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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
HANOVER MARRIOTT LIMITED PARTNERSHIP
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10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
(301) 380-2070
DELAWARE 52-1482649
- ----------------------- ----------------------
(STATE OF ORGANIZATION) (I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(301) 380-2070
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(REGISTRANTS TELEPHONE NUMBER INCLUDING AREA CODE)
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS
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(TITLE OF CLASS)
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TABLE OF CONTENTS
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<TABLE>
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Page No.
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<S> <C> <C>
ITEM 1. Business........................................................ 1
ITEM 2. Financial Information........................................... 7
ITEM 3. Property........................................................ 13
ITEM 4. Security Ownership of Certain Beneficial Owners and Management.. 14
ITEM 5. Directors and Executive Officers................................ 15
ITEM 6. Executive Compensation.......................................... 16
ITEM 7. Certain Relationships and Related Transactions.................. 16
ITEM 8. Legal Proceedings............................................... 18
ITEM 9. Market for and Distributions on Limited Partnership Units and
Related Security Holder Matters................................. 18
ITEM 10. Recent Sales of Unregistered Securities......................... 19
ITEM 11. Description of Registrant's Securities.......................... 19
ITEM 12. Indemnification of Directors and Officers....................... 23
ITEM 13. Financial Statements............................................ 25
ITEM 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................ 43
ITEM 15. Financial Statements, Supplementary Schedules and Exhibits...... 43
</TABLE>
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ITEM 1. BUSINESS
DESCRIPTION OF THE PARTNERSHIP
Hanover Marriott Limited Partnership (the "Partnership"), a Delaware limited
partnership, was formed on October 8, 1986 to acquire and own the 353-room
Hanover Marriott Hotel and the land on which it is located (the "Hotel") in
Hanover, New Jersey.
The sole general partner of the Partnership, with a 5% interest, is Marriott
Hanover Hotel Corporation (the "General Partner"), a Delaware corporation and a
wholly-owned subsidiary of Host Marriott Corporation ("Host Marriott").
The Partnership owns the Hotel and is engaged solely in the business of owning
the Hotel and, therefore, is engaged in one industry segment. The principal
offices of the Partnership are located at 10400 Fernwood Road, Bethesda,
Maryland 20817.
The Hotel, which opened on July 30, 1986, was leased by the Partnership to
Marriott Hotel Services, Inc. ("MHS"), a wholly-owned subsidiary of Marriott
International, Inc. ("MII"), under a long-term operating lease (the "Operating
Lease"). Effective August 18, 1997, the Operating Lease was converted to a
long-term management agreement with MHS (the "Management Agreement"). The
initial term of the Management Agreement expires December 31, 2011 with five
successive renewal options of ten years each. The Hotel has the right to use
the Marriott name pursuant to the Management Agreement and, if this agreement is
terminated, the Partnership will lose that right for all purposes (except as
part of the Partnership's name). See Item 7, "Certain Relationships and Related
Transactions."
The Hotel is specifically designed to attract area business travelers and
catering events as well as vacation travelers. The Hotel is a quality, full-
service hotel with a proven reputation for dependable and consistent service.
The Partnership has no current plans to acquire any new properties. See
"Competition" below and Item 3, "Property."
ORGANIZATION OF THE PARTNERSHIP
The Partnership was formed on October 8, 1986, and commenced operations on
November 24, 1986 (the "Closing Date"). On the Closing Date, 84 limited
partnership interests (the "Units"), representing a 95% interest in the
Partnership, were sold at $100,000 per Unit pursuant to a private placement.
Each limited partner paid $15,560 at subscription with the balance due in four
annual installments through March 15, 1990, or, as an alternative, $87,600 in
cash at closing as full payment of the subscription price. The limited partners
paid $2,063,460 in cash on the Closing Date. Seventy-three and one-half Units
were purchased on the installment basis. The limited partners' obligations to
make the installment payments were evidenced by promissory notes (the "Investor
Notes") payable to the Partnership and secured by the Units. The Investor Notes
were paid in full in March 1990. The General Partner contributed $442,000 in
cash for its 5% general partnership interest.
On the Closing Date, the Partnership executed a purchase agreement (the
"Purchase Agreement") with Marriott Corporation to acquire the Hotel for $42.2
million. Of the total purchase price, $36.2 million was paid from proceeds of a
variable rate mortgage loan received from a commercial bank and secured by the
Hotel (see "Debt Financing"), $5.0 million was evidenced by a promissory note
payable to Host Marriott (the "Deferred Purchase Debt"), and $1.0 million from
the sale of the Units. Any remaining
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proceeds received from the sale of the Units and the Debt Financing were used to
pay offering and closing costs and as Partnership working capital.
On April 2, 1997, Hanover Hotel Acquisition Corporation (the "Purchaser"), a
wholly-owned subsidiary of Host Marriott, completed a tender offer for limited
partnership Units in the Partnership. The Purchaser acquired 40 Units for an
aggregate consideration of $1.6 million or $40,000 per Unit. Combined with its
prior ownership position, Host Marriott now indirectly owns through affiliates
over 50% of the Partnership. Additionally, in a Partnership vote held in
conjunction with the tender offer, the limited partners approved all of the
proposed amendments to the Amended and Restated Partnership Agreement that were
conditions to the tender offer. The most significant amendments (i) revised the
provisions limiting the voting rights of the General Partner and its affiliates
to permit the General Partner and its affiliates (including the Purchaser) to
have full voting rights with respect to all Units currently held by the General
Partner or acquired by its affiliates except on matters where the General
Partner or its affiliates have an actual economic interest other than as a
limited partner or General Partner (an "Interested Transaction"), (ii) modified
the voting provisions with respect to Interested Transactions to permit action
to be taken, if approved, by limited partners holding a majority of the
outstanding Units, with all Units held by the General Partner and its affiliates
being voted in the same manner as a majority of the Units actually voted by
limited partners other than the General Partner and its affiliates and (iii)
eliminated limited partner consent requirements relating to sale transactions
with third parties and vested the sole authority with respect to such
transactions to the General Partner. As a result of the approval of the
proposed amendments, the Amended and Restated Partnership Agreement was amended
and restated effective April 3, 1997 as the Second Amended and Restated
Partnership Agreement (the "Partnership Agreement").
DEBT FINANCING
Mortgage Debt
- -------------
The Partnership originally entered into a loan agreement on November 24, 1986
(the "Original Loan") with a bank that provided $36.5 million to finance the
acquisition of the Hotel. Approximately $300,000 of the loan proceeds were used
to pay loan fees. On October 26, 1989, the Partnership refinanced the Original
Loan with a $37 million nonrecourse first mortgage loan (the "Mortgage Debt")
which matured on October 16, 1996. The Mortgage Debt bore interest at a
floating rate from October 27, 1994, through October 28, 1996 equal to 70 basis
points over either (i) the London Interbank offered rate ("LIBOR") or (ii) an
adjusted certificate of deposit rate. On October 28, 1996, the Partnership's
$37 million Mortgage Debt matured without replacement financing in place.
However, the Partnership secured an extension of the Mortgage Debt until October
24, 1997 provided that the Partnership would make a $10 million principal
paydown on the Mortgage Debt by April 30, 1997. During the extension period,
the debt bore interest at LIBOR plus 2.0 percentage points and required
quarterly principal amortization equal to all excess cash flow as defined in the
extension agreement.
On April 30, 1997, in connection with the tender offer for limited partnership
units (see "Organization of the Partnership"), Host Marriott funded a fully-
amortizing $10 million subordinated loan to the Partnership (the "Subordinated
Loan") that bears interest at a fixed rate of 14.5% over a 15-year term with
required monthly payments. The Partnership used the proceeds of the
Subordinated Loan to make the required principal payment under the mortgage loan
extension agreement. If cash flow is insufficient to service the Subordinated
Loan, the unpaid portion will be added to principal and interest will accrue.
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On August 18, 1997, the Partnership refinanced its Mortgage Debt with a then
outstanding balance of $25.9 million with new mortgage debt (the "New Mortgage
Debt") of $29.9 million. The New Mortgage Debt bears interest at a fixed rate
of 8.58% over its seven year term with required principal amortization based on
a 25-year schedule. Pursuant to the Subordinated Loan, any proceeds from the
New Mortgage Debt in excess of $27 million were to be used to repay the
Subordinated Loan. Therefore, on August 18, 1997, $2.9 million was repaid on
the Subordinated Loan. Pursuant to the limited partnership agreement, the
remaining proceeds and cash held by the Partnership for refinancing were used to
pay refinancing costs and to repay debt service guarantee advances made by the
General Partner in prior years.
The New Mortgage Debt is secured by the Hotel and substantially all other assets
of the Partnership, including furniture and equipment and the Partnership's
rights under the assignment of the rents and leases (the "Collateral"). The
Subordinated Loan is also secured by the Collateral but is subordinate to the
New Mortgage Debt. Host Marriott and the General Partner also provided
additional security on the Original Loan and the Mortgage Debt in the form of
debt service guarantees in the aggregate amount of $7.2 million (the
"Guarantees"). On October 27, 1994 Host Marriott and the General Partner were
released from their obligations to advance funds. As of March 27, 1998 and
December 31, 1997 and 1996, $3.4 million remains outstanding under the
Guarantees. All advances made under the Guarantees accrue interest at one
percent over the prime rate as announced by Bankers Trust Company. Pursuant to
the limited partnership agreement, $1.4 million of accrued interest was paid on
the Guarantees from loan refinancing proceeds.
Prior to 1996, the General Partner advanced $127,000 to the Partnership as a
working capital advance which accrues interest at one percent over the prime
rate as announced by Bankers Trust Company. As of December 31, 1997 and 1996,
$203,000 and $192,000, including accrued interest, was outstanding on the
working capital advance.
In addition, the General Partner has provided a foreclosure guarantee to the
lender of the New Mortgagee Debt in the amount of $10 million. Pursuant to the
terms of the foreclosure guarantee, amounts would be payable only upon a
foreclosure of the Hotel and only to the extent that the gross proceeds from a
foreclosure sale are less than $10 million.
MATERIAL CONTRACTS
Operating Lease Agreement
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The Partnership, through an assignment of the lease from Host Marriott on
November 24, 1986, acquired all rights to a 25-year operating lease with five
10-year renewal options to lease the Hotel to MHS. Effective August 18, 1997, in
conjunction with the refinancing of the Partnership's Mortgage Debt, the
Operating Lease was converted to the Management Agreement with MHS.
Annual rental during the term of the Operating Lease was equal to the greater
of: (i) Minimum Rental of $100,000; or (ii) Basic Rental equal to 80% of
Operating Profit, as defined, reduced to 75% of Operating Profit after the
Partnership received $4,421,000 of cumulative Capital Receipts, as defined; or
(iii) Adjusted Rental equal to debt service on the mortgage debt plus
Partnership administration costs (collectively referred to as "Debt Service")
plus the greater of: (a) a preferred return equal to $840,000 or (b) 50% of the
amount by which Operating Profit exceeded Debt Service. In no event was
Adjusted Rental to exceed Operating Profit.
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The amount by which Adjusted Rental exceeded Basic Rental in any fiscal year was
defined as Additional Rentals. Cumulative Additional Rentals were recoverable
by MHS in any fiscal year when Basic Rental exceeded Adjusted Rentals, provided
no loans from the General Partner or Host Marriott were then outstanding.
Annual Rental was reduced by 50% of such excess to the extent cumulative
Additional Rentals existed. In addition to the Annual Rental, MHS was required
to pay real estate taxes and make annual contributions equal to 4% of sales net
of interest to the property improvement fund on behalf of the Partnership. In
accordance with the Operating Lease, annual contributions to the property
improvement fund increased to 5% of sales net of interest at the beginning of
1997. For additional information, see Item 7, "Certain Relationships and
Related Transactions."
Management Agreement
- --------------------
Effective August 18, 1997, in conjunction with the refinancing of the
Partnership's Mortgage Debt, the Operating Lease was converted to the Management
Agreement with MHS. The Management Agreement has an initial term expiring on
December 31, 2011. Thereafter, the term is renewed automatically for each of
five successive 10-year periods.
Pursuant to the terms of the Management Agreement, MHS receives a base
management fee equal to 3% of gross revenues. The Partnership is entitled to
the first $4,650,000 of operating profit generated by the Hotel each fiscal year
("Owner's Priority"). Owner's Priority is increased by 10% of any Additional
Invested Capital, as defined in the Management Agreement. In addition to a base
management fee, MHS will be paid an incentive management fee of the next
$400,000 from operating profit, as defined. Any cash remaining after the
payment of the Owner's Priority and the incentive management fee will be
allocated 75% to the Partnership and 25% to MHS. The Partnership may terminate
the Management Agreement if in any two of three consecutive fiscal years there
is an operating loss. MHS may, however, prevent termination by paying the
Partnership such amounts equal to the operating losses during such two fiscal
years. For additional information, see Item 7, "Certain Relationships and
Related Transactions."
The Management Agreement provides for the establishment of a property
improvement fund for the Hotel which provides for the replacement of furniture,
fixtures and equipment. Pursuant to the Management Agreement, contributions to
the property improvement fund are based on a percentage of gross hotel sales
equal to 5%, net of interest income, however, MHS has the right to increase or
decrease this percentage.
Pursuant to the Management Agreement, the Hotel is operated as part of the
Marriott Hotels, Resorts and Suites system. At December 31, 1997, the Marriott
Hotels, Resorts and Suites system included 326 hotels with a total of 124,571
guest rooms.
Marriott full-service hotels primarily serve business and leisure travelers and
meeting groups at locations in downtown and suburban areas, near airports and at
resort locations. Most Marriott full-service hotels contain from 300 to 500
rooms and typically include swimming pools, gift shops, convention and banquet
facilities, a variety of restaurants and lounges and parking facilities.
Office Space Rental Agreement
- -----------------------------
On January 28, 1995, the Partnership entered into an agreement with Marriott
Vacation Club International ("MVCI"), formerly known as Marriott Ownership
Resorts, Inc., a wholly-owned subsidiary of MII. Under the terms of the five
year lease with MVCI expiring in January 2000, MVCI funded the renovation of a
portion of the Hotel's lounge into a junior ballroom (for use by the Hotel) and
a MVCI sales office. The
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total cost of the renovations was $516,000. The lease with MVCI stipulates that
$200,000 of those costs will be treated as rent concessions; therefore, the
Partnership will receive scheduled rental payments of $18,123 in 1998, $55,600
in 1999 and $4,277 in 2000. In the event MVCI chooses to exercise its right to
terminate the lease agreement prior to the end of the five year term, any
prepayment of rent by MVCI is non-refundable.
COMPETITION
The full-service segment of the lodging industry continues to benefit from a
favorable cyclical imbalance in the supply/demand relationship in which room
demand growth has exceeded supply growth, which has remained fairly limited.
Due to an increase in travel and an improving economy, the lodging industry
posted strong gains in revenues and profits over the past several years as
demand growth continued to outpace additions to supply. The General Partner
believes that full-service hotel room supply growth and room demand will remain
stable through at least 1998. Accordingly, the General Partner believes this
supply/demand imbalance will result in improved room rates which should result
in improved REVPAR, or revenue per available room, and operating profit.
The Hotel competes with other major lodging brands in the region in which it
operates. Competition in the region is based primarily on the level of service,
quality of accommodations, convenience of location and room rates of each hotel.
The inclusion of the Hotel within the Marriott full-service hotel system
provides advantages of name recognition, centralized reservations and
advertising, system-wide marketing and promotion, centralized purchasing and
training and support services. Additional competitive information is set forth
in Item 3, "Property."
CONFLICTS OF INTEREST
Because Host Marriott and its affiliates own and/or operate hotels other than
those owned by the Partnership, potential conflicts of interest exist. With
respect to these potential conflicts of interest, Host Marriott and its
affiliates retain a free right to compete with the Partnership's Hotel,
including the right to develop competing hotels now and in the future, in
addition to those existing hotels which may compete directly or indirectly.
Under Delaware law, the General Partner has unlimited liability for obligations
of the Partnership unless those obligations are, by contract, without recourse
to the partners thereof. Under the Partnership Agreement, the General Partner
has broad management discretion over the business of the Partnership and with
regard to the operation of the Hotel. No limited partner may take any part in
the conduct or control of the Partnership's business. The authority of the
General Partner is limited in certain respects, including acquiring an interest
in other hotel properties or other partnerships and selling or otherwise
disposing of or consenting to the sale or disposition of the Hotel to the
General Partner or an affiliate of the General Partner, unless certain
procedures are followed as outlined in the Partnership Agreement. For a
discussion of limitations on the authority of the General Partner, see Item 11,
"Description of Registrant's Securities Authority of the General Partner."
Because certain actions taken by the General Partner or the Partnership could
expose the General Partner or its parent, Host Marriott, to liability that is
not shared by the limited partners (for example, tort liability or environmental
liability), this control could lead to a conflict of interest. Under Delaware
law, the General Partner has a fiduciary duty to the Partnership and is required
to exercise good faith and loyalty in all its dealings with respect to
Partnership affairs.
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POLICIES WITH RESPECT TO CONFLICTS OF INTEREST
It is the policy of the General Partner that the Partnership's relationship with
the General Partner or any affiliate, or persons employed by the General
Partner, are conducted on terms which are fair to the Partnership and which are
commercially reasonable. Agreements and relationships involving the General
Partner, or its affiliates, and the Partnership are on terms consistent with the
terms on which the General Partner or its affiliates have dealt with unrelated
partners.
The Partnership Agreement provides that agreements, contracts or arrangements
between the Partnership and the General Partner or any of its affiliates, other
than arrangements for rendering legal, tax, accounting, engineering, and
procurement services to the Partnership by the General Partner or its
affiliates, which agreements will be on commercially reasonable terms, will be
subject to the following conditions:
(a) the General Partner or any affiliate must be actively engaged in the
business of rendering such services or selling or leasing such goods;
(b) any such agreement, contract or arrangement must be fair to the Partnership
and reflect commercially reasonable terms and shall be embodied in a written
contract which precisely describes the subject matter thereof and all
compensation to be paid therefor;
(c) no rebates or give-ups may be received by the General Partner or any
affiliate, nor may the General Partner or any affiliate participate in any
reciprocal business arrangements which would have the effect of
circumventing any of the provisions of the Partnership Agreement;
(d) no such agreement, contract or arrangement as to which the limited partners
had previously given approval may be amended in such manner as to increase
the fees or other compensation payable to the General Partner or any
affiliate or to decrease the responsibilities or duties of the General
Partner or any affiliate in the absence of the consent of the limited
partners holding a majority of the Units; and
(e) any such agreement, contract or arrangement which relates to or secures any
funds advanced or loaned to the Partnership by the General Partner or any
affiliate must reflect commercially reasonable terms.
EMPLOYEES
The Partnership has no employees; however, employees of the General Partner and
Host Marriott are available to perform administrative services for the
Partnership. The Partnership reimburses the General Partner for the cost of
providing such services. See Item 6, "Executive Compensation", for information
regarding payments made to the General Partner for the cost of providing
administrative services to the Partnership.
HOST MARRIOTT REAL ESTATE INVESTMENT TRUST
On April 17, 1998, Host Marriott, parent company of the General Partner of the
Partnership, announced that its Board of Directors has authorized Host Marriott
to reorganize its business operations to qualify as a real estate investment
trust ("REIT") to become effective as of January 1, 1999.
As part of the REIT reorganization, Host Marriott has formed an operating
partnership (the "Operating Partnership"). The Operating Partnership is
proposing to acquire by merger (the "Mergers") eight limited partnerships that
own full-service hotels in which Host Marriott or its subsidiaries are general
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partners, including the Partnership. As more fully described in the
registration statement filed with the Securities and Exchange Commission on June
2, 1998, limited partners of those partnerships that participate in the Mergers
will receive either units or, at their election, unsecured notes issued by the
Operating Partnership in exchange for their partnership interests in the
Partnerships.
Consummation of the REIT reorganization is subject to significant contingencies
that are outside the control of Host Marriott, including final Board approval,
consent of shareholders, partners, bondholders, lenders, and ground lessors of
Host Marriott, its affiliates and other third parties. Accordingly, there can
be no assurance that the REIT reorganization will be completed or that it will
be effective as of January 1, 1999.
ITEM 2. FINANCIAL INFORMATION
The following selected financial data presents historical operating information
for the Partnership for the twelve weeks ended March 27, 1998 and March 28, 1997
and for each of the five years ended December 31, 1997 presented in accordance
with generally accepted accounting principles:
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 27, March 28, Year Ended December 31
1998 1997 1997 1996 1995 1994 1993
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<S> <C> <C> <C> <C> <C> <C> <C>
Hotel rental (1).................. $ -- $ 1,432 $ 3,950 $ 5,177 $ 4,377 $ 3,727 $ 3,435
======= ======= ======= ======= ======== ======== ==========
Hotel revenues (2)................ $ 1,285 $ -- $ 2,785 $ -- $ -- $ -- $ --
======= ======= ======= ======= ======== ======== ==========
Net income (loss)................. $ (228) $ 303 $ 5,757 $ 940 $ (219) $ (1,206) $ (3,224)
======= ======= ======= ======= ======== ======== ==========
Net income (loss) per limited
partner unit..................... $ 2,583 $ 3,429 $65,107 $10,631 $ (2,476) $(13,643) $ (36,464)
======= ======= ======= ======= ======== ======== ==========
Total assets...................... $32,922 $33,761 $32,883 $33,533 $ 32,652 $ 31,559 $ 32,353
======= ======= ======= ======= ======== ======== ==========
Total liabilities................. $41,670 $47,735 $41,403 $47,810 $ 47,869 $ 46,557 $ 46,145
======= ======= ======= ======= ======== ======== ==========
Cash distributions per
limited partner unit............. $ -- $ -- $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= ======== ======== ==========
</TABLE>
_______________________
(1) For the years 1993 through 1996 and for the period January 1, 1997 to
August 17, 1997, the Partnership recorded Hotel rental income in accordance
with the Operating Lease.
(2) Commencing August 18, 1997 under the Management Agreement, the Partnership
records revenue based on house profit generated by the Hotel. House profit
reflects Hotel operating results, and represents gross hotel sales less
property-level expenses, excluding depreciation and amortization, base and
incentive management fees, real estate taxes, insurance and certain other
costs, which are disclosed separately in the statement of operations.
Revenues are recorded based on house profit of the Hotel because the
Partnership has delegated substantially all of the operating decisions
related to the generation of house profit from the Hotel to MHS.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
Certain matters discussed herein are forward-looking statements within the
meaning of the Private Litigation Reform Act of 1995 and as such may involve
known and unknown risks, uncertainties, and other factors which may cause the
actual results, performance or achievements of the Partnership to be different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Although the Partnership believes the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, it can give no assurance that its expectations will be
attained. These risks are detailed from time to time in the Partnership's
filings with the Securities and Exchange Commission. The Partnership undertakes
no obligation to publicly release the result of any revisions of these forward-
looking statements that may be made to reflect any future events or
circumstances.
RESULTS OF OPERATIONS
On August 18, 1997, the Partnership completed a refinancing of its Mortgage
Debt. In connection with the refinancing, the Partnership converted the
Operating Lease with MHS to the Management Agreement (the "Conversion"). Prior
to the Conversion, the Partnership recorded revenue based on the rental income
to be received from MHS. Annual rental during the term of the Operating Lease
was equal to the greater of: (i) Minimum Rental of $100,000; or (ii) Basic
Rental equal to 80% of Operating Profit, as defined, reduced to 75% of Operating
Profit after the Partnership received $4,421,000 of cumulative Capital Receipts,
as defined; or (iii) Adjusted Rental equal to debt service on the mortgage debt
plus Partnership administration costs (collectively referred to as "Debt
Service") plus the greater of: (a) a preferred return equal to $840,000 or (b)
50% of the amount by which Operating Profit exceeded Debt Service. In no event
was Adjusted Rental to exceed Operating Profit.
The amount by which Adjusted Rental exceeded Basic Rental in any fiscal year was
defined as Additional Rentals. Cumulative Additional Rentals were recoverable
by MHS in any fiscal year when Basic Rental exceeded Adjusted Rentals, provided
no loans from the General Partner or Host Marriott were then outstanding.
Annual Rental was reduced by 50% of such excess to the extent cumulative
Additional Rentals existed. In addition to the Annual Rental, MHS was required
to pay real estate taxes.
Subsequent to the Conversion, the Partnership records revenue based on house
profit generated by the Hotel. House profit reflects Hotel operating results,
and represents gross hotel sales less property-level expenses, excluding
depreciation and amortization, base and incentive management fees, real estate
taxes, insurance and certain other costs, which are disclosed separately in the
statement of operations. Revenues are recorded based on house profit of the
Hotel because the Partnership has delegated substantially all of the operating
decisions related to the generation of house profit from the Hotel to MHS. As a
result, Hotel revenues reported for the twelve weeks ended March 27, 1998 are
not comparable with Hotel rental reported for the twelve weeks ended March 28,
1997.
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FIRST QUARTER 1998 COMPARED TO FIRST QUARTER 1997:
Revenues. On a comparative basis, hotel revenues decreased $609,000, or 32%, to
$1.3 million for first quarter 1998 when compared to first quarter 1997. The
decrease in hotel revenues is primarily due to decreases in room and in food and
beverage sales. For first quarter 1998, room sales decreased $198,000, or 7%,
to $2.8 million resulting from an 18.0 percentage point decline in average
occupancy. The decline in average occupancy for first quarter 1998 is a result
of rooms being temporarily out of inventory during the rooms refurbishment that
began in January 1998 and was completed in late March. Additionally, the Hanover
market reported an overall seven percentage point decline in occupancy for
January and February 1998. Although the Hotel's average rate increased $26, or
21%, to $152, the decline in average occupancy resulted in a decrease in REVPAR
of $7, or 7%, to $95. REVPAR, or revenue per available room, represents the
combination of average daily room rate charged and the average daily occupancy
achieved and is a commonly used indicator of hotel performance (although it is
not a measure under generally accepted accounting principles). As a result of
the decline in average occupancy, food and beverage sales decreased $602,000, or
30%, to $1.4 million for first quarter 1998 from $2.0 million in first quarter
1997. For the remainder of the year, operations are expected to improve as a
result of the new rooms product and expected increases in the market occupancy
and demand.
Operating Costs and Expenses. The Partnership's operating costs and expenses
increased $230,000, or 62%, to $601,000 for first quarter 1998 when compared to
first quarter 1997 due primarily to the Conversion. Prior to the Conversion,
the Partnership did not record base management fees or insurance as components
of the Partnership's operating costs although they were components in the
calculation of Operating Profit. On a comparative basis, base management fees
for first quarter 1998 decreased $25,000, or 16%, with the decline in hotel
sales discussed above. In addition, real estate taxes increased $27,000, or
30%, to $118,000 for first quarter 1998 when compared to first quarter 1997 due
to a re-assessment of the property in 1997.
Operating Profit. As a result of changes in revenues and operating costs and
expenses discussed above, operating profit decreased by $377,000, or 35%, to
$711,000 for first quarter 1998 when compared to first quarter 1997.
Interest Expense. Interest expense increased $132,000, or 16%, to $950,000 due
to refinancing the Partnership's mortgage debt. The weighted average interest
rate on the Partnership's debt, which includes the Subordinated Loan, for first
quarter 1998 and 1997 was 9.6% and 7.4%, respectively.
Net (Loss) Income. The net loss for first quarter 1998 was $228,000 compared to
net income of $303,000 for first quarter 1997 as a result of the items discussed
above.
1997 COMPARED TO 1996:
Revenues. Total revenues increased by $1.6 million, or 29%, to $6.9 million in
1997 when compared to 1996, and hotel rental income decreased by $1.2 million,
or 24%, to $4.0 million in 1997 when compared to 1996 due to the Conversion.
For the period January 1, 1997 to August 17, 1997, the Partnership received
Hotel rental income in accordance with the Operating Lease. For the period
August 18, 1997 to December 31, 1997 under the Management Agreement, Hotel
revenues represent hotel sales less direct hotel operating costs and expenses.
On a comparative basis, house profit increased $1.1 million, or 16%, to $8.0
million in 1997 when compared to 1996. The increase in house profit is
primarily due to an increase in REVPAR. REVPAR
9
<PAGE>
for 1997 increased $10, or 11%, to $100 compared to 1996, primarily due to the
increase in average room rate of $10, or 9%, to $124 and a two percentage point
increase in the average occupancy to 81%.
During 1997, the Hotel increased its rates several times. The result was the
average transient and group rates increased 10% to $134 and 12% to $95,
respectively. As of December 31, 1997, the corporate rate, excluding discounts,
was approximately $195 representing a 37% increase from 1996. Due to growth in
the group segment, food and beverage sales also increased due to a 16% increase
in catering and audio visual sales in comparison to 1996.
As a result of the REVPAR increase, hotel sales increased $1.7 million, or 8%,
to $22.5 million in 1997 when compared to 1996. Due to the continued high
average occupancy, the Partnership expects future increases in REVPAR to be
driven by room rate increases, rather than changes in occupancy. However, there
can be no assurance that REVPAR will continue to increase in the future.
Operating Costs and Expenses. The Partnership's operating costs and expenses
increased $781,000, or 47%, to $2.5 million in 1997 when compared to 1996
primarily due to the Conversion. Prior to the Conversion, the Partnership did
not record base management fees or insurance as components of the Partnership's
operating costs although they were components in the calculation of Operating
Profit. On a comparative basis, base management fees for 1997 increased
$52,000, or 8%, due to increased hotel sales. The Hotel's real estate taxes in
1997 increased $102,000 from 1996 due to a re-assessment of the property during
1997. In addition, Partnership administration increased due to administrative
costs associated with the refinancing in August 1997.
Operating Profit. As a result of changes in revenues and operating costs and
expenses discussed above, operating profit increased $776,000, or 21%, to $4.4
million in 1997 when compared to 1996.
Interest Expense. Interest expense increased $1.1 million, or 40%, to $3.9
million due to refinancing the Partnership's mortgage debt, which includes the
Subordinated Loan. The weighted average interest rate on the Partnership's debt
for 1997 and 1996 was 7.9% and 6.4%, respectively.
Income Before Extraordinary Items. Income before extraordinary items decreased
$277,000 to $663,000, or 10% of revenues, in 1997, from $940,000, or 18% of
revenues, in 1996.
Extraordinary Items. The Partnership recognized an extraordinary gain in 1997
of $5.1 million representing the forgiveness of Additional Rental by MHS.
Net Income. Net income increased by $4.8 million in 1997 to $5.8 million when
compared to 1996 as a result of the items discussed above.
1996 COMPARED TO 1995:
Revenues. Revenue increased $809,000, or 18%, to $5.3 million in 1996 when
compared to 1995. The Partnership's rental income was impacted by improved
lodging results. The increase was driven primarily by growth in REVPAR. REVPAR
for 1996 increased $9, or 11%, to $90 compared to 1995, primarily due to the
increase in combined average room rate of $5, or 5%, to $114 and a five
percentage point increase in the average occupancy to 79%. As a result of the
REVPAR increase, hotel sales increased $2.4 million, or 13%, to $20.7 million in
1996 when compared to 1995.
10
<PAGE>
Operating Costs and Expenses. The Partnership's operating costs and expenses
decreased $63,000, or 4%, to $1.7 million in 1996 when compared to 1995,
primarily due to a decrease in Partnership administration.
Operating Profit. As a result of changes in revenues and operating costs and
expenses discussed above, operating profit increased $872,000, or 32%, to $3.6
million in 1996 when compared to 1995.
Interest Expense. Interest expense decreased $225,000, or 7%, to $2.8 million
due to lower interest rates on the Partnership's mortgage debt. The weighted
average interest rate on the mortgage debt for 1996 and 1995 was 6.4% and 7.2%,
respectively.
Net Income (Loss). For 1996, the Partnership had net income of $940,000
compared to a net loss of $219,000 in 1995 as a result of the items discussed
above.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's financing needs have been historically funded through loan
agreements with independent financial institutions and Host Marriott. As a
result of the successful refinancing of the Partnership's mortgage debt, the
General Partner believes that the Partnership will have sufficient capital
resources and liquidity to conduct its operations in the ordinary course of
business.
PRINCIPAL SOURCES AND USES OF CASH
The Partnership's principal source of cash is cash from Hotel operations. Cash
provided by operations for first quarter 1998 and first quarter 1997 was
$263,000 and $561,000, respectively. Cash provided by operations was lower in
first quarter 1998 primarily due to the Conversion combined with a decrease in
the Hotel's sales as a result of the rooms refurbishment discussed above. This
decline offset increases in cash provided by changes in operating accounts
related to an increase in accounts payable and accrued expenses of $328,000 due
to increased accrued interest liability.
Cash provided by operations was $2.2 million, $1.9 million and $2.6 million for
the years ended December 31, 1997, 1996 and 1995, respectively. The decrease in
cash from operations in 1996 from 1995 was primarily due to repaying MHS
$285,000 for Additional Rental earned in 1995. There was no Additional Rental
due MHS at December 31, 1996.
The Partnership's cash investing activities consist primarily of contributions
to the property improvement fund and capital expenditures for improvements to
the Hotel. Cash used in investing activities was $1.8 million and $259,000 for
first quarter 1998 and first quarter 1997, respectively. The increase in cash
used in investing activities is due to payments for the rooms refurbishment in
the first quarter 1998. Contributions, including interest income, to the
property improvement fund were $217,000 and $249,000 for first quarters 1998 and
1997, respectively. Capital expenditures were $1.6 million and $37,000 for
first quarters 1998 and 1997, respectively.
Cash used in investing activities was $1.1 million, $830,000 and $1.2 million
for the years ended December 31, 1997, 1996 and 1995, respectively. Under the
Operating Lease and Management Agreement, the Partnership is required to make
annual contributions to the property improvement fund which provides funding for
capital expenditures and replacement of furniture, fixtures and equipment.
Contributions to the fund equaled 4% of gross hotel sales, net of interest
income, in 1996 and 1995. In 1997, the contribution increased to 5%, net of
interest income. The General Partner believes that cash
11
<PAGE>
contributions from the Hotel's property improvement fund will provide adequate
funds in the short and long term to meet the Hotel's capital needs. Capital
expenditures were $1.4 million, $527,000 and $1.1 million for the years ended
December 31, 1997, 1996 and 1995, respectively. The increase in capital
expenditures in 1997 from 1996 is due to a $1.0 million payment in December 1997
for the rooms refurbishment.
The Partnership's financing activities consist of repayments of debt and payment
of financing costs. Cash used in financing activities was $83,000 and $114,000
for first quarter 1998 and first quarter 1997, respectively, representing
principal payments made on the Partnership's mortgage debt.
Cash used in financing activities was $1.7 million and $272,000 in 1997 and
1996, respectively. No cash was provided by or used in financing activities in
1995. The Partnership's $37.0 million Mortgage Debt required interest only
payments during the years 1996 and 1995. In 1997, the Partnership refinanced
the Mortgage Debt with the New Mortgage Debt of $29.9 million. In addition,
Host Marriott funded the $10 million Subordinated Loan to the Partnership which
was used to make a $10 million principal payment on the Mortgage Debt. During
1997, the Partnership amortized $115,000 and $2.9 million of principal on the
New Mortgage Debt and Subordinated Loan, respectively. In addition, the
Partnership made a $1.4 million payment on debt service guarantees provided by
the General Partner in prior years.
DEBT
In April 1997, Host Marriott funded a fully-amortizing $10 million subordinated
loan to the Partnership (the "Subordinated Loan") that bears interest at a fixed
rate of 14.5% over a 15-year term with required monthly payments. The
Subordinated Loan matures June 1, 2012.
In August 1997, the General Partner refinanced all of the Partnership's
outstanding mortgage debt. The total amount of the mortgage debt decreased from
$37.0 million to $29.9 million. The new non-recourse loan matures August 18,
2004, requires principal amortization on a 25-year term and bears interest at a
fixed rate of 8.58%.
Pursuant to the Subordinated Loan, any proceeds in excess of the $27 million for
the New Mortgage Debt were to be used to repay the Subordinated Loan.
Therefore, the Partnership repaid principal of $2.9 million on the Subordinated
Loan at refinancing.
PROPERTY IMPROVEMENT FUND
The Management Agreement and Operating Lease require annual contributions to a
property improvement fund to ensure that the physical condition and product
quality of the Hotel is maintained. Contributions to this fund are based on a
percentage of annual total Hotel sales, net of interest income earned on the
fund. Prior to 1997, the contribution rate was 4%, net of interest income and
the current contribution is 5% of gross Hotel sales, net of interest income.
The General Partner believes that the 5% contribution requirement is consistent
with industry standards. However, in accordance with the Management Agreement,
contributions to the property improvement fund may be increased or decreased by
MHS if the current contribution of 5% of gross Hotel sales, net of interest
income, is either insufficient or excessive to make the replacements, renewals
and repairs to maintain the Hotel in accordance with MHS's standards for a full-
service Marriott hotel. Of the total $1.6 million of net additions to property
and equipment in first quarter 1998, $1.5 million was owner funded. Therefore,
the balance in the fund totaled $404,000 as of March 27, 1998 and $287,000 as of
December 31, 1997.
12
<PAGE>
The General Partner believes that cash contributions from the Hotel's property
improvement fund will provide adequate funds in the short and long term to meet
the Hotel's capital needs.
INFLATION
The rate of inflation has been relatively low in the past four years. MHS is
generally able to pass through increased costs to customers through higher room
rates and prices. In 1997, average rates of the Hotel exceeded inflationary
costs. On August 18, 1997, the Partnership refinanced its mortgage debt and
fixed its interest costs, thereby eliminating the Partnership's exposure to the
impact of inflation on future interest costs.
SEASONALITY
Demand, and thus occupancy, is affected by normally recurring seasonal patterns.
Demand is higher in the spring and summer months (March through October) than
during the remainder of the year.
ITEM 3. PROPERTY
LOCATION
The Hotel is a full-service Marriott hotel located on approximately 13.41 acres
in a business/industrial park district. The Hotel is near several major
highways, including New Jersey State Route 10 and I-287, as well as New Jersey
State Routes 202, 206, 15, 46 and 24. Such routes are well-maintained two to
six lane highways which run both north-south and east-west, providing easy
access to Newark International Airport, New York City and points west.
The Hotel is located within 10 miles of many large corporations and
manufacturers, including several Fortune 500 companies. The Hotel is across
Route 10 from the Prudential Business Campus. Nearby Morristown is Morris
County's central business district and seat of government, and also provides
business, retail and historical attractions.
DESCRIPTION
The Hotel, which opened July 30, 1986, has a total of 260,000 square feet of
building area and is operated as part of the Marriott Hotels, Resorts and Suites
system. The Hotel contains a total of 353 guest rooms, including four suites.
The Hotel also contains approximately 19,000 square feet of meeting space in the
form of a grand ballroom and smaller meeting rooms and conference suites. The
Hotel has one multi-purpose restaurant, one Japanese steak house and a 60-seat
lobby lounge. Other features of the Hotel include a gift shop, business center,
small hotel laundry, parking for 695 cars and recreational facilities that
include an indoor/outdoor swimming pool, sauna, hydrotherapy pool and health
club.
13
<PAGE>
COMPETITION
The primary competition for the Hotel comes from three hotels, the Parsippany
Hilton, Sheraton Tara Hotel and Embassy Suites Parsippany. The following table
summaries the Hotel's primary competitors.
<TABLE>
<CAPTION>
Property # of Rooms Sq. Footage of Meeting Space
- --------------------------- ---------- ----------------------------
<S> <C> <C>
Parsippany Hilton 508 20,033
Sheraton Tara Hotel 383 24,566
Embassy Suites Parsippany 274 5,558
</TABLE>
The Hotel's secondary competitors differ from the Hotel in terms of size, room
rates, facilities, amenities and services offered, market orientation and/or
location. None of the Hotel's primary or secondary competitors are operated as
part of the Marriott full-service hotel system. Two limited service hotels, a
Residence Inn with 156 suites and a Homestead Village with 135 studies, are
expected to open in May and October of 1998, respectively, and are considered
secondary competitors.
The following table shows selected combined operating statistics for the Hotel:
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 27, March 28, Year Ended December 31,
1998 1997 1997 1996 1995
---------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Average occupancy........ 62.0% 79.9% 80.8% 79.1% 74.4%
Average daily room rate.. $152.47 $126.54 $123.55 $113.50 $108.39
REVPAR................... $ 94.53 $101.11 $ 99.83 $ 89.78 $ 80.64
</TABLE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1997, Hanover Hotel Acquisition Corporation, a wholly-owned
subsidiary of Host Marriott, owns approximately 47.6% of the total number of
limited partnership Units as a result of a tender offer for limited partnership
Units completed on April 2, 1997 (see Organization of the Partnership). No
other person owned of record, or to the Partnership's knowledge owns
beneficially, more than 5% of the total number of limited partnership Units.
The General Partner does not own any limited partnership interest in the
Partnership. There are no Units owned by the executive officers and directors
of the General Partner as a group.
The Partnership is not aware of any arrangements which may, at a subsequent
date, result in a change in control of the Partnership, other than the Host
Marriott Real Estate Investment Trust described in Item 1.
14
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Marriott Hanover Hotel Corporation, the General Partner, was incorporated in
Delaware on October 8, 1986 and is a wholly-owned subsidiary of Host Marriott.
The General Partner was organized solely for the purpose of acting as general
partner of Hanover Marriott Limited Partnership.
The Partnership has no directors, officers or employees. The business policy
making functions of the Partnership are carried out through the directors and
executive officers of the General Partner, who are listed below:
<TABLE>
<CAPTION>
AGE AT
NAME CURRENT POSITION DECEMBER 31, 1997
- ------------------------- ------------------------------------------- -----------------
<S> <C> <C>
Bruce F. Stemerman President and Director 42
Robert E. Parsons, Jr. Vice President and Director 42
Christopher G. Townsend Vice President, Secretary and Director 50
Patricia K. Brady Vice President and Chief Accounting Officer 36
Bruce D. Wardinski Treasurer 37
</TABLE>
BUSINESS EXPERIENCE
Bruce F. Stemerman joined Host Marriott in 1989 as Director--Partnership
Services. He became Vice President--Lodging Partnerships in 1994 and became
Senior Vice President--Asset Management in 1996. Prior to joining Host Marriott,
Mr. Stemerman spent ten years with Price Waterhouse. He also serves as a
director and an officer of numerous Host Marriott subsidiaries.
Robert E. Parsons, Jr. Joined Host Marriott's Corporate Finance Planning staff
in 1981. In 1984, Mr. Parsons was made Director, Project Finance of Host
Marriott's Treasury Department and in 1986 he was made Vice President, Project
Finance of Host Marriott's Treasury Department. He was made Assistant Treasurer
of Host Marriott in 1988 and was made Senior Vice President and Treasurer of
Host Marriott in 1993. In October 1995, he was made Executive Vice President
and Chief Financial Officer of Host Marriott. He also serves as a director and
an officer of numerous Host Marriott subsidiaries.
Christopher G. Townsend joined Host Marriott's Law Department in 1982 as a
Senior Attorney. In 1984 he was made Assistant Secretary of Host Marriott. In
1986 he was made an Assistant General Counsel. He was made Senior Vice
President, Corporate Secretary and Deputy General Counsel of Host Marriott in
1993. In January 1997, he was made General Counsel of Host Marriott. He also
serves as a director and an officer of numerous Host Marriott subsidiaries.
Patricia K. Brady joined Host Marriott in 1989 as Assistant Manager--Partnership
Services. She was promoted to Manager in 1990 and to Director--Asset Management
in June 1996. Ms. Brady also serves as an officer of numerous Host Marriott
subsidiaries.
Bruce D. Wardinski joined Host Marriott in 1987 as a Senior Financial Analyst of
Financial Planning & Analysis and was named Manager in June 1988. He was
appointed Director, Financial Planning & Analysis in 1989, Director of Project
Finance in January 1990, Senior Director of Project Finance in June 1993, Vice
President--Project Finance in June 1994, and Senior Vice President of
International Development in October 1995. In June 1996, Mr. Wardinski was
named Senior Vice President and Treasurer of Host Marriott. Prior to joining
Host Marriott, Mr. Wardinski was with the public accounting firm Price
Waterhouse.
15
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The General Partner is required to devote to the Partnership such time as may be
necessary for the proper performance of its duties, but the officers and the
directors of the General Partner are not required to devote their full time to
Partnership matters. To the extent that any officer or director of the General
Partner or employee of Host Marriott does devote time to the Partnership, the
General Partner is entitled to reimbursement for the cost of providing such
services. Any such costs may include a charge for overhead, but without a
profit to the General Partner. For the fiscal years ended December 31, 1997,
1996 and 1995, administrative expenses reimbursed by the Partnership to the
General Partner totaled $180,000, $56,000 and $43,000, respectively.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described below, the Partnership is a party to several important ongoing
agreements with MHS pursuant to which the Hotel is operated or managed.
The Partnership, through an assignment of a lease from Host Marriott on November
24, 1986, acquired all rights to a 25-year operating lease with five 10-year
renewal options to lease the Hotel to MHS. Effective August 18, 1997, this
agreement was converted to a long-term management agreement with MHS.
OPERATING LEASE AGREEMENT
Annual Rental during the term of the Operating Lease was equal to the greater
of:
(i) Minimum Rental of $100,000, or
(ii) Basic Rental equal to 80% of Operating Profit, as defined, reduced to 75%
of Operating Profit after the Partnership has received $4,421,000 of
cumulative Capital Receipts; or
(iii) Adjusted Rental equal to debt service on the mortgage debt plus
Partnership administration costs (collectively referred to as "Debt
Service") plus the greater of: (a) a preferred return equal to $840,000 or
(b) 50% of the amount by which Operating Profit exceeds Debt Service. In
no event will Adjusted Rental exceed Operating Profit.
The amount by which Adjusted Rental exceeded Basic Rental in any fiscal year was
defined as Additional Rentals. Cumulative Additional Rentals were recoverable
by MHS in any fiscal year when Basic Rental exceeded Adjusted Rentals, provided
no loans from the General Partner or Host Marriott were then outstanding.
Annual Rental was reduced by 50% of such excess to the extent cumulative
Additional Rentals existed.
For 1997 and 1996, Basic Rental of $3,031,000 and $3,993,000, respectively was
remitted to the Partnership by MHS. In accordance with the Operating Lease, MHS
was entitled to $758,000 and $998,000 of Operating Profit for the period from
January 1, 1997 to August 17, 1997 and the year ended December 31, 1996,
respectively. Prior to its forgiveness in 1997 (see below) this amount was
recorded as a liability on the Partnership financial statements. In addition to
the Annual Rental, MHS was required to pay real estate taxes and make annual
contributions equal to 4% of sales net of interest to the property improvement
fund on behalf of the Partnership. In accordance with the Operating Lease,
annual contributions to the property improvement fund increased to 5% of sales
net of interest at the beginning of 1997.
16
<PAGE>
MANAGEMENT AGREEMENT
Effective August 18, 1997, in conjunction with the refinancing of the
Partnership's Mortgage Debt, the Operating Lease was converted to a long-term
management agreement with MHS. The Management Agreement has an initial term
expiring on December 31, 2011. Thereafter, the term is renewed automatically
for each of five successive 10-year periods. Pursuant to the terms of the
Management Agreement, MHS receives a base management fee equal to 3% of gross
revenues. The Partnership is entitled to the first $4,650,000 of operating
profit generated by the Hotel each fiscal year ("Owner's Priority"). Owner's
Priority is increased by 10% of any Additional Invested Capital, as defined in
the Management Agreement. In addition to a base management fee, MHS will be
paid an incentive management fee of the next $400,000 from operating profit, as
defined. Any cash remaining after the payment of the Owner's Priority and the
incentive management fee will be allocated 75% to the Partnership and 25% to
MHS. The Partnership may terminate the Management Agreement if in any two of
three consecutive fiscal years there is an operating loss. MHS may, however,
prevent termination by paying to the Partnership such amounts equal to the
operating losses during such two fiscal years.
Pursuant to the terms of the Management Agreement, MHS is required to furnish
the Hotel with certain services ("Chain Services") which are generally provided
on a central or regional basis to all hotels in MII's full service hotel system.
Chain Services include central training, advertising and promotion, a national
reservation system and such additional services, as needed, which may be more
efficiently performed on a centralized basis. Costs and expenses incurred in
providing such services are allocated among all domestic full service hotels
managed, owned or leased by MII or its subsidiaries. In addition, MHS is
required to furnish the Hotel with certain other services ("Central Office
Services") such as executive supervision, planning and policy making, corporate
finance, in-house legal services, research and development, and technical and
operational expertise. The Hotel also participates in MII's Marriott's Reward
Program ("MRP"). The cost of this program is charged to all hotels in MII's
full service hotel system based upon the MRP sales at each hotel. The total
amount of Chain and Central Office Services and MRP costs charged to the
Partnership under the Management Agreement was $186,000 for the period August
18, 1997 to December 31, 1997.
Additionally, in conjunction with the conversion from an operating lease to a
management agreement, MHS agreed to waive all claims to Additional Rental that
had accrued prior to the conversion. This forgiveness of deferred fees of $5.1
million was recorded as an extraordinary gain in the accompanying financial
statements.
The Management Agreement provides for the establishment of a property
improvement fund for the Hotel which provides for the replacement of furniture,
fixtures and equipment. Pursuant to the Management Agreement, contributions to
the property improvement fund are based on a percentage of gross Hotel sales
equal to 5%, however, MHS has the right to increase or decrease this percentage.
Contributions to the property improvement fund for 1997 were $1.1 million.
Under the Management Agreement, MHS received base and incentive management fees
of $252,000 and $79,000, respectively, for the period August 18, 1997 through
December 31, 1997.
17
<PAGE>
The following table sets forth the amount paid to MII and affiliates pursuant to
the Management Agreement for the period August 18, 1997 through December 31,
1997:
Marriott International, Inc. and affiliates:
<TABLE>
<CAPTION>
1997
-----
<S> <C>
Incentive management fee......................... $ 79
Base management fee.............................. 252
Chain and central office services and MRP costs.. 186
-----
$ 517
=====
</TABLE>
OFFICE SPACE RENTAL AGREEMENT
On January 28, 1995, the Partnership entered into an agreement with Marriott
Vacation Club International ("MVCI"), formerly known as Marriott Ownership
Resorts, Inc., a wholly-owned subsidiary of MII. Under the terms of the five
year lease with MVCI expiring in January 2000, MVCI funded the renovation of a
portion of the Hotel's lounge into a junior ballroom (for use by the Hotel) and
a MVCI sales office. The total cost of the renovations was $516,000. The lease
with MVCI stipulates that $200,000 of those costs will be treated as rent
concessions. Therefore, the Partnership will receive scheduled rental payments
of $18,123 in 1998, $55,600 in 1999 and $4,277 in 2000. In the event MVCI
chooses to exercise its right to terminate the lease agreement prior to the end
of the five year term, any prepayment of rent by MVCI is non-refundable.
In accordance with generally accepted accounting principles, the Partnership
deferred the total rent due under the lease and is amortizing the deferred
revenue on a straight-line basis over the lease term. For the years ended
December 31, 1997, 1996 and 1995, the Partnership recognized $118,000, $119,000
and $110,000 of rent under the lease which is included in other revenues in the
Statement of Operations. In addition, deferred revenue related to the lease
totaled $169,000, $287,000 and $406,000 for the years ended December 31, 1997,
1996 and 1995.
ITEM 8. LEGAL PROCEEDINGS.
None.
ITEM 9. MARKET FOR AND DISTRIBUTIONS ON LIMITED PARTNERSHIP UNITS AND RELATED
SECURITY HOLDER MATTERS
There is currently no public market for the Units. Transfers of Units are
limited to the first day of an Accounting Period, as defined, and are subject to
approval by the General Partner and certain other restrictions described in Item
11, "Description of Registrant's Securities to be Registered." As of December
31, 1997, there were 57 holders of record of the 84 limited partnership Units.
The ability of the Partnership to make cash distributions to the limited
partners is subject to limitations contained in the Partnership Agreement that
are described in Item 11, "Description of Registrant's Securities to be
Registered-Distributions and Allocations." The Partnership made no cash
distributions to its partners during 1997, 1996 and 1995.
18
<PAGE>
Units held by non-affiliates of the Partnership for at least three years may be
sold without registration in accordance with the exemptions provided by Rule 144
under the Securities Act of 1933, as amended (the "Act"). For a discussion of
the restrictions on assignment contained in the Partnership Agreement, see Item
11, "Description of Registrant's Securities to be Registered."
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
There have been no sales of unregistered securities by the Partnership within
the past three years. On November 24, 1986, 84 limited partnership Units were
sold in a public offering. On April 2, 1997, Hanover Hotel Acquisition
Corporation, a wholly-owned subsidiary of Host Marriott, completed a tender
offer for 40 limited partnership Units. See Item 1, "Business Organization of
the Partnership" for additional information regarding the Partnership's sale of
Units in 1986 and the tender offer in 1997. As of December 31, 1997, there were
57 limited partners. Since the inception of the Partnership, there have been
four sales by limited partners involving three Units, excluding the tender offer
on April 2, 1997.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES
The 84 limited partnership interests include the 40 Units owned by the Hanover
Hotel Acquisition Corporation, a wholly-owned subsidiary of Host Marriott, and
represent 95% of the interests in the Partnership. The General Partner holds the
remaining 5% interest.
DISTRIBUTIONS AND ALLOCATIONS
Pursuant to the terms of the Partnership Agreement, Partnership allocations and
distributions are generally made as follows:
a. The Partnership generally allocates cash available for distribution (after a
10% priority return to the limited partners on their invested capital) and
net profits as follows: (i) 5% to the General Partner and 95% to the limited
partners until cumulative distributions of sale or refinancing proceeds
("Capital Receipts") equal to 50% of the partners' capital contributions have
been distributed; (ii) next, 15% to the General Partner and 85% to the
limited partners until cumulative distributions of Capital Receipts equal to
the full amount of the partners' capital contributions have been distributed;
and (iii) thereafter, 35% to the General Partner and 65% to the limited
partners.
b. Net losses were allocated 100% to the limited partners in 1986. Thereafter,
net losses are allocated 100% to the General Partner.
c. Capital Receipts (other than from the sale of substantially all of the
Partnership assets) not retained by the Partnership will be distributed (i)
first, 5% to the General Partner and 95% to the limited partners until the
partners have received cumulative distributions of Capital Receipts equal to
their capital contributions and (ii) thereafter, 35% to the General Partner
and 65% to the limited partners.
d. Sale proceeds from the sale of substantially all of the assets of the
Partnership will be distributed to the Partners pro-rata in accordance with
their capital account balances as adjusted to take into account gain or loss
resulting from such sale.
19
<PAGE>
e. Gains recognized by the Partnership generally will be allocated in the
following order of priority: (i) to those limited partners whose capital
accounts have negative balances until such negative balances are brought to
zero; (ii) to the General Partner's capital account, if it has a negative
balance, until such negative balance is brought to zero; (iii) to all
Partners up to the amount to bring the Partners' capital account balances to
an amount equal to their respective Invested Capital, as defined; (iv) in the
case of Gain, as defined, from the sale or disposition of all or
substantially all assets of the Partnership, to the limited partners in an
amount equal to the excess, if any of (a) the product of 12% and the weighted
average of the limited partners' Invested Capital, over (b) the cumulative
cash distributions to the limited partners; and (v) thereafter, 65% to the
limited partners and 35% to the General Partner.
Upon dissolution of the Partnership, the General Partner shall liquidate the
assets of the Partnership. The proceeds of such liquidation shall be applied
and distributed in the following order of priority: (i) to the payment of the
expenses of the liquidation (ii) to the payment of Partnership debt and other
liabilities; (iii) to the payment of any loans or advances that may have been
made by any of the partners to the Partnership; and (iv) to the General
Partner and limited partners in proportion to the net balances in their
respective capital accounts.
AUTHORITY OF THE GENERAL PARTNER
Under the Partnership Agreement, the General Partner has broad management
discretion over the business of the Partnership and with regard to the operation
of the Hotel. No limited partner may take any part in the conduct or control of
the Partnership's business. The authority of the General Partner is limited in
certain respects.
Without an amendment to the Partnership Agreement, which requires the unanimous
consent of all the limited partners, the General Partner does not have authority
to:
(i) do any act in contravention of the Partnership Agreement;
(ii) except as otherwise provided in the Partnership Agreement, do any act
which would make it impossible to carry on the ordinary business of the
Partnership;
(iii) confess a judgment in a material amount against the Partnership;
(iv) convert property of the Partnership to its own use, or possess or assign
any rights in specific Partnership property for other than a Partnership
purpose;
(v) admit a person as either a General Partner or a limited partner except
as otherwise provided in the Partnership Agreement; or
(vi) perform any act that would subject any limited partner to liability as a
General Partner in any jurisdiction or to any other liability except as
provided in the Delaware Revised Uniform Limited Partnership Act (the
"Delaware Act") or the Partnership Agreement.
Without an amendment to the Partnership Agreement, which requires the vote of
limited partners holding a majority of the Units, the General Partner does not
have authority on behalf of the Partnership to:
(i) have the Partnership acquire an interest in other hotel properties or
other partnerships;
20
<PAGE>
(ii) sell or otherwise dispose of or consent to the sale or disposition of
the Hotel to the General Partner or an affiliate of the General
Partner, unless certain procedures are followed as outlined in the
Partnership Agreement;
(iii) effect any amendment to any agreement, contract or arrangement with the
General Partner or any affiliate thereof which would reduce the
responsibility or duties or would increase the compensation payable to
the General Partner or any of its affiliates or which would otherwise
adversely affect the rights of the limited partners;
(iv) incur debt of the Partnership in excess of the limitations set forth in
the Partnership Agreement;
(v) agree to the addition of transient guest rooms at the Hotel unless (a)
the Hotel has had an average occupancy rate of at least 70% for a
consecutive period of at least 12 months and (b) the Partnership has
obtained debt financing to finance the costs of the addition on a
nonrecourse basis as to all partners and the Partnership (including the
General Partner), except as provided by the Partnership Agreement;
(vi) incur debt of the Partnership which does not provide by its terms that
it shall be nonrecourse as to all the partners, except as provided by
the Partnership Agreement;
(vii) make any election to continue beyond its term, discontinue or dissolve
the Partnership;
(viii) admit another General Partner or voluntarily withdraw as a General
Partner, except as provided by the Partnership Agreement; or
(ix) guaranty, become personally liable or otherwise bear the risk of loss,
or permit any affiliate to take any such action, with respect to any
portion of Partnership debt unless permitted by the Partnership
Agreement.
RESTRICTIONS ON ASSIGNMENTS OF UNITS
With the General Partner's consent, a limited partner generally has the right to
assign a Unit to another person or entity, subject to certain conditions and
restrictions. An assignment of a Unit is subject to the following restrictions:
(i) no assignment may be made other than on the first day of an Accounting
Period, as defined, of the Partnership, however, this restriction does not apply
to any Units currently or subsequently owned by Hanover Hotel Acquisition
Corporation; (ii) no assignment may be made if, when added to all other prior
assignments and transfers of interests in the Partnership within the preceding
12 months, such assignment would cause the Partnership, in the opinion of legal
counsel, to be considered to have terminated for Federal income tax purposes;
(iii) the General Partner may prohibit any assignment that, in the opinion of
legal counsel, would require the filing of a registration statement under the
Securities Act of 1933 or otherwise would violate any Federal or state
securities laws or regulations (including investor suitability standards)
applicable to the Partnership or the Units; (iv) no assignment may be made that
would result in either the transfer or the transferee owning a fraction of a
Unit, other than a one-half Unit, except for assignment by gift, inheritance, or
family dissolution or assignments to affiliates of the assignor; (v) no
assignment may be made if, in the opinion of legal counsel, it would result in
the Partnership being treated as an association taxable as a corporation for
Federal income tax purposes; (vi) no assignment may be made if, in the opinion
of legal counsel, it would preclude the Partnership from either obtaining or
retaining a liquor beverage license for the Hotel; and (vii) no assignment may
be made to tax-exempt entities.
21
<PAGE>
The Partnership will not recognize for any purpose any assignment of any Units
unless (i) an instrument is executed making such assignment, signed by both the
assignor and the assignee, and a duly executed application for assignment and
admission as substituted limited partner is executed indicating the written
acceptance by the assignee of all the terms and provisions of the Partnership
Agreement, and (ii) the General Partner has determined that such an assignment
is permitted under the Partnership Agreement. No assignee of a limited
partner's Units will be entitled to become a substituted limited partner unless:
(i) the General Partner gives consent, (ii) the transferring limited partner and
the assignee have executed instruments that the General Partner deems necessary
to effect such admission, (iii) the assignee has accepted, adopted, and approved
in writing all of the terms of the Partnership Agreement and executed a power of
attorney similar to the power of attorney granted in the Partnership Agreement,
and (iv) the assignee pays all reasonable expenses incurred in connection with
his admission as a substituted limited partner. An assignee only becomes a
substituted limited partner when the General Partner has reflected the admission
of such person as a limited partner in the books and records of the Partnership.
Any person who is the assignee of any of the Units of a limited partner, but who
does not become a substituted limited partner is entitled to all the rights of
an assignee of a limited partner interest under the Act, including the right to
receive distributions from the Partnership and the share of net profits, net
losses, gain, loss and recapture income attributable to the Units assigned to
the person, but shall not be deemed to be a holder of Units for any other
purpose under the Partnership Agreement.
AMENDMENTS
Amendments to the Partnership Agreement may be made by the General Partner with
the consent of the limited partners holding a majority of the outstanding Units
(excluding those Units held by the General Partner and certain of its
affiliates). No amendment to the Partnership Agreement may be made, however,
without the approval of all of the limited partners which would (i) convert a
limited partner's interest into a general partner's interest; (ii) modify the
liability of a limited partner; (iii) alter the interest of a partner in net
profits, net losses, or gain or loss or distributions of cash available for
distribution or Capital Receipts or reduce the percentage of partners which is
required to consent to any action hereunder; (iv) limit in any manner the
liability of the General Partner; (v) permit the General Partner to take any
action otherwise prohibited by the Partnership Agreement; (vi) cause the
Partnership to be taxed for Federal income tax purposes as an association
taxable as a corporation; or (vii) effect any amendment or modification to items
(i) through (vi). The General Partner may make an amendment to the Partnership
Agreement, without the consent of the limited partners, if such amendment is
necessary solely to clarify the provisions of the Partnership Agreement so long
as such amendment does not adversely affect the rights of the limited partners
under the Partnership Agreement.
MEETINGS AND VOTING
The limited partners cannot participate in the management or control of the
Partnership or its business. The Partnership Agreement, however, extends to the
limited partners the right under certain conditions to vote on or approve
certain Partnership matters. Any action that is required or permitted to be
taken by the limited partners may be taken either at a meeting of the limited
partners or without a meeting if approvals in writing setting forth the action
so taken are signed by limited partners owning not less than the minimum number
of Units that would be necessary to authorize or take such action at a meeting
at which all of the limited partners were present and voted. Meetings of the
limited partners may be called by the General Partner and shall be called by the
General Partner upon receipt of a request in writing signed by holders of 10% or
more of the Units held by the limited partners. Limited partners may vote
either in person or by proxy at meetings. Limited partners holding more than
50% of the total number of all outstanding Units
22
<PAGE>
constitute a quorum at a meeting of the limited partners. Matters submitted to
the limited partners for determination will be determined by the affirmative
vote of the limited partners holding a majority of the outstanding Units
(excluding those Units held by the General Partner and certain of its
affiliates), except that a unanimous vote of the limited partners will be
required for certain actions referred to above.
The Partnership Agreement does not provide for annual meetings of the limited
partners and none have been held, nor does the General Partner anticipate
calling such meetings.
OTHER MATTERS
If at any time any agreement (including the Management Agreement) pursuant to
which operating management of the Hotel is vested in the General Partner or an
affiliate of the General Partner provides that the Partnership has a right to
terminate such agreement as a result of the failure of the operation of the
Hotel to attain economic objectives, as specifically defined, the limited
partners, without the consent of the General Partner, may, upon the affirmative
vote of the holders of a majority of the Units, take action to exercise the
right of the Partnership to terminate such agreements.
The limited partners may also, by a vote of the holders of a majority of the
Units, amend the Partnership Agreement, subject to certain limitations, as
defined in the Partnership Agreement, dissolve the Partnership or remove the
General Partner (but only if a new general partner is elected) if the General
Partner has committed and not remedied any act of fraud, bad faith, gross
negligence or breach of fiduciary duties in carrying out its duties as the
General Partner. Notwithstanding the foregoing, however, such a removal of the
General Partner, if exercised, would be an event of default under the loan
documentation evidencing the mortgage debt, and would permit the lender or its
assignee to accelerate the maturity of the loan. Thus, the termination right
could only be exercised with the consent of the lender or its assignee.
The Partnership Agreement provides that limited partners will not be personally
liable for the losses of the Partnership beyond the amount committed by them to
the capital of the Partnership. In the event that the Partnership is unable
otherwise to meet its obligations, the limited partners might, under applicable
law, be obligated under some circumstances to return distributions previously
received by them, with interest, to the extent such distributions constituted a
return of the capital contributions at the time when creditors had valid claims
outstanding against the Partnership.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except as specifically provided in the Delaware Act, the General Partner is
liable for the obligations of the Partnership in the same manner as a partner
would be liable in a partnership without limited partners to persons other than
the Partnership and the other partners. Generally speaking, any such partner is
fully liable for any and all of the debts or other obligations of the
partnership as and to the extent the partnership is either unable or fails to
meet such obligations. Thus, the assets of the General Partner may be reached
by creditors of the Partnership to satisfy obligations or other liabilities of
the Partnership, other than nonrecourse liabilities, to the extent the assets of
the Partnership are insufficient to satisfy such obligations or liabilities.
The Delaware Act provides that: "Subject to such standards and restrictions, if
any, as set forth in its partnership agreement, a limited partnership may, and
shall have the power to, indemnify and hold harmless any partner or other person
from and against any and all claims and demands whatsoever." The Partnership
Agreement provides that the General Partner and its affiliates who perform
services for the Partnership on
23
<PAGE>
behalf of the General Partner (within the scope of its authority as the General
Partner of the Partnership) will not be liable to the Partnership or the limited
partners for liabilities, costs and expenses incurred as a result of any act or
omission of the General Partner or such person provided (i) such acts or
omissions were determined by the General Partner or such person, in good faith,
to be in the best interest of the Partnership and such acts or omissions were
within the General Partner's authority; and (ii) the conduct of the General
Partner or such person did not constitute negligence, fraud, misconduct or
breach of fiduciary duty to the Partnership or any partner.
The Partnership Agreement also provides that the General Partner and such
persons will be indemnified out of Partnership assets against any loss,
liability or expense arising out of any act or omission determined by the
General Partner or such person, in good faith, to be in the best interest of the
Partnership and such act or omission within the General Partner's authority so
long as such conduct did not constitute negligence, misconduct, fraud or a
breach of a fiduciary duty. The Partnership, however, may indemnify the General
Partner or any other person for losses, costs and expenses incurred in
successfully defending or settling claims arising out of alleged securities laws
violations only if certain specific additional requirements are met. The
Partnership Agreement provides that any indemnification obligation shall be paid
solely out of the assets of the Partnership.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 (the "Act") may be permitted to partners and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrant has
been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid in the successful defense or any action, suit or proceeding) is asserted
against the registrant by such a person in connection with the securities
registered hereby, and if the Securities and Exchange Commission is still of the
same opinion, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
24
<PAGE>
ITEM 13. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX PAGE
- ----- ----
<S> <C>
I. Financial Statements of the Hanover Marriott Limited Partnership
as of December 31, 1997 and 1996 and for the years ended
December 31, 1997, 1996 and 1995:
Report of Independent Public Accountants........................... 26
Statement of Operations for the Years
Ended December 31, 1997, 1996 and 1995............................. 27
Balance Sheet as of December 31, 1997 and 1996..................... 28
Statement of Changes in Partners' Capital (Deficit) for the
Years Ended December 31, 1997, 1996 and 1995....................... 29
Statement of Cash Flows for the Years
Ended December 31, 1997, 1996 and 1995............................. 30
Notes to Financial Statements...................................... 31
II. Financial Statements of the Hanover Marriott Limited Partnership
as of March 27, 1998 and the twelve weeks ended March 27, 1998
and March 28, 1997:
Condensed Statement of Operations for the Twelve Weeks
Ended March 27, 1998 and March 28, 1997 (Unaudited)................ 38
Condensed Balance Sheet as of March 27, 1998 (Unaudited)
and December 31, 1997.............................................. 39
Condensed Statement of Cash Flows for the Twelve Weeks Ended
March 27, 1998 and March 28, 1997 (Unaudited)...................... 40
Notes to Condensed Financial Statements (Unaudited)................ 41
</TABLE>
25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE PARTNERS OF HANOVER MARRIOTT LIMITED PARTNERSHIP:
We have audited the accompanying balance sheets of Hanover Marriott Limited
Partnership (a Delaware limited partnership, the "Partnership") as of December
31, 1997 and 1996 and the related statements of operations, changes in partners'
capital (deficit) and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements and the schedule referred to
below are the responsibility of the General Partner's management. Our
responsibility is to express an opinion on these financial statements and the
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Hanover Marriott Limited
Partnership as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements as a whole. The schedule listed in the index at Item 15(a)
is presented for purposes of complying with the rules of the Securities and
Exchange Commission and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 18, 1998
26
<PAGE>
STATEMENT OF OPERATIONS
HANOVER MARRIOTT LIMITED PARTNERSHIP
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Hotel rental................................ $ 3,950 $ 5,177 $ 4,377
Hotel revenues.............................. 2,785 -- --
Other....................................... 118 119 110
------- ------- -------
6,853 5,296 4,487
------- ------- -------
OPERATING COSTS AND EXPENSES
Depreciation and amortization............... 1,239 1,215 1,178
Real estate taxes........................... 483 381 371
Partnership administration.................. 269 76 186
Base management fee (see Note 6)............ 252 -- --
Insurance and other......................... 131 -- --
Incentive management fee (see Note 6)....... 79 -- --
------- ------- -------
2,453 1,672 1,735
------- ------- -------
OPERATING PROFIT............................. 4,400 3,624 2,752
Interest expense............................ (3,934) (2,811) (3,036)
Interest income............................. 197 127 65
------- ------- -------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.. 663 940 (219)
Extraordinary item
Gain on forgiveness of additional rental.... 5,094 -- --
------- ------- -------
NET INCOME (LOSS)............................ $ 5,757 $ 940 $ (219)
======= ======= =======
ALLOCATION OF NET INCOME (LOSS)
General Partner............................. $ 288 $ 47 $ (11)
Limited Partners............................ 5,469 893 (208)
------- ------- -------
$ 5,757 $ 940 $ (219)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
BALANCE SHEET
HANOVER MARRIOTT LIMITED PARTNERSHIP
DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
ASSETS
Property and equipment, net.................................... $29,984 $29,850
Due from Marriott Hotel Services, Inc.......................... 204 254
Property improvement fund...................................... 287 645
Deferred financing costs, net of accumulated amortization...... 456 227
Cash and cash equivalents...................................... 1,952 2,557
------- -------
$32,883 $33,533
======= =======
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
<S> <C> <C>
Mortgage debt.................................................. $ 29,760 $ 37,000
Due to Marriott Hotel Services, Inc. for Additional Rental..... -- 5,094
Subordinated loan from Host Marriott Corporation............... 7,077 --
Notes payable and related interest due to the General Partner.. 4,317 5,367
Deferred revenue............................................... 169 287
Accounts payable and accrued expenses.......................... 80 62
-------- --------
Total Liabilities............................................ 41,403 47,810
-------- --------
PARTNERS' DEFICIT
General Partner
Capital contribution, net of offering costs of $21............ 421 421
Cumulative net loss........................................... (773) (1,061)
-------- --------
(352) (640)
-------- --------
Limited Partners
Capital contributions, net of offering costs of $1,122........ 7,147 7,147
Cumulative net loss........................................... (14,693) (20,162)
Capital distributions......................................... (622) (622)
-------- --------
(8,168) (13,637)
-------- --------
Total Partners' Capital (Deficit)............................ (8,520) (14,277)
-------- --------
$ 32,883 $ 33,533
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
HANOVER MARRIOTT LIMITED PARTNERSHIP
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -------
<S> <C> <C> <C>
Balance, December 31, 1994.. $(676) $(14,322) $(14,998)
Net loss................... (11) (208) (219)
----- -------- --------
Balance, December 31, 1995.. (687) (14,530) (15,217)
Net income................. 47 893 940
----- -------- --------
Balance, December 31, 1996.. (640) (13,637) (14,277)
Net income................. 288 5,469 5,757
----- -------- --------
Balance, December 31, 1997.. $(352) $ (8,168) $ (8,520)
===== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
STATEMENT OF CASH FLOWS
HANOVER MARRIOTT LIMITED PARTNERSHIP
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- ------- --------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss)....................................................... $ 5,757 $ 940 $ (219)
Extraordinary item...................................................... (5,094) -- --
-------- ------ -------
Net income (loss) before extraordinary item............................. 663 940 (219)
Noncash items:
Depreciation and amortization.......................................... 1,239 1,215 1,178
Interest on notes payable due to General Partner....................... -- 329 346
Amortization of deferred financing costs as interest................... 272 75 35
Loss on disposition of property and equipment.......................... 43 -- 98
Changes in operating accounts:
Due to Marriott Hotel Services, Inc. for Additional Rental............. -- -- 285
Due from (to) Marriott Hotel Services, Inc............................. 50 (530) 434
Deferred revenue....................................................... (118) (119) 406
Accounts payable and accrued expenses.................................. 18 8 (2)
-------- ------ -------
Cash provided by operating activities................................. 2,167 1,918 2,561
-------- ------ -------
INVESTING ACTIVITIES
Additions to property and equipment, net................................ (1,427) (527) (1,046)
Change in property improvement fund..................................... 369 (303) (195)
-------- ------ -------
Cash used in investing activities..................................... (1,058) (830) (1,241)
-------- ------ -------
FINANCING ACTIVITIES
Repayment of mortgage debt.............................................. (37,115) -- --
Proceeds from first mortgage loan....................................... 29,875 -- --
Proceeds from subordinated loan from Host Marriott Corporation.......... 10,000 -- --
Repayment of subordinated loan from Host Marriott Corporation........... (2,923) -- --
Repayment of notes payable and related interest due to General Partner.. (1,050) -- --
Payment of financing costs............................................. (501) (272) --
-------- ------ -------
Cash used in financing activities..................................... (1,714) (272) --
-------- ------ -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS......................... (605) 816 1,320
CASH AND CASH EQUIVALENTS at beginning of year........................... 2,557 1,741 421
-------- ------ -------
CASH AND CASH EQUIVALENTS at end of year................................. $ 1,952 $2,557 $ 1,741
======== ====== =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest............................... $ 4,727 $2,418 $ 2,666
======== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
HANOVER MARRIOTT LIMITED PARTNERSHIP
DECEMBER 31, 1997 AND 1996
NOTE 1. THE PARTNERSHIP
Description of the Partnership
Hanover Marriott Limited Partnership (the "Partnership") is a Delaware limited
partnership formed on October 8, 1986 to acquire and own the 353-room Hanover
Marriott Hotel and the land on which it is located (the "Hotel"). The sole
general partner of the Partnership, with a 5% interest, is Marriott Hanover
Hotel Corporation (the "General Partner"), a Delaware Corporation and a wholly-
owned subsidiary of Host Marriott Corporation ("Host Marriott"), formerly
Marriott Corporation. The Hotel, which opened on July 30, 1986, was leased by
the Partnership to Marriott Hotel Services, Inc. ("MHS"), a wholly-owned
subsidiary of Marriott International, Inc. ("MII"), under a long-term operating
lease (the "Operating Lease"). Effective August 18, 1997, the Operating Lease
was converted to a long-term management agreement with MHS (the "Management
Agreement") (see Note 6).
On November 24, 1986 (the "Closing Date"), 84 limited partnership interests (the
"Units"), representing a 95% interest in the Partnership, were sold at $100,000
per Unit pursuant to a private placement. Each limited partner paid $15,560 at
subscription with the balance due in four annual installments through March 15,
1990, or, as an alternative, $87,600 in cash at closing as full payment of the
subscription price. The limited partners paid $2,063,460 in cash on the Closing
Date. Seventy-three and one-half Units were purchased on the installment basis.
The General Partner contributed $442,000 in cash for its 5% general partnership
interest.
On April 2, 1997, Hanover Hotel Acquisition Corporation (the "Purchaser"), a
wholly-owned subsidiary of Host Marriott, completed a tender offer for limited
partnership Units in the Partnership. The Purchaser acquired 40 units for an
aggregate consideration of $1.6 million or $40,000 per Unit. Combined with its
prior ownership position, Host Marriott now indirectly owns through affiliates,
over 50% of the Partnership. Additionally, in a Partnership vote held in
conjunction with the tender offer, the limited partners approved all of the
proposed amendments to the Amended and Restated Partnership Agreement that were
conditions to the tender offer. The most significant amendments (i) revised the
provisions limiting the voting rights of the General Partner and its affiliates
to permit the General Partner and its affiliates (including the Purchaser) to
have full voting rights with respect to all Units currently held by the General
Partner or acquired by its affiliates except on matters where the General
Partner or its affiliates have an actual economic interest other than as a
limited partner or General Partner (an "Interested Transaction"), (ii) modified
the voting provisions with respect to Interested Transactions to permit action
to be taken, if approved, by limited partners holding a majority of the
outstanding Units, with all Units held by the General Partner and its affiliates
being voted in the same manner as a majority of the Units actually voted by
limited partners other than the General Partner and its affiliates and (iii)
eliminated limited partner consent requirements relating to sale transactions
with third parties and vested the sole authority with respect to such
transactions to the General Partner. As a result of the approval of the
proposed amendments, the Amended and Restated Partnership Agreement was amended
and restated effective April 3, 1997 (the "Second Amended and Restated
Partnership Agreement").
Partnership Allocations and Distributions
Pursuant to the terms of the Second Amended and Restated Partnership Agreement,
Partnership allocations and distributions are generally made as follows:
a. The Partnership generally allocates cash available for distribution (after a
10% priority return to the limited partners on their invested capital) and
net profits as follows: (i) 5% to the General Partner and 95% to the limited
partners until cumulative distributions of sale or refinancing proceeds
("Capital Receipts") equal to 50% of the partners' capital contributions have
been distributed; (ii) next, 15% to the General Partner and 85% to the
limited partners until cumulative distributions of Capital Receipts equal to
the full amount of the partners' capital
31
<PAGE>
contributions have been distributed; and (iii) thereafter, 35% to the General
Partner and 65% to the limited partners.
b. Net losses were allocated 100% to the limited partners in 1986. Thereafter,
net losses are allocated 100% to the General Partner.
c. Capital Receipts (other than from the sale of substantially all of the
Partnership assets) not retained by the Partnership will be distributed (i)
first, 5% to the General Partner and 95% to the limited partners until the
partners have received cumulative distributions of Capital Receipts equal to
their capital contributions and (ii) thereafter, 35% to the General Partner
and 65% to the limited partners.
Upon the sale of substantially all of the Partnership assets, gains and sales
proceeds will be allocated and (to the extent available) distributed based on
specific provisions of the partnership agreement in order to first provide the
limited partners with an annual 12% cumulative return on their invested capital,
to the extent not previously distributed.
For financial reporting purposes, profits and losses are allocated based on the
Partner's stated ownership interest in the Partnership.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Revenues and Expenses
Hotel revenues since August 18, 1997 (see Note 1) represent house profit of the
Partnership's Hotel since the Partnership has delegated substantially all of the
operating decisions related to the generation of house profit of the Hotel to
MHS. House profit reflects Hotel operating results which flow to the
Partnership as property owner and represents Hotel sales less property-level
expenses, excluding depreciation and amortization, base and incentive management
fees, real estate taxes, insurance and certain other costs, which are disclosed
separately in the accompanying statement of operations.
On November 20, 1997, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on EITF 97-2, "Application of
FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities and Certain Other Entities with Contractual Management Arrangements."
EITF 97-2 addresses the circumstances in which a management entity may include
the revenues and expenses of a managed entity in its financial statements.
The Partnership is assessing the impact of EITF 97-2 on its policy of excluding
the property-level revenues and operating expenses of the Hotel from its
statements of operations.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
Building and improvements 40 years
Furniture and equipment 7 years
32
<PAGE>
All property and equipment is pledged as security for the mortgage debt
described in Note 5.
The Partnership assesses impairment of the Hotel based on whether estimated
undiscounted future cash flows from the Hotel will be less than its net book
value. If the Hotel is impaired, its basis is adjusted to fair market value.
Deferred Financing Costs
Prior to 1997, deferred financing costs of $520,000 were incurred in connection
with obtaining and extending the Mortgage Debt (see Note 5) which were fully
amortized and written-off when the refinancing of such debt occurred in 1997.
Amortization expense on these deferred financing costs for the years ended
December 31, 1997 and 1996 totaled $247,000 and $75,000, respectively. In
connection with the refinancing of the Mortgage Debt, the Partnership paid
$481,000 of refinancing costs in 1997 and is amortizing the costs over the
related terms of the debt (see Note 5). At December 31, 1997 and 1996,
accumulated amortization was $25,000 and $293,000, respectively.
Income Taxes
Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the Partnership does not pay income
taxes but rather allocates its profits and losses to the individual partners.
Significant differences exist between the net income for financial reporting
purposes and the net income as reported on the Partnership's tax return. These
differences are due primarily to the use, for income tax purposes, of
accelerated depreciation methods, shorter depreciable lives of the assets, and
different treatments of additional rental. As a result of these differences,
the excess of the net Partnership liabilities reported in the accompanying
consolidated financial statements over the tax basis in the net Partnership
liabilities was $18,557,000 and $18,314,000, respectively as of December 31,
1997 and 1996.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less at date of purchase to be cash equivalents.
Statement of Financial Accounting Standards
In 1996, the Partnership adopted Statement of Financial Accounting Standards
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of." Adoption of SFAS No. 121 did not have an
effect on its financial statements.
NOTE 3. REVENUES
On August 18, 1997, the Partnership completed a refinancing of its Mortgage
Debt. In connection with the refinancing, the Partnership converted the
Operating Lease with MHS to the Management Agreement (the "Conversion"). Prior
to the Conversion, the Partnership recorded revenue based on the rental income
to be received from MHS.
Subsequent to the Conversion, the Partnership records revenue based on house
profit generated by the Hotel. House profit reflects Hotel operating results,
and represents gross hotel sales less property-level expenses, excluding
depreciation and amortization, base and incentive management fees, real estate
taxes, insurance and certain other costs, which are disclosed separately in the
statement of operations. Revenues are recorded based on house profit of the
Hotel because the Partnership has delegated substantially all of the operating
decisions related to the generation of house profit from the Hotel to MHS.
33
<PAGE>
The following is a summary of Hotel revenues, as defined in the Management
Agreement, for the years ended December 31, 1997, 1996 and 1995 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
HOTEL SALES
Rooms........................... $12,826 $11,710 $10,308
Food and beverage............... 8,933 8,246 7,288
Other........................... 691 767 764
------- ------- -------
22,450 20,723 18,360
------- ------- -------
HOTEL EXPENSES
Departmental direct costs
Rooms.......................... 2,904 2,631 2,374
Food and beverage.............. 6,267 5,964 5,356
Other hotel operating expenses.. 5,288 5,214 4,739
------- ------- -------
14,459 13,809 12,469
------- ------- -------
HOTEL REVENUES.................... $ 7,991 $ 6,914 $ 5,891
======= ======= =======
</TABLE>
Hotel revenues under the Management Agreement effective August 18, 1997 consist
of Hotel operating results for the period August 18, 1997 to December 31, 1997
(in thousands):
<TABLE>
<CAPTION>
1997
------
HOTEL SALES
<S> <C>
Rooms........................... $4,796
Food and beverage............... 3,392
Other........................... 226
------
8,414
------
HOTEL EXPENSES
Departmental direct costs
Rooms......................... 1,130
Food and beverage............. 2,534
Other hotel operating expenses.. 1,965
------
5,629
------
HOTEL REVENUES.................... $2,785
======
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Land and improvements...... $ 3,219 $ 3,203
Building and improvements.. 32,386 32,433
Furniture and equipment.... 10,770 9,879
-------- --------
46,375 45,515
Accumulated depreciation... (16,391) (15,665)
-------- --------
$ 29,984 $ 29,850
======== ========
</TABLE>
NOTE 5. DEBT
The Partnership originally entered into a loan agreement on November 24, 1986
(the "Original Loan") with a bank that provided $36.5 million to finance the
acquisition of the Hotel. On October 26, 1989, the Partnership refinanced the
Original Loan with a $37 million nonrecourse first mortgage loan (the "Mortgage
Debt") which matured on October 16, 1996.
34
<PAGE>
The Mortgage Debt bore interest at a floating rate from October 27, 1994,
through October 28, 1996 equal to 70 basis points over either (i) the London
Interbank Offer Rate ("LIBOR") or (ii) an adjusted certificate of deposit rate.
On October 28, 1996, the Partnership's $37 million Mortgage Debt matured without
replacement financing in place. However, the Partnership secured an extension of
the Mortgage Debt until October 24, 1997 provided that the Partnership would
make a $10 million principal paydown on the Mortgage Debt by April 30, 1997.
During the extension period the debt bore interest at LIBOR plus 2.0 percentage
points and required quarterly principal amortization equal to all excess cash
flow as defined in the extension agreement.
On April 30, 1997, in connection with the tender offer for limited partnership
units (see Note 1), Host Marriott funded a fully-amortizing $10 million
subordinated loan to the Partnership (the "Subordinated Loan") that bears
interest at a fixed rate of 14.5% over a 15-year term with required monthly
payments. The Partnership used the proceeds of the Subordinated Loan to make
the required principal payment under the mortgage loan extension agreement. If
cash flow is insufficient to service the Subordinated Loan, the unpaid portion
will be added to principal and interest will accrue.
On August 18, 1997, the Partnership refinanced its Mortgage Debt with a then
outstanding balance of $25.9 million with new mortgage debt ("New Mortgage
Debt") of $29.9 million. The New Mortgage Debt bears interest at a fixed rate
of 8.58% over its seven year term with required principal amortization based on
a 25-year schedule. Pursuant to the Subordinated Loan, any proceeds from the
New Mortgage Debt in excess of $27 million were to be used to repay the
Subordinated Loan. Therefore, on August 18, 1997, $2.9 million was repaid on
the Subordinated Loan. Pursuant to the limited partnership agreement, the
remaining proceeds and cash held at the Partnership for refinancing were used to
pay refinancing costs (see Note 2) and to repay debt service guarantee advances
made by the General Partner in prior years. For 1997 and 1996, the weighted-
average interest rate on the Partnership's mortgage debt was 7.9% and 6.4%,
respectively.
The New Mortgage Debt is secured by the Hotel and substantially all other assets
of the Partnership, including furniture and equipment and the Partnership's
rights under the assignment of the rents and leases (the "Collateral"). The
Subordinated Loan is also secured by the Collateral but is subordinate to the
New Mortgage Debt. Host Marriott and the General Partner also provided
additional security on the Original Loan and the Mortgage Debt in the form of
debt service guarantees in the aggregate amount of $7,200,000 (the
"Guarantees"). On October 27, 1994 Host Marriott and the General Partner were
released from their obligations to advance funds. As of December 31, 1997 and
1996, $3,400,000 remains outstanding under the Guarantees. All advances made
under the Guarantees accrue interest at one percent over the prime rate as
announced by Bankers Trust Company. Pursuant to the limited partnership
agreement, $1,382,000 was paid on the Guarantees from loan refinancing proceeds.
Accrued interest payable on the Guarantees as of December 31, 1997 and 1996,
totaled $714,000 and $1,775,000, respectively. The weighted-average interest
rate on these advances was 9.3% for 1997 and 1996.
Prior to 1996, the General Partner advanced $127,000 to the Partnership as a
working capital advance which accrues interest at one percent over the prime
rate as announced by Bankers Trust Company. As of December 31, 1997 and 1996,
$203,000 and $192,000, including accrued interest, was outstanding on the
working capital advance, respectively, and is included in notes payable and
related interest due to the General Partner in the accompanying financial
statements.
In addition, the General Partner has provided a foreclosure guarantee to the
lender of the New Mortgage Debt in the amount of $10 million. Pursuant to the
terms of the foreclosure guarantee, amounts would be payable only upon a
foreclosure of the Hotel and only to the extent that the gross proceeds from a
foreclosure sale are less than $10 million.
NOTE 6. OPERATING LEASE AGREEMENT/MANAGEMENT AGREEMENT
The Partnership, through an assignment of a lease from Host Marriott on November
24, 1986, acquired all rights to a 25-year operating lease with five 10-year
renewal options to lease the Hotel to MHS. Effective August 18, 1997, this
agreement was converted to a long-term management agreement with MHS.
35
<PAGE>
Operating Lease Agreement
Annual Rental during the term of the Operating Lease was equal to the greater
of:
(i) Minimum Rental of $100,000; or
(ii) Basic Rental equal to 80% of Operating Profit, as defined, reduced to 75%
of Operating Profit after the Partnership has received $4,421,000 of
cumulative Capital Receipts; or
(iii) Adjusted Rental equal to debt service on the mortgage debt plus
Partnership administration costs (collectively referred to as "Debt
Service") plus the greater of: (a) a preferred return equal to $840,000 or
(b) 50% of the amount by which Operating Profit exceeds Debt Service. In
no event will Adjusted Rental exceed Operating Profit.
The amount by which Adjusted Rental exceeded Basic Rental in any fiscal year was
defined as Additional Rentals. Cumulative Additional Rentals were recoverable by
MHS in any fiscal year when Basic Rental exceeded Adjusted Rentals, provided no
loans from the General Partner or Host Marriott were then outstanding. Annual
Rental was reduced by 50% of such excess to the extent cumulative Additional
Rentals existed.
For financial reporting purposes, Additional Rental was not recognized as
revenue but was deferred and recorded as a liability on the balance sheet. As a
result of the conversion of the Operating Lease to a management agreement, MHS
forgave $5.1 million of Additional Rental, which was recorded as a liability in
the Partnership's financial statements. The Partnership recorded an
extraordinary gain of $5.1 million related to this forgiveness.
For 1997 and 1996, Basic Rental of $3,031,000 and $3,993,000, respectively was
remitted to the Partnership by MHS. In accordance with the Operating Lease, MHS
was entitled to $758,000 and $998,000 of Operating Profit for the period from
January 1, 1997 to August 17, 1997 and the year ended December 31, 1996,
respectively. In addition to the Annual Rental, MHS was required to pay real
estate taxes and make annual contributions equal to 4% of sales net of interest
to the property improvement fund on behalf of the Partnership. In accordance
with the Operating Lease, annual contributions to the property improvement fund
increased to 5% of sales net of interest at the beginning of 1997.
Management Agreement
Effective August 18, 1997, in conjunction with the refinancing of the
Partnership's Mortgage Debt (see Note 5), the Operating Lease was converted to a
long-term management agreement with MHS. The Management Agreement has an
initial term expiring on December 31, 2011. Thereafter, the term is renewed
automatically for each of five successive 10-year periods. Pursuant to the
terms of the Management Agreement, MHS receives a base management fee equal to
3% of gross revenues. The Partnership is entitled to the first $4,650,000 of
operating profit generated by the Hotel each fiscal year ("Owner's Priority").
Owner's Priority is increased by 10% of any Additional Invested Capital, as
defined in the Management Agreement. In addition to a base management fee, MHS
will be paid an incentive management fee of the next $400,000 from operating
profit, as defined. Any cash remaining after the payment of the Owner's
Priority and the incentive management fee will be allocated 75% to the
Partnership and 25% to MHS. The Partnership may terminate the Management
Agreement if in any two of three consecutive fiscal years there is an operating
loss. MHS may, however, prevent termination by paying to the Partnership such
amounts equal to the operating losses during such two fiscal years.
Pursuant to the terms of the Management Agreement, MHS is required to furnish
the Hotel with certain services ("Chain Services") which are generally provided
on a central or regional basis to all hotels in MII's full service hotel system.
Chain Services include central training, advertising and promotion, a national
reservation system and such additional services, as needed, which may be more
efficiently performed on a centralized basis. Costs and expenses incurred in
providing such services are allocated among all domestic full service hotels
managed, owned or leased by MII or its subsidiaries. In addition, MHS is
required to furnish the Hotel with certain other services ("Central Office
Services") such as executive supervision, planning and policy making, corporate
finance, in-house legal services, research and development, and technical and
operational expertise. The Hotel also participates in MII's Marriott's
36
<PAGE>
Reward Program ("MRP"). The cost of this program is charged to all hotels in
MII's full service hotel system based upon the MRP sales at each hotel. The
total amount of Chain and Central Office Services and MRP costs charged to the
Partnership under the Management Agreement was $186,000 for the period August
18, 1997 to December 31, 1997.
The Management Agreement and Operating Lease provide for the establishment of a
property improvement fund for the Hotel which provides for the replacement of
furniture, fixtures and equipment. Contributions to the property improvement
fund are based on a percentage of gross hotel sales, net of interest income.
Prior to 1997, contributions equaled 4% of hotel sales, net of interest income.
Beginning in 1997 and thereafter, contributions are equal to 5% of hotel sales,
net of interest income. Contributions to the property improvement fund for 1997
were $1.1 million.
Under the Management Agreement, MHS received base and incentive management fees
of $252,000 and $79,000, respectively, for the period August 18, 1997 through
December 31, 1997.
NOTE 7. OFFICE SPACE RENTAL AGREEMENT
On January 28, 1995, the Partnership entered into an agreement with Marriott
Vacation Club International ("MVCI"), formerly known as Marriott Ownership
Resorts, Inc., a wholly-owned subsidiary of MII. Under the terms of the five
year lease with MVCI expiring in January 2000, MVCI funded the renovation of a
portion of the Hotel's lounge into a junior ballroom (for use by the Hotel) and
a MVCI sales office. The total cost of the renovations was $516,000. The lease
with MVCI stipulates that $200,000 of those costs will be treated as rent
concessions. Therefore, the Partnership will begin receiving rental payments of
$18,123 in 1998, $55,600 in 1999 and $4,277 in 2000. In the event MVCI chooses
to exercise its right to terminate the lease agreement prior to the end of the
five year term, any prepayment of rent by MVCI is non-refundable.
In accordance with generally accepted accounting principles, the Partnership
deferred the total rent due under the lease and is amortizing the deferred
revenue on a straight-line basis over the lease term. For the years ended
December 31, 1997, 1996 and 1995, the Partnership recognized $118,000, $119,000
and $110,000 of rent under the lease which is included in other revenues in the
Statement of Operations. In addition, deferred revenue related to the lease
totaled $169,000, $287,000 and $406,000 for the years ended December 31, 1997,
1996 and 1995.
NOTE 8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments are shown below. The
estimated fair values of financial instruments not included in this table are
estimated to be equal to their carrying amounts (in thousands):
<TABLE>
<CAPTION>
As of December 31, 1997 As of December 31, 1996
----------------------- -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Mortgage debt $ 29,760 $ 29,760 $ 37,000 $ 37,000
Subordinated loan 7,077 7,077 -- --
Notes payable and related interest
due to General Partner 4,317 4,200 5,367 3,500
Additional Rental -- -- 6,099 2,000
</TABLE>
The estimated fair value of the mortgage debt is based on the expected future
debt service payments discounted at estimated market rates. Additional rental
paid by the Hotel lessee was valued based on the expected future payments from
operating cash flow discounted at a risk-adjusted rate. As further explained in
Note 6, upon the closing of the debt refinancing on August 18, 1997, MHS agreed
to waive all claims to Additional Rental that had accrued prior to the
conversion to a management agreement. Consequently, the estimated fair value of
Additional Rental paid by the Hotel lessee is zero.
37
<PAGE>
CONDENSED STATEMENT OF OPERATIONS
HANOVER MARRIOTT LIMITED PARTNERSHIP
(UNAUDITED)
(IN THOUSANDS EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 27, March 28,
1998 1997
---------- ----------
<S> <C> <C>
REVENUES
Hotel revenues........................................ $ 1,285 $ --
Hotel rental.......................................... -- 1,432
Other................................................. 27 27
------- ------
1,312 1,459
------- ------
OPERATING COSTS AND EXPENSES
Depreciation and amortization......................... 286 280
Base management fee................................... 130 --
Real estate taxes..................................... 118 91
Partnership administration............................ 39 --
Insurance and other................................... 28 --
------- ------
601 371
------- ------
Operating profit....................................... 711 1,088
Interest expense...................................... (950) (818)
Interest income....................................... 11 33
------- ------
NET (LOSS) INCOME...................................... $ (228) $ 303
======= ======
ALLOCATION OF NET INCOME
General Partner....................................... $ (11) $ 15
Limited Partners...................................... (217) 288
------- ------
$ (228) $ 303
======= ======
NET (LOSS) INCOME PER LIMITED PARTNER UNIT (84 Units).. $(2,583) $3,429
======= ======
</TABLE>
See Notes to Condensed Financial Statements.
38
<PAGE>
CONDENSED BALANCE SHEET
HANOVER MARRIOTT LIMITED PARTNERSHIP
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 27, December 31,
1998 1997
--------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
Property and equipment, net.................................... $31,344 $29,984
Due from Marriott Hotel Services, Inc.......................... 365 204
Other assets................................................... 844 743
Cash and cash equivalents...................................... 369 1,952
------- -------
$32,922 $32,883
======= =======
<CAPTION>
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
<S> <C> <C>
Mortgage debt.................................................. $29,701 $29,760
Subordinated loan from Host Marriott Corporation............... 7,053 7,077
Notes payable and related interest due to the General Partner.. 4,396 4,317
Deferred revenue............................................... 142 169
Accounts payable and accrued expenses.......................... 378 80
------- -------
Total Liabilities............................................. 41,670 41,403
------- -------
PARTNERS' DEFICIT
General Partner................................................ (363) (352)
Limited Partners............................................... (8,385) (8,168)
------- -------
Total Partners' Deficit....................................... (8,748) (8,520)
------- -------
$32,922 $32,883
======= =======
</TABLE>
See Notes to Condensed Financial Statements.
39
<PAGE>
CONDENSED STATEMENT OF CASH FLOWS
Hanover Marriott Limited Partnership
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Twelve Weeks Ended
March 27, March 28,
1998 1997
---------- ----------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income................................. $ (228) $ 303
Noncash items..................................... 354 398
Changes in operating accounts..................... 137 (140)
------- ------
Cash provided by operating activities............ 263 561
------- ------
INVESTING ACTIVITIES
Additions to property and equipment, net.......... (1,646) (37)
Change in property improvement funds.............. (117) (222)
------- ------
Cash used in investing activities................ (1,763) (259)
------- ------
FINANCING ACTIVITIES
Repayments on debt................................ (83) (114)
------- ------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS... (1,583) 188
CASH AND CASH EQUIVALENTS at beginning of period... 1,952 2,557
------- ------
CASH AND CASH EQUIVALENTS at end of period......... $ 369 $2,745
======= ======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest......... $ 596 $ 672
======= ======
</TABLE>
See Notes to Condensed Financial Statements.
40
<PAGE>
NOTES TO CONDENSED FINANCIAL STATEMENTS
Hanover Marriott Limited Partnership
(Unaudited)
1. The accompanying condensed financial statements have been prepared by Hanover
Marriott Limited Partnership (the "Partnership") without audit. Certain
information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted from the accompanying statements.
The Partnership believes the disclosures made are adequate to make the
information presented not misleading. However, the condensed financial
statements should be read in conjunction with the Partnership's financial
statements and notes thereto for the fiscal year ended December 31, 1997
included elsewhere in the Form 10.
In the opinion of the Partnership, the accompanying unaudited condensed
consolidated financial statements reflect all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position of the Partnership as of March 27, 1998 and December 31, 1997, and
the results of operations for the twelve weeks ended March 27, 1998 and March
28, 1997. Interim results are not necessarily indicative of fiscal year
performance because of seasonal and short-term variations.
For financial reporting purposes, net income of the Partnership is allocated
95% to the Limited Partners and 5% to Marriott Hanover Hotel Corporation (the
"General Partner"). Net losses are allocated 100% to the General Partner.
Significant differences exist between the net income (loss) for financial
reporting purposes and the net income (loss) for Federal income tax purposes.
These differences are due primarily to the use, for income tax purposes, of
accelerated depreciation methods, shorter depreciable lives, no estimated
salvage values for the assets and differences in the timing of the
recognition of rental income.
2. On August 18, 1997, the Partnership completed a refinancing of its Mortgage
Debt. In connection with the refinancing, the Partnership converted the
Operating Lease with MHS to the Management Agreement (the "Conversion").
Prior to the Conversion, the Partnership recorded revenue based on the rental
income to be received from MHS.
Annual rental during the term of the Operating Lease was equal to the greater
of: (i) Minimum Rental of $100,000; or (ii) Basic Rental equal to 80% of
Operating Profit, as defined, reduced to 75% of Operating Profit after the
Partnership received $4,421,000 of cumulative Capital Receipts, as defined;
or (iii) Adjusted Rental equal to debt service on the mortgage debt plus
Partnership administration costs (collectively referred to as "Debt Service")
plus the greater of: (a) a preferred return equal to $840,000 or (b) 50% of
the amount by which Operating Profit exceeded Debt Service. In no event was
Adjusted Rental to exceed Operating Profit.
The amount by which Adjusted Rental exceeded Basic Rental in any fiscal year
was defined as Additional Rentals. Cumulative Additional Rentals were
recoverable by MHS in any fiscal year when Basic Rental exceeded Adjusted
Rentals, provided no loans from the General Partner or Host Marriott were
then outstanding. Annual Rental was reduced by 50% of such excess to the
extent cumulative Additional Rentals existed. In addition to the Annual
Rental, MHS was required to pay real estate taxes.
41
<PAGE>
Subsequent to the Conversion, the Partnership records revenue based on house
profit generated by the Hotel. House profit reflects Hotel operating results,
and represents gross hotel sales less property-level expenses, excluding
depreciation and amortization, base and incentive management fees, real
estate taxes, insurance and certain other costs, which are disclosed
separately in the statement of operations. Revenues are recorded based on
house profit of the Hotel because the Partnership has delegated substantially
all of the operating decisions related to the generation of house profit from
the Hotel to MHS.
The following is a summary of Hotel revenues, as defined in the Management
Agreement, for the twelve weeks ended March 27, 1998 and March 28, 1997 (in
thousands):
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
HOTEL SALES
Rooms........................... $2,801 $2,999
Food and beverage............... 1,398 2,000
Other........................... 139 175
------ ------
4,338 5,174
------ ------
HOTEL EXPENSES
Departmental direct costs
Rooms......................... 654 633
Food and beverage............. 1,204 1,379
Other hotel operating expenses.. 1,195 1,268
------ ------
3,053 3,280
------ ------
HOTEL REVENUES................... $1,285 $1,894
====== ======
</TABLE>
3. On April 17, 1998, Host Marriott, parent company of the General Partner of
the Partnership, announced that its Board of Directors has authorized Host
Marriott to reorganize its business operations to qualify as a real estate
investment trust ("REIT") to become effective as of January 1, 1999.
As part of the REIT reorganization, Host Marriott has formed an operating
partnership (the "Operating Partnership"). The Operating Partnership is
proposing to acquire by merger (the "Mergers") eight limited partnerships
that own full-service hotels in which Host Marriott or its subsidiaries are
general partners, including the Partnership. As more fully described in the
registration statement filed with the Securities and Exchange Commission on
June 2, 1998, limited partners of those partnerships that participate in the
Mergers will receive either units or, at their election, unsecured notes
issued by the Operating Partnership in exchange for their partnership
interests in the Partnerships.
Consummation of the REIT reorganization is subject to significant
contingencies that are outside the control of Host Marriott, including final
Board approval, consent of shareholders, partners, bondholders, lenders, and
ground lessors of Host Marriott, its affiliates and other third parties.
Accordingly, there can be no assurance that the REIT reorganization will be
completed or that it will be effective as of January 1, 1999.
42
<PAGE>
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 15. FINANCIAL STATEMENTS, SUPPLEMENTARY SCHEDULES AND EXHIBITS
(a) The financial statements filed as a part of this Form 10 are
listed in Item 13 on Page 25.
Page
----
Supplementary Financial Statement Schedules -
Hanover Marriott Limited Partnership
III. Real Estate and Accumulated Depreciation 45
Schedules I through V inclusive, other than those listed above, are omitted
because of the absence of conditions under which they are required or because
the required information is included in the financial statements or notes
thereto.
(b) Exhibits
3a. Second Amended and Restated Agreement of Limited Partnership of
Hanover Marriott Limited Partnership dated April 3, 1997.
10a. Amended and Restated Lease between Marriott Corporation
(Landlord) and Marriott Hotel Services, Inc. (Tenant) dated July
29, 1986.
10b. Line of credit and Reimbursement Agreement between Marriott
Corporation, Marriott Hanover Hotel Corporation and Hanover
Marriott Limited Partnership dated November 24, 1986.
10c. Second Mortgage, Assignment of Rents and Leases, Security
Agreement and Fixture Filing between Hanover Marriott Limited
Partnership (Mortgagor) and Host Marriott Corporation (Mortgagee)
dated April 30, 1997.
10d. Loan Agreement between Hanover Marriott Limited Partnership
(Borrower) and Host Marriott Corporation (Lender) dated April 30,
1997.
10e. Mortgage Note of $11,700,000 between Hanover Marriott Limited
Partnership (Maker) and Host Marriott Corporation (Holder) dated
April 30, 1997.
10f. Security Agreement between Hanover Marriott Limited Partnership
(Debtor) and Host Marriott Corporation (Secured Party) dated
April 30, 1997.
10g. Environmental Indemnity Agreement between Hanover Marriott
Limited Partnership (Indemnitor) and Host Marriott Corporation
(Lender) dated April 30, 1997.
43
<PAGE>
10h. Mortgage and Security Agreement between Hanover Marriott Limited
Partnership (Mortgagor) and Connecticut General Life Insurance
Company (Mortgagee) dated August 18, 1997.
10i. Promissory Note of $29,875,000 between Hanover Marriott Limited
Partnership (Borrower) and Connecticut General Life Insurance
Company (Lender) dated August 18, 1997.
10j. Assignment of Leases, Rents and Revenues from Hanover Marriott
Limited Partnership (Assignor) to Connecticut General Life
Insurance Company (Assignee) dated August 18, 1997.
10k. Collateral Assignment of Contracts, Licenses and Permits and
Security Agreement between Hanover Marriott Limited Partnership
(Borrower) to Connecticut General Life Insurance Company (Lender)
dated August 18, 1997.
10l. Foreclosure Guarantee between Marriott Hanover Hotel Corporation
(Guarantor) and Connecticut General Life Insurance Company
(Lender) dated August 18, 1997.
10m. Environmental Indemnification Agreement between Hanover Marriott
Limited Partnership and Marriott Hanover Hotel Corporation
(Indemnitors) and Connecticut General Life Insurance Company
(Beneficiary) dated April 18, 1997.
10n. Management Agreement between Hanover Marriott Limited Partnership
(Owner) and Marriott Hotel Services, Inc. (Management Company)
dated August 18, 1997.
10o. Assignment of Hotel Management Agreement and Hotel Reserve
Account between Hanover Marriott Limited Partnership (Assignor)
to Connecticut General Life Insurance Company (Assignee) dated
August 18, 1997.
27. Financial Data Schedule
44
<PAGE>
SCHEDULE III
HANOVER MARRIOTT LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
Initial Costs Gross Amount at December 31, 1997
-------------------- ---------------------------------
Subsequent
Building & Costs Building & Accumulated
Description Encumbrances Land Improvements Capitalized Land Improvements Total Depreciation
- ------------- ------------ ------ ------------ ----------- ------ ------------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Hanover
Marriott
Hotel $36,837 $3,000 $31,131 $1,474 $3,000 $32,605 $35,605 $8,683
============ ====== ============ =========== ====== ================== ============= ============
<CAPTION>
Date of Completion of Construction Date Acquired Depreciation Life
---------------------------------- ------------- -----------------
<S> <C> <C> <C>
Hanover Marriott Hotel 1986 1986 40 years
<CAPTION>
Notes: 1995 1996 1997
- ----- ------- ------- -------
<S> <C> <C> <C>
(a) Reconciliation of Real Estate:
Balance at beginning of year.. $35,365 $35,405 $35,636
Capital Expenditures.......... 122 231 88
Dispositions.................. (82) -- (119)
------- ------- -------
Balance at end of year........ $35,405 $35,636 $35,605
======= ======= =======
(b) Reconciliation of Accumulated Depreciation:
Balance at beginning of year.. $ 6,328 $ 7,130 $ 7,938
Depreciation.................. 802 808 745
------- ------- -------
Balance at end of year........ $ 7,130 $ 7,938 $ 8,683
======= ======= =======
(c) The aggregate cost of land, buildings and
improvements for Federal income tax purposes
is approximately $35.6 million at December 31, 1997.
</TABLE>
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registration has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized on this 12th day of June
1998.
HANOVER MARRIOTT LIMITED PARTNERSHIP
By: Marriott Hanover Hotel Corporation
General Partner
/s/ Patricia K. Brady
-------------------------------------------
Patricia K. Brady
Vice President and Chief Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
the capacities and on the date indicated above.
Signature Title
- --------- -----
(Marriott Hanover Hotel Corporation)
/s/Bruce F. Stemerman President and Director
- -----------------------------
Bruce F. Stemerman (Principal Executive Officer)
/s/Robert E. Parsons, Jr. Vice President and Director
- -----------------------------
Robert E. Parsons, Jr.
/s/Christopher G. Townsend Vice President, Secretary and
- -----------------------------
Christopher G. Townsend Director
/s/Bruce D. Wardinski Treasurer
- -----------------------------
Bruce D. Wardinski
46
<PAGE>
Exhibit 3.A
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
HANOVER MARRIOTT LIMITED PARTNERSHIP
This Second Amended and Restated Agreement of Limited Partnership, dated as
of April 3, 1997 is made and entered into by and among Marriott Hanover Hotel
Corporation, a Delaware corporation, as general partner (the "General Partner"),
and those persons who have been admitted as limited partners of the Partnership
in accordance with the provisions of the Amended and Restated Agreement of
Limited Partnership of Hanover Marriott Limited Partnership (the "Partnership")
dated as November 24, 1986 (the "Original Agreement") or this Agreement and are
identified in the books and records of the Partnership as the Limited Partners.
The Partnership was formed pursuant to a Certificate of Limited Partnership
filed with the Office of the Secretary of State of the State of Delaware on
October 8, 1986. On November __, 1986, the General Partner, Christopher G.
Townsend, as initial limited partner and the Limited Partners who purchased
units of limited partnership interest (the "Units") in the Partnership in the
private placement effected pursuant to a Private Placement Memorandum dated
October 23, 1986 entered into the Original Agreement. On March 3, 1997, Hanover
Hotel Acquisition Corp., an affiliate of the General Partner, made an offer to
the Limited Partners to purchase their Units on the terms and conditions set
forth in Hanover Hotel Acquisition Corp.'s Offer to Purchase for Cash 40
Outstanding Units of Limited Partnership Interest, dated March 3, 1997 (the
"Offer"). In connection with, and as a condition to consummation of, the Offer,
the Partners are adopting this Second Amended and Restated Agreement of Limited
Partnership.
In consideration of the mutual agreements made herein, the parties hereby
agree to continue the Partnership as a limited partnership under the Act as
follows:
ARTICLE ONE
DEFINED TERMS
SECTION 1.01.
The defined terms used in this Agreement shall, unless the context
otherwise requires, have the respective meanings specified in this Section 1.01.
"Accounting Period" means the four week accounting periods having the same
beginning and ending dates as the General Partner's four week accounting
periods, except that an Accounting Period may occasionally contain up to five
weeks when necessary to conform the accounting system to the calendar year.
"Act" means the Delaware Revised Uniform Limited Partnership Act (6 Del. C.
(S) 17-101, et seq.), as amended from time to time.
"Adjustments" means the after-tax present values to the General Partner and
the Limited Partners of the Affected Items, as determined by the Expert.
"Affected Items" means those items of tax benefits that, because of the
Proposed Regulations, are lost by the Limited Partners or are received by the
General Partner.
"Affected Year" means any Fiscal Year of the Partnership in which there are
Affected Items.
"Affiliate," "Affiliates" or "Affiliated Person" means, when used with
reference to a specified Person, (i) any Person that directly or indirectly
through one or more intermediaries controls or is controlled by or is under
common control with the specified Person, (ii) any Person that is an officer of,
partner in or trustee of, or serves in a
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similar capacity with respect to, the specified Person or of which the specified
Person is an officer, partner or trustee, or with respect to which the specified
Person serves in a similar capacity, (iii) any Person that, directly or
indirectly, is the beneficial owner of 10% or more of any class of equity
securities of the specified Person or of which the specified Person is directly
or indirectly the owner of 10% or more of any class of equity securities, and
(iv) any relative or spouse of the specified Person who makes his or her home
with that of the specified Person. Affiliate or Affiliated Person of the
Partnership or the General Partner does not include a Person who is a partner
of, or in a partnership or joint venture with, the Partnership or any other
Affiliated Person if such Person is not otherwise an Affiliate or Affiliated
Person of the Partnership or the General Partner. Notwithstanding the foregoing,
no corporation whose common stock is listed on a national securities exchange or
authorized for inclusion on the NASDAQ National Market, or any subsidiary
thereof, shall be an "Affiliate" of the General Partner or any Affiliate thereof
unless a Person (or Persons if such Persons would be treated as part of the same
group for purposes of Section 13(d) or 13(g) of the Securities Exchange Act of
1934) directly or indirectly owns twenty percent (20%) or more of the
outstanding common stock of the General Partner and such other corporation.
"Agreement" means this Second Amended and Restated Agreement of Limited
Partnership, as originally executed and as hereafter amended or modified from
time to time.
"Capital Account" or "Capital Accounts" means, with respect to a Partner,
the account maintained for such Partner which is determined and maintained in a
manner which the General Partner determines is in accordance with section 1.704-
1(b)(2)(iv) of the Treasury Regulations, as amended.
"Capital Contribution" or "Capital Contributions" means, with respect to
any Partner, the total amount of money (and the agreed value of any property
contributed to the Partnership by the General Partner) contributed and agreed to
be contributed to the Partnership (prior to the deduction of any selling
commissions or expenses) by such Partner; provided, however, that as and to the
extent any placement agent retained by the General Partner to assist in the
private placement of the Units foregoes any portion of its fees or selling
commission with a consequent reduction in the offering price of any Units so
placed or as and to the extent any Limited Partner receives a discount of
$12,400 per Unit as a result his making a payment of $87,600 per Unit in cash
($77,600 per Unit if purchased in cash by the General Partner, its Affiliates,
or officers and directors of the General Partner or its Affiliates) upon
execution of the subscription documents as full payment of his Capital
Contribution, the Limited Partners purchasing any such Units shall nevertheless
be deemed to have contributed to the Partnership the full amount of the offering
price without deduction on account of such reduced purchase price.
"Capital Receipts" means Sale Proceeds and/or Refinancing Proceeds.
"Cash Available for Distribution" means, with respect to any fiscal period,
the cash revenues of the Partnership from all sources during such fiscal period
other than Capital Receipts less (i) all cash expenditures of the Partnership
during such fiscal period, including, without limitation, repayment of all
Partnership indebtedness to the extent required to be paid, but not including
expenditures of Capital Receipts plus any fees for management services and
administrative expenses and (ii) such reserves as may be determined by the
General Partner, in its sole discretion, to be necessary to provide for the
foreseeable needs of the Partnership, but shall not include Capital Receipts.
"Code" means the Internal Revenue Code of 1986, as amended (or any
corresponding provision or provisions of succeeding law).
"Consent" means either (a) the approval given by vote at a meeting called
and held in accordance with the provisions of Section 10.01, or (b) a prior
written approval required or permitted to be given pursuant to this Agreement or
the act granting such approval, as the context may require. Unless otherwise
specified, Consent of the Limited Partners shall mean Consent of a majority in
interest of the Limited Partners.
"Cumulative Capital" means, with respect to any Partner, the amount of
Capital Contributions actually contributed to the Partnership as of the date in
question (prior to the deduction of any selling commissions or expenses) by such
Partner; provided, however, that as and to the extent any placement agent
retained by the General
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Partner to assist in the private placement of the Units foregoes any portion of
its fees or selling commission with a consequent reduction in the offering price
of any Units so placed or as and to the extent any Limited Partner receives a
discount of $12,400 per Unit as a result of his paying $87,600 per Unit in cash
($77,600 if purchased in cash by the General Partner, its Affiliates, or
officers and directors of the General Partner or its Affiliates) upon execution
of the subscription documents as full payment of the purchase price for such
Unit the Limited Partners purchasing any such Unit shall nevertheless be deemed
to have contributed to the Partnership the full amount of the offering price
without deduction on account of such reduced purchase price, provided, further
that at the time of any calculation of Cumulative Capital, there shall only be
credited to the Cumulative Capital of a Limited Partner an amount per Unit not
in excess of the amount of Capital Contribution required to be paid by Limited
Partners who pay for their Units in installments.
"Debt Service Guarantee" means the guarantee by Marriott and the General
Partner in an amount not exceeding $3.5 million of interest and principal
payments owing by the Partnership under the Mortgage Debt.
"Defaulting Limited Partner" means a Limited Partner who fails to pay all
or any portion of any installment of his Capital Contribution for a period of
ten days after the date such installment was due.
"Defaulting Limited Partner Allocation" means allocations of Net Losses,
Net Profits, Gains, Losses, and tax credits to a Defaulting Limited Partner.
"Default Notice" means the notice given by the General Partner to the
Partnership of its desire to purchase all or a portion of a Defaulting Limited
Partner's Interest in the Partnership.
"Deferred Purchase Debt" means Partnership Debt in the maximum amount of
$5,788,000 incurred pursuant to the Purchase Agreement entered into between the
Partnership and Marriott as of the date of this Agreement.
"Designated Person" means the General Partner.
"Expert" means that independent expert retained by the General Partner who
will determine the respective after-tax present values to the General Partner
and the Limited Partners of the Affected Items.
"FF&E" means (i) furniture, fixtures and furnishings and equipment and (ii)
routine repairs and maintenance undertaken subsequent to the opening date of a
Hotel, the cost of which would not be expensed under generally accepted
accounting principles.
"Fiscal Quarter" means, for the respective fiscal periods in any year, (i)
the period beginning on January 1, and having the same ending date as the
General Partner's 12 week fiscal first quarter, (ii) the same period of time as
the General Partner's second fiscal quarter, (iii) the same period of time as
the General Partner's third fiscal quarter, and (iv) the period from the end of
the General Partner's third fiscal quarter through December 31 in such Fiscal
Year.
"Fiscal Year" means the fiscal year of the Partnership as established in
Section 9.02.
"Foreclosure Guarantee" means the guarantee of the General Partner in an
amount not exceeding $10 million of principal upon a foreclosure of the Hotel by
the Lender.
"Gain" or "Gains" means the gain or gains recognized by the Partnership for
Federal income tax purposes upon the sale or disposition of Partnership property
(other than the routine sale of used FF&E being replaced at the Hotel).
"General Partner" means Marriott Hanover Hotel Corporation, a Delaware
corporation and wholly owned subsidiary of Host, in its capacity as general
partner of the Partnership and its permitted successors or assigns.
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"Hanover Hotel Acquisition Corp." means Hanover Hotel Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Host.
"Host" means Host Marriott Corporation, a Delaware corporation.
"Hotel" means the Hanover Marriott hotel located in Hanover, New Jersey and
the land on which the hotel is located.
"Interest" means the entire interest of a Partner in the Partnership at any
particular time, including the right of such Partner to any and all benefits to
which a Partner may be entitled as provided in this Agreement, together with the
obligations of such Partner to comply with all the terms and provisions of this
Agreement.
"Interested Transaction" means any matter in which the General Partner or
its Affiliates has an actual economic interest, other than an interest solely as
a result of its or an Affiliate's ownership of Units or a general partner
interest or as a result of its or an Affiliate's (and any group of which it is a
part for purposes of Section 13(d) or 13(g) of the Securities Exchange Act of
1934) direct or indirect ownership of less than twenty percent (20%) of the
outstanding common stock of both the General Partner and a corporation whose
common stock is listed on a national securities exchange or authorized for
inclusion in the NASDAQ National Market, or any subsidiary thereof.
"Invested Capital" means the excess, if any, of Cumulative Capital of a
Partner over cumulative distributions to him of Capital Receipts.
"Investor List" means that list, required by the Tax Reform Act of 1984, as
amended, identifying Persons to whom Interests in the Partnership were sold,
such Persons' addresses and taxpayer identification numbers, the dates on which
the Interests were acquired and the name and tax shelter registration number of
the Partnership.
"IRS" means the Internal Revenue Service.
"Limited Partner" means any Person admitted to the Partnership pursuant to
Section 3.03, including any Substituted Limited Partner.
"Loss" or "Losses" means the loss or losses recognized by the Partnership
for Federal income tax purposes upon the sale or disposition of Partnership
property (other than the routine sale of used FF&E being replaced at the Hotel).
"Minimum Gain" means the Gain that would be recognized by the Partnership,
if property of the Partnership which is secured by a nonrecourse debt, were
foreclosed upon and such property were transferred to the creditor in
satisfaction thereof.
"Mortgage Debt" means the loan provided to the Partnership by the National
Bank of Canada in the principal amount of $36.5 million.
"Net Profits" or "Net Losses" means, for any period, the net profits or net
losses of the Partnership for Federal income tax purposes during such period as
determined under section 702 of the Code, including gain or loss on the routine
sale of used FF&E not in connection with the sale of a Hotel and excluding Gains
and Losses.
"Note" or "Notes" means the promissory note or notes given to the
Partnership by the Limited Partners pursuant to Section 3.05.
"Notification" means a written notice, containing the information required
by this Agreement to be communicated to any Person, sent by registered,
certified or regular mail to such Person; provided, however, that any
communication containing such information sent to such Person and actually
received by such Person shall constitute Notification for all purposes of this
Agreement.
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"Operating Lease" means that certain amended and restated lease agreement
with the Operating Tenant, as assigned to the Partnership, dated as of July 29,
1986, whereby the Operating Tenant leases the Hotel from the Partnership.
"Operating Tenant" means Marriott Hotel Services, Inc., a Delaware
corporation and wholly owned subsidiary of Marriott International Inc., as
lessee and operator of the Hotel.
"Original Limited Partner" means any Limited Partner who acquired Units in
the initial offering of Units pursuant to the Private Placement Memorandum.
"Partners" means, collectively, the Limited Partners as constituted from
time to time and the General Partner.
"Partnership" means the limited partnership formed pursuant to this
Agreement by the parties hereto, as said Partnership may from time to time be
constituted.
"Partnership Debt" means any indebtedness for borrowed money incurred by
the Partnership.
"Person" means any individual, partnership, corporation, trust or other
legal entity.
"Prime Rate" means the base rate of interest announced from time-to-time by
Bankers Trust Company, New York, New York.
"Priority Return" means an annual non-cumulative priority cash return to
the Limited Partners equal to 10% of their Invested Capital.
"Private Placement Memorandum" means the Partnership's confidential private
placement memorandum dated October 23, 1986, concerning the offering of the
Units.
"Proposed Regulations" means, for purposes of computing Affected Items,
regulations proposed by the Department of the Treasury as directed by section 79
of the Tax Reform Act of 1984, as amended, or otherwise pursuant to section 704
or section 752 of the Code.
"Purchase Agreement" means the purchase agreement to be entered into
between the Partnership as purchaser and Marriott as seller providing for the
purchase of the Hotel and certain related materials and personal property
including FF&E.
"Refinancing Proceeds" means the net proceeds from any refinancing or
borrowing by the Partnership, the proceeds of which are applied to the repayment
of previously incurred debt of the Partnership, or borrowed for distributions to
the Partners including the proceeds of a sale and leaseback on which no taxable
gain is recognized for Federal income tax purposes.
"Sale Proceeds" means any net proceeds received by the Partnership from (i)
the exchange, condemnation, eminent domain taking, casualty, sale or other
disposition of all or a portion of the Partnership's assets, or (ii) the
liquidation of the Partnership's property in connection with a dissolution of
the Partnership (in excess of the outstanding indebtedness and other liabilities
of the Partnership). Sale Proceeds shall not include the proceeds from the
routine sale of used FF&E not in connection with the disposition of the Hotel.
"Substituted Limited Partner" means any Person admitted to the Partnership
as a Limited Partner pursuant to the provisions of Section 7.02 and who is
listed as such in the books and records of-the Partnership.
"Tax-Exempt Entity" means an entity or person defined in section 168(h)(2)
of the Code.
"Tax Matters Partner" means the General Partner.
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"Total Partnership Distributions" means the total amount of cash and the
fair market value of any property (net of any associated liabilities)
distributed to the Partners pursuant to Sections 4.07 through 4.10.
"Treasury Regulations" means the regulations promulgated by the Department
of the Treasury as in effect as of the date of this Agreement.
"Unit" means the Interest of a Limited Partner represented by a Capital
Contribution of $100,000.
ARTICLE TWO
FORMATION, NAME, PLACE OF BUSINESS, PURPOSE AND TERM
SECTION 2.01. FORMATION.
The parties have formed and do hereby continue the Partnership pursuant to
the provisions of the Act.
SECTION 2.02. NAME AND OFFICES.
The name of the Partnership is and shall be Hanover Marriott Limited
Partnership. The principal offices of the Partnership shall be located at 10400
Fernwood Road, Bethesda, Maryland 20817 or at such other place or places as the
General Partner may from time to time determine. The address of the registered
office of the Partnership in the State of Delaware is at 1013 Centre Road,
Wilmington, County of New Castle, Delaware 19805.
SECTION 2.03. PURPOSE.
The purpose of the Partnership is, without limitation, to (i) acquire and
own, directly or indirectly, the Hotel and then lease the Hotel to, or enter
into a management agreement with, an operator of the Hotel, (ii) sell or
otherwise dispose of the Hotel, and (iii) to engage in any other activities
related or incidental thereto as more fully set forth in Section 5.01 hereof.
SECTION 2.04. TERM.
The term of the Partnership shall continue in full force and effect from
the date of the filing of the original Certificate of Limited Partnership until
December 31, 2086, or until dissolution prior thereto pursuant to the provisions
of Article Eight.
SECTION 2.05. AGENT FOR SERVICE OF PROCESS.
The name and address of the agent for service of process on the Partnership
in the State of Delaware is The Prentice Hall Corporation System, Inc., 1013
Centre Road, Wilmington, County of New Castle, Delaware 19805.
ARTICLE THREE
PARTNERS AND CAPITAL
SECTION 3.01. GENERAL PARTNER.
The General Partner of the Partnership is and shall be Marriott Hanover
Hotel Corporation, a Delaware Corporation and wholly-owned subsidiary of Host,
having its principal executive offices at 10400 Fernwood Road, Bethesda,
Maryland 20817.
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SECTION 3.02. [INTENTIONALLY OMITTED]
SECTION 3.03. LIMITED PARTNERS.
The names and addresses of the Limited Partners, the amount of their agreed
upon Capital Contributions and the number of Units held by them are set forth in
the books and records of the Partnership and a Person shall be deemed to be
admitted as a Limited Partner when the General Partner has accepted such Person
as a Limited Partner of the Partnership, the books and records reflect such
Person as admitted to the Partnership as a Limited Partner and such Person has
executed this Agreement.
SECTION 3.04. CAPITAL CONTRIBUTIONS BY GENERAL PARTNER.
The General Partner has made Capital Contributions in the amount of
$442,000 in cash.
SECTION 3.05. CAPITAL CONTRIBUTIONS BY THE LIMITED PARTNERS.
A. The number of Units subscribed for by each Limited Partner is set forth
in the subscription documents executed and delivered by such Limited Partner.
Each Original Limited Partner's contribution in respect of the Units subscribed
for was made (i) in cash and a fully recourse promissory note (the "Note") of
such Limited Partner payable as set forth in Section 3.05B or (ii) in cash in
the amount of $87,600 as full payment of the subscription price ($77,600 per
Unit in cash if purchased by the General Partner, its Affiliates, or officers,
directors or employees of the General Partner or its Affiliates). No Partner
shall be paid interest on any Capital Contribution.
B. The Original Limited Partners made Capital Contributions totaling up to
$8.4 million for which each such Limited Partner subscribed in Units of $100,000
each unless the General Partner in its sole discretion accepted subscriptions
for less than a full Unit. For each Unit purchased, an Original Limited Partner
made a Capital Contribution either by paying $87,600 per Unit in cash ($77,600
per Unit in cash if purchased by the General Partner, its Affiliates, or
officers, directors or employees of the General Partner or its Affiliates) on
execution of the subscription documents as full payment of the subscription
price or $100,000 in the following installments: (i) a first installment in the
amount of $15,560 payable on execution of the subscription documents; (ii) a
second installment in the amount of $25,000 payable on March 15, 1987; (iii) a
third installment in the amount of $22,500 payable on March 15, 1988; (iv) a
fourth installment in the amount of $22,500 payable on March 15, 1989; and (v) a
fifth installment of $14,440 payable on March 15, 1990. Original Limited
Partners who purchased more or less than a full Unit were required to make
proportionate installments on the dates aforesaid. Original Limited Partners
could prepay, without any reduction in the amount thereof, the foregoing
installments, in whole or in part, at any time prior to their respective due
date.
C. The obligation of each Original Limited Partner to pay the installments
required by Section 3.05B, other than the first installment, was evidenced by
the delivery to the Partnership concurrently with payment of the first
installment of the Note in the form of Exhibit A attached hereto payable to the
Partnership in the amount of $84,440 for each Unit purchased (adjusted if less
than a full Unit is purchased) representing the amount of the remaining unpaid
Capital Contribution of such Original Limited Partner. Such Original Limited
Partners could prepay in whole, or in part, all of the installments. If an
Original Limited Partner paid $87,600 in cash per Unit at the time he delivered
an executed subscription agreement, then there was no obligation to deliver a
Note to the Partnership. That portion of such $87,600 payment in excess of the
amount that would have been paid upon subscription had the Original Limited
Partner selected the installment method of paying the subscription price was
used by the Partnership to reduce the Deferred Purchase Debt.
D. Each Original Limited Partner paying in installments, pledged to the
Partnership his Interest as security for payment of the installments payable
under such Original Limited Partner's Note. The Partnership, acting through the
General Partner, shall have all rights and remedies granted to a secured party
under the Uniform Commercial Code as adopted in Delaware, including, but not
limited to, the right to sell such Interest, and such
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Limited Partner agrees to execute such instruments, including, without
limitation, a financing statement on Form UCC-1, as the General Partner may from
time to time require to perfect such security interest. For purposes of the said
Uniform Commercial Code, this Agreement shall also be deemed to be a security
agreement.
E. The following provisions applied in the event a Limited Partner failed
to make installment payments when due:
(i) A Limited Partner who failed to pay when due all or any portion of
any installment for a period of 10 days (a "Defaulting Limited Partner")
shall be in default hereunder and the Defaulting Limited Partner shall be
required to pay the Partnership a late payment charge equal to five percent
(5%) of such unpaid installment or portion thereof. At any time prior to
any sale of all or any portion of the Defaulting Limited Partner's Interest
as provided in this subsection E, the General Partner may but shall not be
obligated to accept full payment from the Defaulting Limited Partner of any
unpaid installment then overdue. The acceptance of such payment by the
General Partner shall extinguish the further right (as hereafter defined)
of the General Partner to purchase the Defaulting Limited Partner's
Interest. If a default shall continue for more than 30 days after notice to
the Defaulting Limited Partner, in addition to the aforesaid late charge,
the unpaid portion of such installment or portion thereof shall bear
interest from the date due until paid in full at a rate equal to the lesser
of (a) four percentage points in excess of the Prime Rate or (b) the
maximum rate permitted by law. If the late charge is deemed to be interest
under law, it may only be imposed to the extent it does not cause total
interest to exceed the rate permitted by law. A Defaulting Limited Partner
shall have no voting rights with respect to his Interest for so long as any
unpaid installments plus any late charge or interest attributable to such
unpaid installment or portion thereof remains unpaid.
(ii) If a default shall continue for more than 30 days after notice to
the Defaulting Limited Partner, the General Partner shall have the option
of accelerating the payment of the entire unpaid balance of the Notes of
the Defaulting Limited Partner and the additional option of purchasing (for
the price set forth below) all or a portion of the Defaulting Limited
Partner's Interest. Such option may be exercised by the General Partner by
giving the Partner a Default Notice. The purchase price to be paid to the
Defaulting Limited Partner shall be an amount equal to the greater of (x)
10% of the amount of Cumulative Capital of the Defaulting Limited Partner
in respect of the Interest being purchased less the sum of (i) the total
amount of cash distributions, if any, theretofore made to the Defaulting
Limited Partner in respect of the Interest being purchased, (ii) any
reasonable expenses incurred by the Partnership and by the General Partner
in connection with such purchase, (iii) all tax credits previously reported
by the Partnership for all Fiscal Years then ended allocable to the
Interest being purchased, and (iv) 50% of the Net Losses previously
reported by the Partnership for all Fiscal Years then ended allocable to
the Interest being purchased, or (y) three percent (3%) of the amount of
the Cumulative Capital of the Defaulting Limited Partner in respect of the
Interest being purchased. Such purchase price shall be paid in cash within
thirty days after the date of the consummation of the purchase. The
General Partner shall also pay to the Partnership an amount equal to all
Capital Contribution installments in respect of the Interest being
purchased then due and not theretofore paid by the Defaulting Limited
Partner (including the unpaid installment giving rise to the default) and
shall assume all other obligations of the Defaulting Limited Partner in
respect of the Interest being purchased, if any, to the Partnership.
(iii) In the event that the General Partner does not acquire all of
the Interest of a Defaulting Limited Partner and after the exercise of due
diligence, the General Partner is unable to find a purchaser for all or the
balance of the Defaulting Limited Partner's Interest for the price set
forth in clause (ii) above, then the Defaulting Limited Partner shall sell
such Interest or the balance of such Interest, as the case may be, on such
terms and conditions as the General Partner deems reasonable under the
circumstances; provided that any purchaser shall be required to agree to
assume the obligation of the Defaulting Limited Partner to make payment of
the unpaid balance of the installments to the extent of the Interest so
acquired. At the closing of any purchase and sale pursuant to this clause
(iii), the purchaser shall pay to the Partnership the unpaid balance of the
installments then due and owing by the Defaulting Limited Partner and shall
agree to thereafter make payment of any future installments as and when the
same shall become
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due and payable. The Defaulting Limited Partner shall pay all of the
Partnership's and General Partner's costs and expenses incurred in
connection with any purchase and sale of a Defaulting Limited Partner's
interest pursuant to this clause (iii).
(iv) A purchaser of all or any part of the Interest of a Defaulting
Limited Partner will receive all of the cash allocable to such Interest
from and after the date of default and not actually distributed to the
Defaulting Limited Partner prior to default. All Net Profits and Net
Losses that would otherwise be allocated in accordance with Sections 4.01,
4.02 and 4.03 to a Defaulting Limited Partner ("Defaulting Limited Partner
Allocation") shall be allocated, from and after the date of default to, but
not including, the date, if any, on which the Interest of such Defaulting
Limited Partner shall be purchased, among the non-Defaulting Limited
Partners in proportion to the number of Units owned by each. All
Defaulting Limited Partner Allocations from and after the date of purchase
of the Defaulting Limited Partner's Interest until the expiration of the
Fiscal Year in which such purchase date falls shall be allocated to the
purchaser. In the following Fiscal Year or Fiscal Years, all Net Profits
and Net Losses of the Partnership allocable to the Limited Partners under
Article Four shall first be allocated until the purchaser's capital account
balance shall be equal in amount to the capital account balance of a non-
Defaulting Partner owning the same number of Units as the purchaser.
(v) Notwithstanding the foregoing provisions of this Section 3.05E,
the obligations of the Defaulting Limited Partner hereunder shall not be
extinguished by the existence of any option of the General Partner to
purchase the Interest of the Defaulting Limited Partner, or by its
exercise, or by any agreement by any person to purchase such Interest, but
only to the extent of payment of the unpaid installments together with
interest thereon made in the Defaulting Limited Partner's stead by any
purchaser of such Interest.
(vi) In addition to the other rights of the Partnership against the
Defaulting Limited Partner, the Partnership may avail itself of appropriate
legal remedies at law or in equity to compel payment of any portion of the
installments remaining unpaid together with any interest thereon remaining
unpaid, together with reasonable court costs and legal fees in the event of
litigation against the Defaulting Limited Partner.
SECTION 3.06. PARTNERSHIP CAPITAL.
A. The Capital Contribution of each Limited Partner and the General
Partner shall be credited to each such Partner's Capital Account; provided,
however, that the deemed increase in the Capital Contribution of any Partner due
to (i) any relinquished selling commission or other fees with respect to such
Partner or (ii) any discount of $12,400 per Unit for any Limited Partner making
full payment of such Limited Partner's Capital Contribution ($22,400 for the
General Partner or any of its Affiliates of for officers or directors of the
General Partner or any of its Affiliates) upon execution of the subscription
agreement shall not be credited to such Partner's Capital Account and a Limited
Partner's obligation to make additional contributions in installments shall not
be credited to his Capital Account until the installments are actually
contributed. A Partner's Capital Account shall also be credited with the amount
of Net Profits or Gain allocable to the Partner, and shall be debited with (x)
such Partner's share of Total Partnership Distributions and (y) the amount of
Net Losses, Losses or deductions allocated to such Partner.
B. For purposes of this Section 3.06, upon a distribution in kind of
Partnership property, the Capital Accounts of Partners will be debited or
credited as though the property had been sold for an amount equal to its fair
market value, and gain or loss which would have been recognized for Federal
income tax purposes had the property actually been sold will be allocated to the
Partners under Article Four.
SECTION 3.07. LIABILITY OF THE LIMITED PARTNERS.
Except as otherwise required by the Act, no Limited Partner shall be liable
for the debts, liabilities, contracts or any other obligations of the
Partnership. Except as otherwise required by the Act, a Limited Partner has no
liability in excess of his Capital Contribution and his share of the
Partnership's assets and undistributed profits,
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and shall not be required to lend any funds to the Partnership or, after his
Capital Contribution has been paid, to make any further Capital Contributions to
the Partnership or to repay to the Partnership, any Partner or to any creditor
of the Partnership any portion or all of any negative balance of his Capital
Account.
SECTION 3.08. LIABILITY OF THE GENERAL PARTNER.
Except as provided in the Act, the General Partner has the liabilities of a
partner in a partnership without limited partners to Persons other than the
Partnership and the other Partners. Except as provided in the Act or herein, the
General Partner has the liabilities of a general partner in a partnership
without limited partners to the Partnership and to the other Partners. This
Agreement shall not be amended to limit such liability of the General Partner.
ARTICLE FOUR
ALLOCATION OF PROFITS AND LOSSES;
DISTRIBUTIONS OF CASH AND CERTAIN PROCEEDS
SECTION 4.01. ALLOCATION OF NET PROFITS.
Net Profits for each Fiscal Year shall be allocated to the Partners in the
following order or priority:
(i) first, through and including the end of the Accounting Period
during which the General Partner and the Limited Partners shall have
received cumulative distributions of Capital Receipts equal to $4,421,000,
5% to the General Partner and 95% to the Limited Partners;
(ii) next, through and including the end of the Accounting Period
during which the General Partner and the Limited Partners shall have
received cumulative distributions of Capital Receipts equal to $8,842,000,
15% to the General Partner and 85% to the Limited Partners; and
(iii) thereafter, 35% to the General Partner and 65% to the Limited
Partner.
SECTION 4.02. ALLOCATION OF NET LOSSES AND LOSSES.
A. Net Losses and Losses for the Fiscal Year ending on December 31, 1986,
shall be allocated to the Limited Partners.
B. Net Losses and Losses for each Fiscal Year thereafter shall be
allocated to the General Partner.
SECTION 4.03. ALLOCATION OF GAIN.
Gain recognized by the Partnership shall be allocated (after giving effect
to the allocations referred to in Sections 4.01 and 4.02 and all distributions
other than distributions pursuant to Section 4.08) with respect to any Fiscal
Year in the following order of priority:
(i) first, to the Limited Partners whose Capital Accounts have
negative balances, in proportion to such negative balances until such
negative balances are brought to zero and then to the General Partner if
its Capital Account has a negative balance until such negative balance is
brought to zero; provided, however, that solely for purposes of this
Section 4.03(i), the Capital Account balance of a Limited Partner shall be
deemed to include the amount of any obligation to make additional
contributions to the capital of the Partnership;
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(ii) second, to all Partners up to the amount necessary to bring their
respective Capital Account balances to an amount equal to their respective
Invested Capital; provided, however that in calculating Invested Capital
solely for purpose of this Section 4.03(ii), Cumulative Capital of a
Limited Partner who paid $87,600 per Unit in cash ($77,600 if purchased by
the General Partner, its Affiliates, or officers and directors of the
General Partner or its Affiliates), upon his execution of the subscription
documents as full payment of the purchase price of his Unit shall be deemed
to be $100,000;
(iii) third, in the case of Gain arising from the sale or disposition
(or from a related series of sales or dispositions) of all or substantially
all the assets of the Partnership, to the Limited Partners in an amount
equal to the excess, if any, of (1) the product of 12% times the weighted
average of the Limited Partners' Invested Capital each year, over (2) the
sum of distributions to the Limited Partners of Cash Available for
Distribution each year; and
(iv) thereafter, 35% to the General Partner and 65% to the Limited
Partners.
SECTION 4.04. ALLOCATION AMONG LIMITED PARTNERS OF NET PROFITS, GAINS, NET
LOSSES AND LOSSES.
Any Net Profits or Net Losses for any Fiscal Year allocable to the Limited
Partners shall be allocated among the Limited Partners pro rata in accordance
with the number of Units owned by each as of the end of such Fiscal Year;
provided that if any Unit is assigned during the Fiscal Year in accordance with
this Agreement, the Net Profits or Net Losses that are so allocable to such Unit
shall be allocated between the assignor and assignee of such Unit according to
the number of Accounting Periods in such Fiscal Year each owned such Unit. Any
Gains or Losses allocable to the Limited Partners shall be allocated among the
Limited Partners who held Units on the last day of the Accounting Periods in
which the sale or disposition giving rise to such Gains or Losses occurred, pro
rata in accordance with the number of Units owned by each such Limited Partner.
If any Unit is assigned by a Limited Partner other than on the first day of an
Accounting Period (in contravention of the Agreement), then the Partnership
shall recognize such assignment for the purposes of allocating Net Profits,
Gains, Net Losses or Losses if, and to the extent, it is legally required to so
do in the opinion of legal counsel. The preceding sentence shall not apply to
the Units (or fractions of Units) transferred to Hanover Hotel Acquisition Corp.
pursuant to Hanover Hotel Acquisition Corp.'s Offer to Purchase for Cash 40
Outstanding Units of Limited Partnership Interest, dated March 3, 1997, which
transfers shall be considered to be in accordance with this Agreement, shall be
deemed to occur for purposes of this Section 4.04 on the first day of the
Accounting Period in which the transfer of such Units occurs and shall be
governed by the first two sentences of this Section 4.04.
SECTION 4.05. ALLOCATION OF RECAPTURE INCOME.
"Recapture income," if any, realized by the Partnership pursuant to section
1245 or section 1250 of the Code shall be allocated to the Partners to whom the
prior corresponding depreciation deductions were allocated, such allocations to
be made pro rata to the Partners in accordance with the manner in which such
depreciation deductions were allocated.
SECTION 4.06. DISTRIBUTION OF CASH AVAILABLE FOR DISTRIBUTION.
Cash Available for Distribution with respect to each Fiscal Year shall be
distributed at least annually as follows:
(i) first, 100% to the Limited Partners until they have received the
Priority Return on their Invested Capital;
(ii) next, through and including the end of the Accounting Period
during which the General Partner and the Limited Partners shall have
received cumulative distributions of Capital Receipts equal to $4,421,000,
5% to the General Partner and 95% to the Limited Partners;
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(iii) next, through and including the end of the Accounting Period
during which the General Partner and the Limited Partners shall have
received cumulative distributions of Capital Receipts equal to $8,842,000,
15% to the General Partner and 85% to the Limited Partner; and
(iv) thereafter, 35% to the General Partner and 65% to the Limited
Partners
SECTION 4.07. DISTRIBUTION OF REFINANCING PROCEEDS.
Refinancing Proceeds shall, unless the General Partner, in its sole
discretion, shall determine to retain any such amounts in the Partnership, be
distributed as follows:
(i) first, 5% to the General Partner and 95% to the Limited Partners,
until the Partners shall have received cumulative distributions of Capital
Receipts equal to $8,842,000; and
(ii) thereafter, 35% to the General Partner and 65% to the Limited
Partners.
SECTION 4.08. DISTRIBUTION OF SALE PROCEEDS.
A. Sale Proceeds from the sale or other disposition of less than
substantially all of the assets of the Partnership shall, unless the General
Partner, in its sole discretion, shall determine to retain any such amounts in
the Partnership, be distributed:
(i) first, until the Partners shall have received cumulative
distributions of Capital Receipts equal to $8,842,000, 5% to the General
Partner and 95% to the Limited Partners; and
(ii) thereafter, 35% to the General Partner and 65% to the Limited
Partners.
B. Sale Proceeds from the sale or other disposition (or from a related
series of sales or dispositions) of all or substantially all of the assets of
the Partnership shall be distributed in accordance with Article Eight.
SECTION 4.09. ALLOCATION AMONG LIMITED PARTNERS OF CASH AVAILABLE FOR
DISTRIBUTION, REFINANCING PROCEEDS AND SALE PROCEEDS.
Cash Available for Distribution distributable with respect to any
Accounting Period to the Limited Partners pursuant to Section 4.06, shall be
distributed to the Limited Partners pro rata in accordance with the number of
Units owned by each as of the end of such Accounting Period. Proceeds
distributable to the Limited Partners pursuant to Section 4.07 or Section 4.08A
shall be distributed to the Limited Partners pro rata in accordance with the
number of Units owned by each such Limited Partner on the last day of the
Accounting Period in which the transaction giving rise to such proceeds was
completed. If a Unit is assigned by a Limited Partner other than on the first
day of an Accounting Period (in contravention of this Agreement), then the
Partnership shall recognize such assignment for the purpose of distributing
amounts pursuant to Sections 4.06, 4.07 and 4.08 if, and to the extent, it is
legally required to do so in the opinion of legal counsel. The preceding
sentence shall not apply to the Units (or fractions of Units) transferred to
Hanover Hotel Acquisition Corp. pursuant to Hanover Hotel Acquisition Corp.'s
Offer to Purchase for Cash 40 Outstanding Units of Limited Partnership Interest,
dated March 3, 1997, which transfers shall be considered to be in accordance
with this Agreement, and for purposes of this Section 4.09 shall be deemed to
occur on the date of transfer of such Units for the purpose of distributing
amounts pursuant to Sections 4.06, 4.07 and 4.08 (which shall result in Hanover
Hotel Acquisition Corp. becoming the Limited Partner of record on such date of
transfer). Notwithstanding the first sentence of this Section 4.09, any
distributions pursuant to Section 4.06 with respect to such transferred Units
made before the date of transfer of such Units but after the last day of the
last Accounting Period ending before such date of transfer shall be made to the
transferring Limited Partner, and any distributions pursuant to Section 4.06
with respect to such transferred Units made after
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such date of transfer but before the first day of the first Accounting Period
commencing after such date of transfer shall be made to Hanover Hotel
Acquisition Corp.
SECTION 4.10. SECTION 754 ADJUSTMENTS.
For income tax purposes (but not for purposes of adjusting the Capital
Accounts of the Partnership, except as otherwise provided in section 1.704-
1(b)(2)(iv) of the Treasury Regulations), appropriate adjustments shall be made
in the allocations to Limited Partners under this Article Four in order to
reflect adjustments in the basis of Partnership property permitted pursuant to
any election under section 754 of the Code, provided the General Partner, in its
sole discretion, makes such election. If such an election is made, the
Partnership will make the basis adjustments and calculate depreciation
deductions in accordance with such adjustments for those transferee Limited
Partners who advise the Partnership of this obligation with sufficient
information to enable the Partnership to determine when, and at what price, such
transferee Limited Partners acquired Units. In the case of a transferee Limited
Partner who does not advise the Partnership of such information, the Partnership
will attempt to supply such Limited Partner with reasonably available
information that will permit such Limited Partner to make the required basis
adjustment calculation.
SECTION 4.11. SPECIAL ALLOCATION OF SELLING COMMISSIONS.
Any selling commissions or other fees paid by the Partnership in any
Accounting Period in respect of any Unit shall be specially allocated to and
charged to the Capital Account of the Limited Partner owning such Unit during
such Accounting Period.
SECTION 4.12. CONTINGENT ADJUSTMENTS.
A. If prior to 1992, regulations shall have been proposed by the
Department of the Treasury, as directed by section 79 of the Deficit Reduction
Act of 1984 or otherwise pursuant to sections 704 or 752 of the Code (the
"Proposed Regulations"), and the General Partner (i) is of the opinion (based
upon advice of counsel) taking into account the Proposed Regulations for any
Fiscal Year of the Partnership (an "Affected Year"), that the amount of Net
Losses allocated to the General Partner should be increased, that the amount of
Net Profits allocated to the General Partner should be decreased or that the
General Partner or its Affiliates receive tax benefits (including the avoidance
or delay of the recognition of income) (the "Affected Items") and (ii) shall
have taken such steps to ameliorate the potential adverse effect of the Proposed
Regulations on the tax consequences of an investment in the Partnership by
Limited Partners, that the General Partner (upon advice of counsel) shall
consider to be reasonable under the circumstances (taking into account economic,
financial, accounting, regulatory and any other facts or circumstances existing
at the time), then to the extent that a change in the allocations is still
required, the adjustments required by the Proposed Regulations shall be made and
the General Partner shall retain a qualified expert (the "Expert"), the fees and
expenses of which shall be paid by the Partnership, which will be requested to
determine at the beginning of each Affected Year the respective after-tax
present values to the General Partner or its Affiliates and the Limited Partners
of the Affected Items for such Affected Year (the "Adjustments").
B. In determining such Adjustments the Expert shall (i) assume that the
Hotel will be sold in 2001 for an amount equal to its original cost, or
outstanding indebtedness, if greater, and that the Limited Partners and the
General Partner are subject to Federal income tax at the highest marginal tax
rates (for individual taxpayers in the case of the Limited Partners and for
corporate taxpayers in the case of the General Partner) in effect at the times
relevant to such determination and (ii) use such cash flow forecasts and other
economic data that the General Partner shall provide to assist the Expert in
making such determination. For each Affected Year, the General Partner will
make a Capital Contribution to the Partnership at the end of the Affected Year
equal to the adjustment to the General Partner or to the Limited Partners,
whichever is less. Each such Capital Contribution made by the General Partner
shall be promptly distributed to the Limited Partners in accordance with the
ratios in which Cash Available for Distribution would be distributed pursuant to
Section 4.06 for such Affected Year; and provided further that, notwithstanding
the foregoing proviso, if the Proposed Regulations shall be promulgated in a
form
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other than the form in which they shall have been proposed, then the General
Partner shall make such reasonable adjustments to the amount of any such Capital
Contribution as it shall consider appropriate under the circumstances. Any
contribution or distribution of cash required by this Section 4.12 shall be
appropriately reflected in the Capital Accounts of the Partners but shall not
affect the amount or computation of Capital Contributions, Cumulative Capital or
Invested Capital and shall not be deemed a distribution of Capital Receipts or
Cash Available for Distribution for purposes of Article Four of this Agreement.
ARTICLE FIVE
RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER
SECTION 5.01. AUTHORITY OF THE GENERAL PARTNER TO MANAGE THE PARTNERSHIP.
A. The General Partner shall have the exclusive right and power to conduct
the business and affairs of the Partnership and to do all things necessary to
carry on the business of the Partnership, and is hereby authorized to take any
action of any kind and to do anything and everything it deems necessary or
appropriate in accordance with the provisions of this Agreement and applicable
law. Except as expressly provided herein, the authority of the General Partner
to conduct the business of the Partnership shall be exercised only by the
General Partner.
B. No Limited Partner shall participate in or have any control whatsoever
over the Partnership's business or have any authority or right to act for or
bind the Partnership. The Limited Partners hereby unanimously Consent to the
exercise by the General Partner of the powers conferred on it by this Agreement.
C. Except to the extent otherwise provided herein, the General Partner, is
hereby authorized, without Consent of the Limited Partners, to:
(i) execute any and all agreements (including the Purchase Agreement
and the Operating Lease), contracts, documents, certifications and
instruments necessary or convenient in connection with the development,
financing, management, maintenance, operation, sale or other disposition of
the Partnership's properties and assets except as otherwise limited by this
Agreement;
(ii) borrow money from itself or others (including Affiliates of any
general partner of the Partnership) and issue evidences of indebtedness
necessary, convenient or incidental to the accomplishment of the purpose of
the Partnership and to secure the same by mortgage, pledge or other lien on
the assets of the Partnership, such borrowing and security to be only with
respect to the following: (a) the Deferred Purchase Debt, (b) any amounts
advanced by the General Partner or an Affiliate of the General Partner
(which amounts may or may not be secured) or any other lender to enable the
Partnership to satisfy its obligations arising in the normal course of its
business, to make payments of principal, interest, premium or penalty on
any debt of the Partnership or to make capital repairs, improvements and
expansions, provided any required Consents of Partners are obtained, (c)
the Mortgage Debt, (d) amounts incurred exclusively for the purpose of a
distribution to the Partners of the Partnership, (e) any indebtedness the
incurrence of which must be specifically consented to by the Limited
Partners under Section 5.02B, and (f) any indebtedness incurred to
refinance (and thereafter further refinance as often as shall be necessary)
the unamortized portion of any of the foregoing from time to time
outstanding. In connection with the borrowing of money on a nonrecourse
basis, no lender shall be granted or acquire, at any time as a result of
making such a loan, any direct or indirect interest in the profits, capital
or property of the Partnership other than as a secured creditor;
(iii) prepay in whole or in part, refinance (to the extent permitted
by clause (ii) above), fix the interest rate on any debt, recast, modify or
extend any mortgage debt affecting or encumbering any of the Partnership's
property and in connection therewith execute any extensions,
consolidations, modifications or renewals of mortgages on any assets of the
Partnership;
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(iv) deal with, or otherwise engage in business with, or provide
services to and receive compensation therefor from, any Person who has
provided or may in the future provide any services, lend money or sell
property to or purchase property from the General Partner or any Affiliate
of the General Partner. No such dealing, engaging in business or providing
of services may involve any direct or indirect payment by the Partnership
of any rebate or any reciprocal arrangement for the purpose of
circumventing any restriction set forth herein upon dealings with the
General Partner or any Affiliate of the General Partner. The General
Partner may on behalf of the Partnership enter into agreements to employ
agents, attorneys, accountants, engineers, appraisers, or other consultants
or contractors who may be Affiliates of the General Partner and may enter
into agreements to employ Affiliates of the General Partner to provide
further or additional services to the Partnership; provided that any
employment of such Persons is on terms not less favorable to the
Partnership than those offered by persons who are not Affiliates of the
General Partner for comparable services;
(v) engage in any kind of activity and perform and carry out contracts
of any kind necessary to, or in connection with, or incidental to the
accomplishment of the purposes of the Partnership, as may be lawfully
carried on or performed by a limited partnership under the laws of the
State of Delaware and New Jersey and in each state where the Partnership
has been qualified to do business;
(vi) sell or otherwise dispose of or consent to the sale or
disposition of any assets of the Partnership to any Person provided that
such Person is not a general partner of the Partnership or an Affiliate of
any such general partner; and
(vii) take such actions as the General Partner determines are
advisable or necessary, and will not result in any material adverse effect
on the economic position of holders of a majority of the Units, to preserve
the tax status of the Partnership as a partnership for Federal income tax
purposes.
D. Any Person dealing with the Partnership or the General Partner may rely
upon a certificate signed by the Secretary or Assistant Secretary, Controller or
Treasurer of the General Partner, thereunto duly authorized, as to:
(i) the identity of the General Partner or any Limited Partner;
(ii) the existence or non-existence of any fact or facts which
constitute a condition precedent to the acts by the General Partner or in
any other manner germane to the affairs of the Partnership;
(iii) the Persons who are authorized to execute and deliver any
instrument or document of the Partnership; and
(iv) any act or failure to act by the Partnership or as to any other
matter whatsoever involving the Partnership or any Partner.
E. Any agreements, contracts and arrangements between the Partnership and
the General Partner or any of its Affiliates, except for rendering legal, tax,
accounting, procurement and engineering services by employees of the General
Partner and Affiliates of the General Partner which agreements will be on
commercially reasonable terms, shall be subject to the following additional
conditions:
(i) the General Partner or any such Affiliate must be actively engaged
in the business of rendering such services or selling or leasing such
goods, independently of its dealings with the Partnership and as an
ordinary ongoing business or must enter into and engage in such business
with Marriott full-service hotels or hotel owners generally and not
exclusively with the Partnership;
(ii) such agreements, contracts or arrangements must be fair to the
Partnership and reflect commercially reasonable terms and shall be embodied
in a written contract which precisely describes the subject matter thereof
and all compensation to be paid therefor;
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(iii) no rebates or give-ups may be received by the General Partner
or any such Affiliate, nor may the General Partner or any such Affiliate
participate in any reciprocal business arrangements which would have the
effect of circumventing any of the provisions of this Agreement;
(iv) no such agreement, contract or arrangement as to which the
Limited Partners had previously given approval may be amended in such a
manner as to increase the fees or other compensation payable to the General
Partner or any such Affiliates or to decrease the responsibilities or
duties of the General Partner or any such Affiliate in the absence of the
Consent contemplated by Section 5.02B(ii); and
(v) any such agreement, contract or arrangement which relates to or
secures any funds advanced or loaned to the Partnership by the General
Partner or any Affiliate of the General Partner must reflect commercially
reasonable terms.
F. Notwithstanding anything to the contrary contained in this Agreement,
the General Partner shall have full power and authority, without the Consent of
the Limited Partners, (i) to form or organize one or more Subsidiaries of the
Partnership; (ii) to contribute any properties and assets or interests therein
to one or more Subsidiaries of the Partnership; (iii) to undertake any action in
connection with the Partnership's direct or indirect investment in any such
Subsidiary; (iv) to delegate authority to manage the business and affairs of any
Subsidiary of the Partnership to a governing entity or other body (including,
without limitation, a board of directors) other than the General Partner; and
(v) to exercise any of the powers of the General Partner enumerated in this
Agreement on behalf of, or in connection with, any Subsidiary of the
Partnership, or jointly with any such Subsidiary, or delegate the exercise
thereof pursuant to clause (iv) above. The term "Subsidiary" shall mean any
partnership, corporation, trust or other entity that is not less than 99% owned,
directly or indirectly, by the Partnership, provided that no Subsidiary that is
a corporation or otherwise is not entitled to flow-through tax treatment under
the Code can own directly the Hotel or an interest that is greater than 1% in
another Subsidiary that owns the Hotel. A Subsidiary shall not be deemed an
Affiliate of the General Partner for the purposes of this Agreement. The term
"Partnership" shall, as the context requires, include each Subsidiary of the
Partnership.
SECTION 5.02. RESTRICTIONS ON AUTHORITY OF THE GENERAL PARTNER.
A. Without the Consent of all the Limited Partners, the General Partner
shall not have authority on behalf of the Partnership to:
(i) do any willful act in contravention of this Agreement;
(ii) do any willful act which would make it impossible to carry on the
ordinary business of the Partnership;
(iii) confess a judgment in a material amount against the
Partnership;
(iv) convert property of the Partnership to its own use, or assign any
rights in specific property of the Partnership for other than a purpose of
the Partnership;
(v) admit a Person as a Limited Partner, except as provided in this
Agreement; or
(vi) perform any act that would subject any Limited Partner to
liability as a general partner in any jurisdiction or any other liability
except as provided for herein or under the Act.
B. Without the Consent of Limited Partners holding a majority of the
Units, the General Partner shall not have the authority on behalf of the
Partnership to:
(i) have the Partnership acquire interests in other hotel properties
in addition to the Hotel or in other entities;
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(ii) sell or otherwise dispose of or consent to the sale or
disposition of the Hotel to the General Partner or an Affiliate of the
General Partner; provided, however, that if it is proposed that the
Partnership sell the Hotel to the General Partner or an Affiliate of the
General Partner, the following procedures shall also be followed: (a) the
General Partner shall first give notice of the proposed sale to the Limited
Partners who shall thereafter have 30 days within which to elect a
nationally recognized appraiser having the approval of Limited Partners
holding a majority of the Units, (b) the appraiser elected under clause (a)
above shall have 30 days from the date of election to prepare and submit to
the General Partner an appraisal of the fair market value of the Hotel, (c)
the purchaser shall submit to the General Partner an appraisal of the fair
market value of the Hotel, such appraisal to be submitted within the time
limit provided by clause (b) above in the case of the appraisal to be
submitted by the appraiser elected by the Limited Partners, and (d) the
General Partner shall thereafter make formal request for the required
Consent and in connection therewith shall submit to the Limited Partners
the two appraisals contemplated by clauses (b) and (c) above; provided,
further, however, that if the Limited Partners do not elect an appraiser as
contemplated by clause (a) above or if such appraiser does not supply an
appraisal within the time period required by clause (b) above, the General
Partner will not request the Consent to the sale of the Hotel to the
General Partner or an Affiliate of the General Partner unless such request
is accompanied by three appraisals as to market value of the Hotel, one
such appraisal to be prepared by an appraiser elected by the purchaser and
the other two appraisals to be prepared by appraisers elected by the first
such appraiser, the cost of all such appraisals to be borne by the
purchaser;
(iii) effect any amendment to any agreement, contract or arrangement
with the General Partner or any of its Affiliates which reduces the
responsibilities or duties of the General Partner as a general partner of
the Partnership or any of its Affiliates or which increases the
compensation payable to the General Partner or any of its Affiliates, or
which adversely affects the rights of the Limited Partners;
(iv) incur debt of the Partnership in excess of the limitations set
forth in Section 5.01C(ii);
(v) agree to the addition of transient guest rooms at the Hotel unless
(a) the Hotel has had an average occupancy rate of at least 70% for a
consecutive period of at least 12 months and (b) the Partnership has
obtained debt financing to finance the costs of the addition on a
nonrecourse basis as to all the Partners and the Partnership (including the
General Partner) except as provided in Section 5.02B(ix) below;
(vi) except as otherwise provided in Section 5.02B(ix), incur any debt
of the Partnership which does not provide by its terms that it shall be
nonrecourse as to all the Partners;
(vii) make any election to continue beyond its term, discontinue or
dissolve the Partnership;
(viii) admit any other Person as a General Partner or voluntarily
withdraw as a General Partner except as necessary to alleviate the negative
effect of any Affected Items pursuant to Section 4.12; and
(ix) guaranty, become personally liable or otherwise bear the risk of
loss, or permit any Affiliate to take any such action, with respect to any
portion of any Partnership debt otherwise permitted to be incurred pursuant
to the terms of this Agreement unless (a) the General Partner, in
accordance with its fiduciary duties as General Partner and taking into
consideration the tax consequences to the Limited Partners, determines that
such actions are in the best interests of the Partnership and the Limited
Partners, (b) assuming operating results then projected through 2001 by the
General Partner, such action (1) will not cause any deficit in the Capital
Account of any Limited Partner at any time to exceed the sum of such
Limited Partner's obligation to make additional capital contributions and
the portion at such time of Minimum Gain that would be allocated to him on
sale of the Hotel and (2) in the opinion of tax counsel, will not at any
time cause the recognition or allocation of income or gain to the Limited
Partners not within the parameters of the forecast allocations of income,
gain, loss and deduction set forth in the Financial Forecast in the Private
Placement Memorandum, or (c) with respect to a guarantee or incurrence of
personal liability or a risk of loss by the General Partner or its
Affiliates aggregating $13.5 million or less,
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the General Partner agrees to apply the procedures set forth in Section
4.12 as if any benefit to the General Partner (including the delay or
avoidance of the recognition of income) and any adverse tax consequences to
the Limited Partners resulting from such guaranty, personal liability or
bearing of risk of loss were attributable to Proposed Regulations prior to
1992; provided, however, that the General Partner's rights pursuant to this
clause (c) are contingent on the General Partner's ability to fully meet
its obligations to make Capital Contributions required under Section 4.12.
SECTION 5.03. DUTIES AND OBLIGATIONS OF THE GENERAL PARTNER.
A. The General Partner shall take all action which may be necessary or
appropriate for the development, maintenance, preservation and operation of the
properties and assets of the Partnership in accordance with the provisions of
this Agreement and applicable laws and regulations (it being understood and
agreed, however, that the direct performance of day-to-day management or
operational services for the Hotel and other properties of the Partnership is
not an obligation of the General Partner as general partner of the Partnership).
B. The General Partner shall not (i) directly or through a subsidiary
engage in any business other than that of acting as general partner of the
Partnership, (ii) pay dividends or make other distributions or payments on its
stock or incur any obligations if, as a result, its net worth would be reduced
below the requirement of Section 5.03C, (iii) merge or consolidate with another
corporation except Host or a wholly-owned direct or indirect subsidiary of Host,
(iv) dissolve, or (v) borrow any funds or become liable for any obligations of
third parties except to the extent that any such borrowings or liabilities are
directly related to meeting the financial needs of the Partnership. The General
Partner further agrees that so long as the General Partner is the general
partner of the Partnership, its parent company, Host, will not transfer its
stock of the General Partner except to a wholly-owned, direct or indirect,
subsidiary of Host.
The General Partner shall devote to the Partnership such time as may be
necessary for the proper performance of its duties hereunder, but the officers
and directors of the General Partner shall not be required to devote their full
time to the performance of duties of the General Partner.
C. The General Partner shall use its reasonable best efforts to maintain
at all times a net worth at a level sufficient to meet all requirements of the
Code and applicable regulations, rulings and revenue procedures of the IRS and
to meet any future requirements set by Congress, the IRS, any agency of the
Federal government or any court of competent jurisdiction, to assure that the
Partnership will be classified for Federal income tax purposes as a partnership
and not as an association taxable as a corporation. These provisions are
designed to ensure that the equity capitalization of the General Partner will be
available to meet any legal obligations which the General Partner may have in
its role as the general partner of the Partnership.
D. The General Partner shall take such action as may be necessary or
appropriate in order to form or qualify the Partnership under the laws of any
jurisdiction in which the Partnership is doing business or owns property or in
which such formation or qualification is necessary in order to protect the
limited liability of the Limited Partners or in order to continue in effect such
formation or qualification. If required by law, the General Partner shall file
or cause to be filed for recordation in the office of the appropriate
authorities of the State of Delaware, and in the proper office or offices in
each other jurisdiction in which the Partnership is formed or qualified, such
certificates (including limited partnership and fictitious name certificates)
and other documents as are required by the applicable statutes, rules or
regulations of any such jurisdiction or as are necessary to reflect the identity
of the Partners and the amounts of their respective Capital Contributions.
E. The General Partner shall be obligated to use its best efforts to
remove any General Partner or Affiliate guaranty, personal liability, and other
risk of loss with respect to any Partnership debt, which was permitted under
Section 5.02B(ix) hereof when such action was incurred, but which subsequently
results in adverse tax consequences to the Limited Partners and which would no
longer be permitted if first being incurred at the time of such adverse
consequences. The General Partner shall use its best efforts, in the conduct of
the Partnership's business, to put all suppliers and other Persons with whom the
Partnership does business on notice that the Limited
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Partners are not liable for Partnership obligations, and all agreements to which
the Partnership is a party shall include a statement to the effect that the
Partnership is a limited partnership organized under the Act; but the General
Partner shall not be liable to any Limited Partner for any failure to give such
notice to such suppliers or other Persons or to have any such agreement fail to
contain such statement.
F. The General Partner shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any Federal, state or
local tax returns required to be filed by the Partnership. The General Partner
shall cause the Partnership to pay any taxes payable by the Partnership.
G. The General Partner shall be under a duty to conduct the affairs of the
Partnership in good faith and in accordance with the terms of this Agreement and
in a manner consistent with the purposes set forth in Section 2.03.
H. The General Partner shall use its best efforts to ensure that the
Partnership shall not be deemed an investment company as such term is defined in
the Investment Company Act of 1940.
SECTION 5.04. COMPENSATION OF GENERAL PARTNER.
The General Partner as general partner of the Partnership shall not in such
capacity receive any salary, fees, profits or distributions except for such
allocations to which it may be entitled under Article Four, Article Five or
Article Eight. Notwithstanding the foregoing, however, the Partnership shall
reimburse the General Partner for the cost of providing any administrative or
other services required or contemplated by this Agreement.
SECTION 5.05. OTHER BUSINESS OF PARTNERS.
Any Limited Partner may engage independently or with others in other
business ventures of every nature and description. Nothing in this Agreement
shall be deemed to prohibit any Affiliate of the General Partner from dealing,
or otherwise engaging in business with Persons transacting business with the
Partnership or from providing services relating to the purchase, sale,
financing, management, development or operation of hotels, motels, restaurants
or other food and lodging facilities and receiving compensation therefor. The
relationship created hereby in or to such other ventures or activities or to the
income or proceeds derived therefrom, and the pursuit of such ventures, even if
competitive with the business of the Partnership, shall not be deemed wrongful
or improper. Neither the General Partner nor any Affiliate of the General
Partner shall be obligated to present any particular opportunity to the
Partnership even if such opportunity is of a character which, if presented to
the Partnership, could be taken by the Partnership, and any Affiliate of the
General Partner shall have the right to take for its own account (individually
or as a trustee, partner or fiduciary) or to recommend to others any such
particular opportunity.
SECTION 5.06. LIMITATION ON LIABILITY OF GENERAL PARTNER; INDEMNIFICATION.
A. Other than pursuant to Section 5.07, the General Partner shall not be
liable to the Partnership or any Limited Partner because any taxing authority
disallows or adjusts any deductions or credits in the Partnership income tax
return unless such action by the taxing authority is due to the negligence of
the General Partner. The indemnification under this subsection is not broader
than any other indemnification contained in this Section 5.06. The General
Partner shall not be liable for the return of the Capital Contributions of the
Limited Partners or for any portion thereof, it being expressly understood that
any return of capital shall be made solely from the assets of the Partnership;
nor shall the General Partner be required to pay to the Partnership or to any
Limited Partner any deficit in the Capital Account of any Partner upon
dissolution or otherwise, except as otherwise provided in Section 8.02E.
B. The General Partner shall have no liability, responsibility or
accountability in damages or otherwise to any other Partner or to the
Partnership for, and the Partnership agrees to indemnify, pay, protect and hold
harmless the General Partner (on the demand of and to the satisfaction of the
General Partner and to the extent permitted by law) from and against any and all
liabilities, obligations, losses, damages, judgments, suits,
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proceedings, costs, expenses and disbursements of any kind or nature whatsoever
(including, without limitation, all costs and expenses of defense, appeal and
settlement of any and all suits, actions or proceedings threatened or instituted
against the General Partner or the Partnership and all costs of investigations
in connection therewith) which may be imposed on, incurred by, or asserted
against the General Partner or the Partnership in any way relating to or arising
out of, or alleged to relate to or arise out of, any action or inaction on the
part of the Partnership, or on the part of the General Partner as the General
Partner of the Partnership including any action or inaction in connection with
the General Partner acting as Tax Matters Partner or Designated Person under
Section 5.07 or in connection with the results of the study provided in Section
1 1.03B; provided, that the General Partner shall be liable, responsible and
accountable, and the Partnership shall not be liable to the General Partner for
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, proceedings, costs, expenses or disbursements
(including, without limitation, all costs and expenses of defense, appeal and
settlement of any and all suits, actions or proceedings threatened or instituted
against the General Partner or the Partnership and all costs of investigation in
connection therewith) which resulted from the General Partner's own fraud,
negligence, or other breach of fiduciary duty to the Partnership or any Partner.
The satisfaction of the obligations of the Partnership under this Section 5.06
shall be from and limited to the assets of the Partnership and no Limited
Partner shall have any personal liability on account thereof. The provisions of
this indemnification shall also extend to any person performing services on
behalf of the Partnership who is an officer, director or owner of 10% or more of
the voting securities of the General Partner.
C. The General Partner shall have no liability or responsibility hereunder
to make loans, advances or additional Capital Contributions to the Partnership
except as specified in Section 3.04 and Section 4.12 and except as may otherwise
be provided as a matter of law or under the Mortgage Debt. However, except for
advances made pursuant to the Debt Service Guarantee and Foreclosure Guarantee
which will be repaid as noted below, to the extent the General Partner advances
any funds to meet any liabilities or obligations of the Partnership, any such
advances shall be deemed loans to the Partnership by the General Partner and
shall accrue interest per annum at one percentage point in excess of the Prime
Rate payable in arrears on the first day of each Fiscal Quarter and such amounts
shall be due and payable upon that date which is the fifth anniversary of the
date on which any such advances were made; provided, however, that any and all
such advances shall be paid prior to distributions to Partners out of any Cash
Available for Distribution to the Partners, upon the liquidation of the
Partnership, or the sale of the Hotel and the receipt by the Partnership of the
proceeds of such sale. Advances, if any, to the Partnership by the General
Partner or its Affiliates pursuant to the Debt Service Guarantee or Foreclosure
Guarantee will bear interest at one percentage point in excess of the Prime Rate
and will be paid as follows: (i) after the Partnership has distributed the
Priority Return to the Limited Partner; (ii) out of Capital Receipts before any
distribution to the Partner; and (iii) in any event, not later than November 15,
1993. Advances under the Debt Service Guarantee may be secured by a mortgage on
the Hotel junior to the Mortgage Debt.
D. Notwithstanding the foregoing, the General Partner shall not be
indemnified by the Partnership for liabilities arising under Federal and state
securities laws unless (i) there has been a successful adjudication in favor of
the General Partner on the merits of each count involving securities law
violations; (ii) such claims against the General Partner have been dismissed
with prejudice on the merits by a court of competent jurisdiction; (iii)
indemnification of litigation costs is approved by a court of competent
jurisdiction. In any claim for indemnification for Federal or state securities
law violations, the party seeking indemnification shall place before the court
the position, if available, of the Securities and Exchange Commission and the
Massachusetts Securities Division with respect to the issue of indemnification
for securities law violations.
SECTION 5.07. DESIGNATION OF TAX MATTERS PARTNER AND DESIGNATED PERSON FOR
PURPOSES OF INVESTOR LIST.
A. The General Partner shall act as the Tax Matters Partner of the
Partnership, as provided in regulations pursuant to section 6231 of the Code and
as the Designated Person for purposes of maintaining the Investor List. Each
Partner hereby approves of such designation and agrees to execute, certify,
acknowledge, deliver, swear to, file and record at the appropriate public
offices such documents as may be deemed necessary or appropriate to evidence
such approval.
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B. To the extent and in the manner provided by applicable Code sections
and regulations thereunder, the Tax Matters Partner shall furnish the name,
address, profits, interest and taxpayer identification number of each Partner to
the IRS.
C. To the extent and in the manner provided by applicable Code sections
and regulations thereunder, the Tax Matters Partner shall inform each Partner of
administrative or judicial proceedings for the adjustment of Partnership items
required to be taken into account by a Partner for income tax purposes (such
administrative proceedings being referred to as a "tax audit" and such judicial
proceedings being referred to as "judicial review").
D. The Tax Matters Partner is authorized, but not required:
(a) to enter into any settlement with the IRS with respect to any tax
audit or judicial review, and in the settlement agreement the Tax Matters
Partner may expressly state that such agreement shall bind all Partners
except that such settlement agreement shall not bind any Partner who
(within the time prescribed pursuant to the Code and regulations
thereunder) files a statement with the IRS providing that the Tax Matters
Partner shall not have the authority to enter into a settlement agreement
on behalf of such Partner;
(b) in the event that a notice of a final administrative adjustment at
the Partnership level of any item required to be taken into account by a
Partner for tax purposes (a "final adjustment") is mailed to the Tax
Matters Partner, to seek judicial review of such final adjustment,
including the filing of a petition for readjustment with the Tax Court of
the United States Claims Court, or the filing of a complaint for refund
with the District Court of the United States for the district in which the
Partnership's principal place of business is located;
(c) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(d) to file a request for an administrative adjustment with the IRS at
any time and, if any part of such request is not allowed by the IRS to file
an appropriate pleading (petition or complaint) for judicial review with
respect to such request;
(e) to enter into an agreement with the IRS to extend the period for
assessing any tax which is attributable to any item required to be taken
into account by a Partner for tax purposes, or an item affected by such
item; and
(f) to take any other action on behalf of the Partners or the
Partnership in connection with any tax audit or judicial review proceeding
to the extent permitted by applicable law or regulations.
E. Notwithstanding any other provision of this Agreement, the Partnership
shall indemnify and reimburse, to the full extent provided by law, the Tax
Matters Partner for all expenses, including legal and accounting fees (as such
fees are incurred), claims, liabilities, losses and damages incurred in
connection with any tax audit or judicial review proceeding with respect to the
tax liability of the Partners, the payment of all such expense to be made before
the distribution of Cash Available for Distribution to the Partners. Neither
the General Partner nor any of its Affiliates nor other person shall be
obligated to provide funds for such purpose.
The taking of any action and the incurring of any expense by the Tax
Matters Partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole discretion of the Tax Matters Partner
and the provisions on limitations of liability of the General Partner and
indemnification set forth in Section 5.06 of this Agreement shall be fully
applicable to the Tax Matters Partner in its capacity as such. The
indemnification under this subsection is no broader than any other
indemnification contained in this Section 5.06.
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ARTICLE SIX
WITHDRAWAL AND REMOVAL OF GENERAL PARTNER
SECTION 6.01. LIMITATION ON VOLUNTARY WITHDRAWAL.
Except as permitted in Section 5.02B, the General Partner shall not retire
or withdraw voluntarily from the Partnership. The General Partner shall not
sell, transfer or assign its entire general partnership Interest or any portion
thereof other than as provided below. The General Partner shall be permitted to
assign its rights to up to 80% of its interest in the Net Profits, Net Losses,
Losses, Gain, Cash Available for Distribution, Capital Receipts and other
allocations and distributions. The General Partner shall not be permitted to
assign such rights unless the General Partner receives an opinion of counsel
that such assignment shall not cause any adverse tax consequences to the
Partnership or the Limited Partners or cause a default under any Partnership
debt obligation. Notwithstanding anything to the contrary set forth in this
Agreement, notwithstanding the assignment by the General Partner of its Interest
in the Partnership, upon any such assignment (i) the General Partner shall not
cease to be a general partner of the Partnership, and shall continue to be a
general partner of the Partnership, and (ii) the General Partner shall not cease
to have any and all rights and powers of a general partner under this Agreement
and the Act and the power to exercise any and all rights and powers of a general
partner under this Agreement and the Act and shall continue to have any and all
such rights and powers and the assignee shall not acquire any such rights and
powers of a general partner.
SECTION 6.02. BANKRUPTCY OR DISSOLUTION OF THE GENERAL PARTNER.
In the event of the bankruptcy or dissolution of the General Partner, the
General Partner shall immediately cease to be the General Partner and its
Interest shall terminate; provided, however, that such termination shall not
affect any rights or liabilities of the General Partner which matured prior to
such event, or the value, if any, at the time of such event of the Interest of
the General Partner.
SECTION 6.03. LIABILITY OF WITHDRAWN GENERAL PARTNER.
If the General Partner shall cease to be the General Partner of the
Partnership, it shall be and remain liable for all obligations and liabilities
incurred by it as General Partner prior to the time such withdrawal shall have
become effective, but it shall be free of any obligation or liability incurred
on account of the activities of the Partnership from and after the time such
withdrawal shall have become effective.
SECTION 6.04. REMOVAL OF GENERAL PARTNER.
In the event of the removal of the General Partner pursuant to Section
10.02B, the removed General Partner's Interest as General Partner in the
Partnership shall become a limited partnership interest but without any voting
or consensual rights which other Limited Partners may have.
SECTION 6.05. SUBSTITUTE GENERAL PARTNER.
If the General Partner shall withdraw, be removed, dissolve or become
bankrupt, it shall promptly notify the Limited Partners and thereafter the
Limited Partners may elect by written vote of Limited Partners holding all of
the Units within 90 days of such withdrawal, removal, dissolution or bankruptcy
to continue the Partnership and appoint a substitute general partner effective
as of the withdrawal, removal, dissolution or bankruptcy of the retiring General
Partner. Within 120 days following the withdrawal, removal, dissolution or
bankruptcy of the General Partner, in the event action pursuant to this Section
6.05 is not taken, the Limited Partners, acting by affirmative vote of a
majority in interest thereof, may elect in writing to reconstitute and continue
the business of the Partnership by forming a new partnership upon terms
identical to the terms set forth in this Agreement. Any such
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election must also provide for the election of a general partner to the new
partnership. If such an election is made, all of the Limited Partners of the
Partnership shall continue as Limited Partners of the new limited partnership.
ARTICLE SEVEN
ASSIGNABILITY OF UNITS
SECTION 7.01. RESTRICTIONS ON ASSIGNMENTS.
After the admission to the Partnership of the Limited Partners, no Limited
Partner shall have the right to assign any Interest except with the Consent of
the General Partner, the giving or withholding of which is exclusively within
the discretion of the General Partner, and provided further that:
A. No assignment of any Interest may be made other than on the first day
of an Accounting Period; provided, however, that this restriction on the timing
of assignment shall not apply to (i) any transfer of Units (or fractions of
Units) to Hanover Hotel Acquisition Corp. pursuant to Hanover Hotel Acquisition
Corp.'s Offer to Purchase for Cash 40 Outstanding Units of Limited Partnership
Interest, dated March 3, 1997, or (ii) any subsequent assignment of any Units by
Hanover Hotel Acquisition Corp.
B. No assignment of any Interest may be made if the assignment is pursuant
to a sale or exchange of the Interest and if the Interest sought to be assigned,
when added to the total of all other Interests assigned within a period of 12
consecutive months prior thereto, would, in the opinion of legal counsel for the
Partnership, result in the Partnership being deemed to have been terminated
within the meaning of section 708 of the Code. The General Partner shall give
Notification to all Limited Partners in the event that sales or exchanges should
be suspended for such reason. Any deferred sales or exchanges shall be made (in
chronological order to the extent practicable) as of the first day of an
Accounting Period after the end of any such 12-month period, subject to the
provisions of this Article Seven.
C. The General Partner may require that any assignment of an Interest in
the Partnership be made only if the assignor or assignee provides an opinion of
counsel that such assignment would not require filing of a registration
statement under the Securities Act of 1933, as amended, and would otherwise not
be in violation of any Federal or state securities or Blue Sky laws (including
any investment suitability standards) applicable to the Partnership.
D. No purported assignment (i) by the holder of any Unit after which the
assignor or the assignee would hold a fraction of a Unit (other than a one-half
Unit) or (ii) by the holder of a fraction of a Unit of less than all of such
holder's entire fractional Interest, will be permitted or recognized (except for
assignments by gift, inheritance or family dissolution or assignments to
Affiliates of the assignor).
E. No assignment of any Interest may be made if, in the opinion of legal
counsel to the Partnership, it would result in the Partnership being treated as
an association taxable as a corporation.
F. No assignment of any Interest may be made if, in the opinion of legal
counsel to the Partnership, it would result in the Partnership not being able to
obtain or continue in effect any license permitting the service or sale of
alcoholic beverages in the Hotel.
G. No assignment of any Interest may be made to a Tax-Exempt Entity.
SECTION 7.02. ASSIGNEES AND SUBSTITUTED LIMITED PARTNERS.
A. If a Limited Partner dies, the executor, administrator or trustee, or,
if a Limited Partner is adjudicated incompetent or insane, the committee,
guardian or conservator, or, if a Limited Partner becomes bankrupt, the trustee
or receiver of the estate, shall have all the rights of a Limited Partner for
the purpose of settling
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or managing the estate and such power as the decedent or incompetent possessed
to assign all or any part of the Units and to join with the assignee thereof in
satisfying conditions precedent to such assignee becoming a Substituted Limited
Partner. The death, dissolution, adjudication of incompetence or bankruptcy of a
Limited Partner in and of itself shall not dissolve the Partnership.
B. Except for an assignment permitted by the proviso to Section 7.01A, the
Partnership need not recognize for any purpose any assignment of any Interest
unless there shall have been filed with the Partnership a duly executed and
acknowledged counterpart of the instrument making such assignment signed by both
the assignor and the assignee and such instrument evidences the written
acceptance by the assignee of all of the terms and provisions of this Agreement
and represents that such assignment was made in accordance with all applicable
laws and regulations (including investment suitability requirements).
C. Limited Partners who shall assign all their Interests shall cease to be
Limited Partners of the Partnership except that unless and until a Substituted
Limited Partner is admitted in his stead, the assigning Limited Partner shall
not cease to be a Limited Partner of the Partnership and shall retain the
statutory rights and powers of a limited partner under the Act.
D. Any Person who is an assignee of any of the Interests of a Limited
Partner and who has satisfied the requirements of Section 7.01 and Section 7.02B
shall become a Substituted Limited Partner when the General Partner has accepted
such Person as a Limited Partner of the Partnership and the books and records of
the Partnership reflect such Person as admitted to the Partnership as a Limited
Partner and when such Person shall have satisfied the conditions of Section
11.02A and shall have paid all reasonable legal fees and filing costs in
connection with the substitution as a Limited Partner; provided, however, that
the General Partner's consent to the substitution of any assignee of an Interest
as a Substituted Limited Partner may be granted or withheld in its sole
discretion.
E. Any Person who is the assignee of an Interest of a Limited Partner, but
who does not become a Substituted Limited Partner and desires to make a further
assignment of any such Interests, shall be subject to all the provisions of this
Article Seven to the same extent and in the same manner as any Limited Partner
desiring to make an assignment of the Interests.
F. There shall be no restrictions on the assignments of Interests except
as provided in Article Six or this Article Seven.
ARTICLE EIGHT
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
SECTION 8.01. EVENTS CAUSING DISSOLUTION.
A. The Partnership shall be dissolved on the first to occur of the
following events:
(i) the bankruptcy of the Partnership;
(ii) the withdrawal or removal of the General Partner, unless the
Partnership is continued pursuant to Section 6.05;
(iii) the dissolution or bankruptcy of the General Partner, unless
the Partnership is continued pursuant to Section 6.05;
(iv) the sale or other disposition of all of the property of the
Partnership; or
(v) the expiration of the term of the Partnership.
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Dissolution of the Partnership shall be effective on the day on which the
event occurs giving rise to the dissolution. The Partnership shall not
terminate until the assets of the Partnership shall have been liquidated as
provided in Section 8.02. Notwithstanding the dissolution of the Partnership,
prior to the termination of the Partnership, as aforesaid, the business of the
Partnership and the affairs of the Partners as such, shall continue to be
governed by this Agreement.
B. Except as otherwise provided in Section 8.02E, Partners shall look
solely to the assets of the Partnership for all distributions with respect to
the Partnership and their Capital Contribution thereto, and shall have no
recourse therefor (upon dissolution or otherwise) against the General Partner or
any other Limited Partner.
SECTION 8.02. LIQUIDATION.
A. Upon dissolution of the Partnership, the General Partner shall
liquidate the assets of the Partnership and the proceeds of such liquidation
shall be applied and distributed in the following order of priority:
(i) to the payment of the expenses of the liquidation;
(ii) to the payments of Partnership Debt and all other liabilities of
the Partnership owing to creditors of the Partnership other than Partners
who are creditors;
(iii) to the payment of any loans or advances that may have been made
by any of the Partners to the Partnership; and
(iv) pro rata to the General Partner and to the Limited Partners to
reduce any net balances then existing in the Capital Accounts of the
Partners.
B. Notwithstanding the foregoing, in the event the General Partner shall
determine that an immediate sale of all or part of the Partnership assets would
cause undue loss to the Partners, the General Partner, in order to avoid such
loss, may, after having given notification to all the Limited Partners, to the
extent not then prohibited by the limited partnership act of any jurisdiction in
which the Partnership is then formed or qualified and applicable in the
circumstances, either defer liquidation of and withhold from distribution for a
reasonable time any assets of the Partnership except those necessary to satisfy
the Partnership's debts and obligations, or distribute the assets of the
Partnership in kind.
C. If any assets of the Partnership are to be distributed in kind, such
assets shall be distributed on the basis of the fair market value thereof, and
any Partner entitled to any interest in such assets shall receive such interest
therein as a tenant-in-common with all other Partners so entitled. The fair
market value of such assets shall be determined by an independent appraiser to
be selected by random number from a list of three qualified appraisers obtained
by the General Partner from the American Institute of Real Estate Appraisers.
D. The General Partner shall cause the liquidation and distribution of all
the Partnership's assets and shall cause the cancellation of the Partnership's
certificate of limited partnership upon completion of winding up the business of
the Partnership.
E. Upon a dissolution of the Partnership if, after giving effect to
Sections 8.02A through 8.02D hereof for the Fiscal Year in which such
dissolution occurs, there shall be a deficit in the Capital Account of the
General Partner, while there is a positive balance in the capital account of any
other Partner, the General Partner shall contribute to the Partnership (in cash)
the amount of such deficit, which thereupon shall be distributed by the
Partnership pro rata to any Partner possessing a positive balance in his capital
account. Such contribution by the General Partner is to be made to the
Partnership not later than the close of the taxable year in which the
dissolution occurs.
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ARTICLE NINE
BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS, ETC.
SECTION 9.01. BOOKS AND RECORDS.
The books and records of the Partnership shall be maintained by the General
Partner in accordance with applicable law at the principal office of the
Partnership and shall be available for examination at such location by any
Partner or such Partner's duly authorized representatives at any and all
reasonable times for any purpose reasonably related to the Partner's interest in
the Partnership. Any Partner, upon paying the costs of collating, duplication
and mailing, shall be entitled, upon written application to the General Partner,
to a copy of the list of the names and addresses of the Limited Partners and the
number of Units owned by each of them for any purpose reasonably related to the
Partners' interest in the Partnership.
SECTION 9.02. ACCOUNTING AND FISCAL YEAR.
The books of the Partnership will be kept on the accrual basis. The
Partnership will report its operations for tax purposes on the accrual method.
The Fiscal Year of the Partnership shall end December 31 in each year.
SECTION 9.03. BANK ACCOUNTS AND INVESTMENTS.
The bank accounts of the Partnership shall be maintained in such banking
institutions as the General Partner shall determine, and withdrawals shall be
made only in the regular course of Partnership business on such signature or
signatures as the General Partner may determine. All deposits and other funds
not needed in the operation of the business or not yet invested may be invested
as provided in Section 5.01C(v) or in U.S. government securities, securities
issued or guaranteed by U.S. government agencies, securities issued or
guaranteed by states or municipalities, certificates of deposit and time or
demand deposits in commercial banks, bankers' acceptances, savings and loan
association deposits or deposits in members of the Federal Home Loan Bank
System. The funds of the Partners shall not be commingled with the funds of any
other Person.
SECTION 9.04. REPORTS.
The General Partner shall deliver to each Partner the following:
A. As soon as practicable but in no event later than 75 days after the end
of each Fiscal Year of the Partnership, such information as shall be necessary
for the preparation by such Partner of a Federal income tax return, and state
income or other tax returns with regard to the jurisdictions in which the Hotel
is located. Such information shall include computation of the distributions to
such Partner and the allocation to such Partner of the Net Profits or Net
Losses, as the case may be, the Gain or Loss, as the case may be, recognized by
or allocated to the Partnership on the sale of the Hotel or other Partnership
properties during such Fiscal Year; and
B. Within 120 days after the end of each Fiscal Year of the Partnership, a
statement prepared by the General Partner on an accrual basis of accounting
which statement is to be audited and certified by a firm of independent public
accountants selected by the General Partner, setting forth its opinion as to the
items in clauses (i) and (ii) below, which statement shall set forth the
following:
(i) a statement of assets, liabilities and Partners' capital, a
statement of income and expenses on an accrual basis and a statement of
cash flows, and a statement of changes in Partners' capital;
(ii) the balances in the Capital Accounts of the Limited Partners in
the aggregate and of the General Partner;
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(iii) a report (which need not be audited) summarizing the fees,
commissions, compensation and other remuneration and reimbursed expenses
paid by the Partnership for such Fiscal Year to the General Partner or any
Affiliate of the General Partner and the services performed; and
(iv) a budget (which need not be audited) setting forth the expected
Net Profits and Net Losses per Unit, for the current Fiscal Year.
C. Within 75 days after the end of each of the first three Fiscal Quarters
of each Fiscal Year of the Partnership, the General Partner shall send to each
Person who was a Limited Partner at any time during the Fiscal Quarter then
ended (i) a balance sheet (which need not be audited) and (ii) a profit and loss
statement (which need not be audited) and any other pertinent information
regarding the Partnership and its activities during the period covered by the
report.
D. Concurrent with the report sent pursuant to Section 9.04C for the third
Fiscal Quarter of each Fiscal Year, the Partners will be furnished an estimate
of Net Profits or Net Losses per Unit for such Fiscal Year.
E. The General Partner may prepare and deliver to the Limited Partners
from time to time in its sole discretion during each Fiscal Year, in connection
with cash distributions, unaudited statements showing the results of operations
of the Partnership to the date of such statement.
F. The General Partner shall prepare and file such registration
statements, annual reports, quarterly reports, current reports, proxy statements
and other documents, if any, as may be required under the Securities Exchange
Act of 1934 and the rules and regulations of the Securities and Exchange
Commission thereunder.
SECTION 9.05. TAX DEPRECIATION AND ELECTIONS.
A. With respect to all depreciable assets of the Partnership, the General
Partner may, in its sole discretion, elect to use such depreciation method for
Federal tax purposes as it deems appropriate and in the best interest of the
Partners generally.
B. The General Partner shall be permitted in any Fiscal Year to make an
election under section 754 of the Code and such other tax elections as it may
from time to time deem necessary or appropriate.
SECTION 9.06. INTERIM CLOSING OF THE BOOKS.
There shall be an interim closing of the books of account of the
Partnership (i) at the date of the admission to the Partnership of the Original
Limited Partners, (ii) at any time a taxable year of the Partnership ends
pursuant to the Code and (iii) at such other times as the General Partner shall
determine are required by good accounting practice or may be appropriate under
the circumstances.
ARTICLE TEN
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
SECTION 10.01. MEETINGS.
A. Meetings of the Limited Partners for any purpose may be called by the
General Partner and shall be called by the General Partner upon receipt of a
request in writing signed by Limited Partners holding 10% or more of the Units.
Notification of any such meeting shall be sent to the Limited Partners within
ten business days after receipt of such a request. Such request or any
notification from the General Partner shall state the purpose of the proposed
meeting and the matters proposed to be acted upon thereat. Such meeting may be
held at the principal office of the Partnership or at such other location within
the United States as the General Partner may deem
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appropriate or desirable. In addition, the General Partner may, and, upon
receipt of a request in writing signed by Limited Partners holding 25% or more
of the Units, the General Partner shall submit any matter (upon which the
Limited Partners are entitled to act) to the Limited Partners for a vote by
written Consent without a meeting.
B. Notification of any such meeting shall be given not less than 10 days
nor more than 60 days before the date of the meeting, to the Limited Partners at
their record addresses, or at such other address which they may have furnished
in writing to the General Partner. Such Notification shall be in writing, and
shall state the place, date, hour and purpose of the meeting, and shall indicate
that it is being issued at or by the direction of the Partner or Partners
calling the meeting. If a meeting is adjourned to another time or place, and if
any announcement of the adjournment of time or place is made at the meeting, it
shall not be necessary to give Notification of the adjourned meeting. The
presence in person or by proxy of Limited Partners holding a majority of the
Units (which in the case of an Interested Transaction, must include a majority
of the Units held by Limited Partners other than the General Partner and its
Affiliates) shall constitute a quorum at all meetings of the Limited Partners;
provided, however, that if there be no such quorum, Limited Partners holding a
majority of the Units so present or so represented may adjourn the meeting from
time to time without further notice, until a quorum shall have been obtained. No
Notification of the time, place or purpose of any meeting of Limited Partners
need be given to any Limited Partner who attends in person or is represented by
proxy (except when a Limited Partner attends a meeting for the express purpose
of objecting at the beginning of the meeting to the transaction of any business
on the ground that the meeting is not lawfully called or convened), or to any
Limited Partner entitled to such notice who, in a writing executed and filed
with the records of the meeting, either before or after the time thereof, waives
such Notification.
C. For the purpose of determining the Limited Partners entitled to vote at
any meeting of the Partnership or any adjournment thereof, or entitled to
Consent to any matter upon which the Limited Partners are entitled to act by
written Consent without a meeting, the General Partner or the Limited Partners
requesting such meeting may fix, in advance, a date as the record date for any
such determination of Limited Partners. Such date shall be not more than 60
days nor less than 10 days before any such meeting.
D. The Limited Partners may authorize any Person to act for them by Proxy
in all matters in which a Limited Partner is entitled to participate, whether by
waiving notice of any meeting, or voting or participating at a meeting. Every
proxy must be signed by the Limited Partner or the Partner's attorney-in-fact.
No proxy shall be valid beyond the period permitted by law. Every proxy shall
be revocable at the pleasure of the Limited Partner executing it.
E. At each meeting of Limited Partners, the General Partner shall appoint
such officers and adopt such rules for the conduct of such meeting as the
General Partner shall deem appropriate.
F. As and to the extent that the Securities Exchange Act of 1934 is
applicable to the procedural rules governing any meeting of Limited Partners
(including any proxies or proxy statement related thereto), the provisions of
such Act shall take precedence over any provision of this Section 10.01 which
may be inconsistent therewith.
G. If any consents, determinations or votes of Limited Partners, with or
without a meeting, are to be requested, made or taken with respect to an
Interested Transaction, Units held by the General Partner or any of its
Affiliates (other than officers, directors or employees of the General Partner
or any of its Affiliates) shall be voted in the same manner as the vote of
Limited Partners holding, in their capacity as Limited Partners and not as
assignees, a majority of the Units actually voting on the Interested Transaction
(not including those Units held by the General Partner or any of its Affiliates
other than officers, directors or employees of the General Partner or any of its
Affiliates); provided, however, that no Interested Transaction shall be deemed
to be approved unless a majority of the Units held by Limited Partners other
than the General Partner and its Affiliates are present in person or by proxy at
the meeting at which such Interested Transaction is considered, or, if written
consents are sought with respect to such Interested Transaction, consents
representing a majority of the Units held by Limited Partners other than the
General Partner and its Affiliates are returned and not withdrawn prior to the
expiration of the consent solicitation period. With respect to all matters
other than an Interested Transaction, the General Partner and its Affiliates may
vote Units held by them as Limited Partners in their sole and absolute
discretion.
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<PAGE>
SECTION 10.02. SPECIAL VOTING RIGHTS OF LIMITED PARTNERS.
A. If at any time any agreement pursuant to which operating management of
any property of the Partnership is vested in the General Partner or an Affiliate
of the General Partner or in Marriott International, Inc. or any of its
Affiliates and if pursuant to the terms of such agreement the Partnership has a
right to terminate such agreement as a result of the failure of the operation of
such property to attain any economic objective, the Limited Partners, without
the Consent of the General Partner, may upon the affirmative vote of Limited
Partners holding a majority of the Units, take action to exercise the right of
the Partnership to terminate such agreement.
B. To the extent not inconsistent with applicable law, in the event that
the General Partner has breached its obligations under Section 5.03B, has
committed any act of fraud or has committed and not, within a reasonable period
of time, remedied any act of bad faith or gross negligence in carrying out its
duties as the general partner, Limited Partners holding a majority of the Units
may, without the Consent of the General Partner, vote to:
(i) amend this Agreement, provided, however, that the allocable
percentage interests of the Partners in the allocations set forth in
Article Four may not be altered, and no new material obligation may be
imposed on any Partner without such Partner's approval;
(ii) dissolve the Partnership; or
(iii) remove the General Partner.
ARTICLE ELEVEN
MISCELLANEOUS PROVISIONS
SECTION 11.01. APPOINTMENT OF GENERAL PARTNER AS ATTORNEY-IN-FACT.
A. Each Limited Partner, including each Substituted Limited Partner, by
the execution and delivery of this Agreement, irrevocably constitutes and
appoints the General Partner and the President, any Vice President, Secretary,
Treasurer, Assistant Secretary and Assistant Treasurer of any corporate General
Partner as his true and lawful attorney-in-fact with full power and authority in
such Limited Partner's name, place, and stead to execute, acknowledge, deliver,
swear to, file, and record at the appropriate public offices such documents as
may be necessary or appropriate to carry out the provisions of this Agreement,
including but not limited to:
(i) all counterparts of this Agreement, and any amendment or
restatement thereof, including all certificates and instruments, which the
General Partner deems appropriate to form, qualify or continue the
Partnership as a limited partnership (or a partnership in which the Limited
Partners will have limited liability comparable to that provided by the
Act) in the jurisdictions in which the Partnership may conduct business or
in which such formation, qualification or continuation is, in the opinion
of the General Partner, necessary or desirable to protect the limited
liability of the Limited Partners;
(ii) all amendments to this Agreement adopted in accordance with the
terms hereof and all instruments which the General Partner deems
appropriate to reflect a change or modification of the Agreement in
accordance with the terms hereof;
(iii) all documents or instruments which the General Partner deems
appropriate to reflect the admission of a Limited Partner (including any
Substituted Limited Partner), in accordance with this Agreement, the
dissolution of the Partnership, sales or transfers of Partnership property,
sales or transfers of Partnership Interests, or the initial amount or
increase or reduction in amount of any Partner's Capital Contribution or
reduction in any Partner's Capital Account;
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<PAGE>
(iv) any instrument or document requested by the Partnership or any
purchaser of the Interest of a Defaulting Limited Partner under the
provisions of Section 3.05 of this Agreement;
(v) all documents, including but not limited to financing statements,
necessary or appropriate to perfect and continue the Partnership's security
interest in such Limited Partner's Interest; and
(vi) any instrument, certificate or document to implement the
provisions of Section 5.01C (vi).
B. The appointment by all Limited Partners of the General Partner and the
aforesaid officers of any corporate General Partner as attorney-in-fact shall be
deemed to be a power coupled with an interest, in recognition of the fact that
each of the Partners under this Agreement will be relying upon the power of the
General Partner to act as contemplated by this Agreement in any filing and other
action by it on behalf of the Partnership, and shall survive, and not be
affected by the subsequent bankruptcy, death, incapacity, disability,
adjudication of incompetence or insanity, or dissolution of any Person hereby
giving such power and the transfer or assignment of all or any part of the Units
or Interest of such Person; provided, however, that in the event of the transfer
by a Limited Partner of all of such Limited Partner's Interest, the foregoing
power of attorney of a transferor Partner shall survive such transfer only until
such time as the transferee shall have been admitted to the Partnership as a
Substituted Limited Partner and all required documents and instruments shall
have been duly executed, filed and recorded to effect such substitution.
SECTION 11.02. AMENDMENTS.
A. Each Limited Partner, Substituted Limited Partner and any successor
General Partner shall become a signatory hereof by signing such number of
counterpart signature pages to this Agreement and such other instrument or
instruments, and in such manner, as the General Partner shall determine. By so
signing, each Limited Partner, Substituted Limited Partner or successor General
Partner, as the case may be, shall be deemed to have adopted, and to have agreed
to be bound by all the provisions of, this Agreement subject to the provisions
of Section 7.02D.
B. In addition to the amendments otherwise authorized herein, amendments
may be made to this Agreement from time to time by the General Partner with the
Consent of the holders of a majority of the Units provided, however, that
without the Consent of all Partners, this Agreement may not be amended so as to
(i) convert the Interest of a Limited Partner into a general partner's Interest;
(ii) modify the limited liability of a Limited Partner; (iii) alter the Interest
of a Partner in Net Profits, Net Losses, or Gain or Loss or distributions of
Cash Available for Distribution, Sale Proceeds, Refinancing Proceeds or reduce
the percentage of Partners which is required to Consent to any action hereunder;
(iv) modify the liability of the General Partner as provided in Section 3.08;
(v) permit the General Partner to take any action prohibited by Section 5.02;
(vi) cause the Partnership to be treated for Federal income tax purposes as an
association taxable as a corporation; or (vii) effect any amendment or
modification to this Section 11.02B.
C. If this Agreement shall be amended as a result of adding or
substituting a Limited Partner, the amendment to this Agreement shall be signed
by the General Partner and by the Person to be substituted or added and, if a
Limited Partner is to be substituted, by the assigning Limited Partner. If this
Agreement shall be amended to reflect the withdrawal or removal of the General
Partner when the business of the Partnership is being continued, such amendment
shall be signed by the withdrawing General Partner (and the General Partner
hereby so agrees) and by the successor General Partner.
D. In making any amendments, there shall be prepared and filed for
recordation by the General Partner such documents and certificates as shall be
required to be prepared and filed, no such filing being required solely by
reason of this Agreement, under the Act and under the laws of the other
jurisdictions under the laws of which the Partnership is then formed or
qualified, not less frequently, in the case of a substitution of a Limited
Partner, than once each calendar quarter.
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E. The General Partner may, without the Consent of the Limited Partners,
make any amendment to this Agreement as is necessary to clarify the provisions
hereof so long as such amendment does not affect the rights of the Limited
Partners or assignees of their Interests under this Agreement in any material
respect.
SECTION 11.03. GENERAL PARTNER REPRESENTATIONS AND WARRANTIES.
The General Partner represents that the Partnership shall not incur the
cost of any insurance which insures any party against any liability as to which
such party is prohibited from being indemnified under this Agreement.
SECTION 11.04. BINDING PROVISIONS.
The covenants and agreements contained herein shall be binding upon, and
inure to the benefit of, the heirs, executors, administrators, personal
representatives, successors and assigns of the respective parties hereto.
SECTION 11.05. APPLICABLE LAW.
This Agreement shall be construed and enforced in accordance with the laws
of the State of Delaware.
SECTION 11.06. COUNTERPARTS.
This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that all the parties have not signed the same counterpart.
SECTION 11.07. SEPARABILITY OF PROVISIONS.
Each provision of this Agreement shall be considered separable and if for
any reason any provision or provisions hereof are determined to be invalid and
contrary to any existing or future law, such invalidity shall not impair the
operation of or affect those portions of this Agreement which are valid.
SECTION 11.08. ARTICLE AND SECTION TITLES.
Article and section titles are for descriptive purposes only and shall not
control or alter the meaning of this Agreement as set forth in the text.
SECTION 11.09. SHORT FORM FILINGS.
The General Partner shall have authority to sign any short-form Certificate
of Limited Partnership or restated or amended Certificate of Limited Partnership
meeting the requirement of applicable law which reflects this Agreement, as same
may be amended.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
GENERAL PARTNER:
MARRIOTT HANOVER HOTEL CORPORATION
By
-----------------------------------------
Bruce F. Stemerman
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<PAGE>
President, Director and Treasurer
LIMITED PARTNERS:
By: MARRIOTT HANOVER HOTEL CORPORATION as,
Attorney-in-Fact for all the Limited Partners
By
-----------------------------------------
Bruce F. Stemerman
President, Director and Treasurer
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<PAGE>
ACKNOWLEDGMENT
State Of New York )
County of New York )
On this _____ day of _____________, 1997, before me personally
appeared _______________, to me known, who, first by me duly sworn, did depose
and say that he is the _______________ of Marriott Hanover Hotel Corporation
that he knows the seal of such corporation and that such seal hereto affixed is
such seal and that it was so affixed by order of the Board of Directors of
Marriott Hanover Hotel Corporation and that he signed his name thereof on behalf
of the General Partner by order of the Board of Directors of Marriott Hanover
Hotel Corporation.
In Witness Whereof, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/________________________________
(SEAL) Notary Public for:
My Commission Expires:
ACKNOWLEDGMENT
State Of New York )
County of new York )
On this _____ day of __________, 1997, before me personally appeared
__________________ to me known, who, first by me duly sworn, did depose and say
that he is the __________________ of Marriott Hanover Hotel Corporation that he
knows the seal of such corporation and that such seal hereto affixed is such
seal and that it was so affixed by order of the Board of Directors of Marriott
Hanover Hotel Corporation, and that he signed his name thereto on behalf of the
General Partner as attorney in fact for all the Limited Partners of the
Partnership.
In Witness Whereof, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/ ______________________________
(SEAL) Notary Public for:
My Commission Expires:
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<PAGE>
Exhibit A
$84,440 per Unit _________ 1986
___ Units
LIMITED PARTNER NOTE
For Value Received, the undersigned promises to pay to the order of Hanover
Marriott Limited Partnership, a Delaware limited partnership (the "Partnership")
at its offices at 10400 Fernwood Road, Bethesda, MD 20058, or at such other
place as the holder hereof from time to time shall designate in writing to the
undersigned, the principal sum of Eighty-four Thousand Four Hundred Forty
Dollars ($84,440) per Unit for the number of Units set forth above, without
interest, in the following installments per Unit at the following times:
Due Date Amount
-------- ------
March 15, 1987...................$25,000 per Unit for the number of
Units set forth above
March 15, 1988...................$22,500 per Unit for the number of
Units set forth above
March 15, 1989...................$22,500 per Unit for the number of
Units set forth above
March 15, 1990...................$14,440 per Unit for the number of
Units set forth above
In the event the undersigned fails to pay in lawful money of the United
States of America any amount which he is required to pay to the Partnership on
or before the tenth day following the date when such amount is due and payable,
a late payment fee of five percent (5%) of the amount of the overdue payment
shall be added to the amount due. If default shall continue beyond 30 days after
notice thereof to the undersigned, in addition to the aforesaid late charge, the
unpaid portion of such installment shall bear interest from the due date of such
installment until paid in full at a rate equal to the lesser of four percentage
points in excess of the base rate of interest announced from time-to-time by
Bankers Trust Company, New York, New York, charged to its best commercial
customers, or the maximum rate permitted by law. In no event may the late
charge, if deemed to be interest under law, when added to any interest exceed
the rate permitted by law. If the default continues beyond 30 days after notice
thereof to the undersigned, the general partner of the Partnership (the "General
Partner") shall also have the option of accelerating the payment of the entire
unpaid balance of the note, and exercising all of the Partnership's rights and
remedies under the Partnership Agreement, as hereinafter defined.
The undersigned shall have the right to repay, in whole or in part, at any
time, the unpaid principal balance to this note.
All the provisions of the Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement") regarding this note are incorporated
herein by reference.
The undersigned agrees that in the event his subscription for a limited
partnership interest in the Partnership is reduced, this note may be modified by
the General Partner in its sole discretion, to reflect a
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corresponding reduction of the principal amount hereof, and the General Partner
shall allocate such reduction equally among the installment payments due under
this note.
This note may not be modified orally, and shall be governed by, enforced,
determined and construed in accordance with the laws of the State of Delaware.
The undersigned hereby consents to the non-exclusive jurisdiction and venue of
the courts of the State of Delaware and of the United States for the District of
Delaware in connection with the collection of this note or any matter relating
thereto and hereby irrevocably appoints the General Partner as its agent to
receive service of process in the State of Delaware in connection with any such
matter.
In the event of default, the undersigned agrees to pay the costs of
collection, including, without limitation, reasonable attorneys' fees and
disbursements and court costs.
The undersigned waives presentment, demand for payment, notice of dishonor,
notice of protest, protest and all other notices or demands in connection with
the delivery, acceptance, performance, default, endorsement or guaranty of this
instrument, except as set forth in the Partnership Agreement. No failure or
delay by the holder of this note in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof or course of dealing preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
To secure repayments of the outstanding amounts hereunder, the undersigned
has, pursuant to the Partnership Agreement, hereby granted to the Partnership a
security interest in all of the undersigned's right, title and interest in the
undersigned's limited partnership interest in the Partnership. In the event that
this note is negotiated, endorsed, assigned, transferred and/or pledged, all
references to the Partnership shall apply to the one which receives the
Partnership's interest as if the one instead of the Partnership was named as the
original payee under this note.
If any part of this note is determined by any court to be invalid or
unenforceable, the remaining portions of this note will remain in effect. Any
ambiguity or uncertainty in the note will be construed in favor of the
Partnership.
The terms of this note shall be binding upon and inure to the benefit of
the respective successors and assigns of the Partnership and the undersigned.
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All definitions as used herein shall have the same meaning as such terms
are used in the Partnership Agreement:
If Subscriber is an individual:
____________________________________ ____________________________________
Print Name of Subscriber Signature of Subscriber
____________________________________ ____________________________________
Print Name of Co-Subscriber (if any) Signature of Co-Subscriber (if any)
If Subscriber is a corporation, partnership or trust:
By:_____________________________________________________________________________
Print Name of Subscribing Entity
____________________________________ ____________________________________
Print Name of Authorized Signature of Authorized Officer,
Officer, Partner or Trustee Partner or Trustee
____________________________________
Print Title of Authorized,
Partner or Trustee
____________________________________ ____________________________________
Print Name of Co-Trustee Signature of Co-Trustee
(if required by trust instrument) (if required by trust instrument)
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<PAGE>
LEASE AGREEMENT
---------------
This Amended and Restated Lease Agreement (the "Lease") is executed as of
the 29th day of July, 1986, ("Effective Date"), by and between MARRIOTT
CORPORATION, a Delaware corporation with its principal address at 10400 Fernwood
Road, Bethesda, Maryland 20058 ("Landlord") and MARRIOTT HOTEL SERVICES, INC., a
Delaware corporation with its principal address at 10400 Fernwood Road,
Bethesda, Maryland 20058 ("Tenant").
W I T N E S S E T H:
WHEREAS, Landlord plans to construct and equip a hotel in Hanover, New
Jersey, as more fully described in Section 1.01 hereof; and
WHEREAS, Landlord desires to lease said hotel to Tenant and Tenant desires
to lease same from Landlord.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I - LEASE OF PROPERTY
- -----------------------------
1.01 Granting Clause..................................... 2
ARTICLE II - DEFINITION OF TERMS
- --------------------------------
2.01 Definition of Terms................................. 3
2.02 Terms Defined in Other Sections..................... 10
ARTICLE III - THE HOTEL
- -----------------------
3.01 Construction........................................ 12
3.02 Ownership of Site and Hotel......................... 12
3.03 No Covenants or Restrictions........................ 13
ARTICLE IV - TERM
- -----------------
4.01 Term................................................ 14
4.02 Landlord's Right to Terminate....................... 15
ARTICLE V - RENTALS
- -------------------
5.01 Annual Rentals During Initial Term and
Renewal Terms..................................... 16
5.02 Accounting and Interim Payment...................... 18
ARTICLE VI - PRE-OPENING ACTIVITIES
- -----------------------------------
6.01 Description......................................... 20
6.02 Pre-Opening Expenses................................ 21
ARTICLE VII - WORKING CAPITAL AND FIXED ASSET SUPPLIES
- ------------------------------------------------------
7.01 Working Capital and Inventories..................... 22
7.02 Fixed Asset Supplies................................ 22
ARTICLE VIII - MAINTENANCE, REPLACEMENT AND CHANGES
- ---------------------------------------------------
8.01 Repairs and Maintenance............................. 24
8.02 Repairs and Equipment Reserve....................... 24
8.03 Alterations and Improvements........................ 28
8.04 Liens............................................... 29
8.05 Ownership of Replacements, Etc. .................... 30
i
<PAGE>
Page
----
ARTICLE XI - BOOKKEEPING AND BANK ACCOUNTS
- ------------------------------------------
9.01 Books and Records................................... 31
9.02 Hotel Accounts...................................... 32
9.03 Annual Operating Projection......................... 32
9.04 Operating Loss; Credit.............................. 33
ARTICLE X - TRADEMARK AND TRADENAME
- -----------------------------------
10.01 Marriott Name....................................... 34
10.02 Fixed Asset Supplies................................ 35
10.03 Breach of Covenant.................................. 35
ARTICLE XI - POSSESSION AND USE OF HOTEL
- ----------------------------------------
11.01 Quiet Enjoyment..................................... 36
11.02 Actions for Quiet Occupation........................ 36
11.03 Use................................................. 37
11.04 Chain Services...................................... 38
11.05 Landlord's Right to Inspect......................... 39
ARTICLE XII - INSURANCE
- -----------------------
12.01 Property Insurance.................................. 40
12.02 Operational Insurance............................... 41
12.03 Coverage............................................ 42
12.04 Cost and Expense.................................... 43
12.05 Policies and Endorsements........................... 44
12.06 Insurance Requirements Under First Mortgage......... 45
ARTICLE XIII - TAXES
- --------------------
13.01 Real Estate and Property Taxes...................... 46
13.02 Investment Tax Credit............................... 47
ARTICLE XIV - HOTEL EMPLOYEES
- -----------------------------
14.01 Employees........................................... 48
ARTICLE XV - DAMAGE, CONDEMNATION AND FORCE MAJEURE
- ---------------------------------------------------
15.01 Damage and Repair................................... 49
15.02 Condemnation........................................ 50
15.03 Force Majeure....................................... 53
15.04 Damage, Condemnation and Force
Majeure Under First Mortgage..................... 53
ii
<PAGE>
Page
----
ARTICLE XVI - DEFAULTS
- ----------------------
16.01 Defaults............................................ 55
16.02 Remedies Cumulative................................. 56
ARTICLE XVII - WAIVER, PARTIAL INVALIDITY
- -----------------------------------------
17.01 Waiver.............................................. 58
17.02 Partial Invalidity.................................. 58
ARTICLE XVIII - ASSIGNMENT
- --------------------------
18.01 Assignment.......................................... 59
18.02 Subordination....................................... 61
18.03 Transfer of Hotel to Lender under
First Mortgage.................................... 62
ARTICLE XIX - SALE OF HOTEL
- ---------------------------
19.01 Right of First Refusal.............................. 64
ARTICLE XX - ARBITRATION
- ------------------------
20.01 Arbitration......................................... 68
ARTICLE XX - MISCELLANEOUS
- --------------------------
21.01 Right to Make Lease................................. 70
21.02 Consents............................................ 70
21.03 Lessor and Lessee................................... 71
21.04 Applicable Law...................................... 71
21.05 Recordation......................................... 71
21.06 Headings............................................ 71
21.07 Certificates........................................ 72
21.08 Notices............................................. 72
21.09 Entire Agreement.................................... 73
21.10 Termination......................................... 73
21.11 Brokers............................................. 75
21.12 Indemnification..................................... 75
21.13 Confidentiality..................................... 76
Exhibit A - The Site
Exhibit B - Permitted Exceptions
iii
<PAGE>
LEASE AGREEMENT
---------------
This Amended and Restated Lease Agreement (The "Lease") is executed as of
the 29th day of July, 1986, ("Effective Date"), by and between MARRIOTT
CORPORATION, a Delaware corporation with its principal address at 10400 Fernwood
Road, Bethesda, Maryland 20058 ("Landlord") and MARRIOTT HOTEL SERVICES, INC., a
Delaware corporation with its principal address at 10400 Fernwood Road,
Bethesda, Maryland 20058 ("Tenant").
WITNESSETH:
WHEREAS, Landlord plans to construct and equip a hotel in Hanover, New
Jersey, as more fully described in Section 1.01 hereof; and
WHEREAS, Landlord desires to lease said hotel to Tenant and Tenant desires to
lease same form Landlord.
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereto agree as follows:
- 1 -
<PAGE>
ARTICLE I
LEASE OF PROPERTY
-----------------
1.01 Granting Clause
---------------
A. In consideration of the rentals, covenants and agreements to be paid,
kept and performed hereunder, Landlord, for the term and upon the conditions
hereinafter set forth, leases to Tenant and Tenant leases and takes from
Landlord that certain parcel of land in Hanover, New Jersey shown on Exhibit "A"
hereto (the "Site"), together with the improvements presently located and to be
located thereon, and the furniture, furnishings, fixtures and equipment now or
hereafter placed thereon (said improvements, plus said furniture, furnishings,
fixtures and equipment, shall hereinafter be referred to as the "Hotel").
END OF ARTICLE I
- 2 -
<PAGE>
ARTICLE II
DEFINITION OF TERMS
-------------------
2.01 Definition of Terms
-------------------
The following terms when used in this Lease shall have the meanings
indicated:
A. "Accounting Period" shall mean the four (4) week accounting periods
-----------------
having the same beginning and ending dates as Tenant's four (4) week accounting
periods, except that an Accounting period may occasionally contain up to five
(5) weeks when necessary to conform Tenant's accounting system to the calendar.
B. "Consumer Price Index" means the most recent Consumer Price Index for
--------------------
All Urban Consumers, New York and Northeast Region, issued and published by the
Bureau of Labor Statistics of the United States Department of Labor (1967=100),
or, if the aforesaid Consumer Price Index is not at that time so prepared and
published or legally available, then based upon a reliable governmental or
non--partisan publication, any reasonable substitute or successor index selected
by Tenant evaluating changes in the cost of living, appropriately adjusted for
changes in the manner in which such index is prepared and/or the year upon which
such index is based.
C. "Debt Service" shall equal, with respect to each Partial Fiscal Year and
------------
each Fiscal Year, (i) the amount of principal and interest on the First Mortgage
payable during
- 3 -
<PAGE>
such period, not including any "balloon payments" made with respect thereto,
plus (ii) Landlord's reasonable and accountable administrative expenses payable
during such period. In the event of a refinancing of the First Mortgage, Debt
Service shall be calculated using the interest rate and amortization schedule of
such refinancing applied to the lesser of (i) the outstanding principal balance
of the loan at the time of the refinancing, or (ii) $36,500,000. In the event
Tenant requests (or Landlord requests and Tenant approves) that the Hotel be
expanded, Debt Service will include the principal and interest payments payable
during such period on the loan approved by Landlord and Tenant for such
expansion, not including "balloon payments" made with respect thereto.
D. "First Mortgage" shall mean that instrument which secures the permanent
--------------
first-lien financing from the National Bank of Canada for the Hotel in the
principal amount of Thirty-six Million Five Hundred Thousand Dollars
($36,500,000). Unless specifically stated to the contrary elsewhere herein, the
term "First Mortgage" shall not include renewals, extensions, amendments or
refinancings of said instrument.
E. "Fiscal Year" shall mean the same period as Tenant's Fiscal Year, which
-----------
now begins at 12:01 a.m. on the first Saturday following the Friday closest to
December 31 of each calendar year and shall consist of thirteen (13) Accounting
- 4 -
<PAGE>
Periods, thus providing a Fiscal Year of fifty-two (52) weeks, except that when
appropriate (every five or six years), a Fiscal Year shall contain fifty-three
(53) weeks. The first full Fiscal Year shall begin on the Saturday following the
Friday closest to the first December 31st following the Opening Date. Any period
between the Opening Date and the beginning of the first full Fiscal Year of the
Initial Term, as well as any period between the last full Fiscal Year and the
expiration or termination of the Lease, shall be considered a "Partial Fiscal
Year," If Tenant's Fiscal Year is changed in the future, appropriate adjustments
in the Lease's accounting and reporting procedures shall be made; provided,
however, that no such change or adjustments shall in any way alter the Term of
the Lease or in any way reduce or diminish the Rentals due Landlord.
F. "Fixed Asset Supplies" shall mean supply items included within "Property
--------------------
and Equipment" under the Uniform System of Accounts (as hereinafter defined)
including linen, china, glassware, silver, uniforms, and similar items.
G. "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),
before commissions and discounts for prompt or cash payments, from: the rental
of rooms, stores, offices, exhibit or sales space of every kind; license, lease
and concession fees and rentals;
- 5 -
<PAGE>
income from vending machines; health club membership fees; food and beverage
sales; wholesale and retail sales of merchandise; service charges; and the
proceeds, if any, from business interruption or other loss of income insurance;
provided, however, that Gross Revenues shall not include: (i) gratuities to
Hotel employees; (ii) Federal, state and municipal excise, sales and use taxes
or similar impositions collected directly from patrons or guests or included as
part of the sales price of any goods or services; (iii) the proceeds of casualty
and public liability insurance; (iv) condemnation awards; or (v) gross receipts
of licensees, sublessees and concessionaires which are not owned by or
affiliated with Tenant.
H. "Inventories" shall mean "Inventories" as defined in the Uniform System
-----------
of Accounts, such as provisions in storerooms, refrigerators, pantries and
kitchens; beverages in wine cellars and bars; other merchandise intended for
sale; fuel; mechanical supplies, stationery; and other expensed supplies and
similar items.
I. "Opening Date" shall mean July 30, 1986.
------------
J. "Operating Loss" shall mean a negative Operating Profit.
--------------
K. "Operating Profit" shall mean for each Fiscal Year (and Partial Fiscal
----------------
Year) the excess of Gross Revenues over the following deductions ("Deductions"),
as determined under the Uniform System of Accounts except as otherwise
- 6 -
<PAGE>
specifically provided for herein, to be paid by Tenant in operating the Hotel
in the following order:
1. The cost of sales, salaries, wages, fringe benefits, payroll taxes and
other costs related to Hotel employees;
2. Departmental expenses; administrative and general expenses and the cost
of Hotel advertising and business promotion; heat, light, power and all other
utility costs; and routine repairs, maintenance and minor alterations under
Section 8.01;
3. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of the Hotel;
4. License fees and taxes, if any, payable by or assessed against Landlord
or Tenant related to the Site, the Hotel, to this Lease or to Tenant's operation
of the Hotel (exclusive of income, franchise and similar taxes owed by either
Landlord or Tenant) but including all ad valorem, personal property and real
estate taxes described in Section 13.01, and special public assessments (other
than any such taxes or assessments incurred in the course of the construction of
the Hotel which shall be paid solely by Landlord) levied against the Hotel
during the term of this lease;
5. Insurance costs and expenses as provided in Article XII;
- 7 -
<PAGE>
6. A reserve for uncollectible accounts receivable as reasonably determined
by Tenant;
7. All costs and fees of independent accountants or other third parties who
perform services for the Hotel which are required or permitted hereunder;
8. The cost and expense of technical consultants and operational experts
for specialized services in connection with non-routine Hotel work;
9. An amount equal to three percent (3%) of Gross Revenues for the Hotel's
share of costs and expenses incurred by Tenant or its affiliated companies for
services which benefit all Marriott hotels and which are performed by personnel
not normally located at the Hotel and are not Chain Services (as defined in
Section 11.04). Such services include executive supervision, consulting,
planning, and policy making; corporate finance, personnel and employee
relations, and corporate legal services; trademark protection; research and
development not otherwise allocated among hotels owned, leased or operated by
Tenant, Marriott Corporation or their affiliated companies; and the services of
Tenant's technical, operational and marketing experts making periodic inspection
and consultation visits to the Hotel but not the services of the personnel of
the Architecture and Construction Division of Tenant or Marriott Corporation and
their affiliated companies providing architectural, technical or procurement
services relating to designing and constructing the Hotel;
- 8 -
<PAGE>
10. The Hotel's pro rata share of costs and expenses incurred by Tenant in
providing Chain Services (as defined in Section 11.04);
11. Repairs and Equipment Reserve contributions in accordance with Section
8.02;
12. Such other costs and expenses as are specifically provided for
elsewhere in this Lease or are otherwise reasonably necessary for the proper and
efficient operation of the Hotel.
Specifically excluded from the Deductions (and to be paid solely by
Landlord) are all payments on loans (including, but not limited to, the First
Mortgage and debt owed to the Marriott Corporation and its Affiliates), incurred
with respect to the purchase of the Site and/or the construction, furnishing and
equipping of the Hotel.
Depreciation shall be excluded from the computation of Operating Profit.
L. "Owner's Priority" shall mean (i) One Hundred Thirty Thousand Seven
----------------
Hundred Dollars ($130,700) for the initial Partial Fiscal Year, (ii) Three
Hundred Forty Thousand Seven Hundred Dollars ($340,700) for the first full
Fiscal Year, (iii) Five Hundred Twenty-nine Thousand Seven Hundred Dollars
($529,700) for the second full Fiscal Year, (iv) Seven Hundred Eighteen Thousand
Seven Hundred Dollars ($718,700) for the third full Fiscal Year, and (v) Eight
Hundred Forty Thousand Dollars ($840,000) for the fourth full Fiscal Year and
each Fiscal Year thereafter.
- 9 -
<PAGE>
M. "Termination" shall mean the expiration or sooner cessation of this
-----------
Lease.
N. "Uniform System of Accounts" shall mean the Uniform System of Accounts
--------------------------
for Hotels, Seventh Revised Edition, 1977, as published by the Hotel Association
of New York City, Inc.
O. "Working Capital" shall mean funds which are reasonably necessary for
---------------
the day-to-day operation of the Hotel's business, including, without
limitation, amounts sufficient for the maintenance of change and petty cash
funds, operating bank accounts, receivables, prepaid expenses and funds required
to maintain Inventories, less accounts payable and accrued current liabilities.
2.02 Terms Defined in Other Sections
-------------------------------
As used in this Agreement, the following terms have the meanings specified
in the Sections listed below:
A. "Additional Rental" - Section 5.01 E.
-----------------
B. "Adjusted Rental" - Section 5.01 D.
---------------
C. "Annual Operating Projection" - Section 9.03.
---------------------------
D. "Annual Rental" - Section 5.01 A.
-------------
E. "Basic Rental" - Section 5.01 C.
------------
F. "Building Estimate" - Section 8.03.
-----------------
G. "Chain Services" - Section 11.04.
--------------
H. "Deductions" - Section 2.01 K.
----------
I. "Effective Date" - Preamble.
--------------
J. "FF&E" - Section 8.02 A 1.
----
- 10 -
<PAGE>
K. "FF&E Estimate" - Section 8.02 D.
-------------
L. "Hotel" - Section 1.01.
-----
M. "Initial Term" - Section 4.01 A.
------------
N. "ITC" - Section 13.02.
---
0. "Landlord" - Preamble.
--------
P. "Lease" - Preamble.
-----
Q. "Minimum Rental" - Section 5.01 B.
--------------
R. "Partial Fiscal Year" - Section 2.01 E.
-------------------
S. "Pre-Opening Estimate" - Section 6.02.
--------------------
T. "Pre-Opening Expenses" - Section 6.02.
--------------------
U. "Renewal Terms" - Section 4.01 B.
-------------
V. "Repairs and Equipment Reserve" - Section 8.02 A.
-----------------------------
W. "Reserve" - Section 8.02 A.
-------
X. "Site" - Section 1.01.
----
Y. "Tenant" - Preamble.
------
END OF ARTICLE II
- 11 -
<PAGE>
ARTICLE III
THE HOTEL
---------
3.01 Construction
------------
Landlord shall, at its sole cost and expense, complete the Hotel, fully
equipped, on the Site.
3.02 Ownership of Site and Hotel
---------------------------
A. Landlord covenants that it holds fee title to the Site and that it will
have, keep and maintain good and marketable fee title interest therein free and
clear of any and all liens, encumbrances or other charges except for (i) the
First Mortgage and any refinancing thereof (or subordinated mortgages if
Landlord so elects and if such subordinated mortgages are permitted under the
First Mortgage or any refinancing), or (ii) other permitted exceptions as set
forth on Exhibit B or elsewhere in the Lease, or (iii) liens, encumbrances or
other charges resulting from the acts of Tenant. Notwithstanding the foregoing,
Landlord (except if (i) the holder of the First Mortgage is landlord under this
Agreement, or (ii) the First Mortgage has been foreclosed upon and a subsequent
purchaser at a foreclosure sale is landlord under this Agreement) specifically
covenants that, it will keep and maintain title free and clear of any and all
mortgages, deeds of trust or similar security instruments unless such
- 12 -
<PAGE>
documentation contains a provision reasonably acceptable to counsel for Tenant
that the Lease will not be subject to forfeiture or Termination other than in
accordance with the terms hereof, notwithstanding a default under such mortgage,
deed of trust or security instrument.
B. Provided Tenant is not in monetary default under the terms and
conditions of the Lease, Landlord shall pay and discharge, at or prior to the
due date, any and all installments of principal and interest due and payable
upon the First Mortgage, other financing or refinancing, and other obligations
listed as specified exclusions from the computation of Operating Profit pursuant
to Section 2.01 K hereof and shall indemnify Tenant from and against all claims,
litigation and damages arising from the failure to make such payments as and
when required.
3.03 No Covenants or Restrictions
----------------------------
Landlord warrants that after the Opening Date the Hotel will not be
encumbered by any covenants or restrictions which would adversely affect the
operation of the Hotel as a first-class hotel. Landlord agrees upon request by
Tenant to sign promptly, and without charge, applications for licenses, permits
or other similar instruments necessary for the operation of the Hotel.
END OF ARTICLE III
- 13 -
<PAGE>
ARTICLE IV
TERM
----
4.01 Term
----
A. The initial term ("Initial Term") of this Lease shall commence on the
Opening Date, and unless sooner terminated as herein provided, shall continue
for twenty-five (25) Fiscal Years beginning with the first Fiscal Year which
occurs after the Opening Date.
B. The term thereafter shall be renewed by Tenant automatically (on the
same terms and conditions contained herein) for each of five (5) successive
periods of ten (10) Fiscal Years ("Renewal Terms") unless Tenant exercises its
option to terminate the Lease by giving Landlord written notice to that effect
not less than twenty-four (24) months prior to the expiration of the then
current term. Notwithstanding the foregoing, if Tenant provides such notice
during such twenty-four (24) month period (and before the expiration of the
then current term), the termination shall be effective on a date which is
twenty-four (24) months after the giving of such notice. Tenant's renewal shall
be effective if and only if Tenant is not in default under the terms and
conditions of the Lease at the time of commencement of such Renewal Term.
- 14 -
<PAGE>
4.02 Landlord's Right to Terminate
-----------------------------
A. Landlord shall have the option to terminate this Lease if in any two of
three consecutive Fiscal Years beginning with any Fiscal Year after the
conclusion of the fifth (5th) Fiscal Year there is an Operating Loss. Landlord's
option to terminate for the reason described in this Section shall be exercised
by written notice served upon Tenant in accordance with Section 21.08 within
sixty (60) days following receipt of the annual statement as set forth in
Section 9.01 for the second Fiscal Year in which there is an Operating Loss in
accordance with the foregoing.
B. Notwithstanding the provisions of Section 4.02 A above, Tenant shall
have the right to avoid Termination by advancing to Landlord, within thirty (30)
days after receipt of the notice of Landlord's exercise of its option to
terminate, an amount as additional rental equal to the Operating Losses during
such two Fiscal Years. Upon making such payment, the exercise of Landlord's
options under Section 4.02 A shall be deemed null and void for the applicable
period to which such option relates, and this Lease shall continue in full force
and effect. Any amounts so paid by Tenant under this Section 4.02 B shall be
Additional Rental and recovered in the same manner as set forth in Section 5.01
E for additional rental.
END OF ARTICLE IV
- 15 -
<PAGE>
ARTICLE V
RENTALS
-------
5.01 Annual Rentals During Initial Term and Renewal Terms
----------------------------------------------------
A. Tenant, in consideration of this Lease, covenants and agrees to pay to
Landlord, in lawful money of the United States, during the Initial Term and any
Renewal Terms of this Lease, the annual rental ("Annual Rental") determined in
accordance with this Section 5.01 plus the sum of the deposits to the Repairs
and Equipment Reserve in accordance with Article VIII (and taxes paid in
accordance with Article XIII). The Annual Rental in any given Fiscal Year shall
equal the greatest of (i) the "Minimum Rental," or (ii) the "Basic Rental," or
(iii) the "Adjusted Rental," as said terms are defined below. The Annual Rental
shall be paid to Landlord in the manner and time set forth in Section 5.02. The
rental hereunder shall commence as of the Opening Date; no rental shall be paid
for the period from the Effective Date to the Opening Date.
B. The minimum rental ("Minimum Rental") shall equal One Hundred Thousand
Dollars ($100,000) per Fiscal Year.
C. The basic rental ("Basic Rental") under this Lease shall equal (subject
to subsection E) eighty percent (80%) of Operating Profit with respect to each
Fiscal Year (and Partial Fiscal Year) during the Initial Term and any Renewal
Terms; provided, however, in the event Landlord refinances the First
- 16 -
<PAGE>
Mortgage (or elects to obtain a second mortgage in lieu of such refinancing) and
the principal amount of the loan secured by such new first mortgage (or First
Mortgage and second mortgage) is not used for and exceeds the outstanding
principal balance of the First Mortgage by (i) Four Million Four Hundred
Twenty-one Thousand Dollars ($4,421,000), and (ii) the reasonable costs of the
transaction, and (iii) any loans made by Marriott Corporation or an affiliate of
Marriott Corporation or any other party with respect to the Hotel after funds
from the refinancing (or second mortgage) are used to pay off the outstanding
balance, if any, on any such loans, the Basic Rental shall be reduced from
eighty percent (80%) to seventy-five percent (75%) of Operating Profit.
D. The adjusted rental ("Adjusted Rental") under this Lease shall equal,
with respect to each Fiscal Year (and Partial Fiscal Year) during the Initial
Term and any Renewal Terms, Debt Service plus the greater of (i) Owner's
Priority, or (ii) for each Fiscal Year through Fiscal Year 1991, fifty percent
(50%) of the amount by which Operating Profit exceeds Debt Service. In no event
shall the Adjusted Rental in any given Fiscal Year (and Partial Fiscal Year)
exceed one hundred percent (100%) of Operating Profit for such period.
E. Tenant shall maintain a record of the amount by which Annual Rental
exceeds Basic Rental in each and every Fiscal Year, plus the cumulative amount
of rental paid pursuant to Section 4.02 B ("Additional Rental"). If, in any
given Fiscal
- 17 -
<PAGE>
Year the Basic Rental exceeds the Adjusted Rental, Annual Rental for such Fiscal
Year shall equal Basic Rental minus the lower of (i) the amount of Additional
Rental then outstanding, or (ii) fifty percent (50%) of such excess, reduced
(but not below zero) by any outstanding balance on any loan made by Marriott
Corporation or any affiliate of Marriott Corporation to any landlord hereunder
with respect to the Hotel, excluding the Deferred Purchase Debt. The cumulative
total of the then existing Additional Rental shall be reduced by the lower of
the two factors listed in the preceding sentence. If there is no Additional
Rental outstanding, there will be no adjustment pursuant to this subsection E.
5.02 Accounting and Interim Payment
------------------------------
A. Within twenty (20) days after the close of each Accounting Period after
the Effective Date, Tenant shall submit an interim accounting to Landlord
showing Gross Revenues and Deductions, Operating Profit and other information
necessary in determining the rental hereunder. Tenant shall transfer with each
accounting any interim amounts due Landlord pursuant to Section 5.02. Minimum
Rental for any Partial Fiscal Year shall be prorated.
B. Calculations of Operating Profit and of rental due hereunder made with
respect to each Accounting Period within a Fiscal Year shall be accounted for
cumulatively. Within
- 18 -
<PAGE>
ninety (90) days after the close of each Fiscal Year, Tenant shall submit an
accounting, as more fully described in Section 9.01, for such Fiscal Year to
Landlord, which accounting shall be controlling over the interim accountings.
Any adjustments required by the Fiscal Year accounting shall be made promptly by
the parties. No adjustment shall be made for any given Fiscal Year for any
Operating Loss in a preceding or subsequent Fiscal Year.
END OF ARTICLE V
- 19 -
<PAGE>
ARTICLE VI
PRE-OPENING ACTIVITIES
----------------------
6.01 Description
-----------
It is recognized that certain activities must be undertaken in order to
assure that the Hotel can function in an appropriate and orderly manner on the
Opening Date and through the end of the first Fiscal Year. Accordingly, Tenant
has or shall:
A. Recruit, train and employ the staff required for the Hotel;
B. Negotiate subleases and/or concession contracts for stores, office space
and lobby space within the Hotel;
C. Undertake pre-opening promotion and advertising, including opening
celebrations and related activities;
D. Test the operations of the Hotel and implement any modifications thereof
if necessary;
E. Provide, for a period to end not later than sixty (60) days from the
Opening Date, a task force of experts and personnel to supervise and assist with
pre-opening and opening operations;
F. Apply for, and use its best efforts to obtain, the licenses and permits
required for the operation of the Hotel as contemplated by this Lease;
G. In general, render such other miscellaneous services incidental to the
preparation and organization of the Hotel's
- 20 -
<PAGE>
operations as may be required for the Hotel to be adequately staffed and capable
of operating on the Opening Date, including development and implementation of
marketing and sales programs, accounting and budgeting controls and similar
operational items.
6.02 Pre-Opening Expenses
--------------------
The expenses relating to much activities ("Pre-Opening Expenses ") shall
include, but not be limited to: salaries and wages (including those of personnel
of Tenant and its affiliated companies); costs of interim office space;
professional fees; telephone expenses; staff hiring and training costs; travel
and moving expenses; costs of entertainment and opening celebrations including
food, beverages and the room accounts of invitees; the cost of heat, light,
power and clean-up expenses not chargeable to the cost of the project;
advertising, public relations and promotional expenses; employee benefits and
meals prior to the Opening Date; classified advertising, agency fees,
recruitment costs and other associated miscellaneous expenses. Tenant has
prepared and submitted an estimate (the "Pre-Opening Estimate") of the
Pre-Opening Expenses to Landlord, which Landlord has approved. Any Pre-Opening
Expenses in excess of the Pre-Opening Estimate reasonably incurred by Tenant
shall be borne by Landlord.
END OF ARTICLE VI
- 21 -
<PAGE>
ARTICLE VII
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
7.01 Working Capital and Inventories
-------------------------------
Tenant shall provide the funds to initially supply the Hotel with the
amount of Working Capital and Inventories which Tenant determines, in its
reasonable business judgment, to be needed for the operation of the Hotel,
presently estimated to be Six Hundred Forty Thousand Dollars ($640,000) for
Working Capital (and Inventories). During the term hereof, Tenant shall maintain
Working Capital at levels which it reasonably believes to be necessary for the
operational requirements of the Hotel. All replacements to Inventories shall be
funded from Gross Revenues and shall constitute a Deduction from Gross Revenues
in determining Operating Profit. The Working Capital and Inventories of the
Hotel shall be the property of Tenant during the term of this Lease and upon
Termination.
7.02 Fixed Asset Supplies
--------------------
Landlord shall provide the funds necessary to initially supply the Hotel
with the necessary quantity and quality of Fixed Asset Supplies, as determined
by Tenant in its reasonable business judgment. The cost of Fixed Asset Supplies
expended during the Hotel's operation shall constitute a Deduction from Gross
Revenues in determining
- 22 -
<PAGE>
Operating Profit. All replacements of Fixed Asset Supplies shall be funded from
Gross Revenues and shall remain the property of Landlord. Upon Termination,
Tenant shall be obligated to deliver to Landlord such Fixed Asset Supplies as
are equal in quantity and comparable in quality to those initially provided by
Landlord, subject to the provisions of Section 10.02.
END OF ARTICLE VII
- 23 -
<PAGE>
ARTICLE VIII
MAINTENANCE, REPLACEMENT AND CHANGES
------------------------------------
8.01 Repairs and Maintenance
-----------------------
Tenant shall maintain the Hotel as a first-class hotel, in good repair and
condition and in conformity with applicable laws and regulations and shall make
or cause to be made such maintenance and routine repairs, replacements and minor
alterations as shall be necessary for such purposes. The cost of such routine
repairs, minor alterations and similar items that are expensed under generally
accepted accounting practices, other than those to be paid from the "Repairs and
Equipment Reserve", shall be paid from Gross Revenues and treated as Deductions
in computing Operating Profit.
8.02 Repairs and Equipment Reserve
-----------------------------
A. Tenant shall, on behalf of Landlord, establish an escrow account
("Repairs and Equipment Reserve" or the "Reserve") in a bank selected by Tenant,
subject to Landlord's approval, which shall be funded as set forth in subsection
B hereof, to cover the cost of:
1. Replacements and renewals to the furniture, furnishings, fixtures
and equipment ("FF&E") of the Hotel; and
2. Certain non-routine repairs and maintenance to the Hotel building
which are normally capitalized under generally accepted accounting principles
such as exterior and
- 24 -
<PAGE>
interior repainting, resurfacing building walls, floors, roofs and parking
areas, and replacing folding walls and the like, but which are not major
repairs, alterations, improvements, renewals or replacements to the Hotel
building's structure or to its mechanical, electrical, heating, ventilating, air
conditioning, plumbing or vertical transportation systems, the cost of which are
Landlord's sole responsibility under Section 9.03.
B. For the first Fiscal Year after the Opening Date, Tenant shall, on
behalf of Landlord, deposit in the Reserve an amount equal to one percent (1%)
of Gross Revenues; for the second Fiscal Year after the Opening Date, Tenant
shall so transfer to the Reserve an amount equal to two percent (2%) of Gross
Revenues; for the third through the fifth Fiscal Years after the opening Date,
Tenant shall so transfer to the Reserve an amount equal to three percent (3%) of
Gross Revenues for each such Fiscal Year; for the sixth through tenth Fiscal
Years after the Opening Date, Tenant shall so transfer to the Reserve an amount
equal to four percent (4%) of Gross Revenues for each such Fiscal Year;
commencing with the eleventh Fiscal Year after the Opening Date and for all
Fiscal Years thereafter, subject to the provisions of subsection F, below,
Tenant shall so transfer to the Reserve an amount equal to five percent (5%) of
Gross Revenues for each such Fiscal Year. All such transfers shall take place
with respect to each Accounting Period, on a pro rata basis,
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<PAGE>
as set forth in Section 5.02 A, and shall be accounted for cumulatively and
adjusted at the close of each Fiscal Year. Any amount remaining in the Repairs
and Equipment Reserve upon Termination shall be paid to Landlord. For the
purposes of this Lease, funds deposited into the Repairs and Equipment Reserve
shall be additional rental to Landlord.
C. Any proceeds from the sale of FF&E no longer necessary to the operation
of the Hotel shall be credited to the Repairs and Equipment Reserve. Any
interest paid upon such account shall also be credited to the Reserve. The
amount that would otherwise be transferred to the Reserve in any given Fiscal
Year shall be reduced by amounts so credited under this subsection C.
D. Each Fiscal Year Tenant shall prepare an estimate (the "FF&E Estimate")
of the expenditures necessary for the replacement of FF&E, as well as the
non-routine repairs and maintenance described in Section 8.02 A 2, during the
next Fiscal Year and shall submit such FF&E Estimate to Landlord at the same
time as it submits the Annual Operating Projection described in Section 9.03.
E. Tenant shall from time to time make such substitutions and replacements
of or renewals to FF&E, as well as the non-routine repairs and maintenance
described in Section 8.02 A 2, as it deems necessary up to the balance in the
Repairs and Equipment Reserve. No expenditures will be made from the Reserve
other than in accordance with the preceding sentence.
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<PAGE>
To the extent reasonably feasible Tenant will follow the FF&E Estimate for such
Fiscal Year in making such expenditures. No expenditures will be made in excess
of the balance in the Reserve without the approval of Landlord. At the end of
each Fiscal Year, any amounts remaining in the Reserve shall be carried forward
to the next Fiscal Year.
F. The annual percentages of Gross Revenues to be placed in the Repairs
and Equipment Reserve as set forth in Section 8.02 B are estimates based upon
Tenant's prior experience with new properties. If, in good faith, Tenant feels
at any time during the term of this Lease that such percentages have become
excessive given the needs of the Hotel, such percentages will be reduced to such
amounts as Tenant deems reasonably necessary for the proper operation of the
Hotel. On the other hand, as the Hotel ages, these percentages may not be
sufficient to maintain the Hotel as a first-class hotel and, therefore, if, in
any given Fiscal Year, the FF&E Estimate prepared in good faith by Tenant
exceeds available funds in the Repairs and Equipment Reserve, Landlord will
either:
1. Agree to increase the annual percentages of Gross Revenues
contributed to the Reserve to provide the additional funds required, or
2. Obtain financing for the additional funds required; in such event,
the principal and interest payments (which shall be on a commercially reasonable
amortization
- 27 -
<PAGE>
basis) with respect to such financing will be treated as Deductions in computing
Operating Profit.
A failure or refusal by Landlord to agree to either 1 or 2 above within a
sixty (60) day period after Tenant's request therefor shall entitle Tenant to
terminate this Lease upon six (6) months' written notice.
8.03 Alterations and Improvements
----------------------------
Tenant will prepare in good faith an annual estimate of major expenditures
for building alterations, improvements, renewa1s and replacements necessary to
maintain and operate the Hotel as a first--class hotel facility ("Building
Estimate") other than those to be paid from the Reserve, and shall submit the
estimate to Landlord for approval at the same time the Annual Operating
Projection is submitted. Tenant will not make any expenditures for such purposes
that have not been approved by Landlord or which would result in insufficient
funds to pay Debt Service under the First Mortgage, provided that if major
changes, repairs, additions, alterations and improvements to the Hotel are
required by reason of any law, ordinance, regulation or order of a competent
government authority, or are otherwise required for the continued safe and
orderly operation of the Hotel, Tenant shall immediately give Landlord notice
thereof and shall be authorized to take appropriate remedial action without
approval in cases of emergency if Landlord does not act.
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<PAGE>
Except during the term of the First Mortgage, if Landlord does not approve the
Building Estimate as in good faith recommended by Tenant within sixty (60) days
after it has been submitted and it is Tenant's reasonable business judgment that
the failure to implement the Building Estimate will adversely affect the
position of the Hotel within its geographical market or as a member of the
Marriott chain of hotels, then Tenant shall have the right at its option to
terminate this Lease upon six (6) months' prior written notice. The cost of all
such alterations, improvements, renewals and replacements shall be borne solely
by Landlord.
Notwithstanding any other provision of this Section 8.03, if Landlord,
in good faith, estimates that the Operating Profit shown in Annual Operating
Projection, plus funds from other sources available to Landlord, are
insufficient to fund major expenditures after payment of Debt Service on the
First Mortgage, then Landlord shall not be required to approve the Building
Estimate and the Tenant may not terminate the Lease.
8.04 Liens
-----
Tenant and Landlord agree that the party obligated to cause or pay for any
maintenance, repair, replacements, alterations or improvements in or to the
Hotel shall not permit any liens to be filed against the Hotel which arise from
such activities. Tenant and Landlord shall cooperate
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<PAGE>
fully in obtaining the release of any liens, and the cost thereof, if the lien
was not occasioned by the fault of either party, shall be a proper Deduction
from Gross Revenues (unless the work with respect to which the lien was filed is
within the scope of Section 8.03, in which case Landlord will bear such cost).
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.
8.05 Ownership of Replacements, Etc.
------------------------------
All replacements, additions, substitutions and improvements made pursuant
to this Article VIII, together with the funds periodically placed in the
Reserve, shall be the property of Landlord.
END OF ARTICLE VIII
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<PAGE>
ARTICLE IX
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
9.01 Books and Records
-----------------
Books of control and account shall be kept on the accrual basis and in all
material respects in accordance with the Uniform System of Accounts, with the
exceptions provided in this Lease. Landlord and its agents and representatives
(or the holder of the First Mortgage) shall have the right, at reasonable
intervals during Tenant's normal business hours, to examine such records and to
make copies thereof, at Landlord's expense. Within ninety (90) days following
the close of each Fiscal Year, Tenant shall furnish Landlord a statement in
reasonable detail summarizing the Hotel operations for such Fiscal Year and a
certificate of Tenant's chief accounting officer certifying that such year-end
statement is true and correct. Landlord shall have ninety (90) days after
receipt to audit, examine, or review said statement. If Landlord raises no
objections within said ninety (90) day period (unless Landlord determines that
it wishes to have such statement audited, in which case the aforesaid period of
time shall be extended for a reasonable period until the completion of said
audit), the statement shall be deemed to have been accepted by Landlord and
Tenant as true and correct and neither Landlord nor Tenant shall have any
further right to question its accuracy. Notwithstanding the above, Tenant
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shall furnish Landlord with sufficient financial information to permit Landlord
to comply with the terms of the First Mortgage pertaining to financial
statements required thereunder.
9.02 Hotel Accounts
--------------
All funds derived from the operation of the Hotel, or placed in escrow
accounts in connection with said operation, shall be deposited by Tenant in
Hotel bank accounts in a national or state banking institution selected by
Tenant, but subject to Landlord's approval. Withdrawals from said accounts shall
be made by representatives of Tenant whose signatures have been authorized.
Reasonable petty cash funds shall be maintained at the Hotel.
9.03 Annual Operating Projection
---------------------------
Tenant shall submit to Landlord for its review thirty (30) days prior to
the beginning of each Fiscal Year after the Opening Date an "Annual Operating
Projection" which shall set forth Tenant's good faith estimate of Gross
Revenues, departmental profits, Deductions, and Operating Profit for the
forthcoming Fiscal Year for the Hotel, taking into account the Hotel's market
area and the integration of the Hotel into the Marriott hotel system. Tenant
will use its best efforts and all due diligence to operate the Hotel within the
Annual Operating Projection. It is understood, however, that the
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<PAGE>
Annual Operating Projection is an estimate only and that unforeseen
circumstances such as, but not limited to, the costs of labor, material,
services and supplies, casualty, operation of law, or economic and market
conditions may make adherence to the Annual operating Projection impracticable,
and Tenant shall be entitled to depart therefrom due to causes of the foregoing
nature.
9.04 Operating Loss; Credit
----------------------
A. Any Operating Loss during the term of this Lease shall be funded solely
by Tenant, without reimbursement, adjustment or other accounting by Landlord.
B. In no event shall either party borrow money in the name of or pledge
the credit of the other.
END OF ARTICLE IX
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<PAGE>
ARTICLE X
TRADEMARK AND TRADE NAME
------------------------
10.01 Marriott Name
-------------
A. During the term of this Lease, the Hotel shall be known as a Marriott
Hotel, with additional identification as may be necessary to provide local
identification. If the name of the Marriott hotel system is changed, Tenant
shall have the right to change the name of the Hotel to conform thereto. The
name "Marriott" when used alone or in connection with another word or words and
the Marriott trademarks, service marks, trade names, logos, symbols and designs
shall in all events remain the exclusive property of Marriott Corporation, and
nothing contained herein shall confer on Landlord the right to use such name,
trademarks, service marks, trade names, logos, symbols or designs other than in
strict accordance with the terms of this Lease. Except as provided in Section
10.02, upon Termination, any use of or right to use said name, trademarks,
service marks, trade names, logos, symbols or designs by Landlord shall cease
forthwith and Tenant shall have the right (at Tenant's sole cost and expense) to
promptly remove from the Hotel any signs or similar items which contain the
Marriott name, trademarks, service marks, trade names logos, symbols or designs.
B. Included under the terms of this Article are all trademarks, service
marks, trade names, symbols, logos or
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designs used in conjunction with the Hotel, including but not limited to
restaurant names, lounge names, etc., whether or not the marks contain the
"Marriott" name. All use of such marks by Landlord under this Lease inures to
the benefit of Tenant whether or not the marks are registered and regardless of
the source of the mark.
10.02 Fixed Asset Supplies
--------------------
Upon Termination, Tenant shall purchase, at their book value, any items of
the Hotel's Fixed Asset Supplies as may be marked with the Marriott name or any
Marriott trademark, trade name, service mark, symbol, logo or design.
10.03 Breach of Covenant
------------------
Tenant and/or its affiliated companies shall be entitled, in case of any
breach of the covenants of Article X by Landlord or others claiming through it,
to injunctive relief and to any other right or remedy available at law. The
provisions of Article X shall survive Termination.
END OF ARTICLE X
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<PAGE>
ARTICLE XI
POSSESSION AND USE OF HOTEL
---------------------------
11.01 Quiet Enjoyment
---------------
Landlord covenants that so long as Tenant is not in default under this
Lease and so long as Tenant is not responsible for lack of free and quiet
occupation, Tenant shall quietly hold, occupy and enjoy the Hotel throughout the
term hereof free from hindrance, ejection or molestation by Landlord or other
party claiming under, through or by right of Landlord. Landlord agrees to make
any payments and, at its expense, to prosecute all appropriate actions, judicial
or otherwise, necessary to assure such free and quiet occupation.
11.02 Actions for Quiet Occupation
----------------------------
Notwithstanding the foregoing, nothing herein shall prevent Landlord from
delaying any payment, provided Landlord is prosecuting all appropriate actions
in good faith and provided that no action on the part of Landlord in any such
prosecution shall create a possibility of foreclosure or any divesting of the
Hotel or the termination of the Lease, or incur or create any civil or criminal
liability on the part of Tenant. For the purpose of the preceding sentence,
Tenant agrees that the filing of an appropriate bond in accordance with
applicable law shall be sufficient action on the part of Landlord to prevent the
possibility of foreclosure should
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<PAGE>
Landlord elect to delay any such payment and prosecute any such action in good
faith.
11.03 Use
---
A. Tenant shall use the Hotel solely for the operation of a hotel with
first-class standards and for all activities in connection therewith which are
customary and usual to such an operation. Tenant, in any event, shall comply
with and abide by all applicable laws, regulations, ordinances, orders,
standards and requirements, shall operate and maintain the Hotel in an efficient
manner and in accordance with the terms of the First Mortgage and shall use its
reasonable best efforts to apply sound administrative, accounting, budgeting,
operational, sales, advertising, personnel and purchasing policies and
practices. Tenant shall obtain, either in its own name or on behalf of the
Landlord, any and all licenses or permits necessary for the operation of the
Hotel as a first class hotel facility.
B. Tenant shall have the option to terminate this Lease at any time upon
seventy-five (75) days' written notice to Landlord in the event of a withdrawal
or revocation, by any lawful governing body having jurisdiction thereof, of any
material license or permit required for operation of the Hotel as a first class
facility, including but not limited to occupancy permits; provided (i) such
withdrawal or revocation is not the result of any action or inaction of Tenant,
but is
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<PAGE>
due to circumstances beyond Tenant's reasonable control; and (ii) all applicable
appeals to higher governmental authorities regarding such withdrawal or
revocation have been exhausted, and every reasonable effort has been made by
Tenant to obtain a substitute license or permit which would allow for the
continued operation of the Hotel as a first-class facility.
11.04 Chain Services
--------------
Tenant shall cause to be furnished to the Hotel certain services ("Chain
Services") which are furnished generally on a central or regional basis to other
hotels in the Marriott chain and which benefit each hotel as a participant in
the Marriott chain, Chain Services shall include (i) national sales office
services, central training services, manpower development and management
personnel relocation, central advertising and promotion (including direct and
image media and advertising administration), the Marriott national reservation
system and the Marriott computer payroll and accounting services, and (ii) such
additional central or regional services as may from time to time be furnished
for the benefit of the hotels in the Marriott chain or in substitution for
services now performed at individual, hotels which may be more efficiently
performed on a group basis. Costs and expenses incurred in the providing of such
services shall be allocated on a fair and equitable basis among all Marriott
hotels in the United States receiving the same.
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<PAGE>
11.05 Landlord's Right to Inspect
---------------------------
Landlord or its agents shall have access to the Hotel at any and all
reasonable times for the purpose of protecting the same against fire or other
casualty, prevention of damage to the Hotel, showing the Hotel to prospective
purchasers or mortgagees, or for inspection purposes.
END OF ARTICLE XI
- 39 -
<PAGE>
ARTICLE XII
INSURANCE
---------
12.01 Property Insurance
------------------
A. Tenant shall, commencing with the Opening Date and during the term of
this Lease, procure and maintain, with insurance companies of recognized
responsibility, such property insurance as shall be recommended by Tenant and
approved by Landlord (such approval not to be unreasonably withheld, delayed or
conditioned) provided that the following minimum coverage (which shall be
increased if required by any of the lending institutions providing financing for
the Hotel) shall be obtained in any event:
1. Insurance on the Hotel (including contents) against loss or damage by
fire, lightning and all other risks covered by the usual standard extended
coverage endorsement, with such deductible limits as are used at other hotels
Tenant leases or manages in the United States, and with coverage in the amount
of not less than ninety percent (90%) of the replacement cost thereof;
2. Insurance against loss or damage from explosion of boilers, pressure
vessels, pressure pipes and sprinklers installed in the Hotel;
3. Business interruption insurance covering loss of profits and necessary
continuing expenses for interruptions caused by any occurrences covered by the
insurance referred to
- 40 -
<PAGE>
in subparagraphs 1 and 2 above, for a period of nine months and otherwise of a
type and in amounts generally prevailing at other hotels leased or managed by
Tenant in the United States.
B. All policies of insurance required under Section 12.02 A shall be
carried in the name of Landlord, Tenant, and holder of the First Mortgage, and
any other mortgagee designated by Landlord, and losses thereunder shall be
payable to the parties as their respective interests may appear.
C. Any mortgage on the Hotel shall contain provisions to the effect that
proceeds of the insurance policies required to be carried under Section 12.01
shall be available for repair and restoration of the Hotel, except that, with
respect to any first Mortgage, in the event the Hotel is substantially
destroyed, proceeds may at the option of the holder be applied to repayment of
the debt.
12.02 Operational Insurance
---------------------
Tenant shall, commencing with the Opening Date and during the term of this
Lease, procure and maintain, with insurance companies of recognized
responsibility, such operational insurance as shall be recommended by Tenant and
approved by Landlord (such approval not to be unreasonably withheld, delayed or
conditioned), provided that the following minimum coverage (which shall be
increased if required by any of the lending institutions providing financing for
the Hotel) shall be obtained in any event:
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<PAGE>
A. Workers' compensation and employer's liability insurance as may be
required under applicable laws covering all Tenant's employees at the Hotel,
with such deductible limits and self-insured retentions as are used at other
hotels Tenant leases or manages in the United States.
B. Fidelity bonds, with reasonable limits to be determined by Tenant,
covering its employees in job classifications normally bonded in other hotels in
the Marriott chain or otherwise required by law, and comprehensive crime
insurance to the extent that Tenant and Landlord mutually agree it is necessary
for the Hotel.
C. Comprehensive general public liability and automobile insurance against
claims for death, bodily injury, or property damage occurring on, in or about
the Hotel, with a combined single limit of not less than Ten Million Dollars
($10,000,000) for each occurrence, with such deductible limits and self-insured
retentions as are used at other hotels Tenant leases or manages in the United
States.
D. Such other insurance as Tenant in its reasonable judgment deems
advisable for protection against claims, liabilities and losses arising out of
or connected with its performance under this Lease.
12.03 Coverage
--------
All insurance described in Sections 12.01 and 12.02 may be obtained by
Tenant by endorsement or equivalent means under
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<PAGE>
Marriott Corporation's blanket insurance policies, provided that such blanket
policies fulfill the requirements specified herein. Deductible limits and
self-insured retentions shall be as provided in the blanket policies covering
the hotels leased or managed by Marriott Corporation or an affiliate of Marriott
Corporation under the Marriott name in the United States. In addition, Marriott
Corporation, on behalf of Tenant, may (if it has legally qualified to do so)
self-insure or otherwise retain such risks or portions thereof as it does with
respect to other hotels owned, operated or managed under the Marriott name in
the United States and in accordance with the coverage specified in this Lease.
Tenant shall indemnify, hold harmless and defend Landlord against all claims,
losses, damages and other expenses against, or incurred by, Landlord as to which
such self-insurance is applicable, except with respect to the self-insured
retentions referred to above.
12.04 Cost and Expense
----------------
A. Insurance premiums and any costs or expenses with respect to the
insurance described in Article XII shall be paid by Tenant and shall be
Deductions in determining Operating Profit. Premiums on policies for more than
one (1) year shall be charged pro rata against Gross Revenues over the period of
the policies. The expenses incurred in maintaining Tenant's self-insurance
program shall be charged on an equitable basis to the hotels participating in
such programs.
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<PAGE>
Any reserves, losses, costs, damages or expenses which are uninsured, or fall
within deductible limits or self-insured retentions, shall be treated as a cost
of insurance and shall be Deductions in determining Operating Profit. Upon
Termination, an escrow fund in an amount acceptable to Tenant shall be
established from Gross Revenues (or, if Gross Revenues are not sufficient, with
funds provided by Landlord) to cover the amount of any deductible limits or
self-insured retentions and all other costs which will eventually have to be
paid by either Landlord or Tenant with respect to pending or contingent claims,
including those which arise after Termination for causes arising during the term
of the Lease for insured risks. As claims are settled, funds from the escrow
account will be released, as appropriate.
12.05 Policies and Endorsements
-------------------------
A. All insurance policies provided for under Section 12.01 and Section
12.02 C shall name Tenant, Landlord, the holder of the First Mortgage, and any
other mortgagee designated by Landlord as additional insureds (all such
mortgagees shall be named under the standard mortgagee clause applicable in the
jurisdiction in which the Hotel is located). The party obligated to procure such
insurance shall deliver to the other party certificates of insurance with
respect to all policies so procured, including existing, additional and renewal
policies and, in the case of insurance
- 44 -
<PAGE>
about to expire, shall deliver certificates of insurance with respect to the
renewal policies not less than ten (10) days prior to the respective dates of
expiration.
B. All insurance policies provided for under Section 12.01 and Section
12.02 shall, to the extent obtainable, have attached thereto an endorsement that
such policy shall not be cancelled or materially changed without at least thirty
(30) days' prior written notice to Landlord, Tenant, the holder of the First
Mortgage, and any other mortgagee designated by Landlord.
12.06 Insurance Requirements Under First Mortgage
-------------------------------------------
Notwithstanding any other provision of this Article XII, insurance
requirements contained in the First Mortgage (for so long as the First Mortgage
remains in place or the holder of the First Mortgage is landlord under this
Agreement) shall take precedence over this Article XII.
END OF ARTICLE XII
- 45 -
<PAGE>
ARTICLE XIII
TAXES
-----
13.01 Real Estate and Property Taxes
------------------------------
All real estate and ad valorem property taxes, assessments and similar
charges on or relating to the Site, the interest of Landlord in the Site, the
Hotel or this Lease during the term of this Lease shall be paid by Tenant and
shall be considered a Deduction from Gross Revenues in arriving at Operating
Profit before any fine, penalty, or interest is added thereto or lien placed
upon the Site, the interest of Landlord in the Site, the Hotel or this Lease,
unless payment thereof is in good faith being contested and enforcement thereof
is stayed. Tenant shall, within the earlier of thirty (30) days of payment or
three (3) days following written demand by Landlord, furnish Landlord with
copies of official tax bills and evidence of payment or contest thereof. For the
purpose of this Lease, any such taxes paid in accordance with the foregoing
shall be additional rental to Landlord. Notwithstanding the foregoing, Landlord
shall pay and have sole responsibility for all real estate and ad valorem
property taxes, assessments, "hook-up charges" and other charges incurred
during the period prior to the Opening Date or specifically imposed with respect
to the construction of the Hotel.
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<PAGE>
13.02 Investment Tax Credit
---------------------
Tenant shall be entitled to claim the investment tax credit (the "ITC")
allowed by Section 38 of the Internal Revenue Code of 1954, as amended, or any
similar benefit provided in the future, under federal or state taxation
statutes, in respect of all property on the Hotel premises on the Opening Date,
or added in the future, as to which such credit is applicable. Landlord agrees
to execute such documents, including a "Lessor's Election Statement," to
cooperate with Tenant in taking such action as may be necessary or appropriate
to enable Tenant to fully utilize the benefits of the ITC, and to take no action
which is inconsistent with Tenant's right to claim the ITC.
END OF ARTICLE XIII
- 47 -
<PAGE>
ARTICLE XIV
HOTEL EMPLOYEES
---------------
14.01 Employees
---------
All Hotel personnel shall at all times during the term of this Lease be the
employees of Tenant or affiliates of Tenant.
A. Tenant shall have absolute discretion to hire, promote, supervise,
direct and train all employees at the Hotel, to fix their terms of compensation
and, generally, establish and maintain all policies relating to employment.
B. Tenant shall decide which, if any, of the Hotel's employees shall reside
at the Hotel, and 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. No person shall otherwise be
given gratuitous accommodations or services without the prior joint approval of
Landlord and Tenant except in accordance with the usual practices of the hotel
and travel industry.
C. All employees who are responsible for the handling of rentals to be paid
to Landlord pursuant to Article V hereof, shall be under a blanket fidelity bond
in a company reasonably acceptable to Landlord and Tenant.
END OF ARTICLE XIV
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<PAGE>
ARTICLE XV
DAMAGE, CONDEMNATION AND FORCE MAJEURE
--------------------------------------
15.01 Damage and Repair
-----------------
A. If, during the term hereof, the Hotel is damaged or destroyed by fire,
casualty or other cause, Landlord shall, within thirty (30) days of such damage
or destruction, either (i) elect to repair or replace the damaged or destroyed
portion of the Hotel at its cost and expense and with all due diligence, or (ii)
if the cost and expense to repair or replace such damage or destruction is
greater than Five Million Dollars ($5,000,000) as indexed by The Consumer Price
Index with January 1, 1987 as the base index, or is in excess of the
corresponding insurance proceeds, elect to terminate this Lease; provided,
however, in the event Landlord elects to terminate the Lease, Landlord shall
promptly pay to Tenant an amount representing the present value of the portion
of the Operating Profit which would have been retained by Tenant calculated to
the end of the term of the Lease including Renewal Terms; provided, however, in
no event shall such amount exceed the fair market value of any assets of
Landlord (including but not limited to the value of the improvements and the
assets of the general partner(s), if any) and any insurance proceeds received by
Landlord on account of such damage or destruction. In the event Landlord and
Tenant cannot agree on such amount within thirty (30) days of
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<PAGE>
Tenant's receipt of such notice of election to terminate by Landlord, such
amount shall be determined by arbitration in accordance with Section 20.01.
B. In the event damage or destruction to the Hotel from any cause
materially and adversely affects (in Tenant's reasonable business judgment) the
operation of the Hotel, and (regardless of whether Landlord elects to repair or
replace said damaged or destroyed portion of the Hotel under Section 15.01 A)
Landlord fails to commence and complete the repairing or replacement of the same
with reasonable diligence so that the Hotel shall be substantially the same as
it was prior to such damage or destruction, Tenant may elect to terminate this
Lease upon sixty (60) days' written notice to Landlord, in which event Landlord
shall pay to Tenant an amount representing the present value of the Lease to
Tenant calculated in accordance with Section 15.01 A.
15.02 Condemnation
------------
A. In the event (i) all or substantially all of the Hotel shall be taken
in any eminent domain, condemnation, or similar proceeding by any competent
authority for any public or quasi-public use or purpose, or by agreement with
those authorized to exercise such a right under threat thereof, or (ii) a
portion of the Hotel shall be so taken and Tenant reasonably determines that
such taking renders it impracticable to continue the operation of the Hotel,
this Lease shall terminate as of the date on which the condemning
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<PAGE>
authority assumes possession, and any award for the loss of the Hotel to which
either Landlord or Tenant shall be entitled shall be fairly and equitably
apportioned between Landlord and Tenant (taking into consideration Tenant's
leasehold interest under this Lease, and Landlord's ownership of the Hotel and
the Site) in accordance with their respective interests. In the event Landlord
and Tenant are unable to agree on a fair and equitable apportionment within
thirty (30) days of notice of the amount of such award, the matter shall be
decided by arbitration in accordance with Section 20.01.
B. In the event a portion of the Hotel shall be taken by any of the events
described in Section 15.02 A, but Tenant reasonably determines that it is
practicable (on the assumption that the necessary repairs or replacements, if
any, are implemented within a reasonable time) to continue to operate the Hotel,
this Lease shall not terminate. In such event, the award for any such partial
taking or condemnation shall be made available to Landlord to the extent
necessary to implement whatever repairs or replacements are necessary to render
the Hotel substantially equivalent to its condition prior to such taking. The
balance of such award, if any, shall be fairly and equitably apportioned between
Landlord and Tenant (taking into consideration Tenant's leasehold interest under
this Lease, and Landlord's ownership of the Hotel and the Site) in accordance
with their respective interests. In the event Landlord and Tenant are unable to
agree on a fair and equitable apportionment within thirty (30) days of notice of
the amount of such award, the matter shall be decided by
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<PAGE>
arbitration in accordance with Section 20.01. Notwithstanding the foregoing, if
the estimated cost of such repairs is greater than Five Million Dollars
($5,000,000) as indexed by the Consumer Price Index (with January 1, 1987 as the
base index), or in excess of the amount of corresponding insurance proceeds,
Landlord, at its option, within thirty (30) days of the date of such taking, may
elect to terminate the Lease upon sixty (60) days' written notice to Tenant, in
which event Landlord shall promptly pay to Tenant the present value of the
portion of the Operating Profit which would have been retained by the Tenant
calculated in accordance with Section 15.01 A.
C. If the temporary use or occupancy of all or any portion of the Hotel
shall be taken in any eminent domain, condemnation, or similar proceeding by any
competent authority for any public or quasi-public use or purpose, or by
agreement with those authorized to exercise such a right under threat thereof,
this Lease shall not terminate. In such event, Tenant shall be entitled to
receive the entirety of any award or payment made for such temporary use or
occupancy, and such amount shall be included in Gross Revenues.
D. There shall be no abatement of any rental due hereunder as a result of
any partial or temporary taking or condemnation pursuant to subsections B or C
above, provided that in the event of such a partial taking or condemnation, if
the Hotel cannot be restored to a substantially equivalent condition as it
existed prior to such event, and if the amount
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<PAGE>
of the debt service on the First Mortgage is not proportionately reduced,
Tenant's obligation to pay Minimum Rental pursuant to Section 5.01 B and
Adjusted Rental pursuant to Section 5.01 D shall be reduced accordingly relative
to the taken portion.
15.03 Force Majeure
-------------
Provided that the specific provisions of this Lease regarding (i) damage or
destruction, (ii) condemnation and (iii) withdrawal or revocation of licenses or
permits shall govern exclusively with respect to those specific matters, if acts
of God, acts of war, civil disturbance or governmental action shall, in Tenant's
reasonable business judgment, make continued operation of the Hotel
impracticable for more than a temporary period, then Tenant shall be entitled to
terminate this Lease upon sixty (60) days' written notice to Landlord.
15.04 Damage, Condemnation and Force Majeure Under the First Mortgage
---------------------------------------------------------------
Notwithstanding any other provision of this Article XV, (i) for so long as
the First Mortgage shall remain in place, the provisions on damage, condemnation
and force majeure contained in the First Mortgage shall take precedence over
this Article XV and (ii) for so long as the lender under the First Mortgage
shall have any interest in the Hotel, whether as landlord under this Lease, as a
mortgagee or otherwise,
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<PAGE>
Tenant shall not be entitled to receive any amounts representing the present
value of the portion of the Operating Profit which would have been retained by
the Tenant prior to receipt by the lender under the First Mortgage of all
amounts outstanding under the First Mortgage or amounts which would have been
outstanding under the First Mortgage had no foreclosure of the First Mortgage
occurred or a deed in lieu of foreclosure been accepted by such lender.
END OF ARTICLE XV
- 54 -
<PAGE>
ARTICLE XVI
DEFAULTS
--------
16.01 Defaults
--------
The following shall constitute events of default to the extent permitted by
law:
A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party;
B. The consent by either party to an involuntary petition in bankruptcy, or
the admission in writing by either party of its inability to pay its debts, or
the failure to vacate (within ninety (90) days from the date of entry thereof)
any order approving an involuntary petition against either party;
C. The entering of an order, judgment or decree by any court of competent
jurisdiction, on the application of a creditor, adjudicating either party as
bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree continuing unstayed and
in effect for any period of ninety (90) days;
D. The appointment of a receiver for all or any substantial portion of the
property of either party if such appointment has not been withdrawn or
vacated within ninety (90) days of the issuance thereof;
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<PAGE>
E. The failure of either party to make any payment which is due and payable
hereunder within twenty (20) days after written notice thereof from the other
party;
F. The failure of either party to perform, keep or fulfill any of the other
covenants, undertakings, obligations or conditions set forth in this Lease, and
the continuance of such default for a period of thirty (30) days after notice of
said failure.
Upon the occurrence of any of such events of default, the non-defaulting
party may give to the defaulting party notice of intention to terminate this
Lease for default after the expiration of a period of thirty (30) days from the
date of such notice, and if the default has not been cured on or before the
expiration of such period, this Lease shall terminate. If, however, upon receipt
of such notice, the defaulting party shall (if such default is not susceptible
of being cured within thirty (30) days) promptly commence to cure the default,
and shall thereafter diligently pursue such efforts to completion, then such
notice shall be of no force and effect. The provision of the immediately
preceding sentence shall not apply to subsections A through E of Section
16.01.
16.02 Remedies Cumulative
-------------------
The rights granted hereunder shall not be in substitution for, but shall be
in addition to, any and all rights and
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<PAGE>
remedies available to the non-defaulting party by reason of applicable
provisions of law.
END OF ARTICLE XVI
- 57 -
<PAGE>
ARTICLE XVII
WAIVER; PARTIAL INVALIDITY
--------------------------
17.01 Waiver
------
The failure of either party to insist upon a strict performance of any of
the terms or provisions of this Lease or to exercise any option, right or remedy
herein contained shall not be construed as a waiver or as a relinquishment for
the future of such term, provision, option, right or remedy, but the same shall
continue and remain in full force and effect. No waiver by either party of any
term or provision hereof shall be deemed to have been made unless expressed in
writing and signed by such party.
17.02 Partial Invalidity
------------------
In the event that any portion of this Lease shall be declared invalid by
order, decree or judgment of a court, or governmental agency having
jurisdiction, this Lease shall be construed as if such portion had not been
inserted herein, except when such construction would operate as an undue
hardship on Tenant or Landlord or constitute a substantial deviation from the
general intent and purpose of said parties as reflected in this Lease.
END OF ARTICLE XVII
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<PAGE>
ARTICLE XVIII
ASSIGNMENT
----------
18.01 Assignment
----------
Neither party shall assign or transfer or permit the assignment or transfer
of this Lease without the prior written consent of the other party, except as
follows:
A. Landlord shall have the right to assign or transfer its interest in this
Lease without such consent in connection with a sale of the Hotel pursuant to
Section 19.01;
B. Landlord shall have the right to assign or transfer its interest in this
Lease without such consent as collateral security with respect to the financing
evidenced by any mortgage, deeds of trust or similar security instrument;
provided, however, (except with regard to the First Mortgage) any such mortgage,
deed of trust or security instrument will contain a provision reasonably
acceptable to Tenant's counsel that the Lease will not be subject to forfeiture
or Termination other than in accordance with the terms hereof, notwithstanding a
default under any such mortgage, deed of trust or security instrument. Under
such circumstances, Tenant is obligated to comply with the provisions of'
Section 18.02(vi) of this Agreement;
C. Provided that Tenant remains liable under all of the provisions hereof,
Tenant shall have the right to transfer or assign its interest in this Lease
without such consent to any
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<PAGE>
affiliates controlling or controlled by Marriott Corporation, including a
partnership in which Marriott Corporation or any affiliate controlling or
controlled by it is a general partner. For the purposes of this Section 18.01 C,
an affiliate shall be deemed controlling or controlled by Marriott Corporation
if Marriott Corporation, through one or more controlled intermediaries, owns or
controls a minimum of fifty--one percent (51%) of the voting interests in such
affiliate; and
D. Tenant shall have the right to transfer or assign its interest in
this Lease without such consent in connection with a merger, consolidation, or
sale of all or substantially all of the assets of Marriott Corporation.
Any permitted transfer or assignment pursuant to the foregoing provisions
shall be effective only upon an assumption by the assignee of all of the
assignor's duties under this Lease. In the event of consent by either party to
an assignment of this Lease 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 Lease. Any
permitted assignment by either Landlord or Tenant of its interest in this lease,
and the assumption by the assignee of the assignor's duties under this Lease,
shall relieve Landlord or Tenant (except in the event of an
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<PAGE>
assignment under subsection C, above), as the case may be, their respective
obligations under this Lease arising or accruing after the effective date of
such assignment, and shall inure to the benefit of, and be binding upon, their
respective successors or assigns.
18.02 Subordination
-------------
Tenant shall, on request of the Landlord or any lender or lenders under
the First Mortgage, or on request of any such lender or lenders under the First
Mortgage in a refinancing or on request of any lender, or lenders under a second
mortgage, enter into such supplemental agreements as may obligate Tenant to (i)
provide such lenders with notice of any default by Landlord hereunder and
thereafter permit such lenders to effect a cure thereof within a reasonable
period; (ii) supply such lender with copies of any notices or other
communications contemplated by this Lease from Tenant to Landlord; (iii)
postpone termination of this Lease in the event of a default by Landlord for so
long as the lender under the First Mortgage shall have commenced to cure any
such default or, if possession of the Hotel is required to effect such cure or
such default is not susceptible to cure, for so long as the lender under the
First Mortgage in good faith shall notify Tenant that it intends to institute
foreclosure proceedings and thereafter for so long as such proceedings shall
have been
- 61 -
<PAGE>
instituted and prosecuted with reasonable diligence; (iv) in the event of a
termination of this Lease, offer to enter into a new lease with the lender under
the First Mortgage upon the same terms and conditions as this Lease, except that
the lender under the First Mortgage shall have the right to assign this Lease
without Tenant's consent, the right of first refusal referred to in Article XIX
of the Lease shall not be applicable to such assignment by the lender under the
First Mortgage and the covenants referred to in Sections 3.02 and 3.03 of this
Lease shall not apply to the lender under the First Mortgage; (v) subordinate
the Tenant's interest in this Lease to the rights of such lenders upon
foreclosure of any mortgage, deed of trust, security agreement or like
instrument against the Hotel or by a deed in lieu of foreclosure; and (vi)
attorn to and recognize such lender or its assignee as being the Landlord
hereunder upon conveyance of title to the Hotel to such lender or assignee,
whether such conveyance is upon foreclosure of a mortgage, deed of trust,
security agreement or like instrument or by a deed in lieu of foreclosure.
18.03 Transfer of Hotel to Lender under First Mortgage
------------------------------------------------
In the event of a transfer of the Hotel from Landlord to lender under
the First Mortgage or a purchaser, including
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<PAGE>
such lender under the First Mortgage, at foreclosure or by deed in lieu of
foreclosure, then such transferee shall have no personal liability to Tenant
under this Lease, and the only recourse of Tenant shall be to the extent of the
interest of such transferee in the Hotel.
END OF ARTICLE XVIII
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<PAGE>
ARTICLE XIX
SALE OF HOTEL
-------------
19.01 Right of First Refusal
----------------------
A. If Landlord receives a bona fide written offer to purchase the Hotel
and desires to accept such offer, Landlord shall give written notice thereof to
Tenant stating the name of the prospective purchaser, the price and the terms
and conditions of such proposed sale, together with all other information
requested by Tenant and reasonably available to Landlord. Within thirty (30)
days after the date of receipt of Landlord's written notice and such other
information, Tenant shall elect, by written notice to Landlord, one of the
following alternatives:
1. To purchase the Hotel at the same price and upon the same
terms and conditions as those set forth in the written notice from Landlord to
Tenant or upon other terms acceptable to Landlord, in which event Landlord and
Tenant shall promptly enter into an agreement for such sale and shall finalize
the same within sixty (60) days of the date of Tenant's election.
2. To consent to such sale and to the assignment of the Lease to
such purchaser, provided that concurrently with the finalization thereof the
purchaser shall, by appropriate instrument in form satisfactory to Tenant,
assume all of Landlord's obligations hereunder and provided that such sale
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<PAGE>
must be finalized within one hundred eighty (180) days following the receipt of
written notice from Landlord give pursuant to Section 19.01 A. Consent by Tenant
shall not relieve Landlord from its obligations under the Lease for any acts or
omissions of Landlord prior to such approved sale and assignment. An executed
copy of such assumption agreement shall be delivered to Tenant.
3. To terminate the Lease by written notice to Landlord, which notice
will set an effective date for such Termination not earlier than thirty (30)
days, nor more than sixty (60) days, following the date of the giving of such
notice. Landlord or Tenant shall have the right to change such effective date of
Termination to coincide with the date of the finalization of the proposed sale.
Said notice of Termination shall not be effective if such sale is not finalized.
Notwithstanding the foregoing, Tenant agrees that if the proposed purchaser, in
the reasonable opinion of Tenant, (i) is financially responsible and has
sufficient assets to fulfill the obligations of Landlord hereunder, and (ii) is
not a party which has itself been connected with, or is either controlled by
persons known to be engaged in, criminal activities, or known as an associate or
agent of criminals, and (iii) does not directly or indirectly operate or manage
hotels or restaurants in competition with Tenant or Marriott Corporation or
their affiliates, Tenant shall not exercise its right to terminate the Lease
pursuant to this
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<PAGE>
Section 19.01 A 3 and shall be deemed to have consented to the proposed sale or
assignment pursuant to Section 19.01 A 2.
B. If Tenant shall fail to elect any of the above alternatives within
said thirty (30) day period as set forth in the first paragraph of Section 19.01
A above, the same shall be conclusively deemed to constitute an election and
consent under subsection 2 above, and the provisions thereof shall prevail as if
Tenant had consented in writing thereto. Any proposed sale of which notice has
been given by Landlord to Tenant hereunder must be finalized within one hundred
eighty (180) days following the giving of such notice, unless Tenant has
exercised its option under subsection 1 above to purchase the Hotel. Failing
such finalization, such notice, and any response thereto given by Tenant, shall
be null and void and all of the provisions of Section 19.01 A must again be
complied with before Landlord shall have the right to finalize a sale of the
Hotel upon the terms contained in said notice, or otherwise.
C. The provisions of this Section 19.01 will not apply to the lender
of the First Mortgage in the event of a foreclosure or foreclosure sale (or deed
in lieu of foreclosure) of the First Mortgage or to the Landlord if the lender
of the First Mortgage has an economic interest as a lender in the Hotel or the
Premises.
- 66 -
<PAGE>
D. In the event Landlord or an assignee of Landlord disposes of the
Hotel, the Landlord or assignee shall pay to the Tenant from the proceeds of
such sale an amount equal to the sum of Additional Rental, less reductions
thereof pursuant to Section 5.01 E of the Lease, outstanding as of the date of
disposition; provided that the amount of such payment shall not exceed the
amount of the gross selling price of the Hotel reduced by (i) expenses of the
sale, (ii) repayments of any debt secured by the Hotel and any third party debts
of the Landlord or the assignee of Landlord, (iii) repayment of all loans to any
assignee of Landlord from Marriott Corporation or any of its affiliates, (iv) an
amount on the date of disposition equal to the cumulative paid-in capital of
the partners of an assignee of Landlord, if the assignee is a partnership, over
cumulative distributions to such partners of sale and refinancing proceeds of
such partnership ("Invested Capital"), (v) an amount equal to an annual 12%
cumulative return to the limited partners of an assignee of Landlord, if the
assignee is a partnership on their Invested Capital to the extent not previously
received from cash available for distribution from operations of Landlord, but
not from sale or refinancing proceeds. Such payment, if any, will be applied to
reduce the then outstanding cumulative Additional Rentals.
END OF ARTICLE XIX
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<PAGE>
ARTICLE XX
ARBITRATION
-----------
20.01 Arbitration
-----------
(a) In the event of a dispute between Landlord and Tenant with respect
to any issue of fact specifically mentioned herein as a matter to be decided by
arbitration, such dispute shall be determined by arbitration 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.
(b) Landlord and Tenant shall each appoint and pay all fees of a fit
and impartial person as arbitrator who shall have had at least ten (10) years'
experience in the State of New Jersey in a calling connected with the subject
matter of the dispute within thirty (30) days of notice by either party of such
party's election to seek arbitration in accordance with the provisions of this
Section 20.01. Such appointment shall be signed in writing by each party to the
other, and the arbitrators so appointed, in the event of their failure to agree
within thirty (30) days after the appointment of the second arbitrator upon the
matter so submitted, shall appoint a third arbitrator. If either Landlord or
Tenant 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
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<PAGE>
having made such appointment shall appoint a second arbitrator and the two so
appointed shall, in the event of their failure to agree upon any decision within
thirty (30) days thereafter, appoint a third arbitrator. If such arbitrators
fail to agree upon a third arbitrator within forty-five (45) days after
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
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 Landlord and Tenant. 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.
(c) The decision of the arbitrators shall be by majority vote and shall
be rendered within thirty (30) days after appointment of the third arbitrator,
and such decision shall be in writing and in duplicate, one counterpart thereof
to be delivered each to Landlord and Tenant. 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. Nothing herein shall
be deemed to grant such arbitrators authority to modify or amend the Lease.
END OF ARTICLE XX
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<PAGE>
ARTICLE XXI
MISCELLANEOUS
-------------
21.01 Right to Make Lease
-------------------
Each party warrants, with respect to itself, that neither the execution
of this Lease, nor the finalization of the transactions contemplated hereby,
shall violate any provision of any law, or any judgment, writ, injunction, order
or decree of any court or governmental authority having jurisdiction over it;
nor 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;
nor require any consent, vote or approval which has not been given or taken, or
at the time of the transaction involved shall not have been given or taken. Each
party covenants that it has and will continue to have throughout the term of
this Lease and any extensions thereof, the full right to enter into this Lease
and perform its obligations hereunder.
21.02 Consents
--------
Except as otherwise specifically restricted or limited, wherever in this
Lease the consent or approval of Landlord or Tenant is required, such consent or
approval shall not be unreasonably withheld, delayed or conditioned, shall be
without charge, shall be in writing and shall be executed by a duly authorized
officer or agent of the party granting such consent or approval.
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<PAGE>
21.03 Lessor and Lessee
-----------------
The relationship of Landlord and Tenant shall be that of lessor and
lessee, and nothing contained in this Lease shall be construed to create a
partnership or joint venture between them or their successors in interest.
21.04 Applicable Law
--------------
This Lease shall be construed under and shall be governed by the laws of
the State of New Jersey.
21.05 Recordation
-----------
At the request of either party, the parties shall execute an appropriate
memorandum of this Lease in recordable form and cause the same to be recorded in
the jurisdiction where the Hotel is located. Any cost of such recordation shall
be initially borne by Landlord, reimbursed to Landlord from Gross Revenues, and
treated as a Deduction.
21.06 Headings
--------
The headings of the Articles and Sections herein are inserted only for
convenience and are in no way to be construed as limitations on the scope of the
particular Article or Section to which they refer.
- 71 -
<PAGE>
21.07 Certificates
------------
Either party, upon request of the other party, without charge, shall
deliver a written instrument to the requesting party or to any other party
designated by the requesting party, duly executed and acknowledged, certifying:
A. That this Lease is unmodified and in full force and effect, or, if
there is any modification then in effect or any existing modification that will
become effective thereafter, stating such modification and stating that this
Lease is in full force and effect as modified;
B. Whether or not there are any defaults hereunder known to such party
or existing setoffs or defenses against the enforcement of any of the terms,
agreements, covenants and conditions of the Lease, and, if so, specifying the
same; and
C. The dates to which any stated amounts of rent, additional rental
and/or other charges hereunder have been paid.
The giving of any such certificate shall not preclude Landlord or Tenant
from thereafter asserting any existing default of which such party did not have
actual knowledge on the date of the making of such certificate.
21.08 Notices
-------
Notices, statements and other communications to be given under the terms
of this Lease shall be in writing and delivered by hand against receipt or sent
by certified or registered mail, return receipt requested, as follows:
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<PAGE>
To Landlord: Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20058
Attn: Law Department
To Tenant: Marriott Hotel Services, Inc.
c/o Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20058
Attn: Law Department
or to such other address as from time to time may be designated by proper notice
given by the party to whom addressed. All such notices which are sent by
certified or registered mail, postage prepaid, shall be deemed served in the
fifth (5th) business day after being posted.
21.09 Entire Agreement
----------------
This Lease, together with other writings signed by the parties expressly
stated to be supplemental hereto and together with any instruments to be
executed and delivered pursuant to this Lease, constitutes the entire agreement
between the parties, supersedes all prior understandings and writings relating
specifically to the subject matter hereof, and may be changed only by a writing
signed by the parties hereto.
21.10 Termination
-----------
In the event of a Termination of this Lease, the following events shall
occur:
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<PAGE>
A. Tenant shall, as of the date of Termination, surrender the Hotel, the
Site and Fixed Asset Supplies (but not the Working Capital and Inventories) to
Landlord, in the condition the property is in as of such date, subject to
Tenant's obligations to maintain the property as set forth in Sections 8.01 and
8.02 hereof
B. Tenant shall be obligated to deliver to Landlord certain Fixed Asset
Supplies in accordance with Sections 7.02 and 10.02.
C. All items of income and expense will be prorated as of the date of
Termination, and a final accounting pertaining to operations of the Hotel prior
to said date will be prepared by Tenant and delivered to Landlord within sixty
(60) days after the date of Termination, all adjustments to be made and paid
simultaneously with the delivery of said accounting.
D. All contracts pertaining to the operations of the Hotel will be
assigned to Landlord and assumed by Landlord.
E. To the extent legally possible, all licenses and permits required for
the operation of the Hotel will be assigned to Landlord.
F. Tenant will deliver all books and records pertaining to the operation
of the Hotel to Landlord. Landlord agrees that Tenant will have reasonable
access (including the right to make copies, at its expense) to such books and
records after Termination.
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<PAGE>
G. Tenant will transfer to Landlord all advance reservations and any
deposits made with respect thereto. Tenant agrees that it will not attempt to
transfer any reservations made at the Hotel to any other hotels it operates; the
foregoing will not affect Tenant's right to inform all parties making
reservations for dates after Termination that the Hotel will no longer be
operated as a Marriott Hotel after the date of Termination.
H. Landlord and Tenant will undertake such other actions as are
necessary and appropriate in connection with Termination of the Lease and the
transfer of possession of the Hotel to Landlord.
21.11 Brokers
-------
No real estate broker or agent has been a party to this transaction.
Tenant shall hold Landlord harmless from and against the claim of any real
estate broker or agent claiming to have acted on behalf of Tenant, and Landlord
shall hold Tenant harmless from and against the claim of any other real estate
broker or agent claiming to have acted on behalf of Landlord.
21.12 Indemnification
---------------
Landlord shall indemnify Tenant from and against all liabilities,
claims, obligations, damages, costs and expenses as a result of a breach of this
Agreement by Landlord. Likewise, Tenant shall indemnify Landlord from and
against all liabilities, claims, obligations, damages, costs and expenses as a
result of a breach of this Agreement by Tenant.
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21.13 Confidentiality
---------------
The parties hereby agree that the matters set forth in this Lease are
strictly confidential and each party will make every effort to ensure that such
information is not disclosed to any outside persons or entities (including the
press) without the consent of the other party.
21.14 Landlord's Exculpation
----------------------
It is expressly understood and agreed by Tenant or any other entity
hereafter claiming an interest pursuant to this Lease that the liability of
Landlord hereunder, including any partner, officer or director of Landlord, for
damages or otherwise shall be limited to Landlord's interest in the Site, Hotel
and this Lease and that no personal liability is assumed by nor shall be
asserted or enforced against Landlord or any of its respective successors or
assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Lease to be
executed by their duly authorized officers.
ATTEST: MARRIOTT CORPORATION ("LANDLORD")
/s/ C.G. Townsend By /s/ David N. Chichester
- ----------------------------- ------------------------
Assistant Secretary Vice President
MARRIOTT HOTEL SERVICES, INC.
("TENANT")
/s/ C.G. Townsend By /s/ David N. Chichester
- ----------------------------- ------------------------
Assistant Secretary
76
<PAGE>
State of New York )
) ss.
County of New York )
Be it remembered that on the 24th day of November, 1986, before me, the
---- --------
subscriber, a Notary Public authorized to take acknowledgments and proofs in
said county and state, personally appeared Lionel Kennedy, to me known, who
--------------
being by me duly sworn according to law, on his oath does depose and make proof
to my satisfaction that he well knows the seal of MARRIOTT CORPORATION, the
signatory in the foregoing instrument named; that the seal affixed to the said
instrument is the corporate seal of the said corporation, that it was so affixed
by virtue of authority from the board of directors of the said corporation; that
David Chichester was at the time of the execution thereof the Vice President of
- ----------------
the said corporation; that he saw the said David Chichester as such Vice
----------------
President affix said seal thereto, sign and deliver said instrument, and heard
him declare that he signed, sealed and delivered the same as the voluntary act
and deed of the said corporation, by virtue of such authority, and that this
deponent signed his name thereto, at the same time, as a subscribing witness.
/s/ Lionel Kennedy
-------------------------------------
Signature of witness
Subscribed and sworn to before me at New York, NY the day and year aforesaid.
------------
[NOTARY PUBLIC, STATE OF
NEW YORK STAMP APPEARS HERE] /s/ Stephen L. Ganis
-------------------------------------
Notary Public
State of New York
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<PAGE>
State of New York )
) ss.
County of New York )
Be it remembered that on the 24th day of November, 1986, before me, the
---- --------
subscriber, a Notary Public authorized to take acknowledgments and proofs in
said county and state, personally appeared Lionel Kennedy, to me known, who
--------------
being by me duly sworn according to law, on his oath does depose and make proof
to my satisfaction that he well knows the seal of MARRIOTT HOTEL SERVICES, INC.,
the signatory in the foregoing instrument named; that the seal affixed to the
said instrument is the corporate seal of the said corporation, that it was so
affixed by virtue of authority from the board of directors of the said
corporation; that David Chichester was at the time of the execution thereof the
----------------
Vice President of the said corporation; that he saw the said David Chichester
----------------
as such Vice President affix said seal thereto, sign and deliver said
instrument, and heard him declare that he signed, sealed and delivered the same
as the voluntary act and deed of the said corporation, by virtue of such
authority, and that this deponent signed his name thereto, at the same time, as
a subscribing witness.
/s/ Lionel Kennedy
-------------------------------------
Signature of witness
Subscribed and sworn to before me at New York, NY the day and year aforesaid.
------------
[NOTARY PUBLIC, STATE OF
NEW YORK STAMP APPEARS HERE] /s/ Stephen L. Ganis
-------------------------------------
Notary Public
State of New York
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EXHIBIT A
All that tract or parcel of land and premises, situate, lying and being in the
Township of Hanover, in the County of Morris and State of New Jersey, more
particularly described as follows:
BEGINNING at a point in the present southwesterly side of New Jersey State
Highway Route 10 at a point where the westerly line of the premises to be
described and the easterly line now or formerly of Newark Milk and Cream Company
intersects said sideline of Route 10 and running; thence
1. South 60(degrees) 59'12" East and along the side of Route 10, 774.32 feet to
the corner of lands now or formerly of Melvin and Irene Wykoff, his wife;
thence
2. South 29(degrees) 00'48" West 178.12 feet; thence
3. Still along lands south 60(degrees) 59'12" East 211.0 feet to line of lands
of Iron Investment Corp., et.als., lands along the same; thence
4. The same South 12(degrees) 09'55" West 432.86 feet to a point;
thence
5. North 81(degrees) 54'29" West 181.92 feet to a point; thence
6. North 61(degrees) 11'56" West 760.78 feet to a point in line of lands of
Newark Milk and Cream Company; thence
7. Along the same North 13(degrees) 45'24" East 684.30 feet to the point and
place of BEGINNING.
BEING identified as tax lot 13 in block 1002 as shown on the tax map of the
Township of Hanover.
Being the same property conveyed from H.T. Restaurant, Inc. to Marriott
Corporation by Deed dated 7-22-83 and recorded 8-2-83 in the Morris Co. Clerk's
Office in Deed Book 2682 page 930, excepting therefrom the lands conveyed from
Marriott Corporation to the State of New Jersey, Department of Transportation,
by Deed dated March 23, 1984 and recorded May 1, 1984 in Deed Book 2725 page 495
in the Morris County Clerk's Office.
<PAGE>
EXHIBIT B
---------
1. Easements as set forth in Deed Books 2764 page 738 2793 page 408; 2228 page
790; F31 page 134 and 071 page 70 X 30 page 580.
2. Right of others in and to the natural flow of stream crossing premises.
3. Lease Agreement as set forth in Deed Book 2796 page 830.
4. Slope rights as set forth in Deed Book 2725 page 495.
<PAGE>
0688d
Exhibit 10b.
LINE OF CREDIT AND REIMBURSEMENT AGREEMENT
------------------------------------------
This LINE OF CREDIT AND REIMBURSEMENT AGREEMENT ("Agreement") is made as
of the 24 day of November, 1986 by and between MARRIOTT CORPORATION, a Delaware
corporation ("Marriott") MARRIOTT HANOVER HOTEL CORPORATION (the "General
Partner") and HANOVER MARRIOTT LIMITED PARTNERSHIP, a Delaware limited
partnership (the "Partnership").
PRELIMINARY STATEMENT
Subsequent to or concurrent with the entering into of this Agreement,
the Partnership intends to further amend the Limited Partnership Agreement under
which it is organized, such amended and restated partnership agreement to be in
the form of Exhibit C to that certain Private Offering Memorandum dated October
23, 1986 (said partnership agreement as so amended to hereafter be referred to
as the "Partnership Agreement").
Simultaneously with the entering into of this Agreement, the Partnership
has entered into that First Mortgage, Security Agreement, Financing Statement
and Fixture Filing of even date herewith (the "Loan Agreement") with the
National Bank of Canada (the "Lender") pursuant to which the Lender has agreed
to loan the Partnership $36.5 million to provide permanent
<PAGE>
financing for the Hanover Marriott Hotel (the "Hotel"). In order to induce the
Lender to provide the financing under the Loan Agreement, Marriott and the
General Partner have entered into (i) a debt service guarantee of even date
herewith (the "Debt Service Guarantee") pursuant to which Marriott and the
General Partner have agreed to advance funds to the Partnership in an amount up
to $3.5 million to enable the Partnership to pay debt service on the loan
provided pursuant to the Loan Agreement and (ii) a foreclosure guarantee of even
date herewith (the "Foreclosure Guarantee") pursuant to which the General
Partner has guaranteed an amount not exceeding $10 million of principal upon a
foreclosure on the Hotel by the Lender. In addition, from time to time, Marriott
and/or the General Partner may advance funds to the Partnership to meet
liabilities or obligations of the Partnership.
The Hotel will be operated by Marriott Hotel Services, Inc., a wholly
owned subsidiary of Marriott, pursuant to an amended and restated operating
lease dated as of July 29, 1986 (the "Operating Lease").
This Agreement is being entered into for the purpose of evidencing the
obligation of Marriott and the General Partner to make the advances enumerated
in section 1 hereof and of the Partnership to repay Marriott and the General
Partner the principal amount of any advances to the Partnership under the Debt
Service Guarantee and Foreclosure Guarantee and other
-2-
<PAGE>
advances to meet the obligations and liabilities of the Partnership, said
advances to accrue interest as hereafter provided. The mutual obligations
hereunder will provide consideration to the entering into of this Agreement and
of the Debt Service Guarantee and the Foreclosure Guarantee.
NOW, THEREFORE, the parties hereby agree as follows:
AGREEMENT
1. Obligation to Make Advances
---------------------------
Marriott and the General Partner agree to advance to the Partnership
$3.5 million, on a revolving basis, to pay debt service under the Loan
Agreement. Advances shall be made hereunder at such time as funds of the
Partnership from day to day operations of the Hotel or funds otherwise available
to the Partnership are insufficient to fulfill the Partnership's obligations
under the Loan Agreement and the promissory note thereunder.
2. Repayment of Advances under the Debt Service Guarantee and Foreclosure
----------------------------------------------------------------------
Guarantee
- ---------
Any advances by Marriott and/or the General Partner to the Partnership
under the Debt Service Guarantee or Foreclosure Guarantee shall constitute
indebtedness owing to Marriott and/or the General Partner. Such indebtedness
shall bear interest at one percentage point in excess of the prime rate of
interest announced from time-to-time by Bankers Trust Company, New York, New
York. Unless sooner paid as permitted by Section
-3-
<PAGE>
6 of this Agreement, such indebtedness and any accrued interest thereon shall
mature and be due and payable on November 15th, 1993 (the "Maturity Date") and
will be paid in accordance with Section 5.06 of the Partnership Agreement.
Advances under the Debt Service Guarantee may be secured by a mortgage on the
Hotel junior to the mortgage provided pursuant to the Loan Agreement. At the
request of Marriott or the General Partner, the Partnership will execute and
deliver one or more promissory notes to further evidence any indebtedness owing
to Marriott or the General Partner hereunder. Any such promissory note shall be
in the form of Exhibit A hereto.
3. Repayment of Other Advances
---------------------------
Any advances by Marriott, the General Partner or any of their affiliates
to the Partnership to meet any liabilities or obligations of the Partnership,
other than obligations under the Debt Service Guarantee and Foreclosure
Guarantee which are to be repaid pursuant to Section 2 above, shall be deemed
loans to the Partnership and shall accrue interest per annum at one percentage
point in excess of the Prime Rate payable in arrears on the first day of each of
the Partnership's fiscal quarters and such amounts shall be due and payable upon
that date which is the fifth anniversary of the date on which such advances were
made; provided, however, that any and all such advances shall be paid (i) prior
to distributions to partners (the "Partners") of the Partnership out of the
Partnership's Cash Available for Distribution (as defined in the Partnership
-4-
<PAGE>
Agreement) to the Partners, (ii) upon liquidation of the Partnership, or (iii)
upon the sale of the Hotel and the receipt by the Partnership of the proceeds of
such sale.
4. Subordination
-------------
Payment of any indebtedness owing to Marriott and/or the General Partner
pursuant to Section 2 or Section 3 of this Agreement shall be subject and
subordinate to and shall be paid only after payment of "Indebtedness" as defined
in the Loan Agreement. Except as provided in the prior sentence, the
indebtedness owing to Marriott and/or the General Partner hereunder shall rank
pari passu with all other indebtedness or obligations of the Partnership to
third parties.
5. Security
--------
At the request of Marriott or the General Partner and if permitted under
the terms of the Loan Agreement, the Partnership will execute and deliver a
mortgage or deed of trust on the Hotel securing the payment of any indebtedness
hereunder. Any such mortgage or deed of trust shall conform to the requirements
of the Loan Agreement or any loan agreement pursuant to a refinancing of
indebtedness owing by the Partnership pursuant to the Loan Agreement. The
Partnership shall not be required to execute or deliver such mortgage or deed of
trust if (i) prohibited by the terms of the Loan Agreement or other collateral
instrument securing the financing provided by the Lender thereunder, or (ii)
prohibited by the
-5-
<PAGE>
terms of any instrument evidencing or securing indebtedness incurred to
refinance any indebtedness owing by Partnership pursuant to the Loan Agreement.
Marriott and the General Partner further agree to subordinate any lien or
security interest they may have pursuant to this Section 5 to the lien or
security interest of the Lender under the Loan Agreement or any lender under a
refinancing of the Loan Agreement.
6. Optional Prepayment
-------------------
Partnership may at any time prior to the Maturity Date repay any
indebtedness owing hereunder plus any accrued interest thereon at any time
without penalty or premium of any kind.
7. Exculpation
-----------
No Partner shall have any personal liability with respect to the
indebtedness owing to Marriott and/or the General Partner hereunder. Marriott
and the General Partner agree to look solely to the assets of the Partnership or
to any security provided by the Partnership as the sole source of repayment
hereunder.
8. Compliance with Loan Agreement
------------------------------
The Partnership agrees to faithfully abide by the provisions of the Loan
Agreement and to make prompt payment of any and all amounts due the Lender.
-6-
<PAGE>
9. Default
-------
In the event the Partnership is in default of any of its obligations
hereunder, unless such default is cured within thirty (30) days after written
notice thereof or within such longer period as may reasonably be required to
effect a cure in the case of a non-monetary default, or in the event the
Partnership defaults on its obligations under the Loan Agreement in consequence
of which the maturity of any indebtedness thereunder is accelerated, Marriott
and the General Partner shall, in any of such events, have the right to
accelerate the maturity of any indebtedness owing to it hereunder and upon such
acceleration the indebtedness hereunder shall be immediately due and payable. As
long as the mortgage under the Loan Agreement is in force, Marriott shall have
no right to cause a foreclosure on the Hotel, or exercise any other remedy,
because of a default under this Agreement.
10. Loan Agreement
--------------
For so long as the Loan Agreement remains in place, this Agreement shall
not be amended, rescinded or terminated without the consent of the Lender.
-7-
<PAGE>
11. Governing Law
-------------
This Agreement shall be governed by and construed under the laws of the
State of New York, without regard to principles of conflicts of laws thereof
which might refer such interpretations to the laws of another jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year set forth above.
MARRIOTT CORPORATION
By: /s/ David N. Chichester
-----------------------------
Vice President
MARRIOTT HANOVER HOTEL
CORPORATION
By: /s/ David N. Chichester
-----------------------------
Vice President
HANOVER MARRIOTT LIMITED
PARTNERSHIP
By: Marriott Hanover Hotel
Corporation as general
partner
By: /s/ David N. Chichester
-----------------------------
Vice President
-8-
<PAGE>
Exhibit A
PROMISSORY NOTE
---------------
$ , 19
--------------------- ------------------- --
For value received, HANOVER MARRIOTT LIMITED PARTNERSHIP, a Delaware
limited partnership (the "Payor"), hereby promises to pay to the order of
MARRIOTT CORPORATION or MARRIOTT HANOVER HOTEL CORPORATION (the "Payees"), on
November 15, 1993 or such earlier maturity date as is provided in the Agreement
hereinafter referred to, at the Payees' offices at 10400 Fernwood Road,
Bethesda, Maryland, in lawful money of the United States, the principal amount
of $3.5 million, or, if less than such principal amount, the aggregate unpaid
principal amount of all advances made by the Payees to Payor pursuant to the
Agreement hereinafter referred to and outstanding hereunder as shown on the
schedule attached hereto and the Payor further promises to pay interest at said
office, in like money, from the date hereof on the principal amount owing
hereunder from time to time, at the borrowing rate provided for in Section 2 of
the Line of Credit and Reimbursement Agreement (the "Agreement") dated as of
November __, 1986, between the Payor and the Payees. Interest and principal
shall be payable at the times stated in the Agreement, at maturity (whether by
acceleration or otherwise) and upon any prepayment hereon (to the extent
thereof).
This Note is the Note referred to in the Agreement and is entitled to
the benefits thereof. No partner of the Payor shall have individual liability
with respect to the indebtedness owing to the Payees hereunder. Payees agree to
look solely to the assets of the Payor as the sole source of repayment
hereunder.
In case an event of default shall occur and be continuing under the
Agreement and not be cured within applicable grace periods, the principal of and
accrued interest on this Note may be declared to be due and payable in the
manner and with the effect provided in the Agreement, presentment, demand,
protest or notice of any kind being expressly waived.
This Note and the rights and obligations of the Payor and the Payees
shall be construed in accordance with and governed by the laws of the State of
New York.
HANOVER MARRIOTT LIMITED
PARTNERSHIP
By: Marriott Hanover Hotel
Corporation as general
partner
----------------------------------
Vice President
-9-
<PAGE>
SCHEDULE TO PROMISSORY NOTE
Loans and Payments of Principal
-------------------------------
Amount of Balance
Amount Principal Remaining Notation
Date Deferred Paid Unpaid Made By
- ---- -------- --------- --------- --------
-10-
<PAGE>
Exhibit 10.C
After recording, this document
should be returned to:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: David E. Reichmann, Esq.
SECOND MORTGAGE, ASSIGNMENT OF RENTS AND LEASES,
SECURITY AGREEMENT, AND
FIXTURE FILING
Dated as of April 30, 1997
made by
HANOVER MARRIOTT LIMITED PARTNERSHIP
(the "MORTGAGOR")
to
HOST MARRIOTT CORPORATION
(the "MORTGAGEE")
THIS SECOND MORTGAGE ("MORTGAGE") IS A "NON-RECOURSE" MORTGAGE. THE LIABILITY OF
THE MORTGAGOR IS LIMITED IN THE MANNER DESCRIBED IN SECTION 4.12 HEREOF.
THIS SECOND MORTGAGE IS BASED ON A MULTI-STATE FORM OF SECURITY DOCUMENT THAT
IS USED IN A NUMBER OF STATES. AMENDMENTS TO CERTAIN PROVISIONS CONTAINED IN
THIS MORTGAGE, AS APPLICABLE TO NEW JERSEY, ARE SET FORTH IN ANNEX I ATTACHED
HERETO. ANNEX I SHALL NOT BE DEEMED TO LIMIT OR OTHERWISE AFFECT ANY OTHER
PROVISION HEREOF NOT EXPRESSLY AMENDED THEREBY. SECTION 1.14 HEREOF IS INTENDED
TO CONFIRM THE U.C.C. SECURITY INTERESTS IN CERTAIN PROPERTY (INCLUDING, WITHOUT
LIMITATION, FIXTURES) CREATED HEREBY.
<PAGE>
TABLE OF CONTENTS
Page
----
1. COVENANTS, REPRESENTATIONS AND WARRANTIES............................. 3
1.1. Payment of Mortgage Note; Performance of Other Obligations...... 3
1.2. General Representations, Warranties and Covenants............... 4
1.2.1. Authority, Enforceability, Etc. ........................ 4
1.2.2 No Defaults............................................. 4
1.2.3. No Litigation........................................... 4
1.2.4. Compliance with Law, Etc. .............................. 4
1.2.5. Good Title.............................................. 4
1.2.6. Covenant of Title....................................... 5
1.2.7. Negative Pledge......................................... 5
1.2.8. Qualification........................................... 5
1.2.9. Necessary Permits....................................... 5
1.3. Title Insurance.................................................. 6
1.4. Recordation; Preservation of Lien................................ 6
1.5. Taxes, Liens, and Permitted Encumbrances......................... 6
1.5.1. Taxes................................................... 6
1.5.2. Liens; Permitted Encumbrances........................... 6
1.5.3. Permitted Contests...................................... 6
1.5.4. No Credit for Payment of Taxes or Impositions........... 7
1.6. Care of the Property............................................ 7
1.6.1. Condition of the Property............................... 7
1.6.2. Alterations; Hotel Only................................. 7
1.6.3. Right to Inspect........................................ 7
1.6.4. Compliance with Laws and Covenants...................... 7
1.7. Insurance....................................................... 7
1.7.1. Risks to Be Insured..................................... 7
1.7.2. Policy Provisions....................................... 8
1.7.3. Delivery of Certificates................................ 9
1.8. Damage to or Destruction of Property............................ 9
1.8.1. Notice.................................................. 9
1.8.2. Restoration............................................. 9
1.9. Condemnation.................................................... 9
1.9.1. Mortgagor to Give Notice, Etc. ......................... 9
1.9.2. Total and Substantial Taking............................ 9
1.9.3. Partial and Temporary Taking............................ 9
1.10. Alterations..................................................... 10
1.10.1. Right to Inspect........................................ 10
1.10.2. Cooperation............................................. 10
1.11. Expenses........................................................ 10
1.12. Further Assurances.............................................. 10
1.13. Additions to Security........................................... 10
1.14 U.C.C. Security Agreement and Fixture Filing.................... 11
1.14.1. Grant of Security....................................... 11
1.14.2. Financing Statements.................................... 11
1.14.3. Multiple Remedies....................................... 11
1.14.4. Expenses of Disposition of the Properties............... 11
1.14.5. Fixture Filing.......................................... 11
1.15. Management Agreement............................................ 12
<PAGE>
1.16. Assignment of Rents and Revenues and Mortgagor's
Interest in Leases............................................ 12
1.16.1. Assignment and License................................ 12
1.16.2. Termination of License................................ 12
1.16.3. Satisfaction and Release.............................. 13
1.16.4. No Obligations........................................ 13
1.16.5. Rights in Litigation and Bankruptcy................... 13
1.17. Environmental Covenants and Representations................... 13
1.18. Release Upon Satisfaction of Obligations...................... 13
1.19. Utility Services.............................................. 14
2. EVENTS OF DEFAULT................................................... 14
2.1. Payment Default............................................... 14
2.2. Material Breach of Representation and Warranty................ 14
2.3. Material Breach of Covenant................................... 15
2.4. Event of Default Under Loan Agreement......................... 15
3. REMEDIES............................................................ 15
3.1. Legal Proceedings; Cost of Enforcement........................ 15
3.1.1. Legal Proceedings..................................... 15
3.1.2. Cost of Enforcement................................... 15
3.2. Acceleration.................................................. 15
3.3. Right to Perform Mortgagor's covenants, Etc. ................. 16
3.4. Possession Upon Default....................................... 16
3.4.1. Surrender or Taking of Possession..................... 16
3.4.2. Entering into Possession.............................. 16
3.4.3. Satisfaction of Default............................... 17
3.5. Foreclosure; Power of Sale.................................... 17
3.6. Appointment of Receiver....................................... 17
3.7. Purchase of the Property by the Mortgagee..................... 17
3.8. Foreclosure of Personalty..................................... 17
3.9. Receipt a Sufficient Discharge to Purchaser................... 18
3.10. Sale Shall be a Bar Against Mortgagor......................... 18
3.11. Application of Proceeds of Sale and Other Monies.............. 18
3.12. Remedies Cumulative........................................... 18
3.13. No Waiver, Etc................................................ 18
4. MISCELLANEOUS........................................................ 19
4.1. Notices....................................................... 19
4.2. Invalidity of Any Provision................................... 20
4.3. Amendment..................................................... 20
4.4. Parties Bound and Benefited................................... 20
4.5. Estoppel Certificates......................................... 20
4.6. Headings...................................................... 20
4.7. Pronouns...................................................... 20
4.8. Governing Law................................................. 21
4.9. Waiver of Jury Trial.......................................... 21
4.10. Limitation of Liability....................................... 21
4.11. State Specific Provisions..................................... 22
5. DEFINITIONS.......................................................... 22
5.1. Certain Defined Terms......................................... 22
<PAGE>
THIS SECOND MORTGAGE, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT, AND
FIXTURE FILING (this "MORTGAGE") is made and entered into as of this 30th day of
April, 1997 by and between HANOVER MARRIOTT LIMITED PARTNERSHIP, a Delaware
limited partnership having its principal offices at 10400 Fernwood Road,
Bethesda, Maryland 20817 (the "MORTGAGOR"), and HOST MARRIOTT CORPORATION, a
Delaware corporation, having its principal offices at 10400 Fernwood Road,
Bethesda, Maryland 20817, and its successors and assigns (the "MORTGAGEE").
RECITALS
--------
A. The Mortgagee has agreed to make a loan (the "LOAN") to the Mortgagor
in the aggregate principal amount of up to Eleven Million Seven Hundred Thousand
Dollars ($11,700,000) pursuant to a Loan Agreement dated as of the date hereof
(the "LOAN AGREEMENT"), which Loan is evidenced by the Mortgage Note (the
"MORTGAGE NOTE") of even date herewith by the Mortgagor to the order of the
Mortgagee (together with its successors and assigns thereto, the "NOTEHOLDER")
in the face amount of the Loan, which Mortgage Note has a final maturity date of
June 1, 2012.
B. The Mortgagor is the owner of the Hanover Marriott Hotel (the
"HOTEL"), located on the land described on EXHIBIT A attached hereto and
---------
incorporated herein (the "LAND").
C. The Mortgagor is executing and delivering this Mortgage for the
purpose of granting, conveying, transferring and assigning to the Mortgagee a
lien on and security interest in the Mortgagor's right, title and interest in
and to the Land and the Hotel and all other buildings, structures, fixtures and
improvements now or hereafter located or placed thereon (which Hotel and other
buildings, structures, fixtures and improvements, together with any additions
thereto or alterations or replacements thereof, are sometimes herein referred to
as the "IMPROVEMENTS") and in certain other Property more fully described
herein, as security for the Loan and the payment and satisfaction when due of
the Obligations (as defined herein).
D. A glossary of capitalized terms used herein may be found at Article V
hereof.
E. Amendments to certain provisions contained herein as applicable in the
State of New Jersey may be found in ANNEX I attached hereto.
-------
NOW, THEREFORE, in order to secure: (i) payment by the Mortgagor, as and
when due, of the principal of and interest on the Mortgage Note, (ii) any and
all other amounts that may become due and payable under the Mortgage Note; (iii)
the payment of all amounts payable under this Mortgage, the Loan Agreement and
the other Loan Documents; and (iv) the performance by the Mortgagor of its
covenants and agreements contained in this Mortgage and the other Loan Documents
as the same may hereafter be amended, modified or supplemented (the items in
clauses (i) through (iv) of this paragraph being sometimes collectively referred
to herein as the "OBLIGATIONS"); and for other good and valuable consideration,
the receipt and sufficiency of which the parties hereto acknowledge, the
Mortgagor and the Mortgagee, by these presents do hereby agree as follows:
GRANTING CLAUSES
----------------
The Mortgagor does hereby grant, bargain, sell, mortgage, warrant, pledge,
assign, convey, confirm and transfer to the Mortgagee, and its successors and
assigns forever, subject to the existing first mortgage lien in favor of Toyo
Trust & Banking Co., Ltd., New York Branch, all right, title and interest of the
Mortgagor, whether now owned or hereafter acquired, and the Mortgagor hereby
grants unto Mortgagee a security interest in and to, all of its right, title and
interest, if any, in and to real and personal property of every kind and nature
whatsoever, whether now owned or hereafter acquired, relating to the Hotel,
including, without limitation, the following (such right, title and interest of
the Mortgagor being hereinafter referred to as the "PROPERTY"):
<PAGE>
(i) the Land described in EXHIBIT A attached hereto, together with
---------
the Hotel and all other Improvements located on the Land;
(ii) all estate, title, rights and interests appurtenant to or
benefiting the Land and/or the Improvements, of every kind and nature
whatsoever, relating to or located in, on or under the Land or the Improvements
and all extensions, additions, improvements, betterments, renewals,
substitutions and replacements to or of any of the foregoing rights and
interests (hereinafter, together with the items described in Granting Clause (i)
and the real property, if any, described in Granting Clause (iii), being
hereinafter sometimes referred to as the "REAL PROPERTY RIGHTS");
(iii) all real and personal property of whatever kind or nature
whatsoever used or useful in the operation of the Hotel, or in any way related
to the Land, the Hotel or the other Improvements, whether located on, affixed
to, or attached to the Land or the Improvements or otherwise related thereto or
arising therefrom, and whether tangible or intangible, direct or indirect, fully
matured or contingent, and all extensions, additions, improvements, betterments,
renewals, substitutions, and replacements to or of any of the foregoing; it
being mutually intended, agreed and declared by the parties hereto that all
items of the foregoing property that now are or hereafter become attached or
affixed to the Land or the Improvements in such a way as to constitute them
"fixtures" under applicable law (the "FIXTURES"), shall, to the fullest extent
permitted by law, be deemed to be and form a part of the Land and Improvements
and, for purposes of this Mortgage, shall be deemed to be real estate subject to
the lien created by this Mortgage;
(iv) any and all additions and accessions to the foregoing, and all
proceeds thereof, including, without limitation, proceeds of the conversion,
voluntary or involuntary, of any of the foregoing into cash or liquidated
claims, including, without limitation, all Awards (as defined in SECTION 1.9
hereof) and other payments as a result of any Taking (as defined in SECTION 1.9
hereof), all Insurance Proceeds (as defined in SECTION 1.8 hereof), and all
proceeds of the title insurance referred to in SECTION 1.3 hereof, together with
all amounts received by the Mortgagee or due and payable to the Mortgagee
pursuant to this Mortgage;
(v) all real estate tax refunds and credits and all awards or
payments, including interest on any of them, and the right to receive the same,
which the Mortgagor may have, which may be made with respect to the Land or any
Improvements whether from a Taking thereof or for any other injury to, decrease
in the value of, or other occurrence affecting the Land or any Improvements,
subject, in each case, to the rights of tenants under any leases or subleases of
the Property to the extent such leases are not subordinate to the terms of this
Mortgage;
(vi) all "accounts" (as defined in the Uniform Commercial Code in
effect in the State in which the Land is located and, to the extent a broader
definition is contained therein, in the State of Maryland (the "U.C.C."), all
accounts receivable, rents, issues, profits and revenues, arising out of the
Property, including, without limitation, all fees, charges or other payments for
the use or occupancy of rooms and other public facilities at the Hotel, all room
rents related to the overnight occupancy of guests at the Hotel, and all other
revenues derived from or generated at the Hotel (collectively, the "RENTS AND
REVENUES"), and the Mortgagor assigns to the Mortgagee all present and future
leases and subleases, or other agreements relating to the ownership of the Land
and/or the Improvements (collectively, the "LEASES AND CONTRACTS") and all Rents
and Revenues derived by the Mortgagor therefrom, together with the security
deposits or other payments or instruments delivered as security under such
Leases and Contracts ; provided, however, that the Mortgagee hereby grants to
-------- -------
the Mortgagor the right to collect and receive the Rents and Revenues as they
become due until an Event of Default has occurred and is continuing; and
provided further, that the existence of such right to collect and receive Rents
- -------- -------
and Revenues shall not operate to subordinate this assignment to any subsequent
assignment, in whole or in part, by Mortgagor, and any such subsequent
assignment shall be subject to the rights of the Mortgagee under this Mortgage;
-2-
<PAGE>
(vii) all "general intangibles" (as defined in the U.C.C.),
including, without limitation, to the extent assignable, all rights relating to
design, development, operation, and use of the Land or Improvements, all
certificates, permits, approvals, licenses and consents, all construction,
service and similar contracts, all architectural drawings, plans,
specifications, soil tests, appraisals, engineering reports and similar
materials relating to all or any portion of the Land or Improvements, and all
payment and performance bonds or warranties or guarantees relating to the Land
or Improvements; all rights in bank accounts and any investments of Rents and
Revenues, rights under contracts, and all rights to trademarks and other
intellectual property;
(viii) all "goods," "documents," "instruments," "securities," and
"chattel paper" (as those terms are defined in the U.C.C.);
(ix) all extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and appurtenances to, the
foregoing and of hereafter acquired property of the foregoing types; and
(x) all other proceeds (including, without limitation, as defined
in the U.C.C.), both cash and noncash, of the foregoing which may be sold or
otherwise disposed of.
TO HAVE AND TO HOLD the said Property unto the Mortgagee and its successors
and assigns forever; provided, however, that unless and until an Event of
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Default (as defined in Article II hereof) shall have occurred and be continuing,
the Mortgagor shall have the right to possess and enjoy the Property, and to
receive the rents, issues, and profits therefrom, but in all cases subject to
the terms of this Mortgage and the other Loan Documents; and provided, further,
-------- --------
that if the Mortgagor shall pay and satisfy in full the principal of and
interest on the Mortgage Note and all other Obligations which this Mortgage
secures, then the lien hereof shall be released by the Mortgagee to the
Mortgagor, upon the written request of the Mortgagor, and at the expense of the
Mortgagor; and provided, further, that nothing herein contained shall be
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construed as constituting the Mortgagee as a mortgagee-in-possession unless the
Mortgagee shall have taken actual possession of the Land and Improvements;
provided, further, that nothing contained herein shall be construed as imposing
- -------- -------
on the Mortgagee any of the obligations of the lessee or of the lessor under any
lease of the Land or the Improvements, or of any contract party to any of the
other Leases and Contracts, unless the Mortgagee shall have foreclosed the lien
hereof or expressly assumed such obligations in writing; and provided, further,
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that all items of the foregoing Property that may constitute collateral of the
kind in which a security interest may be created and perfected under the Uniform
Commercial Code as in effect in New Jersey shall be subject to the grant of
security interest made in SECTION 1.14 hereof, which SECTION 1.14 shall be
supplemental to, and shall not be deemed to limit, supersede or impair, these
Granting Clauses.
AND IT IS HEREBY COVENANTED AND AGREED by the Mortgagor, for itself and its
heirs, legal representatives, successors, and assigns, that the Property is to
be held and applied subject to the terms herein set forth, and the Mortgagor,
for itself and its heirs, legal representatives, successors, and assigns, hereby
covenants and agrees with the Mortgagee as follows:
ARTICLE I
1. COVENANTS, REPRESENTATIONS AND WARRANTIES
1.1. PAYMENT OF MORTGAGE NOTE; PERFORMANCE OF OTHER OBLIGATIONS
The Mortgagor represents and warrants that it has duly authorized,
executed, issued and delivered this Mortgage and the other Loan Documents and
covenants that it shall duly and punctually pay and perform all of its
Obligations as the same shall become due and payable, and shall otherwise duly,
fully
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and timely comply with all of the terms, covenants, conditions, and agreements
contained in (or incorporated into) this Mortgage and the other Loan Documents.
1.2. GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
The Mortgagor hereby covenants, represents and warrants that:
1.2.1. AUTHORITY, ENFORCEABILITY, ETC.
This Mortgage and all of the other Loan Documents executed by Mortgagor
have been duly executed and delivered by Mortgagor pursuant to authority legally
adequate therefor, and Mortgagor has been and is authorized and empowered by all
necessary persons having the power of direction over it to execute and deliver
this Mortgage and all other Loan Documents and to carry out the transactions
contemplated herein and therein. This Mortgage and each such other Loan
Document is a legal, valid and binding obligation of Mortgagor, enforceable
against Mortgagor in accordance with its terms, except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law); and
1.2.2. NO DEFAULTS
Mortgagor is not now in material default of any obligations relating to the
Property, and no party has asserted any material claim of default. The
execution and delivery by Mortgagor of the Mortgage and the Loan Documents will
not result in any default under any contract or agreement binding on the
Mortgagor; and
1.2.3. NO LITIGATION
There are no actions or proceedings pending or, to Mortgagor's knowledge,
threatened against or affecting the Property, which may materially and adversely
affect the Property or the validity or enforceability of this Mortgage or any
other Loan Document before or by any court or other governmental authority; and
1.2.4. COMPLIANCE WITH LAW, ETC.
The Property and the operation thereof comply in all material respects with
applicable law; and
1.2.5. GOOD TITLE
Mortgagor has good, valid and marketable, fee simple title in and to the
Property, free and clear of any mortgage or encumbrance, condition, restriction,
preference or priority of any kind or nature whatsoever, (all of the foregoing
being hereinafter referred to each individually as a "LIEN" and collectively as
"LIENS"), subject only to the following (the "PERMITTED LIENS AND
ENCUMBRANCES"):
(i) Liens securing the Toyo Loan;
(ii) Liens securing the Senior Loan;
(iii) Liens created by the Loan Documents in favor of the
Mortgagee;
(iv) Liens, if any, for taxes, assessments and other charges
that are not yet due or payable (or are due and payable but not yet delinquent);
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(v) Applicable building and zoning laws and regulations and
other applicable laws and regulations affecting the use and occupancy of the
Property;
(vi) Liens of mechanics and materialmen currently affecting
the Property against which the Mortgagee has been adequately insured by the
Title Insurance Policy described in SECTION 1.3 hereof and future liens of
mechanics or materialmen for work or services for which payment is not yet due
or the payment of which is being contested by appropriate proceedings in
accordance with SECTION 1.5.3 hereof and as to which Mortgagor has deposited
with the Mortgagee any amounts required by SECTION 6.2 of the Loan Agreement;
(vii) Municipal and public utility easements of record, and
other matters affecting title to the Property as are set forth on EXHIBIT B
---------
attached hereto;
(viii) Easements, restrictions, covenants, reservations and
rights of way granted in the ordinary course of business for traffic
circulation, ingress, egress, parking, access or utilities or for other similar
purposes that are not violated by the Improvements;
(ix) Space leases for operations complementary to the
operation of the Hotel that are subordinate to the Lien hereof;
(x) Liens securing purchase money financing or finance
leasing of the kind permitted by SECTION 1.5.2 hereof; and
(xi) Matters described as "PERMITTED ENCUMBRANCES" in the
Security Agreement.
1.2.6. COVENANT OF TITLE
The Mortgagor, at its own expense, does hereby and shall forever warrant
and defend to the Mortgagee and its successors and assigns forever, a mortgage
lien on the fee simple title to the Property, as described in SECTION 1.2.5 and
the lien and interest of the Mortgagee created by this Mortgage on and in the
Property, and the priority thereof, against all claims and demands, and shall
maintain and preserve such title and lien so long as this Mortgage or any other
Loan Document is outstanding and until such time as all sums secured hereby and
thereby have been paid in full and all other Obligations have been duly
performed; and
1.2.7. NEGATIVE PLEDGE
Except as set forth in SECTIONS 1.5.2 and 1.23 hereof, during the term of
this Mortgage, Mortgagor shall not, directly or indirectly, assign, transfer,
pledge, convey, mortgage or encumber, or permit the assignment, transfer,
pledge, conveyance, mortgaging or encumbrance of, any or all of Mortgagor's
legal or equitable interest in the Property, other than Permitted Liens and
Encumbrances, without the prior written consent of the Mortgagee; and
1.2.8. QUALIFICATION
Mortgagor is a limited partnership duly formed, validly existing and in
good standing in the State of Delaware and is registered or qualified to do
business in each state in which the conduct of its business or the ownership of
its assets makes such qualification or registration necessary; and
1.2.9. NECESSARY PERMITS
Mortgagor, directly or through the Manager under the Management Agreement,
owns, or otherwise has the right to use or is in possession of, all licenses,
permits and government approvals or
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authorizations that are required by applicable law to occupy and conduct its
operations as currently conducted, except to the extent the lack of any such
license, permit, approval or authorization would not reasonably be expected to
materially and adversely affect the occupancy of the Land or Improvements, the
operation or value of the Hotel or the ability of the Mortgagee to exercise its
rights or remedies hereunder.
1.3. TITLE INSURANCE
The Mortgagor has delivered to the Mortgagee a prepaid Mortgagee's policy
of title insurance (the "TITLE INSURANCE POLICY") issued by Chicago Title
Insurance Company or another title insurance company reasonably satisfactory to
the Mortgagee (singly or collectively, the "TITLE COMPANY"), insuring the
interest of the Mortgagee as holder of a valid second-priority mortgage on the
Land and Improvements in a total amount equal to the maximum Loan Amount subject
only to Permitted Liens and Encumbrances.
1.4. RECORDATION; PRESERVATION OF LIEN
The Mortgagor, at its expense, shall at all times cause this Mortgage and
all amendments and supplements hereto, and such financing statements,
continuation statements, and other instruments as may be reasonably required by
the Mortgagee to be filed in such manner and in such places as may be required
to establish, preserve, maintain, and protect the lien of this Mortgage on all
or substantially all of the Property, and to perfect and maintain the security
interest granted by this Mortgage or any other Loan Document.
1.5. TAXES, LIENS, AND PERMITTED ENCUMBRANCES
1.5.1. TAXES
Subject to the right of contest described in SECTION 1.5.3 hereof, the
Mortgagor shall pay all taxes, assessments, ground rents, water, sewer and other
rents, fees and charges, applicable to the Property (collectively,
--------------------------
"IMPOSITIONS"), which may be assessed or imposed on (i) the Property, or (ii)
any occupancy or use on the Property. Such payments shall be made before any
fine, penalty, interest or cost may be added for nonpayment. At the Mortgagee's
request, the Mortgagor shall furnish to the Mortgagee satisfactory proof
evidencing such payments. Upon default by the Mortgagor in the payment of any
such tax, assessment or other charge, unless the same is being properly
contested in accordance with SECTION 1.5.3 hereof, the Mortgagee may (but shall
have no obligation to) pay or cause to be paid the amount thereof, together with
any amount of interest or penalties that may be due with respect thereto, and
such amounts (together with any expenses incurred by the Mortgagee in connection
therewith, including, without limitation, reasonable attorneys' fees and
charges) shall be secured by this Mortgage and shall be repaid upon demand,
together with interest thereon at the Default Rate specified in the Loan
Agreement.
1.5.2. LIENS; PERMITTED ENCUMBRANCES
The Mortgagor shall not effect any financing using the Property or any part
thereof as security, except for (i) the Loan, (ii) the Toyo Loan, (iii) the
Senior Loan and (iv) purchase money financings or finance leasing of FF&E, to
the extent permitted under the Loan Agreement, and shall not permit to exist,
any Lien on or with respect to the Property other than (1) this Mortgage, and
(2) the Permitted Liens and Encumbrances.
1.5.3. PERMITTED CONTESTS
Anything to the contrary contained herein notwithstanding, the Mortgagor,
at its expense, may contest, by appropriate legal, administrative or other
proceedings conducted in good faith and with due
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diligence, any Impositions, or the application of any instrument of record
affecting the Property (other than the Loan Documents), or any claims, judgments
or costs imposed on the Mortgagor or the Property and may withhold payment of
the same pending such proceedings if permitted by law.
1.5.4. NO CREDIT FOR PAYMENT OF TAXES OR IMPOSITIONS
The Mortgagor shall not be entitled to any credit against the principal of
or interest, if any, payable on the Mortgage Note or under the Loan Documents,
by reason of the payment of any tax on the Property or any other Imposition or
other amount required to be paid hereunder. No deduction shall be made or
claimed from the taxable value of the Property or any part thereof by reason of
this Mortgage.
1.6. CARE OF THE PROPERTY
1.6.1. CONDITION OF THE PROPERTY
The Mortgagor shall keep the Property in good and clean order and condition
and repair in accordance with the requirements of the Loan Agreement, shall not
commit or suffer waste thereto, and shall not do or suffer to be done anything
that will increase the risk of fire or other hazard to the Property and shall
keep all Collateral used or useful in its business in good repair, working order
and condition.
1.6.2. ALTERATIONS; HOTEL ONLY
The Mortgagor shall not remove or demolish or materially alter the overall
design or structural character or integrity of the Property except in accordance
with SECTION 1.10 hereof and shall at all times use the Property or cause the
Property to be used in substantially the same manner as it is currently being
used; provided, however, that the Mortgagor shall be permitted to make
-------- -------
alterations and repairs to the Property without restriction as required under
the Management Agreement.
1.6.3. RIGHT TO INSPECT
The Mortgagee or its representatives or both are hereby authorized to enter
upon and inspect the Property at their own cost (or, upon the occurrence and
during the continuation of an Event of Default, at the Mortgagor's cost) at any
time upon reasonable notice and during normal business hours; provided, however,
-------- -------
that the Mortgagee must at all times use reasonable efforts to minimize any
disruption to the operations on the Land.
1.6.4. COMPLIANCE WITH LAWS AND COVENANTS
The Mortgagor shall promptly comply in all material respects with (a) all
present and future Laws affecting the Property and (b) all conditions,
covenants, restrictions and agreements affecting the Property.
1.7. INSURANCE
1.7.1. RISKS TO BE INSURED
The Mortgagor (or its designee), at the Mortgagor's expense, will obtain
and maintain in full force and effect at all times until all Obligations have
been fully paid and performed, insurance against the following risks:
(i) Loss and damage by fire and all other casualties on or
to the Property as are included in the form of casualty insurance commonly
referred to as "extended coverage" in such amounts as are reasonably
satisfactory to the Mortgagee, but in no event less than one hundred percent
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(100%) of the full replacement cost of the Property (exclusive of excavation and
foundations and without deduction for physical depreciation) and in no event
less than the amount required to prevent Mortgagor from becoming a co-insurer
within the terms of the applicable policies;
(ii) Comprehensive public liability insurance on an
"occurrence basis" against claims for personal injury or property damage
occurring on, in or about the Property with a combined single limit of not less
than $1,000,000 with respect to personal injury or death to one or more persons
and with "umbrella" liability coverage of not less than that required by the
Senior Loan Documents or the Management Agreement, or such greater amounts as
may from time to time be required by institutional lenders for similar loans
secured by properties similar to the Property;
(iii) Business interruption insurance for an amount not less
than one year's profits and necessary continuing expenses from the Property (on
an "actual loss sustained" basis) covering the same risks as are covered by the
policies described in SECTION 1.7.1(I);
(iv) If the Land is located in an area designated by the
U.S. Department of Housing and Urban Development as a flood hazard area,
insurance for the peril of flood as is available through the National Flood
Insurance Program;
(v) Broad form boiler and machinery insurance on a
"comprehensive" form in an amount adequate to provide protection against the
maximum amount of damage possible to the Property resulting from explosion or
other covered occurrences relating to boilers, pressure vessels, machinery and
equipment on or about the Property;
(vi) Workers' compensation insurance in such forms and in
such amounts as may be required by the laws of New Jersey; and
(vii) Such other insurance as is generally available on
commercially reasonable terms and is generally required by institutional lenders
on loans secured by properties similar to the Property.
1.7.2. POLICY PROVISIONS
All insurance policies required by SECTION 1.7.1 shall be on forms, with
companies and with endorsements satisfactory to the Mortgagee and in all other
respects shall be reasonably satisfactory to the Mortgagee.
All policies of insurance maintained by the Mortgagor pursuant to
this SECTION 1.7 shall:
(i) Name the Mortgagee as a second mortgagee and an
additional insured and loss payee, as its interest may appear;
(ii) include effective waivers by the insurer of all claims
for insurance premiums against all loss payees and additional insureds (other
than the Mortgagor) and, where applicable, all rights of subrogation against any
loss payee, additional insured or named insured; and
(iii) permit the Mortgagee to pay the premiums and continue
any insurance upon failure of the Mortgagor to pay premiums when due, upon the
insolvency of the Mortgagor, or through foreclosure or other transfer of title
to the Property (it being understood that such amounts paid by the Mortgagee
shall be secured by this Mortgage and shall be repaid upon demand, together with
interest thereon at the Default Rate specified in the Loan Agreement).
The insurance required to be maintained by clauses (i), (ii), (iii) and (v)
of SECTION 1.7.1 may be provided by a blanket policy.
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1.7.3. DELIVERY OF CERTIFICATES
Prior to the execution of this Mortgage, and thereafter not less than five
(5) days prior to the expiration date of any policy required pursuant to this
SECTION 1.7, the Mortgagor will deliver to the Mortgagee original certificates
of the insurers for all policies of insurance required by this Mortgage.
1.8. DAMAGE TO OR DESTRUCTION OF PROPERTY
1.8.1. NOTICE
In case of any material damage to or destruction of the Property or any
part thereof (each a "CASUALTY"), the Mortgagor will, promptly upon becoming
aware thereof, give written notice thereof to the Mortgagee describing the
nature and extent of such damage or destruction.
1.8.2. RESTORATION
In case of a Casualty, the Mortgagor, to the extent the proceeds of
insurance described in clauses (i), (iv) or (v) of SECTION 1.7.1 hereof
(hereafter "INSURANCE PROCEEDS") on account of such Casualty shall be sufficient
for such purpose, will promptly commence and complete the restoration,
replacement or rebuilding of the Property as nearly as possible to its value,
condition and character immediately prior to such Casualty.
1.9. CONDEMNATION
1.9.1. MORTGAGOR TO GIVE NOTICE, ETC.
In case of any taking during the term hereof of all or any part of the
Property, or the taking or transfer of any interest therein or right accruing
thereto, as the result of or in lieu or in anticipation of the exercise of the
right of condemnation or eminent domain by any governmental authority (each
hereinafter a "TAKING"), the Mortgagor will promptly give written notice thereof
to the Mortgagee, describing the nature and extent of the Taking or any
potential Taking, or the nature of the proceedings and negotiations for such
Taking or potential Taking, as the case may be. The Mortgagor will, in good
faith and with due diligence, file and prosecute its claims for any award or
payment on account of any Taking (hereinafter an "AWARD"), and Mortgagor will
pay all costs and expenses (including, without limitation, reasonable attorneys'
and accountants' fees and charges and the reasonable expenses of the Mortgagee)
in connection with any such Taking. Such costs and expenses, to the extent
advanced or paid by the Mortgagee, shall constitute indebtedness secured by this
Mortgage, provided that the Mortgagee shall have no obligation to make such
advances or payments.
1.9.2. TOTAL AND SUBSTANTIAL TAKING
In the case of (i) a Taking of the fee or leasehold of the entire Property,
or (ii) a Taking resulting in the imposition of a perpetual easement on the
entire Property, or (iii) a Taking that adversely affects the cash flow from the
Property in any material respect and as to which any necessary Restoration
cannot reasonably be expected to be completed within one year from the date of
the Taking, then the Award shall be collected and paid over to the Mortgagee to
be held by the Mortgagee.
1.9.3. PARTIAL AND TEMPORARY TAKING
In the case of any Taking other than a Taking referred to in SECTION 1.9.2
hereof, and in case such Taking requires repairs to or Restoration of the
Property in order to maintain the quality of the Hotel
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operations, any Award shall be used in the same manner as if such Taking were a
Casualty affecting the Property and as if such Award constituted Insurance
Proceeds.
1.10. ALTERATIONS
1.10.1. RIGHT TO INSPECT
Mortgagee and any Persons authorized by it at all reasonable times and upon
reasonable notice may enter and examine the Property and may inspect all work
done, labor performed and materials furnished in respect of any alteration,
improvement or removal (each, an "ALTERATION") subject in all instances to the
rights of Manager. Mortgagee shall not have any duty to make any such
inspection and shall not have any liability or obligation for making (except for
its negligence or willful misconduct) or not making any such inspection.
1.10.2. COOPERATION
Mortgagee will cooperate with Mortgagor and execute and deliver such
instruments and agreements as are reasonably requested of it by Mortgagor, at
Mortgagor's expense, in order to facilitate any Alteration (provided the same
shall not subject the Mortgagee to any risk of liability or cost not paid for by
the Mortgagor).
1.11. EXPENSES
The Mortgagor, on demand, shall pay or reimburse the Mortgagee for all
reasonable costs and expenses, including, without limitation, reasonable
attorneys' fees and charges, incurred by the Mortgagee in any action, legal
proceedings or dispute of any kind with respect to which the Mortgagee is made a
party (except claims, suits or other actions brought by or on behalf of
Mortgagee or Mortgagor against the other in which the Mortgagee is not the
substantially prevailing party and except for claims arising from the gross
negligence and willful misconduct of the Mortgagee), affecting the Property,
this Mortgage or the indebtedness secured hereby, and any such amounts that are
paid by the Mortgagee and not reimbursed as aforesaid shall be added to the
Obligations secured by the Lien of this Mortgage.
1.12. FURTHER ASSURANCES
At any time, and from time to time, upon request by the Mortgagee and the
Mortgagor, at the expense of the Mortgagor, shall make, execute, deliver, and
record, or cause to be made, executed, delivered, and recorded, any and all
further instruments, certificates, and other documents, and shall take all such
further actions as may, in the reasonable opinion of the Mortgagee, be necessary
or desirable in order to effectuate, complete, perfect, continue, and/or
preserve the obligations of the Mortgagor under this Mortgage, the lien hereof,
and all modifications, extensions, and other amendments hereof or hereto.
1.13. ADDITIONS TO SECURITY
All right, title, and interest of the Mortgagor in and to all extensions,
improvements, betterments, renewals, substitutes, and replacements of, and all
additions and appurtenances to the Property, hereafter acquired by or released
to the Mortgagor, and all conversions of the security constituted thereby,
immediately upon such acquisition, release, construction, assembling, placement
or conversion, as the case may be, and in each such case, without any further
pledge, grant of security interest, conveyance, assignment or other act by the
Mortgagor of any kind, shall become subject to the lien of this Mortgage as
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fully and completely, and with the same effect, as though now owned by the
Mortgagor and specifically described in the granting clauses hereof.
1.14. U.C.C. SECURITY AGREEMENT AND FIXTURE FILING
1.14.1. GRANT OF SECURITY
This Mortgage is intended to be, among other things, a security agreement
within the meaning of the Uniform Commercial Code as in effect in the State of
Maryland and the State of New Jersey with respect to all Property in which a
security interest may be created and perfected under the Uniform Commercial Code
(the "U.C.C. COLLATERAL"). The Mortgagor hereby grants to the Mortgagee a
security interest in and to all of the Mortgagor's right, title, and interest in
all such U.C.C. Collateral to secure the Obligations. The Mortgagor hereby
agrees that it will not change the location of its principal place of business
or the place where its books and records are kept from the location of the Hotel
or the Mortgagee's principal offices at 10400 Fernwood Road, Bethesda, Maryland
20817 without first giving Mortgagee at least thirty (30) days' advance written
notice thereof. Any completely executed counterpart of this instrument may be
filed as a mortgage on real property or fixtures, as a security agreement or
financing statement on personal property, or as both.
1.14.2. FINANCING STATEMENTS
The Mortgagor shall cause financing statements and other instruments with
respect to the U.C.C. Collateral at all times to be kept recorded, filed or
registered in such manner and in such places as may be required by law as fully
as possible to evidence, perfect and secure the interests of the Mortgagee in
all of the U.C.C. Collateral, and shall pay all filing fees in connection
therewith.
1.14.3. MULTIPLE REMEDIES
If an Event of Default shall have occurred and be continuing, the Mortgagee
shall have the option of proceeding, to the extent permitted under applicable
law, as to both real and personal property in accordance with its rights and
remedies in respect of the real property as an alternative to proceeding in
accordance with the provisions of the U.C.C., and the Mortgagee may exercise any
and all of the other rights of a secured party under the U.C.C. All of
Mortgagee's rights and remedies hereunder, under any other Loan Document, at
law, under statute or otherwise shall be deemed cumulative and not exclusive or
exhaustive, and the exercise of any one remedy shall not impair Mortgagee's
right simultaneously or at any time or in any order to exercise any other remedy
nor shall the exercise of any remedy in one case impair or otherwise affect the
Mortgagee's right or ability to exercise such remedy contemporaneously or again
in the same case or in any other case.
1.14.4. EXPENSES OF DISPOSITION OF THE PROPERTIES
The Mortgagor shall reimburse the Mortgagee, on demand, for all reasonable
expenses of retaking, holding, preparing for sale, lease or other use or
disposition, selling, leasing or otherwise using or disposing of the U.C.C.
Collateral which Mortgagee incurs, including all reasonable attorneys' fees and
expenses, and all such expenses shall be added to the Obligations secured
hereby.
1.14.5. FIXTURE FILING
To the fullest extent permitted by law, this instrument, upon recording or
registration in the real estate records of the proper office in the State in
which the Hotel is located, shall constitute a "fixture-filing" within the
meaning of Sections 9-313 and 9-402 of the U.C.C. (or the local state-law
equivalents of such sections). The address of the Mortgagor, which is the
"DEBTOR" for purposes of the U.C.C. and this
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SECTION 1.14, and the address of the Mortgagee, which is the "SECURED PARTY" for
purposes of the U.C.C. and this SECTION 1.14, from whom information regarding
the U.C.C. Collateral may be obtained, are as stated in SECTION 4.1 of this
Mortgage.
1.15. MANAGEMENT AGREEMENT
Notwithstanding any other provision of this Mortgage or of the Management
Agreement, if Mortgagor shall fail so to do, Mortgagee may (but shall not be
obligated to) take any such action that Mortgagee reasonably deems necessary to
prevent, mitigate or cure, in whole or in part, any default by Mortgagor under
the Management Agreement, provided that Mortgagee shall have first given the
Mortgagor notice of the Mortgagee's intent so to act and a reasonable time for
the Mortgagor to act to prevent or cure such default (unless there is inadequate
time for such notice without risking further damage to the Property or any
material adverse affect thereon or on Mortgagee's interest therein) and if
Mortgagor fails so to act, Mortgagee may so act at the cost and expense of
Mortgagor, and upon the receipt by the Mortgagee of any written notice of any
such default by Mortgagor thereunder, the Mortgagee may rely thereon, and such
notice shall constitute full authority and protection to the Mortgagee for any
action taken by the Mortgagee or its agents in good faith reliance thereon. Any
costs or expenses incurred by the Mortgagee in connection with the exercise of
its rights under this SECTION 1.15 shall be secured by this Mortgage and shall
be repaid upon demand, together with interest thereon at the Default Rate
specified in the Loan Agreement. Nothing in this SECTION 1.15 shall limit the
Mortgagor's rights under the Management Agreement to contest issues concerning
requirements of law or other similar matters to the extent permitted by the
Management Agreement.
1.16. ASSIGNMENT OF RENTS AND REVENUES AND MORTGAGOR'S INTEREST IN LEASES
1.16.1. ASSIGNMENT AND LICENSE
The assignment by Mortgagor in Granting Clause (vi) of this Mortgage of all
of Mortgagor's right, title and interest, if any, in and to all present and
future leases of all or any part of the Property (each, an "OPERATING LEASE") by
Mortgagor, as landlord, to any other Person, as tenant (each a "TENANT"), shall
also be deemed to be an assignment of any and all modifications, renewals,
extensions or replacements thereof, and of any guaranties of the Tenant's
obligations under any Operating Lease (each, a "GUARANTY") and shall be deemed
to be, and is, a present, absolute, effective, irrevocable and complete
assignment by the Mortgagor to the Mortgagee of the Operating Leases and
Guaranties and the right to collect all Rents and Revenues and all other sums
payable to the Mortgagor thereunder and apply the same against the Obligations
in accordance with the terms of this Mortgage, which assignment is not
conditioned upon the Mortgagee being in possession of the Property. However, so
long as no Event of Default shall have occurred and be continuing, the Mortgagor
shall have a license, which may be exercised by the Manager, to collect, receive
and retain from the Tenants under the Operating Leases rent and all other sums
payable under the Operating Leases, to enforce the obligations of Tenants under
the Operating Leases and to exercise all the rights and remedies of the landlord
under the Operating Leases, subject, however, to compliance with the provisions
of this Mortgage. The portion of all sums received by the Mortgagor or the
Manager under the license granted hereby equal to the Obligations then due and
owing, shall be held in trust for the benefit of the Mortgagee and used, as
necessary, to pay the Obligations then due and owing.
1.16.2. TERMINATION OF LICENSE
If any Event of Default shall have occurred and be continuing, the license
granted in SECTION 1.16.1 hereof shall immediately cease and terminate, without
waiver of such Event of Default, with or without notice, any action or
proceeding, or the intervention of a receiver appointed by a court, and the
Mortgagee or an agent or receiver appointed by the Mortgagee may, subject to
applicable statutory requirements, if any, do any or all of the following:
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(i) exercise any of the Mortgagor's rights under the
Operating Leases and Guaranties, including notifying Tenants to pay rent to an
account or location selected by the Mortgagee;
(ii) enforce the Operating Leases and Guaranties;
(iii) demand, collect, sue for, attach, levy, recover,
receive, compromise and adjust, and make, execute and deliver receipts and
releases for all rents or other payments that may then be or may thereafter
become due with respect to the Operating Leases and Guaranties;
(iv) demand that any sums held by the Mortgagor with
respect to any Operating Lease or Guaranty be immediately remitted to the
Mortgagee, to the extent permitted by applicable law; and
(v) generally, do, execute and perform any other act,
deed, matter or thing whatsoever that ought to be done, executed and performed
in and about or with respect to the Operating Leases and Guaranties.
1.16.3. SATISFACTION AND RELEASE
Upon satisfaction of the requirements of SECTION 1.18 hereof providing for
a release of the lien of this Mortgage, the assignment made in this SECTION 1.16
and all rights hereunder assigned to the Mortgagee shall cease and terminate and
shall revert to the Mortgagor.
1.16.4. NO OBLIGATIONS
This SECTION 1.16 shall not be construed to bind the Mortgagee to the
performance of any of the covenants, conditions or provisions contained in any
Operating Lease or Guaranty or otherwise impose any obligation upon the
Mortgagee.
1.16.5. RIGHTS IN LITIGATION AND BANKRUPTCY
If an Event of Default shall have occurred and be continuing, the
Mortgagee shall have the right to proceed in its own name or in the name of the
Mortgagor in respect of any claim, suit, action or proceeding relating to the
rejection of any Operating Lease by or on behalf of any lessee thereunder
pursuant to the Bankruptcy Code.
1.17. ENVIRONMENTAL COVENANTS AND REPRESENTATIONS
The Mortgagor represents and covenants that:
1.17.1. To Mortgagor's knowledge, the operations of the Mortgagor
at the Land and Improvements, and the Land and Improvements themselves,
substantially comply with all applicable Environmental Laws; and
1.17.2. The Mortgagor will hereafter comply with and cause the Land
and Improvements to comply with and use diligent efforts to cause its employees,
agents and contractors on the Land or the Improvements to comply with all
applicable Environmental Laws.
1.18. RELEASE UPON SATISFACTION OF OBLIGATIONS
If the Mortgagor shall pay the principal of and interest on the Mortgage
Note in full at maturity or earlier as permitted in accordance with the terms of
the Loan Agreement and this Mortgage and shall pay
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all other Obligations payable to the Mortgagee by the Mortgagor hereunder and
under the other Loan Documents, then this Mortgage and all the other Loan
Documents shall be discharged and satisfied or, to the extent not prohibited by
law, assigned to the Mortgagor or to any other Person at the Mortgagor's
direction, at the Mortgagor's option, without representation, recourse or
warranty, other than for the acts of the Mortgagee, at the expense of the
Mortgagor upon its written request, except that the indemnifications of
Mortgagor in favor of Mortgagee set forth in the Environmental Indemnity
Agreement shall survive as set forth therein. Concurrently with such release and
satisfaction or assignment of this Mortgage and all the other Loan Documents,
the Mortgagee will return to the Mortgagor the Mortgage Note and all title and
other insurance policies relating to the Property and, on the written request
and at the expense of the Mortgagor, will execute and deliver such proper
instruments of release as may reasonably be requested by the Mortgagor.
1.19. UTILITY SERVICES
The Mortgagor will pay or cause to be paid when due all charges for all
public or private utility services, all public or private highway services, all
public or private communication services and all sprinkler systems and
protective services at any time rendered to or in connection with the Property
and which are incurred by or on behalf of the Mortgagor.
ARTICLE II
2. EVENTS OF DEFAULT
Mortgagor hereby agrees that the occurrence of any one or more of the
following shall constitute an Event of Default ("EVENT OF DEFAULT") under this
Mortgage, entitling the Mortgagee, its successors and assigns, to exercise the
remedies set forth in Article III hereof, and any other remedies available at
law, in equity or under the other Security Documents (and the Mortgagee agrees
that no matter requiring notice and opportunity to cure before such matter would
be an Event of Default hereunder shall constitute an Event of Default hereunder
unless such notice and opportunity to cure shall first have been given to the
Mortgagor):
2.1. PAYMENT DEFAULT
Failure by the Mortgagor to make any payment of principal, interest, or
other amount due and payable under the Mortgage Note or any other Loan Document
within five (5) days after written notice from the Mortgagee that any such
amount is past due (whether at maturity, on a date fixed for any payment or
prepayment thereof, upon acceleration or otherwise);
2.2. MATERIAL BREACH OF REPRESENTATION AND WARRANTY
Any representation or warranty made by the Mortgagor in this Mortgage or
any other Loan Document shall fail to have been true in any material and adverse
respect when made, which failure remains uncured for a period of thirty (30)
days after receipt by the Mortgagor of written notice of such failure; provided,
--------
however, that it shall not be an Event of Default if such failure is curable but
- -------
is not reasonably susceptible of being cured within such 30-day period but the
Mortgagor promptly commences to cure within such 30-day period (and so notifies
the Mortgagee) and thereafter diligently pursues such cure to completion (but in
no event later than 180 days after receipt of such written notice);
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2.3. MATERIAL BREACH OF COVENANT
Failure by the Mortgagor to perform or comply in any material respect with
any term, covenant or condition imposed in this Mortgage or any other Loan
Document, other than with respect to any payment referred to in Section 2.1
above, (a) which failure remains uncured for a period of thirty (30) days after
receipt by the Mortgagor of written notice of such failure, or (b) in the case
of any failure or breach of covenant relating to the payment of taxes or
maintenance of insurance as provided herein, which failure remains uncured for a
period of ten (10) days after receipt of written notice of such failure;
provided, however, that, in the case of clause (a), it shall not be an Event of
- -------- -------
Default if such failure is curable but is not reasonably susceptible of being
cured within such 30-day period but the Mortgagor promptly commences to cure
within such 30-day period (and so notifies the Mortgagee) and thereafter
diligently pursues such cure to completion (but in no event later than 180 days
after receipt of such written notice); and
2.4. EVENT OF DEFAULT UNDER LOAN AGREEMENT
The occurrence of an "Event of Default" under the Loan Agreement.
ARTICLE III
3. REMEDIES
If an Event of Default shall have occurred and be continuing, the Lender
shall have the right, subject to the rights of each of the respective lenders
under the Toyo Loan and the Senior Loan, as applicable, to take one or more of
the actions set forth in this Article 3.
3.1. LEGAL PROCEEDINGS; COST OF ENFORCEMENT
3.1.1. LEGAL PROCEEDINGS
If an Event of Default shall have occurred and be continuing, the Mortgagee
may proceed to protect and enforce its rights by any action at law, suit in
equity or other appropriate proceeding, whether for the specific performance of
any agreement contained herein, or for an injunction against the violation of
any of the terms hereof, or in aid of the exercise of any power granted hereby
or by law.
3.1.2. COST OF ENFORCEMENT
The Mortgagor shall pay within ten (10) days after written demand therefor
all costs and expenses (including, without limitation, attorneys' fees and
charges) incurred by or on behalf of the Mortgagee in enforcing or sustaining
the Lien of this Mortgage or the priority thereof, the Mortgage Note or any
other Loan Documents, or occasioned by any Event of Default. Such costs and
expenses shall constitute Obligations secured by this Mortgage, shall be payable
on demand and, beginning ten (10) days after demand, shall bear interest at the
Default Rate.
3.2. ACCELERATION
If an Event of Default shall have occurred and be continuing, regardless of
the pendency of any proceeding which has or might have the effect of preventing
the Mortgagor from complying with the terms of this Mortgage or any other Loan
Document, then, in any such event, the entire unpaid amount of the indebtedness
evidenced by the Mortgage Note, this Mortgage or any other Loan Documents, and
any other
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unpaid obligations, shall, at the option of the Mortgagee become immediately due
and payable in full without presentment, demand, protest or notice, all of which
are hereby waived by the Mortgagor (except to the extent notice is expressly
required herein) and shall thereafter bear interest at the Default Rate.
3.3. RIGHT TO PERFORM MORTGAGOR'S COVENANTS, ETC.
If the Mortgagor shall fail to make any payment or perform any act required
to be made or performed under this Mortgage or any other Loan Document, within
ten (10) days after written notice thereof to the Mortgagor (or such shorter
notice or without notice as shall be required to avoid a material impairment in
the value of the Property or in the Mortgagee's security, the Mortgagee, without
waiving or releasing any obligation or Event of Default, may (but shall be under
no obligation to) make such payment or perform such act for the account of the
Mortgagor and may enter upon the Property or any part thereof for such purpose
and take all such actions thereon as, in the reasonable opinion of the
Mortgagee, may be necessary or appropriate therefor. All sums so paid by the
Mortgagee and all costs and expenses (including, without limitation, reasonable
attorneys' fees and charges) so incurred, shall constitute part of the
Obligations secured by this Mortgage and shall be paid by the Mortgagor to the
Mortgagee upon demand therefor and, if not so paid within ten (10) days after
demand, shall thereafter bear interest at the Default Rate.
3.4. POSSESSION UPON DEFAULT
3.4.1. SURRENDER OR TAKING OF POSSESSION
If an Event of Default shall have occurred and be continuing, the
Mortgagor, upon demand of the Mortgagee, shall forthwith surrender to the
Mortgagee the actual possession of the Property or any part thereof from time to
time (without limit as to the number of times) as may be designated by the
Mortgagee and, to the extent permitted by law, the Mortgagee may enter and take
possession of all or any such part of the Property and may exclude the Mortgagor
and its agents and invitees wholly therefrom. If the Mortgagor shall fail to
surrender to the Mortgagee the actual possession of such Property upon demand,
then the Mortgagee, to the extent permitted under applicable law, without
further notice, may (1) enter upon and take possession of the Property or any
part thereof by force, summary proceedings, ejectment or otherwise; (2) remove
the Mortgagor and all other persons from the Property; and (3) remove from the
Property any and all property owned by third parties (so long as reasonable
measures for the safekeeping of such third party property are taken).
3.4.2. ENTERING INTO POSSESSION
Upon every such entering and taking of possession, the Mortgagee may hold,
store, use, operate, manage, control, and maintain the Property and conduct the
business thereof. The Mortgagee also may collect and receive all of the
earnings, income, rents, profits, issues and revenues of the Property or any
part thereof, including those past due as well as those accruing thereafter;
provided, however, that any amount so received by the Mortgagee shall be applied
- -------- -------
as provided in SECTION 3.11 hereof. The Mortgagee shall not be liable for or by
reason of any such entry, taking of possession or removal, or holding, operation
or management, except for liability arising out of the gross negligence or
willful misconduct of the Mortgagee or the agents, officers, directors or
employees of the Mortgagee. All sums expended by the Mortgagee pursuant to this
SECTION 3.4.2, including any such amount in excess of the principal amount of
the Mortgage Note, shall be deemed to have been advanced to the Mortgagor by the
Mortgagee, shall be secured by this Mortgage and shall be paid by the Mortgagor
to the Mortgagee upon demand therefor and, if not so paid within ten (10) after
demand, shall thereafter bear interest at the Default Rate.
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3.4.3. SATISFACTION OF DEFAULT
Whenever all Events of Default have been cured and satisfied, the Mortgagee
shall, in its sole and absolute discretion, upon receipt of a written request
therefor from the Mortgagor, surrender possession, provided that the right of
the Mortgagee to take possession of the Property from time to time pursuant to
SECTION 3.4.1 shall continue to exist unimpaired and undiminished if any
subsequent Event of Default shall occur and be continuing.
3.5. FORECLOSURE; POWER OF SALE
If an Event of Default shall have occurred and be continuing, (a) the
Mortgagee may at any time proceed at law or in equity or otherwise to foreclose
the lien of this Mortgage as against all or any part of the Property, either by
strict foreclosure or foreclosure by sale, or in part by any such method or in
any other manner permitted by law or (b) the Mortgagee may sell (and, in the
case of default of any purchaser, resell), assign, transfer, and deliver, to the
fullest extent permitted by applicable law, the whole or, from time to time, any
part of the Property, or any interest in any part thereof under power of sale,
at such time and place in the County and State in which the Hotel is located as
the Mortgagee shall deem advantageous and proper, for immediate or for future
delivery, and for such price or prices and on such terms as the Mortgagee shall
deem advantageous and proper. Notwithstanding anything herein to the contrary
or in any of the other Loan Documents, the Mortgagee shall not initiate
foreclosure proceedings unless five (5) Business Days' prior written notice of
such intention is given to the Mortgagor.
3.6. APPOINTMENT OF RECEIVER
If an Event of Default shall have occurred and be continuing, the Mortgagee
shall, as a matter of right and without any requirement of notice, to the extent
permitted under applicable law, be entitled to appoint a receiver for all or any
part of the Property, whether such receivership be incidental to a proposed sale
of the Property or otherwise, and Mortgagor hereby consents to the appointment
of such receiver. All disbursements made by the receiver under this SECTION 3.6
and the expenses of receivership shall be added to and be a part of the
Obligations, and, whether or not said principal sum, including such
disbursements and expenses, exceeds the indebtedness originally intended to be
secured hereby, the entire amount of said sum, including such disbursements and
expenses, shall be secured by this Mortgage and shall be due and payable upon
demand and, if not so paid within ten (10) days after demand therefor, shall
thereafter bear interest at the Default Rate.
3.7. PURCHASE OF THE PROPERTY BY THE MORTGAGEE
The Mortgagee may be a purchaser of the Property or of any part thereof or
of any interest therein at any sale thereof, whether pursuant to foreclosure or
power of sale or otherwise hereunder (subject to applicable provisions of the
UCC), and may apply upon the purchase price the indebtedness secured hereby
owing to the Mortgagee. The Mortgagee shall, upon any such purchase, acquire
good title to the properties so purchased, free of the lien of this Mortgage
and, to the fullest extent permitted by applicable law, free of all rights of
redemption in the Mortgagor and free of all liens and encumbrances subordinate
to this Mortgage.
3.8. FORECLOSURE OF PERSONALTY
Upon the occurrence and during the continuation of an Event of Default,
should the Mortgagee elect to cause any of the Property to be disposed of as
personal property because the same consists of a right of action or property
that can be severed from the Land or the Improvements without causing material
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damage thereto, the Mortgagee may dispose of all or any part thereof in any
manner now or hereafter permitted under the U.C.C. or in accordance with any
other remedy provided by law.
3.9. RECEIPT A SUFFICIENT DISCHARGE TO PURCHASER
Upon any sale of the Property or any part thereof or any interest therein,
whether pursuant to foreclosure or power of sale or otherwise hereunder, the
receipt of the officer making the sale under judicial proceedings or auctioneer
in the event of a private sale shall be sufficient discharge to the purchaser
for the purchase money, and such purchaser shall not be obligated to see to the
application thereof.
3.10. SALE SHALL BE A BAR AGAINST MORTGAGOR
The sale of all or any portion of the Property in connection with the
exercise of remedies under this Mortgage after the Mortgage Note becomes due and
payable, whether at maturity, by declaration of acceleration or by automatic
acceleration after an Event of Default or otherwise, shall, upon the expiration
of any applicable redemption period, to the full extent legally permitted,
forever be a perpetual bar against the Mortgagor asserting any claim to title to
such portion of the Property so sold.
3.11. APPLICATION OF PROCEEDS OF SALE AND OTHER MONIES
The proceeds of any such sale of the Property or of any interest therein,
whether pursuant to foreclosure or power of sale or otherwise hereunder,
together with any other monies at any time held by the Mortgagee pursuant to
this Mortgage, the Mortgage Note, or any Loan Document, shall, unless otherwise
elected by Mortgagee in its sole discretion, or unless otherwise required by
applicable law, be applied as set forth in the Loan Agreement, and any amounts
remaining after payment in full of all Debt under the Loan Agreement shall be
returned to the Mortgagor.
3.12. REMEDIES CUMULATIVE
Each of the rights, powers, and remedies provided herein are intended and
are hereby deemed to be cumulative, concurrent and in addition to, and not in
limitation of, those rights, powers, and remedies provided elsewhere hereunder
or in any other Loan Document or now or hereafter existing at law or in equity
or by statute or otherwise.
3.13. NO WAIVER, ETC.
No failure by the Mortgagee to insist upon the strict performance of any
term hereof or to exercise any right, remedy, power or privilege provided herein
or by statute or at law or in equity or otherwise, nor delay therein, shall
constitute a waiver thereof, nor shall any single or partial exercise of any
such right, remedy, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The
waiver of any Event of Default hereunder shall not impair the rights of the
Mortgagee to enforce any concurrent or future Event of Default, whether similar
or dissimilar to the Event of Default waived, or otherwise affect or alter this
Mortgage, which shall continue in full force and effect.
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ARTICLE IV
4. MISCELLANEOUS
4.1. NOTICES
All notices, requests and demands to or upon the respective parties
hereto shall be in writing (except as is otherwise specifically provided in this
Agreement) and shall be deemed to have been duly given or made when received (or
when delivery thereof is refused by the intended recipient) if mailed by first-
class registered or certified mail, return receipt requested, postage prepaid,
or sent by facsimile transmission, with confirmation of receipt or delivery, or
sent by nationally recognized overnight courier, delivery charges prepaid, or
delivered by hand, in each case addressed or directed as follows (or to such
other address or facsimile transmission number as may be hereafter designated in
writing by the respective parties hereto):
if to Mortgagor: Hanover Marriott Limited Partnership
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Dept. 923
Attention: Law Dept.
Fax No.: (301) 380-6332
with a copy to:
Hanover Marriott Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Dept. 908
Attention: Asset Management Dept.
Fax No.: (301) 380-8260
if to Mortgagee: Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Dept. 923
Attention: Law Dept.
Fax No.: (301) 380-6332
with a copy to:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Dept. 902
Attention: Executive Dept.
Fax No.: (301) 380-6332
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4.2. INVALIDITY OF ANY PROVISION
All rights, powers and remedies provided herein may be exercised only to
the extent the exercise thereof does not violate any applicable law, and are
intended to be limited to the extent necessary so that they will not render this
Mortgage invalid, unenforceable or not entitled to be recorded, registered or
filed under any applicable law. The invalidity of any one or more phrases,
sentences, clauses, paragraphs or Sections hereof shall not affect the remaining
portions of this Mortgage or any part thereof. In the event that one or more of
the phrases, sentences, clauses, paragraphs or Sections contained herein shall
be invalid, or would operate to render this Mortgage invalid, this Mortgage
shall be construed as if such invalid phrase or phrases, sentence or sentences,
clause or clauses, paragraph or paragraphs or Section or Sections had not been
inserted.
4.3. AMENDMENT
This Mortgage shall not be amended, altered, modified, waived, discharged
or terminated except by an instrument in writing signed by the party against
which enforcement of such amendment, alteration, modification, waiver, discharge
or termination is sought.
4.4. PARTIES BOUND AND BENEFITED
This Mortgage shall be binding upon and be enforceable against the
Mortgagor and the Mortgagee and their respective successors, and assigns, and
shall be enforceable by and inure to the benefit of the Mortgagee and its
successors, and assigns and the Mortgagor and its successors and permitted
assigns.
4.5. ESTOPPEL CERTIFICATES
If requested by the Mortgagee, the Mortgagor will furnish the Mortgagee,
and at the request of the Mortgagor, the Mortgagee will furnish to the
Mortgagor, within fifteen (15) days after written demand therefor, an estoppel
certificate or a written statement which shall set forth the amount due under
the Mortgage Note (whether of principal, interest or any other amount) and shall
indicate in the case of an estoppel certificate issued by the Mortgagor whether
any offsets or defenses exist against the payment of the indebtedness secured
hereby and, if any offsets or defenses are alleged to exist, a detailed
description of such alleged offsets or defenses and the amount or amounts
thereof, and shall indicate, in the case of estoppel certificates issued by the
Mortgagee, whether to the knowledge of the Mortgagee, any Default or Event of
Default has occurred and is continuing (and describing the nature of any Default
or Event of Default in reasonable detail).
4.6. HEADINGS
Article, Section and subsection headings contained in this Mortgage are
inserted for convenience of reference only, shall not be deemed to be a part of
this Mortgage for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
4.7. PRONOUNS
All pronouns and other words and any variations thereof shall be deemed to
refer to the masculine, feminine, neuter, singular or plural, as the identity of
the person or entity or the context may require.
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4.8. GOVERNING LAW
This Mortgage, the rights and obligations of the parties hereto, and any
claims or disputes relating thereto, shall be governed by and construed in
accordance with the laws of the state of Maryland, except that, for purposes of
determining the creation, validity, priority and enforcement of the Lien created
hereby and the exercise of remedies hereunder in connection with such Lien, the
law of the State of New Jersey shall govern.
4.9. WAIVER OF JURY TRIAL
THE PARTIES HERETO WAIVE ANY RIGHT THEY MAY HAVE TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS OR REMEDIES HEREUNDER,
UNDER THE MORTGAGE NOTE, OR UNDER ANY LOAN DOCUMENT RELATING TO ANY OF THE
FOREGOING.
4.10. LIMITATION OF LIABILITY
Notwithstanding any contrary provision in any of the Loan Documents, it is
hereby expressly agreed that, except as otherwise provided in this SECTION 4.10
or in any similar Section of any Loan Document, there shall be no recourse to
the assets of Mortgagor or any of its partners, officers, directors, employees
or shareholders (other than against the Property and any other property given as
security for payment of the Mortgage Note) for (i) the payment of principal,
interest, or any other amount that is or may become due under this Mortgage or
any other Loan Document or (ii) the performance or discharge of any covenant or
undertaking hereunder or under the other Loan Documents, and in the event of any
Event of Default hereunder or thereunder, Mortgagee agrees to proceed solely
against the Property and any other property given as security for payment of the
Mortgage Note, and Mortgagee shall not seek or claim recourse against Mortgagor
or any of its partners, officers, directors, employees or shareholders (other
than against the Property and any other property given as security for payment
of the Mortgage Note) for any deficiency or for any personal judgment after a
foreclosure of the Mortgage or other Security Documents or for the performance
or discharge of any covenants or undertakings of Mortgagor hereunder or under
other Loan Documents (except that the Mortgagor may be made a party to a
proceeding to the extent legally necessary for the conduct of a foreclosure or
the exercise of other similar remedies under the Mortgage or other Security
Documents). Notwithstanding the foregoing, nothing contained in this SECTION
4.10 shall relieve Mortgagor or the General Partner of any personal liability
for any loss, cost, expense, damage or liability arising or resulting from (A)
any breach of any representation or warranty made by Mortgagor in this Mortgage
that was materially incorrect when made and that was made with fraudulent
intent, (B) any amount paid or distributed by Mortgagor to the General Partner,
the Manager, or any Affiliate of any of them in violation of the provisions of
the Loan Documents, (C) fraud or breach of trust or (D) liability of any party
under the Environmental Indemnity Agreement (as described in the Loan
Agreement). It is hereby expressly agreed that neither the General Partner nor
any director, officer, partner or employee of Mortgagor or the General Partner,
nor the legal or personal representative, successor or assign of any of the
foregoing, nor any other principal of Mortgagor or any of its partners, whether
disclosed or undisclosed, shall have any personal liability under this Mortgage
or any of the other Loan Documents, except as personal liability may be
specifically imposed upon the General Partner in accordance with clauses (A),
(B), (C) and (D) of this SECTION 4.10, and in no event shall any limited partner
of the Mortgagor have any liability whatsoever with respect to the Loan or any
monetary obligations with respect thereto, or any of the matters described in
clauses (A), (B), (C) or (D) above. It is the intention of the parties hereto
that this SECTION 4.10 shall govern every other provision of the Loan Documents
and that the absence of explicit reference to this SECTION 4.10 in any provision
of the Loan Documents or the absence of any Section similar to this SECTION 4.10
in any Loan Document shall not be construed to deny the application of this
SECTION 4.10 to such provision, notwithstanding the presence of explicit
reference to this SECTION 4.10 in other provisions of the Loan Documents.
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4.11. STATE SPECIFIC PROVISIONS
Annex I attached hereto and made a part hereof sets forth certain
-------
provisions applicable to the state in which the Land is located which provisions
amend certain provisions hereof as set forth therein. Annex I shall not be
-------
deemed to limit or otherwise affect any other provision hereof not expressly
amended thereby.
ARTICLE V
5. DEFINITIONS
5.1. CERTAIN DEFINED TERMS
Wherever used in this Mortgage the capitalized terms set forth below shall
have the meanings ascribed to them below (or in the Sections of this Mortgage or
any other Loan Document referred to below) such definitions to be equally
applicable to the singular and plural forms of the terms defined below.
"AFFILIATE" has the meaning set forth in the Loan Agreement.
"ALTERATION" has the meaning ascribed to it in SECTION 1.11 hereof.
"AWARD(S)" has the meaning set forth in SECTION 1.9.1 hereof.
"BANKRUPTCY CODE" has the meaning set forth in SECTION 1.18.7.2 hereof.
"CASUALTY" has the meaning set forth in SECTION 1.8.1 hereof.
"CERTIFICATES" has the meaning set forth in Paragraph E of the Recitals
hereof.
"COLLATERAL" has the meaning set forth in the Loan Agreement.
"COLLATERAL ASSIGNMENT OF MANAGEMENT AGREEMENT" means that certain
Collateral Assignment of Management Agreement and Subordination Agreement dated
as of the date hereof by and among the Mortgagor, the Manager and the Mortgagee.
"DEBT" has the meaning set forth in the Loan Agreement.
"DEBTOR" has the meaning set forth in SECTION 1.14.5 hereof.
"DEFAULT RATE" has the meaning ascribed to "Default Interest Rate" in the
Loan Agreement.
"ENVIRONMENTAL LAW" has the meaning ascribed to it in the definition of
"Hazardous Materials" herein.
"ENVIRONMENTAL INDEMNITY AGREEMENT" means that certain Environmental
Indemnity Agreement dated as of the dated hereof by and among the Mortgagor, as
"Indemnitor," and the Mortgagee, as "Lender."
"EVENT OF DEFAULT" has the meaning set forth in ARTICLE II hereof.
"FF&E" means (i) furniture, fixtures, furnishings and equipment and (ii)
FF&E replacements.
"FIXTURES" has the meaning set forth in Granting Clause (iii) hereof.
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"GENERAL PARTNER" has the meaning set forth in the Loan Agreement.
"GUARANTY" has the meaning set forth in SECTION 1.20 hereof.
"HAZARDOUS MATERIAL(S)" means any substances, materials, or wastes, whether
solids, liquids or gases, that are defined as "hazardous wastes," "hazardous
substances," "toxic substances," "radioactive materials," or other substantially
similar designations in, or otherwise subject to regulation under applicable
Laws pertaining to the regulation of hazardous, toxic or dangerous materials or
wastes or the protection of the environment, (collectively referred to herein as
"ENVIRONMENTAL LAWS"). Hazardous Materials includes, but is not limited to,
polychlorinated biphenyls (PCBs), petroleum and petroleum products and
byproducts, and asbestos..
"HOTEL" has the meaning set forth in Paragraph B of the Recitals hereof.
"IMPOSITIONS" has the meaning set forth in SECTION 1.5.1 hereof.
"IMPROVEMENTS" has the meaning set forth in Paragraph C of the Recitals
hereof.
"INSURANCE PROCEEDS" has the meaning set forth in SECTION 1.8.2 hereof.
"LAND" has the meaning set forth in Paragraph B of the Recitals hereof.
"LAWS" means any statute or law, or any rules, regulations, orders or
determinations made by any applicable Governmental Authority.
"LEASES AND CONTRACTS" has the meaning set forth in Granting Clause (vi)
hereof.
"LIEN(S)" has the meaning set forth in SECTION 1.2.5 hereof.
"LOAN" has the meaning set forth in Paragraph A of the Recitals hereof.
"LOAN AGREEMENT" has the meaning set forth in Paragraph A of the Recitals
hereof.
"LOAN DOCUMENTS" has the meaning set forth in the Loan Agreement.
"MANAGEMENT AGREEMENT" has the meaning set forth in the Loan Agreement.
"MANAGER" has the meaning set forth in the Loan Agreement.
"MORTGAGE" has the meaning set forth in the first paragraph of this
document.
"MORTGAGE NOTE" has the meaning set forth in Paragraph A of the Recitals
hereof.
"MORTGAGEE" has the meaning set forth in the first paragraph of this
Mortgage.
"MORTGAGOR" has the meaning set forth in the first paragraph of this
Mortgage.
"NOTEHOLDER" has the meaning set forth in Paragraph A of the Recitals
hereof.
"OBLIGATIONS" has the meaning set forth in the paragraph beginning with the
words "NOW, THEREFORE . . . " on page 1 hereof.
"OPERATING LEASES" has the meaning set forth in SECTION 1.16 hereof.
-23-
<PAGE>
"PERMITTED ENCUMBRANCES" has the meaning set forth in the Security
Agreement.
"PERMITTED LIENS AND ENCUMBRANCES" has the meaning set forth in SECTION
1.2.5 hereof.
"PERSON" has the meaning ascribed to such term in the Loan Agreement.
"PROPERTY" has the meaning set forth in the first full paragraph following
the heading "GRANTING CLAUSES," on page 2 hereof.
"REAL PROPERTY RIGHTS" has the meaning set forth in Granting Clause (ii)
hereof.
"RENTS AND REVENUES" has the meaning set forth in Granting Clause (vi)
hereof.
"RESTORATION" has the meaning set forth in SECTION 1.8.2 hereof.
"SECURED PARTY" has the meaning set forth in SECTION 1.14.5 hereof.
"SECURITY AGREEMENT" has the meaning ascribed to it in the Loan Agreement.
"SECURITY DOCUMENTS" has the meaning set forth in the Loan Agreement.
"SENIOR LOAN" has the meaning ascribed to it in the Loan Agreement.
"SENIOR LOAN DOCUMENTS" has the meaning ascribed to it in the Loan
Agreement.
"TAKING" has the meaning set forth in SECTION 1.9.1 hereof.
"TENANT" has the meaning set forth in SECTION 1.16.1 hereof.
"TITLE COMPANY" has the meaning set forth in SECTION 1.3 hereof.
"TITLE INSURANCE POLICY" has the meaning set forth in SECTION 1.3 hereof.
"TOYO LOAN" has the meaning ascribed to it in the Loan Agreement.
"U.C.C." has the meaning set forth in Granting Clause (vi) hereof.
"U.C.C. COLLATERAL" has the meaning set forth in SECTION 1.14.1 hereof.
-24-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Mortgage to be
duly executed and delivered as of the date first set forth hereinabove.
MORTGAGOR:
HANOVER MARRIOTT LIMITED PARTNERSHIP,
a Delaware limited partnership
WITNESS: By: Marriott Hanover Hotel Corporation, general
partner
By: By: P.K. Brady
------------------------- ----------------------------------
Print Name: Patricia K. Brady,
----------------- Vice President
ATTEST:
By: Anna Mary Coburn
--------------------------------
Print Name: Anna Mary Coburn
------------------------
Title: Corporate Secretary
-----------------------------
[SEAL]
WITNESS: MORTGAGEE:
HOST MARRIOTT CORPORATION
By: By: W. Edward Walter
------------------------- --------------------------------------
Print Name: W. Edward Walter,
----------------- Senior Vice President
ATTEST:
By: Anna Mary Coburn
--------------------------------
Print Name: Anna Mary Coburn
------------------------
Title: Corporate Secretary
-----------------------------
[SEAL]
-25-
<PAGE>
STATE OF Maryland
ss.: Multistate Acknowledgment
COUNTY OF Montgomery
Know all men by these presents that before me, the below-named Notary
Public in and for the State and County named above duly commissioned to take
acknowledgments, there personally appeared Patricia K. Brady, who is personally
known to me to be a person named in and who signed the legal instrument to which
this acknowledgment is attached and which was produced to me in the State and
County aforesaid, and being by me first duly sworn did acknowledge, depose and
say to me that she is a Vice President of Marriot Hanover Hotel Corporation, a
Delaware Corporation, and one of the parties to the aforementioned legal
instrument; that after being duly informed of the contents and import of such
legal instrument she had signed such legal instrument as the Vice President of
such entity indicated above; that s/he had signed the same in the name of and on
behalf of such entity by the authority, order and resolution thereof; that s/he
had signed her/his name thereto on behalf of said entity by like order; that the
execution of said legal instrument was her/his free and voluntary act and deed
of said entity for the consideration, purposes, and uses set forth in such legal
instrument; that s/he had delivered such legal instrument to the other parties
thereto as such; and that on behalf of said entity s/he had received a true copy
of such legal instrument without charge.
IN WITNESS WHEREOF, I have signed and imprinted my official notarial seal
on this acknowledgment in the State and County named above on the 30th day
of April, 1997.
My commission expires: October 18, 1998
Notary Seal
Print Name: Susan Levenson
-----------------------
<PAGE>
STATE OF Maryland
ss.: Multistate Acknowledgment
COUNTY OF Montgomery
Know all men by these presents that before me, the below-named Notary
Public in and for the State and County named above duly commissioned to take
acknowledgments, there personally appeared W. Edward Walter, who is personally
known to me to be a person named in and who signed the legal instrument to which
this acknowledgment is attached and which was produced to me in the State and
County aforesaid, and being by me first duly sworn did acknowledge, depose and
say to me that he is a Senior Vice President of Host Marriot Corporation, a
Delaware Corporation, and one of the parties to the aforementioned legal
instrument; that after being duly informed of the contents and import of such
legal instrument s/he had signed such legal instrument as the Senior Vice
President of such entity indicated above; that s/he had signed the same in the
name of and on behalf of such entity by the authority, order and resolution
thereof; that s/he had signed her/his name thereto on behalf of said entity by
like order; that the execution of said legal instrument was her/his free and
voluntary act and deed of said entity for the consideration, purposes, and uses
set forth in such legal instrument; that s/he had delivered such legal
instrument to the other parties thereto as such; and that on behalf of said
entity s/he had received a true copy of such legal instrument without charge.
IN WITNESS WHEREOF, I have signed and imprinted my official notarial seal
on this acknowledgment in the State and County named above on the 30th day of
April, 1997.
My commission expires: October 18, 1998
Notary Seal
Print Name: Susan Levenson
------------------------
<PAGE>
EXHIBITS
EXHIBIT A Description of Land
EXHIBIT B Permitted Liens and Encumbrances
ANNEXES
ANNEX I State Specific Amendments to Mortgage
<PAGE>
EXHIBIT A
---------
Description Of Land
-------------------
- --------------------------------------------------------------------------------
Issued By:
CHICAGO TITLE INSURANCE COMPANY
- --------------------------------------------------------------------------------
------------
ALTA TITLE INSURANCE POLICY No: 9721-00329
Loan Form (1992) ------------
5. The land referred to in this Policy is described as follows:
------
ALL THAT CERTAIN TRACT, PARCEL AND LOT OF LAND LYING AND BEING SITUATE IN
THE TOWNSHIP OF HANOVER, COUNTY OF MORRIS, STATE OF NEW JERSEY, BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT IN THE PRESENT SOUTHWESTERLY SIDE OF NEW JERSEY STATE
HIGHWAY ROUTE 10 AT A POINT WHERE THE WESTERLY LINE OF THE PREMISES TO BE
DESCRIBED AND THE EASTERLY LINE NOW OR FORMERLY OF NEWARK MILK AND CREAM
COMPANY INTERSECTS SAID SIDELINE OF ROUTE 10 AND RUNNING; THENCE
(1) SOUTH 60 DEGREES 59 MINUTES 12 SECONDS EAST AND ALONG THE SIDE OF
ROUTE 10, 774.32 FEET TO THE CORNER OF LANDS NOW OR FORMERLY OF MELVIN AND
IRENE WYKOFF, HIS WIFE; THENCE
(2) SOUTH 29 DEGREES 00 MINUTES 48 SECONDS WEST 178.12 FEET; THENCE
(3) STILL ALONG LANDS SOUTH 60 DEGREES 59 MINUTES 12 SECONDS EAST 211.0
FEET TO LINE OF LANDS OF IRON INVESTMENT CORP., ET.ALS., LANDS ALONG THE
SAME; THENCE
(4) THE SAME SOUTH 12 DEGREES 09 MINUTES 55 SECONDS WEST 432.86 FEET TO A
POINT; THENCE
(5) NORTH 81 DEGREES 54 MINUTES 29 SECONDS WEST 181.92 FEET TO A POINT;
THENCE
(6) NORTH 61 DEGREES 11 MINUTES 56 SECONDS WEST 760.78 FEET TO A POINT IN
LINE OF LANDS OF NEWARK MILK AND CREAM COMPANY; THENCE
(7) ALONG THE SAME NORTH 13 DEGREES 45 MINUTES 24 SECONDS EAST 684.30 FEET
TO THE POINT AND PLACE OF BEGINNING.
THE ABOVE MADE DESCRIPTION IS MADE IN ACCORDANCE WITH A SURVEY MADE BY
THOMAS R. BUDENTOCH, L.L., DATED APRIL 10, 1997.
TOGETHER WITH ACCESS TO AND ACCESS FROM THE PREMISES BY WAY OF A 50 FOOT
EASEMENT OVER AN EXISTING PAVED ROADWAY TO WING DRIVE AS DEPICTED ON FILED
MAP NO. 3826.
BEING ALSO KNOWN AS (REPORTED FOR INFORMATIONAL PURPOSES ONLY);
LOT 13, BLOCK 1002, ON THE OFFICIAL TAX MAP OF THE TOWNSHIP OF HANOVER IN
COUNTY OF MORRIS
Page A2 - 1
<PAGE>
EXHIBIT B
---------
Permitted Liens and Encumbrances
--------------------------------
1. Those items listed in Section 1.2.5 of this Mortgage.
2. Those title exceptions listed on the title commitment attached hereto
as Schedule 1.
----------
<PAGE>
SCHEDULE 1 TO EXHIBIT B
-----------------------
Title Commitment
----------------
1. FINANCING STATEMENT NO. 90141, WHEREIN HANOVER MARRIOTT LIMITED
PARTNERSHIP, IS THE DEBTOR AND THE TOYO TRUST AND BANKING COMPANY,
LIMITED IS THE SECURED PARTY FILED OCTOBER 26, 1989. CONTINUED BY NO.
113625 FILED OCTOBER 13, 1994, IN MORRIS COUNTY.
2. MORTGAGE BOOK 3158, PAGE 132, BETWEEN HANOVER MARRIOTT LIMITED
PARTNERSHIP (MORTGAGOR/BORROWER) AND HANOVER MARRIOTT LIMITED
PARTNERSHIP, (MORTGAGE/LENDER) DATED OCTOBER 25, 1989, RECORDED OCTOBER
26, 1989, IN THE OFFICE OF THE CLERK/REGISTER OF MORRIS; IN THE INITIAL
AMOUNT OF $37,000,000.00.
ASSIGNMENT AGREEMENT FROM HANOVER MARRIOTT LIMITED PARTNERSHIP,
ASSIGNOR TO THE TOYO TRUST AND BANKING COMPANY, LIMITED, RECORDED
OCTOBER 26, 1989 IN MORTGAGE BOOK 3158 PAGE 189.
SUBORDINATION AND ATTORNMENT AGREEMENT AMONG THE TOYO TRUST AND BANKING
COMPANY, LIMITED, LENDER, MARRIOTT HOTEL SERVICES, INC., TENANT, AND
HANOVER MARRIOTT LIMITED PARTNERSHIP, LANDLORD, RECORDED OCTOBER 26,
1989 IN MORTGAGE BOOK 3158 PAGE 204.
MODIFICATION AND EXTENSION AGREEMENT RECORDED DECEMBER 4, 1996 IN
MORTGAGE BOOK 6759 PAGE 177.
3. AMENDED AND RESTATED LEASE BETWEEN MARRIOTT CORPORATION AND MARRIOTT
HOTEL SERVICES, INC. RECORDED NOVEMBER 25, 1986 IN DEED BOOK 2904 PAGE
634.
ASSIGNMENT OF LEASE BY MARRIOTT CORPORATION, ASSIGNOR, AND HANOVER
MARRIOTT LIMITED PARTNERSHIP, ASSIGNEE, RECORDED NOVEMBER 25, 1986 IN
DEED BOOK 2904 PAGE 723.
4. THE FOLLOWING ITEMS DISCLOSED BY A SURVEY PREPARED BY THOMAS R.
BUDENOCH, L.S., DATED APRIL 10, 1997, ARE HEREBY ADDED AS EXCEPTIONS IN
SCHEDULE B:
MISLOCATION OF TOWERS, PARKING AREA AND HEADWALL ALONG EASTERLY LINE;
MISLOCATION OF BRIDGE DECK ALONG SOUTHERLY LINE; WOODED AREA ALONG
WESTERLY LINE; MISLOCATION OF TRANSFORMERS AND CURBING ALONG NORTHERLY
LINE; SETBACK LINES AS SHOWN ON SURVEY; CURBING ALONG BOUNDARY LINES;
5. EASEMENT(S) IN DEED BOOK F-31 PAGE 134.
6. RIGHTS OF WAY AND EASEMENT; DEED BOOK 2764 PAGE 738; DEED BOOK 2793
PAGE 408; DEED BOOK 3266 PAGE 62 AND DEED BOOK 3336 PAGE 338.
7. SLOPE AND DRAINAGE RIGHTS IN DEED BOOK 3453 PAGE 64; DEED BOOK 3453
PAGE 69 AND DEED BOOK 2725 PAGE 495.
8. LIEN OF UNPAID REAL ESTATE TAXES FOR THE YEAR 1997. TAXES PAID THROUGH
FIRST QUARTER PAID. SUBSEQUENT TAXES NOT YET DUE AND PAYABLE.
9. 290' WIDE JERSEY CENTRAL POWER & LIGHT ROW UTILITY EASEMENT AS SHOWN ON
SURVEY PREPARED BY THE RBA GROUP, DATED 4/28/97, AND A PORTION OF SUCH
EASEMENT HAS BEEN RECORDED IN DEED BOOK 071 PAGE 70 (140' WIDE) DEED
BOOK F31 PAGE 134 (100' WIDE)
<PAGE>
ANNEX I - STATE SPECIFIC AMENDMENTS TO MORTGAGE
-----------------------------------------------
The provisions of this Annex I are applicable to Property located in
-------
the State of New Jersey. To the extent the terms of this Annex I conflict with
-------
any other provisions of this Mortgage, the terms of this Annex I shall govern.
-------
A. TAXATION OF MORTGAGE. If at any time after the date hereof and
--------------------
before the debt hereby secured is fully paid any law of the State of New Jersey
be enacted, deducting from the value of the Property, for the purposes of
taxation, the amount of any lien thereon, or imposing upon the Mortgagee the
payment of the whole or any part of the taxes or assessments or charges or liens
herein required to be paid by the Mortgagor or revising or changing in any way
the laws relating to the taxation of mortgages or debts secured by mortgages or
the Mortgagee's interest in the Property or the manner of collection of taxes,
so as to affect adversely this Mortgage or the debt hereby secured, or the owner
and holder thereof in respect thereto, then and in any such event, Mortgagor
within fifteen (15) days after demand by Mortgagee, shall pay such taxes or
assessments or reimburse Mortgagee.
B. FURTHER ASSURANCES. At any time, and from time to time, upon
------------------
request by Mortgagee, Mortgagor will make, execute, acknowledge and deliver or
cause to be made, executed, acknowledged and delivered to Mortgagee any and all
further instruments, mortgages, conveyances, deeds, certificates and other
documents as may, in the reasonable opinion of Mortgagee, be necessary or
desirable in order to effectuate, complete confirm, or perfect or to continue
and preserve the obligations of Mortgagor under this Mortgange, the Mortgage
Note, Loan Documents, and/or the lien of this Mortgage.
C. AMENDMENTS. If modified, this Mortgage and the Mortgage Note and
----------
Loan Documents which it secures shall be subject to the terms and conditions of
P.L. 1985, c. 353 (N.J.S.A. 56:9-8.1, et seq.).
-------- -- ---
D. MORTGAGOR'S ACKNOWLEDGMENT. Mortgagor hereby acknowledges
--------------------------
receipt, without charge, of a true copy of this Mortgage.
<PAGE>
EXHIBIT 10.D
================================================================================
LOAN AGREEMENT
DATED AS OF APRIL 30, 1997
BY AND BETWEEN
HANOVER MARRIOTT LIMITED PARTNERSHIP
AND
HOST MARRIOTT CORPORATION
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. DEFINITIONS................................................ 1
2. THE LOAN................................................... 4
2.1. Making the Loan..................................... 4
2.2. Additional Advances................................. 5
2.3. Mortgage Note....................................... 5
2.4. Use of Loan Proceeds................................ 5
2.5. Payment of Principal and Interest................... 5
3. REPRESENTATIONS AND WARRANTIES OF BORROWER................. 5
3.1. Corporate Authority................................. 6
3.2. Binding Effect, No Violations....................... 6
3.3. Litigation.......................................... 6
3.4. Title to Assets..................................... 6
3.5. No Defaults......................................... 6
3.6. Compliance with Laws................................ 6
3.7. Permits and Licenses................................ 7
4. CONDITIONS PRECEDENT....................................... 7
4.1. Representations, Warranties and Covenants........... 7
4.2. Borrower's Actions.................................. 7
4.3. Delivery of Documents............................... 7
4.3.1. ....................................... 7
4.3.2. ....................................... 8
5. AFFIRMATIVE COVENANTS OF BORROWER.......................... 8
5.1. Proceeds of the Loan................................ 8
5.2. Management Agreement................................ 8
5.3. Financial and Other Information..................... 8
5.4. Maintenance of Existence, Etc....................... 9
5.5. Books and Records; Inspection of Property and Books. 9
5.6. Maintenance of Property............................. 9
6. ENCUMBRANCES............................................... 9
7. EVENTS OF DEFAULT AND REMEDIES............................. 10
7.1. Default; an Event of Default........................ 10
7.1.1. ....................................... 10
7.1.2. ....................................... 10
7.1.3. ....................................... 10
7.1.4. ....................................... 10
7.1.6. ....................................... 11
7.2. Remedies............................................ 11
7.2.1. ....................................... 11
7.2.2. ....................................... 11
7.2.3. ....................................... 11
7.2.4. ....................................... 12
7.3. Remedies Cumulative................................. 12
7.4. Default Interest.................................... 12
7.5. Default Indemnity................................... 12
8. THE SENIOR LOAN............................................ 12
8.1. Permitted Encumbrances.............................. 12
8.2. Execution of Subordination Agreement................ 13
9. MISCELLANEOUS PROVISIONS................................... 13
9.1. Expenses............................................ 13
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
9.2. Limitation on Liability............................. 13
9.3. Notices............................................. 14
9.4. Severability........................................ 15
9.5. Survival............................................ 15
9.6. Waivers............................................. 15
9.7. Rights Cumulative................................... 15
9.8. Entire Agreement.................................... 15
9.9. Termination......................................... 15
9.10. Construction....................................... 15
9.11. Pronouns........................................... 16
9.12. Headings........................................... 16
9.13. Business Days...................................... 16
9.14. Execution.......................................... 16
</TABLE>
Exhibit A
- ---------
Form of Mortgage Note
-ii-
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "AGREEMENT") is entered into as of April 30,
1997, by and between HANOVER MARRIOTT LIMITED PARTNERSHIP, a Delaware limited
partnership having its principal offices at 10400 Fernwood Road, Bethesda,
Maryland 20817 (the "BORROWER"), and HOST MARRIOTT CORPORATION, a Delaware
corporation, having its principal offices at 10400 Fernwood Road, Bethesda,
Maryland 20817 (the "LENDER").
WHEREAS, the Borrower has requested the Lender to make a loan (the
"LOAN") to the Borrower, and the Lender has agreed to make the Loan to the
Borrower, for the purposes and on the terms and conditions described herein;
WHEREAS, the Loan is evidenced by that certain Mortgage Note dated as
of the date hereof by the Borrower to the order of the Lender and its successors
and assigns in the principal amount of Eleven Million Seven Hundred Thousand and
No/100 Dollars ($11,700,000.00) (subject to reduction as set forth therein),
which is to be secured by a mortgage lien on and security interest in the
Hanover Marriott Hotel, Whippany, New Jersey (the "HOTEL") and all assets
related thereto;
WHEREAS, the parties hereto desire to set forth their agreement
regarding the making of the Loan and the terms and conditions upon which the
Loan shall be made and repaid;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used herein
shall have the respective meanings specified in this SECTION 1 (such definitions
to be equally applicable to both the singular and plural forms of the terms
defined).
"ACCOUNTING PERIOD" has the meaning ascribed to it in the Management
Agreement.
"AFFILIATE" means, as to any Person, (a) any Person directly or
indirectly owning, controlling, or holding power to vote ten percent (10%) or
more of the outstanding equity securities as to the Person in question; (b) any
Person ten percent (10%) or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held with power to vote by the
Person in question; (c) any Person directly or indirectly controlling,
controlled by, or under common control with the Person in question; (d) if the
Person in question is a corporation or limited liability company, any executive
officer, director, member or manager of the Person in question or of any
corporation or limited liability company directly or indirectly controlling,
controlled by, or under common control with the Person in question; and (e) if
the Person in question is a partnership, any general partner of such
partnership. As used in this definition of "AFFILIATE," the term "control"
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract, or otherwise.
"AGREEMENT" means this Loan Agreement, as it may be amended,
supplemented or modified from time to time.
"AVAILABLE CASH FLOW" has the meaning ascribed to it in the Management
Agreement.
"AWARD" has the meaning ascribed to it in the Mortgage.
<PAGE>
"BANKRUPTCY LAW" means title 11, United States Code, or any similar
federal, state or foreign law for the relief of creditors.
"BASE RATE" means fourteen and five-tenths percent (14.5%) per annum.
"BORROWER" means Hanover Marriott Limited Partnership, a Delaware
limited partnership.
"BUSINESS DAY" means a day other than (i) a Saturday or a Sunday or
(ii) a day on which federally insured depository institutions in Maryland are
required or authorized by law, governmental decree or executive order to be
closed.
"CII" means CIGNA Investments, Inc.
"CLOSING" means the making of any advance of the Loan.
"CLOSING DATE" means the date on which any Closing occurs.
"COLLATERAL" means the "PROPERTY" (as defined in the Mortgage) and the
"COLLATERAL" (as defined in the Security Agreement), together with such other
collateral or property as may be pledged, liened or encumbered from time to time
as security for the Loan under any other Security Documents.
"COLLATERAL ASSIGNMENT OF MANAGEMENT AGREEMENT" has the meaning
ascribed to it in the Mortgage.
"DEBT" means the obligations of the Borrower under the Loan Documents
to repay the principal amount of the Loan, together with all interest thereon
and all other sums which may or shall become due under any of the Loan
Documents, including, without limitation, the costs and expenses of enforcing
any provision of the Loan Documents and any other costs that may be reimbursable
hereunder or thereunder.
"DEFAULT" has the meaning ascribed to it in SECTION 7.1 hereof.
"DEFAULT INTEREST RATE" means sixteen and five-tenths percent (16.5%)
per annum.
"DEFERRABLE AMOUNT" has the meaning ascribed to it in SECTION 2.2
hereof.
"DUE DATE" has the meaning ascribed to it in the Mortgage Note.
"ENCUMBRANCE" means any mortgage, deed of trust, deed to secure debt,
lien, claim, option, security interest, pledge, preference, priority,
hypothecation, installment sale agreement, repurchase agreement or other
encumbrance or security arrangement of any kind or nature whatsoever, including,
without limitation, any conditional sale or title retention arrangement, and any
assignment, deposit arrangement, lease or other arrangement intended as, or
having the effect, of security.
"ENVIRONMENTAL INDEMNITY AGREEMENT" has the meaning ascribed to it in
the Mortgage.
"ENVIRONMENTAL LAW" has the meaning ascribed to it in the Mortgage.
"EVENT OF DEFAULT" has the meaning ascribed to it in SECTION 7.1
hereof.
"GENERAL PARTNER" means Marriott Hanover Hotel Corporation, a Delaware
corporation, the sole general partner of the Borrower.
-2-
<PAGE>
"GOVERNMENTAL AUTHORITY" means any nation, government, state, or
political subdivision of any thereof, including any court or any other entity
exercising executive, legislative, regulatory, judicial, or administrative
functions of, or pertaining to, government.
"HAZARDOUS MATERIALS" has the meaning ascribed to it in the Mortgage.
"HOTEL" means the Hanover Marriott Hotel, Whippany, New Jersey located
at 1401 Route 10 East, Whippany, New Jersey.
"IMPROVEMENTS" has the meaning ascribed to it in the Mortgage.
"INITIAL CLOSING DATE" means April 30, 1997 or such earlier date as
the Lender may agree to make the first advance of the Loan.
"INSURANCE PROCEEDS" has the meaning ascribed to it in the Mortgage.
"LAND" means the parcel of land on which the Mortgaged Property is
located.
"LIMITED PARTNERS" means the limited partners of the Borrower.
"LOAN" means the loan made by the Lender to the Borrower pursuant to
SECTION 2 hereof.
"LOAN AMOUNT" has the meaning ascribed to it in SECTION 2.1 hereof.
"LOAN DOCUMENTS" means this Agreement, the Mortgage Note, the Security
Agreement, the Mortgage, the Collateral Assignment of Management Agreement, the
Environmental Indemnity Agreement and any and all other documents, agreements,
certificates, notes or other instruments delivered pursuant to, or in connection
with, the Loan.
"MANAGEMENT AGREEMENT" means either (i) that certain Amended and
Restated Lease between the Borrower (as successor in interest to Marriott
Corporation), as "Landlord," and the Manager, as "Tenant," dated as of July 29,
1986, as amended, or (ii) when entered into, any management agreement by and
between the Borrower, as "Owner," and the Mananger, as "Manager," that may be
entered into in place of such Amended and Restated Lease, with respect to the
management of the Hotel.
"MANAGER" means Marriott Hotel Services, Inc., or any successor
thereto, or any other Person who becomes the Tenant or Manager of the Hotel
under the Management Agreement.
"MATURITY DATE" means the date which is fifteen (15) years after the
Initial Closing Date.
"MORTGAGE" means that certain Mortgage, Assignment of Rents and
Leases, Security Agreement and Fixture Filing dated as of the date hereof
between Borrower and Lender with respect to the Mortgaged Property.
"MORTGAGE NOTE" means the promissory note described in SECTION 2.3
hereof.
"MORTGAGED PROPERTY" means the Hotel, including, without limitation,
the Land, the Improvements, and all FF&E (as such term is defined in the
Mortgage).
"PERMITTED ENCUMBRANCES" has the meaning ascribed to it in SECTION 6
hereof.
"PERSON" means an individual, a partnership, a corporation, a trust,
an unincorporated organization, a joint venture or other business entity, a
limited liability company, or a government or any department, agency or
political subdivision thereof.
-3-
<PAGE>
"SECURITY DOCUMENTS" means, collectively or individually, as the
context may require, the Mortgage, the Collateral Assignment of Management
Agreement, the Security Agreement and such other documents as are executed and
delivered by any Person to grant additional security for the repayment of the
Loan.
"SENIOR LOAN" means the loan expected to be made by CII to the
Borrower in the principal amount of up to $30 million, or any other loan made to
the Borrower for purposes of paying off the outstanding balance of the Toyo
Loan.
"SENIOR LOAN DOCUMENTS" means the documents governing, evidencing or
relating to the making, securing and repayment of the Senior Loan.
"TAKING" has the meaning ascribed to it in the Mortgage.
"TITLE COMPANY" has the meaning ascribed to it in SECTION 4.3.2
hereof.
"TITLE INSURANCE POLICY" has the meaning ascribed to it in SECTION
4.3.2 hereof.
"THRESHOLD AMOUNT" has the meaning ascribed to it in SECTION 2.1(B)
hereof.
"TOYO LOAN" means the Borrower's existing mortgage indebtedness owed
to the Toyo Trust & Banking Co., Ltd., New York Branch.
"TOYO LOAN DOCUMENTS" means the documents governing, evidencing or
relating to the making, securing and repayment of the Toyo Loan.
2. THE LOAN
2.1. MAKING THE LOAN
(a) Subject to the terms and conditions set forth herein, the Lender
agrees to make a loan (the "LOAN") to the Borrower, which Loan shall be in a
principal amount of up to (1) Eleven Million Seven Hundred Thousand and No/100
Dollars ($11,700,000.00) less (2) the amount by which the net proceeds of the
----
Senior Loan exceed Twenty-Seven Million and No/100 Dollars ($27,000,000.00) (the
"LOAN AMOUNT"). Therefore, if the net proceeds of the Senior Loan equal Thirty
Million and No/100 Dollars ($30,000,000.00), the maximum Loan Amount would be
Eight Million Seven Hundred Thousand and No/100 Dollars ($8,700,000.00).
(b) On the Initial Closing Date, the Lender shall make an initial
advance of the Loan to the Borrower in the principal amount of Ten Million and
No/100 Dollars ($10,000,000.00). No further advance of the Loan Amount will be
made until the Borrower has received the proceeds of the Senior Loan and applied
them to the repayment in full of the Borrower's existing mortgage indebtedness.
If the net proceeds of the Senior Loan exceed Twenty-Seven Million and No/100
Dollars ($27,000,000.00) (the "THRESHOLD AMOUNT"), the maximum Loan Amount shall
be the amount calculated in accordance with SECTION 2.1(A), and the Borrower
shall repay to the Lender directly out of the proceeds of the Senior Loan, and
with such other cash as may be necessary for such purpose, (a) the amount by
which the Senior Loan proceeds exceed the Threshold Amount (of which up to One
Million Seven Hundred Thousand and No/100 Dollars ($1,700,000.00) shall be
available for reborrowing in accordance with SECTION 2.2 hereof), together with
(b) all accrued and unpaid interest on the Loan as of the date of such
repayment. If the net proceeds of the Senior Loan are less than the Threshold
Amount, the Lender shall make an additional advance to the Borrower in a
principle amount that is equal to the difference between the Threshold Amount
and the net proceeds of the Senior Loan, provided, however, that in no event
-----------------
shall such additional advance cause the total outstanding principal balance of
the Loan to exceed (a) Eleven Million Seven Hundred Thousand and No/100 Dollars
($11,700,000.00) less (b) any principal repayment thereof received by Lender as
----
part of the scheduled payments of principal and interest under the Mortgage
Note.
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2.2. ADDITIONAL ADVANCES
After the Closing of the Senior Loan has occurred, and provided no
Default or Event of Default has occurred and is continuing, the Lender agrees to
advance or re-advance to Borrower, at the Borrower's election, up to One Million
Seven Hundred Thousand and No/100 Dollars ($1,700,000.00) (the "DEFERRABLE
AMOUNT") of the Loan Amount, in one or more future advances, which may be used
by Borrower to meet its future needs; provided, however, that no such advance of
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the Loan shall cause the outstanding principal balance of the Loan at any time
to exceed (a) the maximum Loan Amount calculated in accordance with SECTION 2.1
hereof less (b) any principal repayment thereof received by Lender as part of
----
the scheduled payments of principal and interest under the Mortgage Note. To
receive an advance of the unadvanced portion of all or any portion of the
Deferrable Amount at any time, the Borrower shall submit a written request to
the Lender specifying the amount requested to be advanced, which amount shall be
advanced, provided all the conditions to the making of an advance specified
herein are satisfied, on the next Business Day following such written request.
Other than the readvance under this SECTION 2.2 of a portion of the repayment of
principal contemplated by SECTION 2.1(B) hereof in connection with the making of
the Senior Loan, no amount of principal of the Loan that is repaid by the
Borrower to the Lender, whether by regularly scheduled payments, by prepayment
or otherwise, may be reborrowed.
2.3. MORTGAGE NOTE
The obligation of the Borrower to repay the full amount of the Loan
that has been advanced at any time, together with interest thereon, and other
charges and expenses, if any, related thereto, shall be evidenced by that
certain Mortgage Note made by the Borrower to the order of the Lender as of the
Closing Date (the "MORTGAGE NOTE"), substantially in the form of EXHIBIT A
---------
attached hereto and incorporated herein, in the face amount of Eleven Million
Seven Hundred Thousand and No/100 Dollars ($11,700,000.00).
2.4. USE OF LOAN PROCEEDS
The Borrower agrees that the proceeds of the Loan advanced on the
Initial Closing Date shall be used solely for the purpose of repaying the
existing mortgage indebtedness of the Borrower under the Toyo Loan. Advances of
the Loan pursuant to SECTION 2.2 may be used by the Borrower for any purpose.
2.5. PAYMENT OF PRINCIPAL AND INTEREST
All payments made on the Mortgage Note shall be made in the manner,
and subject to the conditions, provided in this Agreement and in the Mortgage
Note. All or any portion of the Mortgage Note may be prepaid at any time
without penalty or premium. To the extent not previously paid, the entire Debt
shall be due and payable in full on the Maturity Date. The Debt shall bear
interest as provided in the Mortgage Note and the other Loan Documents. Any
payments of interest which are due but not paid by reason of an insufficiency of
Available Cash Flow (as set forth in SECTION 7.1.1 hereof) shall be added to the
principal and shall accrue interest at the Base Rate. A failure to pay any
amounts hereunder which are not paid when due for any reason other than an
insufficiency of Available Cash Flow shall bear interest at the Default Interest
Rate beginning on the date such payment becomes past due.
3. REPRESENTATIONS AND WARRANTIES OF BORROWER
To induce the Lender to enter into this Agreement and the other Loan
Documents and to make the Loan to the Borrower, the Borrower makes the following
representations and warranties:
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<PAGE>
3.1. CORPORATE AUTHORITY
The Borrower (a) is a limited partnership duly organized, validly
existing, and in good standing under the laws of the State of Delaware, (b) is
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where its activities or ownership of property require such
qualification, and (c) has the full and unrestricted power and authority,
corporate and otherwise, to own, operate and lease its properties, to carry on
its business as currently conducted, to execute and deliver and perform this
Agreement and the other Loan Documents, to incur the obligations provided for
herein and therein, and to perform the transactions contemplated hereby and
thereby (including, without limitation, the creation of a lien on, and security
interest in favor of the Lender in, the Collateral, all of which have been duly
and validly authorized by all proper and necessary action (all of which actions
are in full force and effect).
3.2 BINDING EFFECT; NO VIOLATIONS
This Agreement and each of the Loan Documents, upon their execution
and delivery, will constitute a legal, valid, and binding obligation of
Borrower, enforceable against Borrower in accordance with their terms. The
execution, delivery, and performance of this Agreement and the other Loan
Documents will not (a) violate, conflict with, or constitute a default under,
any law, regulation, order or any other requirement of any Governmental
Authority, any terms of the partnership agreement of the Borrower, or any
contract, agreement or other arrangement binding upon or affecting Borrower or
any of its property or (b) result in the creation, imposition or acceleration of
any indebtedness or any mortgage, pledge, lien, charge, reservation, covenant,
restriction, security interest, or other encumbrance (individually an
"ENCUMBRANCE" and collectively the "ENCUMBRANCES") of any nature upon, or with
respect to, Borrower or the Collateral, except Encumbrances provided for under
this Agreement or the other Loan Documents.
3.3. LITIGATION
To the best of the Borrower's knowledge, there is no claim,
litigation, proceeding or investigation pending, threatened or reasonably
anticipated against or affecting Borrower or its properties or business, an
adverse determination of which might reasonably be expected to materially and
adversely affect (a) the Hotel or the business, operations, prospects, assets,
properties or condition (financial or otherwise) of the Borrower, (b) the
validity or perfection of the liens securing the Loan or (c) the Borrower's
ability to repay the Loan.
3.4. TITLE TO ASSETS
To the best of the Borrower's knowledge, as of the date hereof,
Borrower has good, valid, and marketable title to all of its properties and
assets (whether real or personal), and there exist no Encumbrances on any of
Borrower's properties or assets, including, without limitation, the Collateral,
other than Permitted Encumbrances. All personal property of Borrower is in good
operating condition and repair, and is suitable and adequate for the purposes
for which it is being used. All inventory of Borrower consists of items which
are good and merchantable and of a quality and quantity presently usable or
salable in the ordinary course of the Borrower's business.
3.5. NO DEFAULTS
To the best of the Borrower's knowledge, no Default or Event of
Default exists hereunder or under the other Loan Documents.
3.6. COMPLIANCE WITH LAWS
The Borrower and the Hotel are in compliance with all applicable laws,
regulations, orders and other requirements of any governmental authority or
arbitrator, except for such non-compliance as would not
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<PAGE>
reasonably be expected, singly or in the aggregate, to materially and adversely
affect the Hotel or the business, operations, prospects, assets, properties or
condition (financial or otherwise) of the Borrower.
3.7. PERMITS AND LICENSES
No proceedings are pending or, to the best of the Borrower's
knowledge, threatened seeking the revocation or suspension of any permits,
licenses or approvals issued with respect to the Hotel the revocation of which
might reasonably be expected to result in any material adverse change in the
business, operations, prospects, properties, assets or condition (financial or
otherwise) of the Borrower or the Hotel.
4. CONDITIONS PRECEDENT
The obligation of the Lender to make any advance of the Loan to the
Borrower and to proceed with any Closing is subject to the satisfaction on or
before such Closing of each and all of the following conditions (and the
occurrence of the Closing shall be conclusive evidence that all such conditions
have been satisfied in full or knowingly waived as of such Closing):
4.1. REPRESENTATIONS, WARRANTIES AND COVENANTS
The representations and warranties of the Borrower made in this
Agreement and in any other Loan Document shall have been true and correct in all
material respects when made, and shall be true and correct in all material
respects on the applicable Closing Date, with the same effect as if such
representations and warranties were made on such Closing Date. As of such
Closing Date, the Borrower shall have performed and complied in all material
respects with all covenants and agreements required by this Agreement or by any
other Loan Document to be performed or complied with by the Borrower as of such
date, and no Default or Event of Default shall have occurred and be continuing.
4.2. Borrower's Actions
The Borrower shall have taken all actions under the laws of any state
having jurisdiction over the Borrower necessary to effectuate the transactions
contemplated by this Agreement and by the other Loan Documents.
4.3. Delivery of Documents
The Borrower shall have delivered to the Lender the following
documents, instruments and agreements, each of which shall be in form and
substance reasonably satisfactory to the Lender:
4.3.1.
All Loan Documents, fully executed by the Borrower and, as applicable,
the General Partner, including the following:
(a) This Agreement;
(b) The Mortgage Note (or any necessary replacements thereof);
(c) The Mortgage;
(d) The Security Agreement;
(e) The Collateral Assignment of Management Agreement (and the
Manager's consent to same);
(f) The Environmental Indemnity Agreement; and
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<PAGE>
(g) UCC financing statements sufficient for filing in all
jurisdictions where filing is necessary to protect the Lender's
security interest in the Collateral.
4.3.2.
A Mortgagee's form of title insurance policy, or marked-up commitment
evidencing such policy, in form and content reasonably acceptable to the Lender,
and in an amount not less than the Loan Amount, with premiums fully paid (the
"TITLE INSURANCE POLICY"), insuring that (i) the Mortgage constitutes a valid
second mortgage or similar lien on, and security interest in, the Land and the
Improvements and all rights appurtenant thereto described therein, in each case
free and clear of all defects and encumbrances other than as set forth in
EXHIBIT B to the Mortgage, and containing, to the extent such coverage is
- ---------
available in New Jersey, (A) full coverage (by affirmative insurance) against
liens of mechanics, materialmen, laborers, and any other Persons who might claim
statutory or other common law liens relating to services performed prior to
Closing; (B) no survey exceptions other than those set forth in EXHIBIT B to the
---------
Mortgage; (C) such other endorsements as the Lender may deem reasonably
necessary to insure that any off-site easements benefiting the Mortgaged
Property are valid and enforceable in accordance with their terms; and (D) such
other endorsements as the Lender may reasonably request. Such title insurance
policy shall be issued by Chicago Title Insurance Company or any other
nationally recognized title insurance company (the "TITLE COMPANY") reasonably
satisfactory to the Lender.
5. AFFIRMATIVE COVENANTS OF BORROWER
Until all obligations of the Borrower under this Agreement and the
other Loan Documents are paid and performed in full, Borrower hereby covenants
and agrees that it shall, unless the Lender otherwise consents in advance in
writing:
5.1. PROCEEDS OF THE LOAN
Apply the proceeds of the Loan solely for the purposes set forth in
SECTION 2.4 hereof.
5.2. MANAGEMENT AGREEMENT
Duly and punctually pay and perform all of its obligations and enforce
all of its rights under the Management Agreement to the extent failure to
perform or enforce its rights thereunder might materially and adversely affect
the business, operations, prospects, assets, properties or condition (financial
or otherwise) of Borrower or the Hotel.
5.3. FINANCIAL AND OTHER INFORMATION
Furnish to the Lender (a) as soon as available and in any event within
one hundred twenty (120) days after the end of each fiscal year of the Borrower,
the audited balance sheet of the Borrower as of the end of such fiscal year and
the related audited statements of revenues and expenses, statements of assets,
liabilities and partners' capital (deficit), changes in partners' capital and
statement of cash flows of the Borrower for such fiscal year, all prepared in
reasonable detail and on an accrual basis of accounting consistently applied,
and certified by an independent certified public accountant of recognized
standing and acceptable to the Lender; (b) as soon as available, and in any
event within seventy-five (75) days after the end of each fiscal quarter of each
fiscal year of the Borrower, the statement of assets, liabilities and partners'
capital (deficit) and related statements of revenues and expenses, changes in
partners' capital, and statement of cash flows of the Borrower, as of the end of
such quarter, certified by the Borrower's chief accounting officer as having
been prepared on an accrual basis of accounting consistently applied; and (c)
such additional information, reports or statements as the Lender may from time
to time reasonably request.
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<PAGE>
5.4. MAINTENANCE OF EXISTENCE, ETC.
At all times (a) maintain its principal place of business, principal
office, and office where it keeps its records and other documents and
instruments, relating to the Hotel (except for certain records, documents and
instruments kept at the Hotel) at its address set forth in the preamble to this
Agreement or such other address of which the Lender may be given written notice
not less than thirty (30) days prior to the date on which a change of location
is to occur; (b) maintain in full force and effect all permits, filings,
authorizations, consents, approvals, and licenses material to the operation of
the Hotel; (c) maintain its legal existence in effect and in good standing; and
(d) comply with all requirements of law material to the conduct of its business
and the performance of its obligations under the Loan Documents.
5.5. BOOKS AND RECORDS; INSPECTION OF PROPERTY AND BOOKS
Keep and maintain adequate and proper records and books of account, in
which complete entries are made on an accrual basis of accounting consistently
applied and in accordance with all laws, and regulations, and permit authorized
representatives of the Lender to discuss the business, operations, prospects,
assets, properties and condition (financial or otherwise) of the Borrower with
its officers and employees and, at reasonable times and on reasonable notice, to
examine, at the Borrower's place of business, its books of account and other
records and make copies thereof or extracts therefrom, all at such reasonable
times as the Lender may request for any purpose reasonably related to the
Lender's interest hereunder.
5.6. MAINTENANCE OF PROPERTY
Keep the Mortgaged Property used or useful in its business, including,
without limitation, the Collateral, in good repair, working order, and
condition, and from time to time make all necessary or desirable repairs,
renewals, and replacements thereof.
6. ENCUMBRANCES
Until all obligations of the Borrower under the Loan Documents are
paid and performed in full, the Borrower hereby covenants and agrees that it
shall not, unless the Lender otherwise consents in advance in writing, create,
assume or suffer to exist, any Encumbrance of any kind, upon any of its
properties, assets or Collateral, whether now owned or hereafter acquired,
except: (i) Encumbrances securing the Toyo Loan; (ii) when the Toyo Loan is
repaid in full, Encumbrances securing the Senior Loan; (iii) the Encumbrances
granted in favor of the Lender under the Mortgage and other Security Documents;
(iv) Encumbrances for taxes, assessments and other governmental charges not yet
due and payable or due and payable, but not yet delinquent, or that are being
contested in good faith by appropriate proceedings; (v) deposits or pledges to
secure the payment of workmen's compensation, unemployment insurance or other
social security benefits or obligations, or to secure the performance of trade
contracts, leases, public or statutory obligations, surety or appeal bonds or
other obligations of a like general nature incurred in the ordinary course of
business; (vi) landlords', mechanics', materialmen's, warehousemen's, carriers',
or other like Encumbrances arising in the ordinary course of business securing
obligations which are not overdue for a period longer than 30 days, or which are
being contested in good faith by appropriate proceedings which are being
diligently pursued or as to which the Encumbrances are bonded to the
satisfaction of the Lender; (vii) easements, rights of way, zoning, similar
restrictions, and other similar encumbrances or title defects that, singly or in
the aggregate, do not in any case materially detract from the value of the
property subject thereto (as such property is used by the Borrower); (viii)
Encumbrances arising by operation of law in connection with judgments, only to
the extent, for an amount, and for a period not resulting in an Event of
Default; (ix) Encumbrances securing capitalized lease obligations insofar as
such Encumbrances cover assets acquired pursuant to such capitalized lease
obligations; (x) Encumbrances described in EXHIBIT B to the Mortgage; and (xi)
---------
other Encumbrances permitted under the Security Documents (collectively
"PERMITTED ENCUMBRANCES").
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7. EVENTS OF DEFAULT AND REMEDIES
7.1. DEFAULT; AN EVENT OF DEFAULT
The occurrence of any of the following events beyond any applicable
notice and cure period set forth in this SECTION 7.1 shall be an "EVENT OF
DEFAULT" hereunder (and the occurrence of any of the following which, with the
giving of notice or the passage of time, or both, would become an Event of
Default shall, prior to the giving of such notice or the passage of such time,
be a "DEFAULT" hereunder).
7.1.1.
The Borrower shall fail to pay any amount of principal, interest or
other amounts due under this Agreement, the Mortgage Note or any of the other
Loan Documents within five (5) days after receipt of written notice that such
payment is past due; provided, however, that a failure to make interest or
-----------------
principal payments on the Mortgage Note by reason of the insufficiency of
Available Cash Flow generated by the Hotel pursuant to the Management Agreement
during the Accounting Period next preceding the Due Date and for which cash has
been received by the Borrower from the Manager, or as a result of any
restrictions agreed to by Lender under any subordination agreement signed by the
Lender in respect of the Toyo Loan or the Senior Loan, as applicable, shall not
be a Default or Event of Default so long as such unpaid amounts together with
interest thereon at the Base Rate, are repaid as soon as possible out of
subsequent advances of Available Cash Flow under the Management Agreement.
7.1.2.
The Borrower shall fail to perform or observe in any material and
adverse respect any of the covenants and agreements of the Borrower set forth in
this Agreement, or any representation and warranty made by the Borrower in this
Agreement or in any of the other Loan Documents shall fail to have been true in
any material and adverse respect when made and, in either case, such failure
shall continue uncured, following the Borrower's receipt of written notice
thereof from the Lender, for a period of more than (i) ten (10) days with
respect to any failure or breach of covenant relating to the payment of taxes or
the maintenance of insurance or (ii) thirty (30) days, with respect to all other
such failures or breaches; provided that, with respect to clause (ii) above, it
shall not be an Event of Default hereunder if (a) such failure is curable but is
not reasonably capable of being cured within such 30-day cure period and
Borrower shall have promptly commenced to cure such failure and thereafter shall
diligently pursue such cure to completion.
7.1.3.
An event of default or "Event of Default" occurs under the Senior Loan
Documents or the Toyo Loan Documents, as applicable.
7.1.4.
Either of the following shall occur with respect to the Borrower or
the General Partner:
(a) a decree, judgment, or order by a court of competent jurisdiction
shall have been entered adjudicating the Borrower or the General Partner
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization of the Borrower or the General Partner under any Bankruptcy
Law, and such decree or order shall have continued undischarged and
unstayed for a period of 60 consecutive days; or a decree, judgment or
order of a court of competent jurisdiction appointing a receiver,
liquidator, trustee, or assignee in bankruptcy or insolvency for the
Borrower or the General Partner, or any substantial part of the property of
the Borrower or the General Partner, or for the winding up or liquidation
of the affairs of the Borrower or the General Partner,
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<PAGE>
shall have been entered, and such decree, judgment, or order shall have
remained in force undischarged and unstayed for a period of 60 days; or
(b) the Borrower or the General Partner shall institute proceedings to
be adjudicated a voluntary bankrupt, or shall consent to the filing of a
bankruptcy proceeding against it, or shall file a petition or answer or
consent seeking reorganization under any Bankruptcy Law, or shall consent
to the filing of any such petition, or shall consent to the appointment of
a custodian, receiver, liquidator, trustee, or assignee in bankruptcy or
insolvency of it or any substantial part of its assets or property, or
shall make a general assignment for the benefit of creditors, or shall
admit in writing its inability to pay its debts generally as they become
due, or shall, within the meaning of any Bankruptcy Law, become insolvent,
fail generally to pay its debts as they become due, or shall, within the
meaning of any Bankruptcy Law, become insolvent, fail generally to pay its
debts as they become due, or take any corporate action in furtherance of or
to facilitate, conditionally or otherwise, any of the foregoing.
7.1.6.
An Event of Default shall occur under any other Loan Document.
7.2. REMEDIES
If an Event of Default shall have occurred and be continuing, the Lender
shall have the right, in its sole discretion, by written notice to the Borrower
(except upon the occurrence of an Event of Default under SECTION 7.1.4 affecting
the Borrower, in which case all principal and accrued interest thereon will be
immediately due and payable on the Mortgage Note without any declaration or
other act on the part of the Lender) to take one or more of the following
actions:
7.2.1.
To declare the principal of and all amounts accrued but unpaid under
the Mortgage Note, this Agreement and the other Loan Documents to be immediately
due and payable, and such amounts shall thereupon become immediately due and
payable, without presentment, demand, protest or notice of any kind, other than
any notice specifically required by SECTION 7.1 or the first paragraph of this
SECTION 7.2, all of which are hereby expressly waived by Borrower.
7.2.2.
Pursue such rights and remedies against the Borrower, or otherwise, as
are provided under and pursuant to this Agreement, the Mortgage or any of the
other Loan Documents and as may be available to the Lender at law or in equity;
provided, however, that the Lender shall not be entitled to initiate foreclosure
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proceedings unless five (5) Business Days' prior written notice of such
intention is given to Borrower and the Manager.
7.2.3.
If the Event of Default involves the Borrower's failure to pay any
tax, assessment, encumbrance or other imposition binding on the Borrower or any
of the Collateral or to perform its obligation to furnish insurance hereunder,
or to perform or observe any other covenant, condition or term in any Loan
Document, Senior Loan Document or Toyo Loan Document or in the Management
Agreement, the Lender may, at its option, without waiving or affecting any of
its other rights or remedies hereunder, and without any obligation to do so,
pay, perform or observe the same, and all payments made or costs or expenses
incurred by the Lender in connection therewith shall be repaid by Borrower to
the Lender within fifteen (15) days after demand therefor, together with
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interest thereonat the Default Interest Rate, and shall be added to and become a
part of the indebtedness secured by the Mortgage and the other Security
Documents.
7.2.4.
Appoint as a matter of right, without notice, to the fullest extent
permitted under applicable law, a receiver for the Borrower or for all or any
part of the Collateral, whether such receivership be incidental to a proposed
sale of the Collateral or otherwise. All disbursements made by the receiver and
the expenses of receivership, shall be added to and be a part of the principal
amount of the obligations secured by the Security Documents, and, whether or not
said principal sum, including such disbursements and expenses, exceeds the
indebtedness originally intended to be secured thereby, the entire amount of
said sum, including such disbursements and expenses, shall bear interest at the
Default Interest Rate, shall be secured by the Security Documents and shall be
due and payable within fifteen (15) days after demand therefor.
7.3. REMEDIES CUMULATIVE
Each of the rights, powers, and remedies provided herein and in the other
Loan Documents are intended and are hereby deemed to be cumulative, concurrent
and in addition to, and not in limitation of, those rights, powers, and remedies
provided elsewhere herein or in any other Loan Document or now or hereafter
existing at law or in equity or by statute or otherwise. No waiver of any
Default or Event of Default in one instance shall constitute a waiver of any
other or any succeeding Default or Event of Default, except to the extent
provided in such waiver.
7.4. DEFAULT INTEREST
In addition to the provisions of SECTION 2 and SECTION 7.2 hereof, if
Borrower shall fail for any reason (other that as described in the proviso in
SECTION 7.1.1 hereof) to make payment when and as due of any amounts due
hereunder (whether at the stated date for payment, or earlier upon an
acceleration hereunder), Borrower shall pay, to the fullest extent permitted by
applicable law, interest to the Lender on such past due amounts beginning on the
date such payment becomes past due at a per annum rate of interest equal to the
Default Interest Rate.
7.5. DEFAULT INDEMNITY
Borrower hereby agrees to, and shall, indemnify and hold harmless the
Lender against the reasonable out-of-pocket costs and expenses (including
reasonable attorneys' fees and expenses) which the Lender may sustain or incur
as a consequence of any Default or Event of Default hereunder and in the
enforcement of the Lender's rights and remedies in connection therewith. Lender
shall provide to Borrower a satisfactory statement, signed by an officer of
Lender and supported, where applicable, by documentary evidence, explaining the
amount of all such costs or expenses. Any amounts that Borrower must pay to
Lender under this SECTION 7.5 shall be due and payable fifteen (15) days after
demand therefor accompanied by documentation sufficient to establish the amount
of Borrower's liability, and shall bear interest at the Default Interest Rate
and shall be added to and become a part of the indebtedness secured by the
Mortgage and other Security Documents.
8. THE SENIOR LOAN
8.1. PERMITTED ENCUMBRANCES
Notwithstanding the provisions of SECTION 6 hereof, the Debtor shall
be permitted to enter into the Senior Loan with CII pursuant to which the Debtor
may grant to CII a security interest in and lien on the Mortgaged
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Property and the Collateral which shall be senior to the security interest
granted to and the lien created by the Security Documents in favor of the
Lender.
8.2. EXECUTION OF SUBORDINATION AGREEMENT
On or prior to date of the closing of the Senior Loan, the Lender
agrees to execute a subordination agreement in form and scope reasonably
acceptable to the Lender, which shall provide that the Lender's rights and
interests hereunder shall be subordinated to those granted to CII under the
Senior Loan Documents. In the event that any of the rights of the Lender
arising under this Agreement or any of the other Loan Documents shall be
inconsistent with rights of CII under the Senior Loan Documents, the rights of
CII shall take priority over those of the Lender.
9. MISCELLANEOUS PROVISIONS
9.1. EXPENSES
The Borrower shall reimburse the Lender for all expenses incurred by
the Lender in connection with this Agreement or any of the other Loan Documents,
including without limitation, expenses incurred in the preparation,
consummation, negotiation, administration or enforcement of, or the preservation
or exercise of any rights hereunder or thereunder (including, without
limitation, the right to collect and dispose of the Collateral) and all
reasonable fees and expenses of the Lender's counsel arising in connection with
the Loan.
9.2. LIMITATION ON LIABILITY
Notwithstanding any contrary provision in any of the Loan Documents,
it is hereby expressly agreed that, except as otherwise provided in this SECTION
9.2 or in any section of any Loan Document that is substantially similar to this
SECTION 9.2, there shall be no recourse to the assets of Borrower or any of its
partners (other than against the Collateral and any other property given as
security for the payment of the Mortgage Note) for (i) the payment of principal,
interest or other charges or amounts that are or may become due and owing to the
Lender by Borrower under this Agreement or any other Loan Documents or (ii) the
performance or discharge of any covenant or undertaking hereunder or under the
other Loan Documents, and in the event of any Event of Default hereunder or
thereunder, the Lender agrees to proceed solely against the Collateral and any
other property given as security for payment of the Mortgage Note, and the
Lender shall not seek or claim recourse against Borrower or any of its partners
(other than against the Collateral and any other property given as security for
payment of the Mortgage Note) for any deficiency or for any personal judgment
after a foreclosure of the lien of the Mortgage or other Security Documents or
for the performance or discharge of any covenants or undertakings of Borrower
hereunder or under any of the other Loan Documents (except that Borrower may be
made a party to a proceeding to the extent legally necessary for the conduct of
a foreclosure or the exercise of other similar remedies under the Mortgage or
other Security Documents). Notwithstanding the foregoing, nothing contained in
this SECTION 9.2 shall relieve Borrower or the General Partner of any personal
liability for any loss, cost, expense, damage or liability arising or resulting
from (A) any breach of any representation or warranty made in this Agreement
that was materially incorrect when made and that was made with fraudulent
intent, (B) any amount paid or distributed to the General Partner, the Limited
Partners, the Manager or any Affiliate of any of them in violation of the
provisions of the Loan Documents, (C) fraud or breach of trust, including
misapplication of Loan proceeds or any Insurance Proceeds or Awards or other
sums that are part of the Collateral that may come into the possession or
control of Borrower or the General Partner or any affiliate of any of them, or
(D) liability of such Person under the Environmental Indemnity Agreement. It is
hereby expressly agreed that neither the General Partner nor any director,
officer, shareholder, partner or employee of Borrower or the General Partner,
nor the legal or personal representative, successor or assign of any of the
foregoing, nor any other principal of Borrower or the General Partner, whether
disclosed or undisclosed, shall have any personal liability under this Agreement
or any of the other Loan Documents, except as personal liability may be
specifically imposed upon the General Partner in accordance
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<PAGE>
with clauses (A), (B), (C) and (D) of this SECTION 9.2, and in no event shall
any Limited Partners have any liability whatsoever with respect to the Loan or
any monetary obligations with respect thereto, or any of the matters described
in clause (A), (B) (C) or (D) above. It is the intention of the parties hereto
that this SECTION 9.2 shall govern every other provision of the Loan Documents
and that the absence of explicit reference to this SECTION 9.2 in any provision
of the Loan Documents or the absence of any Section similar to this SECTION 9.2
in any Loan Document shall not be construed to deny the application of this
SECTION 9.2 to such provision, notwithstanding the presence of explicit
reference to this SECTION 9.2 in other provisions of the Loan Documents.
9.3. NOTICES
All notices, requests and demands to or upon the respective parties
hereto shall be in writing (except as is otherwise specifically provided in this
Agreement) and shall be deemed to have been duly given or made when received (or
when delivery thereof is refused by the intended recipient) if mailed by first-
class registered or certified mail, return receipt requested, postage prepaid,
or sent by facsimile transmission, with confirmation of receipt or delivery, or
sent by nationally recognized overnight courier, delivery charges prepaid, or
delivered by hand, in each case addressed or directed as follows (or to such
other address or facsimile transmission number as may be hereafter designated in
writing by the respective parties hereto):
(a) If to Borrower:
Hanover Marriott Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Dept. 923
Attention: Law Dept.
Fax No.: (301) 380-6332
with a copy to:
Hanover Marriott Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Dept. 908
Attention: Asset Management Dept.
Fax No.: (301) 380-8260
(b) If to Lender:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Dept. 923
Attention: Law Dept.
Fax No.: (301) 380-6332
with a copy to:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Dept. 902
Attention: Executive Dept.
Fax No.: (301) 380-6332
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<PAGE>
9.4. SEVERABILITY
If fulfillment of any provision of this Agreement or any other Loan
Documents or performance of any transaction related thereto, at the time such
fulfillment or performance shall be due, shall involve transcending the limit of
validity prescribed by law, then the obligation to be fulfilled or performed
shall be reduced to the limit of such validity; and if any clause or provision
contained in this Agreement or any other Loan Document operates or would operate
prospectively to invalidate any Loan Document, in whole or in part, then such
clause or provision only shall be held ineffective, as though not herein or
therein contained, and the remainder of the Loan Documents shall remain
operative and in full force and effect.
9.5. SURVIVAL
It is the express intention and agreement of the parties hereto that
all covenants, agreements, statements, representations, warranties, and
indemnities made by Borrower in the Loan Documents shall survive the execution
and delivery of the Loan Documents and the making of all advances and extensions
of credit thereunder.
9.6. WAIVERS
No waiver by the Lender of, or consent by the Lender to, a variation
from the requirements of any provision of the Loan Documents shall be effective
unless made in a written instrument duly executed on behalf of the Lender by its
duly authorized officer, and any such waiver shall be limited solely to those
rights or conditions expressly waived.
9.7. RIGHTS CUMULATIVE
The rights and remedies of the Lender described in any of the Loan
Documents are cumulative and not exclusive of any other rights or remedies which
the Lender otherwise would have at law or in equity or otherwise. No notice to
or demand on the Borrower in any case shall entitle the Borrower to any other
notice or demand in similar or other circumstances.
9.8. ENTIRE AGREEMENT
This Agreement, the exhibits hereto, and the other Loan Documents
constitute the entire agreement of the parties hereto with respect to the
matters contemplated herein, supersede all prior oral and written agreements
with respect to the matters contemplated herein, and may not be modified,
deleted or amended except by written instrument executed by the parties. All
terms of this Agreement and of the other Loan Documents shall be binding upon,
and shall inure to the benefit of and be enforceable by, the parties hereto and
their respective successors and assigns; provided, however, that Borrower may
not assign or transfer any of its rights or obligations hereunder without the
prior written consent of the Lender.
9.9. TERMINATION
This Agreement shall terminate upon payment in full of all amounts
payable and performance of all other obligations owed by Borrower to the Lender
under this Agreement and under the other Loan Documents.
9.10. CONSTRUCTION
This Agreement and the other Loan Documents, the rights and
obligations of the parties hereto, and any claims or disputes relating thereto
shall be governed by and construed in accordance with the laws of the State of
Maryland (excluding the choice of law rules thereof). Each party hereto hereby
acknowledges that all
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<PAGE>
parties hereto participated equally in the negotiation and drafting of this
Agreement and that, accordingly, no court construing this Agreement shall
construe it more stringently against one party than against the other.
9.11. PRONOUNS
All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, neuter, singular or plural, as the identity of the
person or entity may require.
9.12. HEADINGS
Section and subsection headings contained in this Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
9.13. BUSINESS DAYS
If any payment or performance of any of the obligations under this
Agreement or any of the other Loan Documents becomes due on a day other than a
Business Day, the due date shall be extended to the next succeeding Business
Day, and interest thereon (if applicable) shall be payable at the then
applicable rate during such extension.
9.14. EXECUTION
To facilitate execution, this Agreement and any of the other Loan
Documents may be executed in as many counterparts as may be required; and it
shall not be necessary that the signatures of, or on behalf of, each party, or
the signatures of all persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or the signatures of the persons required to bind any party, appear
on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of this
Agreement or any other Loan Document to produce or account for any particular
number of counterparts; but rather any number of counterparts shall be
sufficient so long as those counterparts contain the respective signatures of,
or on behalf of, all of the parties hereto.
-16-
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed on their behalf, as of the day
and year first hereinabove set forth.
BORROWER:
---------
ATTEST: HANOVER MARRIOTT LIMITED PARTNERSHIP
By: By: Marriott Hanover Hotel Corporation
----------------------
Its: By: P.K. Brady
--------------------- ------------------------------
Patricia K. Brady,
Vice President
LENDER:
-------
ATTEST: HOST MARRIOTT CORPORATION
By: By: W. Edward Walter
---------------------- ------------------------------------
W. Edward Walter,
Its: Senior Vice President
---------------------
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<PAGE>
EXHIBIT A
FORM OF MORTGAGE NOTE
-18-
<PAGE>
EXHIBIT 10 E.
MORTGAGE NOTE
-------------
$11,700,000 April 30, 1997
FOR VALUE RECEIVED, the undersigned, HANOVER MARRIOTT LIMITED
PARTNERSHIP, a Delaware limited partnership (the "MAKER"), promises to pay to
the order of HOST MARRIOTT CORPORATION, a Delaware corporation, or assigns (the
"HOLDER"), at 10400 Fernwood Road, Bethesda, Maryland 20817 or at such other
place as the Holder of this Mortgage Note may from time to time designate, the
principal amount of Eleven Million Seven Hundred Thousand Dollars ($11,700,000),
or so much thereof as may be advanced and remain outstanding from time to time
pursuant to that certain Loan Agreement dated as of the date hereof by and
between the Maker and the Holder (the "LOAN AGREEMENT"). The principal balance
of this Mortgage Note shall bear interest from the date of each advance of
principal under the Loan Agreement until such advance is paid in full at a rate
of fourteen and a half percent (14.5%) per annum (the "BASE RATE").
All amounts of principal and interest outstanding hereunder from time
to time shall be repaid in equal (subject to the adjustment provisions contained
herein) monthly installments of principal and interest each in an amount
sufficient to cause the entire principal balance hereof, and all amounts of
accrued and unpaid interest thereon at the Base Rate, to be repaid in full over
an amortization period that expires on the Maturity Date (defined below).
Scheduled payments of principal and interest provided for herein shall be
payable on the first day of each month, commencing on June 1, 1997 and
continuing on the first day of each succeeding month thereafter (each a "DUE
DATE") until June 1, 2012 (the "MATURITY DATE"), and the entire unpaid balance
of this Mortgage Note, together with accrued and unpaid interest thereon and all
other amount that may be owed by the Maker to the Holder under the Loan
Documents (as defined in the Loan Agreement) shall be due and payable in full on
the Maturity Date. Interest shall be computed on the basis of a 360 day year
composed of twelve (12) months of thirty (30) days each. All payments hereunder
shall be made in lawful money of the United States of America, without offset.
On the date hereof, the Holder has made an advance of the Loan to the
Maker in the amount of Ten Million and No/100 Dollars ($10,000,000.00), and the
scheduled monthly payment of principal and interest due on each Due Date, based
on a 15-year amortization schedule and the Base Rate described herein, is
$136,550.09. The amount of the scheduled monthly payment will be adjusted from
time to time hereunder as additional advances of the Loan are made pursuant to
Section 2.2 of the Loan Agreement (or if a repayment of the initial advance
hereof is made in accordance with Section 2.1(b) of the Loan Agreement), which
payments will be equal to the amount necessary to amortize the new principal
balance hereof resulting from any such advance (or repayment) over the period
beginning on the first day of the first full calendar month from and after the
date of such advance (or repayment) and ending on the Maturity Date. For
example, if an additional advance of the Loan Amount were made on
<PAGE>
May 22, 1998 pursuant to Section 2.2 of the Loan Agreement, the amount of the
monthly scheduled payment of principal and interest due on each Due Date from
and after June 1, 1998 would be the amount necessary to repay the increased
principal amount hereof in full, in equal monthly installments, over a 14-year
amortization period commencing June 1, 1998 and ending June 1, 2012.
The unpaid principal amount of this Mortgage Note may be prepaid in
whole or in part at any time or times without premium or penalty. Each
prepayment shall be applied first to the payment of all interest and other
amounts accrued hereunder on the date of any such prepayment, and the balance of
any such prepayment shall be applied to installments of principal payable
hereunder in the inverse order of their scheduled maturities. No prepayment
shall entitle any person to be subrogated to the rights of the Holder unless and
until this Mortgage Note has been paid in full. The scheduled monthly
installments of principal and interest required hereunder shall not be adjusted
following any prepayment, other than the repayment of principal required by
Section 2.1(b) of the Loan Agreement.
This Mortgage Note is the Mortgage Note referred to in the Loan
Agreement and evidences the Loan advanced by the Lender to or for the benefit of
the Maker, as the "Borrower" under the Loan Agreement. Neither the reference to
the Loan Agreement nor any provision thereof shall affect or impair the absolute
and unconditional obligation of the Maker to pay the principal amount hereof, or
so much thereof as may be advanced and remain outstanding hereunder, together
with interest accrued thereon, when due.
This Mortgage Note shall evidence the indebtedness described herein
and any future loans or advances or payments that may be made to or on behalf of
the Maker by the Holder at any time or times hereafter under the Loan Agreement,
and any such loans or advances or payments shall be added to and shall bear
interest at the Base Rate.
This Mortgage Note is secured by the Mortgage and other Security
Documents (as defined in the Loan Agreement) which encumber certain property
described therein. The Holder is entitled to the benefits of the Mortgage and
other Security Documents and reference is made thereto for a description of the
collateral and the rights and remedies of the Holder thereunder. Neither the
reference to the Mortgage and other Security Documents nor any provision thereof
shall affect or impair the absolute and unconditional obligation of the Maker to
pay the principal amount hereof, together with interest accrued thereon, when
due.
The occurrence of an Event of Default under the Loan Agreement shall
constitute an event of default ("EVENT OF DEFAULT") hereunder. Upon the
occurrence of any such Event of Default hereunder, the entire principal amount
hereof, and all accrued and unpaid interest thereon, and any other amounts due
under the Loan Agreement, shall be accelerated, and shall be immediately due and
payable, at the option of the Holder (or, in the case of an Event of Default of
the kind referred to in Sections 7.1.4(a) or 7.1.4(b) of the Loan Agreement,
shall automatically be immediately due and payable), without demand or notice,
and in addition thereto, and not in substitution therefor, the Holder shall be
entitled to exercise any one or more of the rights and remedies provided by
applicable law, or as provided in the Loan Agreement or the other Loan
2
<PAGE>
Documents. Failure to exercise said option or to pursue such other remedies
shall not constitute a waiver of such option or such other remedies or of the
right to exercise any of the same in the event of any subsequent Event of
Default.
The Holder may, upon the occurrence and during the continuation of any
such Event of Default, have resort to the Collateral (as such term is defined in
the Loan Agreement), whether real or personal or tangible or intangible
property, given as security for this Mortgage Note in any order, and may sell
and dispose of such Collateral in whole or in part, at any time or from time to
time, with no requirement on the part of the Holder of this Mortgage Note to
marshal assets. The Holder shall not be required to preserve any rights in such
Collateral as against prior parties. In the event that the Holder is required
to give notice of any intended disposition of any of the Collateral held as
security for this Mortgage Note, ten (10) days' notice given by mail or
telegraph to the last known address of Maker shall be deemed to be reasonable
notice.
Any amounts not paid when due and payable hereunder shall bear
interest at the Default Interest Rate (as such term is defined in the Loan
Agreement). Such charge shall be in addition to, and not in lieu of, any other
right or remedy the Holder may have, including the right to reimbursement of
costs and expenses. Such charge if not previously paid shall, at the option of
the Holder, be added to and become a part of the next succeeding payment to be
made hereunder.
The Maker promises to pay all costs and expenses (including without
limitation reasonable attorneys' fees and disbursements) incurred in connection
with the collection hereof or in the protection or realization of any Collateral
now or hereafter given as security for the repayment hereof, and to perform each
and every covenant or agreement to be performed by Maker under this Mortgage
Note, under the Loan Agreement, and under any other Loan Document.
Any payment on this Mortgage Note coming due on a Saturday, a Sunday,
or a day which is a legal holiday in the place at which a payment is to be made
hereunder shall be made on the next succeeding day which is a Business Day (as
defined in the Loan Agreement).
Each Obligor (which term shall include the Maker and all sureties,
guarantors, endorsers, and other persons assuming obligations pursuant to this
Mortgage Note) under this Mortgage Note hereby waives presentment, protest,
demand, notice of dishonor, and all other notices, and all defenses and pleas on
the grounds of any extension or extensions of the time of payments or the due
dates of this Mortgage Note, in whole or in part, before or after maturity, with
or without notice. No renewal or extension of this Mortgage Note, no release or
surrender of any collateral given as security for this Mortgage Note, no release
of any Obligor, and no delay in enforcement of this Mortgage Note or in
exercising any right or power hereunder, shall affect the liability of any
Obligor. The pleading of any statute of limitations as a defense to any demand
against any Obligor is expressly waived.
No single or partial exercise by the Holder of any right hereunder,
under the Loan Agreement, or under any other Loan Document or other agreement
given as security for this
3
<PAGE>
Mortgage Note or pertaining hereto, shall preclude any other or further exercise
thereof or the exercise of any other rights. No delay or omission on the part of
the Holder in exercising any right hereunder or thereunder shall operate as a
waiver of such right or of any other right under this Mortgage Note or any such
other Loan Document or other agreement.
Whenever used herein, the words "MAKER" and "HOLDER" and "OBLIGOR"
shall be deemed to include their respective successors and assigns.
This Mortgage Note shall be governed by and construed under and in
accordance with the laws of the State of Maryland (but not including the choice
of law rules thereof).
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Mortgage
Note, or have caused this Mortgage Note to be duly executed on their behalf, as
of the day and year first hereinabove set forth.
HANOVER MARRIOTT LIMITED PARTNERSHIP
By: Marriott Hanover Hotel Corporation,
as sole general partner
[SEAL]
ATTEST:
By: By:
------------------------ ---------------------------------
Patricia K. Brady,
Its: Vice President
-----------------------
5
<PAGE>
Exhibit 10.F
================================================================================
SECURITY AGREEMENT
DATED AS OF APRIL 30, 1997
BY AND BETWEEN
HANOVER MARRIOTT LIMITED PARTNERSHIP
AND
HOST MARRIOTT CORPORATION
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. SECURITY INTEREST............................................................................. 1
1.1. Collateral............................................................................... 1
1.2. Financing Statements..................................................................... 3
1.3. Injury to Collateral..................................................................... 3
2. REPRESENTATIONS AND WARRANTIES OF THE DEBTOR.................................................. 3
2.1. Title to Collateral...................................................................... 3
2.2. Perfected Security Interest.............................................................. 3
2.3. Bankruptcy Matters....................................................................... 3
2.4. Representations and Warranties under the Loan Agreement.................................. 4
3. COVENANTS OF THE DEBTOR....................................................................... 4
3.1. General Covenants Relating to Collateral................................................. 4
3.1.1. Collateral........................................................................ 4
3.1.2. No Change in Places of Business or Collateral..................................... 4
3.1.3. No Impairment..................................................................... 4
3.2. Affirmative Covenants.................................................................... 5
3.2.1. Insurance......................................................................... 5
3.2.2. Performance of Contractual Obligations............................................ 5
3.3. Negative Covenants....................................................................... 5
3.3.1. Encumbrances...................................................................... 5
3.3.2. Sale of Assets.................................................................... 5
3.3.3. Other Agreements.................................................................. 5
4. EVENTS OF DEFAULT............................................................................. 6
4.1. Representations and Warranties........................................................... 6
4.2. Material Breach of Covenant.............................................................. 6
4.3. Event of Default Under the Loan Agreement or other Loan Documents........................ 6
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5. RIGHTS AND REMEDIES OF SECURED PARTY.......................................................... 6
5.1. Miscellaneous Rights of the Secured Party................................................ 6
5.2. Right of the Secured Party to Take Possession and Foreclose.............................. 7
5.3. Right of the Secured Party to Collect and Service Accounts............................... 8
5.4. Right of the Secured Party to Use and Operate Collateral................................. 8
5.5. Application of Proceeds.................................................................. 8
5.6. Right of the Secured Party to Appoint Receiver........................................... 9
5.7. Remedies Cumulative...................................................................... 9
5.8. Waiver of Rights......................................................................... 9
6. SENIOR LOAN................................................................................... 9
6.1. Execution of Senior Loan................................................................. 9
6.2. Execution of Subordination Agreement..................................................... 9
7. MISCELLANEOUS PROVISIONS...................................................................... 10
7.1. Additional Actions and Documents......................................................... 10
7.2. Expenses................................................................................. 10
7.3. Notices.................................................................................. 10
7.4. WAIVER OF RIGHT TO JUDICIAL HEARING; JURY................................................ 11
7.5. Release and Satisfaction................................................................. 11
7.6. Benefit.................................................................................. 11
7.7. Modification; Discharge; and Waiver...................................................... 12
7.8. Pronouns................................................................................. 12
7.9. Headings................................................................................. 12
7.10. Governing Law........................................................................... 12
7.11. Filing.................................................................................. 12
8. DEFINITIONS................................................................................... 12
8.1. Defined Terms............................................................................ 12
</TABLE>
ii
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "SECURITY AGREEMENT") is entered into as
of April 30, 1997 by and between Hanover Marriott Limited Partnership, a
Delaware limited partnership with its principal offices at 10400 Fernwood Road,
Bethesda, Maryland 20817 (the "DEBTOR"), and Host Marriott Corporation, a
Delaware corporation with its principal offices at 10400 Fernwood Road,
Bethesda, Maryland 20817 (the "SECURED PARTY").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Secured Party and the Debtor have entered into that
certain Loan Agreement dated as of April 30, 1997 (the "LOAN AGREEMENT"),
providing for a loan (the "LOAN") from the Secured Party to the Debtor in the
amount of up to Eleven Million Seven Hundred Thousand and No/100 Dollars
($11,700,000.00) (subject to reduction as set forth therein);
WHEREAS, the Debtor has made and delivered to the order of the Secured
Party that certain Mortgage Note, in the face amount of the Loan ("MORTGAGE
NOTE"), which is to be secured by, among other things, a lien on and security in
the Hanover Marriott Hotel, Whippany, New Jersey (the "HOTEL") and all assets
related thereto;
WHEREAS, in order to further secure the full and timely payment by the
Debtor of the Loan, and all amounts due under or in connection with the Loan
Agreement and any other Loan Documents (as defined in the Loan Agreement), the
Debtor has agreed to grant to the Secured Party, among other things, a security
interest in the Collateral (as defined herein).
NOW, THEREFORE, for and in consideration of the foregoing and of the
mutual covenants and agreements herein contained, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending legally to be bound, agree as
follows (and all capitalized terms used herein and not otherwise defined herein
shall have the meanings ascribed to them in, or shall have the meanings
incorporated by reference to other documents in, SECTION 8 hereof):
1. SECURITY INTEREST
1.1. COLLATERAL
As security for the due and punctual payment and performance by
the Debtor of each and every obligation, agreement, and covenant of the Debtor
to the Secured Party, including, without limitation, the payment when due of the
full amount of the Loan, together with interest thereon, the payment of all
other amounts from time to time owing under the Loan Documents, and the full
performance of all obligations of the Debtor under the Loan Documents
(collectively the "SECURED OBLIGATIONS"), the Debtor hereby assigns, pledges and
grants to the Secured Party a security interest in and lien on, in addition to
and together with the interests granted under the Mortgage and any other
documents securing the Loan (collectively, the "SECURITY DOCUMENTS"), all of the
Debtor's right, title and interest in and to the following, whether now owned or
hereafter acquired (collectively, the "COLLATERAL"):
(1) All personal property of whatever kind or nature whatsoever
used or useful in the operation of the Hotel, or in any way related to the land
on which the Hotel is located, the Hotel or any other improvements on such land,
whether located on, affixed to, or attached to such land or improvements or
otherwise related thereto or arising therefrom, and whether tangible or
intangible, direct or indirect, fully matured or contingent, and all extensions,
additions, improvements, betterments, renewals, substitutions, and replacements
to or of any of the foregoing, including, without limitation, any items that now
are or hereafter become attached or
<PAGE>
affixed to the Land or the Improvements in such a way as to constitute them
"fixtures" under applicable law (the "FIXTURES").
(2) Any and all additions and accessions to the foregoing, and all
proceeds thereof, including, without limitation, proceeds of the conversion,
voluntary or involuntary, of any of the foregoing into cash or liquidated
claims, including, without limitation, all Awards and other payments as a result
of any Taking, all insurance proceeds, and all proceeds of the Title Insurance
Policy, together with all amounts received by the Secured Party, or due to the
Secured Party, pursuant to the Mortgage or other Loan Documents;
(3) All real estate tax refunds and credits and all awards or
payments, including interest on any of them, and the right to receive the same,
which the Debtor may have, which may be made with respect to the Collateral,
whether from a Taking thereof or for any other injury to, decrease in the value
of, or other occurrence affecting the Collateral;
(4) All "accounts" (as defined in the U.C.C.), all accounts
receivable, and all rents, issues, profits, revenues, royalties, bonuses, rights
and benefits due, payable, accruing or arising out of, or with respect to, the
Collateral, including, without limitation, all fees, charges, accounts or other
payments for the use or occupancy of rooms and other public facilities at the
Hotel, all room rents related to the overnight occupancy of guests at the Hotel,
all banquet, conference or other room rentals, fees or consideration of any
sort, all vending machine receipts and all telephone revenues, all revenue from
the sale of food, beverages, laundry services or any other services provided to
guests at the Hotel, all credit card receipts, all other revenues derived from
or generated at the Hotel and all deposits of money as advance rent, for
security, or as earnest money or as a down payment or deposit for the purchase
of all or any part of the Collateral or for the reservation of rooms or other
facilities in the Hotel (collectively, the "RENT AND REVENUES"), and the Debtor
does hereby transfer and assign to the Secured Party all present and future
leases and subleases, and other agreements relating to the ownership of any
Collateral or to the occupancy or use of all or any portion of any Property
(collectively, the "LEASES AND CONTRACTS") and all Rents and Revenues derived by
the Debtor therefrom and the right to apply such Rents and Revenues to the
payment of the Mortgage Note and the other Secured Obligations, together with
the security deposits or other payments or instruments delivered as security
under such Leases and Contracts; provided, however, that the Secured Party
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hereby grants to the Debtor the right to collect and receive the Rents and
Revenues as they become due unless and until an Event of Default has occurred
and is continuing; and provided further, that the existence of such right to
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collect and receive Rents and Revenues shall not operate to subordinate this
assignment to any subsequent assignment, in whole or in part, by Debtor, and any
such subsequent assignment shall be subject to the rights of the Secured Party
hereunder and of the Secured Party under the other Security Documents;
(5) All "general intangibles" (as defined in the U.C.C.),
including, without limitation, to the extent assignable, all rights relating to
design, development, operation, and use of any Property, all certificates of
occupancy, zoning variances, building, use or other permits, approvals, licenses
and consents, all construction, service, and similar contracts, all
architectural drawings, plans, specifications, soil tests, appraisals,
engineering reports and similar materials and performance bonds or warranties or
guarantees relating to any Property, all rights in bank accounts and any
investments of Rents and Revenues, all rights of the Debtor in, to and under the
Debtor's contracts, and all rights to trademarks and other intellectual
property;
(6) All "goods," "documents," "instruments," "securities,"
"inventory," "equipment," and "chattel paper" (as such are defined in the
U.C.C.);
(7) All extensions, improvements, betterments, renewals,
substitutes and replacements of, and all additions and appurtenances to, all or
any portion of the foregoing; and
(8) To the extent not otherwise included in any of the foregoing
classes or categories of personal property, all proceeds (including, without
limitation, all proceeds as defined in the U.C.C. and all cash and non-cash
proceeds as referred to in (S) 552 of the United States Bankruptcy Code),
products, offspring and profits of or from any of the foregoing.
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1.2. FINANCING STATEMENTS
The Debtor shall execute all financing statements, continuation
statements, assignments, certificates, and other documents and instruments with
respect to the Collateral pursuant to the U.C.C. and otherwise as may be
necessary or reasonably requested by the Secured Party to perfect or from time
to time to publish notice of, continue or renew the security interests granted
hereby, in each case in form satisfactory to the Secured Party, and the Debtor
will pay the cost of filing the same in all public offices where filing is
necessary or reasonably requested by the Secured Party and will pay any and all
recording, transfer or filing taxes that may be due in connection with any such
filing. The Debtor grants the Secured Party the right, at any time and at the
Secured Party's option, and at the Debtor's expense, to file any or all such
financing statements, continuation statements, and other documents pursuant to
the U.C.C. and otherwise as the Secured Party reasonably may deem necessary or
desirable.
1.3. INJURY TO COLLATERAL
No injury to, or loss or destruction of the Collateral or any part
thereof shall relieve the Debtor of any of the Secured Obligations.
2. REPRESENTATIONS AND WARRANTIES OF THE DEBTOR
The Debtor hereby represents and warrants to the Secured Party
that:
2.1. TITLE TO COLLATERAL
The Debtor is the sole owner of, and has good, valid, and
marketable title to, its right, title and interest in the Collateral (whether as
the outright owner thereof, as a lessee or as a licensee), free from all
mortgages, pledges, liens, or encumbrances (each individually an "ENCUMBRANCE"
and collectively the "ENCUMBRANCES"), except Permitted Encumbrances, and the
Debtor has full right and power to grant the Secured Party a lien thereon and a
security interest therein.
2.2. PERFECTED SECURITY INTEREST
This Security Agreement creates a good and valid lien on and
security interest in all of the Debtor's right, title and interest in the
Collateral. The Debtor will take all actions necessary to ensure that such lien
will be perfected as a second priority lien on the Collateral subject only to
the rights granted under the Toyo Loan Documents or the Senior Loan Documents,
as applicable.
2.3. BANKRUPTCY MATTERS
The Debtor has not made a general assignment for the benefit of
creditors, filed any voluntary petition in bankruptcy or suffered the filing of
an involuntary petition by its creditors, suffered the appointment of a receiver
to take possession of all or substantially all of its assets, suffered the
attachment or other judicial seizure of all or substantially all of its assets,
admitted its inability to pay its debts as they come due, or made an offer of
settlement, extension or composition to its creditors generally. The Debtor is
not insolvent and will not be rendered insolvent by the consummation of the
transactions contemplated hereby or by the Loan Documents.
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2.4. REPRESENTATIONS AND WARRANTIES UNDER THE LOAN AGREEMENT
The representations and warranties of the Debtor contained in the
Loan Agreement and each of the other Loan Documents are true and correct as of
the date hereof to the same extent as if set forth in full herein.
3. COVENANTS OF THE DEBTOR
3.1. GENERAL COVENANTS RELATING TO COLLATERAL
Until all of the Secured Obligations have been paid and performed
in full, the Debtor hereby covenants that, unless the Secured Party otherwise
consents in advance in writing:
3.1.1. COLLATERAL.
The Debtor shall (a) execute and deliver any and all documents
necessary or, in the Secured Party's reasonable judgment, desirable to create,
perfect, preserve, validate or otherwise protect the Secured Party's lien on and
security interest in the Collateral and the priority thereof, (b) maintain at
all times the Secured Party's lien on and security interest in the Collateral
and the priority thereof, (c) promptly upon learning thereof, report to the
Secured Party any matters that might materially and adversely affect the value
or enforceability or collectibility of any of the Collateral, (d) defend the
Collateral and the Secured Party's interests therein against all claims and
demands of all persons at any time claiming the same or any interest therein
adverse to the Secured Party and pay all costs and expenses (including, without
limitation, reasonable attorneys' fees and charges) incurred in connection with
such defense, (e) at the Debtor's sole cost and expense, settle any and all such
claims and disputes and indemnify and protect the Secured Party against any
liability, loss, cost or expense (including, without limitation, reasonable
attorneys' fees and charges), arising therefrom or out of any matter affecting
any of the Collateral (provided, however, if the Secured Party shall so elect
after the occurrence and during the continuation of an Event of Default
hereunder, the Secured Party shall have the right at all times to settle,
compromise, adjust or liquidate all claims or disputes directly with any debtor
or other obligor of the Debtor upon such terms and conditions as the Secured
Party reasonably deems advisable, and to charge all costs and expenses thereof
(including, without limitation, reasonable attorneys' fees and charges) to the
Debtor's account and to add them to the Secured Obligations, whereupon such
costs and expenses shall be and become part of the Secured Obligations).
3.1.2. NO CHANGE IN PLACES OF BUSINESS OR COLLATERAL.
The Debtor shall (a) maintain its place of business and its
principal office only at the address set forth in the preamble to this Agreement
or the address of the Hotel, or in such other places as the Debtor may select,
provided that the Debtor shall provide to the Secured Party at least thirty (30)
days' prior written notice of any changes in or additions to the locations of
the Debtor's places of business or of the Debtor's principal office and shall
make all filings in the applicable jurisdictions necessary to maintain the
Secured Party's lien on and security interest in the Collateral and the priority
thereof in connection with any such changes or additions, (b) keep, store and
maintain the Collateral only at the Hotel, (c) and keep and maintain the records
and books of account relating to the Collateral only at the Debtor's principal
office or at the Hotel.
3.1.3. NO IMPAIRMENT.
The Debtor shall not take or permit to be taken any action in
connection with the Collateral which would impair in any material respect the
value of the interests or rights of the Debtor therein or which would impair the
interests or rights of the Secured Party therein or with respect thereto.
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3.2. AFFIRMATIVE COVENANTS
Until all Secured Obligations have been paid and performed in
full, the Debtor hereby covenants and agrees that it shall, unless the Secured
Party otherwise consents in advance in writing:
3.2.1. INSURANCE.
Maintain and keep in full force and effect insurance in such
amounts, with such companies and covering such risks as are required under the
Loan Agreement and the Mortgage. The Secured Party shall be named as an
additional insured or loss payee, as applicable, with the Debtor on all policies
insuring the Collateral or any part thereof, as its interests may appear, and
the Debtor hereby assigns to the Secured Party all monies payable under such
insurance after the occurrence and during the continuation of an Event of
Default. The Debtor directs all insurers of the Collateral to make payment
directly to the Secured Party if an Event of Default has occurred and is
continuing.
3.2.2. PERFORMANCE OF CONTRACTUAL OBLIGATIONS.
Perform in accordance with its terms and conditions, and comply
with all provisions of, each security issued by the Debtor and each indenture,
note, lease, commitment, or other agreement, contract, instrument or undertaking
to which the Debtor is a party or by which it or any of its property is bound.
3.3. NEGATIVE COVENANTS
Until all Secured Obligations have been paid and/or performed in
full, the Debtor hereby covenants and agrees that it shall not, unless the
Secured Party otherwise consents in advance in writing:
3.3.1. ENCUMBRANCES.
Create, incur, assume or suffer to exist any Encumbrance upon any
of its properties, assets or revenues, whether now owned or hereafter acquired,
except: (i) Encumbrances securing the Toyo Loan; (ii) Encumbrances securing the
Senior Loan; (i) Encumbrances for taxes not yet due and payable or taxes which
are being contested in good faith and by proper proceedings if adequate reserves
with respect thereto are maintained on the books of the Debtor in accordance
with an accrual basis of accounting; (ii) Encumbrances created under this
Security Agreement; and (iii) other Encumbrances securing purchase money
financing or equipment leases covering property with an aggregate value not
exceeding Two Hundred Thousand and No/100 Dollars ($200,000) (collectively
"PERMITTED ENCUMBRANCES").
3.3.2. SALE OF ASSETS.
Sell, lease, assign, pledge, transfer or otherwise dispose of any
of its assets (including, without limitation, the Collateral), whether now owned
or hereafter acquired, except in the ordinary course of business.
3.3.3. OTHER AGREEMENTS.
Enter into any commitment, agreement, or undertaking containing
any provision which would be violated or breached by the Debtor's performance of
any of its obligations hereunder or any related agreement.
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4. EVENTS OF DEFAULT
For purposes of this Security Agreement, the term "EVENT OF
DEFAULT" shall mean the occurrence of any one or more of the following events:
4.1. REPRESENTATIONS AND WARRANTIES
Any representation or warranty made by or on behalf of the Debtor
in this Security Agreement shall prove to have been incorrect or breached in any
material respect on or as of any date made or deemed made, which failure remains
uncured for a period of thirty (30) days after the receipt of written notice of
such failure; provided, however, that it shall not be an Event of Default if
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such failure is curable but is not reasonably susceptible of being cured within
such 30-day period but the Debtor promptly commences attempts to cure within
such 30-day period and thereafter diligently pursues such cure to completion; or
4.2. MATERIAL BREACH OF COVENANT
Failure by the Debtor to perform or comply in any material respect
with any non-monetary term, covenant or condition imposed in this Security
Agreement, (a) which failure remains uncured for a period of thirty (30) days
after receipt of written notice of such failure, or (b) in the case of any
failure or breach of covenant relating to the maintenance of insurance as
provided herein, which failure remains uncured for a period of ten (10) days
after receipt of written notice of such failure; provided, however, that, in the
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case of clause (a), it shall not be an Event of Default if such failure is
curable but it is not reasonably susceptible of being cured within such 30-day
period but the Debtor promptly commences to cure within such 30-day period and
thereafter diligently pursues such cure to completion; or
4.3. EVENT OF DEFAULT UNDER THE LOAN AGREEMENT OR OTHER LOAN DOCUMENTS
An Event of Default under the Loan Agreement, the Mortgage or any
other Loan Document shall occur.
5. RIGHTS AND REMEDIES OF SECURED PARTY
5.1. MISCELLANEOUS RIGHTS OF THE SECURED PARTY
Upon the occurrence and during the continuation of any Event of
Default hereunder, the Secured Party shall have the right (a) to declare all of
the monetary Secured Obligations to be immediately due and payable, whereupon
all such Secured Obligations shall become immediately due and payable without
presentment, demand, notice of dishonor, protest or further notice of any kind,
all of which are hereby expressly waived by the Debtor, anything contained
herein to the contrary notwithstanding; (b) to exercise any one or more of the
rights and remedies exercisable by the Secured Party under any other provisions
of this Security Agreement, or any other related agreement or exercisable by a
secured party under the U.C.C. or under any other applicable law; and (c) to
exercise, in the name of the Debtor or in the name of the Secured Party, such
rights and powers with respect to the Collateral as the Debtor might exercise,
including, without limitation, the right to:
(i) enter into any extension, reorganization, deposit, merger,
consolidation or other agreement pertaining to, or deposit, surrender, accept,
hold or apply other property in exchange for, the Collateral or any part
thereof;
(ii) insure, process, and preserve the Collateral;
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(iii) transfer the Collateral or any part thereof to the name of the
Secured Party or to the name of the Secured Party's nominee;
(iv) receive, open, and dispose of mail addressed to the Debtor
relating to the Collateral;
(v) collect and endorse, receive, and give receipts for all
dividends, interest, rent, payments, proceeds, and other sums and property now
or hereafter payable on or on account of the Collateral or on account of its
sale or lease;
(vi) initiate, pursue, compromise, settle or withdraw any claims,
suits or proceedings pertaining to the Collateral or to any dividend, interest,
rent or other payment on or on account of the Collateral or on account of its
sale or lease;
(vii) take possession of and endorse in the name of the Debtor or in
the name of the Secured Party, for the account of the Debtor, any chattel paper,
documents or instruments constituting all or any part of the Collateral or
received as a dividend, interest, rent or other payment on or on account of the
Collateral or on account of its sale or lease;
(viii) appoint another (who may be an employee, officer or other
representative of the Secured Party) to do any of the foregoing on behalf of the
Secured Party; and
(ix) take any other action which the Secured Party deems necessary
or desirable to protect or realize upon its security interest in the Collateral,
and the Debtor hereby irrevocably appoints the Secured Party as the Debtor's
attorney-in-fact to take any such action, and said appointment shall create in
the Secured Party a power coupled with an interest which shall be irrevocable;
provided, that the Secured Party shall have the option of proceeding, to the
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extent permitted under applicable law, as to both real and personal property in
accordance with its rights and remedies in respect of the real property under
the Mortgage as an alternative to proceeding in accordance with the provisions
of the U.C.C.
5.2. RIGHT OF THE SECURED PARTY TO TAKE POSSESSION AND FORECLOSE
Upon the occurrence and during the continuation of any Event of
Default, the Secured Party shall have the right and power to take possession of
the Collateral and of any and all books of account and records of the Debtor
relating to any of the Collateral, the right to place the Secured Party's
representatives upon any premises on which the Collateral or any such books of
account or records may be situated with full power to remove the same therefrom,
and the right to exclude the Debtor and all persons claiming under the Debtor
from any access to the Collateral, and the Secured Party and such
representatives are hereby granted the irrevocable license to enter upon such
premises for such purpose. The Secured Party may require the Debtor to assemble
the Collateral or any part thereof and to make the same (to the extent the same
is moveable) available to the Secured Party at a place to be designated by the
Secured Party which is reasonably convenient to the Debtor and the Secured
Party. The Secured Party may render the Collateral unusable without removing
the same from the premises on which it may be situated, and may sell the same on
the premises of the Debtor if such Collateral or part thereof is situated
thereon. The Secured Party may make formal application for the transfer of all
of the Debtor's permits, licenses, approvals, agreements, and the like relating
to the Collateral or to the Debtor's business to the Secured Party or to any
assignee of the Secured Party or to any purchaser of any of the Collateral.
Unless the Collateral is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Secured Party will
give the Debtor at least ten (10) days' prior written notice of the time and
place of any public sale thereof or of the time after which any private sale or
any other intended disposition thereof is to be made, which notice shall
constitute reasonable notice. In addition to exercising the foregoing rights,
the Secured Party may, to the extent permitted by law, arrange for and conduct
the sale of the Collateral at a public or private sale, as the
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Secured Party may elect, which sale may be conducted by an employee or
representative of the Secured Party and which sale may, at the Secured Party's
election, be made contemporaneously with and as part of any foreclosure or other
sale of the Hotel at which such Collateral is located, pursuant to the Mortgage,
and any such sale shall be considered or deemed to be a sale made in a
commercially reasonable manner. The Secured Party may release, temporarily or
otherwise, to the Debtor any item of Collateral of which the Secured Party has
taken possession pursuant to any right granted to the Secured Party by this
Security Agreement without waiving any rights granted to the Secured Party under
this Security Agreement, any Loan Document or any other agreement related hereto
or thereto. The Debtor, in dealing with or disposing of the Collateral or any
part thereof, hereby waives all rights, legal and equitable, it may now or
hereafter have to require marshaling of assets or to require, upon foreclosure,
sales of assets in a particular order. Each successor and assign of the Debtor,
including a holder of a lien subordinate to the lien created hereby (without
implying that Debtor has, except as expressly provided herein, a right to grant
an interest in, or a subordinate lien on, any of the Property), by acceptance of
its interest or lien agrees that it shall be bound by the above waiver, to the
same extent as if such holder gave the waiver itself. The Debtor also hereby
waives, to the full extent it may lawfully do so, the benefit of all laws
providing for rights of appraisal, valuation, stay or extension or of redemption
after foreclosure now or hereafter in force.
5.3. RIGHT OF THE SECURED PARTY TO COLLECT AND SERVICE ACCOUNTS
Upon the occurrence and during the continuation of any Event of
Default, the Secured Party may notify or may require the Debtor to notify any
person or entity obligated to the Debtor under any account forming all or any
part of the Collateral, whether now existing or hereafter acquired, that the
same has been assigned to the Secured Party and that such obligor should make
payment or performance of its obligations under such account directly to the
Secured Party, and the Secured Party may take possession of and exercise control
over all proceeds of any such account in the Debtor's possession or otherwise,
and may take any other action which the Secured Party deems necessary or
desirable to collect any such account or the proceeds thereof. To evidence the
Secured Party's rights hereunder, the Debtor shall, at the Debtor's expense,
execute such assignments or endorsements of any such account, or of the proceeds
thereof, as the Secured Party may request.
5.4. RIGHT OF THE SECURED PARTY TO USE AND OPERATE COLLATERAL
Upon the Secured Party's taking possession of all or any part of
the Collateral, pursuant to any right granted the Secured Party by this Security
Agreement or otherwise, the Secured Party shall have the right to hold, store,
and/or use, operate, manage, and control the same. Upon any such taking of
possession, the Secured Party may (but shall not be obligated to), from time to
time, at the expense of the Debtor, make all such repairs, replacements,
alterations, additions, and improvements to and of all or any of the Collateral
as the Secured Party may deem proper. In any such case the Secured Party shall
have the right to exercise all rights and powers of the Debtor in respect of the
Collateral or any part thereof as the Secured Party shall deem proper, including
the right to enter into any and all such agreements with respect to the leasing
and/or operation of the Collateral or any part thereof as the Secured Party may
see fit; and the Secured Party shall be entitled to collect and receive all
rents, issues, profits, fees, revenues, and other income of the same and every
part thereof.
5.5. APPLICATION OF PROCEEDS
All dividends, interest, rents, issues, profits, fees, revenues,
income, and other proceeds from collecting, holding, managing, renting, selling
or otherwise disposing of the Collateral by the Secured Party or any part
thereof shall be applied by the Secured Party in such order and manner as the
Secured Party may elect.
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5.6. RIGHT OF THE SECURED PARTY TO APPOINT RECEIVER
Upon the occurrence and during the continuation of any Event of
Default, the Secured Party shall, as a matter of right and without any
requirement of notice, to the extent permitted under applicable law, be entitled
to appoint a receiver for all of any part of the Property. All disbursements
made by the receiver under this SECTION 5.6 and the expenses of receivership
shall be added to and be a part of the Secured Obligations, and, whether or not
said principal sum, including such disbursements and expenses, exceeds the
indebtedness originally intended to be secured hereby, the entire amount of said
sum, including such disbursements and expenses, shall be secured by this
Security Agreement and shall be due and payable upon demand therefor and
thereafter shall bear interest at a rate of 16.5% per annum (the "DEFAULT
INTEREST RATE").
5.7. REMEDIES CUMULATIVE
The rights and remedies of the Secured Party under this Security
Agreement or any other Security Document are cumulative and shall in no way
affect, or deprive the Secured Party of, or be deemed to constitute a waiver by
the Secured Party of, any other rights or remedies allowed to the party at law
or in equity. No notice to or demand on the Debtor in any case shall entitle
the Debtor to any other notice or demand in similar or other circumstances and
the exercise of any one remedy shall not impair the Secured Party's right
simultaneously or at any time or in any order to exercise any other remedy nor
shall the exercise of any remedy in one case impair or otherwise affect the
Secured Party's right or ability to exercise such remedy contemporaneously or
again in the same case or in any other case.
5.8. WAIVER OF RIGHTS
To the extent permitted under applicable law, the Debtor waives
all rights and remedies of a debtor under the U.C.C. or other applicable law,
and all formalities prescribed by law relative to the sale or disposition of the
Collateral (other than notice of sale) after the occurrence and during the
continuation of an Event of Default and all other rights and remedies of the
Debtor with respect thereto. In exercising its right to take possession of the
Collateral upon the occurrence and during the continuation of an Event of
Default hereunder, the Secured Party, personally or by its agents or attorneys,
and subject to the rights of any tenant under any lease or sublease of the
Property, to the fullest extent permitted by law, may enter upon any part of the
Land without being guilty of trespass or any wrongdoing, and without liability
for damages thereby occasioned, except damages arising from Secured Party's
gross negligence or willful misconduct. In the event the Secured Party elects to
proceed with respect to the Collateral, separately from the real property, the
Secured Party shall give at least ten (10) days' notice of the sale of the
Collateral, which shall for all purposes be deemed to be commercially
reasonable.
6. SENIOR LOAN
6.1. EXECUTION OF SENIOR LOAN
Notwithstanding the provisions of SECTION 3.3.1. hereof, the
Debtor shall be permitted to enter into the Senior Loan pursuant to which the
Debtor may grant to CII a security interest in and lien on the Collateral which
shall be senior to the security interest granted to and the lien created in
favor of the Secured Party herein. The Secured Party agrees that upon the
closing of the Senior Loan, CII shall be deemed to have a senior security
interest in and a first-priority lien on the Collateral and that the granting of
such lien to CII to secure the Senior Loan shall not constitute an Event of
Default.
6.2. EXECUTION OF SUBORDINATION AGREEMENT
On or prior to date of the closing of the Senior Loan, the Secured
Party shall execute a subordination agreement, in form and content reasonably
satisfactory to the Secured Party, which shall provide that
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the Secured Party's rights and interests hereunder shall be subordinated to
those granted to CII under the Senior Loan Documents. In the event that any of
the rights of the Secured Party arising under this Security Agreement, the Loan
Agreement, the Mortgage, the Mortgage Note or any other Loan Documents shall be
inconsistent with the Senior Loan Documents or the agreements related thereto,
the rights of CII under the Senior Loan Documents shall take priority.
7. MISCELLANEOUS PROVISIONS
7.1. ADDITIONAL ACTIONS AND DOCUMENTS
The Debtor hereby agrees to take or cause to be taken such further
actions, to execute, deliver, and file or cause to be executed, delivered, and
filed such further documents and instruments, and to obtain such consents, as
may be necessary or as may be reasonably requested in order to fully effectuate
the purposes, terms, and conditions of, and the remedies set forth in this
Security Agreement, whether before, at, or after the occurrence of an Event of
Default.
7.2. EXPENSES
The Debtor agrees to reimburse and save the Secured Party harmless
against liability for the payment of all out-of-pocket expenses arising in
connection with the administration or enforcement of, or the preservation or
exercise of, any rights (including the right to collect and dispose of the
Collateral) under, this Security Agreement, including, without limitation, the
reasonable fees and expenses of counsel to the Secured Party arising in such
connection, and all such expenses shall be added to the Debtor's obligations
secured hereby.
7.3. NOTICES
All notices, requests and demands to or upon the respective
parties hereto shall be in writing (except as is otherwise specifically provided
in this Agreement) and shall be deemed to have been duly given or made when
received (or when delivery thereof is refused by the intended recipient) if
mailed by first-class registered or certified mail, return receipt requested,
postage prepaid, sent by facsimile transmission with confirmation of receipt or
delivery, sent by nationally recognized overnight courier, or delivered by hand,
addressed or directed as follows (or to such other address or facsimile
transmission number as may be hereafter designated in writing by the respective
parties hereto):
IF TO THE DEBTOR: Hanover Marriott Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Dept. 923
Attention: Law Dept.
Fax No.: (301) 380-6332
with a copy to:
Hanover Marriott Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Dept. 908
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Attention: Asset Management Dept.
Fax No.: (301) 380-8260
IF TO THE SECURED PARTY:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Dept. 908
Attention: Law Dept.
Fax No.: (301) 380-8260
with a copy to:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Dept. 902
Attention: Executive Dept.
Fax No.: (301) 380-6332
7.4. WAIVER OF RIGHT TO JUDICIAL HEARING; JURY
THE DEBTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO A JUDICIAL
HEARING PRIOR TO THE EXERCISE OF ANY RIGHT OR REMEDY PROVIDED TO THE SECURED
PARTY UNDER THIS SECURITY AGREEMENT, AND WAIVES ITS RIGHTS, IF ANY, TO SET ASIDE
OR INVALIDATE ANY SALE DULY CONSUMMATED IN ACCORDANCE WITH THE FOREGOING
PROVISIONS HEREOF ON THE GROUNDS (IF SUCH BE THE CASE) THAT THE SALE WAS
CONSUMMATED WITHOUT A PRIOR JUDICIAL HEARING. THE DEBTOR HEREBY COVENANTS AND
AGREES NOT TO ELECT TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND
WAIVES ANY RIGHTS TO TRIAL BY JURY TO THE FULL EXTENT THAT ANY SUCH RIGHT SHALL
NOW OR HEREAFTER EXIST. THE DEBTOR'S WAIVERS, COVENANTS AND AGREEMENTS UNDER
THIS SECTION 7.4 HAVE BEEN MADE VOLUNTARILY AND KNOWINGLY AND AFTER THE DEBTOR
HAS BEEN APPRISED AND COUNSELED BY ITS ATTORNEYS AS TO THE NATURE OF SUCH RIGHTS
AND AS TO THE DEBTOR'S POSSIBLE ALTERNATIVE RIGHTS.
7.5. RELEASE AND SATISFACTION
Upon the payment and performance in full of the Secured
Obligations, (i) the security interest created hereby shall terminate, (ii) this
Security Agreement shall terminate and (iii) upon written request of the Debtor,
the Secured Party shall execute and deliver to the Debtor, at the Debtor's
expense, releases and satisfactions of all financing statements, mortgages,
notices of assignment and other registrations of security, and the Debtor shall
deliver to the Secured Party a general release of all of the Secured Party's
liabilities and obligations under all Loan Documents and an acknowledgment that
the same have been terminated.
7.6. BENEFIT
This Security Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective successors, legal
representatives and assigns.
-11-
<PAGE>
7.7. MODIFICATION; DISCHARGE; AND WAIVER
No amendment, modification or discharge of this Security Agreement
or waiver hereunder shall be valid or binding unless set forth in writing and
duly executed by the party against whom enforcement of the amendment,
modification, discharge or waiver is sought.
7.8. PRONOUNS
All pronouns and any variations thereof in this Security Agreement
shall be deemed to refer to the masculine, feminine, neuter, singular, or
plural, as the identity of the person or entity may require.
7.9. HEADINGS
Section and subsection headings contained in this Security
Agreement are inserted for convenience of reference only, shall not be deemed to
be a part of this Security Agreement for any purpose, and shall not in any way
define or affect the meaning, construction or scope of any of the provisions
hereof.
7.10. GOVERNING LAW
This Security Agreement, the rights and obligations of the parties
hereto, and any claims or disputes relating thereto, shall be governed by and
construed in accordance with the laws of the State of Maryland (but not
including the choice of law rules thereof).
7.11. FILING
A photographic or other copy of this Security Agreement may be
filed in lieu of a financing statement.
8. DEFINITIONS
8.1. DEFINED TERMS
The following terms, as used herein, shall have the following
respective meanings (and capitalized terms used herein but not defined herein
shall have the meanings ascribed to them in the Loan Agreement):
"AWARDS" shall have the meaning ascribed to it in the Mortgage.
"CII" shall mean CIGNA Investments, Inc., a [Connecticut]
corporation.
"COLLATERAL" shall have the meaning set forth in SECTION 1.1
hereof. References herein to "COLLATERAL" shall mean all or any part thereof.
"DEFAULT INTEREST RATE" shall have the meaning ascribed to it in
Section 5.6 hereof.
"ENCUMBRANCE" shall have the meaning set forth in SECTION 2.1
hereof.
"EVENT OF DEFAULT" shall have the meaning set forth in ARTICLE 4
hereof.
"FIXTURES" shall have the meaning set forth in SECTION 1.1(1)
hereof.
-12-
<PAGE>
"HOTEL" shall have the meaning set forth in the recitals hereof.
"INSURANCE PROCEEDS" shall have the meaning ascribed to it in
the Mortgage.
"LEASES AND CONTRACTS" shall have the meaning set forth in
SECTION 1.1(4) hereof.
"LOAN AGREEMENT" means that certain Loan Agreement dated as of
the date hereof by and between the Secured Party, as "Lender," and the Debtor,
as "Borrower."
"LOAN DOCUMENTS" shall have the meaning ascribed to it in the
Loan Agreement.
"MANAGEMENT AGREEMENT" shall have the meaning ascribed to it in
the Loan Agreement.
"MORTGAGE" shall have the meaning ascribed to it in the Loan
Agreement.
"MORTGAGE NOTE" has the meaning ascribed to it in the recitals
to this Security Agreement.
"PERMITTED ENCUMBRANCES" shall have the meaning set forth in
SECTION 3.3.1 hereof.
"PROPERTY" shall have the meaning ascribed to it in the
Mortgage.
"RENT AND REVENUES" shall have the meaning set forth in SECTION
1.1(4) hereof.
"SECURED OBLIGATIONS" shall have the meaning set forth in
SECTION 1.1 hereof.
"SECURITY DOCUMENTS" shall have the meaning ascribed to it in
SECTION 1.1 hereof.
"SENIOR LOAN" shall have the meaning ascribed to it in the Loan
Agreement..
"SENIOR LOAN DOCUMENTS" shall have the meaning ascribed to it in
the Loan Agreement.
"TAKING" shall have the meaning ascribed to it in the Mortgage.
"TITLE INSURANCE POLICY" shall have the meaning ascribed to it
in the Mortgage.
"TOYO LOAN" shall have the meaning ascribed to it in the Loan
Agreement.
"TOYO LOAN DOCUMENTS" shall have the meaning ascribed to it in
the Loan Agreement.
"U.C.C." means the Uniform Commercial Code as in effect from
time to time in the States of Maryland and New Jersey.
-13-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Security
Agreement to be duly executed and delivered in its name and on its behalf, all
as of the day and year first above written.
DEBTOR:
HANOVER MARRIOTT LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: Marriott Hanover Hotel Corporation,
general partner
ATTEST:
By: By: P.K. Brady
---------------------------- ---------------------------------
Its: Patricia K. Brady,
---------------------------- Vice President
[SEAL]
SECURED PARTY:
HOST MARRIOTT CORPORATION,
a Delaware corporation
ATTEST:
By: By: W. Edward Walter
---------------------------- ---------------------------------
Its: W. Edward Walter,
---------------------------- Senior Vice President
[SEAL]
-14-
<PAGE>
Exhibit 10.G
ENVIRONMENTAL INDEMNITY AGREEMENT
---------------------------------
This ENVIRONMENTAL INDEMNITY AGREEMENT (this "AGREEMENT") is made and
entered into as of this 30th day of April, 1997 by HANOVER MARRIOTT LIMITED
PARTNERSHIP, a Delaware limited partnership, (the "INDEMNITOR"), in favor of
HOST MARRIOTT CORPORATION, a Delaware corporation ("LENDER").
WHEREAS, Lender has made to Indemnitor a loan (the "LOAN") in the
original principal amount of up to Eleven Million Seven Hundred Thousand and
No/100 Dollars ($11,700,000.00) pursuant to that certain Loan Agreement of even
date herewith between Indemnitor and Lender (the "LOAN AGREEMENT"); and
WHEREAS, as a condition to making the Loan, Lender has required
Indemnitor to indemnify and hold harmless Lender from any Environmental Claim
(as such term is defined below), attributable to Hazardous Materials and related
to the Mortgaged Property, or any portion thereof;
NOW THEREFORE, in order to induce Lender to make the Loan and for good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Indemnitor hereby covenants and agrees with Lender as follows:
1. Definitions. Unless otherwise defined herein, capitalized terms
-----------
used in this Agreement shall have the meanings ascribed to them in the Loan
Agreement.
2. Indemnification.
---------------
(a) Indemnitor shall protect, defend, indemnify, and hold harmless
Lender and its respective successors and assigns, and the officers, directors,
shareholders, and employees of each of them, in each case in their capacities as
such (all such other persons and entities being referred to herein individually
as an "INDEMNITEE" and collectively as "INDEMNITEES") from and against any and
all claims, demands, inquiries, actions, suits, losses, costs, damages, fines,
penalties, expenses, liabilities, judgments, proceedings, or injuries that seek
to impose any liability on any Indemnitee attributable to Hazardous Materials or
any violation of any Environmental Law and arising out of, or relating to the
Indemnitor or the Mortgaged Property (each individually, an "ENVIRONMENTAL
CLAIM" or, collectively, "ENVIRONMENTAL CLAIMS") which may be imposed upon or
incurred by any Indemnitee, provided, however, that the indemnity provided by
-------- -------
the Indemnitor to any Indemnitee pursuant to this Agreement shall extend only to
Environmental Claims for which the act or activity giving rise to any such
Environmental Claims occurred during the period of time in which the Indemnitor
was the owner of title to the Mortgaged Property, and in no event shall the
Indemnitor be liable in any way under this Agreement for any acts which occurred
on, in or around the Mortgaged Property prior to the time at which the
Indemnitor became the owner of title to the Mortgaged Property.
(b) In the event that any investigation or remedial work of any
kind ("REMEDIAL WORK") is required by any Environmental Law or is necessary to
prevent a material adverse effect on the Mortgaged Property in connection with a
release of a Hazardous Material on, in or about the Mortgaged Property,
Indemnitor shall perform or cause to be performed all such Remedial Work. All
costs and expenses of such Remedial Work shall be paid for by Indemnitor. Any
payments made by Indemnitor under this Agreement shall not reduce Indemnitor's
obligations under the Loan Documents.
3. Covenants of Indemnitor. Indemnitor covenants and agrees with
-----------------------
Lender as follows:
(a) Indemnitor will keep, and will require all operators, tenants,
subtenants, licensees and occupants of the Mortgaged Property to keep, the
Mortgaged Property free of all Hazardous Materials and in compliance with all
requirements of Environmental Laws.
<PAGE>
(b) If Lender obtains reliable information that a material
environmental problem may exist on, at or under the Mortgaged Property, Lender
may, after consultation with Indemnitor, require that an environmental
inspection and audit report with respect to the Mortgaged Property, of a scope
reasonably satisfactory to Lender, be prepared by a qualified person selected by
Lender, at the sole cost and expense of Indemnitor. If the inspection and audit
report discloses that no such material environmental problem exists or may
exist, Lender shall reimburse Indemnitor for the cost of the inspection and
audit. If such inspection indicates the presence of any Hazardous Materials in
violation of any Environmental Law, Indemnitor will undertake and complete all
Remedial Work required by any Environmental Law or reasonably necessary to
prevent a material adverse effect on the Mortgaged Property.
(c) Indemnitor shall give immediate written notice to Lender of
any information obtained or received by Indemnitor relating to any Environmental
Claim. Any notice provided to Lender hereunder shall set forth, in reasonable
detail, the nature of such Environmental Claim, and shall include copies of any
written documents, notices or instruments relating thereto.
4. Binding Effect. This Agreement shall be binding upon and inure to
--------------
the benefit of Indemnitor and Indemnitees and their respective heirs, personal
representatives, successors and assigns.
5. Liability of Indemnitor. The liability of Indemnitor under this
-----------------------
Agreement shall in no way be limited or impaired by the provisions of the Loan
Documents, or any amendment or modification thereof. This Agreement, and all
rights and obligations hereunder, shall survive performance, repayment and
release of the obligations evidenced by and arising under the Loan Documents, as
well as a transfer of any or all of Lender's rights in the Loan Documents and/or
the Mortgaged Property.
6. Notices. All notices, requests and demands to or upon the
-------
respective parties hereto shall be provided in accordance with SECTION 9.3 of
the Loan Agreement.
7. Partial Invalidity. If any provision of this Agreement shall be
------------------
determined to be unenforceable in any circumstances by any court of competent
jurisdiction, then the balance of this Agreement nevertheless shall be
enforceable, and the subject provision shall be enforceable in all other
circumstances.
8. Delay. No delay on Lender's part in exercising any right, power
-----
or privilege hereunder or under any of the Loan Documents shall operate as a
waiver of any such privilege, power or right.
9. Interest on Unpaid Amounts. All amounts required to be paid or
--------------------------
reimbursed to any Indemnitee hereunder shall bear interest from the date of
expenditure by such Indemnitee or the date of written demand to any Indemnitor
hereunder, whichever is earlier, until paid to Indemnitee(s) at the Default
Interest Rate.
10. Governing Law. This Agreement and the rights and obligations of
-------------
the parties hereunder shall in all respects be governed by, and construed and
enforced in accordance with, the laws of the State of Maryland.
2
<PAGE>
IN WITNESS WHEREOF, Indemnitor has executed this Agreement under seal
as of the date first set forth above.
HANOVER MARRIOTT LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Marriott Hanover Hotel Corporation, general partner
By: P.K. Brady
----------------------------------------------
Patricia K. Brady
Vice President
[Seal]
3
<PAGE>
Exhibit 10.H
MORTGAGE AND SECURITY AGREEMENT
RECORD AND RETURN TO:
--------------------
Scott M. Vetri, Esq.
Kelley Drye & Warren LLP
5 Sylvan Way
Parsippany, New Jersey 07054
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Payment of Indebtedness...................................................................... 4
2. Covenants of Title........................................................................... 5
3. Usury........................................................................................ 5
4. Impositions.................................................................................. 5
5. Tax Deposits................................................................................. 6
6. Change in Taxes.............................................................................. 8
7. Insurance.................................................................................... 8
8. Insurance/Condemnation Proceeds.............................................................. 9
9. Restoration Following Fire and Other Casualty or Condemnation................................ 10
10. Disposition of Condemnation or Insurance Proceeds............................................ 13
11. Fire and Other Casualty; Self-Help........................................................... 14
12. Business Interruption Insurance Proceeds..................................................... 15
13. Renovation Work.............................................................................. 15
14. Repair; Alterations; Waste................................................................... 15
15. Environmental Matters........................................................................ 16
16. Independence of Security..................................................................... 17
17. No Other Liens............................................................................... 17
18. Intentionally Omitted........................................................................ 17
19. Fixtures, Furnishings and Equipment Reserve.................................................. 18
20. Sidewalks, Municipal Charges................................................................. 19
21. Assignment of Rents, Revenues and Leases..................................................... 20
22. Future Leases................................................................................ 21
23. Mortgagor's Obligations as Lessor............................................................ 22
24. Leases; Foreclosure.......................................................................... 22
25. Hotel Management Agreement................................................................... 23
26. Events of Default............................................................................ 23
27. Remedies Upon Default........................................................................ 25
28. Interest Following an Event of Default....................................................... 27
29. ERISA........................................................................................ 27
30. Waiver of Statutory Rights................................................................... 28
31. Security Interest............................................................................ 28
32. Right of Entry............................................................................... 28
33. Estoppel Certificate......................................................................... 29
34. Annual Statements............................................................................ 29
35. Rights Cumulative............................................................................ 30
36. Subrogation.................................................................................. 30
37. No Waiver.................................................................................... 30
38. Mortgage Extension........................................................................... 30
39. Indemnification.............................................................................. 30
40. Limitations on Recourse...................................................................... 30
41. Attorneys' Fees.............................................................................. 32
</TABLE>
<PAGE>
<TABLE>
<S> <C>
42. Administrative Costs......................................................................... 32
43. Protection of Security; Costs and Expenses................................................... 33
44. Notices...................................................................................... 33
45. Release...................................................................................... 34
46. Applicable Law............................................................................... 34
47. Invalidity................................................................................... 34
48. Captions..................................................................................... 35
49. Modifications................................................................................ 35
50. Bind and Inure............................................................................... 35
51. Replacement of Note.......................................................................... 35
52. Time of the Essence.......................................................................... 35
53. Business Day................................................................................. 35
54. Copy of Mortgage............................................................................. 35
EXHIBIT A........................................................................ Legal Description
EXHIBIT B........................................................................ Subordinate Loan
EXHIBIT C........................................................................ Renovation Work
</TABLE>
ii
<PAGE>
MORTGAGE AND SECURITY AGREEMENT
Hanover Marriott
Hanover, New Jersey
THIS MORTGAGE AND SECURITY AGREEMENT is made as of the ___ day of August,
1997 by HANOVER MARRIOTT LIMITED PARTNERSHIP, a Delaware limited partnership
whose sole general partner is Marriott Hanover Hotel Corporation, a Delaware
corporation ("MHHC"), having a place of business at 10400 Fernwood Road,
Bethesda, Maryland 20817-1109 (hereinafter referred to as "Mortgagor") to
CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut corporation having its
principal place of business at 900 Cottage Grove Road, Bloomfield, Connecticut
06002 (hereinafter referred to as "Mortgagee").
W I T N E S S E T H:
THAT, to secure (i) payment to Mortgagee of the principal indebtedness of
Twenty Nine Million Eight Hundred Seventy Five Thousand AND 00/100 Dollars
($29,875,000.00) together with interest thereon, as evidenced by that certain
promissory note (hereinafter referred to as the "Note") of even date herewith,
and any renewals, extensions or modifications thereof, given by Mortgagor to
Mortgagee and made payable to the order of Mortgagee, with the final payment
being due and payable on August 1, 2004, in and by which Note Mortgagor promises
to pay the said principal indebtedness and interest at the rate and in
installments as provided in the Note, (ii) the performance of the covenants
herein contained and the payment of any monies expended by Mortgagee in
connection therewith and in accordance with the Loan Documents (defined
hereinbelow), (iii) the payment of all obligations and the performance of all
covenants of Mortgagor under any other Loan Documents, agreements or instruments
between Mortgagor and Mortgagee given in connection with or related to this
Mortgage or the Note and (iv) any and all additional advances made by Mortgagee
to protect or preserve the Security (defined hereinbelow) or the security
interest created hereby on the Security, or for taxes, assessments, or insurance
premiums as hereinafter provided or for performance of any of Mortgagor's
obligations hereunder or for any other purpose provided herein (whether or not
the original Mortgagor remains the owner of the Security at the time of such
advances) (all of the aforesaid indebtedness and obligations of Mortgagor being
herein called the "Indebtedness," and all of the documents, agreements and
instruments between Mortgagor and Mortgagee now or hereafter evidencing or
securing the repayment of, or otherwise pertaining to, the Indebtedness,
including but not limited to the Note, being herein collectively called the
"Loan Documents"), Mortgagor does hereby mortgage, grant, bargain, sell, assign,
pledge, transfer and convey unto Mortgagee and to Mortgagee's successors and
assigns forever, all of its estate, right, title and interest in and to the
following described land, improvements, real and personal property, rents and
leases (hereinafter collectively called the "Security"):
<PAGE>
The land described in Exhibit A attached hereto and made a part hereof,
situate, lying and being in the Township of Hanover, County of Morris and State
of New Jersey (the "Land");
TOGETHER with all buildings and other improvements now or hereafter located
on said Land or any part thereof, including but not limited to, all extensions,
betterments, renewals, renovations, substitutes and replacements of, and all
additions and appurtenances to the foregoing (the "Improvements");
TOGETHER with all of the right, title and interest of Mortgagor in and to
the land lying in the bed of any street, road, highway or avenue in front of or
adjoining the Land to the center lines thereof;
TOGETHER with all easements now or hereafter located on or appurtenant to
the Land and/or Improvements or under or above the same or any part thereof,
rights-of-way, licenses, permits, approvals, and privileges, belonging or in any
way appertaining to the Land and/or Improvements, including without limitation
(i) any drainage ponds or other like drainage areas not located on the Land
which may be required for water run-off, (ii) any easements necessary to obtain
access from the Land to such drainage areas, or to any other location to which
Mortgagor has a right to drain water or sewage, (iii) any land required to be
maintained as undeveloped land by the zoning rules and regulations applicable to
the Land, and (iv) any easements and agreements which are or may be established
to allow satisfactory ingress to, egress from and operation of the Land and/or
the Improvements;
TOGETHER with any and all awards heretofore made and hereafter to be made by
any governmental, municipal or state authorities to the present and all
subsequent owners of the Security for the taking of all or any portion of the
Security by power of eminent domain, including, without limitation, awards for
damage to the remainder of the Security and any awards for any change or changes
of grade of streets affecting the Security, which said awards are hereby
assigned to Mortgagee, and Mortgagee, at its option, is hereby authorized,
directed and empowered to collect and receive the proceeds of any such awards
from the authorities making the same and to give proper receipts and
acquittances therefor, and to apply the same toward the payment of the
Indebtedness (without a prepayment premium unless an Event of Default shall
exist hereunder), notwithstanding the fact that such amount may not then be due
and payable; and Mortgagor hereby covenants and agrees to and with Mortgagee,
upon request by Mortgagee, to make, execute and deliver, at Mortgagor's expense,
any and all assignments and other instruments sufficient for the purpose of
assigning the aforesaid awards to Mortgagee, free, clear and discharged of any
and all encumbrances of any kind or nature whatsoever (all of the foregoing
Land, Improvements, rights, easements, rights-of-way, licenses, privileges and
awards, collectively, the "Real Property");
TOGETHER with all proceeds, insurance or otherwise, paid for the damage done
to any of the Security and all proceeds of the conversion, voluntarily or
involuntarily, of any of the Security into cash or liquidated claims;
2
<PAGE>
TOGETHER with all right, title and interest of Mortgagor now or hereafter
acquired in and to any and all fixtures, furnishings, equipment, furniture and
other items of tangible personal property now or hereafter located on the Land,
other than stocks of food and other supplies held for consumption in normal
operation of the Hotel, including, without limitation, all machinery, equipment,
goods, and every other article of personal property, tangible or intangible, now
or hereafter attached to or used in connection with the Land, or placed on any
part thereof and whether or not attached thereto, appertaining or adapted to the
use, management, operation or improvement of the Land, including, but without
limitation: all office furnishings and equipment, guest room furnishings,
specialized equipment for kitchens, laundries, bars, restaurants, public rooms,
health and recreational facilities and equipment, linens, dishware, and
partitions; vacuum cleaning systems; call or beeper systems; security systems;
reservations system computers and related equipment; screens; awnings; shades;
blinds; artwork; floor coverings; hall and lobby equipment; heating, lighting,
plumbing, ventilating, refrigerating, incinerating, elevator, escalator, air
conditioning and communication plants or systems with appurtenant fixtures;
vacuum cleaning systems; call systems; sprinkler systems and other fire
prevention and extinguishing apparatus and materials; all equipment, manual,
mechanical and motorized, for the construction, maintenance, repair and cleaning
of, and removal of snow from, parking areas, walks, underground ways, truck
ways, driveways, common areas, roadways, highways and streets; all equipment,
manual, mechanical and motorized, for the transportation of customers or
employees to and from the store facilities on the Land; all telephone, computers
and other electronic equipment and appurtenances thereto, including software (to
the extent a lien thereon may be legally granted); and all other machinery,
pipes, poles, appliances, equipment, wiring, fittings, panels and fixtures; and
any proceeds therefrom, any replacements thereof or additions or accessions
thereto; and all building materials, supplies and other property delivered to
the Land for incorporation into the Improvements thereon, all of which are
declared to be a part of the realty and covered by the lien hereof, but said
lien shall not cover any fixture, machinery, equipment or article of personal
property which is owned by a tenant and not required for the operation or
maintenance of the Land, provided said fixture, machinery, equipment or article
of personal property is not permanently affixed to the realty and may be removed
without material damage thereto and is not a replacement of any item which shall
have been subject to the lien hereof, but said lien shall include any other
fixture, machinery, equipment or article of personal property so incorporated
into the Improvements so as to constitute realty under applicable law, whether
or not owned by Mortgagor;
TOGETHER with all of Mortgagor's books of accounts and records relating to
the Security;
TOGETHER with all contracts for sale and leases in the nature of sales of
the Land, or any portion thereof, now and hereafter entered into and all right,
title and interest of Mortgagor thereunder, including, without limitation, cash
or securities deposited thereunder to secure performance by the lessees or
contract purchasers; all income, rents, proceeds, revenues, profits, fees,
charges, concessions, deposits and security deposits arising from or out of the
Land or any part thereof of every kind and description received or receivable
resulting
3
<PAGE>
or arising from the use, ownership, occupancy or operations of the hotel and all
of its facilities on the Land (the "Hotel"), including, without limitation, all
room revenues, food and beverage operations revenues, credit card receivables
with respect to any credit/charge card organizations and/or entities, including,
but not limited to American Express, Carte Blanche, Diner's Club, VISA,
Mastercard, Discover and Optima; all monies held by the Operator (as defined in
the immediately succeeding paragraph hereof) (or any subsequent party performing
the same basic functions as the Operator of the Hotel) in the Operating Accounts
(defined in the Management Agreement); all vending machine income and all income
received from tenants, transient guests, lessees, licensees, concessionaires,
customers, guests as well as any other person occupying space at the Hotel
and/or rendering services to guests and/or customers of the Hotel; to the extent
a lien may be legally granted thereon, all licenses, permits, franchises,
governmental approvals and all sanitary sewer, drainage, water and utility
service agreements benefiting the Land or any part thereof, together with all
accounts, hotel operating accounts, payroll accounts, reserve accounts, checking
accounts, depository accounts, management accounts, general intangibles,
documents, instruments and chattel paper arising from or in connection with the
Land, including all books and records in connection therewith; and all rights of
Mortgagor under any leases, covenants, agreements, easements, restrictions or
declarations recorded with respect to, or as an appurtenance to, the Land or any
part thereof (all of the tangible and intangible personal property described in
this and the previous two paragraphs, collectively, the "Personal Property");
TOGETHER with all of Mortgagor's right, title and interest in, to and under
that certain Management Agreement between Mortgagor and Marriott Hotel Services,
Inc. (the "Operator") dated as of even date herewith relating to the hotel
located on the Land (the "Hotel Management Agreement");
TOGETHER with all of the right, title and interest of Mortgagor in and to
all and singular the tenements, hereditaments and appurtenances belonging to or
in any way pertaining to the Security; all the estate, right, title and claim
whatsoever of Mortgagor, either in law or in equity, in and to the Security; and
any and all other, further or additional title, estate, interest or right which
may at any time be acquired by Mortgagor in or to the Security, and if Mortgagor
shall at any time acquire any further estate or interest in or to the Security,
the lien of this Mortgage shall attach, extend to, cover and be a lien upon such
further estate or interest automatically without further instrument or
instruments, and Mortgagor, upon request of Mortgagee, shall execute such
instrument or instruments as shall reasonably be requested by Mortgagee to
confirm such lien;
TO HAVE AND TO HOLD the Security, and each and every part thereof, unto
Mortgagee and its successors and assigns forever, for the purposes and uses
herein set forth.
AND, Mortgagor hereby further covenants, agrees and warrants as follows:
1. Payment of Indebtedness. Mortgagor will pay the principal indebtedness
-----------------------
and interest thereon in accordance with the provisions of the Note and all
prepayment charges, late
4
<PAGE>
charges and fees required thereunder, and all extensions, renewals,
modifications, amendments and replacements thereof, and will keep and perform
all the covenants, promises and agreements, and pay all sums provided in (i)
each of the Note or any other promissory note or notes at any time hereafter
issued to evidence the Indebtedness, (ii) this Mortgage and (iii) any and all
other Loan Documents, all in the manner herein or therein set forth. Each of the
persons and/or entities constituting Mortgagor hereunder shall be fully liable
for such payment and performance, and such liability shall be joint and several.
2. Covenants of Title. Mortgagor has good and indefeasible title to the
------------------
Security, and has good right and full power to sell, mortgage and convey the
same; the Security is free and clear of easements, restrictions, liens, leases
and encumbrances, except (i) those easements, restrictions, liens, leases and
encumbrances listed on Schedule B of the policy or policies of title insurance
delivered to Mortgagee as of the recordation of this Mortgage, (ii) any
subordinate mortgage permitted pursuant to Section 17, (iii) any leases
affecting Personal Property, (vi) any encumbrances on Personal Property securing
purchase money financing or other personal property acquisition financing, and
(v) other encumbrances covering de minimus amounts of Personal Property the
value of which in no event exceeds the lesser of One Hundred Thousand Dollars
($100,000.00) or five percent (5%) of all of the Personal Property
(collectively, the "Permitted Encumbrances"), and Mortgagor will warrant and
defend title to the Security against all claims and demands whatsoever except
the Permitted Encumbrances. Mortgagee shall have the right, at its option and
at such time or times as it, in its sole discretion, shall deem necessary, to
take whatever action it may deem necessary to defend or uphold the lien of this
Mortgage or otherwise enforce any of the rights of Mortgagee hereunder or any
obligation secured hereby, including without limitation, the right to institute
appropriate legal proceedings for such purposes.
3. Usury. It is hereby expressly agreed that if from any circumstances
-----
whatsoever fulfillment of any provision of the Note, this Mortgage, or any other
Loan Document, at the time performance of such provision shall be due, shall
involve transcending the limit of validity presently prescribed by any
applicable usury statute or any other law, with regard to obligations of like
character and amount, then ipso facto the obligation to be fulfilled shall be
---- -----
reduced to the limit of such validity, so that in no event shall any exaction be
possible under the Loan Documents that is in excess of the limit of such
validity. In no event shall Mortgagor be bound to pay for the use, forbearance
or detention of the money loaned pursuant to the Loan Documents, interest of
more than the current legal limit; the right to demand any such excess being
hereby expressly waived by Mortgagee.
4. Impositions. Mortgagor will pay or cause to be paid, not later than
-----------
twenty (20) days before the last day on which the same may be paid without
penalty or interest, all real estate taxes, sewer rents, water charges and all
other municipal and governmental assessments, rates, charges, impositions and
liens (hereinafter referred to as "Impositions") which now or hereafter are
imposed by law upon the Security, whether relating directly to the Security or
to property adjoining or abutting the Security. If any Imposition is not paid
within the time hereinabove specified, Mortgagee shall have the right to pay the
same, together with any
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penalty and interest thereon, and the amount or amounts so paid or advanced
shall forth with be payable by Mortgagor to Mortgagee with interest thereon from
the date demand is made therefor until paid at the Default Rate and shall be
secured by the lien of this Mortgage; but Mortgagor or the Operator may in good
faith contest, at Mortgagor's own cost and expense, by proper legal proceedings,
the validity or amount of any Imposition, on the condition that Mortgagor first
shall deposit with Mortgagee, as security for the payment of such contested
item, an amount equal to the contested item plus all penalties and interest
which would be payable if Mortgagor is ultimately required to pay such contested
item or such other security as is reasonably acceptable to Mortgagee, and on the
further condition that no amount so contested may remain unpaid for such length
of time as shall permit the Security, or the lien thereon created by the item
being contested, to be sold for the nonpayment thereof, or as shall permit an
action, either of foreclosure or otherwise, to be commenced by the holder of any
such lien. Mortgagor will not claim any credit on, or make any deduction from
the Indebtedness by reason of the payment of any Imposition.
Subject to the Hotel Management Agreement if the same is then in
effect, Mortgagor hereby assigns to Mortgagee all rights of Mortgagor now or
hereafter arising in and to the refund of any Imposition and any interest
thereon. If following receipt of any such refund by Mortgagee, there exists no
Event of Default (as hereinafter defined) hereunder, then Mortgagee shall pay
over the same to Mortgagor promptly after demand; if there exists an Event of
Default hereunder, Mortgagee may apply said refund in reduction of the
Indebtedness in whatever order Mortgagee may elect.
5. Tax Deposits. The provisions of this Section 5 shall not be effective
------------
unless and until the Hotel Management Agreement has terminated or expired or
there shall exist an Event of Default hereunder, whichever is earlier, and
Mortgagee shall notify Mortgagor thereof. Thereafter, until further notice from
Mortgagee, Mortgagor shall comply with the following provision of this Section
5.
Mortgagor shall deposit with Mortgagee or with an escrow agent selected
by Mortgagee, on the first day of each calendar month thereafter (each of which
dates is hereinafter called the "monthly tax deposit date") until the payment in
full of the Indebtedness a sum equal to one-twelfth of the Impositions to be
levied, charged, assessed or imposed upon or for the Security within one year
after said monthly tax deposit date. If on any monthly tax deposit date the
amount of Impositions to be levied, charged, assessed or imposed within the
ensuing one year period shall not be fixed, such amount for the purpose of
computing the deposit to be made by Mortgagor hereunder, shall be estimated by
Mortgagee, with appropriate adjustment when the amount of such Impositions is
fixed.
The sums deposited by Mortgagor under this Section shall be held in an
interest-bearing account with interest being added to the amount on deposit and
applied in payment of such Impositions when due. Mortgagor shall give thirty
(30) days prior written notice to Mortgagee in each instance when an Imposition
is due, specifying the Imposition to
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be paid and the amount thereof, the place of payment and the last day on which
the same may be paid in order to be within the time limit specified in Section 4
hereof entitled "Impositions."
Notwithstanding the foregoing provision and so long as Mortgagor holds
title to and controls the Security, Impositions are paid in full when due and
there exists no Event of Default, the interest earned by such escrows, less
reasonable escrow costs, will be paid to Mortgagor on each real estate tax
payment date.
If for any reason the sums on deposit with Mortgagee or escrow agent
under this Section shall not be sufficient to pay an Imposition within the time
specified in Section 4 hereof, then Mortgagor shall, within ten (10) days after
demand by Mortgagee, deposit sufficient sums so that Mortgagee may pay such
Imposition in full, together with any penalty and interest thereon. Mortgagee
may change its estimate of Impositions for any period, on the basis of a change
in an assessment or tax rate or on the basis of a prior miscalculation or for
any other reason, in which event Mortgagor shall deposit with Mortgagee or
escrow agent within ten (10) days after demand the amount of any excess of the
deposits which would theretofore have been payable under the revised estimate
over the sums actually deposited.
If any Imposition shall be levied, charged, assessed or imposed upon or
for the Security, or any portion thereof, and if such Imposition shall also be a
levy, charge, assessment or imposition upon or for any other premises not
covered by the lien of this Mortgage, then the computation of the amounts to be
deposited under this Section shall be based upon the entire amount of such
Imposition and Mortgagor shall not have the right to apportion any deposit with
respect to such Imposition.
Upon an assignment of this Mortgage, Mortgagee shall have the right to
arrange to transfer all amounts deposited and still in its possession to the
assignee and, upon such transfer, Mortgagee shall be completely released from
all liability with respect to such deposit and Mortgagor or owner of the
Security shall look solely to the assignee or transferee in reference thereto.
Upon the payment in full by Mortgagor of the entire Indebtedness, any
sums then held by Mortgagee under this Section (including interest thereon)
shall be refunded to Mortgagor. All amounts deposited shall be held by
Mortgagee as additional security for the sums secured by this Mortgage, and
Mortgagor hereby grants to Mortgagee a security interest in such sums, and upon
the occurrence and during the continuance of an Event of Default hereunder
Mortgagee may, in its sole and absolute discretion, apply said amounts to the
payment of the Indebtedness in whatever order Mortgagee may elect.
Immediately upon receipt of such by Mortgagor, Mortgagor shall deliver
to Mortgagee copies of all notices, demands, claims, bills, and receipts in
relation to the Impositions.
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<PAGE>
Notwithstanding the foregoing provisions, Mortgagee will waive the
requirement for deposits as to that portion of Impositions payable directly to
the governmental or other authority by tenants under the terms of leases
approved by Mortgagee, provided satisfactory proof of payment is promptly
furnished to Mortgagee.
6. Change in Taxes. In the event any tax shall be due or become due and
---------------
payable to the United States of America, the State of New Jersey or any
political subdivision thereof with respect to the execution and delivery or
recordation of this Mortgage or any other Loan Document or the interest of
Mortgagee in the Security (other than income and franchise taxes), Mortgagor
shall pay such tax at the time and in the manner required by applicable law and
Mortgagor shall hold Mortgagee harmless and shall indemnify Mortgagee against
any liability of any nature whatsoever as a result of the imposition of any such
tax. In the event of the enactment, after the date of this instrument, of any
law changing in any way the present law as to the taxation of notes or debts
secured by mortgages, for Federal, State, or local purposes, or the manner of
collection of any Impositions, so as to affect this Mortgage or the Note secured
hereby, then Mortgagor shall upon demand make such payments to Mortgagee and
take such other steps, as may be necessary in Mortgagee's reasonable judgment,
to place Mortgagee in the same financial position as it was prior to any such
enactment, failing which, or if the Mortgagor is not permitted by law to make
such payments, the Indebtedness shall, at the option of Mortgagee, immediately
become due and payable.
7. Insurance. Mortgagor shall at all times until the Indebtedness shall
---------
be paid in full, keep the Security insured against loss or damage for its full
replacement cost (which cost shall be reset once a year at Mortgagee's option)
under policies of All Risk Replacement Cost Insurance with Agreed Amount
Endorsement (including risks of war and nuclear explosion, if available upon
commercially reasonable terms), and shall further provide flood insurance to the
extent available (if the Security is situated in an area which is considered a
flood risk area by the federal government or any agency thereof), boiler and
machinery insurance, earthquake insurance (if generally required by Mortgagee
for new mortgage loans in the State of New Jersey), business interruption
insurance in an amount sufficient to cover the total of all income accruing from
the Security for a one year period, comprehensive general liability insurance in
a minimum amount of $1,000,000 and excess or umbrella liability of at least
$200,000,000, and during any period of restoration, a policy or policies of
builder's "all risk" insurance in an amount not less than the full insurable
value of the Security against such risks as Mortgagee may request and such other
appropriate insurance as Mortgagee may require from time to time (it being
understood that Mortgagee shall not require other insurance which it does not
generally require for new mortgage loans of similar properties), in such amounts
and with such companies as shall be approved by Mortgagee with a Best's rating
of A-:10 or better, and will deliver original certificates of such insurance to
Mortgagee. Each such policy shall name Mortgagee as an additional insured or
loss payee, as applicable (but being named as both on the policy of All Risk
Placement Cost Insurance), and shall provide that, with respect to property
insurance, all proceeds shall be payable to Mortgagee, that the same may not be
canceled or modified except upon thirty (30) days prior written notice to
Mortgagee, that no act or thing done by Mortgagor shall invalidate the policy as
against Mortgagee, shall be
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endorsed with standard noncontributory mortgagee clauses in favor of and in form
acceptable to Mortgagee, and shall otherwise be in such form as shall be
reasonably acceptable to Mortgagee, so that at all times until the payment in
full of the Indebtedness, Mortgagee shall have and hold the said policy and
policies as further collateral for the payment of all Indebtedness. If Mortgagor
shall fail to obtain any such certificates required by Mortgagee, or shall fail
to deliver the same to Mortgagee, then Mortgagee may obtain such insurance and
pay the premium or premiums therefor, in which event Mortgagor shall, within
five (5) Business Days after demand of Mortgagee, repay to Mortgagee such
premium or premiums with, if the same is not paid within said five (5) Business
Day period, interest thereon from the date demand is made therefor until paid at
the Default Rate, and such repayment shall be secured by the lien of this
Mortgage. If Mortgagor fails to maintain the levels and coverages of insurance
required under this Mortgage, then Mortgagor shall indemnify Mortgagee to the
extent that a casualty occurs and insurance proceeds would have been available
had such levels and coverages of insurance been maintained.
Mortgagor shall promptly provide to Mortgagee copies of any and all
notices (including notices of non-renewal), claims, and demands which Mortgagor
receives from insurers of the Security. Mortgagor shall also provide to
Mortgagee, upon prior reasonable notice, access to the original policies of
insurance maintained pursuant to this Section 7.
Effective from and after any Event of Default, Mortgagor hereby assigns
to Mortgagee, as further collateral for the Indebtedness, all rights of
Mortgagor in and to any unearned premiums on any insurance policy required to be
furnished by Mortgagor.
8. Insurance/Condemnation Proceeds. Mortgagor hereby assigns to Mortgagee
-------------------------------
all proceeds of any insurance or condemnation awards which Mortgagor may be
entitled to receive for loss or damage to, or a taking of, the Security. In the
event of loss or damage to, or a taking of, the Security, the proceeds of said
insurance or condemnation award shall be payable to Mortgagee alone and
Mortgagor hereby authorizes and directs any affected insurance company or
government agency to make payments of the insurance proceeds or condemnation
awards directly to Mortgagee. In the event that any such insurance proceeds or
condemnation awards are paid directly to Mortgagor, Mortgagor shall make such
proceeds or awards available to Mortgagee within five (5) days of Mortgagor's
receipt thereof. No such loss or damage shall itself reduce the Indebtedness.
Mortgagee is authorized to adjust and compromise such loss without the consent
of Mortgagor (if an Event of Default shall then exist), to collect and receive
such proceeds or awards in the name of Mortgagee and Mortgagor and to endorse
Mortgagor's name upon any check in payment thereof. Subject to the provisions
of Sections 9, 10 and 11 hereof, such proceeds or awards shall be applied first
toward reimbursement of all reasonable costs and expenses of Mortgagee in
collecting said proceeds or awards, and then toward payment of the Indebtedness
or any portion thereof, whether or not then due and payable, in whatever order
Mortgagee may elect.
In the event of foreclosure of this Mortgage or other transfer of title
to the Security in consideration of the extinguishment, in whole or in part, of
the Indebtedness, all
9
<PAGE>
right, title, and interest of Mortgagor in and to any insurance policy, or
premiums or payments in satisfaction of claims or any other rights thereunder
then in force, shall pass to the purchaser or grantee notwithstanding the amount
of any bid at such foreclosure sale. Nothing contained herein shall prevent the
accrual of interest as provided in the Note on any portion of the principal
balance due under the Note until such time as the insurance proceeds or
condemnation awards are actually received and applied to reduce the principal
balance outstanding.
9. Restoration Following Fire and Other Casualty or Condemnation. In the
-------------------------------------------------------------
event of damage to the Security by reason of fire or other hazard or casualty,
Mortgagor shall give prompt written notice thereof to Mortgagee and shall
proceed with reasonable diligence to perform repair, replacement and/or
rebuilding work (hereinafter referred to as the "Work") to restore the Security
as nearly as practicable to its condition prior to such damage in full
compliance with all legal requirements. In the event of a taking by power of
eminent domain or conveyance in lieu thereof ("condemnation"), if restoration is
feasible as reasonably determined by Mortgagee, then Mortgagor shall proceed
with reasonable diligence to perform such restoration (also referred to as the
"Work"). Before commencing the Work, Mortgagor shall comply with the following
requirements:
(a) Mortgagor shall furnish to Mortgagee complete plans and
specifications for the Work, for Mortgagee's approval, which approval shall
not be unreasonably withheld. Said plans and specifications shall bear the
signed approval thereof by an architect satisfactory to Mortgagee and shall
be accompanied by the architect's signed estimate, bearing the architect's
seal, of the entire cost of completing the Work, and shall provide that upon
completion of the Work, the general utility of the Security shall be
comparable to its general utility prior to the damage or destruction or
condemnation.
(b) Mortgagor shall furnish to Mortgagee certified copies of all
permits and approvals required by law in connection with the commencement
and conduct of the Work.
(c) Mortgagor shall furnish to Mortgagee, prior to the commencement of
the Work, a surety bond for or guaranty of completion of and payment for the
Work, which bond or guaranty shall be in form satisfactory to Mortgagee and
shall be signed by a surety or sureties, or guarantor or guarantors, as the
case may be, who are acceptable to Mortgagee, and in an amount not less than
the architect's estimate of the entire cost of completing the Work, less the
amount of insurance proceeds or condemnation award, if any, then held by
Mortgagee and which Mortgagee shall have elected or shall be required to
apply toward restoration of the Security as provided in Section 10 hereof.
Mortgagor shall not commence any of the Work until Mortgagor shall have
complied with the above requirements, and thereafter Mortgagor shall perform the
Work diligently and in good faith in accordance with the plans and
specifications referred to in subsection (a) above.
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<PAGE>
If, as provided in Section 10 hereof, Mortgagee shall have elected or
is required to apply any insurance proceeds or condemnation awards toward repair
or restoration of the Security, then so long as the Work is being diligently
performed by Mortgagor in accordance with the provisions of this Mortgage,
Mortgagee shall disburse such insurance proceeds or condemnation awards to
Mortgagor from time to time during the course of the Work in accordance with the
following provisions:
A. The Work shall be in the charge of an experienced construction
manager satisfactory to Mortgagee with the consultation of an architect or
engineer;
B. Each request for payment shall not be made more often than at
thirty (30) day intervals, on ten (10) Business Days (hereinbelow defined)
prior notice to Mortgagee, and shall be accompanied by a certificate,
reasonably satisfactory to Mortgagee of the architect or engineer, dated not
more than ten (10) days prior to the application for withdrawal of funds,
stating:
(i) that all of the Work for which payment is being requested
is in place and has been completed in compliance with the
approved plans and specifications and all applicable legal
requirements;
(ii) that the sum then requested to be withdrawn has been paid
by Mortgagor and/or is justly due to contractors,
subcontractors, materialmen, engineers, architects or other
persons (whose names and addresses shall be stated) who
have rendered or furnished certain services or materials
for the Work and giving a brief description of such
services and materials and the principal subdivisions or
categories thereof and the respective amounts so paid or
due to each of said persons in respect thereof and stating
the progress of the Work up to the date of said
certificate;
(iii) that the sum then requested to be withdrawn, plus all sums
previously withdrawn, does not exceed the cost of the Work
insofar as actually accomplished up to the date of such
certificate;
(iv) that the remainder of the moneys held by Mortgagee will be
sufficient to pay in full for the completion of the Work;
(v) that no part of the cost of the services and materials
described in the foregoing paragraph (ii) of this Clause B
has been or is being made the basis of the withdrawal of
any funds in any previous or then pending application; and
(vi) that, except for the amounts, if any, specified in the
foregoing paragraph (ii) of this Clause B to be due for
services or materials,
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there is no outstanding indebtedness known, which is then due
and payable for work, labor, services or materials in
connection with the Work which, if unpaid, might become the
basis of a vendor's, mechanic's, laborer's or materialman's
statutory or other similar lien upon the Security or any part
thereof.
C. Mortgagor shall deliver to Mortgagee satisfactory evidence that the
Security and every part thereof, and all materials and all property
described in the certificate furnished pursuant to the foregoing Clause B,
are free and clear of all mortgages, liens, charges or encumbrances, except
(a) encumbrances, if any, securing indebtedness due to persons (whose names
and addresses and the several amounts due them shall be stated) specified in
said certificate furnished pursuant to the foregoing Clause B, which
encumbrances will be discharged upon disbursement of the funds then being
requested, and (b) this Mortgage and the Permitted Encumbrances. Mortgagee
shall accept as satisfactory evidence under this Clause C a certificate of a
title insurance company acceptable to Mortgagee or an endorsement to
Mortgagee's existing loan title policy insuring the lien of this Mortgage,
dated as of the date of the making of the disbursement, confirming the
foregoing.
D. If requested by Mortgagee for the first advance or the final
advance, Mortgagor shall deliver to Mortgagee a survey of the Security dated
as of a date within ten (10) days prior to the making of the advance (or
revised to a date within ten days prior to the advance) showing no
encroachments other than those, if any, acceptable to Mortgagee.
E. There shall be no Event of Default under the Note or under any of
the other Loan Documents.
Mortgagee at its option may waive any of the foregoing requirements.
Upon compliance by Mortgagor with the foregoing Clauses A, B, C, D and
E (except for such requirements, if any, as Mortgagee at its option may have
waived), Mortgagor shall, to the extent of the insurance proceeds or
condemnation award, if any, which Mortgagee shall have elected or shall be
required to apply to restoration of the Security, pay or cause to be paid to
the persons named in the certificate furnished pursuant to the foregoing
Clause B, the respective amounts stated in said certificate to be due them,
less ten percent (10%) retainage ("Retainage"), and Mortgagee shall pay to
Mortgagor the amounts stated in said certificate to have been paid by
Mortgagor, less Retainage.
If upon completion of the Work there shall be condemnation awards held
by Mortgagee over and above the amounts withdrawn pursuant to the foregoing
provisions, plus retainage, then Mortgagee, at Mortgagee's option, may
either retain such awards and apply the same in reduction of the
Indebtedness in whatever order Mortgagee may
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<PAGE>
elect, or Mortgagee may pay over such awards to Mortgagor. If upon
completion of the Work there shall be insurance proceeds held by Mortgagee
over and above the amounts withdrawn pursuant to the foregoing provisions,
plus retainage, then Mortgagee, shall pay over such proceeds to Mortgagor.
Upon completion of the Work, in addition to the requirements of the
foregoing Clauses A, B, C, D and E, Mortgagor shall promptly deliver to
Mortgagee:
(a) A written certificate of the architect or engineer that the Work
has been fully completed in a good and workmanlike manner in accordance with
the approved plans and specifications;
(b) A written report and policy of a title insurance company acceptable
to Mortgagee insuring the Security against mechanics' and materialmen's
liens;
(c) A certificate by Mortgagor in form and substance satisfactory to
Mortgagee, listing all costs and expenses in connection with the completion
of the Work and the amount paid by Mortgagor with respect to the Work;
(d) A temporary certificate of occupancy and all other applicable
certificates, licenses, consents and approvals issued by governmental
agencies or authorities with respect to the Security and by the appropriate
Board of Fire Underwriters or other similar bodies acting in and for the
locality in which the Security is situated, provided that within thirty (30)
days after completion of the Work, Mortgagor shall obtain and deliver to
Mortgagee a permanent certificate of occupancy for the Security.
Upon receipt of the foregoing items, Mortgagee shall pay any Retainage
held by Mortgagee for the benefit of Mortgagor.
Notwithstanding any other provision contained in Section 8, 9 or 10
hereof and provided that there does not then exist an Event Default, in the
event the costs of restoration following any damage by fire or other hazard or
casualty shall not exceed $250,000, then the first sentence of this Section 9
and the second sentence of Section 8 hereof shall be applicable but the other
requirements of this Article shall be inapplicable, and such insurance proceeds
shall be paid to Mortgagor by Mortgagee for application to the cost of the Work;
promptly after the completion thereof, Mortgagor shall provide to Mortgagee
satisfactory proof that the same has been accomplished and paid for in
accordance with all legal requirements.
10. Disposition of Condemnation or Insurance Proceeds. Mortgagee, in its
-------------------------------------------------
absolute discretion, may decide whether and to what extent, if any, proceeds of
insurance or condemnation will be made available to Mortgagor for repair or
restoration of the Security. Notwithstanding the foregoing, Mortgagee agrees to
make insurance or condemnation proceeds available to Mortgagor for repair or
restoration provided:
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<PAGE>
(i) Not more than 20% of the total floor area of the Improvements is
damaged or taken, and, in the case of a condemnation, the portion of
the Improvements not taken by condemnation has not, in Mortgagee's
sole reasonable opinion, been rendered economically nonviable by the
taking;
(ii) There exists no Event of Default;
(iii) Mortgagor can demonstrate to Mortgagee's reasonable satisfaction that
Mortgagor has the financial ability to make all scheduled payments
when due under the Loan Documents during repair or restoration,
whether from proceeds of business interruption insurance or
otherwise;
(iv) Such damage or taking occurs prior to the date which is one (1) year
prior to the maturity date under the Note;
(v) The Work will return the Improvements to substantially the size,
design, and utility as existed immediately before the casualty or
condemnation; and
(vi) The proceeds are released under escrow/construction funding
arrangements specified in Section 9 hereof.
If the above conditions are not met and Mortgagee elects not to make
the proceeds available for the Work, then such proceeds shall be applied to
reduce the Indebtedness in whatever order Mortgagee may elect. Any application
of such proceeds to the principal indebtedness evidenced by the Note shall be at
par (without any premium) and shall cause a recalculation of monthly payments of
principal and interest under the Note based on the reduced principal balance
under the Note; provided, however, that if there exists an Event of Default, the
prepayment fee as provided in the Note shall also be due.
11. Fire and Other Casualty; Self-Help. If within one hundred twenty (120)
----------------------------------
days after the occurrence of any damage to the Security in excess of $250,000 or
the condemnation of any portion of the Security, Mortgagor shall not have
submitted to Mortgagee and received Mortgagee's approval of plans and
specifications for the Work or shall not have obtained approval of such plans
and specifications from all governmental authorities whose approval is required,
or if, after such plans and specifications are approved by Mortgagee and all
such governmental authorities, Mortgagor shall fail to promptly commence the
Work, or if thereafter Mortgagor fails to perform the Work diligently or is
delinquent in the payment to mechanics, materialmen or others of the costs
incurred in connection with the Work, or if Mortgagor shall fail to complete the
Work promptly, then, in addition to all other rights herein set forth, and after
giving Mortgagor twenty (20) days written notice of the nonfulfillment of one or
more of the foregoing conditions Mortgagee, or any lawfully appointed receiver
of the Security, may at its respective option, perform or cause the Work to be
performed, and may take such other steps as it deems advisable to perform the
Work, and may enter upon the Security for any of the foregoing purposes, and
Mortgagor hereby waives, for Mortgagor and
14
<PAGE>
all others holding under Mortgagor, any claim against Mortgagee or such receiver
arising out of anything done by Mortgagee or such receiver pursuant to this
Section, and Mortgagee may apply insurance proceeds (without the need to fulfill
the requirements of Section 9 hereof) to reimburse Mortgagee, and/or such
receiver for all amounts expended or incurred by them, respectively, in
connection with the performance of the Work, and any excess costs shall be paid
by Mortgagor to Mortgagee within five (5) Business Days after demand, with (if
the same is not paid within said five (5) Business Day period) interest from the
date demand is made therefor until paid at the Default Rate (hereinafter
defined), and such payment shall be secured by the lien of this Mortgage.
12. Business Interruption Insurance Proceeds. If Mortgagor shall promptly
----------------------------------------
commence and diligently perform the Work, and there shall be no Event of Default
under the Loan Documents, then Mortgagee shall each month pay to Mortgagor out
of the business interruption insurance proceeds held by Mortgagee a sum equal to
the amount, if any, by which the business interruption insurance proceeds paid
by the insurer for the preceding month exceeds the amounts payable to Mortgagee
under the Loan Documents for such month. Mortgagee at its option may waive any
of the foregoing conditions to the payment of business interruption insurance
proceeds. If Mortgagor does not fulfill the foregoing conditions entitling
Mortgagor to monthly disbursements of rent insurance proceeds, then such rent
insurance proceeds may be applied by Mortgagee, at Mortgagee's option, to the
payment of the Indebtedness in whatever order Mortgagee may elect. The
provisions of this Section 12 are subject to the Hotel Management Agreement.
13. Renovation Work. Mortgagor shall diligently and continuously and in
---------------
good faith take all commercially reasonable actions, and shall otherwise take
all necessary measures to encourage and facilitate completion of and payment for
the renovation work described in Exhibit C attached hereto in full compliance
with all applicable laws, ordinances, codes, rules and regulations no later than
January 31, 1999.
14. Repair; Alterations; Waste. Mortgagor shall keep all of the Security
--------------------------
in good and substantial repair, and expressly agrees that it will neither permit
nor commit any waste upon the Security, nor do any act or suffer or permit any
act to be done, whereby the Security will become less valuable or the lien
hereof may be impaired and shall comply with all zoning laws, building codes,
subdivision laws, environmental laws and other laws, ordinances, rules and
regulations made or promulgated by any government or municipality, or by any
agency thereof or by any other lawful authority, which are now or may hereafter
become applicable to the Security. Subject to Sections 9 and 10 hereof,
Mortgagor shall repair or restore any building now or hereafter under
construction on the Security and complete the same within a reasonable period of
time. Mortgagor agrees not to initiate or acquiesce in any zoning variance or
reclassification, without Mortgagee's prior written consent. Subject to Section
9, 10 and 13 hereof, Mortgagor shall not construct any additional building or
buildings or make any other improvements on the Land, nor alter, remove or
demolish any building or other Improvements on the Land, without the prior
written consent of Mortgagee.
15
<PAGE>
Mortgagor covenants and agrees to maintain the Real Property in
compliance with the applicable provisions of the Americans With Disabilities Act
of 1990, and all rules and regulations promulgated thereunder, as the same may
be amended from time to time. Mortgagor shall comply with all terms and
implement the recommendations contained in that certain ADA Survey of the Real
Property dated February 24, 1997.
If Mortgagor fails to observe any of the provisions of this Section, or
suffers any Event of Default to exist under this Section, Mortgagee or a
lawfully appointed receiver of the Security at its option, from time to time,
may perform, or cause to be performed, any and all repairs and such other work
as it deems necessary to bring the Security into compliance with the provisions
of this Section and may enter upon the Security for any of the foregoing
purposes, and Mortgagor hereby waives any claim against Mortgagee and/or such
receiver, arising out of such entry or out of any other act carried out pursuant
to this Section. Mortgagor shall upon demand repay to Mortgagee and such
receiver, with interest from the date demand is made therefor until paid at the
Default Rate, all amounts expended or incurred by them, respectively, in
connection with any action taken pursuant to this Section, and such repayment
shall be secured by the lien of this Mortgage.
Mortgagor represents and warrants that there are and at all times while
this Mortgage is outstanding will be at least 650 paved, designated parking
spaces as part of the Security.
15. Environmental Matters. Reference is made to that certain Environmental
---------------------
Indemnification Agreement dated as of even date herewith by Mortgagor and
Marriott Hanover Hotel Corporation to Mortgagee (the "Environmental
Indemnification Agreement"), which Environmental Indemnification Agreement is
hereby incorporated by reference and made a part of this Mortgage in its
entirety. Supplementing, but not limiting, the Environmental Indemnification
Agreement, Mortgagor hereby represents and warrants to Mortgagee that except for
violations of the Environmental Laws and/or Disposals of Hazardous Materials
specifically disclosed as such in the Environmental Reports, true and complete
copies of all of which have been delivered to Mortgagee:
a. Mortgagor has not used, and to the best of Mortgagor's knowledge,
no prior owner or current or prior tenant, subtenant, or other
occupant of all or any part of the Real Property has disposed of
Hazardous Materials on, in, under or above from the Real Property
such that any Remedial Work is required under any of the
Environmental Laws, and Mortgagor will not permit any such
disposal or violation of the violation of the Environmental Laws
to occur or to continue to exist; and
b. Mortgagor has received no notice from any person or entity, public
or private, claiming any violation of any Environmental Law with
regard to the Real Property nor has it received any administrative
order or entered
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into any administrative consent order with any governmental agency
with respect to Hazardous Materials on or at the Real Property;
and
c. To the best of Mortgagor's knowledge, the Real Property does not
contain any asbestos-containing material in friable form, and
there is no current or potential airborne contamination of the
Real Property by asbestos fiber, including, but not limited to,
any potential contamination that would be caused by maintenance or
tenant finish activities in the Real Property.
Unless otherwise defined herein, all defined terms used in this Section 15
shall have the meanings ascribed thereto in the Environmental Indemnification
Agreement.
16. Independence of Security. Mortgagor shall not by act or omission
------------------------
permit any building or other improvement on any premises not subject to the lien
of this Mortgage to rely on the Security or any part thereof or any interest
therein to fulfill any municipal or governmental requirement, and Mortgagor
hereby assigns to Mortgagee any and all rights to give consent for all or any
portion of the Security or any interest therein to be so used. Similarly, no
part of the Security shall rely on any premises not subject to the lien of this
Mortgage or any interest therein to fulfill any governmental or municipal
requirement. Mortgagor shall not by act or omission impair the integrity of the
Land as a single zoning lot, and as one or more complete tax parcels, separate
and apart from all other premises. Any act or omission by Mortgagor which would
result in a violation of any of the provisions of this Section shall be void.
17. No Other Liens. Mortgagor shall not consent, agree to, or permit any
--------------
mortgage, lien, or security interest upon or affecting the Security or any part
thereof except as granted or permitted in this Mortgage, the Permitted
Encumbrances and any other lien or security interest granted to Mortgagee.
Mortgagor will promptly pay and discharge any and all amounts which are now or
hereafter become liens against the Security whether or not superior to the lien
hereof or to any assignment of rents and leases given to Mortgagee. The
covenants of this Section shall survive any foreclosure and sale of the Security
and any conveyance thereof by deed in lieu of foreclosure with respect to any
such liens in existence as of the date of transfer of title.
Notwithstanding the foregoing provisions of this Article 17, Mortgagor
may grant a single subordinate mortgage encumbering the Security; provided,
however, that (a) the principal amount secured thereby shall not exceed
$9,000,000.00, (b) the holder of such mortgage from time to time shall be Host
Marriott Corporation, a Delaware corporation, or an entity which is directly or
indirectly wholly owned by Host Marriott Corporation, (c) the loan secured by
such mortgage shall only be repaid, if at all, from cash available to Mortgagor
under the Hotel Management Agreement) after payment of all amounts then due and
payable under the Loan Documents, (d) Mortgagor shall give to Mortgagee at least
twenty (20) days prior notice thereof and shall reimburse Mortgagor for its
reasonable counsel fees and other
17
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expenses incurred in connection with such subordinate mortgage, and (e)
Mortgagor shall satisfy the requirements of Exhibit B hereto.
18. Intentionally Omitted.
---------------------
19. Fixtures, Furnishings and Equipment Reserve. The provisions of this
-------------------------------------------
Section 19 shall not be effective unless and until (i) the Hotel Management
Agreement shall terminate or expire (unless replaced by a similar agreement in
form and with an operator acceptable to Lender in its sole discretion), or (ii)
deposits are not being made into the Repair and Equipment Reserve Account as and
to the extent required under the Hotel Management Agreement (or a similar escrow
established under any such replacement agreement), whichever is earlier, and
Mortgagee shall notify Mortgagor thereof. Thereafter, until further notice from
Mortgagee to Mortgagor, the provisions of this Section 19 shall be effective.
Mortgagor shall deposit with Mortgagee or with an escrow agent selected by
Mortgagee, on the fifth (5th) day of each calendar month (each of which dates is
hereinafter called the "FF&E deposit date") until the payment in full of the
Indebtedness a sum equal to five percent (5%) of Gross Revenues (as defined in
the Hotel Management Agreement) generated during and/or attributable to the
immediately preceding calendar month along with financial statements and a
reasonably detailed description of the calculation of Gross Revenues for such
month.
The funds deposited under this Section 19 shall be made available by
Mortgagee from time to time for the purposes of making or procuring the
following: (1) replacements and renewals to the Improvements and to the
fixtures, furniture, furnishings and equipment therein, and (2) certain routine
repairs and maintenance to the Improvements which are normally capitalized under
generally acceptable accounting principles such as exterior and interior
repainting, resurfacing building walls, floors, roofs and parking areas, and
replacing folding walls and the like, but which are not major repairs,
alterations, improvements, renewals or replacements to the Improvements
structure or to the mechanical, electrical, heating, ventilating, air
conditioning, plumbing or vertical transportation systems thereof (collectively
the "FF&E").
The sums deposited by Mortgagor under this Section 19 shall be held in
an interest-bearing account with interest being retained by Mortgagee as part of
the reserve, and applied, subject to the approval of Lender, upon satisfaction
of the following conditions:
(i) funds shall be released to Mortgagor to pay for amounts of
money actually owed by Mortgagor for FF&E;
(ii) funds shall be released in minimum increments of at least
$2,500, with such releases not to be made more often than
once each calendar month;
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(iii) at the time of any release, there shall exist no Event of
Default; and
(iv) Mortgagee shall have received the following:
a. along with each request for release of such funds, a certificate, in
form and substance reasonably satisfactory to Lender, requesting
payment and certifying that the portion of the FF&E for which payment
is being sought has been fully completed or delivered and payment
therefor is due and owing, and funds shall be applied only to the
payment thereof; and
b. if applicable, lien waivers and releases from each contractor,
subcontractor, material supplier or vendor with respect to all work
performed or services provided by such parties with respect to the FF&E
for which funds were previously released.
In the event that at any time there exists an omission, discrepancy and/or
mistake in the calculation of Gross Revenues, or a modification and/or
correction is subsequently necessary due to a change or correction in facts,
circumstances and/or assumptions made in order to calculate Gross Revenues,
Mortgagor shall, within ten (10) days of its first becoming aware of facts that
would indicate the need for a change in the calculation of Gross Revenues,
deliver written notice to Mortgagee describing in reasonable detail the
necessary change and an appropriate increase or decrease shall be made to the
next succeeding monthly payment.
Upon an assignment of this Mortgage, Mortgagee shall have the right to
arrange to transfer all amounts deposited and still in its possession to the
assignee and, upon such transfer, Mortgagee shall be completely released from
all liability with respect to such deposit and Mortgagor or owner of the
Security shall look solely to the assignee or transferee in reference thereto.
Upon the payment in full by Mortgagor of the entire Indebtedness, any
sums then held by Mortgagee under this Section (including interest thereon)
shall be refunded to Mortgagor. All amounts deposited shall be held by
Mortgagee as additional security for the sums secured by this Mortgage, and
Mortgagor hereby grants to Mortgagee a security interest in such sums, and upon
the occurrence and during the continuance of an Event of Default hereunder
Mortgagee may, in its sole and absolute discretion, apply said amounts to the
payment of the Indebtedness in whatever order Mortgagee may elect.
20. Sidewalks, Municipal Charges. Mortgagor will promptly pay and
----------------------------
discharge any and all license fees and similar charges, with penalties and
interest thereon, which may be imposed by the municipality in which the Security
is situated, for the use of vaults, chutes, areas and other space beyond the lot
line and under or abutting the public sidewalks in front of or adjoining the
Security, and Mortgagor will promptly cure any violation of law and comply with
any order of such municipality respecting the repair, replacement or condition
of the
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sidewalk or curb in front of or adjoining the Security, and in default thereof
Mortgagee may, upon five (5) days notice to Mortgagor, pay any and all such
license fees or similar charges, with penalties and interest thereon, and the
charges of the municipality for such repair or replacement, and any amount so
paid or advanced by Mortgagee and all costs and expenses incurred in connection
therewith (including, without limitation, reasonable attorneys' fees), with
interest thereon from the date of demand until paid at the Default Rate
specified in the Note, shall be a demand obligation of Mortgagor to Mortgagee,
and, to the extent permitted by law, shall be added to the Indebtedness and
shall be secured by the lien of this Mortgage; but Mortgagor may in good faith
contest, at Mortgagor's own cost and expense, by proper legal proceedings, the
validity or amount of any fees, charges, penalties or interest, on the condition
that Mortgagor first shall deposit with Mortgagee, as security for the payment
of such contested item, an amount in cash or a bond assuring payment in an
amount equal to the contested item plus all penalties and interest which would
be payable if Mortgagor is ultimately required to pay such contested item, and
on the further condition that no amount so contested may remain unpaid for such
length of time as shall permit the Security, or the lien thereon created by the
item being contested, to be sold for the nonpayment thereof, or as shall permit
an action, either of foreclosure or otherwise, to be commenced by the holder of
any such lien.
21. Assignment of Rents, Revenues and Leases. Mortgagor hereby presently,
----------------------------------------
irrevocably, absolutely and unconditionally transfers, assigns and sets over
unto Mortgagee all of its right, title and interest in and to all present and
future leases, license agreements, concession agreements, lease termination
agreements and other occupancy agreements of any nature, oral or written, of the
Land and of space in the Improvements, together with all modifications,
supplements, extensions, renewals and replacements thereof now existing or
hereafter made, and also together with the rights to sue for, collect and
receive all rents, prepaid rents, additional rents, royalties, security
deposits, damages payable upon default by tenant, or other sums in any of said
leases provided to be paid to the lessor thereunder, profits, income, license
fees, concession fees, lease termination fees and issues of the Security
(collectively, "Rents and the Revenues"), to be applied by Mortgagee in payment
of the Indebtedness and also together with any and all guaranties of the
obligations of the tenants thereunder and the rights of Mortgagor to receive,
hold and apply all bonds and security in all of said leases provided to be
furnished to the lessor thereunder, and also together with the rights of
Mortgagor to enforce any and all of the agreements, terms, covenants and
conditions in all of said leases provided and to give notices thereunder. Upon
the occurrence of an Event of Default and for so long as such Event of Default
shall exist, and during the pendency of any foreclosure proceeding and during
any redemption period, Mortgagee may receive and collect the Rents and the
Revenues personally or through a receiver. Mortgagor agrees to consent to a
receiver if this is believed necessary or desirable by Mortgagee to enforce its
rights under this Section.
Notwithstanding anything to the contrary contained herein, Mortgagee
grants to Mortgagor a revocable license (a "Revocable License") to hold and
administer security deposits and to collect, use and distribute (subject to the
provisions of Section 40 of this Mortgage) the Rents and Revenues as they
respectively become due, to enforce such leases,
20
<PAGE>
and to exercise the rights of the landlord or licensor thereunder so long as no
Event of Default has occurred and is continuing. The Revocable License shall be
revocable by written notice sent by Mortgagee to Mortgagor, and shall be
revocable only if any Event of Default exists hereunder. If all outstanding
Events of Default are cured or waived prior to Acceleration of Maturity (as
defined in the Note), Mortgagee agrees that Mortgagor shall be entitled to and
shall automatically receive a new Revocable License under the exact same terms
and conditions.
Except in connection with a subordinate mortgage financing permitted
under Section 17 or as permitted under Section 26(f), Mortgagor shall not
otherwise assign or pledge, or contract, expressly or by implication, to assign
or pledge, any lease of the Land or space in the Improvements or the rights to
sue for, collect and receive any Rents, or the rights to receive, hold and apply
any bonds and security in any of said leases provided to be furnished to the
lessor thereunder, or the rights to enforce any of the agreements, terms,
covenants or conditions of said leases or to give notices thereunder, unless in
each instance the written consent thereto of Mortgagee be first obtained.
Nothing in this Mortgage shall be construed to obligate Mortgagee,
expressly or by implication, to perform any of the covenants of Mortgagor as
lessor under any of the leases hereinabove assigned or to pay any sum of money
or damages therein provided to be paid by the lessor.
If Mortgagee shall from time to time suffer or permit Mortgagor to sue
for, collect or receive any Rents, or to receive, hold or apply any bonds or
security under said leases, or to enforce any of the agreements, terms,
covenants or conditions thereunder or to give notices thereunder, neither such
sufferance nor permission shall constitute a waiver or relinquishment by
Mortgagee of the rights hereunder and hereby assigned to Mortgagee with respect
to any subsequent Rents or with respect to any subsequent receipt, holding or
application of bonds or security or any subsequent enforcement of such
agreements, terms, covenants or conditions or any subsequent notices.
22. Future Leases. Mortgagor will not hereafter make any lease to any
-------------
tenant, or amend, modify, terminate, renew or extend any lease (other than a
renewal to which a tenant is entitled under the terms of an existing lease or
contained in a lease that is subsequently approved by Mortgagee), affecting the
Security unless Mortgagee shall first consent in writing to the terms of said
lease and the form of the lease; provided, however, that the consent of
Mortgagee will not be required with respect to any lease which covers no more
than 500 square feet of net rentable area, is written on a standard form of
lease reasonably acceptable to Mortgagee without any changes thereto and
contains no option on the part of the tenant thereunder to cancel the lease
(other than as may be provided in the approved standard form) or acquire any
ownership interest in the Security.
All leases must be subordinate to the lien of the Mortgage unless
Mortgagee otherwise specifies. Each lease must contain a provision that, upon
notice to tenant by
21
<PAGE>
Mortgagee, the lease shall become superior, in whole or in part, to the lien of
the Mortgage. Without limiting the foregoing, Mortgagee hereby reserves the
right to subordinate this Mortgage to any lease subsequently made by recording a
declaration to that effect, executed by Mortgagee, which declaration once so
recorded shall be binding upon the tenant under such lease and such tenant's
successors and assigns.
Mortgagor will furnish to Mortgagee a true and complete copy of each
lease, amendment, modification, extension, or renewal of lease, hereafter made
by Mortgagor with respect to space in the Security, within ten (10) days after
delivery of each such lease, amendment, modification, extension, or renewal by
the parties thereto. Mortgagor shall also furnish to Mortgagee an original
mortgagee attornment agreement executed by each tenant leasing in excess of 500
square feet of net rentable area in the Security and an original estoppel,
addressed to Mortgagee, from each such tenant in form and substance satisfactory
to Mortgagee.
Mortgagor will from time to time upon demand of Mortgagee, confirm in
writing the assignment to Mortgagee of any or all leases of Land and space in
the Improvements, and such written confirmation shall be in such form as
Mortgagee shall require and as shall be necessary to make the same recordable.
23. Mortgagor's Obligations as Lessor. (a) Mortgagor shall, at Mortgagor's
---------------------------------
cost and expense, promptly and fully perform each and every material covenant,
condition, promise and obligation on the part of the lessor to be performed
pursuant to the terms of each and every lease or letting, written or oral, now
or hereafter made with respect to the Security or any part or parts thereof, and
shall not suffer or permit there to exist any default in such performance on the
part of such lessor or permit any event to occur which would give the tenant
under any such lease the right to terminate the same or to offset rent.
(b) Mortgagor shall give Mortgagee immediate notice of any material default
under any lease, or of the receipt by Mortgagor of any notice of default from
the lessee or its successors or assigns under a lease, and Mortgagor shall
furnish to Mortgagee immediately any and all information which Mortgagee may
request concerning the performance and observance of all covenants, agreements
and conditions contained in the leases by the lessor thereunder to be kept,
observed and performed and concerning the compliance with all terms and
conditions of the leases. Mortgagor hereby authorizes Mortgagee and its
representatives to make investigations and examinations concerning such
performance, observance and compliance, and Mortgagor, upon request, shall
promptly deposit with Mortgagee any and all documentary evidence relating to
such performance, observance and compliance and copies of any and all notices,
communications, plans, specifications or other instruments or documents received
or given by Mortgagor in any way relating to or affecting the leases which may
concern or affect the estate of the lessor or the lessee in or under the leases
or in the premises thereby demised.
(c) In the event of any failure by Mortgagor to keep, observe or perform any
covenant, agreement or condition contained in the leases or to comply with the
terms and
22
<PAGE>
conditions of the leases, any performance, observance or compliance by Mortgagee
pursuant to this Mortgage on behalf of Mortgagor shall not remove or waive, as
between Mortgagor and Mortgagee the corresponding Event of Default under the
terms of this Mortgage.
24. Leases; Foreclosure. Any proceedings or other steps taken by Mortgagee
-------------------
to foreclose this Mortgage, or otherwise to protect the interests of Mortgagee
hereunder, shall not operate to terminate the rights of any present or future
tenant of space in the Improvements, notwithstanding that said rights may be
subject and subordinate to the lien of this Mortgage, unless Mortgagee
specifically elects otherwise in the case of any particular tenant. The failure
to make any such tenant a defendant in any such foreclosure proceeding and to
foreclose such tenant's rights will not be asserted by Mortgagor or any other
defendant in such foreclosure proceeding as a defense to any proceeding
instituted by Mortgagee to foreclose this Mortgage or otherwise protect the
interests of Mortgagee hereunder.
25. Hotel Management Agreement. Mortgagor shall, at Mortgagor's cost and
--------------------------
expense, promptly and fully perform each and every covenant, condition, promise
and obligation of the owner of the Security under the Hotel Management
Agreement, and shall make all payments therein and thereby required to be made
by the owner of the Security. Mortgagor shall not cancel, transfer, amend, or
assign the Hotel Management Agreement without the prior written consent of
Mortgagee, and Mortgagor shall not consent to the cancellation, transfer,
amendment, or assignment of the Hotel Management Agreement by any other party
thereto, without the prior written consent of Mortgagee.
Mortgagor shall furnish to Mortgagee, within three (3) days after
receipt thereof, or after the mailing or service thereof by Mortgagor, as the
case may be, a copy of each notice of default which Mortgagor shall give to, or
receive from any person, based upon the occurrence, or alleged occurrence, of
any default or defaults in the performance of any covenant, condition, promise
or obligation under the Hotel Management Agreement.
Whenever and as often as Mortgagor shall fail to perform, promptly and
fully, at Mortgagor's cost and expense, any covenant, condition, promise or
obligation on the part of the owner of the Security under and pursuant to the
Hotel Management Agreement beyond any applicable notice or grace period therein,
Mortgagee, or a lawfully appointed receiver of the Security, may, at their
respective options, enter upon the Security and perform, or cause to be
performed, such work, labor, services, acts or things, and take such other steps
and do such other acts as they may deem advisable, to cure such defaulted
covenant, condition, promise or obligation, and Mortgagor shall reimburse
Mortgagee upon demand for all costs and expenses reasonably incurred by
Mortgagee and any such receiver in taking any action pursuant to this Section,
which reimbursement shall be secured by the lien of this Mortgage.
26. Events of Default. Each of the following shall constitute an "Event of
-----------------
Default" hereunder and shall entitle the Mortgagee to exercise its remedies
hereunder and under any of the other Loan Documents or as otherwise provided by
law:
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(a) Any payment of any installment of principal or interest due under
the Note, or payment of any other sum due under the Note, or under any of the
other Loan Documents is not received by Mortgagee when due and payable (subject
to any applicable notice or grace period set forth in the Note or any other Loan
Document);
(b) Failure of Mortgagor in any material respect to observe or perform
any covenant, promise or agreement provided in this Mortgage or in any other
Loan Document other than relating to the payment of indebtedness or money (a
"failure to perform"), for thirty (30) days after the giving of notice by
Mortgagee to Mortgagor specifying the nature of the failure to perform;
provided, however, that if the nature of such failure to perform is such that
the same cannot be cured within such thirty (30) day period, such failure to
perform shall not be deemed an Event of Default if Mortgagor shall within such
period commence to cure that failure to perform and thereafter diligently
prosecute the cure to completion, but in no event more than one hundred eighty
(180) days after Mortgagee's original notice to Mortgagor. Notwithstanding
anything contained herein to the contrary, the notice and cure period provided
under this clause (b) shall not be applicable to and shall not be in addition to
any specific notice and cure or performance period provided under any other
provision of this Mortgage and the specific notice and cure or performance
period provided for in such provision shall control, and a failure by Mortgagor
to cure a default under such provision within the applicable cure period shall
be an Event of Default under this Mortgage;
(c) Any representation, warranty, or statement of the Mortgagor or the
managing general partner of Mortgagor contained herein or in any of the Loan
Documents including without limitation the Environmental Indemnification
Agreement, or in any writing delivered to Mortgagee on or before with the
execution and delivery of the Loan Documents, proves to be untrue in any
material respect as of the date when made;
(d) Mortgagor or the managing general partner of Mortgagor shall (i)
have an order for relief entered in a proceeding under Title 11, United States
Code, whether such order shall result from a voluntary or involuntary petition,
(ii) seek or consent to the appointment of a receiver or trustee for itself or
for any of the Security, (iii) file a petition or initiate a proceeding under
the bankruptcy, insolvency, receivership, or similar laws of the United States,
any state or any jurisdiction, (iv) make a general assignment for the benefit of
creditors, or (v) be generally unable to pay its debts as they mature;
(e) A court shall enter an order, judgment or decree appointing,
without the consent of Mortgagor or the managing general partner of Mortgagor, a
receiver or trustee for it or for any of the Security or approving a petition
filed against Mortgagor which seeks relief under the bankruptcy or other similar
laws of the United States, any state or any jurisdiction, and such order,
judgment or decree shall remain in force, undischarged or unstayed, sixty (60)
days after it is entered;
(f) Without the prior written consent of Mortgagee and except as relate
to Permitted Encumbrances, the Security or a portion thereof or interest
therein, or a direct or
24
<PAGE>
indirect interest in Mortgagor, shall be mortgaged, encumbered, sold, assigned
or otherwise transferred by Mortgagor or by operation of law, except as
otherwise set forth herein and except that limited partnership interests in
Mortgagor may be transferred so long as (i) no Event of Default then exists
under the Loan Documents, (ii) Marriott Hanover Hotel Corporation or a Permitted
Entity (as hereinafter defined) shall continue to be the sole general partner of
Mortgagor, (iii) Hanover Marriott Limited Partnership shall continue to be the
sole owner the Real Property and the Personal Property and (iv) Host Marriott
Corporation or a Permitted Entity shall, directly or indirectly, continue to
wholly own Marriott Hanover Hotel Corporation. As used herein, "Permitted
Entity" shall mean a United States of America based domestic United States of
America entity in which not less than 90% of the legal or beneficial ownership
interests are owned, directly or indirectly, by Host Marriott Corporation); or
(g) A default by Mortgagor occurs under the Hotel Management Agreement.
27. Remedies Upon Default. Immediately upon the occurrence of any Event of
---------------------
Default, Mortgagee shall have the option, in addition to and not in lieu of or
substitution for all other rights and remedies provided in this Mortgage or any
other Loan Document or provided by law or in equity, and is hereby authorized
and empowered by Mortgagor, to do any or all of the following:
(a) Declare without notice the entire unpaid amount of the Indebtedness
immediately due and payable and, at Mortgagee's option, (i) to bring suit
therefor, or (ii) to bring suit for any delinquent payment of or upon the
Indebtedness, or (iii) to take any and all steps and institute any and all other
proceedings in law or in equity that Mortgagee deems necessary to enforce
payment of the Indebtedness and performance of other obligations secured
hereunder and to protect the lien of this Mortgage.
(b) Commence foreclosure proceedings against the Security, in a single
parcel or in several parcels, through judicial proceedings, by advertisement or
as otherwise provided by law, at the option of Mortgagee, pursuant to the
statutes in such case made and provided, and to sell the Security or to cause
the same to be sold at public sale, and to convey the same to the purchaser, in
accordance with said statutes in a single parcel or in several parcels at the
option of Mortgagee.
(c) Proceed against the Personal Property in accordance with
Mortgagee's rights and remedies with respect to the Personal Property, including
the right to sell the Personal Property together with the Real Property
separately and without regard to the remainder of the Security in accordance
with Mortgagee's rights and remedies provided by the Uniform Commercial Code as
enacted in the State of New Jersey as well as other rights and remedies
available at law or in equity.
(d) Cause to be brought down to date a title examination and tax
histories of the Security, procure title insurance or title reports or, if
necessary, procure new abstracts and tax histories.
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<PAGE>
(e) Procure an updated or entirely new environmental audit of the
Security including building, soil, ground water and subsurface investigations;
have the Improvements inspected by an engineer or other qualified inspector and
procure a building inspection report; procure an MAI or other appraisal of the
Security or any portion thereof; enter upon the Security at any time and from
time to time to accomplish the foregoing and to show the Security to potential
purchasers and potential bidders at foreclosure sale; make available to
potential purchasers and potential bidders all information obtained pursuant to
the foregoing and any other information in the possession of Mortgagee regarding
the Security.
(f) Either by itself or by its agent to be appointed by it for that
purpose or by a receiver appointed by a court of competent jurisdiction, as a
matter of strict right, without notice and without regard to the adequacy or
value of any security for the Indebtedness or the solvency of any party bound
for its payment, take possession of and operate the Security, Mortgagor hereby
waiving any right Mortgagor might have to object to or oppose any such
possession, and, whether or not Mortgagee has taken possession of the Security,
to collect and apply the Rents, including those past due and unpaid, after
payment of all necessary charges and expenses, in reduction of the Indebtedness.
The receiver shall have all of the rights and powers permitted under the laws of
the State of New Jersey. Except for damage caused by Mortgagee's gross
negligence or willful misconduct, Mortgagor hereby waives any claim Mortgagor
may have against Mortgagee for mismanagement of the Security during Mortgagee's
operation of the Security under this subparagraph or as mortgagee in actual
possession under applicable statutes.
(g) Mortgagee may, at its option without waiving any Event of Default,
pay, perform or observe the same, and all payments made or costs or expenses
incurred by Mortgagee in connection therewith shall be secured hereby and shall
be, without demand, immediately repaid by Mortgagor to Mortgagee with interest
thereon at the Default Rate hereunder. Mortgagee shall be the sole judge of the
necessity for any such actions and of the amounts to be paid. Mortgagee is
hereby empowered to enter and to authorize others to enter upon the Security or
any part thereof for the purpose of performing or observing any such defaulted
term, covenant or condition without hereby becoming liable to Mortgagor or any
person in possession holding under Mortgagor.
(h) Apply against the Indebtedness in such order as Mortgagee shall
determine any funds held for the benefit of Mortgagor in escrow by Mortgagee or
by any third-party escrow agent under any of the Loan Documents.
(i) Upon any foreclosure sale, Mortgagee may bid for and purchase the
Security and shall be entitled to apply all or any part of the Indebtedness as a
credit to the purchase price. In the event of any sale of the Security by
foreclosure, through judicial proceedings, by advertisement or otherwise, the
proceeds of any such sale which are applied in accordance with this Mortgage
shall be applied in the following order to: (i) all expenses incurred for the
collection of the Indebtedness and the foreclosure of this Mortgage, including
reasonable attorneys' fees; (ii) all sums expended or incurred by Mortgagee
directly or
26
<PAGE>
indirectly in carrying out the terms, covenants and agreements of the Note or
notes evidencing the Indebtedness, of this Mortgage and any other Loan
Documents, together with interest thereon as therein provided; (iii) all late
payment charges, prepayment fees, advances and other amounts due under any of
the Loan Documents; (iv) all accrued and unpaid interest upon the Indebtedness;
(v) the unpaid principal amount of the Indebtedness; and (vi) the surplus, if
any, to the person or persons legally entitled thereto.
In the event of any acceleration of the Indebtedness pursuant to the
first paragraph of this Section, Mortgagor shall pay to Mortgagee together with
the principal indebtedness and interest thereon an amount equal to the
prepayment fee provided for in the Note and such fee shall be included as part
of the Indebtedness.
Failure to exercise any option to accelerate in the event of a default
or other circumstance permitting the exercise of such option, shall not
constitute a waiver of the default or of the right to exercise such option at a
later time, or a waiver of the right to exercise such option in the event of any
other default or circumstance specified above.
28. Interest Following an Event of Default. Upon the occurrence of an
--------------------------------------
Event of Default and so long as it continues to exist, the entire amount of the
Indebtedness shall bear interest at a rate (the "Default Rate") equal to the
lesser of (i) the interest rate set forth in the Note plus two percent (2%) per
annum, or (ii) the maximum rate permitted by law.
29. ERISA. Mortgagee is entering into the Loan Documents in part on behalf
-----
of two of its separate accounts: one established on behalf of the 401(k)
Retirement Savings Plan for certain Represented Employees of Bethlehem Steel
Corporation and subsidiaries companies ("SA BETH"); and the other established as
the Savings and Profit Sharing Plan established on behalf of certain employees
of Sedgwick James, Inc. ("SA 5W"). SA BETH and SA 5W are each a "separate
account" as defined in Section 3(17) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"). Mortgagee is therefore subject to the
fiduciary obligation provisions of ERISA and as a result may be prohibited by
law from engaging in certain transactions. Mortgagor hereby represents and
warrants to Mortgagee that neither Mortgagor nor the holders of any beneficial
interests in Mortgagor are related to or affiliated with either of such employee
benefit plans or companies, nor to the parent companies, subsidiaries,
affiliates, officers, directors or major stockholders of such parent companies
such that Mortgagor or any such holder is a "party-in-interest" to any such
person or entity as that term is defined in ERISA Section 3(14), as that Section
3(14) may be interpreted or amended from time to time.
Notwithstanding any other provision in this Mortgage, Mortgagor
represents, warrants and covenants that, during the term of the loan evidenced
by the Loan Documents, no interest in the Security or in Mortgagor will be
transferred to any party-in-interest with respect to SA BETH or SA 5W without
the prior written approval of Mortgagee, which approval may be withheld if in
Mortgagee's sole judgment such transaction will cause a violation by Mortgagee
of any ERISA-related requirement.
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<PAGE>
Mortgagor agrees to indemnify and hold Mortgagee harmless from and
against any loss, cost, expense or damage (including, without limitation,
reasonable attorney's fees) resulting from a breach of the representations,
warranties covenants contained herein.
30. Waiver of Statutory Rights. Mortgagor agrees, to the full extent
--------------------------
permitted by law, that if an Event of Default occurs and is continuing on the
part of Mortgagor hereunder, neither Mortgagor nor anyone claiming through or
under Mortgagor will set up, claim, or seek to take advantage of any moratorium,
reinstatement, forbearance, appraisement, valuation, stay, homestead, extension,
exemption or redemption laws now or hereafter in force, in order to prevent or
hinder the enforcement or foreclosure of this Mortgage, or the sale of the
Security or the delivery of possession thereof immediately after such sale to
the purchaser at such sale, and Mortgagor, for itself and all who may at any
time claim through or under it, hereby waives to the full extent that it may
lawfully do so, the benefit of all such laws, and any and all rights to have the
assets subject to the security interest of this Mortgage marshalled upon any
foreclosure or sale under the power granted herein.
31. Security Interest. This Mortgage shall, as to any equipment and other
-----------------
Personal Property covered hereby, be deemed to constitute a security agreement,
and Mortgagor, as debtor, hereby grants to Mortgagee, as secured party, a
security interest therein pursuant to the Uniform Commercial Code as enacted in
the State of New Jersey. Mortgagor represents that its principal place of
business is located at 10400 Fernwood Road, Bethesda, Maryland and agrees that
it shall not change the same without the consent of Mortgagee. Mortgagor
further agrees, upon request of Mortgagee, to furnish an inventory of Personal
Property owned by Mortgagor and subject to this Mortgage and, upon request by
Mortgagee, to execute any supplements to this Mortgage, any separate security
agreement and any financing statements and continuation statements in order to
include specifically said inventory of Personal Property or otherwise to perfect
the security interest granted hereby. Upon the occurrence and continuance of
any Event of Default, Mortgagee shall have all of the rights and remedies
provided in said Code or otherwise provided by law or by this Mortgage,
including but not limited to the right to require Mortgagor to assemble such
Personal Property and make it available to Mortgagee at a place to be designated
by Mortgagee which is reasonably convenient to both parties, the right to take
possession of such Personal Property with or without demand and with or without
process of law and the right to sell and dispose of the same and distribute the
proceeds according to law. The parties hereto agree that any requirement of
reasonable notice shall be met if Mortgagee sends such notice to Mortgagor at
least ten (10) days prior to the date of sale, disposition or other event giving
rise to the required notice, and that the proceeds of any disposition of any
such Personal Property may be applied by Mortgagee first to the reasonable
expenses in connection therewith, including reasonable attorneys' fees and legal
expenses incurred, and then to payment of the Indebtedness. With respect to the
Personal Property that has become so attached to the Land that an interest
therein arises under the real property law of the State, this Mortgage shall
also constitute a financing statement and a fixture filing under the Uniform
Commercial Code as enacted in the State of New Jersey.
28
<PAGE>
32. Right of Entry. Mortgagee and Mortgagee's representatives may at all
--------------
reasonable times and upon reasonable prior notice to Mortgagor enter upon the
Security and inspect the same, or cause it to be inspected by agents, employees
or independent contractors of Mortgagee, and show the same to others, but
Mortgagee shall not be obligated to make any such entry or inspection.
Mortgagor, if it shall so elect, may have a representative of Mortgagor
accompany Mortgagee and its agents, employees and independent contractors in
such entry and inspection.
33. Estoppel Certificate. Mortgagor, within fifteen (15) days after
--------------------
written request from Mortgagee, will furnish a signed statement in writing, duly
acknowledged, of the amount then due or outstanding hereunder and whether or not
any offsets or defenses exist against the Indebtedness, and if so, specifying
such offsets and defenses. Upon request by Mortgagee, Mortgagor shall exercise
any right it may have to request an estoppel certificate from any or all of the
tenants on the Security within five (5) days following Mortgagee's request.
34. Annual Statements. Mortgagor shall, within one hundred twenty (120)
-----------------
days after the end of each fiscal year of Mortgagor, deliver to Mortgagee (a)
annual statements audited and certified by an independent certified public
accountant reasonably satisfactory to Mortgagee and prepared on a tax reporting
basis, showing in detail (1) a balance sheet of Mortgagor as of the last day of
such fiscal year, (2) a statement of earnings of Mortgagor for such fiscal year
showing, among other things, all rents and other income therefrom and all
expenses paid or incurred in connection with the operations of Mortgagor; (3) a
cash flow statement for Mortgagor; and (b) a statement signed by Mortgagor
listing all leases of space in the Improvements as of the last day of such
fiscal year, the respective areas demised thereunder, the names of the tenants,
the respective expiration dates of the leases, the respective rentals provided
for therein, and such other information as may reasonably be requested by
Mortgagee. Mortgagee will be added as addressee to any and all statements and
certifications, and provided with copies of any and all financial statements,
prepared by or for Mortgagor and/or Marriott Hotel Services, Inc. with respect
to the Security.
In addition, Mortgagor agrees upon request to provide Mortgagee (no
more frequently than monthly) with a Current Property Report of Periodic Profit
and Loss with respect to the Security, which report shall be certified on an
annual basis by the chief financial officer or a financial or accounting vice
president of Marriott Hotel Services, Inc.
Notwithstanding anything herein to the contrary, for so long as the
Mortgagor originally herein named shall be Mortgagor hereunder and there shall
be no Event of Default, under any of the Loan Documents, then in lieu of the
opinion from certified public accountants, Mortgagee will accept financial
statements containing the information set forth in the preceding two paragraphs,
in form and substance satisfactory to Mortgagee signed by Mortgagor's chief
accounting officer or authorized general partner.
Mortgagee shall afford any information received pursuant to this
Section 34 the same degree of confidentiality that Mortgagee affords similar
information proprietary to
29
<PAGE>
Mortgagee; provided, however, that Mortgagee does not in any way warrant or
represent that such information received from Mortgagor will remain
confidential, and, provided further, that Mortgagee shall have the unconditional
right to disclose, as necessary, any such information in the event Mortgagee
sells, transfers, conveys, or assigns the Mortgage or any portion of the
Indebtedness.
35. Rights Cumulative. Each right and remedy of Mortgagee under this
-----------------
Mortgage, the Note and any other Loan Documents, shall be in addition to every
other right and remedy of Mortgagee and such rights and remedies may be enforced
separately or in any combination.
36. Subrogation. To the extent that proceeds of the Indebtedness are used
-----------
to pay any outstanding lien, charge or encumbrance affecting the Security, such
proceeds have been advanced by Mortgagee at Mortgagor's request, and Mortgagee
shall be subrogated to all rights, interest and liens owned or held by any owner
or holder of such outstanding liens, charges and encumbrances, irrespective of
whether such liens, charges or encumbrances are released of record; provided,
however, that the terms and provisions hereof shall govern the rights and
remedies of Mortgagee and shall supersede the terms, provisions, rights, and
remedies under the lien or liens to which Mortgagee is subrogated hereunder.
37. No Waiver. Any failure by Mortgagee to insist upon the strict
---------
performance by Mortgagor of any of the terms and provisions hereof shall not be
deemed to be a waiver of any of the terms and provisions hereof, and Mortgagee,
notwithstanding any such failure, shall have the right thereafter to insist upon
the strict performance by Mortgagor of any and all of the terms and provisions
hereof to be performed by Mortgagor.
38. Mortgage Extension. The lien hereof shall remain in full force and
------------------
effect during any postponement or extension of the time of payment of the
Indebtedness, or of any part thereof, and any number of extensions or
modifications hereof, or any additional notes taken by Mortgagee, shall not
affect the lien hereof or the liability of Mortgagor or of any subsequent
obligor to pay the Indebtedness unless and until such lien or liability be
expressly released in writing by Mortgagee.
39. Indemnification. Mortgagor shall indemnify and hold Mortgagee harmless
---------------
from and against all obligations, liabilities, losses, costs, expenses, fines,
penalties or damages (including attorneys' fees) which Mortgagee may incur by
reason of this Mortgage or with regard to the Security prior to the exercise of
any remedies under this Mortgage. Mortgagor shall defend Mortgagee against any
claim or litigation involving Mortgagee for the same, and should Mortgagee incur
such obligation, liability, loss, cost, expense, fine, penalty or damage, then
Mortgagor shall reimburse Mortgagee upon demand. Any amount owed Mortgagee
under this provision shall bear interest from the date demand is made therefor
until paid at the Default Rate set forth herein and shall be secured hereby.
40. Limitations on Recourse. Except as hereinafter in this Section and in
-----------------------
Section 15 of the Note specifically provided, Mortgagor, Marriott Hanover Hotel
Corporation ("MHHC")
30
<PAGE>
and any other partners of the Mortgagor shall not be personally liable for the
payment of any sums due hereunder or the performance of any obligations of
Mortgagor hereunder or under any other Loan Document. No judgment for the
repayment of the Indebtedness and no action to foreclose this Mortgage, or to
collect any amount payable under the Loan Documents, or to satisfy any other
claim relating thereto, will be enforced against Mortgagor or MHHC or any other
partner of Mortgagor personally or any property of Mortgagor or MHHC or any
other partner of Mortgagor other than the Security and any other security
furnished under the Loan Documents in any action to foreclose this Mortgage or
to otherwise realize upon any security furnished under the Loan Documents or to
collect any amount payable under the Loan Documents. Notwithstanding the
foregoing:
(a) Nothing herein contained shall be construed as prohibiting
Mortgagee from exercising any and all remedies which the Loan Documents
permit, including the right to bring actions or proceedings against
Mortgagor and/or MHHC and/or any other general partner of Mortgagor and to
enter a judgment against Mortgagor and/or MHHC and/or any other general
partner in Mortgagor, so long as the exercise of any remedy does not extend
to execution against or recovery out of any property of Mortgagor and/or
MHHC and/or any other general partner other than the security furnished
under the Loan Documents;
(b) Mortgagor and MHHC and any other general partner of Mortgagor, but
not any limited partner of Mortgagor who is not also a general partner,
shall be fully and personally jointly and severally personally liable for
(i) misapplying any condemnation proceeds or insurance proceeds attributable
to the Security, to the full extent of such proceeds so misapplied, (ii)
misapplying any security deposits attributable to the Security, to the full
extent of such deposits so misapplied, (iii) collecting any Rents, Revenues
and any other revenues and income generated by the operation of the hotel on
the Real Property in advance in violation of any covenant contained in any
of the Loan Documents (except for deposits to hold advance room reservations
which occur in the ordinary course of business), to the full extent of such
Rents, Revenues and other revenues and income collected in advance, (iv)
committing fraud, misrepresentation or waste in connection with the
operation of the Security or the making of the loan evidenced hereby, to the
full extent of any remedies available at law or in equity not to exceed
Mortgagee's actual damages, except that no such limit shall apply or be
imposed if Mortgagor, or its general partner(s) intentionally commit(s)
fraud, misrepresentation or waste, (v) Gross Revenues (as defined in the
Hotel Management Agreement) are sufficient to pay any portion of the
Indebtedness, operating expenses, maintenance expenses, insurance premiums,
reserve escrow account deposits, sales and occupancy taxes, wages, salaries,
taxes and benefits relating to hotel employees, employment and withholding
taxes, or other sums required to be paid pursuant to the terms of the Loan
Documents, and Mortgagor fails to make any or all such payments or deposits
when due, all to the extent of any funds diverted from such obligations,
payments and/or expenses during the twelve (12) months prior to Mortgagee
notice of acceleration through the date Mortgagor takes title to the
Security; (vi) failing to pay real estate taxes and assessments
31
<PAGE>
which are a lien against the Real Property during the period of Mortgagor's
ownership at a time when there were sufficient Gross Revenues available to
pay all or any portion of such real estate taxes and assessments, to the
full extent of such unpaid taxes; and (vii) failing to maintain the
coverages and levels of insurance required under the Mortgage or any other
of the Loan Documents, to the extent that a casualty or other liability
occurs or arises and insurance proceeds would have been available had such
insurance coverages and levels been maintained, in the amount of the
difference between the actual insurance proceeds and the insurance proceeds
that would have been available had such levels and coverages of insurance
been maintained as required by the terms of the Mortgage;
(c) There shall be no limitation, in any event, of Mortgagor's personal
liability under, and the exercise of any of Mortgagee's rights under any
separate indemnity agreement from Mortgagor to Mortgagee including but not
limited to, the Environmental Indemnification Agreement of even date
herewith from Mortgagor and Marriott Hanover Hotel Corporation to Mortgagee
with regard to the Security except as may be expressly set forth therein;
(d) Nothing contained in this Section shall be deemed to prejudice the
rights of Mortgagee to proceed against any entity or person whatsoever,
including the Mortgagor, with respect to the enforcement of the Hotel
Management Agreement and any guarantees, leases, master leases, or similar
rights of payment.
41. Attorneys' Fees. Any reference to "attorney fees", "attorneys' fees",
---------------
or "attorney's fees" in this document includes but is not limited to both the
fees, charges and costs incurred by Mortgagee through its retention of outside
legal counsel and paralegals and the allocable reasonable fees and all costs and
charges for services rendered by Mortgagee's in-house or staff counsel and
paralegals. Any reference to "attorney fees", "attorneys' fees", or "attorney's
fees" shall also include but not be limited to those attorneys or legal fees,
costs and charges incurred by Mortgagee in the collection of any of the
Indebtedness, the enforcement of any obligations hereunder, the protection of
the Security, the foreclosure of this Mortgage, the sale of the Security, the
defense of actions arising hereunder and the collection, protection or set-off
of any claim the Mortgagee may have in a proceeding under Title 11, United
States Code. Attorneys' fees provided for hereunder shall accrue whether or not
Mortgagee has provided notice of default or of an intention to exercise its
remedies for such default.
42. Administrative Costs. Mortgagee shall have the right to charge costs
--------------------
actually incurred by Mortgagee related to architects, engineers, attorneys, and
the like, engaged by Mortgagee, in its sole reasonable discretion, in connection
with any servicing requests made by Mortgagor requiring Mortgagee's evaluation,
preparation and processing of any such requests. Such costs shall not be
charged for routine servicing matters contemplated by the Loan Documents
including, without limitation: processing payments; processing insurance and
UCC continuation documentation; processing escrow draws; review of tenant
leases, subordination non-disturbance and attornment agreements and tenant
estoppels on standard
32
<PAGE>
forms approved by Mortgagee without material modifications. Such costs shall
apply without limitation to requests for matters not permitted or contemplated
by the Loan Documents (including, without limitation: requests for transfers or
assignments, requests for partial releases; requests for review of new
easements), and to requests, which, while contemplated by the Loan Documents,
because of the nature of the request, will require significantly more time than
an institutional lender, acting reasonably, would contemplate for such request
(including without limitation, requests for the approval of tenant leases,
tenant estoppels and enant subordination, non-disturbance and attornment
agreements which contain material differences from Mortgagee's standard forms).
43. Protection of Security; Costs and Expenses. Mortgagor shall appear in
------------------------------------------
and defend any action or proceeding purporting to affect the security hereof or
the rights or powers of the Mortgagee, and shall pay all costs and expenses,
including without limitation cost of evidence of title and reasonable attorneys'
fees, in any such action or proceeding in which Mortgagee may appear, and in any
suit brought by Mortgagee to foreclose this Mortgage or to enforce or establish
any other rights or remedies of Mortgagee hereunder. If an Event of Default
shall exist hereunder, or if any action or proceeding is commenced which affects
Mortgagee's interest in the Security or any part thereof, including, but not
limited to, eminent domain, code enforcement, or proceedings of any nature
whatsoever under any federal or state law, whether now existing or hereafter
enacted or amended, relating to bankruptcy, insolvency, arrangement,
reorganization or other form of debtor relief, or to a decedent, then Mortgagee
may, but without obligation to do so and upon contemporaneous notice to but
without demand upon Mortgagor and without releasing Mortgagor from any
obligation hereunder, make such appearances, disburse such sums and take such
action as Mortgagee deems necessary or appropriate to protect Mortgagee's
interest, including, but not limited to, disbursement of reasonable attorneys'
fees, entry upon the Security to make repairs or take other action to protect
the security hereof, and payment, purchase, contest or compromise of any
encumbrance, charge or lien which in the judgment of Mortgagee appears to be
prior or superior hereto. Mortgagor further agrees to pay all reasonable
expenses of Mortgagee (including without limitation fees and disbursements of
counsel) incident to the protection of the rights of Mortgagee hereunder, or to
enforcement or collection of payment of the Indebtedness, whether by judicial or
non-judicial proceedings, or in connection with any bankruptcy, insolvency,
arrangement, reorganization or other debtor relief proceeding of Mortgagor, or
otherwise. Any amounts disbursed by Mortgagee pursuant to this Section shall be
additional indebtedness of Mortgagor secured by the Loan Documents as of the
date of disbursement and, if not paid within five (5) Business Days after
demand, shall bear interest from the date demand is made therefor until paid at
the Default Rate. All such amounts shall be payable by Mortgagor within five
(5) Business Days after demand. Nothing contained in this Section shall be
construed to require Mortgagee to incur any expense, make any appearance, or
take any other action.
44. Notices. Any notice, demand, request, statement or consent made
-------
hereunder shall be in writing, signed by the party giving such notice, request,
demand, statement, or consent, and shall be deemed to have been properly given
when either delivered personally,
33
<PAGE>
delivered to a reputable overnight delivery service providing a receipt or
deposited in the United States mail, postage prepaid and registered or certified
return receipt requested, in each case to the other party hereto at its address
set forth below, or at such other address within the continental United States
of America as such party may have theretofore designed in writing pursuant to
this Section. The effective date of any notice given as aforesaid shall be the
date of personal service, one (1) Business Day after delivery to such overnight
delivery service, or five (5) Business Days after being deposited in the United
States mail, whichever is applicable. For purposes hereof, the addresses are as
follows:
If to Mortgagee:
Connecticut General Life Insurance Company
/p/ CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, CT 06152-2319
Attention: Investment Services, S-319
with a copy to:
CIGNA Corporation
Investment Law Department
900 Cottage Grove Road
Hartford, CT 06152-2215
Attention: Real Estate Division, S-215A
If to Mortgagor:
Hanover Marriott Limited Partnership
/p/ Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Treasurer
With a copy to:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Law Department
45. Release. Upon the satisfaction in full of the Indebtedness, Mortgagee
-------
shall release of record the Security from the lien hereof and shall surrender
this Mortgage and all notes evidencing indebtedness secured by this Mortgage to
Mortgagor. Mortgagor shall pay all costs of recordation.
34
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46. Applicable Law. The provisions hereof shall be construed in accordance
--------------
with the laws of the State of New Jersey.
47. Invalidity. If any provision of this Mortgage shall be held invalid or
----------
unenforceable, the same shall not affect in any respect whatsoever the validity
of the remainder of this Mortgage, except that if such provision relates to the
payment of a monetary sum, then the Mortgagee may, at its option, declare the
Indebtedness due and payable upon sixty (60) days prior written notice to
Mortgagor and, provided there exists no Event of Default hereunder, without
prepayment fee or premium.
48. Captions. The captions in this instrument are inserted only as a
--------
matter of convenience and for reference, and are not and shall not be deemed to
be any part hereof.
49. Modifications. This Mortgage may not be changed or terminated except
-------------
in writing signed by both parties. The provisions of this Mortgage shall extend
and be applicable to all renewals, amendments, extensions, consolidations, and
modifications of the other Loan Documents, and any and all references herein to
the Loan Documents shall be deemed to include any such renewals, amendments,
extensions, consolidations or modifications thereof.
50. Bind and Inure. The provisions of this Mortgage shall be binding on
--------------
the Mortgagor and its heirs, successors and assigns, and any subsequent owners
of the Security. The covenants of Mortgagor herein shall run with the land, and
this Mortgage and all of the covenants herein contained shall inure to the
benefit of the Mortgagee, its successors and assigns.
51. Replacement of Note. Upon receipt of evidence reasonably satisfactory
-------------------
to Mortgagor of the loss, theft, destruction or mutilation of the Note, and in
the case of any such loss, theft or destruction, upon delivery of an indemnity
agreement reasonably satisfactory to Mortgagor or, in the case of any such
mutilation, upon surrender and cancellation of the Note, Mortgagor will execute
and deliver, in lieu thereof, a replacement Note, identical in form and
substance to the Note and dated as of the date of the Note and upon such
execution and delivery all references in this Mortgage to the Note shall be
deemed to refer to such replacement Note.
52. Time of the Essence. Time is of the essence with respect to the
-------------------
intent, meaning, construction and enforcement of each and every covenant,
agreement and obligation of Mortgagor under this Mortgage, the Note and all of
the other Loan Documents.
53. Business Day. The terms "Business Day" and "Business Days" as used in
------------
this Mortgage shall mean any calendar day other than a Saturday, a Sunday or a
Federal holiday on which the U.S. Postal Service offices are closed for business
in one or more of Bethesda, Maryland, Hanover, New Jersey or Hartford,
Connecticut.
<PAGE>
54. Copy of Mortgage. Mortgagor acknowledges receipt of a true copy of
----------------
this Mortgage without charge.
IN WITNESS WHEREOF, Mortgagor has duly executed this Mortgage as of
the date hereinabove set forth in the presence of:
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MORTGAGOR:
HANOVER MARRIOTT LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Marriott Hanover Hotel Corporation,
a Delaware corporation,
its sole general partner
By P.K. Brady
---------------------------------------------
Name: Patricia K. Brady
Title: Vice President
ACKNOWLEDGMENT
--------------
STATE OF Maryland )
- -----------------
:ss
COUNTY OF Montgomery )
I, Susan B. Savits, hereby certify that Patricia K. Brady, a Vice
President of MARRIOTT HANOVER HOTEL CORPORATION, personally known to me,
personally came before me and acknowledged under oath to my satisfaction that:
(a) s/he is a Vice President of MARRIOTT HANOVER HOTEL CORPORATION,
the sole general partner of HANOVER MARRIOTT LIMITED PARTNERSHIP,
the partnership named in the foregoing Borrower's Certificate,
and
(b) s/he signed this document, on behalf of the corporation on behalf
of said partnership, as its voluntary act duly authorized by all
the board of directors of said corporation for the purposes
expressed therein.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this 14th day of August, 1997.
Susan B. Savits
--------------------------------------
Susan B. Savits
Notary Public of the State of Maryland
My commission expires 2-16-99.
36
<PAGE>
EXHIBIT A
---------
Legal Description
-----------------
ALL that certain tract, parcel and lot of land lying and being situate in
the Township of Hanover, County of Morris, State of New Jersey, being more
particularly described as follows:
BEGINNING at a point in the present southwesterly side of New Jersey State
Highway Route 10 at a point where the westerly line of the premises to be
described and the easterly line now or formerly of Newark Milk and Cream Company
intersects said sideline of Route 10 and running; thence
(1) South 60 Degrees 59 Minutes 12 Seconds East and along the side of Route
10,774.32 feet to the corner of lands now or formerly of Melvin and Irene
Wykoff, his wife; thence
(2) South 29 Degrees 00 Minutes 48 Seconds West 178.12 feet; thence
(3) Still along lands South 60 Degrees 59 Minutes 12 Seconds East 211.0 feet
to line of Lands of Iron Investment Corp., et. als., lands along the same;
thence
(4) The same South 12 Degrees 09 Minutes 55 Seconds West 432.86 feet to a
point; thence
(5) North 81 Degrees 54 Minutes 29 Seconds West 181.92 feet to a point;
thence;
(6) North 61 Degrees 11 Minutes 56 Seconds West 760.78 feet to a point in
line of Lands of Newark Milk and Cream Company; thence
(7) Along the same North 13 Degrees 45 Minutes 24 Seconds East 684.30 feet
to the point and place of BEGINNING.
TOGETHER with access to and egress from said premises by way of a 50
foot wide easement as set forth on filed map no. 3826 and further described as
follows:
Beginning at an angle point in the northerly line of Tax Lot 4, Block
1101 as shown on the tax map of the Township of Hanover, Morris County, New
Jersey, said point being further described as being South 61 Degrees 11 Minutes
56 Seconds East, 436.92 feet from the Northwest Corner of said Lot 4 as shown on
a map entitled "Map of Hanover Park for Industry", dated November 30, 1978 by
Stephen A. Jarombek of Montville, New Jersey and filed in the Morris County
Clerk's Office as filed map number 3826, and running thence
37
<PAGE>
1. Through said Lot 4, South 12 Degrees 44 Minutes 34 Seconds West,
33.54 Feet to a Point on the Northerly End of Wing Drive, 50 Feet Wide as shown
on said filed map, thence,
2. Along the end of Wing Drive, North 86 Degrees 11 Minutes 36
Seconds West, 34.73 feet to a point of curvature; thence
3. Continuing along Wing Drive on a curve to the left with a radius
of 60.00 feet, an arc length of 16.44 feet, said curve having a chord of South
85 Degrees 57 Minutes 30 Seconds West, 16.39 feet; thence
4. Through Lot 4, 50 feet West of and parallel to the first course
above, North 12 Degrees 44 Minutes 34 Seconds East, 58.06 feet to a point on the
Southerly Line of Lot 13, Block 1002 as shown on said Tax Map; thence
5. Along said line, South 61 Degrees 11 Minutes 56 Seconds East,
52.03 feet to the point and place of BEGINNING.
38
<PAGE>
EXHIBIT B
---------
SUBORDINATE DEBT REQUIREMENTS
Prior to closing Mortgagor shall provide Mortgagee with each of the following
with respect to any existing/proposed single, subordinate debt in form and
substance satisfactory to Mortgagee in its sole reasonable discretion, providing
for, among other things:
1. An Intercreditor and Subordination Agreement between Mortgagee, each holder
of the subordinate debt (collectively the "Subordinate Mortgagee") and
Mortgagor, with respect to any and all loan documents, agreements and
instruments under all tiers of subordinate financing (collectively the
"Subordinate Loan Documents"), providing, among other things that:
A. The Subordinate Loan Documents shall be and remain at all times
subject and subordinate in every respect to the lien, terms and
conditions of Mortgagee's loan documents. The Subordinate Mortgagee
shall have no right to exercise any rights or remedies under the
Subordinate Loan Documents at law or in equity unless and until the
Mortgagee's indebtedness is fully satisfied, provided that Mortgagee
shall as part of the Intercreditor and Subordination Agreement give
Subordinate Mortgagee contemporaneous notice of any default and the
same grace and/or cure period as Mortgagor may have under Mortgagee's
loan documents, if any, in which to cure any default;
B. Until the Mortgagee's indebtedness is fully satisfied (i) Mortgagee
shall have the right to vote the full amount of the loans secured by
the Subordinate Loan Documents and, in connection therewith, to file
any claims of the Subordinate Mortgagee with respect to any plan of
reorganization, compromise, settlement or other bankruptcy related
proceedings with respect to the Mortgagor, and (ii) during the
pendency of any bankruptcy proceedings of the Mortgagor or the
Subordinate Mortgagee, or of both, Mortgagee shall be deemed the owner
of each of the notes which are included within the Subordinate Loan
Documents and shall be deemed the duly authorized agent of the holder
of the Subordinate Loan Documents (coupled with an interest) with
respect to any bankruptcy and insolvency proceedings of the Mortgagor
or of the Subordinate Mortgagee, or of both;
C. Until the Mortgagee's indebtedness is fully satisfied, (i) either
acceleration of the indebtedness under the Subordinate Loan Documents
or commencement of foreclosure proceedings by the Subordinate
Mortgagee shall constitute an Event of Default under the Mortgagee's
loan documents; (ii) Subordinate Mortgagee may not institute
foreclosure, insolvency or enforcement proceedings pursuant to the
Subordinate Loan Documents (provided that Subordinate Mortgagee may
39
<PAGE>
accelerate the indebtedness under the Subordinate Loan Documents
without exercising any other remedies thereunder); (iii) Upon the
occurrence of an Event of Default, no payments will be collected or
retained by Subordinate Mortgagee pursuant to the Subordinate Loan
Documents; (iv) Subordinate Mortgagee will join with Mortgagee at
Mortgagee's request in any proceedings to lift any stay imposed by any
court preventing or delaying any foreclosure pursuant to Mortgagee's
loan documents; (v) Subordinate Mortgagee will not take an adverse
position to Mortgagee in any bankruptcy, insolvency or foreclosure
proceeding involving the Mortgagor or the Real Property, or both.
D. The Subordinate Mortgagee shall have no right to amend the Subordinate
Loan Documents without Mortgagee's prior written consent, provided
that Mortgagee's approval of amendments which are non-material in
Mortgagee's sole reasonable opinion shall not be unreasonably withheld
or delayed.
E. If there are any option rights or other benefits (e.g. (i) purchase of
the property, or of any interest therein, or (ii) purchase of any
direct or indirect interest in Mortgagor, or (iii) with respect to
transfer of any of any rights, easements, licenses or agreements (iv)
with respect to or arising out of any of the Subordinate Loan
Documents and/or any modification, termination, extension or
replacement of the Subordinate Loan Documents), all rights and
benefits accruing thereunder to the benefit of Subordinate Mortgagee,
or the Mortgagor, or both, or to any of their respective parents,
subsidiaries, affiliates or other entities directly or indirectly
under common control or ownership, will also be assigned to Mortgagee
pursuant to an of-record, present, absolute and unconditional
Assignment, Pledge and Security Agreement; provided, however, that a
revocable license shall be granted to the Subordinate Mortgagee
providing for its exercise of any rights and benefits so long as no
Event of Default occurs under the Loan Documents, together with
reasonable assurances from the Mortgagor and confirmation from all
other parties thereto that the same are assignable and will have been
properly assigned to Mortgagee), which assignment shall automatically
terminate upon full satisfaction of Mortgagee's indebtedness.
F. The Subordinate Mortgagee shall only be permitted to sell, assign or
transfer any of its interest in the Subordinate Loan Documents so long
as each of the following conditions precedent are satisfied: (i) no
Event of Default exists under Mortgagee's loan documents, (ii)
Mortgagee is given at least (20) twenty business day's written notice
of any proposed transfer, which notice shall include a reasonably
detailed description of the proposed transfer and all reasonably
relevant information regarding the proposed transferee, (iii) the
transfer provides for the transfer of the entire interests of the
holder of the Subordinate Loan Documents to a single transferee, (iv)
the transfer documents expressly prohibit any further transfers which
do not meet all of the same
40
<PAGE>
requirements as are applicable to such initial transfer, (v) the
transferee expressly assumes, ratifies and reaffirms for Mortgagee all
of the obligations and agreements between the Subordinate Mortgagee
and Mortgagee, (vi) the transferee is solvent, (vii) the proposed
transferee is not at the time of the transfer an adverse party to
CIGNA Corporation (or any of its direct or indirect affiliates or
subsidiaries) in any litigation, arbitration or other similar
proceedings, (viii) any proposed transferee must be a United States of
America based domestic United States of America entity, (ix) the
Mortgagor or the Subordinate Mortgagee agrees to pay all of
Mortgagee's costs and expenses associated with any proposed transfer,
including but not limited to, reasonable attorneys' fees, (x) such
other reasonable assurances as Mortgagee may reasonably require at the
time to carry out the intent and purpose of these Subordinate Debt
Requirements under the then existing facts and circumstances.
G. The lien, terms and conditions of the Subordinate Loan Documents shall
be made expressly subordinate to the terms and conditions of the Hotel
Management Agreement and Subordinate Mortgagee shall have no right to
amend or to consent to the amendment, modification, replacement or
termination of the Hotel Management Agreement without the prior
written consent of Mortgagee in the exercise of its sole and absolute
discretion. All rights and benefits in any way arising out of or
relating to the Hotel Management Agreement accruing to the benefit of
Subordinate Mortgagee, or to any of its parents, subsidiaries,
affiliates or other entities directly or indirectly under common
control or ownership, will also be assigned to Mortgagee pursuant to
an of-record, present, absolute and unconditional Assignment, Pledge
and Security Agreement, which assignment shall automatically terminate
upon full satisfaction of Mortgagee's indebtedness.
2. An of-record present, absolute and unconditional subordination of all of the
terms and conditions of the Subordinate Loan Documents to the terms and
conditions of Mortgagee's loan documents, together with an off-record
present, absolute and unconditional assignment of all of Subordinate
Mortgagee's right, title and interest in, to and under the Subordinate Loan
Documents, plus a revocable license from Mortgagee back to Subordinate
Mortgagee to allow the Subordinate Mortgagee to collect and/or receive the
rents and revenues and to deal with the tenants and the business operations
on the Real Property as the landlord under the leases and the owner of the
Real Property under the Hotel Management Agreement, which license shall be
revocable by Mortgagee either (i) during the existence of an uncured Event
of Default under Mortgagee's loan documents, or (ii) at any time after
acceleration of the maturity date pursuant to Mortgagee's loan documents.
Notwithstanding the foregoing, in the event that Mortgagee revokes any
license from Mortgagee to Subordinate Mortgagee, in no event shall Mortgagee
seek to recover from Mortgagor an amount greater than the total indebtedness
owed under Mortgagee's loan documents; provided that Mortgagee shall
41
<PAGE>
have the option to collect such amount under either or both of the
Mortgagee's loan documents and/or the Subordinate Loan Documents.
3. In addition to the foregoing, and without compromising the integrity of the
absolute assignment provided above, Subordinate Mortgagee shall execute for
the benefit of Mortgagee a pledge of any and all of the Subordinate
Mortgagee's interest in, to and under the security and the Subordinate Loan
Documents without any exceptions, which pledge shall automatically terminate
upon full satisfaction of Mortgagee's indebtedness. Subordinate Mortgagee
shall take such steps and execute such documents as are required by
Mortgagee to provide Mort gagee with a perfected security interest in such
collateral.
4. Evidence reasonably satisfactory to Mortgagee's counsel that appropriate
alonges and endorsements have been attached to and made on all notes related
to the indebtedness evidenced and secured by the Subordinate Loan Documents
so as to evidence their present, absolute and unconditional assignment and
pledge to Mortgagee.
5. Mortgagee shall not institute foreclosure proceedings under the Subordinate
Loan Documents unless Mortgagee is simultaneously instituting foreclosure
proceedings under the Mortgagee's loan documents; provided that Mortgagee
shall in no event be required to institute foreclosure proceedings under the
Subordinate Loan Documents, whether or not foreclosure proceedings have been
instituted under Mortgagee's loan documents.
6. Mortgagee shall not, for so long as the Mortgagee's loan documents remain in
effect, assign or otherwise transfer the Subordinate Loan Documents other
than in connection with a simultaneous assignment or transfer of the
Mortgagee's loan documents to the same assignee or transferee. Any assignee
or transferee of Mortgagee's interest in the Subordinate Loan Documents
shall be subject to the provisions set forth in this Exhibit C and intended
to be encompassed in written documents to be executed and delivered in
connection with the closing of the Loan.
7. Without compromising the integrity of the absolute assignment of the
Subordinate Loan Documents as provided above, Mortgagee shall, upon the
final and absolute payment in full of all amounts due and payable to
Mortgagee in connection with the Loan and at the written request of
Subordinate Mortgagee, reassign the Subordinate Loan Documents to
Subordinate Mortgagee or its designee, which reassignment shall be without
representation, recourse or guaranty.
42
<PAGE>
EXHIBIT C
---------
RENOVATION WORK
[LOGO OF MARRIOTT INTERIOR
DESIGN APPEARS HERE] Memorandum
TO: Bob McCarthy cc: Distribution
FROM: Corinne Densham
DATE: May 23, 1997
Revision #1 July 9, 1997
CC: Distribution
- --------------------------------------------------------------------------------
SUBJECT: HANOVER MARRIOTT
ROOMS RENOVATION - Y175
SCOPE OF WORK
A. A site survey was conducted on April 28 to May 1, 1997 by the A & C and
Operations team listed below to determine the Scope of Work for a
Standard Series 2000 softgoods and casegoods renovation of:
. 346 Guestrooms
. 8 Suites
. Guestrooms Corridors
B. Specific requirements for this project are:
1. Color boards required for Guestrooms and Suites.
2. Operations request construction start of January, 1998 through March,
1998.
3. Construction Management by A & C.
4. The design scheme will be based on the "Series 2000" decor package
which was presented to and reviewed by Operations and the Owner at
the time of the survey.
5. Interior Design recommends the "Series 2000" casegoods be provided in
a "light mahogany" finish which will compliment the finish of the
existing "Room That Works" package.
6. The existing 87 RTW desks and built-in lamps, plus the new "Tech
2000" lamps for the rest of the rooms will remain.
7. In accordance with Brand Standards, all armoire units will be
specified to accommodate a refrigerator which will be supplied by the
Property.
8. The Property currently has 14 accessible rooms of which 2 will be
converted to have roll-in showers. The remainder will be brought into
general compliance where technically feasible.
9. Existing circleline bulbs will be reused in the nightstand lamps and
floor lamps.
C. This Scope will become the basis of work to be performed at the Property.
The estimate derived from it, upon approval by the Regional Vice
President, will become the basis for the project budget.
PARTICIPANTS:
- -------------
Walt Ensminger - General Manager
Bruce MacLellan - Vice President, Market Manager
Corinne Densham - Interior Design
Mike Campbell - Design Management
Mike Hayden - Estimating
DISTRIBUTION:
- -------------
Operations: A & C:
- ----------- -----
Walt Ensminger - GM Kristin Smith Mike Hayden
Pat Maher - RE Amy Bechtel Rod Dornbusch
Jim Bystrak - DE Cathy Parent Cecile Kirkpatrick
Mike Campbell Essy Dilmaghani
Jill Robbins-Jabine
Host:
- -----
Kris Marshall
Patti Brady
Belinda Simmons
1 REVISED TO CLARIFY ROOM COUNT.
43
<PAGE>
Hanover Marriott Rooms Renovation Page 3
Scope of Work - YT75 Revision #1 July 9, 1997
ROOM MIX COUNT
--------------
Rev. 1: GD= 77 Typical Double Double
CDD = 69 Concierge Double Double
GK = 75 Typical King
CK = 22 Concierge King
KB = 3 Lateral King
CKB = 3 Concierge Lateral King
KW = 20 King with RTW
CKW = 62 Concierge King with RTW
AK = 6 Accessible King
CAK = 2 Concierge Accessible King
AKW = 4 Accessible King with RTW
CAKW = 2 Concierge Accessible King with RTW
CLPK = 1 Presidential Suite King
CRSS = 4 Sleeping Suite
CRHS = 3 Hospitality Suite
CLPS = 1 Presidential Suite
TOTAL = 354 Rooms in Project
<PAGE>
Hanover Marriott Rooms Renovation Page 4
Scope of Work - YT75 Revision #1 July 9, 1997
I. TYPICAL AND CONCIERGE GUESTROOMS
--------------------------------
A. Ceiling: (Height: 8'-0")
-------
1. Repaint textured ceiling.
2. Retexture 10% of textured ceilings.
3. Repaint textured ceiling in foyer (height: 8'-0").
4. Remove existing draperies and cornices. Existing hardware to remain.
Add new hardware for side panels.
B. Walls:
-----
1. Remove vinyl wallcovering to gypsum board, prepare wall surfaces and
install new vinyl wallcovering.
2. Install vinyl border.
3. Repaint entry and connector metal door frames, both sides.
4. Remove existing sound/smoke seals and provide new.
5. Remove, clean, repaint and reinstall HVAC unit covers.
6. Remove, clean, repaint and reinstall all non-aluminum grilles and
vents.
7. Remove, clean, and reinstall aluminum grilles and vents.
8. Touch-up plastic laminate doors as necessary.
9. Existing mirrored sliding closet doors to remain.
10. Evac. plaques to remain.
11. Remove existing and provide new full height 8'-0" corner guards (3 per
room).
12. Provide the following modifications or new electrical receptacles and
telephone jacks for each room type noted below:
<PAGE>
Hanover Marriott Rooms Renovation Page 5
Scope of Work - YT75 Revision #1 July 9, 1997
a. In all king rooms, replace existing duplex electrical receptacle
with quad rececptacle. In room type KB (3) and CKB (3) provide new TV
and duplex electrical receptacles at new workstation location.
b. In all double/doubles, provide a new duplex electrical receptacle
and relocate existing phone jack to new workstation location.
13. Remove existing closet rack and replace with new closet rack.
Operations to provide new hangers.
14. Raise existing welcome light and junction box to comply with ADA
guidelines. Top of the welcome light to line up with top of guest
bathroom door frame, a minimum of 80" AFF.
15. Provide sealant where vinyl wallcovering abuts door and window frames.
C. Floor:
-----
1. Remove existing carpet and pad.
2. Provide new carpet and pad.
Carpet: Nylon
Pad: Badger
Installation: Stretch-in
D. FF&E:
----
1. Touch-up all existing RTW units.
2. Existing signage to be remain.
3. Provide new box spring covers for installation by Operations on
Concierge floors.
4. Provide new bedspreads for installation by Operations.
5. Provide new artwork.
6. Provide new draperies, sheers, and cornices. Provide new hardware for
stationary panels only.
7 Provide new fluorescent bulbs for new lamps.
<PAGE>
Hanover Marriott Rooms Renovation Page 6
Scope of Work - YT75 Revision #1 July 9, 1997
E. FF&E List:
---------
1 GD: Typical Double/Double (77)
1 CDD: Concierge Double/Double (69)
a) New:
---
1) Carpet and pad
2) Fixed side panels and ties, blackout lining, sheers
3) Cornice
4) Drapery hardware for stationary panels
5) Bedspread 54" wide x 21" drop (2)
6) Mattress (2)
7) Boxspring (2)
8) Headboard (2)
9) Nightstand (1)
10) Lounge chair (1)
11) T.V. armoire (1) Fridge by Property
12) Executive desk chair (1)
13) Writing desk with drawers (1)
14) 22" diameter side table (1)
15) Floor lamp with shade (1)
16) Nightstand lamp with shade (1)
17) Mirror (1)
18) Artwork (2)
19) Shower curtain, l part (1)
20) Vanity light (5'-0" vanity) (1)
Note: Additional for Concierge:
21) Pillow shams (2)
22) Boxspring covers (2)
23) Shower curtain, 2 part (1)
b) Existing to remain:
------------------
1) Tech 2000 lamp with shade (1)
2) Welcome light (1)
3) Bedframe (2)
<PAGE>
Hanover Marriott Rooms Renovation Page 7
Scope of Work - YT75 Revision #1 July 9, 1997
c) To be liquidated:
----------------
1) Bedspread (2)
2) Mattress (2)
3) Boxspring (2)
4) Headboard (2)
5) Nightstand (1)
6) Lounge chair (2)
7) Dresser (1)
8) Desk (1)
9) Desk chair (1)
10) 32" diameter table (1)
11) Floor lamp with tray (1)
12) Nightstand lamp (1)
13) Mirror (1)
14) Artwork (2)
<PAGE>
Hanover Marriott Rooms Renovation Page 8
Scope of Work - YT75 Revision #1 July 9, 1997
D. FF&E List:
---------
1 GK: Typical King (75)
1 CK: Concierge King (22)
KB: Lateral King (3)
CKB: Concierge Lateral King (3)
a) New:
---
1) Carpet and pad
2) Fixed side panels and ties, blackout lining, sheers
3) Cornice
4) Drapery hardware for stationary side panels.
5) Bedspread 72"wide x 2l"drop (1)
6) Mattress (1)
7) Boxspring (2)
8) Headboard (1)
9) Nightstand (2)
10) Lounge chair (1)
11) Ottoman (1)
12) Executive desk chair (1)
13) Writing desk (1)
14) Desk console (1)
15) T.V. armoire (1) Fridge by Property
16) 22" diameter side table (1)
17) Floor lamp with shade (1)
18) Nightstand lamp with shade (2)
19) Mirror (1)
20) Artwork (2)
21) Shower curtain, l part (1)
22) Vanity light (1)
Note: Additional for Concierge Level:
23) Pillow shams (2)
24) Boxspring covers (1)
25) Shower curtain, 2 part (1)
b. Existing to remain:
------------------
1) Tech 2000 lamp with shade (1)
2) Welcome light (1)
3) Bedframe (1)
<PAGE>
Hanover Marriott Rooms Renovation Page 9
Scope of Work - YT75 Revision #1 July 9, 1997
c. To be liquidated:
----------------
1) Bedspread (1)
2) Mattress (1)
3) Boxsprings (2)
4) Headboard (1)
5) Nightstand (2)
6) Lounge chair (1)
7) Ottoman (1)
8) Dresser (1)
9) Desk (1)
10) Desk chair (1)
11) Floor lamp w/ tray and shade (1)
12) Nightstand lamp w/shade (2)
13) Dresser lamp w/shade (1)
14) Mirror (1)
15) Artwork (3)
<PAGE>
Hanover Marriott Rooms Renovation Page 10
Scope of Work - YT75 Revision #1 July 9, 1997
E. FF&E List:
---------
1 KW: Typical King with RTW (20)
CKW: Concierge King with RTW (62)
a) New:
---
1) Carpet and pad
2) Fixed side panels and ties, blackout lining, sheers
3) Cornice
4) Drapery hardware for stationary panels
5) Bedspread 72" wide x 2l" drop (1)
6) Mattress (1)
7) Boxspring (2)
8) Headboard (1)
9) Nightstand (1)
10) Lounge chair (1)
11) Ottoman (1)
12) T.V. armoire (1) Fridge by Operations
13) 22" diameter side table (1)
14) Floor lamp with shade (1)
15) Nightstand lamp with shade (2)
16) Mirror (1)
17) Artwork (2)
18) Shower curtain, l part (1)
19) Vanity light (1)
Note: Additional for Concierge Level:
20) Pillow shams (2)
21) Shower curtain, 2 part (1)
22) Boxspring cover (1)
b. Existing to remain:
------------------
1) RTW package, (1)
including executive chair
2) Welcome light (1)
3) Bedframe (1)
<PAGE>
Hanover Marriott Rooms Renovation Page 11
Scope of Work - YT75 Revision #1 July 9, 1997
c. To be liquidated:
----------------
1) Bedspread (1)
2) Mattress (1)
3) Boxsprings (2)
4) Headboard (1)
5) Nightstand (2)
6) Lounge chair (1)
7) Ottoman (1)
8) Dresser (1)
9) Old desk chair (1)
10) Floor lamp w/tray and shade (1)
11) Nightstand lamp w/ shade (2)
12) Dresser lamp w/shade (1)
13) Mirror (1)
14) Artwork (3)
<PAGE>
Hanover Marriott Rooms Renovation Page 12
Scope of Work - YT75 Revision #1 July 9, 1997
II. TYPICAL AND CONCIERGE GUEST BATHS
---------------------------------
A. Ceiling: (Height 7'-0")
-------
1. Repaint existing gypsum board ceiling.
2. Do not paint light fixture trim rings.
3. Remove, clean, repaint and reinstall all non-aluminum grilles, vents
and access panels.
4. Existing heat lamp to remain.
5. Existing sprinkler heads to remain.
B. Walls:
-----
1. Remove vinyl wallcovering to gypsum board, prepare wall surfaces and
install new vinyl wallcovering.
2. Repaint metal door frame, both sides.
3. Remove existing silencers and provide new.
4. Remove, clean, repaint and reinstall all non-aluminum grilles and
vents.
5. Repaint previously painted plastic laminated doors.
6. Remove exiting faucet and provide new, complete with pop-up drain
assembly.
7. Provide new mirror side mirrors to align with edge of vanity on both
sides. Allowance for 10% of mirror breakage due to removal of light
valance.
8. Remove existing light cove valance (wood) and fluorescent light
fixture. Relocate junction box from ceiling to wall, patch and
repair wall surface to match adjacent surfaces and provide new
decorative fluorescent fixture with electronic ballast.
9. Existing white wall tub surround tile to remain.
10. Existing wall tile to remain.
11. OPTION: In bathrooms with peach colored tile, remove and provide new
wall tile. (_ Total)
<PAGE>
Hanover Marriott Rooms Renovation Page 13
Scope of Work - YT75 Revision #1 July 9, 1997
12. Provide new sealant where vinyl wallcovering abuts door frame and
ceramic tile.
13. Existing towel bars to remain.
14. Existing towel rack to remain.
15. Remove existing vinyl base and provide new (__% of Guestbaths).
Where we are changing the floor tile, provide and install new ceramic
tile base.
16. Remove existing shower curtain chain hooks and provide plastic sleeve
over existing rod with new shower curtain rings.
17. Existing wall mounted hair dryer to remain.
18. Remove existing and provide new ivory coverplates.
C. Floors:
------
1. Existing floor tile to remain.
2. OPTION: Remove existing and provide new floor tile including new
ceramic tile base.
3. Clean and regrout floor tile as needed.
4. Remove existing and re-caulk base of water closet and tub at juncture
with floor tile.
D. FF & E:
------
1. Provide new shower curtain for installation by Operations.
E. FF&E List:
---------
Typical and Concierge Guestbaths
a. New:
---
1) Shower curtain
2) Vanity light
3) Note: Floors #6, 7 and 8 will have 2 part shower curtains.
All other floors will have 1 part shower curtain.
<PAGE>
Hanover Marriott Rooms Renovation Page 14
Scope of Work - YT75 Revision #1 July 9, 1997
III. ACCESSIBLE GUESTROOMS
---------------------
A. Ceiling: (Height: 8'-0")
-------
1. Repaint textured ceiling.
2. Existing welcome light to remain.
3. Repaint Textured ceiling in foyer.
4. Remove existing draperies. Existing hardware to be remain. Provide new
hardware for side panels. Provide new 60" batons.
B. Walls
-----
1. Remove vinyl wallcovering to gypsum board, prepare wall surfaces and
install new vinyl wallcovering.
2. Install vinyl border.
3. Repaint entry and connector metal door frames, both sides.
4. Remove existing seals and provide new.
5. Remove, clean, repaint and reinstall HVAC unit covers.
6. Remove, clean, repaint and reinstall all non aluminum grilles and
vents.
7. Remove, clean and reinstall aluminum grilles and vents.
8. Door graphics to remain. (evac. plaques)
9. Touch-up plastic laminate doors as needed.
10. Provide new full height corner guards. (3 per room)
11. Remove existing closet doors, rack and gypsum board wall above doors.
Patch and repair ceiling and walls to receive new vinyl wallcovering.
Provide and install new ADA closet rack in open shelving configuration
without doors.
12. Remove existing entry door and frame and provide new entry door, frame
and hardware per ADA specs. in new location as shown on plan. Relocate
welcome light switch, patch and repair wall surface to receive new
vinyl wallcovering.
<PAGE>
Hanover Marriott Rooms Renovation Page 15
Scope of Work - YT75 Revision #1 July 9, 1997
13. Relocate existing welcome light at bed head 10" towards the outside
wall.
14. Replace existing duplex receptacle behind armoire location with quad
receptacle to accommodate refrigerator service.
15. Remove existing and provide new ivory cover plates for receptacles and
switches.
16. Provide sealant where vinyl wallcovering abuts door and window frames.
17. Raise existing welcome light and junction box to comply with ADA
guidelines. Top of the welcome light to line up with top of guest
bathroom door frame, a minimum of 80" AFF.
18. Relocate existing thermostat to 48" AFF.
C. Floor
-----
1. Remove existing carpet and pad.
2. Install new carpet and pad.
Carpet: Nylon
Pad: Accessible pad
Installation: Stretch-in
D. FF&E
----
1. Existing signage to remain. (evac. plaque)
2. Touch-up all existing RTW units.
3. Provide new box spring covers for installation by Operations on
Concierge floors.
4. Provide new bedspreads for installation by Operations.
5. Provide new artwork.
6. Provide new fluorescent bulbs for new lamps.
4. Provide new drapes, sheers and cornices. Provide new hardware for
stationary panels only.
<PAGE>
Hanover Marriott Rooms Renovation Page 16
Scope of Work - YT75 Revision #1 July 9, 1997
E. FF&E List:
---------
AK: Accessible King (6)
CAK: Concierge Accessible King (2)
a) New:
---
1) Carpet and pad
2) Fixed side panels and ties, blackout lining, sheers
3) Cornice
4) Drapery hardware for stationary panels
5) Bedspread 72" wide x 21" drop (1)
6) Mattress (1)
7) Boxspring (2)
8) Headboard (1)
9) Nightstand (2)
10) Lounge chair (1)
11) Ottoman (1)
12) Executive desk chair (1)
13) Writing desk (small) (1)
14) Desk console (small) (1)
15) ADA armoire (1) Fridge by Property
16) 22" diameter side table (1)
17) Floor lamp with shade (1)
18) Nightstand lamp with shade (2)
19) Mirror (1)
20) Artwork (2)
21) Shower curtain, l part (1)
22) Vanity light (1)
Note: Additional for Concierge Level:
23) Pillow shams (2)
24) Boxspring covers (1)
25) Shower curtain, 2 part (1)
b. Existing to remain:
------------------
1) Tech 2000 lamp (1)
2) Welcome light (1)
3) Bedframe (1)
<PAGE>
Hanover Marriott Rooms Renovation Page 17
Scope of Work- YT75 Revision #1 July 9,1997
c) To be liquidated:
-----------------
1) Bedspread (1)
2) Mattress (1)
3) Boxspring (2)
4) Headboard (1)
5) Nightstand (2)
6) Lounge chair (1)
7) Ottoman (1)
8) Dresser (1)
9) Desk (1)
10) Desk chair (1)
11) Floor lamp w/tray and shade (1)
12) Nightstand lamp w/shade (2)
13) Dresser lamp w/shade (1)
14) Mirror (1)
15) Artwork (3)
<PAGE>
Hanover Marriott Rooms Renovation Page 18
Scope of Work- YT75 Revision #1 July 9, 1997
E. FF&E List:
---------
AKW: Accessible King with RTW (4)
CAKW: Concierge Accessible King with RTW (2)
a) New:
---
1) Carpet and pad
2) Fixed side panels and ties, blackout lining, sheers
3) Cornice
4) Drapery hardware for stationary panels
5) Bedspread 72" wide x 21" drop (1)
6) Mattress (1)
7) Boxspring (2)
8) Headboard (1)
9) Nightstand (2)
10) Lounge chair (1)
11) Ottoman (1)
12) ADA armoire (1) Fridge by Property
13) 22" diameter side table (1)
14) Floor lamp with shade (2)
15) Nightstand lamp with shade (2)
16) Mirror (1)
17) Artwork (2)
18) Shower curtain, 1 part (1)
19) Vanity light (1)
Note: Additional for Concierge Level:
20) Pillow shams (2)
21) Boxspring cover (1)
22) 2 part shower curtain (1)
b. Existing to remain:
------------------
1) RTW package, (1)
Including executive chair
2) Welcome light (1)
3) Bedframe (1)
<PAGE>
Hanover Marriott Rooms Renovation Page 19
Scope of Work - YT75 Revision #1 July 9, 1997
c. To be liquidated:
----------------
1) Bedspread (1)
2) Mattress (1)
3) Boxsprings (2)
4) Headboard (1)
5) Nightstand (2)
6) Lounge chair (1)
7) Ottoman (1)
8) Dresser (1)
9) Old desk chair (1)
10) Floor lamp w/tray and shade (1)
11) Nightstand lamp w/shade (2)
12) Dresser lamp w/shade (1)
13) Mirror (1)
14) Artwork (3)
VI. ACCESSIBLE GUESTBATHS
---------------------
A. Ceiling (Height: 7'-0")
-------
1. Repaint existing gypsum board ceiling.
2. Do not paint light fixture trim rings.
3. Remove, clean, repaint and reinstall all non-aluminum grilles, vents
and access panels.
4. Existing heat lamp to remain.
5. Existing sprinkler head to remain.
B. Walls
-----
1. Remove vinyl wallcovering to gypsum board, prepare wall surfaces and
install new vinyl wallcovering.
2. Repaint metal door frame, both sides.
3. Remove existing silencers and provide new.
4. Remove, clean, repaint and reinstall all non-aluminum grilles and
vents.
<PAGE>
Hanover Marriott Rooms Renovation Page 20
Scope of Work - YT75 Revision #1 July 9, 1997
5. Repaint previously painted plastic laminated doors.
6. Remove existing light cove valance (wood) and fluorescent light
fixture. Relocate junction box from ceiling to wall, patch and repair
wall surface to match adjacent surfaces and provide new decorative
fluorescent fixture with electronic ballast.
7. Remove existing grab bars, ceramic tiles and gypsum board at tub
surround. Install blocking for installation of four new grab bars
(white). Provide new green gypsum board tub surround and install new
ceramic wall tile.
8. Provide new brightware at tub and shower including: fill spout, drain,
overflow cover and control coverplate.
9. Remove existing lavatory and mirror. Install new blocking and grab bar
(white) behind the water closet and patch and repair walls. Provide new
cultured marble lavatory top and apron with underslung china bowl, new
brightware (lever faucet and drain stop) and wall mirror. Insulate
drain and water lines.
10. In 2 accessible bathrooms to be designated by the Property, remove the
existing bathtubs, fixtures and equipment and install ADA compliant
roll-in showers complete with new ceramic wall tile, fixtures and
equipment. Modify plumbing as needed to facilitate new layout.
11. Provide new sealant where vinyl wallcovering abuts door frame and
ceramic tile.
12. Existing water closet to remain.
13. Existing towel bars to remain.
14. Existing towel rack to remain.
15. Remove existing and provide new vinyl base.
16. Remove existing shower curtain chain hooks and provide plastic sleeve
over existing rod with new shower curtain rings.
17. Existing wall mounted hair dryer to remain.
18. Remove existing and provide new ivory coverplates.
19. Provide new, double roll, recessed, toilet paper dispenser.
<PAGE>
Hanover Marriott Rooms Renovation Page 21
Scope of Work - YT75 Revision #1 July 9, 1997
C. Floors:
------
1. Existing floor tile to remain in 12 of 14 accessible bathrooms.
2. Remove existing and provide new ceramic tile floor in 2 bathrooms where
roll-in showers are to be installed.
3. OPTION: Remove existing and provide new floor tile including new
ceramic tile base.
4. Clean and regrout floor tile as needed.
5. Remove existing and re-caulk base of water closet and tub at juncture
with floor tile.
D. FF&E
----
1. Provide new shower curtain liner for installation by Operations.
E. FF&E Lists
----------
1. Accessible Guestbaths
---------------------
a. New
---
1) Shower curtain liner
2) Tissue dispenser
V. SUITES:
CRSS - SLEEPING SUITES (4),
CRHS - HOSPITALITY SUITES (3),
CLPK - PRESIDENTIAL SUITE KING (1),
CLPS - PRESIDENTIAL SUITE (1)
A. Ceiling: (Height: 8'-0")
-------
1. Repaint textured ceiling.
2. Remove existing draperies and cornices. Existing hardware to remain.
Provide new hardware for side panels.
<PAGE>
Hanover Marriott Rooms Renovation Page 22
Scope of Work- YT75 Revision #1 July 9, 1997
B. Walls:
-----
1. Remove vinyl wallcovering to gypsum board, prepare wall surfaces and
install new vinyl wallcovering.
2. Install vinyl border.
3. Repaint entry and connector metal door frames, both sides.
4. Remove existing sound/smoke seals and provide new.
5. Remove, clean, repaint and reinstall HVAC unit covers.
6. Remove, clean, repaint and reinstall all non-aluminum grilles and
vents.
7. Remove, clean, and install aluminum grilles and vents.
8. Touch-up plastic laminated doors where necessary.
9. Existing mirrored sliding closet doors to remain.
10. Door graphics to remain.
11. Door graphics to remain.
12. Remove existing and provide new full height corner guards (5 per
room).
13. Remove existing and provide new closet rack. Operations to provide new
hangers.
14. Existing welcome light to remain, raise up to + 81" to top of fixture
-
to line up with top of bathroom door frame.
15. Wall bracket lamps to remain. Clean crystal shades only.
OPTION: Replace with new wall sconces.
16. Repaint existing wood base.
17. Provide sealant where vinyl wallcovering abuts door and window frames.
18. In Sleeping Suites, CRSS (4 Total) provide new pair of painted French
doors with matching side panels to close opening between sleeping and
living space. Remove existing gypsum board wall, door and frame between
the sleeping area and the guestbath. Remove existing lavatory top,
sink, wall mirror, light fixtures,
<PAGE>
Hanover Marriott Rooms Renovation Page 23
Scope of Work - YT75 Revision #1 July 9, 1997
threshold and portions of ceramic tile floor where guestbath area to be
converted into sleeping area. Install new gypsum board wall to align
with rear wall of sleeping area, adjacent to guestbath. Reinstall
existing door and frame and patch and repair ceiling, wall and floor
surfaces to match adjacent surfaces. Provide new lavatory top, sink,
brightware, light fixtures and threshold in guestbath area. Relocate
electrical wiring, switches and outlets from demolished wall to new
wall.
C. Floor:
-----
1. Remove existing carpet and pad.
2. Install new carpet and pad.
Carpet: Axminster
Pad: Tred-Mor
Installation: Stretch-in
D. FF&E:
----
1. Existing signage to remain (evac plaque).
2. Provide new bedspreads for installation by Operations.
3. Provide new artwork.
<PAGE>
Hanover Marriott Rooms Renovation Page 24
Scope of Work - YT75 Revision #1 July 9, 1997
E. FF&E List:
---------
CRSS Sleeping Suite (4)
a) New:
---
1) Carpet and pad
2) Overdrape, fixed side panels and tiebacks, blackout lining,
sheers
3) Cornice
4) Drapery hardware for stationary panels
5) Sheers on French doors and side panels
6) Bedspread (queen) (1)
7) Pillow shams (2)
8) Pillows (4)
9) Dustruffle (1)
10) Headboard (1)
11) Mattress (1)
12) Boxspring (1)
13) Bedframe (1)
14) Nightstand (2)
15) Nightstand lamp with shade (2)
16) Dining side board (1)
17) Round dining table (1)
18) Dining chairs (6)
19) Florals (3)
20) Chandelier (1)
21) Wall sconces (2)
22) 3 seat sofa with cushions (1)
23) Cocktail table (1)
24) Armchair (2)
25) End tables (2)
26) End table lamps (2)
27) Floor lamp with shade (1)
28) T.V. armoire (1) Fridge by Operations
29) Welcome light (2)
30) Artwork (5)
31) Mirror (1)
32) Plants and pots (2)
33) Vanity lights (2)
34) 2 part shower curtain (1)
35) T.V. armoire (small) (1)
<PAGE>
Hanover Marriott Rooms Renovation Page 25
Scope of Work - YT75 Revision #1 July 9, 1997
b. To be reused:
------------
1) Credenza to be relocated to (1)
elevator lobby
c) To be liquidated:
----------------
1) Bedspread (1)
2) Mattress (1)
3) Bedframe (2)
4) Boxspring (2)
5) Headboard (1)
6) Nightstand (1)
7) 3 seat sofa (1)
8) Side chairs (2)
9) Dining table (1)
10) Dining chairs (5)
11) End tables (3)
12) Occasional table (1)
13) Cocktail table (1)
14) Artwork (4)
15) Floor lamp (1)
16) End table lamps (3)
17) Nightstand lamp (1)
18) Armoire (1)
19) Armoire near bed (1)
<PAGE>
Hanover Marriott Rooms Renovation Page 26
Scope of Work - YT75 Revision #1 July 9, 1997
E. FF&E List:
---------
CRHS Hospitality Suite (3)
a) New:
---
1) Carpet and pad
2) Overdrape, fixed side panels and tiebacks, blackout lining,
sheers
3) Cornice
4) Drapery hardware for stationary panels
5) Murphy bed bedspread 60"W (1)
6) Sleep sofa with pillows (1)
7) End tables (2)
8) Armchairs (1)
9) End table lamps (2)
10) Cocktail table (2)
11) Round dining table (1)
12) Dining chairs (6)
13) T.V. armoire (1)
14) Writing desk (1)
15) Desk console (1)
16) Executive chair (1)
17) Pots and plants (2)
18) Chandelier (1)
19) Wall sconces (2)
20) Florals (3)
21) Mirror (1)
22) Artwork (4)
23) Floor lamp with shade (1)
24) Chest of drawers (1)
25) 2 part shower curtain (1)
b) To be liquidated:
----------------
1) 3 seat sofa (1)
2) Wingback chairs (2)
3) Armoire (1)
4) Dining chairs (6)
5) Square cocktail table (1)
6) End table (2)
7) End table lamps (2)
8) Artwork (5)
9) Florals (3)
<PAGE>
Hanover Marriott Rooms Renovation Page 27
Scope of Work - YT75 Revision #1 July 9,1997
E. FF&E List:
---------
CLPK Presidential Suite King (1)
a) New:
---
1) Carpet and pad
2) Overdrape, fixed side panels and tiebacks, blackout lining,
sheers
3) Cornice
4) Drapery hardware for stationary panels
5) Bedspread (1)
6) Pillow shams (2)
7) Throw pillows (4)
8) Dust ruffle (1)
9) Mattress (1)
10) Boxspring (2)
11) Bedframe (1)
12) Headboard (1)
13) Nightstand (2)
14) Armoire (1) Fridge by Property
15) Executive desk chair (1)
16) Writing desk (1)
17) Desk console (1)
18) Armchair (1)
19) Ottoman (1)
20) Floor lamp with shade (1)
21) Artwork (3)
22) Mirror (1)
23) Nightstand lamp with shade (2)
24) Florals (2)
25) Vanity light (1)
26) 2 part shower curtain (1)
27) Tech2000 lamp with shade (1)
b) To be reused:
------------
1) Credenza to be relocated to (1)
elevator lobby
<PAGE>
Hanover Marriott Rooms Renovation Page 28
Scope of Work - YT75 Revision #1 July 9, 1997
c) To be liquidated:
----------------
1) Benches (2)
2) Headboard (1)
3) Nightstand (1)
4) Loveseat (1)
5) Lounge chair (1)
6) Ottoman (1)
7) Mobile T.V. stand (1)
8) Small desk (1)
9) Desk chair (1)
10) Oval table (1)
11) Floor lamp (1)
12) Nightstand lamp (2)
13) Mirror (1)
14) Artwork (3)
15) Bedframe (1)
16) Boxspring (2)
17) Mattress (1)
<PAGE>
Hanover Marriott Rooms Renovation Page 29
Scope of Work - YT75 Revision #1 July 9, 1997
E. FF&E List:
---------
CLPS Presidential Suite (1)
a) New:
---
1) Carpet and pad
2) Overdrape, fixed side panels and tiebacks,
blackout lining, sheers
3) Cornice
4) Drapery hardware
5) Dining room sideboard (1)
6) Dining room table (1)
7) Dining room chairs with no arms (8)
8) Dining room chairs with arms (2)
9) Side board lamps with shades (2)
10) Chandelier (1)
11) Centerpiece table floral (1)
12) 3 seat sofa and pillows (1)
13) Side tables (2)
14) Side chairs (4)
15) Armchairs (2)
16) Cocktail table (1)
17) Sofa table (1)
18) Loveseat (1)
19) Oval cocktail table (1)
20) Circular end table (2)
21) Artwork (5)
22) Pots and plants (2)
23) Mirror (1)
24) Floor lamp with shade (2)
25) End table lamp with shade (4)
26) Sofa table lamps (2)
27) Artifacts (3 groups)
28) Wall sconces (2)
b) Existing to remain:
------------------
1) All artifacts
2) Built-in television unit
c) To be reused:
------------
1) Credenza to be relocated to (1)
elevator lobby
<PAGE>
Hanover Marriott Rooms Renovation Page 30
Scope of Work - YT75 Revision #1 July 9, 1997
d) To be liquidated:
----------------
1) 3 seat sofa (1)
2) Loveseat (2)
3) Lounge chair (1)
4) Ottoman (1)
5) Bar stools (2)
6) Dining table (1)
7) Dining chairs with arms (2)
8) Dining chairs without arms (6)
9) Octagonal cocktail table (1)
10) Square end table (1)
11) Round end table (1)
12) Mirror (1)
13) Floor lamp (2)
14) T.V. unit lamps (2)
15) End table lamps (2)
16) Chandelier (1)
17) Wall sconces (2)
18) Artwork (5)
19) Silk florals (2)
<PAGE>
Hanover Marriott Rooms Renovation Page 31
Scope of Work- YT75 Revision #1 July 9,1997
VI. SUITE BATHROOMS
---------------
A. Ceiling: (Height 7'-0")
-------
1. Repaint existing gypsum board ceiling.
2. Do not paint light fixture trim rings.
3. Remove, clean, repaint and reinstall all non-aluminum grilles,
vents and access panels.
4. Existing heat lamp to remain.
5. Existing sprinkler heads to remain.
B. Walls:
-----
1. Remove vinyl wallcovering to gypsum board, prepare walls surfaces
and install new vinyl wallcovering.
2. Repaint metal door frame, both sides.
3. Remove existing silencers and provide new.
4. Remove, clean, repaint and reinstall all aluminum, non-aluminum
grilles and vents.
5. Repaint previously painted laminated doors.
6. Existing wall tile to remain.
7. Remove existing and provide new sealant.
8. Existing towel bars to remain.
9. Existing towel rack to remain.
10. Remove existing shower curtain chain hooks and provide plastic
sleeve over existing rod with new shower curtain rings.
11. Existing wall mounted hair dryer to remain.
12. Provide sealant where vinyl wallcovering abuts door frames and
ceramic tile.
13. Modify 4 Sleeping Suites (CRSS) bathrooms as described above
under Suites scope.
<PAGE>
Hanover Marriott Rooms Renovation Page 32
Scope of Work - YT75 Revision #1 July 9, 1997
C. Floor:
-----
1. Reseal at base of water closet and tub.
D. FF&E:
----
1. Provide new 2 part shower curtain for installation by
Operations.
E. FF&E Lists:
----------
Suite Bathrooms
a. New:
---
1) Shower curtain-2 part (1)
2) Vanity light (2)
VI. GUESTROOM CORRIDORS, ELEVATOR LOBBIES, VENDING AREAS AND ELEVATOR CABS
----------------------------------------------------------------------
A. Ceiling: (Height: Corridors 8'-0)
-------
Soffits 6'-9")
Elevator lobbies 8'-0") and to underside of
bulkhead = 7'-0"
Bulkhead on 2nd floor 7'-2")
1. Repaint textured corridor ceiling.
2. Retexture 5% of textured corridor ceilings.
3. Repaint textured vending area ceilings.
4. Remove existing lenses from recessed fluorescent lights at door
openings and provide new white eggcrate lenses.
5. Remove existing decorative ceiling lights (2) in elevator lobbies
and provide new.
6. Remove, clean, repaint and reinstall all non-aluminum grilles and
vents.
7. Remove, clean and reinstall all aluminum grilles and vents.
8. Existing exit lights to remain.
<PAGE>
Hanover Marriott Rooms Renovation Page 33
Scope of Work - YT75 Revision #1 July 9, 1997
B. Walls:
-----
1. Remove existing wall sconce in elevator lobby and replace with new
ADA compliant wall sconce.
2. Remove vinyl wallcovering to gypsum board, prepare wall surfaces
and install new vinyl wallcovering.
3. Remove, clean, repaint and reinstall all non-aluminum grilles and
vents.
4. Remove, clean and reinstall all aluminum grilles and vents.
5. Touch-up plastic laminated doors where necessary.
6. Repaint all metal door frames, both sides.
7. Remove existing graphics and provide new in locations to meet ADA
requirements.
8. Remove existing and provide new full height corner guards.
9. Remove existing base and provide new carpet base.
10. Provide sealant where vinyl wallcovering abuts door and window
frames.
11. Install new wall sconces and junction boxes with electrical
connections as necessary per floorplan.
12. Repaint elevator doors and frames.
C. Floors:
------
1. Remove existing carpet and pad.
2. Install new carpet and pad.
Carpet: Axminster
Pad: Tred-Mor
Installation: Double glue-down
3. Remove existing and provide new VCT flooring in vending areas.
4. Existing flooring in elevator cabs to remain.
<PAGE>
Hanover Marriott Rooms Renovation Page 34
Scope of Work - YT75 Revision #1 July 9, 1997
D. FF&E:
----
1. Touch-up all casegoods and exposed wood frames on upholstered
seating.
2. On second floor, replace sheers at windows at both ends of
corridor.
E. FF&E List:
---------
a. New:
---
1) Decorative ceiling fixture (14) 2 per elevator lobby
2) ADA Wall sconces (190)
3) Credenzas (7) per floor (reused
form Suites)
4) Florals (7) 1 per floor
<PAGE>
Exhibit 10.I
Hanover, New Jersey
PROMISSORY NOTE
HANOVER MARRIOTT
HANOVER, NEW JERSEY
$29,875,000.00 August 18, 1997
THIS PROMISSORY NOTE (hereinafter sometimes referred to as this "Note")
between HANOVER MARRIOTT LIMITED PARTNERSHIP, a Delaware limited partnership
having its principal address at 10400 Fernwood Road, Bethesda, MD 20817
(hereinafter referred to as "Maker"), and CONNECTICUT GENERAL LIFE INSURANCE
COMPANY, a Connecticut corporation, having a principal place of business of 900
Cottage Grove Road, Bloomfield, Connecticut and a mailing address of 900 Cottage
Grove Road, Hartford, Connecticut 06152-2319 (the "Payee") (the legal holder
from time to time of this Note, including Payee as the current holder, is
hereinafter referred to as "Holder").
FOR VALUE RECEIVED, Maker promises to pay to the order of Holder, at such
place of business or at such other place as the Holder hereof may designate in
writing, the principal sum of Twenty Nine Million Eight Hundred Seventy-Five
Thousand Dollars and 00/100 Dollars ($29,875,000.00), or so much thereof as may
be advanced to or for the benefit of Maker by Holder and be outstanding
(hereinafter referred to as "Principal Indebtedness"), together with interest
thereon at an annual rate of eight and fifty-eight one-hundredths of one percent
(8.58%) (the "Interest Rate"), in accordance with the provisions hereinafter set
forth.
1. Terms of Payment. If the date on which Principal Indebtedness is
----------------
advanced to Maker ("the Advancement Date") is not the first day of a calendar
month, then Maker shall pay to Holder on the Advancement Date interest only on
the Principal Indebtedness, at the Interest Rate, calculated on the basis of a
365-day year and for the actual number of days from and including the
Advancement Date to and including the first day of the calendar month following
the Advancement Date. On the first day of the second calendar month following
the Advancement Date and on the first day of each calendar month thereafter
(hereinafter called the "monthly payment dates") through but excluding July 1,
2004, Maker shall pay to Holder the sum of $242,094.00
Page 1
<PAGE>
(hereinafter referred to as "monthly payments"), to be applied first to interest
on the Principal Indebtedness from time to time outstanding at the Interest Rate
and the balance to be applied in reduction of the Principal Indebtedness based
on a twenty-five-year amortization schedule. The interest component of the
monthly payments shall be calculated and applied on the basis of a 360-day year
consisting of twelve 30-day months. On August 1, 2004 (the "Maturity Date")
Maker shall pay to Holder the entire Principal Indebtedness then remaining
unpaid, together with accrued and unpaid interest thereon at the Interest Rate
and any other charges due under this Note, the Mortgage (defined in Section 3
hereinbelow), and any other documents between Maker and Holder evidencing or
securing or pertaining to the advancement or disbursement of the Principal
Indebtedness (as the same are more completely defined and described in the
Mortgage, collectively the "Loan Documents"). The period from and including the
date hereof to the Maturity Date will be referred to hereinafter as the "Term".
2. Prepayment. Except as specifically provided herein or in the
----------
Mortgage, no prepayment of the Principal Indebtedness shall be allowed prior to
August 1, 1999 (the "Closed Period"). Maker, whether or not a debtor in a
proceeding under Title 11, United States Code, may prepay the Principal
Indebtedness in full, but not in part, on any monthly payment date after the
Closed Period, provided Maker gives Holder thirty (30) days prior written notice
and pays a fee (the "Prepayment Fee") as described below.
The Prepayment Fee shall be the greater of (a) one percent (1%) of the
then-existing Principal Indebtedness, or (b) Yield Maintenance (as defined
below).
The Loan may be prepaid at par, without payment of a Prepayment Fee, during
the one hundred twenty (120) day period prior to the Maturity Date. The
foregoing Prepayment Fee, if any, will be due when the indebtedness evidenced by
this Note is prepaid after the Closed Period, whether such prepayment is
voluntary or results from default, acceleration or any other cause, except for
the application of casualty loss or condemnation proceeds to reduce the
Principal Indebtedness (and as otherwise expressly provided in this Note and the
Mortgage), with respect to which no Prepayment Fee will be applicable.
Page 2
<PAGE>
Yield Maintenance: Yield Maintenance is defined as the sum of the present
-----------------
values on the date of prepayment of each Monthly Interest Shortfall for each
month throughout the remaining Term of the Loan, discounted at the monthly
Treasury Yield.
The Monthly Interest Shortfall is calculated for each monthly payment date
and is the product of (i) the positive difference, if any, of (a) the Semi-
Annual Equivalent Rate, less (b) the Treasury Yield, (ii) divided by twelve
(12), times (iii) the outstanding principal balance of the Loan on each monthly
payment date for which the calculation is made for each full and partial month
remaining in the Term.
The present value is then determined by discounting each Monthly Interest
Shortfall at the Treasury Yield divided by twelve (12).
FOR EXAMPLE: If a loan bearing a nine percent (9%) interest rate were
prepaid with twenty-four (24) months remaining in the Term, at a time
when Federal Statistical Release H.15 (519) reported a two (2) year
Treasury Yield of 7.0%, and the outstanding loan balance was
$10,000,000.00, then:
<TABLE>
<S> <C>
Semi-Annual Equivalent Rate .0917
less the Treasury Yield -.0700
-----
equals the positive rate difference .0217
divided by 12
equals the monthly rate difference .001808
times the principal balance x $10,000,000
-----------
equals the Monthly Interest Shortfall $ 18,080
</TABLE>
The sum of the Present Values of all the Monthly Interest Shortfalls
($18,080) discounted at the monthly Treasury Yield (7% divided by 12
or .58333%) equals $403,318.60.
The "Semi-Annual Equivalent Rate" for this loan is 8.70%.
The "Treasury Yield" will be determined by reference to the most recently
published and released Federal Reserve Statistical Release H.15 (519) of
Selected Interest Rates (or any similar successor publication of the Federal
Reserve) closest to the date of prepayment. If the remaining Term is
Page 3
<PAGE>
less than one year, the Treasury Yield will equal the yield for 1-Year Treasury
Constant Maturities. If the remaining Term is equal to one of the maturities of
the Treasury Constant Maturities (e.g., 1-year, 2-year, etc.), then the Treasury
----
Yield will equal the yield for the Treasury Constant Maturity with a maturity
equaling the remaining Term. If the remaining Term is longer than one year, but
does not equal one of the maturities of the Treasury Constant Maturities, then
the Treasury Yield will equal the yield for the Treasury Constant Maturity
closest to but not exceeding the remaining Term.
In the event of a prepayment during the Closed Period resulting from a
default, acceleration or any other reason (except for the application of
insurance proceeds or condemnation awards to reduce the principal portion of the
Indebtedness), Maker shall pay to Holder a prepayment fee (a "Default Prepayment
Fee") calculated as Yield Maintenance, except that the Monthly Interest
Shortfall shall instead be calculated for each full and partial month remaining
in the term as the product of (i) the positive difference, if any, between (a)
the Semi-Annual Equivalent Rate, plus 200 basis points, less (b) the Treasury
Yield, (ii) divided by twelve (12), (iii) times the outstanding principal
balance of the Loan on the Monthly Payment Date for which the calculation is
made.
The Prepayment Fee does not constitute a penalty, but rather represents the
reasonable estimate, agreed to between Maker and Payee, of a fair compensation
for the loss that may be sustained by Holder due to prepayment of the Principal
Indebtedness prior to the Maturity Date. Any prepayment fee required pursuant
to the preceding paragraphs shall be paid without prejudice to the right of
Holder to collect any of the amounts owing under this Note or the Mortgage or
otherwise or to enforce any of its rights or remedies arising out of an Event of
Default hereunder or under any of the other Loan Documents.
3. Security. This Note is secured by, among other things, that certain
--------
Mortgage and Security Agreement (hereinafter referred to as the "Mortgage")
given by Maker to Payee, of even date herewith, constituting a first lien on
certain real estate located in the Township of Hanover, County of Morris, State
of New Jersey and a first priority security interest in certain personal
property and any leasehold in such personal property and an assignment of rents
and leases with respect thereto as more completely defined
Page 4
<PAGE>
and described in the Mortgage (hereinafter collectively referred to as the
"Security").
4. Location and Medium of Payments. The sums payable under this Note or
-------------------------------
under the Mortgage shall be paid to Holder at its principal address hereinabove
set forth, or at such other place as Holder may from time to time hereafter
designate to Maker in writing, in legal tender of the United States of America.
5. Events of Default and Acceleration of Maturity. At the option of
----------------------------------------------
Holder, which may be exercised at any time after one or more of the following
events (each being an "Event of Default") shall have occurred and still continue
to exist, the whole of the Principal Indebtedness, together with all interest
and other charges due under any of the Loan Documents, shall immediately become
due and payable ("Acceleration of Maturity"): (a) if any payment of any
installment of the Principal Indebtedness, and/or principal, and/or interest,
and/or escrow amounts due hereunder or under one of the other Loan Documents is
not received by Holder within five (5) Business Days (defined in Section 20
hereinbelow) of the date when due, except that the first two (2) times in any
twelve (12) month rolling period Holder shall provide notice to Maker of its
failure to make such payment and the failure to make such payment shall not
constitute an Event of Default until Three (3) Business Days after the effective
date of such notice; (b) if Maker shall fail in any material respect to observe
or perform any other duty, covenant, promise or other obligation of a monetary
or non-monetary nature provided for in this Note, or in the Mortgage, or in any
other Loan Document ("failure to observe or perform"), which failure to observe
or perform is not cured within thirty (30) days after notice to Maker from
Holder specifying the nature of the failure to observe or perform; except it
shall not constitute an Event of Default so long as such failure to observe or
perform is not susceptible of cure within such period, so long as Maker has
commenced to cure within such thirty (30) day period and thereafter diligently
pursues such cure to completion, and provided further that such cure is
completed within a reasonable period of time in no event later than one hundred
eighty (180) days after Holder's original notice to Maker; or (c) if an Event of
Default (as defined and described in the Mortgage) exists under the terms of the
Mortgage.
6. Interest Following an Event of Default. Upon and after the occurrence
--------------------------------------
of an Event of Default, Holder may exercise any and all remedies to
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<PAGE>
which it may be entitled, including without limitation, Acceleration of
Maturity. Upon the occurrence of an Event of Default and so long as it
continues to exist, the entire amount of principal, interest and other charges
due as of the date of such Event of Default shall bear interest at a rate (the
"Default Rate") equal to the lesser of (i) the Interest Rate plus Two percent
(2%) per annum, or (ii) the maximum amount permitted by law.
7. Collection and Enforcement Costs. Maker, upon demand, shall pay
--------------------------------
Holder for all costs and expenses, including without limitation, Attorneys' Fees
(as defined in Section 17 hereinbelow), paid or incurred by Holder in connection
with the collection of any sum due hereunder, or in connection with enforcement
of any of Holder's rights or Maker's obligations under this Note, the Mortgage
or any of the other Loan Documents.
8. Continuing Liability. Subject to the terms of Section 15 hereof, the
--------------------
obligation of Maker to pay the Principal Indebtedness, interest and all other
sums due hereunder shall continue in full force and effect and in no way be
impaired until the actual payment thereof to Holder, and in case of a sale or
transfer of all or any part of the Security, or in case of any further agreement
given to secure the payment of this Note, or in case of any agreement or
stipulation extending the time or modifying the terms of payment above recited,
Maker shall nevertheless continue to be liable on this Note, as extended or
modified by any such agreement or stipulation, unless released and discharged in
writing by Holder.
9. Joint and Several Liability. Subject to the provisions of Section 15
---------------------------
hereof, if more than one person, corporation, partnership or other entity shall
become a party to this Note, then each person and entity shall be fully liable
for all obligations of Maker hereunder, and such obligations shall be joint and
several.
10. No Oral Changes; Waivers. This Note may not be changed orally, but
------------------------
only by an agreement in writing signed by the party against whom enforcement of
a change is sought. The provisions of this Note shall extend and be applicable
to all renewals, amendments, extensions, consolidations, and modifications of
the Mortgage and/or the other Loan Documents, and any and all references herein
to the Mortgage and/or the Loan Documents shall be deemed to include any such
renewals, amendments, extensions, consolidations, or modifications thereof.
Page 6
<PAGE>
Maker and any future indorsers, sureties, and guarantors hereof (each an
"Obligor"), jointly and severally, waive presentment for payment, demand, notice
of nonpayment, notice of dishonor, protest of any dishonor, notice of protest,
and protest of this Note, and all other notices in connection with the delivery,
acceptance, performance, default (except notice of default required hereby, if
any), or enforcement of the payment of this Note, and they agree that the
liability of each of them shall be unconditional without regard to the liability
of any other party and shall not be in any manner affected by an indulgence,
extension of time, renewal, waiver, or modification granted or consented to by
the Holder; and Maker and all Obligors hereby consent to any and all extensions
of time, renewals, waivers, or modifications that may be granted by the Holder
hereof with respect to the payment or other provisions of this Note, and to the
release of the Security, or any part thereof, with or without substitution, and
agree that additional Obligors may become parties hereto without notice to them
or affecting their liability hereunder.
Holder shall not by any act of omission or commission be deemed to waive
any of its rights or remedies hereunder unless such waiver be in writing and
signed by Holder, and then only to the extent specifically set forth therein; a
waiver on one event shall not be construed as continuing or as a bar to or
waiver of such right or remedy on a subsequent event. The acceptance by Holder
of payment hereunder that is less than payment in full of all amounts due at the
time of such payment shall not without the express written consent of Holder:
(i) constitute a waiver of the right to exercise any of Holder's remedies at
that time or at any subsequent time, (ii) constitute an accord and satisfaction,
or (iii) nullify any prior exercise of any remedy.
No failure to cause an Acceleration of Maturity hereof after the occurrence
and during the continuation of an Event of Default hereunder, acceptance of a
past due installment, or indulgences granted from time to time shall be
construed (i) as a novation of this Note or as a waiver of such right of
acceleration or of the right of Holder thereafter to insist upon strict
compliance with the terms of this Note, or (ii) to prevent the exercise of such
right of acceleration or any other right granted hereunder or by the laws of the
State of New Jersey; and, to the maximum extent permitted by law, Maker hereby
expressly waives the benefit of any statute or rule of law or equity now
provided, or which may hereafter be provided, which would produce a result
contrary to or in conflict with the foregoing.
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<PAGE>
To the maximum extent permitted by law, Maker hereby waives and renounces
for itself, its heirs, successors and assigns, all rights to the benefits of any
statute of limitations and any moratorium, reinstatement, marshalling,
forbearance, valuation, stay, extension, redemption, and appraisement, now
provided, or which may hereafter be provided, by the Constitution and laws of
the United States of America and of any state thereof, both as to itself and in
and to all of its property, real and personal, against the enforcement and
collection of the obligations evidenced by this Note.
11. Bind and Inure. This Note shall bind and inure to the benefit of the
--------------
parties hereto and their respective legal representatives, heirs, successors and
assigns.
12. Applicable Law. The provisions of this Note shall be construed and
--------------
enforceable in accordance with the laws of the State of New Jersey.
If any provision of this Note or the application hereof to any person or
circumstance shall, for any reason and to any extent, be invalid or
unenforceable, neither the remainder of this Note nor the application of such
provision to any other person or circumstance shall be affected thereby, but
rather the same shall be enforced to the greatest extent permitted by law,
except that if such provision relates to the payment of a monetary sum that
Holder determines in its sole reasonable discretion will have a material adverse
effect on the Principal Indebtedness or the Security, then the Holder may, at
its option, declare the entire indebtedness evidenced hereby due and payable
upon sixty (60) days prior written notice to Maker and, provided no Event of
Default is then continuing, without prepayment fee or premium.
Notwithstanding the foregoing to the contrary, if, under the terms of the
immediately preceding paragraph, Holder shall have the right to declare the
entire indebtedness evidenced hereby due and payable, but by separate agreement
or by amendment to this Note the obligations of Maker for the payment of money
can lawfully be modified or supplemented to provide to Holder an equal monetary
return on its investment and substantially the same security as before such
provision was rendered invalid or unenforceable, then within thirty (30) days
after Holder's written notice to Maker, Maker and Holder shall enter into such
separate agreement or amendment to this Note, on terms and provisions reasonably
acceptable to Holder. If Maker and Holder fail to
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<PAGE>
enter into such separate agreement or amendment to this Note within such thirty
(30) day period, then either Maker may elect to repay, or Holder may elect to
require Maker to repay, the entire indebtedness at par within sixty (60) days of
the expiration of such thirty (30) day period.
13. Usury. It is hereby expressly agreed that if from any circumstances
-----
whatsoever fulfillment of any provision of this Note, at the time performance of
such provision shall be due, shall involve transcending the limit of validity
presently prescribed by any applicable usury statute or any other law, with
regard to obligations of like character and amount, then ipso facto the
---- -----
obligation to be fulfilled shall be reduced to the limit of such validity, so
that in no event shall any exaction be possible under this Note that is in
excess of the limit of such validity. In no event shall Maker be bound to pay
for the use, forbearance or detention of the money loaned pursuant hereto,
interest of more than the then current legal limit; the right to demand any such
excess being hereby expressly waived by Holder.
14. Notice. Any notice, request, demand, statement or consent made
------
hereunder shall be in writing signed by the party giving such notice, request,
demand, statement or consent, and shall be deemed to have been properly given
when either delivered personally, or deposited in the United States Mail,
postage prepaid and certified or registered, return receipt requested, or
delivered to a reputable overnight delivery service providing a receipt, in each
case addressed to the other party at its address set forth below, or at such
other address within the continental United States of America as such party may
have theretofore designated in writing in accordance with the terms of this
provision. The effective date of any notice given as aforesaid shall be the
date of personal service, five (5) Business Days after deposit in the United
States Mail as aforesaid, or one (1) Business Day after delivery to such
overnight delivery service, whichever is applicable. For purposes hereof, the
addresses are as follows:
If to Holder: Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152-2319
Attention: Investment Services, S-319
Page 9
<PAGE>
With a copy to: CIGNA Corporation
Investment Law Department
900 Cottage Grove Road
Hartford, Connecticut 06152-2215
Attention: Real Estate Division, S-215A
If to Maker: Hanover Marriott Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Treasurer
With a
copy to: Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland, 20817
Attn: Law Department
15. Limitations on Recourse. Except as hereinafter in this Section and in
-----------------------
Section 40 of the Mortgage specifically provided, Maker, Marriott Hanover Hotel
Corporation ("MHHC") and any other partners of the Maker shall not be personally
liable for the payment of any sums due hereunder or the performance of any
obligations of Maker hereunder or under any other Loan Document. No judgment
for the repayment of the Indebtedness and no action to foreclose the Mortgage,
or to collect any amount payable under the Loan Documents, or to satisfy any
other claim relating thereto will be enforced against Maker or MHHC or any other
partner of Maker personally or any property of Maker or MHHC or any other
partner of Maker other than the Security and any other security furnished under
the Loan Documents in any action to foreclose the Mortgage or to otherwise
realize upon any security furnished under the Loan Documents or to collect any
amount payable under the Loan Documents. Notwithstanding the foregoing:
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<PAGE>
(a) Nothing herein contained shall be construed as prohibiting Holder
from exercising any and all remedies which the Loan Documents permit,
including the right to bring actions or proceedings against Maker and/or
MHHC and/or any other general partner of Maker and to enter a judgment
against Maker and/or MHHC and/or any other general partner in Maker, so
long as the exercise of any remedy does not extend to execution against or
recovery out of any property of Maker and/or MHHC and/or any other partner
other than the security furnished under the Loan Documents;
(b) Maker and MHHC and any other general partner of Maker, but not any
limited partner of Maker who is not also a general partner, shall be fully
and personally jointly and severally personally liable for (i) misapplying
any condemnation proceeds or insurance proceeds attributable to the Real
Property, to the full extent of such proceeds so misapplied, (ii)
misapplying any security deposits attributable to the Real Property, to the
full extent of such deposits so misapplied, (iii) collecting any Rents
(defined in the Mortgage), Revenues (defined in the Mortgage) and any other
revenues and income generated by the operation of the hotel on the Real
Property (defined in the Mortgage) in advance in violation of any covenant
contained in any of the Loan Documents (except for deposits to hold advance
room reservations which occur in the ordinary course of business), to the
full extent of such Rents, Revenues and other revenues and income collected
in advance, (iv) committing fraud, misrepresentation or waste in connection
with the operation of the Security or the making of the loan evidenced
hereby, to the full extent of any remedies available at law or in equity,
not to exceed Holder's actual damages, except that no such limit shall
apply or be imposed if Maker, or its general partner(s) intentionally
commit(s)s fraud, misrepresentation or waste, (v) Gross Revenues (as
defined in the Hotel Management Agreement, as defined in the Mortgage) from
the Real Property are sufficient to pay any portion of the indebtedness,
operating expenses, maintenance expenses, insurance premiums, reserve or
escrow account deposits, sales and occupancy taxes, wages, salaries, taxes
and benefits relating to hotel employees, employment and withholding taxes,
or other sums required to be paid pursuant to the terms of the Loan
Documents, and Mortgagor fails to make any or all such payments or deposits
when due, all to the extent of any funds diverted from such obligations,
payments and/or expenses during the twelve (12) months prior to Mortgagee's
notice of
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<PAGE>
acceleration through the date Mortgagee takes title to the Real Property;
(vi) failing to pay all or any portion of the real estate taxes and
assessments which are a lien against the Real Property during the period of
Maker's ownership at a time when there were sufficient Gross Revenues
available to pay all or any portion of such real estate taxes and
assessments, to the full extent of such unpaid real estate taxes and
assessments; and (vii) failing to maintain the coverages and levels of
insurance required under the Mortgage or any other of the Loan Documents,
to the extent that a casualty or other liability occurs or arises and
insurance proceeds would have been available had such insurance coverages
and levels been maintained, in the amount of the difference between the
actual insurance proceeds and the insurance proceeds that would have been
available had such levels and coverages of insurance been maintained as
required by the terms of the Loan Documents;
(c) There shall be no limitation, in any event, of Maker's personal
liability under, and the exercise of any of Holder's rights under any
separate indemnity agreement from Maker to Holder which may be entered
into, including but not limited to, the Environmental Indemnification
Agreement of even date herewith from Maker and Marriott Hanover Hotel
Corporation to Holder with regard to the Security except as may be
expressly set forth therein;
(d) Nothing contained in this Section shall be deemed to prejudice the
rights of Holder to proceed against any entity or person whatsoever,
including the Maker, with respect to the enforcement of the Agreement
Concerning Hotel Management Agreement and any guarantees, leases, master
leases, or similar rights of payment.
16. Time of the Essence. Time is of the essence with respect to the
-------------------
intent, meaning, construction and enforcement of each and every covenant,
agreement and obligation of Maker under this Note, the Mortgage and all of the
other Loan Documents.
17. Attorney Fees. Any reference to "Attorney Fees" or "Attorneys' Fees")
-------------
in this Note includes but is not limited to both the reasonable fees and all
charges and costs incurred by Holder through its retention of outside legal
counsel and paralegals and the allocable reasonable fees and all charges and
costs for services rendered by Holder's in-house or staff counsel and
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<PAGE>
paralegals. Any reference to "Attorney Fees" or "Attorneys' Fees" shall also
include but not be limited to both the reasonable fees and all charges and costs
incurred by Holder through its retention of outside legal counsel and paralegals
and the reasonably allocable fees and all charges and costs for services
rendered by Lender's in-house or staff counsel and paralegals related to the
Indebtedness, including such fees, costs and charges incurred by Holder in the
collection of any Principal Indebtedness, the enforcement of any obligations
hereunder, the protection of the Security, the foreclosure of the Mortgage, the
sale of the Security, the defense of actions arising hereunder and the
collection, protection or set off of any claim the Holder may have in a
proceeding under Title 11, United States Code. Any Attorneys' Fees provided for
hereunder shall accrue whether or not Holder has provided notice of an Event of
Default or of an intention to exercise its remedies for such Event of Default.
18. Waiver of Trial of Jury. Maker hereby waives its right to a trial by
-----------------------
jury as to any matter arising out of or concerning the subject matter of this
Note.
19. Interpretation. Each provision of this Note shall be interpreted in
--------------
such a manner as to be effective and valid under applicable law, but if any
provision shall be ineffective, invalid or unenforceable in whole or in part,
the remaining provisions of this Note shall be effective, valid and enforceable
to the fullest extent not prohibited by law.
20. Business Day. The terms "Business Day" and "Business Days" as used in
------------
this Note shall mean any calendar day other than a Saturday, a Sunday or a
Federal holiday on which the U.S. Postal Service offices are closed for business
in one or more of Bethesda, Maryland, Hanover, New Jersey or Hartford,
Connecticut.
Page 13
<PAGE>
IN WITNESS WHEREOF, Maker has duly executed this Note as a sealed instrument
as of the day and year first above written.
Attest: MAKER:
-----
HANOVER MARRIOTT LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Marriott Hanover Hotel Corporation,
a Delaware corporation,
its sole general partner
David E. Reichmann By: Bruce D. Wardinski
- --------------------------- ---------------------------------
Name: Bruce D. Wardinski
Title: Vice President
- ---------------------------
<PAGE>
JOINDER OF MARRIOTT HANOVER HOTEL CORPORATION
---------------------------------------------
Marriott Hanover Hotel Corporation, a Delaware corporation, hereby joins in the
execution of this Note solely to evidence its acknowledgment and agreement to be
jointly and severally personally liable for certain obligations as set forth in
Section 15 hereof and Section 40 of the Mortgage.
Attest: MARRIOTT HANOVER HOTEL CORPORATION,
a Delaware corporation
David E. Reichmann By: Bruce D. Wardinski
- ------------------- ---------------------------
Name: Bruce D. Wardinski
Title: Vice President
<PAGE>
Exhibit 10.j
ASSIGNMENT OF LEASES, RENTS AND REVENUES
HANOVER MARRIOTT
HANOVER, NEW JERSEY
This ASSIGNMENT OF LEASES, RENTS AND REVENUES ("this Assignment") is made
as of the 18th day of August, 1997, by HANOVER MARRIOTT LIMITED PARTNERSHIP, a
Delaware limited partnership ("Borrower"), in favor of CONNECTICUT GENERAL LIFE
INSURANCE COMPANY, a Connecticut corporation ("Lender").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Lender has loaned to Borrower the sum of Twenty Nine Million Eight
Hundred Seventy Five Thousand and No/100 Dollars ($29,875,000.00) as evidenced
by a Promissory Note in the original principal sum of Twenty Nine Million Eight
Hundred Seventy Five Thousand and No/100 Dollars ($29,875,000.00) (the "Note")
of even date herewith, in favor of Lender, as payee, which Note is secured,
inter alia, by a Mortgage (the "Mortgage") on certain real property and
- ----- ----
improvements thereon (the "Security") located in the Township of Hanover, County
of Morris, and State of New Jersey, more particularly described in EXHIBIT A
attached hereto (the "Real Property") (collectively, the Note, the Mortgage, and
any other documents evidencing, securing or relating to payment of the Note, as
more completely defined and described in the Mortgage, are referred to herein as
the "Loan Documents"); and
WHEREAS, With respect to management of the hotel business located on the
Real Property (the "Hotel") as a Marriott hotel, Borrower has heretofore entered
into that certain Management Agreement with Marriott Hotel Services, Inc., a
Delaware corporation, dated of even date herewith and which has not
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<PAGE>
heretofore been amended, modified, supplemented and/or replaced, as any of the
foregoing may be further amended, modified, supplemented and/or replaced from
time to time with the consent of Lender as provided in this Assignment (the
"Hotel Management Agreement")
WHEREAS, Lender has required an assignment of all leases, rents, hotel
accounts, revenues, deposits and all other income generated by the Security and
assets held in connection with the operations of the Hotel, as additional
security for payment of all sums due under the Loan Documents including, without
limitation, principal, accrued and unpaid interest, any applicable prepayment
fees, any late charges, any Attorneys Fees (defined hereinbelow in Section 6.11)
and any advances made by Lender pursuant to the terms of the Loan Documents
(collectively, the "Indebtedness").
NOW THEREFORE, Lender and Borrower, in consideration of the foregoing,
hereby agree as follows:
I. ASSIGNMENT
-------------
1.1. Assignment of Leases. Borrower hereby presently, irrevocably,
---------------------
absolutely and unconditionally transfers, assigns and sets over unto Lender all
of Borrower's right, title, and interest in and to all present and future
leases, license agreements, concession agreements, lease termination agreements,
and other occupancy agreements of any nature, oral or written, regarding all or
any part of the Real Property, together with all extensions, modifications,
supplements, renewals, and replacements thereof, now existing or hereafter made
(collectively, the "Leases"), and together with any and all guarantees of the
obligations of the lessees, licensees, concessionaires and occupants thereunder
(collectively, the "Lessees"), and also together with the
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<PAGE>
rights of Borrower to receive, hold and apply all bonds and security in all of
said Leases provided to be furnished to the lessor thereunder, and also together
with the rights of Borrower to enforce any and all of the agreements, terms,
covenants and conditions in all of said Leases provided and to give notices
thereunder.
1.2. Assignment of Rents, Revenues and Deposits. Borrower hereby
------------------------------------------
presently, absolutely and unconditionally transfers, assigns and sets over unto
Lender all of Borrower's right, title, and interest in and to:
(a) All present and future rents, prepaid rents, additional rents,
royalties, security deposits, damages payable upon default by tenant or other
sums of money as provided for in any of the Leases provided to be paid to the
Lessor thereunder, including, but not limited to, all rents, charges, lease
termination fees, lease modification and extension fees, damages payable upon
default by tenant or other sums in any of said Leases provided to be paid to the
lessor thereunder, and all other fees, income and revenue of every kind and
nature now or hereafter due arising out of or in any way related to the Leases
(collectively, the "Rents");
(b) All income, proceeds, revenues, prepaid revenues, royalties, profits,
fees, charges, concessions, deposits and security deposits arising from or out
of the Real Property or any part thereof of every kind and description received
or receivable resulting or arising from the use, ownership, occupancy or
operations of the Hotel and all of its facilities and, without duplication,
pursuant to the terms of the Hotel Management Agreement, including, without
limitation, all room revenues, food and beverage operations revenues, credit
card receivables with respect to any credit/charge card organizations and/or
entities, including, but not limited to American Express, Carte Blanche,
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<PAGE>
Diner's Club, VISA, Mastercard, Discover and Optima; all monies held by
Management Company (as defined in the Hotel Management Agreement), or any
subsequent party performing the same general functions with respect to the Hotel
as the Management Company under the Hotel Management Agreement, in the Operating
Accounts (defined in the Hotel Management Agreement); all vending machine income
and all income received from tenants, transient guests, lessees, licensees,
concessionaires, customers, guests as well as any other person occupying space
at the Hotel and/or rendering services to guests and/or customers of the Hotel
(collectively herein referred to as the "Revenues"); and
(c) All of Borrower's right, title, and interest in and to all present and
future security deposit(s) paid by any lessee and/or transient guest for
whatever purpose, plus any hotel room reservation deposits, banquet reservation
deposits, subject to the rights of the Lessees therein (the "Security
Deposits").
1.3. Assignment Absolute. This Assignment shall be a present, absolute and
-------------------
unconditional assignment, and shall, immediately upon execution, give Lender the
right to sue for, collect and receive all Rents, Revenues and Security Deposits.
Unless and until an Event of Default (defined hereinbelow) has occurred and is
continuing, Lender, by its acceptance hereof, agrees to refrain from exercising
its rights under this Assignment with respect to the Rents, Revenues and
Security Deposits.
II. LICENSE TO COLLECT
----------------------
Notwithstanding anything to the contrary contained herein, but subject in
all events to the terms of Section 15 of the Note and Section 40 of the
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<PAGE>
Mortgage which are incorporated by reference herein, Lender grants to Borrower a
revocable license (a "Revocable License") to collect, hold, administer and
distribute the Rents, Revenues and Security Deposits as they respectively become
due, to enforce the Leases, and to exercise the rights of the landlord or
licensor thereunder so long as no Event of Default has occurred and is
continuing, subject to Management Company's rights and responsibilities under
the Hotel Management Agreement, as modified or affected by the terms of that
certain Agreement Concerning Hotel Management Agreement dated of even date
herewith by and between Borrower, Lender and Marriott Hotel Services, Inc.(the
"ACHMA"). Subject to Management Company's rights and responsibilities under the
Hotel Management Agreement as modified or affected by the terms of the ACHMA,
Borrower hereby irrevocably authorizes and directs each of the Lessees under the
Leases, upon receipt of a written notice from Lender so demanding, to pay all
Rents, Revenues and Security Deposits due or which become due to Lender.
Borrower hereby irrevocably authorizes and directs Management Company to hold,
apply and disburse all Rents, Revenues and Security Deposits to which Borrower
has a right, title or interest under the Hotel Management Agreement, as bailee
for Lender, subject to the terms of the Hotel Management Agreement as modified
or affected by the terms of the ACHMA, and upon Lender's request to promptly pay
all such Rents, Revenues and Security Deposits to Lender. The Revocable License
shall be revocable by written notice sent by Lender to Borrower, and shall be
revocable only if an Event of Default exists under one of the Loan Documents,
and Lender agrees not send any such notice or otherwise make such demand on the
Lessees or Management Company unless an Event of Default exists hereunder. If
all outstanding Events of Default are cured or waived prior to Acceleration of
Maturity (as defined in the Note), Lender agrees that Borrower shall be entitled
to and shall automatically receive a new Revocable License under the exact same
terms and conditions.
Page 5
<PAGE>
III. WARRANTIES AND COVENANTS
-----------------------------
3.1. Warranties of Borrower. Borrower hereby warrants and represents the
----------------------
following as of the date hereof:
(a) Borrower (or the Management Company on Borrower's behalf) is the
sole holder of the landlord's or owner's interest with respect to the Leases,
Rents, Revenues and Security Deposits and has good right to sell, assign,
transfer and set over the Leases, Rents, Revenues and Security Deposits to
Lender, subject to the terms of the Hotel Management Agreement as modified or
affected by the terms of the ACHMA;
(b) Borrower has made no assignment, other than the single subordinate
mortgage lien described in Section 17 of the Mortgage and this Assignment, of
any of Borrower's rights in any of the Leases, Rents, Revenues and/or Security
Deposits, subject to the terms of the Hotel Management Agreement, as modified or
affected by the terms of the ACHMA;
(c) There is no default by Borrower or, to Borrower's actual knowledge,
any monetary default by any Lessee under any of the Leases, or any state of
facts which, with the passing of time or giving of notice, or both, would
constitute a default by Borrower, or to Borrower's knowledge, any monetary
default by any Lessee under the Leases;
(d) All Rents due to date have been collected and except for that
certain lease with Marriott Ownership Resorts, Inc. (the "MORI Lease") and that
certain Lease Agreement by and between Marriott Corporation, as landlord and
Iron Investments Corp. and Hanover Park For Industry, a joint venture, as
tenant, dated December 20, 1984 (the "Iron Investments Lease") (defined and
Page 6
<PAGE>
described in the Mortgage) (i) all of the Leases provide for Rents to be paid
monthly in advance, and (ii) no Rents have been collected more than one month in
advance;
(e) To Borrower's actual knowledge and except as disclosed to Lender
in writing prior to the date hereof, no Lessee under any of the Leases has any
defense, set off or counterclaim against Borrower, which have a material adverse
effect on the Borrower, the Hotel or the Real Property;
(f) There are no Leases in effect with respect to the Real Property
except for (i) the MORI Lease, (ii) that certain Concession Agreement by and
between Marriott Hotel Services, Inc., and Flowers, Flowers and Things, Inc.,
dated January 1, 1994, and (iii) the Iron Investments Lease;
(g) A copy of each of the Leases and any amendments heretofore entered
into have been delivered to Lender and constitute the entire agreement between
the parties thereto, including all agreements, undertakings, representations and
warranties, either oral or written; a copy of each of the Leases and any
amendments from time to time hereafter entered into shall be delivered to Lender
promptly after execution and such Leases and amendments will constitute the
entire agreement between the parties thereto and will include all agreements,
undertakings, representations and warranties, either oral or written, related to
the Leases; and Borrower hereby represents, warrants and covenants that no Lease
will be subject to or qualified by any agreements, undertakings, representations
or warranties, either oral or written, which will not have been promptly
submitted to Lender;
(h) To Borrower's actual knowledge, each of the Leases is valid, in
full force and effect, and enforceable in accordance with its terms,
Page 7
<PAGE>
subject to customary exceptions for proceedings in bankruptcy and principles of
equity;
(i) Except for free or prepaid rent as provided under the terms of the
MORI lease and as provided under the terms of the Iron Investments Lease, no
rental concession in the form of any period of free rent or any other waiver,
release, reduction, discount or other alteration of the Revenue due or to become
due has been granted to any Lessee under the Leases for any period subsequent to
the effective date of this Assignment; and
(j) None of the Leases and no Rents are currently subject to rent
control, rent stabilization or any other form of governmentally-imposed rent
regulation.
3.2. Covenants of Borrower. Borrower hereby covenants and agrees that
---------------------
Borrower shall:
(a) Fulfill, perform and observe, or cause the Management Company to
fulfill, perform and observe, in all material respects, all of the obligations
of landlord under the Leases;
(b) Give prompt written notice to Lender of any default or claim of
default by the Borrower or by the Lessee under any of the Leases as soon as
Borrower receives notice of or otherwise becomes aware of the same, along with a
complete copy of any written notice of such default or claim of default;
(c) Use commercially reasonable efforts to enforce, short of
termination, the performance of the Leases by the Lessees, consistent with
Borrower's past operating practices (Lender acknowledges that Borrower may,
Page 8
<PAGE>
based on its reasonable business judgment, elect not to enforce a Lease against
a Lessee or to exercise any remedies in connection therewith);
(d) Not alter, modify, amend, terminate or cancel any of the Leases,
nor accept a surrender of any of the Leases, nor waive any term or condition of
any of the Leases, other than in the ordinary course consistent with Borrower's
past practices at the Real Property;
(e) Not collect or accept Revenue more than one month in advance of
the time any such Revenue becomes due, other than for payments of final month's
rent customarily collected at lease inception and collecting any room revenues
generated by the operation of the hotel on the Real Property in advance and
monthly collections of annualized expense and tax escrows, except for deposits
to hold advance room reservations which occur in the ordinary course of
business;
(f) Not execute any future Leases without the prior written consent of
Lender; provided, however, that Lender's consent shall not be required for
future leases that: (i) are written on the current standard form of lease
previously approved by Lender with no material changes thereto, and (ii) contain
neither an option to cancel (other than as provided in a form of lease approved
in advance in writing by Lender) nor any ownership interest rights for the
tenant;
(g) Except as expressly permitted by the terms of the Mortgage, not
execute any assignment of the landlord's interest under any of the Leases or of
the Revenues or any interest therein or suffer or permit such to occur by
operation of law;
Page 9
<PAGE>
(h) Not permit any of the Leases to become subordinate to any lien
other than the lien of the Mortgage and the single subordinate mortgage lien
described in Section 17 of the Mortgage;
(i) Not alter, modify, change, release, waive, cancel, or terminate
the terms of any guarantee of any of Lessee's obligation under any of the Leases
in whole or in part without the prior written consent of Lender, other than in
the ordinary course consistent with Borrower's past practices at the Real
Property;
(j) Give prompt written notice to Lender of any notice received by
Borrower from any governmental authority relating to the actual or threatened
governmental imposition of rent regulations or controls on, or affecting, the
Premises, the Leases, and/or the Rents.
3.3. Covenant of Lender. Promptly following payment in full of the
------------------
Indebtedness, and the performance of all the terms and conditions of the Loan
Documents, including this Assignment, this Assignment shall terminate and
thereafter be void and of no further force and effect and, upon the request of
Borrower, Lender shall execute and deliver to Borrower instruments effective to
evidence the termination of this Assignment or the reassignment to Borrower of
the rights, power and authority granted to Lender hereunder.
ARTICLE IV. DEFAULTS; LENDER'S REMEDIES
---------------------------------------
4.1. Events of Default. Any of the following shall constitute an Event of
-----------------
Default hereunder:
Page 10
<PAGE>
(a) The occurrence of an "Event of Default" under, and as defined and
described in, the Note, the Mortgage or any of the other Loan Documents;
(b) If Borrower shall fail in any material respect to observe or
perform any other duty, covenant, promise or other obligation of a monetary or
non-monetary nature provided for in this Assignment, which failure to observe or
perform is not cured within thirty (30) days after notice to Borrower from
Lender specifying the nature of the failure to observe or perform; except it
shall not constitute an Event of Default so long as such failure to observe or
perform is not susceptible of cure within such period, so long as Borrower has
commenced to cure within such thirty (30) day period and thereafter diligently
pursues such cure to completion, and provided further that such cure is
completed within a reasonable period of time in no event later than one hundred
eighty (180) days after Lender's original notice to Borrower; and
(c) Any representation or warranty by Borrower contained in this
Assignment is untrue or misleading in any material respect, and Borrower fails
to correct such inaccuracy within thirty (30) days after written notice of such
inaccuracy from Lender to Borrower.
4.2. Remedies. Upon an Event of Default, Lender may at any time
--------
thereafter, at its option and without notice or demand of any kind, and without
regard to the adequacy of security for payment of the Indebtedness, exercise any
or all of the following remedies;
(a) Declare all of the Indebtedness immediately due and payable;
(b) To the extent not inconsistent with the terms of that certain
Agreement Concerning Hotel Management Agreement (the "Agreement Concerning
Page 11
<PAGE>
Hotel Management Agreement"), by and between Borrower, Lender and Marriott Hotel
Services, Inc., dated of even date herewith, by itself, through the Management
Company as its agent, or through another agent, take physical possession of the
Real Property, Leases, Rents, Revenues and Security Deposits and of all books,
records, documents and accounts relating to the Real Property and the Borrower's
business thereon, and manage and operate the Real Property and the Borrower's
business thereon without interference from Borrower, at Borrower's expense;
(c) To the extent not inconsistent with the terms of the Agreement
Concerning Hotel Management Agreement, with or without taking possession of the
Real Property, to collect the Rents, Revenues and Security Deposits, either by
itself, or through the Management Company, or through a receiver, the license to
collect the Rents, Revenues and Security Deposits given to Borrower by Lender
pursuant to Article II hereof being deemed automatically revoked upon the
occurrence of and during the continuance of an Event of Default, and Borrower
hereby consenting to the appointment of a receiver upon the occurrence of an
Event of Default;
(d) To the extent not inconsistent with the terms of the Agreement
Concerning Hotel Management Agreement, in Borrower's or Lender's name, to
institute any legal or equitable action which Lender, in its sole discretion,
deems desirable to collect any or all of the Rents, Revenues and Security
Deposits;
(e) To the extent not inconsistent with the terms of the Agreement
Concerning Hotel Management Agreement, perform any or all obligations of
Borrower under any of the Leases or this Assignment and take such actions as
Lender deems appropriate to protect its security and to perfect a first
Page 12
<PAGE>
priority security interest in the Leases, Rents, Revenues and Security Deposits,
including, without limitation: (i) appearing in any action or proceeding
affecting any of the Leases or the Real Property; (ii) collecting, modifying and
compromising any Rents, Revenues and/or Security Deposits payable under the
Leases; and (iii) enforcing any of the Leases, including, if necessary, evicting
tenants; and
(f) To the extent not inconsistent with the terms of the Agreement
Concerning Hotel Management Agreement, any other remedies permitted to Lender
under applicable law.
The foregoing remedies are in addition to any remedies afforded Lender under
any other of the Loan Documents or in law or equity, by statute or otherwise,
all of which rights and remedies are reserved by Lender. All of the remedies of
Lender shall be cumulative and may be exercised at Lender's option concurrently
or successively and the exercise or beginning of exercise by Lender of any such
remedies shall not preclude the simultaneous or subsequent exercise of the same
remedy or any other remedy available to Lender. No failure or delay on the part
of Lender to exercise any remedy shall operate as a waiver thereof.
4.3. Application of Proceeds. Any amounts collected by Lender hereunder
-----------------------
shall be applied by Lender, to pay, in such order as Lender shall elect, the
Indebtedness, including all principal; accrued and unpaid interest; default rate
interest, prepayment fees (if applicable); advances; and all costs and expenses,
including Attorneys Fees, incurred by Lender in operating, protecting,
preserving and realizing on Lender's interest in the Real Property including any
reasonable fees incurred in the representation of Lender in any
Page 13
<PAGE>
proceeding under Title 11, United States Code; and any other amount due under
the Note, the Mortgage or any other of the Loan Documents.
It is understood and agreed that except as provided by law neither the
assignment of the Revenues to Lender nor the exercise by Lender of any of its
rights or remedies under this Assignment shall be deemed to make Lender a
"Mortgagee-in-Possession" or otherwise responsible or liable in any manner with
respect to the Real Property or the use, occupancy, enjoyment or operation of
all or any portion thereof, unless and until Lender, in person or by agent,
assumes actual possession thereof, nor shall appointment of a receiver by any
court at the request of Lender or by agreement with Borrower or the entering
into possession of the Real Property or any part thereof by such receiver be
deemed to make Lender a "Mortgagee-in-Possession" or otherwise responsible or
liable in any manner with respect to the Real Property or the use, occupancy,
enjoyment or operation of all or any portion thereof.
ARTICLE V. NO LIABILITY, INDEMNIFICATION
----------------------------------------
5.1. No Liability. Unless and until Lender accepts title to the Real
------------
Property, and then only with respect to conditions which first exist or events
which first take place after Lender accepts title to the Real Property, nothing
in this Assignment shall be construed to impose upon Lender any obligation or
responsibility of Borrower, to any Lessee under any of the Leases or to any
other third party, for the control, care, management or repair of the Real
Property, the performance of any of the landlord's obligations under the Leases,
or for any dangerous or defective condition on the Real Property.
Page 14
<PAGE>
5.2. Indemnification. Borrower shall indemnify and hold Lender harmless
---------------
from and against all obligations, liabilities, losses, costs, expenses, civil
fines, penalties or damages (including Attorneys Fees) which Lender may incur by
reason of this Assignment or in connection with any of the Leases or with regard
to the Real Property prior to such time as Lender takes actual physical
possession of and manages and operates the Real Property or actually collects
Revenues after an Event of Default. Borrower shall, with counsel reasonably
acceptable to Lender, defend Lender against any claim or litigation involving
Lender for the same. Should Lender incur such obligation, liability, loss,
cost, expense, civil fine, penalty or damage, Borrower shall reimburse Lender
upon demand. Upon the occurrence of an Event of Default, any amount owed Lender
under this provision shall bear interest at the "Default Rate" defined and
described in the Note and shall be secured by the Loan Documents.
ARTICLE VI. MISCELLANEOUS
-------------------------
6.1. Modifications, Etc. Borrower hereby consents and agrees that Lender
------------------
may at any time and from time to time, without notice to or further consent from
Borrower, either with or without consideration, surrender any property or other
security of any kind or nature whatsoever held by Lender or by any person, firm
or corporation on Lender's behalf or for its account, securing the Indebtedness;
substitute for any collateral so held by Lender, other collateral of like kind,
or of any kind; extend or renew the Note, the Mortgage or any other of the Loan
Documents for any period; grant releases, compromises and indulgences with
respect to the Note, the Mortgage or any other of the Loan Documents to any
person or entities now or hereafter liable thereunder or hereunder; release any
guarantor or endorser of the Note, the Mortgage or any other of the Loan
Documents; or take or fail to take any action of any type whatsoever; and no
such action which Lender shall take or
Page 15
<PAGE>
fail to take in connection with the Loan Documents, or any of them, or any
security for the payment of the Indebtedness or for the performance of any
obligations or undertakings of Borrower, nor any course of dealing with Borrower
or any other person, shall release Borrower's obligations hereunder, affect this
Assignment in any way or afford Borrower any recourse against Lender. The
provisions of this Assignment shall extend and be applicable to all renewals,
amendments, extensions, consolidations and modifications of the Loan Documents
and the Leases, and any and all references herein to the Loan Documents or the
Leases shall be deemed to include any such renewals, amendments, extensions,
consolidations or modifications thereof.
6.2. Further Assurance. At any time and from time to time, upon request by
-----------------
Lender, Borrower will make, execute and deliver, or cause to be made, executed
and delivered, to Lender and, where appropriate, cause to be recorded and/or
filed and from time to time thereafter to be re-recorded and/or refiled at such
time and in such offices and places as shall reasonably be deemed desirable by
Lender, any and all such other and further assignments, deeds to secure debt,
mortgages, deeds of trust, security agreements, financing statements,
continuation statements, instruments of further assurance, certificates and
other documents as may, in the reasonable opinion of Lender, be necessary or
desirable in order to effectuate, complete, or perfect, or to continue and
preserve (a) the obligations of Borrower under this Assignment and (b) the
security interest created by this Assignment as a first and prior security
interest upon the Leases and the Revenues.
6.3. Successors and Assigns. All of the terms and conditions of this
----------------------
Assignment are hereby made binding upon the executors, heirs, administrators,
successors and permitted assigns of both Lender and Borrower, including any
Page 16
<PAGE>
trustee or debtor-in-possession appointed in any proceeding under Title 11,
United States Code.
6.4. Notices. Any notice, request, demand, statement or consent made
-------
hereunder shall be in writing signed by the party giving such notice, request,
demand, statement or consent, and shall be deemed to have been properly given
when either delivered personally, or deposited in the United States Mail,
postage prepaid and certified or registered, return receipt requested, or
delivered to a reputable overnight delivery service providing a receipt, in each
case addressed to the other party at its address set forth below, or at such
other address within the continental United States of America as such party may
have theretofore designated in writing in accordance with the terms of this
provision. The effective date of any notice given as aforesaid shall be the
date of personal service, five (5) Business Days after deposit in the United
States Mail as aforesaid, or one (1) Business Day after delivery to such
overnight delivery service, whichever is applicable. The terms "Business Day"
and "Business Days" as used in this Assignment shall mean any calendar day other
than a Saturday, a Sunday or a Federal holiday on which the U.S. Postal Service
offices are closed for business in one or more of Hanover, New Jersey, Bethesda,
Maryland or Hartford, Connecticut. For purposes hereof, the addresses are as
follows:
If to Lender: Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, Connecticut 06152-2319
Attention: Investment Services, S-319
With a copy to: CIGNA Corporation
Investment Law Department
900 Cottage Grove Road
Hartford, Connecticut 06152-2215
Attention: Real Estate Division, S-215A
Page 17
<PAGE>
If to Borrower: Hanover Marriott Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Treasurer
With a copy to: Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department
6.5. Governing Law. This Assignment shall be construed, and the rights and
-------------
obligations of Lender and Borrower shall be determined, in accordance with the
laws of the State of New Jersey.
6.6. Captions. The captions of this Assignment are inserted only for the
--------
purpose of convenience, and in no way define, limit or prescribe the scope or
extent of this Assignment or any part hereof.
6.7. Exhibits. All Exhibits referred to herein and attached hereto are
--------
hereby incorporated and made a part of this Assignment.
6.8. No Oral Modifications; Amendments. No oral amendment to this
---------------------------------
Assignment shall be binding on the parties hereto. Any modification of or
amendment to this Assignment must be in writing signed by both parties.
6.9. Terms. Common nouns and pronouns shall be deemed to refer to the
-----
masculine, feminine, neuter, singular and plural, as the identity of the person
or persons, firm or corporation may in the context require.
6.10. Invalidity. If any provision of this Assignment shall be held
----------
invalid, the same shall not affect in any respect whatsoever the validity of the
remainder of this Assignment.
Page 18
<PAGE>
6.11 Attorneys' Fees. Any reference to "Attorney Fees" or "Attorneys'
---------------
Fees") in this Assignment includes but is not limited to both the reasonable
fees and all charges and costs incurred by Lender through its retention of
outside legal counsel and paralegals and the reasonably allocable fees and all
charges and costs for services rendered by Lender's in-house or staff counsel
and paralegals related to the Indebtedness. Any reference to "Attorney Fees" or
"Attorneys' Fees" shall also include but not be limited to those reasonable
attorneys or legal fees and all costs and charges incurred by Lender in the
collection of any Principal Indebtedness, the enforcement of any obligations
hereunder, the protection of the Security, the foreclosure of the Mortgage, the
sale of the Security, the defense of actions arising hereunder and the
collection, protection or set off of any claim the Lender may have in a
proceeding under Title 11, United States Code. Any Attorneys' Fees provided for
hereunder shall accrue whether or not Lender has provided notice of an Event of
Default or of an intention to exercise its remedies for such Event of Default.
6.12 Waiver of Trial by Jury. Borrower hereby waives its right to a trial
-----------------------
by jury as to any matter arising out of or concerning the subject matter of this
Assignment.
Page 19
<PAGE>
6.13 Joint and Several Liability. If more than one person, corporation,
---------------------------
partnership or other entity shall in the future execute and become a party to
this Assignment, then each person and entity shall be fully liable for all
obligations of Borrower hereunder, and such obligations shall be joint and
several.
6.14 Scope of Liability. The provisions of Section 15 of the Note and
------------------
Section 40 of the Mortgage are incorporated by reference herein.
Page 20
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this Assignment as of the day and
year first above written.
Witnesses: BORROWER:
HANOVER MARRIOTT LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Marriott Hanover Hotel Corporation, a
Delaware corporation, its sole general
partner
David Reichmann By: Bruce D. Wardinski (SEAL)
- ------------------------ ------------------------
Name: Bruce D. Wardinski
Title: Vice President
<PAGE>
STATE OF Maryland )
) ss:
COUNTY OF Montgomery )
On this 14th day of August, 1997, before me, Susan B. Savits, a Notary Public
in and for the jurisdiction aforesaid, personally appeared in said jurisdiction
Bruce D. Wardinski, to me personally known, who being by me duly sworn did
acknowledge himself to be a Vice President of Marriott Hanover Hotel
Corporation, a Delaware corporation, acting as the sole general partner of
Hanover Marriott Limited Partnership, a Delaware limited partnership, and that
he, as such Vice President, being authorized so to do, did acknowledge the
foregoing instrument to be the act and deed of said corporation acting herein as
the sole general partner of said limited partnership, as aforesaid, and that the
same was executed for the purposes therein contained, and delivered the same as
such.
WITNESS my hand and Notarial Seal.
Susan B. Savits
---------------------------
Notary Public
My commission expires: 2/16/99
-----------------------
<PAGE>
EXHIBIT A
TO
ASSIGNMENT OF LEASES, RENTS AND REVENUES
Description of Real Property
----------------------------
4. The land referred to in this Commitment is described as follows:
ALL THAT CERTAIN TRACT, PARCEL AND LOT OF LAND LYING AND BEING SITUATE IN
THE TOWNSHIP OF HANOVER, COUNTY OF MORRIS, STATE OF NEW JERSEY, BEING MORE
PARTICULARLY DESCRIBED AS FOLLOWS:
BEGINNING AT A POINT IN THE PRESENT SOUTHWESTERLY SIDE OF NEW JERSEY STATE
HIGHWAY ROUTE 10 AT A POINT WHERE THE WESTERLY LINE OF THE PREMISES TO BE
DESCRIBED AND THE EASTERLY LINE NOW OR FORMERLY OF NEWARK MILK AND CREAM
COMPANY INTERSECTS SAID SIDELINE OF ROUTE 10 AND RUNNING; THENCE
(1) SOUTH 60 DEGREES 59 MINUTES 12 SECONDS EAST AND ALONG THE SIDE OF ROUTE
10, 774.32 FEET TO THE CORNER OF LANDS NOW OR FORMERLY OF MELVIN AND IRENE
WYKOFF, HIS WIFE; THENCE
(2) SOUTH 29 DEGREES 00 MINUTES 48 SECONDS WEST 178.12 FEET; THENCE
(3) STILL ALONG LANDS SOUTH 60 DEGREES 59 MINUTES 12 SECONDS EAST 211.0 FEET
TO LINE OF LANDS OF IRON INVESTMENT CORP., ET.ALS., LANDS ALONG THE SAME;
THENCE
(4) THE SAME SOUTH 12 DEGREES 09 MINUTES 55 SECONDS WEST 432.86 FEET TO A
POINT; THENCE
(5) NORTH 81 DEGREES 54 MINUTES 29 SECONDS WEST 181.92 FEET TO A POINT;
THENCE
(6) NORTH 61 DEGREES 11 MINUTES 56 SECONDS WEST 760.78 FEET TO A POINT IN
LINE OF LANDS OF NEWARK MILK AND CREAM COMPANY; THENCE
(7) ALONG THE SAME NORTH 13 DEGREES 45 MINUTES 24 SECONDS EAST 684.30 FEET
TO THE POINT AND PLACE OF BEGINNING.
TOGETHER WITH ACCESS TO AND EGRESS FROM THE PREMISES BY WAY OF 50 FOOT
EASEMENT AS SET FORTH ON FILE MAP NO. 3826 AND FURTHER DESCRIBED AS FOLLOWS:
BEGINNING AT AN ANGLE POINT IN THE NORTHERLY LINE OF TAX LOT 4, BLOCK 1101
AS SHOWN ON THE TAX MAP OF THE TOWNSHIP OF HANOVER, MORRIS COUNTY, NEW
JERSEY, SAID POINT BEING FURTHER DESCRIBED AS BEING SOUTH 61 DEG. 11 MIN. 56
SEC. EAST, 436.92 FEET FROM THE NORTH WEST CORNER OF SAID LOT 4 AS SHOWN ON
A MAP ENTITLED "MAP OF HANOVER PARK FOR INDUSTRY", DATED NOVEMBER 30, 1978
BY STEPHEN A. JAROMBEK OF MONTVILLE NJ AND FILED IN THE MORRIS COUNTYCLERK'S
OFFICE AS FILE MAP NUMBER 3826, AND RUNNING THENCE
1. THROUGH SAID LOT 4, SOUTH 12 DEG. 44 MIN. 34 SEC. WEST, 33.54 FEET TO A
POINT ON THE NORTHERLY END OF WING DRIVE, 50 FEET WIDE AS SHOWN ON SAID FILE
MAP; THENCE,
2. ALONG THE END OF WING DRIVE, NORTH 86 DEG. 11 MIN. 36 SEC. WEST, 34.73
FEET TO A POINT OF CURVATURE; THENCE,
3. CONTINUING ALONG WING DRIVE ON A CURVE TO THE LEFT WITH A RADIUS OF 60.00
FEET, AN ARC LENGTH OF 16.44 FEET, SAID CURVE HAVING A CHORD OF SOUTH 85
DEG. 57 MIN. 30 SEC. WEST, 16.39 FEET; THENCE
4. THROUGH LOT 4, 50 FEET WEST OF AND PARALLEL TO THE FIRST COURSE ABOVE,
NORTH 12 DEG. 44 MIN. 34 SEC. EAST, 58.06 FEET TO A POINT ON THE SOUTHERLY
LINE OF LOT 13, BLOCK 1002 AS SHOWN ON SAID TAX MAP; THENCE
5. THENCE ALONG SAID LINE, SOUTH 61 DEG. 11 MIN. 56 SEC. EAST, 52.03 FEET TO
THE POINT AND PLACE OF BEGINNING.
THE ABOVE EASEMENT DESCRIPTION IS IN ACCORDANCE WITH A SURVEY PREPARED BY
RBA GROUP, DATED APRIL 10, 1997 AND REVISED AUGUST 13, 1997.
BEING ALSO KNOWN AS (REPORTED FOR INFORMATION PURPOSES ONLY):
LOT 13, BLOCK 1002, ON THE OFFICIAL TAX MAP OF THE TOWNSHIP OF HANOVER IN
THE COUNTY OF MORRIS
<PAGE>
EXHIBIT 10.K
EXECUTION COUNTERPART
---------------------
COLLATERAL ASSIGNMENT OF CONTRACTS,
LICENSES AND PERMITS
AND SECURITY AGREEMENT
HANOVER MARRIOTT
HANOVER, NEW JERSEY
THIS COLLATERAL ASSIGNMENT OF CONTRACTS, LICENSES AND PERMITS AND SECURITY
AGREEMENT (this "Collateral Assignment") dated as of the 18th day of August,
1997, by HANOVER MARRIOTT LIMITED PARTNERSHIP, a Delaware limited partnership
("Assignor") to CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut
corporation ("Assignee"), provides:
R E C I T A L S :
- - - - - - - -
Assignee has made a permanent loan (the "Loan") to Assignor in the original
principal amount of Twenty Nine Million Eight Hundred Seventy Five Thousand and
00/100 Dollars ($29,875,000.00) as evidenced by a Promissory Note (the "Note")
in said principal amount of even date herewith, given by Assignor to Assignee,
which Note is secured, inter alia, by a Mortgage and Security Agreement and an
----- ----
Assignment of Leases, Rents and Revenues (jointly, the "Mortgage"), each of even
date herewith on a fee simple interest in certain real property located in
Hanover, New Jersey, as more particularly described in EXHIBIT A attached hereto
---------
and made a part hereof (the "Property"). As a condition precedent to the Loan,
Assignor agreed to assign to Assignee as security for the performance of
Assignor's obligations under all documents evidencing or securing the Loan (the
"Loan Documents") all of Assignee's rights, title and interest in and to any and
all contracts, licenses and permits, now existing or hereafter entered into or
obtained (the "Contracts"), relating to Assignor's operations at, or in
connection with, the Property and the improvements ("Improvements") thereon.
The Contracts include, but are not limited to, those matters designated on
EXHIBIT B hereto.
- ---------
ASSIGNMENT
NOW, THEREFORE, Assignor hereby agrees as follows:
1. Assignor hereby assigns, transfers and sets over to Assignee (to the
extent permitted by law and any such Contract) all the rights, title and
interest of Assignor in and to the Contracts, together with, as appropriate, all
proceeds, distributions, income, revenue, issues, and profits (the "Proceeds")
now or hereafter arising therefrom.
If any such Contracts which are material are not freely assignable by
Assignor, Assignor shall notify Assignee, and upon Assignee's written request,
Assignor shall utilize its reasonable efforts to obtain any required consent to
such assignment.
<PAGE>
2. Assignor agrees that it shall not, except in the ordinary course of its
business, agree to cancel, terminate or modify the terms of the Contracts, or
any of them.
3. Unless an Event of Default (as hereinafter defined) has occurred and
is continuing, Assignor shall have a revocable license (i) to collect, receive
and apply for its own account all Proceeds arising from or in connection with
the Contracts and (ii) to proceed in accordance with the Contracts.
4. Immediately upon the occurrence and during the continuance of an Event
of Default, the license set forth in the foregoing Section 3(i) to collect,
receive and apply Proceeds, and Section 3(ii) to proceed under the Contract,
shall, at the option of Assignee, cease and terminate, and in such event
Assignee shall be entitled to and is hereby expressly and irrevocably authorized
to take possession of all rights, title and interest of Assignor in and to the
Contracts and the Proceeds.
5. Assignor hereby agrees to indemnify and hold Assignee and its
officers, directors, employees and agents harmless from and against any and all
liability, loss, damage, cost and expense, including reasonable, actual
attorneys' fees, which Assignee or said other parties may incur under the
Contracts or by reason of this Agreement, or by reason of any action properly
taken hereunder, and from and against any and all claims and demands whatsoever
which may be asserted against Assignee or such other parties by reason of any
alleged obligation or undertaking on Assignee's part to perform or discharge any
of the terms, covenants or conditions contained in the Contracts, except for
matters arising from the gross negligence or willful misconduct of Assignee or
such officers, directors, employees or agents. Should Assignee incur any such
liability, the principal amount of such liability shall be payable by Assignor
within five (5) Business Days after demand therefor or, at the election of
Assignee, Assignee shall have the right to reimburse itself therefor from any
Proceeds collected by Assignee, and if such amount shall not be paid or
reimbursed within said five (5) Business Day period interest shall accrue
thereon from the date of demand therefor until paid and be immediately payable
to Assignee at the Default Rate (as defined in the Note). Nothing contained
herein shall obligate or be construed to obligate Assignee to perform any of the
terms, covenants or conditions contained in the Contracts or otherwise to impose
any obligation upon Assignee with respect to the Contracts and Assignee shall
not in any event become or be deemed to be a substituted obligor under the
Contracts, unless and until such time as Assignee shall have enforced its rights
and remedies in connection with an Event of Default.
6. Assignor covenants that it has not sold, assigned, transferred,
mortgaged or pledged its interest in the Contracts or the Proceeds, or any part
thereof, and agrees that it shall not sell, assign, transfer, mortgage or pledge
its interest in the Contracts or the Proceeds, or any part thereof, whether now
due or hereafter to become due, to any person, firm or corporation, except for
Assignee and the holder of any subordinate mortgage financing permitted under
the Loan Documents.
-2-
<PAGE>
7. Assignor agrees to execute and deliver to Assignee, at any time or
times during which this Agreement shall be in effect, such further instruments
as Assignee may deem necessary to make effective or more effective the
assignment of the rights of Assignor assigned to Assignee hereby and the
covenants of Assignor herein contained.
8. Upon demand and notice from Assignee of the occurrence of an Event of
Default, Assignor irrevocably directs all other parties under the Contracts to
deal directly with Assignee in lieu of and in the place and stead of Assignor
from and after the receipt of such demand or notice. Such parties in
undertaking such dealings with Assignee shall be under no obligation to inquire
into or determine the actual existence of any such default claimed by Assignee.
If such Event of Default shall cease to exist after Assignee has made such
demand and notice, Assignee shall thereafter give notice to such other parties
terminating its prior demand and notice.
9. Upon the payment of all indebtedness secured by, and the performance
of all the terms and conditions of, the Loan Documents and this Agreement, this
Agreement shall terminate and thereafter be void and of no further force and
effect and, upon the request of the Assignor, Assignee shall execute and deliver
to Assignor instruments effective to evidence the termination of this Assignment
or the reassignment to Assignor of the rights, power and authority granted to
Assignee hereunder.
10. To the extent applicable, this Agreement shall serve as a security
agreement as defined in the Uniform Commercial Code as enacted in the State of
New Jersey and the Assignee shall have a security interest in Contracts and the
Proceeds.
11. Upon the occurrence of an Event of Default, Assignee may proceed to
enforce and exercise any or all of the rights and remedies provided by the
Uniform Commercial Code (to the extent applicable), in addition to all of
Assignee's other rights at law or equity and those rights provided herein and in
the Loan Documents. The rights and remedies of the Assignee hereunder are
cumulative and are not in lieu of but are in addition to any other rights and
remedies which Assignee shall have under or by virtue of the Loan Documents.
The rights and remedies of the Assignee hereunder may be exercised from time to
time, and as often as such exercise shall be deemed expedient by the Assignee.
12. Failure of Assignee to avail itself of any of the terms, covenants and
conditions of this Agreement for any period of time or times, shall not be
construed or deemed to be a waiver of any of the rights of the Assignee
hereunder.
13. No change, amendment, modification, cancellation or discharge hereof,
shall be valid unless Assignee shall have consented thereto in writing.
14. An "Event of Default" hereunder shall be defined as the breach of any
obligation or covenant of Assignor hereunder or under the Loan Documents beyond
any applicable notice or grace period set forth herein or therein.
-3-
<PAGE>
15. Section 15 of the Note and Section 40 of the Mortgage (which are Loan
Documents of even date herewith) are incorporated herein by this reference
thereto.
16. This Agreement may be executed simultaneously in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Any notice, request, demand, statement or consent made hereunder shall
be in writing signed by the party giving such notice, request, demand, statement
or consent, and shall be deemed to have been properly given when either
delivered personally, delivered to a reputable overnight delivery service
providing a receipt or deposited in the United States Mail, postage prepaid and
registered or certified return receipt requested, in each case addressed to the
other party hereto at its address set forth below, or at such other address
within the continental United States of America as such party may have
theretofore designated in writing pursuant to this Section 17. The effective
date of any notice given as aforesaid shall be the date of personal service, one
(1) business day after delivery to such overnight delivery service, or five (5)
business days after being deposited in the United States Mail, whichever is
applicable. For purposes hereof, the addresses are as follows:
If to Assignee:
Connecticut General Life Insurance Company
CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, CT 06152-2319
Attention: Investment Services, S-319
With a copy to:
CIGNA Corporation
Investment Law Department
900 Cottage Grove Road
Hartford, CT 06152-2215
Attention: Real Estate Division, S-215A
If to Assignor:
Hanover Marriott Limited Partnership
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Treasurer
-4-
<PAGE>
With a copy to:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Law Department
ASSIGNOR:
HANOVER MARRIOTT LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Marriott Hanover Hotel Corporation,
a Delaware corporation and its general partner
By P.K. Brady
----------------------------------------
-5-
<PAGE>
EXHIBIT A
---------
ALL that certain tract, parcel and lot of land lying and being situate in
the Township of Hanover, County of Morris, State of New Jersey, being more
particularly described as follows:
BEGINNING at a point in the present southwesterly side of New Jersey State
Highway Route 10 at a point where the westerly line of the premises to be
described and the easterly line now or formerly of Newark Milk and Cream Company
intersects said sideline of Route 10 and running; thence
(1) South 60 Degrees 59 Minutes 12 Seconds East and along the side of Route
10,774.32 feet to the corner of lands now or formerly of Melvin and Irene
Wykoff, his wife; thence
(2) South 29 Degrees 00 Minutes 48 Seconds West 178.12 feet; thence
(3) Still along lands South 60 Degrees 59 Minutes 12 Seconds East 211.0
feet to line of Lands of Iron Investment Corp., et. als., lands along the same;
thence
(4) The same South 12 Degrees 09 Minutes 55 Seconds West 432.86 feet to a
point; thence
(5) North 81 Degrees 54 Minutes 29 Seconds West 181.92 feet to a point;
thence;
(6) North 61 Degrees 11 Minutes 56 Seconds West 760.78 feet to a point in
line of Lands of Newark Milk and Cream Company; thence
(7) Along the same North 13 Degrees 45 Minutes 24 Seconds East 684.30 feet
to the point and place of BEGINNING.
TOGETHER with access to and egress from said premises by way of 50
foot wide easement as set forth on filed map no. 3826 and further described as
follows:
Beginning at an angle point in the northerly line of Tax Lot 4, Block
1101 as shown on the tax map of the Township of Hanover, Morris County, New
Jersey, said point being further described as being South 61 Degrees 11 Minutes
56 Seconds East, 436.92 feet from the Northwest Corner of said Lot 4 as shown on
a map entitled "Map of Hanover Park for Industry", dated November 30, 1978 by
Stephen A. Jarombek of Montville, New Jersey and filed in the Morris County
Clerk's Office as filed map number 3826, and running thence
1. Through said Lot 4, South 12 Degrees 44 Minutes 34 Seconds West,
-6-
<PAGE>
33.54 Feet to a Point on the Northerly End of Wing Drive, 50 Feet Wide as shown
on said filed map, thence,
2. Along the end of Wing Drive, North 86 Degrees 11 Minutes 36
Seconds West, 34.73 feet to a point of curvature; thence
3. Continuing along Wing Drive on a curve to the left with a radius
of 60.00 feet, an arc length of 16.44 feet, said curve having a chord of South
85 Degrees 57 Minutes 30 Seconds West, 16.39 feet; thence
4. Through Lot 4, 50 feet West of and parallel to the first course
above, North 12 Degrees 44 Minutes 34 Seconds East, 58.06 feet to a point on the
Southerly Line of Lot 13, Block 1002 as shown on said Tax Map; thence
5. Along said line, South 61 Degrees 11 Minutes 56 Seconds East,
52.03 feet to the point and place of BEGINNING.
-7-
<PAGE>
EXHIBIT B
---------
1. All contracts with architects, engineers and surveyors with respect to
the Improvements.
2. All construction contracts with respect to the Improvements.
3. All certificates of occupancy with respect to the Improvements.
4. All agreements concerning public and private utilities with respect to
the Improvements.
5. All franchise agreements, service agreements, licenses and permits
with respect to the construction, operation and utilization of the Improvements.
6. All plans and specifications with respect to the Improvements.
7. All insurance policies with respect to the Improvements and the
Property.
8. All rights of the Assignor with respect to private restrictions
affecting the Property.
9. All bonds and similar agreements with respect to the Improvements and
the Property.
10. All feasibility and marketing studies, percolation tests, soil
borings, surveys, topographical studies and the like with respect to the
Property and the uses thereof.
11. All marketing reports and other writings with respect to the
Improvements.
12. All books and records with respect to the Improvements and the
Property.
13. All contracts with any managing agent for the Improvements, including,
but not limited to that certain Management Agreement by and among Assignor, as
"Owner", and Marriott Hotel Services, Inc. dated as of even date herewith.
14. All contracts of sale with respect to the Improvements.
15. All contracts with advertisers, including the yellow pages.
16. All operating and service contracts relating to the operation of the
Improvements.
17. All vested, concurrency and development rights with respect to the
Improvements and/or the Property.
-8-
<PAGE>
EXHIBIT 10.1
FORECLOSURE GUARANTEE
THIS GUARANTEE, is made as of the 18th day of August, 1997, by MARRIOTT
HANOVER HOTEL CORPORATION, a Delaware corporation ("GUARANTOR"), to CONNECTICUT
GENERAL LIFE INSURANCE COMPANY (the "LENDER")
To induce the Lender to make a loan to Hanover Marriott Limited
Partnership, a Delaware limited partnership ("BORROWER"), in the principal sum
of $29,875,000.000 (the "MORTGAGE DEBT"), which Mortgage Debt is secured by,
among other things, the Mortgage and Security Agreement dated as of the date
hereof and encumbering the premises commonly known as the Hanover Marriott
Hotel, Route 10, Hanover, New Jersey ("the PREMISES"), and evidenced by a
Promissory Note dated as of the date hereof, the undersigned Guarantor
represents, warrants and covenants to the Lender as follows:
1. Guarantor unconditionally guarantees to the Lender payment of an amount
of up to $10,000,000.00 upon a foreclosure of the Premises by the Lender. Such
Guarantee is payable to the Lender (i) only upon a foreclosure by the Lender and
(ii) only in the event the proceeds from the foreclosure sale are less than
$10,000,000.00. Under such circumstances, the Guarantor would pay to the Lender
the difference between $10,000,000.000 and the net proceeds from the foreclosure
sale.
2. No delay on the Lender's part in exercising any right, power or
privilege under this Guarantee or under any other document executed by Guarantor
or Borrower in favor of the Lender shall operate as a waiver of any such right,
power or privilege.
3. This Guarantee is a guarantee of payment and not of collection.
4. This Guarantee shall be interpreted, construed and enforced in
accordance with the laws of the State of New Jersey.
GUARANTOR:
MARRIOTT HANOVER HOTEL
CORPORATION,
a Delaware corporation
By: Christopher G. Townsend
---------------------------------
Name: Christopher G. Townsend
Title: Vice President
(Corporate Seal)
<PAGE>
Exhibit 10.M
ENVIRONMENTAL INDEMNIFICATION AGREEMENT
HANOVER MARRIOTT
HANOVER, NEW JERSEY
This Environmental Indemnification Agreement ("Agreement") is executed and
delivered as of the 18th day of August, 1997 by HANOVER MARRIOTT LIMITED
PARTNERSHIP, a Delaware limited partnership ("Borrower"), and by MARRIOTT
HANOVER HOTEL CORPORATION, a Delaware corporation (the foregoing, including
Borrower, are collectively referred to in this Agreement as the "Indemnitors"),
for the benefit of CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut
corporation ("Beneficiary").
W I T N E S S E T H:
A. Borrower is the maker of that certain Promissory Note in the original
principal sum of Twenty Nine Million Eight Hundred Seventy Five Thousand and
No/100 Dollars ($29,875,000.00) (the "Note") of even date herewith, in favor of
Beneficiary, as payee, which Note is secured, inter alia, by a Mortgage and
----- ----
Security Agreement (the "Mortgage") on certain real property and improvements
thereon (as more completely defined and described in the Mortgage, the "Real
Property") located in the Township of Hanover, County of Morris, and State of
New Jersey. The Note, the Mortgage and any other instrument evidencing,
securing or pertaining to the loan by Beneficiary to Borrower (the "Loan") are
collectively referred to in this Agreement as the "Loan Documents".
B. As a condition precedent and prior inducement to the Beneficiary making
the Loan to Borrower, Borrower agreed to provide this Agreement from
Indemnitors.
C. It is to the benefit of each of the Indemnitors that Beneficiary make
the Loan to Borrower.
D. Indemnitors now desire to execute and deliver this Agreement.
<PAGE>
NOW, THEREFORE, for the purpose of inducing Beneficiary to make the Loan,
and in consideration of Beneficiary extending the Loan to Borrower and for other
good and lawful consideration, the receipt of which is hereby acknowledged, and
notwithstanding any contrary provision to be included in the Note, the Mortgage,
or any other of the Loan Documents, Indemnitors jointly and severally agree for
the benefit of Beneficiary and any subsequent holder of the Note as follows:
1. Definitions. The following terms shall have the definition set forth:
-----------
"Hazardous Materials" shall mean and include those elements,
materials, compounds, mixtures, wastes or substances (collectively "Substances")
which are designated as pollutant, toxic, infectious, flammable, radioactive or
hazardous or which are contained in any list of hazardous Substances or toxic
pollutants adopted by the United States Environmental Protection Agency (the
"EPA"), the United States Congress or the State of New Jersey, or which are
defined as hazardous, toxic, pollutant, infectious, flammable or radioactive by
any of the Environmental Laws (hereinafter defined) and, whether or not included
in such lists or Environmental Laws, shall be deemed to include all Substances
containing petroleum, petroleum products and derivatives, asbestos, and/or
polychlorinated biphenyls ("PCB's").
"Environmental Laws" shall mean and include any Federal, State, or
local statute, law, ordinance, code, rule, regulation, order, or decree
regulating or relating to protection of human health or the environment
concerning the Disposal (defined hereinbelow) of any Hazardous Materials, or
regulating or imposing liability or standards of conduct concerning the Disposal
of any Hazardous Materials, as now or at any time hereafter in effect including,
without limitation, the Federal Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. (S)(S)9601 et seq., the
-- ---
Superfund Amendments and Reauthorization Act, 42 U.S.C. (S)(S)9601 et.
--
<PAGE>
seq., the Federal Oil Pollution Act of 1990, 33 U.S.C. (S)(S)2701, et. seq., the
- --- -- ---
Federal Toxic Substances Control Act, 15 U.S.C. (S)(S)2601 et. seq., the Federal
-- ---
Resource Conservation and Recovery Act as amended, 42 U.S.C. (S)(S)6901 et.
--
seq., the Federal Hazardous Materials Transportation Act, 49 U.S.C. (S)(S)1801
- ---
et. seq., the Federal Clean Air Act 42 U.S.C. (S)7401 et. seq., the Federal
- -- --- -- ---
Water Pollution Control Act, 33 U.S.C. (S)1251 et. seq., the Rivers and Harbors
-- ---
Act of 1899, 33 U.S.C. (S)(S)401 et. seq., the New Jersey Industrial Site
-- ---
Recovery Act (formerly the Environmental Cleanup Responsibility Act), as
amended, N.J.S.A. 13:1k-6 et seq., the Spill Compensation and Control Act, as
amended, N.J.S.A. 58:10-23.11, et seq., New Jersey Tank Registration Act,
N.J.S.A. 58:10A-21, et seq., and the New Jersey Water Pollution Control Act, as
amended, N.J.S.A. 58:10A-1 et seq., and all laws, statutes, rules, ordinances
and regulations of the EPA or the State of New Jersey, and all rules and
regulations of the EPA, or any other state, federal or local department, board,
or agency, or any other state, federal or local agency or governmental board or
entity having jurisdiction over the Real Property, as any of the foregoing have
been, or are hereafter created, amended, supplemented, re-authorized, superseded
and/or replaced from time to time.
"Borrower" shall mean and include Borrower as defined above, any successors
and assigns, and any subsequent owner of all or any part of or interest in the
Real Property.
"Attorneys' Fees" shall mean and include both the reasonable fees and all
charges and costs incurred by Beneficiary through its retention of outside legal
counsel and paralegals and the reasonably allocable fees and all charges and
costs relating to the Loan for services rendered by Beneficiary's in-house or
staff counsel and paralegals, and shall include without limitation all expert
witness payments and other court costs whether or not incurred in any judicial,
bankruptcy or administrative proceeding.
2. Indemnity. Indemnitors shall jointly and severally protect, indemnify,
---------
defend, and hold harmless Beneficiary and its assigns and their
<PAGE>
respective directors, officers, employees and agents and their respective heirs,
legal representatives, successors and assigns, from, against and with respect
to, and shall be responsible for, any and all losses, damages, costs, charges,
liens, debts, fines, penalties, injunctive relief, claims, demands, expenses,
suits, orders, judgments, adjudications, liabilities, or injuries to person,
property or natural resources, including Attorneys' Fees and consultant fees
(any of the foregoing being referred to in this Agreement as a "Claim") arising
out of, attributable to, or which may accrue out of or result from (i) a
violation or alleged violation of the Environmental Laws relating to or
affecting the Real Property by any person or entity or other source whether
related or unrelated to Borrower, or (ii) any past or present or future actual
or alleged presence, release, spill, transportation, migration, generation,
treatment, processing, storage, use or disposal of Hazardous Materials on, in,
under, above or emanating from any portion of the Real
<PAGE>
Property by any person or entity or other source, whether intentional or
unintentional, direct or indirect, foreseeable or unforeseeable by any person or
entity or other source, whether related or unrelated to Borrower (all of the
foregoing being herein collectively referred to as a "Disposal"), provided that
such indemnification obligations shall not apply if, and only to the extent
that, (i) any such Disposal or violation of the Environmental Laws is due to any
actions by Beneficiary or its directors, officers, employees or authorized
agents, or (ii) first exists after the earliest to occur of the following: (a)
the date of the repayment of the entire outstanding Indebtedness (as such term
is defined and described in the Mortgage); or (b) the date Beneficiary or
another person or party accepts title to the Real Property through foreclosure
of the Mortgage or, if approved by Beneficiary in advance in writing in its sole
discretion, pursuant to a deed-in-lieu of foreclosure of the Mortgage (such
occurrences described in (a) and (b) in this sentence being herein collectively
referred to as the "Termination Events"). Notwithstanding anything contained in
this Agreement to the contrary, Indemnitors' obligations under this Agreement
shall extend and apply to all events which first occur and all conditions which
first exist up to the date of, but not later than the date of, the earliest to
occur of the Termination Events, and such indemnification obligations shall
survive for a period of three (3) years after the earliest to occur of the
Termination Events, unless, and only to the extent that, any Claims arising from
any events which first occur and all conditions which first exist prior to the
earliest to occur of the Termination Events are noticed or discovered within
such three (3) year period, in which event such noticed or discovered Claim(s)
shall survive beyond such three (3) year period and beyond the full release of
the lien of the Mortgage, or the extinguishment of the lien by foreclosure,
power of sale, or any other action and shall survive the delivery of any deed in
lieu of foreclosure, all to the maximum extent and for the maximum period of
time not prohibited by law.
3. Duty to Defend. Upon written request of Beneficiary, at Beneficiary's
--------------
sole option, Indemnitors shall undertake the defense of Beneficiary, at
Indemnitors' sole cost and expense, with counsel reasonably approved by
Beneficiary, in connection with any obligation set forth in this Agreement for
which Indemnitors have an obligation to protect, indemnify, defend, and hold
harmless Beneficiary. In the event Indemnitors refuse to undertake the defense
of Beneficiary promptly after receiving such request, or fail to diligently,
vigorously and continuously conduct such defense after receiving such request,
Beneficiary may elect to undertake its own defense with counsel of its own
selection, at Indemnitor's sole
<PAGE>
expense, without reducing Indemnitors' obligations to protect, indemnify and
hold harmless Beneficiary as provided in this Agreement; the costs incurred by
Beneficiary in undertaking its own defense in such circumstances, including but
not limited to Attorneys' Fees, shall constitute a portion of the
indemnification duties set forth in this Agreement. In addition to the
foregoing, Beneficiary may at any time elect to undertake its own defense with
counsel of its own selection at its own cost and expense without reducing
Indemnitors' obligations to protect, indemnify and hold harmless Beneficiary for
all other obligations under this Agreement.
4. Remedial Work. Indemnitors acknowledge that, pursuant to the
-------------
Mortgage, in the event that any investigation, site monitoring, containment,
clean-up, removal, restoration or other remedial work of any kind or nature (the
"Remedial Work") is required under any applicable local, state or federal law or
regulation, any judicial order, or by any governmental entity or person because
of, or in connection with, any past, present or future Disposal of a Hazardous
Material in or about the air, soil, ground water, surface water or soil vapor
at, on, about, under or within the Real Property (or any portion thereof),
Borrower is required to, within thirty (30) days after written demand for
performance thereof by Beneficiary (or such shorter period of time as may be
required under any applicable law, regulation, order or agreement), commence and
thereafter diligently prosecute to completion, all such required Remedial Work.
Indemnitors shall pay the costs of all consultants and environmental audits and
follow-up reports required to satisfy the terms, conditions and covenants of the
Mortgage and this Agreement. All Remedial Work shall be performed by qualified
contractors approved in advance by Beneficiary, except in emergency situations
where such approval cannot be sought before Remedial Work is actually commenced,
provided that such approval is sought within two (2) Business Days (defined in
Section 10 hereinbelow) of the hiring of such contractors, and under the
supervision of a qualified consulting engineer approved in advance by
Beneficiary, except in emergency situations where such approval cannot by sought
before Remedial Work is actually commenced, provided that such approval is
sought within two (2) Business Days of the hiring of such consulting engineer.
Beneficiary's approval of such contractors and consulting engineer shall not be
unreasonably withheld or delayed. The Mortgage further requires that all costs
and expenses of such Remedial Work shall be paid by Borrower including, without
limitation, Beneficiary's Attorney's Fees incurred in connection with
investigation, monitoring and/or review of such Remedial Work. In the event
Borrower shall fail to timely prosecute to completion such Remedial Work,
<PAGE>
Beneficiary may, but shall not be required to, cause such Remedial Work to be
performed, and Indemnitors shall jointly and severally pay pursuant to the
indemnity provided in Section 2 of this Agreement (including the provisions
regarding survival) all such costs and expenses thereof, or incurred in
connection therewith upon demand. Further, Beneficiary may, at its option, add
all such costs and expenses thereof, or incurred in connection therewith, to the
Indebtedness as defined in the Mortgage without affecting the liability of
Indemnitors hereunder.
5. Representations and Warranties of Indemnitors. Except for violations
---------------------------------------------
of the Environmental Laws and/or Disposals of Hazardous Materials specifically
disclosed as such in the environmental reports listed on EXHIBIT A attached
hereto and made a part hereof (collectively herein referred to as the
"Environmental Reports"), true and complete copies of all of which have been
delivered to Beneficiary and Indemnitors, Indemnitors represent and warrant to
Beneficiary as follows:
a. Borrower has not used, and to the best of Indemnitors' knowledge, no
prior owner or current or prior tenant, subtenant, or other occupant of all or
any part of the Real Property has Disposed of or is Disposing of any Hazardous
Materials on, from or affecting the Real Property in any manner that violates
any Environmental Law, and there has been no Disposal of Hazardous Materials on,
in, under, above or emanating from the Real Property by any person or entity or
other source whether related or unrelated to Borrower such that any Remedial
Work is required under any of the Environmental Laws, and Borrower will not
permit any such Disposal or violation of the Environmental Laws to occur or to
continue to exist;
b. Indemnitors have received no notice from any person or entity, public
or private, claiming any violation of any Environmental Law with regard to the
Real Property nor has it received any administrative order or entered into any
administrative consent order with any governmental agency with respect to
Hazardous Materials on or at the Real Property;
c. To the best of Indemnitors' knowledge, the Real Property does not
contain, and has not in the past contained, any asbestos-containing material in
friable form, and there is no current or potential airborne contamination of the
Real Property by asbestos fiber, including, but not limited to, any potential
contamination that would be caused by maintenance or tenant finish activities in
the Real Property; and
<PAGE>
d. Indemnitors have each received adequate consideration for the
execution, delivery and performance of obligations under this Agreement, each
Indemnitor acknowledging that Beneficiary's making the Loan to Borrower has
provided substantial benefit to such Indemnitor and the Beneficiary would not
have made the Loan to Borrower had such Indemnitor not executed and delivered
this Agreement to Beneficiary.
6. Performance. The undertakings, liabilities and obligations of
-----------
Indemnitors hereunder shall not be affected, discharged, improved or varied
except by the due and punctual performance of the obligations hereby assumed and
then only to the extent thereof. The rights of Beneficiary hereunder shall not
be limited by any investigation or the scope of any investigation undertaken by
or on behalf of Beneficiary in connection with the Real Property prior to the
date hereof.
7. Gender/Case. As used herein, the masculine gender shall include the
-----------
feminine, and the singular case shall include the plural and the plural the
singular, wherever the same may be applicable.
8. Time of Essence. It is expressly understood and agreed that time is
---------------
of the essence with respect to the intent, purpose, construction and enforcement
of each and every provision of this Agreement.
9. Modifications. This Agreement may not be modified, amended, revised,
-------------
revoked, terminated, changed or varied in any way whatsoever except by the
express terms of a writing signed by the party or parties sought to be bound
thereby.
10. Notices. Any notice, demand, request, statement or consent made
-------
hereunder shall be in writing, signed by the party giving such notice, request,
demand, statement, or consent, and shall be deemed to have been properly given
when either delivered personally, or deposited in the United States Mail,
postage prepaid and certified or registered, return receipt requested, or
delivered to a reputable overnight delivery service providing a receipt, in each
case addressed to the other party as set forth below or to such other address
within the continental United States of America as such party may have
theretofore designated in writing in accordance with the terms of this
provision. The effective date of any notice given as
<PAGE>
provided in this Section shall be the date of personal service, or five (5)
Business Days after being deposited in the United States mail, or one (1)
Business Day after delivery to such overnight delivery service, whichever is
applicable. The terms "Business Day" and "Business Days" as used in this
Agreement shall mean any calendar day other than a Saturday, a Sunday or a
Federal holiday on which the U.S. Postal Service offices are closed for business
in one or more of Hanover, New Jersey, Bethesda, Maryland or Hartford,
Connecticut. For purposes hereof, the addresses are as follows:
If to Beneficiary:
Connecticut General Life Insurance Company
c/o CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, CT 06152-2319
Attn: Investment Services, S-319
with a copy to:
CIGNA Corporation
Investment Law Department
900 Cottage Grove Road
Hartford, CT 06152-2215
Attn: Real Estate Division, S-215A
If to Indemnitor:
Hanover Marriott Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Treasurer
with a copy to:
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department
11. Choice of Law. This Agreement has been delivered at Hanover Township,
-------------
Morris County, New Jersey, and shall be construed in accordance with, and
governed by, the laws of the State of New Jersey.
12. Interpretation. Each provision of this Agreement shall be interpreted
--------------
in such manner as to be effective and valid under applicable law, but if any
provision of this Agreement shall be prohibited by or invalid under such law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement.
13. Personal Liability. The covenants, agreements, representations,
------------------
warranties, indemnities and obligations of Indemnitors pursuant to this
Agreement shall not be subject to
<PAGE>
any liability limitations whether or not contained in any of the Loan Documents,
including without limitation the paragraph entitled "Limitations on Recourse" of
Section 15 of the Note and Section 40 of the Mortgage.
14. Joint and Several Liability. Indemnitors hereby acknowledge and agree
---------------------------
that each and every one of Indemnitors' obligations under this Agreement are and
shall be joint and several and Beneficiary may obtain satisfaction of
Indemnitors' obligations from any one or more of Indemnitors independently,
successively, simultaneously or concurrently.
15. Waiver of Trial by Jury. Indemnitors hereby waive their right to a
-----------------------
trial by jury as to any matter arising out of or concerning the subject matter
of this Agreement.
16. Litigation. In the event of litigation or arbitration arising out of
----------
or concerning the subject matter of this Agreement, the prevailing party shall
be entitled to an award of reasonable attorneys' fees, plus all costs of
collection and enforcement.
17. Availability of Other Remedies. It is understood and agreed by each of
------------------------------
the Indemnitors that (i) any rights and remedies Beneficiary may have under this
Agreement, as well as (ii) any duties and obligations of Indemnitors under this
Agreement are each in addition to and independent of and shall not in any manner
whatsoever supersede, replace, diminish or abrogate any (i) rights and remedies
Beneficiary may at any time have under this or any other documents or agreements
or insurance policies, or as may be generally available at law or in equity, or
(ii) any duties and obligations of any one or more of the Indemnitors under this
Agreement or any other documents or agreements, or as may be generally imposed
by law or in equity.
18. Consent to Jurisdiction. Indemnitors and each of their general
-----------------------
partners irrevocably and unconditionally (a) submit to the jurisdiction and
venue of any state or federal court sitting in the State of New Jersey in any
suit, action or proceeding under, arising out of or relating to this Agreement
or any of the Loan Documents, (b) waive any objection which any of them may now
or hereafter have to the propriety of venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum,
(c) waive the right to object, with respect to any such suit, action or
proceeding brought in any such
<PAGE>
court, that such court does not have jurisdiction over the Indemnitors or any of
their general partners, and (d) consents to the service of process in any such
suit, action or proceeding in any such court by the service of such process to
Indemnitors and their general partners by any means authorized by law or rule of
court at Indemnitors' address set forth in this Agreement for the purpose of
giving notice. Indemnitors and their general partners hereby agree that any
cause of action relating to the their obligations under this Agreement or any
other Loan Documents will arise in New Jersey. Nothing herein shall affect the
right to serve process in any other manner permitted by law or shall limit the
right of the Beneficiary to bring proceedings against Indemnitors and/or their
general partners in any competent court elsewhere having jurisdiction.
[Signatures Appear on Next Page]
<PAGE>
IN WITNESS WHEREOF, Indemnitors have executed this Agreement as of the day
and year first above written.
INDEMNITORS:
HANOVER MARRIOTT LIMITED PARTNERSHIP,
a Delaware limited partnership
By: Marriott Hanover Hotel Corporation,
a Delaware corporation,
its sole general partner
By: Bruce D. Wardinski (SEAL)
------------------------
Name: Bruce D. Wardinski
Title: Vice President
AND
MARRIOTT HANOVER HOTEL CORPORATION,
a Delaware corporation
By: Bruce D. Wardinski (SEAL)
------------------------------
Name: Bruce D. Wardinski
Title: Vice President
<PAGE>
EXHIBIT A
---------
TO
--
ENVIRONMENTAL INDEMNIFICATION AGREEMENT
---------------------------------------
For purposes of this Agreement, the term "Environmental Reports" shall mean that
certain Environmental Site Assessment Hanover Marriott 1401 Route 10 East
Whippany, New Jersey, prepared by Environmental Risk Limited, dated July, 1997
(ERL Project No. 06060-58).
<PAGE>
EXHIBIT 10.N
Hanover Marriott
Hanover, New Jersey
MANAGEMENT AGREEMENT
BETWEEN
HANOVER MARRIOTT LIMITED PARTNERSHIP
("OWNER")
AND
MARRIOTT HOTEL SERVICES, INC.
("MANAGEMENT COMPANY")
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I - DEFINITION OF TERMS
- -------------------------------
1.01 Definition of Terms---------------------------- 3
1.02 Terms Defined in Other Sections---------------- 16
ARTICLE II - APPOINTMENT OF MANAGEMENT COMPANY
- ----------------------------------------------
2.01 Appointment------------------------------------ 18
2.02 Delegation of Authority------------------------ 18
2.03 Operational Standards-------------------------- 19
2.04 Limitations on Authority----------------------- 24
ARTICLE III - THE HOTEL
- -----------------------
3.01 Ownership of Site and Hotel-------------------- 26
3.02 No Covenants or Restrictions------------------- 27
ARTICLE IV - TERM
- -----------------
4.01 Term------------------------------------------- 28
4.02 Owner's Right to Terminate--------------------- 29
ARTICLE V - COMPENSATION OF MANAGEMENT COMPANY; DISTRIBUTIONS
- -------------------------------------------------------------
5.01 Management Fees-------------------------------- 30
5.02 Accounting and Interim Payments---------------- 30
ARTICLE VI - PRE-OPENING ACTIVITIES
- -----------------------------------
[Intentionally omitted.]----------------------------- 32
ARTICLE VII - WORKING CAPITAL, INVENTORIES AND FIXED ASSET
- ----------------------------------------------------------
SUPPLIES
- --------
7.01 Working Capital and Inventories---------------- 33
7.02 Fixed Asset Supplies--------------------------- 33
ARTICLE VIII - MAINTENANCE, REPLACEMENT AND CHANGES
- ---------------------------------------------------
8.01 Repairs and Maintenance------------------------ 35
8.02 Repairs and Equipment Reserve------------------ 35
8.03 Alterations and Improvements------------------- 38
8.04 Liens------------------------------------------ 40
8.05 Ownership of Replacements, Etc.---------------- 40
i
<PAGE>
Page
----
ARTICLE IX - BOOKKEEPING AND BANK ACCOUNTS
- ------------------------------------------
9.01 Books and Records ----------------------------- 41
9.02 Hotel Accounts--------------------------------- 42
9.03 Annual Operating Budget------------------------ 42
9.04 Operating Loss; Credit------------------------- 43
ARTICLE X - TRADEMARK AND TRADE NAME
- ------------------------------------
10.01 Marriott Name--------------------------------- 44
10.02 Fixed Asset Supplies-------------------------- 45
10.03 Breach of Covenant---------------------------- 45
ARTICLE XI - POSSESSION AND USE OF HOTEL
- ----------------------------------------
11.01 Quiet Enjoyment------------------------------- 46
11.02 Actions for Quiet Occupation------------------ 46
11.03 Use------------------------------------------- 47
11.04 Chain Services-------------------------------- 48
11.05 Owner's Right to Inspect---------------------- 49
ARTICLE XII - INSURANCE
- -----------------------
12.01 Interim Insurance----------------------------- 50
12.02 Property and Operational Insurance------------ 50
12.03 General Insurance Provisions------------------ 52
12.04 Cost and Expense------------------------------ 54
12.05 Owner's Option to Obtain Certain Insurance---- 55
ARTICLE XIII - TAXES
- --------------------
13.01 Real Estate and Property Taxes---------------- 58
ARTICLE XIV - HOTEL EMPLOYEES
- -----------------------------
14.01 Employees------------------------------------- 59
ARTICLE XV - DAMAGE, CONDEMNATION AND FORCE MAJEURE
- ---------------------------------------------------
15.01 Damage and Repair----------------------------- 60
15.02 Condemnation---------------------------------- 61
15.03 Force Majeure--------------------------------- 62
15.04 Damage, Condemnation and Force
Majeure Under First Mortgage----------------- 63
ii
<PAGE>
Page
----
ARTICLE XVI - DEFAULTS
- ----------------------
16.01 Defaults-------------------------------------- 64
16.02 Remedies Cumulative--------------------------- 65
ARTICLE XVII - WAIVER; PARTIAL INVALIDITY
- -----------------------------------------
17.01 Waiver---------------------------------------- 67
17.02 Partial Invalidity---------------------------- 67
ARTICLE XVIII - ASSIGNMENT
- --------------------------
18.01 Assignment------------------------------------ 68
18.02 Subordination--------------------------------- 70
18.03 Transfer of Hotel to Lender Under
First Mortgage and Second Mortgage----------- 71
ARTICLE XIX - SALE OF HOTEL
- ---------------------------
19.01 Sale of Hotel--------------------------------- 72
ARTICLE XX - ARBITRATION
- ------------------------
20.01 Arbitration----------------------------------- 75
ARTICLE XXI - MISCELLANEOUS
- ---------------------------
21.01 Right to Make Agreement----------------------- 78
21.02 Consents-------------------------------------- 78
21.03 Agency---------------------------------------- 79
21.04 Applicable Law-------------------------------- 80
21.05 Recordation----------------------------------- 80
21.06 Headings-------------------------------------- 81
21.07 Certificates---------------------------------- 81
21.08 Notices--------------------------------------- 82
21.09 Entire Agreement------------------------------ 83
21.10 Termination----------------------------------- 83
21.11 Indemnification------------------------------- 85
21.12 Confidentiality------------------------------- 85
21.13 Owner's Exculpation--------------------------- 86
21.14 Termination of Operating Lease---------------- 86
Exhibit A - The Site
Exhibit B - Permitted Exceptions
iii
<PAGE>
MANAGEMENT AGREEMENT
--------------------
This Management Agreement (this "Agreement") is executed as of the 18th day
of August, 1997, ("Effective Date"), by and between HANOVER MARRIOTT LIMITED
PARTNERSHIP, a Delaware limited partnership with its principal address at 10400
Fernwood Road, Bethesda, Maryland 20817 ("Owner"), and MARRIOTT HOTEL SERVICES,
INC., a Delaware corporation with its principal address at 10400 Fernwood Road,
Bethesda, Maryland 20817 ("Management Company").
W I T N E S S E T H:
WHEREAS, Owner is the owner of a modern, first-class hotel in Hanover, New
Jersey, as more fully described in Section 1.01;
WHEREAS, the Hotel is as of the Effective Date being operated by Management
Company pursuant to that certain Amended and Restated Lease dated as of July 29,
1986 (the "Operating Lease");
WHEREAS, Management Company and Owner desire to terminate the Operating
Lease as of the Effective Date; and
WHEREAS, Owner desires to have Management Company continue to operate the
Hotel and Management Company is willing to continue to operate the Hotel for the
account of Owner but on the terms
-1-
<PAGE>
and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
-2-
<PAGE>
ARTICLE I
DEFINITION OF TERMS
-------------------
1.01 Definition of Terms
-------------------
The following terms when used in this Agreement shall have the meanings
indicated:
A. "Accounting Period" shall mean the four (4) week accounting periods
-----------------
having the same beginning and ending dates as Management Company's four (4) week
accounting periods, except that an Accounting Period may occasionally contain
five (5) weeks when necessary to conform Management Company's accounting system
to the calendar.
B. "Additional Invested Capital" shall mean the cumulative total, as of any
---------------------------
given point in time during the term of this Agreement, of any expenditures made
by Owner pursuant to Section 8.03 and any contributions by Owner to the FF&E
Reserve beyond the funding described in Section 8.02 B.
C. "Annual Operating Statement" shall mean a financial statement in
--------------------------
reasonable detail summarizing the Hotel operations for a given Fiscal Year.
D. "Available Cash Flow" shall mean an amount, with respect to each Fiscal
-------------------
Year or portion thereof, equal to the excess (if any) of the Operating Profit
for such Fiscal Year over the Owner's Priority.
-3-
<PAGE>
E. "Base Management Fee" shall mean an amount equal to three percent (3%)
-------------------
of Gross Revenues, which shall be paid to Management Company as compensation (in
addition to the Incentive Management Fee) for the services performed pursuant to
this Agreement.
F. "Central Office Services" shall mean certain services which are provided
-----------------------
to the Hotel by personnel who are employees of Management Company or one of its
affiliates and who are not normally located at the Hotel, including the
following: executive supervision; planning and policy making; corporate finance;
corporate personnel and employee relations; in-house legal services; trademark
protection relating to proprietary marks which are used generally by the
Marriott chain; certain product research and development; and the services of
Management Company's technical and operational experts making routine periodic
inspection and consultation visits to the Hotel (but not the services of the
personnel of the Architecture and Construction Division of Management Company
(or any of its affiliates) providing architectural, technical or procurement
services for the Hotel, the costs and expenses of which shall be a Deduction).
Any service which is defined as being included within the term "Chain Services"
shall not also be included within "Central Office Services". The Central Office
Services which are provided to the Hotel shall be generally consistent with
those Central Office Services which are provided to other
-4-
<PAGE>
comparable full-service hotels within the Marriott Hotel System.
G. "Employee Claims" shall mean any and all claims (including all fines,
---------------
judgments, penalties, costs, Litigation and/or arbitration expenses, attorneys'
fees and expenses, and costs of settlement with respect to any such claim) by
any employee or employees of Management Company against Owner or Management
Company with respect to the employment at the Hotel of such employee or
employees. "Employee Claims" shall include, but not be limited to, the
following: (i) claims which are eventually resolved by arbitration, by
Litigation or by settlement; (ii) claims which also involve allegations that any
applicable employment-related contracts affecting the employees at the Hotel
have been breached; and (iii) claims which involve allegations that one or more
of the Employment Laws has been violated; provided, however, that "Employee
Claims" shall not include claims for worker compensation benefits (which shall
be governed by Article XII hereof) or for unemployment benefits.
H. "Employment Laws" shall mean any federal, state or local law (including
---------------
the common law), statute, ordinance, rule, regulation, order or directive with
respect to employment, conditions of employment, benefits, compensation, or
termination of employment that currently exists or may exist at any time during
the term of this Agreement, including, but not limited to, Title VII of the
Civil Rights Act of 1964, the Age Discrimination
-5-
<PAGE>
in Employment Act, the Workers Adjustment and Retraining Act, the Occupational
Safety and Health Act, the Immigration Reform and Control Act of 1986, the
Polygraph Protection Act of 1988 and the Americans With Disabilities Act of
1990.
I. "Environmental Laws" shall mean any federal, state or local law, rule or
------------------
regulation (both present and future) dealing with the use, generation,
treatment, storage, disposal or abatement of Hazardous Materials, including, but
not limited to, (i) the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., as amended, and (ii) the
-- ---
regulations promulgated thereunder, from time to time.
J. "First Mortgage" shall mean that instrument which secures the permanent
--------------
first-lien financing from Connecticut General Life Insurance Company for the
Hotel in the principal amount of Twenty-Nine Million Eight Hundred Seventy-Five
Thousand Dollars ($29,875,000). Unless specifically stated to the contrary
elsewhere herein, the term "First Mortgage" shall include renewals, extensions,
amendments or refinancings of said instrument so long as the principal amount of
the First Mortgage as so renewed, extended, amended or refinanced is not in
excess of the aforesaid amount.
K. "Fiscal Year" shall mean the same period as Management Company's Fiscal
-----------
Year, which now begins at 12:01 a.m. on the first Saturday following the Friday
closest to December 31 of
-6-
<PAGE>
each calendar year and shall consist of thirteen (13) Accounting Periods, thus
providing a Fiscal Year of fifty-two (52) weeks, except that when appropriate
(every five or six years), a Fiscal Year shall contain fifty-three (53) weeks.
The first full Fiscal Year shall begin on the Saturday following the Friday
closest to the first December 31st following the Effective Date. Any period
between the Effective Date and the beginning of the first full Fiscal Year of
the Initial Term, as well as any period between the last full Fiscal Year and
the expiration or termination of this Agreement, shall be considered a "Partial
Fiscal Year." If Management Company's Fiscal Year is changed in the future,
appropriate adjustments in this Agreement's accounting and reporting procedures
shall be made; provided, however, that no such change or adjustments shall in
any way alter the term of this Agreement or in any way reduce or diminish
Owner's Distribution.
L. "Fixed Asset Supplies" shall mean supply items included within "Property
--------------------
and Equipment" under the Uniform System of Accounts (as hereinafter defined)
including linen, china, glassware, silver, uniforms, and similar items.
M. "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
-7-
<PAGE>
and published, any comparable index selected by Owner and reasonably
satisfactory to Management Company (a "Substitute Index") then prepared and
published by an agency of the Government of the United States, appropriately
adjusted for changes in the manner in which such index is prepared and/or year
upon which such index is based. Any dispute regarding the selection of the
Substitute Index or the adjustments to be made thereto shall be settled by
arbitration in accordance with Section 20.01. Except as otherwise expressly
stated herein, whenever a number or amount is required to be "adjusted by the
GDP Deflator", or similar terminology, such adjustment shall be equal to the
percentage increase or decrease (except that, for purposes of this Agreement,
the GDP Deflator shall not be decreased below its level as of the Effective
Date) in the GDP Deflator which is issued for the month in which such adjustment
is to be made (or, if the GDP Deflator for such month is not yet publicly
available, the GDP Deflator for the most recent month for which the GDP Deflator
is publicly available) as compared to the GDP Deflator which was issued for the
month in which the Effective Date occurred.
N. "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),
before commissions and
-8-
<PAGE>
discounts for prompt or cash payments, from: the rental of rooms, stores,
offices, exhibit or sales space of every kind; license, lease and concession
fees and rentals; income from vending machines; health club membership fees;
food and beverage sales; wholesale and retail sales of merchandise; service
charges; and the proceeds, if any, from business interruption or other loss of
income insurance; provided, however, that Gross Revenues shall not include: (i)
gratuities to Hotel employees; (ii) Federal, state and municipal excise, sales
and use taxes or similar impositions collected directly from patrons or guests
or included as part of the sales price of any goods or services; (iii) the
proceeds of casualty and public liability insurance; (iv) condemnation awards;
or (v) gross receipts of licensees, sublessees and concessionaires which are not
owned by or affiliated with Management Company.
O. "Hazardous Materials" shall mean any substance or material containing
-------------------
one or more of any of the following: "hazardous material", "hazardous waste",
"hazardous substance", "regulated substance", "petroleum", "pollutant",
"contaminant", or "asbestos", as such terms are defined in any applicable
Environmental Law, in such concentration(s) or amount(s) as may impose clean-up,
removal, monitoring or other responsibility under any applicable Environmental
Law, or which may present a significant risk of harm to guests, invitees or
employees of the
-9-
<PAGE>
Hotel.
P. "Hotel" shall mean the improvements presently located on the Site, and
-----
the furniture, furnishings, fixtures and equipment now or hereafter placed
thereon.
Q. "Impositions" shall have the meaning set forth in Section 13.01.
-----------
R. "Incentive Management Fee" shall mean the payments which shall be made
------------------------
to Management Company, as compensation (in addition to the Base Management Fee)
to Management Company for its services under this Agreement, which shall be an
amount equal to one hundred percent (100%) of the first Four Hundred Thousand
Dollars ($400,000) of Available Cash Flow in each Fiscal Year (or portion
thereof) plus twenty-five percent (25%) of Available Cash Flow in excess of Four
Hundred Thousand Dollars ($400,000) in each Fiscal Year (or portion thereof).
S. "Inventories" shall mean "Inventories" as defined in the Uniform System
-----------
of Accounts, such as provisions in storerooms, refrigerators, pantries and
kitchens; beverages in wine cellars and bars; other merchandise intended for
sale; fuel; mechanical supplies, stationery; and other expensed supplies and
similar items.
T. "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
-10-
<PAGE>
business or operation of the Hotel or the matters which are the subject of this
Agreement, including, but not limited to, the following: (i) any building,
zoning or use laws, ordinances, regulations or orders; and (ii) Environmental
Laws.
U. "Litigation" shall mean: (i) any cause of action commenced in a
----------
federal, state or local court; or (ii) any claim brought before an
administrative agency or body (for example, but not limited to, employment
discrimination claims).
V. "Management Fees" shall mean the Base Management Fee plus the Incentive
---------------
Management Fee.
W. "Marriott" shall mean Marriott International, Inc., a Delaware
--------
corporation having an address at 10400 Fernwood Road, Bethesda, Maryland 20817.
X. "Marriott Hotel System" shall mean the full-service hotel system managed
---------------------
by Marriott (or one or more of its affiliates) which is, as of the Effective
Date, operated under the trade name "Marriott Hotels, Resorts and Suites".
Y. "Marriott Standards" shall mean both the operational standards (for
------------------
example, staffing, amenities offered to guests, advertising, etc.) and the
physical standards (for example, the quality, condition, utility and age of the
FF&E, etc.) of comparable full-service hotels in the Marriott Hotel System, as
such operational and physical standards may fluctuate from time to time
(provided, however, that the Marriott Standards shall in
-11-
<PAGE>
no event be lower than the operational and physical standards, as of the date in
question, of comparable "quality segment" (as such term was being used as of the
Effective Date) full-service hotels in other full-service hotel systems).
Z. "Operating Loss" shall mean a negative Operating Profit.
--------------
AA. "Operating Profit" shall mean for each Fiscal Year (and Partial Fiscal
----------------
Year) the excess of Gross Revenues over the following deductions ("Deductions"),
as determined under the Uniform System of Accounts except as otherwise
specifically provided for herein, incurred by Management Company in operating
the Hotel:
1. The cost of sales, salaries, wages, fringe benefits, payroll taxes
and other costs related to Hotel employees;
2. Departmental expenses; administrative and general expenses and the
cost of Hotel advertising and business promotion; heat, light, power and all
other utility costs; and routine repairs, maintenance and minor alterations
under Section 8.01;
3. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of the Hotel;
4. License fees and taxes, if any, payable by or assessed against
Owner or Management Company related to the Site, the Hotel, to this Agreement or
to Management Company's operation of the Hotel (exclusive of income, franchise
and similar taxes
-12-
<PAGE>
owed by either Owner or Management Company) but including all ad valorem,
personal property and real estate taxes described in Section 13.01, and special
public assessments levied against the Hotel during the term of this Agreement;
5. Insurance costs and expenses as provided in Article XII;
6. A reserve for uncollectible accounts receivable as reasonably
determined by Management Company;
7. All costs and fees of independent accountants or other third
parties who perform services for the Hotel which are required or permitted
hereunder;
8. The cost and expense of technical consultants and operational
experts for specialized services in connection with non-routine Hotel work;
9. The Base Management Fee;
10. The Hotel's pro rata share of costs and expenses incurred by
Management Company in providing Chain Services (as defined in Section 11.04);
11. Repairs and Equipment Reserve contributions in accordance with
Section 8.02;
12. Such other costs and expenses as are specifically provided for
elsewhere in this Agreement (not including the costs and expenses of providing
the Central Office Services) or are otherwise reasonably necessary for the
proper and efficient
-13-
<PAGE>
operation of the Hotel.
Specifically excluded from Deductions (and to be paid solely by Owner) are
all payments on loans (including, but not limited to, the First Mortgage, the
Second Mortgage and debt owed to Host Marriott Corporation and its affiliates)
incurred with respect to the purchase of the Site and/or the construction,
furnishing and equipping of the Hotel, except as may otherwise be expressly set
forth herein. Such other costs and expenses incurred by Management Company or
its Affiliates (not including the costs and expenses of providing the Central
Office Services) as are specifically provided for elsewhere in this Agreement or
are otherwise reasonably necessary for the proper and efficient operation of the
Hotel (including, without limitation, the costs and expenses of all functions
described in Section 2.03, to the extent such costs and expenses are not already
treated as Deductions elsewhere in this definition of Operating Profit, unless,
and to the extent that, any such costs and expenses are specifically stated not
to be Deductions under any provision of this Agreement).
The term "Deductions" shall not include (i) rental payments pursuant to any
ground lease of the Site, nor (ii) any expenditures which are included within
the definition of "Additional Invested Capital"; all of which shall be paid by
Owner from its own funds, and not from Gross Revenues nor from
-14-
<PAGE>
the FF&E Reserve. In no event shall the costs or expenses of providing the
Central Office Services be treated as Deductions, or otherwise be reimbursed out
of Gross Revenues; it being the intent of the parties that all such costs and
expenses are to be paid by Management Company (or its Affiliates) from its own
funds.
Depreciation shall be excluded from the computation of Operating Profit.
BB. "Owner's Distribution" shall mean, with respect to each Fiscal Year or
--------------------
portion thereof during the term of this Agreement, Operating Profit less any
Incentive Management Fee due to Management Company.
CC. "Owner's Priority" shall mean, with respect to each Fiscal Year
----------------
(prorated for any partial Fiscal Years) during the term of this Agreement, the
sum of (i) Four Million Six Hundred Fifty Thousand Dollars ($4,650,000) and (ii)
a dollar amount equal to ten percent (10%) of any Additional Invested Capital
expended by Owner; in calculating the dollar amount in the foregoing clause
(ii), each expenditure of Additional Invested Capital shall be added into such
calculation (with respect to the Fiscal Year or Fiscal Years during which such
expenditure(s) occurred) on a pro rata basis, beginning with the first full
Accounting Period after such expenditures occurred, and thereafter over the
remainder of the current Fiscal Year. As of
-15-
<PAGE>
the Effective Date, the Owner's Priority is Four Million Six Hundred Fifty
Thousand Dollars ($4,650,000).
DD. "Site" shall mean that certain parcel of land in Hanover, New Jersey
----
shown on Exhibit A attached hereto.
EE. "Termination" shall mean the expiration or sooner cessation of this
-----------
Agreement.
FF. "Uniform System of Accounts" shall mean the Uniform System of Accounts
--------------------------
for Hotels, Eighth Revised Edition, 1986, as published by the Hotel Association
of New York City, Inc.
GG. "Working Capital" shall mean funds which are reasonably necessary for
---------------
the day-to-day operation of the Hotel's business, including, but not limited to,
amounts sufficient for the maintenance of change and petty cash funds, operating
bank accounts, receivables, prepaid expenses and funds required to maintain
Inventories, less accounts payable and accrued current liabilities.
HH. "Second Mortgage" shall mean that instrument which secures the
---------------
permanent second-lien financing from Host Marriott Corporation for the Hotel in
the original principal amount of Seven Million One Hundred Twenty-Five Thousand
Dollars ($7,125,000). Unless specifically stated to the contrary elsewhere
herein, the term "Second Mortgage" shall include renewals, extensions,
amendments or refinancings of said instrument so long as the principal amount of
the Second Mortgage
-16-
<PAGE>
as so renewed, extended, amended or refinanced is not in excess of the aforesaid
amount; provided, however, that the term "Second Mortgage" shall include an
increase in principal amount of up to an additional One Million Seven Hundred
Thousand Dollars ($1,700,000) if lender under the Second Mortgage makes an
additional loan to Owner to fund a portion of the renovation project currently
scheduled to take place in Fiscal Year 1997 and Fiscal Year 1998.
1.02 Terms Defined in Other Sections
-------------------------------
As used in this Agreement, the following terms have the meanings specified
in the Sections listed below:
A. "Accounting Period Statement" - Section 5.02 A.
---------------------------
B. "Agreement" - Preamble.
---------
C. "Annual Operating Budget" - Section 9.03.
-----------------------
D. "Building Estimate" - Section 8.03.
-----------------
E. "Chain Services" - Section 11.04.
--------------
F. "Deductions" - Section 1.01 AA.
----------
G. "Effective Date" - Preamble.
--------------
H. "FF&E" - Section 8.02 A 1.
----
I. "FF&E Estimate" - Section 8.02 D.
-------------
J. "Force Majeure" - Section 15.01.B.
-------------
K. "Hotel Retention" - Section 12.03 F.
---------------
L. "Initial Term" - Section 4.01 A.
------------
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<PAGE>
M. "Management Company" - Preamble.
------------------
N. "Operating Accounts" shall have the meaning set forth in Section 9.02.
------------------
O. "Operating Lease" - Preamble.
---------------
P. "Owner" - Preamble.
-----
Q. "Partial Fiscal Year" - Section 1.01 K.
-------------------
R. "Renewal Terms" - Section 4.01 B.
-------------
S. "Repairs and Equipment Reserve" - Section 8.02 A.
-----------------------------
END OF ARTICLE I
-18-
<PAGE>
ARTICLE II
APPOINTMENT OF MANAGEMENT COMPANY
---------------------------------
2.01 Appointment
-----------
Owner hereby appoints and employs Management Company as Owner's exclusive
agent to supervise, direct and control the management and operation of the Hotel
for the term of this Agreement (beginning as of the Effective Date) provided in
Article IV. Management Company accepts said appointment and agrees to manage
the Hotel during the term of this Agreement (beginning as of the Effective Date)
in accordance with the terms and conditions hereinafter set forth. The
performance of all activities by Management Company hereunder shall be for the
account of Owner.
2.02 Delegation of Authority
-----------------------
Hotel operations shall be under the exclusive supervision and control of
Management Company which, except as otherwise specifically provided in this
Agreement, shall be responsible for the proper and efficient operation of the
Hotel. Management Company shall have discretion and control, free from
interference, interruption or disturbance, in all matters relating to management
and operation of the Hotel, including, but not limited to, the following:
charges for rooms and commercial
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<PAGE>
space; credit policies; food and beverage services; employment policies;
granting of leases, licenses and concessions for shops and agencies within the
Hotel, provided that the term of any such lease, license or concession shall not
exceed the term of this Agreement and provided further that Owner's consent
shall be required prior to the execution by Management Company of any such
lease, license or concession which (i) has a term of more than five (5) years,
or (ii) involves more than one thousand (1,000) square feet of space within the
Hotel); receipt, holding and disbursement of funds; maintenance of bank
accounts; procurement of inventories, supplies and services; promotion and
publicity; and, generally, all activities necessary for operation of the Hotel.
2.03 Operational Standards
---------------------
In accordance with the Marriott Standards and the other terms of this
Agreement, Management Company shall, in connection with the Hotel, perform each
of the following functions (provided that in all cases, except as otherwise
specifically set forth in this Agreement, the costs and expenses of performing
such functions shall be Deductions):
A. Management Company shall obtain and keep in full force and effect,
either in its own name on behalf of Owner or in Owner's name, as may be required
by the Legal Requirements, any
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<PAGE>
and all licenses necessary for the operation of the Hotel, to the extent the
same is within the control of Management Company (or, if same is not within the
control of Management Company, Management Company shall use all due diligence
and reasonable efforts to obtain and keep same in full force and effect).
B. Recruit, employ, supervise, direct and (when appropriate) discharge all
of the employees at the Hotel.
C. Establish and revise, as necessary, administrative policies and
procedures, including policies and procedures for the control of revenue and
expenditures, for the purchasing of supplies and services, for the control of
credit, and for the scheduling of maintenance, and verify that the foregoing
procedures are operating in a sound manner.
D. Plan, execute, and supervise repairs and maintenance at the Hotel.
E. Procure (as agent for Owner) all Fixed Asset Supplies and Inventories.
F. Maintain the Operating Accounts.
G. Prepare and deliver Accounting Period Statements, Annual Operating
Statements, Annual Operating Budgets, Building Estimates, FF&E Estimates, and
such other budgets and reports as are required by this Agreement.
H. Establish prices, rates and charges for services provided in the Hotel,
including room rates.
-21-
<PAGE>
I. As agent for Owner, negotiate and enter into leases, concessions and
licenses for shops and other facilities within the Hotel; provided, however,
that notwithstanding any provision in this Agreement to the contrary, Management
Company shall not enter into any leases, licenses or concessions for shops or
other facilities or agencies at the Hotel for any "non-hotel use" (which shall
be defined as any use which is not ultimately for the benefit of the hotel
guest; permitting third parties to install cellular telephone and/or other
telecommunications antennas at the Hotel (other than to service Hotel equipment)
or entering into any lease, license or concession relating to conducting time-
share activities are examples of "non-hotel uses") without the prior written
consent of Owner, which consent may be withheld in Owner's sole discretion.
J. Administer the leases, concessions and licenses for shops and other
facilities within the Hotel (whether entered into pursuant to subsection I,
above, or otherwise).
K. Provide the Central Office Services and the Chain Services.
L. Provide, or cause to be provided, risk management services relating to
the types of insurance required to be obtained or provided by Management Company
under this Agreement, provided that the costs and expenses of providing such
services are to be paid as described in Section 12.04 B.
-22-
<PAGE>
M. Reasonably cooperate with Owner concerning (i) disputes with any holder
of the First Mortgage or the Second Mortgage regarding the Hotel, (ii) contests
of Impositions and Legal Requirements, and (iii) adjustments of insurance claims
and condemnation awards involving the Hotel.
N. Reasonably cooperate (provided that Management Company shall not be
obligated to enter into any amendments of this Agreement) with Owner in any
attempt(s) by Owner to effectuate a sale of the Hotel pursuant to Section 19.01
or a renewal, extension, amendment or refinancing of the First Mortgage or the
Second Mortgage. Such cooperation shall include, but be not limited to: (i)
answering any reasonable questions by prospective purchasers and any holder of
the First Mortgage or the Second Mortgage; (ii) preparing lists and schedules of
leases, concessions, FF&E, Fixed Asset Supplies, Inventories, and similar items;
and (iii) making such certifications and representations to Owner, to such
purchasers and to any such holder of the First Mortgage or the Second Mortgage,
regarding the Hotel and the operation thereof, as Owner may reasonably request
(taking into account the extent of Management Company's control and
responsibility provided for hereunder). Owner shall promptly reimburse
Management Company, from its own funds and not as a Deduction, for the
reasonable costs and expenses incurred by Management Company in connection with
any actions necessary to
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<PAGE>
comply with the requirements of this Section 2.03 N, provided that such actions
are not otherwise required under other provisions of this Agreement.
O. Arrange for and supervise public relations and advertising, and prepare
annual marketing plans.
P. Endeavor to manage the timing of expenditures to replenish Inventories,
Fixed Asset Supplies, payments on accounts payable and collections of accounts
receivable, so as to avoid or minimize any cash deficits with respect to Hotel
operations, which deficits would otherwise require additional funding of Working
Capital by Management Company.
Q. Comply with all provisions in the First Mortgage and the Second Mortgage
which are by their terms applicable to the operation of the Hotel; provided,
however, that all practices and procedures used by Management Company in the
operation of the Hotel as of the Effective Date shall be deemed to be in
compliance with the First Mortgage and the Second Mortgage; but provided
further, that if any holder under the First Mortgage or the Second Mortgage
shall, from time to time, notify Management Company that it has determined that
certain practices and procedures which are used by Management Company in the
operation of the Hotel are not in compliance with the provisions of the First
Mortgage or the Second Mortgage, respectively, Management Company shall promptly
alter such practices and procedures to
-24-
<PAGE>
ensure such compliance; and provided further, that if such compliance would
require work by Management Company which is beyond the normal course of Hotel
operations, or would impose additional financial burdens on the Hotel which are
beyond the normal course of Hotel operations, Owner (from its own funds, not as
a Deduction) shall compensate Management Company for such work and such
additional burdens.
2.04 Limitations on Authority
------------------------
Notwithstanding anything in Section 2.02 or elsewhere in this Agreement to
the contrary (unless otherwise stated in this Section 2.04), and in addition to
the various other provisions of this Agreement which prohibit Management Company
from taking certain actions or which allow certain actions only if Owner's
consent thereto has been obtained, Management Company shall not, without the
prior written approval of Owner, which approval Owner may withhold in its sole
discretion, perform any of the following actions in connection with the Hotel
and on behalf of or burdening Owner:
1. Acquiring any land or interest therein;
2. Acquiring any capital assets or interest therein except (i) items
in the approved Building Estimate, and (ii) FF&E, Fixed Asset Supplies and
Inventories (to the extent the same constitute capital assets) in the ordinary
course of
-25-
<PAGE>
business as expressly provided for in this Agreement;
3. Financing, refinancing or mortgaging of any portion of the Hotel or
the revenue due to Owner therefrom;
4. Selling (other than dispositions of FF&E, Fixed Asset Supplies and
Inventories in the ordinary course of business as expressly provided for in this
Agreement), leasing (other than as expressly provided for in this Agreement), or
other transferring of, or the pledging or placing of any lien or encumbrance on,
any part of the Hotel;
5. In the event of a total or partial condemnation, consenting to any
award or participating in any condemnation proceeding, except as expressly
provided for in this Agreement;
6. Entering into, modifying or terminating any lease, concession or
license, except to the extent permitted under Section 2.02;
7. Adjusting any claim or settling any Litigation which (a) is not
covered by any of the insurance policies described in Article XII and is not an
Employee Claim, and which would result in a Deduction or payment in excess of
Five Hundred Thousand Dollars ($500,000) in any Fiscal Year, as adjusted by the
GDP Deflator, or (b) would impose on Owner any material liability or obligation
other than the payment of money, or would require Owner to make any material
admission; or
8. Adjusting any claim, under the applicable property
-26-
<PAGE>
insurance policies, regarding injury or damage to the Hotel or its contents,
where the estimated cost of restoration is in excess of One Million Dollars
($1,000,000), as adjusted by the GDP Deflator.
END OF ARTICLE II
-27-
<PAGE>
ARTICLE III
THE HOTEL
---------
3.01 Ownership of Site and Hotel
---------------------------
A. Owner covenants that it holds fee title to the Site and that it will
have, keep and maintain good and marketable fee title interest therein free and
clear of any and all liens, encumbrances or other charges except for (i) the
First Mortgage and the Second Mortgage (or subordinated mortgages if Owner so
elects and if such subordinated mortgages are permitted under the First Mortgage
and the Second Mortgage), or (ii) other permitted exceptions as set forth on
Exhibit B attached hereto or elsewhere in this Agreement, or (iii) liens,
encumbrances or other charges resulting from the acts of Management Company.
Notwithstanding the foregoing, Owner (except if (i) the holder of the First
Mortgage or the Second Mortgage is "Owner" under this Agreement, or (ii) the
First Mortgage or the Second Mortgage has been foreclosed upon and a subsequent
purchaser at a foreclosure sale is "Owner" under this Agreement) specifically
covenants that, it will keep and maintain title free and clear of any and all
mortgages, deeds of trust or similar security instruments unless such
documentation contains a provision reasonably acceptable to counsel for
Management Company that this Agreement will not be subject to forfeiture or
Termination other than in accordance
-28-
<PAGE>
with the terms hereof, notwithstanding a default under such mortgage, deed of
trust or security instrument.
B. Provided Management Company is not in monetary default under the terms
and conditions of this Agreement, Owner shall pay and discharge, at or prior to
the due date, any and all installments of principal and interest due and payable
upon the First Mortgage and the Second Mortgage, other financing or refinancing,
and other obligations listed as specified exclusions from the computation of
Operating Profit pursuant to Section 1.01 AA and shall indemnify Management
Company from and against all claims, litigation and damages arising from the
failure to make such payments as and when required.
3.02 No Covenants or Restrictions
----------------------------
Owner warrants that after the Effective Date the Hotel will not be
encumbered by any covenants or restrictions which would adversely affect the
operation of the Hotel as a first-class hotel. Owner agrees upon request by
Management Company to sign promptly, and without charge, applications for
licenses, permits or other instruments necessary for operation of the Hotel.
END OF ARTICLE III
-29-
<PAGE>
ARTICLE IV
TERM
----
4.01 Term
----
A. The initial term ("Initial Term") of this Agreement shall commence on
the Effective Date, and unless sooner terminated as herein provided, shall
continue for fourteen (14) Fiscal Years beginning with the first Fiscal Year
which occurs after the Effective Date.
B. The term thereafter shall be renewed by Management Company automatically
(on the same terms and conditions contained herein) for each of five (5)
successive periods of ten (10) Fiscal Years ("Renewal Terms") unless Management
Company exercises its option to terminate this Agreement by giving Owner notice
to that effect not less than twenty-four (24) months prior to the expiration of
the then current term. Notwithstanding the foregoing, if Management Company
provides such notice during such twenty-four (24) month period (and before the
expiration of the then current term), the termination shall be effective on a
date which is twenty-four (24) months after the giving of such notice.
Management Company's renewal shall be effective if and only if Management
Company is not in default under the terms and conditions of this Agreement at
the time of commencement of such Renewal Term.
-30-
<PAGE>
4.02 Owner's Right to Terminate
--------------------------
A. Owner shall have the option to terminate this Agreement if in any two of
three consecutive Fiscal Years there is an Operating Loss. Owner's option to
terminate for the reason described in this Section 4.02 shall be exercised by
written notice served upon Management Company in accordance with Section 21.08
within sixty (60) days following receipt of the Annual Operating Statement for
the second Fiscal Year in which there is an Operating Loss in accordance with
the foregoing.
B. Notwithstanding the provisions of Section 4.02 A, Management Company
shall have the right to avoid Termination by advancing to Owner, within thirty
(30) days after receipt of the notice of Owner's exercise of its option to
terminate, an amount equal to the Operating Losses during such two Fiscal Years.
Upon making such payment, the exercise of Owner's options under Section 4.02 A
shall be deemed null and void for the applicable period to which such option
relates, and this Agreement shall continue in full force and effect.
END OF ARTICLE IV
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<PAGE>
ARTICLE V
COMPENSATION OF MANAGEMENT COMPANY; DISTRIBUTIONS
-------------------------------------------------
5.01 Management Fees
---------------
In consideration of services to be performed during the term of this
Agreement, Management Company shall retain the Management Fees.
5.02 Accounting and Interim Payments
-------------------------------
A. Within twenty (20) days after the close of each Accounting Period,
Management Company shall submit to Owner an interim accounting statement (the
"Accounting Period Statement") to Owner showing Gross Revenues, Deductions,
Operating Profit, the Management Fees and other information necessary in
determining Owner's Distribution. Management Company shall transfer with each
Accounting Period Statement any interim Owner's Distribution due to Owner and
shall retain any interim Management Fees due to Management Company.
B. Calculations of Operating Profit and payments of the Management Fees and
Owner's Distribution with respect to each Accounting Period within a Fiscal Year
shall be accounted for cumulatively. Within ninety (90) days after the close of
each Fiscal Year, Management Company shall submit an Annual Operating Statement
to Owner, which Annual Operating Statement shall be
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<PAGE>
controlling over the interim Accounting Period Statements. Any adjustments
required by any such Annual Operating Statement shall be made promptly by the
parties. No adjustment shall be made for any given Fiscal Year for any Operating
Loss in a preceding or subsequent Fiscal Year.
END OF ARTICLE V
-33-
<PAGE>
ARTICLE VI
PRE-OPENING ACTIVITIES
----------------------
[Intentionally omitted.]
END OF ARTICLE VI
-34-
<PAGE>
ARTICLE VII
WORKING CAPITAL, INVENTORIES AND FIXED ASSET SUPPLIES
-----------------------------------------------------
7.01 Working Capital and Inventories
-------------------------------
As of the Effective Date, Management Company has provided the funds
necessary to supply the Hotel with the amount of Working Capital and Inventories
which Management Company determines, in its reasonable business judgment, to be
needed for the operation of the Hotel. During the term of this Agreement,
Management Company shall maintain Working Capital at levels which it reasonably
believes to be necessary for the operational requirements of the Hotel. All
replacements to Inventories shall be funded from Gross Revenues and shall
constitute a Deduction from Gross Revenues in determining Operating Profit. The
Working Capital and Inventories of the Hotel shall be the property of Management
Company during the term of this Agreement and upon Termination.
7.02 Fixed Asset Supplies
--------------------
As of the Effective Date, Owner has provided the funds necessary to supply
the Hotel with the necessary quantity and quality of Fixed Asset Supplies, as
determined by Management Company in its reasonable business judgment. The cost
of Fixed Asset Supplies expended during the Hotel's operation shall
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<PAGE>
constitute a Deduction from Gross Revenues in determining Operating Profit. All
replacements of Fixed Asset Supplies shall be funded from Gross Revenues and
shall remain the property of Owner. Upon Termination, Management Company shall
be obligated to deliver to Owner such Fixed Asset Supplies as are equal in
quantity and comparable in quality to those provided by Owner as of the
Effective Date, subject to the provisions of Section 10.02.
END OF ARTICLE VII
-36-
<PAGE>
ARTICLE VIII
MAINTENANCE, REPLACEMENT AND CHANGES
------------------------------------
8.01 Repairs and Maintenance
-----------------------
Management Company shall maintain the Hotel as a first-class hotel, in good
repair and condition and in conformity with applicable laws and regulations and
shall make or cause to be made such maintenance and routine repairs,
replacements and minor alterations as shall be necessary for such purposes. The
cost of such routine repairs, minor alterations and similar items that are
expensed under generally accepted accounting practices, other than those to be
paid from the Repairs and Equipment Reserve, shall be paid from Gross Revenues
and treated as Deductions in computing Operating Profit.
8.02 Repairs and Equipment Reserve
-----------------------------
A. As of the Effective Date, Management Company has, on behalf of Owner,
established an escrow account ("Repairs and Equipment Reserve") in a bank
selected by Management Company, subject to Owner's approval, into which the
funds from the Reserve maintained pursuant to the Operating Lease have been
transferred as of the Effective Date and which Repairs and Equipment Reserve
shall be funded as set forth in Section 8.02 B, to cover the cost of:
-37-
<PAGE>
1. Replacements and renewals to the furniture, furnishings, fixtures
and equipment ("FF&E") of the Hotel; and
2. Certain non-routine repairs and maintenance to the Hotel building
which are normally capitalized under generally accepted accounting principles
such as exterior and interior repainting, resurfacing building walls, floors,
roofs and parking areas, and replacing folding walls and the like, but which are
not major repairs, alterations, improvements, renewals or replacements to the
Hotel building's structure or to its mechanical, electrical, heating,
ventilating, air conditioning, plumbing or vertical transportation systems, the
cost of which are Owner's sole responsibility under Section 8.03.
B. Management Company shall, on behalf of Owner, transfer into the Repairs
and Equipment Reserve, subject to the provisions of Section 8.02 F, an amount
equal to five percent (5%) of Gross Revenues for each such Fiscal Year. All
such transfers shall take place with respect to each Accounting Period and shall
be accounted for cumulatively and adjusted at the close of each Fiscal Year.
Any amount remaining in the Repairs and Equipment Reserve upon Termination shall
be paid to Owner.
C. Any proceeds from the sale of FF&E no longer necessary to the operation
of the Hotel shall be credited to the Repairs and Equipment Reserve. Any
interest paid upon such account shall also be credited to the Repairs and
Equipment Reserve. The
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<PAGE>
amount that would otherwise be transferred to the Repairs and Equipment Reserve
in any given Fiscal Year shall be reduced by amounts so credited under this
Section 8.02 C.
D. Each Fiscal Year Management Company shall prepare an estimate (the "FF&E
Estimate") of the expenditures necessary for the replacement of FF&E, as well as
the non-routine repairs and maintenance described in Section 8.02 A 2, during
the next Fiscal Year and shall submit such FF&E Estimate to Owner at the same
time as it submits the Annual Operating Budget.
E. Management Company shall from time to time make such substitutions and
replacements of or renewals to FF&E, as well as the non-routine repairs and
maintenance described in Section 8.02 A 2, as it deems necessary up to the
balance in the Repairs and Equipment Reserve. No expenditures will be made from
the Repairs and Equipment Reserve other than in accordance with the preceding
sentence. To the extent reasonably feasible Management Company will follow the
FF&E Estimate for such Fiscal Year in making such expenditures. No expenditures
will be made in excess of the balance in the Repairs and Equipment Reserve
without the approval of Owner. At the end of each Fiscal Year, any amounts
remaining in the Repairs and Equipment Reserve shall be carried forward to the
next Fiscal Year.
F. The annual percentage of Gross Revenues to be placed in the Repairs and
Equipment Reserve as set forth in Section 8.02 B
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<PAGE>
is an estimate based upon Management Company's prior experience with other
comparable hotels. If, in good faith, Management Company feels at any time
during the term of this Agreement that such percentage has become excessive
given the needs of the Hotel, such percentage will be reduced to such an amount
as Management Company deems reasonably necessary for the proper operation of the
Hotel. On the other hand, as the Hotel ages, this percentage may not be
sufficient to maintain the Hotel as a first-class hotel and, therefore, if, in
any given Fiscal Year, the FF&E Estimate prepared in good faith by Management
Company exceeds available funds in the Repairs and Equipment Reserve, Owner will
either:
1. Agree to increase the annual percentages of Gross Revenues
contributed to the Repairs and Equipment Reserve to provide the additional funds
required, or
2. Obtain financing for the additional funds required; in such event,
the principal and interest payments (which shall be on a commercially reasonable
amortization basis) with respect to such financing will be treated as Deductions
in computing Operating Profit.
A failure or refusal by Owner to agree to either 1 or 2 above within a
sixty (60) day period after Management Company's request therefor shall entitle
Management Company to terminate this Agreement upon six (6) months' written
notice.
-40-
<PAGE>
8.03 Alterations and Improvements
----------------------------
Management Company will prepare in good faith an annual estimate of major
expenditures for building alterations, improvements, renewals and replacements
necessary to maintain and operate the Hotel as a first-class hotel facility
("Building Estimate") other than those to be paid from the Repairs and Equipment
Reserve, and shall submit the estimate to Owner for approval at the same time
the Annual Operating Budget is submitted. Management Company will not make any
expenditures for such purposes that have not been approved by Owner, provided
that if major changes, repairs, additions, alterations and improvements to the
Hotel are required by reason of any law, ordinance, regulation or order of a
competent government authority, or are otherwise required for the continued safe
and orderly operation of the Hotel, Management Company shall immediately give
Owner notice thereof and shall be authorized to take appropriate remedial action
without approval in cases of emergency if Owner does not act. If Owner does not
approve the Building Estimate as in good faith recommended by Management Company
within sixty (60) days after it has been submitted and it is Management
Company's reasonable business judgment that the failure to implement the
Building Estimate will adversely affect the position of the Hotel within its
geographical market or as a member of the Marriott chain of hotels, then
Management Company
-41-
<PAGE>
shall have the right at its option to terminate this Agreement upon six (6)
months' prior written notice. The cost of all such alterations, improvements,
renewals and replacements shall be borne solely by Owner.
8.04 Liens
-----
Management Company and Owner agree that the party obligated to cause or pay
for any maintenance, repair, replacements, alterations or improvements in or to
the Hotel shall not permit any liens to be filed against the Hotel which arise
from such activities. Management Company and Owner shall cooperate fully in
obtaining the release of any liens, and the cost thereof, if the lien was not
occasioned by the fault of either party, shall be a proper Deduction from Gross
Revenues (unless the work with respect to which the lien was filed is within the
scope of Section 8.03, in which case Owner will bear such cost). 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.
8.05 Ownership of Replacements, Etc.
-------------------------------
All replacements, additions, substitutions and improvements made pursuant to
this Article VIII, together with the funds periodically placed in the Repairs
and Equipment Reserve, shall be the property of Owner.
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<PAGE>
END OF ARTICLE VIII
-43-
<PAGE>
ARTICLE IX
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
9.01 Books and Records
-----------------
Books of control and account shall be kept on the accrual basis and in all
material respects in accordance with the Uniform System of Accounts, with the
exceptions provided in this Agreement. Owner and its agents and representatives
(or the holder of the First Mortgage or the Second Mortgage) shall have the
right, at reasonable intervals during Management Company's normal business
hours, to examine such records and to make copies thereof, at Owner's expense.
Within ninety (90) days following the close of each Fiscal Year, Management
Company shall furnish Owner an Annual Operating Statement for such Fiscal Year
and a certificate of Management Company's chief accounting officer certifying
that such year-end statement is true and correct. Owner shall have ninety (90)
days after receipt to audit, examine, or review said statement. If Owner raises
no objections within said ninety (90) day period (unless Owner determines that
it wishes to have such statement audited, in which case the aforesaid period of
time shall be extended for a reasonable period until the completion of said
audit), the statement shall be deemed to have been accepted by Owner and
Management Company as true and correct and neither Owner nor Management Company
-44-
<PAGE>
shall have any further right to question its accuracy. Notwithstanding the
above, Management Company shall furnish Owner with sufficient financial
information to permit Owner to comply with the terms of the First Mortgage and
the Second Mortgage pertaining to financial statements required thereunder.
9.02 Hotel Accounts
--------------
All funds derived from the operation of the Hotel, or placed in escrow
accounts in connection with said operation, shall be deposited by Management
Company in Hotel bank accounts (the "Operating Accounts") in a national or state
banking institution selected by Management Company, but subject to Owner's
approval. Withdrawals from said accounts shall be made by representatives of
Management Company whose signatures have been authorized. Reasonable petty cash
funds shall be maintained at the Hotel.
9.03 Annual Operating Budget
-----------------------
Management Company shall submit to Owner for its review thirty (30) days
prior to the beginning of each Fiscal Year an "Annual Operating Budget" which
shall set forth Management Company's good faith estimate of Gross Revenues,
departmental profits, Deductions, and Operating Profit for the forthcoming
Fiscal Year for the Hotel, taking into account the Hotel's market area and the
integration of the Hotel into the Marriott hotel
-45-
<PAGE>
system. Management Company will use its best efforts and all due diligence to
operate the Hotel within the Annual Operating Budget. It is understood, however,
that the Annual Operating Budget is an estimate only and that unforeseen
circumstances such as, but not limited to, the costs of labor, material,
services and supplies, casualty, operation of law, or economic and market
conditions may make adherence to the Annual Operating Budget impracticable, and
Management Company shall be entitled to depart therefrom due to causes of the
foregoing nature.
9.04 Operating Loss; Credit
----------------------
A. Any Operating Loss during the term of this Agreement shall be funded
solely by Management Company, without reimbursement, adjustment or other
accounting by Owner and the payment thereof by Management Company shall not
constitute a Deduction hereunder.
B. In no event shall either party borrow money in the name of or pledge
the credit of the other.
END OF ARTICLE IX
-46-
<PAGE>
ARTICLE X
TRADEMARK AND TRADE NAME
------------------------
10.01 Marriott Name
-------------
A. During the term of this Agreement, the Hotel shall be known as a
Marriott hotel, with additional identification as may be necessary to provide
local identification. If the name of the Marriott hotel system is changed,
Management Company shall have the right to change the name of the Hotel to
conform thereto. The name "Marriott" when used alone or in connection with
another word or words and the Marriott trademarks, service marks, trade names,
logos, symbols and designs shall in all events remain the exclusive property of
Management Company and its affiliates, and nothing contained herein shall confer
on Owner the right to use such name, trademarks, service marks, trade names,
logos, symbols or designs other than in strict accordance with the terms of this
Agreement. Except as provided in Section 10.02, upon Termination, any use of or
right to use said name, trademarks, service marks, trade names, logos, symbols
or designs by Owner shall cease forthwith and Management Company shall have the
right (at Management Company's sole cost and expense) to promptly remove from
the Hotel any signs or similar items which contain the Marriott name,
trademarks, service marks, trade names logos, symbols or designs.
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B. Included under the terms of this Article X are all trademarks, service
marks, trade names, symbols, logos or designs used in conjunction with the
Hotel, including, but not limited to, restaurant names, lounge names, etc.,
whether or not the marks contain the "Marriott" name. All use of such marks by
Owner under this Agreement inures to the benefit of Management Company whether
or not the marks are registered and regardless of the source of the mark.
10.02 Fixed Asset Supplies
--------------------
Upon Termination, Management Company shall purchase, at their book value,
any items of the Hotel's Fixed Asset Supplies as may be marked with the Marriott
name or any Marriott trademark, trade name, service mark, symbol, logo or
design.
10.03 Breach of Covenant
------------------
Management Company and/or its affiliated companies shall be entitled, in
case of any breach of the covenants of this Article X by Owner or others
claiming through it, to injunctive relief and to any other right or remedy
available at law. The provisions of this Article X shall survive Termination.
END OF ARTICLE X
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ARTICLE XI
POSSESSION AND USE OF HOTEL
---------------------------
11.01 Quiet Enjoyment
---------------
Owner covenants that so long as Management Company is not in default under
this Agreement and so long as Management Company is not responsible for lack of
free and quiet occupation, Management Company shall quietly hold, occupy and
enjoy the Hotel throughout the term of this Agreement free from hindrance,
ejection or molestation by Owner or other party claiming under, through or by
right of Owner. Owner agrees to make any payments and, at its expense, to
prosecute all appropriate actions, judicial or otherwise, necessary to assure
such free and quiet occupation.
11.02 Actions for Quiet Occupation
----------------------------
Notwithstanding the foregoing, nothing herein shall prevent Owner from
delaying any payment, provided Owner is prosecuting all appropriate actions in
good faith and provided that no action on the part of Owner in any such
prosecution shall create a possibility of foreclosure or any divesting of the
Hotel or the termination of this Agreement, or incur or create any civil or
criminal liability on the part of Management Company. For the purposes of the
preceding sentence, Management Company agrees that the filing of an appropriate
bond in accordance with
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applicable law shall be sufficient action on the part of Owner to prevent the
possibility of foreclosure should Owner elect to delay any such payment and
prosecute any such action in good faith.
11.03 Use
---
A. Management Company shall use the Hotel solely for the operation of a
hotel with first-class standards and for all activities in connection therewith
which are customary and usual to such an operation. Management Company, in any
event, shall comply with and abide by all applicable laws, regulations,
ordinances, orders, standards and requirements, shall operate and maintain the
Hotel in an efficient manner and in accordance with the terms of the First
Mortgage and the Second Mortgage and shall use its reasonable best efforts to
apply sound administrative, accounting, budgeting, operational, sales,
advertising, personnel and purchasing policies and practices. Management
Company shall obtain, either in its own name or on behalf of Owner, any and all
licenses or permits necessary for the operation of the Hotel as a first-class
hotel facility.
B. Management Company shall have the option to terminate this Agreement at
any time upon seventy-five (75) days' written notice to Owner in the event of a
withdrawal or revocation, by any lawful governing body having jurisdiction
thereof, of any
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material license or permit required for operation of the Hotel as a first-class
facility, including, but not limited to, occupancy permits; provided (i) such
withdrawal or revocation is not the result of any action or inaction of
Management Company, but is due to circumstances beyond Management Company's
reasonable control; and (ii) all applicable appeals to higher governmental
authorities regarding such withdrawal or revocation have been exhausted, and
every reasonable effort has been made to obtain a substitute license or permit
which would allow for the continued operation of the Hotel as a first-class
facility.
11.04 Chain Services
--------------
Management Company shall cause to be furnished to the Hotel certain services
("Chain Services") which are furnished generally on a central or regional basis
to other hotels in the Marriott chain and which benefit each hotel as a
participant in the Marriott chain. Chain Services shall include (i) national
sales office services, central training services, manpower development and
management personnel relocation, central advertising and promotion (including
direct and image media and advertising administration), the Marriott national
reservation system and the Marriott computer payroll and accounting services,
and (ii) such additional central or regional services as may from time to time
be furnished for the benefit of the hotels in the Marriott chain
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or in substitution for services now performed at individual hotels which may be
more efficiently performed on a group basis. Costs and expenses incurred in the
providing of such services shall be allocated on a fair and equitable basis
among all Marriott hotels in the United States receiving the same.
11.05 Owner's Right to Inspect
------------------------
Owner or its agents shall have access to the Hotel at any and all reasonable
times for the purpose of protecting the same against fire or other casualty,
prevention of damage to the Hotel, or showing the Hotel to prospective
purchasers or mortgagees, or for inspection purposes.
END OF ARTICLE XI
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ARTICLE XII
INSURANCE
---------
12.01 Interim Insurance
-----------------
[Intentionally omitted.]
12.02 Property and Operational Insurance
----------------------------------
Management Company shall, commencing with the Effective Date and thereafter
during the term of this Agreement, procure and maintain, either with insurance
companies of recognized responsibility or by legally qualifying itself as a self
insurer, a minimum of the following insurance:
A. Property insurance on the Hotel building(s) and contents against loss or
damage by fire, lightning and all other risks covered by the usual extended
coverage endorsement, all in an amount not less than one hundred percent (100%)
of the replacement cost thereof (excluding the cost of foundations and
excavations);
B. Boiler and machinery insurance against loss or damage from explosion of
boilers or pressure vessels to the extent applicable to the Hotel;
C. Business interruption insurance covering loss of profits and necessary
continuing expenses for interruptions caused by any occurrence covered by the
insurance referred to in Sections 12.02
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A and B, which shall be of a type and in such amounts (but such coverage shall
in no event be for less than one (1) year) as are generally established by
Management Company at similar hotels it owns, leases or manages under the
Marriott name in the United States;
D. General liability insurance against claims for bodily injury, death or
property damage occurring on, in, or in conjunction with the business of the
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); representatives of Management
Company and Owner shall meet, at Owner's request, at intervals of approximately
once every five (5) years, to review the adequacy of such limit;
E. Workers' compensation and employer's liability insurance as may be
required under applicable laws covering all of Management Company's employees at
the Hotel;
F. Fidelity bonds, with reasonable limits to be determined by Management
Company, covering its employees in job classifications normally bonded in other
similar hotels it leases or manages under the Marriott name in the United States
or as otherwise required by law, and comprehensive crime insurance to the extent
Management Company and Owner mutually agree it is necessary for the Hotel; and
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G. Such other insurance in amounts as Management Company and Owner, in
their reasonable judgment, mutually deem advisable for protection against
claims, liabilities and losses arising out of or connected with the operation of
the Hotel.
12.03 General Insurance Provisions
----------------------------
A. All insurance described in Section 12.02 may be obtained by Management
Company by endorsement or equivalent means under its blanket insurance policies,
provided that such blanket policies substantially fulfill the requirements
specified herein. Upon the request of either Owner or the holder of the First
Mortgage or the Second Mortgage, representatives of the requesting party shall
be entitled to examine, at Management Company's corporate headquarters, all
insurance policies maintained by Management Company regarding the Hotel.
B. Management Company may self insure or otherwise retain such risks or
portions thereof as it does with respect to other similar hotels it owns, leases
or manages under the Marriott name in the United States.
C. All policies of insurance required under Section 12.02 shall be carried
in the name of Management Company. The policies required under Sections 12.02
A, B, C and D shall include the Owner as an additional insured. Upon notice by
the Owner, Management Company shall also have the policies required under
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Sections 12.02 A, B, C and D include the holder of the First Mortgage and the
Second Mortgage as additional insureds. Any property losses thereunder shall be
payable to the respective parties as their interests may appear. The First
Mortgage and the Second Mortgage on the Hotel shall contain provisions to the
effect that proceeds of the insurance policies required to be carried under
Sections 12.02 A and B shall, with respect to any casualty involving less than
twenty-five percent (25%) of the replacement cost of the Hotel, be available for
repair and restoration of the Hotel.
D. Management Company shall deliver to the Owner certificates of insurance
with respect to all policies so procured and, in the case of insurance policies
about to expire, shall deliver certificates with respect to the renewal thereof.
E. All certificates of insurance provided for under this Article XII shall,
to the extent obtainable, state that the insurance shall not be canceled or
materially changed without at least thirty (30) days' prior written notice to
Owner.
F. The term "Hotel Retention" shall mean the amount of any loss or reserve
under Management Company's blanket insurance or self-insurance programs which is
allocated to the 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
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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 Management Company's blanket insurance or self-insurance programs, "Hotel
Retention" shall mean the amount of any loss or reserve allocated to the Hotel,
not to exceed the insurance policy deductible.
12.04 Cost and Expense
----------------
A. [Intentionally omitted.]
B. Insurance premiums and any other costs or expenses with respect to the
insurance or self-insurance required under Section 12.02, including any Hotel
Retention, shall be paid from Gross Revenues as Deductions. To the extent that
such costs or expenses include reimbursement by Management Company of its own
costs or expenses, or those of one of its affiliates, such costs or expenses
shall be generally competitive (as calculated over the term of this Agreement)
with costs and expenses of non-affiliated entities providing similar services.
Such premiums and costs shall be allocated on an equitable basis to the hotels
participating under Management Company's blanket insurance or self-insurance
programs. Any reserves, losses, costs or expenses which are uninsured shall be
treated as a cost of insurance and shall be Deductions. Upon Termination, an
escrow fund in an amount reasonably acceptable to Management Company shall be
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established from Gross Revenues (or, if Gross Revenues are not sufficient, with
funds provided by Owner) to cover the amount of any Hotel Retention and all
other costs which will eventually have to be paid by either Owner or Management
Company with respect to pending or contingent claims, including those which
arise after Termination for causes arising during the term of this Agreement.
Upon the final disposition of all such pending or contingent claims, any
unexpended funds remaining in such escrow shall be paid to Owner.
12.05 Owner's Option to Obtain Certain Insurance
------------------------------------------
Owner may, at its option, by written notice to Management Company which
shall be delivered no later than ninety (90) days prior to the natural
expiration of the insurance policies which Management Company has obtained
pursuant to Sections 12.02 A, B and C, procure and maintain the insurance
specified in Sections 12.02 A, B and C (in which case Management Company shall
allow such policies obtained by it under Sections 12.02 A, B, and C to expire),
subject to the following terms and conditions:
A. All such policies of insurance shall be carried in the name of Owner,
with Management Company as an additional insured. Any property losses thereunder
shall be payable to the respective parties as their interests may appear. The
documentation with respect to the First Mortgage and the Second Mortgage (or
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subordinated mortgages if Owner so elects and if such subordinated mortgages are
permitted under the First Mortgage and the Second Mortgage) shall contain
provisions to the effect that proceeds of the insurance policies required to be
carried under Sections 12.01 A and B shall be available for repair and
restoration of the Hotel, to the extent required pursuant to Section 12.03 C.
However, any holder of the First Mortgage or the Second Mortgage (or
subordinated mortgages if Owner so elects and if such subordinated mortgages are
permitted under the First Mortgage and the Second Mortgage) 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
and/or Management Company that the amount of such proceeds (together with other
funds Owner agrees to make available) is sufficient for such purpose.
B. Owner shall deliver to Management Company certificates of insurance with
respect to all policies so procured and, in the case of insurance policies about
to expire, shall deliver certificates with respect to the renewal thereof.
C. All such certificates of insurance shall, to the extent obtainable,
state that the insurance shall not be canceled or materially changed without at
least thirty (30) days' prior written notice to the certificate holder.
D. Premiums for such insurance coverage shall be treated as
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Deductions, provided that if the cost of such insurance procured by Owner
exceeds the cost of Management Company's comparable coverage by more than ten
percent (10%), all such excess costs shall be the sole responsibility of Owner
and shall not be a Deduction.
E. Should Owner exercise its option to procure the insurance described in
this Section 12.05, Owner hereby waives its rights of recovery from Management
Company or any of its affiliates (and their respective directors, officers,
shareholders, agents and employees) for loss or damage to the Hotel, and any
resultant interruption of business.
F. Should Owner exercise its right to obtain the insurance described in
this Section 12.05, Owner acknowledges that Management Company is under no
obligation to thereafter include the Hotel in its blanket insurance program
(with respect to the coverage described in Sections 12.02 A, B and C) for the
balance of the term of this Agreement. However, upon a sale of the Hotel
pursuant to Section 19.01, a successor Owner shall have the right,
notwithstanding the fact that the previous Owner may have obtained insurance in
accordance with this Section 12.05, to have the Hotel included in Management
Company's blanket insurance program (provided that the Hotel, as of that point
in time, satisfies the applicable criteria for admission to such program, as
established by the program's insurance carriers) by making a
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written request to Management Company for such inclusion not later than thirty
(30) days after the date on which such party becomes the Owner.
G. All insurance procured by Owner hereunder shall be obtained from
reputable insurance companies reasonably acceptable to Management Company.
END OF ARTICLE XII
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ARTICLE XIII
TAXES
-----
13.01 Real Estate and Property Taxes
------------------------------
All real estate and ad valorem property taxes, assessments and similar
charges on or relating to the Site, the interest of Owner in the Site, the Hotel
or this Agreement during the term of this Agreement ("Impositions") shall be
paid by Management Company and shall be considered a Deduction from Gross
Revenues in arriving at Operating Profit before any fine, penalty, or interest
is added thereto or lien placed upon the Site, the interest of Owner in the
Site, the Hotel or this Agreement, unless payment thereof is in good faith being
contested and enforcement thereof is stayed. Management Company shall, within
the earlier of thirty (30) days of payment or three (3) days following written
demand by Owner, furnish Owner with copies of official tax bills and evidence of
payment or contest thereof.
END OF ARTICLE XIII
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ARTICLE XIV
HOTEL EMPLOYEES
---------------
14.01 Employees
---------
All Hotel personnel shall at all times during the term of this Agreement be
the employees of Management Company or affiliates of Management Company.
A. Management Company shall have absolute discretion to hire, promote,
supervise, direct and train all employees at the Hotel, to fix their terms of
compensation and, generally, establish and maintain all policies relating to
employment.
B. Management Company shall decide which, if any, of the Hotel's employees
shall reside at the Hotel, and 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. No person shall otherwise
be given gratuitous accommodations or services without the prior joint approval
of Owner and Management Company except in accordance with the usual practices of
the hotel and travel industry.
C. All employees who are responsible for the handling of monies to be paid
to Owner pursuant to Article V, shall be under a blanket fidelity bond in a
company reasonably acceptable to Owner and Management Company.
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END OF ARTICLE XIV
ARTICLE XV
DAMAGE, CONDEMNATION AND FORCE MAJEURE
--------------------------------------
15.01 Damage and Repair
-----------------
A. If, during the term of this Agreement, the Hotel is damaged or destroyed
by fire, casualty or other cause, Owner shall, with all reasonable diligence, to
the extent that proceeds from the insurance described in Section 12.02 are
available (subject to the provisions of the First Mortgage, but with the
limitations described in Section 12.03 C) for such purpose, repair or replace
the damaged or destroyed portion of the Hotel to the same condition as existed
previously.
B. In the event damage or destruction to the Hotel from any cause
materially and adversely affects the operation of the Hotel and Owner fails to
timely (subject to Force Majeure, and subject to unreasonable delays caused by
Management Company, including unreasonable delays in adjusting the insurance
claim with the carriers which participate in Management Company's blanket
insurance program) commence and complete the repairing, rebuilding or
replacement of the same so that the Hotel shall be substantially the same as it
was prior to such damage or destruction, Management Company may, at its option,
elect to terminate this Agreement upon one hundred twenty (120) days' written
notice. The term "Force Majeure" shall mean acts of God,
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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, 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).
15.02 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, this Agreement shall terminate.
B. In the event a portion of the Hotel shall be taken by the events
described in Section 15.02 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; the balance of such award, if any, shall be fairly and equitably
apportioned between Owner and
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Management Company in accordance with their respective interests. The Owner's
Priority shall be reduced by ten percent (10%) of that portion of the total
amount (if any) received by Owner pursuant to this Section 15.02 B which is not
used to restore the Hotel.
C. In the event of any proceeding described in Section 15.02 A or B, Owner
and Management Company shall each have the right to initiate such proceedings as
they deem advisable to recover any damages to which they may be entitled;
provided, however, that Management Company shall be entitled to retain the award
or compensation it may obtain through proceedings which are conducted separately
from those of Owner only if such award or compensation does not reduce the award
or compensation otherwise available to Owner. For this purpose, any award or
compensation received by any holder of the First Mortgage or the Second Mortgage
shall be deemed to be an award or compensation received by Owner).
15.03 Force Majeure
-------------
Provided that the specific provisions of this Agreement regarding (i) damage
or destruction, (ii) condemnation and (iii) withdrawal or revocation of licenses
or permits shall govern exclusively with respect to those specific matters, if
acts of God, acts of war, civil disturbance or governmental action shall, in
Management Company's reasonable business judgment, make
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continued operation of the Hotel impracticable for more than a temporary period,
then Management Company shall be entitled to terminate this Agreement upon sixty
(60) days' written notice to Owner.
15.04 Damage, Condemnation and Force Majeure Under First Mortgage
-----------------------------------------------------------
Notwithstanding any other provision of this Article XV, for so long as the
First Mortgage shall remain in place, the provisions on damage, condemnation and
force majeure contained in the First Mortgage shall take precedence over this
Article XV.
END OF ARTICLE XV
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ARTICLE XVI
DEFAULTS
--------
16.01 Defaults
--------
The following shall constitute events of default to the extent permitted by
law:
A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party;
B. The consent by either party to an involuntary petition in bankruptcy, or
the admission in writing by either party of its inability to pay its debts, or
the failure to vacate (within ninety (90) days from the date of entry thereof)
any order approving an involuntary petition against either party;
C. The entering of an order, judgment or decree by any court of competent
jurisdiction, on the application of a creditor, adjudicating either party as
bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree continuing unstayed and
in effect for any period of ninety (90) days;
D. The appointment of a receiver for all or any substantial portion of the
property of either party if such appointment has not been withdrawn or vacated
within ninety (90) days of the
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issuance thereof;
E. The failure of either party to make any payment which is due and payable
hereunder within twenty (20) days after written notice thereof from the other
party;
F. 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
notice of said failure.
Upon the occurrence of any of such events of default, the non-defaulting
party may give to the defaulting party notice of intention to terminate this
Agreement for default after the expiration of a period of thirty (30) days from
the date of such notice, and if the default has not been cured on or before the
expiration of such period, this Agreement shall terminate. If, however, upon
receipt of such notice, the defaulting party shall (if such default is not
susceptible of being cured within thirty (30) days) promptly commence to cure
the default, and shall thereafter diligently pursue such efforts to completion,
then such notice shall be of no force and effect. The provision of the
immediately preceding sentence shall not apply to Sections 16.01 A, B, C, D and
E.
16.02 Remedies Cumulative
-------------------
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The rights granted hereunder shall not be in substitution for, but shall be
in addition to, any and all rights and remedies available to the non-defaulting
party by reason of applicable provisions of law.
END OF ARTICLE XVI
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ARTICLE XVII
WAIVER; PARTIAL INVALIDITY
--------------------------
17.01 Waiver
------
The failure of either party to insist upon a strict performance of any of
the terms or provisions of this Agreement or to exercise any option, right or
remedy herein contained shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.
17.02 Partial Invalidity
------------------
In the event that any portion of this Agreement shall be declared invalid by
order, decree or judgment of a court, or governmental agency having
jurisdiction, this Agreement shall be construed as if such portion had not been
inserted herein, except when such construction would operate as an undue
hardship on Management Company or Owner or constitute a substantial deviation
from the general intent and purpose of said parties as reflected in this
Agreement.
END OF ARTICLE XVII
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ARTICLE XVIII
ASSIGNMENT
----------
18.01 Assignment
----------
Neither party shall assign or transfer or permit the assignment or transfer
of this Agreement without the prior written consent of the other party, except
as follows:
A. Owner shall have the right to assign or transfer its interest in this
Agreement without such consent in connection with a sale of the Hotel pursuant
to Section 19.01;
B. Owner shall have the right to assign or transfer its interest in this
Agreement without such consent as collateral security with respect to the
financing evidenced by any mortgage, deed of trust or similar security
instrument; provided, however, any such mortgage, deed of trust or security
instrument will contain a provision reasonably acceptable to Management
Company's counsel that this Agreement will not be subject to forfeiture or
Termination other than in accordance with the terms of this Agreement,
notwithstanding a default under any such mortgage, deed of trust or security
instrument. Under such circumstances, Management Company is obligated to comply
with the provisions of Section 18.02(vi);
C. Provided that Management Company remains liable under all of the
provisions hereof, Management Company shall have the right
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to transfer or assign its interest in this Agreement without such consent to any
affiliates controlling or controlled by Marriott, including a partnership in
which Marriott or any affiliate controlling or controlled by it is a general
partner. For the purposes of this Section 18.01 C, an affiliate shall be deemed
controlling or controlled by Marriott if Marriott, through one or more
controlled intermediaries, owns or controls a minimum of fifty-one percent (51%)
of the voting interests in such affiliate; and
D. Management Company shall have the right to transfer or assign its
interest in this Agreement without such consent in connection with a merger,
consolidation, or sale of all or substantially all of the assets of Marriott.
Any permitted transfer or assignment pursuant to the foregoing provisions
shall be effective only upon an assumption by the assignee of all of the
assignor's duties under this Agreement. In the event of consent by either party
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. Any permitted assignment by either Owner or Management Company
of its interest in this Agreement, and the assumption by the assignee of the
assignor's duties under this Agreement, shall relieve Owner or
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Management Company (except in the event of an assignment under Section 18.01 C),
as the case may be, from their respective obligations under this Agreement
arising or accruing after the effective date of such assignment, and shall inure
to the benefit of, and be binding upon, their respective successors or assigns.
18.02 Subordination
-------------
Management Company shall, on request of Owner or any lender under the First
Mortgage or the Second Mortgage, enter into such supplemental agreements as may
obligate Management Company to (i) provide such a lender with notice of any
default by Owner hereunder and thereafter permit such a lender to effect a cure
thereof within a reasonable period; (ii) supply such a lender with copies of any
notices or other communications contemplated by this Agreement from Management
Company to Owner, (iii) postpone termination of this Agreement in the event of a
default by Owner for so long as such a lender shall have commenced to cure any
such default or, if possession of the Hotel is required to effect such cure or
such default is not susceptible to cure, for so long as such lender in good
faith shall notify Management Company that such lender intends to institute
foreclosure proceedings and thereafter for so long as such proceedings shall
have been instituted and prosecuted with reasonable diligence; (iv) in the event
of a termination of this Agreement, offer to
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enter into a new management agreement with such a lender upon the same terms and
conditions as this Agreement, except that such lender shall have the right to
assign this Agreement without Management Company's consent and the covenants
referred to in Sections 3.01 and 3.02 shall not apply to such lender; (v)
subordinate Management Company's interest in this Agreement to the rights of
such a lender upon foreclosure of any mortgage, deed of trust, security
agreement or like instrument against the Hotel or by a deed in lieu of
foreclosure; and (vi) attorn to and recognize such a lender or its assignee as
being Owner hereunder upon conveyance of title to the Hotel to such lender or
assignee, whether such conveyance is upon foreclosure of a mortgage, deed of
trust, security agreement or like instrument or by a deed in lieu of a
foreclosure.
18.03 Transfer of Hotel to Lender Under First Mortgage and Second Mortgage
--------------------------------------------------------------------
In the event of a transfer of the Hotel from Owner to the lender under the
First Mortgage or the Second Mortgage or a purchaser, including such lender
under the First Mortgage or the Second Mortgage, at foreclosure or by deed in
lieu of foreclosure, then such transferee shall have no personal liability to
Management Company under this Agreement, and the only recourse of Management
Company shall be to the extent of the
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interest of such transferee in the Hotel.
END OF ARTICLE XVIII
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ARTICLE XIX
SALE OF HOTEL
-------------
19.01 Sale of Hotel
-------------
A. If Owner receives a bona fide written offer to purchase the Hotel and
desires to accept such offer, Owner shall give written notice thereof to
Management Company stating the name of the prospective purchaser, the price and
the terms and conditions of such proposed sale, together with all other
information requested by Management Company and reasonably available to Owner.
Within thirty (30) days after the date of receipt of Owner's written notice and
such other information, Management Company shall elect, by written notice to
Owner, one of the following two alternatives:
1. To consent to such sale and to the assignment of this Agreement to
such purchaser, provided that concurrently with the finalization thereof the
purchaser shall, by appropriate instrument in form satisfactory to Management
Company, assume all of Owner's obligations hereunder and provided that such sale
must be finalized within one hundred eighty (180) days following the receipt of
written notice from Owner given pursuant to Section 19.01 A. Consent by
Management Company shall not relieve Owner from its obligations under this
Agreement for any acts or omissions of Owner prior to such approved sale and
assignment.
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An executed copy of such assumption agreement shall be delivered to Management
Company.
2. To terminate this Agreement by written notice to Owner, which
notice will set an effective date for such Termination not earlier than thirty
(30) days, nor more than sixty (60) days, following the date of the giving of
such notice. Owner or Management Company shall have the right to change such
effective date of Termination to coincide with the date of the finalization of
the proposed sale. Said notice of Termination shall not be effective if such
sale is not finalized. Notwithstanding the foregoing, Management Company agrees
that if the proposed purchaser, in the reasonable opinion of Management Company,
(i) is financially responsible and has sufficient assets to fulfill the
obligations of Owner hereunder, and (ii) is not a party which has itself been
connected with, or is either controlled by persons known to be engaged in,
criminal activities, or known as an associate or agent of criminals, and (iii)
does not directly or indirectly operate or manage hotels or restaurants in
competition with Management Company or Marriott or their affiliates, Management
Company shall not exercise its right to terminate this Agreement pursuant to
this Section 19.01 A 2 and shall be deemed to have consented to the proposed
sale or assignment pursuant to Section 19.01 A 1.
B. If Management Company shall fail to elect one of the
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above alternatives within said thirty (30) day period as set forth in the first
paragraph of Section 19.01 A, the same shall be conclusively deemed to
constitute an election and consent under Section 19.01 A 1, and the provisions
thereof shall prevail as if Management Company had consented in writing thereto.
Any proposed sale of which notice has been given by Owner to Management Company
hereunder must be finalized within one hundred eighty (180) days following the
giving of such notice. Failing such finalization, such notice, and any response
thereto given by Management Company, shall be null and void and all of the
provisions of Section 19.01 A must again be complied with before Owner shall
have the right to finalize a sale of the Hotel upon the terms contained in said
notice, or otherwise.
C. The provisions of this Section 19.01 will not apply to the lender under
the First Mortgage or the Second Mortgage in the event of a foreclosure or
foreclosure sale (or deed in lieu of foreclosure) of the First Mortgage or the
Second Mortgage, respectively, or to Owner if the lender under the First
Mortgage or the Second Mortgage has an economic interest as a lender in the
Hotel.
END OF ARTICLE XIX
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ARTICLE XX
ARBITRATION
-----------
20.01 Arbitration
-----------
A. In the event of a dispute between Owner and Management Company with
respect to any issue of fact specifically mentioned herein as a matter to be
decided by arbitration, such dispute shall be determined by arbitration 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.
B. Owner and Management Company shall each appoint and pay all fees of a
fit and impartial person as arbitrator who shall have had at least ten (10)
years' experience in the State of New Jersey in a calling connected with the
subject matter of the dispute within thirty (30) days of notice by either party
of such party's election to seek arbitration in accordance with the provisions
of this Section 20.01. Such appointment shall be signed in writing by each
party to the other, and the arbitrators so appointed, in the event of their
failure to agree within thirty (30) days after the appointment of the second
arbitrator upon the matter so submitted, shall appoint a third arbitrator. If
either Owner or Management Company shall fail to appoint an arbitrator, as
aforesaid, for a period of twenty (20) days after
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written notice from the other party to make such appointment, then the
arbitrator appointed by the party having made such appointment shall appoint a
second arbitrator and the two so appointed shall, in the event of their failure
to agree upon any decision within thirty (30) days thereafter, appoint a third
arbitrator. If such arbitrators fail to agree upon a third arbitrator within
forty-five (45) days after 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 experience as to the subject matter in question. The fees of the
third arbitrator and the expenses incident to the proceedings shall be borne
equally between Owner and Management Company. The fees of respective counsel
engaged by the parties, and the fees of the 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.
C. The decision of the arbitrators shall be by majority vote and shall be
rendered within thirty (30) days after appointment of the third arbitrator, and
such decision shall be in writing and in duplicate, one counterpart thereof to
be delivered each to Owner and Management Company. A judgment of a court of
competent jurisdiction may be entered upon the award of the arbitrators in
accordance with the rules and statutes applicable thereto then
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obtaining. Nothing herein shall be deemed to grant such arbitrators authority to
modify or amend this Agreement.
END OF ARTICLE XX
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ARTICLE XXI
MISCELLANEOUS
-------------
21.01 Right to Make Agreement
-----------------------
Each party warrants, with respect to itself, that neither the execution of
this Agreement, nor the finalization of the transactions contemplated hereby,
shall violate any provision of any law, or any judgment, writ, injunction, order
or decree of any court or governmental authority having jurisdiction over it;
nor 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;
nor require any consent, vote or approval which has not been given or taken, or
at the time of the transaction involved shall not have been given or taken. Each
party covenants that it has and will continue to have throughout the term of
this Agreement and any extensions thereof, the full right to enter into this
Agreement and perform its obligations hereunder.
21.02 Consents
--------
Except as otherwise specifically restricted or limited, wherever in this
Agreement the consent or approval of Owner or Management Company is required,
such consent or approval shall not be unreasonably withheld, delayed or
conditioned, shall be
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without charge, shall be in writing and shall be executed by a duly authorized
officer or agent of the party granting such consent or approval.
21.03 Agency
------
A. The relationship of Owner and Management Company shall be that of
principal and agent, and nothing contained in this Agreement shall be construed
to create a partnership or joint venture between them or their successors in
interest. Management Company's agency established by this Agreement is coupled
with an interest and may not be terminated by Owner until the expiration of the
term of this Agreement, except as provided in Section 4.02 and in Articles XV or
XVI. Notwithstanding the agency relationship created by this Agreement, nothing
contained herein shall prohibit, limit or restrict Management Company or any of
its affiliates from developing, owning, operating, leasing, managing or
franchising hotels in the market area where the Hotel is located, and Management
Company and its affiliates hereby specifically reserve the right to do any of
the foregoing.
B. The agency coupled with an interest herein was created by a complex,
single, integrated transaction. Among other considerations, Owner and
Management Company stipulate that their mutual decision to enter into this
Agreement was based on the following assumptions: (i) that one of the reasons
why the
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Marriott hotel system has succeeded in gaining the loyalty of its customers is
that Marriott hotels are located in a large number of geographical markets; (ii)
that the success of many of Management Company's promotional efforts (such as
the Honored Guest Award program) depends on the expectation of its customers
that there will be a Marriott hotel in most destinations where they may choose
to travel; and (iii) by executing this Agreement, Management Company intends to
select this Hotel to represent the Marriott hotel system in the Hotel's market
area, and, in so doing, Management Company has foregone the opportunity to
select other hotels in this market area. This agency is intended to provide
security for the covenants, promises and guarantees herein. The agency was
purchased for valuable consideration and is not terminable except as
specifically allowed by the express provisions of this Agreement. The parties
intend for this agency to be coupled with an interest, waive any right to claim
that it is terminable at will, and further agree to be equitably estopped from
asserting that the agency is not coupled with an interest.
21.04 Applicable Law
--------------
This Agreement shall be construed under and shall be governed by the laws of
the State of New Jersey.
21.05 Recordation
-----------
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At the request of either party, the parties shall execute an appropriate
memorandum of this Agreement in recordable form and cause the same to be
recorded in the jurisdiction where the Hotel is located. Any cost of such
recordation shall be initially borne by Owner, reimbursed to Owner from Gross
Revenues, and treated as a Deduction.
21.06 Headings
--------
The headings of the Articles and Sections herein are inserted only for
convenience and are in no way to be construed as limitations on the scope of the
particular Article or Section to which they refer.
21.07 Certificates
------------
Either party, upon request of the other party, without charge, shall deliver
a written instrument to the requesting party or to any other party designated by
the requesting party, duly executed and acknowledged, certifying:
A. That this Agreement is unmodified and in full force and effect, or, if
there is any modification then in effect or any existing modification that will
become effective thereafter, stating such modification and stating that this
Agreement is in full force and effect as modified;
B. Whether or not there are any defaults hereunder known to
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such party or existing setoffs or defenses against the enforcement of any of the
terms, agreements, covenants and conditions of this Agreement, and, if so,
specifying the same; and
C. The dates to which any stated amounts of the Management Fees, Owner's
Distribution and/or other charges hereunder have been paid.
The giving of any such certificate shall not preclude Owner or Management
Company from thereafter asserting any existing default of which such party did
not have actual knowledge on the date of the making of such certificate.
21.08 Notices
-------
Notices, statements and other communications to be given under the terms of
this Agreement shall be in writing and delivered by hand against receipt or sent
by certified or registered mail, return receipt requested, as follows:
To Owner:
--------
Hanover Marriott Limited Partnership
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department
with a copy to:
Hanover Marriott Limited Partnership
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
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<PAGE>
Attn: Asset Management Department 908
To Management Company:
---------------------
Marriott Hotel Services, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department
with a copy to:
--------------
Marriott Hotel Services, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Senior Vice President-Finance
Marriott Hotels, Resorts & Suites
or to such other address as from time to time may be designated by proper notice
given by the party to whom addressed. All such notices which are sent by
certified or registered mail, postage prepaid, shall be deemed served in the
fifth (5th) business day after being posted.
21.09 Entire Agreement
----------------
This Agreement, together with other writings signed by the parties
expressly stated to be supplemental hereto and together with any instruments to
be executed and delivered pursuant to this Agreement, constitutes the entire
agreement between the parties, supersedes all prior understandings and writings
relating specifically to the subject matter hereof, and may be changed only by a
writing signed by the parties hereto.
21.10 Termination
-----------
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<PAGE>
In the event of a Termination of this Agreement, the following events shall
occur:
A. Management Company shall, as of the date of Termination, surrender the
Hotel, the Site and Fixed Asset Supplies to Owner, in the condition the property
is in as of such date, subject to Management Company's obligations to maintain
the property as set forth in Sections 8.01 and 8.02.
B. Management Company shall be obligated to deliver to Owner certain Fixed
Asset Supplies in accordance with Sections 7.02 and 10.02.
C. All items of income and expense will be prorated as of the date of
Termination, and a final accounting pertaining to operations of the Hotel prior
to said date will be prepared by Management Company and delivered to Owner
within sixty (60) days after the date of Termination, all adjustments to be made
and paid simultaneously with the delivery of said accounting.
D. All contracts pertaining to the operations of the Hotel will be
assigned to Owner and assumed by Owner.
E. To the extent legally possible, all licenses and permits required for
the operation of the Hotel will be assigned to Owner.
F. Management Company will deliver all books and records pertaining to the
operation of the Hotel to Owner. Owner agrees that Management Company will have
reasonable access (including
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the right to make copies, at its expense) to such books and records after
Termination.
G. Management Company will transfer to Owner all advance reservations and
any deposits made with respect thereto. Management Company agrees that it will
not attempt to transfer any reservations made at the Hotel to any other hotels
it operates; the foregoing will not affect Management Company's right to inform
all parties making reservations for dates after Termination that the Hotel will
no longer be operated as a Marriott hotel after the date of Termination.
H. Owner and Management Company will undertake such other actions as are
necessary and appropriate in connection with Termination of this Agreement and
the transfer of possession of the Hotel to Owner.
21.11 Indemnification
---------------
Owner shall indemnify Management Company from and against all liabilities,
claims, obligations, damages, costs and expenses as a result of a breach of this
Agreement by Owner. Likewise Management Company shall indemnify Owner from and
against all liabilities, claims, obligations, damages, costs and expenses as a
result of a breach of this Agreement by Management Company.
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21.12 Confidentiality
---------------
The parties hereby agree that the matters set forth in this Agreement are
strictly confidential and each party will make every effort to ensure that such
information is not disclosed to any outside persons or entities (including the
press) without the consent of the other party.
21.13 Owner's Exculpation
-------------------
It is expressly understood and agreed by Management Company or any other
entity hereafter claiming an interest pursuant to this Agreement that the
liability of Owner hereunder, including any partner, officer or director of
Owner, for damages or otherwise shall be limited to Owner's interest in the
Site, Hotel and this Agreement and that no personal liability is assumed by nor
shall be asserted or enforced against Owner or any of its respective successors
or assigns.
21.14 Termination of Operating Lease
------------------------------
The term of the Operating Lease shall end as of 11:59 p.m. on the day
immediately preceding the Effective Date.
END OF ARTICLE XXI
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers.
ATTEST: HANOVER MARRIOTT LIMITED
PARTNERSHIP ("OWNER")
By: Marriott Hanover Hotel
Corporation, General Partner
David E. Reichmann
=========================== By: Bruce D. Wardinski
--------------------------
Name: David E. Reichmann Name: Bruce D. Wardinski
---------------------- ------------------------
Title: Assistant Secretary Title: Vice President
ATTEST: MARRIOTT HOTEL SERVICES, INC.
("MANAGEMENT COMPANY")
Carol Bruff
=========================== By: Kevin M. Kimball
-------------------------------
Name: Carol Bruff Name: Kevin M. Kimball
---------------------- -----------------------------
Title: Assistant Secretary Title: Vice President
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EXHIBIT 10.O
ASSIGNMENT OF HOTEL MANAGEMENT AGREEMENT
AND HOTEL RESERVE ACCOUNT
HANOVER MARRIOTT
HANOVER, NEW JERSEY
THIS ASSIGNMENT OF HOTEL MANAGEMENT AGREEMENT AND HOTEL RESERVE ACCOUNT is
entered into as of August 18, 1997 by HANOVER MARRIOTT LIMITED PARTNERSHIP, a
Delaware limited partnership (hereinafter referred to as "Assignor"), to and for
the benefit of CONNECTICUT GENERAL LIFE INSURANCE COMPANY, a Connecticut
corporation (hereinafter referred to as "Assignee"), as follows:
R E C I T A L S
- - - - - - - -
By virtue of that certain Management Agreement (the "Management Agreement")
dated as of even date herewith by and between Assignor and Marriott Hotel
Services, Inc., a Delaware corporation ("Operator"), Operator did contract with
Assignor to operate for Assignor the Marriott Hotel located on a parcel of land
more particularly described in EXHIBIT A attached hereto and incorporated herein
by reference (such property, together with the hotel facilities thereon, being
hereinafter called the "Property").
Pursuant to the terms of the Management Agreement, a Repairs and Equipment
Reserve is required to be maintained for making replacements, substitutions and
additions to Furnishings, Fixtures and Equipment, as such terms are defined in
the Management Agreement. Pursuant to Article VIII, Section 8.02 of the
Management Agreement, Operator is required to maintain the Repairs and Equipment
Reserve in a bank account (the "Reserve Account"). Operator currently maintains
the Reserve Account in Merrill Lynch Institutional Fund Number 258, Account
Number 3206121, in the name of "Hanover Marriott Hotel".
NOW THEREFORE, FOR VALUE RECEIVED, Assignor hereby grants, transfers, and
assigns to Assignee all of the right, title and interest of Assignor in and to
the Management Agreement and the Reserve Account; together with any and all
extensions and renewals thereof.
FOR THE PURPOSE OF SECURING:
ONE: Payment of all sums now or at any time hereafter due to the Assignee
from Assignor pursuant to that certain Promissory Note of even date herewith in
the original principal sum of $29,875,000.00 (the "Note") and secured by a
certain Mortgage and Security Agreement and that certain Assignment of Leases,
Rents and Revenues, each of even date herewith and made by Assignor to Assignee
(jointly, the "Mortgage"), to be recorded contemporaneously, or prior to, the
recording of this Agreement; and
<PAGE>
TWO: Performance and discharge of each and every obligation, covenant and
agreement of Assignor contained herein or in the Mortgage or the Note or any
other instrument evidencing or securing payment of the debt evidenced by the
Note (the "Loan Documents").
A. TO PROTECT THE SECURITY OF THIS ASSIGNMENT, ASSIGNOR HEREBY MAKES THE
FOLLOWING COVENANTS AND AGREEMENTS WITH RESPECT TO THE MANAGEMENT AGREEMENT AND
THE RESERVE ACCOUNT:
1. Performance Under Management Agreement. To faithfully abide by,
--------------------------------------
perform and discharge in all material respects each and every obligation,
covenant and agreement of Assignor under the Management Agreement by Assignor to
be performed; to give prompt, written notice to Assignee of any notice of
default on the part of Assignor with respect to the Management Agreement
received from Operator, together with an accurate and complete copy of any such
notice; at the sole cost and expense of Assignor, to enforce, short of
termination of the Management Agreement, or otherwise secure the performance of,
each and every material obligation, covenant, condition and agreement of
Management Agreement by the Operator to be performed; not to modify or in any
way alter the terms of the Management Agreement without Assignee's prior written
consent (said consent not to be unreasonably withheld or delayed); not to
terminate the term of the Management Agreement and not to accept a surrender
thereof unless required to do so by the terms of the Management Agreement; and
not to waive, excuse, condone or in any manner release or discharge Operator
thereunder of or from the material obligations, covenants, conditions and
agreement by Operator to be performed under the Management Agreement.
2. Obligations with Respect to Reserve Account. Assignor shall not
-------------------------------------------
transfer or permit the transfer by Operator of the Reserve Account without
Assignee's prior written consent. Additionally, Assignor shall deposit or cause
to be deposited into the Reserve Account any monies (to the extent in Assignor's
possession) which are to be deposited therein pursuant to the Management
Agreement.
3. Defense of Claims. At Assignor's sole cost and expense, and upon
-----------------
notice to Assignee, Assignor shall appear in and defend any action or proceeding
arising under, growing out of or in any manner connected with the Management
Agreement (including without limitation the Reserve Account), or the
obligations, duties or liabilities of Assignor or Operator thereunder, and shall
pay all reasonable costs and expenses of Assignee, including reasonable
attorney's fees, in any such action or proceeding in which Assignee may be
required to appear.
4. Remedies. If Assignor shall fail to make any payment (including
--------
without limitation, required payments to the Reserve Account), or to do any act
as in the Management Agreement or herein provided, then Assignee may, but
without obligation so to do and upon five (5) days' written notice to Assignor
and Operator, and without releasing Assignor from any obligation hereof, make or
do the same in such manner and to such extent as Assignee may deem necessary to
protect the security thereof, including specifically, without limiting its
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<PAGE>
general powers, the right to appear in and defend any action or proceeding
purporting to affect the security hereof or the rights or powers of Assignee,
and also the right to perform and discharge each and every obligation, covenant
and agreement of Assignor in the Management Agreement contained; and in
exercising any such powers to pay necessary costs and expenses, employ counsel
and incur and pay reasonable attorney's fees. Assignor shall pay within five (5)
Business Days after demand all sums expended by Assignee under the authority
hereof, and the same shall be added to the said indebtedness and shall be
secured hereby and by the Mortgage, and if Assignor shall fail to pay such sums
within said five (5) Business Day period, interest shall accrue thereon from the
date of demand therefor until paid and be immediately payable to Assignee at the
Default Rate (as defined in the Note).
5. Warranties. Assignor hereby covenants and warrants to Assignee that
----------
(a) Assignor has not executed any assignment of the Management Agreement, the
Reserve Account, or any of its rights, title or interest therein which remains
in effect, other than in connection with any subordinate mortgage financing
permitted under the Mortgage, and any such other assignment shall be expressly
by its terms subordinate hereto; (b) Assignor has not performed any act or
executed any instrument which might prevent Assignee from operating under any of
the terms and conditions hereof, or which would limit Assignee in such
operation; (c) there is no default under the Management Agreement by Assignor
nor to the best of Assignor's knowledge is there a default under the Management
Agreement by Operator and Assignor has no knowledge of any event which with
notice or lapse of time or both would constitute a default under the Management
Agreement; and (d) Assignor has not executed or granted any modification or
amendment whatever of the Management Agreement either orally or in writing and
the Management Agreement is in full force and effect.
B. IT IS ALSO AGREED THAT:
1. Rights of Assignor. So long as there shall exist no default by
------------------
Assignor in the payment of any indebtedness secured hereby or in the performance
of any obligation, covenant or agreement herein or in the Mortgage contained
which is not cured within an applicable grace period, if any, Assignor shall
have the right to enjoy and utilize the rights and privileges of the "Owner"
under the Management Agreement.
2. Remedies. Upon the occurrence and during the continuance of a default
--------
in the payment of any indebtedness secured hereby or in the performance of any
obligation, covenant or agreement herein or in the Mortgage which is not cured
within any applicable grace period, if any, Assignee may, upon notice to
Assignor and Operator, exercise all rights and remedies contained herein and in
the Mortgage and without regard for the adequacy of security for the
indebtedness hereby secured, either in person or by agent with or without
bringing any action or proceeding, or by a receiver to be appointed by a court,
enter upon, take possession of the Property and exercise all rights of "Owner"
under the Management Agreement and do any acts which Assignee deems proper to
protect the security hereof, and in such event Assignor shall not exercise any
further rights under the Management Agreement. Assignee may sue for or
otherwise collect all proceeds due and payable under the Management
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Agreement including those past due and unpaid and apply the same less costs and
expenses of Owner under the Management Agreement, including reasonable
attorneys' fees, upon any indebtedness secured by the Mortgage or hereby, and in
such order as Assignee may determine. The entering upon and taking possession of
the Property, the collection of and the application thereof as aforesaid, shall
not cure or waive any default or waive, modify or affect notice of default under
the Mortgage or invalidate any act done pursuant to such notice.
3. Termination of the Management Agreement. In the event of a default by
---------------------------------------
Operator so that Assignor, with the consent of Assignee as required herein,
terminates the Management Agreement or upon any other termination thereof, all
funds held in the Reserve Accounts shall be paid to Assignee except as otherwise
set forth in the other Loan Documents.
4. Default and Acceleration of Indebtedness. The whole of the
----------------------------------------
indebtedness shall become due upon the election by Assignee to accelerate the
maturity of the indebtedness pursuant to the provisions of the Note or of the
Mortgage, or any other instrument which may be held by Assignee as security for
the indebtedness or at the option of Assignee after Assignor terminates the
Management Agreement without Assignee's prior written consent. Additionally, in
the event of a default under any of the Loan Documents, Assignee shall be
entitled to all the remedies of a secured party under the New Jersey Uniform
Commercial Code with respect to the Reserve Account, including without
limitation, the right to apply any funds held in such Account to the payment of
any sums due under the Loan Documents or for such other purposes as Assignee may
reasonably deem desirable to protect its security in the Property, subject to
the Management Agreement and that certain Agreement Concerning Hotel Management
dated as of even date herewith between Assignee and Operator if the same shall
then be in effect.
5. No Obligation of Assignee. Assignee shall not be obligated to perform
-------------------------
or discharge, nor does it hereby undertake to perform or discharge, any
obligation, duty or liability under the Management Agreement, including without
limitation, the obligation to make required payments into the Reserve Account,
or under or by reason of this assignment, and Assignor shall and does hereby
agree to indemnify Assignee against and hold it harmless from any and all
liability, loss or damage which it may or might incur under the Management
Agreement or under or by reason of this assignment and of and from any and all
claims and demands whatsoever which may be asserted against it by reason of any
alleged obligation or undertaking on its part to perform or discharge any of the
terms, covenants or agreements contained in the Management Agreement which arise
prior to such time as Assignee shall have succeeded to the interest of Assignor
under the Management Agreement; should Assignee incur any such liability, loss
or damage under the Management Agreement or under or by reason of this
assignment, or in the defense against any such claim or demands, the amount
thereof, including costs and expenses and reasonable attorneys' fees, shall be
secured hereby and by the Mortgage, and Assignor shall reimburse Assignee
therefor within five (5) Business Days after demand therefor, and upon the
failure of Assignor so to do, Assignee may declare all sums secured hereby
immediately due and payable, and if Assignor shall fail to pay such sums within
said five (5) Business Day period, interest shall accrue thereon from the date
of demand
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<PAGE>
therefor until paid and be immediately payable to Assignee at the Default Rate
(as defined in the Note).
C. IT IS FURTHER AGREED THAT:
1. Release. Upon the payment of all indebtedness secured by, and the
-------
performance of all the terms and conditions of, the Loan Documents and this
Assignment, this Assignment shall terminate and thereafter be void and of no
further force and effect and, upon the request of the Assignor, Assignee shall
execute and deliver to Assignor instruments effective to evidence the
termination of this Assignment or the reassignment to Assignor of the rights,
power and authority granted to Assignee hereunder.
2. Assigns. This assignment inures to the benefit of the named Assignee
-------
and its successors and assigns, and binds Assignor's heirs, legatees, devisees,
administrators, executors, successors and assigns. The term "Management
Agreement" as used herein means not only the Management Agreement hereby
assigned or any extension or renewal thereof, but also any Management Agreement
subsequently executed by Assignor covering the Property or any part thereof.
Similarly, the term "Reserve Account" as used herein means not only the Reserve
Account hereby assigned, but any successor or additional accounts opened or
created as a Reserve Account under the Management Agreement. In this
assignment, whenever the context so requires, the neuter gender includes the
masculine or feminine, and the singular number includes the plural, and
conversely. This instrument may be executed in separate counterparts, all of
which together shall be deemed one and the same instrument.
3. Notices. Any notice, request, demand, statement or consent made
-------
hereunder shall be in writing signed by the party giving such notice, request,
demand, statement or consent, and shall be deemed to have been properly given
when either delivered personally, delivered to a reputable overnight delivery
service providing a receipt or deposited in the United States mail, postage
prepaid and registered or certified return receipt requested, in each case to
the other party hereto at its address set forth below, or at such other address
within the continental United States of America as such party may have
theretofore designated in writing pursuant to this provision. The effective
date of any notice given as aforesaid shall be the date of personal service, one
(1) business day after delivery to such overnight delivery service or five (5)
business days after being deposited in the United States mail, whichever is
applicable. For purposes hereof, the addresses are as follows:
To Assignor: Hanover Marriott Limited Partnership
Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Treasurer
with a copy to: Host Marriott Corporation
10400 Fernwood Road
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<PAGE>
Bethesda, Maryland 20817
Attention: Law Department
To Assignee: Connecticut General Life Insurance Company
CIGNA Investments, Inc.
900 Cottage Grove Road
Hartford, CT 06152-2319
Attention: Investment Services, S-319
with a copy to: CIGNA Corporation
Investment Law Department
900 Cottage Grove Road
Hartford, CT 06152-2215
Attention: Real Estate Division, S-215A
4. Business Days. The terms "Business Day" and "Business Days" as used in
-------------
this Assignment shall mean any calendar day other than a Saturday, a Sunday or a
Federal holiday on which the U.S. Postal Service offices are closed for business
in one or more of Bethesda, Maryland, Hanover, New Jersey or Hartford,
Connecticut.
5. Scope of Liability. The provisions of Section 15 of the Note and
------------------
Section 40 of the Mortgage, copies of which are attached as Exhibit B thereto,
are incorporated by reference herein.
(SIGNATURES APPEAR ON NEXT PAGE)
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IN WITNESS WHEREOF, Assignor has executed this Assignment of Hotel
Management Agreement and Hotel Reserve Account as of the date first above
written.
ASSIGNOR:
HANOVER MARRIOTT LIMITED PARTNERSHIP, a Delaware
limited partnership
By: Marriott Hanover Hotel Corporation,
a Delaware corporation and its general partner
By Bruce D. Wardinski
-----------------------------------------------
Bruce D. Wardinski
Marriott Hotel Services, Inc. (herein referred to as "Operator") joins in
executing the foregoing Assignment of Hotel Management Agreement and Hotel
Reserve Account solely to acknowledge and evidence its consent to the terms
thereof and to confirm to Assignee, and hereby represents and warrants to
Assignee, that (i) there is no default under the Management Agreement by
Operator or, to the best of Operator's knowledge, by Assignor and Operator has
no knowledge of any event which with notice or lapse of time or both would
constitute a default under the Management Agreement; and (ii) neither Operator
nor, to Operator's knowledge, Assignor have executed or granted any modification
or amendment whatsoever of the Management Agreement, either orally or in
writing, and the Management Agreement is in full force and effect.
MARRIOTT HOTEL SERVICES, INC.,
a Delaware corporation
By Kevin M. Kimball
-----------------------------------------------
Name: Kevin M. Kimball
Title: Vice President
-7-
<PAGE>
STATE OF Maryland )
: ss:
COUNTY OF Montgomery )
On this 8th day of August, 1997, before me, Susan Levenson, a Notary Public
in and for the jurisdiction aforesaid, personally appeared in said jurisdiction
Bruce D. Wardinski, to me personally known, who being by me duly sworn did
acknowledge himself to be a Vice President of MARRIOTT HANOVER HOTEL
CORPORATION, a Delaware corporation, as sole general partner of Marriott Hanover
Limited Partnership, a Delaware limited partnership, and that he, as such Vice
President, being authorized so to do, did acknowledge the foregoing instrument
to be the act and deed of said corporation as sole general partner of said
limited partnership, as aforesaid, and that the same was executed for the
purposes therein contained, and delivered the same as such.
Suan Levenson
--------------------------
-8-
<PAGE>
STATE OF Maryland )
: ss:
COUNTY OF Montgomery )
On this 31st day of July, 1997, before me, Carol Bruff, a Notary Public
in and for the jurisdiction aforesaid, personally appeared in said jurisdiction
Kevin M. Kimball, to me personally known, who being by me duly sworn did
acknowledge himself to be a Vice President of MARRIOTT HOTEL SERVICES, INC., a
Delaware corporation, and that he, as such Vice President, being authorized so
to do, did acknowledge the foregoing instrument to be the act and deed of said
corporation, and that the same was executed for the purposes therein contained,
and delivered the same as such.
Carol Bruff
---------------------------
-9-
<PAGE>
EXHIBIT A
---------
ALL that certain tract, parcel and lot of land lying and being situate in
the Township of Hanover, County of Morris, State of New Jersey, being more
particularly described as follows:
BEGINNING at a point in the present southwesterly side of New Jersey State
Highway Route 10 at a point where the westerly line of the premises to be
described and the easterly line now or formerly of Newark Milk and Cream Company
intersects said sideline of Route 10 and running; thence
(1) South 60 Degrees 59 Minutes 12 Seconds East and along the side of Route
10,774.32 feet to the corner of lands now or formerly of Melvin and Irene
Wykoff, his wife; thence
(2) South 29 Degrees 00 Minutes 48 Seconds West 178.12 feet; thence
(3) Still along lands South 60 Degrees 59 Minutes 12 Seconds East 211.0
feet to line of Lands of Iron Investment Corp., et. als., lands along the same;
thence
(4) The same South 12 Degrees 09 Minutes 55 Seconds West 432.86 feet to a
point; thence
(5) North 81 Degrees 54 Minutes 29 Seconds West 181.92 feet to a point;
thence;
(6) North 61 Degrees 11 Minutes 56 Seconds West 760.78 feet to a point in
line of Lands of Newark Milk and Cream Company; thence
(7) Along the same North 13 Degrees 45 Minutes 24 Seconds East 684.30 feet
to the point and place of BEGINNING.
TOGETHER with access to and egress from said premises by way of 50
foot wide easement as set forth on filed map no. 3826 and further described as
follows:
Beginning at an angle point in the northerly line of Tax Lot 4, Block
1101 as shown on the tax map of the Township of Hanover, Morris County, New
Jersey, said point being further described as being South 61 Degrees 11 Minutes
56 Seconds East, 436.92 feet from the Northwest Corner of said Lot 4 as shown on
a map entitled "Map of Hanover Park for Industry", dated November 30, 1978 by
Stephen A. Jarombek of Montville, New Jersey and filed in the Morris County
Clerk's Office as filed map number 3826, and running thence
1. Through said Lot 4, South 12 Degrees 44 Minutes 34 Seconds West,
33.54 Feet to a Point on the Northerly End of Wing Drive, 50 Feet Wide as shown
on said
-10-
<PAGE>
filed map, thence,
2. Along the end of Wing Drive, North 86 Degrees 11 Minutes 36
Seconds West, 34.73 feet to a point of curvature; thence
3. Continuing along Wing Drive on a curve to the left with a radius
of 60.00 feet, an arc length of 16.44 feet, said curve having a chord of South
85 Degrees 57 Minutes 30 Seconds West, 16.39 feet; thence
4. Through Lot 4, 50 feet West of and parallel to the first course
above, North 12 Degrees 44 Minutes 34 Seconds East, 58.06 feet to a point on the
Southerly Line of Lot 13, Block 1002 as shown on said Tax Map; thence
5. Along said line, South 61 Degrees 11 Minutes 56 Seconds East,
52.03 feet to the point and place of BEGINNING.
-11-
<PAGE>
EXHIBIT B
---------
NOTE
- ----
15. Limitations on Recourse. Except as hereinafter in this Section and
-----------------------
in Section 40 of the Mortgage specifically provided, Maker. Marriott Hanover
Hotel Corporation ("MHHC") and any other partners of the Maker shall not be
personally liable for the payment of any sums due hereunder or the performance
of any obligations of Maker hereunder or under any other Loan Document. No
judgment for the repayment of the Indebtedness and no action to foreclose the
Mortgage, or to collect any amount payable under the Loan Documents, or to
satisfy any other claim relating thereto will be enforced against Maker or MHHC
or any other partner of Maker personally or any property of Maker or MHHC or any
other partner of Maker other than the Security and any other security furnished
under the Loan Documents in any action to foreclose the Mortgage or to otherwise
realize upon any security furnished under the Loan Documents or to collect any
amount payable under the Loan Documents. Notwithstanding the foregoing:
(a) Nothing herein contained shall be construed as prohibiting
Holder from exercising any and all remedies which the Loan Documents
permit, including the right to bring actions or proceedings against Maker
and/or MHHC and/or any other general partner of Maker and to enter a
judgment against Maker and/or any other general partner in Maker, so long
as the exercise of any remedy does not extend to execution against or
recovery out of any property of Maker and/or MHHC and/or any other partner
other than the security furnished under the Loan Documents;
(b) Maker and MHHC and any other general partner of Maker, but not
any limited partner of Maker who is not also a general partner, shall be
fully and personally jointly and severally personally liable for (i)
misapplying any condemnation proceeds or insurance proceeds attributable to
the Real Property, to the full extent of such proceeds so misapplied, (ii)
misapplying any security deposits attributable to the Real Property, to the
full extent of such deposits so misapplied. (iii) collecting any Rents
(defined in the Mortgage), Revenues (defined in the Mortgage) and any other
revenues and income generated by the operation of the hotel on the Real
Property (defined in the Mortgage) in advance in violation of any covenant
contained in any of the Loan Documents (except for deposits to hold advance
room reservations which occur in the ordinary course of business), to the
full extent of such Rents, Revenues and other revenues and income collected
in advance, (iv) committing fraud, misrepresentation or waste in connection
with the operation of the Security or the making of the loan evidenced
hereby, to the full extent of any remedies available at law or in equity,
not to exceed Holder's actual damages, except that no such limit shall
apply or be imposed if Maker, or its general partner(s) intentionally
commit(s) s fraud, misrepresentation or waste, (v) Gross Revenues (as
defined in the Hotel Management Agreement, as defined in the Mortgage) from
the Real Property are sufficient to pay any portion of the indebtedness,
operating expenses, maintenance expenses, insurance premiums, reserve or
escrow account deposits, sales and occupancy taxes, wages, salaries, taxes
and benefits relating to hotel employees, employment and withholding taxes,
or other sums required to be paid pursuant to the terms of the Loan
Documents, and Mortgagor fails to make any or all such payments or deposits
when due, all to the extent of any funds diverted from such obligations,
payments and/or expenses during the twelve (12) months prior to Mortgagee's
notice of acceleration through the date Mortgagee takes title to the Real
Property; (vi) failing to pay all or any portion of the real estate taxes
and assessments which are a lien against the Real Property during the
period of Maker's ownership at a time when there were sufficient Gross
Revenues available to pay all or any portion of such real estate taxes and
assessments, to full extent of such unpaid real estate taxes and
assessments; and (vii) failing to maintain the coverages and levels of
insurance required under the Mortgage or any other of the Loan Documents,
to the extent that a casualty or other liability occurs or arises and
insurance proceeds would have been available had such insurance coverages
and levels been maintained, in the amount of the difference between the
-12-
<PAGE>
actual insurance proceeds and the insurance proceeds that would have been
available had such levels and coverages of insurance been maintained as
required by the terms of the Loan Documents;
(c) There shall be no limitation, in any event, of Maker's personal
liability under, and the exercise of any of any of Holder's rights under
any separate indemnity agreement from Maker to Holder which may be entered
into, including but not limited to, the Environmental Indemnification
Agreement of even date herewith from Maker and Marriott Hanover Hotel
Corporation to Holder with regard to the Security except as may be
expressly set forth therein;
(d) Nothing contained in this Section shall be deemed to prejudice
the rights of Holder to proceed against any entity or person whatsoever,
including the Maker, with respect to the enforcement of Agreement
Concerning Hotel Management Agreement and any guarantees, leases, master
leases, or similar rights of payment.
-13-
<PAGE>
MORTGAGE
- --------
40. Limitations on Recourse. Except as hereinafter in this Section and in
-----------------------
Section 15 of the Note specifically provided, Mortgagor, Marriott Hanover Hotel
Corporation ("MHHC") and any other partners of the Mortgagor shall not be
personally liable for the payment of any sums due hereunder or the performance
of any obligations of Mortgagor hereunder or under any other Loan Document. No
judgment for the repayment of the Indebtedness and no action to foreclose this
Mortgage, or to collect any amount payable under the Loan Documents, or to
satisfy any other claim relating thereto, will be enforced against Mortgagor or
MHHC or any other partner of Mortgagor personally or any property of Mortgagor
or MHHC or any other partner of Mortgagor other than the Security and any other
security furnished under the Loan Documents in any action to foreclose this
Mortgage or to otherwise realize upon any security furnished under the Loan
Documents or to collect any amount payable under the Loan Documents.
Notwithstanding the foregoing:
(a) Nothing herein contained shall be construed as prohibiting
Mortgagee from exercising any and all remedies which the Loan Documents
permit, including the right to bring actions or proceedings against
Mortgagor and/or MHHC and/or any other general partner of Mortgagor and to
enter a judgment against Mortgagor and/or MHHC and/or any other general
partner in Mortgagor, so long as the exercise of any remedy does not extend
to execution against or recovery out of any property of Mortgagor and/or
MHHC and/or any other general partner other than the security furnished
under the Loan Documents;
(b) Mortgagor and MHHC and any other general partner of Mortgagor, but
not any limited partner of Mortgagor who is not also a general partner,
shall be fully and personally jointly and severally personally liable for
(i) misapplying any condemnation proceeds or insurance proceeds
attributable to the Security, to the full extent of such proceeds so
misapplied, (ii) misapplying any security deposits attributable to the
Security, to the full extent of such deposits so misapplied, (iii)
collecting any Rents, Revenues and any other revenues and income generated
by the operation of the hotel on the Real Property in advance in violation
of any covenant contained in any of the Loan Documents (except for deposits
to hold advance room reservations which occur in the ordinary course of
business), to the full extent of such Rents, Revenues and other revenues
and income collected in advance, (iv) committing fraud, misrepresentation
or waste in connection with the operation of the Security or the making of
the loan evidenced hereby, to the full extent of any remedies available at
law
-14-
<PAGE>
or in equity not to exceed Mortgagee's actual damages, except that no such
limit shall apply or be imposed if Mortgagor, or its general partner(s)
intentionally commit(s) fraud, misrepresentation or waste, (v) Gross
Revenues (as defined in the Hotel Management Agreement) are sufficient to
pay any portion of the Indebtedness, operating expenses, maintenance
expenses, insurance premiums, reserve escrow account deposits, sales and
occupancy taxes, wages, salaries, taxes and benefits relating to hotel
employees, employment and withholding taxes, or other sums required to be
paid pursuant to the terms of the Loan Documents, and Mortgagor fails to
make any or all such payments or deposits when due, all to the extent of
any funds diverted from such obligations, payments and/or expenses during
the twelve (12) months prior to Mortgagee notice of acceleration through
the date Mortgagor takes title to the Security; (vi) failing to pay real
estate taxes and assessments which are a lien against the Real Property
during the period of Mortgagor's ownership at a time when there were
sufficient Gross Revenues available to pay all or any portion of such real
estate taxes and assessments, to the full extent of such unpaid taxes; and
(vii) failing to maintain the coverages and levels of insurance required
under the Mortgage or any other of the Loan Documents, to the extent that a
casualty or other liability occurs or arises and insurance proceeds would
have been available had such insurance coverages and levels been
maintained, in the amount of the difference between the actual insurance
proceeds and the insurance proceeds that would have been available had such
levels and coverages of insurance been maintained as required by the terms
of the Mortgage;
(c) There shall be no limitation, in any event, of Mortgagor's
personal liability under, and the exercise of any of Mortgagee's rights
under any separate indemnity agreement from Mortgagor to Mortgagee
including but not limited to, the Environmental Indemnification Agreement
of even date herewith from Mortgagor and Marriott Hanover Hotel Corporation
to Mortgagee with regard to the Security except as may be expressly set
forth therein;
(d) Nothing contained in this Section shall be deemed to prejudice
the rights of Mortgagee to proceed against any entity or person whatsoever,
including the Mortgagor, with respect to the enforcement of the Hotel
Management Agreement and any guarantees, leases, master leases, or similar
rights of payment.
-15-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HANOVER
MARRIOTT LIMITED PARTNERSHIP FORM 10 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,952
<SECURITIES> 0
<RECEIVABLES> 204
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 743
<PP&E> 46,375
<DEPRECIATION> (16,391)
<TOTAL-ASSETS> 32,883
<CURRENT-LIABILITIES> 249
<BONDS> 41,154
0
0
<COMMON> 0
<OTHER-SE> (8,520)
<TOTAL-LIABILITY-AND-EQUITY> 32,883
<SALES> 0
<TOTAL-REVENUES> 6,853
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,256
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,934
<INCOME-PRETAX> 663
<INCOME-TAX> 0
<INCOME-CONTINUING> 663
<DISCONTINUED> 0
<EXTRAORDINARY> 5,094
<CHANGES> 0
<NET-INCOME> 5,757
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
