franchise Agreement or Brand Standards, as
applicable, or to make Emergency Expenditures.
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Lessee shall operate the Leased Property consistent with the Annual
Budget and shall promptly report to Lessor in writing any actual or anticipated
deviation from the Operating Budget or Capital Budget of any material or
long-term consequence.
(b) Notwithstanding the foregoing, while the Submanagement Agreement
is in effect, Lessor agrees that the provisions for the preparation, approval
and implementation of a Business Plan, an FF&E Estimate (including the Five-Year
Plan) and a Building Estimate and compliance therewith pursuant to Sections
4.05, 5.02 and 5.03 of the Primary Management Agreement and the Submanagement
Agreement (including by reference the related provisions of the Primary
Management Agreement and the Submanagement Agreement regarding approval of
excess expenditures, dispute resolution, choice of law and similar provisions)
shall substitute for the foregoing provisions regarding the preparation and
approval of the Annual Budget, reading such Sections, mutatis mutandis, so that
Lessor shall have all of the rights and obligations of Lessee under such
Sections, and Lessee shall have all of the rights and obligations of Primary
Manager under such Sections. Lessor agrees and acknowledges that Lessee may
delegate such rights and obligations to Primary Manager, which Primary Manager
may delegate to Submanager.
(c) Lessee agrees that it shall consult with Lessor prior to hiring,
or consenting to the hiring of, any General Manager of the Facility.
3.6 Books and Records. Lessee shall keep full and adequate books of
account and other records reflecting the results of operation of the Facility on
an accrual basis, all in accordance with the Uniform System and GAAP and the
obligations of Lessee under this Lease. The books of account and all other
records relating to or reflecting the operation of the Facility shall be kept
either at the Facility or at Lessee's offices in Dallas, Texas or Pittsburgh,
Pennsylvania and shall be available to Lessor and its representatives and its
auditors or accountants, at all reasonable times for examination, audit,
inspection, and transcription. All of such books and records pertaining to the
Facility including, without limitation, books of account, guest records and
front office records, at all times shall be the property of Lessee and shall not
be removed from the Facility or Lessee's offices without Lessee's prior written
approval, provided, however, Lessor shall be entitled to make copies of any or
all such books and records for its own files. The obligations under this Section
3.6 shall survive termination of this Lease for any reason. Lessor acknowledges
that while the Primary Management Agreement and Submanagement Agreement are in
effect, Lessee's ability to provide access to books of account and records may
be limited by the provisions of such agreements.
3.7 Changes in Operations. Without Lessor's prior written consent, Lessee
shall not (i) provide food and/or beverage operations at the Facility if not
presently provided, (ii) discontinue any food and/or beverage operations which
are presently provided, or (iii) convert a subtenant, licensee or concessionaire
to an operating department of the Facility or vice-versa. Notwithstanding the
foregoing, while the Submanagement Agreement is in effect, Lessor acknowledges
that Primary Manager and/or Submanager may have the authority to make such
changes in operations without Lessee's consent. Lessee agrees that it will not
exercise any consent, approval or consultation rights it may have under such
agreements with respect to such matters without Lessor's consent. [The parties
agree that in the event of one or
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more changes in operations that are (separately or together) reasonably likely
to change the amount of rent payable hereunder by more than [5%], the
calculation of Percentage Rent shall be equitably amended to leave the parties
in approximately the same economic position as they would have been in the
absence of such change(s).]
3.8 Allocation of Revenues. In the event that individuals or groups
purchase rooms, food and beverage and/or the use of other hotel facilities or
services together or as part of a package, Lessee agrees that revenues shall be
allocated among Room Revenues, Food Sales, Beverage Sales and/or other revenue
categories, as applicable, in a reasonable manner consistent with the historical
allocation of such revenues.
ARTICLE IV
IMPOSITIONS
4.1 Payment of Impositions.
(a) Subject to Article XII relating to permitted contests, Lessee
will pay, or cause to be paid, all Impositions (other than Lessor Impositions,
which shall be paid by Lessor) before any fine, penalty, interest or cost may be
added for non-payment, such payments to be made directly to the taxing or other
authorities where feasible, and will promptly furnish to Lessor copies of
official receipts or other satisfactory proof evidencing such payments. Lessee's
obligation to pay such Impositions shall be deemed absolutely fixed upon the
date such Impositions become a lien upon the Leased Property or any part
thereof, subject to Lessee's right of contest pursuant to the provisions of
Article XII. If any such Imposition may, at the option of the taxpayer, lawfully
be paid in installments (whether or not interest shall accrue on the unpaid
balance of such Imposition), Lessee may exercise the option to pay the same (and
any accrued interest on the unpaid balance of such Imposition) in installments
payable during the Term and in such event, shall pay such installments and any
unpaid balance of such Impositions prior to the expiration or earlier
termination of the Term hereof and before any fine, penalty, premium, further
interest or cost may be added thereto.
(b) Lessor, at its expense, shall, to the extent required or
permitted by applicable law, prepare and file all tax returns in respect of
Lessor's net income, gross receipts, sales and use, single business, transaction
privilege, rent, ad valorem, franchise taxes, Real Estate Taxes, Personal
Property Taxes, taxes on its capital stock and Lessor Impositions, and Lessee,
at its expense, shall, to the extent required or permitted by applicable laws
and regulations, prepare and file all other tax returns and reports in respect
of any Imposition as may be required by governmental authorities.
(c) If any refund shall be due from any taxing authority in respect
of any Imposition paid by Lessee, the same shall be paid over to or retained by
Lessee if no Event of Default shall have occurred hereunder and be continuing.
If an Event of Default shall have been declared by Lessor and be continuing, any
such refund shall be paid over to or retained by Lessor. Any such funds retained
by Lessor due to an Event of Default shall be applied as provided in Article
XVI.
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(d) Lessor and Lessee shall, upon request of the other, cooperate
with the other party and otherwise provide such data as is maintained by the
party to whom the request is made with respect to the Leased Property as may be
necessary to prepare any required returns and reports. Lessor, to the extent it
possesses the same, and Lessee, to the extent it possesses the same, will
provide the other party, upon request, with cost and depreciation records
necessary for filing returns for any property classified as personal property.
(e) Lessor may, upon notice to Lessee, at Lessor's option and at
Lessor's sole expense, protest, appeal, or institute such other proceedings (in
its or Lessee's name) as Lessor may deem appropriate to effect a reduction of
real estate or personal property assessments for those Impositions to be paid by
Lessor, and Lessee, at Lessor's expense as aforesaid, shall fully cooperate with
Lessor in such protest, appeal, or other action. Lessor hereby agrees to
indemnify, defend, and hold harmless Lessee from and against any claims,
obligations, and liabilities against or incurred by Lessee in connection with
such cooperation. Lessor, however, reserves the right to effect any such
protest, appeal or other action and, upon notice to Lessee, shall control any
such activity, which shall then proceed at Lessor's sole expense. Upon such
notice, Lessee, at Lessor's expense, shall cooperate fully with such activities.
(f) To the extent received by it, Lessee shall furnish Lessor with
copies of all assessment notices for Real Estate Taxes and Personal Property
Taxes in sufficient time for Lessor to file a protest and pay such taxes without
penalty. Lessor shall within thirty (30) days after making such payment furnish
Lessee with evidence of payment of Capital Impositions, Real Estate Taxes and
Personal Property Taxes.
4.2 Notice of Impositions. Lessor shall give prompt Notice to Lessee of
all Impositions payable by Lessee hereunder of which Lessor at any time has
knowledge, provided that Lessor's failure to give any such Notice shall in no
way diminish Lessee's obligations hereunder to pay such Impositions, but if
Lessee did not otherwise have knowledge of such Imposition sufficient to permit
it to pay same, such failure shall obviate any default hereunder for a
reasonable time after Lessee receives Notice of any Imposition which it is
obligated to pay during the first taxing period applicable thereto.
4.3 Adjustment of Impositions. Impositions payable by Lessee which are
imposed in respect of the tax-fiscal period during which the Term terminates
shall be adjusted and prorated between Lessor and Lessee, whether or not such
Imposition is imposed before or after such termination, and the parties'
obligations to pay their respective prorated share thereof after termination
shall survive such termination.
4.4 Utility Charges. Lessee will be solely responsible for obtaining and
maintaining utility services to the Leased Property and will pay or cause to be
paid all charges for electricity, gas, oil, water, sewer and other utilities
used in the Leased Property during the Term.
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ARTICLE V
NO TERMINATION, ABATEMENT
5.1 No Termination, Abatement. Except as otherwise specifically provided
in this Lease, Lessee, to the extent permitted by law, shall remain bound by
this Lease in accordance with its terms and shall neither take any action
without the written consent of Lessor to modify, surrender or terminate the
same, nor seek nor be entitled to any abatement, deduction, deferment or
reduction of the Rent, or setoff against the Rent, nor shall the obligations of
Lessee be otherwise affected by reason of (a) any damage to, or destruction of,
any Leased Property or any portion thereof from whatever cause or any Taking of
the Leased Property or any portion thereof, (b) any bankruptcy, insolvency,
reorganization, composition, readjustment, liquidation, dissolution, winding up
or other proceedings affecting Lessor or any assignee or transferee of Lessor,
or (c) for any other cause whether similar or dissimilar to any of the foregoing
other than a discharge of Lessee from any such obligations as a matter of law.
Lessee hereby specifically waives all rights, arising from any default under
this Lease by Lessor which may now or hereafter be conferred upon it by law to
(1) modify, surrender or terminate this Lease or quit or surrender the Leased
Property or any portion thereof, or (2) entitle Lessee to any abatement,
reduction, suspension or deferment of or set off against the Rent or other sums
payable by Lessee hereunder, except as otherwise specifically provided in this
Lease. The obligations of Lessee hereunder shall be separate and independent
covenants and agreements and the Rent and all other sums payable by Lessee
hereunder shall continue to be payable in all events unless the obligations to
pay the same shall be terminated pursuant to the express provisions of this
Lease or by termination of this Lease other than by reason of an Event of
Default provided, however, nothing in this Section 5.1 shall preclude Lessee
from exercising its remedies pursuant to Section 36.1.
ARTICLE VI
PROPERTY OWNERSHIP
6.1 Ownership of the Leased Property. Lessee acknowledges that the Leased
Property is the property of Lessor and that Lessee has only the right to the
possession and use of the Leased Property upon the terms and conditions of this
Lease.
6.2 Lessee's Personal Property. At all times during the Term, Lessee,
Manager or Submanager shall maintain Inventory consistent with the amount of
inventory which is customarily maintained in a hotel of the type and character
of the Facility and is otherwise required to operate the Leased Property in the
manner contemplated by this Lease and in compliance with the Franchise Agreement
and all Legal Requirements. All Inventory shall be the property of Lessee,
Manager or Submanager, as the case may be. Lessee may (and shall as provided
hereinbelow), at its expense, install, affix or assemble or place on any parcels
of the Land or in any of the Leased Improvements, any items of personal property
(including Inventory) owned by Lessee (collectively, the "Lessee's Personal
Property"). Lessee may, subject to the first sentence of this Section 6.2,
remove any of Lessee's Personal Property at any time during the Term or upon the
expiration or any prior termination of the Term. All of
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Lessee's Personal Property, other than Inventory, not removed by Lessee within
thirty (30) days following the expiration or earlier termination of the Term
shall be considered abandoned by Lessee and may be appropriated, sold, destroyed
or otherwise disposed of by Lessor without first giving Notice thereof to
Lessee, without any payment to Lessee and without any obligation to account
therefor. Lessee will, at its expense, restore the Leased Property to the
condition required by Section 9.1(d), including repair of all damage to the
Leased Property caused by the removal of Lessee's Personal Property, whether
effected by Lessee or Lessor.
6.3 Equipment Lease Property. Personal property utilized at the Facility
which is leased pursuant to equipment leases in effect on the Commencement Date
and which expire on or before the termination of this Lease shall, at the option
of Lessor, become the property of Lessor without the payment of additional
consideration by Lessor except for any consideration which must be paid to the
equipment lessor on expiration of the equipment lease to acquire title thereto.
Lessee shall cooperate with Lessor to effect the transfer of title to such
leased property to Lessor and shall give Notice to Lessor of any such leases and
of the expiration dates thereof. Lessor shall, at Lessor's cost, acquire title
to or replace such leased property with funds other than the Capital
Expenditures Reserve when the leases for such leased property expire and make
such property or replacement property available to Lessee hereunder during the
Term of this Lease.
ARTICLE VII
CONDITION, USE
7.1 Condition of the Leased Property. Lessee acknowledges receipt and
delivery of possession of the Leased Property. Lessee has examined and otherwise
has knowledge of the condition of the Leased Property and has found the same to
be satisfactory for its purposes hereunder. Lessee is leasing the Leased
Property "as is", "with all faults", and in its present condition. Except as
otherwise specifically provided herein, Lessee waives any claim or action
against Lessor in respect of the condition of the Leased Property. LESSOR MAKES
NO WARRANTY OR REPRESENTATION, EXPRESS OR IMPLIED, IN RESPECT OF THE LEASED
PROPERTY, OR ANY PART THEREOF, EITHER AS TO ITS FITNESS FOR USE, DESIGN OR
CONDITION FOR ANY PARTICULAR USE OR PURPOSE OR OTHERWISE, AS TO THE QUALITY OF
THE MATERIAL OR WORKMANSHIP THEREIN, LATENT OR PATENT, IT BEING AGREED THAT ALL
SUCH RISKS ARE TO BE BORNE BY LESSEE. LESSEE ACKNOWLEDGES THAT THE LEASED
PROPERTY HAS BEEN INSPECTED BY LESSEE AND IS SATISFACTORY TO IT. Lessor shall
have the right to proceed against any predecessor in title for breaches of
warranties or representations or for latent defects in the Leased Property, and
Lessor shall, if requested by Lessee, assign any such right to Lessee if and to
the extent Lessor determines not to exercise such right. If either party
determines to exercise such right, the other party shall fully cooperate in the
prosecution of any such claim, in Lessor's or Lessee's name, all at the cost and
expense of the prosecuting party, who hereby agrees to indemnify, defend and
hold harmless the other party from and against any claims, obligations and
liabilities against or incurred by such other party in connection with such
cooperation, and who further agrees to apply all amounts realized from the
prosecution of such claim, less its expenses in connection
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therewith, to remedy such breach or cure such defect. Lessor agrees to use its
reasonable efforts to cooperate with Lessee in Lessee's obtaining and
maintaining such permits, licenses and approvals.
7.2 Use of the Leased Property.
(a) Lessee covenants that it will proceed with all due diligence to
obtain, and will obtain and maintain, all permits, licenses and approvals,
including, without limitation, liquor licenses, needed to use and operate the
Leased Property and the Facility under applicable Legal Requirements.
(b) Lessee shall use or cause to be used the Leased Property only as
a hotel facility, and for such other uses as may be necessary or incidental to
such use, including but not limited to golf course or casino use, if applicable,
or such other use as otherwise approved by Lessor (the "Primary Intended Use").
Lessee shall not use the Leased Property or any portion thereof for any other
use without the prior written consent of Lessor. No use shall be made or
permitted to be made of the Leased Property, and no acts shall be done, which
will cause the cancellation of any insurance policy covering the Leased Property
or any part thereof (unless another adequate policy satisfactory to Lessor is
available and Lessee pays any premium increase), nor shall Lessee sell or permit
to be kept, used or sold in or about the Leased Property any article which is
prohibited by law or fire underwriter's regulations. Lessee shall comply with
all of the requirements pertaining to the Leased Property of any insurance
board, association, organization or company necessary for the maintenance of
insurance, as herein provided, covering the Leased Property and Lessee's
Personal Property, which compliance shall be performed at Lessee's sole cost
except to the extent that such compliance requires the performance of a Capital
Improvement or the payment of a Capital Imposition.
(c) Subject to the provisions of Articles XIV and XV, Lessee
covenants and agrees that during the Term it will either directly or through an
approved manager (1) operate continuously the Leased Property as a hotel
facility, (2) keep in full force and effect and comply in all material respects
with all the provisions of the Franchise Agreement, (3) not enter into,
terminate or amend in any respect any Franchise Agreement without the consent of
Lessor, (4) maintain appropriate certifications and licenses for such use and
(5) keep Lessor advised of the status of any material litigation affecting the
Leased Property.
(d) Subject to Lessor's obligations hereunder with respect to
Capital Improvements and Capital Expenditures, Lessee shall not commit or suffer
to be committed any waste on the Leased Property, or in the Facility, nor shall
Lessee cause or permit any nuisance thereon.
(e) Lessee shall neither suffer nor permit the Leased Property or
any portion thereof, or Lessee's Personal Property, to be used in such a manner
as (1) might reasonably tend to impair Lessor's (or Lessee's, as the case may
be) title thereto or to any portion thereof, or (2) may reasonably make possible
a claim or claims of adverse usage or adverse possession by the public, as such,
or of implied dedication of the Leased Property or any portion thereof.
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(f) Lessee acknowledges and agrees that as long Submanagement
Agreement is in effect all employees involved in the operation of Leased
Property shall be employees of Submanager, and in any event all employees
involved in the use and operation of the Leased Property shall be employees of
Lessee, Manager, or one of their direct or indirect subsidiaries and not of
Lessor, the Company or any of the Company's direct or indirect subsidiaries.
Lessee, Manager, and their applicable Affiliates shall (subject to Lessor's
obligations with respect to Capital Improvements and Capital Expenditures)
comply in all material respects with all Legal Requirements and all collective
bargaining and other agreements applicable to such employees. Upon the
expiration or earlier termination of this Lease, or upon any termination of this
Lease due to an Event of Default by Lessee or an election by Lessee to terminate
for reasons other than Lessor's default, all such employees shall be terminated
or retained by Lessee, Manager or their Affiliate, as applicable, and Lessee,
Manager or their Affiliate, as applicable, shall (i) provide any required
notices to such employees, including WARN Act and COBRA Notices; and (ii) pay
costs and expenses associated with accrued but unpaid salary, earned but unpaid
vacation pay, accrued but unearned vacation pay, pension and welfare benefits,
COBRA benefits, employee fringe benefits, employee termination payments or any
other employee benefits due to such employees. Except as otherwise provided
herein, Lessee shall indemnify, defend and hold harmless Lessor from and against
any and all claims, causes of action, proceedings, judgments, damages,
penalties, liabilities, costs and expenses (including reasonable attorney's fees
and disbursements) arising out of the employment or termination of employment of
or failure to offer employment to any employee or prospective employee by
Lessee, Manager or their Affiliates, including, without limitation, claims of
discrimination, sexual harassment, breaches of employment or collective
bargaining agreements, or (ii) the failure of Lessee, Manager or any of their
Affiliates to comply with the provisions of this section dealing with the
obligations of Lessee under this Section upon the expiration or termination of
this Lease. Upon the early termination of this Lease by Lessor (other than for
an Event of Default by Lessee or by Lessee due to a Lessor Default), Lessor
shall, as an additional Termination Fee and obligation on account of such early
termination, fully comply with all Legal Requirements and all collective
bargaining and other agreements applicable to such employees, including, without
limitation, providing all required notices, paying (or reimbursing Lessee for)
all costs and expenses associated with accrued but unpaid salary, earned but
unpaid vacation pay, accrued but unearned vacation pay, pension and welfare
benefits, COBRA benefits, employee fringe benefits, employee termination
payments or any other employee benefits due to such employees (to the extent not
delinquent or past due, all delinquent or past due salaries and benefits being
the obligation of Lessee, Manager or their Affiliates, as applicable). Lessor
shall indemnify, defend and hold harmless Lessee, any Lessee Indemnified Parties
and Manager, from and against any and all claims, causes of action, proceedings,
judgments, damages, penalties, liabilities, costs and expenses (including
reasonable attorneys' fees and expenses) arising out of the failure of Lessor to
comply with the provisions of this Section. Lessee, Lessor and Manager and their
applicable Affiliates shall cooperate reasonably to permit each to comply with
their obligations under this Section upon expiration of the stated Term of this
Lease or the early termination of this Lease. The indemnification rights and
obligations provided for in this section shall survive the termination of this
Lease.
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(g) If the Facility includes a golf course, tennis courts, spa
and/or other facilities in which nonequity memberships representing rights of
use of such facilities have been granted, the existing membership contracts have
been or shall be assigned to and assumed by Lessee; and during the Term, Lessee
may enter into new membership contracts on terms and conditions approved by
Lessor for the use of the golf course and other facilities presently covered by
the existing membership contracts. Upon termination of this Lease, Lessee shall
assign to Lessor any such membership contracts entered into by Lessee during the
Term, and Lessor agrees to assume the obligations of Lessee under any such
membership contracts arising from and after the date of termination of this
Lease.
ARTICLE VIII
LEGAL REQUIREMENTS
8.1 Compliance with Legal and Insurance Requirements. Subject to Sections
8.2 and 8.3 and Article XII relating to permitted contests, and Lessor's
obligations with respect to Capital Improvements and Capital Expenditures,
Lessee, at its expense, will promptly (a) comply with all applicable Legal
Requirements and Insurance Requirements in respect of the use, operation,
maintenance, repair and restoration of the Leased Property, and (b) procure,
maintain and comply with all appropriate licenses and other authorizations
required for any use of the Leased Property and Lessee's Personal Property then
being made, and for the proper erection, installation, operation and maintenance
of the Leased Property or any part thereof.
8.2 Legal Requirement Covenants. Subject to Section 8.3, Lessee covenants
and agrees that (i) the Leased Property and Lessee's Personal Property shall not
be used for any unlawful purpose, and that Lessee shall not permit or suffer to
exist any unlawful use of the Leased Property by others, (ii) Lessee shall
acquire and maintain all appropriate licenses, certifications, permits and other
authorizations and approvals needed to operate the Leased Property in its
customary manner for the Primary Intended Use, and any other lawful use
conducted on the Leased Property as may be permitted from time to time hereunder
and (iii) Lessee's use of the Leased Property and maintenance, alteration, and
operation of the same, and all parts thereof, shall at all times, subject to
Lessor providing the necessary Capital Expenditures, conform in all material
respects to all Legal Requirements, unless the same are finally determined by a
court of competent jurisdiction to be unlawful (and Lessee shall cause all such
sub-tenants, invitees or others to so comply with all Legal Requirements).
8.3 Environmental Covenants. Lessor and Lessee (in addition to, and not in
diminution of, Lessee's covenants and undertakings in Sections 8.1 and 8.2
hereof) covenant and agree as follows:
(a) At all times hereafter until Lessee completely vacates the
Leased Property and surrenders possession of the same to Lessor and subject to
Lessor's obligations regarding Capital Expenditures, Lessee shall fully comply
with all Environmental Laws applicable to the Leased Property and the operations
thereon, except to the extent that such compliance would require the remediation
of Environmental Liabilities for which Lessee has
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no indemnity obligations under Section 8.3(b). Lessee agrees to give Lessor
prompt written notice of (1) all Environmental Liabilities of which Lessee has
been notified in writing or of which an Executive Person is aware; (2) all
pending or overtly threatened Proceedings, and all notices, demands, requests or
investigations, relating to any Environmental Liability or relating to the
issuance, revocation or change in any Environmental Authorization required for
operation of the Leased Property of which Lessee has been notified in writing or
of which an Executive Person is aware; (3) all Releases of which Lessee has been
notified in writing or of which an Executive Person is aware, in amounts
required to be reported or remediated under Environmental Laws at, on, in, under
or in any way affecting the Leased Property, or any Release at, on, in or under
any property adjacent to the Leased Property of which Lessee has been notified
in writing or of which an Executive Person is aware; and (4) all facts, events
or conditions of which Lessee has been notified in writing or of which an
Executive Person is aware, which notice indicates or which an Executive Person
is aware could reasonably lead to the occurrence of any of the above-referenced
matters.
(b) LESSEE WILL PROTECT, INDEMNIFY, HOLD HARMLESS AND DEFEND LESSOR
INDEMNIFIED PARTIES FROM AND AGAINST ANY AND ALL ENVIRONMENTAL LIABILITIES TO
THE EXTENT PERMITTED BY LAW WHICH RESULT FROM THE WRONGFUL ACTS OR NEGLIGENT
ACTS OR FAILURES TO ACT OF LESSEE OR ITS AGENTS, INCLUDING ANY MANAGER OR
SUBMANAGER OF THE FACILITY, AND WHICH ARISE OR ACCRUE DURING THE PERIOD BETWEEN
THE COMMENCEMENT DATE AND THE DATE LESSEE COMPLETELY VACATES THE LEASED
PROPERTY.
(c) Lessor hereby agrees to defend, indemnify and save harmless any
and all Lessee Indemnified Parties from and against any and all Environmental
Liabilities to the extent permitted by law, except to the extent that the same
are caused by wrongful acts or negligent acts or failures to act of Lessee.
(d) If any Proceeding is brought against any Indemnified Party in
respect of an Environmental Liability with respect to which such Indemnified
Party may claim indemnification under either Section 8.3(b) or (c), the
Indemnifying Party, upon request, shall at its sole expense resist and defend
such Proceeding, or cause the same to be resisted and defended by counsel
designated by the Indemnifying Party and approved by the Indemnified Party,
which approval shall not be unreasonably withheld; provided, however, that such
approval shall not be required in the case of defense by counsel designated by
any insurance company undertaking such defense pursuant to any applicable policy
of insurance. Each Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel will be at the sole expense of such
Indemnified Party unless a conflict of interest prevents representation of such
Indemnified Party by the counsel selected by the Indemnifying Party and such
separate counsel has been approved by the Indemnifying Party, which approval
shall not be unreasonably withheld. The Indemnifying Party shall not be liable
for any settlement of any such Proceeding made without its consent, which shall
not be unreasonably withheld, but if settled with the consent of the
Indemnifying Party, or if settled without its consent (if its consent shall be
unreasonably withheld), or if there be a final, nonappealable judgment for an
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adversary party in any such Proceeding, the Indemnifying Party shall indemnify
and hold harmless the Indemnified Parties from and against any liabilities
incurred by such Indemnified Parties by reason of such settlement or judgement.
(e) At any time any Indemnified Party has reason to believe
circumstances exist which could reasonably result in an Environmental Liability,
upon reasonable prior written notice to Lessee stating such Indemnified Party's
basis for such belief, an Indemnified Party shall be given immediate access to
the Leased Property (including, but not limited to, the right to enter upon,
investigate, drill wells, take soil borings, excavate, monitor, test, cap and
use available land for the testing of remedial technologies), Lessee's
employees, and to all relevant documents and records regarding the matter as to
which a responsibility, liability or obligation is asserted or which is the
subject of any Proceeding; provided that such access may be conditioned or
restricted as may be reasonably necessary to ensure compliance with law and the
safety of personnel and facilities or to protect confidential or privileged
information. All Indemnified Parties requesting such immediate access and
cooperation shall endeavor to coordinate such efforts to result in as minimal
interruption of the operation of the Leased Property as practicable.
(f) The indemnification rights and obligations provided for in this
Article VIII shall be in addition to any indemnification rights and obligations
provided for elsewhere in this Lease.
(g) The indemnification rights and obligations provided for in this
Article VIII shall survive the termination of this Lease.
For purposes of this Section 8.3, all amounts for which any
Indemnified Party seeks indemnification shall be computed net of (a) any actual
income tax benefit resulting therefrom to such Indemnified Party, (b) any
insurance proceeds received (net of tax effects) with respect thereto, and (c)
any amounts recovered (net of tax effects) from any third parties based on
claims the Indemnified Party has against such third parties which reduce the
damages that would otherwise be sustained; provided that in all cases, the
timing of the receipt or realization of insurance proceeds or income tax
benefits or recoveries from third parties shall be taken into account in
determining the amount of reduction of damages. Each Indemnified Party agrees to
use its reasonable efforts to pursue, or assign to Lessee or Lessor, as the case
may be, any claims or rights it may have against any third party which would
materially reduce the amount of damages otherwise incurred by such Indemnified
Party.
8.4 Special Environmental Representations, Covenants and Indemnities. The
following provisions of this Section 8.4 shall be in effect only during such
period as the Submanagement Agreement is in effect:
(a) Lessor hereby represents and warrants to Lessee that, to the best of
its knowledge except as set forth in any environmental assessment reports
provided by Lessor to Lessee, as of the Commencement Date, there are no
Hazardous Materials on any portion of the Land or the Facility, nor have any
Hazardous Materials been released or discharged on any portion of the Land or
the Facility. In addition, Lessor hereby represents and warrants that it
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has previously delivered to Lessee copies of all reports concerning
environmental conditions which have been received by Lessor or any of its
Affiliates.
(b) In the event of the discovery of Hazardous Materials (as defined
below) on any portion of the Land or in the Facility during the Term, Lessor
shall (except as otherwise set forth to the contrary in paragraph (c) below)
promptly remove such Hazardous Materials, together with all contaminated soil
and containers, and shall otherwise remedy the problem in accordance with
Environmental Laws. Lessor shall (except as otherwise set forth to the contrary
in paragraph (c) below) indemnify, defend and hold Lessee, Primary Manager and
Submanager harmless from and against all loss, costs, 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
Land or in the Facility; and this obligation of Lessor shall survive termination
of this Lease.
(c) In the event that Hazardous Materials are released on any portion of
the Land or in the Facility during the Term as a result of the actions of
Lessee's, Manager's, Primary Manager's or Submanager's employees or agents, then
Lessee shall promptly remove such Hazardous Materials, together with all
contaminated soil and containers, and shall otherwise remedy the problem in
accordance with all Environmental Laws. All costs and expenses of the removal by
Lessee (pursuant to this paragraph (c)) of Hazardous Materials, and of the
aforesaid compliance with Environmental Laws shall be paid from Lessee's own
funds, and Lessee shall indemnify, defend and hold Lessor and any Mortgagee
harmless from and against all loss, costs, liability and damage (including,
without limitation, engineers' and attorneys' fees and expenses, and the cost of
litigation) arising from the actions described in this paragraph (c). Lessee
shall be able to retain in the Facility reasonable quantities of cleansers,
solvents and other materials used in the ordinary course of Facility operations,
notwithstanding that such materials may contain or be Hazardous Materials,
provided that Lessee complies with all Environmental Laws with regard to the
storage, use and disposal thereof.
(d) Except as otherwise set forth to the contrary in paragraph (c) above,
all costs and expenses of the aforesaid removal of Hazardous Materials from the
Land or the Facility, and of the aforesaid compliance with all Environmental
Laws, and any amounts paid to Lessee pursuant to the indemnity set forth in
paragraph (b) above, shall be paid by Lessor, and shall not be subject to the
limitation on Capital Expenditures set forth in Article XXXV.
ARTICLE IX
MAINTENANCE AND REPAIRS
9.1 Maintenance and Repair.
(a) Except as provided in Section 9.1(b), Lessee will keep the
Leased Property and all parts thereof, including without limitation, all private
roadways, sidewalks, curbs and other appurtenances thereto that are under
Lessee's control, and including without limitation windows and plate glass,
parking lots, HVAC, mechanical, electrical and plumbing
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systems and equipment (including conduit and ductware), in good order and repair
and in compliance with the standards of the Franchise Agreement (whether or not
the need for such repairs occurred as a result of Lessee's use, any prior use,
the elements or the age of the Leased Property or any portion thereof) ordinary
wear and tear excepted except for the obligation to make necessary and
appropriate repairs, replacements and improvements as provided in this Section
9.1(a), and, except as otherwise provided in Section 9.1(b), Article XIV or
Article XV, with reasonable promptness, make all necessary and appropriate
repairs, replacements and improvements thereto of every kind and nature, whether
interior or exterior ordinary or extraordinary, foreseen or unforeseen or
arising by reason of a condition existing prior to the commencement of the Term
of this Lease (concealed or otherwise), or required by any governmental agency
having jurisdiction over the Leased Property. All repairs shall, to the extent
reasonably achievable, be at least equivalent in quality to the original work.
Lessee will not take or omit to take any action, the taking or omission of which
might materially impair the value or the usefulness of the Leased Property or
any part thereof for its Primary Intended Use. If Lessee fails to make any
required repairs or replacements after fifteen (15) days notice from Lessor, or
after such longer period as may be reasonably required provided that Lessee at
all times diligently proceeds with such repair or replacement, then Lessor shall
have the right, but shall not be obligated, to make such repairs or replacements
on behalf of and for the account of Lessee. In such event, such work shall be
paid for in full by Lessee as Additional Charges.
(b) Notwithstanding Lessee's obligations under Section 9.1(a) above,
but subject to the limitations on Lessor's obligations for Capital Expenditures
set forth in Article XXXV, except to the extent such Capital Expenditures are
caused by the gross negligence or willful misconduct of Executive Personnel (but
subject to Section 13.4), Lessor shall be required to make all Capital
Expenditures. Lessor's obligations under Section 35.1(d) shall not, however, be
affected by the gross negligence or willful misconduct of Executive Personnel.
Lessee hereby waives, to the extent permitted by law, the right to make repairs
at the expense of Lessor pursuant to any law in effect at the time of the
execution of this Lease or hereafter enacted; but Lessee does not waive any of
its rights under Article XXXVI hereof, and such waiver shall not relieve Lessor
of its obligations under this Section 9.1(b) and Article XXXV hereof.
(c) Lessee will, upon the expiration or prior termination of the
Term, vacate and surrender the Leased Property to Lessor in the condition in
which the Leased Property was originally received from Lessor, except as
repaired, rebuilt, restored, altered or added to as permitted or required by the
provisions of this Lease and except for ordinary wear and tear (subject to the
obligation of Lessee to maintain the Leased Property in good order and repair in
accordance with Section 9.1(a) above, as would a prudent owner of comparable
property, during the entire Term) or damage by casualty or Condemnation.
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ARTICLE X
ALTERATIONS
10.1 Alterations. Subject to first obtaining the written approval of
Lessor, which approval shall not be unreasonably withheld, and to first
obtaining any required written approval from a Holder, Lessee may, but shall not
be obligated to, make such additions, modifications or improvements to the
Leased Property from time to time as Lessee deems desirable for its permitted
uses and purposes, provided that such action will not alter the character or
purposes of the Leased Property or detract from the value or operating
efficiency thereof and will not impair the revenue-producing capability of the
Leased Property or adversely affect the ability of the Lessee or Lessor to
comply with the provisions of this Lease or of any mortgage, ground lease or
other material agreement affecting the Leased Property. All such work shall be
performed in a first class manner in accordance with all applicable governmental
rules and regulations and after receipt of all required permits and licenses. If
reasonably required by Lessor all such work shall be covered by performance
bonds issued by bonding companies reasonably acceptable to Lessor. The cost of
such additions, modifications or improvements to the Leased Property shall be
paid by Lessee, and all such additions, modifications and improvements shall,
without payment by Lessor at any time, be included under the terms of this Lease
and upon expiration or earlier termination of this Lease shall pass to and
become the property of Lessor.
10.2 Salvage. All materials which are scrapped or removed in connection
with the making of repairs required by Articles IX or X shall be or become the
property of Lessor or Lessee depending on which party is paying for or providing
the financing for such work.
10.3 Lessor Alterations. Lessor shall have the right, without Lessee's
consent, to make or cause to be made alterations and additions to the Leased
Property required in connection with (i) Emergency Situations, (ii) Legal
Requirements, (iii) maintenance of the Franchise Agreement and compliance with
the standards established thereby, or with Brand Standards, as applicable, and
(iv) the performance by Lessor of its obligations under this Lease. Lessor shall
further have the right, but not the obligation, to make such other additions to
the Leased Property as it may reasonably deem appropriate during the Term of
this Lease, subject to Lessee's consent, but such consent shall not be withheld
if such alterations or additions will not violate Legal Requirements, or the
Franchise Agreement or Brand Standards, as applicable, and will not materially
and adversely impair the operating efficiency or revenue producing capability of
the Leased Property or the ability of Lessee to comply with the provisions of
this Lease. All such work, unless otherwise required to be performed by Lessee
under this Lease (in which event work shall be paid for by Lessee) shall be
performed at Lessor's expense, in compliance with all Legal Requirements, in a
good and workmanlike manner and shall be done after reasonable notice to and
coordination with Lessee, so as to minimize any disruptions or interference with
the operation of the Facility.
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ARTICLE XI
LIENS
11.1 Liens. Subject to the provision of Article XII relating to permitted
contests, Lessee will not directly or indirectly create or allow to remain and
will promptly discharge at its expense any lien, encumbrance, attachment, title
retention agreement or claim upon the Leased Property resulting from the action
or inaction of Lessee, or any attachment, levy, claim or encumbrance in respect
of the Rent resulting from the action or inaction of Lessee, excluding, however,
(a) this Lease, (b) the matters, if any, included as exceptions or insured
against in the title policy insuring Lessor's interest in the Leased Property,
(c) restrictions, liens and other encumbrances resulting from the action or
inaction of Lessor or which are consented to in writing by Lessor, (d) liens for
those taxes which Lessee is not required to pay hereunder, (e) subleases
permitted by Article XXI hereof, (f) liens for Impositions or for sums resulting
from noncompliance with Legal Requirements to the extent Lessee is responsible
hereunder for such compliance so long as (l) the same are not yet delinquent or
(2) such liens are in the process of being contested as permitted by Article
XII, (g) liens of mechanics, laborers, suppliers or vendors for sums either
disputed or not yet due provided that any such liens for disputed sums are in
the process of being contested as permitted by Article XII hereof, and (h) any
liens which are the responsibility of Lessor pursuant to the provisions of this
Lease.
ARTICLE XII
PERMITTED CONTESTS
12.1 Permitted Contests. Lessee shall have the right to contest the amount
or validity of any Imposition to be paid by Lessee or any Legal Requirement to
be satisfied by Lessee hereunder or any lien, attachment, levy, encumbrance,
charge or claim (any such Imposition, Legal Requirement, lien, attachment, levy,
encumbrance, charge or claim herein referred to as "Claims") not otherwise
permitted by Article XI, by appropriate legal proceedings in good faith and with
due diligence (but this shall not be deemed or construed in any way to relieve,
modify or extend Lessee's covenants to pay or its covenants to cause to be paid
any such charges at the time and in the manner as in this Article provided), on
condition, however, that such legal proceedings shall not operate to relieve
Lessee from its obligations hereunder and shall not cause the sale or risk the
loss of any portion of the Leased Property, or any part thereof, or cause Lessor
or Lessee to be in default under any mortgage, deed of trust, security deed or
other agreement encumbering the Leased Property or any interest therein. Upon
the request of Lessor, as security for the payment of such Claims, Lessee shall
either (a) provide a bond or other assurance reasonably satisfactory to Lessor
(and satisfactory to any Holder, if approval thereof is required by such
Holder's Mortgage) that all Claims which may be assessed against the Leased
Property together with interest and penalties, if any, thereon and legal fees
anticipated to be incurred in connection therewith will be paid, or (b) deposit
within the time otherwise required for payment with a bank or trust company
designated by Lessor as trustee upon terms reasonably satisfactory to Lessor, or
with any Holder upon terms satisfactory to such Holder, money in an amount
sufficient to pay the same, together with interest and
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penalties thereon and legal fees anticipated to be incurred in connection
therewith, as to all Claims which may be assessed against or become a Claim on
the Leased Property, or any part thereof, in said legal proceedings. Lessee
shall furnish Lessor and any Holder with reasonable evidence of such deposit
within five days of the same. Lessor agrees to join in any such proceedings if
the same be required to legally prosecute such contest of the validity of such
Claims; provided, however, that Lessor shall not thereby be subjected to any
liability for the payment of any costs or expenses in connection with any
proceedings brought by Lessee; and Lessee covenants to indemnify and save
harmless Lessor from any such costs or expenses. Lessee shall be entitled to any
refund of any Claims and such charges and penalties or interest thereon which
have been paid by Lessee or paid by Lessor and for which Lessor has been fully
reimbursed. In the event that Lessee fails to pay any Claims when due or to
provide the security therefor as provided in this paragraph and to diligently
prosecute any contest of the same, Lessor may, upon ten days advance Notice to
Lessee, pay such charges together with any interest and penalties and the same
shall be repayable by Lessee to Lessor as Additional Charges at the next Payment
Date provided for in this Lease; provided, however, that should Lessor
reasonably determine that the giving of such Notice would risk loss to the
Leased Property or cause damage to Lessor, then Lessor shall only give such
Notice as is practical under the circumstances. Lessor reserves the right to
contest any of the Claims at its expense not pursued by Lessee. Lessor and
Lessee agree to cooperate in coordinating the contest of any Claims.
ARTICLE XIII
INSURANCE
13.1 General Insurance Requirements.
(a) Coverages. During the Term of this Lease, the Leased Property
shall at all times be insured with the kinds and amounts of insurance described
below. This insurance shall be written by companies authorized to issue
insurance in the State. The policies must name the party obtaining the policy as
the insured and the other party as an additional named insured, and the Manager
(including the Submanager) shall also be named as an additional insured under
the coverages described in Sections 13.1(a)(iv) through (xi). Losses shall be
payable to Lessor or Lessee as provided in this Lease. Any loss adjustment for
coverages insuring both parties shall require the written consent of Lessor and
Lessee, each acting reasonably and in good faith. Evidence of insurance shall be
deposited with Lessor. The policies on the Leased Property, including the Leased
Improvements, Fixtures and Lessee's
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Personal Property, shall at all times satisfy the requirements of the Franchise
Agreement and of any ground lease, mortgage, security agreement or other
financing lien affecting the Leased Property (provided, however, Lessee shall
not be required to obtain insurance to satisfy such requirements except to the
extent such insurance is reasonably obtainable, and Lessor shall pay the costs
of any insurance required thereby which exceeds that required pursuant to (iv)
through (xi) below), and at a minimum shall include:
(i) Building insurance on the "Special Form" (formerly "All
Risk" form) (including earthquake and flood in reasonable amounts if
and as determined by Lessor) in an amount not less than 100% of the
then full replacement cost thereof (as defined in Section 13.2) or
such other amount which is acceptable to Lessor, and personal
property insurance on the "Special Form" in the full amount of the
replacement cost thereof;
(ii) Insurance for loss or damage (direct and indirect) from
steam boilers, pressure vessels or similar apparatus, air
conditioning systems, piping and machinery, and sprinklers, if any,
now or hereafter installed in the Facility, in the minimum amount of
$5,000,000 or in such greater amounts as are then customary or as
may be reasonably requested by Lessor from time to time;
(iii) Loss of income insurance on the "Special Form", in the
amount of one year of the greater of (a) Base Rent, or (b)
Percentage Rent (based on the last Lease Year of operation or, to
the extent the Leased Property has not been operated for an entire
12-month Lease Year, based on prorated Percentage Rent) for the
benefit of Lessor, and business interruption insurance on the
"Special Form" in the amount of one year of gross profit, for the
benefit of Lessee;
(iv) Commercial general liability insurance, with contractual
indemnity endorsement, with amounts not less than $1,000,000
combined single limit for each occurrence and $2,000,000 for the
aggregate of all occurrences within each policy year, as well as
excess liability (umbrella) insurance with limits of at least
$50,000,000 per occurrence, covering each of the following: bodily
injury, death, or property damage liability per occurrence, personal
injury, general aggregate, products and completed operations with
respect to Lessee, and "all risk legal liability" (including liquor
law or "dram shop" liability, if liquor or alcoholic beverages are
served on the Leased Property) with respect to Lessor and Lessee;
(v) Fidelity bonds or blanket crime policies with limits and
deductibles as may be reasonably determined by Lessor, covering
Lessee's employees in job classifications normally bonded under
prudent hotel management practices in the United States or otherwise
required by law;
(vi) Workers' compensation insurance to the extent necessary
to protect Lessor, Lessee and the Leased Property against Lessee's
workman's compensation claims to the extent required by applicable
state laws and
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employee's liability insurance in an amount not less than $500,000
covering against liability in respect of employees, agents and
servants not covered by workers' compensation insurance and against
occupational disease benefits;
(vii) Comprehensive form vehicle liability insurance for
owned, non-owned, and hired vehicles, in the amount of $1,000,000;
(viii) Garagekeeper's legal liability insurance covering both
comprehensive and collision-type losses with a limit of liability of
$3,000,000 for any one occurrence, of which coverage in excess of
$1,000,000 may be provided by way of an excess liability policy;
(ix) Innkeeper's legal liability insurance covering property
of guests while on the Leased Property for which Lessor is legally
responsible with a limit of not less than $5,000 in any one
occurrence or $25,000 annual aggregate;
(x) Safe deposit box legal liability insurance covering
property of guests while in a safe deposit box on the Leased
Property for which Lessor is legally responsible with a limit of not
less than $100,000 in any one occurrence; and
(xi) Insurance covering such other hazards (such as plate
glass or other common risks) and in such amounts as may be customary
for comparable properties in the area of the Leased Property and is
available from insurance companies, insurance pools or other
appropriate companies authorized to do business in the State at
rates which are economically practicable in relation to the risks
covered.
(b) Responsibility for Insurance. Lessee shall obtain the insurance
and pay the premiums for the coverages described in Sections 13.1(a)(iv) through
(x), and Lessor shall obtain the insurance and pay the premiums for the
coverages described in Sections 13.1(a)(i) through (iii), provided that Lessee
shall reimburse Lessor immediately after demand therefor for any premiums paid
by Lessor for the coverages required under Section 13.1(a)(i) to the extent that
the premiums relate to coverages for property owned by Lessee or coverages which
benefit Lessee. Insurance required by Section 13.1(a)(xi) shall be obtained and
paid for by Lessor to the extent that it relates to risks of the type covered by
the insurance obtained pursuant to Sections 13.1(a)(i) through (iii), and
obtained and paid for by Lessee if it relates to risks of the type covered by
the insurance obtained pursuant to Sections 13.1(a)(iv) through (x). The party
responsible for the premium for any insurance coverage shall also be responsible
for any and all deductibles and self-insured retentions in connection with such
coverages. In the event that either party can obtain comparable insurance
coverage required to be carried by the other party from comparable insurers and
at a cost significantly less than that at which such other party can obtain such
coverage, the parties shall cooperate in good faith to obtain such coverage at
the lower cost and shall allocate the premiums therefor in accordance with the
provisions of the first sentence of this Section 13.1(b). In addition to the
rights set
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forth in Sections 17.1 and 36.1, if any party responsible for obtaining and
maintaining the insurance required under this Lease fails to do so or fails to
obtain renewals or substitutions therefor at least fifteen (15) days before such
insurance will lapse, the other party may obtain such insurance and the
defaulting party shall reimburse the party obtaining such insurance for the cost
thereof promptly upon demand, together with interest thereon at the Overdue Rate
until such cost is repaid by the defaulting party.
13.2 Replacement Cost. The term "full replacement cost" as used herein
shall mean the actual replacement cost of the Leased Property requiring
replacement from time to time including an increased cost of construction
endorsement, if available, and the cost of debris removal. In the event either
party believes that full replacement cost has increased or decreased at any time
during the Term, it shall have the right to have such full replacement cost
redetermined.
13.3 Waiver of Subrogation. Lessor and Lessee each waive any and all
rights of recovery against the other (and against the partners, officers,
employees and agents of the other party) for loss of or damage to such waiving
party or its property or the property of others under its control, to the extent
such loss or damage is covered by, or in the event the responsible party fails
to maintain the required insurance hereunder, would have been covered by, the
insurance required to be obtained by such waiving party under Sections 13.1(a)
through (iii); provided, however, that this waiver does not apply to any rights
that either party may have to insurance proceeds from their respective insurance
policies at the time of such loss or damage. In obtaining policies of property
insurance on their respective interests in the personal property and
improvements located in the Leased Property, Lessor and Lessee shall give notice
to their respective insurance carriers that the foregoing mutual waiver of
subrogation is contained in this Lease; and Lessor and Lessee shall each obtain
from their insurance carriers a consent to such waiver.
13.4 Form Satisfactory, etc. All of the policies of insurance referred to
in this Article XIII shall be written in a form, with deductibles and by
insurance companies reasonably satisfactory to Lessor and shall satisfy the
requirements of any ground lease, mortgage, security agreement or other
financing lien on the Leased Property and of the Franchise Agreement; (provided,
however, Lessee shall not be required to obtain insurance to satisfy such
requirements except to the extent such insurance is reasonably obtainable, and
Lessor shall pay the costs of any insurance required thereby which exceeds that
required pursuant to (iv) through (xi) above). The party responsible for
obtaining any policy shall pay all of the premiums therefor, and deliver copies
of such policies or certificates thereof to the other party prior to their
effective date (and, with respect to any renewal policy, thirty (30) days prior
to the expiration of the existing policy), and in the event of the failure of
the responsible party either to effect such insurance as herein called for or to
pay the premiums therefor, or to deliver such policies or certificates thereof
to the other party at the times required, such other party shall be entitled,
but shall have no obligation, after ten (10) days' Notice to the responsible
party (or after less than ten (10) days' Notice if required to prevent the
expiration of any existing policy), to effect such insurance and pay the
premiums therefor, and to be reimbursed for any such premiums upon written
demand therefor. Each insurer mentioned in this Article XIII shall agree, by
endorsement to the policy or policies issued by
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it, or by independent instrument furnished to the party not responsible
hereunder for obtaining such policy, that it will give to such party thirty (30)
days' written notice before the policy or policies in question shall be
materially altered, allowed to expire or canceled.
13.5 Increase in Limits. If either Lessor or Lessee at any time reasonably
deems the limits of the personal injury or property damage under the
comprehensive public liability insurance then carried to be either excessive or
insufficient, Lessor and Lessee shall endeavor in good faith to agree on the
proper and reasonable limits for such insurance to be carried and such insurance
shall thereafter be carried with the limits thus agreed on until further change
pursuant to the provisions of this Section. If the parties fail to agree on such
limits, the matter shall be referred to arbitration as provided for in Section
37.1. In no event shall such limits fail to satisfy the requirements of the
Franchise Agreement and of any ground lease, Mortgage, security agreement or
other financing lien affecting the Leased Property, provided, however, Lessee
shall not be required to obtain insurance to satisfy such requirements except to
the extent such insurance is reasonably obtainable, and Lessor shall pay the
costs of any insurance required thereby which exceeds that required pursuant to
(iv) through (xi) above.
13.6 Blanket Policy. Notwithstanding anything to the contrary contained in
this Article XIII, Lessee or Lessor may bring the insurance provided for herein
within the coverage of a so-called blanket policy or policies of insurance
carried and maintained by Lessee, Lessor, Manager or Submanager; provided,
however, that the coverage afforded to Lessor and Lessee will not be reduced or
diminished or otherwise be different from that which would exist under a
separate policy meeting all other requirements of this Lease by reason of the
use of such blanket policy of insurance, and provided further that the
requirements of this Article XIII are otherwise satisfied.
13.7 Separate Insurance. Neither Lessor nor Lessee shall on its own
initiative or pursuant to the request or requirement of any third party, take
out separate insurance concurrent in form or contributing in the event of loss
with that required in this Article to be furnished, or increase the amount of
any then existing insurance by securing an additional policy or additional
policies, unless all parties having an insurable interest in the subject matter
of the insurance, including in all cases Lessor, are included therein as
additional insureds, and the loss is payable under such additional separate
insurance in the same manner as losses are payable under this Lease. Each party
shall immediately notify the other party that it has obtained any such separate
insurance or of the increasing of any of the amounts of the then existing
insurance.
13.8 Reports On Insurance Claims. Lessee shall promptly investigate and
make a complete and timely written report to the appropriate insurance company
as to all accidents, all claims for damage relating to the ownership, operation,
and maintenance of the Facility, and any damage or destruction to the Facility
and the estimated cost of repair thereof and shall prepare any and all reports
required by any insurance company in connection therewith. All such reports
shall be timely filed with the insurance company as required under the terms of
the insurance policy involved, and a copy of all such reports shall be furnished
to Lessor.
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13.9 Alternate Provisions for Insurance. Notwithstanding the foregoing
provisions of this Article XIII, Lessor and Lessee agree that the amounts and
types of insurance procured by the Manager in compliance with Section 6.01 of
the Submanagement Agreement, or by Lessor or Lessee as contemplated by Section
6.02 of the Submanagement Agreement, shall satisfy the minimum obligations of
Lessor and Lessee to provide insurance under Section 13.1(a); provided that
Lessee shall not approve the selection of any insurance company under the
Primary Management Agreement without Lessor's consent. Sections 13.1(a) and 13.5
shall continue to apply to the extent that additional insurance is required to
satisfy the requirements of any ground lease, mortgage, security agreement or
other financing lien affecting the Leased Property and to the extent that
additional insurance is agreed to be desirable under Section 13.5. The costs of
insurance procured under this Section 13.9 shall be borne by Lessee and Lessor
in accordance with the principles of Sections 13.1(a), (b) and 13.5 (so that,
for example, Lessor shall bear the cost of the insurance coverage called for by
Sections 6.01 A(2) and A(3) of the Primary Management Agreement and an
appropriate portion of the cost of insurance coverage called for by Sections
6.01 A(1), A(8) and 6.02 of the Primary Management Agreement).
ARTICLE XIV
DAMAGE AND RECONSTRUCTION
14.1 Insurance Proceeds. All proceeds of the insurance contemplated by
Sections 13.1(a)(i) and (ii) payable by reason of any loss or damage to the
Leased Property, or any portion thereof, and insured under any policy of
insurance required by Article XIII of this Lease shall be paid to Lessor and
made available, if applicable, for reconstruction or repair, as the case may be,
of any damage to or destruction of the Leased Property or any portion thereof,
and, if applicable, shall be paid out by Lessor from time to time for the
reasonable costs of such reconstruction or repair upon satisfaction of
reasonable terms and conditions specified by Lessor. Any excess proceeds of
insurance remaining after the completion of the restoration or reconstruction of
the Leased Property shall be paid to Lessor. If neither Lessor nor Lessee is
required or elects to repair and restore, and the Lease is terminated as
described in Section 14.2, all such insurance proceeds shall be retained by
Lessor except for any amount thereof paid with respect to Lessee's Personal
Property and Lessor shall pay to Lessee a Termination Fee determined in
accordance with Section 33.1(c) as of the date immediately prior to such damage
or destruction; provided that there shall be credited against such Termination
Fee an amount equal to any business interruption proceeds received by Lessee.
The Termination Fee shall be paid on the later of the date the Lease is
terminated or the date the Termination Fee is determined pursuant to Section
33.1(c). All salvage resulting from any risk covered by insurance shall belong
to Lessor, except to the extent of salvage relating to Lessee's Personal
Property. The provisions of this Section 14.1 shall survive the expiration or
earlier termination of this Lease.
14.2 Reconstruction in the Event of Damage or Destruction Covered by
Insurance.
(a) If during the Term the Leased Property is totally or partially
destroyed by a risk covered by the insurance described in Article XIII and the
Facility thereby is
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rendered Unsuitable or Uneconomic for its Primary Intended Use, this Lease shall
terminate as of the date of the casualty and neither Lessor nor Lessee shall
have any further liability hereunder except for any liabilities which have
arisen prior to or which survive such termination; provided, however, that the
Lease shall not terminate pursuant to this Section 14.2(a) while the
Submanagement Agreement is in effect unless the Facility suffers a Total
Casualty (as that term is defined in the Submanagement Agreement) and pursuant
thereto the Primary Management Agreement and Submanagement Agreement are
terminated. Upon termination of the Lease pursuant to this Section 14.2(a),
Lessor shall be entitled to retain all insurance proceeds except for any amount
thereof paid with respect to Lessee's Personal Property and Lessor shall pay to
Lessee a Termination Fee determined in accordance with Section 33.1(c) as of the
date immediately prior to the destruction; provided that there shall be credited
against such Termination Fee an amount equal to any business interruption
proceeds received by Lessee. The Termination Fee shall be paid on the later of
the date the Lease is terminated or the date the Termination Fee is determined
pursuant to Section 33.1(c). The provisions of this Section 14.2(a) shall
survive the expiration or earlier termination of this Lease.
(b) If during the Term the Leased Property is partially destroyed by
a risk covered by the insurance described in Article XIII, but the Facility is
not thereby rendered Unsuitable or Uneconomic for its Primary Intended Use or,
so long as the Submanagement Agreement is in effect, the Facility does not
suffer a Total Casualty. Lessor shall with all reasonable dispatch, following
payment of the insurance proceeds, restore the Leased Property to substantially
the same condition as existed immediately before the damage or destruction and
otherwise in accordance with the terms of the Lease, and this Lease shall not
terminate as a result of such damage or destruction. Not withstanding anything
of the contrary contained in this Section 14.2, if the Facility suffers a minor
Casualty (as defined in the Submanagement Agreement), then Submanager shall
process the applicable claim and restore the Leased Property pursuant Section
6.03.A of the Submanagement Agreement.
(c) If the Facility is to be restored in accordance with the
provisions of Section 14.2(b) and if the cost of the repair or restoration
exceeds the amount of proceeds received by Lessor from the insurance required
under Article XIII, Lessor shall pay any excess amounts needed to restore the
Leased Property.
14.3 Reconstruction in the Event of Damage or Destruction Not Covered by
Insurance. If during the Term the Facility is totally or materially damaged or
destroyed by a risk not covered by the insurance described in Article XIII, or
if the Holder or any ground lessor(s) will not make the proceeds of such
insurance available to Lessor for restoration of the Facility, unless in either
event such damage or destruction renders the Facility Unsuitable or Uneconomic
for its Primary Intended Use, Lessor at its option shall either, (a) at Lessor's
sole cost and expense, restore the Facility to substantially the same condition
it was in immediately before such damage or destruction and this Lease shall not
terminate as a result of such damage or destruction, or (b) terminate this
Lease; provided, however, that while the Submanagement Agreement is in effect
Lessor shall proceed under clause (a) above unless the Facility suffers a Total
Casualty (as that term is defined in the Submanagement Agreement) and as a
result thereof the Primary Management Agreement and Submanagement Agreement are
terminated.
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Upon termination of the Lease under this Section 14.3, neither Lessor nor Lessee
shall have any further liability thereunder except for any liabilities which
have arisen or occurred prior to such termination and those which expressly
survive termination of this Lease and Lessor shall pay to Lessee a Termination
Fee determined in accordance with Section 33.1(c) as of the date immediately
prior to the damage or destruction. The Termination Fee shall be paid on the
later of the date the Lease is terminated or the date the Termination Fee is
determined pursuant to Section 33.1(c). If such damage or destruction is
determined by Lessor not to be material, Lessor shall, at Lessor's sole cost and
expense, restore the Facility to substantially the same condition as existed
immediately before the damage or destruction and otherwise in accordance with
the terms of the Lease, and this Lease shall not terminate as a result of such
damage or destruction. The provisions of this Section 14.3 shall survive the
expiration or earlier termination of this Lease.
14.4 Lessee's Property and Business Interruption Insurance. All insurance
proceeds payable by reason of any loss of or damage to any of Lessee's Personal
Property and the business interruption insurance maintained for the benefit of
Lessee shall be paid to Lessee. If Lessor restores the Facility as provided in
this Lease, Lessee shall replace and restore any of Lessee's Personal Property
to the same condition as existed immediately before the damage or destruction
and otherwise in accordance with the terms of this Lease, to the extent of the
insurance proceeds received by Lessee therefor.
14.5 Abatement of Rent. Any damage or destruction due to casualty
notwithstanding, this Lease shall remain in full force and effect; Lessee's Base
Rent shall be abated until the damage or destruction is fully repaired and
restored; and Lessee's obligation to pay Percentage Rent required by this Lease
shall remain unabated by any damage or destruction which does not result in a
reduction of Gross Revenues. If and to the extent that any damage or destruction
results in a loss of Rent or reduction of Gross Revenues which would otherwise
be realizable from the operation of the Facility, then Lessor shall receive all
loss of income insurance and Lessee shall receive all business interruption
insurance and Lessee shall have no obligation to pay Rent in excess of the
amount of Percentage Rent, if any, realizable from Gross Revenues generated by
the operation of the Leased Property during the existence of such damage or
destruction.
ARTICLE XV
CONDEMNATION
15.1 Definitions.
(a) "Condemnation" means a Taking resulting from (1) the exercise of
any governmental power, whether by legal proceedings or otherwise, by a
Condemnor, and (2) a voluntary sale or transfer by Lessor to any Condemnor,
either under threat of condemnation or while legal proceedings for condemnation
are pending.
(b) "Date of Taking" means the date the Condemnor has the right to
possession of the property being condemned.
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(c) "Award" means all compensation, sums or anything of value
awarded, paid or received on a total or partial Condemnation.
(d) "Condemnor" means any public or quasi-public authority, or
private corporation or individual, having the power of Condemnation.
15.2 Parties' Rights and Obligations. If during the Term there is any
Condemnation of all or any part of the Leased Property or any interest in this
Lease, the rights and obligations of Lessor and Lessee shall be determined by
this Article XV.
15.3 Total Taking. If title to the fee of the whole of the Leased Property
is condemned by any Condemnor, this Lease shall cease and terminate as of the
Date of Taking by the Condemnor and Lessor shall pay to Lessee a Termination Fee
determined as of the date of the taking in accordance with Section 33.1(c). If
title to the fee of less than the whole of the Leased Property is so taken or
condemned, which nevertheless renders the Leased Property Unsuitable or
Uneconomic for its Primary Intended Use, then either Lessee or Lessor shall have
the option to terminate this Lease as of the Date of Taking; provided that while
the Submanagement Agreement is in effect, neither Lessor nor Lessee shall have
the option to terminate the Lease unless it is unreasonable to continue to
operate the Leased Property in accordance with Brand Standards. Upon termination
of the Lease pursuant to this Section 15.3, if such Notice has been given, this
Lease shall thereupon cease and terminate as of the Date of Taking and Lessor
shall pay to Lessee a Termination Fee determined as of the date of the taking in
accordance with Section 33.1(c). All Base Rent, Percentage Rent and Additional
Charges paid or payable by Lessee hereunder shall be apportioned as of the Date
of Taking, and Lessee shall promptly pay Lessor such amounts. The Termination
Fee shall be paid on the later of the date the Lease is terminated or the date
the Termination Fee is determined pursuant to Section 33.1(c). The provisions of
this Section 15.3 shall survive the expiration or earlier termination of this
Lease.
15.4 Allocation of Award. The total Award made with respect to the Leased
Property or for loss of rent, or for Lessor's loss of business beyond the Term,
shall be solely the property of and payable to Lessor. Any Award made for loss
of Lessee's business during the remaining Term, if any, for the taking of
Lessee's Personal Property or for removal and relocation expenses of Lessee in
any such proceedings shall be the sole property of and payable to Lessee. In any
Condemnation proceedings Lessor and Lessee shall each seek its Award in
conformity herewith, at its respective expense; provided, however, neither
Lessor nor Lessee shall initiate, prosecute or acquiesce in any proceedings that
may result in a diminution of any Award payable to the other. Any Award made for
loss of Lessee's business during the remaining Term in any such proceedings
shall be credited against the Termination Fee payable by Lessor to Lessee under
Section 15.3.
15.5 Partial Taking.
(a) If title to less than the whole of the Leased Property is
condemned, and the Leased Property is not Unsuitable or Uneconomic for its
Primary Intended Use, or if Lessor and Lessee are entitled but elect not to
terminate this Lease as provided in
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Section 15.3, then Lessor or, at Lessor's election, Lessee shall, with all
reasonable dispatch and to the extent that the Holder permits the application of
the Award therefor and the Award is sufficient therefor, restore the untaken
portion of any Leased Improvements so that such Leased Improvements constitute a
complete architectural unit of the same general character and condition (as
nearly as may be possible under the circumstances) as the Leased Improvements
existing immediately prior to the Condemnation. Lessor and Lessee shall each
contribute to the cost of restoration that part of its Award specifically
allocated to such restoration, if any, together with severance and other damages
awarded for the taken Leased Improvements; provided, however, that the amount of
such contribution shall not exceed such cost.
(b) In the event of a partial Taking as described in Section 15.5(a)
which does not result in a termination of this Lease by Lessor, the Base Rent
shall be abated in the manner and to the extent that is fair, just and equitable
to both Lessee and Lessor, taking into consideration, among other relevant
factors, the number of usable rooms, the amount of square footage, or the
revenues affected by such partial Taking. If Lessor and Lessee are unable to
agree upon the amount of such abatement within thirty (30) days after such
partial Taking, the matter shall be submitted to Arbitration as provided for in
Section 37.2 hereof. If the Award is insufficient to complete any required
restoration, then Lessor shall pay any excess amounts required to restore the
Leased property.
(c) Notwithstanding anything to the contrary contained in this
Section 15.5, Lessor and Lessee agree that as long as the Submanagement
Agreement is in effect any conflict between the provisions of this Section 15.5
and Section 6.04 of the Submanagement Agreement shall be controlled by the
provisions of such Section 6.04 of the Submanagement Agreement.
15.6 Temporary Taking. If the whole or any part of the Leased Property or
of Lessee's interest under this Lease is condemned by any Condemnor for its
temporary use or occupancy, this Lease shall not terminate by reason thereof,
but Base Rent shall be abated (unless required to be paid pursuant to the second
sentence of this Section 15.6) and Lessee shall pay Additional Charges and
Percentage Rent in the manner and at the times specified herein, and the Award
payable to Lessee on a monthly basis as hereinafter provided shall constitute
Gross Revenues as long as doing so would not cause the Rent paid to Lessor
hereunder to fail to qualify as "rents from real property" within the meaning of
Section 856(d) of the Code or any similar or successor provision thereto. If
doing so would cause the Rent to fail to qualify then Lessee will pay Base Rent
and Additional Charges to the extent of the Award to Lessee and Percentage Rent
(after payment of Base Rent and Additional Charges and only to the extent of the
balance of the Award made to Lessee) at a rate equal to the average Percentage
Rent during the last three preceding 12 month Lease Years (or, if three 12 month
Lease Years have not elapsed, the average during the preceding 12 month Lease
Year. Except only to the extent that Lessee may be prevented from so doing as a
result of the condemnation, Lessee shall continue to perform and observe all of
the other terms, covenants, conditions and obligations hereof on the part of the
Lessee to be performed and observed, as though such Condemnation had not
occurred. In the event of any Condemnation as in this Section 15.6 described,
the entire amount of any Award made for such Condemnation allocable to the Term
of this Lease, whether paid by way of damages, rent or otherwise, except such
portion as is
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specifically allocable to restoration or Capital Expenditures which are
obligations of Lessor under this Lease, shall be paid (a) directly to Lessee if
the Award is payable by the Condemnor on a monthly basis, or (b) if payable by
the Condemnor less frequently than on a monthly basis, the Award shall be paid
to an institutional trustee designated by Lessor or to an institutional Holder
of a Mortgage and made available to Lessee on a monthly basis for application
pursuant to the provisions of this Section 15.6. Lessor covenants that upon the
termination of any such period of temporary use or occupancy it will, to the
extent of the portion of the Award specifically allocable to restoration or
Capital Expenditures which are the obligations of Lessor under this Lease and
subject to Lessee's contribution as set forth below, restore the Leased Property
as nearly as may be reasonably possible to the condition in which the same was
immediately prior to such Condemnation, unless such period of temporary use or
occupancy extends beyond the expiration of the Term, in which case Lessor shall
not be required to make such restoration. If restoration is required hereunder,
Lessee shall contribute to the cost of such restoration that portion of its
entire Award that is specifically allocable to such restoration, if any.
ARTICLE XVI
DEFAULTS
16.1 Events of Default. Any one or more of the following events shall
constitute an Event of Default (herein so called) hereunder:
(a) if Lessee fails to make any payment of Base Rent or Percentage
Rent within ten (10) days after receipt by the Lessee of Notice from Lessor that
the same has become due and payable, provided that Lessor shall not be required
to give any such Notice more than once in any Lease Year and that any second or
subsequent failure by Lessee during such Lease Year to make any payment of Base
Rent or Percentage Rent on the date the same becomes due and payable shall
constitute an immediate Event of Default; or
(b) if Lessee fails to make any payment of Additional Charges within
ten (10) days after receipt by Lessee of Notice from Lessor that the same has
become due and payable; or
(c) if Lessee fails to observe or perform any other term, covenant
or condition of this Lease and such failure is not curable, or if curable is not
cured by Lessee within a period of thirty (30) days after receipt by the Lessee
of Notice thereof from Lessor, unless such failure is curable but cannot with
due diligence be cured within a period of thirty (30) days, in which case it
shall not be deemed an Event of Default if Lessee, within such thirty (30) day
period, proceeds with due diligence to cure the failure and thereafter
diligently completes the curing thereof within 120 days of Lessor's Notice to
Lessee, which 120-day period shall cease to run during any period that a cure of
such failure is prevented by an Unavoidable Delay and shall resume running upon
the cessation of such Unavoidable Delay; or
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(d) if Lessee or any Manager which is an Affiliate of Lessee shall
(i) be generally not paying its debts as they become due, (ii) file, or consent
by answer or otherwise to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in bankruptcy, for
liquidation or to take advantage of any bankruptcy or insolvency law of any
jurisdiction, (iii) make an assignment for the benefit of its creditors, (iv)
consent to the appointment of a custodian, receiver, trustee or other officer
with similar powers with respect to it or with respect to any substantial part
of its assets, (v) be adjudicated insolvent, or (vi) take corporate action for
the purpose of any of the foregoing; or if a court or governmental authority of
competent jurisdiction shall enter an order appointing, without consent by
Lessee, a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its assets, or if an
order for relief shall be entered in any case or proceeding for liquidation or
reorganization or otherwise to take advantage of any bankruptcy or insolvency
law of any jurisdiction, or ordering the dissolution, winding-up or liquidation
of Lessee, or if any petition for any such relief shall be filed against Lessee
and such petition shall not be dismissed within sixty (60) days; or
(e) if the estate or interest of Lessee in the Leased Property or
any part thereof is voluntarily or involuntarily transferred, assigned,
conveyed, levied upon or attached in any Proceeding; or
(f) if, except as a result of and to the extent required by damage,
destruction, Condemnation or Unavoidable Delay, Lessee ceases operations on the
Leased Property; or
(g) if notice of a default or an event of default has been given by
the franchisor or licensor under the Franchise Agreement or any ground lessor(s)
with respect to the Facility on the Leased Property as a result of any action or
failure to act by the Lessee or any Person with whom the Lessee contracts for
management services at the Facility, which default or event of default is not
cured within applicable cure periods and does not arise from Lessor's breach of
any of its obligations under this Lease which are required to maintain the
Franchise Agreement or any ground lease in effect; or
(h) if Lessee breaches the provisions of Section 32.1 and such
default continues for a period of thirty (30) days after Notice thereof from
Lessor.
Notwithstanding anything to the contrary contained in Section
16.1(c), the cure periods set forth in Section 16.1(c) shall not apply to any
failure by Lessee to perform any term, covenant or condition for which a
different grace or cure period is expressly set forth in any other provision of
this Lease, and such failure shall, after the expiration of any other grace or
cure period expressly set forth elsewhere herein, constitute an immediate Event
of Default.
If litigation is commenced with respect to any alleged default under
this Lease, the prevailing party in such litigation shall receive, in addition
to its damages incurred, such sum as the court shall determine as its reasonable
attorneys' fees, and all costs and expenses incurred in connection therewith.
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16.2 Remedies. Upon the occurrence of an Event of Default, Lessor shall
have the right, at Lessor's option, to elect to do any one or more of the
following without further notice or demand to Lessee: (a) terminate this Lease,
in which event Lessee shall immediately surrender the Leased Property to Lessor,
and, if Lessee fails to so surrender, Lessor shall have the right, without
notice, to enter upon and take possession of the Leased Property and to expel or
remove Lessee and its effects without being liable for prosecution or any claim
for damages therefor; and Lessee shall, and hereby agrees to, indemnify Lessor
for all loss and damage which Lessor suffers by reason of such termination,
including without limitation, damages in an amount equal to the total of (1) the
reasonable costs of recovering the Leased Property in the event that Lessee does
not promptly surrender the Leased Property, and all other reasonable expenses
incurred by Lessor in connection with Lessee's default; (2) the unpaid Rent
earned as of the date of termination, plus interest at the Overdue Rate accruing
after the due date until such sums are paid by Lessee to Lessor; (3) the total
Rent (including Percentage Rent as determined below) which Lessor would have
received under this Lease for the remainder of the Term, but discounted to the
then present value at a rate of fifteen percent (15%) per annum, less the fair
market rental value of the balance of the Term as of the time of such default
discounted to the then present value at a rate of fifteen percent (15%) per
annum; and (4) all other sums of money and damages owing by Lessee to Lessor; or
(b) enter upon and take possession of the Leased Property without terminating
this Lease and without being liable for prosecution or any claim for damages
therefor, and, if Lessor elects, relet the Leased Property on such terms as
Lessor deems advisable, in which event Lessee shall pay to Lessor on demand the
reasonable costs of repossessing and reletting the Leased Property and any
deficiency between the Rent payable hereunder (including Percentage Rent as
determined below) and the rent paid under such reletting; provided, however,
that Lessee shall not be entitled to any excess payments received by Lessor from
such reletting and Lessor's failure to relet the Leased Property shall not
release or affect Lessee's liability for Rent or for damages; or (c) enter the
Leased Property without terminating this Lease and without being liable for
prosecution or any claim for damages therefor and maintain the Leased Property
and repair or replace any damage thereto or do anything for which Lessee is
responsible hereunder. Lessee shall reimburse Lessor immediately upon demand for
any expense which Lessor incurs in thus effecting Lessee's compliance under this
Lease, and Lessor shall not be liable to Lessee for any damages with respect
thereto. Notwithstanding anything herein to the contrary, Lessee shall not be
liable to Lessor for consequential, punitive or exemplary damages.
The rights granted to Lessor in this Section 16.2 shall be cumulative of
every other right or remedy provided in this Lease or which Lessor may otherwise
have at law or in equity or by statute, and the exercise of one or more rights
or remedies shall not prejudice or impair the concurrent or subsequent exercise
of other rights or remedies or constitute a forfeiture or waiver of Rent or
damages accruing to Lessor by reason of any Event of Default under this Lease.
Percentage Rent for the purposes of this Section 16.2 shall be a sum equal
to (i) the average of the annual amounts of the Percentage Rent for the three
12-month Lease Years immediately preceding the Lease Year in which the
termination, re-entry or repossession takes place, or (ii) if three 12-month
Lease Years shall not have elapsed, the average of the Percentage Rent during
the preceding 12-month Lease Year during which the Lease was in
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effect, or (iii) if one Lease Year has not elapsed, the amount derived by
annualizing the Percentage Rent from the effective date of this Lease.
16.3 Waiver. Each party waives, to the extent permitted by applicable law,
any right to a trial by jury in any proceedings brought by either party to
enforce the provisions of this Lease, including, without limitation, proceedings
to enforce the remedies set forth in this Article XVI, and Lessee waives the
benefit of any laws now or hereafter in force exempting property from liability
for rent or for debt.
16.4 Application of Funds. Any payments received by Lessor under any of
the provisions of this Lease during the existence or continuance of any Event of
Default shall be applied to Lessee's obligations in the order that Lessor may
determine or as may be prescribed by the laws of the State.
ARTICLE XVII
LESSOR'S RIGHT TO CURE
17.1 Lessor's Right to Cure Lessee's Default. If Lessee fails to make any
payment or to perform any act required to be made or performed under this Lease
including, without limitation, Lessee's failure to comply with the terms of any
Franchise Agreement or any ground lease, and fails to cure the same within the
relevant time periods, if any, provided in Section 16.1 or elsewhere in this
Lease, Lessor, without waiving or releasing any obligation of Lessee, and
without waiving or releasing any obligation or default, may (but shall be under
no obligation to) at any time thereafter upon Notice to Lessee make such payment
or perform such act for the account and at the expense of Lessee, and may, to
the extent permitted by law, enter upon the Leased Property for such purpose
and, subject to Section 16.2, take all such action thereon as, in Lessor's
opinion, may be necessary or appropriate therefor. No such entry shall be deemed
an eviction of Lessee. All sums so paid by Lessor and all costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses, in each
case to the extent permitted by law) so incurred, together with a late charge
thereon (to the extent permitted by law) at the Overdue Rate from the date on
which such sums or expenses are paid or incurred by Lessor until such sums or
expenses are paid by Lessee to Lessor, shall constitute Additional Charges and
shall be paid by Lessee to Lessor on demand. The obligations of Lessee and
rights of Lessor contained in this Article shall survive the expiration or
earlier termination of this Lease.
ARTICLE XVIII
LIMITATIONS
18.1 Personal Property Limitation. Lessee acknowledges that the Company is
a real estate investment trust and in order for all the Rent to constitute
qualifying "rent from real property" under Section 856 of the Code the average
of the adjusted tax bases of the items of Lessor's personal property that are
leased to the Lessee under this Lease at the beginning and at the end of any
Lease Year shall not exceed 15% of the average of the aggregate adjusted tax
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bases of the Leased Property at the beginning and at the end of such Lease Year
(the limitation being referred to herein as the "Personal Property Limitation").
Lessor and Lessee shall at all times cooperate in good faith and use their best
efforts to permit Lessor to comply with the Personal Property Limitation, which
compliance may include, by way of example only and not by way of limitation or
obligation, the purchase by Lessee at fair market value of personal property in
excess of the Personal Property Limitation. All such compliance shall be
effected in a manner which has no material net economic detriment to Lessee and
will not jeopardize the Company's status as a real estate investment trust under
the applicable provisions of the Code. Notwithstanding the foregoing, to the
extent that Lessor is required, under Section 35.1(d), to fund expenditures that
do not constitute Capital Expenditures, and such expenditures would cause the
personal property leased to Lessee to exceed the Personal Property Limitation,
Lessee shall be obliged to acquire such excess personal property from Lessor at
its fair market value. This Section 18.1 is intended to ensure that the Rent
qualifies as "rents from real property," within the meaning of Section 856(d) of
the Code, or any similar or successor provisions thereto.
18.2 Sublease Rent Limitation. Anything contained in this Lease to the
contrary notwithstanding, Lessee shall not sublet the Leased Property or enter
into any licenses or concessions or enter into any similar arrangement on any
basis such that the rental or other amounts to be paid by the sublessee
thereunder would be based, in whole or in part, on either (a) the net income or
profits derived by the business activities of the sublessee, licensee, or
concessionaire, or (b) any other formula such that any portion of the Rent would
fail to qualify as "rents from real property" within the meaning of Section
856(d) of the Code, or any similar or successor provision thereto.
18.3 Sublease Lessee Limitation. Anything contained in this Lease to the
contrary notwithstanding, Lessee shall not sublease the Leased Property to, or
enter into any license, concession or similar arrangement with, any Person in
which the Company owns, directly or indirectly, a 10% or more interest, within
the meaning of Section 856(d)(2)(B) of the Code.
18.4 Lessee Ownership Limitation. Anything contained in this Lease to the
contrary notwithstanding, Lessor shall not take, or permit an Affiliate of
Lessor to take, any action that would cause the Company to own, directly or
indirectly, a 10% or more interest in the Lessee within the meaning of Section
856(d)(2)(B) of the Code, or any similar or successor provisions thereto.
Anything contained in this Lease to the contrary notwithstanding, Lessee shall
not take, or permit an Affiliate of Lessee to take, any action that would cause
the Company to own, directly or indirectly, a 10% or more interest in the Lessee
within the meaning of Section 856(d)(2)(B) of the Code, or any similar or
successor provisions thereto. Any transfer of interests in the Lessee pursuant
to Section 35.4 shall be deemed to be an action of Lessee for purposes of this
Section 18.4.
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ARTICLE XIX
HOLDING OVER
19.1 Holding Over. If Lessee for any reason remains in possession of the
Leased Property after the expiration or earlier termination of the Term, such
possession shall be as a tenant at sufferance during which time Lessee shall pay
as rental each month two times the aggregate of (a) one-twelfth of the aggregate
Base Rent and Percentage Rent payable with respect to the last Lease Year of the
Term, (b) all Additional Charges accruing during the applicable month and (c)
all other sums, if any, payable by Lessee under this Lease with respect to the
Leased Property. During such period, Lessee shall be obligated to perform and
observe all of the terms, covenants and conditions of this Lease, but shall have
no rights hereunder other than the right, to the extent given by law to
tenancies at sufferance, to continue its occupancy and use of the Leased
Property. Nothing contained herein shall constitute the consent, express or
implied, of Lessor to the holding over of Lessee after the expiration or earlier
termination of this Lease.
ARTICLE XX
INDEMNITIES
20.1 Indemnification.
(a) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN OTHER SECTIONS OF THIS
LEASE, LESSEE WILL PROTECT, INDEMNIFY, HOLD HARMLESS AND DEFEND LESSOR
INDEMNIFIED PARTIES FROM AND AGAINST ALL LIABILITIES, OBLIGATIONS, CLAIMS,
DAMAGES, PENALTIES, CAUSES OF ACTION, COSTS AND EXPENSES (INCLUDING, WITHOUT
LIMITATION, REASONABLE ATTORNEYS' FEES AND EXPENSES), TO THE EXTENT PERMITTED BY
LAW, excluding those resulting from a Lessor Indemnified Party's negligence or
misconduct or from Lessor's failure to perform or comply with any of the terms
of this Lease, imposed upon or incurred by or asserted against Lessor
Indemnified Parties by reason of: (a) any accident, injury to or death of
persons or loss of or damage to property occurring on or about the Leased
Property or adjoining sidewalks, during the Term or while the Leased Property is
in the possession or control of Lessee including without limitation any claims
under liquor liability, "dram shop" or similar laws, (b) any use, misuse,
management, operation, maintenance or repair by Lessee or any of its agents,
employees, contractors or invitees of the Leased Property or Lessee's Personal
Property during the Term or while the Leased Property is in the possession or
control of Lessee, or any litigation, proceeding or claim by governmental
entities or other third parties to which a Lessor Indemnified Party is made a
party or participant related to such use, misuse, management, operation,
maintenance, or repair thereof by Lessee or any of its agents, employees,
contractors or invitees, (c) any Impositions that are the obligations of Lessee
pursuant to the applicable provisions of this Lease, (d) any failure on the part
of Lessee to perform or comply during the Term or while the Leased Property is
in the possession or control of Lessee with any of the terms of this Lease, and
(e) the nonperformance by Lessee or any of its agents, employees or contractors
of any of
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the terms and provisions of any and all existing and future subleases of the
Leased Property to be performed by the landlord thereunder.
(b) Lessor shall indemnify, save harmless and defend Lessee
Indemnified Parties from and against all liabilities, obligations, claims,
damages, penalties, causes of action, costs and expenses imposed upon or
incurred by or asserted against Lessee Indemnified Parties as a result of (i)
the negligence or misconduct of Lessor arising in connection with this Lease or
(ii) any failure on the part of Lessor to perform or comply with any of the
terms of this Lease. Lessor also agrees to pay to Lessee any damages incurred by
Lessee to Primary Manager pursuant to Section 9.03 of the Primary Management
Agreement as a result of Lessor's failure to perform or comply with any of the
terms of this Lease.
(c) Any amounts that become payable by an Indemnifying Party under
this Section or any other indemnity in this Lease shall be paid within ten (10)
days after liability therefor on the part of the Indemnifying Party is
determined by litigation or otherwise, and if not timely paid, shall bear a late
charge (to the extent permitted by law) at the Overdue Rate from the date of
such determination to the date of payment. Any such amounts shall be reduced by
insurance proceeds received and any other recovery (net of costs) obtained by
the Indemnified Party. An Indemnifying Party, upon request, shall at its sole
expense resist and defend any Proceeding, claim or action, or cause the same to
be resisted and defended by counsel designated by the Indemnifying Party and
approved by the Indemnified Party, which approval shall not be unreasonably
withheld; provided, however, that such approval shall not be required in the
case of defense by counsel designated by any insurance company undertaking such
defense pursuant to any applicable policy of insurance. Each Indemnified Party
shall have the right to employ separate counsel in any such Proceeding, claim or
action and to participate in the defense thereof, but the fees and expenses of
such counsel will be at the sole expense of such Indemnified Party unless a
conflict of interest prevents representation of such Indemnified Party by the
counsel selected by the Indemnified Party and such separate counsel has been
approved by the Indemnifying Party, which approval shall not be unreasonably
withheld. The Indemnifying Party shall not be liable for any settlement of any
such Proceeding, claim or action made without its consent, which consent shall
not be unreasonably withheld, but if settled with the consent of the
Indemnifying Party, or if settled without its consent (if its consent shall be
unreasonably withheld), or if there be a final, non-appealable judgment for an
adversary party in any such Proceeding, claim or action, the Indemnifying Party
shall indemnify and hold harmless the Indemnified Party from and against any
liabilities incurred by such Indemnified Party by reason of such settlement or
judgement. Nothing herein shall be construed as indemnifying a Lessor
Indemnified Party against its own grossly negligent acts or omissions or willful
misconduct.
(d) Lessee's and Lessor's obligations under the provisions of this
Article shall survive any termination of this Lease.
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ARTICLE XXI
SUBLETTING AND ASSIGNMENT
21.1 Subletting and Assignment. Subject to the provisions of Article XVIII
and Sections 21.1 and 21.2 and any other express consents, conditions,
limitations or other provisions set forth herein, Lessee shall not assign this
Lease or hereafter sublease all or any part of the Leased Property without first
obtaining the written consent of Lessor. Notwithstanding the foregoing, Lessor's
consent shall not be withheld with respect to occupancy leases which (i) are for
less than 1,000 square feet, (ii) do not require Capital Expenditures by Lessor,
(iii) do not affect the classification of Gross Revenues among Room Revenues,
Food Sales, Beverage Sales or Other Income, (iv) do not extend beyond the stated
Term of this Lease, and (v) do not have provisions which could adversely affect
the Company's status as a real estate investment trust. In the case of a
permitted subletting, the sublessee shall comply with the provisions of this
Section and Sections 18.2, 18.3, 18.4 and 21.2, and in the case of a permitted
assignment, the assignee shall assume in writing and agree to keep and perform
all of the terms of this Lease on the part of Lessee to be kept and performed
and shall be, and become, jointly and severally liable with Lessee for the
performance thereof. No assignment or subletting shall release Lessee from, and
Lessee shall remain primarily liable as principal rather than as surety for, the
prompt payment of the Rent and for the performance and observance of all of the
covenants and conditions to be performed by Lessee hereunder. An original
counterpart of each such sublease and assignment and assumption, duly executed
by Lessee and such sublessee or assignee, as the case may be, in form and
substance satisfactory to Lessor, shall be delivered promptly to Lessor. While
the Submanagement Agreement is in effect, subleases entered into on Lessee's
behalf by Primary Manager or Submanager that do not require Lessee's consent
under the terms of the Primary Management Agreement shall not be deemed to
violate the provisions of this Section.
21.2 Management Agreement. Lessee shall not enter into any management or
agency agreement relating to the management or operation of the Facility or any
modifications to such management or agency agreement (collectively, the
"Management Agreement") without Lessor's prior written approval of the terms and
conditions thereof and of the identity of any manager of the Facility (the
"Manager") which is not an Affiliate of Lessee.
21.3 Primary Manager and Submanager.
(a) Lessor acknowledges that Lessee will enter into the Primary
Management Agreement with Primary Manager and that Primary Manager intends to
enter into the Submanagement Agreement. Lessor hereby approves the terms and
conditions thereof as in effect on the date hereof and of the identity of the
Primary Manager and Submanager. Lessor acknowledges that Lessee has delegated
all of Lessee's approval rights under this Lease to Primary Manager pursuant to
Section 8 of the Owner Agreement. Lessor's approval rights under Section 21.2
shall apply to any assignment or transfer of the interests of Primary Manager
under the Primary Management Agreement or of Submanager under the Submanagement
Agreement unless such assignment or transfer is permitted to occur under such
agreements without the consent of either Lessee or Primary Manager.
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(b) Lessor further acknowledges that, pursuant to Section 5.17.2 of
the Settlement Agreement, Primary Manager and Submanager are third party
beneficiaries of certain funding and payment obligations of Lessor under this
Lease, as follows:
(i) Sections 1.3(d) and (e), regarding funding of initial
balances.
(ii) Section 4.1, regarding payment of Lessor Impositions.
(iii) Section 8.4, regarding indemnification and remedial
action for certain environmental conditions.
(iv) Sections 14.2 and 14.3, regarding restoration of the
Leased Property.
(v) Section 20.1(b)(ii), regarding reimbursement for damages
caused by Lessor's failure to perform or comply with the terms of
this Lease, but only to the extent of any monetary remedies to which
Primary Manager or Submanager may be entitled under Section 9.03 of
the Primary Management Agreement and Submanagement Agreement,
respectively, that are occasioned by Lessor's failure so to perform
or comply.
(vi) Section 33.1(c)(ii), regarding the payment of certain
amounts owed under the Primary Management Agreement upon
termination.
(vii) Sections 35.1(d) and (e), regarding the funding of
certain expenditures.
ARTICLE XXII
ESTOPPEL CERTIFICATES
22.1 Officer's Certificates; Financial Statements; Lessor's Estoppel
Certificates and Covenants.
(a) At any time and from time to time upon not less than ten (10)
days Notice by Lessor, Lessee will furnish to Lessor an Officer's Certificate
certifying that this Lease is unmodified and in full force and effect (or that
this Lease is in full force and effect as modified and setting forth the
modifications), the date to which the Rent has been paid, whether to the
knowledge of Lessee there is any existing default or Event of Default hereunder
by Lessor or Lessee, and such other information as may be reasonably requested
by Lessor. Any such certificate furnished pursuant to this Section may be relied
upon by Lessor, any lender, any underwriter and any prospective purchaser of the
Leased Property.
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(b) Lessee will furnish the following statements and operating
information to Lessor:
(i) the most recent Consolidated Financials of Lessee within
thirty (30) days after each quarter of any fiscal year (or, in the case of
the final quarter in any fiscal year, the most recent audited Consolidated
Financials of Lessee within sixty (60) days);
(ii) with reasonable promptness, such other reasonable
information respecting the financial condition, operations and affairs of
Lessee or the Leased Property (A) as the Company may be required or may
deem desirable in its reasonable discretion to file with or provide to the
SEC or any other governmental agency or any other Person, all in the form,
and either audited or unaudited, as the Company may request in its
reasonable discretion, (B) as may be reasonably necessary to confirm
compliance by Lessee and its Affiliates with the requirements of this
Lease, and (C) as may be reasonably required or requested by any existing,
potential or future Holder;
(iii) on or before the 15th day of each month, a balance
sheet, and detailed profit and loss and cash flow statements showing the
financial position of the Facility as at the end of the preceding month
and the results of operation of the Facility for such preceding month and
the Lease Year to date (including a comparison to the Operating Budget as
approved);
(iv) on or before the 15th day of each month, the general
manager's written critique of the financial report submitted pursuant to
subsection (3) immediately above, setting forth in narrative form any
variations during the preceding month from the Annual Budget and including
a preview of the Facility's financial operations during the current month;
(v) on or before the 15th day of each April, July and October
during the Term, an updated estimate for each calendar quarter remaining
in the Lease Year of the information required by Sections 3.5(a) and (e)
hereof;
(vi) upon request by Lessor, copies of all licenses, permits,
occupancy agreements, operating agreements, leases, contracts, inspection
reports, studies, appraisals, assessments, default or other notices and
similar materials and information existing with respect to the Leased
Property;
(vii) within five (5) days of Lessee's receipt thereof, any
inspection reports received from the franchisor under the Franchise Agreement.
(c) At any time and from time to time upon not less than ten (10)
days notice by Lessee, Lessor will furnish to Lessee or to any person designated
by Lessee an estoppel certificate certifying that this Lease is unmodified and
in full force and effect (or that this Lease is in full force and effect as
modified and setting forth the modifications), the date to which Rent has been
paid, whether to the knowledge of Lessor there is any existing default or
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Event of Default on Lessee's or Lessor's part hereunder, and such other
information as may be reasonably requested by Lessee. Any such certificate
furnished pursuant to this Section may be relied upon by Lessee, any lender, any
underwriter and any purchaser of the assets of Lessee.
(d) Lessee covenants to cause its officers and employees, its
Manager and its auditors to cooperate reasonably and promptly with the Company
and with the auditors for the Company in connection with the timely preparation
and filing of the Company's filings, reports and returns under applicable
federal, state and other governmental securities, blue sky and tax laws and
regulations.
ARTICLE XXIII
INSPECTIONS
23.1 Regular Meetings; Lessor's Right to Inspect.
(a) Lessee agrees that if requested by Lessor, the general manager,
the controller, the director of marketing, the asset manager and, if
specifically requested by Lessor, the director of food and beverage and the
chief engineer for the Facility will meet at the Facility with Lessor and its
representatives on a monthly basis throughout each Lease Year in order to
discuss all aspects of the management, maintenance and operation of the
Facility.
(b) Lessee shall permit Lessor and its representatives as frequently
as reasonably requested by Lessor to inspect the Leased Property and Lessee's
accounts and records pertaining thereto and make copies thereof, during usual
business hours upon reasonable advance notice, subject only to any business
confidentiality requirements reasonably requested by Lessee. In conducting such
inspections Lessor shall not unreasonably interfere with the conduct of Lessee's
business at the Leased Property.
[ (c) Subject to availability, Lessee will provide reasonable gratuitous
accommodations, food and beverage, and other services and amenities to Lessor
and its representatives in connection with all such meetings and inspections.]
ARTICLE XXIV
NO WAIVER
24.1 No Waiver. No failure by Lessor or Lessee to insist upon the strict
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof, and no acceptance of full or partial payment
of Rent during the continuance of any such breach, shall constitute a waiver of
any such breach or of any such term. To the extent permitted by law, no waiver
of any breach shall affect or alter this Lease, which shall continue in full
force and effect with respect to any other then existing or subsequent breach.
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ARTICLE XXV
CUMULATIVE REMEDIES
25.1 Remedies Cumulative. To the extent permitted by law but subject to
Article XXXVI and any other provisions of this Lease expressly limiting the
rights, powers and remedies of either Lessor or Lessee, each legal, equitable or
contractual right, power and remedy of Lessor or Lessee now or hereafter
provided either in this Lease or by statute or otherwise shall be cumulative and
concurrent and shall be in addition to every other right, power and remedy and
the exercise or beginning of the exercise by Lessor or Lessee of any one or more
of such rights, powers and remedies shall not preclude the simultaneous or
subsequent exercise by Lessor or Lessee of any or all of such other rights,
powers and remedies.
ARTICLE XXVI
SURRENDER
26.1 Acceptance of Surrender. Other than upon expiration of the Term, no
surrender to Lessor of this Lease or of the Leased Property or any part thereof,
or of any interest therein, shall be valid or effective unless agreed to and
accepted in writing by Lessor and no act by Lessor or any representative or
agent of Lessor, other than such a written acceptance by Lessor, shall
constitute an acceptance of any such surrender.
ARTICLE XXVII
NO MERGER
27.1 No Merger of Title. There shall be no merger of this Lease or of the
leasehold estate created hereby by reason of the fact that the same person or
entity may acquire, own or hold, directly or indirectly: (a) this Lease or the
leasehold estate created hereby or any interest in this Lease or such leasehold
estate and (b) the fee estate in the Leased Property.
ARTICLE XXVIII
CONVEYANCE BY LESSOR
28.1 Conveyance by Lessor. If Lessor transfers or conveys the Leased
Property other than to an Affiliate of the Company, Lessor shall give Lessee
Notice thereof and Lessee may terminate this Lease upon Notice to Lessor given
within ninety (90) days after the later of the date of such conveyance or
transfer and the date Lessee receives Notice of such transfer or conveyance, in
which event, Lessor shall pay to Lessee a Termination Fee determined in
accordance with Section 33.1(c) as of the date of such transfer or conveyance.
Any change in the ownership of Lessor that results in the Company (or its wholly
owned subsidiaries) no longer exercising ultimate managerial authority over
Lessor shall be deemed a conveyance for purposes of this Section 28.1 and
Section 33.1, in which event, Lessor shall pay to Lessee a
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Termination Fee determined in accordance with Section 33.1(c) as of the date of
such change. The Termination Fee shall be paid on the later of the date the
Lease is terminated or the date the Termination Fee is determined pursuant to
Section 33.1(c). The provisions of this Section 28.1 shall survive the
expiration or earlier termination of this Lease.
28.2 Lessor May Grant Liens.
(a) Without the consent of Lessee, Lessor may from time to time
create or otherwise cause to exist any Mortgage (as hereinafter defined) upon
the Leased Property, or any portion thereof or interest therein, or upon
Lessor's interest in this Lease, whether to secure any borrowing or other means
of financing or refinancing or otherwise. This Lease and Lessee's interest
hereunder shall at all times be subject and subordinate to the lien and security
title of any deeds to secure debt, deeds of trust, mortgages, or other interests
heretofore or hereafter granted by Lessor or which otherwise encumber or affect
the Leased Property and to any and all advances to be made thereunder and to all
renewals, modifications, consolidations, replacements, substitutions, and
extensions thereof, and to all security agreements delivered in connection
therewith (all of which are herein called the "Mortgage"), provided that the
Mortgage shall be subject to Lessee's rights under this Lease to receive all
Gross Revenues of the Facility prior to the earlier of the occurrence of an
Event of Default hereunder or the date that this Lease is terminated by the
Holder of the Mortgage in the exercise of its remedies thereunder. In
confirmation of such subordination, however, Lessee shall, at Lessor's request,
promptly execute, acknowledge and deliver any instruments which may be
reasonably required to evidence subordination to any Mortgage and to the Holder
thereof. A foreclosure, transfer in lieu of foreclosure, or other disposition of
the Leased Property pursuant to a Mortgage or collateral assignment shall
constitute a conveyance for purposes of Sections 28.1 and 33.1 requiring payment
of the Termination Fee by Lessor (but the Holder at a foreclosure sale or the
transferee in lieu of foreclosure shall not be liable for the payment of such
Termination Fee, such payment being the obligation of Lessor). The provisions of
this Section 28.2(a) shall survive the expiration or earlier termination of this
Lease.
(b) Lessee shall, upon the request of Lessor or any existing,
potential or future Holder, (i) provide Lessor or such Holder with copies of all
licenses, permits, occupancy agreements, operating agreements, leases,
contracts, inspection reports, studies, appraisals, assessments, default or
other notices and similar materials reasonably requested in connection with any
existing or proposed financing of the Leased Property, and (ii) execute and/or
cause the Manager to execute, as applicable, such estoppel agreements and
collateral assignments with respect to the Facility's liquor license, the
Management Agreement and any of the other aforementioned agreements as Holder
may reasonably request in connection with any such financing, provided that no
such estoppel agreement or collateral assignment shall in any way affect the
Term or affect adversely in any material respect any rights of Lessee under this
Lease or of Manager under the Management Agreement.
(c) Lessee shall deliver by notice delivered in the manner provided
in Article XXX to any Holder who gives Lessee written notice of its status as a
Holder, at such Holder's address stated in the Holder's written notice or at
such other address as the Holder may designate by later written notice to
Lessee, a duplicate copy of any and all notices
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regarding any default which Lessee may from time to time give or serve upon
Lessor pursuant to the provisions of this Lease. Copies of such notices given by
Lessee to Lessor shall be delivered to such Holder simultaneously with delivery
to Lessor. No such notice by Lessee to Lessor hereunder shall be deemed to have
been given unless and until a copy thereof has been mailed to such Holder as
provided above.
(d) At any time, and from time to time, upon not less than ten (10)
days' notice by a Holder to Lessee, Lessee shall deliver to such Holder an
estoppel certificate certifying as to the information required in Section
22.1(c), and such other information as may be reasonably requested by such
Holder. Any such certificate may be relied upon by such Holder.
(e) Notwithstanding the foregoing provisions of this Section 28.2,
while the Submanagement Agreement is in effect Lessor shall not encumber the
Facility with any mortgage, deed of trust, or security document, encumbering the
Leased Property or the interest of Lessor therein unless such encumbrance is a
Qualified Mortgage as that term is defined in Section 8.02 of the Submanagement
Agreement.
ARTICLE XXIX
QUIET ENJOYMENT
29.1 Quiet Enjoyment. So long as Lessee pays all Rent as the same becomes
due and complies with all of the terms of this Lease and performs its
obligations hereunder, in each case within the applicable grace and/or cure
periods, if any, Lessee shall peaceably and quietly have, hold and enjoy the
Leased Property for the Term hereof, free of any claim or other action by Lessor
or anyone claiming by, through or under Lessor and not claiming by, through or
under Lessee, but subject to all liens and encumbrances subject to which the
Leased Property was conveyed to Lessor or hereafter consented to by Lessee.
Lessee shall have the right by separate and independent action to pursue any
claim it may have against Lessor as a result of a breach by Lessor of the
covenant of quiet enjoyment contained in this Section.
ARTICLE XXX
NOTICES
30.1 Notices. All notices, demands, requests, consents approvals and other
communications ("Notice" or "Notices") hereunder shall be in writing and
personally served or mailed (by express mail, courier, or registered or
certified mail, return receipt requested and postage prepaid), (i) if to Lessor
at 1950 Stemmons Freeway, Suite 6001, Dallas, Texas 75207, Attention: Chief
Financial Officer, with a copy to General Counsel and (ii) if to Lessee at 1950
Stemmons Freeway, Suite 6001, Dallas, Texas 75207, Attention: Chief Financial
Officer, with a copy to General Counsel, or to such other address or addresses
as either party may hereafter designate. Personally delivered Notice shall be
effective upon receipt, and Notice given by mail shall be complete at the time
of deposit in the U.S. Mail system, but any prescribed period of Notice and any
right or duty to do any act or make any response within
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any prescribed period or on a date certain after the service of such Notice
given by mail shall be extended five days.
ARTICLE XXXI
INTENTIONALLY DELETED
ARTICLE XXXII
LESSEE CAPITALIZATION REQUIREMENTS
32.1 Lessee's Net Worth. Lessee shall be obligated to maintain at all
times during the Term a Net Worth in an amount at least equal to twenty percent
(20%) of the aggregate projected Base Rent and Percentage Rent for the Leased
Property (the "Minimum Net Worth"). As used herein, "Net Worth" shall mean the
excess of total assets over total liabilities, total assets and total
liabilities each to be determined in accordance with GAAP but shall also include
the amount of any guaranty of Lessee's obligations issued by any person
reasonably acceptable to Lessor who agrees to comply with the requirements of
Section 32.2.
32.2 Verification of Net Worth. In addition to the Consolidated Financials
of Lessee to be delivered to Lessor pursuant to Section 22.1, Lessee shall
deliver to Lessor, together with such Consolidated Financials of Lessee, a
certificate of Lessee's chief financial officer in form reasonably required by
Lessor (the "Financial Officer's Certificate"), certifying the Net Worth and
Cash of Lessee as of the date of the Consolidated Financials of Lessee being
delivered concurrently therewith and stating that Lessee is in compliance with
its obligations under Section 32.1 of this Lease, or if not, so stating and
including the reasons therefor. Lessor shall have the right from time to time
and at any time to have an independent certified public accountant selected by
Lessor perform at Lessor's expense an audit or other review of the books and
records of Lessee (or of any guarantor of Lessee's obligations) to verify the
amount of Lessee's Net Worth, and Lessee (or such guarantor) shall cooperate
with Lessor in connection therewith.
ARTICLE XXXIII
TERMINATION OF LEASE DUE TO SALE OF LEASED PROPERTY
33.1 Termination of Lease Due to Sale of Leased Property.
(a) In the event Lessor consummates a sale or other conveyance of
the Leased Property to a bona fide third party, then Lessor may terminate this
Lease by Notice to Lessee (and Lessee may terminate this Lease pursuant to
Section 28.1), in which event this Lease shall terminate except as to any
obligations of the parties existing as of such date that survive termination of
this Lease, and all Rent, including Percentage Rent and Additional Charges,
shall be prorated and calculated as of the termination date.
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(b) As compensation for the early termination of Lessee's leasehold
estate under this Article XXXIII, Lessor shall, upon such termination, pay to
Lessee the Termination Fee (herein so called) determined in accordance with
Section 33.1(c). In the event Lessor and Lessee are unable to agree upon the
fair market value of Lessee's leasehold estate as defined in (c) below, it shall
be determined by arbitration pursuant to Section 37.2.
(c) For the purposes of this Lease, the Termination Fee means (i)
the fair market value of the Lessee's leasehold estate under this Lease plus
(ii) all amounts required to be paid by Lessee to Primary Manager as a result of
such termination if such termination also results in the termination of the
Primary Management Agreement, including, without limitation, any termination
fees payable to the Primary Manager under the Primary Management Agreement and
costs imposed on Lessee pursuant to Section 11.12 A of the Primary Management
Agreement, but not costs imposed under Section 11.11 thereof. The fair market
value of the Lessee's leasehold estate shall mean the present value, discounted
at the discount rate provided below, of Lessee's projected "profit" or "net cash
flow" for the remaining stated Term of this Lease, i.e., the amount by which
projected Gross Revenues to be collected by Lessee exceed projected Rent and
ordinary operating expenses (including, without limitation, the management fees
under the Management Agreement) to be paid by Lessee. In computing fair market
value of the leasehold estate, the appraiser shall discount all future revenues,
expenses and fees to the then present value at a discount rate of fifteen
percent (15%) per annum.
(d) Other than the payment of rent and other sums which are payable
under any ground leases, which will be paid by Lessor pursuant to Section 4.1
hereof, Lessee shall comply with all of the terms of any ground lease.
ARTICLE XXXIV
FRANCHISE AGREEMENT, BRAND STANDARDS, AND GROUND LEASES
34.1 Compliance.
(a) Lessee shall not terminate or enter into any modification of the
Franchise Agreement which could adversely affect Lessor in any material respect
without in each instance first obtaining Lessor's written consent. Lessor and
Lessee agree to cooperate fully with each other in the event it becomes
necessary to obtain a franchise extension or modification or a new franchise for
the Leased Property, and in any transfer of the Franchise Agreement to Lessor or
any Affiliate thereof or any other successor to Lessee upon the termination of
the Lease.
(b) Pursuant to the Management Agreement, Lessee shall, and shall be
entitled to, operate the Facility in accordance with Brand Standards.
(c) Lessor shall promptly furnish to Lessee any default notices
received by Lessor under any ground leases. Without the prior written consent of
Lessee, Lessor shall not
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modify any ground leases in a manner which materially increases Lessee's
obligations or which materially and adversely affect Lessee's rights under this
Lease.
ARTICLE XXXV
CAPITAL EXPENDITURES
35.1 Capital Expenditures.
(a) Commencing upon the Commencement Date, Lessor shall be obligated
to accrue the Capital Expenditures Reserve: provided, however, that as long as
the Submanagement Agreement is in effect, Lessor shall have no obligation to
accrue the Capital Expenditures Reserve based on the funding of the F&E Reserve
(as defined in the Submanagement Agreement) pursuant to Section 5.02 of the
Submanagement Agreement. Upon written request by Lessee to Lessor stating the
specific use to be made and subject to the reasonable approval thereof by
Lessor, such funds shall be made available by Lessor to Lessee for Capital
Expenditures set forth in the Capital Budget; provided, however, that no Capital
Expenditures shall be used to purchase property (other than "real property"
within the meaning of Treasury Regulations Section 1.856-3(d)), to the extent
that doing so would cause the Lessor to recognize income other than "rents from
real property" as defined in Section 856(d) of the Code. Lessor's obligation
shall be cumulative, but not compounded, and any amounts that have accrued
hereunder shall be payable in future periods for such uses and in accordance
with the procedures set forth herein. Lessee shall have no interest in any
accrued obligation of Lessor under this Section 35.1(a) after the termination of
this Lease. All Capital Improvements shall be owned by Lessor subject to the
provisions of this Lease.
(b) Except as specifically provided otherwise in Section 8.3(b),
Lessor's obligation to make Capital Expenditures in respect to Capital
Improvements and to comply with the provisions of this Lease which may require
the availability of funds for Capital Improvements shall be limited to amounts
available in the Capital Expenditures Reserve and such additional amounts, if
any, as are set forth in the Approved Budget or as Lessor may agree to make
available in Lessor's sole discretion; provided, however, that if additional
Capital Expenditures are required to meet Emergency Situations, to comply with
Legal Requirements, or to comply with the Franchise Agreement or Brand
Standards, as applicable, Lessor shall make such amounts available. No
arbitration resulting from the failure of Lessor and Lessee to agree on the
Capital Budget shall increase Lessor's obligation for Capital Expenditures
beyond the amounts set forth in the immediately preceding sentence. Without
limiting Lessor's obligations under Section 35.1(a) with respect to amounts
accrued in the Capital Expenditures Reserve and whether or not reference is made
to this Article XXXV, to the extent that Lessee's obligations under this Lease
(including, without limitation, the obligations set forth in Sections 7.2, 8.1,
8.2, 8.3 and 9.1 and in Article XXXV) are dependent upon the availability of
amounts for Capital Expenditures and Lessor fails to make such amounts available
therefor, such obligations of Lessee shall be correspondingly diminished.
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(c) Lessor shall have sole authority with respect to the
implementation of all Capital Improvements made pursuant to the requirements of
the Capital Budget. Such authority shall extend both to the plans and
specifications (including matters of design and decor) and to the contracting
and purchasing of all labor, services and materials.
(d) Lessor and Lessee further agree that, while the Submanagement
Agreement is in effect, Lessor shall also be responsible for funding: (i) to the
extent required to be funded from sources other than the FF&E Reserve, (as
defined in the Submanagement Agreement) all expenditures required to be funded
under Section 5.02 of the Primary Management Agreement, including, without
limitation, the items set forth as Exhibit B-1 to the Primary Management
Agreement; and (ii) all expenditures authorized by Section 5.03 of the Primary
Management Agreement, including without limitation the items set forth as
Exhibit B-2 to the Primary Management Agreement.
(e) To secure Lessor's obligation to fund certain of the
expenditures referenced in Section 35.1(d)(i) above, Lessor agrees to fund a
separate escrow account, at the Commencement Date, as provided in Section 3.2.8
of the Settlement Agreement.
ARTICLE XXXVI
LESSOR'S DEFAULT
36.1 Lessor's Default.
(a) It shall be a breach of this Lease if Lessor fails to observe or
perform any term, covenant or condition of this Lease on its part to be
performed and such failure continues for a period of thirty (30) days after
Notice thereof from Lessee, unless such failure cannot with due diligence be
cured within a period of thirty (30) days, in which case such failure shall not
be deemed a breach if Lessor proceeds within such thirty (30)-day period, with
due diligence, to cure the failure and thereafter diligently completes the
curing thereof. The time within which Lessor shall be obligated to cure any such
failure also shall be subject to extension of time due to the occurrence of any
Unavoidable Delay. If Lessor does not cure any such failure within the
applicable time period as aforesaid, Lessee may declare the existence of a
"Lessor Default" by a second Notice to Lessor. Thereafter, subject to the
provisions of the following paragraph, Lessee may (but shall be under no
obligation at any time thereafter to (i) make such payment or perform such act
for the account and at the expense of Lessor or (ii) terminate this Lease and
recover its damages for such early termination. All sums so paid by Lessee and
all costs and expenses (including, without limitation, reasonable attorneys'
fees and court costs) so incurred, together with interest thereon at the Overdue
Rate from the date on which such sums or expenses are paid or incurred by Lessee
until the date paid by Lessor or offset by Lessee as expressly provided herein,
shall be paid by Lessor to Lessee on demand or Lessee may offset or counterclaim
such sums actually paid by Lessee against Rents or Other Charges due hereunder.
Except as expressly provided in this Article XXXVI or elsewhere in this Lease,
Lessee shall have no right to terminate this Lease for any Lessor Default and no
right, for any such Lessor Default, to offset or counterclaim against any rent
or other Charges due hereunder.
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(b) Notwithstanding anything to the contrary contained in this
Lease, for the enforcement of any judgment (or other judicial decree) requiring
the payment of money by Lessor to Lessee by reason of any default by Lessor
under this Lease or otherwise, Lessee shall look solely to the estate and
property of Lessor in the Leased Property and to any proceeds on account of the
disposition thereof, including, without limitation, any sales or condemnation
proceeds, and to any insurance proceeds under any policies of insurance
maintained in accordance with this Lease which are paid on account of the same
circumstances as led to Lessee's judgment, it being intended that no other
assets of Lessor or any of Lessor's Affiliates shall be subject to levy,
execution, attachment or any other legal process for the enforcement or
satisfaction of any judgment (or other judicial decree) obtained by Lessee
against Lessor, except in the following cases: (i) any liability of Lessor for
its own gross negligence, willful misconduct or Environmental Liabilities caused
by affirmative actions of Lessor, (ii) any liability of Lessor for repayment to
Lessee upon the termination of this Lease of any excess payments of Percentage
Rent or Additional Charges for the last Lease Year or part thereof and (iii) any
liability of Lessor for the payment of a Termination Fee.
ARTICLE XXXVII
ARBITRATION
37.1 Arbitration. Except as set forth in Section 37.2, in each case
specified in this Lease in which it shall become necessary to resort to
arbitration, such arbitration shall be determined as provided in this Section
37.1. The party desiring such arbitration shall give Notice to that effect to
the other party, and an arbitrator shall be selected by mutual agreement of the
parties, or if they cannot agree within thirty (30) days of such notice, by
appointment made by the American Arbitration Association ("AAA") from among the
members of its panels who are qualified and who have experience in resolving
matters of a nature similar to the matter to be resolved by arbitration.
37.2 Alternative Arbitration. In each case specified in this Lease for a
matter to be submitted to arbitration pursuant to the provisions of this Section
37.2, Lessor shall be entitled to designate any nationally recognized accounting
firm with a hospitality division of which Lessor or an Affiliate of Lessor is
not a significant client to serve as arbitrator of such dispute within fifteen
(15) days after written demand for arbitration is received or sent by Lessor. In
the event Lessor fails to make such designation within such fifteen (15) day
period, Lessee shall be entitled to designate any nationally recognized
accounting firm with a hospitality division of which Lessor or an Affiliate of
Lessor is not a significant client to serve as arbitrator of such dispute within
fifteen (15) days after Lessor fails to timely make such designation. In the
event no nationally recognized accounting firm satisfying such qualifications is
available and willing to serve as arbitrator, and unless Lessor and Lessee
otherwise agree, the arbitration shall instead be administered as set forth in
Section 37.1.
37.3 Arbitration Procedures. In any arbitration commenced pursuant to
Sections 37.1 or 37.2, a single arbitrator shall be designated and shall resolve
the dispute. The arbitrator's decision shall be binding on all parties and shall
not be subject to further review or appeal except as otherwise allowed by
applicable law. Upon the failure of either party (the
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"non-complying party") to comply with his decision, the arbitrator shall be
empowered, at the request of the other party, to order such compliance by the
non-complying party and to supervise or arrange for the supervision of the
non-complying party's obligation to comply with the arbitrator's decision, all
at the expense of the non-complying party. To the maximum extent practicable,
the arbitrator and the parties, and the AAA if applicable, shall take any action
necessary to insure that the arbitration shall be concluded within ninety (90)
days of the filing of such dispute. The fees and expenses of the arbitrator
shall be shared equally by Lessor and Lessee except as otherwise specified above
in this Section 37.3. Unless otherwise agreed in writing by the parties or
required by the arbitrator or AAA, if applicable, arbitration proceedings
hereunder shall be conducted in the State. Notwithstanding formal rules of
evidence, each party may submit such evidence as each party deems appropriate to
support its position and the arbitrator shall have access to and right to
examine all books and records of Lessee and Lessor regarding the Facility during
the arbitration.
ARTICLE XXXVIII
TRADE-OUTS
38.1 Trade-outs. Lessee or Manager may arrange for and make trades of
goods or services (including, but not limited to, suite occupancy, food,
beverages, incidental charge items and taxes relating to any of the above)
furnished or to be furnished to others at the Hotel, for other goods or services
(including, but not limited to, advertising, air and ground transportation,
rental vehicles and taxes relating to any thereof) furnished or to be furnished
to or for the benefit of the Hotel. If the goods or services received in a
particular trade are exclusively for the use or benefit of the Hotel (and not
for any other use or benefit of Lessee or Manager or any other hotel or
activity), the usual charges for the goods or services given to the Hotel in
such trade shall be included in Gross Revenues and the same amount shall be
deemed contemporaneously expended as Expenses of the Hotel for such goods or
services received. If the goods or services received in a particular trade are,
to any extent, for the use or benefit of Lessee or the Manager or any other
hotel or activity (and not exclusively for the benefit of the Hotel), the usual
charges for the goods or services given by the Hotel in such trade by Lessee or
Manager shall be included in Gross Revenues, and to the extent the goods or
services so received by Lessee or Manager are used by or for the benefit of the
Hotel, the amount thereof shall be fairly and equitably allocated among the
Hotel and all other hotels or activities benefitting therefrom and the portion
thereof fairly and equitably allocable to the Hotel shall be an expense of the
Hotel. Notwithstanding the foregoing, the goods or services of the Hotel
furnished pursuant to this Section 38.1 must not extend beyond the term of this
Lease.
ARTICLE XXXIX
MISCELLANEOUS
39.1 Miscellaneous. Anything contained in this Lease to the contrary
notwithstanding, all claims against, and liabilities of, Lessee or Lessor
arising prior to any date of termination of this Lease shall survive such
termination. If any term or provision of this
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Lease or any application thereof is invalid or unenforceable, the remainder of
this Lease and any other application of such term or provisions shall not be
affected thereby. If any late charges or any interest rate provided for in any
provision of this Lease are based upon a rate in excess of the maximum rate
permitted by applicable law, the parties agree that such charges shall be fixed
at and limited to the maximum permissible rate. Neither this Lease nor any
provision hereof may be changed, waived, discharged or terminated except by a
written instrument in recordable form signed by Lessor and Lessee. All the terms
and provisions of this Lease shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assigns. The headings in
this Lease are for convenience of reference only and shall not limit or
otherwise affect the meaning hereof. This Lease shall be governed by and
construed in accordance with the laws of the State, but not including its
conflicts of laws rules. If any payment required to be made pursuant to this
Lease shall become due on a day which is not a Business Day, such payment shall
be made on the next succeeding Business Day.
39.2 Transition Procedures. Lessee shall, and shall cause Manager to,
cooperate in good faith to provide access and information to any prospective
purchaser or lessee of the Leased Property which may acquire the Leased Property
or lease it upon the expiration or termination of the Term. Upon any expiration
or termination of the Term, Lessor and Lessee shall do the following and, in
general, shall cooperate in good faith to effect an orderly transition of the
management or lease of the Facility. The provisions of this Section 39.2 shall
survive the expiration or termination of this Lease until they have been fully
performed. Nothing contained herein shall limit Lessor's or Lessee's (as
applicable) rights and remedies under this Lease if such termination occurs as
the result of an Event of Default or Lessor's Default.
(a) Transfer of Licenses. Upon the expiration or earlier termination
of the Term, Lessee shall use its best efforts to transfer to Lessor or Lessor's
designee all licenses, operating permits and other governmental authorizations
and all contracts, including contracts with governmental or quasi-governmental
entities, that may be necessary for the operation of the Facility; provided,
however, that the costs and expenses of any such transfer or the processing of
any such application shall be paid by Lessor or Lessor's designee.
(b) Leases and Concessions. Lessee shall assign to Lessor or
Lessor's designee simultaneously with the termination of this Agreement, and the
assignee shall assume all leases, contracts, concession agreements and
agreements in effect with respect to the Facility then in Lessee's name. Lessee
shall assign any membership contracts to Lessor or its designee as provided in
Section 7.2(g).
(c) Books and Records. To the extent that Lessor has not already
received copies thereof, a copy of all books and records (including computer
records) for the Facility kept by Lessee pursuant to Section 3.6 shall be
promptly delivered to Lessor or Lessor's designee.
(d) Receivables and Payables, etc. Lessee shall be entitled to
retain all cash, bank accounts and house banks, and to collect all Gross
Revenues and accounts receivable
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accrued through the termination date. Lessee shall be responsible for the
payment of Rent, all operating expenses of the Facility and all other
obligations of Lessee accrued under this Lease as of the termination date, and
Lessor shall be responsible for all operating expenses of the Facility accruing
after the termination date. Lessor, at its option, may purchase the Inventory
from Lessee for its fair market value upon termination of this Lease.
39.3 Waiver of Presentment, etc. Lessee waives all presentments, demands
for payment and for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor, and notices of acceptance and waives all notices
of the existence, creation, or incurring of new or additional obligations,
except as expressly granted herein.
39.4 Standard of Discretion. In any provision of this Lease requiring or
permitting the exercise by Lessor or Lessee of such party's approval, election,
decision, consent, judgment, determination or words of similar import
(collectively, an "Approval"), such Approval may, unless otherwise expressly
specified in such provision, be given or withheld in such party's sole, absolute
and unreviewable discretion; provided, however, that as long as the
Submanagement Agreement is in effect and an Approval relates to a matter which
Lessee is required to approve under the Primary Management Agreement, then such
Approval shall not be unreasonably withheld, delayed or conditioned. Any
Approval which by the terms of this Lease may not be unreasonably withheld shall
also not be unreasonably delayed.
39.5 Action for Damages. In any suit or other claim brought by either
party seeking damages against the other party for breach of its obligations
under this Lease, the party against whom such claim is made shall be liable to
the other party only for actual direct damages and not for consequential,
punitive or exemplary damages.
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IN WITNESS WHEREOF, the parties have executed this Lease by their duly
authorized representatives as of the date first above written.
LESSOR:
________________________________________
By: PATRIOT AMERICAN HOSPITALITY
PARTNERSHIP, L.P., a Delaware limited
partnership
By: PAH GP, Inc., its General Partner
By:_______________________________
Name:_____________________________
Title:____________________________
LESSEE:
________________________________________
By: PATRIOT AMERICAN HOSPITALITY
OPERATING PARTNERSHIP, L.P., a Delaware
limited partnership
By: Wyndham International, Inc., a Delaware
corporation, its general partner
By:_______________________________
Name:_____________________________
Title:____________________________
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Exhibit A
PROPERTY DESCRIPTION
EXHIBIT A - Page Solo
<PAGE>
Exhibit B
BASE RENT
$___________________ PER ANNUM
$___________________ PER MONTH
CPI: ________%
REVENUE PERCENTAGES AND BREAKDOWNS
FIRST TIER ROOM REVENUE PERCENTAGE: _________%
ANNUAL ROOM REVENUES FIRST BREAK POINT: $_________
SECOND TIER ROOM REVENUE PERCENTAGE: _________%
ANNUAL ROOM REVENUES SECOND BREAK POINT: $_________ (i.e., $_________
plus the Annual Room Revenues
First Break Point)
THIRD TIER ROOM REVENUE PERCENTAGE: _________%
FIRST TIER FOOD SALES PERCENTAGE: _________%
ANNUAL FOOD SALES BREAK POINT: $_________
SECOND TIER FOOD SALES PERCENTAGE: _________%
OTHER INCOME PERCENTAGE: _________%
EXHIBIT B - Page Solo
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Exhibit C
CAPITAL EXPENDITURES POLICY
A Capital Improvement for which an expenditure is a Capital Expenditure is an
investment in a readily identifiable facility which (1) is held for use or
income rather than for sale or conversion into goods or cash and (2) has a
useful service life in excess of three (3) years.
Capitalization Policy
If the cost of the capital addition is $2,500 or greater and the items acquired
have an expected service life of more than three (3) years, the expenditure is
capitalized. See "Maintenance and Repairs" for those expenditures which are
expenses without regard to the $2,500 guideline. If the item(s) acquired meet
the more than three (3)-year life criterion, but the total invoice cost is less
than $2,500, the expenditure is considered an expense item.
Replacement - Component Parts
If the estimated job or total invoice cost (including parts and labor) of any
particular item or series of items acquired with respect to one particular job
for replacement of the following major building components is under $2,500, the
expenditure is to be expensed to maintenance and repairs:
Heating Equipment - Pumps, boilers, heat exchangers, thermostats, pressure
gauges, alarm devices piping.
Plumbing Equipment - Pumps, meters, sprinkler and fire alarm system,
piping.
Air Conditioning Equipment - Compressors, condensors, motors, cooling
towers, evaporative coolers, piping.
Fire Prevention Equipment - Major fire system sprinklers, smoke detectors.
Power - Transformer, conduits and boxes, panel boards, switches and
outlets.
Betterments
If the estimated job or total invoice cost is $2,500 or above, and the
expenditure(s) will enhance the value of and extend by at least three (3) years
the useful life of an asset previously capitalized, then the expenditure should
be capitalized.
Maintenance and Repairs
The following replacement expenditures are considered maintenance and repairs
and are not subject to the total invoice cost guideline of $2,500.
Repainting of Buildings, Pools, Park Areas (1)(5)
EXHIBIT C - Page 1 of 2
<PAGE>
Refinishing of Furniture (1)
Glass Replacement
Maintenance Service Contracts, such as Yard, Television, Elevator,
Swimming Pool
Wall Paper Vinyl (1)
Reupholstery of Furniture (1)
Replastering (1)
Replacement of Chain Locks, Key Blanks, Keys, Locks, Locksets. Locks and
locksets installed in new doors or offering substantial security
improvements should be capitalized if the invoice is over $2,500
Patching Parking Lot (2)
Roof Repairs (3)
Waterproofing of Lamp Globes and Lightbulbs
Section Replacement for Neon Signs
Caulking and Sealing
Chrome Fittings such as Faucets, Towel Bars, etc. (1)
Toilet and Toilet Seats
Stolen or Damaged Television
Small Parts for Equipment
Landscaping/Plants (4)
Clocks, Clock-Radios or Similar Small Items
1. Expenditures for exterior and interior painting, including caulking and
sealing of the building, wall paper, refinishing of furniture, replastering, or
reupholstering may be capitalized if:
(a) these expenditures are part of a major refurbishment project,
or
(b) the cost of these expenditures exceed $5,000 with respect to
any particular item or series of items related to one
particular job and enhance the value of and extend the useful
life of the asset by at least three (3) years.
2. Repairing of parking lots, including resealing and resurfacing, will be
capitalized if the expenditure exceeds $5,000.
3. Replacement of the complete roof or complete section of the roof
(including laying a roof over an existing roof) will be capitalized if total
expenditure exceed $5,000 and it extends the useful life of the roof by at least
three (3) years.
4. If the landscaping is new or replacement of existing interior or
exterior landscaping, exceeds $5,000, is not seasonal landscaping (such as
seasonal flowers) and has a useful life of greater than one (1) year, the cost
of the landscaping can be capitalized.
5. Major overhauls to the pool which exceed $5,000 in cost and extend the
useful life of the asset by at least three (3) years.
All expense items will be expensed to M&R expense line items above GOP.
EXHIBIT C - Page 2 of 2
<PAGE>
EXHIBIT C - Page 3 of 2
<PAGE>
Exhibit 99.13
MANAGEMENT AGREEMENT
by and between
[PATRIOT AMERICAN HOSPITALITY OPERATING PARTNERSHIP, L.P.]
(as "LESSEE")
and
IHC II, LLC
(as "Manager")
Dated as of ______________, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
MANAGEMENT OF THE HOTEL................................................2
1.01 Acceptance of the Hotel.......................................2
1.02 Conversion of the Hotel.......................................2
1.03 Management Responsibilities...................................4
1.04 Chain Services................................................8
1.05 Employees.....................................................8
1.06 Lessee's Right to Inspect.....................................9
1.07 Conditions to Take-Over of Hotel..............................9
ARTICLE II
TERM
.....................................................................10
2.01 Term.........................................................10
2.02 Performance Termination......................................10
ARTICLE III
COMPENSATION OF MANAGER...............................................12
3.01 Management Fees..............................................12
3.02 Operating Profit.............................................12
ARTICLE IV
ACCOUNTING MATTERS....................................................12
4.01 Accounting, Distributions and Annual Reconciliation..........12
4.02 Books and Records............................................13
4.03 Accounts, Expenditures.......................................14
4.04 Accounting for Conversion of Hotel...........................15
4.05 Business Plan................................................15
4.06 Working Capital..............................................17
4.07 Fixed Asset Supplies.........................................18
ARTICLE V
REPAIRS, MAINTENANCE AND REPLACEMENTS.................................18
5.01 Repairs and Maintenance Costs Which Are Expensed.............18
i
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Page
----
5.02 FF&E Reserve.................................................19
5.03 Capital Expenditures.........................................21
5.04 Ownership of Replacements....................................22
ARTICLE VI
INSURANCE, DAMAGE, CONDEMNATION, AND FORCE MAJEURE
.....................................................................23
6.01 Insurance....................................................23
6.02 Owner's Option to Obtain Property Insurance..................25
6.03 Damage and Repair............................................26
6.04 Condemnation.................................................27
ARTICLE VII
TAXES
.....................................................................28
7.01 Real Estate and Personal Property Taxes......................28
ARTICLE VIII
MANAGEMENT OF THE HOTEL
.....................................................................29
8.01 Ownership of the Hotel.......................................29
8.02 Mortgages....................................................30
8.03 Subordination, Non-Disturbance and Attornment................30
8.04 No Covenants, Conditions or Restrictions.....................32
8.05 Liens; Credit................................................32
8.06 Amendments Requested by Mortgagee............................33
ARTICLE IX
DEFAULTS
.....................................................................34
9.01 Events of Default............................................34
9.02 Remedies.....................................................35
9.03 Additional Remedies..........................................35
ARTICLE X
ASSIGNMENT AND SALE
.....................................................................36
ii
<PAGE>
Page
----
10.01 Assignment...................................................36
ARTICLE XI
MISCELLANEOUS
.....................................................................37
11.01 Right to Make Agreement......................................37
11.02 Consents and Cooperation.....................................37
11.03 Relationship.................................................38
11.04 Applicable Law...............................................38
11.05 [Intentionally Omitted]
11.06 Headings............................................38
11.07 Notices......................................................38
11.08 Environmental Matters........................................39
11.09 Confidentiality..............................................41
11.10 Projections..................................................42
11.11 Actions to be Taken Upon Termination.........................42
11.12 Trademarks, Trade Names and Intellectual Property............45
11.13 [Intentionally Omitted]
11.14 Waiver..............................................46
11.15 Partial Invalidity...........................................46
11.16 Survival.....................................................47
11.17 [Intentionally Omitted]
............................................................47
11.18 Negotiation of Agreement.....................................47
11.19 Estoppel Certificates........................................47
11.20 System Standards.............................................47
11.21 Arbitration..................................................48
11.22 Marriott Restricted Area Right of Termination
Manager agrees to exercise its rights under Section 11.22 of
the Submanagement Agreement including, without limitation, as to
any termination of the Submanagement Agreement pursuant to such
Section 11.22, only as directed from time to time by Lessee.
11.23 Entire Agreement....................................49
11.24 Expert Resolution Process....................................49
ARTICLE XII
iii
<PAGE>
Page
----
DEFINITION OF TERMS
.....................................................................50
12.01 Definition of Terms..........................................50
iv
<PAGE>
Exhibit "A-1" Name and Location of Hotel
Manager
Take-Over Date
Term Expiration Date
Base Management Fee
Initial FF&E Reserve Balance
FF&E Reserve Contribution
Exhibit "B-1" Five-Year Plan
Exhibit "B-2" Additional Capital Expenditures
v
<PAGE>
MANAGEMENT AGREEMENT
This Management Agreement ("Agreement") is executed as of the ____ day of
__________, 1998 ("Effective Date"), by Patriot American Hospitality Operating
Partnership, L.P., a Delaware limited partnership with a mailing address at 1950
Stemmons Freeway, Suite 6001, Dallas, Texas 75207 ("Lessee"), and IHC II, LLC
("Manager"), a _________ limited liability company with a mailing address at
________________________________.
R E C I T A L S :
A. Patriot American Hospitality Partnership, L.P., an Affiliate thereof,
or an entity in which Patriot American Hospitality Partnership, L.P. or an
Affiliate thereof ("Owner") is the owner of fee title to [ground lessee with
respect to Atlanta] the parcel of real property (the "Site") containing a hotel
building or buildings located at the address as set forth in Exhibit "A-1,"
together with a lobby, restaurants, meeting rooms, administrative offices, and
certain other amenities and related facilities (collectively, the "Hotel
Improvements" or the "Improvements"). The Site and the Hotel Improvements, in
addition to certain other rights, improvements, and personal property as more
particularly described in the definition of "Hotel" in Section 12.01 hereof, are
collectively referred to as the "Hotel."
B. Owner has entered into a lease (the "Lease") of the Hotel to Lessee.
C. The Hotel is presently operated as a Marriott Hotel pursuant to a
franchise agreement (the "Franchise Agreement") between Marriott International,
Inc., or one or its Affiliates, as franchisor and Interstate Hotels Corporation,
or one of its Affiliates, as franchisee, which franchisee interest has been
assumed by Manager.
D. Owner, Lessee, Marriott International, Inc. and Interstate Hotel
Company have previously entered into a settlement agreement (the "Settlement
Agreement") concerning the resolution of disputes among the parties, pursuant to
which this Agreement is being executed .
E. Owner, Lessee, Manager and Marriott (as defined below), simultaneously
with the execution of this Agreement and effective as of the Take-Over Date,
have entered into an Owner Agreement (the "Owner Agreement") which sets forth
certain rights and responsibilities among Owner, Lessee, Manager and Marriott
(as defined below).
F. Lessee desires to engage Manager effective as of the Take-Over Date to
manage and operate the Hotel and Manager desires to accept such engagement upon
the terms and conditions set forth in this Agreement.
G. Immediately following the execution and delivery of this Agreement,
Manager intends to enter into a Submanagement Agreement with [Marriott Hotel
Services, Inc./Marriott
<PAGE>
International, Inc.] ("Marriott")pursuant to which Manager shall delegate all of
its rights and obligations with respect to the management and operation of the
Hotel to Marriott, and Lessee has consented to such delegation pursuant to such
Submanagement Agreement .
H. All capitalized terms used in this Agreement shall have the meaning set
forth in Article XII hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement and other good and valuable consideration, the receipt of which is
hereby acknowledged, Lessee and Manager agree as follows:
ARTICLE I
MANAGEMENT OF THE HOTEL
1.01 Acceptance of the Hotel
Manager represents that it is familiar with the condition and operation of
the Hotel and, subject to the provisions of the Agreement, Manager accepts the
Hotel "AS IS." Such acceptance is based on the assumption that the Hotel will
continue to be operated by Lessee in accordance with System Standards up to the
Take-Over Date. Such acceptance includes:
A. Manager's agreement to cause Marriott to hire all current Hotel
employees, except as provided in Section 1.02A;
B. Manager's acceptance of all hotel operating systems, subject to
conversion as provided in Section 1.02B;
C. Manager's acceptance of all existing service and supply contracts
and bookings;
D. Manager's acceptance of the Improvements and all FF&E,
Inventories, Fixed Asset Supplies, Softgoods and Case Goods, subject to Section
5.02, Section 5.03 and Exhibit A-1.
1.02 Conversion of the Hotel
A. Based on interviews conducted prior to the Take-Over Date,
Manager shall cause Marriott to determine which members of the Hotel Executive
Committee will not be accepted by Marriott for employment with Marriott. In
addition, the parties acknowledge that Marriott will perform (i) drug-testing on
all persons applying for employment with Submanager, and (ii) SRI testing on all
managerial applicants. Manager and Marriott will
2
<PAGE>
jointly arrange that such interviewing and such testing will occur on a schedule
which will permit Marriott to give Manager notice, at least thirty (30) days
prior to the Take-Over Date, as to which individuals have not been accepted for
employment by Marriott. In connection with the foregoing, Manager agrees that:
(i) Manager will cause Marriott to hire a sufficient number of the existing
employees at the Hotel to avoid the occurrence of a "closing" under the WARN
Act; and (ii) Manager will cause Marriott to hire at least eighty percent of the
existing managerial staff who apply for positions with Marriott. Lessee shall
make arrangements so that, prior to the Take-Over Date, the employment of all
such employees who are not accepted for employment by Marriott is terminated or
that such employees have been transferred to another location. All severance pay
due to such employees shall be paid by the employer who terminates them;
provided, however, that severance costs required to be paid for employees
terminated by Manager or Marriott will be treated as Deductions in accordance
with the terms of this Agreement. Lessee agrees to indemnify, defend and hold
harmless Manager and Marriott and their Affiliates (and their respective
directors, officers, shareholders, employees and agents) from any and all
claims, causes of action, costs, expenses and liabilities resulting from such
termination of employment of such employees and/or the failure of Manager to
hire such employees (including, without limitation, severance pay, wrongful
discharge claims, claims and other costs under the WARN Act, and claims and/or
fines under other applicable Legal Requirements) and/or resulting from the
employment of such individuals prior to such termination (including, without
limitation, disability claims, vacation, sick leave, wages, salaries and other
benefits).
B. Prior to the Take-Over Date, Manager will cause Marriott to
install in the Hotel (at Lessee's cost) the Accounting, Payroll and Human
Resources Systems (both hardware and software) necessary for Marriott to operate
the Hotel. The parties estimate that (assuming that the Hotel has the RS-6000
computer system) the cost of such equipment will be approximately One Hundred
and Six Thousand Dollars ($106,000). Such amount is separate from and in
addition to the Initial FF&E Reserve Balance set forth in Exhibit A-1. Lessee
shall reimburse Manager for such costs within thirty (30) days after being
invoiced by Manager; if Lessee fails to do so, Manager shall have the right to
deduct such amounts from distributions to Lessee under Section 3.02.A.
C. Prior to the Take-Over Date, Manager and Marriott shall have
access to the Hotel at reasonable times in order to inspect Hotel and the
physical plant, to familiarize themselves with the systems and maintenance, to
review maintenance records and otherwise to perform its customary due diligence
prior to a take-over of a hotel; provided, however, that such access shall not
materially interfere with the operation of the Hotel. Lessee shall reasonably
cooperate in good faith with such diligence activities and otherwise with
respect to the take-over of management of the Hotel.
D. Prior to and after the Take-Over Date, Lessee shall (and shall
cause Owner to ) cooperate with Manager and Submanager in obtaining and
transferring such licenses, permits and approvals necessary for the operation of
the Hotel (subject to the provisions contained in Section 1.07.A.1).
3
<PAGE>
1.03 Management Responsibilities
A. From and after the Take-Over Date, Manager shall, and Lessee
hereby authorizes and engages Manager to, supervise, direct and control the
management and operation of the Hotel in accordance with the terms and
conditions of this Agreement; provided, however, that Lessee acknowledges that
such supervision, direction and control will be delegated to and exercised by
Marriott pursuant to the Submanagement Agreement. During the Term, the Hotel
shall be known as a Marriott Hotel, with such additional identification
determined by Marriott as may be necessary to provide local identification.
B. Manager shall cause Marriott to manage the Hotel in accordance
with System Standards and shall, subject to the terms of this Agreement, perform
or cause Marriott to perform each of the following functions (the costs and
expenses of which shall be Deductions) with respect to the Hotel:
1. Recruit, employ, supervise, direct and discharge the
employees at the Hotel.
2. Establish prices, rates and charges for services provided
in the Hotel, including Guest Room rates.
3. 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.
4. Make payments on accounts payable and handle collections of
accounts receivable.
5. Arrange for and supervise public relations and advertising,
prepare marketing plans, and make available to the Hotel the benefits of various
marketing programs in use in the Marriott System as they may exist from time to
time, such as the Marriott Rewards Program.
6. Procure all Inventories and replacement of Fixed Asset
Supplies.
7. Prepare and deliver interim accountings, annual
accountings, Annual Operating Statements, Building Estimates, FF&E Estimates,
Proposed Business Plans, and such other information as is required by this
Agreement and be available at reasonable times to discuss the above-listed items
as well as the operations at the Hotel generally with Owner in connection with
Owner's rights to receive and/or approve such items pursuant to the Lease.
4
<PAGE>
8. Plan, execute and supervise repairs, maintenance, and FF&E
purchases at the Hotel.
9. Provide, or cause to be provided, risk management services
relating to the types of insurance required to be obtained or provided by
Manager under this Agreement.
10. Obtain and keep in full force and effect, either in
Owner's or Lessee's name, as may be required by applicable law, any and all
licenses and permits to the extent same is within the control of Manager (or, if
same is not within the control of Manager, Manager shall use due diligence and
reasonable efforts to obtain and keep same in full force and effect).
C. The operation of the Hotel from and after the Take-Over Date
shall be under the exclusive supervision and control of Manager which, except as
otherwise specifically provided in this Agreement, shall be responsible for the
proper and efficient operation of the Hotel. In fulfilling its obligations under
this Agreement, Manager shall act as a reasonable and prudent manager of the
Hotel, having regard for the status of the Hotel and maintaining the System
Standards. Manager shall have discretion and control in all matters relating to
management and operation of the Hotel, including, without limitation, the
following: charges for Guest Rooms, commercial space, and services provided by
the Hotel; food and beverage services; employment policies; credit policies;
granting of leases, subleases, licenses and concessions for shops and businesses
within the Hotel, provided that (i) the term of any such lease, sublease,
license or concession shall not exceed the Term of this Agreement and (ii) no
such lease, sublease, license or concession shall be on a basis such that the
rental or other amounts payable thereunder would be based, in whole or in part,
on either the net income or profits derived by the business activities of such
Lessee, Sublessee, Licensee or Concessionaire or any other formula which would
cause any portion of the rents payable by Lessee to Owner under the Lease to
fail to qualify as "rents from real property" within the meaning of Section 856
(d) of the Internal Revenue Code, as amended; receipt, holding and disbursement
of funds; maintenance of bank accounts; procurement of Inventories (including
initial Inventories), supplies and services; payment of costs and expenses
specifically provided for in this Agreement or otherwise reasonably necessary
for the proper and efficient operation of the Hotel; and, generally, all
activities necessary for operation of the Hotel. Notwithstanding the foregoing,
Manager agrees that it shall consult with Lessee prior to the hiring of any
General Manager of the Hotel by Marriott in connection with Manager's
consultation with Marriott on such hiring decision pursuant to the Submanagement
Agreement.
D. Manager will comply with and abide by or cause Marriott to comply
with and abide by all applicable Legal Requirements (except for certain Legal
Requirements which are Lessee's or Owner's responsibility under Section 5.03 and
Section 11.08 hereof) pertaining to its operation of the Hotel, including in
connection with any drug testing or SRI testing of employees and applicants.
Lessee shall comply (or shall cause Owner to comply, as applicable) with and
abide by all applicable Legal Requirements pertaining to the Hotel
5
<PAGE>
Improvements or to Owner's or Lessee's ownership interest in the Hotel
(including, without limitation, Lessee's or Owner's obligations under Sections
5.03 and 11.08 hereof). Either Owner, Lessee or Manager shall have the right,
but not the obligation, in its reasonable discretion, to contest or oppose, by
appropriate proceedings, any such Legal Requirements. The reasonable expenses of
any such contest of a Legal Requirement shall be paid from Gross Revenues as
Deductions.
E. Manager acknowledges that pursuant to the Settlement Agreement,
if the Submanagement Agreement is terminated either by Marriott upon a default
by Manager or by Manager, Owner and/or Lessee may be obligated to pay to
Marriott a Special Fee (as that term is defined in the Settlement Agreement) and
to secure an Approved Operator (as that term is also defined in the
Submanagement Agreement) which will assume the suspended Franchise Agreement.
Manager shall indemnify, defend and hold Owner and Lessee harmless from and
against all claims, loss, cost, liability and damage (including, without
limitation, attorneys' fees and expenses, and the cost of litigation) arising
from (i) any termination of the Submanagement Agreement resulting from a default
by Manager under the Submanagement Agreement other than a default caused by a
default by Lessee under this Agreement or (ii) any other termination of the
Submanagement Agreement by Manager without the prior written consent of Lessee.
In addition, Manager shall indemnify, defend and hold Owner and Lessee harmless
from and against all claims, loss, cost, liability and damage (including,
without limitation, attorneys' fees and expenses, and the cost of litigation)
(x) relating to any matter with respect to which Primary Manager is indemnified
by Marriott under the Submanagement Agreement and (y) any inaccuracy in the
certificate provided by Marriott with respect to Chain Services pursuant to
Section 1.04. Manager's obligations under this Section 1.03.E. shall survive the
termination of this Agreement.
F. Notwithstanding anything to the contrary contained in this
Agreement, Manager shall neither approve or otherwise give its consent nor allow
its approval or consent to be deemed given in any instance in which its approval
or consent is necessary or allowed under any of the following provisions of the
Submanagement Agreement, without first obtaining the approval or consent of
Lessee under this Agreement:
(a) Business Plan (Section 4.05)
(b) Building Estimates (Section 5.03)
(c) FF&E Estimates (Section 5.02.C)
(d) Capital Expenditures in excess of FF&E Reserve (Section 5.02.D)
(e) Increases in deposits of FF&E Reserve (Section 5.02.E)
(f) Changes to 5-Year Plans (Section 5.02.A)
6
<PAGE>
(g) Designations of arbitrators or Experts (Section 11.21 and 11.24)
(h) Decision to restore or terminate in the event of Total Casualty
(Section 6.03)
(i) Approval of insurance companies (Section 6.01.A)
(j) Decision to obtain Owner property insurance (Section 6.02)
(k) Consent to Assignment or transfer of Submanager's interest
(Section 10.01)
(l) Audits of Annual Operating Statements (Section.4.02)
(m) Agreement on any alternative Competitive Set or source of
information regarding the same received from Marriott (definition of
"Competitive Set" in Section. 12.01)
Lessee and Manager acknowledge that (i) pursuant to the Lease Owner's
approval is required with respect to each of the foregoing matters and Lessee is
not entitled to approve or disapprove any of the foregoing matters without the
approval or disapproval of Owner and (ii) pursuant to the Owner Agreement Lessee
has appointed Manager as Lessee's agent for the purpose of obtaining such
approvals (or disapprovals) from Owner.
Lessee and Manager acknowledge that many of Manager's obligations
hereunder have been delegated to Marriott pursuant to a corresponding provision
in the Submanagement Agreement. Except as otherwise provided herein and without
in any way releasing Manager from its duty to perform hereunder, Lessee agrees
that it will accept the performance by Marriott on Manager's behalf of Manager's
obligations hereunder.
G. Manager shall use reasonable best efforts to ensure the timely
performance by Marriott of all of Marriott's obligations under the Submanagement
Agreement and shall not waive or excuse in any manner the timely performance by
Marriott of any material obligation to be performed by Marriott under the
Submanagement Agreement without the prior written consent of Lessee; provided,
however, that where Manager is required under the provisions of this Agreement
to cause Marriott to take an action or refrain from taking an action (as opposed
to using reasonable best efforts or some other lesser standard to cause Marriott
to take such action or refrain from taking such action), then the provisions of
this sentence shall not modify such provisions of this Agreement. Manager shall
not enter into, and shall not allow, any amendment, replacement, extension,
renewal, termination (other than a termination by Marriott in accordance with
the terms of the Submanagement Agreement) , surrender or other modification of
the Submanagement Agreement without the prior written consent of Lessee.
7
<PAGE>
1.04 Chain Services
Commencing with the Take-Over Date and thereafter during the Term of this
Agreement, Manager shall cause Marriott to cause to be furnished to the Hotel
certain services (collectively referred to herein as "Chain Services") that are
furnished generally on a central, regional or other group basis to other hotels
in the Marriott System and which benefit such hotels such as: (i) national sales
office services; central training services; career development and relocation of
management personnel; central advertising and promotion (including direct and
image media and advertising administration); the Marriott national reservations
system services and the Marriott computer payroll and accounting services;
benefits administration; gift shop merchandise handling; and (ii) such
additional central, regional or other group services as are or may be, from time
to time, furnished for the benefit of hotels in the Marriott System or in
substitution for services now performed at individual hotels which may be more
efficiently performed on a group basis. The charges for Chain Services shall
include, as applicable, allocation of salaries, wages, and overhead related to
the employees of Marriott, or any Affiliate involved in providing any of the
Chain Services and shall be allocated on a fair basis among all hotels receiving
such services. At the time of the delivery of each Annual Operating Statement,
Manager shall cause Marriott to deliver to Manager a certification executed by
an officer of Marriott that (i) the allocation of charges for Chain Services is
consistent with GAAP and generally accepted hotel practices, (ii) such charges
are allocated among the hotels in the Marriott System in a fair and equitable
manner, and (iii) the method of allocation of such expenses has not been changed
since the date of this Agreement or, if they have changed, advising Manager of
the details of such change. Manager shall promptly forward a copy of such
certificate to Lessee.
1.05 Employees
All personnel employed at the Hotel shall, at all times from and after the
Take-Over Date, be the employees of Manager or Marriott. Manager and Marriott,
with respect to the respective employees of each, shall have absolute discretion
with respect to all personnel employed at the Hotel, including, without
limitation, decisions regarding hiring, promoting, transferring, compensating,
supervising, terminating, directing and training all employees at the Hotel,
and, generally, establishing and maintaining all policies relating to
employment. Manager shall be permitted to allow Marriott to provide free
accommodations and amenities to its employees and representatives living at or
visiting the Hotel in connection with its management or operation of the Hotel
to the extent such provision of accommodations and amenities is customary with
System Standards. No person shall otherwise be given gratuitous accommodations
or services without prior approval of Lessee, except in accordance with usual
practices of the hotel and travel industry, and Marriott shall not grant such
approval under the Submanagement Agreement without the prior approval of Lessee.
8
<PAGE>
1.06 Lessee's Right to Inspect
Owner and Lessee shall have access to the Hotel at any and all reasonable
times upon prior advance notice to the general manager of the Hotel for the
purpose of showing the Hotel to prospective purchasers, tenants or Mortgagees.
1.07 Conditions to Take-Over of Hotel
A. The obligation of Manager to assume operation of the Hotel
hereunder shall be conditioned upon each of the following:
1. That Manager or Marriott has received, prior to the
Take-Over Date, all licenses, permits, and all other approvals necessary for
operation of the Hotel by Manager or Marriott (or valid transfers of such
licenses, etc., to Manager or Marriott); provided, however, that to the extent
such licences, permits and other approvals are held by Owner or Lessee and
Manager or Marriott can operate the hotel with such licenses, permits and other
approvals in the name of Owner or Lessee, then such licenses, permits and other
approvals shall remain in the name of Owner or Lessee, as applicable;
2. If required under Article VIII, that Manager, Marriott and
each Mortgagee have executed the "Subordination Agreement" described in Section
8.03;
3. That the Initial FF&E Reserve Balance, as described in
Section 5.02.A, shall have been deposited in the FF&E Reserve.
4. That the Lessee has provided the necessary initial Working
Capital, as described in Section 4.06.
B. Notwithstanding any other provision of this Agreement, Manager
shall have the right to terminate this Agreement, on thirty (30) days' written
notice to Lessee, if (i) the conditions to the take-over of the Hotel by Manager
which are listed in Section 1.07.A.1 and 2 have not been satisfied within thirty
(30) days after receipt of notice from Manager that such conditions remain
unsatisfied at the time Manager provides such notice (which notice may be given
by Manager at any time on or after the Take-Over Date), or (ii) if the
conditions to the takeover of the Hotel by Manager which are listed in Section
1.07.A.3 and 4 have not been satisfied within ten (10) days after receipt of
notice from Manager that such conditions remain unsatisfied at the time Manager
provides such notice (which notice may be given by Manager at any time on or
after the Takeover Date). Any such termination shall not be exclusive of any
other rights or remedies of Manager under this Agreement, the Owner Agreement or
the Settlement Agreement. Notwithstanding the foregoing provisions of this
subsection B, Manager shall have no right to terminate this Agreement unless
Marriott has terminated the Submanagement Agreement.
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ARTICLE II
TERM
2.01 Term
The term ("Term") of this Agreement shall begin on the Take-Over
Date and shall continue until the Term Expiration Date. Pursuant to the terms of
the Settlement Agreement, during the Term of the Submanagement Agreement, the
obligations of the parties under the Franchise Agreement shall be suspended
without penalty (except for the royalty fee provisions thereof, and the royalty
fees payable thereunder shall continue to be paid by Manager to Marriott
International, Inc.) and is of no force or effect until such time as the
Franchise Agreement may be reinstated pursuant to the provisions of Section
2.01.B of the Submanagement Agreement. Such royalty fee payments under the
Franchise Agreement shall be paid out of Gross Revenues, and Manager is hereby
authorized and directed to cause Marriott to make such payments, which shall be
treated as Deductions for all purposes.
2.02 Performance Termination
A. Subject to the provisions of Section 2.02.B below, Lessee shall
have the option to terminate this Agreement and to cause Manager to terminate
the Submanagement Agreement, if:
1. With respect to any two (2) Fiscal Years within any three
(3) Fiscal Year period (not including any portion of any Fiscal Year prior to
the expiration of the first (1st) full Fiscal Year after the Take-Over Date)
Operating Profit is less than the applicable Performance Termination Threshold;
and
2. The Revenue Index of the Hotel during each of such Fiscal
Years (i.e. any two (2) Fiscals Years within three (3) Fiscal Year period) is
less than the Revenue Index Threshold.
Such option to terminate and to cause Manager to terminate the Submanagement
Agreement shall be exercised by serving written notice thereof on Manager no
later than sixty (60) days after the receipt by Lessee of the annual accounting
under Section 4.01.B hereof for the second of the two (2) Fiscal Years referred
to in Section 2.02.A.1. If Manager (and Marriott pursuant to Section 2.02.B of
the Submanagement Agreement) do not elect to avoid such Termination pursuant to
Section 2.02.B below, this Agreement shall terminate (and Manager shall cause
the Submanagement Agreement to terminate) as of the end of the fourth (4th) full
Accounting Period following the date on which Manager receives Lessee'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 Hotel. Lessee's
failure to exercise its right to terminate this Agreement pursuant to Section
2.02.A with respect to any given Fiscal Year shall not be deemed an
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estoppel or waiver of Lessee's right to terminate this Agreement (and to cause
Manager to terminate the Submanagement Agreement) with respect to subsequent
Fiscal Years to which this Section 2.02.A may apply.
B. Upon receipt of Lessee's written notice of Termination under
Section 2.02.A, Manager shall have the option, to be exercised within sixty (60)
days after receipt of said notice, to avoid such Termination by electing (in a
notice to Lessee) to waive the payment of the Base Management Fee and by
obtaining from Marriott a written waiver of the Base Management Fee under the
Submanagement Agreement (and a written waiver of the payment of franchise fees
under the Franchise Agreement) (in each case beginning as of the first day of
the next full Accounting Period after the date of such notice from Manager)
until such time as the total cumulative amount (the "Cumulative Waived Base
Fees") of such waived Base Management Fees and franchise fees equals the total
amount (the "Cure Payment") by which Operating Profit for each of the Fiscal
Years in question (i.e., the Fiscal Years referred to in Section 2.02.A.1) was
less than the Performance Termination Threshold. [ In the case of Houston, the
following applies: Upon receipt of Lessee's written notice of Termination under
Section 2.02.A, Manager shall have the option, to be exercised within sixty (60)
days after receipt of said notice, to avoid such Termination by electing (in a
notice to Lessee) to pay an amount equal to the amount (the "Cure Payment") by
which Operating Profit for each of the Fiscal Years in question (i.e., the
Fiscal Years referred to in Section 2.02.A.1) was less than the Performance
Termination Threshold, and shall pay the Cure Payment within thirty (30) days of
providing such notice to Lessee.] In the event Manager makes a Cure Payment
pursuant to this Section 2.02.B, the Fiscal Years with respect to which such
Cure Payment was made shall thereafter not be treated, for purposes of
subsequent elections by Lessee pursuant to Section 2.02.A, as Fiscal Years in
which the circumstances described in Section 2.02.A.1 have occurred. If Manager
exercises such option to make such Cure Payment, then the foregoing Lessee's
election to terminate this Agreement under Section 2.02.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 Lessee, as to each subsequent Fiscal Year to which Section 2.02.A
applies, to again elect to terminate this Agreement pursuant to the provisions
of Section 2.02.A. If Manager does not exercise its option to make a Cure
Payment as aforesaid, then this Agreement and the Submanagement Agreement shall
each be terminated as of the date set forth in Section 2.02.A. Manager may not
elect to make a Cure Payment more than one (1) time during the Term hereof.
2.03 Termination Pursuant to Settlement Agreement; Automatic
Termination Upon Termination of Submanagement Agreement
Manager acknowledges that the Settlement Agreement provides for the
termination of this Agreement by Lessee in certain circumstances and in
connection therewith to cause Manager to terminate the Submanagement Agreement,
and Manager hereby consents to any such termination by Lessee in accordance with
the Settlement Agreement.
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Notwithstanding anything to the contrary herein or in any other document,
upon any termination of the Submanagement Agreement for any reason whatsoever,
this Agreement shall automatically and immediately terminate and neither Lessee
nor Manager shall have any further liability hereunder except for the payment of
any outstanding amounts payable through the date of termination and except for
any obligations hereunder which expressly survive the termination of this
Agreement (including, without limitation, Manager's indemnity obligations under
Section 1.03.E).
ARTICLE III
COMPENSATION OF MANAGER
3.01 Management Fees
Manager shall be paid the Base Management Fee, which the parties
acknowledge is the amount payable as Base Management Fee under the Submanagement
Agreement and the franchise or royalty fees payable under the suspended
Franchise Agreement, and such amounts therefore shall be retained by Marriott
from Gross Revenues pursuant to the Submanagement Agreement.
3.02 Operating Profit
Operating Profit shall be distributed to Lessee in accordance with Article
IV.
ARTICLE IV
ACCOUNTING MATTERS
4.01 Accounting, Distributions and Annual Reconciliation
A. Manager agrees that it shall exercise its rights under the
Submanagement Agreement to cause Marriott to institute (as soon as reasonably
practicable after the Take-Over Date, but in no event more than sixty (60) days
after the Take-Over Date) cash management protocols at the Hotel in order that
Marriott will distribute to an account designated and owned by Primary Manager
on a daily basis (to the extent possible, subject to holidays, banking holidays,
and other days in which account transfers cannot be effected by banks) all
amounts in the Operating Accounts that are in excess of the Reasonable Amount of
Working Capital and amounts due Submanager. During the up to 60 day period when
such daily sweep is being implemented, Manager shall cause Marriott to sweep
weekly to Primary Manager's account on a manual basis. Amounts in such account
of Primary Manager received from Marriott shall be transferred to an account
designated and owned by Lessee within one (1) business day of receipt by Manager
(to the extent possible, subject to holidays, banking holidays, and other
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days in which account transfers cannot be effected by banks). Within twenty (20)
days after the close of each Accounting Period, Manager shall deliver an interim
accounting (the "Accounting Period Statement") to Lessee showing Gross Revenues,
Deductions, Operating Profit, and applications and distributions thereof for the
preceding Accounting Period.
B. Calculations and payments of the Base Management Fee, and
distributions of Operating Profit made with respect to each Accounting Period
within a Fiscal Year shall be accounted for cumulatively. Within seventy-five
(75) days after the end of each Fiscal Year, Manager shall deliver to Lessee a
statement (the "Annual Operating Statement") in reasonable detail summarizing
the operations of the Hotel for the immediately preceding Fiscal Year and a
certificate of Manager's chief accounting officer certifying that, to the best
of his or her knowledge, such Annual Operating Statement is true and correct.
The parties shall, within five (5) business days after Lessee's receipt of such
Annual Operating Statement, make any adjustments, by cash payment, in the
amounts paid or retained for such Fiscal Year as are needed because of the final
figures set forth in such Annual Operating Statement. Such Annual Operating
Statement shall be controlling over the preceding Accounting Period Statements.
No adjustments shall be made for any Operating Loss in any preceding Fiscal
Year.
C. To the extent there is an Operating Loss for any Accounting
Period, additional funds in the amount of any such Operating Loss shall be
provided by Lessee within thirty (30) days after Manager has delivered written
notice thereof to Lessee. If Lessee does not so fund such Operating Loss within
the thirty (30) day time period, Manager shall have the right (without affecting
Manager's other remedies under this Agreement) to withdraw an amount equal to
such Operating Loss from future distributions of funds otherwise due to Lessee.
4.02 Books and Records
Books of control and account pertaining to operations at the Hotel shall
be kept on the accrual basis and in all material respects in accordance with the
Uniform System of Accounts. Upon request of Lessee from time to time, Manager
shall exercise its rights under the Submanagement Agreement to examine
Marriott's records with respect to the operation of the Hotel, including as to
specific matters requested by Lessee, and shall report the results of such
examinations to Lessee. If Lessee desires, at its own expense, to audit,
examine, or review the Annual Operating Statement, Lessee shall notify Manager
in writing within sixty (60) days after receipt of such Annual Operating
Statement of its intention to audit, whereupon such audit shall begin no sooner
than thirty (30) days and no later than sixty (60) days after Manager's receipt
of such notice. Pursuant to the Lease, Owner has the right to conduct such
audit, and Primary Manager shall allow Ower to conduct or otherwise control all
aspects of any such audit of the Annual Operating Statement and Marriott's
records with respect thereto. Such audit shall be completed within ninety (90)
days after commencement thereof. If Lessee does not request such an audit, then
such Annual Operating Statement shall be deemed to be conclusively accepted by
Lessee as being correct, and Lessee shall have no right thereafter,
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except in the event of fraud by Manager or Marriott, to question or examine the
same. If any audit discloses an understatement of any amounts due Lessee,
Manager shall promptly pay Lessee such amounts found to be due, plus interest
thereon (at the Prime Rate plus one percent (1%) per annum) from the date such
amounts should originally have been paid. If any audit discloses that Manager
has not received any amounts due it, Lessee shall pay Manager such amounts, plus
interest thereon (at the Prime Rate plus one percent (1%) per annum) from the
date such amounts should originally have been paid. Any dispute concerning the
correctness of an audit shall be settled by arbitration, in accordance with
Section 11.21. Notwithstanding anything to the contrary contained in this
Agreement, at the request of Lessee Manager shall exercise its rights under the
Submanagement Agreement to give the auditors (which may be Owner's auditors) the
right upon reasonable advance notice to conduct preliminary audit procedures
prior to the end of a Fiscal Year in preparation for the annual audit outlined
above (e.g., such auditors would have the right to audit during the fourth
quarter of a Fiscal Year the first three quarters of such Fiscal Year), and
Manager shall exercise its rights under the Submanagement Agreement to provide
access to the books and control of account for the Hotel for such purpose.
Manager agrees to retain all accounting records for each Fiscal Year for at
least three (3) years after the expiration of such Fiscal Year.
4.03 Accounts, Expenditures
A. Manager shall exercise its rights under the Submanagement
Agreement to insure that all funds derived from operation of the Hotel shall be
deposited on a daily basis (to the extent possible, subject to holidays, banking
holidays and other days in which deposits to banks cannot be effected) by
Marriott in bank accounts (the "Operating Accounts") in a bank or banks
designated by Marriott, subject to Lessee's reasonable approval. Withdrawals
from said Operating Accounts shall be made solely by representatives of Marriott
whose signatures have been authorized pursuant to the Submanagement Agreement.
Manager shall exercise its rights under the Submanagement Agreement to cause
Marriott to assume the responsibilities of a fiduciary with respect to
Marriott's handling of Lessee's funds which are derived from the operation of
the Hotel. Reasonable petty cash funds shall be maintained at the Hotel.
B. All payments contemplated hereunder or under the Submanagement
Agreement to be made from the Operating Accounts, petty cash funds, or from the
FF&E Reserve (in accordance with Section 5.02) shall be made in accordance with
the terms hereof and the Submanagement Agreement. Manager shall not be required
to make any advance or payment with respect to the Hotel except out of such
funds, and Manager shall not be obligated to incur any liability or obligation
with respect to the Hotel without assurances that the necessary funds for the
discharge thereof will be provided by Lessee. In any event, if any such
liability or obligation is incurred by Manager with respect to the Hotel,
Manager shall have the option to deduct such amounts from Lessee's share of
Operating Profit if Lessee has not fully reimbursed Manager for said amounts
within ten (10) days after Lessee's receipt of notice from Manager that said
amounts are due.
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C. Debts and liabilities incurred by Manager as a result of its
operation and management of the Hotel pursuant to the terms hereof, whether
asserted before or after Termination, will be paid by Lessee to the extent funds
are not available for that purpose from Gross Revenues. The provisions of this
Section 4.03 C shall survive Termination.
4.04 Accounting for Conversion of Hotel
A. It shall be a general principle in the accounting for the Hotel
that all liabilities (including, without limitation, all Previously-Accrued
Payables) incurred prior to the Take-Over Date, or properly allocated to the
period prior to the Take-Over Date under generally accepted accounting
principles, shall be paid by Lessee from its own funds, and not from Gross
Revenues nor from the FF&E Reserve. Lessee agrees to indemnify, defend and hold
Manager, Marriott and their respective Affiliates (and their respective
directors, officers, shareholders, employees and agents) harmless from and
against all claims, causes of action, costs, expenses and damages arising from
such liabilities.
B. As a convenience to the Lessee, Manager agrees to cause Marriott
to apply any Previously-Accrued Receivables which Marriott receives at the Hotel
to pay those Previously-Accrued Payables which Lessee has confirmed in writing
to Manager. Manager shall cause Marriott to use commercially reasonable
procedures to collect such Previously- Accrued Receivables, but neither Manager
nor Marriott shall not be obligated to institute any legal actions with respect
to any Previously-Accrued Receivables. If the Previously-Accrued Payables exceed
the Previously-Accrued Receivables, Lessee shall be responsible for the payment
of such excess. Manager shall exercise its rights under the Submanagement
Agreement to cause any surplus of the Previously-Accrued Receivables received by
Marriott or Manager over such Previously-Accrued Payables to be promptly
remitted by Marriott or Manager to Lessee.
C. As of the Take-Over Date, the cash on hand at the Hotel shall be
deposited in one of the Operating Accounts set up by Marriott in accordance with
Section 4.03, and shall be treated as part of the Working Capital described in
Section 4.06. The term "cash on hand" shall not be deemed to include amounts
remaining in the FF&E Reserve which was maintained by Lessee.
4.05 Business Plan
A. Manager shall submit to Lessee for its approval (which shall not
be unreasonably withheld or delayed), at least forty-five (45) days prior to the
beginning of each Fiscal Year which begins after the Take-Over Date, a
preliminary draft (the "Proposed Business Plan") of the budget of the estimated
financial results of the operation of the Hotel during the next Fiscal Year as
prepared by Marriott pursuant to the Submanagement Agreement. Lessee's approval
shall be deemed to have been given if Manager has received no notice from Lessee
to the contrary within forty-five (45) days after Lessee's receipt of such
Proposed Business Plan. Such Proposed Business Plan shall project the estimated
Gross
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Revenues, departmental profits, Deductions, and Operating Profit for the
forthcoming Fiscal Year for the Hotel. Manager shall exercise its rights under
the Submanagement Agreement to insure that in preparing the Proposed Business
Plan for each Fiscal Year, Marriott's goal will be the maximization of the
long-term Operating Profit of the Hotel, in keeping with System Standards and
the general standards of the hotel industry for similar properties. If there are
material items in any given Proposed Business Plan which have been budgeted at
significantly different amounts from the amounts actually experienced (or
projected) for the same items in the preceding Fiscal Year, Manager agrees to
take reasonable steps to ensure that, at Lessee's request, qualified personnel
from Marriott's staff are available at the Hotel to explain these differences to
Manager and Owner (pursuant to Owner's rights under the Lease and the Owner
Agreement). A meeting (or meetings) for such purpose shall be held, at the
Hotel, at Lessee's request, within a reasonable period of time after the
submission to Lessee of the Proposed Business Plan. Pursuant to Owner's right to
approve the Proposed Business Plan pursuant to the Lease, Owner shall have the
right to participate in such meeting. Manager will exercise its rights under the
Submanagement Agreement to insure that Marriott will at all times give good
faith consideration to Manager's and Owner's suggestions regarding any Proposed
Business Plan, and in any event each Proposed Business Plan is subject to the
approval of Lessee as set forth in Section 4.05.B.
B. Lessee shall not be entitled to withhold its approval of any
Proposed Business Plan based on its objection to: (i) Marriott's reasonable
projections of either Gross Revenues or the components thereof; (ii) projected
costs and expenses which are "system charges" ( that is, costs and expenses
which are generally uniform throughout the Marriott System, such as: the charges
for Chain Services; the costs of the Marriott frequent guest program or, if
applicable, the "Marriott Rewards Program" and other chain-wide marketing
programs; employee benefits and other compensation programs); (iii) costs and
expenses which are not within the control of either Owner, Lessee, Manager or
Marriott such as Impositions and the cost of utilities; or (iv) increases in
projected costs and expenses of operating the Hotel, which increases are
primarily caused by projected increases in Gross Revenues. The approval of
Lessee (as set forth in the first sentence of Section 4.05.A) shall not be
required if, and to the extent that, the Proposed Business Plan for a given
Fiscal Year is, in all material respects, the same as the Proposed Business Plan
for the preceding Fiscal Year, as adjusted by the GDP Deflator; provided,
however, that in any event (x) the FF&E Reserve expenditures and Capital
Expenditures components of such Proposed Business Plan shall be subject to
Lessee's approval and (y) if there were, in the prior Fiscal Year, expenditures
from the FF&E Reserve or Capital Expenditures which affect operating costs or
revenues, then the Proposed Business Plan shall be subject to the approval of
the Lessee as set forth in Section 4.05.A. If Lessee and Manager fail to
mutually agree on the Proposed Business Plan within sixty (60) days after the
submission to Lessee of the Proposed Business Plan, as described in the first
sentence of Section 4.05.A, either party shall have the right to cause to be
submitted to the Expert Resolution Process under the Submanagement Agreement the
issue of whether or not the Proposed Business Plan prepared by Marriott is
unreasonable, given the goals which are set forth in the fourth sentence of
Section 4.05.A. Based on Owner's right to approve any Proposed Business Plan
pursuant to the Lease, Owner shall have the right to participate in such
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Expert Resolution Process, and the result of such Expert Resolution Process
shall be binding on Lessee and Owner. While such determination by the Expert is
pending, Manager shall cause Marriott to operate the Hotel, in all material
respects, based on the Business Plan for the preceding Fiscal Year (as adjusted
by the GDP Deflator), with adjustments for those items over which there is no
disagreement between Lessee and Manager and Marriott, and with adjustments for
those items listed in clauses (i), (ii), (iii), and (iv) above. The Proposed
Business Plan, as approved by Lessee (or deemed approved pursuant to the Expert
Resolution Process), is herein referred to as the "Business Plan".
C. With respect to the "stub year" (if any) immediately following
the TakeOver Date, Manager shall submit the Proposed Business Plan to Lessee by
no later than thirty (30) days prior to the Take-Over Date.
D. Manager shall exercise its rights under the Submanagement
Agreement to cause Marriott to diligently operate the Hotel in accordance with
the Business Plan. It is understood, however, that the Business Plan is an
estimate only and that unforeseen circumstances such as the costs of labor,
material, services and supplies, casualty, operation of law, or economic and
market conditions, may make adherence to the Business Plan impracticable, and
Manager shall be entitled to depart therefrom due to causes of the foregoing
nature. In the event that Manager determines that circumstances require that
there will be material changes in the Business Plan, Manager shall so notify
Lessee, and, as to any components of a Business Plan over which Lessee has
approval rights under this Agreement, Lessee shall have the right to reasonably
approve such proposed material changes. Lessee's approval shall be deemed to
have been given if Manager has received no notice from Lessee to the contrary
within twenty (20) days after Lessee's receipt of such notice of proposed
material changes in the Business Plan.
E. Manager shall provide to Lessee with fifteen (15) days after the
expiration of each fiscal quarter a reforecast of the Business Plan for such
Fiscal Year prepared by Marriott pursuant to the Submanagement Agreement.
4.06 Working Capital
A. On or prior to the Take-Over Date, Lessee shall provide Manager
with initial Working Capital for the Hotel in the amount of One Thousand Two
Hundred Fifty Dollars ($1,250) per guest room, as adjusted by the GDP Deflator,
per Guest Room, less cash on hand at the Hotel as of the Take-Over Date. If
Lessee fails to provide any Working Capital as required under this Section
4.06.A, Manager shall have the right (after first giving Lessee ten (10) days
written notice thereof) to deduct the required amounts from Gross Revenues.
B. Lessee shall, from time to time during the Term, promptly, but no
later than thirty (30) days after written request by Manager, advance any
additional funds, over and above those required pursuant to Section 4.06.A,
necessary to maintain a Reasonable Amount of Working Capital. If Lessee does not
so fund additional Working Capital within the said
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thirty (30) day time period, Manager shall have the right (without affecting
Manager's other remedies under this Agreement) to withdraw an amount equal to
the funds required to maintain a Reasonable Level of Working Capital from future
distributions of funds otherwise due to Lessee or to allow Marriott to withdraw
such amount from funds due Manager under the Submanagement Agreement. All funds
so advanced for Working Capital shall be utilized by Marriott for the purposes
set forth in the Submanagement Agreement pursuant to cash management policies
established for the Marriott System. Upon Termination, Manager shall, except as
otherwise provided in this Agreement, return the outstanding balance of the
Working Capital to Lessee.
4.07 Fixed Asset Supplies
Lessee shall, within thirty (30) days after request by Manager, provide
funds that are necessary to increase the level of Fixed Asset Supplies to levels
determined by Manager, in its good faith judgment, to be necessary to satisfy
the needs of the Hotel as its operation may, from time to time, require. The
cost of Fixed Asset Supplies consumed in the operation of the Hotel shall
constitute a Deduction. Fixed Asset Supplies shall remain the property of Lessee
throughout the term of the Agreement and upon Termination (except for those
Fixed Asset Supplies which are purchased by Marriott pursuant to Section
11.11.E).
4.08 Litigation
Submanager shall give notice to Primary Manager from time to time of any
material litigation affecting the Hotel, together with such additional
information within the possession or control of Submanager or the applicable
insurance carrier as Primary Manager may reasonably request.
ARTICLE V
REPAIRS, MAINTENANCE AND REPLACEMENTS
5.01 Repairs and Maintenance Costs Which Are Expensed
Manager shall cause Marriott to maintain the Hotel in good repair and
condition, and shall make or cause to be made such routine maintenance, repairs
and minor alterations as it determines are necessary for such purposes. The
phrase "routine maintenance, repairs, and minor alterations" as used in this
Section 5.01 shall include only those which are normally expensed under
generally accepted accounting principles. The cost of such maintenance, repairs
and alterations shall be paid from Gross Revenues (and not from the FF&E
Reserve) and shall be treated as a Deduction in determining Operating Profit.
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5.02 FF&E Reserve
A. Manager shall cause Marriott to establish a reserve account (the
"FF&E Reserve"), in a bank or similar institution reasonably acceptable to both
Manager and Lessee, to cover the cost of: (i) replacements, renewals and
additions to the FF&E at the Hotel; and (ii) Special Capital Expenditures.
Withdrawals from the FF&E Reserve shall be made solely by representatives of
Marriott whose signatures have been authorized. Lessee covenants that, as of the
Take-Over Date, the dollar amount in the FF&E Reserve shall be no less than the
Initial FF&E Reserve Balance. If Lessee fails to provide the dollar amount in
the FF&E Reserve in an amount no less than the Initial FF&E Reserve Balance as
required under this Section 5.02.A, Marriott shall have the right (after first
giving Lessee ten (10) days written notice thereof) to deduct the required
amounts from Gross Revenues. In addition, Lessee covenants that the Five-Year
Plan attached hereto as Exhibit "B-1" shall be implemented, subject to any
mutually-approved changes, as Special Capital Expenditures from the FF&E
Reserve.
B. During the Term of this Agreement, subject to the provisions of
subsection E, below, Lessee shall transfer into the FF&E Reserve an amount set
forth on Exhibit "A-1" (except to the extent that the Five-Year Plan sets forth
different percentage(s) applicable to certain periods in the Term, in which
event such percentage(s) in the Five-Year Plan shall be controlling during such
periods) for each such Accounting Period. Transfers into the FF&E Reserve shall
be made at the time of each interim accounting described in Section 4.01 hereof.
All amounts transferred into the FF&E Reserve pursuant to this Section 5.02.B
shall be paid from Gross Revenues as Deductions.
C. Manager shall cause Marriott to prepare an annual estimate (the
"FF&E Estimate") of the expenditures necessary for (1) replacements, renewals
and additions to the FF&E of the Hotel, and (2) Special Capital Expenditures,
during the ensuing Fiscal Year and shall deliver the FF&E Estimate to Lessee for
its approval (which shall not be unreasonably withheld or delayed), at the same
time as Manager submits the Proposed Business Plan described in Section 4.05.A.
The FF&E Estimate shall also indicate the estimated time schedule for making
such replacements, renewals, and additions. In preparing the FF&E Estimate for
each Fiscal Year, Manager's goal will be to maintain the Hotel in accordance
with System Standards and the general standards of the hotel industry for
similar properties. Lessee shall not be entitled to withhold its approval of any
FF&E Estimate based on its objection to: (i) items already agreed upon in the
Five-Year Plan; (ii) costs and expenses which are consistent throughout the
Marriott System for similarly situated hotels (such as periodic hard and soft
good replacement schedules); (iii) costs and expenses of items that fall within
the "under $25,000" category of expenditures (namely, that a given order or
related series of orders for FF&E purchases is less than $25,000) that are
characterized as such in the FF&E Estimate; or (iv) costs and expenses of items
that are introduced into the Marriott System as part of System Standards. If
Lessee and Manager fail to mutually agree on the FF&E Estimate within forty-five
(45) days after the submission to Lessee, Lessee shall have the right to cause
Manager to submit to the Expert Resolution Process pursuant to the Submanagement
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Agreement the issue of whether or not Marriott's proposed FF&E Estimate is
unreasonable, given the goals which are set forth in the third sentence of this
Section 5.02.C. While such determination by the Expert is pending, Manager shall
cause Marriott to operate the Hotel, in all material respects, based on the FF&E
Estimate for the preceding Fiscal Year (as adjusted by the GDP Deflator), with
adjustments for those items over which there is no disagreement between Lessee
and Manager, and for those items listed above over which Lessee has no right of
approval.
D. Manager shall, consistent with the applicable FF&E Estimate, from
time to time cause Marriott to make such (1) replacements, renewals and
additions to the FF&E of the Hotel, and (2) Special Capital Expenditures, as
Manager deems necessary, up to the balance in the FF&E Reserve. No expenditures
will be made that are in excess of the FF&E Reserve without the approval of
Lessee and Manager shall cause Marriott to diligently operate the Hotel in
accordance with the FF&E Estimate approved (or deemed approved through the
Expert Resolution Process) by Lessee, provided that, to the extent not included
in the applicable FF&E Estimate or not otherwise approved by Lessee, Marriott
shall be allowed to use the funds in the FF&E Reserve for expenditures deemed
reasonably necessary by Marriott to repair or correct any condition on or about
the Hotel which (i) constitutes a violation of any applicable Legal Requirement
which imposes liability or potential liability on Marriott, or (ii) presents a
threat to life or property of Marriott or any guest, employee or invitee on or
about the Hotel; provided, however, that Manager shall cause Marriott to give
notice to Manager and Manager shall give notice to Lessee of any such
expenditure made by Marriott reasonably promptly following such expenditure. At
the end of each Fiscal Year, any amounts remaining in the FF&E Reserve shall be
carried forward to the next Fiscal Year. Proceeds from the sale of FF&E no
longer necessary to the operation of the Hotel shall be added to the FF&E
Reserve. The FF&E Reserve will be kept in an interest-bearing account, and any
interest which accrues thereon shall be retained in the FF&E Reserve. Neither
(1) proceeds from the disposition of FF&E, nor (2) interest which accrues on
amounts held in the FF&E Reserve, shall (a) result in any reduction in the
required transfers to the FF&E Reserve set forth in subsection B above, nor (b)
be included in Gross Revenues.
E. As the Hotel ages, the percentages of Gross Revenues which are
set forth in Section 5.02.B may not be sufficient to keep the FF&E Reserve at
the levels necessary to make the replacements, renewals, and additions to the
FF&E of the Hotel, or to make the Special Capital Expenditures, which are
required to maintain the Hotel in accordance with the System Standards. If
Marriott gives notice to Manager pursuant to the Submanagement Agreement that it
reasonably believes that the funding of the FF&E Reserve (with respect to the
following Fiscal Year or any subsequent Fiscal Year) will not be adequate to
maintain the Hotel in accordance with System Standards, Manager shall give
notice to Lessee of a proposed increase in the annual percentage in Section
5.02.B to provide the additional funds required, which increase in the annual
percentage shall require the approval of Lessee. If Lessee and Manager fail to
agree on a requested increase in the annual percentage Section 5.02.B within
forty-five (45) days after the submission to Lessee, Lessee shall have the right
to cause Manager to submit to the Expert Resolution Process under the
Submanagement Agreement the
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issue of whether or not Marriott's proposed increase in the annual percentage is
reasonable. Pursuant to the Owner Agreement and Owner's right to approve any
such increase under the Lease, Owner shall have the right to participate in any
such Expert Resolution Process. Until such time as an increase in the annual
percentage in this Section 5.02.B has been approved (or deemed approved through
the Expert Resolution Process) by Lessee, the reserve set forth in this Section
5.02.B (as the same may have been previously increased pursuant to the
procedures set forth in Section 5.02.E) shall continue to apply. Notwithstanding
the foregoing, in the event, the FF&E Reserve is not increased through the
procedures described in this Section 5.02 E, and such failure shall result in
Marriott being unable to maintain the Hotel in accordance with the System
Standards, Manager may, on sixty (60) days written notice to Lessee, terminate
this Agreement if Marriott terminates the Submanagement Agreement. Finally, the
placing of any restrictions on the expenditure by Marriott of funds from the
FF&E Reserve other than as set forth in this Section 5.02 (including, without
limitation, restrictions resulting from (i) any Litigation involving Owner,
Lessee, Manager, or the Hotel, or (ii) a Foreclosure) shall entitle Manager, on
sixty (60) days written notice to Lessee, to terminate this Agreement if, as a
result thereof, Marriott has terminated the Submanagement Agreement.
F. Manager covenants that it shall exercise its rights under the
Submanagement Agreement to cause Marriott to utilize amounts in the FF&E Reserve
only for replacements, renewals and additions to the FF&E at the Hotel and
Special Capital Expenditures, as provided in the foregoing provisions of this
Section 5.02, and that such amounts are not subject to setoff for any other
amounts alleged by Submanager to be owed by Primary Manager, Lessee or Owner to
Submanager.
5.03 Capital Expenditures
A. Manager shall cause Marriott to prepare an annual estimate (the
"Building Estimate") of all Capital Expenditures. Upon receiving the Building
Estimate from Marriott, Manager shall submit the Building Estimate to Lessee for
its approval at the same time as Manager submits the Proposed Business Plan
described in Section 4.05.A. Manager shall not allow Marriott to make any
Capital Expenditures without the prior written Approval of Lessee, unless
otherwise permitted herein. Lessee shall cause Owner to make Capital
Expenditures to allow the completion of the work described on Exhibit "B-2"
hereto at Owner's sole cost and expense and not from Gross Revenues or the FF&E
Reserves.
B. Notwithstanding the provisions of Section 5.03A, Manager shall
cause Marriott to take appropriate remedial action (including making any
necessary Capital Expenditures) without receiving Lessee's prior consent in the
following circumstances: (i) if there is an emergency threatening the Hotel, its
guests, invitees or employees; or (ii) if the continuation of the given
condition would subject Manager and/or Owner and/or Lessee to civil or criminal
liability, and if Lessee has either failed to remedy the situation or has failed
to take appropriate legal action to stay the effectiveness of any applicable
Legal Requirement. Manager shall cooperate with Lessee in the pursuit of any
such action and shall have the right
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to participate therein. Lessee shall, upon written request by Manager, promptly
reimburse all expenditures made by Marriott pursuant to this Section 5.03.B.
C. The cost of all Capital Expenditures (including the expenses
incurred by either Lessee, Marriott or Manager in connection with any civil or
criminal proceeding described above) shall be borne solely by Lessee (or Owner),
and shall not be paid from Gross Revenues nor from the FF&E Reserve.
D. Lessee shall not unreasonably withhold its Approval with respect
to Capital Expenditures as are: (i) required, in Manager's reasonable judgment,
to keep the Hotel in a first-class, competitive, efficient and economical
operating condition in accordance with System Standards; or (ii) required by
reason of any Legal Requirement, or otherwise required for the continued safe
and orderly operation of the Hotel. Manager shall be entitled to terminate this
Agreement, on sixty (60) days' notice to Lessee, if: Lessee either (a) fails to
approve any Capital Expenditure described in the preceding sentence, or (b)
fails to provide funding for any such Capital Expenditure within sixty (60) days
after the submission to Lessee of the Building Estimate requesting such Capital
Expenditure, and if Marriott terminates the Submanagement Agreement pursuant to
the comparable provision of the Submanagement Agreement.
E. Manager will not make a detailed inspection of the ADA compliance
and life-safety elements of the Hotel prior to the Take-Over Date. To the extent
that any of such elements are not in compliance with System Standards, Lessee
shall be obligated (or shall cause Owner)) to fund any necessary remedial
measures promptly after the Take-Over Date in accordance with a schedule for
such measures and the funding thereof proposed by Marriott. Manager shall review
any such elements and the schedule of compliance and funding with Lessee, and
shall consider in good faith any comments of Lessee as to methods of compliance
with ADA and priority of compliance efforts and report the same to Marriott.
F. On the Effective Date, Lessee shall fund an escrow account with
Primary Manager as provided in Section 3.2.8 of the Settlement Agreement.
5.04 Ownership of Replacements
All repairs, alterations, improvements, renewals or replacements made
pursuant to Article V, and all amounts kept in the FF&E Reserve, shall, except
as otherwise provided in this Agreement, be the property of Lessee or Owner, as
applicable.
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ARTICLE VI
INSURANCE, DAMAGE, CONDEMNATION, AND FORCE MAJEURE
6.01 Insurance
A. Subject to Section 6.02, Manager shall cause Marriott, commencing
with the Take-Over Date and thereafter during the Term of the Agreement, to
procure and maintain, either with insurance companies of recognized
responsibility reasonably approved by Lessee or by legally qualifying itself as
a self insurer, a minimum of the following insurance:
1. Property insurance on the Improvements and contents against
loss or damage by fire, lightning and all other risks covered by the usual
extended coverage endorsement, all in an amount not less than ninety percent
(90%) of the replacement cost thereof;
2. Boiler and machinery insurance against loss or damage from
explosion of boilers or pressure vessels to the extent applicable to the Hotel;
3. Business interruption insurance covering loss of profits
and necessary continuing expenses for interruptions caused by any occurrence
covered by the insurance referred to in Sections 6.01.A.1 and 2 of a type and in
amounts as are generally established by Marriott at similar hotels it owns,
leases or manages under the Marriott name in the United States;
4. General liability insurance against claims for bodily
injury, death or property damage occurring on, in, or about the Hotel, and
automobile liability insurance on vehicles operated in conjunction with the
Hotel, with a combined single limit for each occurrence of not less than One
Hundred Million Dollars ($100,000,000);
5. Workers' compensation as may be required under applicable
laws covering all of Marriott's employees at the Hotel;
6. Fidelity bonds, with reasonable limits to be determined by
Marriott, covering its employees in job classifications normally bonded in other
similar hotels it leases or manages under the Marriott name in the United States
or as otherwise required by law, and comprehensive crime insurance to the extent
Manager and Marriott mutually and reasonably agree it is necessary for the
Hotel;
7. Employer's liability insurance in accordance with
Marriott's standard practices and policies (it being agreed that, in the event
Lessee requests an increase in the coverage or limits of such insurance, and
provided that such increased coverage or limit is available, Manager shall cause
Marriott to obtain such increased coverage or limit, with the
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additional cost thereof being a Deduction hereunder for all purposes other than
the calculation of Operating Profit for purposes of Section 2.02 hereof).
8. Such other insurance in amounts as Marriott in its
reasonable judgment pursuant to the Submanagement Agreement deems advisable for
protection against claims, liabilities and losses arising out of or connected
with the operation of the Hotel.
B. All insurance described in Section 6.01.A may be obtained by
Marriott by endorsement or equivalent means under its blanket insurance
policies, provided that such blanket policies substantially fulfill the
requirements specified in this Agreement.
C. Manager may allow Marriott to 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 Marriott name in the United States.
D. All policies of insurance required under Section 6.01.A shall be
carried in the name of Marriott. The policies required under Sections 6.01.A.1,
2, 3, and 4 shall include the Owner, Lessee and Manager as an additional
insured. Upon notice by the Lessee, Manager shall cause Marriott to also have
the policies required under Sections 6.01.A.1, 2, and 3 include any Mortgagee as
additional insureds. Any property losses thereunder shall be payable to the
respective parties as their interests may appear. Any Mortgage encumbering the
Hotel shall contain provisions to the effect that proceeds of the insurance
policies required to be carried under Sections 6.01.A.1 and 2 shall be available
for repair and restoration of the Hotel, subject to exceptions customarily
included in institutional hotel mortgages.
E. Manager shall deliver to Owner and Lessee 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. All certificates of insurance provided for under this Section 6.01
shall, to the extent obtainable, state that the insurance shall not be canceled
or materially changed without at least thirty (30) days' prior written notice to
the certificate holder .
F. Insurance premiums and any other costs or expenses with respect
to the insurance or self-insurance required under Section 6.01.A., including any
Insurance Retention (as defined below), shall be paid from Gross Revenues
(except as otherwise set forth to the contrary in Section 1.03.E) as Deductions.
Such premiums and costs shall be allocated on an equitable basis to the hotels
participating under Marriott's blanket insurance or self-insurance programs, as
applicable. Except as otherwise set forth in Section 1.03.E and except for any
self-insurance retained by Marriott or any of its Affiliates, any reserves,
losses, costs or expenses which are uninsured shall be treated as a cost of
insurance and shall be Deductions. Upon Termination, a reserve in an amount
which is acceptable to Marriott pursuant to the Submanagement Agreement, and
which is in accordance with generally accepted practices in the insurance
industry, shall be established from Gross Revenues (or, if Gross Revenues are
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insufficient, from Working Capital) to cover the amount of any Insurance
Retention and all other costs which will eventually have to be paid by either
Lessee, Manager or Marriott with respect to pending or contingent claims,
including those which arise after Termination for causes arising during the Term
of the Agreement. For purposes of this Section 6.01.F, "Insurance Retention"
shall mean the amount of any loss or reserve under Marriott's blanket insurance
or self-insurance programs which is allocated to the Hotel, 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
Hotel is not a participant under Marriott's blanket insurance or self-insurance
programs, "Insurance Retention" shall mean the amount of any loss or reserve
allocated to the Hotel, not to exceed the insurance policy deductible.
G. Manager agrees to exercise its rights under the Submanagement
Agreement to ensure that the charge to the Hotel for insurance that Marriott
obtains pursuant to the foregoing provisions shall not incorporate a profit to
Marriott or any of its Affiliates, or, if a profit is incorporated, that the
charge therefor to the Hotel shall not be in excess of the competitive market
rate for comparable insurance.
6.02 Owner's Option to Obtain Property Insurance.
At any time, and from time to time, within ten (10) days after receipt of
Lessee's written request, Manager will cause Marriott to provide its best
estimate of the renewal cost of Marriott's blanket insurance as required in
Section 6.01.A.(1), (2) and (3), and Manager shall furnish such estimate to
Lessee. Lessee may, at its option, by written notice to Manager which shall be
delivered no later than ninety (90) days prior to the natural expiration of the
insurance policies which Manager has obtained pursuant to Section 6.01.A(1), (2)
and (3), advise Manager that Owner or Lessee shall procure and maintain the
insurance specified in Section 6.01.A(1), (2) and (3) (in which case Manager
shall cause Marriott to allow such policies obtained by it under Section
6.01.A(1), (2) and (3) to expire), subject to the following terms and
conditions:
A. All such policies of insurance shall be carried in the name of
Owner and/or Lessee as applicable, with Manager and Marriott as additional
insureds. Any property losses thereunder shall be payable to the respective
parties as their interests may appear. The documentation with respect to each
Mortgage shall contain provisions to the effect that proceeds of the insurance
policies required to be carried under Section 6.01.A(1), (2) and (3) shall be
available for repair and restoration of the Hotel, to the extent required
pursuant to Section 6.01.D. However, any Mortgagee shall be entitled to impose
reasonable conditions on the disbursement of insurance proceeds for the repair
and/or restoration of the Hotel, including a demonstration by Owner or Lessee
that the amount of such proceeds (together with other funds Owner or Lessee
agrees to make available) is sufficient for such purpose.
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B. Lessee shall deliver to Manager certificates of insurance with
respect to all policies so procured and, in the case of insurance policies about
to expire, shall deliver certificates with respect to the renewal thereof.
C. All such certificates of insurance shall, to the extent
obtainable, state that the insurance shall not be canceled or materially changed
without at least thirty (30) days' prior written notice to the certificate
holder.
D. Premiums for such insurance coverage shall be treated as
Deductions, provided that if the cost of such insurance procured by Owner or
Lessee exceeds the cost of Marriott's comparable coverage by more than ten
percent (10%), all such excess costs shall be the sole responsibility of Lessee
and shall not be a Deduction.
E. Should Lessee exercise its option to have the insurance described
in this Section 6.02 procured by Owner or Lessee, Lessee hereby waives and shall
cause Owner to waive in writing to Marriott their rights of recovery from
Manager or any of its Affiliates (and their respective directors, officers,
shareholders, agents and employees) for loss or damage to the Hotel, and any
resultant interruption of business.
F. All insurance procured by Owner or Lessee shall be obtained from
reputable insurance companies reasonably acceptable to Manager and Marriott.
G. Should Lessee exercise its right to have Owner or Lessee obtain
the insurance described in this Section 6.02, Lessee acknowledges that Marriott
is under no obligation to thereafter include the Hotel in its blanket insurance
program (with respect to the insurance described in Section 6.01.A(1), (2) and
(3)) for the balance of the Term.
6.03 Damage and Repair
A. If, during the Term, the Hotel is damaged by a Minor Casualty,
Manager shall cause Marriott, with all reasonable diligence to, proceed to
process the claim with the applicable insurance carriers, including settling
such claim, and to make the necessary arrangements with appropriate contractors
and suppliers to repair and/or replace the damaged portion of the Hotel.
Lessee's consent shall not be needed for Marriott to perform any of the
foregoing, all of which shall be performed in accordance with Marriott's
reasonable judgment pursuant to the Submanagement Agreement. Lessee agrees to
sign promptly any documents which are necessary to process and/or adjust the
claim with the insurance carriers, as well as any contracts with such
contractors and/or suppliers.
B. If, during the Term, the Hotel suffers a Total Casualty, (i) this
Agreement shall be terminable by Lessee at its option upon ninety (90) days'
written notice to Manager, where upon Manager shall exercise its rights under
the Submanagement Agreement to terminate the Submanagement Agreement as a result
of such Total Casualty, and (ii) this Agreement shall be terminable by Manager
by ninety (90) days' of written notice to Lessee, if
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Marriott has terminated the Submanagement Agreement pursuant to such Total
Casualty. Any such notice pursuant to this Section 6.03.b. must be sent within
thirty (30) days after the date of the Total Casualty.
C. If, during the Term, the Hotel is damaged by fire, casualty or
other cause to a greater extent than a Minor Casualty, but not to the extent of
a Total Casualty, or if the Hotel suffers a Total Casualty but neither party
elects to terminate under Section 6.04.A, Lessee shall (or shall cause Owner, as
applicable), at such party's cost and expense and with all reasonable diligence,
repair and/or replace the damaged portion of the Hotel to the same condition as
existed previously. Marriott shall have the right to discontinue operating the
Hotel to the extent it deems necessary to comply with applicable Legal
Requirements or as necessary for the safe and orderly operation of the Hotel. To
the extent available, proceeds from the insurance described in Section 6.01 of
this Agreement shall be applied to such repairs and/or replacements. If Owner or
Lessee, as applicable, fails to so promptly commence and complete the repairing
and/or replacement of the Hotel so that it shall be substantially the same as it
was prior to such damage or destruction, such failure shall be an Event of
Default by Lessee.
6.04 Condemnation
A. In the event all or substantially all of the Hotel shall be taken
in any eminent domain, condemnation, compulsory acquisition, or similar
proceeding by any competent authority for any public or quasi-public use or
purpose, or in the event a portion of the Hotel shall be so taken, but the
result is that it is unreasonable to continue to operate the Hotel in accordance
with the standards required by this Agreement, this Agreement shall terminate,
and Manager shall terminate the Submanagement Agreement as a result of such
taking.
B. In the event a portion of the Hotel shall be taken by the events
described in Section 6.03.A, or the entire Hotel is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate the
Hotel, 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 Hotel
equivalent to its condition prior to such event shall be used for such purpose;
and Marriott shall have the right to discontinue operating the Hotel to the
extent it deems necessary for the safe and orderly operation of the Hotel.
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ARTICLE VII
TAXES
7.01 Real Estate and Personal Property Taxes
A. Except as specifically set forth in subsection B below, Manager
shall cause Marriott to pay from Gross Revenues all real estate and personal
property taxes, levies, assessments and similar charges on or relating to the
Hotel ("Impositions") during the Term, before any fine, penalty, or interest is
added thereto or lien placed upon the Hotel or upon the Agreement or the
Submanagement Agreement, unless payment thereof is in good faith being contested
and enforcement thereof is stayed. Any such payments shall be Deductions in
determining Operating Profit. Manager shall, within five (5) days after receipt,
furnish Marriott with copies of official tax bills and assessments which it may
receive with respect to the Hotel. Any of Owner, Lessee or Manager (in which
case Lessee agrees to cause Owner to sign the required applications and
otherwise cooperate with Marriott in expediting the matter) may initiate
proceedings to contest any negotiations or proceedings with respect to any
Imposition, and all reasonable costs of any such contest shall be paid from
Gross Revenues and shall be a Deduction in determining Operating Profit. Manager
shall, as part of its contest or negotiation of any Imposition, be entitled, on
Owner's or Lessee's behalf, to permit Marriott to waive any applicable statute
of limitations in order to avoid paying the Imposition during the pendency of
any proceedings or negotiations with applicable authorities.
B. The word "Impositions" as used in this Agreement shall not
include the following, all of which shall be paid solely by Owner or Lessee, as
applicable, 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 Lessee, or any income tax
imposed on any income of Owner or Lessee (including distributions to Lessee
pursuant to Article III hereof);
2. Special assessments (regardless of when due or whether they
are paid as a lump sum or in installments over time) imposed because of
facilities which are constructed by or on behalf of the assessing jurisdiction
(for example, roads, sidewalks, sewers, culverts, etc.) which directly benefit
the Hotel (regardless of whether or not they also benefit other buildings),
which assessments shall be treated as capital costs of construction and not as
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 or
Lessee as a condition to the issuance of site plan approval, zoning variances or
building permits, which impact fees shall be treated as capital costs of
construction and not as Deductions; or
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4. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Hotel by temporarily reducing or abating normal Impositions
in return for substantially higher levels of Impositions at later dates.
ARTICLE VIII
MANAGEMENT OF THE HOTEL
8.01 Ownership of the Hotel
A. Lessee hereby covenants that it will (i) have, keep, and maintain
good and marketable leasehold title to the Hotel pursuant to the Lease, and (ii)
cause Owner to have, keep and maintain good and marketable fee title [ground
lease as to Atlanta] to the Site in each case free and clear of any and all
liens, encumbrances or other charges, except as follows:
1. easements or other encumbrances (other than those described
in subsections 2 and 3 hereof) that do not adversely affect the operation of the
Hotel by Manager and that are not prohibited pursuant to Section 8.04 of this
Agreement;
2. Qualified Mortgages; or
3. liens for taxes, assessments, levies or other public
charges not yet due or due but not yet payable.
B. Lessee shall (and shall exercise its rights under the Lease to
cause Owner to) pay and discharge, on or before the due date, any and all
payments due under any Mortgage. Lessee shall (and shall exercise its rights
under the Lease to cause Owner to) indemnify, defend, and hold Manager and
Marriott harmless from and against all claims, litigation and damages arising
from the failure of Owner or Lessee, as applicable, to make any such payments as
and when required; and this obligation of Lessee shall survive Termination.
Manager shall have no responsibility for payment of debt service due with
respect to the Hotel, from Gross Revenues or otherwise, and such responsibility
shall be solely that of Owner or Lessee.
C. Lessee covenants and shall exercise its rights under the Lease to
cause Owner to covenant that: (i) so long as Manager is not in Default under
this Agreement or any Subordination Agreement, Manager shall quietly hold,
occupy and enjoy the Hotel throughout the Term hereof free from hindrance,
ejection or molestation by Owner or Lessee or other party claiming under,
through or by right of Owner or Lessee, and (ii) so long as Marriott is not in
Default (as that term is defined in the Submanagement Agreement) under the
Submanagement Agreement or any Subordination Agreement, Submanager shall quietly
hold, occupy and enjoy the Hotel throughout the Term (as that term is defined in
the Submanagement
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Agreement) hereof free from hindrance, ejection or molestation by Owner or
Lessee or other party claiming under, through or by right of Owner or Lessee.
Lessee shall pay and shall exercise its rights under the Lease to cause Owner to
pay and discharge any payments and charges and, at such party's expense, to
prosecute all appropriate actions, judicial or otherwise, necessary to assure
such free and quiet occupation; provided, however, that Owner or Lessee, as
applicable, shall have the right to contest by appropriate action any such
payments or charges as long as such contest does not disturb such free and quiet
occupation by Manager or Marriott.
8.02 Mortgages
A. Owner or Lessee shall be permitted to encumber the Hotel and/or
the Site with any Mortgage which is a Qualified Mortgage. Lessee shall not (and
shall exercise its rights under the Lease to ensure that Owner will not)
encumber the Hotel and/or the Site with any Mortgage which is not a Qualified
Mortgage.
B. Any Mortgage which meets all of the following requirements shall
be referred to in this Agreement as a "Qualified Mortgage":
1. The proposed Mortgage is from an Institutional Lender; and
2. Owner or Lessee (as applicable) and Manager and Submanager
and the holder of such Mortgage shall have entered into a Subordination
Agreement (to be recorded in the real property records in the jurisdiction where
the Site is located) as further described in Section 8.03 below. Manager agrees
to enter into (and shall exercise its rights under the Submanagement Agreement
to cause Marriott to enter into) a Subordination Agreement which satisfies the
requirements of Section 8.03 in connection with a proposed Mortgage which is
otherwise a Qualified Mortagage.
In addition, any Mortgage which encumbers the Hotel as of the date of the
Settlement Agreement and which continues to encumber the Hotel as of the
Take-Over Date shall be deemed to constitute a Qualified Mortgage whether or not
it meets the requirements set forth in 1 and 2 above.
8.03 Subordination, Non-Disturbance and Attornment
A. Lessee shall and shall exercise its rights under the Lease to
cause Owner to (i) to use best reasonable efforts to obtain from any Mortgagee
which holds a Mortgage as of the Take-Over Date and (ii) to obtain from any
Mortgagee which is granted a Mortgage after the Take-Over Date an instrument
(the "Subordination Agreement"), reasonably satisfactory in all respects to
Manager, Marriott and such Mortgagee, which shall be recordable in the
jurisdiction where the Hotel is located, pursuant to which:
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1. This Agreement and any extensions, renewals, replacements
or modifications thereto, and all right and interest of Marriott and Manager in
and to the Hotel, shall be subject and subordinate to such Mortgage;
2. Marriott and Manager shall be obligated to each of the
Subsequent Owners (as defined below) to perform all of the terms and conditions
of this Agreement for the balance of the remaining Term hereof, with the same
force and effect as if such Subsequent Owners were the Owner or Lessee, as
applicable; and
3. In the event that there is a Foreclosure of such Mortgage
(or a deed in lieu of Foreclosure), or other exercise by such Mortgagee (or its
successor) of its remedies in the event of default, in connection with which
title or possession of the Hotel is transferred to the Mortgagee (or its
designee) or to a purchaser at Foreclosure or to a subsequent purchaser from the
Mortgagee (or from its designee) (all of the foregoing shall collectively be
referred to as "Subsequent Owners"), then regardless of whether the Lease is
terminated Marriott shall not be disturbed in its rights under the Submanagement
Agreement and Manager shall not be disturbed in its rights under this Agreement
so long as Marriott is not in default under the Submanagement Agreement and
Manager is not in Default hereunder.
B. In the event that the Subordination Agreement contains provisions
requiring Manager (upon a default under the Mortgage, or upon various other
stipulated conditions) to pay certain amounts which are otherwise due to Lessee
under this Agreement to the Mortgagee or its designee (rather than to Lessee),
Lessee hereby gives its consent to such provisions, which consent shall be
deemed to be irrevocable until the entire debt secured by the Mortgage has been
discharged.
C. Prior to any encumbrance of the Hotel or the Site after the
Take-Over Date with any Mortgage, Lessee shall and shall be obligated to
exercise its rights under the Lease to cause Owner to obtain from the proposed
Mortgagee an executed, recordable Subordination Agreement. Lessee and Manager
agree to execute such Subordination Agreement for the benefit of such proposed
Mortgagee. If Owner or Lessee encumbers the Hotel or the Site with a Mortgage
after the Take-Over Date without first obtaining such a Subordination Agreement
from the Mortgagee: (i) it shall be a Default of Lessee under this Agreement,
entitling Manager to all of the remedies set forth in Article IX; and (ii) in
addition, Manager shall thereafter have a continuing right to terminate this
Agreement upon sixty (60) days' prior written notice to Lessee.
D. Notwithstanding the subordination of this Agreement which is
described in Section 8.03.A.1 (or any subsequent subordination to any other
Mortgage), if, in connection with the exercise by any Mortgagee of its remedies
under any Mortgage, there is a material adverse impact upon the operation of the
Hotel by Manager or Marriott in accordance with the System Standards (such as,
for example, the imposition of restrictions upon expenditures from the FF&E
Reserve by Manager or Marriott, where such restrictions are not set forth in
this
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Agreement), the foregoing shall be deemed to be an Event of Default by Lessee
entitling Manager to all of the remedies set forth in Article IX.
8.04 No Covenants, Conditions or Restrictions
A. Lessee covenants that it will not and that it will exercise its
rights under the Lease to cause Owner to not (unless Manager has given its prior
written consent thereto) enter into any covenants, conditions or restrictions,
including reciprocal easement agreements or cost-sharing arrangements
(collectively referred to as "CC&R's") affecting the Site or the Hotel (i) which
would prohibit or limit in any material respect Manager or Marriott from
operating the Hotel in accordance with the System Standards, including related
amenities proposed for the Hotel pursuant to the Five Year Plan; (ii) which
would allow the Hotel facilities (for example, parking spaces) to be used by
persons other than guests, invitees or employees of the Hotel; (iii) which would
allow the Hotel facilities to be used for specified charges or rates which have
not been approved by Manager; or (iv) which would subject the Hotel to exclusive
arrangements regarding food and beverage operation or retail merchandise. To
Lessee's knowledge, any existing CC&R's affecting the Site or the Hotel are
effected in instruments which have been provided by Owner or Lessee to Manager.
B. Unless otherwise agreed by both Lessee and Manager, all financial
obligations imposed on Owner or Lessee or on the Hotel pursuant to any CC&R's
shall be paid by Lessee (or Lessee shall cause to be paid by Owner) from its own
funds, and not from Gross Revenues or from the FF&E Reserve. Manager's consent
to any such CC&R's shall be conditioned (among other things) on satisfactory
evidence that: (i) the CC&R in question provides a reasonable and cost-effective
benefit to the operation of the Hotel; (ii) the costs incurred (including
administrative expenses) pursuant to such CC&R will be both reasonable and
allocated to the Hotel on a reasonable basis; and (iii) no capital expenditures
incurred pursuant to said CC&R will be paid as a Deduction (but rather, such
capital expenditures will be paid separately by Owner or Lessee).
8.05 Liens; Credit
Manager and Lessee shall use commercially reasonable efforts, Manager
shall exercise its rights under the Submanagement Agreement to cause Marriott to
use commercially reasonable efforts and Lessee shall exercise its rights under
the Lease to cause Owner to use commercially reasonable efforts to prevent any
liens from being filed against the Hotel which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to the Hotel.
Manager and Lessee shall cooperate fully, Manager shall exercise its rights
under the Submanagement Agreement to cause Marriott to cooperate fully, and
Lessee shall exercise its rights under the Lease to cause Owner to cooperate
fully, as applicable) in obtaining the release of any such liens, and the cost
thereof, if the lien was not occasioned by the fault of either party, shall be
treated the same as the cost of the matter to which it relates. If the lien
arises as a result of the fault of either party, then the party at fault shall
bear the cost
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of obtaining the lien release. In no event shall either party borrow money in
the name of or pledge the credit of the other.
8.06 Amendments Requested by Mortgagee
A. If requested by any Mortgagee or prospective Mortgagee, Manager
agrees to execute and deliver any amendment of this Agreement and shall exercise
its rights under the Submanagement Agreement to cause Marriott to execute and
deliver any amendment of the Submanagement Agreement that is reasonably required
by such Mortgagee or prospective Mortgagee, provided that Manager shall be under
no obligation to amend this Agreement and shall be under no obligation to cause
Marriott to amend the Submanagement Agreement if the result of any such
amendment would be: (i) to reduce, defer or delay the amount of any payment to
be made to Manager hereunder (or to Marriott under the Submanagement Agreement);
(ii) to materially and adversely increase Manager's obligations or affect
Manager's rights under this Agreement; (iii) to change the Term of this
Agreement or of the Submanagement Agreement; (iv) to cause the Hotel to be
operated other than pursuant to the System Standards and other provisions
hereof; or (v) to amend Section 5.02 or Section 5.03 hereunder or under the
Submanagement Agreement. Any such amendment shall be in effect only for the
period of time in which such Mortgage is outstanding.
B. Notwithstanding the provisions of Section 8.06.A, if a Mortgagee
or prospective Mortgagee requests that Manager enter into an amendment of this
Agreement and/or Marriott enter into an amendment of the Submanagement Agreement
which 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 Manager
or Marriott, as applicable, or would otherwise adversely affect Manager's rights
under this Agreement or Marriott's rights under the Submanagement Agreement, but
not to the degree of materiality which would be prohibited under Section 8.06.A,
and with respect to which Manager and/or Marriott believe, in their respective
good faith judgment, that they can be adequately compensated, Manager hereby
agrees that it will execute and deliver such requested amendment of this
Agreement and shall exercise its rights under the Submanagement Agreement to
cause Marriott to execute and deliver such requested amendment of the
Submanagement Agreement, provided that Lessee agrees to compensate Manager and
to allow Manager to compensate Marriott under the Submanagement Agreement for
the additional burden imposed by any such amendment. It is understood that the
word "burden", as used in the preceding sentence, shall encompass not only
additional work to be performed by Manager, but also the adverse effect on the
achievement of the Performance Termination Threshold which would be caused by
requiring increased services to be provided to the Hotel by third parties and by
paying from Gross Revenues any other expenses incurred by Manager and/or
Marriott in meeting such additional obligations. Any dispute as to the
additional compensation to which Manager is entitled pursuant to this Section
8.06.B. shall be resolved by arbitration pursuant to Section 11.21.
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ARTICLE IX
DEFAULTS
9.01 Events of Default
Each of the following shall constitute a "Default" under this Agreement.
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.
Upon the occurrence of any Default by either party (referred to as the
"defaulting party") as described under this subsection A, said Default shall be
deemed an "Event of Default" under this Agreement.
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. Upon the occurrence of
any Default by either party as described under this subsection B, said Default
shall be deemed an "Event of Default" under this Agreement.
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 an aggregate of sixty (60) days (whether or not consecutive).
Upon the occurrence of any Default by either party as described under this
subsection C, said Default shall be deemed an "Event of Default" under this
Agreement.
D. The failure of either party to make (or in the case of Lessee,
the failure of Lessee to cause Owner to make) any payment required to be made in
accordance with the terms of this Agreement. Upon the occurrence of any Default
by either party as described under this subsection D, said Default shall be
deemed an "Event of Default" under this Agreement if the defaulting party fails
to cure such Default within ten (10) business days after receipt of written
notice from the non-defaulting party demanding such cure.
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, and the continuance of such default for a period of thirty (30) days
after the defaulting party's receipt of written notice from the non-defaulting
party of said failure. Upon the occurrence of any Default by either party as
described under this subsection E, said Default shall be deemed an "Event of
Default" under this Agreement if the defaulting party fails to cure the Default
within thirty (30) days after receipt of written notice from the non-defaulting
party demanding such cure, or, if the Default is such that it cannot reasonably
be cured within said thirty (30) day
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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.
9.02 Remedies
Upon the occurrence of an Event of Default, the non-defaulting party shall
have the right to pursue any one or more of the following courses of action: (1)
if the Event of Default has a material adverse impact on the non-defaulting
party, 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 further provided that, if the defaulting
party is Manager, 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
Legal Requirements pertaining to termination of employment); (2) to institute
forthwith any and all proceedings permitted by law or equity including, without
limitation, actions for specific performance and/or damages; and/or (3) to avail
itself of the remedies described in Section 9.03.
9.03 Additional Remedies
A. Upon the occurrence of a Default by either party under the
provisions of Section 9.01.D, the amount owed to the non-defaulting party shall
accrue interest, at an annual rate equal to the Prime Rate plus three (3)
percentage points, from and after the date on which the Default occurred.
B. Upon the occurrence of an Event of Default by Lessee under the
provisions of Section 9.01.D, Manager shall have the right (without affecting
Manager's other remedies under this Agreement) to withdraw the amount (plus
accrued interest as described in 9.03.A above) owed to Manager by Lessee from
distributions otherwise payable to Lessee pursuant to Sections 3.01 and 4.01 of
this Agreement.
C. Manager and/or any Affiliate shall be entitled, in case of any
breach of the covenants of Sections 11.11.E, F, or G or of Section 11.12 by
Lessee or others claiming through it, to injunctive relief and to any other
right or remedy available at law.
D. The remedies granted under Sections 9.02 and 9.03 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) by reason of applicable provisions of law or equity and
shall survive Termination.
9.04 Default under Owner's Agreement
In the event of a Default by Owner or Lessee under the Owner's Agreement,
Manager shall be entitled to terminate this Agreement, provided that such
Termination shall not be an
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exclusive remedy and Manager shall be entitled to pursue any remedies it may
have under the Owner's Agreement or under this Agreement against Lessee.
Notwithstanding the foregoing, Manager shall be entitled to terminate this
Agreement pursuant to this section 9.04 only if Marriott has terminated the
Submanagement Agreement.
ARTICLE X
ASSIGNMENT AND SALE
10.01 Assignment
A. Manager shall not directly or indirectly assign or transfer its
interest in this Agreement without the prior written consent of Lessee;
provided, however, that Manager shall have the right, without Lessee's consent,
to (1) assign its interest in this Agreement to any Affiliate (provided such
Affiliate has the right to use the Marriott Trade Names and Marriott Trademark,
and otherwise is of sufficient financial capacity to perform Manager's duties
hereunder), (2) pursuant to the Submanagement Agreement allow Marriott to lease
shops or grant concessions at the Hotel so long as the terms of any such leases
or concessions do not exceed the Term of the Submanagement Agreement, and (3)
assign its interest in this Agreement to any entity into or with which Manager
is merged or consolidated or to which all or substantially all of the assets of
Manager are sold.
B. Lessee shall not assign or transfer its interest in this
Agreement without the prior written consent of Manager; provided, however, that
Lessee shall have the right, without such consent, to (1) cause this Agreement
to be conditionally assigned as security for a Mortgage of the Hotel in
accordance with this Agreement, (2) assign its interest in this Agreement to any
entity into or with which Lessee is merged or consolidated or to which all or
substantially all of the assets of Lessee are sold, and (4) assign its interest
in this Agreement pursuant to or as a result of a Sale of the Hotel which
complies with the provisions of the Settlement Agreement.
C. In the event either party consents to an assignment of this
Agreement by the other, no further assignment shall be made without the express
consent in writing of such party, unless such assignment may otherwise be made
without such consent pursuant to the terms of this Agreement. An assignment by
either Lessee or Manager of its interest in this Agreement shall not relieve
Lessee or Manager, as the case may be, from its respective obligations under
this Agreement, and shall inure to the benefit of, and be binding upon, its
respective successors, heirs, legal representatives, or assigns.
D. Manager shall have the right to terminate this Agreement, on
thirty (30) days' written notice, if title to or possession of the Hotel 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
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which would not qualify as a permitted transferee under the Settlement
Agreement, regardless of whether or not such transfer is the voluntary action of
Owner or Lessee (or successor owner of the Hotel or leasehold interest therein)
or whether (under applicable law) Owner or Lessee (or successor owner of the
Hotel or leasehold interest therein) is in fact the transferor.
10.02 Sale of the Hotel.
With respect to the Owner designated in the Recitals hereof, and
Lessee, the respective rights and obligations of the parties hereto relating to
a Sale of the Hotel are set forth in the Settlement Agreement.
10.03 Change in Control of Manger.
Lessee shall have the right to terminate this Agreement on thirty
(30) days' written notice if at any time there is an "adverse change in control"
in Manager. The term "adverse change in control" shall mean the assignment,
transfer or other disposition, for value or otherwise, voluntary or involuntary,
in a single transaction or a series of transactions, of the direct or indirect
controlling interest in the Manager to a Person which is engaged in the business
of operating, franchising or managing (as distinguished from merely owning or
financing) its own hotel brand or its own lodging system in competition with
Lessee or Marriott. 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 Manager.
ARTICLE XI
MISCELLANEOUS
11.01 Right to Make Agreement
Each party warrants, with respect to itself, that neither the execution of
the Agreement nor the finalization of the transactions contemplated hereby shall
violate any provision of law or judgment, writ, injunction, order or decree of
any court or governmental authority having jurisdiction over it; result in or
constitute a breach or default under any indenture, contract, other commitment
or restriction to which it is a party or by which it is bound; or require any
consent, vote or approval which has not been taken, or at the time of the
transaction involved shall not have been given or taken. Each party covenants
that it has and will continue to have throughout the term of the Agreement and
any extensions thereof, the full right to enter into the Agreement and perform
its obligations hereunder.
11.02 Consents and Cooperation
Wherever in the Agreement the consent or approval of Lessee or Manager is
required, such consent or approval shall not be unreasonably withheld, delayed
or conditioned, shall be in writing and shall be executed by a duly authorized
officer or agent of the party granting such
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consent or approval subject, however, to the provisions of the Owner's
Agreement. If either Lessee or Manager fails to respond within thirty (30) days
to a request by the other party for a consent or approval, such consent or
approval shall be deemed to have been given (except as otherwise provided in
this Agreement). Additionally, Lessee shall execute such leases, subleases,
licenses, concessions, equipment leases, service contracts and other agreements
negotiated in good faith by Manager and pertaining to the Hotel that, in
Manager's reasonable judgment, should be made in the name of the lessee of the
Hotel.
11.03 Relationship
In the performance of this Agreement, Manager shall act solely as an
independent contractor. Neither this Agreement nor any agreements, instruments,
documents, or transactions contemplated hereby shall in any respect be
interpreted, deemed or construed as making Manager a partner, joint venturer
with, or agent of, Owner or Lessee. Lessee and Manager agree that neither party
will make any contrary assertion, claim or counterclaim in any action, suit,
arbitration or other legal proceedings involving Owner or Lessee and Manager.
11.04 Applicable Law
The Agreement shall be construed under and shall be governed by the laws
of the state in which the Hotel is located.
11.05 [Intentionally Omitted]
11.06 Headings
Headings of articles and sections are inserted only for convenience and
are in no way to be construed as a limitation on the scope of the particular
articles or sections to which they refer.
11.07 Notices
Notices, statements and other communications to be given under the terms
of the Agreement shall be in writing and delivered by hand against receipt or
sent by certified or registered mail, postage prepaid, return receipt requested
or by nationally utilized overnight delivery service, addressed to the parties
as follows:
To Manager:
IHC II, LLC
---------------------------
---------------------------
---------------------------
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FAX:
-------------------
with copy to :
------------------------------------
------------------------------------
------------------------------------
FAX:
-------------------
To Lessee:
----------------------------------
----------------------------------
----------------------------------
FAX:
-------------------
or at such other address as is from time to time designated by the party
receiving the notice. Any such notice that is mailed in accordance herewith
shall be deemed received when delivery is received or refused, as the case may
be. Additionally, notices may be given by telephone facsimile transmission,
provided that an original copy of said transmission shall be delivered to the
addressee by nationally utilized overnight delivery service by no later than the
second business day following such transmission. Telephone facsimiles shall be
deemed delivered on the date of such transmission. Manager agrees to provide to
Lessee a copy of any notice received by Manager from Marriott pursuant to the
Submanagement Agreement.
11.08 Environmental Matters
A. Lessee hereby represents and warrants to Manager that, to the
best of its knowledge except as set forth in any environmental assessment
reports provided by Owner or Lessee to Manager, as of the Effective Date, there
are no Hazardous Materials on any portion of the Site or the Hotel, nor have any
Hazardous Materials been released or discharged on any portion of the Site or
the Hotel. In addition, Lessee hereby represents and warrants that it has
previously delivered or has caused Owner to have delivered to Manager copies of
all reports concerning environmental conditions which have been received by
Lessee or any of its Affiliates. Prior to the Take-Over Date, Manager shall have
the right to terminate this Agreement, at its option, if Hazardous Materials are
found on the Site and/or the Hotel in quantities sufficient to create a danger
(in Manager's good-faith judgment) of possible adverse legal consequences to
Manager if it were to assume operation of the Hotel, but only if Marriott has
terminated the Submanagement Agreement pursuant to a comparable provision of the
Submanagement Agreement.
B. In the event of the discovery of Hazardous Materials (as defined
below) on any portion of the Site or in the Hotel during the Term of this
Agreement, Lessee shall (except as otherwise set forth to the contrary in
Section 11.08.C) or shall exercise its rights
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under the Lease to cause Owner to promptly remove such Hazardous Materials,
together with all contaminated soil and containers, and shall otherwise remedy
the problem in accordance with (1) the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601 et seq., as amended; (2)
the regulations promulgated thereunder, from time to time; (3) 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 (4) the regulations promulgated thereunder, from time to time
(collectively referred to as "Environmental Laws"). Lessee shall (except as
otherwise set forth to the contrary in Section 11.08.C) and shall exercise its
rights under the Lease to cause Owner to indemnify, defend and hold Manager
harmless from and against all loss, costs, 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 Hotel; and this obligation of Lessee shall survive Termination of this
Agreement. "Hazardous Materials" shall mean and include any substance or
material containing one or more of any of the following: "hazardous material",
"hazardous waste", "hazardous substance", "regulated substance", "petroleum",
"pollutant", "contaminant", "polychlorinated biphenyls", "lead or lead-based
paint" or "asbestos" as such terms are defined in any applicable Environmental
Law in such concentration(s) or amount(s) as may impose clean-up, removal,
monitoring or other responsibility under the Environmental Laws, as the same may
be amended from time to time, or which may present a significant risk of harm to
guests, invitees or employees of the Hotel.
C. In the event that Hazardous Materials are released on any portion
of the Site or in the Hotel during the Term of this Agreement as a result of the
actions of Manager's or Marriott's employees, then Manager shall or shall cause
Marriott to promptly remove such Hazardous Materials, together with all
contaminated soil and containers, and shall otherwise remedy the problem in
accordance with all Environmental Laws. All costs and expenses of the removal by
Manager or Marriott (pursuant to this Section 11.08.C) of Hazardous Materials,
and of the aforesaid compliance with Environmental Laws shall (to the extent
such costs exceed Ten Thousand Dollars ($10,000), as adjusted by the GDP
Deflator, with respect to any given incident or related series of incidents in
which such a release occurred) be paid from Manager's or Marriott's own funds
and not as a Deduction, and Manager shall and shall cause Marriott to indemnify,
defend and hold Owner, Lessee and any Mortgagee harmless from and against all
loss, costs, liability and damage (including, without limitation, engineers' and
attorneys' fees and expenses, and the cost of litigation) arising from the
actions described in this Section 11.08.C. In the event that the costs and
expenses of said removal by Manager and/or Marriott, and of the aforesaid
compliance, are less than Ten Thousand Dollars ($10,000), as adjusted by the GDP
Deflator, with respect to any such incident, said costs and expenses shall be
paid from Gross Revenues as a Deduction, and the foregoing indemnity by Manager
and Marriott shall not apply. Manager and Marriott shall be able to retain in
the Hotel reasonable quantities of cleansers, solvents and other materials used
in the ordinary course of hotel operations, notwithstanding that such materials
may contain or be Hazardous Materials, provided that Manager complies and causes
Marriott to comply with all Environmental Laws with regard to the storage, use
and disposal thereof.
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D. Except as otherwise set forth to the contrary in Section 11.08.C,
all costs and expenses of the aforesaid removal of Hazardous Materials from the
Site or the Hotel, and of the aforesaid compliance with all Environmental Laws,
and any amounts paid to Manager pursuant to the indemnity set forth in Section
11.08.B, shall be paid by Lessee from its own funds, not as a Deduction nor from
the FF&E Reserve, and shall be treated as an expenditure by Lessee pursuant to
Section 5.03.
11.09 Confidentiality
A. The parties hereto agree that the matters set forth in this
Agreement and all statements, reports, projections, and other information
relating to the operation of the Hotel are strictly confidential and each party
will make every effort to ensure (including, in the case of Lessee, exercising
its rights under the Lease) that the information is not disclosed to any outside
person or entities (including the press) without the prior written consent of
the other party except as may be required by law and as may be reasonably
necessary to obtain licenses, permits, and other public approvals necessary for
the refurbishment or operation of the Hotel, or in connection with Owner's or
Lessee's financing of the Hotel, a Sale of the Hotel, or a sale of a controlling
interest in Owner, Lessee or Manager (except any financing or sale involving a
private or public offering of securities).
B. Lessee shall not include and shall exercise its rights under the
Lease to cause Owner not to include any reference to Manager or to any Affiliate
of Manager in any prospectus, private placement memorandum, offering circular or
offering documentation related thereto (collectively referred to as the "Lessee
Prospectus"), issued by Owner or Lessee or by one of their respective Affiliates
or by one or more Mortgagees, which is designated to interest potential
investors in debt or equity securities related to the Hotel, unless Manager has
previously received a copy of all such references. However, regardless of
whether Manager does or does not so receive a copy of all such references,
neither Manager nor any Affiliate of Manager will be deemed a sponsor of the
offering described in the Lessee Prospectus, nor will it have any responsibility
for the Lessee Prospectus. Unless Marriott agrees in advance, the Lessee
Prospectus will not include any Marriott Trade Names or Marriott Trademarks.
Lessee shall indemnify, defend and hold Manager harmless from and against all
loss, costs, liability and damage (including attorneys' fees and expenses, and
the cost of litigation) arising out of any Lessee Prospectus or the offering
described therein; and this obligation of Lessee shall survive Termination of
this Agreement.
C. No reference to Owner or Lessee or to any Affiliate of any of
them will be made in any prospectus, private placement memorandum, offering
circular or offering documentation related thereto (collectively referred to as
the "Manager Prospectus"), issued by Manager, one of Manager's Affiliates,
Marriott, or one of Marriott's Affiliates, which is designated to interest
potential investors in debt or equity securities, unless Owner or Lessee, as
applicable, has previously received a copy of all such references. However,
regardless of whether Owner or Lessee does or does not so receive a copy of all
such references, neither Owner, Lessee nor any Affiliate of any of them will be
deemed a sponsor of the offering
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described in the Manager Prospectus, nor will it have any responsibility for the
Manager Prospectus. Unless Owner or Lessee, as applicable, agrees in advance,
the Manager Prospectus will not include any Trade Names or Trademarks of Owner
or Lessee. Manager shall, and shall cause Marriott to, as applicable indemnify,
defend and hold Owner and Lessee harmless from and against all loss, costs,
liability and damage (including attorneys' fees and expenses, and the cost of
litigation) arising out of any Manager Prospectus or the offering described
therein; and this obligation of Manager and Marriott, as applicable shall
survive Termination of this Agreement.
11.10 Projections
Lessee acknowledges that any written or oral projections, proformas, or
other similar information that has been (prior to execution of this Agreement)
or will (during the Term of this Agreement) be provided by Manager or Marriott
(or any Affiliate of either) to Lessee is for information purposes only, and
that Manager, Marriott, and any such Affiliate do not guarantee that the Hotel
will achieve the results set forth in any such projections, proformas, or other
similar information. Any such projections, proformas, or other similar
information are based on assumptions and estimates. Unanticipated events may
occur subsequent to the date of preparation of such projections, proformas, and
other similar information. Therefore, the actual results achieved by the Hotel
are likely to vary from the estimates contained in any such projections,
proformas, or other similar information and such variations might be material.
11.11 Actions to be Taken Upon Termination
Upon a Termination of this Agreement, the following shall be applicable:
A. Manager shall, within ninety (90) days after Termination of this
Agreement, prepare and deliver to Lessee a final accounting statement with
respect to the Hotel, as more particularly described in Section 4.02 hereof,
along with a statement of any sums due from Lessee to Manager pursuant hereto,
dated as of the date of Termination. Within thirty (30) days of the receipt by
Lessee of such final accounting statement, the parties will make whatever cash
adjustments are necessary pursuant to such final statement. The cost of
preparing such final accounting statement shall be a Deduction, unless the
Termination occurs as a result of a Default by either party, in which case the
defaulting party shall pay such cost. Manager and Lessee acknowledge that there
may be certain adjustments for which the information will not be available at
the time of the final accounting and the parties agree to readjust such amounts
and make the necessary cash adjustments when such information becomes available;
provided, however, that all accounts shall be deemed final as of the first (1st)
anniversary of the effective date of Termination.
B. Manager shall, and shall cause Marriott to, release and transfer
to Lessee (i) any of Lessee's funds which are held or controlled by Manager or
Marriott with respect to the Hotel with the exception of funds to be held in
escrow pursuant to Sections 6.01.F and
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11.11.H and otherwise in accordance herewith and (ii) to the extent not
previously provided to Lessee, the guest history of the Hotel, (including names,
addresses and other information with respect to Hotel guests, but not
information as to national or regional accounts of Manager, Marriott or their
Affiliates other than names, addresses and other information of guests which
stayed at the Hotel pursuant to such accounts.
C. Manager shall, and shall cause Marriott to, make available to
Lessee such books and records respecting the Hotel (including those from prior
years, subject to Manager's or Marriott's, as applicable, reasonable records
retention policies) as will be needed by Lessee to prepare the accounting
statements, in accordance with the Uniform System of Accounts, for the Hotel for
the year in which the Termination occurs and for any subsequent year.
D. Manager shall, and shall cause Marriott to, (to the extent
permitted by law) assign to Lessee or to the new Manager all operating licenses
and permits for the Hotel which have been issued in Manager's or Marriott's name
(including liquor and restaurant licenses, if any); provided that if Manager has
expended any of its own funds in the acquisition of any of such licenses or
permits, Lessee shall reimburse Manager therefor if it has not done so already.
E. Lessee acknowledges that pursuant to the Submanagement Agreement
Marriott shall have the option, to be exercised within thirty (30) days after
Termination, to purchase, at their then fair market value, any items of the
Hotel's Inventories and Fixed Asset Supplies as may be marked with any Marriott
Trade Name or any Marriott Trademark. In the event Marriott does not exercise
such option, Lessee agrees that any such items which are not so purchased shall
be used exclusively in connection with the Hotel until they are consumed.
F. Manager shall cause Marriott to agree that Lessee shall have the
right to operate the improvements on the Site without modifying the
architectural design of same, notwithstanding the fact that such design or
certain features thereof may be proprietary to Marriott and/or protected by
trade marks or service marks held by Marriott or an Affiliate, provided that
such use shall be confined to the Site.
G. All Software used at the Hotel which is owned by any of the
Marriott Companies (or any Affiliates thereof) or the licensor of any of them is
proprietary to such Marriott Company (or such Affiliate) or the licensor of any
of them, and shall in all events remain the exclusive property of such Marriott
Company (or such Affiliate) or the licensor of any of them, as the case may be,
and nothing contained in this Agreement shall confer on Owner or Lessee the
right to use any of such Software. Marriott shall have the right to remove from
the Hotel without compensation to Owner or Lessee any Software (including
upgrades and replacements), including, without limitation, Software in general
use throughout the Marriott System, which is owned by any of the Marriott
Companies (or any Affiliates thereof) or the licensor of any of them.
Furthermore, upon Termination, notwithstanding Section 5.04 hereof, Marriott
shall be entitled to remove from the Hotel any computer
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equipment which is: (i) owned by Marriott (without reimbursement to Owner or
Lessee); or (ii) owned by Manager, Owner or Lessee, but utilized as part of a
Marriott centralized reservation or property management system (with
reimbursement to Manager, Owner or Lessee, as applicable, of all previous
expenditures made by Manager, Owner or Lessee (or Marriott) with respect to such
equipment, subject to a reasonable allowance for depreciation).
H. A reserve fund shall be established from Gross Revenues to
reimburse Manager or, as long as Marriott is managing the Hotel pursuant to the
Submanagement Agreement, Marriott, for all costs and expenses incurred by
Manager or Marriott in terminating its employees at the Hotel, such as
reasonable severance pay, unemployment compensation, employment relocation
(however, Manager shall be responsible, and Manager shall cause Marriott to be
responsible, for relocation costs of any executive committee member relocating
to another hotel managed by Manager or its Affiliates (or by Marriott or its
Affiliates), arising from a Termination elected by Manager or Marriott, as
applicable, and in no event shall Manager, or Marriott, be reimbursed for the
cost of relocating any hourly (as opposed to salaried managerial) employees of
the Hotel), and other employee liability costs arising out of the termination of
employment of Manager's, or Marriott's, employees at the Hotel. Manager agrees
and shall cause Marriott to agree to use its reasonable efforts to mitigate such
costs and expenses. If Gross Revenues are insufficient to meet the requirements
of such reserve fund, then Lessee shall deliver to Manager, within ten (10) days
after receipt of Manager's written request therefor, the sums necessary to
establish such reserve fund; and if Lessee fails to timely deliver such sums to
Manager, Manager shall have the right or shall give Marriott the right (without
affecting Manager's other remedies under this Agreement or Marriott's other
remedies under the Submanagement Agreement) to withdraw the amount of such
expenses from the Operating Accounts or any other funds of Lessee held by or
under the control of Manager or Marriott other than the FF&E Reserve.
Notwithstanding the foregoing, Lessee, Owner and any successor manager shall
have the right to interview and continue the employment of any of Manager's or
Marriott's employees at the Hotel; provided, however, that Lessee, Owner or such
successor manager shall have the right to interview and continue the employment
of members of the Hotel Executive Committee only if such persons will be
terminated by Manager or Marriott, as applicable. If this Agreement is
terminated by reason of Default of Manager hereunder by reason of a default by
Marriott under the Submanagement Agreement, then no such reserve fund shall be
established and Manager or Marriott, as applicable shall pay from its own funds
all costs and expenses incurred by Manager or Marriott in terminating its
employees at the Hotel.
I. Lessee shall cause the entity which shall succeed Manager as the
operator of the Hotel to hire a sufficient number of the employees at the Hotel
to avoid the occurrence, in connection with such Termination, of a "closing"
under the WARN Act.
J. Various other actions shall be taken, as described in this
Agreement, including, but not limited to, the actions described in Sections 4.06
and 6.01.F.
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K. In the event of a Termination pursuant to Section 2.02, Section
11.22, ordinary expiration of the Term or as a result of an Event of Default by
Manager, then (i) Manager shall not transfer and shall exercise its rights under
the Submanagement Agreement to cause Marriott not to transfer any then existing
bookings of rooms or functions at the Hotel to any other hotel of Manager,
Marriott or any Affiliate thereof or otherwise cancel any such bookings;
however, as set forth in the Submanagement Agreement Marriott, acting in good
faith, shall not be prohibited from responding affirmatively to inquiries or
requests by individuals or groups desiring to transfer bookings of rooms or
functions at the Hotel to any other hotel of Marriott or its affiliates, and
(ii) Manager shall act reasonably and in good faith and shall exercise its
rights under the Submanagement Agreement to cause Marriott to act reasonably and
in good faith to allow a transition of management and operations, including,
without limitation, by allowing representatives of Manager and/or any
replacement submanager to market the Hotel to potential guests for a period of
120 days (or such lesser period of time between the applicable notice of
Termination and actual Termination); provided, however, that in accordance with
the Submanagement Agreement such participation by Manager or a replacement
submanager shall not (x) unreasonably interfere with Marriott's operation of the
Hotel and (y) Marriott shall have the right to take such measures they
reasonably deems appropriate to protect its proprietary information with respect
to the Marriott System and its national and regional accounts. In participating
in any marketing of the Hotel during a transition period as set forth above,
Manager will represent the interests of Lessee and Owner to the best of its
ability.
L. Manager shall peacefully vacate and surrender the Hotel to
Lessee.
The provisions of this Section 11.11 shall survive Termination.
11.12 Trademarks, Trade Names and Intellectual Property
A. All Marriott Trade Names and Marriott Trademarks shall in all
events remain the exclusive property of Marriott (or one of its Affiliates), and
nothing contained in this Agreement shall confer on Owner or Lessee the right to
use any of the Marriott Trade Names or Marriott Trademarks otherwise than in
strict accordance with the terms of this Agreement. Except as provided in
Section 11.11.E, upon Termination, any use of or right to use any of the
Marriott Trade Names or Marriott Trademarks by Owner or Lessee shall cease
forthwith, and Lessee (i) shall immediately, as of the date of such Termination,
place coverings over any signs or similar identification which contain any of
said Marriott Trade Names or Marriott Trademarks, or shall otherwise render such
signs or other similar identification not visible to the public; and (ii) shall
remove any such signs or similar identification from the Hotel by no later than
ten (10) days after the date of Termination. If Lessee has not removed such
signs or similar items within ten (10) days after Termination, Manager shall
have the right to do so (or to allow Marriott to do so pursuant to the
Submanagement Agreement) at Lessee's expense; and if Lessee fails to reimburse
Manager for such expense within ten (10) days after receipt of written notice
thereof from Manager to Lessee, then Manager shall have the right (without
affecting Manager's other remedies under this Agreement) to withdraw (or
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allow Marriott to withdraw pursuant to the Submanagement Agreement) the amount
of such expenses from the Operating Accounts or any other funds of Lessee held
by or under the control of Manager other than the FF&E Reserve. For purposes of
this Section 11.12, the term "Marriott Trademarks" shall include, without
limitation, all Trademarks and Trade Names used in conjunction with the Hotel,
including but not limited to restaurant names, lounge names, etc. (other than
Trademarks and Trade Names of third party tenants, licensees or concessionaires
at the Hotel), whether or not the marks contain the "Marriott" name. The right
to use or authorize others to use Marriott Trade Names or Marriott Trademarks
belongs exclusively to Marriott and/or its Affiliates, whether or not the same
are registered and regardless of the source of the same. The provisions of this
Section 11.12 shall survive Termination. Notwithstanding Section 1.02.A, if the
name of the Marriott System is changed, Manager will change or will cause
Marriott to change the name of the Hotel to conform thereto.
B. All Intellectual Property shall at all times be proprietary to
Marriott or its Affiliates, and shall be the exclusive property of Marriott or
its Affiliates. During the Term of this Agreement, Manager shall be entitled to
take all reasonable steps to ensure that the Intellectual Property remains
confidential and is not disclosed to anyone other than Manager's employees at
the Hotel. Upon Termination, all Intellectual Property shall be removed from the
Hotel by Manager or Marriott, without compensation to Owner or Lessee, subject
to the provisions of Section 11.11.G regarding Software.
C. Manager and/or its Affiliates shall be entitled, in case of any
breach by Lessee of any of the covenants of this Section 11.12, to injunctive
relief and to any other right or remedy available at law. Section 11.12 shall
survive Termination.
11.13 [Intentionally Omitted]
11.14 Waiver
The failure of either party to insist upon a strict performance of any of
the terms or provisions of the Agreement, or to exercise any option, right or
remedy contained in this Agreement, 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.
11.15 Partial Invalidity
If any portion of the Agreement shall be declared invalid by order, decree
or judgment of a court, the Agreement shall be construed as if such portion had
not been so inserted except when such construction would operate as an undue
hardship on Manager or Lessee or constitute a substantial deviation from the
general intent and purpose of said parties as reflected in the Agreement.
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11.16 Survival
Except as otherwise specifically provided in this Agreement, the rights
and obligations of the parties herein shall not survive any Termination of this
Agreement.
11.17 [Intentionally Omitted]
11.18 Negotiation of Agreement
Lessee and Manager are both business entities having substantial
experience with the subject matter of this Agreement, and each has fully
participated in the negotiation and drafting of this Agreement. Accordingly,
this Agreement shall be construed without regard to the rule that ambiguities in
a document are to be construed against the draftsman. No inferences shall be
drawn from the fact that the final, duly executed Agreement differs in any
respect from any previous draft hereof.
11.19 Estoppel Certificates
Each party to this Agreement shall at any time and from time to time, upon
not less than thirty (30) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (a) 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); (b) stating whether or not to the best knowledge of the
certifying party (i) there is a continuing Default or Event of Default by the
non-certifying party in the performance or observance of any covenant, agreement
or condition contained in this Agreement, or (ii) there shall have occurred any
event which, with the giving of notice or passage of time or both, would become
a Default or Event of Default, and, if so, specifying each such Default or Event
of Default or occurrence of which the certifying party may have knowledge; and
(c) 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. In addition, upon written request after a
Termination, each party agrees to execute and deliver to the non- certifying
party and to any such third party a statement certifying that this Agreement has
been terminated.
11.20 System Standards
In the event of either (i) a Legal Requirement, including an order,
judgment or directive by a court or administrative body which is issued in
connection with any Litigation involving Owner or Lessee, or (ii) any action
taken by a Mortgagee in connection with a Foreclosure, which in either case
restricts or prevents Manager, in a material and adverse manner, from operating
the Hotel in accordance with System Standards (including without limitation, any
restrictions on expenditures by Manager from the Operating Accounts or from the
FF&E
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Reserve, other than restrictions which are set forth in this Agreement), Manager
shall be entitled, at its option, to terminate this Agreement upon sixty (60)
days' written notice to Lessee, but only if Marriott has terminated the
Submanagement Agreement pursuant to the comparable provision of the
Submanagement Agreement. The foregoing shall not reduce or otherwise affect the
rights of the parties under either Article IX or Section 11.11.I.
11.21 Arbitration
A. In the event of a dispute between Lessee and Manager with respect
to any issue which is specifically described in this Agreement as a matter to be
decided by arbitration, such dispute shall be determined by arbitration as
provided in this Section 11.21.
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. Lessee and Manager 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 upon
the resolution of the dispute within thirty (30) days after the appointment of
the second arbitrator, shall appoint a third arbitrator. If either Lessee or
Manager 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. The two arbitrators so appointed
shall, in the event of their failure to agree upon resolution of the dispute
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 Lessee and Manager, unless the arbitrators decide otherwise. The
fees of respective counsel engaged by the parties, and the fees of expert
witnesses and other witnesses called for the parties, shall be paid by the
respective party engaging such counsel or calling or engaging such witnesses.
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 Lessee and
one to Manager. 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.
11.22 Marriott Restricted Area Right of Termination
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Manager agrees to exercise its rights under Section 11.22 of the
Submanagement Agreement including, without limitation, as to any termination of
the Submanagement Agreement pursuant to such Section 11.22, only as directed
from time to time by Lessee.
11.23 Entire Agreement
The Agreement, together with any other writings signed by the parties
expressly stated to be supplemental hereto and together with any instruments to
be executed and delivered pursuant to the Agreement, constitutes the entire
agreement between the parties and supersedes all prior understandings and
writings, and may be changed only by a writing signed by the parties hereto.
11.24 Expert Resolution Process
If, under the applicable provisions of this Agreement, a matter is to be
referred to an Expert for determination, the following provisions shall apply:
A. The decision of the Expert shall be final and binding on the
parties and shall not be subject to challenge, whether by arbitration, in court
or otherwise.
B. Each party shall be entitled to make written submissions to the
Expert. If either party makes any submission to the Expert, such party shall
also provide a copy of such submission to the other party, and the other party
shall have the right to comment on such submission. The parties shall make
available to the Expert all books and records relating to the issue in dispute,
and shall render to the Expert any assistance requested of the parties. The
costs of the Expert and of the proceedings shall be borne as directed by the
Expert unless otherwise provided for herein. The Expert may direct that such
costs be treated as Deductions.
C. The terms of engagement of the Expert shall include an obligation
on the part of the Expert to:
1. establish a timetable for the making of submissions and
replies;
2. apply the standards applicable to first-class hotels in
accordance with System Standards; and
3. notify the parties in writing of the Expert's decision
within forty-five (45) days after the date on which the Expert has been
selected (or within such other period as the parties may mutually agree
upon and which is acceptable to the Expert).
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ARTICLE XII
DEFINITION OF TERMS
12.01 Definition of Terms
The following terms when used in the Agreement and the Addendum attached
hereto shall have the meanings indicated:
"Accounting Period" shall mean the four (4) week accounting periods having
the same beginning and ending dates as Marriott's four (4) week accounting
periods, except that an Accounting Period may occasionally contain five (5)
weeks when necessary to conform Marriott's accounting system to the calendar.
"Accounting Period Statement" shall have the meaning set forth in Section
4.01.A.
"Affiliate" shall mean, as to any Person, any other Person that, directly
or indirectly, controls, is controlled by or is under common control with such
Person. For purposes of this definition, the term "control" (including the terms
"controlling", "controlled by" and "under common control with") of a Person
means the possession, directly or indirectly, of the power: (i) to vote more
than fifty percent (50%) of the voting stock of such Person; or (ii) to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting stock, by contract or otherwise.
"Agreement" shall mean this Management Agreement between Lessee and
Manager, including the exhibits attached hereto.
"Annual Operating Statement" shall have the meaning set forth in Section
4.01.
"Approval" shall mean prior written approval or consent, which, unless
otherwise specified herein, shall not be unreasonably withheld, conditioned or
delayed.
"Base Management Fee" shall mean the total amount payable to Manager which
is set forth on Exhibit "A-1" attached hereto, which the parties hereto
acknowledge is fully payable to Marriott pursuant to the Franchise Agreement and
the Submanagement Agreement
"Building Estimate" shall have the meaning ascribed to it in Section 5.03.
"Business Plan" shall have the meaning set forth in Section 4.05.
"Capital Expenditure" shall mean the expenses necessary for non-routine,
major repairs, alterations, improvements, renewals, replacements, and additions
to the Hotel including, without limitation, to the structure, the exterior
facade and all of the mechanical, electrical, heating, ventilating, air
conditioning, plumbing or vertical transportation elements
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of the Hotel building, together with all other expenditures which are classified
as "capital expenditures" under generally-accepted accounting principles.
"Capitalization Multiple" shall mean the number ten (10).
"Case Goods" shall mean furniture and furnishings used in the Hotel,
including, without limitation: chairs, beds, chests, headboards, desks, lamps,
tables, television sets, mirrors, pictures, wall decorations and similar items.
"CC&R's" shall have the meaning ascribed to it in Section 8.04.
"Chain Services" shall have the meaning set forth in Section 1.04.
"Competitive Set" shall mean the five (5) most comparable hotels in the
general trade area of the Hotel as defined in and determined pursuant to the
Submanagement Agreement. If Manager and Marriott fail to agree on either an
alternate competitive set or source with respect to the determination of the
Competitive Set pursuant to the Submanagement Agreement and such matter is to be
resolved by the Expert Resolution Process under the Submanagement Agreement,
then Owner (pursuant to its rights under the Lease and the Owner Agreement)
shall have the right to participate in such Expert Resolution Process. If,
pursuant to the Submanagement Agreement, Manager receives a suggested
alternative competitive set or source of data from Marriott, then Manager shall
not agree on any such alternative competitive set or source, as the case may be,
without the prior approval of Lessee.
"Coverage Ratio" shall mean the number one and four-tenths (1.4).
"Deductions" shall mean the following expenses incurred by Marriott in
operating the Hotel:
1. the cost of sales, including, without limitation,
compensation, fringe benefits, payroll taxes, ERISA-related liabilities,
pension-fund withdrawal liabilities, and other costs related to employees of
Marriott (or one of its Affiliates) who are working for the benefit of the Hotel
(regardless of whether such employees are located at the Hotel or elsewhere);
provided that the foregoing costs shall not include the salary and other
employee costs of Marriott's or any Affiliate's corporate executive staff who
are located at Marriott's or such Affiliate's corporate headquarters, and that
the termination-related costs of regional employees shall only apply in the case
such termination was in connection with the Hotel or as a result of the
termination of this Agreement;
2. departmental expenses incurred at departments within the
Hotel; administrative and general expenses; the cost of marketing incurred by
the Hotel; advertising and business promotion incurred by the Hotel; heat,
light, and power; computer line charges; and routine repairs, maintenance and
minor alterations treated as Deductions under Section 5.01;
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3. the cost of Inventories and Fixed Asset Supplies consumed
in the operation of the Hotel;
4. a reasonable reserve for uncollectible accounts receivable
as determined by Marriott;
5. all costs and fees of independent professionals or other
third parties who are retained by Marriott to perform services required or
permitted under the Submanagement Agreement;
6. all costs and fees of technical consultants, professionals
and operational experts who are retained or employed by Marriott and Affiliates
for specialized services (including, without limitation, quality assurance
inspectors, personnel providing architectural, technical or procurement services
for the Hotel, tax consultants, and personnel providing legal services in
connection with matters directly involving the Hotel) and the cost of attendance
by employees of the Hotel at training and manpower development programs
designated by Marriott;
7. the Base Management Fee (but not including the portion
thereof consisting of the royalty or franchise fees under the Franchise
Agreement);
8. insurance costs and expenses as provided in Sections 6.01;
9. taxes, if any, payable by or assessed against Manager
related to this Agreement or against Marriott related to the Submanagement
Agreement or to Manager's or Marriott's operation of the Hotel (exclusive of
Manager's or Marriott's income taxes or franchise taxes);
10. all Impositions;
11. the amount of any transfers into the FF&E Reserve required
pursuant to Section 5.02;
12. the Hotel's pro rata share of costs and expenses incurred
in connection with marketing programs developed for the Marriott System where
such expenses are not deducted as either departmental expenses under paragraph 2
above or as Chain Services under paragraph 12 below, including, without
limitation, the Marriott Rewards Program;
13. the Hotel's pro rata share of the charges for Chain
Services;
14. all costs and expenses of compliance by Marriott with
applicable Legal Requirements pertaining to the operation of the Hotel;
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15. such other costs and expenses incurred by Marriott (either
at the Hotel or elsewhere) as are specifically provided for elsewhere in the
Submanagement Agreement or are otherwise reasonably necessary for the proper and
efficient operation of the Hotel; and
16. royalty fees under the Franchise Agreement.
The term "Deductions" shall not include: (a) debt service payments
pursuant to any Mortgage on the Hotel; (b) payments pursuant to equipment leases
or other forms of financing obtained for the FF&E located in or connected with
the Hotel, unless Manager and Marriott have previously given their written
consent to such equipment lease and/or financing; (c) rental payments pursuant
to any ground lease of the Site; or (d) depreciation on the Hotel or any of its
contents. All of the foregoing items listed in this paragraph shall be paid by
Lessee from its own funds.
"Default" shall have the meaning ascribed to it in Section 9.01.
"Divestiture Date" shall have the meaning set forth in the Settlement
Agreement.
"Effective Date" shall have the meaning ascribed to it in the Preamble.
"Environmental Laws" shall have the meaning ascribed to it in Section
11.08.
"Event of Default" shall have the meaning ascribed to it in Section 9.01.
"Expert" shall mean an independent nationally recognized consulting firm
or individual who is qualified to resolve the issue in question, and who is
appointed in each instance by agreement of the parties. Failing such agreement,
each party shall select one (1) such nationally recognized consulting firm or
individual, and the two (2) respective firms and/or individuals so selected
shall select another such nationally recognized consulting firm or individual to
be the Expert.
"Expert Resolution Process" shall mean the process for Expert resolution
described in Section 11.24 herein.
"FF&E" shall mean furniture, furnishings, fixtures, Soft Goods, Case
Goods, signage, audio-visual equipment, kitchen appliances, vehicles, carpeting
and equipment, including front desk and back-of-the house computer equipment,
but shall not include Fixed Asset Supplies or Software.
"FF&E Estimate" shall have the meaning ascribed to it in Section 5.02.C.
"FF&E Reserve" shall have the meaning ascribed to it in Section 5.02.A.
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"Fiscal Year" shall mean Marriott's Fiscal Year which, as of the Effective
Date, ends at midnight on the Friday closest to December 31 in each calendar
year; the new Fiscal Year begins on the Saturday immediately following said
Friday. Any partial Fiscal Year between the Take-Over Date and the commencement
of the first full Fiscal Year shall constitute a separate Fiscal Year. A partial
Fiscal Year between the end of the last full Fiscal Year and the Termination of
this Agreement shall also constitute a separate Fiscal Year. If Marriott's
Fiscal Year is changed in the future, appropriate adjustment to this Agreement's
reporting and accounting procedures shall be made; provided, however, that no
such change or adjustment shall alter the Term of this Agreement or in any way
reduce the distributions of Operating Profit or other payments due hereunder.
"Five-Year Plan" shall mean the "FF&E Budget Approval for 1998-2002" which
is attached hereto as Exhibit "B-1".
"Fixed Asset Supplies" shall mean items included within "Property and
Equipment" under the Uniform System of Accounts including, but not limited to,
linen, china, glassware, tableware, uniforms, and similar items, whether used in
connection with public space or Guest Rooms.
"Food and Beverage Operation" means all of the following Hotel services,
whether performed inside or outside the Hotel: (1) all restaurant, dining, bar
and lounge food and beverage services; (2) all banquet, meeting, convention,
event, catering, and room services food and beverage services; and (3) any other
food, beverage or related services of the Hotel.
"Force Majeure" shall mean acts of God, acts of war, civil disturbance,
governmental action (including the revocation or refusal to grant licenses or
permits, 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
Mortgagee, upon a default under the Mortgage held by such Mortgagee, which
results in a transfer of title to or possession of the Hotel. 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 Mortgage:
(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 Hotel; (iv) a transfer of either Owner or Lessee or control of an Owner
or Lessee, by exercise of a stock pledge or otherwise; (v) if title to the Hotel
is held by a tenant under a ground lease, an assignment of the tenant's interest
in such ground lease; or (vi) any similar judicial or non-judicial exercise of
the remedies held by the Mortgagee.
"Franchise Agreement" shall have the meaning ascribed to it in the
Recitals.
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"GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Lessee
and reasonably satisfactory to Manager and Marriott (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 11.21. 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 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 Food and Beverage Sales" shall mean all sales and receipts of every
kind and nature, including, among other items, credit charges, charge backs and
uncollectible amounts, from the Food and Beverage Operations, but shall not be
deemed to include any sales, hotel, entertainment tax or similar taxes collected
from patrons or guests. Gross Food and Beverage Sales shall be accounted for on
an accrual basis and in accordance with the Uniform System.
"Gross Revenues" shall mean all revenues and receipts of every kind
derived from operating the Hotel and all departments and parts thereof,
including, but not limited to: income (from both cash and credit transactions)
from rental of Guest Rooms, telephone charges, stores, offices, exhibit or sales
space of every kind; license, lease and concession fees and rentals (not
including gross receipts of licensees, lessees and concessionaires); income from
vending machines; income from parking; health club membership fees; food and
beverage sales; wholesale and retail sales of merchandise; service charges; 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 employees of the Hotel; federal, state or municipal excise, sales
or use taxes or any other taxes collected directly from patrons or guests or
included as part of the sales price of any goods or services; proceeds from the
sale of FF&E; interest received or accrued with respect to the funds in the FF&E
Reserve or the other operating accounts of the Hotel; any refunds, rebates,
discounts and credits of a similar nature, given, paid or returned in the course
of obtaining Gross Revenues or components thereof; insurance proceeds (other
than proceeds from business interruption or other loss of income insurance;
condemnation proceeds (other than for a temporary taking); or any proceeds from
any Sale of the Hotel or from the refinancing of any debt encumbering the Hotel.
"Gross Room Sales" shall mean all sales and receipts of every kind and
nature which accrue from the rental of Guest Rooms including, among other items,
credit charges, charge backs and uncollectible amounts, but shall not be deemed
to include any sales tax, value added
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tax, or similar taxes collected from patrons or guests. Gross Room Sales shall
be accounted for on an accrual basis and in accordance with the Uniform System.
"Guest Profile Data" shall mean personal guest profiles and information
regarding guest preferences.
"Guest Room" shall mean a separately-keyed lodging unit in the Hotel.
"Hazardous Materials" shall have the meaning ascribed to it in Section
11.08.B.
"Hotel" shall mean the Site together with the following: (i) the Hotel
Improvements and all other improvements constructed or to be constructed on the
Site pursuant to this Agreement; (ii) all FF&E, Fixed Asset Supplies and
Inventories installed or located on the Site or in the Hotel Improvements; and
(iii) all easements or other appurtenant rights thereto.
"Hotel Executive Committee" shall mean the following individuals employed
by Marriott at the Hotel: general manager, resident manager, controller,
director of marketing, food and beverage director, the human resources director,
and the chief engineer or, or similar titled positions.
"Hotel Improvements" shall have the meaning set forth in the Recitals.
"Impositions" shall have the meaning set forth in Section 7.01.
"Improvements" shall have the meaning set forth in the Recitals.
"Initial FF&E Reserve Balance" shall mean the dollar amount set forth on
Exhibit "A-1" attached hereto.
"Institutional Lender" shall mean a foreign or domestic commercial bank,
trust company, savings bank, savings and loan association, life insurance
company, real estate investment trust, pension trust, pension plan or pension
fund, a public or privately-held fund engaged in real estate and/or corporate
lending, or any other financial institution commonly known as an institutional
lender (or any Affiliate thereof) having a minimum paid up capital (or net
assets in the case of a pension fund) of One Hundred Million Dollars
($100,000,000).
"Insurance Retention" shall have the meaning ascribed to it in Section
6.01.F.
"Intellectual Property" shall mean: (i) all Software; (ii) all manuals,
brochures and directives issued by Marriott to its employees at the Hotel
regarding the procedures and techniques to be used in operating the Hotel; and
(iii) customer lists and Guest Profile Data.
"Inventories" shall mean "Inventories" as defined in the Uniform System of
Accounts, such as, but not limited to, provisions in storerooms, refrigerators,
pantries and kitchens;
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beverages in wine cellars and bars; other merchandise intended for sale; fuel;
mechanical supplies; stationery; and other expensed supplies and similar items.
"Lease" shall have the meaning ascribed to it in the Recitals.
"Legal Requirement" shall mean any federal, state or local law, code,
rule, ordinance, regulation or order of any governmental authority or agency
having jurisdiction over the business or operation of the Hotel 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.
"Lessee" shall have the meaning ascribed to it in the Preamble or shall
mean any successor or permitted assign, as applicable.
"Lessee Prospectus" shall have the meaning set forth in Section 11.09.
"Litigation" shall mean: (i) any cause of action (including, without
limitation, bankruptcy or other debtor/creditor proceedings) commenced in a
federal, state or local court; or (ii) any claim brought before an
administrative agency or body (for example, without limitation, employment
discrimination claims).
"Manager" shall have the meaning ascribed to it in the Preamble hereto or
shall mean any successor or permitted assign, as applicable.
"Manager Prospectus" shall have the meaning set forth in Section 11.09.
"Marriott" shall mean Marriott International, Inc., a Delaware
corporation.
"Marriott Companies" shall mean Marriott and any Affiliate of Marriott.
"Marriott System" shall mean the chain of full-service hotels in the
United States which are operated by Marriott (or one of its Affiliates) under
the Trade Name of "Marriott".
"Marriott Trade Names" shall mean both the name "Marriott" (when used
alone or in connection with another word or words) and any other Trade Names
which contain the word "Marriott".
"Marriott Trademark" shall mean any Trademark which is used in the
operation of hotels in the Marriott System.
"Minor Casualty" shall mean any fire or other casualty which results in
damage to the Hotel and/or its contents, to the extent that the total cost (in
Marriott's reasonable judgment pursuant to the Submanagement Agreement) of
repairing and/or replacing of the damaged portion of the Hotel to the same
condition as existed previously does not exceed the dollar
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amount of Two Hundred Fifty Thousand Dollars ($250,000), said dollar amount to
be adjusted by the GDP Deflator.
"Mortgage" shall mean any mortgage, deed of trust, or security document
encumbering the Hotel and/or the Site or the interest of Owner or Lessee
therein.
"Mortgagee" shall mean the holder of any Mortgage.
"Notice of Proposed Sale" shall have the meaning set forth in Section
10.02.B.
"Operating Accounts" shall have the meaning set forth in Section 4.03.A.
"Operating Loss" shall mean a negative Operating Profit.
"Operating Profit" shall mean, with respect to any given period of time,
the excess of Gross Revenues over Deductions (each calculated in accordance with
this Agreement and the Uniform System).
"Owner's Agreement" shall have the meaning ascribed to it in the Recitals.
"Performance Termination Period" shall mean the twelve (12) month period
consisting of the six (6) months immediately prior to and including the month in
which the Take-Over Date occurs, and the six (6) months immediately thereafter.
"Performance Termination Threshold" shall mean the average Operating
Profit over the Performance Termination Period; provided, however, that for the
purpose of calculating the Performance Termination Threshold, the following
adjustments shall be made in calculating the average Operating Profit over the
Performance Termination Period: (i) so-called one-time charges in connection
with Manager's or Marriott's take-over of the Hotel shall not be included as
Deductions, and (ii) costs that would have been incurred during the first six
(6) months of the Performance Termination Period had the Hotel been operating in
accordance with System Standards (i.e. costs of guest complementaries such as
newspapers, front desk staffing and other similar recurring operating costs to
the extent not incurred during such six first (6) month period) shall be
included in Deductions. Within sixty (60) days after the end of the Performance
Termination Period, Manager shall deliver to Lessee a statement prepared by
Marriott of the Performance Termination Threshold, and therein shall describe
any adjustments made pursuant to subsections (i) and/or (ii) above. Any
adjustments made pursuant to subsection (ii) shall be made in good faith by
Marriott as set forth in the Submanagement Agreement and shall reflect the costs
reasonably incurred at similar hotels managed by Marriott. Commencing as of
first day of the fourth (4th) full Fiscal Year during the Term, and for each
Fiscal Year thereafter, the Performance Termination Threshold (as originally
calculated) applicable to such year shall be adjusted by adding (or subtracting)
thereto (or therefrom) an amount equal to the product of (i) 75% of the
percentage change in the GDP
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Deflator from the Effective Date to the date of adjustment, times (ii) the
Performance Termination Threshold (as originally calculated).
"Person" means an individual (and the heirs, executors, administrators, or
other legal representatives of an individual), a partnership, a corporation,
limited liability company, a government or any department or agency thereof, a
trustee, a trust and any unincorporated organization.
"Previously-Accrued Payables" shall mean all liabilities incurred with
respect to the operation of the Hotel prior to the Take-Over Date (or allocable
to the period prior to the Take-Over Date, under generally accepted accounting
principles). The term "Previously- Accrued Payables" shall include, without
limitation: (i) all accounts payable and accrued liabilities shown on Lessee's
balance sheet (current copies of which, through the Take-Over Date, shall be
delivered to Manager); and (ii) all accrued employee benefits.
"Previously-Accrued Receivables" shall mean all receivables accrued in
connection with the operation of the Hotel prior to the Take-Over Date,
including (i) those accounts receivable which are shown on Lessee's balance
sheet (current copies of which, through the Take-Over Date, shall be delivered
to Manager); and (ii) all other receivables.
"Prime Rate" shall mean the "base rate" of interest announced from time to
time by Bankers Trust Company, New York, New York.
"Proposed Business Plan" shall have the meaning set forth in Section 4.05.
"Qualified Mortgage" shall have the meaning set forth in Section 8.02.
"Reasonable Amount of Working Capital" shall mean an amount equal to
$1,250 times the number of Guest Rooms in the Hotel, plus 1/26 of the annual
payroll costs of the Hotel, such amount to be subject to adjustment after the
first Fiscal Year of operation of the Hotel (either upward or downward) as the
parties may reasonably agree to account for individual characteristics of the
operations of the Hotel, such as seasonality of revenues and expenses. Following
the first Fiscal Year of operation of the Hotel, such amount shall be subject to
adjustment as part of the Proposed Business Plan approval process, provided that
Lessee shall not disapprove a Reasonable Amount of Working Capital that is no
more than the amount arrived at pursuant to the first sentence hereof, as
modified to adjust the amount of $1,250 in proportion to any percentage change
in the Revenue per Room for the Hotel for the previous Fiscal Year.
"Reinstated Franchise Agreement" shall have the meaning set forth in
Section 2.01.B.
"Restricted Area" shall mean the area described in Exhibit "A-1" attached
hereto.
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"Revenue Data Publication" shall mean Smith's STAR Report, a monthly
publication distributed by Smith 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 Hotel.
If such Smith's STAR Report is discontinued in the future, or ceases (in the
reasonable opinion of Manager and Marriott) to be a satisfactory source of data
regarding the Revenue Per Room of various hotels in the general trade area of
the Hotel, Manager and Marriott shall select an alternative source pursuant to
the Submanagement Agreement.
"Revenue Index" shall mean that fraction which is equal to (a) the Revenue
Per Room for the Hotel, divided by (b) the average Revenue Per Room for the
hotels in the Competitive Set, as set forth in the Revenue Data Publication.
Appropriate adjustments shall be made in the event of Force Majeure or a major
renovation of the Hotel.
"Revenue Index Threshold" shall mean ninety percent (90%) of the Revenue
Index as calculated over the Performance Termination Period.
"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
guestroom which is keyed as a single unit.
"Sale of the Hotel" shall mean any sale, assignment, transfer or other
disposition, for value or otherwise, voluntary or involuntary, of the fee simple
title [leasehold on Atlanta] to the Site and/or the Hotel. For purposes of this
Agreement, a Sale of the Hotel shall also include a lease (or sublease) of all
or substantially all of the Hotel or Site and any sale, assignment, transfer or
other disposition, for value or otherwise, voluntary or involuntary, in a single
transaction or a series of 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, more than fifty percent (50%) 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.
"Settlement Agreement" shall have the meaning ascribed to it in the
Recitals.
"Site" shall have the meaning ascribed to it in Section A of the Recitals.
"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 Hotel, including,
without limitation: carpeting, drapes, bedspreads, wall and floor coverings,
mats, shower curtains and similar items.
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"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 Marriott in connection with the property management
system, the reservation system and all future electronic systems developed by
Marriott for use in the Hotel.
"Special Capital Expenditures" shall mean certain routine, non-major
expenditures which are classified as "capital expenditures" under
generally-accepted accounting principles, but which will be funded from the FF&E
Reserve (pursuant to Section 5.02), rather than pursuant to the provisions of
Section 5.03. Special Capital Expenditures consist of the following types of
expenditures: exterior and interior repainting; resurfacing building walls and
floors; resurfacing parking areas; replacing folding walls; and miscellaneous
similar expenditures.
"Subordination Agreement" shall have the meaning ascribed to it in Section
8.03.
"Subsequent Owners" shall have the meaning ascribed to it in Section 8.03.
"System Standards" shall mean either (or both, as the context requires) of
the following two (2) categories of standards: (i) the operational standards
(for example, services offered to guests, quality of food and beverages,
cleanliness, staffing and employee compensation and benefits, Chain Services,
the Marriott Rewards Program and other similar programs, etc.); and (ii) the
physical standards (for example, quality of the Improvements, FF&E, and Fixed
Asset Supplies, frequency of FF&E replacements, etc.); each of such standards
shall be the standard which is generally prevailing or in the process of being
implemented at other hotels in the Marriott System, including all services and
facilities in connection therewith that are customary and usual at comparable
hotels in the Marriott System.
"Take-Over Date" shall mean the date which is set forth on Exhibit "A-1"
hereto.
"Term" shall have the meaning ascribed to it in Section 2.01.
"Term Expiration Date" shall mean the date set forth on Exhibit "A-1"
attached hereto; provided, however, that if the Submanagement Agreement is
terminated for any reason in accordance with its terms prior to the Term
Expiration Date set forth in Exhibit "A-1" attached hereto, then the Term
Expiration Date shall be the date of such termination of the Submanagement
Agreement.
"Termination" shall mean the expiration or sooner cessation of this
Agreement.
"Termination Effective Date" shall have the meaning set forth in Section
2.01.B.
"Total Casualty" shall mean any fire or other casualty which results in
damage to the Hotel and its contents to the extent that the total cost of
repairing and/or replacing the damaged
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portion of the Hotel to the same condition as existed previously would be thirty
percent (30%) or more of the then total replacement cost of the Hotel.
"Trade Area Expiration Date" shall mean the date which is set forth in
Exhibit "A-1" attached hereto.
"Trade Names" shall mean any name, whether informal (such as a fictitious
name or d/b/a) or formal (such as the full legal name of a corporation or
partnership) which is used to identify an entity.
"Trademark" shall mean any word, name, device, symbol, logo, design,
brand, servicemark, other distinctive feature or any combination of the
foregoing which is used to identify or symbolize a party's goods and/or services
and to distinguish them from the goods and/or services of others.
"Uniform System of Accounts" shall mean the Uniform System of Accounts for
the Lodging Industry, Ninth Revised Edition, 1996, as published by the Hotel
Association of New York City, Inc.
"Working Capital" shall mean funds that are used in the day-to-day
operation of the business of the Hotel, including, without limitation, amounts
sufficient for the maintenance of change and petty cash funds, amounts deposited
in operating bank accounts, receivables, amounts deposited in payroll accounts,
prepaid expenses and funds required to maintain Inventories, less accounts
payable and accrued current liabilities.
"WARN Act" shall mean the "Worker Adjustment and Retraining Notification
Act, 29 U.S.C. 2101 et seq.
END OF ARTICLE XII
SIGNATURE PAGE FOLLOWS
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IN WITNESS WHEREOF, the parties hereto have caused the Agreement to be
executed under seal as of the day and year first written above.
MANAGER:
IHC II, LLC
Attest:
By: By:
-------------------------- --------------------------
Title: Title:
Lessee:
Attest: Patriot American Hospitality Operating
Partnership, L.P.
By: By:
-------------------------- --------------------------
Title: Title:
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<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Albany Marriott
189 Wolf Road
Albany, New York 12205
Submanager: Marriott International, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: February 22, 2009
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues.
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $754,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Atlanta Marriott North Central
2000 Century Boulevard, N.E.
Atlanta, Georgia 30345
Submanager: Marriott Hotel Services, Inc
Take-Over Date: One Year after Divestiture Date
Term Expiration Date: September 1, 2005
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $327,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Pittsburgh Airport Marriott
100 Aten Road
Pittsburgh, PA 15108
Submanager: Marriott Hotel Services, Inc
Take-Over Date: One Year after Divestiture Date
Term Expiration Date: September 2, 2011
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $18,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Harrisburg Marriott
4650 Lindle Road
Harrisburg, Pennsylvania 17111
Submanager: Marriott Hotel Services, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: March 30, 2004
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues.
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $144,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Houston Marriott North at Greenspoint
255 No. Sam Houston Parkway, East
Houston, Texas 77060
Submanager: Marriott Hotel Services, Inc.
Take-Over Date: One year after Divestiture Date
Term Expiration Date: January 31, 2011
Base Management Fee: Zero (i.e. no Base Management Fee)
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $660,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
*Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Indian River Plantation Marriott Resort
555 N.E. Ocean Boulevard
Stuart, Florida 34996
Submanager: Marriott International, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: December 31, 2017
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues.
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $1,075,000*
FF&E Reserve Contribution: Through December, 1999: Four percent of Gross
Revenues
2000 and thereafter: Five percent of Gross
Revenues
*Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Philadelphia Marriott West
Matson Ford at Front Street
111 Crawford Avenue
West Conshohocken, Pennsylvania 19428
Submanager: Marriott Hotel Services, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: August 28, 2014
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $26,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: San Diego Marriott Mission Valley
8757 Rio San Diego Drive
San Diego, California 92108
Submanager Marriott International, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: June 1, 2012
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues.
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $451,000
FF&E Reserve Contribution: Through May, 1999: Four percent of Gross
Revenues
June 1999 and thereafter: Five percent of
Gross Revenues
*Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Minneapolis Marriott Southwest
5801 Opus Parkway
Minnetonka, Minnesota 55343
Submanager: Marriott Hotel Services, Inc.
Take-Over Date: One Year after Divestiture Date
Term Expiration Date: April 22, 2013
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues.
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $148,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
*Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT A-1
Name and Location of Hotel: Warner Center Marriott Woodland Hills
21850 Oxnard Street
Woodland Hills, California 91367
Submanager: Marriott International, Inc.
Take-Over Date: Divestiture Date
Term Expiration Date: December 15, 2005
Base Management Fee: Two and 85/100 percent (2.85%) of Gross
Revenues.
[subject to adjustment per the Settlement
Agreement]
Initial FF&E Reserve Balance: $1,336,000*
FF&E Reserve Contribution: Five percent of Gross Revenues
* Figure determined as of January 1, 1998. To be adjusted, as of the Take-Over
Date, based on expenditures and accruals with respect to FF&E Reserve in the
period from January 1, 1998 to the Take-Over Date, as reflected in the Five Year
Plan.
<PAGE>
EXHIBIT B-1
5-Year Plan
<PAGE>
EXHIBIT B-2
Additional Capital Expenditures
<PAGE>
Exhibit 99.14
GUARANTY
THIS GUARANTY (this "Guaranty") made this ____ day of __________, 199__
by NEWCO, LLC, a ______________________ (the "Guarantor") in favor of Marriott
International, Inc. and Marriott Hotel Services, Inc. and their affiliates
(collectively, "Marriott").
PRELIMINARY STATEMENT OF FACTS
This Preliminary Statement of Facts is not merely prefatory, but is
expressly incorporated into and made a part of this Guaranty.
A. IHC II, LLC ("Primary Manager") has entered into various Submanagement
Agreements of even date herewith with the entities constituting Marriott (the
"Submanagement Agreements") with respect to the hotels listed on Exhibit A
hereto (collectively, the "Hotels"). Primary Manager is a wholly-owned
subsidiary of Guarantor and has been organized by Guarantor for the purpose of
providing certain management services to the Hotels.
B. Marriott has agreed to enter into the Submanagement Agreements on the
condition that the Guarantor execute and deliver this Guaranty to Marriott.
C. Primary Manager has assumed the franchise and license agreements with
Marriott with respect to the Hotels (the "IHC Franchise Agreements"), and
Guarantor controls Interstate Hotels, LLC ("Interstate") which has entered into
or assumed franchise or license agreements with Marriott (the "LLC Franchise
Agreements") with respect to the hotels listed on Exhibit B [must include
exhibit C & D hotels] hereto (the LLC Franchise Agreements and the IHC Franchise
Agreements are hereinafter collectively referred to as the "Franchise
Agreements").
D. As a condition of Marriott allowing Interstate and IHC to enter into or
assume the Franchise Agreements or certain obligations thereunder, Marriott has
requested that the Guarantor execute and deliver this Guaranty to Marriott.
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<PAGE>
E. All of the above transactions are being undertaken pursuant to a
Settlement Agreement dated as of May__, 1998 by and among, Marriott, Interstate
Hotels Corporation, Interstate Hotels Company, Patriot American Hospitality,
Inc. and Wyndham International, Inc. (the "Settlement Agreement"). The
Settlement Agreement provides for obligations of Interstate and Primary Manager
to Marriott which shall also be subject to this Guaranty.
F. Guarantor has determined that it is in the best interest of the
Guarantor to execute and deliver this Guaranty.
NOW THEREFORE, Guarantor does hereby covenant and agree as follows:
1. Guaranty. To induce Marriott to execute and deliver the
Submanagement Agreements and the Settlement Agreement, as applicable, and to
permit Interstate to enter into or assume the Franchise Agreements, Guarantor
does hereby unconditionally, absolutely and irrevocably guarantee to Marriott,
and their respective successors and assigns, (a) the full and due payment of all
amounts due to Marriott under the Submanagement Agreements, the Franchise
Agreements and the Settlement Agreement, (b) the full and complete performance
by Primary Manager and Interstate, and their respective successors and assigns,
of all the terms, obligations, covenants, and agreements of Primary Manager or
Interstate under the Submanagement Agreements, the Franchise Agreements or the
Settlement Agreement on the part of Primary Manager, Interstate, and their
respective successors and assigns to be observed or performed thereunder and,
without limiting the foregoing, the full and punctual payment by Primary
Manager, Interstate and their respective successors and assigns, of all
management fees, royalty fees, franchise fees, chain services fees, and other
sums of money, as and when they become due and payable as provided in the
Submanagement Agreements, the Franchise Agreements and the Settlement Agreement,
as applicable.
Pursuant to the foregoing, if Primary Manager shall fail to comply
with any term covenant or condition in the Submanagement Agreements or the
Settlement Agreement, or to make any payment or supply any funds required to be
made or supplied thereunder, in each case after any applicable notice and cure
period, Guarantor unconditionally guarantees to Marriott, that Guarantor shall
then (a) pay (without first requiring Marriott to proceed against the Primary
Manager, or any other person) to Marriott any such sums to be paid or supplied
under the Submanagement Agreements or the Settlement Agreement including,
without limitation, any interest, premiums, and late charges, and (b) cure any
default of Primary Manager in any term, covenant, or condition under the
Submanagement Agreements or the Settlement Agreement. Guarantor further agrees
to indemnify and hold harmless
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Marriott from any loss (including attorneys' fees) resulting from any default
made at any time by Primary Manager in any term, covenant or condition of the
Submanagement Agreements or the Settlement Agreement or by Guarantor under the
terms of this Guaranty, in each case after any applicable notice and cure
period.
Pursuant to the foregoing, if Interstate shall fail to comply with
any term covenant or condition in the Franchise Agreements or the Settlement
Agreement, or to make any payment or supply any funds required to be made or
supplied thereunder, in each case after any applicable notice and cure period,
Guarantor unconditionally guarantees to Marriott, that Guarantor shall then (a)
pay (without first requiring the Marriott to proceed against Interstate, or any
other person) to Marriott any such sums to be paid or supplied under the
Franchise Agreements or the Settlement Agreement including, without limitation,
any interest, premiums, and late charges, and (b) cure any default by Interstate
in any term, covenant, or condition under the Franchise Agreements and the
Settlement Agreement. Guarantor further agrees to indemnify and hold harmless
Marriott from any loss (including attorneys' fees) resulting from any default
made at any time by Interstate in any term, covenant or condition of the
Franchise Agreements or the Settlement Agreement or by Guarantor under the terms
of this Guaranty, in each case after any applicable notice and cure period.
2. Guarantor's Consents. Notice to Guarantor of any and all defaults
on the part of Primary Manager or Interstate, and any successor of Primary
Manager or Interstate or assignee of Primary Manager, or Interstate, is waived,
and consent is given to all extensions of time, waivers, or indulgences of any
kind, that Submanager, its successors or assigns, may grant to Primary Manager,
or Interstate, and any successor of Primary Manager or Interstate or assignee of
Primary Manager, or Interstate, with reference to the performance by Primary
Manager, or Interstate or any successor of Primary Manager, or Interstate, or
assignee of Primary Manager, or Interstate, of any of the terms, obligations,
covenants, or agreements in or under any of the Submanagement Agreements or any
of the Franchise Agreements. Full consent is also given by Guarantor to any and
all changes, modifications, or amendments in, of, or to any such terms,
obligations, covenants, or agreements as well as to conditions of, in, or under
the Submanagement Agreements and the Franchise Agreements that may be made by
agreement between Marriott or its successors or assigns, and Primary Manager or
Interstate, or any successor of Primary Manager or Interstate, or assignee of
Primary Manager or Interstate, or otherwise; and Guarantor waives any and all
requirements whatsoever on the part of Marriott or its successors or assigns
first to exhaust or pursue its, remedies against Primary Manager or Interstate,
their respective
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successors or assigns, before Marriott or its successors or assigns shall have
the right to proceed directly against and recover from Guarantor.
3. Primary Liability. Guarantor, without limiting any of the
foregoing provisions of this Guaranty, also waives notice of any and all
changes, modifications, or amendments in, of, or to, the Submanagement
Agreements or the Franchise Agreements that may be agreed upon between Marriott
or its successors or assigns and Primary Manager or Interstate, or their
respective successors or assigns, or that may be permitted or suffered in
connection with the Submanagement Agreements or the Franchise Agreements, or the
performance thereof, as well as notice of any waivers, indulgences, or
extensions granted or suffered by Marriott or its successors or assigns.
Guarantor further agrees that, notwithstanding any waivers, extensions, or
indulgences granted or suffered by Marriott or its successors or assigns, and
notwithstanding any changes, amendments, or modifications in, of, or to the
Submanagement Agreements or the Franchise Agreements, by agreement or otherwise,
Guarantor shall be and remain, and is primarily absolutely and fully liable to
Marriott and its successors and assigns for the full and punctual payment of all
payments to be made, and for the full and due performance of all the other
terms, obligations, covenants, agreements, and conditions of, in, or under the
Submanagement Agreements, Franchise Agreements, and in any change, amendment, or
modification thereof, by Primary Manager or Interstate and its successors and
assigns, without any notice whatsoever.
4. No Impairment. Without limiting any of the foregoing provisions
of this Guaranty, the Guarantor further agrees that this Guaranty, and the
obligations of the Guarantor under it, shall in no way be terminated, affected,
or impaired by reason of the assertion by Marriott or its respective successors
or assigns against Primary Manager or Interstate, their respective successors or
assigns, of any rights or remedies reserved to Marriott pursuant to or by virtue
of the provisions of the Submanagement Agreements of the Franchise Agreements or
any change, amendment, or modification of the Submanagement Agreements or the
Franchise Agreements.
5. No Alteration. This Guaranty shall not be affected by any
deviation from or alteration of the terms, covenants or conditions of any of the
Submanagement Agreements, any of the Franchise Agreements, or by any assignment
or subletting of all or any part of said premises or of the interest of Primary
Manager or Interstate therein. This Guaranty shall not be relinquished,
extinguished, modified or in any way affected by failure on the part of Marriott
to enforce any or all of the rights or remedies of Marriott whether pursuant to
the terms of the Submanagement Agreements or Franchise Agreements, as
applicable, or at law or in equity.
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6. Termination. This Guaranty is a continuing one and shall
terminate only upon payment by Primary Manager or Interstate of all sums Primary
Manager or Interstate is required to pay under the Submanagement Agreements and
Franchise Agreements and upon performance by Primary Manager or Interstate or
Interstate of all duties and obligations therein contained.
7. Waiver. Guarantor waives notice to Guarantor (a) of any default
by Primary Manager or Interstate (i) of payment by Primary Manager or Interstate
of any of the sums hereby guaranteed and (ii) of performance by Primary Manager
or Interstate of the terms, covenants and conditions of said Submanagement
Agreements and the Franchise Agreements, and (b) of acceptance by Marriott of
this Guaranty.
8. Extension of Time. Guarantor consents that Marriott, may from
time to time extend the time for performance or otherwise modify, alter or
change any of the Submanagement Agreements or Franchise Agreements and any or
all provisions thereof and may extend the time for payment of all sums hereby
guaranteed and may receive and accept notes, checks and other instruments made
by Primary Manager or Interstate for the payment of money and may agree to
extensions and renewals thereon without in any way releasing or discharging
Guarantor. Notice of presentment of any such note or notes and/or notice of
default in the payment thereof at maturity and/or protest or notice of protest
thereof is expressly waived by Guarantor.
9. Primary Manager's or Interstate's Default. This Guaranty may be
immediately enforced upon any default continuing after any applicable notice and
cure period by Primary Manager or Interstate under the terms of any of the
Submanagement Agreements or the Franchise Agreements. Upon default continuing
after any applicable notice and cure period by Primary Manager under any of the
Submanagement Agreements or Franchise Agreements, Marriott can proceed
immediately and directly against Guarantor or Primary Manager or Interstate, or
both, as applicable (it being understand that Interstate is not liable for
payment or performance of Primary Manager's obligations and vice versa).
Guarantor waives the right to require Marriott to proceed against Primary
Manager or Interstate initially or exhaust any security that Marriott holds from
Primary Manager or Interstate or to pursue any other remedy in Marriott's power
and it shall not be necessary for Marriott, in order to enforce this Guaranty,
to institute suit or exhaust any legal remedies against Primary Manager or
Interstate.
10. Attorneys' Fees. In the event any action should be commenced by
Marriott against the Guarantor to enforce any of the terms or conditions of this
Guaranty and
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Marriott shall be entitled to recover from Guarantor reasonable attorneys' fees
in any such action in which Marriott shall prevail.
11. Term. The obligations of the Guarantor under this Guaranty
Agreement extend to the Term (as defined in the Submanagement Agreements and
Franchise Agreements) and to any holding over by the Primary Manager or
Interstate thereafter and to any renewal or extension of the Term which results
from the exercise by the Primary Manager or Interstate of any rights or option
contained in the Submanagement Agreements or Franchise Agreements.
12. Assignment by Submanager. The benefit of the Guarantor's
obligations under this Guaranty Agreement may be assigned by Marriott in
connection with any permissible assignment of the Submanagement Agreements or
the Franchise Agreements, and will benefit and be enforceable by the successors
and assigns of Marriott.
13. Continued Liability of Guarantor. The liability of the Guarantor
hereunder shall in no way be affected by (a) the discharge of Primary Manager or
Interstate in any creditors', receivership, bankruptcy or other proceedings, (b)
the impairment, limitation or modification of the liability of Primary Manager
or Interstate or the estate of Primary Manager or Interstate in bankruptcy, or
of any remedy for the enforcement of Primary Manager's liability under the
Submanagement Agreements or Interstate's liability under the Franchise
Agreements resulting from the operation of any present or future provision of
the Bankruptcy Act or other statute or from the decision in any court; (c) the
rejection or disaffirmance of the Submanagement Agreements or Franchise
Agreements in any proceedings; (d) the assignment or transfer of any of the
Submanagement Agreements or any of the Franchise Agreements by the Primary
Manager or Interstate; (e) any disability or other defense of Primary Manager or
Interstate, including but not limited to any defense based on a failure of
Primary Manager's or Interstate's organizers to properly and legally form or
empower Primary Manager or Interstate to execute any of the Submanagement
Agreements or to enter into or assume any of the Franchise Agreements, as
applicable, and perform Primary Manager's or Interstate's obligations
thereunder; or (f) the cessation from any cause whatsoever of the liability of
Primary Manager or Interstate.
14. Notices. Any notice, demand, request or other communication
which Marriott may desire to give to the Guarantor with respect to this
Guaranty, shall be deemed sufficient if in writing and sent to the following
addresses:
GUARANTOR:
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----------------------------------------
A notice demand or request may be hand-delivered or delivered via
express delivery service or mailed, postage prepaid, first class, registered or
certified mail. Any notice sent by mail shall be deemed to have been received on
the second business day following the date of mailing. Notice delivered
personally or by express delivery service shall be effective upon receipt.
15. Governing Law. Guarantor hereby acknowledges, consents and
agrees (i) that the provisions of this Guaranty and the rights of all parties
mentioned herein shall be governed by the laws of the State of Maryland and
interpreted and construed in accordance with such laws (excluding Maryland
conflict of laws) and (ii) that the United States District Court for the
District of Maryland and any court of competent jurisdiction of the State of
Maryland shall have jurisdiction in any proceeding instituted to enforce this
Guaranty and any objections to venue are hereby waived.
16. Successors and Assigns. The references in this Guaranty to
Marriott's, Primary Manager's or Interstate's successors and assigns shall not
be deemed a waiver by any party, of any prohibition in the Submanagement
Agreements or Franchise Agreements or Settlement Agreement relating to the
assignment of the Submanagement Agreements or Franchise Agreements or Settlement
Agreement.
17. Inducement. This Guaranty is executed by the Guarantor prior to,
or simultaneously with, the execution and delivery of the Submanagement
Agreements by Submanager, and to induce Marriott to execute and deliver the
Submanagement Agreements well knowing that Marriott would not do so without this
Guaranty. This Guaranty is executed by the Guarantor prior to, or simultaneously
with, the assumption or execution of the Franchise Agreements by Interstate and
to induce Marriott to permit Interstate to enter into or assume the Franchise
Agreements well knowing that Marriott would not do so without this Guaranty.
18. Miscellaneous. All references to the singular shall, where
applicable, refer to the plural.
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In witness whereof, ___________________________ has caused these presents
to be executed by its ____________ President thereunto duly authorized, and its
corporate seal to be hereunto affixed, this _____ day of ____________, 199__.
ATTEST: GUARANTOR:
NEWCO, LLC
_________________________ By:____________________________ (SEAL)
Name: ___________
Title: ___________
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Exhibit A
Hotels Managed by Marriott
@@
Hotel Effective Date Brand
----- -------------- -----
1. Albany, NY Date of Divestiture MHRS
2. Atlanta North, GA 1 Year after Date of MHRS
Divestiture
3. Conshohocken, PA 1 Year after Date of MHRS
Divestiture
4. Harrisburg, PA 1 Year after Date of MHRS
Divestiture
5. Houston, TX 1 Year after Date of MHRS
Divestiture
6. Indian River Plantation, FL Date of Divestiture MHRS
7. San Diego Mission Valley, CA Date of Divestiture MHRS
8. Minneapolis, MN 1 Year after Date of MHRS
Divestiture
9. Warner Center, CA Date of Divestiture MHRS
10. Pittsburgh Airport, PA Date of Divestiture MHRS
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Exhibit B
Hotels with Contracts Assumed
Hotel Brand
--------------- ---------------
1. New Haven Orange, CT CY
2. Tyson's Corner, VA MHRS
3. Troy, MI MHRS
4. Westborough, MA CY
5. St. Louis, MO CY
6. Pittsburgh Airport, PA RI
Hotels Owned by 3rd Parties
Hotel Brand
--------------- ---------------
1. Boca Raton, FL MHRS
2. Charlotte Executive Park, NC MHRS
3. Cincinnati, OH MHRS
4. Ft. Lauderdale North, FL MHRS
5. Laguna Cliffs Dana Point, CA MHRS
6. Manhattan Beach, CA MHRS
7. Memphis, TN MHRS
8. Ontario Airport, CA MHRS
9. Orlando Airport, FL MHRS
10. Pittsburgh City Center, PA MHRS
11. Pittsburgh Green Tree, PA MHRS
12. Providence, RI MHRS
13. San Francisco, CA MHRS
14. Sawgrass, FL MHRS
15. Trumbull, CT MHRS
16. Waterford Oklahoma City, OK MHRS
17. Orlando I Drive, FL MHRS
18. Moscow, Russia MHRS
19. Albany, NY (CY) CY
20. Burlington, VT (RI) RI
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21. Chambersberg, PA (FFI) FFI
22. Colorado Springs, CO (RI) RI
23. Eagan Minneapolis, MN (RI) RI
24. Jackson, MS (FFI) FFI
25. Madison, WI (RI) RI
26. Manhattan, NY (CY) CY
27. Memphis, MS (FFI) FFI
28. Mobile Gulf, AL (CY) CY
29. Oklahoma City, OK (RI) RI
30. Omaha Central NE (RI) RI
31. Princeton, NJ (RI) RI
32. Tinton Falls, NJ (RI) RI
33. Tucson, AZ (RI) RI
34. Vicksburg, MS (FFI) FFI
35. Boise, Idaho RI
36. Portland, Oregon RI
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Exhibit 99.15
SETTLEMENT AGREEMENT
This Settlement Agreement, dated as of May 26, 1998 (this "Agreement"), is
among Patriot American Hospitality, Inc., a Delaware corporation ("Patriot"),
Wyndham International, Inc., a Delaware corporation ("Wyndham"), Milton Fine
("Mr. Fine") and the persons named on the signature pages hereto (individually,
a "Shareholder" and collectively, the "Shareholders").
RECITALS:
A. The Shareholders consist of a limited partnership identified on Exhibit
A and six trusts established pursuant to the trust documents described on
Exhibit A;
B. Patriot, Wyndham and Interstate Hotels Company, a Pennsylvania
corporation (the "Company") are parties to an Agreement and Plan of Merger,
dated as of December 2, 1997 (as the same may be amended from time to time, the
"Merger Agreement"), which provides, on the terms and subject to the conditions
thereof, for the merger of the Company with and into Patriot (the "Merger");
C. As of the date hereof, each Shareholder owns the number of shares (the
"Shares") of Common Stock, par value $0.01 per share ("Company Stock"), of the
Company set forth on Exhibit A;
D. The parties desire to enter into this Agreement to settle and resolve
certain disputes that have arisen between Patriot and Wyndham, on the one hand,
and Mr. Fine and the other Shareholders, on the other hand, in connection with
the Merger Agreement and the Shareholders Agreement (as defined in the Merger
Agreement), and to consummate the transactions provided for herein; and
E. This Agreement is binding as of the date hereof but will not become
effective until the occurrence of the Effective Time (as defined in the Merger
Agreement) of the Merger.
NOW, THEREFORE, the parties hereto agree as follows:
I. RELEASES
1.1 Release of Mr. Fine and the Shareholders.
Each of Patriot and Wyndham, for and on behalf of themselves and each of
their respective current and/or former representatives, principals, agents,
employees, officers, directors, shareholders, predecessors, successors, assigns,
trustees, partners, general partners, limited partners, co-venturers, parents,
subsidiaries, affiliates, beneficiaries, heirs, executors, administrators,
insurers and attorneys (the "Patriot/Wyndham Releasing Parties"), hereby
completely and fully remise, release, acquit and forever discharge each of Mr.
Fine and the
<PAGE>
Shareholders, and each of the Shareholders' respective current and/or former
representatives, principals, agents, employees, officers, directors,
shareholders, predecessors, successors, assigns, trustees, partners, general
partners, limited partners, co-venturers, parents, subsidiaries, affiliates,
beneficiaries, heirs, executors, administrators, insurers and attorneys, in
their capacities as such, (the "Shareholder Released Parties"), from any and all
claims, demands, suits, actions, causes of action, obligations, damages, costs,
losses, interest, expenses and liabilities of any kind or nature whatsoever
resulting from delays in consummation of the Merger, and any claims of breach
under the Merger Agreement or the Shareholders Agreement (as defined in the
Merger Agreement) through the date hereof.
1.2 Release of the Patriot/Wyndham Parties
Each of Mr. Fine and the Shareholders, for and on behalf of themselves and
each of their respective current and/or former representatives, principals,
agents, employees, officers, directors, shareholders, predecessors, successors,
assigns, trustees, partners, general partners, limited partners, co-venturers,
parents, subsidiaries, affiliates, beneficiaries, heirs, executors,
administrators, insurers and attorneys (including Mr. Fine, the "Shareholder
Releasing Parties"), hereby completely and fully remise, release, acquit, and
forever discharge each of Patriot and Wyndham, and each of their respective
current and/or former representatives, principals, agents, employees, officers,
directors, shareholders, predecessors, successors, assigns, trustees, partners,
general partners, limited partners, co-venturers, parents, subsidiaries,
affiliates, beneficiaries, heirs, executors, administrators, insurers and
attorneys, in their capacities as such, (the "Patriot/Wyndham Released Parties")
from any and all claims, demands, suits, actions, causes of action, obligations,
damages, costs, losses, interest, expenses and liabilities of any kind or nature
whatsoever resulting from delays in consummation of the Merger, and any claims
of breach under the Merger Agreement or the Shareholders Agreement (as defined
in the Merger Agreement) through the date hereof.
II. CERTAIN UNDERTAKINGS OF MR. FINE
2.1 Hotel-Related Business Activities after the Merger.
Since the date of the Merger Agreement, one of the Shareholders, FFC
Limited Partnership, L.P., has entered into three transactions, for the
development of hotels in Chicago, Colorado Springs and Denver which will be
operated under the Hilton Garden brand (the "Pending Projects"). Patriot and
Wyndham hereby confirm that, upon completion of the Merger, neither will object
to Mr. Fine's continued participation in the Pending Projects, and Mr. Fine
hereby confirms that, in all other respects, he will comply with the terms of
(i) his Employment Agreement as of May 28, 1996, as amended on December 30, 1997
("Employment Agreement") (including without limitation Sections 6 and 7
thereof), and (ii) his Severance Agreement, dated as of December 30, 1997
("Severance Agreement") (including without limitation Section 8 thereof), and
that, in the event that any of the restrictions imposed on his activities by one
of such
2
<PAGE>
agreements is greater than those imposed on him by the other, the more
restrictive provisions shall apply. Mr. Fine further agrees that, for a period
of one year after the Effective Date of the Merger, he will not directly or
indirectly engage in the hotel management business, either as an equity owner
(other than owning less than five percent of a publicly held company), lender,
director, officer, employee, consultant or otherwise.
2.2 Assistance to Patriot and Newco.
Commencing on the date hereof and until 120 days following the Effective
Time, Mr. Fine will use all reasonable efforts to persuade any senior officer or
officers of the Company designated by Patriot to accept positions with the
newly-formed company which is planned to be spun off by Patriot after the Merger
("Newco"), or one or more of Newco's affiliates. The preceding sentence shall
not be deemed to obligate Mr. Fine to incur any expense or to offer any
inducement which would result in any personal obligation on the part of Mr.
Fine. Mr. Fine also acknowledges and agrees that he will comply with the
restrictions imposed by Section 7(f) of the Employment Agreement and Section
8(h) of the Severance Agreement relating to the solicitation of employees, as
well as his other covenants under such agreements.
III. OPTIONS ON PATRIOT PAIRED SHARES
3.1 Grant of Options.
(a) By Shareholders.
Subject to the terms, provisions and conditions contained in this
Agreement, each Shareholder hereby grants to Patriot and its designees an option
to purchase all or any portion of the number of paired shares of Common Stock of
Patriot and Wyndham ("Paired Shares") set forth opposite such Shareholder's name
on Exhibit A hereto, which Paired Shares will be among those issued to such
Shareholder as consideration in the Merger, at the Call Exercise Price (as
hereinafter defined) per Paired Share (each, a "Call Option," and collectively,
the "Call Options"). An aggregate of 5,000,000 Paired Shares is subject to the
Call Options. If any Shareholder shall fail to perform its obligation to sell
Paired Shares pursuant to an exercise of a Call Option, the number of Paired
Shares subject to the Call Options granted by all other Shareholders shall be
automatically increased on a pro rata basis, based on the number of Paired
Shares set forth in Column II on Exhibit A, to the extent necessary to enable
the Call Options to be exercised for such aggregate number of Paired Shares.
Notwithstanding the foregoing provisions of this Section 3.1(a), commencing on
June 3, 1998, and on each day thereafter until the day on which the Effective
Time occurs, the total number of Paired Shares subject to the Call Options shall
be reduced by 333,333. (For example, if the Effective Time occurs on June 5,
1998, the total number of Paired Shares subject to the Call Options shall be
4,000,001). Any such reduction shall be allocated ratably among the shareholders
in accordance with their relative Share ownership interests, as shown on Exhibit
A. No reduction shall be made to the extent that the
3
<PAGE>
failure of the Effective Time to occur is the result of the Company's failure to
perform any of its obligations under the Merger Agreement.
(b) By Patriot.
Subject to the terms, provisions and conditions contained in this
Agreement, Patriot hereby grants to each Shareholder an option to sell to
Patriot all or any portion of the number of paired shares of Common Stock of
Patriot and Wyndham ("Paired Shares") set forth opposite such Shareholder's name
on Exhibit A hereto, which Paired Shares will be among those issued to such
Shareholder as consideration in the Merger, at the Put Exercise Price (as
hereinafter defined) per Paired Share (each, a "Put Option," and collectively,
the "Put Options," and such Put Options, collectively with the Call Options, the
"Options"). An aggregate of 5,000,000 Paired Shares is subject to the Put
Options. The Call Options and Put Options are granted with respect to the same
shares and are not intended to be duplicative. In the event that a Call Option
is exercised with respect to a given number of Paired Shares held by a
Shareholder, the number of Paired Shares subject to the corresponding Put Option
shall be reduced by the same amount (and vice versa in the event of a the
exercise of a Put Option).
3.2 Notice of, and Procedures for, Exercise of Options.
(a) Each Option may, subject to Section 3.6 hereof, be exercised in whole
or in part from time to time from and after the Effective Time by written notice
(the "Option Exercise Notice") from the party in whose favor the Option was
granted (or, in the case of a Call Option, such person as Patriot may have
designated) (the "Exercising Party"), stating the Exercising Party's intention
to exercise the Option, which notice shall include a date and time at which the
closing for such exercise (the "Option Closing") shall occur, such date to be
not less than two business day and not more than five business days after the
giving of such notice. (As used in this Agreement, the term "business day" shall
mean any day on which the New York Stock Exchange is open for trading.) The sale
and delivery and the purchase and acceptance of the Paired Shares shall take
place at the offices of Goodwin, Procter & Hoar LLP at 599 Lexington Avenue, New
York, New York, or such other place as the parties to such Option shall mutually
agree.
(b) At the Option Closing, the Patriot (or, in the case of the Call
Option, such person as Patriot may have designated) shall pay the applicable
Exercise Price (as determined pursuant to Section 3.3 below) for each Paired
Share being purchased in cash by a cashiers check or federal funds wire transfer
to an account designated by the Shareholder against delivery of any necessary or
appropriate stock certificates and duly executed instruments of transfer to the
Exercising Party.
3.3 Exercise Prices.
The exercise price (the "Exercise Price") for each Paired Share under the
Options shall be as follows:
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(a) in the case of any Call Option, the Exercise Price shall be the
amount equal to (i) the per share closing price of the Paired Shares
on the New York Stock Exchange on the day on which the Option
Exercise Notice is given with respect to such Call Option (or, if
such day is not a business day, the first business day preceding
such day) (the "Market Price"), less (ii) $3.00; provided, however,
that (x) in no event shall the Exercise Price for any Call Option be
less than the amount equal to (A) the average per share closing
price of the Paired Shares for the three business days ending on the
day on which the Effective Time occurs (or, if such day is not a
business day, ending on the first business day preceding such day)
(the "Effective Time Price"), less (B) $3.00, and (y) if the Option
Exercise Notice is given on any day other than the date on which the
Effective Time occurs, and if the Market Price exceeds the Effective
Time Price, then the Exercise Price for such Call Option shall be
the amount equal to (I) 331/3% of the amount of such excess, (II)
plus the Effective Time Price, less (III) $3.00.
(B) in the case of the Put Option, the Exercise Price shall be the
amount equal to the per share closing price of the Paired Shares on
the New York Stock Exchange on the day on which the Option Exercise
Notice is given with respect to the Put Option (or, if such day is
not a business day, the first business day preceding such day), less
(ii) $7.00; provided, however, that if the Option Exercise Notice is
given on any day other than the date on which the Effective Time
occurs, and if the Market Price exceeds the Effective Time Price,
then the Exercise Price for such Put Option shall be the amount
equal to (x) 331/3% of the amount of such excess, (y) plus the
Effective Time Price, less (z) $7.00.
3.4 Term of Options.
The Options shall become exercisable upon the Effective Time and will
expire at 6:00 p.m., New York City Time, on the 60th calendar day following the
date on which the Effective Time occurs.
3.5 Ownership of Shares.
Each Shareholder represents, warrants and covenants to Patriot and its
designee that (i) on the date hereof and at all times prior to the Option
Closing such Shareholder has and will continue to have legal and beneficial
ownership of the Shares set forth opposite such Shareholders name on Exhibit A,
free and clear of all proxies, voting trusts and voting agreements,
understandings or arrangements and free and clear of all liens, claims, security
interests and any other encumbrances whatsoever, and (ii) upon payment of the
Exercise Price at any Option Closing, such Shareholder shall have transferred to
Patriot or its designee the legal and beneficial ownership of the Paired Shares,
free and clear of all proxies, voting trusts and voting agreements,
understandings or arrangements and free and clear of all liens, claims, security
interests and any other encumbrances whatsoever.
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IV. MISCELLANEOUS; GENERAL PROVISIONS
4.1 Status of Claims
The parties each represent and warrant that the rights and claims released
pursuant to this Agreement have not in any way been assigned, transferred,
hypothecated or otherwise encumbered, and that they are the sole and absolute
owners of such rights and claims.
4.2 Sufficiency of Consideration
The parties acknowledge that the covenants contained in this Agreement
provide good and sufficient consideration for every promise, duty, release,
obligation, agreement and right contained in this Agreement.
4.3 Denial of Liability or Wrongdoing
The terms of this Agreement are not merely recitals and the agreements
made herein and the consideration transferred is to compromise disputed claims,
avoid litigation and buy peace. No releases or other consideration given shall
be construed as an admission of liability or wrongdoing. All liability and
wrongdoing is expressly denied.
4.4 Authorization
Each party to this Agreement represents that he or it is duly authorized
to execute this Agreement, and to enter into the settlement described herein,
and that he or it has obtained all approvals, consents, and votes necessary to
take said actions and perform his or its obligations set forth herein. Each
party to this Agreement represents that he or it is not breaching or interfering
with any Agreement, actual or prospective business relationship or obligation to
any person, entity, party or non-party by entering into the settlement or any of
the transactions provided for herein. The execution and delivery of this
Agreement by the Shareholders do not, and the performance of this Agreement by
the Shareholders will not, require any consent, approval, authorization or
permit of, or filing with (except for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) or
notification to, any government or regulatory authority by the Shareholders.
4.5 Severability.
If any term or other provision of this Agreement is determined to be
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement will nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or
6
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incapable of being enforced, the parties hereto will negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible to the fullest extent permitted by applicable law in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
4.6 Entire Agreement.
This Agreement constitutes the entire agreement of the parties and
supersedes all prior agreements and undertakings, both written and oral, among
the parties with respect to the subject matter hereof.
4.7 Amendments.
This Agreement may not be modified, amended, waived, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
4.8 Assignment.
This Agreement may not be assigned, except that Patriot may assign any or
all of the Options to any affiliate of Patriot, or to Wyndham or any affiliate
of Wyndham.
4.9 Parties in Interest.
This Agreement is binding upon, and shall inure solely to the benefit of,
each party hereto and nothing in this Agreement, express or implied, is intended
to or will confer upon any other person any right, benefit or remedy of any
nature whatsoever under or by reason of this Agreement.
4.10 Specific Performance.
The parties hereto agree that irreparable damage would occur in the event
any provision of this Agreement was not performed in accordance with the terms
hereof or was otherwise breached. It is accordingly agreed that the parties will
be entitled to specific relief hereunder, including, without limitation, an
injunction or injunctions to prevent and enjoin breaches of the provisions of
this Agreement and to enforce specifically the terms and provisions hereof, in
any state or federal court in the Commonwealth of Pennsylvania, in addition to
any other remedy to which they may be entitled at law or in equity. Any
requirements for the securing or posting of any bond with respect to any such
remedy are hereby waived.
4.11 Governing Law; Jurisdiction and Venue.
This Agreement will be governed by, and construed in accordance with, the
internal laws of the Commonwealth of Pennsylvania without regard to its rules of
conflict of laws. The parties
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hereto hereby irrevocably and unconditionally consent to and submit to the
exclusive jurisdiction of the courts of the Commonwealth of Pennsylvania and any
court of the Western District of Pennsylvania of the United States of America
(the "Pennsylvania Courts") for any litigation arising out of or relating to
this Agreement and the transactions contemplated hereby (and agrees not to
commence any litigation relating thereto except in such courts), waives any
objection to the laying of venue of any such litigation in the Pennsylvania
Courts and agrees not to plead or claim in any Pennsylvania Court that such
litigation brought therein has been brought in any inconvenient forum.
4.12 Counterparts.
This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
will be deemed to be an original but all of which taken together will constitute
one and the same agreement.
4.13 Voting Agreement.
Each Shareholder agrees that, immediately prior to and as a condition to,
such Shareholder's receipt of shares of common stock of Newco pursuant to the
proposed spin-off of such shares by Patriot, such Shareholder will execute and
deliver to Patriot a Voting Agreement in substantially the form of Exhibit B
hereto.
4.14 Tax Treatment of Settlement.
The parties hereto agree that the grant of the Options pursuant to Section
3.1 hereof represent adjustments to the purchase price otherwise payable
pursuant to the Merger Agreement by Patriot to the Shareholders, including Mr.
Fine, and shall consistently be treated as such by the parties hereto for all
tax and financial accounting purposes.
8
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4.15 Notices.
All notices and other communications under this Agreement will be in
writing and will be deemed given if delivered personally, telecopied (which is
confirmed) or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
specified by like notice):
(a) if to Patriot, to:
Patriot American Hospitality, Inc.
1950 Stemmons Freeway
Suite 6001
Dallas, TX 75207
Attn: Paul A. Nussbaum
(Telecopier: 214-863-1805)
with copies to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Attn: Gilbert G. Menna, P.C. and
Martin Carmichael III, P.C.
(Telecopier: 617-523-1231)
(b) if to Mr. Fine or any Shareholder, to:
Milton Fine
___________________________
___________________________
(Telecopier: )
with a copy to:
___________________________
___________________________
___________________________
Attn: _____________________
(Telecopier: )
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4.16. Effectiveness of Agreement.
This Agreement is binding as of its execution by the parties hereto
but will not become effective unless and until the Effective Time occurs. In the
event the Merger Agreement is terminated, each of the parties will be restored
to the position it had prior to the execution of this Agreement and each of the
parties acknowledges and agrees that, in the event of such termination none of
the existence of this Agreement, the discussions giving rise thereto and any
event referred to herein or contemplated hereby will limit or otherwise affect
any party's rights (if any) under or in respect of the Merger Agreement or
otherwise.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
PATRIOT AMERICAN HOSPITALITY, INC.
By: /s/ William W. Evans III
------------------------------
Name: William W. Evans III
Title: President and Chief Operating
Officer
WYNDHAM INTERNATIONAL, INC.
By: /s/ William W. Evans III
------------------------------
Name: William W. Evans III
Title: Executive Vice President
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<PAGE>
/s/ Milton Fine
------------------------------
Milton Fine
Milton Fine, Trustee
U/A dated 11/11/94
FBO Milton Fine
By: /s/ Milton Fine
------------------------------
Name:
Title:
Milton Fine, Trustee under
The Milton Fine 1997
Charitable Remainder Unitrust
By: /s/ Milton Fine
------------------------------
Name:
Title:
FFC Limited Partnership, L.P.
By: /s/ Milton Fine
------------------------------
Its General Partner
By: /s/ Milton Fine
------------------------------
Name:
Title:
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<PAGE>
FCT-D DELCO 1 TRUST, a Delaware business trust
By: FCT Administration, Inc., Administrative
Trustee
By: /s/ David J. Fine
------------------------------
David J. Fine
President
FCT-D DELCO 2 TRUST, a Delaware business
trust
By: FCT Administration, Inc., Administrative
Trustee
By: /s/ David J. Fine
------------------------------
David J. Fine
President
FCT-D DELCO 3 TRUST, a Delaware business
trust
By: FCT Administration, Inc., Administrative
Trustee
By: /s/ David J. Fine
------------------------------
David J. Fine
President
FCT-S DELCO 1 TRUST, a Delaware business trust
By: FCT Administration, Inc., Administrative
Trustee
By: /s/ David J. Fine
------------------------------
David J. Fine
President
13
<PAGE>
FCT-S DELCO 2 TRUST, a Delaware business trust
By: FCT Administration, Inc., Administrative
Trustee
By: /s/ David J. Fine
------------------------------
David J. Fine
President
FCT-S DELCO 3 TRUST, a Delaware business trust
By: FCT Administration, Inc., Administrative
Trustee
By: /s/ David J. Fine
------------------------------
David J. Fine
President
FCT-C DELCO 1 TRUST, a Delaware business
trust
By: FCT Administration, Inc., Administrative
Trustee
By: /s/ David J. Fine
------------------------------
David J. Fine
President
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT A
---------
I II
Number of Shares of Number of Paired Shares
Name and Address Company Stock Owned Subject to Call Options/
of Shareholder of Record by Shareholder* Put Options under Section 3.1
- -------------- ----------------------------------------------------------
<S> <C> <C>
Milton Fine, Trustee 2,761,278 1,080,394
U/A dated 11/11/94
FBO Milton Fine
Milton Fine, Trustee under 1,428,752 559,022
The Milton Fine 1997
Charitable Remainder Unitrust
David J. Fine, Trustee 1,315,482 514,703
for the Milton Fine Grantor
Annuity Trust U/A dated 3/31/96
FFC Limited Partnership 3,000,000 1,173,798
FCT-C Delco 1 Trust 1,106,138 432,794
FCT-C Delco 2 Trust 284,310 111,241
FCT-C Delco 3 Trust 34,058 13,326
FCT-D Delco 1 Trust 1,106,138 432,794
FCT-D Delco 2 Trust 284,310 111,241
FCT-D Delco 3 Trust 34,058 13,326
FCT-S Delco 1 Trust 1,106,138 432,794
FCT-S Delco 2 Trust 284,310 111,241
FCT-S Delco 3 Trust 34,058 13,326
--------- --------
TOTAL: 12,779,030 5,000,000
</TABLE>
- ----------
* No shares of Company Stock are held beneficially, but not of record, by
any Shareholder.
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EXHIBIT B
---------
[Form of Voting Agreement]
16
