<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended DECEMBER 31, 1996
OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File Number: 0 - 16777
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 52-1508601
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 301-380-2070
Securities registered pursuant to Section 12(b) of the Act:
Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days: Yes No (Not Applicable). On August 25, 1992, the
--- ---
Registrant filed an application for relief from the reporting requirements of
the Securities Exchange Act of 1934 pursuant to Section 12(h) thereof. Because
of the pendency of such application, the Registrant was not required to, and did
not, make any filings pursuant to the Securities Exchange Act of 1934 from
October 23, 1989 until the application was voluntarily withdrawn on
August 29, 1997.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ] (Not Applicable)
DOCUMENTS INCORPORATED BY REFERENCE
None
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I
<S> <C>
Item 1. Business 1
Item 2. Property 4
Item 3. Legal Proceedings 5
Item 4. Submission of Matters to a Vote of Security Holders 5
PART II
Item 5. Market For Registrant's Common Equity and
Related Security Holder Matters 5
Item 6. Selected Financial Data 7
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 8. Financial Statements and Supplementary Data 15
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 29
PART III
Item 10. Directors and Executive Officers of the Registrant 29
Item 11. Management Renumeration and Transactions 30
Item 12. Security Ownership of Certain Beneficial Owners and Management 30
Item 13. Certain Relationships and Related Transactions 31
PART IV
Item 14. Exhibits, Supplemental Financial Statement Schedules
and Reports on Form 8-K 34
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
DESCRIPTION OF THE PARTNERSHIP
- ------------------------------
Desert Springs Marriott Limited Partnership (the "Partnership"), a Delaware
limited partnership which was formed on February 26, 1987, owns Marriott's
Desert Springs Resort and Spa and approximately 185 acres of land on which the
Hotel and a golf course are located (the "Hotel"). Additionally, until April
24, 1996, the Partnership owned certain Trans World Airline, Inc. ("TWA")
equipment (the "Equipment"). See Item 8, "Financial Statements and
Supplementary Data."
The sole general partner of the Partnership, with a 1% interest in the
Partnership, is Marriott Desert Springs Corporation (the "General Partner"), a
Delaware corporation and a wholly-owned subsidiary of Host Marriott Corporation
("Host Marriott"). The Partnership is currently engaged solely in the business
of leasing 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 is leased to Marriott Hotel Services, Inc. ("MHSI" or the "Tenant"), a
wholly-owned direct subsidiary of Marriott International, Inc. ("MII"), under a
long-term lease agreement (the "Operating Lease"). A second golf course (the
"Second Golf Course") is leased by the Partnership from Marriott's Desert
Springs Development Corporation, a wholly-owned indirect subsidiary of MII. The
Hotel has the right to use the Marriott name pursuant to the lease agreements
and, if these agreements are terminated, the Partnership will lose that right
for all purposes (except as part of the Partnership's name). See Item 13,
"Certain Relationships and Related Transactions."
The Hotel is among the premier resorts in the Marriott system and caters
primarily to meetings/conventions, leisure and commercial travel. Since the
Hotel is located in southern California, operating results are higher during the
period from November to April each year. The Partnership has no plans to
acquire any new properties. See Item 2, "Property."
The Equipment was leased to TWA pursuant to the terms of an operating lease
which expired April 20, 1995. On April 20, 1995, the Partnership and TWA
entered into a new sales-type lease agreement which was to have expired on July
24, 1996. However, on April 24, 1996, TWA exercised its early termination
option under the equipment lease and paid the rent due on that date along with
the equipment lease termination value plus the $1 purchase option.
ORGANIZATION OF THE PARTNERSHIP
- -------------------------------
The Partnership was formed to acquire and own the Hotel and the Equipment. The
Partnership purchased the Hotel from Desert Springs Hotel Services, a California
joint venture. The Equipment was purchased from TWA. Between March 20, 1987
and April 24, 1987, 900 limited partnership interests (the "Units"),
representing a 99% interest in the Partnership were subscribed pursuant to a
private placement offering. The offering price per Unit was $100,000; $25,000
payable at subscription with the balance due in three annual installments
through June 15, 1990; or, as an alternative, $87,715 in cash at closing as full
payment of the subscription price. Of the
1
<PAGE>
total 900 Units, 740.5 Units were purchased on the installment basis and 159.5
Units were paid in full at closing. The General Partner contributed $909,100 in
cash for its 1% general partnership interest.
COMPETITION
- -----------
The lodging industry as a whole, and the upscale and luxury full-service
segments in particular, is benefitting from a cyclical recovery as well as a
shift in the supply/demand relationship with supply relatively flat and demand
strengthening. The lodging industry posted strong gains in revenues and profits
in 1996, as demand growth continued to outpace additions to supply. The General
Partner expects full-service hotel room supply growth to remain limited through
1998 and for the foreseeable future. This supply/demand imbalance will result
in improving occupancy and room rates which should result in improved operating
profit.
Current trends in the hotel industry indicate that, through at least 1998, the
outlook for the lodging industry remains positive. Demand increases are
expected to continue to outpace supply additions. Rooms supply growth,
especially for the luxury and upscale segment, is forecasted to be limited as
compared to growth in budget and mid-priced hotels. Acquisition prices for
first class and luxury price properties are still at a significant discount to
construction, or replacement cost. The favorable gap between demand increases
and supply additions should continue to drive room rate increases, with
occupancy rates leveling as targeted room rates are achieved.
The primary competition for the Hotel comes from the following first-class
resort lodging-oriented hotels: (i) Marriott's Rancho Las Palmas Resort and
Country Club with 450 guest rooms, (ii) Hyatt Grand Champions Resort with 336
guest rooms, (iii) La Quinta Hotel and Resort with 640 guest rooms, (iv) Ritz-
Carlton Rancho Mirage with 238 guest rooms, (v) Westin Mission Hills Resort with
512 guest rooms and (vi) Stouffers Renaissance Hotels International with 560
rooms. The La Quinta Resort is adding an additional 18,000 square foot ballroom
and a complete European health spa expected to open in 1997.
The Tenant believes that by emphasizing management and personnel development of
its staff and maintaining a competitive price structure, the Partnership's share
of the market will be maintained or increased. The inclusion of the Hotel
within the nationwide MII 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 2, "Property," with respect to the
Hotel.
CONFLICTS OF INTEREST
- ---------------------
Because Host Marriott and its affiliates own and/or operate hotels other than
the Hotel 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.
2
<PAGE>
Policies with Respect to Conflicts of Interest
It is the policy of the General Partner that the Partnership relationship with
the General Partner, any of its affiliates or persons employed by the General
Partner are conducted on terms which are fair to the Partnership and which are
commercially reasonable.
The Partnership Agreement provides that agreements, contracts or arrangements
between the Partnership and the General Partner, other than arrangements for
rendering legal, tax, accounting, financial, 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,
independently of its dealings with the Partnership and as an ordinary
ongoing business or must enter into and engage in such business with MII
system hotels or hotel owners generally and not exclusively with the
Partnership;
(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 (excluding those Units held by the
General Partner or certain of its affiliates); and
(e) any such agreement, contract or arrangement which relates to or secures any
funds advanced or loaned to any of the Partnership by the General Partner
or any affiliate must reflect commercially reasonable terms.
EMPLOYEES
- ---------
The Partnership has no employees; however, employees of Host Marriott are
available to perform administrative services for the Partnership. The
Partnership reimburses Host Marriott for the cost of providing such services.
See Item 11, "Executive Compensation," for information regarding payments to
Host Marriott for the cost of providing administrative services to the
Partnership.
The Hotel is staffed by employees of the Tenant.
3
<PAGE>
ITEM 2. PROPERTY
THE HOTEL
- ---------
Location
Marriott's Desert Springs Resort and Spa is a full-service Marriott hotel and,
with the Second Golf Course, is located on approximately 185 acres of land. It
is located approximately 11 miles from the Palm Springs Airport and two hours
east of Los Angeles via Interstate 10. The Hotel is surrounded by the San
Jacinto Mountains to the west, the Santa Rosa Mountains to the east and south,
and the San Gorgonio Mountains to the north.
Description
The Hotel opened on February 2, 1987. The Hotel consists of 884 large guest
rooms including 65 luxury suites. Each room has a private balcony, mini-bar and
other deluxe accommodations. The Hotel has an 18-hole championship golf course
owned by the Partnership, with an additional 18-hole course which is leased by
the Partnership. Twenty-three acres of man made lakes are interspersed
throughout the resort grounds and lower level of the Hotel's main lobby. Boats
depart from inside the main lobby and carry guests to the various resort
functions. There are a total of five outdoor pools divided between three guest
areas. The main guest pool area, the Oasis, was expanded during 1995 and now
has three pools and two spas, and the Spring Pool and Health Spa areas each have
one pool and one spa. The tennis complex includes a separate tennis pro shop
building, 20 tennis courts of various surfaces, and badminton and volleyball
courts. The health spa is housed in a separate one-story building. Within the
health spa are separate men's and women's facilities, lap pool, hot and cold
plunge pools, saunas, steam rooms, aerobics and exercise rooms, lounge, and
locker rooms. Food and beverage services within the resort include four fine
dining restaurants that range from casual American to Japanese sushi and
overlook the water. Additionally, there are two grille/snack bars at the
outdoor pools, two golf club snack bars, lobby lounge, coffee bar, and
entertainment lounge. The 40,000 square foot lobby has an eight-story high view
of the nearby mountains. The Hotel has a three-story garage with parking for
approximately 1,500 vehicles. The meeting and exhibit spaces total 51,300
square feet of flexible space with 33 meeting rooms, including the 25,000 square
foot "Desert" ballroom and the 21,000 square foot "Springs" ballroom.
Competition
The primary competition for the Hotel comes from the following first-class
resort lodging-oriented hotels: (i) Marriott's Rancho Las Palmas Resort and
Country Club with 450 guest rooms, (ii) Hyatt Grand Champions Resort with 336
guest rooms, (iii) La Quinta Hotel and Resort with 640 guest rooms, (iv) Ritz-
Carlton Rancho Mirage with 238 guest rooms, (v) Westin Mission Hills Resort with
512 guest rooms and (vi) Stouffers Renaissance Hotels International with 560
rooms. The La Quinta Resort is adding an additional 18,000 square foot ballroom
and a complete European health spa expected to open in 1997. Additional
information is set forth in Item 1, "Business," with respect to the lodging
industry.
4
<PAGE>
THE TWA AIRLINE EQUIPMENT
- -------------------------
The Equipment consisted of a cross section of TWA's ground service equipment and
equipment used in the operation and maintenance of aircraft, including various
trucks, lifts, cargo loaders, cargo containers, general heavy maintenance
equipment, flight simulators, jetways, office equipment, testing materials,
vehicles and power units. The Equipment was located at various locations in the
United States with the majority of the Equipment located at John F. Kennedy
International Airport on Long Island, New York; Los Angeles (California)
International Airport; Lambert-St. Louis (Missouri) International Airport; and
two TWA facilities at or near an airport in Kansas City, Missouri. On April 24,
1996, TWA exercised its early termination option under the airline equipment
lease and paid the rent due on that date along with the termination value plus
the $1 purchase option.
ITEM 3. LEGAL PROCEEDINGS
Neither the Partnership nor the Hotel is presently subject to any material
litigation nor, to the General Partner's knowledge, is any material litigation
threatened against the Partnership or the Hotel, other than routine litigation
and administrative proceedings arising in the ordinary course of business, some
of which are expected to be covered by liability insurance and which
collectively are not expected to have a material adverse effect on the business,
financial condition or results of operations of the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the limited partners in 1996 or in prior
years. The Partnership instituted a consent solicitation on August 29, 1997,
to obtain the consent of the limited partners to certain matters and amend
certain provisions of the Partnership Agreement.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SECURITY HOLDER MATTERS
There is currently no public market for the Units and it is not anticipated that
a public market for the Units will develop. Transfers of Units are limited to
the first day of each accounting period, and are subject to approval by the
General Partner in its sole and absolute discretion and certain other
restrictions. As of August 28, 1997 there were 1,136 holders of record of the
900 limited partnership Units.
In accordance with Sections 4.06 and 4.09 of the Partnership Agreement, cash
available for distribution for any fiscal year will be distributed at least
annually, as soon as practicable after the close of each fiscal year, to the
partners of record at the end of each fiscal quarter during such fiscal year as
follows:
5
<PAGE>
(i) first, 1% to the General Partner and 99% to the Limited Partners until
through and including the end of the fiscal quarter during which the
General Partner and the limited partners shall have received cumulative
distributions of refinancing and/or sales proceeds ("Capital Receipts")
equal to 50% of their capital contributions (this threshold has not been
met as of December 31, 1996);
(ii) thereafter, 10% to the General Partner and 90% to the limited partners.
Cash available for distribution means, with respect to any fiscal period, the
revenues of the Partnership from all sources during such fiscal period less (i)
all cash expenditures of the Partnership during such fiscal period, including,
without limitation, debt service and 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.
On October 31, 1995, the Partnership made an interim cash distribution solely
from the TWA equipment lease in the amount of $3,900,000 as follows: $39,000 to
the General Partner and $3,861,000 to the limited partners ($4,290 per Unit).
On April 15, 1996, the Partnership made a cash distribution in the amount of
$1,547,270, $15,470 to the General Partner and $1,531,800 to the limited
partners ($1,702 per Unit) representing a final cash distribution from the 1995
TWA equipment lease payments.
On October 31, 1994, the Partnership made an interim cash distribution solely
from the TWA equipment lease in the amount of $1,660,910 as follows: $16,610 to
the General Partner and $1,644,300 to the limited partners ($1,827 per Unit).
On April 15, 1995, the Partnership made a cash distribution in the amount of
$1,170,000, $11,700 to the General Partner and $1,158,300 to the limited
partners ($1,287 per Unit) representing a final cash distribution from the 1994
TWA equipment lease payments.
In accordance with section 4.07, 4.08 and 4.09 of the Partnership Agreement,
Capital Receipts not retained by the Partnership will be distributed to the
owners of record on the last day of the fiscal quarter in which the transaction
is completed, as follows:
(i) first, 1% to the General Partner and 99% to the limited partners until the
partners have received cumulative distributions of Capital Receipts equal
to their capital contributions; and
(ii) thereafter, 10% to the General Partner and 90% to the limited partners.
As of August 28, 1997, cumulative distributions of Capital Receipts equaled
$18,046,400 ($180,500 to the General Partner and $17,865,900 to the limited
partners ($19,851 per Unit)).
6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data presents historical operating information
for the Partnership for each of the five years ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
(in thousands, except per Unit amounts)
<S> <C> <C> <C> <C> <C>
Income.................................................. $ 25,781 $ 24,351 $ 22,641 $ 21,571 $ 21,947
======== ======== ======== ======== ========
Net income (loss)....................................... $ 109 $ 1,585 $ (2,264) $ (3,099) $ (2,330)
======== ======== ======== ======== ========
Net income (loss) per limited partner unit (900 Units).. $ 120 $ 1,743 $ (2,490) $ (3,409) $ (2,563)
======== ======== ======== ======== ========
Total Assets............................................ $164,882 $173,742 $172,238 $175,451 $181,549
======== ======== ======== ======== ========
Total Obligations....................................... $186,519 $193,941 $188,951 $185,941 $183,962
======== ======== ======== ======== ========
Cash Distributions per limited partner
Unit (900 Units)........................................ $ 1,702 $ 5,577 $ 4,404 $ 5,498 $ 3,213
======== ======== ======== ======== ========
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
- -------
The following discussion and analysis addresses the results of operations of the
Partnership for the fiscal years ended December 31, 1996, 1995 and 1994.
Growth in the Partnership's total Hotel room sales, and thus rental income, is
primarily a function of average occupancy and average room rates, as well as
control of hotel operating costs. In addition, due to the amount of
meeting/convention business at the Hotel, food and beverage and golf and spa
operations have a direct effect on the Partnership's rental income. REVPAR, or
revenue per available room, represents the combination of the 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 GAAP measure of revenue).
REVPAR does not include food and beverage or other ancillary revenues generated
by the Hotel. REVPAR for the years ended December 31, 1994, 1995 and 1996 was
$102, $104 and $113, respectively. Food and beverage sales increased from $31.7
million in 1994 to $33.5 million in 1995 and to $38.4 million in 1996 due to
increased group sales.
Net rental income from the Hotel and Equipment rental is applied to debt
service, property taxes, partnership administrative costs, Partnership funded
capital expenditures and cash distributions to the partners.
RESULTS OF OPERATIONS
- ---------------------
1996 Compared to 1995
Hotel Rental Income. Hotel rental income for 1996 increased 18% from $19.9
million in 1995 to $23.4 million in 1996. For the year, total Hotel revenues
increased 15% due to increases in all areas of the Hotel including rooms, food
and beverage, golf and spa and other ancillary
7
<PAGE>
revenues. REVPAR improved 9% to $113 due to a 5% increase in average room rate
to approximately $158 and a 2.0 percentage point increase in average daily
occupancy to approximately 71%. Food and beverage revenues increased 15% from
$33.5 million in 1995 to $38.4 million in 1996.
Airline Equipment Rental Income. Airline equipment rental income decreased
56% from $2.8 million in 1995 to $1.2 million in 1996 due to the termination of
the airline equipment lease in April 1996. On April 24, 1996, TWA, the lessee,
terminated the lease and purchased the equipment, as permitted under the lease
agreement.
Other Income. Other income decreased 34% from $1.6 million in 1995 to $1.1
million in 1996. The decrease is primarily due to $692,000 of income recognized
in 1995 on the funding of the pool expansion by Marriott Vacation Club
International ("MVCI") offset by a $108,000 increase in interest income earned
in 1996 on the Partnership's cash held for refinancing.
Interest Expense. Interest expense increased 16% from $13.4 million in 1995
to $15.5 million in 1996 due to an increase in the interest rate. The mortgage
debt matured on July 27, 1996 and went into default on the maturity date.
Pursuant to the loan documents, the mortgage debt accrued interest at the
default rate of 10.75% until the refinancing on December 23, 1996. The weighted
average interest rate on the first mortgage debt was 9.0% in 1996 and 7.8% in
1995.
Depreciation and amortization. Depreciation and amortization decreased by
$100,000 due to the write-off in 1995 of the airline equipment partially offset
by an increase in building and equipment depreciation due to the $9.1 million
rooms renovation.
Property Taxes. Property tax expense increased 61% to $2.0 million in 1996
from $1.2 million in 1995 primarily due to a nonrecurring $600,000 refund
received in 1995 related to property taxes paid in prior years.
Partnership administration and other. Partnership administration and other
increased 34% primarily due to an increase in administrative costs due to the
refinancing of the mortgage debt.
1995 Compared to 1994
Hotel Rental Income. Hotel rental income for 1995 increased 6.4% from $18.7
million in 1994 to $19.9 million in 1995. For the year, total Hotel revenues
increased 4% driven primarily by a 6% increase in food and beverage revenue
from $31.7 million in 1994 to $33.5 million in 1995. Room rates in the desert
market increased only slightly and occupancies remained virtually flat when
compared to 1994 due to the sluggish regional economy and continued competitive
constraints. Despite these factors, Hotel management was able to increase
REVPAR to $104 as a result of a 1.3% increase in average room rate to
approximately $150 and a slight increase in average occupancy to 69%. The Hotel
benefitted from a significant increase in ancillary sales to group guests,
particularly in catering, golf and spa, with sales in these areas increasing
$2.4 million over 1994. In addition, profit margins improved significantly over
1994 as a result of a 7% labor productivity increase. As a result, hotel
operating results (hotel sales net of hotel operating expenses) increased 10%
over the prior year.
8
<PAGE>
Other Income. During 1995, other income increased 30% from $1.2 million in
1994 to $1.6 million in 1995. The increase is due primarily to $700,000 of
income recognized on MVCI's funding of the pool expansion and increased interest
income earned on the Partnership's refinancing reserve.
Depreciation and amortization. Depreciation and amortization decreased by
$1.1 million or 12.4%, when compared to 1994 due to the decrease in airline
equipment depreciation.
Property Taxes. Property tax expense decreased 36%, from $1.9 million in
1994 to $1.2 million in 1995, primarily due to reduced property tax assessments
combined with a $600,000 refund received in 1995 related to property taxes paid
in prior years.
Partnership administration and other. Partnership administration and other
decreased 49% primarily due to a $400,000 loss on the retirement of fixed assets
recorded in 1994.
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
Principal Sources and Uses of Cash
The Partnership's continuing principal source of cash is from the Hotel
Operating Lease. Prior to the Equipment Lease termination, the Partnership's
principal sources of cash included rents received under the Equipment Lease and
proceeds from Equipment sales. Its principal uses of cash are to fund the
property improvement fund, pay interest on mortgage debt and cash distributions
to the partners.
The Hotel Operating Lease provides for the payment of the greater of Basic
Rental or Owner's Priority. Basic Rental equals 80% of Operating Profit, as
defined. Owner's Priority equals the greater of (i) $20 million plus debt
service on certain additional debt to expand the Hotel or (ii) Debt Service, as
defined. (In no event will Owner's Priority for any year exceed operating
profit.)
The basis for computing the amounts paid pursuant to the Operating Lease is
expected to change in future periods. Pursuant to an agreement reached with MII
on December 23, 1996, for fiscal year 1997, the $20 million Owner's Priority
will be increased to $20.5 million. MII will be entitled only to the next $2
million of Operating Profit, as defined. Any additional Operating Profit in
excess of $22.5 million will be remitted entirely to the Partnership as
additional rent. MII has also agreed that once long-term refinancing of the
existing mortgage debt is consummated, Owner's Priority will be increased to
$21.5 million and MII will be entitled only to the next $1.8 million of
Operating Profit. Any additional Operating Profit in excess of $23.3 million
will be shared 75% to the Partnership and 25% to MII. In connection with and
concurrently with the consummation of the long-term financing in 1997, MII
agreed to waive any and all claims to Additional Rental, as defined, that have
accrued prior to the consummation of such loan.
Total cash provided by operations of the Hotel was $5.9 million, $6.7 million
and $7.0 million for the years ended December 31, 1994, 1995 and 1996,
respectively. Proceeds from the sale of airline equipment were less than
$100,000 for the year ended December 31, 1994, $4.0 million
9
<PAGE>
for the year ended December 31, 1995 and $2.5 million for the year ended
December 31, 1996. There will be no sales in future periods due to the sale of
the Equipment. Cash contributed to the property improvement fund of the Hotel
was $3.7 million, $3.8 million and $4.4 million for the years ended December 31,
1994, 1995 and 1996, respectively. Cash distributed to the partners was $4.0
million, $5.0 million and $1.5 million during the years ended December 31, 1994,
1995 and 1996, respectively.
The General Partner expects that contributions to the property improvement fund
will be a sufficient reserve for the future capital repair and replacement needs
of the Hotel's property and equipment.
Pursuant to the terms of the Hotel Operating Lease, the Partnership is obligated
to fund major improvements for the Hotel's mechanical and heating systems.
During 1998, the Partnership expects to fund approximately $1.5 million for
improvements to the Hotel's HVAC system (heating, ventilating and air
conditioning). The Partnership has a reserve established to pay for these
improvements which is expected to be sufficient. There are currently no
additional Partnership funded capital expenditure items planned for 1997 or
1998.
DEBT FINANCING
- --------------
As of December 31, 1995, the Partnership's nonrecourse mortgage debt (the
"Mortgage Debt") balance was $168.2 million. The weighted average interest rate
was 7.76% through maturity on July 27, 1996. Debt service on the Mortgage Debt
required no principal amortization prior to maturity. Debt service was funded
by rental payments received from the Hotel.
The Mortgage Debt was secured by the Partnership's fee interest in the Hotel,
leasehold interest in the Second Golf Course, a security interest in certain
personal property associated with the Hotel including furniture and equipment,
contracts and other general intangibles, and a security interest in the
Partnership's rights under the Hotel operating lease, the Hotel purchase
agreement and other related agreements. The lender did not have a security
interest in the Equipment.
The Mortgage Debt matured on July 27, 1996. The General Partner's attempts to
negotiate a forbearance agreement with the lender were unsuccessful. Pursuant
to the terms of the Mortgage Debt, the debt was in default from the Maturity
Date until December 23, 1996, and carried interest at a rate of 10.75% which was
2.5 percentage points above the lender's corporate base rate.
On December 23, 1996, pursuant to an agreement with the Partnership, GMAC
Commercial Mortgage Corporation ("GMAC") purchased the existing Mortgage Debt of
the Partnership and amended and restated certain terms thereof (as amended and
restated, the "Bridge Loan"). The Bridge Loan consists of a $160 million
nonrecourse mortgage loan. The Partnership utilized $8.2 million from its
refinancing reserve to reduce the principal outstanding balance of the Mortgage
Debt to the $160 million outstanding under the Bridge Loan. In addition, the
Partnership utilized $2.6 million from the refinancing reserve to pay costs
associated with the financing including lender's fees, property appraisals,
environmental studies and legal fees. Approximately half of the $2.6 million
was for fees related to the long-term financing. The Bridge Loan was originated
by Goldman Sachs Mortgage Company ("GSMC"), matures on October 31, 1997 and
bears
10
<PAGE>
interest at the London Interbank Offered Rate ("LIBOR") plus 2.75 percentage
points and requires that all excess cash from Hotel operations, if any, be held
in a debt service reserve for future debt service or to reduce the outstanding
principal balance of the Bridge Loan upon maturity. For the year ended December
31, 1996, the weighted-average interest rate on the Partnership's mortgage debt
was 9.0%. In 1995, the weighted-average interest rate on the Mortgage Debt was
7.8%. At December 31, 1996, the interest rate on the Bridge Loan was 8.4%.
Failure to refinance or extend the Bridge Loan upon maturity could result in
foreclosure of the Hotel by the Bridge Loan lender.
The Bridge Loan is secured by the Partnership's fee interest in the Hotel, a
security interest in certain personal property associated with the Hotel
including furniture and equipment, contracts and other general intangibles and a
security interest in the Partnership's rights under the Hotel operating lease,
the Hotel purchase agreement and other related agreements.
Pursuant to the terms of the debt refinancing there are no continuing
requirements for a debt service guarantee. Host Marriott and the General
Partner were released of their obligations to the Partnership under their
original debt service guarantee with the refinancing of the Partnership's
Mortgage Debt.
In conjunction with the refinancing of the Mortgage Debt, the General Partner
reaffirmed a foreclosure guarantee to the lender in the amount of $50 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 were less than $50 million.
The General Partner is currently pursuing two alternatives to refinance the
Bridge Loan. Each alternative would require that certain amendments (the
"Amendments") be made to the Partnership's Amended and Restated Agreement of
Limited Partnership (the "Partnership Agreement").
Loan Alternative A. One of the two alternatives to refinance the Bridge Loan
would involve a loan from GSMC consisting of two tranches of debt: (i) a senior
loan to a newly formed 100% owned subsidiary ("New Sub") of the Partnership that
would own the Hotel, which senior loan would be secured by a first mortgage lien
on the Hotel in an amount up to $103 million (with the final amount to be
determined based upon the net cash flow at the Hotel and prevailing interest
rates) and (ii) a junior loan to the Partnership, which junior loan would be
secured by the Partnership's 100% direct and indirect ownership interests in the
Partnership's newly formed subsidiary, in an amount equal to $57 million or such
greater amount that, when combined with the principal amount of the senior loan,
would total $160 million ("Alternative A"). Alternative A would enable the
Partnership to refinance the Bridge Loan. In connection with the closing of the
Bridge Loan on December 23, 1996, the General Partner entered into a commitment
letter with GSMC setting forth the terms of Alternative A.
Loan Alternative B. The other alternative ("Alternative B") would involve a
refinancing consisting of the senior loan from GSMC as described in Alternative
A, a subordinate tranche of debt from GSMC to the Partnership in the amount of
$20 million (the "Mezzanine Loan") secured by the Partnership's 100% direct and
indirect ownership interests in the Partnership's newly formed subsidiary, and a
subordinate junior tranche to the Partnership (the "HM Junior Loan")
11
<PAGE>
from DSM Finance LLC (the "Junior Lender"), a single member Maryland limited
liability company of which the General Partner is the sole member. The HM Junior
Loan would be in the amount of $59.7 million, and if consented to by the lender
of the Mezzanine Loan would be secured by a subordinate pledge of the
Partnership's 100% direct and indirect ownership interests in the New Sub. would
be secured by a subordinate pledge of the Partnership's 100% direct and indirect
ownership interests in the New Sub. Alternative B is expected to result in $22.7
million of proceeds in excess of that needed to refinance the Bridge Loan, which
would be distributed by the Partnership to its partners resulting in a
distribution to holders (the "Unitholders") of units of limited partnership
interest in the Partnership ("Units") of $25,000 per Unit.
The terms of the Senior Loan contemplate that, consistent with applicable rating
agency requirements, the Hotel would be contributed to the New Sub in exchange
for 100% of the direct and indirect interests in the New Sub. This structure
would create a bankruptcy remote entity which would be the borrower under the
Senior Loan. The Partnership Agreement does not currently permit this
contribution and, accordingly, each of Alternative A and Alternative B is
contingent on the approval by the Limited Partners of an amendment that would
permit such a contribution. On August 29, 1997, the General Partner initiated
the solicitation of consents of the limited partners of the Partnership,
pursuant to which the General Partner has sought approval of amendments to
refinance the Bridge Loan under either Alternative A or Alternative B and
proposed Alternative B to fund the DSM Junior Loan together with other
amendments to the Partnership Agreement.
The proposed Amendments also would allow the Partnership to reorganize the
ownership structure of the Hotel to provide additional tiers of structured
financing. GSMC has indicated that it would prefer a structured financing under
Alternative B whereby (i) the New Sub would own the Hotel and would be the
Debtor on the Senior Loan, GSMC has indicated that it might prefer a structured
financing under Alternative B whereby (i) the New Sub would own the Hotel and
whould be the Debtor on the Senior Loan, (ii) a new bankruptcy remote subsidiary
of the Partnership (the "Tier 2 Sub") would be formed to own the New Sub and be
the debtor on the Mezzanine Loan, and (iii) the Partnership would own the Tier 2
Sub (and indirectly own the New Sub and the Hotel) and would be the debtor on
the HM Junior Loan. As of the date of the consent solicitation statement, no
determination has been made as to whether a tiered subsidiary structure would be
utilized under Alternative B. However, under the proposed terms of the
Mezzanine Loan, the interest rate for the Mezzanine Loan would be increased by
one percentage point if a tiered subsidiary structure has not been implemented
on or before March 31, 1998. The effect of the refinancing to the Limited
Partners would be the same under either structure. If these proposed Amendments
are approved, the General Partner would be able to create a new wholly owned
subsidiary such as the Tier 2 Sub to provide for the current or future
restructuring of the Partnership's mortgage debt.
Debt to MII
On April 30, 1996, the Partnership entered into a short-term loan with MII in
the amount of $1,700,000 to fund a portion of the Hotel's rooms refurbishment
project. The loan's stated maturity was June 13, 1997, bearing interest at 8.5%
and was to be repaid from the property improvement fund as contributions are
made during the year. At December 31, 1996, the loan balance was $900,000. The
loan was fully repaid on March 28, 1997.
12
<PAGE>
Property Improvement Fund
The Partnership is required to maintain the Hotel in good repair and condition.
The Hotel Operating Lease agreement requires the Tenant to make annual
contributions to the property improvement fund for the Hotel on behalf of the
Partnership. Contributions to the fund are equal to 4.5% of Hotel gross
revenues through 1997 increasing to 5.5% thereafter. Total contributions to the
fund were $3.7 million for 1994, $3.8 million for 1995, and $4.4 million in
1996. The balance of the Hotel's property improvement fund was $1.0 million as
of December 31, 1996.
During the summer of 1996, a $9.1 million rooms refurbishment was completed at
the Hotel. The property improvement fund was not sufficient to fund the
refurbishment. The Partnership arranged a short-term loan from MII of up to
$1.7 million at a fixed rate of 8.5% to finance the anticipated shortfall. The
loan was to be repaid from the property improvement fund, and the loan has been
fully repaid prior to its maturity on June 13, 1997. The General Partner
believes that funds available from the property improvement fund will be
adequate for anticipated renewal and replacement expenditures.
During 1995, the Hotel's main swimming pool was expanded. This $2.1 million
expansion was funded partially with $692,000 in proceeds received from MVCI
pursuant to an agreement between the Partnership and MVCI for the development of
additional time share units on land adjacent to the Hotel. The Partnership
funded the remaining $1.4 million from cash reserves.
Equipment Lease
The Partnership leased airline equipment to TWA under an operating lease which
expired in April 1995. On April 20, 1995, the Partnership reached an agreement
with TWA whereby TWA was obligated to pay quarterly payments of $780,000 plus
interest in arrears at 17%. At the end of the lease in July 1996 (or earlier if
a termination option was exercised), TWA had the option to purchase the
equipment for one dollar ($1). The lease generated $5.4 million in cash flow
during the 1995 fiscal year. As a result of the lease renewal terms, the
Partnership recorded a receivable for the future lease payments due from TWA and
deferred the gain on the transaction. The deferred gain was recognized as
income as lease payments were received. Total rental income recognized in 1995
and 1996 on the lease was $2.8 million and $1.2 million, respectively. The
original cost of the airline equipment was depreciated over the life of the
operating lease. Depreciation expense on the airline equipment was $526,000 for
the year ended December 31, 1995.
On April 24, 1996, TWA exercised its early termination option under the airline
equipment lease and paid the rent due on that date of $847,000 along with the
termination value of $780,000 plus the $1 purchase option. Rental income of
$1,248,000 was generated by the lease in 1996.
INFLATION
- ---------
For the three fiscal years ended December 31, 1996, the rate of inflation has
been relatively low and, accordingly, has not had a significant impact on the
Partnership's gross income and net income. The Operating Tenant is generally
able to pass through increased costs to customers through higher room rates. In
1996, the increase in average room rates at the Hotel exceeded
13
<PAGE>
those of direct competitors as well as the general level of inflation.
SEASONALITY
- -----------
Demand, and thus occupancy and room rates, is affected by normally recurring
seasonal patterns. Demand tends to be higher during the months of November
through April than during the remainder of the year. This seasonality tends to
affect the results of operations, increasing the revenue and rental income
during these months. In addition, this seasonality may also increase the
liquidity of the Partnership during these months.
NEW STATEMENT OF FINANCIAL ACCOUNTING STANDARDS
- -----------------------------------------------
During 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.
FORWARD LOOKING STATEMENTS
- --------------------------
Certain matters discussed in this Management's Discussion and Analysis section
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. The Partnership
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect any future events
or circumstances.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index Page
- ----- ----
<S> <C>
Report of Independent Public Accountants......................... 16
Statement of Operations.......................................... 17
Balance Sheet.................................................... 18
Statement of Changes in Partners' (Deficit) Capital.............. 19
Statement of Cash Flows.......................................... 20
Notes to Financial Statements.................................... 21
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
TO THE PARTNERS OF DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP:
We have audited the accompanying balance sheet of Desert Springs Marriott
Limited Partnership (a Delaware limited partnership) as of December 31, 1996 and
1995, and the related statements of operations, changes in partners' (deficit)
capital and cash flows for each of the three years in the period ended December
31, 1996. 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 based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Desert Springs Marriott Limited
Partnership as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index at Item 14(a)(2)
(Schedule III Real Estate and Accumulated Depreciation) is presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audit 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.
March 21, 1997
16
<PAGE>
STATEMENT OF OPERATIONS
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
INCOME
Rentals
Hotel............................................ $23,433 $19,851 $18,676
Airline equipment (Note 6)....................... 1,248 2,837 2,731
Other............................................. 1,100 1,663 1,234
------- ------- -------
25,781 24,351 22,641
------- ------- -------
EXPENSES
Interest.......................................... 15,501 13,371 13,371
Depreciation...................................... 7,732 7,823 8,932
Property taxes.................................... 1,965 1,219 1,914
Partnership administration and other.............. 474 353 688
------- ------- -------
25,672 22,766 24,905
------- ------- -------
NET INCOME (LOSS).................................. $ 109 $ 1,585 $(2,264)
======= ======= =======
ALLOCATION OF NET INCOME (LOSS)
General Partner................................... $ 1 $ 16 $ (23)
Limited Partners.................................. 108 1,569 (2,241)
------- ------- -------
$ 109 $ 1,585 $(2,264)
======= ======= =======
NET INCOME (LOSS) PER LIMITED PARTNER
UNIT (900 Units).................................. $ 120 $ 1,743 $(2,490)
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
BALANCE SHEET
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Property and equipment, net............................... $155,441 $153,184
Due from Marriott International, Inc...................... 8 2,295
Property improvement fund................................. 1,041 5,425
Deferred financing, net of accumulated amortization....... 2,637 83
Rent receivable from airline equipment lessee............. -- 2,542
Cash and cash equivalents................................. 5,755 10,213
-------- --------
$164,882 $173,742
======== ========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Mortgage debt............................................ $160,000 $168,239
Additional rental paid by hotel lessee................... 25,013 21,848
Due to Marriott International, Inc....................... 1,022 122
Accounts payable and accrued interest.................... 484 2,451
Deferred gain on equipment lease......................... -- 1,281
-------- --------
Total Liabilities...................................... 186,519 193,941
-------- --------
PARTNERS' DEFICIT
General Partner
Capital contribution.................................... 909 909
Capital distributions................................... (602) (587)
Cumulative net losses................................... (398) (399)
-------- --------
(91) (77)
======== ========
Limited Partners
Capital contributions, net of offering costs of $10,576. 77,444 77,444
Investor notes receivable............................... (22) (22)
Capital distributions................................... (59,584) (58,052)
Cumulative net losses................................... (39,384) (39,492)
-------- --------
(21,546) (20,122)
======== ========
Total Partners' Deficit.................................. (21,637) (20,199)
-------- --------
$164,882 $173,742
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
18
<PAGE>
STATEMENT OF CHANGES IN
PARTNERS' (DEFICIT) CAPITAL
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
--------- --------- ---------
<S> <C> <C> <C>
Balance, December 31, 1993........................................ $ 21 $ (10,511) $ (10,490)
Payments received on investor notes receivable................... -- 45 45
Net loss......................................................... (23) (2,241) (2,264)
Capital distributions............................................ (40) (3,964) (4,004)
--------- --------- ---------
Balance, December 31, 1994........................................ (42) (16,671) (16,713)
Net income....................................................... 16 1,569 1,585
Capital distributions............................................ (51) (5,020) (5,071)
--------- --------- ---------
Balance, December 31, 1995........................................ (77) (20,122) (20,199)
Net income....................................................... 1 108 109
Capital distributions............................................ (15) (1,532) (1,547)
Balance, December 31, 1996........................................ $ (91) $ (21,546) $ (21,637)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
STATEMENT OF CASH FLOWS
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............................................. $ 109 $ 1,585 $ (2,264)
Noncash items:
Depreciation.................................................. 7,732 7,823 8,932
Amortization of deferred financing costs as interest expense.. 104 135 135
(Gain) loss on dispositions of property and equipment......... (1,248) (1,972) 408
Changes in operating accounts:
Due to/from Marriott International, Inc. and affiliates....... 2,287 (2,241) (113)
Due from airline equipment lessee............................. -- 1,357 (1,122)
Accounts payable and accrued interest......................... (1,967) 37 (117)
--------- --------- ---------
Cash provided by operations.................................. 7,017 6,724 5,859
--------- --------- ---------
INVESTING ACTIVITIES
Additions to property and equipment............................ (9,989) (3,979) (2,851)
Change in property improvement fund............................ 4,384 (2,035) (1,628)
Proceeds from sales of airline equipment....................... 2,509 3,964 42
--------- --------- ---------
Cash used in investing activities............................ (3,096) (2,050) (4,437)
--------- --------- ---------
FINANCING ACTIVITIES
Repayment of mortgage debt..................................... (168,239) -- --
Proceeds from mortgage loan.................................... 160,000 -- --
Refinancing costs.............................................. (2,658) -- --
Capital distributions to partners.............................. (1,547) (5,071) (4,004)
Additional rental paid by hotel lessee......................... 3,165 3,672 3,219
Advances from Marriott International, Inc...................... 1,700 -- --
Repayment of note payable to Marriott International, Inc....... (800) -- --
Payments received on investor notes receivable................. -- -- 45
--------- --------- ---------
Cash used in financing activities............................ (8,379) (1,399) (740)
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS................ (4,458) 3,275 682
CASH AND CASH EQUIVALENTS at beginning of year.................. 10,213 6,938 6,256
--------- --------- ---------
CASH AND CASH EQUIVALENTS at end of year........................ $ 5,755 $ 10,213 $ 6,938
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest................................ $ 17,372 $ 13,237 $ 13,237
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
DECEMBER 31, 1996 AND 1995
- --------------------------------------------------------------------------------
NOTE 1. THE PARTNERSHIP
Description of the Partnership
Desert Springs Marriott Limited Partnership (the "Partnership"), a Delaware
limited partnership, was formed to acquire and own Marriott's Desert Springs
Resort and Spa and the land on which the 884-room hotel and a golf course are
located (the "Hotel") and airline equipment. On December 29, 1995, Host
Marriott Corporation's operations were divided into two separate companies:
Host Marriott Corporation ("Host Marriott") and Host Marriott Services
Corporation. The sole general partner of the Partnership, with a 1% interest,
is Marriott Desert Springs Corporation (the "General Partner"), a wholly-owned
subsidiary of Host Marriott. The Hotel is leased to Marriott Hotel Services,
Inc. (the "Tenant"), a wholly-owned indirect subsidiary of MII, along with a
second golf course leased by the Partnership from Marriott Desert Springs
Development Corporation, also a wholly-owned subsidiary of MII. The airline
equipment was leased to Trans World Airlines, Inc. ("TWA") pursuant to the terms
of an operating lease through April 20, 1995. On April 20, 1995, the
Partnership entered into a new sales-type lease agreement which was due to
expire on June 24, 1996. On April 24, 1996, TWA exercised its early termination
option under the airline equipment lease and paid the rent due on that date of
$847,000 along with the termination value of $780,000 plus the $1 purchase
option (see Note 6).
The Partnership was formed on February 26, 1987, and operations commenced on
April 24, 1987 (the "Unit Offering Closing Date"). Between March 20, 1987, and
the Unit Offering Closing Date, 900 limited partnership interests (the "Units")
were subscribed pursuant to a private placement offering. The offering price
per Unit was $100,000; $25,000 payable at subscription with the balance due in
three annual installments through June 15, 1990, or, as an alternative, $87,715
in cash at closing as full payment of the subscription price. Of the total 900
Units, 740.5 were purchased on the installment basis and 159.5 Units were paid
in full. The General Partner contributed $909,100 in cash for its 1% general
partnership interest.
Partnership Allocations and Distributions
Under the partnership agreement, Partnership allocations, for Federal income tax
purposes, and distributions are generally made as follows:
a. Cash available for distribution will generally be distributed (i) first, 1%
to the General Partner and 99% to the limited partners until the General
Partner and the limited partners (collectively, the "Partners") have
received cumulative distributions of sale or refinancing proceeds ("Capital
Receipts") equal to $45,454,545; and (ii) thereafter, 10% to the General
Partner and 90% to the limited partners.
b. Refinancing proceeds and proceeds from the sale or other disposition of
less than substantially all of the assets of the Partnership, not retained
by the Partnership, will be distributed (i) first, 1% to the General
Partner and 99% to the limited partners, until the Partners have received
cumulative distributions of Capital Receipts equal to $90,909,100; and (ii)
thereafter, 10% to the General Partner and 90% to the limited partners.
Proceeds from the sale or other disposition of all or substantially all of
the assets of the Partnership or from the sale or other disposition of all
or substantially all of the Hotel will be distributed to the Partners pro
rata in accordance with their capital account balances as defined in the
partnership agreement.
21
<PAGE>
- -------------------------------------------------------------------------------
c. Net profits will be allocated as follows: (i) first, through and including
the year ended December 31, 1990, 99% to the General Partner and 1% to the
limited partners; (ii) next, through and including the year ending December
31, 1992, 70% to the General Partner and 30% to the limited partners; and
(iii) thereafter, 10% to the General Partner and 90% to the limited
partners.
d. Net losses will be allocated 100% to the General Partner through December
31, 1990, and thereafter, 70% to the General Partner and 30% to the limited
partners, subject to certain limitations, as specified in the partnership
agreement, regarding allocations to the limited partners.
e. The deduction for interest on the Purchase Note, as defined, which
cumulatively will not exceed $12,285 per Unit will be allocated to those
limited partners owning the Units purchased on the installment basis.
f. In general, gain recognized by the Partnership will be allocated as
follows: (i) first, to all Partners whose capital accounts have negative
balances until such negative balances are brought to zero; (ii) next, to
all Partners up to the amount necessary to bring their respective capital
account balances to an amount equal to their respective invested capital,
as defined; (iii) third, in the case of gain arising 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, (a) to the limited
partners in an amount equal to the excess, if any, of (1) the sum of the
product of 12% times the weighted-average of the limited partners' invested
capital, as defined, each year, minus (2) the sum of cumulative
distributions to the limited partners of cash available for distribution,
and (b) next, to the General Partner until it has been allocated an amount
equal to 10/90 times the amount allocated to the limited partners in (a);
and (iv) thereafter, 12% to the General Partner and 88% to the limited
partners.
For financial reporting purposes, profits and losses are allocated among the
Partners based upon their stated interests in cash available for distribution.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Partnership records are maintained on the accrual basis of accounting and
its fiscal year coincides with the calendar year.
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.
22
<PAGE>
- -------------------------------------------------------------------------------
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using the
straight-line method over the following
estimated useful lives of the assets less an estimated residual value of 10% on
the original building cost and 20% on the airline equipment cost:
Building and improvements 50 years
Furniture and equipment 4 to 10 years
Airline equipment 8 years
All Hotel property and equipment is pledged as security for the Mortgage Debt
described in Note 5.
The Partnership assesses impairment of its real estate property based on whether
estimated undiscounted future cash flow from the hotel will be less than its net
book value. If the property is impaired, its basis is adjusted to fair market
value.
Deferred Financing Costs
Deferred financing costs represent the costs incurred in connection with
obtaining debt financing and are amortized over the term thereof. The original
Mortgage Debt (see Note 5) matured on July 27, 1996. Deferred financing costs
associated with that debt, totaling $943,000, were fully amortized at maturity
and removed from the Partnership's books. Costs associated with the refinanced
Mortgage Debt totaled $2,658,000 at December 31, 1996. At December 31, 1996 and
1995, accumulated amortization of deferred financing costs totalled $21,000 and
$859,000, respectively.
Additional Rental
Under the terms of the Hotel operating lease (see Note 7), the Tenant pays
Additional Rental to the Partnership which is subject to possible repayment
under defined conditions; therefore, Additional Rental has been recorded as a
liability in the financial statements.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of less
than three months at date of purchase to be cash equivalents.
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 loss/net income for financial
reporting purposes and the net loss/net income reported in the Partnership's
tax return. These differences are due primarily to the use for income tax
purposes of accelerated depreciation methods, shorter depreciable lives for the
assets and differences in the timing of recognition of rental income. As a
result of these differences, the excess of the tax basis in net Partnership
liabilities and the net liabilities reported in the accompanying financial
statements at December 31, 1996 and 1995 was $26.0 million and $24.5 million,
respectively.
23
<PAGE>
New Statements of Financial Accounting Standards
The Partnership adopted Statement of Financial Accounting Standards ("SFAS") No.
115, "Accounting for Certain Investments in Debt and Equity Securities," during
1994. Adoption of this statement did not have a material effect on the
Partnership's financial statements.
The Partnership adopted SFAS No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of" during 1996. Adoption
of SFAS No. 121 did not have any effect on the Partnership's financial
statements.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land and land improvements.................. $ 13,690 $ 13,551
Building and improvements................... 155,570 153,388
Furniture and equipment..................... 47,800 40,132
-------- --------
217,060 207,071
Less accumulated depreciation............... (61,619) (53,887)
-------- --------
$155,441 $153,184
======== ========
</TABLE>
NOTE 4. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments are shown below. 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, 1996 As of December 31, 1995
------------------------ -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Property improvement fund $ 1,041 $ 1,041 $ 5,425 $ 5,425
FINANCIAL LIABILITIES:
Mortgage debt $ 160,000 $ 160,000 $ 168,239 $ 168,239
Note Payable to MII $ 900 $ 900 $ -- $ --
Additional rental paid by Hotel lessee $ 25,013 $ -- $ 21,848 $ --
</TABLE>
24
<PAGE>
- -------------------------------------------------------------------------------
The estimated fair value of Mortgage Debt obligations is based on the expected
future debt service payments discounted at estimated market rates. Additional
rental paid by the Hotel lessee is valued based on the expected future payments
from operating cash flow discounted at a risk-adjusted rate. As further
explained in Note 7, upon closing of the permanent financing to take place in
1997, MII agreed to waive all claims to Additional Rental that has accrued prior
to the consummation of the loan. Consequently, the estimated fair value of
Additional Rental paid by the Hotel lessee is zero.
As further explained in Note 7, the Partnership is required to maintain a
property improvement fund for the purpose of funding capital expenditures. As
of December 31, 1995, a portion of the Partnership's property improvement fund
was invested in debt securities which matured in 1996. Pursuant to the
provisions of SFAS No. 115, the securities were classified as held-for-sale and
adjusted to their fair market value. The proceeds from the sale of the
securities were used to fund a portion of the rooms refurbishment project which
was completed in the fourth quarter of 1996.
NOTE 5. DEBT
Mortgage Debt
As of December 31, 1995, Partnership debt consisted of a $168.2 million
nonrecourse mortgage loan (the "Mortgage Debt") which matured on July 27, 1996.
The Mortgage Debt bore interest at a fixed rate of 7.76% and required no
amortization of principal prior to maturity.
The Mortgage Debt matured on July 27, 1996, and went into default on the
maturity date as the Partnership was unable to secure replacement financing or
negotiate a forbearance agreement with the lender. Pursuant to the loan
documents, the Mortgage Debt began to accrue interest at the Default Rate, as
defined, of 10.75% which is 2.5 percentage points above the Lender's Corporate
Base Rate, as defined, from the maturity date through December 23, 1996.
The Partnership's debt was refinanced on December 23, 1996. The Mortgage Debt
was fully repaid with the proceeds from a $160 million nonrecourse mortgage loan
(the "Bridge Loan") combined with a principal paydown in the amount of $8.2
million from the Partnership's refinancing reserve. The new loan was originated
by Goldman, Sachs & Co. ("Goldman Sachs") and the lender is GMAC Commercial
Mortgage Corporation. The debt refinancing will take place in two stages. The
first stage, which took effect on December 23, provides an interim $160 million
mortgage loan that matures on October 31, 1997. This debt will bear interest at
LIBOR plus 2.75 percentage points and requires that all excess cash from Hotel
operations, if any, be held in a debt service reserve for future debt service or
to reduce the outstanding principal balance upon maturity. For the year, the
weighted-average interest rate on the Partnership's Mortgage Debt was 9.0%. In
1995 the weighted-average interest rate on the Mortgage Debt was 7.8%. At
December 31, 1996, the interest rate on the Bridge Loan was 8.4%.
The second stage of the refinancing will involve securing long-term financing
for the Hotel. Concurrently with entering into the interim loan agreement, the
Partnership signed a commitment letter with Goldman Sachs which outlines the
possible terms of a long-term loan to be finalized prior to October 31, 1997.
Under the terms of the commitment letter, the long-term debt would consist of
two notes: a $99 million "Senior Note" and a $61 million "Junior Note."
Pursuant to the terms of the commitment, the Senior Note will be provided by
Goldman Sachs, will bear interest at 12-year U.S. Treasuries plus 1.9
percentage points (currently 8.7%) and will require principal amortization on a
25-year term.
25
<PAGE>
- --------------------------------------------------------------------------------
Pursuant to the terms of the commitment letter, the Partnership has certain
options available to finance the Junior Note. One option is for Goldman Sachs
to provide the Junior Note in two tranches of debt. The first tranche of $39.1
million would bear interest at 12-year U.S. Treasuries plus 6.5 percentage
points with amortization based upon a 12.5 year term. The second tranche of
debt approximating $21.9 million would bear interest at 20% with principal
amortization to be paid from excess cash flow as defined in the commitment
letter. Other options available to finance the Junior Note amount include Host
Marriott or a subsidiary or MII providing a loan to the Partnership.
The Partnership utilized $2.6 million from the refinancing reserve to pay costs
associated with the financing including lender or a subsidiary fees, property
appraisals, environmental studies and legal fees. Approximately half of the
$2.6 million was for fees related to the long-term financing.
The Bridge Loan is secured by the Partnership's fee interest in the Hotel, a
security interest in certain personal property associated with the Hotel
including furniture and equipment, contracts and other general intangibles and a
security interest in the Partnership's rights under the Hotel operating lease,
the Hotel purchase agreement and other related agreements.
Pursuant to the terms of the debt refinancing there are no continuing
requirements for a debt service guarantee. Host Marriott and the General
Partner were released of their obligations to the Partnership under their
original debt service guarantee with the refinancing of the Partnership Mortgage
Debt.
In conjunction with the refinancing of the Mortgage Debt, the General Partner
reaffirmed a foreclosure guarantee to the lender in the amount of $50 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 were less than $50 million.
Debt to MII
On April 30, 1996, the Partnership entered into a short-term loan with MII in
the amount of $1,700,000 to fund a portion of the Hotel's rooms refurbishment
project. The loan matures on June 13, 1997, bears interest at 8.5% and will be
repaid from the property improvement fund as contributions are made during the
year. The Partnership was required to make principal payments of $200,000 on
the last day of each Accounting Period in 1996, as defined, beginning on October
4, 1996. Thereafter, principal payments of $300,000 per Accounting Period are
scheduled to be paid. At December 31, 1996, the loan balance was $900,000.
NOTE 6. AIRLINE EQUIPMENT LEASE
The Partnership leased airline equipment to TWA under the terms of an operating
lease which expired in April 1995. Pursuant to the terms of the airline
equipment lease, TWA was obligated to make semi-annual payments, in arrears,
based upon specified percentages of the Partnership's cost of the airline
equipment. Rental income under the operating lease is included in "Airline
equipment income" in the statement of operations and was $852,000 in 1995, and
$2,731,000 in 1994.
26
<PAGE>
- --------------------------------------------------------------------------------
On April 20, 1995, the Partnership reached an agreement with TWA whereby TWA was
obligated to pay renewal rents under a 15-month lease agreement. The renewal
rents consisted of quarterly payments of $780,000 plus 17% interest paid in
arrears, all of which totalled $6.5 million. At the end of the lease term, TWA
had the option to purchase the equipment for one dollar ($1). The Partnership
classified the new lease as a sales-type lease and recorded a receivable for the
future lease payments due from TWA, along with a deferred gain on the
transaction. The deferred gain is recognized as income as lease payments are
received on the installment method as a component of the line item "Airline
Equipment Income" in the statement of operations. Deferred gain amortization
was $1,248,000 in 1996 and $1,985,000 in 1995. On April 24, 1996, TWA exercised
its early termination option under the airline equipment lease and paid the rent
due on that date of $847,000 along with the termination value of $780,000 plus
the $1 purchase option.
NOTE 7. OPERATING LEASE
The Partnership leases the Hotel to the Tenant pursuant to an agreement which
commenced on April 24, 1987, with an initial term of 25 years (the "Operating
Lease"). The lease may be renewed at the Tenant's option for five successive
periods of 10 years each.
Annual Rental is equal to the greater of Basic Rental or Owner's Priority, as
described below:
1. Basic Rental equals 85% of Operating Profit, as defined, until December 31,
1993, and 80% thereafter.
2. Owner's Priority equals the greater of (i) $20 million plus debt service on
certain additional debt to expand the Hotel ("Expansion Debt Service") or
(ii) Debt Service, as defined. If there is a new mortgage (in an amount which
exceeds the outstanding balance of the existing mortgage by at least
$45,455,000), Owner's Priority will equal the greater of (i) $20 million plus
Expansion Debt Service, (ii) Debt Service or (iii) the lesser of Debt Service
on the new mortgage or $24 million plus Expansion Debt Service. In no event
will Owner's Priority for any year exceed Operating Profit.
3. Additional Rental equals the cumulative amount by which Owner's Priority
exceeds Basic Rental plus $268,000 and is recorded as a liability in the
accompanying financial statements. If in any year Basic Rental exceeds
Owner's Priority, Annual Rental will be reduced to equal Basic Rental minus
the lower of (i) Additional Rental then outstanding or (ii) 25% of the amount
by which Basic Rental exceeds Owner's Priority.
Rental income for 1996 included Basic Rental of $16,836,000 and Additional
Rental of $3,164,000. Operating Profit in 1996 totaled $21,045,000. In
accordance with the lease agreement, the Partnership was entitled to receive
Owner's Priority of $20,000,000 and MII was entitled to the remaining
$1,045,000.
Pursuant to an agreement reached with MII, for fiscal year 1997 the $20 million
Owner's Priority will be increased to $20.5 million. MII will be entitled only
to the next $2 million of Operating Profit. Any additional Operating Profit in
excess of $22.5 million will be remitted entirely to the Partnership as
additional rent. MII has also agreed once the long-term refinancing with
Goldman Sachs is consummated, Owner's Priority will be increased to $21.5
million and MII will be entitled only to the next $1.8 million of Operating
Profit. Any additional Operating Profit in excess of $23.3 million will be
shared 75% to the Partnership and 25% to MII. In connection with and
concurrently with the consummation of the long-term financing in 1997, MII
agreed to waive any and all claims to Additional Rental that have accrued prior
to the consummation of such loan.
27
<PAGE>
- -------------------------------------------------------------------------------
In addition to the Annual Rental, the Tenant is required to pay property taxes,
make annual contributions equal to a percentage of Hotel sales to a property
improvement fund (4.5% through 1997 and 5.5% thereafter) and pay rental on the
second golf course.
Pursuant to the terms of the Hotel purchase agreement, the Tenant and its
affiliates may utilize a portion of the land adjacent to the Hotel for
development of residences and timeshare condominiums. Purchasers of the
residences have the opportunity to use certain Hotel facilities and services for
a fee. Purchasers of the timeshare condominiums also have the ability to use
the Hotel's facilities but such use is subject to the same fees charged to Hotel
guests.
During 1995, the Hotel's main swimming pool was expanded at a cost of
approximately $2.1 million. The project was funded partially by proceeds
received from Marriott Vacation Club International ("MVCI"), a wholly-owned
indirect subsidiary of MII, pursuant to an agreement between the Partnership and
MVCI for the development of additional timeshare units on land adjacent to the
Hotel. As part of this agreement, the Hotel's spa was also expanded during
1994. Pursuant to the terms of the agreement, MVCI contributed a total of $1.3
million towards the pool expansion and the spa expansion projects; the remaining
costs were funded by Partnership cash reserves. Amounts funded by MVCI in 1995
and 1994 were $692,000 and $623,000, respectively, and were included in "Other
Income" in the statement of operations.
NOTE 8. COMPARATIVE HOTEL OPERATING RESULTS
The following is a summary of Hotel Operating Profit, as defined in the Hotel
lease agreement, for the three years ended December 31, 1996 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
REVENUES
Rooms........................... $37,031 $33,495 $33,101
Food and beverage............... 38,431 33,453 31,701
Other........................... 22,437 18,450 17,281
------- ------- -------
97,899 85,398 82,083
------- ------- -------
EXPENSES
Departmental direct costs
Rooms.......................... 8,545 7,715 8,156
Food and beverage.............. 26,623 23,335 22,243
Other operating expenses........ 41,686 35,987 35,589
------- ------- -------
76,854 67,037 65,988
------- ------- -------
OPERATING PROFIT............... $21,045 $18,361 $16,095
======= ======= =======
</TABLE>
28
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or officers. The business policy making
functions of the Partnership are carried out through the directors and executive
officers of Marriott Desert Springs Corporation, the General Partner, who are
listed below:
<TABLE>
<CAPTION>
Current Position in Age at
Name Marriott Desert Springs Corp. December 31, 1996
- ------------------------- --------------------------------------- -----------------
<S> <C> <C>
Bruce F. Stemerman President and Director 41
Robert E. Parsons, Jr. Vice President and Director 41
Christopher G. Townsend Vice President, Director, and Secretary 49
Patricia K. Brady Vice President, Chief Accounting
Officer and Treasurer 35
</TABLE>
Business Experience
Bruce F. Stemerman was elected President of the General Partner in November
1995. He has been a Director of the General Partner since October 1993. Mr.
Stemerman joined Host Marriott in 1989 as Director--Partnership Services. He
was promoted to Vice President--Lodging Partnerships in 1994 and to 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. has been a Vice President of the General Partner since
November 1995 and a Director of the General Partner since September 1988. From
1988 to October 1995, Mr. Parsons was President of the General Partner. Mr.
Parsons joined Host Marriott's Corporate Financial Planning staff in 1981, was
made Director-Project Finance of Host Marriott's Treasury Department in 1984,
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.
Mr. Parsons was named Senior Vice President and Treasurer of Host Marriott in
1993. He was named Executive Vice President and Chief Financial Officer of Host
Marriott in October 1995. He also serves as a director and an officer of
numerous Host Marriott subsidiaries.
Christopher G. Townsend has been Vice President, Director and Secretary of the
General Partner since September 1988. Mr. Townsend joined Host Marriott's Law
Department in 1982 as a Senior Attorney. In 1984, Mr. Townsend was made
Assistant Secretary of Host Marriott and in 1986 was made Assistant General
Counsel. In 1993, he was made Senior Vice President, Corporate Secretary and
Deputy General Counsel of Host Marriott. In November 1996, Mr. Townsend was
named General Counsel of Host Marriott. He also serves as a director and an
officer of numerous Host Marriott subsidiaries.
29
<PAGE>
Patricia K. Brady has been Vice President, Chief Accounting Officer and
Treasurer of the General Partner since October 10, 1996. Ms. 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.
ITEM 11. MANAGEMENT RENUMERATION AND TRANSACTIONS
As noted in Item 10 above, the Partnership has no directors or officers nor does
it have any employees. Under the Partnership Agreement, however, the General
Partner has the exclusive right to conduct the business and affairs of the
Partnership subject only to the Operating Lease described in Items 1 and 13.
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
the performance of such duties. No officer or director of the General Partner
devotes a significant percentage of time to Partnership matters. To the extent
that any officer or director 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 ending December 31, 1996, 1995 and 1994,
administrative expenses reimbursed to the General Partner totaled $250,000,
$67,000 and $124,000, respectively. For information regarding all payments made
by the Partnership to Host Marriott and subsidiaries, see Item 13 "Certain
Relationships and Related Transactions."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of August 28, 1997 no person owned of record, or to the Partnership's
knowledge owned beneficially, more than 5% of the total number of Units. The
General Partner does not own any Units.
There are no Units owned by the executive officers and directors of the General
Partner, as a group.
The officers and directors of MII, as a group, own the following units:
Amount and Nature of Percent
Title of Class Beneficial Ownership of Class
- -------------- -------------------- --------
Limited Partnership Units 1 Unit 0.1%
There are no Units owned by individuals who are directors of both the General
Partner and MII.
30
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
OPERATING LEASE AGREEMENT
- -------------------------
As described below, the Partnership is party to important ongoing agreements
with MII pursuant to which the Hotel is leased to MHSI.
Prior to October 8, 1993, MII was a wholly-owned subsidiary of Host Marriott,
which was then known as Marriott Corporation. On October 8, 1993, Marriott
Corporation's operations were divided into two separate companies, Host Marriott
and MII. MII now conducts its management business as a separate, publicly-
traded company and is not a parent or subsidiary of Host Marriott, although the
two corporations have various business and other relationships. In accordance
with the terms of the Partnership Agreement, each of the agreements discussed
below were entered into based upon the General Partner's belief that such
agreements were fair to the Partnership and reflect commercially reasonable
terms. However, as a result of the fact that the Hotel Operating Lease, Golf
Course Lease and Homeowners Agreement described below were entered into at a
time when the counter-party to each of these agreement was a subsidiary of Host
Marriott (then known as Marriott Corporation), the General Partner has made no
further investigation toward forming a belief as to whether these agreements
were on terms at least as favorable as the Partnership would have been able to
obtain from an independent third party. The General Partner believes that the
terms of the Office Space Rental Agreement and Transaction with MCVI for Pool
Facilities described below were on terms at least as favorable as the
Partnership would have been able to obtain from an independent third party.
The Hotel Operating Lease
The Partnership entered into the Operating Lease with MHSI, a subsidiary of MII,
on April 23, 1987, to operate the Hotel. The Operating Lease is for a term of
25 years from the opening of the hotel with renewal terms, at the option of
MHSI, of up to five additional 10-year periods.
The Hotel Operating Lease provides for the payment of the greater of Basic
Rental or Owner's Priority. Basic Rental equals 80% of Operating Profit, as
defined. Owner's Priority equals the greater of (i) $20 million plus debt
service on certain additional debt to expand the Hotel or (ii) debt service, as
defined. (In no event will Owner's Priority for any year exceed Operating
Profit, as defined.)
The basis for computing the amounts paid pursuant to the Operating Lease is
expected to change in future periods. Pursuant to an agreement reached with MII
on December 23, 1996, for fiscal year 1997, the $20 million Owner's Priority
will be increased to $20.5 million. MII will be entitled only to the next $2
million of Operating Profit, as defined. Any additional Operating Profit in
excess of $22.5 million will be remitted entirely to the Partnership as
Additional Rent. MII has also agreed that once long-term refinancing of the
existing mortgage debt is consummated, Owner's Priority will be increased to
$21.5 million and MII will be entitled only to the next $1.8 million of
Operating Profit. Any additional Operating Profit in excess of $23.3 million
will be shared 75% to the Partnership and 25% to MII. In connection with and
concurrently with the consummation of the long-term financing in 1997, MII
agreed to waive any and all claims to Additional Rental, as defined, that have
accrued prior to the consummation of such loan.
For the operating lease years ended December 31, 1996, 1995 and 1994 Basic
Rental was $16.8 million, $14.7 million and $12.9 million, respectively.
The Operating Lease provides that the Partnership may terminate the Operating
Lease and remove the Operating Tenant if the payments of Annual Rental in any
two of three consecutive fiscal years beginning with fiscal year 1991 are less
than $15 million. The Operating Tenant may, however, prevent termination by
paying to the Partnership such amounts as are necessary to achieve the above
performance standards. Annual Rental for the fiscal years ended December 31,
1991 was $15.9 million, December 31, 1992 was $15.5 million, December 31, 1993
was $14.2 million,
31
<PAGE>
December 31, 1994 was $16.1 million, December 31, 1995 was $18.4 million and
December 31, 1996 was $20 million.
Golf Course Lease
The Second Golf Course is located near the Hotel on approximately 100 acres of
land and is leased to the Partnership by a subsidiary of MII. The Second Golf
Course and related facilities are subleased by the Partnership to the Operating
Tenant pursuant to an operating lease with annual rental equal to $100,000. The
term of the lease for the Second Golf Course expires on December 31, 2011, with
five 10-year renewal periods at the option of the Partnership. Under the terms
of the lease for the Second Golf Course, the Partnership pays annual rent equal
to $100,000 and is responsible for all costs of operating and maintaining the
Second Golf Course. Upon termination of the lease for the Second Golf Course,
the Second Golf Course and all facilities and improvements thereon will become
the property of Marriott's Desert Springs Development Corporation. All costs of
operating and maintaining the course are deductions from gross revenues and all
revenues from operation of the course are items of gross revenues of the Hotel.
Homeowners Agreement
A subsidiary of MII, Marriott Vacation Club International, Inc. ("MVCI") has
been developing a portion of land adjacent to the golf courses for time shares.
The Partnership, MII, Marriott's Desert Springs Development Corporation and MVCI
entered into an Agreement (the "Homeowners Agreement") whereby it was agreed
that each purchaser of a time share unit will receive certain golf course and
other privileges (including preferred tee times at the golf courses equal to one
tee time per week per time share unit) at the Hotel. Time share purchasers will
not pay membership fees, but rather will pay regular green fees for use of the
golf courses, and do not receive preferred tennis court times or free access to
the health spa. Time share purchasers will have use of the latter facilities
and other Hotel facilities, if they are available, on the same basis as regular
Hotel guests and will pay the same fees as regular Hotel guests.
Office Space Rental Agreement
On January 27, 1995, the Partnership entered into an agreement with MVCI whereby
MVCI occupies the space of eleven guest rooms and built a Vacation Gallery. The
initial term of the agreement is April 1, 1995 to March 31, 1999, with initial
annual rental of $150,000. The annual rental may be increased in the second,
third and fourth year of the lease by the local area Consumer Price Index plus
1% subject to a maximum of 10%. The annual rental for 1996 was $154,350.
Transaction With MVCI for Pool Facilities
During 1994 and 1995, the Hotel's spa and main swimming pool facilities were
expanded. The total $580,000 for the spa expansion was funded entirely with
proceeds from MVCI pursuant to an agreement between the Partnership and MVCI for
the development of time share units on the land adjacent to the Hotel. As part
of this agreement, MVCI also paid $692,000 toward the $2.1 million pool
expansion. The remainder of the pool expansion was funded by the Partnership's
cash reserves.
32
<PAGE>
PAYMENTS TO HOST MARRIOTT, MII AND THEIR AFFILIATES
- ---------------------------------------------------
The following table sets forth amounts paid by the Partnership to Host Marriott,
MII and their subsidiaries for the years ended December 31, 1996, 1995 and 1994
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Payments to Host Marriott and affiliates:
Administrative expenses................................ $ 250 $ 67 $ 124
Capital distributions.................................. 15 51 40
------- ------- -------
$ 265 $ 118 $ 164
======= ======= =======
Payments to MII and affiliates:
Golf course rent....................................... $ 100 $ 100 $ 138
Interest on note payable to MII........................ $ 48 -- --
------- ------- -------
$ 148 $ 100 $ 138
======= ======= =======
</TABLE>
33
<PAGE>
PART IV
ITEM 14. EXHIBITS, SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) List of Documents Filed as Part of This Report
(1) Financial Statements
All financial statements of the registrant as set forth under Item 8 of
this Report on Form 10-K.
(2) Financial Statement Schedules
The following financial information is filed herewith on the pages
indicated.
III. Real Estate and Accumulated Depreciation
All other schedules are omitted because they are not applicable or the
required information is included in the consolidated financial statements or
notes thereto.
(3) Exhibits
Exhibit # Description
--------- -----------
3.1 Amended and Restated Agreement of Limited
Partnership of Desert Springs Marriott Limited
Partnership dated April 24, 1987. Incorporated by
reference from Exhibit 3 to Form 10 dated April
27, 1988
10.1 Lease Agreement between Desert Springs Marriott
Limited Partnership and Desert Springs Hotel
Services dated April 23, 1987. Incorporated by
reference from Exhibit 10a to Form 10 dated April
27, 1988.
10.2 Golf Course Lease Agreement between Marriott's
Desert Springs Development Corporation and Desert
Springs Marriott Limited Partnership dated April
24, 1987. Incorporated by reference from Exhibit
10b to Form 10 dated April 27, 1988.
10.2.1 First Amendement to Golf Course Lease between
Marriott's Desert Springs Development Corporation
and Desert Springs Marriott Limited Partnership
dated March 31, 1994.
10.2.2 Second Amendment to Golf Course Lease between
Marriott's Desert Springs Development Corporation
and Desert Springs Marriott Limited Partnership
dated November 25, 1996.
10.3 Lease Agreement between Desert Springs Marriott
Limited Partnership and Trans World Airlines,
Inc. dated March 3, 1987; accepted April 24,
1987. Incorporated by reference from Exhibit 10c
to Form 10 dated April 27, 1988.
10.4 Home Owners Agreement among Marriott Corporation,
Marriott's Desert Springs Development
Corporation, Desert Springs Hotel Services and
Desert Springs Marriott Limited Partnership;
accepted April 24, 1987.
10.5 Loan Agreement between The First National Bank of
Chicago; Credit Lyonnais, New York Branch and
Credit Lyonnais, Cayman Island Branch; Societe
Generale, Chicago Branch; Sumitomo Trust &
Banking Co., Ltd., Los Angeles Agency; and Desert
Springs Marriott Limited Partnership dated July
26, 1989.
10.6 Modification of Loan Agreement and Other Loan
Documents between GMAC Commercial Mortgage
Corporation and Desert Springs Marriott Limited
Partnership dated as of December 23, 1996.
10.7 Agreement for Use of Resort Facilities among
Desert Springs Hotel Services, Marriott Ownership
Resorts, Inc., and Marriott Desert Springs
Limited Partnership dated January 1, 1994.
10.8 Amended and Restated Recreational License among
Desert Springs Hotel Services, Marriott
Ownership Resorts, Inc., Desert Springs Villas
Timeshare Association and Marriott Desert Springs
Limited Partnership dated January 1, 1994.
10.9 Office Space Rental Agreement between Marriott
Ownership Resorts, Inc., and Desert Springs
Marriott Limited Partnership dated January 27,
1995.
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during 1996.
34
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this Form 10-K to be signed on its
behalf by the undersigned, thereunto duly authorized, on August 28, 1997.
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
By: MARRIOTT DESERT SPRINGS CORPORATION
General Partner
By: /s/ Patricia K. Brady
------------------------------------------------------
Patricia K. Brady
Vice President, Chief Accounting Officer and Treasurer
(Principal Financial 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
in the capacities and on August 28, 1997.
----------------
Signature Title
- --------- -----
(Marriott Desert Springs 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, Director and Secretary
Christopher G. Townsend
35
<PAGE>
SCHEDULE III
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
PALM DESERT, CALIFORNIA
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Gross Amount at December 31, 1996
---------------------------------
Initial Costs
---------------------------- Subsequent
Buildings & Costs Buildings &
Encumbrances Land Improvements Capitalized Land Improvements
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Marriott Desert Springs
Resort & Spa
Palm Desert, CA $ 160,000 $ 11,459 $ 146,687 $ 11,114 $ 11,459 $ 157,801
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at December 31, 1996
---------------------------------
Date of
Accumulated Completion of Date Depreciation
Total Depreciation Construction Acquired Life
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Marriott Desert Springs
Resort & Spa
Palm Desert, CA $ 169,260 $ 29,230 1987 1987 50 years
</TABLE>
36
<PAGE>
SCHEDULE III
PAGE 2 OF 2
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
NOTES:
(a) The changes in the total cost of land, buildings and improvements for the
three years ended December 31, 1996 were as follows:
Balance at beginning of year.................................................................. $163,331 $164,527 $166,939
Capital expenditures......................................................................... 1,196 2,412 2,321
Dispositions................................................................................. -- -- --
-------- -------- --------
Balance at end of year........................................................................ $164,527 $166,939 $169,260
======== ======== ========
(b) The changes in accumulated depreciation and amortization for the three
years ended December 31, 1996 were as follows:
Balance at beginning of year.................................................................. $ 18,657 $ 22,096 25,597
Depreciation and amortization................................................................ 3,439 3,501 3,633
Dispositions and other....................................................................... -- -- --
-------- -------- --------
Balance at end of year........................................................................ $ 22,096 $ 25,597 $ 29,230
======== ======== ========
</TABLE>
(c) The aggregate cost of land, buildings and improvements for Federal income
tax purposes was approximately $169,735,000 at December 31, 1996.
37
<PAGE>
EXHIBIT 10.2.1
FIRST AMENDMENT TO
------------------
GOLF COURSE LEASE
------------------
THIS FIRST AMENDMENT TO GOLF COURSE LEASE (the "Amendment") is made this
31st day of March, 1994, between Marriott's Desert Springs Development
Corporation, a Delaware corporation with offices at 1807 Crystal Lake Drive,
P.O. Box 890, Lakeland, Florida 33802, as Landlord, and Desert Springs Marriott
Limited Partnership, a Delaware limited partnership, with offices at 10400
Fernwood Road, Bethesda, Maryland 20058, as Tenant;
RECITALS
WHEREAS, the parties hereto previously entered into that certain
unrecorded Golf Course Lease dated April 24, 1987 (the "Lease") as evidenced by
that certain Memorandum of Lease dated April 23, 1987 and recorded on April 24,
1987 as Instrument No. 114104 of Official Records of Riverside County,
California (the "Memorandum of Lease"); and
WHEREAS, pursuant to Section 1.4 of the Lease, portions of the overall
Leased Premises described at Rider A to the Lease were to be released, and
that same property released from the leasehold mortgage, once the perimeter
legal description of the Golf Course had been agreed upon and the Landlord had
obtained all zoning and other governmental approvals relative to such release;
and
WHEREAS, Landlord by filing of record that certain Parcel Map No. 27563
dated April 4, 1994 recorded as Instrument No. 140824 in Book 183 at Pages 3
through 10 of the Official Records of Riverside County, California, which Parcel
Map was also executed by the Tenant and the trustee under the deed of trust at
the direction of the Agent who executed the attached Consent to this Amendment,
has evidenced its obtaining of the aforedescribed zoning and other governmental
approvals and has created an approved perimeter legal description for the Golf
Course as Parcels 1 and 3 of the aforedescribed Parcel Map.
<PAGE>
AGREEMENT
NOW THEREFORE, in consideration of the mutual premises contained herein
and other good and valuable consideration, the parties hereto agree as follows:
1. Except as otherwise modified herein, the terms and conditions of the
Lease are in full force and effect and incorporated herein by reference as if
fully set forth.
2. Rider A to the Lease is deleted in its entirety and the attached new
Rider A hereto is substituted in lieu thereof.
3. Similarly, the legal description of the Leased Premises set forth at
Exhibit A to the Memorandum of Lease is deleted in its entirety and in lieu
thereof, the legal description set forth in the attached new Rider A to the
Lease is substituted.
IN WITNESS WHEREOF, the parties hereto have set their respective hands
and seals on the dates hereinbelow listed.
LANDLORD:
MARRIOTT'S DESERT SPRINGS
DEVELOPMENT CORPORATION,
a Delaware Corporation
ATTEST: /s/ Joseph F. Scalo BY: /s/ Robert A. Miller
----------------------- --------------------------
Joseph F. Scalo Robert A. Miller
Assistant Secretary President
(Corporate Seal) DATE: 3-31-94
------------------------
TENANT:
DESERT SPRINGS MARRIOTT
LIMITED PARTNERSHIP,
a Delaware Limited Partnership
BY: Marriott Desert Springs Corporation,
a Delaware Corporation, General Partner
ATTEST: /s/ Christopher G. Townsend BY: /s/ Robert E. Parsons, Jr.
---------------------------- ---------------------------
Christopher G. Townsend Robert E. Parsons, Jr.
Secretary President
(Corporate Seal) DATE: 3-24-94
-----------------------
2
<PAGE>
ACKNOWLEDGMENT
STATE OF FLORIDA )
)SS
COUNTY OF POLK )
On March 31, 1994, before me, Catherine R. Maikisch, a Notary Public in
and for said state, personally appeared Robert A. Miller and Joseph F. Scalo,
personally known to me to be the persons whose names are subscribed to within
instrument and acknowledged to me that they executed the same in their
authorized capacities, and that by their signatures on the instrument, the
persons, or entity upon behalf of which the persons acted, executed the
instrument.
WITNESS MY HAND:
[ OFFICIAL NOTARY SEAL ] /s/ Catherine R. Maikisch
[ CATHERINE R. MAIKISCH ] ------------------------------
[ NOTARY PUBLIC STATE OF FLORIDA] NOTARY PUBLIC STATE OF FLORIDA
[ COMMISSION NO. CC203986 ] MY COMISSION EXPIRES: 5/27/96
[MY COMMISSION EXP. MAY 27, 1996] COMMISSION NO.: CC203986
3
<PAGE>
ACKNOWLEDGMENT
STATE OF MARYLAND )
)SS
COUNTY OF MONTGOMERY )
I, the undersigned authority, a Notary Public in and for said State at
Large, hereby certify that Robert E. Parsons, Jr. and Christopher G. Townsend,
whose names as President and Secretary, respectively, of Marriott's Desert
Springs Development Corporation, a Delaware corporation, general partner of
Desert Springs Marriott Limited Partnership, a Delaware limited partnership,
signed the foregoing instrument, and who are known to me, acknowledged before me
on this day, that being informed of the contents of said instrument, they as
such officers of such corporation, and with full authority, executed the same
voluntarily for and as the act of said corporation acting in its capacity as
general partner of said limited partnership as of the date of this
acknowledgment.
Given under my hand and official seal this the 24th day of March, 1994.
(SEAL) /s/ Miriam A. Fox
-------------------------------
MIRIAM A. FOX
NOTARY PUBLIC STATE OF MARYLAND
MY COMMISSION EXPIRES: 10/1/96
--------
4
<PAGE>
RIDER A
DESCRIPTION OF LEASED PREMISES
------------------------------
All that certain tract or parcel of land located in the City of Palm
Desert, County of Riverside, and State of California, together with all
easements, rights of way and other appurtenances now or hereafter, during the
term of the Golf Course Lease appertaining thereunto and more particularly
described as follows:
Parcels 1 and 3 as shown on that certain Parcel Map No. 27563 dated
April 4, 1994 recorded as Instrument No. 140824 in Book 183 at Pages 3 through
10, in the Official Records of Riverside County, California.
5
<PAGE>
CONSENT
-------
The undersigned, acting as itself and acting as agent (the "Agent") for
those certain parties described in (collectively referred to as the "Banks") and
pursuant to the authority vested in it by that certain Assignment of Golf Course
Lease dated July 26, 1989, recorded on July 27, 1989, as Instrument No. 250483
of Official Records of Riverside County, California, consents to the
aforedescribed First Amendment to Golf Course Lease (the "First Amendment") to
which this Consent is attached and hereby declares that the consent expressed
hereunder shall be binding upon the Banks, including itself, and their
respective successors and assigns.
The undersigned further agrees on behalf of the Banks, including itself,
that pursuant to Paragraph 9 of the aforedescribed Assignment of Golf Course
Lease it shall cause Parcels 2 and 4 of the Parcel Map No. 27563 to be released
and reconveyed to Landlord by forwarding an appropriate Request for Partial
Reconveyance to Commonwealth Land Title Company, the trustee under the deed of
trust referenced in the First Amendment.
THE FIRST NATIONAL BANK OF CHICAGO,
a national banking association, for
itself and as Agent as aforesaid
BY: /s/ Hugh Hallowell
-------------------
Its: Vice President
---------------
DATE: 20 April, 1994
-----------------
ACKNOWLEDGMENT
--------------
STATE OF ILLINOIS )
)SS
COUNTY OF COOK )
I, Francine Beckert, a Notary Public in and for said county in the State
aforesaid, DO HEREBY CERTIFY THAT Hugh Hallowell, personally known to me to be
the Vice President of THE FIRST NATIONAL BANK OF CHICAGO, a national banking
association, and personally known to me to be the person whose name is
subscribed to the foregoing instrument, appeared before me this day in person,
and swore and acknowledged to me under oath that he signed such instrument and
as Vice President of such association pursuant to authority given by said
association and has read and executed and delivered said instrument as his free
and voluntary act and as the free and voluntary act of said association for the
purposes therein set forth.
Given under my hand and official seal, this 20th day of April, 1994.
***********************************
/s/ Francine Beckert * OFFICIAL SEAL *
- -------------------- * FRANCINE BECKERT *
NOTARY PUBLIC * NOTARY PUBLIC STATE OF ILLINOIS *
* MY COMMISSION EXP: 7/16/96 *
MY COMMISSION EXPIRES: 7/16/96 ***********************************
6
<PAGE>
EXHIBIT 10.2.2
SECOND AMENDMENT TO
-------------------
GOLF COURSE LEASE
-----------------
THIS SECOND AMENDMENT TO GOLF COURSE LEASE (the "Amendment") is made
this 25th day of November, 1996, between Marriott's Desert Springs Development
Corporation, a Delaware corporation with offices at 1200 U.S. Highway 98 South,
P.O. Box 890, Lakeland, Florida 33801 (the "Landlord") and Desert Springs
Marriott Limited Partnership (the "Golf Course Lessee"), a Delaware limited
partnership, with offices at 10400 Fernwood Road, Bethesda, Maryland 20058, as
Tenant;
RECITALS
WHEREAS, the parties hereto previously entered into that certain
unrecorded Golf Course Lease dated April 24, 1987 (the "Lease") as evidenced by
that certain Memorandum of Lease dated April 23, 1987 and recorded on April 24,
1987 as Instrument No. 114104 of Official Records of Riverside County,
California, the ("Memorandum of Lease") as amended and evidenced by the First
Amendment to Golf Course Lease dated March 31, 1994, and recorded on May 27,
1994, as Instrument No. 217099 of Official Records of Riverside County; and
WHEREAS, pursuant to Section 1.4 of the Lease, portions of the overall
Leased Premises described at Rider A to the Lease were to be released, and that
same property released from the leasehold mortgage, once the perimeter legal
description of the Golf Course had been agreed upon and the Landlord had
obtained all zoning and other governmental approvals relative to such release;
and
<PAGE>
WHEREAS, through the filing of record of that certain Parcel Map No.
27563 dated March 11, 1994 recorded as Instrument No. 140824 in Book 183 at
Pages 3 through 10 of the Official Records of Riverside County, California, the
aforedescribed zoning and other governmental approvals were obtained and an
approved perimeter legal description for the Golf Course as Parcels 1 and 3 of
the aforedescribed Parcel Map was created.
WHEREAS, Landlord, Golf Course Lessee, Desert Springs Hotel Services, a
venture controlled by Marriott International, Inc. (the "Golf Course Operator"),
and Marriott Ownership Resorts, Inc., a Delaware corporation (the "Developer")
entered into that certain Boundary Line Adjustment Agreement dated November 25,
1996 (the "Agreement") which will result in further adjustment of the perimeter
legal description of the Golf Course.
WHEREAS, pursuant to the Agreement, the parties thereto agreed that the
Developer, at its sole expense, shall cause the necessary actions to be taken in
order to effectuate such boundary line adjustment in accordance with the terms
and conditions of the Agreement and that the parties hereto would further amend
the terms of the Lease to reflect the current perimeter legal description of the
Golf Course and the parties hereto are desirous of doing so.
-2-
<PAGE>
AGREEMENT
NOW THEREFORE, in consideration of the mutual premises contained herein
and other good and valuable consideration, the parties hereto agree as follows:
1. Except as otherwise modified herein, the terms and conditions of
the Lease are in full force and effect and incorporated herein by reference as
if fully set forth and the terms and conditions of the First Amendment shall
have no further force and effect.
2. Rider A to the Lease is deleted in its entirety and the attached
new Rider A hereto is substituted in lieu thereof.
3. Similarly, the legal description of the Leased Premises set
forth at Exhibit A to the Memorandum of Lease is deleted in its entirety and in
lieu thereof, the legal description set forth in the attached new Rider A to the
Lease is substituted.
IN WITNESS WHEREOF, the parties hereto have set their respective hands
and seals on the dates hereinbelow listed.
LANDLORD:
MARRIOTT'S DESERT SPRINGS
DEVELOPMENT CORPORATION,
a Delaware Corporation
ATTEST: /s/ Joseph F. Scalo BY: /s/ Robert A. Miller
--------------------------- ----------------------------
Joseph F. Scalo Robert A. Miller
Assistant Secretary President
(Corporate Seal) DATE: November 25, 1996
--------------------------
TENANT:
DESERT SPRINGS MARRIOTT
LIMITED PARTNERSHIP,
a Delaware Limited Partnership
BY: Marriott Desert Springs Corporation,
a Delaware Corporation, General Partner
ATTEST: /s/ Elizabeth R. Lieberman BY: /s/ Christopher G. Townsend
--------------------------- ----------------------------
Elizabeth R. Lieberman Christopher G. Townsend
Assistant Secretary Vice President
(Corporate Seal) DATE: October 16, 1996
--------------------------
-3-
<PAGE>
ACKNOWLEDGMENT
STATE OF FLORIDA )
)
COUNTY OF POLK )
ON November 25, 1996, before me, Kathryn C. Mincey, a Notary Public in
and for said state, personally appeared Robert A. Miller and Joseph F. Scalo,
personally known to me to be the persons whose names are subscribed to within
instrument and acknowledged to me that they executed the same in their
authorized capacities, and that by their signatures on the instrument, the
persons, or entity upon behalf of which the persons acted, executed the
Instrument
WITNESS MY HAND:
/s/ Kathryn C. Mincey
-------------------------------
KATHRYN C. MINCEY
-------------------------------
NOTARY PUBLIC STATE OF FLORIDA
MY COMMISSION EXPIRES: 12/17/97
---------
COMMISSION NO: CC340335
-----------------
-4-
<PAGE>
ACKNOWLEDGMENT
STATE OF MARYLAND )
)SS
COUNTY OF MONTGOMERY)
I, the undersigned authority, a Notary Public in and for said State at
Large, hereby certify that Christopher G. Townsend and Elizabeth R. Lieberman
whose names as Vice President and Assistant Secretary respectively, of Marriott
Desert Springs Corporation, a Delaware corporation, and general partner of
Desert Springs Marriott Limited Partnership, a Delaware limited partnership,
signed the foregoing instrument, and who are known to me, acknowledged before me
on this day, that being informed of the contents of said instrument, they as
such officers of such corporation, and with full authority, executed the same
voluntarily for and as the act of said corporation acting in its capacity as
general partner of said limited partnership as of the date of this
acknowledgment.
Given under my hand and official seal this the 16th day of October,
---- -------
1996.
/s/ Angela Koutsoukos
(SEAL) -------------------------------
ANGELA KOUNTSOUKOS
NOTARY PUBLIC STATE OF MARYLAND
MY COMMISSION EXPIRES 2/21/2000
-5-
<PAGE>
RIDER A
DESCRIPTION OF LEASED PREMISES
------------------------------
All that certain tract or parcel of land located in the City of the Palm
Desert, County of Riverside, and State of California, together with all
easements, rights of way and other appurtenances now or hereafter, during the
term of the Lease Agreement appertaining thereunto and more particularly
described as follows.
Parcels 1 and 3 as shown on that certain Parcel Map No. 27563 dated
April 4, 1994 recorded as Instrument No. 140824 in Book 183 at Pages 3 through
10, in the Official Records of Riverside County, California and as modified by
that certain Parcel Map Waiver dated recorded as Instrument No. in Book
---- ----
at Page in the Official Records of Riverside County, California.
----
-6-
<PAGE>
------------
The undersigned, acting as itself and acting as agent (the "Agent") for
those certain parties described in (collectively referred to as the "Banks") and
pursuant to the authority vested in it by that certain Assignment of Golf Course
lease dated July 26, 1989, recorded on July 27, 1989, as Instrument No. 250483
of Official Records of Riverside County, California, consents to the
aforedescribed Second Amendment to Golf Course Lease (the "Second Amendment")
to which this Consent is attached and hereby declares that the consent expressed
hereunder shall be binding upon the Banks, including itself, and their
respective successors and assigns.
The undersigned further agrees on behalf of the Banks, including itself,
that pursuant to Paragraph 9 of the aforedescribed Assignment of Golf Course
lease, it shall cause those portions of Parcels 2 and 4 of the Parcel Map No.
27563 reflected as the transfer parcel in that certain Parcel Map Waiver
dated recorded as Instrument No. in Book at Page
-------- --------- ------- --------
in the Official Records of Riverside County, California to be released and
reconveyed to Landlord by forwarding an appropriate Request for Partial
Reconveyance to Commonwealth Land Title Company, the trustee under the deed of
trust referenced in the Second Amendment.
THE FIRST NATIONAL BANK OF CHICAGO,
a national banking association, for itself and
as Agent as aforesaid
BY: /s/ Steven Franklin
--------------------------------------------
Its: Vice President
------------------------------------
DATE: 10/29/96
------------------------------------------
ACKNOWLEDGMENT
--------------
STATE OF ILLINOIS )
)
COUNTY OF COOK )
I, C. Kech, a Notary Public in and for said county in the State
aforesaid, DO HEREBY CERTIFY THAT Steven Franklin personally known to me to be
---------------
the Vice President of THE FIRST NATIONAL BANK OF CHICAGO, a national banking
--------------
association, and personally known to me to be the person whose name is
subscribed to the foregoing instrument, appeared before me this day in person,
and swore and acknowledged to me under oath that he signed such instrument and
as Vice President of such association pursuant to authority given by said
--------------
association and has read and executed and delivered said instrument as his free
and voluntary act and as the free and voluntary act of said association for the
purposes therein set forth.
Given under my hand and official seal, this 29th day of October, 1996.
************************************
C. Kech * OFFICIAL SEAL *
- ---------------- * C. KECH *
NOTARY PUBLIC * NOTARY PUBLIC, STATE OF ILLINOIS *
* MY COMMISSION EXPIRES: 06/09/00 *
************************************
MY COMMISSION EXPIRES: 6/9/00
-7-
<PAGE>
EXHIBIT 10.4
April 24, 1987
Smith Barney, Harris Upham
& Co. Incorporated
1345 Avenue of the Americas
New York, New York 10019
Mutual Benefit Financial
Service Company
290 Westminster Street
Providence, Rhode Island 02903
Re: Desert Springs Marriott Limited
Partnership-Home Owners Agreement
---------------------------------
Dear Sirs:
Attached hereto is an agreement among Marriott Corporation, Marriott's
Desert Springs Development Corporation ("Development Corporation"), Desert
Springs Hotel Services and Desert Springs Marriott Limited Partnership
(collectively, the "Parties"). Said agreement (the "Homeowners Agreement") sets
forth the understandings among the Parties concerning Development Corporation's
ability to issue to purchasers of home sites, residences or time share units
next to Marriott's Desert Springs Resort & Spa (the "Hotel") rights to use
certain Hotel facilities and services under the terms and conditions set forth
therein. Such rights will allow the purchasers to use the Hotel's facilities in
accordance with the terms and conditions of the rights granted.
Although the attached agreement represents the present understandings
between the Parties, it is not being executed today because the required consent
of the Lenders, as such term is defined in the Partnership's Private Placement
Memorandum dated March 20, 1987, has not as yet been obtained. Consequently, the
Homeowners Agreement may be
<PAGE>
amended to reflect further comments given to the Parties by the Lenders. The
Parties may also amend this agreement in their discretion. The undersigned
hereby represents, however, that there is no present intent to amend the
Agreement in any subtantative way from and after the date hereof.
Sincerely,
MARRIOTT CORPORATION
By: /s/ Robert E. Parsons
----------------------------------------
Vice President - PROJECT FINANCE
DESERT SPRINGS HOTEL SERVICES
By: Marriott Corporation,
Joint Venturer
By: /s/ Robert E. Parsons
-----------------------------------
Vice President - PROJECT FINANCE
DESERT SPRINGS MARRIOTT LIMITED
PARTNERSHIP
Marriott Desert Springs
Corporation, General
Partner
By: /s/ Christopher G. Townsend
---------------------------------------
Vice President
MARRIOTT'S DESERT SPRINGS
DEVELOPMENT CORPORATION
By: /s/ Christopher G. Townsend
----------------------------------------
Vice President
<PAGE>
AGREEMENT
---------
This AGREEMENT is made this _____ day of _____ 1987, between
Marriott's Desert Springs Development Corporation ("Development Corporation"), a
Delaware corporation, with offices at 10400 Fernwood Road, Bethesda, Maryland
20058; Marriott Corporation ("Marriott"), a Delaware corporation, with offices
at 10400 Fernwood Road, Bethesda, Maryland 20058; Desert Springs Hotel Services,
a joint venture between Marriott and Host International, Inc. ("Hotel
Services"), with offices at 10400 Fernwood Road, Bethesda, Maryland 20058; and
Desert Springs Marriott Limited Partnership (the "Partnership"), a Delaware
limited partnership, with offices at 10400 Fernwood Road, Bethesda, Maryland
20058.
RECITAL
-------
WHEREAS, Marriott, through subsidiaries, has developed a hotel and a
golf course ("Golf Course A") in Palm Desert, California known as Marriott's
Desert Springs Resort and Spa (the "Hotel") and is developing a second golf
course ("Golf Course B") near the Hotel (Golf Course A and Golf Course B are
collectively referred to as the "Golf Courses"); and
<PAGE>
WHEREAS, Hotel Services has entered into a purchase agreement with the
Partnership of even date herewith pursuant to which Hotel Services will sell the
Hotel (including Golf Course A) to the Partnership and then lease the Hotel
(including Golf Course A) back from the Partnership pursuant to an operating
lease of even date herewith (the "Operating Lease"); and
WHEREAS, in addition to Golf Course A, Development Corporation is
developing Golf Course B to be leased to the Partnership pursuant to a golf
course lease of even date herewith and Golf Course B will then be subleased by
the Partnership to Hotel Services pursuant to the Operating Lease; and
WHEREAS, Development Corporation, Marriott or affiliates of Marriott
are developing home sites and residences (including possible time share units)
for sale on land adjacent to the Hotel; and
WHEREAS, the parties to this Agreement desire to enter into this
Agreement to provide to the Development Corporation, Marriott or affiliates of
Marriott the right to issue to purchasers of home sites, residences or time
share units revocable rights to use Hotel facilities, under terms and conditions
hereafter set forth.
-2-
<PAGE>
NOW, THEREFORE, for good and valuable consideration, the parties agree
as follows:
A. Home Sites
----------
1. Owners of Home Sites. Each purchaser (each an "Owner" and collectively
--------------------
"Owners") of a single-family home site near the Hotel, on land presently owned
by Marriott, Development Corporation or affiliates of Marriott, may be permitted
the use of Hotel facilities enumerated below if such Owners pay annual
membership fees (the "Membership Fees"). Such memberships shall be limited to
250 in the aggregate. Owners paying the Membership Fees shall, at the discretion
of the Hotel operator, receive the following revocable rights:
(a) at no cost other than payment of the Membership Fees, rights to
use certain roads and walkways between Hotel facilities and the home sites;
(b) availability of services to be provided by the Hotel including,
among others, housekeeping, room service, landscaping and telephone service, for
which such Owners will pay the Hotel an amount calculated to fully compensate
the Hotel for the cost of providing such services;
(c) at no cost other than payment of the Membership Fees, as
determined in the sole discretion of Hotel Services or any successor operator,
including the Partner-
-3-
<PAGE>
ship, preferred tee times at the Golf Courses equal, in the aggregate, to an
amount not to exceed 20% of the tee times at each Golf Course each morning and
20% of the tee times at each Golf Course each afternoon;
(d) at no cost other than payment of the Membership Fees, preferred
court times at the Hotel's tennis facilities equal, in the aggregate, to an
amount not to exceed 20% of the total court times at the tennis facilities per
day;
(e) at no cost other than payment of the Membership Fees, use of (i)
the Golf Courses, without payment of green fees, and (ii) the Hotel's tennis
facilities, without payment for court times (however, such Owners will pay the
Hotel's standard fees for all related golf course and tennis facilities and
services such as golf cart rental, golf club rental, use of the practice range
and golf and tennis lessons);
(f) at no cost other than payment of the Membership Fees, free
admittance to the Hotel's health spa, although such Owners will pay for any
services offered by the spa which are charged to Hotel guests; and
(g) at no cost other than payment of the Membership Fees, the use of
Hotel facilities available to Hotel guests at no charge.
-4-
<PAGE>
2. Owners Who Don't Pay Membership Fees. Owners who do not pay the Membership
------------------------------------
Fees will be extended the same use privileges for the Golf Courses and tennis
facilities as extended to Hotel guests at the same fee schedules (such Owners
will not be allowed free access to the Hotel's spa).
3. Guests and Tenants of Owners. Guests and tenants of Owners who pay
----------------------------
Membership Fees will be extended the same use privileges and fee schedules as
Owners who do not pay Membership Fees. All such guests must be accompanied by
Owners who pay Membership Fees and all such tenant use must be prearranged by
the Owner from whom the tenant rents the home. Guests and tenants of Owners who
do not pay Membership Fees will be extended the same use privileges and fee
schedules as non-Hotel guests .
4. Membership. The Membership Fee shall be at least $2,500 per year
----------
determined by and payable to Hotel Services or any successor operator, including
the Partnership, as adjusted by the Consumer Price Index, payable on January 1st
of each year (the first year of membership will be prorated according to the
number of days of membership for that calendar year). "Consumer Price Index"
means the most recent Consumer Price Index for All Consumers for the United
States, prepared and published by the Bureau of Labor Statistics of the
Department of Labor of the United States (or any comparable index,
-5-
<PAGE>
selected by Hotel Services or any successor operator, in its reasonable
discretion, then prepared and published by a United States government agency, if
the aforesaid Consumer Price Index is not at that time so prepared and
published), appropriately adjusted for changes in the manner in which such Index
is prepared and/or the year on which such Index is based. A business
organization which is an Owner may purchase one membership for each home site
purchased. Three persons may be designated by such business organization as
users of the membership, only two of whom may use the membership simultaneously.
A business organization Owner which purchases a membership may revise its list
of designees not more than once every sixty days. An individual, husband and
wife or family which is an Owner may purchase one membership and will be
extended all use privileges and fee schedules of the Owner. A "family member"
will include husband, wife and children under the age of 21 maintaining
residence with their parents.
5. Identification Arrangement. The Hotel, through Hotel Services or any
--------------------------
successor operator, including the Partnership, may establish an arrangement for
the identification of users of Hotel facilities, other Owners and other persons
using the Hotel facilities.
-6-
<PAGE>
B. Time Share, Vacation Ownership and Other Residences
---------------------------------------------------
Marriott or affiliates of Marriott may develop time share, vacation
ownership or other residences on land near the Hotel presently owned by Marriott
or affiliates of Marriott. Each time share unit, vacation ownership unit or
other residence would receive one preferred tee time per week per unit at the
Golf Courses. However, the owner of such unit or other residence ("Unit Owner")
would pay regular green fees and other fees for use of the Golf Courses. Unlike
Owners who pay Membership Fees, Unit Owners would not pay Membership Fees, but
rather would pay for the use of all other Hotel facilities on the same basis as
regular Hotel guests and have the same use privileges (other than use of the
Golf Courses) as regular Hotel guests (with the exception of the one preferred
tee time per week).
C. Golf Courses Restrictions
-------------------------
The Partnership, Hotel Services or a successor operator shall be
permitted to close the Hotel's golf courses for maintenance or for any other
reason under the following circumstances:
1. The golf course owned by the Partnership may be closed at any time,
for any reason, within the discretion of Hotel Services or any successor
operator of the Hotel, including the Partnership.
-7-
<PAGE>
2. Golf Course B may be closed by Hotel Services or any successor
operator, including the Partnership, under the following conditions:
(a) at any time between October 1st and November 15th each year in
the sole discretion of Hotel Services or any successor operator, including the
Partnership; and
(b) in addition to 2 (a) above, at any other time during the calendar
year for any reason not to exceed six times such calendar year and at any time
for any act of force majeure.
D. Miscellaneous
-------------
Nothing herein shall limit in any way the right of the Hotel, Hotel
Services or any successor operator, including the Partnership, to provide other
persons or entities with rights to use or otherwise enjoy all or any portion of
the Hotel facilities. The Partnership and Hotel Services and any other operator
of the Hotel, in their sole discretion, may amend this Agreement to include
additional facilities. The rights and obligations created herein with respect to
any Hotel facility shall be contingent upon the existence of such facility and
shall be in effect only for as long as such facility is in existence. Hotel
Services or any successor operator, including the Partnership, shall have the
right to remove or change the use of any Hotel facility or structure or
discontinue any Hotel service. However, nothing contained in the foregoing
sentence shall grant Hotel
-8-
<PAGE>
Services any rights not contained in the Operating Lease. The rights created
herein shall not include (1) any ownership right with respect to the Hotel's
related personal property, (2) any right to the continued existence and/or
operation of the Hotel or any Hotel facility for any minimum period of time and
(3) any right to expect or require the Partnership, Marriott, Hotel Services or
Development Corporation or any other party to be or remain affiliated in any
capacity with the Hotel. The Partnership, Marriott, Hotel Services and
Development Corporation make absolutely no representation that any entity,
including without limitation, Marriott, will be or remain affiliated in any
capacity with the Hotel or that the Hotel will continue to be operated as such
in the future.
E. No Third Party Beneficiary Rights
---------------------------------
No Owner or Unit Owner shall be deemed a third party beneficiary of
any rights under this Agreement.
F. Notices
-------
All notices required under this Agreement shall be deemed to be
properly served if sent by United States registered or certified mail, postage
prepaid, and return receipt requested at the addresses set forth in the preamble
to this Agreement or at such other addresses as the parties have designated from
time to time by written notice. The date of
-9-
<PAGE>
service of such notices shall be the date such notices are received or delivery
is first refused.
G. Assignment
----------
This Agreement is not assignable by Development Corporation or Hotel
Services except to an affiliate of Marriott.
H. Indemnification and Insurance
-----------------------------
Each party hereto other than the Partnership, hereby jointly and
severally indemnifies and holds the Partnership harmless from and against any
claims, demands, damages, liabilities and expenses, including attorney's fees
and disbursements, arising out of or in connection with any claims by Owners or
Unit Owners that they have not received rights to use any of the real or
personal property referred to in this Agreement or that such rights are
misrepresented or not adequately disclosed to them.
The parties hereto other than the Partnership, agree to carry
reasonably adequate liability and property damage insurance, naming the
Partnership as an insured, with respect to the real and personal property
referred to herein, persons using them and claims for injury to persons or
property by persons on any real or personal property referred
-10-
<PAGE>
to in this Agreement as a result of rights granted pursuant to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first hereinabove written.
MARRIOTT CORPORATION
By:
--------------------------------
Vice President
DESERT SPRINGS HOTEL SERVICES
Marriott Corporation, Partner
By:
--------------------------
Vice President
DESERT SPRINGS MARRIOTT LIMITED
PARTNERSHIP
Marriott Desert Springs
Corporation, General
Partner
By:
--------------------------------
Vice President
MARRIOTT'S DESERT SPRINGS
DEVELOPMENT CORPORATION
By:
--------------------------------
Vice President
-11-
<PAGE>
EXHIBIT 10.5
DESERT SPRINGS MARRIOTT
LIMITED PARTNERSHIP
LOAN AGREEMENT
July 26, 1989
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
PREAMBLE, RECITALS................................................... 1
1. DEFINITIONS..................................................... 1
1.1 Accounting Period........................................ 1
1.2 Accounting Quarter....................................... 2
1.3 Affiliate................................................ 2
1.4 Agent.................................................... 2
1.5 Agreement................................................ 2
1.6 Annual Rental............................................ 2
1.7 Arrangement Fee.......................................... 2
1.8 Assessment Rate.......................................... 2
1.9 Authorized Accounting Officer............................ 3
1.10 Authorized Representative................................ 3
1.11 Bank Regulatory Requirement.............................. 3
1.12 Base Eurodollar Rate..................................... 3
1.13 Base Fixed CD Rate....................................... 3
1.14 Base Fixed Treasury Rate................................. 4
1.15 Borrower................................................. 4
1.16 Borrowing................................................ 4
1.17 Borrowing Notice......................................... 4
1.18 Break Amount............................................. 5
1.19 Break Cost............................................... 5
1.20 Break Date............................................... 5
1.21 Break Rate............................................... 6
1.22 Business Day............................................. 6
1.23 Cash Flow Available for Loans............................ 7
1.24 CD Interest Period....................................... 7
1.25 CD Reserve Requirement................................... 7
1.26 Closing.................................................. 7
1.27 Control.................................................. 7
1.28 Corporate Base Rate...................................... 8
1.29 Corporation.............................................. 8
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
1.30 Current Fixed Treasury Rate.............................. 8
1.31 Current Value............................................ 9
1.32 Debt Service............................................. 9
1.33 Debt Service Coverage.................................... 9
1.34 Deductions............................................... 9
1.35 Deed of Trust............................................ 9
1.36 Discount Rate............................................ 9
1.37 Dollars.................................................. 10
1.38 Effective Date........................................... 10
1.39 Environmental Indemnity Agreement of the Borrower ....... 10
1.40 Environmental Indemnity Agreement of Marriott............ 10
1.41 Environmental Laws....................................... 10
1.42 Equipment................................................ 10
1.43 Equipment Lease.......................................... 11
1.44 Equipment Purchase Agreement............................. 11
1.45 Eurodollar Borrowing..................................... 11
1.46 Eurodollar Interest Period............................... 11
1.47 Eurodollar Rate.......................................... 12
1.48 Eurodollar Reserve Requirement........................... 12
1.49 Events of Default........................................ 13
1.50 Extraordinary Revenues................................... 13
1.51 FF&E..................................................... 13
1.52 FF&E Reserve............................................. 13
1.53 Financial Statements..................................... 13
1.54 Fiscal Year.............................................. 13
1.55 Fixed CD Rate............................................ 14
1.56 Fixed CD Rate Borrowing.................................. 14
1.57 Fixed Rate............................................... 14
1.58 Fixed Rate Borrowing..................................... 14
1.59 Fixed Treasury Rate...................................... 14
1.60 Fixed Treasury Rate Borrowing............................ 15
1.61 Floating Rate............................................ 15
1.62 Floating Rate Borrowing.................................. 15
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
1.63 FNBC..................................................... 15
1.64 General Partner.......................................... 15
1.65 General Partner Guaranty................................. 15
1.66 Golf Course A............................................ 15
1.67 Golf Course B............................................ 15
1.68 Golf Course B Owner...................................... 15
1.69 Golf Course Lease........................................ 16
1.70 Golf Course Lease Assignment............................. 16
1.71 Governmental Authority................................... 16
1.72 Gross Revenues........................................... 16
1.73 Guaranties............................................... 17
1.74 Hazardous Substances..................................... 17
1.75 Homeowners Agreement..................................... 17
1.76 Host..................................................... 17
1.77 Improvements............................................. 17
1.78 Indebtedness............................................. 18
1.79 Interest period.......................................... 19
1.80 Investor Notes........................................... 19
1.81 Land..................................................... 19
1.82 Laws..................................................... 19
1.83 Legal Rate............................................... 20
1.84 Lenders.................................................. 20
1.85 Lending Installation..................................... 20
1.86 Lien..................................................... 20
1.87 Loan, Loans.............................................. 20
1.88 Loan A................................................... 20
1.89 Loan B................................................... 20
1.90 Loan Commitment, Loan Commitments........................ 21
1.91 Loan Documents........................................... 21
1.92 Loan Fee................................................. 21
1.93 Marriott................................................. 21
1.94 Marriott Entities........................................ 21
1.95 Marriott Guaranty........................................ 21
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
1.96 Maturity Date............................................ 21
1.97 Memorandum............................................... 22
1.98 Minimum Notice Period.................................... 22
1.99 Net Equipment Rental Income.............................. 22
1.100 Notes.................................................... 22
1.101 Operating Lease.......................................... 22
1.102 Operating Lease Subordination............................ 22
1.103 Operating Profit......................................... 22
1.104 Operating Tenant......................................... 23
1.105 Original Loan Agreement.................................. 23
1.106 Partners' Priority Return................................ 23
1.107 Partnership Documents.................................... 23
1.108 Permitted Exceptions..................................... 23
1.109 Person................................................... 23
1.110 Potential Default........................................ 23
1.111 Property................................................. 24
1.112 Pro Rata Share........................................... 24
1.113 Purchase Agreement....................................... 24
1.114 Purchase Agreement Assignment............................ 24
1.115 Purchase Debt............................................ 24
1.116 Purchase Note............................................ 24
1.117 Quarterly Payment Date................................... 25
1.118 Rate Option.............................................. 25
1.119 Regulation D............................................. 25
1.120 Required percentage of the Lenders....................... 25
1.121 Reserve Requirement...................................... 25
1.122 Rollover................................................. 25
1.123 Security Agreement....................................... 25
1.124 Series A Notes........................................... 25
1.125 Series B Notes........................................... 26
1.126 Stock.................................................... 26
1.127 Subordination Agreement.................................. 27
1.128 Swap Spread.............................................. 27
1.129 Title Insurer............................................ 27
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
1.130 Treasury Rate Interest Period............................ 27
1.131 Treasury Reserve Requirement............................. 28
1.132 TWA...................................................... 28
1.133 Yield Protection Amounts................................. 28
1.134 Yield protection Notice.................................. 28
2. THE LOAN........................................................ 29
2.1 Agreement to Lend and Borrow............................. 29
2.2 Payment at Maturity Date................................. 30
2.3 Application of Payments.................................. 30
2.4 Method of Selecting Rate Options and Interest Periods.... 31
2.5 No Default............................................... 33
2.6 Minimum Requirements..................................... 33
2.7 Method of Borrowing...................................... 33
2.8 Interest Payments........................................ 34
2.9 Prepayment............................................... 34
2.10 Lending Installations.................................... 35
2.11 Funding Indemnification.................................. 35
2.12 Taxes.................................................... 37
2.13 Yield Protection......................................... 39
2.14 Certificates; Survival of Indemnity...................... 42
2.15 Telephonic Notices....................................... 42
2.16 Method of Payment........................................ 43
2.17 General Provisions Concerning Loans...................... 43
2.18 Loan Documents........................................... 43
2.19 Use of proceeds.......................................... 44
2.20 Fees..................................................... 44
2.21 Exculpation.............................................. 44
2.22 Payment of Expenses...................................... 45
2.23 Advances through Title Insurer........................... 46
2.24 Other Advances by Lenders................................ 46
</TABLE>
-v-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
3. CONDITIONS TO LOANS............................................. 46
3.1 Notes.................................................... 46
3.2 Collateral Security...................................... 46
3.3 Operating Lease.......................................... 48
3.4 Purchase Agreement....................................... 49
3.5 Golf Course Lease........................................ 49
3.6 Partnership Documents.................................... 49
3.7 General Partner's Corporate Documents .............. 49
3.8 Operating Tenant's Joint Venture Documents............... 50
3.9 Marriott Corporate Documents............................. 50
3.10 Host Corporate Documents................................. 51
3.11 Golf Course B Owner's Corporate Documents................ 52
3.12 Costs.................................................... 52
3.13 Financial Statements..................................... 53
3.14 Opinion of Local Counsel................................. 53
3.15 Opinion of Counsel to Marriott........................... 53
3.16 Certificate of Occupancy................................. 54
3.17 Recording................................................ 54
3.18 Title Insurance.......................................... 54
3.19 UCC Searches............................................. 55
3.20 Survey................................................... 55
3.21 Evidence of Insurance.................................... 56
3.22 Compliance, Access, Utilities............................ 56
3.23 Estoppel Certificate from Operating Tenant............... 56
3.24 Estoppel Certificate from Golf Course B Owner............ 57
3.25 Estoppel Certificate from TWA............................ 57
3.26 Certificate Regarding Condition of the Property.......... 57
3.27 Additional Documents..................................... 57
3.28 No Default............................................... 58
3.29 Representations and Warranties........................... 58
</TABLE>
-vi-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
4. REPRESENTATIONS AND WARRANTIES.................................. 58
4.1 The Borrower............................................. 58
4.2 Ownership by Marriott.................................... 59
4.3 Authorization and Execution.............................. 59
4.4 Compliance with Other Instruments........................ 60
4.5 Consents................................................. 61
4.6 Financial Statements..................................... 61
4.7 No Material Changes...................................... 62
4.8 Title to Properties...................................... 62
4.9 Leases................................................... 62
4.10 Marriott Hotel........................................... 63
4.11 Litigation............................................... 63
4.12 Burdensome Provisions.................................... 63
4.13 Force Majeure............................................ 64
4.14 Tax Liability............................................ 64
4.15 Distributions............................................ 65
4.16 Regulation U, etc........................................ 65
4.17 Compliance with Law...................................... 65
4.18 Permits and Licenses..................................... 65
4.19 No Notices............................................... 65
4.20 Disclosure............................................... 66
4.21 Net Worth................................................ 66
4.22 Compliance with Securities Laws.......................... 66
4.23 Brokerage Fees........................................... 66
4.24 FF&E Reserve............................................. 67
4.25 Best Efforts............................................. 67
4.26 Environment.............................................. 67
5. AFFIRMATIVE COVENANTS........................................... 68
5.1 Pay Principal and Interest............................... 68
5.2 Maintenance of Borrower's Office......................... 68
5.3 Keep Books; Set Aside Reserves........................... 68
5.4 Payment of Taxes; Existence; Maintenance of Properties... 69
5.5 Insurance................................................ 70
</TABLE>
-vii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.6 Financial Statements and Reports......................... 70
5.7 Inspection............................................... 74
5.8 Notice of Claims......................................... 74
5.9 Agreements............................................... 75
5.10 Licenses................................................. 75
5.11 Operations............................................... 75
5.12 FF&E Reserve............................................. 75
5.13 Restrictive Covenants.................................... 76
5.14 Easements................................................ 77
5.15 Compliance............................................... 77
6. NEGATIVE COVENANTS.............................................. 77
6.1 Allocation of Cash Flow Available for Loans.............. 77
6.2 Indebtedness............................................. 78
6.3 Liens.................................................... 81
6.4 Distribution............................................. 83
6.5 Sale and Leaseback....................................... 83
6.6 Change in partnership; Disposal of Property.............. 83
6.7 Certain Transactions with Affiliated Persons............. 83
6.8 Amendments to Agreements................................. 84
6.9 Maintenance of Present Business.......................... 84
6.10 Leases................................................... 85
6.11 Use of Loan Proceeds..................................... 85
6.12 FF&E Reserve............................................. 85
6.13 Homeowners Agreement..................................... 85
7. INSURANCE....................................................... 85
7.1 Hazard Insurance......................................... 85
7.2 Flood and Earthquake Insurance........................... 86
7.3 Other Insurance.......................................... 87
7.4 Required Notices......................................... 87
7.5 Payment and Application.................................. 87
</TABLE>
-viii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
8. DEFAULTS AND REMEDIES........................................... 87
8.1 Events of Default........................................ 87
8.2 Suits for Enforcement.................................... 92
8.3 Remedies Cumulative...................................... 93
8.4 TWA Default.............................................. 93
9. THE AGENT....................................................... 94
9.1 Appointment of the Agent................................. 94
9.2 Agent's Rights and Liabilities........................... 95
10. EQUIPMENT ..................................................... 101
10.1 Amendment of Equipment Lease............................. 101
10.2 Sale of Equipment........................................ 102
10.3 Release of Security Interest............................. 104
11. MISCELLANEOUS................................................... 104
11.1 Notices and Addresses .................................. 104
11.2 Survival of Representations; Successors and Assigns...... 106
11.3 Effect of Delay; No Waivers.............................. 107
11.4 Expenses................................................. 107
11.5 Consent by percentage of the Lenders..................... 108
11.6 Lenders' Right of Setoff................................. 110
11.7 Use of Accounting Terms.................................. 110
11.8 Equitable Adjustment among Lenders....................... 110
11.9 No Assignment by Borrower................................ 111
11.10 Lender Assignment and participation...................... 111
11.11 Books and Records ...................................... 112
11.12 Written Communications with Agent........................ 112
11.13 Proceedings.............................................. 113
11.14 Resignation of Agent..................................... 113
11.15 Time of the Essence...................................... 114
11.16 Exhibits................................................. 114
11.17 Counterparts............................................. 114
11.18 Construction and Jurisdiction............................ 114
11.19 Description of Documents................................. 115
11.20 Headings................................................. 116
</TABLE>
-ix-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
11.21 Indemnity................................................ 116
11.22 Validity................................................. 116
11.23 Confidentiality.......................................... 116
11.24 Incorporation by Reference............................... 117
</TABLE>
-x-
<PAGE>
List of Exhibits
----------------
<TABLE>
<CAPTION>
Exhibit Description Section
- ------- ----------- -------
<S> <C> <C>
A Deed of Trust 1.35
B General Partner Guaranty 1.65
C Golf Course B Land 1.67
D Land 1.81
E Marriott Guaranty 1.95
F permitted Exceptions 1.108
G Form of Series A Note 1.124
H Form of Series B Note 1.125
I Security Agreement 3.2(b)
J Environmental Indemnity
Agreement of the Borrower 1.39
K Environmental Indemnity
Agreement of Marriott 1.40
L Purchase Agreement 3.2(d)
Assignment
M Operating Lease
Subordination 3.2(e)
N Golf Course Lease 3.2(f)
Assignment
0 Subordination Agreement 3.2(g)
p Local Counsel Opinion 3.14
Q Opinion of Counsel
to Marriott 3.15
R Estoppel Certificate
from Operating Tenant 3.23
S Estoppel Certificate
from Golf Course B Owner 3.24
T Estoppel Certificate
from TWA 3.25
U Exceptions to Represen-
tations and Warranties 4
V Environmental Disclosures 4.26
</TABLE>
-xi-
<PAGE>
LOAN AGREEMENT
--------------
AGREEMENT dated as of the 26th day of July, 1989, by and among THE FIRST
NATIONAL BANK OF CHICAGO, a national banking association of the United States of
America; CREDIT LYONNAIS, New York Branch and CREDIT LYONNAIS, Cayman Island
Branch (collectively "Credit Lyonnais"); SOCIETE GENERALE, Chicago Branch;
SUMITOMO TRUST & BANKING CO., LTD., Los Angeles Agency (collectively, the
"Lenders," and severally, a "Lender"), and DESERT SPRINGS MARRIOTT LIMITED
PARTNERSHIP, a Delaware limited partnership (the "Borrower").
WITNESSETH:
FOR AND IN CONSIDERATION of the covenants and agreements herein contained,
and for other good and valuable consideration, the Lenders and the Borrower
hereby covenant and agree as follows:
1. DEFINITIONS.
For all purposes of this Agreement and of the other Loan Documents (as
hereinafter defined), the following terms used in this Agreement and in the
other Loan Documents without definition shall have the following respective
meanings:
1.1. The term "Accounting Period" means each four (4) week accounting
-----------------
period having the same beginning and ending dates as the General Partner's four
(4) week accounting periods, except that the first or last Accounting Period in
each year may occasionally be shorter or longer than four (4) weeks when
necessary to conform the accounting system to the calendar.
<PAGE>
1.2. The term "Accounting Quarter" means the Accounting Periods ending on
------------------
the third, sixth, ninth and last Accounting Periods within each Fiscal Year.
1.3. The term "Affiliate" means, with respect to any Person, any other
---------
Person who is in Control of, under the Control of or under common Control with
such Person, whether directly or indirectly.
1.4. The term "Agent" means The First National Bank of Chicago, acting as
-----
agent pursuant to Article 9 hereof.
1.5. The term "Agreement" means this agreement, including any and all
---------
Exhibits and Schedules hereto, as the same may be amended, supplemented or
otherwise modified from time to time, and the terms "herein," "hereof,"
"hereunder" and like terms shall be taken as referring to this Agreement in its
entirety and shall not be limited to any particular section or provision hereof.
1.6. The term "Annual Rental" means, for any Fiscal Year, the greater of
-------------
(x) eighty-five percent (85%) of Operating Profit for such Fiscal Year, through
December 31, 1993, and eighty percent (80%) of Operating Profit for such Fiscal
Year thereafter, or (y) the greater of (i) $20,000,000 or (ii) Debt Service on
the Loans for such Fiscal Year, but, in the case of clauses (i) or (ii), not to
exceed one hundred percent (100%) of Operating Profit for such Fiscal Year.
1.7. The term "Arrangement Fee" has the meaning provided therefor in
---------------
Section 2.20 hereof.
1.8. The term "Assessment Rate" means, for any CD Interest Period, the net
---------------
assessment rate per annum (rounded
-2-
<PAGE>
upwards, if necessary, to the next higher 1/100 of 1%) payable to the Federal
Deposit Insurance Corporation (or any successor) for the insurance of domestic
deposits of FNBC during the calendar year in which the first day of such CD
Interest Period falls, as estimated by FNBC on the first day of the CD Interest
Period.
1.9. The term "Authorized Accounting Officer" means the chief accounting
-----------------------------
officer, or one of his or her duly authorized representatives designated in a
writing delivered to the Lenders by the chief accounting officer.
1.10. The term "Authorized Representative" means any representative of the
-------------------------
General Partner who, pursuant to written notice from the Borrower to the Agent,
is authorized by the Borrower to act in connection herewith.
1.11. The term "Bank Regulatory Requirement" has the meaning provided in
---------------------------
Section 2.13 hereof.
1.12. The term "Base Eurodollar Rate" means, with respect to a Eurodollar
--------------------
Borrowing for the relevant Eurodollar Interest Period, the published composite
11:00 a.m. London LIBO Rate two Business Days prior to the first day of such
Eurodollar Interest Period, with a maturity approximately equal to such
Eurodollar Interest Period and in the amount of $5,000,000.00.
1.13. The term "Base Fixed CD Rate" means, with respect to a Fixed CD
------------------
Rate Borrowing for the relevant CD Interest Period, the rate determined by the
Agent to be the arithmetic average of the prevailing bid rates quoted to the
Agent at or before 10:00 a.m. (Chicago, Illinois time) on the first day of such
CD Interest Period by three certificate of deposit dealers in New York or
Chicago of recognized standing selected by the Agent in its sole discretion for
the purchase at face value of
-3-
<PAGE>
certificates of deposit of FNBC in the approximate amount of FNBC's Pro Rata
Share of the relevant Fixed CD Rate Borrowing and having a maturity
approximately equal to the relevant CD Interest Period.
1.14. The term "Base Fixed Treasury Rate" means, with respect to a
------------------------
Fixed Treasury Rate Borrowing, a rate per annum (adjusted to a quarterly basis
to reflect the interest payment frequency hereunder and, in the case of U.S.
Treasury bills, converted to a bond equivalent yield) equal to the semiannual
equivalent yield to maturity of U.S. Treasury securities maturing on the last
day of the Treasury Rate Interest Period applicable to said Fixed Treasury Rate
Borrowing (or, if no U.S. Treasury securities mature on the last day of said
Treasury Rate Interest Period, as determined by interpolation between the yields
to maturity for two series of U.S. Treasury securities respectively maturing
before and after, but as close as possible to, the last day of said Treasury
Rate Interest Period) as reported on page 678 of the electronic Telerate Systems
service (or if such quotations are unavailable, from such other source as the
Agent may reasonably select) as of 10:00 a.m. (Chicago, Illinois time) on the
second Business Day prior to the Effective Date for such Fixed Treasury Rate
Borrowing.
1.15. The term "Borrower" has the meaning provided therefor in the Preamble
--------
hereof.
1.16. The term "Borrowing" means a Eurodollar Borrowing or a Fixed CD
---------
Rate Borrowing or a Floating Rate Borrowing, or a Fixed Treasury Rate Borrowing.
1.17. The term "Borrowing Notice" means an irrevocable written, telex or
----------------
telephone notice given by an Authorized Representative to and received by the
Agent, whether in connection
-4-
<PAGE>
with the Closing or any Rollover, specifying (a) the amount of each Borrowing,
(b) the Interest Period applicable to each Fixed Rate Borrowing and (c) the
Effective Date of each such Borrowing.
1.18. The term "Break Amount" means the amount of a Fixed Rate Borrowing
------------
(a) that the Borrower has repaid or is obligated to repay (whether because of
acceleration, prepayment or otherwise) or has notified the Agent of its
intention to repay, prior to either the originally scheduled due date for
payment thereof or the last day of the Interest Period applicable to said Fixed
Rate Borrowing, whichever the case may be, or (b) not made on the Effective Date
specified by the Borrower in its Borrowing Notice for any reason other than a
default by the Lenders.
1.19. The term "Break Cost" means, with respect to a particular Break
----------
Amount, an amount equal to the excess, if any, of (a) the sum of the Current
Values of each interest payment that would have been due with respect to such
Break Amount if the Break Amount had remained outstanding on each Quarterly
Payment Date during the Interest Period and on the last day of the Interest
Period (but not including interest accrued prior to the Break Date and any
additional charges for late payment or acceleration) minus (b) the sum of the
Current Values of each interest payment that would have been due with respect to
such Break Amount if the Break Amount had remained outstanding on each Quarterly
Payment Date during the Interest Period and on the last day of the Interest
Period and interest on the Break Amount had been payable at a rate per annum
equal to the Break Rate (but not including any interest accrued prior to the
Break Date and any additional charges for late payment or acceleration).
1.20. The term "Break Date" means (a) the date a Break Amount is repaid;
----------
(b) the date a Break Amount becomes due;
-5-
<PAGE>
(c) the date on which the Agent notifies the Lenders that a Fixed Rate Borrowing
will not be made for any reason other than a default by the Lenders; or (d) in
the event that the Borrower notifies the Agent of an intent to repay on a
certain date but does not repay on that date, the date specified in the
Borrower's notice as the date on which it intends to repay.
1.21. The term "Break Rate" means, (a) with respect to the Break Amount and
----------
Interest Period of a Eurodollar Borrowing or a Fixed CD Rate Borrowing, a Fixed
Rate determined by the Agent in accordance with the terms of this Agreement
assuming that (i) the remainder of the Interest Period applicable to such
Eurodollar Borrowing or Fixed CD Rate Borrowing after the Break Date is an
entire Interest Period, (ii) the Break Amount is the amount of a Fixed Rate
Borrowing, (iii) the Break Date is the Effective Date of such Fixed Rate
Borrowing and (iv) the Rate Option is the same Rate Option originally selected
by the Borrower for the Interest Period, adjusted for the new, shorter Interest
Period applicable to said Fixed Rate Borrowing (rounded to the nearest thirty
(30) day multiple) and (b) with respect to the Break Amount of a Fixed Treasury
Rate Borrowing, a rate per annum equal to the Current Fixed Treasury Rate
calculated as of the Break Date.
1.22. The term "Business Day" means a day on which the principal office of
------------
the Agent is open for the full transacting of its banking business and banks in
New York and California are generally open for business and, with respect to the
borrowing, rate selection or payment of Eurodollar Borrowings, a date on which,
in addition to the foregoing, dealings in Dollars are carried on in the London
interbank market.
-6-
<PAGE>
1.23. The term "Cash Flow Available for Loans" means, for any Fiscal Year,
-----------------------------
the sum of Annual Rental and Net Equipment Rental Income for such Fiscal Year.
1.24. The term "CD Interest Period" means, with respect to a Fixed CD Rate
------------------
Borrowing, a period of 30, 60, 90 or 180 days commencing on a Business Day
selected by the Borrower pursuant to this Agreement. If such CD Interest Period
would end on a day which is not a Business Day, such CD Interest Period shall
end on the next succeeding Business Day. Any CD Interest Period must end on or
before the Maturity Date.
1.25. The term "CD Reserve Requirement" means, for any given day that
----------------------
percentage (expressed as a decimal and rounded to the nearest 1/100 of 1% or, if
there is no nearest 1/100 of 1%, rounded to the next higher 1/100 of 1%) which
the Board of Governors of the Federal Reserve System (or any successor
governmental body) specifies to be used on such day in determining the reserve
requirement (including, without limitation, "basic," "supplemental," "marginal,"
and "emergency" reserves) under Regulation D or other applicable regulations in
effect from time to time promulgated by said Board of Governors (or any
successor governmental body) applicable to certificates of deposit issued for
the selected CD Interest Period in denominations in excess of $100,000.00 issued
by FNBC.
1.26. The term "Closing" means the disbursement of the Loans and, without
-------
limitation of the foregoing, Closing shall not be deemed to have occurred merely
upon the execution of this Agreement.
1.27. The term "Control" means the power to direct or cause the direction
-------
of the management and policies of a Person,
-7-
<PAGE>
either alone or in conjunction with others and whether through the ownership of
Stock, by contract or otherwise.
1.28. The term "Corporate Base Rate" means a fluctuating interest rate per
-------------------
annum announced publicly by FNBC as its corporate base rate.
1.29. The term "Corporation" shall include an association, joint stock
-----------
company, business trust or other similar organization (other than a
partnership).
1.30. The term "Current Fixed Treasury Rate" means, with respect to a Break
---------------------------
Amount, a rate per annum equal to the sum of (a) 0.65% and (b) either of the
following rates (adjusted to a quarterly basis to reflect the interest payment
frequency hereunder): (i) the fixed rate the Agent would quote in good faith as
of 10:00 a.m. (Chicago, Illinois time) to other dealers in the United States
interest rate swap market for an interest rate swap commencing on the Break
Date, maturing on the last day of the Interest Period applicable to the Break
Amount before such Break Amount was prepaid or became due and before any notice
of intent to prepay was given, under which the Agent would be paying semiannual
fixed rate payments determined on a 360-day basis in exchange for receiving from
the dealer semiannual floating rate payments determined on a 360-day basis with
respect to the London interbank offered rate for six-month Dollar deposits, and
having a notional amount equal to the multiple of $5,000,000.00 nearest to the
Break Amount, or if (ii) the Agent does not provide such quotation for any
reason, the arithmetic average of the fixed rates quoted to the Agent as of
10:00 a.m. (Chicago, Illinois time) by three leading dealers in the United
States interest rate swap market, selected by the Agent in good faith for such
interest rate swap under which such dealer would be paying such
-8-
<PAGE>
fixed rate payments and the Agent would be paying such floating rate payments.
1.31. The term "Current Value" means, with respect to any interest
-------------
payment, the value of that interest payment on the Break Date after discounting
the amount of the interest payment from the date when such interest payment
would have been due at the Discount Rate.
1.32. The term "Debt Service" means the sum of all payments of
------------
principal and interest required to be made with respect to any designated
Indebtedness (such as, for example, the Loans) during a given period.
1.33. The term "Debt Service Coverage" means, for any given period, the
---------------------
ratio of (a) Operating Profit during such period to (b) Debt Service (on any
designated Indebtedness) during such period.
1.34. The term "Deductions" means the amounts incurred by the Operating
----------
Tenant in operating the Property and defined as "Deductions" in the Operating
Lease, including an amount, to be retained by the Operating Tenant, equal to
three percent (3%) of Gross Revenues.
1.35. The term "Deed of Trust" means a deed of trust and security
-------------
agreement relating to the Property (including the leasehold estate under the
Golf Course Lease) in the form of Exhibit A hereto, duly executed and delivered
by Borrower.
1.36. The term "Discount Rate" means, with respect to any interest
-------------
payment, a rate per annum expressed as a decimal (and converted to a bond
equivalent yield in the case of U.S. Treasury bills), equal to (a) the
semiannual equivalent yield to
-9-
<PAGE>
maturity of U.S. Treasury securities maturing on the date when such interest
payment would have been due (or if no U.S. Treasury securities mature on such
date, as determined by interpolation between the yields to maturity for two
series of U.S. Treasury securities respectively maturing before and after, but
as close as possible to, such date) as reported on page 678 of the electronic
Telerate Systems service (or if such quotations are unavailable, from such other
source as the Agent may reasonably select) as of 10:00 a.m. (Chicago, Illinois
time) on the Break Date plus (b) 0.60% plus (c) the CD Reserve Requirement, the
Eurodollar Reserve Requirement or the Treasury Reserve Requirement, whichever is
applicable to said interest payment.
1.37. The term "Dollars" and the sign "S" mean lawful currency of the
------- -
United States of America.
1.38. The term "Effective Date" means any Business Day designated by
--------------
the Borrower in a Borrowing Notice as the effective date of a Borrowing.
1.39. The term "Environmental Indemnity Agreement of the Borrower"
-------------------------------------------------
means an Environmental Indemnity Agreement executed by the Borrower in the form
of Exhibit J attached hereto.
1.40. The term "Environmental Indemnity Agreement of Marriott" means an
---------------------------------------------
Environmental Indemnity Agreement executed by Marriott in the form of Exhibit K
attached hereto.
1.41. The term "Environmental Laws" means all applicable federal, state
------------------
and local environmental, health or safety laws, regulations and rules of common
law.
1.42. The term "Equipment" means various ground service equipment,
---------
equipment used in the repair and maintenance
-10-
<PAGE>
of aircraft and other equipment purchased by the Borrower from TWA under the
Equipment Purchase Agreement and leased back to TWA under the Equipment Lease.
1.43. The term "Equipment Lease" means a lease dated March 3, 1987
---------------
between the Borrower as lessor and TWA as lessee pursuant to which the Borrower
leases Equipment to TWA for terms ranging from four to eight years.
1.44. The term "Equipment Purchase Agreement" means an agreement dated
----------------------------
March 3, 1987 between TWA as seller and the Borrower as purchaser pursuant to
which Borrower purchased the Equipment from TWA.
1.45. The term "Eurodollar Borrowing" means any portion of the Loans
--------------------
accruing interest at a Eurodollar Rate.
1.46. The term "Eurodollar Interest Period" means, with respect to a
--------------------------
Eurodollar Borrowing, a period of one, two, three or six months, to the extent
Eurodollar Borrowings of such or similar periods are available to FNBC,
commencing on a Business Day selected by the Borrower in its Borrowing Notice. A
month means a period starting on one day in a calendar month and ending on the
numerically corresponding day in the next calendar month. If there is no such
numerically corresponding day in the month in which the Eurodollar Interest
Period ends, the Eurodollar Interest Period shall end on the last Business Day
of such month. If any Eurodollar Interest Period would otherwise end on a day
which is not a Business Day, such Eurodollar Interest Period shall end on the
next succeeding Business Day; provided, however, that, if said next succeeding
--------- -------
Business Day falls in a new month, such Eurodollar Interest Period shall end on
the immediately preceding Business Day. Any such Eurodollar Interest Period must
end on or before the Maturity Date.
-11-
<PAGE>
1.47. The term "Eurodollar Rate" means, with respect to a Eurodollar
---------------
Borrowing for the relevant Eurodollar Interest Period, the sum of (i) the
quotient of (a) the Base Eurodollar Rate applicable to that Eurodollar Interest
Period, divided by (b) one minus the Eurodollar Reserve Requirement (expressed
as a decimal) applicable to that Eurodollar Interest Period, plus (ii) 0.60%.
The Eurodollar Rate shall be rounded, if necessary, to the next higher 1/16 of
1%. If at any time FNBC is not offering deposits to first-class banks in the
London interbank market, or adequate and fair means do not exist for determining
the Eurodollar Rate, for any one or more Eurodollar Interest Periods, then the
availability of the Eurodollar Rate for such Eurodollar Interest Period or
Periods shall be immediately suspended hereunder and the Eurodollar Rate for
such Eurodollar Interest Period or Periods may not be selected until such time
as FNBC is offering such deposits and adequate and fair means exist for such
determination.
1.48. The term "Eurodollar Reserve Requirement" means, with respect to
------------------------------
a Eurodollar Interest Period, the daily average during such Eurodollar Interest
Period of the aggregate reserve requirement (including all basic, supplemental,
marginal and other reserves and taking into account any transitional adjustments
or other scheduled changes in reserve requirements during such Eurodollar
Interest Period) which is incurred and paid by FNBC under Regulation D on
Eurodollar liabilities with a maturity equal to that of the Eurodollar Interest
Period or under any other existing or future law, rule, regulation or directive
imposing any reserve, special deposit or similar requirement. In no event shall
the Eurodollar Reserve Requirement exceed the maximum statutory amount imposed
under Regulation D or other law, rule, regulation or directive.
-12-
<PAGE>
1.49. The term "Events of Default" has the meaning provided therefor in
-----------------
Section 8.1 hereof.
1.50. The term "Extraordinary Revenues" means the net proceeds from (a)
----------------------
sales or other dispositions of any of the assets of Borrower other than in the
ordinary course of business of the Property; (b) damage recoveries and casualty
and public liability insurance proceeds; (c) income derived from securities and
other property acquired and held for investment; (d) condemnation awards or
sales in lieu of and under the threat of permanent condemnation (except for
awards for temporary takings included within "Gross Revenues" under Section
13.02C of the Operating Lease and which shall constitute Gross Revenues
hereunder); (e) proceeds from any Indebtedness permitted under Section 6.2
hereof; and (f) proceeds from capital contributions of partners of Borrower or
from loans by partners of Borrower.
1.51. The term "FF&E" means all furniture, furnishings, fixtures and
----
equipment acquired or to be acquired in connection with the operation of the
Property.
1.52. The term "FF&E Reserve" has the meaning provided therefor in
------------
Section 5.12 hereof.
1.53. The term "Financial Statements" has the meaning provided therefor
--------------------
in Section 4.6 hereof.
1.54. The term "Fiscal Year" means the calendar year. If Borrower's
-----------
Fiscal Year is changed in the future, appropriate adjustment to the Agreement's
reporting and accounting procedures shall be made; provided, however, that no
--------- -------
such change or adjustment shall alter in any material respect any determinations
of Annual Rental, Cash Flow Available for Loans, Net Equipment
-13-
<PAGE>
Rental Income, Operating Profit or other amounts determinable hereunder with
reference to a Fiscal Year or any part thereof.
1.55. The term "Fixed CD Rate" means, with respect to a Fixed CD Rate
-------------
Borrowing for the relevant CD Interest Period, a rate per annum equal to the sum
of (i) the quotient of (a) the Base Fixed CD Rate applicable to that CD Interest
Period, divided by (b) one minus the CD Reserve Requirement (expressed as a
decimal) applicable to that CD Interest Period, plus (ii) the Assessment Rate
applicable to that CD Interest Period, plus (iii) 0.60%. The Fixed CD Rate
shall be rounded, if necessary, to the next higher 1/100 of 1%.
1.56. The term "Fixed CD Rate Borrowing" means a Borrowing that bears
-----------------------
interest at a Fixed CD Rate.
1.57. The term "Fixed Rate" means a Eurodollar Rate or a Fixed CD Rate
----------
or a Fixed Treasury Rate (as the case may be).
1.58. The term "Fixed Rate Borrowing" means a Eurodollar Borrowing or a
--------------------
Fixed CD Rate Borrowing or a Fixed Treasury Rate Borrowing (as the case may be).
1.59. The term "Fixed Treasury Rate" means, with respect to a Fixed
-------------------
Treasury Rate Borrowing for the relevant Treasury Rate Interest Period, a rate
per annum quoted by Agent from time to time at Borrower's request and selected
by Borrower as provided in Section 2.4 hereof which is equal to the sum of (i)
the quotient of (a) the Base Fixed Treasury Rate divided by (b) one minus the
Treasury Reserve Requirement (expressed as a decimal) applicable to that
Treasury Rate Interest Period, plus (ii) the Swap Spread, plus (iii) 0.65%.
-14-
<PAGE>
1.60. The term "Fixed Treasury Rate Borrowing" means any portion of the
-----------------------------
Loans accruing interest at a Fixed Treasury Rate.
1.61. The term "Floating Rate" means a rate per annum equal to the
-------------
Corporate Base Rate.
1.62. The term "Floating Rate Borrowing" means a Borrowing that bears
-----------------------
interest at the Floating Rate.
1.63. The term "FNBC" means The First National Bank of Chicago, a
----
national banking association of the United States of America.
1.64. The term "General Partner" means Marriott Desert Springs
---------------
Corporation, a Delaware corporation and sole general partner of Borrower.
1.65. The term "General Partner Guaranty" means a guaranty executed by
------------------------
the General Partner in the form of Exhibit B hereto.
1.66. The term "Golf Course A" means the 18-hole golf course located on
-------------
the Land.
1.67. The term "Golf Course B" means an 18-hole golf course which is
-------------
located on land adjacent to the Land and constituting a portion of the land
legally described in Exhibit C hereto.
1.68. The term "Golf Course B Owner" means Marriott's Desert Springs
-------------------
Development Corporation, a Delaware corporation.
-15-
<PAGE>
1.69. The term "Golf Course Lease" means a lease dated April 24, 1987
-----------------
between the Golf Course B Owner as lessor and the Borrower as lessee, demising
Golf Course B for an initial term that commenced on December 3, 1987 and will
expire on December 31, 2012, with five 10-year renewal options.
1.70. The term "Golf Course Lease Assignment" has the meaning provided
----------------------------
therefor in Section 3.2(f) hereof.
1.71. The term "Governmental Authority" means any nation or government,
----------------------
any state or other political subdivision thereof, and any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
government.
1.72. The term "Gross Revenues" means all revenue and income of any
--------------
kind derived from the Property and all departments and parts thereof, including
rentals or other payments from lessees, licensees or concessionaires (but not
including gross receipts of any such lessees, licensees or concessionaires
except as may be received by or on behalf of Borrower as rent), golf course
membership and greens fees (but excluding rent for Golf Course B paid by the
Operating Tenant under the Operating Lease), the proceeds of business
interruption insurance and telephone charges, all determined in accordance with
generally accepted accounting principles, excluding all refunds, rebates,
discounts and credits of a similar nature, given, paid or returned by Borrower
or the Operating Tenant in the course of obtaining such revenue and income. Any
amounts received, recognized or realized, in the nature of the following shall
not be included as Gross Revenues: (a) applicable sales, use and excise taxes or
similar governmental charges collected directly from patrons or guests, or as
part of the sales price of any goods, services or displays (including, without
limitation, occupancy, gross receipts, admission, cabaret or similar or
equivalent taxes);
-16-
<PAGE>
(b) gratuities; (c) Extraordinary Revenues; and (d) interest earned on any
reserves including the FF&E Reserve.
1.73. The term "Guaranties" means the General Partner Guaranty and the
----------
Marriott Guaranty, collectively.
1.74. The term "Hazardous Substances" means asbestos, PCBs, and any
--------------------
substances defined or listed as "hazardous substances" or "toxic substances" in
or pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. (S) 9601 et seq., hazardous
-------
materials identified in or pursuant to The Resource Conservation and Recovery
Act, 42 U.S.C. (S) 6901 et seq., any chemical substance or mixture regulated
-------
under the Toxic Substance Control Act of 1976, as amended, 15 U.S.C. (S) 2601 et
--
seq., any "toxic pollutant" under the Clean Water Act, 33 U.S.C. (S) 1251 et
- ---- --
seq., as amended, any hazardous air pollutant under the Clean Air Act, 42 U.S.C.
- ----
(S) 7401 et seq., and any hazardous or toxic substance or pollutant regulated
-------
under any other applicable federal, state or local Environmental Law.
1.75. The term "Homeowners Agreement" means an agreement or agreements
--------------------
to be entered into among the Borrower, the Golf Course B Owner and Marriott
Ownership Resorts, Inc., granting to the purchasers of homes and time share
units adjacent to the Land and Golf Course B certain rights to use facilities of
the Property.
1.76. The term "Host" means Host International, Inc., a Delaware
----
corporation and wholly-owned subsidiary of Marriott.
1.77. The term "Improvements" means all improvements located from time
------------
to time on the Land and on the Golf Course B land described on Exhibit C
attached hereto, including without
-17-
<PAGE>
limitation the following: a resort hotel containing 891 guest rooms,
approximately 51,300 square feet of meeting and exhibit space, four restaurants
seating a total of 700 persons, four grills or snack bars (including snack bars
at swimming pools) seating an additional 400 persons, three lounges seating 385
persons, and a retail arcade containing approximately 14,500 square feet; Golf
Course A; Golf Course B; 16 tennis courts; two swimming pools; a health spa
containing approximately 25,000 square feet; a three-story garage with parking
for approximately 750 vehicles and other exterior parking for 650 vehicles; and
driveways, sidewalks and other appurtenant facilities.
1.78. The term "Indebtedness," with respect to any Person, means,
------------
without duplication, (i) obligations for money borrowed by such Person, (ii)
obligations secured by any Lien existing on any property or other asset owned by
such Person subject to such Lien, whether or not the obligations secured thereby
shall have been assumed; (iii) such Person's capitalized lease obligations,
purchase money obligations and obligations under conditional sales or other
title retention agreements; (iv) such Person's guaranties and endorsements
(other than endorsements for collection in the ordinary course of business) of
another Person's (A) obligations for money borrowed, (B) obligations secured by
any Lien existing on any property or other asset owned by such other Person
subject to such Lien, whether or not the obligations secured thereby shall have
been assumed by such other Person and (C) capitalized lease obligations,
purchase money obligations and obligations under conditional sales or other
title retention agreements; and (v) such Person's other contingent liabilities
in respect of, or any obligations to purchase or otherwise acquire or service or
assume or become a surety for obligations of others.
-18-
<PAGE>
1.79. The term "Interest Period" means a Eurodollar Interest Period or
---------------
a CD Interest Period or a Treasury Rate Interest Period (as the case may be).
1.80. The term "Investor Notes" means promissory notes made by the
--------------
limited partners of the Borrower, payable to the order of the Borrower in the
original aggregate maximum principal amount of $56,442,000.00 evidencing the
limited partners' obligations to pay future installments of capital
contributions as more particularly described in the Memorandum.
1.81. The term "Land" means that certain parcel of Land consisting of
----
approximately 198 acres, located in the City of Palm Desert, County of
Riverside, State of California and legally described in Exhibit D hereto.
1.82. The term "Laws" means all present and future laws, ordinances,
----
rules, regulations and requirements of any Governmental Authority having or
claiming jurisdiction over the Property or any part thereof or any other
property of Borrower, and all orders, rules and regulations of any national or
local board of fire underwriters or other body exercising similar functions,
foreseen or unforeseen, ordinary or extraordinary, which may be applicable to
the Property or any part thereof or any other property of Borrower, or to the
use or manner of such of any of the foregoing, or to the owners, occupants or
lessees thereof, whether or not any such law, ordinance, rule, regulation or
requirement shall necessitate structural changes or improvements or shall
interfere with the use or enjoyment of any of the foregoing, and shall also mean
and include all requirements of the policies of public liability, fire and all
other insurance at any time in force with respect to any of the foregoing.
-19-
<PAGE>
1.83. The term "Legal Rate" means a fluctuating interest rate per annum
----------
which is two and one-half percent (2 1/2%) per annum above the Floating Rate in
effect from time to time.
1.84. The term "Lenders" means the Lenders identified in the Preamble to
-------
this Agreement and any holder of any interest in the Loan by assignment
permitted hereunder but such term does not include a participant in any Lender's
interest in the Loan.
1.85. The term "Lending Installation" means any office, agency or branch of
--------------------
a Lender.
1.86. The term "Lien" means any charge, lien, mortgage, deed of trust, deed
----
to secure debt, pledge, hypothecation, collateral assignment, security
interest or other encumbrance of any nature whatsoever upon, of or in property
or other assets of a Person, whether absolute or conditional, voluntary or
involuntary, whether created pursuant to agreement, arising by force of statute,
by judicial proceedings or otherwise.
1.87. The term "Loan" means Loan A or Loan B, and the term "Loans" means,
---- -----
collectively, Loan A and Loan B.
1.88. The term "Loan A" means, collectively, the loans to be made by the
------
Lenders to the Borrower in the aggregate principal amount of $105,000,000.00 and
to be evidenced by the Series A Notes.
1.89. The term "Loan B" means, collectively, the loans to be made by the
------
Lenders to the Borrower in the aggregate principal amount of $66,000,000.00 and
to be evidenced by the Series B Notes.
-20-
<PAGE>
1.90. The terms "Loan Commitment" and "Loan Commitments" have the meanings
--------------- ----------------
provided therefor in Section 2.1(a).
1.91. The term "Loan Documents" means this Agreement, the Notes, the Deed
--------------
of Trust, the Guaranties, the Security Agreement, the Operating Lease
Subordination, the Purchase Agreement Assignment, the Golf Course Lease
Assignment, the Subordination Agreement, the Environmental Indemnity Agreement
of the Borrower, the Environmental Indemnity Agreement of Marriott and all other
documents now or hereafter executed evidencing or securing the Loans, including
any and all exhibits and schedules to the foregoing, as the same may be amended,
supplemented or modified from time to time.
1.92. The term "Loan Fee" has the meaning provided therefor in Section 2.20
--------
hereof.
1.93. The term "Marriott" means Marriott Corporation, a Delaware
--------
corporation.
1.94. The term "Marriott Entities" means Marriott, the General Partner, the
-----------------
Operating Tenant, Host, and the Golf Course B Owner.
1.95. The term "Marriott Guaranty" means a guaranty executed by Marriott in
-----------------
the form of Exhibit E hereto.
1.96. The term "Maturity Date" means July 27, 1996 subject to
-------------
acceleration of such date as provided herein or in the other Loan Documents.
-21-
<PAGE>
1.97. The term "Memorandum" means the private placement memorandum dated
----------
March 20, 1987, issued in connection with the sale of limited partnership
interests in Borrower.
1.98. The term "Minimum Notice Period" means receipt by the Agent of a
---------------------
Borrowing Notice no later than (a) 10:00 a.m. (Chicago, Illinois time) on the
Effective Date of a Fixed CD Rate Borrowing or Floating Rate Borrowing, or (b)
10:00 a.m. (Chicago, Illinois time), three Business Days prior to the Effective
Date of a Eurodollar Borrowing, or (c) 11:00 a.m. (Chicago, Illinois time), two
Business Days prior to the Effective Date of a Fixed Treasury Rate Borrowing.
1.99. The term "Net Equipment Rental Income" means for any Fiscal Year the
---------------------------
amount, if any, by which the rent paid under the Equipment Lease during such
period exceeds the Partners' Priority Return.
1.100. The term "Notes" means the Series A Notes and the Series B Notes,
-----
collectively.
1.101. The term "Operating Lease" means a lease dated April 23, 1987
---------------
between the Borrower as landlord and the Operating Tenant as tenant pursuant to
which the Borrower leases the Property (including the sublease of Golf Course B)
to the Operating Tenant.
1.102. The term "Operating Lease Subordination" has the meaning provided
-----------------------------
therefor in Section 3.2(e).
1.103. The term "Operating Profit" means, for any Accounting Period,
----------------
Accounting Quarter or Fiscal Year, the excess of Gross Revenues over Deductions
for such Accounting Period, Accounting Quarter or Fiscal Year.
-22-
<PAGE>
1.104. The term "Operating Tenant" means Desert Springs Hotel Services, a
----------------
joint venture comprised of Marriott and Host.
1.105. The term "Original Loan Agreement" means that certain Loan Agreement
-----------------------
dated April 23, 1987 made by and among the Lenders (except Credit Lyonnais,
Cayman Island Branch), the Bank of Nova Scotia and the Borrower.
1.106. The term "Partners' Priority Return" means (a) $5,760,000.00 for
-------------------------
Fiscal Year 1989 and (b) $7,200,000.00 for each Fiscal Year thereafter.
1.107. The term "Partnership Documents" has the meaning provided therefor
---------------------
in Section 3.6 hereof.
1.108. The term "Permitted Exceptions" means any of the following matters
--------------------
to which title to the Property is subject: (a) general real estate taxes and
assessments not yet due and payable; (b) the matters listed in Exhibit F hereto;
and (c) such other matters not materially and adversely affecting the Property
as the Agent may approve.
1.109. The term "Person" shall include a natural person, a partnership
------
(including, without limitation, the Borrower), a joint venture, a Corporation,
a trust, an estate, an unincorporated organization or association or a
Governmental Authority.
1.110. The term "Potential Default" means an event or circumstance that,
-----------------
except for the giving of notice or the passage of time or both the giving of
notice and the passage of time, would constitute an Event of Default.
-23-
<PAGE>
1.111. The term "Property" means and includes (except where inappropriate
--------
in the context), collectively, (a) the Land, (b) the leasehold estate under the
Golf Course Lease (including without limitation the Borrower's interest in all
improvements now or hereafter located on Golf Course B), (c) the Improvements
and all other improvements and FF&E now or hereafter located on the Land and (d)
all easements and other rights appertaining to the foregoing.
1.112. The term "Pro Rata Share" means the percentage of the aggregate
--------------
outstanding principal amount of a Loan or Loans (as the case may be) held by
each Lender from time to time.
1.113. The term "Purchase Agreement" means that certain purchase agreement
------------------
dated April 23, 1987, between the Operating Tenant as seller and the Borrower as
purchaser, pursuant to which the Borrower has purchased the Property (except the
Golf Course Lease) from the Operating Tenant.
1.114. The term "Purchase Agreement Assignment" has the meaning provided
-----------------------------
therefor in Section 3.2(d) hereof.
1.115. The term "Purchase Debt" means a loan by Marriott to the Borrower in
-------------
the original principal amount of $56,442,000.00, evidenced by the Purchase Note
due on July 30, 1990, bearing interest at 9% per annum and required to be
prepaid without penalty from the proceeds of the Investor Notes.
1.116. The term "Purchase Note" means the note dated April 24, 1987
-------------
executed by Borrower payable to the order of Marriott and evidencing the
Purchase Debt.
-24-
<PAGE>
1.117. The term "Quarterly Payment Date" means each January 1, April 1,
----------------------
July 1 and October 1, commencing on the first such date to occur on or after the
date hereof and through and including the Maturity Date.
1.118. The term "Rate Option" means a Eurodollar Rate or a Fixed CD Rate or
-----------
the Floating Rate or a Fixed Treasury Rate.
1.119. The term "Regulation D" means Regulation D of the Board of Governors
------------
of the Federal Reserve System from time to time in effect and shall include any
successor or other regulation or official interpretation of said Board of
Governors relating to reserve requirements applicable to member banks of the
Federal Reserve System.
1.120. The term "Required Percentage of the Lenders" means Lenders (which
----------------------------------
may include the Agent) whose Pro Rata Shares of the Loans, in the aggregate,
equal or exceed fifty-one percent (51%) of the aggregate of all interests in the
Loans.
1.121. The term "Reserve Requirement" means a Eurodollar Reserve
-------------------
Requirement or a CD Reserve Requirement or a Treasury Reserve Requirement.
1.122. The term "Rollover" means a Borrowing resulting from selection of a
--------
Rate Option after Closing.
1.123. The term "Security Agreement" has the meaning provided therefor in
------------------
Section 3.2(b) hereof.
1.124. The term "Series A Notes" means those certain five promissory notes,
--------------
each in the form of Exhibit G hereto, made by Borrower, each payable to the
order of one of the Lenders in the following amounts, respectively:
-25-
<PAGE>
<TABLE>
<CAPTION>
Lender Amount
------ ------
<S> <C>
The First National Bank of Chicago $45,000,000.00
Credit Lyonnais, New York Branch $30,000,000.00
Credit Lyonnais, Cayman Island
Branch $30,000,000.00
Societe Generale, Chicago Branch $15,000,000.00
Sumitomo Trust & Banking Co.,
Ltd., Los Angeles Agency $15,000,000.00
</TABLE>
The amount of each of the Series A Notes made payable to Credit Lyonnais is
equal to the total indebtedness due under both Series A Notes as required by the
terms and provisions of Section 2.1(d) hereof.
1.125. The term "Series B Notes" means those certain five promissory notes,
--------------
each in the form of Exhibit H hereto, made by Borrower, each payable to the
order of one of the Lenders in the following amounts, respectively:
<TABLE>
<CAPTION>
Lender Amount
------ ------
<S> <C>
The First National Bank of Chicago $28,285,714.29
Credit Lyonnais, New York Branch $18,857,142.85
Credit Lyonnais, Cayman Island Branch $18,857,142.85
Societe Generale, Chicago Branch $ 9,428,571.43
Sumitomo Trust & Banking Co.,
Ltd., Los Angeles Agency $ 9,428,571.43
</TABLE>
The amount of each of the Series B Notes made payable to Credit Lyonnais is
equal to the total indebtedness due under both Series B Notes as required by the
terms and provisions of Section 2.1(d) hereof.
1.126. The term "Stock" shall include any and all shares, interests,
-----
participations or other equivalents (however designated) of stock in a
Corporation.
-26-
<PAGE>
1.127. The term "Subordination Agreement" has the meaning provided therefor
-----------------------
in Section 3.2(g) hereof.
1.128. The term "Swap Spread" means with respect to a Fixed Treasury Rate
-----------
Borrowing, a rate per annum that, when added to the Base Fixed Treasury Rate,
would equal either (a) the fixed rate Agent would quote in good faith as of
10:00 a.m. (Chicago, Illinois time) to other dealers in the United States
interest rate swap market for an interest rate swap commencing two Business Days
thereafter, maturing on the last day of the Treasury Rate Interest Period
applicable to such Fixed Treasury Rate Borrowing, under which Agent would be
paying semiannual fixed rate payments determined on a 360-day basis in exchange
for receiving from the dealer semiannual floating rate payments determined on a
360-day basis with respect to the London interbank offered rate for six-month
Dollar deposits, and having a notional amount equal to the multiple of
$5,000,000.00 nearest to the amount of said Fixed Treasury Rate Borrowing, or if
Agent does not provide such quotation for any reason, (b) the arithmetic average
of the fixed rates quoted to the Agent as of 10:00 a.m. (Chicago, Illinois time)
by three leading dealers in the United States interest rate swap market,
selected by the Agent in good faith, for the aforesaid interest rate swap under
which such dealer would be paying such fixed rate payments and the Agent would
be paying such floating rate payments.
1.129. The term "Title Insurer" means Commonwealth Land Title Insurance
-------------
Company, together with such other coinsurers or reinsurers or other title
insurer or insurers as may be approved by the Agent.
1.130. The term "Treasury Rate Interest Period" means, with respect to a
-----------------------------
Fixed Treasury Rate Borrowing, a period of time
-27-
<PAGE>
commencing on a Business Day at least sixty (60) days after the date of Closing
selected by the Borrower in its Borrowing Notice and ending on or before the
Maturity Date. If such Treasury Rate Interest Period would end on a day which is
not a Business Day, such Treasury Rate Interest Period shall end on the next
succeeding Business Day; provided, however, that such Treasury Rate Interest
-------- -------
Period must end on or before the Maturity Date.
1.131. The term "Treasury Reserve Requirement" means with respect to a
----------------------------
Treasury Rate Interest Period, the daily average during such Treasury Rate
Interest Period of the aggregate reserve requirement (including all basic,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or other scheduled changes in reserve requirements
during such Treasury Rate Interest Period) which is incurred or paid by FNBC
under Regulation D on Eurodollar liabilities with a maturity equal to that of
the Treasury Rate Interest Period or under any other existing or future law,
rule, regulation or directive imposing any reserve, special deposit or similar
requirement and reasonably allocated to the Loan by FNBC. In no event shall the
Treasury Rate Reserve Requirement exceed the maximum statutory amount imposed
under Regulation D or other law, rule, regulation or directive.
1.132. The term "TWA" means Trans World Airlines, Inc., a Delaware
---
corporation.
1.133. The term "Yield Protection Amounts" has the meaning provided
------------------------
therefor in Section 2.13 hereof.
1.134. The term "Yield Protection Notice" has the meaning provided therefor
-----------------------
in Section 2.13 hereof.
-28-
<PAGE>
2. THE LOAN.
2.1 Agreement to Lend and Borrow.
-----------------------------
(a) Each Lender severally agrees, on the terms and conditions set forth
in this Agreement and, in the case of Credit Lyonnais, as limited by the
provisions of Section 2.1(d) hereof, to lend to the Borrower, and the Borrower
hereby agrees to borrow from the Lenders, the principal amount of the Series A
Note and the Series B Note made payable to each such Lender (the obligation to
lend such amount for any one Lender being herein referred to as its "Loan
Commitment" and, for all Lenders, their "Loan Commitments"). Each Lender shall
disburse its entire Pro Rata Share of the Loans upon the satisfaction of the
conditions set forth in this Agreement.
(b) The proceeds of the Loans shall be used by the Borrower solely for
repayment of the outstanding principal balance and all accrued and unpaid
interest under that certain loan made by the Lenders (other than Credit
Lyonnais, Cayman Island Branch) and the Bank of Nova Scotia to the Borrower
pursuant to the Original Loan Agreement, for payment of the Arrangement Fee and
the Loan Fee, for payment of other costs and expenses provided to be paid by the
Borrower hereunder, for Borrower's working capital purposes, and for no other
purpose.
(c) To evidence the Loans, the Borrower shall execute and deliver the
Notes.
(d) Each of the Series A and Series B Promissory Notes made payable to
Credit Lyonnais, New York Branch and Credit Lyonnais, Cayman Island Branch shall
be in a principal amount equal to the aggregate principal amount of the Series A
Loan or the Series B Loan (whichever is applicable) from both Credit
-29-
<PAGE>
Lyonnais, New York Branch and Credit Lyonnais, Cayman Island Branch.
Notwithstanding anything to the contrary contained in Section 2.1(a) hereof, the
Loan Commitment of Credit Lyonnais shall be equal to $48,857,142.85, and the
aggregate principal amount due under the Series A Notes and Series B Notes
payable to Credit Lyonnais, New York Branch and Credit Lyonnais, Cayman Island
Branch shall never exceed $48,857,142.85.
2.2 Payment at Maturity Date. The entire outstanding principal balance
------------------------
of the Loans, all accrued and unpaid interest and any other amounts due and
owing the Lenders hereunder or under the other Loan Documents shall be paid in
full, if not sooner paid, on the Maturity Date.
2.3 Application of Payments.
-----------------------
(a) Any amounts received by the Lenders (including, without limitation,
voluntary prepayments, the proceeds of collateral representing amounts received
on foreclosure or any credit to be given against the Loans in consideration of a
deed in lieu of foreclosure, condemnation awards, amounts received in
consideration of a conveyance in lieu of condemnation, insurance payments
received as a consequence of a fire or other casualty or amounts received upon
the sale or other disposition of collateral or received or derived from any
other source) for the payment or prepayment of the Loans for which a priority of
application is not provided elsewhere in this Agreement or the other Loan
Documents shall be applied, notwithstanding any direction to the contrary by the
Borrower or any other Person, in the following order of priority:
First: Payment of the principal of or interest on the Series A Notes,
until such time as the principal of and interest on the Series A Notes shall
have been paid in full; and
-30-
<PAGE>
Second: Payment of the principal of or interest on the Series B Notes.
Notwithstanding the foregoing, if the Lenders or the Agent receives any
payment of principal or interest on the Series B Notes for which Marriott or the
General Partner is entitled to credit under the Guaranties against the maximum
amount it may be called upon to pay in respect of the "Payment Obligations"
thereunder and such payment is received by the Lenders or the Agent prior to the
giving of notice by the Agent of the election by the Lenders to declare the
Loans, or any of them, due and payable following the occurrence of any Event of
Default, such payment so received by the Lenders or the Agent shall be applied
to principal of or interest on the Series B Notes.
(b) Anything in this Section 2.3 or elsewhere in this Agreement or any
other of the Loan Documents to the contrary notwithstanding, if in the opinion
of counsel to the Agent or counsel to the Lenders the application and allocation
of payments and proceeds in accordance with the priorities established by
Section 2.3(a) contravenes any provision of applicable state or federal law or
the direction of any court having jurisdiction, then such application and
allocation may instead be made in such order of priority as the Lenders in their
election shall determine.
2.4 Method of Selecting Rate Options and Interest Periods.
-----------------------------------------------------
(a) The Borrower shall select the Rate Options and Interest Periods
applicable to each Borrowing from time to time by giving a Borrowing Notice to
the Agent in not less than the
-31-
<PAGE>
Minimum Notice Period applicable to the Rate Option selected; provided, however,
-------- -------
that the Borrower may not give a Borrowing Notice selecting a Fixed Treasury
Rate unless the Borrower has heretofore given the Agent a notice of the
Borrower's intent to select a Fixed Treasury Rate, and been advised of such
Fixed Treasury Rate by the Agent, as provided in Section 2.4(b).
(b) No later than 2:00 p.m. (Chicago, Illinois time) three Business Days
prior to the intended Effective Date of an intended Fixed Treasury Rate
Borrowing, the Borrower shall give the Agent notice of the Borrower's intent to
select a Fixed Treasury Rate, which notice should specify the intended amount of
such Fixed Treasury Rate Borrowing, the intended Treasury Rate Interest Period
applicable thereto and the intended Effective Date thereof. No later than 10:30
a.m. (Chicago, Illinois time) two Business Days prior to the intended Effective
Date specified in the notice from the Borrower indicating its intent to select a
Fixed Treasury Rate, the Agent shall, by written, telex or telephone notice,
advise the Borrower and each of the Lenders of the Fixed Treasury Rate that
would be applicable to the proposed Fixed Treasury Rate Borrowing specified in
the notice from the Borrower. The Borrower, by written, telex or telephone
notice given by an Authorized Representative, may give a Borrowing Notice to the
Agent in not less than the Minimum Notice Period indicating the Borrower's
selection of such Fixed Treasury Rate Borrowing in the amount, for the Treasury
Rate Interest Period and effective as of the Effective Date, all as specified in
the Borrower's aforesaid notice of intent, which Fixed Treasury Rate Borrowing
shall bear interest at the Fixed Treasury Rate specified by the Agent by notice
given pursuant to the immediately preceding sentence. If the Borrower fails to
give such Borrowing Notice within such Minimum Notice Period, the Borrower may
not select a Fixed Treasury Rate Borrowing without again giving a notice of
intent and (upon receipt of a notice
-32-
<PAGE>
from the Agent of the applicable Fixed Treasury Rate) a Borrowing Notice with
respect thereto in accordance with this Section 2.4.
(c) The unpaid principal amount of each Fixed Rate Borrowing shall bear
interest at the applicable Rate Option from and including the first day of the
Interest Period therefor to, but not including, the last day of such Interest
Period. Floating Rate Borrowings shall bear interest at the Floating Rate from
the Effective Date thereof, and the Floating Rate shall change when and as the
Corporate Base Rate changes. If the Borrower fails to give a Borrowing Notice
selecting a Rate Option in accordance with the provisions hereof, then the
Borrowing shall constitute a Floating Rate Borrowing.
2.5 No Default. The Borrower shall not be entitled to select a Fixed
----------
Rate if, on the Effective Date thereof, there exists an Event of Default.
2.6 Minimum Requirements. Each Fixed Rate Borrowing shall be in
--------------------
integral multiples of $1,000,000.00 and in the minimum amount of $25,000,000.00.
Solely for purposes of satisfying the requirements of the preceding sentence,
amounts of Loan A and Loan B may be aggregated.
2.7 Method of Borrowing. Not later than 1:00 p.m. (Chicago, Illinois
-------------------
time) on the date of Closing, each Lender shall make available its Pro Rata
Share of the Loans in funds immediately available to the Agent at its address
specified in or pursuant to Section 2.16. Each Lender shall be permitted to
offset against any deposit with the Agent required by the preceding sentence all
principal and interest due and owing to that Lender under the Original Loan
Agreement. On the date of
-33-
<PAGE>
Closing, the Agent will make the funds so received from the Lenders available to
the Borrower at the Agent's aforesaid address.
2.8 Interest Payments. Interest accrued on Floating Rate Borrowings shall
-----------------
be payable in arrears on each Quarterly Payment Date. Interest accrued on Fixed
Rate Borrowings shall be payable in arrears on the last day of the applicable
Interest Period, except that, where the Interest Period exceeds three months,
interest shall be paid on each Quarterly Payment Date from the Effective Date
relating thereto and on the last day of the applicable Interest Period. Interest
shall be payable for the day a Borrowing is made but not for the day of any
payment if payment is made in accordance herewith and is received by the Agent
prior to the time, and at the place, provided in Section 2.16 hereof. Interest
shall not begin accruing hereunder until the day on which the first Borrowing is
made.
2.9 Prepayment. Upon not less than 30 days' prior written notice given
----------
by an Authorized Representative to all of the Lenders, the Borrower may (except
as hereinafter provided with respect to Fixed Rate Borrowings) pay all, or in a
minimum amount of $1,000,000.00, pay from time to time any part, of the
principal of the Loans at any time outstanding by paying, in addition to the
principal amount of such prepayment, all interest accrued on the amount of such
prepayment to the date thereof. All prepayments shall be applied in the order of
the priorities set forth in Section 2.3. Fixed Rate Borrowings may be prepaid
prior to the last day of the applicable Interest Period, whether by reason of
acceleration of the Maturity Date pursuant to the Loan Documents or otherwise,
if and only if, the Borrower shall at the time of such prepayment pay the
amounts required to be paid pursuant to Section 2.11.
-34-
<PAGE>
2.10 Lendinq Installations. Each Lender may book each Fixed Rate Borrowing
---------------------
at any Lending Installation of such Lender selected by it from time to time and
may change the Lending Installation from time to time. All terms of this
Agreement shall apply to any such Lending Installation. If, prior to the date
that a Lender books a Fixed Rate Borrowing at a particular Lending Installation,
the Lender has knowledge of any taxes referred to in Section 2.12 hereof or any
sums provided for in Section 2.13 hereof that would be payable by the Borrower
by reason of the Lender's booking such Fixed Rate Borrowing at such Lending
Installation that would not be payable by the Borrower if such Fixed Rate
Borrowing were booked at an alternative Lending Installation at which the Lender
may lawfully book such Fixed Rate Borrowing without otherwise incurring, in its
reasonable judgment, material liabilities, obligations or risks, then,
notwithstanding the provisions of Sections 2.12 and 2.13, the Borrower's
obligations to such Lender under such Sections with respect to such Fixed Rate
Borrowing shall be limited to the amount that the Borrower would have incurred
under such Sections had the Lender booked such Fixed Rate Borrowing at such
alternative Lending Installation.
2.11 Funding Indemnification.
-----------------------
(a) The Borrower acknowledges that in reliance on the Borrower's promise
to pay a fixed rate of interest throughout the Interest Period applicable to a
Fixed Rate Borrowing, deposits may be employed and transactions or undertakings
entered into (including, without limitation, interest rate swaps) to provide
funds for such Fixed Rate Borrowing. Upon acceleration or prepayment of a Fixed
Rate Borrowing or if a Fixed Rate Borrowing is not made on the date specified in
a Borrowing Notice for any reason other than a default by the Lenders, certain
losses, costs and expenses may be incurred by the Lenders as a consequence of
-35-
<PAGE>
the Borrower's failure to pay a fixed rate of interest throughout the applicable
Interest Period, including, but not limited to, certain losses, costs and
expenses of redeploying or liquidating deposits and terminating or hedging
transactions. Accordingly, if any payment of a Fixed Rate Borrowing occurs or
becomes due on a date which is not the last day of the applicable Interest
Period, whether because of acceleration, prepayment or otherwise, or if a Fixed
Rate Borrowing is not made on the date specified by the Borrower for any reason
other than default by the Lenders, the Borrower will pay to the Agent for the
account of each Lender an amount equal to the Break Cost for such Fixed Rate
Borrowing, which shall be due and payable ten (10) days after the date on which
the Agent notifies the Borrower of the amount of such Break Cost. When the
Agent receives payment from the Borrower of the Break Cost, the Agent shall
distribute the Break Cost among the Lenders according to their Pro Rata Share of
the Loans. Notwithstanding the foregoing, if and to the extent that any payment
of a Fixed Rate Borrowing occurs or becomes due on a date which is not the last
day of the applicable Interest Period solely as a result of the Borrower's
compliance with the requirements of Section 10.2(f) hereof, the Borrower will
not be obligated to pay the Break Cost.
(b) On, or as soon as practicable after, the Break Date, the Agent will
calculate the Break Cost and provide the Borrower and the Lenders with a
reasonably detailed statement showing such calculation (including all relevant
quotations), which shall be conclusive and binding on the Borrower absent
manifest error.
(c) The parties agree that the Break Cost, if any, payable hereunder is
a reasonable estimate of the losses referred to in clause (a) above and not a
penalty, is payable for loss of bargain and protection against future risks,
and, as long as the
-36-
<PAGE>
Break Cost is determinable and enforceable in accordance with the provisions of
this Agreement, the Lenders shall not be entitled to recover any other damages
as a consequence of such losses. In the event the Break Cost cannot be
determined hereunder after reasonable efforts, or is determined to be
unenforceable by a court of competent jurisdiction, the Borrower will indemnify
each Lender upon demand for any and all losses, costs and expenses incurred in
redeploying or liquidating deposits and terminating or hedging transactions.
(d) The obligations of the Borrower under this Section are continuing
obligations and shall survive the termination of this Agreement or the payment
in full of the principal of and interest on Fixed Rate Borrowings.
2.12 Taxes.
-----
(a) In the event the Borrower shall be required by law to deduct and
withhold any taxes (as hereinafter defined) from amounts payable hereunder, the
Borrower shall be entitled to do so, provided it shall provide a statement
setting forth the amount of taxes withheld, the applicable rate and any other
information which may reasonably be requested for the purpose of assisting the
Lender from whom taxes were withheld to obtain any allowable credits or
deductions for the taxes so withheld in each jurisdiction in which the Lender is
subject to tax. The Borrower shall not, however, withhold taxes from payments
required to be made to any Lender that is a corporation organized under the laws
of the United States or any state or territory thereof or is permitted by law to
file and keep in effect and has on file and in effect with the Borrower such
duly executed form(s) or statement(s) which may, from time to time, be
prescribed by law and which, pursuant to applicable provisions of (i) an income
tax treaty between the United States and the country of residence of
-37-
<PAGE>
such Lender, (ii) the U.S. Internal Revenue Code of 1986, as amended, or (iii)
any applicable rules or regulations, permit the Borrower to make such payments
free of withholding. The term "taxes" shall mean any taxes, levies, imports,
duties, fees, assessments or other charges of whatever nature, now or hereafter
imposed on any Lender by any jurisdiction or by any department, agency, state or
other political subdivision thereof or therein. Notwithstanding the foregoing,
the Borrower agrees to make to any Lender, with respect to which the Borrower
has withheld taxes pursuant to the foregoing, such payments as may be necessary
to insure that such Lender receives the full amount payable to it by the
Borrower under this Agreement if the foregoing provisions of this subsection (a)
are disregarded; provided, however, that the Borrower's obligations under this
-------- -------
sentence shall not apply with respect to any Lender that is not an original
party to this Agreement and that, by reason of the jurisdiction of its formation
or incorporation or of its applicable Lending Installation, would subject the
Borrower to obligations to make payments under this sentence in excess of those
applicable with respect to the Lenders that are original parties to this
Agreement. All stamp, documentary and intangible taxes shall be paid by the
Borrower. If, notwithstanding the foregoing, a Lender pays any such taxes, the
Borrower will reimburse such Lender for the amount paid if, as and to the extent
such reimbursement is permitted by applicable law. The Borrower will furnish to
the Lenders official tax receipts or other evidence of payment of all such
taxes.
(b) If the Borrower shall be required to make any payment to a Lender
under this Section 2.12 and if the Lender is able, in its sole opinion, to claim
any deduction, credit or similar tax benefit by reason of such payment, such
Lender will promptly reimburse the Borrower for the amount of such benefit. As
and to the extent that the Borrower may be able to mitigate or
-38-
<PAGE>
reduce the amount of any such payments under the provisions of any treaty, law
or other governmental regulation, the Lenders will render, at the expense of the
Borrower, whatever reasonable assistance may be required to effect such
mitigation or reduced payment.
2.13 Yield Protection.
----------------
(a) In the event any law or any governmental rule, regulation, policy or
directive having the force of law, or any interpretation thereof (collectively,
"Bank Regulatory Requirement"), or compliance of any Lender with such Bank
Regulatory Requirement:
(i) imposes or increases or deems applicable with respect to the making,
funding or maintaining of any Loan hereunder any reserve, assessment,
insurance charge, special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, any Lender or any
applicable Lending Installation (other than reserves and assessments taken
into account in determining the interest rate applicable to any Fixed Rate
Borrowing); or
(ii) imposes any other condition (excluding (A) taxes payable by the
Borrower under Section 2.12; (B) taxes imposed on or measured by net income or
alternative minimum taxable income or taxable assets in lieu of income by the
jurisdiction of incorporation of each Lender, each taxing jurisdiction
therein, and the United States; (C) taxes imposed on any Lender pursuant to
Section 884 of the Internal Revenue Code of 1986; and (D) taxes imposed on any
Lender to the extent the tax would have been imposed if the Lender had not
-39-
<PAGE>
engaged in the transaction contemplated by this Agreement), the result of
which is to increase the cost to any Lender or any applicable Lending
Installation of making, funding or maintaining any Loan hereunder or to reduce
any amount receivable by any Lender or applicable Lending Installation in
connection with any Loan hereunder, or requires any Lender or any applicable
Lending Installation to make any payment calculated by reference to the amount
of any Loan hereunder held or interest received by it, by an amount deemed
material by such Lender; or
(iii) affects the amount of capital required or expected to be maintained
by any Lender or any corporation controlling any Lender with respect to the
making, funding or maintaining of any Loan or its Loan Commitment hereunder
and such Lender determines the amount of capital required is increased by or
based upon the existence of this Agreement or its Loan Commitment hereunder;
then, in any of such events, the Borrower shall pay, without duplication, to
such Lender that portion of such increased expense incurred or reduction in an
amount received (collectively, "Yield Protection Amounts") which such Lender
determines is attributable to making, funding and maintaining its interests in
the Loan or its Loan Commitment. The Borrower shall pay any Yield Protection
Amount within thirty (30) days after the effective date of a notice therefor (a
"Yield Protection Notice") from a Lender briefly describing the Bank Regulatory
Requirement as a result of which such Yield Protection Amount is due and showing
the aggregate amounts by category of Yield Protection Amounts (1) currently
payable for which payment is then being first requested, and (2) if not contrary
to any law or policy of such
-40-
<PAGE>
Lender concerning such disclosure, contemplated to be payable during the period
of twenty-four (24) consecutive months following the date of such notice,
calculated on the assumption that Yield Protection Amounts for which
compensation is then being sought will continue to be compensable under this
Section 2.13(a) as then contemplated during such 24-month period; provided,
--------
however, that such estimates shall not be binding on any Lender. The Borrower
- -------
shall have no obligation to pay any Lender any Yield Protection Amounts under
clauses (i) and (ii) above that accrue or shall have accrued more than thirty
(30) days prior to the effective date of the initial Yield Protection Notice
from such Lender with respect to such Bank Regulatory Requirement, except if
such Bank Regulatory Requirement shall have an effective date earlier than its
promulgation and such Lender shall give such initial Yield Protection Notice
within thirty (30) days of such promulgation. The Borrower shall have no
obligation to pay any Lender any Yield Protection Amounts under clause (iii)
above that accrue or shall have accrued more than thirty (30) days prior to the
effective date of the initial Yield Protection Notice from such Lender with
respect to such Bank Regulatory Requirement.
(b) Each Lender will use reasonable efforts, consistent with bank
policies and procedures, in an attempt to minimize or eliminate the obligation
of the Borrower to pay further Yield Protection Amounts by booking Borrowings in
a different Lending Installation or taking other reasonable and appropriate
actions; provided, however, that no Lender or Lending Installation will be
-------- -------
obligated to suffer or incur any economic, financial or regulatory costs,
expenses or other disadvantages whatsoever by reason of their obligation
contained in this Section 2.13(b).
-41-
<PAGE>
2.14 Certificates; Survival of Indemnity. A certificate of a Lender as
-----------------------------------
to the amount due under Sections 2.11, 2.12 or 2.13 hereof shall be conclusively
presumed to be correct in the absence of manifest error, and the Borrower shall
pay such Lender all amounts specified in such certificate. Such Lender will, on
request, provide evidence supporting said certificate. Determination of amounts
payable under such Sections in connection with a Fixed Rate Borrowing shall be
calculated (to the extent that such calculation is applicable to the
determination of the amounts payable) as though the Lender funded its Pro Rata
Share of the actual or anticipated Fixed Rate Borrowing through the purchase of
a deposit of the type, maturity and amount corresponding to the deposit used as
a reference in determining the Fixed Rate applicable to the Borrowing. Unless
otherwise provided herein, the amount specified in the certificate shall be
payable within thirty (30) days of demand by such Lender, which demand shall
include such certificate if such certificate was not theretofore delivered to
the Borrower. The obligations under Sections 2.11, 2.12 and 2.13 hereof shall
survive payment of the Loan and termination of this Agreement.
2.15 Telephonic Notices. The Lenders are hereby authorized to effect
------------------
Borrowings based on telephonic Borrowing Notices, or notices of intent given
under Section 2.4(b) hereof, made by any Person the Lenders or the Agent in good
faith believes to be an Authorized Representative acting on behalf of the
Borrower. If requested by the Agent, the Borrower agrees to confirm promptly to
the Agent any telephonic Borrowing Notice or notice of intent given under
Section 2.4(b), in writing signed by an Authorized Representative. If the
written confirmation differs in any material respect from the action taken by
the Lenders, the records of the Lenders shall govern, absent manifest error.
-42-
<PAGE>
2.16 Method of Payment. The Borrower shall pay, without setoff or
-----------------
counterclaim, to the Agent, at the address specified below (or such other
address as the Agent may specify by written notice to the Borrower), all amounts
payable by the Borrower to the Lenders under the Loan Documents, in immediately
available funds, not later than noon (local time at the place of payment) on the
date when due. The address of the Agent for the purpose of payments hereunder
is:
The First National Bank of Chicago
One First National Plaza
Chicago, Illinois 60670
Attention: Deborah Chmielewski
Real Estate Loan Administration
Suite 0151, 1-13
2.17 General Provisions Concerning Loans. All interest shall be
-----------------------------------
computed for the actual number of days elapsed on the basis of a 360-day year.
If any payment of principal of or interest on the Notes becomes due and payable
on a day which is not a Business Day, the due date thereof shall be extended to
the next succeeding Business Day and, in the case of principal, interest thereon
shall be payable at the then applicable rate during such extension.
2.18 Loan Documents. All the Loan Documents (other than the Notes)
--------------
shall name the Agent as the payee, lender, mortgagee, grantee, collateral
assignee, beneficiary, or secured party, as the case may be, as agent for itself
and the other Lenders, and shall otherwise run in favor of the Agent as such
agent. The Agent shall hold in its possession the Loan Documents (other than
the Notes) and any security delivered by the Borrower or others in connection
therewith for the benefit of itself and the other Lenders, as their respective
interests appear in the Loans, subject to the provisions of this Agreement.
-43-
<PAGE>
2.19 Use of Proceeds. The Borrower represents, warrants and covenants
---------------
that the proceeds of the Loans will be used solely for the purposes permitted
under Section 2.1(b) hereof, and for no other purpose.
2.20 Fees. Upon the execution and delivery of this Agreement, the
----
Lenders shall have earned a fee ("Loan Fee") in the amount of $427,500.00, and
the Agent shall have earned a fee ("Arrangement Fee") in the amount of
$213,750.00. The Borrower shall pay the Arrangement Fee and the Loan Fee to the
Agent at the Closing.
2.21 Exculpation. The Lenders agree that they shall look solely to the
-----------
collateral security for the Loans, for payment of the Loans and for payment of
any other sums due under the Loan Documents and performance of Borrower's
obligations under the Loan Documents and (except as otherwise provided in the
Loan Documents) shall not seek recovery, whether by direct suit, deficiency
judgment in foreclosure proceeding, or otherwise, in whole or in part, from any
of the partners (general or limited) of the Borrower or from any of the assets
of any such partners; provided, however, that the foregoing exculpation from
individual liability shall not be construed to release or impair the
Indebtedness evidenced by the Notes or any of the Borrower's other obligations
hereunder or under the other Loan Documents, or the Liens securing such
obligations, or the obligations of Marriott or the General Partner under the
Guaranties or the Environmental Indemnity Agreement of Marriott or any other
rights of the Lenders. Notwithstanding the foregoing, the Borrower shall be
fully liable (a) for fraud or material misrepresentation in any Loan Document or
in any written communication by the Borrower in connection with the Loans; (b)
for the retention of any rental income or other income arising with respect to
all or any part or portion of the Property or the Equipment after the
-44-
<PAGE>
Agent has given to the Borrower any notice that the Borrower is in default
hereunder or under the Loan Documents and that the Lenders have exercised their
option to accelerate maturity of the Notes, foreclose or require the foreclosure
of the liens securing payment therefor, exercise their power of sale, receive or
collect such rental income or other income or exercise their rights under the
Loan Documents (to the full extent of the rental income or other income retained
after the giving of any such notice); and (c) for the misapplication of (i)
proceeds paid prior to any such foreclosure under any insurance policies by
reason of damage, loss or destruction to any portion of the Property or the
Equipment (to the full extent of such proceeds), or (ii) any proceeds or awards
resulting from the condemnation, prior to any such foreclosure, of all of any
part of the Property (to the full extent of such proceeds or awards).
2.22 Payment of Expenses. The Lenders may, but shall not be obligated
-------------------
to, apply directly out of the proceeds of the Loans any amount necessary for the
payment of expenses due or payable by the Borrower in obtaining the Loans,
including, without limitation, expenses relating to the examination of the title
and title insurance, costs of surveys, reasonable fees and expenses of the
Lenders' counsel, documentary stamps, intangible taxes, mortgage taxes and other
similar taxes, recording fees and taxes, sums payable for insurance premiums,
amounts necessary to discharge any encumbrance, tax, assessment or other charge
or Lien upon the Property, as well as the Arrangement Fee and the Loan Fee. The
amounts so applied by the Lenders shall be deemed advances of the Loans to the
Borrower under this Agreement, shall satisfy pro tanto the obligations of the
---------
Lenders under this Agreement, and shall be evidenced by the Series A Notes or
the Series B Notes (as the case may be) and secured by the Deed of Trust and all
other collateral securing the Loans.
-45-
<PAGE>
2.23 Advances through Title Insurer. The Lenders may, at their option,
------------------------------
advance the Loans through the Title Insurer if reasonably necessary in order to
obtain the title insurance provided in Section 3.18 hereof.
2.24 Other Advances by Lenders. Upon the occurrence and during the
-------------------------
continuance of an Event of Default, the Lenders, acting through the Agent, may
advance sums of money (i) for the payment or performance of any of the
Borrower's obligations set forth in this Agreement or in any of the other Loan
Documents and (ii) for any other costs or expenses incurred by the Borrower or
the Lenders in connection with the Loans, and the execution of this Agreement by
the Borrower shall, and hereby does, constitute an irrevocable power of
attorney, direction and authorization to the Lenders so to disburse such funds.
No further direction or authorization from the Borrower shall be necessary for
such disbursements, and all such disbursements shall be secured by the Deed of
Trust and each of the other Loan Documents as fully as if made to Borrower,
regardless of the disposition of the funds so disbursed. Such advances shall
bear interest at the Legal Rate and shall be payable on demand.
3. CONDITIONS TO LOANS.
The obligation of each Lender, severally, to make its Pro Rata Share of
the Loans to the Borrower hereunder is subject to the satisfaction of each of
the following conditions precedent:
3.1 Notes. The Notes shall have been duly executed and delivered by
-----
the Borrower to the Agent.
3.2 Collateral Security. In order to secure the payment of the Loans
-------------------
when due, whether by acceleration or other-
-46-
<PAGE>
wise, and all other Indebtedness of the Borrower to the Lenders arising
hereunder or related hereto:
(a) The Borrower shall have duly executed and delivered to the Agent the
Deed of Trust.
(b) The Borrower shall have duly executed and delivered to the Agent a
Security Agreement in the form of Exhibit I hereto (the "Security Agreement").
(c) The Borrower shall have furnished the General Partner Guaranty duly
executed and delivered by the General Partner and the Marriott Guaranty duly
executed and delivered by Marriott.
(d) The Borrower shall have assigned to the Agent all rights of the
Borrower under the Purchase Agreement pursuant to an instrument and agreement
of assignment (the "Purchase Agreement Assignment"), duly executed and delivered
by the Borrower and the Operating Tenant in the form of Exhibit L hereto.
(e) The Borrower and the Operating Tenant shall have duly executed and
delivered an agreement ("Operating Lease Subordination") providing for, among
other things, the subordination of the Operating Lease to the Deed of Trust, in
the form of Exhibit M hereto.
(f) The Borrower and the Golf Course B Owner shall have duly executed
and delivered an agreement ("Golf Course Lease Assignment") providing for, among
other things, the Agent's agreement to release from the lien of the Deed of
Trust that portion of the land (constituting a portion of the land described in
Exhibit C hereto) that will be developed as home sites and
-47-
<PAGE>
will not constitute a part of Golf Course B, which Golf Course Lease Assignment
shall be in the form of Exhibit N hereto.
(g) The General Partner and Marriott shall both have duly executed and
delivered the subordination agreement (the "Subordination Agreement") in the
form of Exhibit 0 hereto.
(h) The Borrower shall have duly executed and delivered to the Agent the
Environmental Indemnity Agreement of the Borrower in the form of Exhibit J
attached hereto.
(i) The Borrower shall have furnished to the Agent the Environmental
Indemnity Agreement of Marriott in the form of Exhibit K attached hereto duly
executed and delivered by Marriott.
(j) The Borrower shall have duly executed and delivered such financing
statements as the Lenders or their counsel shall require to further evidence,
confirm and perfect the security interests granted or to be granted in the Deed
of Trust, Security Agreement and the other documents provided for in this
Section 3.2.
(k) The Borrower shall have duly executed and delivered such other and
further agreements, documents and instruments as the Lenders or their counsel
may reasonably request to further evidence, perfect and preserve any of the
collateral security for the Borrower's obligations provided for in this Section
3.2.
3.3 Operating Lease. The Borrower and the Operating Tenant shall have
---------------
delivered to the Agent a copy of the Operating Lease, certified by them to be
true, correct and complete.
-48-
<PAGE>
3.4 Purchase Agreement. The Borrower and the Operating Tenant shall
------------------
have delivered to the Agent a copy of the Purchase Agreement, certified by them
to be true, correct and complete.
3.5 Golf Course Lease. The Borrower and the Golf Course B Owner shall
-----------------
have delivered to the Agent a copy of the Golf Course Lease, certified by them
to be true, correct and complete.
3.6 Partnership Documents. The Borrower shall have furnished to the
---------------------
Agent the following: (a) a copy of the agreement of limited partnership of
Borrower, currently certified by the General Partner to be a true, correct and
complete copy thereof, and copies of certificates of limited partnership of
Borrower, filed or recorded in the appropriate offices in the State of Delaware
and the State of California, each currently certified by the General Partner to
be true, correct and complete copies thereof (collectively, "Partnership
Documents"), and (b) such other evidence as the Agent shall require that the
Borrower is qualified (to the extent such qualification is necessary or
appropriate) in the State of Delaware and the State of California.
3.7 General Partner's Corporate Documents. The Borrower shall have
-------------------------------------
delivered to the Agent the following: (a) a current certificate of the
secretary or an assistant secretary of the General Partner, certifying as to (i)
resolutions of the Board of Directors of the General Partner authorizing the
execution, delivery and performance of the Partnership Documents, the Loan
Documents and all other documents or instruments to be executed and delivered by
the General Partner (either individually or on behalf of the Borrower) pursuant
to the provisions hereof; (ii) the full force and effect of such resolu-
-49-
<PAGE>
tions on such date; and (iii) the incumbency and signature of each of the
officers of the General Partner signing such documents; (b) the Articles of
Incorporation of the General Partner, currently certified by the Secretary of
State of the State of Delaware; (c) a current good-standing certificate of the
General Partner issued by the Secretary of State of the State of Delaware; (d) a
current good-standing certificate (or other proof of qualification and good
standing satisfactory to the Agent) evidencing the General Partner's
qualification and good standing as a foreign corporation in the State of
California; (e) the bylaws of the General Partner, currently certified by the
secretary or assistant secretary of the General Partner as being in full force
and effect without further amendment or modification; and (f) such additional
supporting documents relating to the General Partner as the Agent may request.
3.8 Operating Tenant's Joint Venture Documents. The Borrower shall
------------------------------------------
have furnished to the Agent the following: (a) a copy of the joint venture
agreement of the Operating Tenant currently certified by Host and Marriott to be
a true, correct and complete copy thereof, and (b) such other evidence as the
Agent shall require that the Operating Tenant is qualified (to the extent such
qualification is necessary or appropriate) in the State of Delaware and the
State of California.
3.9 Marriott Corporate Documents. The Borrower shall have delivered to
----------------------------
the Agent the following: (a) a current certificate of the secretary or an
assistant secretary of Marriott, certifying as to (i) resolutions of the Board
of Directors of Marriott authorizing the execution, delivery and performance of
the Marriott Guaranty, the Subordination Agreement, the Environmental Indemnity
Agreement of Marriott and all other documents or instruments to be executed and
delivered by Marriott (either individually or as a joint venturer of the
Operating
-50-
<PAGE>
Tenant) pursuant to the provisions hereof; (ii) the full force and effect of
such resolutions; and (iii) the incumbency and signature of each of the officers
of Marriott signing such documents; (b) the Articles of Incorporation of
Marriott, currently certified by the Secretary of State of the State of
Delaware; (c) a current good-standing certificate of Marriott issued by the
Secretary of State of the State of Delaware; (d) a current good-standing
certificate (or other proof of qualification and good standing satisfactory to
the Agent) evidencing Marriott's qualification and good standing as a foreign
corporation in the State of California; (e) the bylaws of Marriott, currently
certified by the secretary or assistant secretary of Marriott as being in full
force and effect without further amendment or modification; and (f) such
additional supporting documents relating to Marriott as the Agent may request.
3.10 Host Corporate Documents. The Borrower shall have delivered to
------------------------
the Agent the following: (a) a current certificate of the secretary or an
assistant secretary of Host, certifying as to (i) resolutions of the Board of
Directors of Host authorizing the execution, delivery and performance of all
documents or instruments to be executed and delivered by Host (either
individually or as a joint venturer of the Operating Tenant) pursuant to the
provisions hereof; (ii) the full force and effect of such resolutions; and (iii)
the incumbency and signature of each of the officers of Host signing such
documents; (b) the Articles of Incorporation of Host, currently certified by the
Secretary of State of the State of Delaware; (c) a current good-standing
certificate of Host issued by the Secretary of State of the State of Delaware;
(d) a current good-standing certificate (or other proof of qualification and
good standing satisfactory to the Agent) evidencing Host's qualification and
good standing as a foreign corporation in the State of California; (e) the
bylaws of Host, currently certified by the
-51-
<PAGE>
secretary or assistant secretary of Host as being in full force and effect
without further amendment or modification; and (f) such additional supporting
documents relating to Host as the Agent may request.
3.11 Golf Course B Owner's Corporate Documents. The Borrower shall
-----------------------------------------
have delivered to the Agent the following: (a) a current certificate of the
secretary or an assistant secretary of the Golf Course B Owner, certifying as to
(i) resolutions of the Board of Directors of the Golf Course B Owner authorizing
the execution, delivery and performance of the Golf Course Lease, the Golf
Course Lease Assignment and all other documents or instruments to be executed
and delivered by the Golf Course B Owner pursuant to the provisions hereof; (ii)
the full force and effect of such resolutions; and (iii) the incumbency and
signature of each of the officers of the Golf Course B Owner signing such
documents; (b) the Articles of Incorporation of the Golf Course B Owner
currently certified by the Secretary of State of the State of Delaware; (c) a
current good-standing certificate of the Golf Course B Owner issued by the
Secretary of State of the State of Delaware; (d) a current good-standing
certificate (or other proof of qualification and good standing satisfactory to
the Agent) evidencing the Golf Course B Owner's qualification and good standing
as a foreign corporation in the State of California; (e) the bylaws of the Golf
Course B Owner, currently certified by the secretary or assistant secretary of
the Golf Course B Owner as being in full force and effect without further
amendment or modification; and (f) such additional supporting documents relating
to the Golf Course B Owner as the Agent may request.
3.12 Costs. The Borrower shall have paid (a) the Arrangement Fee, the
-----
Loan Fee, all intangible taxes and other taxes on the Notes and other similar
taxes and fees, all recording and filing fees and expenses, and all mortgage and
-52-
<PAGE>
stamp taxes and (b) all appraisal fees, survey fees and expenses, title
insurance premiums and expenses, fees and expenses of the Lenders' and the
Agent's counsel and all other costs and expenses that the Borrower is obligated
to pay hereunder; provided, however, that the Agent may, in its discretion,
-------- -------
permit the Borrower to pay after the Closing the fees, costs and expenses
referred to in this item (b) if Borrower furnishes the Agent satisfactory
evidence of its ability to pay the sums and if the Agent determines that payment
of the same after the Closing will not adversely affect the Lenders.
3.13 Financial Statements. The Borrower shall have furnished to each
--------------------
of the Lenders copies of the most current available Financial Statements of the
Borrower certified by an Authorized Accounting Officer of the General Partner as
having been prepared in accordance with generally accepted accounting principles
and the most current Financial Statements of Marriott certified by an Authorized
Accounting Officer of Marriott as having been prepared in accordance with
generally accepted accounting principles.
3.14 Opinion of Local Counsel. The Agents shall have received from
------------------------
Cox, Castle and Nicholson, local counsel for the Borrower and the Marriott
Entities, a favorable opinion addressed to the Lenders and dated on or after the
date hereof, to the effect set forth in Exhibit P hereto and covering such other
matters incident to the transactions herein contemplated as the Agent may
request.
3.15 Opinion of Counsel to Marriott. The Agent shall have received
------------------------------
from Christopher Townsend, counsel for the Borrower and the Marriott Entities, a
favorable opinion addressed to the Lenders and dated on or after the date
hereof, to the effect set forth in Exhibit Q hereto and covering such other
matters inci-
-53-
<PAGE>
dent to the transactions herein contemplated as the Agent may request.
3.16 Certificate of Occupancy. The Borrower shall have furnished to
------------------------
the Agent copies of a certificate of occupancy and of all other certificates,
licenses and permits necessary or appropriate for the full and complete
operation of the Improvements, issued by the Governmental Authorities having
jurisdiction over such matters.
3.17 Recording. The Deed of Trust shall have been recorded in the
---------
appropriate recording office in the jurisdiction in which the Property is
located, and such financing statements and other documents provided for in
Sections 3.2(j) and (k) hereof shall have been filed in the appropriate filing
offices.
3.18 Title Insurance. There shall have been issued by the Title
---------------
Insurer to the Agent a policy of title insurance dated and effective as of the
date of Closing, insuring the Lien of the Deed of Trust with respect to the
Property (including the leasehold estate under the Golf Course Lease), subject
only to the Permitted Exceptions (and copies of all documents included within
such exceptions shall have been furnished to the Agent) and not subject to any
general, standard or printed exceptions relating to mechanic's liens, survey
matters or other similar matters, and otherwise in form and substance
satisfactory to the Agent and the Agent's counsel. Without limitation of the
foregoing, the title insurance policy shall contain the following endorsements:
(a) a "long-form" (3.1) zoning endorsement; (b) a "doing business" endorsement;
(c) a usury endorsement (specifically referring to the usury laws of both
Illinois and California); (d) a "comprehensive" or other similar endorsement
insuring that there are no encroachments affecting the Property and that the
Property is
-54-
<PAGE>
in compliance with all covenants, conditions and restrictions of record; (e) a
variable rate endorsement; (f) a location endorsement; (g) a contiguity
endorsement; (h) a Subdivision Map Act endorsement; (i) a special endorsement
insuring against loss of priority of the insured mortgage as security for the
unpaid principal balance of the Credit Lyonnais notes; and (j) such other
endorsements as the Agent may require. The Agent may also require that
reinsurance and "direct access" agreements in form and with insurers
satisfactory to the Agent be furnished.
3.19 UCC Searches. The Agent shall have received advice from the Title
------------
Insurer or other source satisfactory to the Agent to the effect that a search of
the applicable public records of the States of Delaware, Maryland and California
discloses no conditional sales contracts, chattel mortgages, leases of
personalty, financing statements or title retention agreements filed and/or
recorded against or with respect to Borrower or the Property or in respect of
any other property interests covered, or to be covered, by the Liens referred to
in Section 3.2, except (a) those granted to the Agent pursuant to this
Agreement, (b) matters that, in the judgment of the Agent, do not adversely
affect the Borrower, the Property or the Lenders and (c) as otherwise permitted
hereunder.
3.20 Survey. The Borrower shall have furnished to the Agent a current
------
survey or surveys of the Property (including Golf Course B) and all other
properties subject to an easement in favor thereof, by a registered surveyor
satisfactory to the Agent, in form and content satisfactory to the Agent and the
Title Insurer, and certified to said parties as having been prepared in
accordance with American Land Title Association land survey standards, showing
(a) the legal description, (b) boundaries, established building setback lines,
if any, and the location of the Improvements as being within the boundaries of
-55-
<PAGE>
the Land and any established recorded or zoning setback lines, (c) no
encroachments by any structures on adjoining property over the Land, and (d) no
other state of facts which, in the judgment of the Agent or the Agent's counsel,
would render title to the Property unmarketable or diminish the value of the
Property in any material respect.
3.21 Evidence of Insurance. The Agent shall have received original
---------------------
insurance certificates, original policies of insurance or certified true copies
of insurance policies evidencing hazard, liability, worker's compensation, flood
and other insurance in form, amount and with such coverages as are required in
this Agreement or the other Loan Documents, naming the Agent as an insured
interest for liability insurance, and as mortgagee and loss payee for other
insurance as required in this Agreement or the other Loan Documents. If the
Property is not in a 100-year flood plain zone, the Borrower shall have
furnished evidence thereof satisfactory to the Agent.
3.22 Compliance, Access, Utilities. The Borrower shall have established
-----------------------------
to the satisfaction of the Agent that: (a) all required zoning, planning,
environmental and building code approvals relating to the acquisition,
construction and operation of the Property have been obtained and that the
Property conforms to and is permitted by all Laws; (b) all utility services
necessary for the use and operation of the Property are available and in
operation; and (c) the Borrower or the Golf Course B Owner has also obtained all
appropriate rights and easements to insure the availability of ingress and
egress to the Property from public highways.
3.23 Estoppel Certificate from Operating Tenant. The Borrower shall
------------------------------------------
have delivered to the Agent an estoppel certifi-
-56-
<PAGE>
cate, substantially in the form of Exhibit R attached hereto, duly executed by
the Operating Tenant.
3.24 Estoppel Certificate from Golf Course B Owner. The Borrower shall
---------------------------------------------
have delivered to the Agent an estoppel certificate, substantially in the form
of Exhibit S attached hereto, duly executed by the Golf Course B Owner.
3.25 Estoppel Certificate from TWA. The Borrower shall use its best
-----------------------------
efforts to obtain and deliver to the Agent an estoppel certificate substantially
in the form of Exhibit T attached hereto, duly executed by TWA. If the Borrower
is not able to obtain such a certificate prior to the Closing, the Borrower
shall have established to the satisfaction of the Agent that the Equipment Lease
is in full force and effect, that there have been no amendments or modifications
thereof, that neither party is in default thereunder, that there are no known
rights of offset or defenses to the enforcement of the Equipment Lease, and that
such other matters are true as the Agent may reasonably request the Borrower to
establish.
3.26 Certificate Regarding Condition of the Property. The Borrower shall
-----------------------------------------------
have furnished to the Agent a certificate duly executed by Borrower, the
Operating Tenant and Marriott certifying that there has been no material,
adverse change in the condition of the Property since the date of the current,
updated appraisal of the Property prepared by Hospitality Valuation Services,
Inc. and previously delivered to the Lenders by the Borrower in connection with
the loan transaction contemplated herein.
3.27 Additional Documents. The Borrower shall have furnished to the Agent
--------------------
copies of each of the following documents, certified by the Borrower to be true
and correct and complete
-57-
<PAGE>
copies thereof: (a) the Purchase Note, (b) the Equipment Purchase Agreement,
(c) the Equipment Lease and (d) such other documents relating to the
transactions contemplated herein as the Agent may reasonably request.
3.28 No Default. There shall exist no Event of Default and no
----------
potential Default.
3.29 Representations and Warranties. All representations and
------------------------------
warranties contained herein or in the other Loan Documents shall be true and
correct in all material respects, with the same force and effect as if made on
and as of the date of Closing.
The disbursement of the Loans hereunder shall constitute a representation
and warranty by the Borrower to the Lenders that all of the conditions specified
in this Article have been satisfied as of the date of Closing.
4. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lenders to enter into this Agreement and to make
the Loans, the Borrower represents and warrants to each of the Lenders that,
except as otherwise set forth in Exhibit U hereto:
4.1 The Borrower. The Borrower is a duly organized and validly
------------
existing limited partnership under the laws of the State of Delaware and has the
power and authority to own its properties and other assets and to transact the
business of ownership (or, in the case of Golf Course B, the leasing) and
operation of the Property and ownership and leasing of the Equipment. The
Borrower has entered into this Agreement for its partnership business purposes
and will use the proceeds of the
-58-
<PAGE>
Loans for the purposes provided in Section 2.1(b) hereof as principal for its
own account. The General Partner is the sole general partner of the Borrower.
4.2 Ownership by Marriott. The General Partner, the Golf Course B
---------------------
Owner and Host are all, directly or indirectly, wholly-owned subsidiaries of
Marriott.
4.3 Authorization and Execution. The Borrower has the power and
---------------------------
authority to execute, deliver, carry out the terms and provisions of, and incur
the obligations provided in the Loan Documents (other than the Guaranties and
the Environmental Indemnity Agreement of Marriott), the Operating Lease, the
Purchase Agreement, the Golf Course Lease, the Equipment Purchase Agreement and
the Equipment Lease. The execution, delivery and performance by the Borrower of
the Loan Documents (other than the Guaranties and the Environmental Indemnity
Agreement of Marriott), the Operating Lease, the Purchase Agreement, the Golf
Course Lease, the Equipment Purchase Agreement and the Equipment Lease and the
Borrowings hereunder have been duly authorized by all requisite action by and on
behalf of the partners of the Borrower, and this Agreement, the other Loan
Documents (other than the Guaranties and the Environmental Indemnity Agreement
of Marriott), the Operating Lease, the Purchase Agreement, the Golf Course
Lease, the Equipment Purchase Agreement and the Equipment Lease are the legal,
valid and binding obligations of the Borrower, enforceable in accordance with
their respective terms except as the same may be affected by applicable
bankruptcy, reorganization insolvency, moratorium and other laws relating
to or affecting creditors' rights generally and except that the availability of
any equitable remedy or relief is subject to the discretion of the court before
which such remedy or relief is sought.
-59-
<PAGE>
4.4 Compliance with Other Instruments. Except for defaults, conflicts
---------------------------------
and breaches that do not materially affect Borrower's right, authority and
ability to perform its obligations under the Loan Documents or materially impair
the Lenders rights, remedies or security under the Loan Documents, (a) the
Borrower is not in default in the performance, observance or fulfillment of any
of the obligations, covenants or conditions contained in any evidence of
Indebtedness of the Borrower or contained in any instrument under or pursuant to
which any such evidence of Indebtedness has been issued or made and delivered or
contained in the Operating Lease, the Purchase Agreement, the Golf Course Lease,
the Equipment Purchase Agreement or the Equipment Lease; and (b) neither the
execution and delivery of this Agreement, nor the consummation of the
transactions herein contemplated, nor compliance with the terms, conditions and
provisions hereof and of the other Loan Documents, nor the acquisition (or, in
the case of Golf Course B, the leasing) or operation by the Borrower of the
Property, nor the execution and delivery of the Operating Lease, the Golf Course
Lease, nor the execution and delivery of the Equipment Purchase Agreement or the
Equipment Lease, nor the consummation of the transactions therein contemplated,
nor compliance by the Borrower with the terms, conditions and provisions thereof
conflict or will conflict with or result in a breach of any of the terms,
conditions or provisions of the Partnership Documents or of any agreement or
instrument to which the Borrower is a party or otherwise bound or to which any
of its properties or other assets is subject, or of any order or decree of any
court or governmental instrumentality, or of any arbitration award, franchise or
permit, or constitute a default thereunder, or, except as contemplated hereby,
result in the creation or imposition of any Lien upon any of the properties or
other assets of the Borrower.
-60-
<PAGE>
4.5 Consents. No consent, order, authorization, permit, approval of,
--------
or exemption by, or registration, declaration or filing with any Person
(including, without limitation, any or all of the partners of the Borrower other
than the General Partner signing the Loan Documents on its behalf) and no waiver
of any right by any Person is required to authorize or permit, or is otherwise
required in connection with, the execution, delivery and performance by the
Borrower of this Agreement or the Notes or any of the other Loan Documents or in
connection with the validity and priority of any Liens granted thereunder or in
connection with the execution, delivery and performance by the Borrower of the
Operating Lease, the Purchase Agreement, the Golf Course Lease, the Equipment
Purchase Agreement and the Equipment Lease (except for filings and recordings to
be accomplished under Article 3 hereof and except for such consents, orders,
authorizations, permits, approvals, registrations, declarations, filings or
exemptions as have been obtained or accomplished by Borrower).
4.6 Financial Statements. The financial statements ("Financial
--------------------
Statements") of Borrower heretofore or hereafter furnished to the Lenders from
time to time shall present fairly the financial position of the Borrower and
shall be prepared in accordance with generally accepted accounting principles.
Except as disclosed by or reserved against in the Financial Statements, the
Borrower shall have no material contingent liabilities, including disputed or
contingent liabilities for taxes and any interest or penalties relating thereto,
or any unrealized or anticipated losses. In the case of each Rollover, the same
representations and warranties as are set forth in this Section 4.6 shall also
be deemed to have been made in respect of the then most recent Financial
Statements furnished to the Lenders, subject in the case of interim financial
statements to year-end audit adjustments.
-61-
<PAGE>
4.7 No Material Changes. There has been no material adverse change in
-------------------
the business, properties or other assets or in the condition, financial or
otherwise, of the Borrower, or its assets and properties since the date of the
most recent Financial Statements, except changes, if any, solely in or by reason
of the Equipment or the Equipment Lease or TWA's performance thereunder and not
materially adversely affecting the Property.
4.8 Title to Properties. The Borrower has and shall at all times have
-------------------
good and marketable title to (a) the Property, subject only to the Permitted
Exceptions, (b) in the case of Golf Course B and FF&E permitted to be leased to
the Borrower hereunder, a good and valid leasehold interest therein, (c) the
Equipment, subject only to the Equipment Lease and (d) all other properties and
assets reflected in the then most recent Financial Statements or acquired by the
Borrower after such date, in each case free and clear of all other Liens, except
those permitted hereunder. None of the foregoing properties or assets of the
Borrower are subject to any agreement obligating the Borrower to mortgage, lien,
pledge, grant a security interest in or otherwise encumber, or to sell and lease
back, any such property or assets, and there is not on file in any public
office, and the Borrower has not signed, any financing statement naming the
Borrower as debtor, except for financing statements in favor of the Agent
hereunder and financing statements evidencing Liens or leases permitted
hereunder. The Borrower has not subordinated any of its rights under any
obligation owing to it to the rights of any other Person.
4.9 Leases. None of the properties or other assets of Borrower is held
------
by the Borrower as lessee under any lease or as conditional vendee under any
conditional sales contract or other
-62-
<PAGE>
title retention agreement, except as otherwise disclosed in the Financial
Statements and except for leases permitted hereunder.
4.10 Marriott Hotel. Pursuant to the Operating Lease the Borrower
--------------
possesses rights adequate for the conduct of the operation of the Property as a
"Marriott" hotel in substantially the same manner as other similar hotels
operated under the "Marriott" name and as now conducted and proposed to be
conducted, without conflict with the rights of others.
4.11 Litigation. There are no actions, suits, investigations or
----------
proceedings (whether or not purportedly on behalf of the Borrower) pending or,
to the knowledge of the Borrower, threatened, and no judgment, order, writ,
injunction, decree, award, rule or regulation of any court, arbitrator or
Governmental Authority against or affecting the Borrower or the Property, or any
other of the assets or properties of the Borrower at law or in equity or before
or by any Governmental Authority or before any arbitrator of any kind, which
involve the possibility of liability in excess of $1,000,000.00 or of any
material adverse effect on the transactions contemplated by the Loan Documents
or the business, operations, prospects, properties or other assets or on the
condition, financial or otherwise, of the Borrower or the Property.
4.12 Burdensome Provisions. The Borrower is not a party to or
---------------------
otherwise bound by any agreement or instrument or subject to any other
restriction or any judgment, order, writ, injunction, decree, award, rule or
regulation which materially and adversely affects the business, operations,
prospects, properties or other assets, or the condition, financial or otherwise,
of the Borrower, the Property or the Equipment. Except for defaults that do not
materially affect the right, authority and ability of the Borrower to perform
its obligations
-63-
<PAGE>
under the Loan Documents, the Operating Lease, the Purchase Agreement, the Golf
Course Lease, the Equipment Purchase Agreement or the Equipment Lease or
materially impair the Lenders rights, remedies or security under the Loan
Documents, the Borrower is not in default (a) under any obligation for borrowed
money or (b) in the performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any other agreement or
instrument to which it is a party, by which it is otherwise bound or to which
the Property or the Equipment or any of Borrower's other property is subject,
including, without limitation, the Operating Lease, the Purchase Agreement, the
Golf Course Lease, the Equipment Purchase Agreement or the Equipment Lease.
4.13 Force Majeure. Neither the Property, nor the Equipment nor any of
-------------
the other business, properties or assets of the Borrower has been materially and
adversely affected in any way as the result of any fire or other casualty,
strike, lockout or other labor trouble, embargo, shortage, confiscation,
condemnation, riot, civil disturbance, activity of armed forces, or act of God.
4.14 Tax Liability. The Borrower has filed all tax returns which are
-------------
required to be filed and has paid all taxes (including interest and penalties),
if any, which have become due by Borrower pursuant to such returns or pursuant
to any assessment or notice of tax claim or deficiency received by it. All tax
liabilities, if any, were adequately provided for at the end of the most recent
Fiscal Year of the Borrower and are now so provided for on the books of the
Borrower. No tax liability has been asserted by the Internal Revenue Service or
any other taxing authority for taxes (or interest or penalties thereon) in
excess of those already paid.
-64-
<PAGE>
4.15 Distributions. Except as permitted hereunder and reflected in the
-------------
Financial Statements from time to time furnished by Borrower hereunder, the
Borrower has not applied any of its funds as a distribution to its partners, or
any of them.
4.16 Regulation U, Regulation x, etc. The Borrower does not own any
-------------------------------
"margin stock" as defined in Regulation U (12 CFR, Chapter II Part 207) of the
Board of Governors of the Federal Reserve System. None of the proceeds of the
Loans will be used, directly or indirectly, for the purpose of purchasing or
carrying any margin stock or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of such Regulation U.
Neither the Borrower nor any agent acting on its behalf has taken or will take
any action which might cause this Agreement or the Notes to violate Regulation
U, Regulation X or any other regulation of the Board of Governors of the
Federal Reserve System.
4.17 Compliance with Law. The Property and all of the Borrower's other
-------------------
assets and properties are in compliance with all Laws in all material respects.
4.18 Permits and Licenses. No proceedings are pending or, to the
--------------------
Borrower's knowledge, threatened with respect to the revocation or suspension of
any permits, licenses and approvals issued with respect to the Property and such
permits, licenses and approvals shall not be altered or amended, nor shall the
Borrower make any attempt to alter or amend the same, in any material respect,
without the prior written consent of the Lenders.
4.19 No Notices. There is no note or notice issued by any Governmental
----------
Authority that the Property violates or does not comply with any Laws.
-65-
<PAGE>
4.20 Disclosure. Neither this Agreement nor any document, certificate
----------
or Financial Statement furnished to the Lenders by or on behalf of the Borrower
in connection herewith contains any untrue statement of a material fact or omits
to state any material fact necessary in order to make the statements contained
herein and therein not misleading. There is no fact known to the Borrower which
materially adversely affects the business, operations, prospects, property,
other assets or financial condition of the Borrower or the Property or the
Equipment which has not been set forth in this Agreement or in other documents,
certificates and Financial Statements furnished to the Lenders by or on behalf
of the Borrower in connection with the transactions contemplated hereby.
4.21 Net Worth. The General Partner has been capitalized with a net
---------
worth of not less than $9,000,000.00 and such net worth, if reduced, has been
and shall be reduced solely by reason of the General Partner's payment of
amounts required to be paid by the General Partner under the Memorandum or as
has been or may otherwise be necessary to meet Borrower's obligations in the
ordinary course of business of operation of the Property.
4.22 Compliance with Securities Laws. The Borrower has been formed,
-------------------------------
and limited partnership interests in Borrower have been offered for sale and
sold, in compliance with all applicable federal and state laws and regulations
relating thereto, and the Borrower has made all disclosures required by such
laws and regulations and in accordance therewith.
4.23 Brokerage Fees. No brokerage fees or other similar fees or
--------------
commissions (except amounts payable to the Lenders) are payable to anyone
engaged by the Borrower, Marriott
-66-
<PAGE>
or any Affiliate of the Borrower or of Marriott in connection with entering into
this Agreement.
4.24 FF&E Reserve. The Borrower has contributed to the FF&E Reserve
------------
all amounts required to be contributed under the terms of the Operating Lease
for the time up to and including the date of this Agreement.
4.25 Best Efforts. Borrower will exercise its best efforts to cause
------------
all of the conditions hereof to be satisfied on the part of the Borrower at the
time and in the manner herein provided.
4.26 Environment. Borrower represents and warrants that, to the best
-----------
of the Borrower's knowledge and except as disclosed on Exhibit V, no Hazardous
Substances are present at the Property. The Borrower has not received any
notice to the effect that any of its operations or the Property are not in
compliance with any of the requirements of applicable Environmental Laws, or are
the subject of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any Hazardous Substance
into the environment.
The representations and warranties contained in this Article 4 are made
on and as of the date hereof and shall also be made (without the execution or
delivery of any written instrument) on and as of the date of the Closing. The
representations and warranties in Sections 4.1, 4.2, 4.3, 4.8, 4.15, 4.16, and
4.22 shall also be remade (without the execution or delivery of any written
instrument) on the first day of each Interest Period hereunder.
-67-
<PAGE>
5. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees that, from and after the date hereof
and as long as any Loan, interest or any other obligations incurred hereunder
are outstanding or the Loan Commitments are in effect, unless the Lenders shall
otherwise consent in a writing delivered to the Borrower, the Borrower will:
5.1 Pay Principal and Interest. Punctually pay the principal and
--------------------------
interest to become due in respect to the Notes and the Arrangement Fee and the
Loan Fee, all according to the terms hereof.
5.2 Maintenance of Borrower's Office. Maintain an office in Bethesda,
--------------------------------
Maryland (or such other place in the United States of America as the Borrower
may designate in writing to the Agent) where notices and demands to or upon the
Borrower in respect of the Loan Documents may be given or made.
5.3 Keep Books; Set Aside Reserves. Keep proper books of record and
------------------------------
account in which true, correct and complete entries will be made of its
transactions in accordance with generally accepted accounting principles,
including the setting aside on its books from its earnings for each Fiscal Year
adequate reserves for depreciation, obsolescence and/or amortization of its
properties during such year, and all other proper reserves which should be set
aside from such earnings in connection with its business.
-68-
<PAGE>
5.4 Payment of Other Indebtedness and Taxes; Existence; Maintenance
---------------------------------------------------------------
of Properties.
- -------------
(a) Pay punctually all principal, interest and other sums due in
respect of other Indebtedness of the Borrower and perform promptly all
obligations of the Borrower relating to such Indebtedness; pay and discharge
promptly all taxes (including, without limitation, all payroll withholdings),
assessments and governmental charges or levies, if any, imposed upon it or upon
its income or profits or upon any of its property, real, personal or mixed, or
upon any part thereof, before the same shall become delinquent, as well as all
claims for labor, materials and supplies which, if unpaid, might by law become a
Lien upon its property; provided, however, that the Borrower shall not be
-------- -------
required to pay any such tax, assessment, charge, levy or claim or discharge any
such Lien if the validity thereof shall be contested in good faith by
appropriate proceedings and if the Borrower shall have established such
reserves, if any, as may be required in accordance with generally accepted
accounting principles with respect to the tax, assessment, charge, levy or claim
so contested;
(b) (i) Conduct continuously and operate actively its business
(subject to temporary cessation of, or other limitations on, its activities due
to strikes, lockouts, casualties, acts of God, war, governmental regulation or
control, or other causes beyond the reasonable control of Borrower, provided
prompt written notice thereof is given to the Agent); (ii) keep in full force
and effect and existence all rights, licenses, permits and franchises required
for the use or operation of the Property and comply with all Laws; and (iii)
make all such reports and pay all such franchise and other taxes and license
fees, and do all such other things as lawfully may be required, to maintain all
such rights, licenses, powers and franchises under the laws of the
-69-
<PAGE>
and cash flow of the Borrower, retained earnings and changes in financial
position of the Borrower for each such Accounting Quarter and for that part of
the Fiscal Year then ended, all in reasonable detail and satisfactory in scope
to the Agent, setting forth in each case in comparative form the corresponding
figures for the corresponding period(s) of the preceding Fiscal Year, which
statements shall, as a whole, fairly present the financial position of the
Borrower as at the end of the periods involved and the results of the operations
of the Borrower for such periods, and which shall be certified by an Authorized
Accounting Officer of the General Partner as having been prepared under his or
her supervision in accordance with generally accepted accounting principles
consistently applied and consistent with the principles applied in the Financial
Statements for the preceding Fiscal Year, subject to year-end audit and
adjustments, and that he or she knows of no facts inconsistent with such
statements;
(b) As soon as practicable, and in any event within one hundred twenty
(120) days after the end of each Fiscal Year, a balance sheet of the Borrower as
at the end of such Fiscal Year and related statements of operations and changes
in partners' capital and changes in cash flow of the Borrower for such Fiscal
Year, setting forth in each case in comparative form the corresponding figures
for the preceding Fiscal Year, prepared in accordance with generally accepted
accounting principles consistently applied and accompanied by (i) an audit
report and opinion in respect of such Financial Statements of Arthur Andersen &
Co. or other independent certified public accountants of recognized standing
selected by the Borrower and acceptable to the Agent, which report and opinion
shall be unqualified as to the scope of the audit and reasonably satisfactory to
the Agent in all other respects, and (ii) a certification of an Authorized
Accounting Officer of the General Partner in respect of such
-71-
<PAGE>
Financial Statements, to the same effect as provided in Section 5.6(a) excluding
any reference to year-end audit adjustments;
(c) Concurrently with the Financial Statements delivered pursuant to
Sections 5.6(a) and 5.6(b), a certificate of an Authorized Accounting Officer of
the General Partner to the effect that there exists no condition, event or act
which constitutes an Event of Default or a Potential Default, or if any such
condition, event or act exists, specifying the nature thereof, the period of its
existence and what action the Borrower proposes to take with respect thereto;
the Borrower further covenants that, forthwith upon any officer's of the General
Partner obtaining knowledge of any Event of Default or a Potential Default, it
will deliver to the Agent a statement of an executive officer of the General
Partner, specifying the nature thereof, the period of existence thereof and what
action the Borrower proposes to take with respect thereto;
(d) Promptly upon request of any of the Lenders, copies of any reports
submitted to the Borrower by its accountants in connection with any examination
of the Financial Statements of the Borrower made by such accountants, and
copies of any other communications received by the Borrower or the General
Partner from such accountants relative to any Financial Statements or audit or
internal controls and systems of the Borrower;
(e) No later than thirty (30) days subsequent to the beginning of each
Fiscal Year, an annual operating projection for the Property for such Fiscal
Year containing the information provided for in Section 7.03 of the Operating
Lease and including a projection of the average annual occupancy and average
annual room rate for the Property for such Fiscal Year; the Borrower shall also
promptly provide to the Agent copies of the annual
-72-
<PAGE>
accounting made by the Operating Tenant pursuant to Section 7.01 of the
Operating Lease;
(f) No later than fifty (50) days after the end of each Accounting Quarter
and seventy-five (75) days after the end of each Fiscal Year, a summary
operating statement with respect to the Property for such Accounting Quarter or
Fiscal Year, showing the results of the operations of the Property during such
Accounting Quarter or Fiscal Year, including a statement showing, for such
Accounting Quarter or Fiscal Year, Gross Revenues, Deductions, Operating Profit
and a calculation of Debt Service Coverage on the Loans and showing (on the
annual statements only) Annual Rental, Cash Flow Available for Loans, Net
Equipment Rental Income and Partners' Priority Return for such Fiscal Year, and
which shall be certified by an Authorized Accounting Officer of the General
Partner as having been prepared under his or her supervision in accordance with
the provisions hereof;
(g) No later than fifty (50) days after the end of each Accounting Quarter
and seventy-five (75) days after the end of each Fiscal Year, a calculation and
statement of the maximum amount available under the Guaranties in respect of the
"Payment Obligations" thereunder as of the last day of such Accounting Quarter
or Fiscal Year, certified by an Authorized Accounting Officer of Marriott and
the General Partner as having been prepared under their supervision in
accordance with the provisions of the Guaranty;
(h) Promptly upon their becoming available, copies of all Financial
Statements, reports, notices and statements sent or made available generally by
the Borrower to its limited partners, and of all reports, registration
statements and prospectuses filed by the Borrower with any securities exchange
or with the
-73-
<PAGE>
Securities and Exchange Commission, or any governmental authority succeeding to
any of its functions;
(i) Not later than ten (10) days prior to the execution thereof, a true
and complete copy of any proposed amendment to the Partnership Documents (other
than amendments which merely reflect the admission or withdrawal of limited
partners);
(j) Promptly following the occurrence thereof, notice of any material
adverse change in the business or in the condition, financial or otherwise, of
the Borrower; and
(k) Such other information as to the financial condition, operations,
business, properties and other assets of the Borrower, as the Lenders, or any of
them, may from time to time reasonably request.
5.7 Inspection. On not less than two (2) Business Days' notice, permit
----------
each of the Lenders or any of their representatives to visit and inspect the
Property, to examine its books of account and records relating to the Property
and to discuss the affairs, finances and accounts of the Borrower with its
representatives, all at such reasonable times and as often as the Lenders, or
any of them, may request.
5.8 Notice of Claims and Defaults. Promptly give written notice to the
-----------------------------
Lenders of (a) any action, proceeding or claim of which the Borrower may have
notice, which may be commenced or asserted against the Borrower in which the
amount involved is $1,000,000.00 or more and is not covered by insurance as to
which the insurer has not disclaimed liability, or which seeks injunctive or
other equitable remedy, and (b) any dispute which may exist between the Borrower
and any Person, which may materially affect the normal business operations of
the Borrower
-74-
<PAGE>
or any of its properties and other assets and (c) all complaints and charges
made by any Governmental Authority materially and adversely affecting any of the
Property or the Borrower or its business; and (d) any material default under the
terms and provisions of any documents evidencing or securing Indebtedness of the
Borrower in excess of $2,000,000.00 which continues beyond any applicable grace
period contained in said documents.
5.9 Agreements. Perform punctually and fully all of its obligations under
----------
the Operating Lease, the Purchase Agreement, the Golf Course Lease, the
Equipment Purchase Agreement, the Equipment Lease and all other contracts and
agreements relating to the acquisition, ownership, operation or leasing of the
Property or the Equipment.
5.10 Licenses. Maintain at all times all licenses and certificates
--------
necessary for the operation of the Property (including all of its amen~ties and
all FF&E).
5.11 Operations. To operate the Property continuously as a "Marriott"
----------
hotel in accordance with the standards established by Marriott with respect to
its Marriott full-service resort hotels.
5.12 FF&E Reserve. Establish and maintain an escrow reserve account ("FF&E
------------
Reserve") to cover the cost of:
(a) Replacements and renewals to the FF&E (including communications
systems and computer systems); and
(b) Certain routine repairs and maintenance to the Improvements which are
normally capitalized under generally accepted accounting principles, such as
exterior and interior repainting, resurfacing building walls, floors, roofs and
parking
-75-
<PAGE>
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 system thereof.
The Borrower shall from time to time contribute to the FF&E Reserve such
amounts as are sufficient to keep the FF&E Reserve at the levels necessary to
make the replacements and renewals to the FF&E, and to make the repairs to the
Improvements necessary or appropriate to keep and maintain the Property in the
condition required under the Loan Documents, but in no event less than the
following amounts:
(i) during Fiscal Year 1989, including any part of Fiscal Year 1989 that
is prior to the date of this Loan Agreement, an amount equal to two and one-
half percent (2 1/2%) of Gross Revenues for such Fiscal Year;
(ii) during Fiscal Years 1990, 1991 and 1992, an amount equal to three
and one-half percent (3 1/2%) of Gross Revenues for each such Fiscal Year; and
(iii) commencing with Fiscal Year 1993, and for all Fiscal Years
thereafter, an amount equal to four and one-half percent (4 1/2%) of Gross
Revenues for each of such Fiscal Years.
5.13 Restrictive Covenants. To comply with all covenants, conditions and
---------------------
restrictions affecting the Property unless the Lenders are insured against loss,
in a form satisfactory to the Agent, for noncompliance in the policy of title
insurance issued pursuant hereto.
-76-
<PAGE>
5.14 Easements. To submit to the Agent for approval, prior to the
---------
execution thereof, all proposed easements (except for customary utility
easements not benefiting other property) benefiting or burdening the Property,
accompanied by a survey, and surveyor's written descriptions, showing the
portion of the Property and any adjoining property affected by said easements.
5.15 Compliance. To maintain the Property and all other property of the
----------
Borrower in compliance with all Laws.
6. NEGATIVE COVENANTS.
The Borrower covenants and agrees that, from and after the date hereof and
as long as any Loan, interest or any other obligations incurred hereunder are
outstanding or the Loan Commitments are in effect, unless the Required
Percentage of the Lenders shall otherwise consent in a writing delivered to the
Borrower (or for section 6.13 only, unless the Agent shall otherwise consent in
a writing delivered to the Borrower) the Borrower will not:
6.1 Allocation of Cash Flow Available for Loans. At any time prior to the
-------------------------------------------
Maturity Date, apply or distribute Cash Flow Available for Loans realized in any
Fiscal Year, except for the following purposes and in accordance with the
following priorities:
First: Payment of interest on the Series A Notes due during such Fiscal
Year.
Second: Payment of interest on the Series B Notes due during such Fiscal
Year.
-77-
<PAGE>
Third: Retention by the Borrower of the amount by which $20,000,000.00
exceeds Debt Service on the Loans in such Fiscal Year.
Fourth: Repayment to Marriott of amounts paid by it in respect of the
"Payment Obligations" under the Marriott Guaranty.
Fifth: Repayment to the General Partner of amounts paid by it in respect
of the "Foreclosure Obligations" under the General Partner Guaranty.
Sixth: The balance, if any, for any purpose not prohibited by this
Agreement or the other Loan Documents.
The provisions for allocation of Cash Flow Available for Loans in this
Section 6.1 shall not limit or otherwise affect the Borrower's obligation to pay
the Loans and interest thereon upon the terms provided therefor in this
Agreement and the Notes, whether or not there is any Cash Flow Available for
Loans. The Borrower shall not make any payments referred to in items Third,
Fourth, Fifth or Sixth or any payments for any other purpose (except permitted
Deductions) for any Fiscal Year until the sums due under items First and Second
have been paid in full for such Fiscal Year and all prior Fiscal Years, or if an
Event of Default hereunder shall have occurred and be continuing. The provisions
for allocation of Cash Flow Available for Loans in this Section 6.1 shall not
limit or otherwise affect the provisions of the Guaranties.
6.2 Indebtedness. In any manner become or be liable, contingently or
------------
otherwise, in respect of, or permit or suffer to exist, any Indebtedness (other
than the Loans and the Purchase Debt), except the following:
-78-
<PAGE>
(a) Indebtedness in respect of taxes, assessments and governmental
charges or levies and claims for labor, materials and supplies, as and to the
extent permitted to remain unpaid and undischarged by Section 5.4(a);
(b) Indebtedness secured by Liens specifically permitted by Section
6.3(a);
(c) Indebtedness to Marriott (including fundings of the "Payment
Obligations" under the Marriott Guaranty) or to any Affiliate of Marriott, but
only if (i) the repayment of such Indebtedness shall have been subordinated to
payment of the Loan pursuant to the provisions of the Subordination Agreement or
a subordination agreement substantially in the form of the Subordination
Agreement completed to be made applicable to such Indebtedness, executed and
delivered to the Agent by Marriott or such Affiliate making any such advance,
and (ii) the Agent shall be satisfied as to the due authorization, validity and
enforceability of the Subordination Agreement or such subordination agreement as
delivered to the Agent;
(d) Indebtedness arising under interest exchange agreements;
(e) Indebtedness secured by a junior mortgage of the Property or any part
thereof, but only if all of the following requirements are satisfied:
(i) The security position of the junior mortgagee is expressly
subordinate to that of the Lenders;
(ii) On the date of the incurrence, Debt Service Coverage on the sum of
the Loans and any Indebtedness heretofore permitted under this Section 6.2(e)
shall
-79-
<PAGE>
have exceeded 1.20 for (A) the period of four consecutive Accounting Quarters
most recently concluded and (B) the period of four consecutive Accounting
Quarters immediately preceding the period described in clause (A);
(iii) On the date of incurrence, Debt Service Coverage on the sum of the
Loans, any Indebtedness heretofore permitted under this Section 6.2(e) and (on
a "pro forma basis," including giving effect to the prepayment provided for in
Section 6.2(e) (vii) hereof, satisfactory to the Lenders) the proposed
Indebtedness under this Section 6.2(e) shall have exceeded 1.20 for the period
of four consecutive Accounting Quarters most recently concluded;
(iv) On the date of incurrence, at least $14,000,000 shall remain
available with respect to the "Payment Obligations" under the Marriott
Guaranty, unless the Marriott Guaranty shall have terminated under Paragraph 5
thereof;
(v) On the date of incurrence, there shall have occurred no Event of
Default or Potential Default that is continuing;
(vi) The Borrower shall have furnished to the Agent such evidence relating
to the foregoing requirements as the Agent shall have determined is necessary
or appropriate in order to assure the Lenders that such requirements have
been, or are being, satisfied;
-80-
<PAGE>
(vii) The Borrower shall pay to the Lenders immediately upon the initial
disbursement of such Indebtedness permitted under this Section 6.2(e) as a
prepayment of the Loans twenty percent (20%) of the maximum principal amount
of such Indebtedness; and
(f) Indebtedness incurred by the Borrower following the delivery to the
Borrower by the Agent of the release provided for in Section 10.3 hereof, and
with respect to which the recourse against the Borrower is limited to the
Equipment and the Borrower's interest under the Equipment Lease.
6.3 Liens. Contract, create, assume, incur or suffer to be created,
-----
assumed or incurred or to exist any Lien (other than as permitted by Section
5.4(a)) upon, or pledge of, or subject to, the prior payment of any Indebtedness
(other than the Loans), any property or other assets of the Borrower or any
interest therein, whether owned at the date hereof or hereafter acquired, or
acquire or agree to acquire any property or other assets subject to any Lien, or
suffer to exist any Indebtedness of the Borrower or (except as and to the extent
permitted by Section 5.4(a)) any claims or demands against the Borrower which,
if unpaid, might (in the hands of the holder or anyone who shall have guaranteed
the same or who has any right or obligation to purchase the same) by law or upon
bankruptcy or insolvency or otherwise, be given any priority whatsoever over its
general creditors; excluding, however, from the operation of this Section 6.3:
(a) Pledges or deposits to secure obligations under workers' compensation
laws or similar legislation, including Liens of judgments thereunder which are
not currently dischargeable; deposits of cash or readily marketable securities
to secure public or statutory obligations of the Borrower;
-81-
<PAGE>
materialmen's, mechanics', vendors' or other like Liens incurred in the ordinary
course of business with respect to obligations which are being contested in good
faith and as to which adequate reserves have been established or deposits of
cash or readily marketable securities required to obtain the release of such
liens have been made; Liens created by or resulting from any legal proceedings
(including legal proceedings instituted by the Borrower) which are being
contested in good faith by appropriate proceedings, including appeals of
judgments as to which a stay of execution shall have been issued and adequate
reserves shall have been established; and zoning restrictions, easements,
licenses, restrictions on the use of real property or minor irregularities in
title thereto, which do not materially detract from the value or impair the use
of such property;
(b) Any Liens provided for herein securing payment of the Loans;
(c) Liens securing the Indebtedness permitted under Section 6.2(d) hereof,
but only if the interest exchange agreement is with respect to interest payable
on all or any part of the Loans and such Lien may be foreclosed only upon
nonpayment under the interest exchange agreement, and which Liens are
subordinated to the Liens securing the Loans;
(d) Liens securing the Indebtedness permitted under Section 6.2(c) and
Section 6.2(e), and which Liens are subordinated to the Liens securing the
Loans;
(e) A pledge of the Investor Notes to Marriott as the sole security and
recourse for the Purchase Debt; and
(f) Liens against the Equipment securing Indebtedness permitted under
Section 6.2(f) hereof.
-82-
<PAGE>
6.4 Distribution. Make any distribution, by reduction of capital or
------------
otherwise, to any of its partners, general or limited, if there shall then
exist, or if after giving effect thereto there would exist, any Event of Default
or Potential Default hereunder.
6.5 Sale and Leaseback. Enter into any arrangement, directly or
------------------
indirectly, with any Person whereby the Borrower shall sell or transfer any
property, whether owned on the date hereof or hereafter acquired, used or useful
in the business of the Borrower and then or thereafter rent or lease such
property or other property which the Borrower intends to use for substantially
the same purposes as the property so sold or transferred, except for leases
permitted hereunder.
6.6 Change in Partnership; Disposal of Property. (a) Wind up, liquidate or
-------------------------------------------
dissolve; (b) materially modify or amend the Partnership Documents (except for
the sale of limited partnership interests); (c) sell, discount or otherwise
dispose of (except by collection), or agree to do any of the foregoing, any of
its notes receivable, contracts or accounts receivable, installment or
conditional sales agreements or any other evidences of indebtedness, except for
the pledge to Marriott of the Investor Notes as the sole security and recourse
for the Purchase Debt; or (d) sell, exchange, lease, transfer, convey or
otherwise dispose of (or agree to do any of the foregoing) (i) the Property or
(ii) the Equipment, except for the Equipment Lease and except as otherwise
provided in Article 10 hereof.
6.7 Certain Transactions with Affiliated Persons. Except as otherwise
--------------------------------------------
expressly permitted herein, directly or indirectly, pay any funds to or for the
account or benefit of, or purchase, acquire or lease any property from, or sell,
transfer
-83-
<PAGE>
or lease any property to, or engage in any other transaction with, any of the
Marriott Entities, an Affiliate of the Borrower, an Affiliate of the General
Partner or an Affiliate of Marriott; provided, however, that, notwithstanding
-------- -------
the foregoing:
(a) The Borrower may pay salaries and fees to its employees for services
rendered in such capacities in connection with the Property in customary amounts
which bear a reasonable relationship to the amount and type of such services;
(b) The Borrower may, subject to the other provisions of this Agreement,
enter into agreements, contracts and arrangements with any of the Marriott
Entities, any Affiliate of the Borrower, any Affiliate of the General Partner or
any Affiliate of Marriott subject to the conditions and limitations contained in
the Partnership Documents; and
(c) The Borrower may execute and deliver the Purchase Agreement, the
Operating Lease, the Golf Course Lease and (subject to Section 6.13 hereof) the
Homeowners Agreement but shall make payments and perform obligations thereunder
only in accordance with the terms and provisions of this Agreement and the other
Loan Documents.
6.8 Amendments to Agreements. Modify, amend, terminate or cancel (a) the
------------------------
Purchase Agreement, the Operating Lease or the Golf Course Lease (except as
permitted herein or in the other Loan Documents) or (b) the Equipment Purchase
Agreement or the Equipment Lease (except as permitted in Article 10 hereof).
6.9 Maintenance of Present Business. Engage in any business other than the
-------------------------------
ownership (or, in the case of Golf
-84-
<PAGE>
Course B, the leasing) and operation of the Property and the ownership and
leasing of the Equipment.
6.10 Leases. Except as otherwise permitted herein, (a) create, assume,
------
incur or guarantee, or in any manner be liable for or suffer to exist, any lease
or license of real or personal property where the Borrower is lessee or
licensee, except leases of FF&E (including, without limitation, computers,
communications equipment and television equipment) to the extent customary in
the hotel industry, or (b) create, assume or suffer to exist any lease or
license of real or personal property where the Borrower is lessor or licensor,
except leases, licenses and concessions of retail space in the Improvements.
6.11 Use of Loan Proceeds. Use any part of the proceeds of the Loans
--------------------
hereunder for any purpose other than as permitted herein.
6.12 FF&E Reserve. Cause or permit all or any portion of the FF&E Reserve
------------
to be used for any purpose other than as specified herein.
6.13 Homeowners Aqreement. Enter into the Homeowners Agreement or grant to
--------------------
the owners or occupants of the home sites adjoining the Land or Golf Course B
any rights (other than rights that are available to the general public),
easements or other interests in the Property, except for any that are
subordinate to the Deed of Trust and terminable on not more thirty (30) days'
notice.
7. INSURANCE.
7.1 Hazard Insurance. The Borrower shall furnish to the Agent originals or
----------------
certified true copies or certificates of,
-85-
<PAGE>
or, if the Borrower does not furnish such evidence of insurance and the Agent
gives reasonable prior notice to the Borrower (unless a policy has been
cancelled or will be cancelled within ten (10) days, in which case the Agent
need not give such notice to the Borrower), the Agent may (but shall not be
obligated to) procure at the Borrower's expense, policies of fire insurance with
extended coverage endorsements and such other hazard insurance (including,
without limitation, building collapse), covering the Property for its
replacement cost, business interruption, loss of rent and extra expense forms of
insurance as the Agent shall reasonably require. Such policies shall be issued
by companies having a then current rating in the latest edition of Best's
Insurance Reports of not less than "B+" (Policyholders' Rating) and not less
than "VIII" (Financial Size Category), shall be in form and amounts reasonably
satisfactory to the Agent and shall provide that loss, if any, thereunder
exceeding $500,000.00 be payable to the Agent pursuant to a standard mortgagee
clause (without contribution) and a standard lender's loss payable clause.
Losses, if any, less than or equal to $500,000.00 shall be payable to the
Borrower for full repair and restoration of the Property.
7.2 Flood and Earthquake Insurance. Flood insurance shall be maintained in
------------------------------
an amount not less than the maximum amount available under the National Flood
Insurance Program if the Property is located in an area identified as a flood
hazard area by the Federal Emergency Management Agency or the U.S. Department of
Housing and Urban Development. Earthquake insurance shall be obtained to the
extent that such insurance is commercially available at reasonable rates and
terms. Evidence of any flood or earthquake insurance obtained by the Borrower,
including, but not limited to, certified true copies of insurance policies or
certificates of insurance, shall be delivered to the Agent and shall provide
that loss, if any, thereunder, exceeding
-86-
<PAGE>
$500,000.00 be payable to the Agent pursuant to a standard mortgagee clause
(without contribution) and a standard lender's loss payable clause. Losses, if
any, less than or equal to $500,000.00 shall be payable to the Borrower for full
repair and restoration of the Property.
7.3 Other Insurance. The Borrower shall also provide the Agent with
---------------
certified true copies of its insurance policies or certificates of insurance
evidencing liability insurance, including bodily injury and property damage,
workers' compensation insurance and employer's liability insurance and such
other insurance as the Agent shall reasonably require. Such policies and
coverage shall be issued by companies in form, substance, and in amounts,
satisfactory to the Agent. The Borrower shall also provide the Agent with the
certificates of insurance which have been provided to the Borrower by TWA
evidencing insurance against loss or damage to the Equipment as required by the
terms and provisions of the Equipment Lease.
7.4 Required Notices. All such policies or certificates shall contain the
----------------
agreement of the insurer to give not less than thirty (30) days' (or, in the
case of nonpayment of premiums, twenty (20) days') prior notice to the Agent of
a proposed policy cancellation or of a material change in the policy provisions.
7.5 Payment and Application. Insurance proceeds payable with respect to
-----------------------
damage to or destruction of the Property shall be paid and applied as provided
in the Deed of Trust.
8. DEFAULTS AND REMEDIES.
8.1 Events of Default. In the case of the occurrence of any of the
-----------------
following events for any reason whatsoever, and
-87-
<PAGE>
whether such occurrence shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court or any order, rule or regulation of any
governmental body or otherwise (each herein called an "Event of Default"):
(a) Any representation, warranty or written statement made herein or in
any other Loan Document, report, certificate, Financial Statement or other
instrument heretofore or hereafter delivered to the Lenders or the Agent in
connection with this Agreement or any Loan Document or any borrowing hereunder
shall prove to be false or misleading, or is breached, in any material respect
when made or remade; or
(b) Any default shall occur in the payment of principal of any of the
Notes or the Arrangement Fee or the Loan Fee as and when the same shall become
due and payable whether at the due date thereof, by acceleration or otherwise;
or
(c) Any default shall occur in the payment of interest on any of the Notes
as and when the same shall become due and payable, and (except in the case of
the payment of interest due at maturity, by acceleration or otherwise) such
default is not cured within three (3) days; or
(d) Any default shall occur in the due observance or performance of any
covenant, agreement or condition contained in Article 6 hereof; or
(e) Any default shall occur in the due observance or performance of any
covenant or agreement to be observed or performed by the Borrower pursuant to
the terms hereof, other than those referred to in (a), (b), (c) and (d) of this
Section 8.1, and such default shall continue unremedied for a
-88-
<PAGE>
period of more than thirty (30) days after written notice thereof to the
Borrower by the Agent; provided, however, that if such default cannot, with the
-------- -------
exercise of all reasonable diligence, be remedied within such 30-day period, the
same shall constitute an Event of Default only if Borrower shall fail to
commence promptly to remedy such default or to proceed with all reasonable
diligence to cure such default or shall fail to remedy such default within
ninety (90) days after the aforesaid notice; or
(f) The Borrower, the Operating Tenant or the General Partner shall
suspend or discontinue its business, shall call a meeting of its creditors for
the purpose of postponing or adjusting its liabilities or seeking an arrangement
with its creditors, shall make an assignment for the benefit of creditors or a
composition with creditors, shall be unable, or admit in writing its inability,
to pay its debts as they mature, shall file a petition in bankruptcy, shall
become insolvent (howsoever such insolvency may be evidenced), shall suffer an
order for relief to be entered against it under any bankruptcy law, shall
petition or apply to any tribunal for the appointment of any receiver,
custodian, liquidator or trustee of or for it or any substantial part of its
property or other assets or shall commence any proceeding relating to it under
any bankruptcy, reorganization, arrangement, readjustment of debt, receivership,
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect; or there shall be commenced against the Borrower, the
Operating Tenant or the General Partner any such proceeding which shall remain
undismissed for a period of sixty (6O) days or more, or the Borrower, the
Operating Tenant or the General Partner shall by any act or failure to act
indicate its consent to, approval of or acquiescence in, any such proceeding or
in the appointment of any receiver, custodian, liquidator or trustee of or for
it or any substantial part of its property or other assets, or shall suffer any
such appointment to
-89-
<PAGE>
continue undischarged or unstayed for a period of sixty (60) days or more; or
the Borrower, the Operating Tenant or the General Partner shall take any action
for the purpose of effecting any of the foregoing; or
(g) Any order, judgment or decree shall be entered in any proceeding
against the Borrower, Marriott, the Operating Tenant or the General Partner
decreeing the dissolution or split-up of the Borrower, Marriott, the Operating
Tenant or the General Partner or the divestiture of any asset (other than the
Equipment) of the Borrower, the Operating Tenant or the General Partner, and
such order, judgment or decree shall remain undischarged or unstayed for a
period in excess of sixty (60) days; provided, however, that the split-up, or
-------- -------
the divestiture of the assets, of Marriott shall not constitute an Event of
Default if, following such occurrence, Marriott continues to own and operate
substantially all of its hotel business in substantially the same manner as
prior to such occurrence; or
(h) Final judgment for the payment of money in excess of $1,000,000.00
shall be rendered by a court of record against the Borrower, the Operating
Tenant or the General Partner and the Borrower, the Operating Tenant or the
General Partner shall not discharge the same or provide for its discharge in
accordance with its terms, or procure a stay of execution thereof within thirty
(30) days from the date of entry thereof and within such period of thirty (30)
days, or such longer period during which execution of such judgment shall have
been stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or
(i) If any of the Marriott Entities shall cease to be Marriott or a direct
or indirect wholly-owned subsidiary of Marriott; or
-90-
<PAGE>
(j) If an "Event of Default" (as defined therein) shall occur and be
continuing under either or both of the Guaranties; or
(k) If there shall occur and be continuing a default, deemed by the Agent
or the Required Percentage of the Lenders to be material, in the observance or
performance by either party of its covenants, agreements or obligations under
the Operating Lease, the Golf Course Lease or the Purchase Agreement and such
default is not cured within any applicable notice and/or grace period provided
in such lease or agreement or if either party to any such lease or agreement
shall, without the prior consent of the Lenders, terminate or seek to terminate
any such lease or agreement, except as otherwise permitted in the Loan
Documents; or
(l) Any default or event of default shall have occurred under any other
Loan Document or any event, act or condition shall have occurred which under the
provisions of any Loan Document has the effect of accelerating the stated
maturity of the Loans or permits the Lenders to cause the Loans to become due
prior to their stated maturity;
then, if any event described in any subsection of this Section 8.1 shall have
occurred, and at any time thereafter, if any such event shall then be
continuing, the Agent, upon the direction of a Required Percentage of the
Lenders, shall take any one or more of the following actions:
(i) declare the principal of and accrued interest on the Notes, or on any
other notes or evidences of Indebtedness of the Borrower then held by the
Lenders or any of them, to be due and payable, both as to principal and
interest, without
-91-
<PAGE>
presentment, demand, protest or other notice of any kind, all of which, to the
extent permitted by law, are hereby expressly waived, anything contained herein
or in any Note or in such other note or evidence of Indebtedness to the contrary
notwithstanding; or
(ii) declare the Loan Commitments terminated immediately; or
(iii) enter upon, take possession of, and use the Property and all parts
thereof and all FF&E, material, equipment and supplies thereon and elsewhere
which were ordered for or appropriated to the operation of the Property, and do
anything which is necessary or desirable to fulfill, pay, settle or compromise
the obligations of Borrower hereunder. All sums paid or incurred for the
operation of the Property pursuant to the provisions of this paragraph or
otherwise, and all other payments made or liabilities incurred by the Lenders
hereunder of any kind whatsoever, shall bear interest from the date of payment
or incurrence at the Legal Rate and such amounts, including interest, shall be
deemed and shall constitute advances under this Agreement. The Lenders and their
designees, representatives, agents, licensees and contractors shall be entitled
to such entry, possession and use without the consent of any party and without
any legal process or other condition precedent whatsoever, and the Borrower
acknowledges that any denial of such entry, possession and use by the Lenders
will cause irreparable injury and damages to the Lenders.
8.2 Suits for Enforcement. Subject to the provisions of Section 2.21
---------------------
hereof, in case any one or more of such Events of Default shall occur and be
continuing, the Lenders may proceed, to the extent permitted by law, to protect
and enforce their rights either by suit in equity or by action at law, or both,
-92-
<PAGE>
whether for the specific performance of any covenant, condition or agreement
contained in this Agreement or the Notes or in aid of the exercise of any power
granted in this Agreement or the Notes, or proceed to enforce the payment of the
Notes or to enforce any other legal or equitable right of the Lenders.
8.3 Remedies Cumulative. Subject to the provisions of Section 2.21
-------------------
hereof, no right or remedy herein or in any other agreement or instrument
conferred upon the Lenders, the Agent, or the holders of the Notes is intended
to be exclusive of any other right or remedy, and each and every such right or
remedy shall be cumulative and shall be in addition to every other right and
remedy given hereunder or under any Loan Document or now or hereafter existing
at law or in equity or by statute or otherwise. Without limiting the generality
of the foregoing, if any Note or any of the other obligations of the Borrower to
the Lenders shall not be paid when due, whether at the stated maturity thereof,
by acceleration or otherwise, the Lenders shall not be required to resort to any
particular security, right or remedy or to proceed in any particular order of
priority, and the Lenders shall have the right at any time and from time to
time, in any manner and in any order, to enforce their security interests,
Liens, rights and remedies, or any of them, as the Lenders deem appropriate in
the circumstances and apply the proceeds of their collateral to the obligations
of the Borrower.
8.4 TWA Default. The Borrower and the Lenders acknowledge and agree that
-----------
a default by TWA in the performance of its obligations under the Equipment Lease
is not an Event of Default hereunder.
-93-
<PAGE>
9. THE AGENT.
9.1 Appointment of the Agent. The Lenders hereby irrevocably designate
------------------------
FNBC as their Agent to act as herein specified, and FNBC hereby accepts such
designation and agrees to act as Agent as herein specified. Each Lender hereby
irrevocably authorizes, and each holder of any Note by the acceptance of such
note shall be deemed to have irrevocably authorized, the Agent to take such
actions on its behalf under the provisions of this Agreement, the Notes and the
other Loan Documents:
(a) to receive Borrowing Notices and to determine and quote interest
rates in accordance with Article 2;
(b) to remit to each Lender on the day received by the Agent (unless
received too late to permit remittance on such day, in which event the Agent
shall remit on the next Business Day) each Lender's Pro Rata Share of any
payment of principal, interest or the Loan Fee paid to the Agent;
(c) to make demand under the Loan Documents for payment of amounts due
thereunder and performance of obligations thereunder;
(d) to give notices on behalf of the Lenders under this Agreement and the
Loan Documents as directed by the Lenders in accordance with the provisions
hereof or as the Agent otherwise deems appropriate;
(e) to execute and deliver, where required, and to hold, on behalf of the
Lenders, the Deed of Trust, the Security Agreement, the Guaranties and the other
Loan Documents and to hold insurance policies given in respect of property
covered by
-94-
<PAGE>
the Deed of Trust and the Security Agreement, and other instruments given in
connection with the Loan Documents;
(f) to execute and deliver the release of land provided for in the Golf
Course Lease Assignment and the release provided for in Section 10.3 and to
consent to the Homeowners Agreement pursuant to Section 6.13; provided, however,
-------- -------
that if the Homeowners Agreement consists of several separate agreements,
consent by the Agent to one such agreement shall not be deemed to be consent to
all such agreements;
(g) to supervise the management, rental and/or operation of the Property if
the Lenders have obtained possession and control as a result of enforcement of
the Deed of Trust or any other Loan Documents; and
(h) to exercise such powers under the Loan Documents and other documents
provided for or contemplated by this Agreement or any Loan Document as are
specifically delegated to the Agent by the terms thereof and such other powers
as are reasonably incidental thereto.
The Agent may perform any of their duties hereunder by or through its agents,
representatives, or employees.
9.2 Agent's Rights and Liabilities.
------------------------------
(a) In the event the Agent shall suffer or incur any costs, damages,
penalties, actions, judgments, expenses or liabilities as a result of the
performance of its duties hereunder or in respect of any of the Loan Documents
or any transaction contemplated hereby not arising from its gross negligence or
willful misconduct, then, to the extent the Borrower shall fail to reimburse the
Agent, the Lenders will
-95-
<PAGE>
reimburse and indemnify the Agent, in the proportion of each respective Lender's
Pro Rata Share, from and against any such costs, damages, penalties, actions,
judgments, expenses and liabilities. If, after the Lenders have reimbursed and
indemnified the Agent pursuant to the preceding sentence, the Borrower shall
reimburse the Agent or the Agent shall otherwise recover from the Borrower or
any other party obligated to reimburse the Agent on behalf of the Borrower, then
the Agent agrees to reimburse the Lenders in the proportion of each respective
Lender's Pro Rata Share to the extent that the Borrower has so reimbursed the
Agent.
(b) Neither the Agent nor any of its officers, directors, employees,
representatives, or agents shall be liable for any action taken or omitted
hereunder or under any of the other Loan Documents, or any other document
provided for or contemplated by this Agreement or any other Loan Document, or in
connection therewith, or for the consequences of any oversight or error of
judgment on its or their part, unless caused by its or their gross negligence or
willful misconduct. Except as otherwise provided herein, the Agent need not
make inquiry concerning the performance or observance by the Borrower of any of
the terms, provisions or conditions of any of the Loan Documents. The Agent
will give the other Lenders notice of the occurrence of any uncured Event of
Default of which the Agent's officers in charge of the administration of the
Loans shall have actual knowledge, but no failure to give such notice shall
result in any liability of the Agent to the other Lenders, unless caused by the
Agent's gross negligence or willful misconduct. The duties of the Agent shall
be administrative in nature, and the Agent shall not have by reason of this
Agreement a fiduciary relationship in respect of any Lender. Nothing in this
Agreement, expressed or implied, is intended to or shall be construed as to
impose upon the Agent any obligations in respect
-96-
<PAGE>
of this Agreement or any of the other Loan Documents except as expressly set
forth herein.
(c) Whenever this Agreement or any other Loan Document provides or
contemplates that the Agent shall or may make any determination or exercise
judgment with respect to the existence of any fact or circumstance, the
compliance with or satisfaction of any covenant, obligation or condition or any
other matter provided for or contemplated herein or in any other Loan Document,
the Agent, in making such determination or exercising such judgment, may rely
solely upon a certificate or affidavit of the Borrower or the Borrower's agents
or representatives or the General Partner, without making any independent
inquiry or obtaining independent evidence with respect thereto.
(d) The Agent shall be entitled to rely upon any writing or other
document, telegram or telephone conversation reasonably believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons. The Agent shall be fully protected in acting or in refraining from
acting pursuant to or upon the advice of legal counsel, independent public
accountants and other experts selected by it concerning all matters hereunder or
under the Loan Documents or any other document provided for or contemplated by
this Agreement or any Loan Document and its duties hereunder and thereunder.
(e) With respect to its Loan Commitment and the Pro Rata Share of the
Loans made by it, the Agent shall have the same rights and powers hereunder as
the other Lenders and may exercise the same as if it were not the Agent. The
term "Lenders" shall, unless the context clearly otherwise indicates, include
FNBC individually. FNBC or its affiliates may accept deposits from, lend money
to, and generally engage in any kind of banking or trust business with the
Borrower, the Marriott Entities, any of
-97-
<PAGE>
the partners of the Borrower or any Affiliate of the Borrower or of Marriott as
if it were not the Agent.
(f) The Agent may deem and treat each Lender and each successor holder of
any interest in the Notes made payable to such Lender as the owner of such
interest in such Notes for all purposes hereof unless and until a written notice
of the assignment or transfer thereof shall be filed with the Agent and there
shall have been delivered to the Agent a written assumption by such transferee
or assignee of all obligations of such Lender hereunder. The delivery of such
written assumption to the Agent shall be a condition precedent to the right of
any Lender to transfer any interest in the Notes made payable to such Lender.
Each Lender covenants with the other Lenders to deliver such written assumption
to the Agent simultaneously with the transfer by it of any interest in the Notes
made payable to such Lender. Any request, authority or consent of any Person who
at the time of making such request or giving such authority or consent is a
holder of a Note or any interest therein shall be conclusive and binding upon
any subsequent holder, transferee or assignee of the Note or interest therein.
If a Lender shall sell and transfer beneficial participations in its interest in
the Notes made payable to such Lender (as contrasted to outright assignments and
transfers of such interest), the Agent and the other Lenders need only recognize
and treat such Lender as the absolute owner thereof for all purposes under this
Agreement and the other Loan Documents.
(g) The Agent may at any time request the Lenders to participate in the
review and approval of any document, course of action or information provided
hereunder to be reviewed and approved by the Agent. The Agent shall in all
cases be fully protected in, and shall have no liability by reason of, acting or
refraining from acting, and no Lender shall have any claim or
-98-
<PAGE>
right of action whatsoever against the Agent as a result of the Agent's acting
or refraining from acting, under this Agreement and any Loan Document and any
other document referred to or contemplated by this Agreement in accordance with
written instructions signed by the Required Percentage of the Lenders or such
higher percentage as may be necessary under Section 11.5 or Section 11.6 hereof
to authorize any action specified in such instructions; provided, however,
-------- -------
unless and until the Agent shall receive such instructions, the Agent may take
such action with respect thereto as it shall deem advisable in the best interest
of the Lenders.
(h) The Agent makes no warranty or representation and shall not be
responsible for any statement, warranty or representation made in or in
connection with the Loan Documents or in any document, certificate or other
writing delivered in connection herewith, and shall not be responsible for the
performance or observance of any of the terms, covenants or conditions of the
Loan Documents on the part of the Borrower, the Marriott Entities or any other
Person, and shall not have any duty to inspect the property (including the books
and records) of the Borrower, the Marriott Entities or any other Person. The
Agent shall not, by any action or inaction hereunder or under any of the Loan
Documents, be deemed to make any representation or warranty regarding the
financial condition of the Borrower or any of the Marriott Entities, the
effectiveness, genuineness, validity or enforceability of this Agreement or any
of the other Loan Documents, or the existence, value, collectibility or adequacy
of any collateral security for the Loans, or for the validity, effectiveness,
perfection or relative priority of the Liens and security interests for the
Loans, or for the filing, recording, refiling, rerecording, or continuing of any
assignment, Lien, security interest, financing statement or other instruments,
or for the legality, legal effect or sufficiency of
-99-
<PAGE>
any act of the Borrower, the Marriott Entities or any other Person in connection
with, or under any of the provisions of, this Agreement or any of the Loan
Documents. The Agent has no duty to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any of the Loan Documents, or the financial condition of the
Borrower or any of the Marriott Entities or the existence or possible existence
of any Default or Potential Default.
(i) Each Lender acknowledges that it has, independently and without
reliance on the Agent or any other Lender, and based on such documents and
information as it has obtained from the Borrower and/or the Marriott Entities
and has deemed appropriate, made its own credit or other analysis of the
Borrower and decision to enter into this Agreement; and that it will,
independently and without reliance upon the Agent or any other Lender, and based
on such documents and information as it shall hereafter obtain from the Borrower
and/or the Marriott Entities and deem appropriate at the time, continue to make
its own credit analysis and decisions in taking or not taking action under this
Agreement and the other Loan Documents. The Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the affairs, financial condition or business of the Borrower and/or
the Marriott Entities which may come into the possession of the Agent, except as
otherwise provided herein.
(j) The Agent shall have no duty or obligation to defend or prosecute
any action or proceeding unless indemnified, in writing, to its satisfaction, by
the Lenders for each respective Lender's proportionate share (in the proportion
of its Pro Rata Share) of the costs and expenses thereof. In the event that the
Lenders shall determine to make any payment or incur any
-100-
<PAGE>
expense for the purpose of maintenance, repair, restoration, payment of taxes,
insurance or other costs or expenses, which they deem necessary or appropriate
in connection with the holding, operation and/or sale of the Property or other
collateral for the Loans, each Lender shall promptly reimburse, to the extent of
its proportionate share (in the proportion of its Pro Rata Share) thereof, the
Lender that makes such payment or incurs such expense.
(k) Nothing contained in this Article 9 is for the benefit of the
Borrower, the Marriott Entities or any Person other than the Lenders.
10. EQUIPMENT.
10.1 Amendment of Equipment Lease. Notwithstanding anything to the
----------------------------
contrary contained in this Agreement or any other Loan Document, the Borrower
may at any time modify or amend the Equipment Lease, subject to the following
terms, provisions and conditions:
(a) No such modification or amendment shall impose upon the Borrower any
obligations beyond those theretofore contained in the Equipment Lease.
(b) Except for an amendment of the Equipment Lease provided for in
Section 10.2(d), no such modification or amendment shall, either alone or in the
aggregate with any other modifications or amendments, reduce or result in the
reduction of the Net Equipment Rental Income by more than $1,000,000.00 in any
Fiscal Year; provided, however, that the Borrower may, in the exercise of its
-------- -------
reasonable business judgment, modify or amend the Equipment Lease so as to
reduce the Net Equipment Rental Income by more than $1,000,000.00 in any Fiscal
Year if by reason of the
-101-
<PAGE>
financial condition of TWA such amendment is necessary or appropriate to ensure
TWA's performance thereunder.
(c) The Borrower shall promptly furnish to the Agent a copy of any
modification or amendment, certified by the Borrower to be true, correct and
complete.
Upon the Agent's delivery of the release provided for in Section 10.3,
the provisions of this Section 10.1 shall no longer be binding upon the
Borrower.
10.2 Sale of Equipment. Notwithstanding anything to the contrary
-----------------
contained in this Agreement or in any other Loan Document, the Borrower may at
any time sell any or all of the Equipment, subject to the following terms,
provisions and conditions:
(a) No such sale shall impose upon the Borrower any obligations beyond
those customarily contained in similar transactions.
(b) Such sale shall be on a cash basis, with the full purchase price
paid at the closing of such sale.
(c) Such sale shall not be a sale-leaseback transaction, and following
such sale Borrower shall have no ownership, leasehold or other interest in the
Equipment so sold.
(d) If less than all of the Equipment then subject to the Lease is sold,
the Equipment Lease shall be amended in the appropriate manner to reflect such
sale and the proportionate reduction of rent thereunder.
-102-
<PAGE>
(e) Either prior to entering into any contract or agreement for sale of
any Equipment or such modification or amendment of the Equipment Lease, or as a
condition of the effectiveness of any such documents into which Borrower has
entered, the Borrower shall furnish to the Agent for approval copies of such
proposed or actual documents, certified by the Borrower to be true, correct and
complete. The Agent's right to disapprove any such document shall be limited to
the Agent's determination of whether such document complies with the provisions
of this Section 10.2. Failure of the Agent to disapprove any such document
within ten (10) Business Days of the Agent's receipt thereof shall constitute
approval thereof.
(f) The Borrower shall pay to the Agent, as a partial prepayment of the
Loans, an amount equal to the following percentage of the gross sales price for
the Equipment so sold, which amount shall be payable on the first Quarterly
Payment Date following the date of the sale of the Equipment or on the last day
of the current Interest Period, whichever is earlier:
Date of Closing Percentage
of Equipment Sale Payable to Agent
- ----------------- ----------------
On or before April 24, 1990 60%
Later than April 24, 1990 and
on or before April 24, 1991 50%
Notwithstanding the foregoing, no payment shall be required under this
Section 10.2(f) if the aggregate amount of gross sales prices of all Equipment
sold in any Fiscal Year is less than $500,000.00, but, if such aggregate amount
equals or exceeds $500,000.00, payment of the applicable percentage of the
entire gross sales price of all such sales shall be required.
Upon the Agent's delivery of the release provided for in Section 10.3, the
provisions of this Section 10.2 shall no longer be binding upon the Borrower.
-103-
<PAGE>
10.3 Release of Security Interest. Provided no Event of Default has
----------------------------
occurred that is continuing, the Agent shall, if requested by the Borrower,
release the Agent's security interest in the Net Equipment Rental Income created
under the Security Agreement on or at any time after, April 24, 1991. Upon the
delivery of such release, the Borrower may at any time thereafter and
notwithstanding anything to the contrary contained in Section 10.1, Section 10.2
or any other provision of this Agreement or any of the other Loan Documents (a)
modify, amend or terminate the Equipment Lease, provided that such modification,
amendment or termination does not impose upon the Borrower any obligations
beyond those theretofore contained in the Equipment Lease; (ii) sell or lease
the Equipment, whether to TWA or any other Person, on reasonable terms and
conditions; or (iii) incur Indebtedness with respect to which the recourse
against Borrower is limited to the Equipment and to the rights of the Borrower
under the Equipment Lease or any other lease of the Equipment.
11. MISCELLANEOUS.
11.1 Notices and Addresses. Except as otherwise provided with respect to
---------------------
Borrowing Notices, all notices, demands or requests provided for or permitted to
be given pursuant to this Agreement shall be deemed to have been properly given
or served by personal delivery, by telex, by nationally-recognized overnight
delivery service, or by depositing in the United States mail, postpaid and
registered or certified, return receipt requested, and addressed to the
addresses set forth below. All notices, demands and requests shall be effective
upon being personally delivered, upon receipt of a telex, upon deposit at the
office of a nationally-recognized overnight delivery service, or upon being
deposited in the United States mail. The time period in which a response to any
notice, demand or request must
-104-
<PAGE>
be given, if any, shall commence to run from the date of personal delivery, the
date the telex is received, the date of delivery by a nationally-recognized,
overnight delivery service or the date of receipt of the notice, demand or
request, by the addressee thereof as disclosed by the return receipt. Rejection
or other refusal to accept or the inability to deliver because of changed
address of which no notice was given shall be deemed to be receipt of the
notice, demand or request sent. No other method of giving notice is hereby
precluded. By giving at least ten (10) days' written notice thereof, any party
hereto shall have the right from time to time and at any time during the term of
this Agreement to change its address and each shall have the right to specify as
its address any other address within the United States of America. For the
purposes of this Agreement, the addresses of the parties are as follows:
Borrower:
Desert Springs Marriott Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20058
Attention: Law Department
Agent:
The First National Bank of Chicago
1776 I Street
Suite 800
Washington, D.C. 20006
Attention: Steven Franklin
Lenders:
The First National Bank of Chicago
1776 I Street
Suite 800
Washington, D.C. 20006
Attention: Steven Franklin
Credit Lyonnais, New York Branch
95 Wall Street
New York, New York 10005
Attention: Bruce Hawkins
Credit Lyonnais, Cayman Island Branch
c/o Credit Lyonnais, New York Branch
95 Wall Street
New York, New York 10005
Attention: Bruce Hawkins
Societe Generale, Chicago Branch
-105-
<PAGE>
Three First National Plaza
Suite 5300
Chicago, Illinois 60602
Attention: Joseph Philbin
Sumitomo Trust & Banking Co., Ltd.
Los Angeles Agency
333 South Grand Avenue
Suite 5300
Los Angeles, California 90071
Attention: Jeff Koester
11.2 Survival of Representations; Successors and Assigns. All
---------------------------------------------------
covenants, agreements, representations, warranties and indemnifications made
herein and in any certificate delivered pursuant hereto shall survive the
execution and delivery of this Agreement and the other Loan Documents, the
making by the Lenders of the Loans and the execution and delivery of the Notes,
regardless of any investigation made by the Lenders and of the Lenders' access
to any information and shall continue in full force and effect so long as the
Loan Commitments are outstanding, or the Loans or any obligation created
hereunder is outstanding and unpaid. Whenever in this Agreement there is a
reference to any of the parties hereto, such reference shall be deemed to
include the successors and assigns of such party, subject to the provisions
hereof. All covenants, agreements, representations, warranties and
indemnifications by or on behalf of the Borrower or the Marriott Entities or any
other Person which are contained or incorporated in this Agreement or any other
Loan Document or any other document referred to herein or executed or delivered
in connection with the Loans shall inure to the benefit of the successors and
assigns of the Lenders and any holders of the Notes or any interest therein.
Except for the parties hereto and their respective successors and assigns, no
other Person shall be entitled to the benefits of this Agreement or to rely
hereon. Each Lender shall be individually and severally bound by this Agreement
and the other Loan Documents but shall not be jointly obligated hereunder and
thereunder and shall have no responsibility for any failure of any other Lender
to comply with any
-106-
<PAGE>
of its obligations under this Agreement or the other Loan Documents.
11.3 Effect of Delay; No Waivers. No failure or delay on the part of the
---------------------------
Lenders or any of them in exercising any right, power or privilege hereunder or
under the Notes, nor any course of dealing between the Borrower and the Lenders
or any of them, shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise or the exercise of any
other right, power or privilege. No advance of the Loans made at a time when an
Event of Default exists shall constitute a waiver of any right or remedy of the
Lenders existing by reason of such Event of Default.
11.4 Expenses. Whether or not the transactions contemplated hereby shall be
--------
consummated, the Borrower agrees to pay, and the Lenders may charge any deposit
account(s) of the Borrower for, all expenses incurred by the Lenders in
connection with the negotiation, preparation and administration of this
Agreement (including, without limitation, any modifications of or waivers under
this Agreement), the other Loan Documents, the advances of the Loans hereunder,
the enforcement, defense and preservation of the rights of the Lenders under or
in connection with this Agreement, the Notes and the other Loan Documents, and
all reasonable attorneys' fees and disbursements incurred by the Lenders which
arise out of or are connected, directly or indirectly, to any transaction
contemplated by this Agreement, the fees of appraisers and surveyors, filing and
recording fees and taxes, mortgage taxes, intangible taxes and insurance
(including title insurance) premiums. All of such expenses shall be paid by the
Borrower at or prior to the time of the execution of this Agreement, except
that, if payment of such amounts is not required as a condition of Closing under
Section 3.12, such amounts shall be paid promptly upon demand. The provisions of
-107-
<PAGE>
this Section shall survive any termination of this Agreement, whether by reason
of bankruptcy of the Borrower or otherwise.
11.5 Consent by Percentage of the Lenders.
------------------------------------
(a) Subject to the provisions of Sections 11.5(b), 11.5(c) and 11.6 any
waiver, consent, or other indulgence which the Lenders may, at their option,
determine to grant to the Borrower, or any decision to waive any condition, or
any amendment or modification of any provision hereof, or of any other term or
provision of any of the other Loan Documents or the granting or refusal of any
consent or approval contemplated hereby or thereby, or to negotiate settlements
of insurance claims or condemnation awards as mortgagee or secured party, or to
exercise any rights or remedies under the Loan Documents shall be sufficient and
binding upon all of the Lenders and the Borrower if agreed to in writing by a
Required Percentage of the Lenders.
(b) Notwithstanding anything to the contrary contained in Section
11.5(a), the Agent may, without the consent of the Lenders, exercise the rights
and powers and grant or deny any consents as are provided to be exercised or
granted by the Agent pursuant to Section 9.1 hereof, the other provisions of
this Agreement and the other Loan Documents. The Agent may also waive any
condition or provision of this Agreement or the other Loan Documents without the
consent of the Lenders in connection with the determination of whether the Loans
are to be disbursed or in connection with the administration of the Loans as the
Agent reasonably determines are incidental to the exercise of its rights and
powers referred to in this Section 11.5(b) and are not a waiver of a material
condition or provision.
-lO8-
<PAGE>
(c) No decision may be made without the prior written consent of all the
Lenders, (i) to change the method or formula by which the rate of interest is
determined; (ii) to reduce the amount or change or postpone the date of any
required payment of principal, interest or the Loan Fee; (iii) to change or
extend the Maturity Date; (iv) to alter the Guaranties or the collateral for the
Loans or the provisions relating to the release of the collateral; (v) to
pursue, prior to the commencement of foreclosure proceedings under the Deed of
Trust or the exercise of the power of sale thereunder, any other remedies if the
pursuit of such other remedies might adversely affect the Lenders' rights under
the Deed of Trust; (vi) to accept a deed in lieu of foreclosure for the benefit
of the Lenders (in the proportion of their respective Pro Rata Shares) and to
release the Borrower, the General Partner, Marriott, and/or any successor to
their interest in consideration of such conveyance in lieu of foreclosure; (vii)
to receive, as part payment for the subsequent sale of the Property, a purchase
money mortgage, any such purchase money mortgage to be held by the Agent for the
benefit of the Lenders (in the proportion of their respective Pro Rata Shares)
subject to the provisions of this Agreement or (viii) to change the Required
Percentage of Lenders. Any participation agreements entered into by any of the
Lenders will provide that the consent of the participant is not required as a
condition to any action of the Lender except as to matters set forth in this
Section 11.5(c), items (i) through (vii).
(d) The Borrower shall not be entitled to assert a defense or otherwise
question any action taken or omitted to be taken by the Lenders, or any of them,
or the Agent, on the basis that the requisite percentage of the Lenders has not
consented thereto or that the Agent was not duly authorized with respect
thereto.
-109-
<PAGE>
11.6 Lenders' Right of Setoff. No Lender may exercise any right of
------------------------
setoff with respect to a Loan without the prior written approval of all other
Lenders. Any Lender that exercises such right of setoff without the prior
approval of all other Lenders shall indemnify and hold harmless all other
Lenders from and against all losses that may be incurred by them as a result of
any adverse effect that the exercise of such right of setoff has upon the rights
of the Lenders under the Loan Documents.
11.7 Use of Accounting Terms. Except as otherwise provided herein,
-----------------------
accounting terms used in this Agreement shall be construed, calculations
hereunder shall be made and financial data required hereunder shall be prepared,
both as to classification of items and as to amounts, in accordance with
generally accepted accounting principles in effect as of the date hereof
consistently applied. All statements relating to earnings and expenses shall
set forth separately or otherwise identify all extraordinary and non-recurring
items.
11.8 Equitable Adjustment among Lenders. The Lenders agree among
----------------------------------
themselves that, with respect to all sums received by the Lenders applicable to
the payment of principal of or interest on the Notes or the Loan Fee, equitable
adjustment will be made among the Lenders so that, in effect, all such sums
shall be shared ratably by each of the Lenders based upon their Pro Rata Shares
of the Loans (as the case may be), whether received by voluntary or required
payment or prepayment, by realization upon security, by the exercise of the
right of setoff or banker's lien, by counterclaim or cross-action or by the
enforcement of the Notes or the Guaranties. Without limitation of the
provisions of Section 11.6, each Lender hereby agrees that any sums received by
it from the Borrower by exercise of the right of setoff or banker's lien shall
be applied solely to payment of the
-110-
<PAGE>
Notes outstanding hereunder and not to payment of any other financial
accommodations extended by such Lender to the Borrower.
11.9 No Assignment by Borrower. The Borrower shall not assign this
-------------------------
Agreement or any of the moneys due or to become due hereunder or convey,
transfer, encumber (except as otherwise permitted herein or in any of the
other Loan Documents) or otherwise hypothecate the Property or any part thereof
by operation of law or otherwise, without the prior written consent of the
Lenders. Notwithstanding any breach by the Borrower of the provisions of this
Section 11.9, the Lenders may, at their option, continue to make advances under
this Agreement to the Borrower or to those who succeed to the Borrower's title;
and all sums so advanced by the Lenders shall be deemed to be made pursuant to
this Agreement, and not to constitute a modification thereof, and shall be
evidenced by the Notes and secured by the Deed of Trust and by all other
collateral granted to the Lenders by the Borrower hereunder.
11.10 Lender Assignment and Participation.
-----------------------------------
(a) Without the prior written consent of the Borrower, no Lender shall
assign or transfer an interest in the Loan, except to (i) an assignee or
transferee that is an affiliate of such Lender or (ii) another Lender. The
foregoing provisions shall not limit the rights of any Lender with respect to
any sale or grant of any participation interests.
(b) Without the prior written consent of the Borrower, no Lender shall
assign or transfer an interest, or sell or grant a participation interest, in
the Loan to any Person other than another Lender unless following such
assignment, transfer, sale or grant the Lender that has so assigned,
transferred, sold or granted such interest retains an interest in the Loan, free
of
-111-
<PAGE>
participation or other interests, that is at least equal to twenty-five percent
(25%) of the Pro Rata Share of the Loan of such Lender as of the date of the
Agreement.
(c) All participation agreements entered into by any Lender with respect
to the Loan or any interest therein shall (i) limit the participant's right to
approve any action taken by such Lender with respect to the Loan to those
specified in items (i) through (vii) of Section 11.5(c), and (ii) incorporate
with respect to such participant the confidentiality provisions of Section
11.23.
11.11 Books and Records. The Lenders or any of their representatives
-----------------
shall have, upon not less than two Business Days' notice and at reasonable times
and as often as the Lenders, or any of them, may request, the right to inspect
all the books and records of the Borrower relating to the Property and the
Equipment Lease and shall be furnished with all information reasonably requested
by them in connection therewith.
11.12 Written Communications with Agent.
---------------------------------
(a) Any written communication delivered by the Agent to the Borrower
that states that such communication is delivered by the Agent as agent on behalf
of the Lenders shall be binding upon the Lenders, and the Borrower may rely upon
such communication as binding upon the Lenders.
(b) Unless this Agreement specifically states that a document,
instrument or other communication required to be furnished by or on behalf of
the Borrower is to be delivered to the Agent, the Borrower shall deliver or
cause to be delivered to all of the Lenders counterparts of any such required
document, instrument or communication; provided, however, that delivery to
-------- -------
-112-
<PAGE>
Credit Lyonnais, New York Branch of the counterpart of any required document,
instrument or communication shall satisfy the requirement of delivery of said
document to Credit Lyonnais, Cayman Island Branch.
11.13 Proceedings. All legal proceedings and all instruments and
-----------
agreements in connection with the transactions contemplated by this Agreement
(including without limitation those provided for in Article 3 hereof) shall be
satisfactory in form, scope and substance to the Lenders and their counsel, and
the Lenders and such counsel shall have received all information and copies of
all documents which the Lenders or their counsel may reasonably have requested
in connection therewith, such documents where appropriate to be certified by
proper governmental authorities.
11.14 Resignation of Agent.
--------------------
(a) The Agent or any successor Agent hereunder may at any time resign
by giving not less than sixty (60) days' prior written notice to the Borrower
and all of the other Lenders. Within twenty (20) days of the resigning Agent's
notice of resignation, a successor Agent shall be designated from among the
Lenders by the Required Percentage of the Lenders, which shall notify the
Borrower and all Lenders (including the resigning Agent) of such designation,
which designation shall be subject to the Borrower's approval, not to be
unreasonably withheld. If the Lenders fail to designate a successor Agent
pursuant to the preceding sentence or if the successor Agent fails to deliver to
the Borrower and all of the Lenders, within thirty (30) days of resigning
Agent's notice of resignation, a written instrument agreeing to act as Agent
hereunder, then the Lender holding the largest aggregate interest in the Loans
(or, if there is more than one Lender holding such equally large interests, one
of such
-113-
<PAGE>
Lenders selected by the resigning Agent) shall be the successor Agent. Any
successor Agent hereunder shall be deemed to have assumed, from and after the
effective date of the resignation of the resigning Agent, all of the rights,
duties and obligations of the Agent hereunder (including without limitation
those set forth in this Section 11.14).
(b) A resigning Agent shall deliver to the successor Agent, on or prior
to the effective date of its resignation, all Loan Documents, collateral,
insurance policies, binders and certificates and other documents and instruments
that it is holding as Agent hereunder and shall cooperate with the successor
Agent in the transition of the agency.
11.15 Time of the Essence. Time is hereby declared to be of the
-------------------
essence of this Agreement and any part hereof and of all of the Loan Documents.
11.16 Exhibits. The Exhibits to this Agreement have been attached
--------
hereto or, if not so attached, have been marked for identification by the Agent
and the Borrower, and a complete set of the Exhibits as so attached or marked
has been delivered to the Borrower and each of the Lenders. The Agent shall be
authorized by the Lenders prior to the Closing to consent to such changes to the
Exhibits which are not material but which the Agent determines are necessary or
appropriate.
11.17 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute one and the same agreement.
11.18 Construction and Jurisdiction. This Agreement and the Notes, and
-----------------------------
the rights and obligations of the parties hereunder and thereunder, shall be
governed by and construed and
-114-
<PAGE>
enforced in accordance with the laws of the State of Illinois applicable to
contracts made and to be performed wholly within such State. Borrower hereby
irrevocably consents and agrees that any legal action, suit, or proceeding
arising out of or in any way in connection with this Agreement may be instituted
or brought in the courts of the State of Illinois, or the United States Courts
for any District in the State of Illinois, as Lenders may elect, and by
execution and delivery of this Agreement hereby irrevocably accepts and submits
to generally and unconditionally, the non-exclusive jurisdiction of any such
court, and to all proceedings in such courts. The parties also consent that
service of process in any such action or proceeding may be made upon any party
by mailing a copy of the summons and the complaint to such party, by registered
mail, return receipt requested, at its address designated for notices under
Section 11.1 of this Agreement. Nothing in this Agreement or elsewhere shall
affect the Lenders' right to serve process in any other manner permitted by law
or limit the right of the Lenders to bring actions, suits or proceedings in the
courts of any other jurisdiction. In any action or proceeding relating to this
Agreement or the Note or any of the other Loan Documents or any of the liens,
security interests or collateral security for the Loans or any of them, the
parties mutually waive trial by jury, and the Borrower waives (a) any claim for
consequential or special damages, and (b) the right to assert therein any setoff
or counterclaim.
11.19 Description of Documents. The description or characterization of
------------------------
any Loan Document or any other document or instrument contained in this
Agreement or in any other Loan Document is solely for the purpose of
identification and such description or characterization shall not be used for
the purpose of, and shall not otherwise affect, the construction or
interpretation of such Loan Document or other document or instrument
-115-
<PAGE>
so described or characterized. In the event of any conflict between any such
description or characterization and the terms of any such Loan Document or other
document or instrument, the terms of the latter shall control.
11.20 Headings. Article and Section headings and the description of
--------
Exhibits contained in the list of Exhibits hereto are for convenience only and
shall not affect the interpretation or construction of this Agreement or the
other Loan Documents.
11.21 Indemnity. Borrower agrees to indemnify the Lenders for all
---------
injury, damage and liability to the person or property of the parties hereto or
to any other Person by reason of the ownership or operation of the Property or
the Equipment. Borrower shall undertake at its own expense, by counsel
reasonably approved by the Lenders, the defense of the Lenders in any lawsuit
commenced as a result of injury, damage or liability occurring by reason of the
ownership or operation of the Property or the Equipment.
11.22 Validity. In the event that any of the covenants, agreements,
--------
terms or provisions contained in this Agreement or in any other Loan Document
shall be invalid, illegal or unenforceable in any respect, the validity of the
remaining covenants, agreements, terms or provisions contained herein or in any
other Loan Document (or the application of the covenant, agreement, term held to
be invalid, illegal or unenforceable, to Persons or circumstances other than
those in respect of which it is invalid, illegal or unenforceable) shall be in
no way affected, prejudiced or disturbed thereby.
11.23 Confidentiality. Any information furnished to the Lenders under
---------------
this Agreement shall be kept confidential by the Lenders and not disclosed to
Persons other than the Lenders,
-116-
<PAGE>
except (a) that such information may be disclosed (i) to auditors and counsel
for the Lenders, (ii) to any Governmental Authority to the extent such
disclosure is required by law or regulation, (iii) in connection with the
enforcement of any Lenders rights under the Loan Documents, (iv) if required by
subpoena, court or regulatory order or otherwise by law or regulation, and (v)
to any actual or prospective assignee of or participant in all or any part of a
Lender's interest in the Loan in accordance with Section 11.10(c) hereof, and
(b) that the restriction set forth in this Section 11.23 shall not apply to any
information that (i) is known to a Lender at the time it is furnished to the
Lender hereunder or (ii) is publicly available.
11.24 Incorporation by Reference. All the terms, covenants,
--------------------------
obligations and agreements contained in the Notes and the other Loan Documents
are hereby incorporated herein and made a part hereof to the same extent and
effect as if fully set forth herein.
-117-
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lenders have caused this
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
DESERT SPRINGS MARRIOTT LIMITED
PARTNERSHIP
By: Marriott Desert Springs
Corporation, its general
partner
By: /s/ SIGNATURE APPEARS HERE
--------------------------------
Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
for itself and as Agent
By: /s/ SIGNATURE APPEARS HERE
--------------------------------
Title:VICE PRESIDENT
------------------------
CREDIT LYONNAIS,
New York Branch
By:________________________________
Title:__________________________
CREDIT LYONNAIS,
Cayman Island Branch
By:________________________________
Title:__________________________
SOCIETE GENERALE,
Chicago Branch
By: /s/ SIGNATURE APPEARS HERE
--------------------------------
Title: Assistant Vice President
-------------------------
SUMITOMO TRUST & BANKING
CO., LTD., Los Angeles Agency
By: /s/ SIGNATURE APPEARS HERE
--------------------------------
Title: General Manager
-----------------------------
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lenders have caused this
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
DESERT SPRINGS MARRIOTT LIMITED
PARTNERSHIP
By: Marriott Desert Springs
Corporation, its general
partner
By:________________________________
Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
for itself and as Agent
By:________________________________
Title:___________________________
CREDIT LYONNAIS,
New York Branch
By: /s/ SIGNATURE APPEARS HERE
--------------------------------
Title: Vice President
---------------------------
CREDIT LYONNAIS,
Cayman Island Branch
By: /s/ SIGNATURE APPEARS HERE
--------------------------------
Title:
---------------------------
SOCIETE GENERALE,
Chicago Branch
By:________________________________
Title:___________________________
SUMITOMO TRUST & BANKING
CO., LTD., Los Angeles Agency
By:________________________________
Title:__________________________
<PAGE>
EXHIBIT 10.6
MODIFICATION OF LOAN AGREEMENT
AND OTHER LOAN DOCUMENTS
dated as of December 23, 1996,
by and between
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP,
a Delaware limited partnership,
as Borrower,
and
GMAC COMMERCIAL MORTGAGE CORPORATION,
a California corporation,
as Lender.
Affected Premises
Marriott Desert Springs
Palm Desert, CA
<PAGE>
MODIFICATION OF LOAN AGREEMENT AND OTHER LOAN DOCUMENTS (this
"Modification"), entered into as of December 23, 1996, by and between DESERT
------------
SPRINGS MARRIOTT LIMITED PARTNERSHIP, a Delaware limited partnership
("Borrower"), and GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation
--------
("Lender").
------
WHEREAS, The First National Bank of Chicago; Credit Lyonnais, New York
Branch; Credit Lyonnais, Cayman Islands Branch; Societe Generale, Chicago
Branch; and Sumitomo Trust & Banking Co., Ltd., Los Angeles Agency
(collectively, "Existing Lenders") and Borrower entered into that certain Loan
----------------
Agreement, dated as of July 26, 1989 ("Existing Loan Agreement"), evidencing
-----------------------
indebtedness in the aggregate principal amount of $105 million in Series A loans
("Existing Series A Notes") and indebtedness in the aggregate principal amount
-----------------------
of $66 million in Series B loans ("Existing Series B Notes") (and together with
-----------------------
the Existing Series A Notes, the "Existing Notes");
--------------
WHEREAS, Borrower's obligations under the Existing Notes and the
Existing Loan Agreement are secured by, among other things, that certain First
Fee and Leasehold Deed of Trust, Security Agreement and Assignment of Rents,
dated as of July 26, 1989 ("Existing Deed of Trust"), among the Borrower, as
----------------------
trustor, Commonwealth Land Title Company, as trustee, and The First National
Bank of Chicago, for itself and as Agent for the other Existing Lenders
("Existing Agent"), as beneficiary, recorded in the Official Records of
--------------
Riverside County, California as Instrument No. 250481 on July 27, 1989, which
Existing Deed of Trust encumbers the Premises, as defined therein, and the
balance of the Mortgaged Property (as defined therein);
WHEREAS, as further security for the repayment by the Borrower of the
Existing Notes, Borrower and Existing Lender entered into certain other Loan
Documents, as that term is defined by the Existing Loan Agreement ("Existing
--------
Loan Documents"), including, without limitation, the Security Agreement, dated
- --------------
as of July 26, 1989 ("Existing Security Agreement"), between Borrower and
---------------------------
Existing Agent, which Existing Security Agreement encumbers certain personal
property of Borrower, as more particularly described therein, and the
Environmental Indemnity Agreement, dated as of July 26, 1989 ("Existing Borrower
-----------------
Environmental Indemnity"), by Borrower to and for the benefit of the Existing
- -----------------------
Lenders;
WHEREAS, Borrower is the owner of the Mortgaged Property and has
requested that Lender purchase, and accept by endorsement and/or assignment, the
Existing Notes, the Existing Loan Agreement, the Existing Deed of Trust and the
other Existing Loan Documents;
WHEREAS, contemporaneously herewith, the Existing Lenders have
endorsed and delivered the Existing Notes to Lender, and have assigned to Lender
their respective rights in the Existing Loan Agreement, the Existing Deed of
Trust and the other Existing Loan Documents, thereby extending to Lender all of
the rights and privileges conferred upon the "Lenders" under the Existing Notes
and the other Existing Loan Documents;
<PAGE>
WHEREAS, concurrently with the execution and delivery of this
Modification, (i) Borrower and Lender are consolidating, amending and restating
the Existing Notes for the purpose of changing the interest rate, prepayment,
maturity and certain other terms of the Existing Notes and setting forth their
agreements with respect to certain other matters and (ii) Borrower and Lender
are entering into that certain Modification of First Fee and Leasehold Deed of
Trust, Security Agreement and Assignment of Rents, dated of even date herewith
(the "Modification of Deed of Trust"), providing for, among other things, the
-----------------------------
modification of the Existing Deed of Trust and certain of the other Existing
Loan Documents, as more particularly set forth therein;
WHEREAS, concurrently with the execution and delivery of this
Modification by the Borrower, the respective Guarantors under each of the
Guaranties (as those terms are defined in the Existing Loan Agreement) are
executing and delivering to Lender instruments which will ratify, affirm and, in
certain respects, modify, each of the Guaranties for the benefit of Lender; and
WHEREAS, the parties hereto wish to amend and modify certain
provisions of the Existing Loan Agreement, and certain other Existing Loan
Documents as more particularly set forth below.
NOW, THEREFORE, in consideration of the terms and conditions contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as follows:
1. Capitalized terms used herein and not otherwise defined shall have the
meanings assigned to them in the Existing Loan Agreement. Capitalized terms
used in Sections added to the Existing Loan Agreement or modified by this
Modification and not otherwise defined in the Existing Loan Agreement shall
have the meanings assigned to them in this Modification.
2. Except as used in the recitals and any other provision where the context
clearly requires otherwise, from and after the date of the execution and
delivery hereof:
(a) All references to "Lender," "Lenders," or "Agent" in the Existing
Loan Agreement, the Existing Deed of Trust or any other Existing Loan
Document shall be deemed to refer to Lender and its permitted successors
and assigns (exclusive of any participant in Lender's interest in the
Loans).
(b) Any reference in an Existing Loan Document (including any such
reference in such document itself), or any provision or section thereof, to
an Existing Loan Document or any provision or section thereof shall be
deemed to refer to such Existing Loan Document, or provision or section, as
modified by any of the Modification Documents. As used herein,
"Modification Documents" shall mean, individually and collectively, this
----------------------
Modification, the Modification of Deed of Trust, and any other document or
instrument executed and delivered by Borrower to Lender contemporaneously
herewith. In illustration and not in limitation of the foregoing,
-2-
<PAGE>
references in the Existing Loan Documents, as well as in any Modification
Document, to:
(i) "Loan Agreement" shall be deemed to refer to the Loan
Agreement as modified by this Modification.
(ii) "Series A Notes", "Series B Notes" and "Notes" shall be
deemed to refer, respectively, to the Consolidated, Amended and
Restated Series A Note being delivered concurrently herewith in the
principal amount of $94,000,000.00, the Consolidated, Amended and
Restated Series B Note being delivered concurrently herewith in the
principal amount of $66,000,000.00, and both of such consolidated,
amended and restated Notes.
(iii) "Deed of Trust" shall be deemed to refer to the Existing
Deed of Trust as modified by the Modification of Deed of Trust.
(iv) "Security Agreement" shall be deemed to refer to the
Existing Security Agreement as modified by this Modification.
(c) The term "Loan Documents" shall mean the Loan Documents, as
modified by any Modification Documents, and the Modification Documents
themselves.
3. Except as may otherwise be specified below: (i) all Sections and Article
references in this Modification are to the Sections and Articles of the
Existing Loan Agreement, and (ii) each paragraph of this Modification shall
concern and refer to the Existing Loan Agreement.
4. Each of the following definitions is deleted:
<TABLE>
<CAPTION>
Section Number Caption
-------------- -------
<S> <C>
Section 1.8 Assessment Rate
Section 1.12 Base Eurodollar Rate
Section 1.13 Base Fixed CD Rate
Section 1.14 Base Fixed Treasury Rate
Section 1.16 Borrowing
Section 1.17 Borrowing Notice
Section 1.18 Break Amount
Section 1.19 Break Cost
Section 1.20 Break Date
Section 1.21 Break Rate
Section 1.24 CD Interest Period
Section 1.25 CD Reserve Requirement
Section 1.28 Corporate Base Rate
Section 1.30 Current Fixed Treasury Rate
Section 1.31 Current Value
Section 1.36 Discount Rate
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
Section 1.38 Effective Date
Section 1.45 Eurodollar Borrowing
Section 1.46 Eurodollar Interest Period
Section 1.47 Eurodollar Rate
Section 1.48 Eurodollar Reserve Requirement
Section 1.55 Fixed CD Rate
Section 1.56 Fixed CD Rate Borrowing
Section 1.57 Fixed Rate
Section 1.58 Fixed Rate Borrowing
Section 1.59 Fixed Treasury Rate
Section 1.60 Fixed Treasury Borrowing Rate
Section 1.61 Floating Rate
Section 1.62 Floating Rate Borrowing
Section 1.76 Host
Section 1.98 Minimum Notice Period
Section 1.99 Net Equipment Rental Income
Section 1.106 Partners' Priority Return
Section 1.117 Quarterly Payment Date
Section 1.118 Rate Option
Section 1.121 Reserve Requirement
Section 1.122 Rollover
Section 1.128 Swap Spread
Section 1.130 Treasury Interest Rate Period
Section 1.131 Treasury Reserve Requirement
</TABLE>
5. Each of the following definitions is deleted and replaced with the
definitions given such terms in the Notes:
<TABLE>
<CAPTION>
Section Number Caption
-------------- -------
<S> <C>
Section 1.22 Business Day
Section 1.79 Interest Period
Section 1.96 Maturity Date
Section 1.109 Person
Section 1.119 Regulation D
</TABLE>
6. Sections 1.42 through 1.44 are deleted, subject to the representation and
warranty made by Borrower in Section 32.(d) of this Modification.
7. A new Section 1.72A is inserted as follows:
"1.72A. The term "GSMC Long-Term Financing Commitment" shall
have the meaning given such term in the Notes.
8. In Section 1.73, the following phrase is inserted after the phrase "General
Partner Guaranty": ", the MI Guaranty".
-4-
<PAGE>
9. In Section 1.77, the phrase "located from time to time" is deleted and
replaced with the following: ", structures, building, fixtures, golf
courses, landscaping and other appurtenances now or hereafter situate". The
reference to "Exhibit C" shall be deemed to refer to "New Exhibit C",
attached hereto. The phrase beginning with ", including" and ending with
"facilities" is hereby deleted.
10. In Section 1.81, the reference to "Exhibit D" shall be deemed to refer to
the "New Exhibit D", attached hereto.
11. Section 1.83 is deleted and replaced with the following new Section 1.35A:
"1.35A. The term "Default Rate" shall have the meaning given
------------
such term in the Notes."
All references to the "Legal Rate" in the Loan Documents are hereby
replaced with "Default Rate".
12. Section 1.84 is deleted, having been superseded by Section 2.(a) of this
Modification.
13. Sections 1.88 and 1.89 are deleted and replaced with the following:
"1.88. The term "Loan A" means the loan made by Lender to the
------
Borrower in the principal amount of $94,000,000.00 and evidenced by
the Series A Note.
"1.89. The term "Loan B" means the loan made by Lender to the
------
Borrower in the principal amount of $66,000,000.00 and evidenced by
the Series B Note."
14. In Section 1.91, in the 9th line thereof, the following phrase is inserted
after the word "foregoing,": "all as modified by the Modification
Documents".
15. Section 1.93 is deleted and replaced with the following new Section 1.76A:
"1.76A. The term "Host Marriott" means Host Marriott
-------------
Corporation, a Delaware corporation (successor in interest to
Marriott Corporation), a Delaware corporation."
Except as otherwise specifically replaced, all references to "Marriott" in
the Existing Loan Agreement and other Existing Loan Documents shall be
deemed to refer to Host Marriott, as defined in this new Section 1.76A.
16. Except in the definition of "Marriott Guaranty" in Section 1.95, all
references to the Marriott Guaranty in the Existing Loan Agreement shall be
deemed to refer to the Marriott Guaranty and the MI Guaranty (hereinafter
defined). The parties hereto acknowledge that the Payment Obligations (as
defined in the Marriott Guaranty) provided for under Sections 3(a) and 4 of
each of the Marriott Guaranty and MI
-5-
<PAGE>
Guaranty have been terminated, and that the Performance Obligations (as
defined in the Marriott Guaranty) under Section 6 of each of the Marriott
Guaranty and MI Guaranty, and all other provisions thereof except as
hereinabove set forth, remain in full force and effect. Concurrently
herewith, each of Marriott and MI has entered into an Affirmation of
Guaranty, which sets forth, among other things, the termination of the
Payment Obligations and the continued effectiveness of the Performance
Obligations thereunder.
17. A new Section 1.95A is inserted as follows:
"1.95A. The term "MI Guaranty" shall mean that certain
-----------
Guaranty, dated as of October 7, 1993, by Marriott International,
Inc., a Delaware corporation, as guarantor, to The First National
Bank of Chicago, acting for itself and as Agent for Credit Lyonnais
New York Branch; Credit Lyonnais Cayman Island Branch; Societe
Generale, Chicago Branch; and Sumitomo Trust & Banking Co., Ltd., Los
Angeles Agency."
18. Section 1.96 is deleted and replaced with the following:
"1.96. The term "Maturity Date" shall have the meaning given
-------------
such term in the Notes."
19. Section 1.100 is deleted, having been superseded by Section 2.(b) of this
Modification.
20. In Section 1.101, the following is inserted at the end thereof: "as
amended March 31, 1994 and as the same may be hereafter amended or modified
from time to time".
21. Section 1.104 is deleted and replaced by the following:
"1.104. The term "Operating Tenant" means Marriott Hotel
----------------
Services, Inc., a Delaware corporation and a wholly owned subsidiary
of Marriott International, Inc., a Delaware corporation, as successor
in interest to Desert Springs Hotel Services, the original holder of
the tenant's interest under the Operating Lease."
22. Section 1.108 is deleted and replaced with the following:
"1.108. The term "Permitted Exceptions" means those matters set
--------------------
forth as exceptions in the title policy being issued in favor of
Lender by Commonwealth Land Title Insurance Company (#3609714-5)
concurrently herewith, and such other matters not materially and
adversely affecting the Property as Lender may, in Lender's sole and
absolute discretion, approve in writing subsequent to the date of
full execution and delivery of the Modification Documents."
-6-
<PAGE>
23. The reference to "Marriott" in Sections 1.115 and 1.116 is deleted and
replaced with the following: "Marriott Corporation, a Delaware corporation
(n/k/a Host Marriott Corporation)".
24. Sections 1.124 and 1.125 are deleted, having been superseded by Section
2.(b)(i) of this Modification.
25. In Section 2.3, after the clause entitled "Second", the following phrase is
inserted:
"Within each of the foregoing clauses "First" and "Second", payments
received shall be first applied to the payment of interest, and then
to payment of principal. Lender shall have the continuing and
exclusive right to apply or reverse and reapply any and all payments
by Borrower to any portion of the obligations of Borrower hereunder,
except as expressly set forth above."
26. Sections 2.4 through 2.11 are deleted.
27. In Section 2.13(a):
(a) in subsection (i) thereof, the concluding phrase "(other than
reserves and assessments taken into account in determining the
interest rate applicable to any Fixed Rate Borrowing)" is deleted;
and
(b) in the 2nd line on page 41, the phrase "of twenty-four (24)
consecutive months following the date of such notice" is deleted and
replaced with the following: "from the date of such notice through
the Maturity Date", and the words "24 month" next appearing after
such phrase is also deleted.
28. In Section 2.14, (a) the reference to Section 2.11 in the second line and
the penultimate line thereof and (b) the 3rd sentence thereof (beginning
with the word "Determination") are deleted.
29. Sections 2.15, 2.16 and 2.17 are deleted.
30. In Section 2.21:
(a) In the 15th line thereof, the following is inserted after the word
"Marriott": "Marriott International, Inc.";
(b) In the 16th line thereof, the following is inserted after the words
"or the Environmental Indemnity of Marriott": "or the Environmental
Indemnity of Borrower";
(c) In the 20th line thereof, the following is inserted after the word
"Loans": "or for misapplication of any Gross Revenues, proceeds of
the Loan or other funds in contravention of the Loan Documents".
-7-
<PAGE>
(d) Clause (b) is deleted and replaced with the following:
"(b) for any room revenues, rents or other income from the Property,
or any income or proceeds from any other collateral, (i) received
after notice of default from the Lender or an Event of Default and
not applied to the fixed, operating and debt service expenses of the
Property, or (ii) collected more than one month in advance;" and
(e) With respect to the final sentence thereof, the following is added
thereto:
"(d) for waste with respect to the Property; (e) for any security
deposits of tenants or advance-booking deposits collected by or on
behalf of Borrower not turned over to Lender upon a transfer of the
Property by foreclosure or sale or deed in lieu thereof; and (f) for
damages relating to environmental matters."
31. The parties hereto acknowledge and agree that the conditions to closing set
forth in Article 3 were the conditions required to be satisfied for the
closing of the Existing Loan, and shall not be deemed to be conditions to
the closing of transaction contemplated by this Modification, which are
governed by Section 69 of this Modification.
32. Borrower hereby makes and confirms as of the Effective Date, each of the
representations and warranties set forth in Article 4 as well as in any
other Loan Document, except that in connection therewith, the phrases in
the introductory language to Article 4 and Section 4.26, "except as
disclosed in Exhibit U" and "except as disclosed in Exhibit V" (and similar
references elsewhere in the Loan Agreement) are deleted. Further, Borrower
hereby represents and warrants as to the matters set forth in Annex A
hereto (which is incorporated herein) and as follows:
(a) Borrower has repaid in full the Purchase Debt, evidenced by the
Purchase Note, and any interest thereon, and has fully performed any
and all obligations required to be performed in connection therewith.
(b) As of the Effective Date, (i) to the best of Borrower's knowledge
after due investigation, there exists no breach or default, nor any
circumstance or condition which, with the giving of notice or passage
of time, or both, would constitute a breach or default, by the
Existing Agent or any other Existing Lender under the Existing Loan
Agreement or any of the other Existing Loan Documents, and (ii) the
entire amount of each of the Loans has been funded, and Lender has no
obligation to make any further advance of funds under the Loan
Agreement or any of the other Loan Documents.
(c) Borrower has performed and satisfied in full any and all obligations
of Borrower under the Purchase Agreement, and no further obligations
or liabilities of Borrower remain or shall accrue under the Purchase
Agreement. To the best of Borrower's knowledge after due
investigation, there exists no
-8-
<PAGE>
breach or default, nor any circumstance or condition which, with the
giving of notice or passage of time, or both, would constitute a
breach or default, by the holder of the Seller's interest under the
Purchase Agreement, and no further obligations or liabilities of the
Seller remain or shall accrue under the Purchase Agreement.
(d) Borrower no longer has any interest in the Equipment, the Equipment
Lease or the Equipment Purchase Agreement referred to in the Existing
Loan Agreement, and Borrower has fully performed any and all
obligations and liabilities to be performed by Borrower in connection
therewith. Accordingly, any and all references to the "Equipment",
the "Equipment Lease" or the "Equipment Purchase Agreement" in the
Loan Agreement, including Article 10, shall be deemed deleted.
(e) Borrower has paid in full the Arrangement Fee and the Loan Fee due
under Section 2.20 of the Existing Loan Agreement.
(f) There has been no material adverse change in the condition of the
Property since November 1, 1996, the date of the current appraisal.
33. Section 4.2 is deleted and replaced with the following:
"4.2 Ownership. The General Partner is a wholly-owned
---------
subsidiary of Host Marriott. The Golf Course B Owner and Operating
Tenant are, directly or indirectly, wholly-owned subsidiaries of
Marriott International, Inc."
34. In Sections 4.3, 4.4 and 4.5, the following phrase is inserted after
"the Loan Documents": "and the Modification Documents".
35. In Section 4.6, the introductory phrase "The financial statements
("Financial Statements")" is replaced with the following:
"The financial statements and such other information concerning the
financial condition of Borrower and/or the Property, including any of
the same furnished in connection with the execution and delivery of
the Modification Documents (collectively, "Financial Statements")".
36. In Section 4.6, the following is inserted after the word "and" in the
fourth line thereof: ", as to the financial statements,".
37. In Section 4.6, the final sentence thereof is deleted.
38. Without limiting the generality of Section 2.(a) of this Modification, in
Section 4.20, the term "Lenders" shall refer to the Lender named herein or
Goldman Sachs Mortgage Company.
-9-
<PAGE>
39. In Section 5.4(a), the concluding proviso is deleted and replaced with the
following:
"provided, however, that the Borrower shall not be required to pay
-------- -------
any such tax, assessment, charge, levy or claim or discharge any such
lien if the validity thereof shall be contested in good faith by
appropriate proceedings and if the Borrower shall have established
with Lender such cash escrow (or shall have otherwise made such
provision for payment) as Lender, in its discretion, may require;
however, if the aggregate amount being contested in accordance with
this subsection 5.4(a), together with the aggregate amount being
contested in accordance with the terms of Section 6.3(a) hereof, is
not greater than $200,000, then the obligation to escrow such amounts
shall not apply;"
40. In Section 5.6(a), Borrower shall also provide a periodic "rent letter,"
certified by General Partner in the same manner as all other statements to
be provided by Borrower pursuant to Section 5.6(a), which shall contain,
among other things, the then-balance in the FF&E Reserve.
41. The following is added as new Section 5.6(1):
"(l) As soon as practicable, and in any event, within 30 days
after the end of each Accounting Period, statements with respect to
such Accounting Period and the 13 Accounting Periods immediately
preceding the delivery of such statement, of Gross Revenues; gross
expenses; net operating income; the ratio of net operating income to
current Debt Service; REVPAR; average occupancy; and average daily
room rate."
42. Section 5.11 is deleted and replaced with the following:
"5.11 Operations. Cause the Hotel to be operated continuously
----------
by Operating Tenant or Marriott International, Inc. or a wholly owned
(directly or indirectly) subsidiary thereof as a "Marriott" Hotel in
accordance with the standards established by Marriott International,
Inc. with respect to its full-service hotels and in accordance with
the Operating Lease (it being covenanted and acknowledged that any
amendment or termination of the Operating Lease shall require the
prior written consent of Lender)."
43. The following is added as new Section 5.16:
"5.16 Debt Service Liquidity Reserve Account.
--------------------------------------
(a) Not later than January 3, 1997, Borrower shall establish
(pursuant to an agreement substantially in the form submitted to Borrower
by Lender on the date of the execution of the Modification) with Lender, or
if Lender is not a depository institution or if Lender shall otherwise
elect, a depository institution designated by Lender, as a separate
account, an account ("DSLR Account") to serve as a debt service liquidity
------------
reserve into which all Excess Cash Flow shall be deposited in
-10-
<PAGE>
accordance with Section 5.16(b) hereinbelow. The DSLR Account shall be in the
name of and under the sole dominion and control of Lender, subject only to
Lender's obligations hereunder to advance funds therefrom in accordance with
Section 5.16(c) hereinbelow, Borrower shall not have the authority or power to
make withdrawals from said DSLR Account, and Lender shall be and is hereby
irrevocably authorized to make withdrawals from said account in accordance with
the Loan Documents. Amounts in the DSLR Account shall be invested in such
investments as Borrower shall select and Lender shall approve (such approval not
to be unreasonably withheld, it being acknowledged that Lender shall have the
right to require investments that are substantially without risk of principal
loss and are appropriately liquid), provided that if a Potential Default or
--------
Event of Default shall have occurred, then Lender shall have the sole right and
discretion to select the investments. Any earnings on the DSLR Account shall be
retained therein and applied in the same manner as Borrower's deposits thereto.
The out-of-pocket costs reasonably incurred in establishing and maintaining the
DSLR Account shall be borne by Borrower and may be deducted from amounts then on
deposit therein.
(b) On the twenty-first day following the end of each Accounting Period,
after the payment of (or provision for) the interest payment due and payable
under the Notes on the Interest Payment Date (as defined in the Notes) occurring
immediately after the end of such Accounting Period, Borrower administrative
expenses approved by Lender, Borrower funded capital expenditures approved by
Lender and required Golf Course ground lease rental payments accruing during
such Accounting Period (all of such amounts, excluding the interest payment due
and payable under the Notes, constituting the "Permitted Additional
--------------------
Deductions"), Borrower shall deposit directly into the DSLR Account the excess
- ----------
of the Operating Profit for such Accounting Period over the sum of such interest
payment and Permitted Additional Deductions. For purposes of the foregoing
sentence, if Borrower prepays the Loans in accordance with and to the extent
permitted by Section 4(b)(ii) of the Notes, then the debt service payments on
the refinancing described in said Section 4(b)(ii) made by Host Marriott or an
affiliate thereof or Marriott International or an affiliate thereof in an amount
equal to the lesser of the actual debt service on such loan or the amount of
debt service which would otherwise have been payable on such prepaid principal
and interest under the Loans shall be included in "Permitted Additional
Deductions".
(c) The amounts deposited in the DSLR in respect of any Accounting
Period, together with all earnings and interest thereon, shall be retained
therein and following notice to Borrower, released only in accordance with the
following:
(i) If a periodic installment of Annual Rental payable by the
Operating Tenant under the Operating Lease for any Accounting Period shall
be insufficient to pay interest on the Loans due and payable on the
Interest Payment Date immediately following such periodic installment,
then funds shall be disbursed from the DSLR Account (and Lender is hereby
authorized, without any further writing or authorization required from
Borrower, to make disbursements from the DSLR Account) in the amount of
such insufficiency and to apply the same to the payment of such interest,
-11-
<PAGE>
provided that if any Event of Default or Potential Default shall exist, Lender
- --------
shall have the right to apply monies in the DSLR Account in such order and to
such items as it may elect; provided that if there is no monetary Event of
--------
Default and no default by the Operating Tenant under the Operating Lease beyond
the expiration of any applicable notice and grace period, Lender shall disburse
to the Operating Tenant from the DSLR Account the amount owed to the Operating
Tenant for its incentive management fee, such disbursement to be made at the
same time, and on the same terms and conditions as would be applicable to the
Borrower's payment of such fee under the terms of Annex B and the Operating
Lease. The insufficiency of amounts in the DSLR Account shall not relieve
Borrower from its obligation to fulfill each of its covenants in the Loan
Documents.
(ii) If there shall occur an Event of Default, then the amounts in the
DSLR Account shall not be made available to Borrower (or to the Operating
Tenant) and instead may be held, used and applied by Lender in its sole and
absolute discretion to the payment of any other amounts that may be due and
payable (or that may thereafter become due and payable) under the Loan; provided
--------
that if there is no monetary Event of Default and no default by the Operating
Tenant under the Operating Lease beyond the expiration of any applicable notice
and grace period, Lender shall disburse to the Operating Tenant from the DSLR
Account the amount owed to the Operating Tenant for its incentive management
fee, such disbursement to be made at the same time, and on the same terms and
conditions as would be applicable to the Borrower's payment of such fee under
the terms of Annex B and the Operating Lease.
(iii) If the Loan, together with all other amounts due under the Loan
Documents, shall be repaid in full, then the amounts in the DSLR Account shall
be paid as follows:
(A) first, to Borrower, for payment to a reserve account established
by the Operating Tenant, an amount calculated in accordance with Annex B
attached hereto (and Borrower shall be obligated to pay to the Operating
Tenant from such reserve account any amount owed to the Operating Tenant on
account of the Operating Tenant's incentive management fee in accordance with
Annex B and the Operating Lease);
(B) second, to the lender under the loan to be made under the GSMC
Long-Term Financing Commitment (or any replacement loan thereof), for the
deposit into the debt service liquidity reserve to be established in
accordance therewith, up to a maximum amount (the "Maximum DSLR Amount") equal
to six (6) months' principal and interest payments as would be required to be
paid under the GSMC Long-Term Financing Commitment for the Senior Note and six
(6) times the amount described in clause (vi) under "Application of Revenues -
- Prior to
-12-
<PAGE>
Year 12.5" thereof (all terms in this parenthetical as defined in
the GSMC Long-Term Financing Commitment); and
(C) third, the balance, if any, to Borrower.
(d) Borrower hereby pledges, assigns and grants a security interest
to Lender, as security for payment of all sums due in respect of the Loan
and the performance of all other terms, conditions and covenants of this
Agreement and any other Loan Document on Borrower's part to be paid and
performed, all of Borrower's right, title and interest in and to the DSLR
Account, together with the deposits therein, including all interest earned
thereon and investments held therein. Borrower shall not further pledge,
assign or grant any security interest in the DSLR Account, or permit any
lien, charge or encumbrance to attach thereto, or any levy to be made
thereon, or any UCC-1 Financing Statements to be filed with respect thereto
(except those naming Lender as the secured party).
(e) Under no circumstances shall the Operating Tenant or any
affiliate thereof have any right, title or interest of any sort, legal or
equitable, in or to the amounts in the DSLR Account. The foregoing,
however, shall not affect Lender's obligations to Borrower to disburse
funds in the DSLR account in accordance with the terms of this Section
5.16.
44. Section 6.1 is amended by deleting clauses "Third", "Fourth", "Fifth" and
"Sixth" and inserting the following therefor:
"Third: Deposit of amounts required under Section 5.16 to be
deposited into the DSLR Account and, to the extent applicable,
applied to the repayment of principal on the Loans."
The reference to clauses "Fourth", "Fifth" and "Sixth" in the final
paragraph of Section 6.1 are hereby deleted.
45. In Section 6.2(c), the following new clauses (iii) and (iv) shall be
inserted at the conclusion thereof:
"and; (iii) such Indebtedness, together with any other Indebtedness
described in Section 6.2(f), shall have been incurred in the ordinary
course of Borrower's business and the aggregate amount thereof shall
not exceed $2,000,000."
46. Sections 6.2(d), 6.2(e) and 6.2(f) are deleted, and the following new
Sections 6.2(d), 6.2(e) and 6.2(f) are hereby inserted:
"(d) Indebtedness described under Section 4(b)(ii) of each of
the Notes, provided that such Indebtedness satisfies the requirements
--------
of clauses (i), (ii), (iii) and (iv) of Section 6.2(c).
-13-
<PAGE>
(e) Indebtedness represented by non-capital equipment leases
entered into in the ordinary course of Borrower's business, where the
required annual payments thereunder do not in the aggregate exceed
$1.1 million, of which no more than $600,000 annually in the
aggregate may come from sources other than the FF&E Reserves.
(f) Indebtedness incurred in the ordinary course of Borrower's
business, provided that the lender thereunder is Marriott
--------
International, Inc. or its wholly owned subsidiary and such
Indebtedness satisfies the requirements of clauses (i), (ii) and
(iii) of Section 6.2(c)."
Nothing herein or in the Loan Documents shall be construed as permitting
any of the Indebtedness described in Section 6.2 to be secured by any asset
or interest of Borrower, except to the extent, if at all, expressly
permitted under Section 6.3 of the Loan Agreement.
47. In Section 6.3(a):
(i) in line 8, the phrase "as to which adequate reserves have been
established or deposits of cash or readily marketable securities
required to obtain the release of such liens have been made" is
replaced with: "as to which deposits of cash or readily marketable
securities required to obtain the release of such liens have been
made with Lender or a court of competent jurisdiction", and
(ii) in line 15, the phrase "and adequate reserves shall have been
established" is deleted and replaced with "and adequate cash deposits
have been made with Lender; however, if the aggregate amount being
contested in accordance with this subsection 6.3(a), together with
the aggregate amount being contested in accordance with the terms of
Section 5.4(a) hereof, is not greater than $200,000, then the
obligation to make such cash deposits shall not apply;".
48. Sections 6.3(c), 6.3(d), 6.3(e) and 6.3(f) are deleted.
49. The following is hereby inserted at the end of Subsection 6.6(b):
"provided that the Partnership Documents may be amended to
reflect the purchase of some or all of the limited partnership
interests in Borrower by Host Marriott or a wholly owned (directly or
indirectly) subsidiary thereof, or in connection with the partial
take-out loan from Host Marriott or Marriott International or their
wholly owned subsidiaries, subject to the rights of the Lender
hereunder (as well as the rights of the Lender under the GSMC Long-
Term Financing Commitment)".
50. The following is hereby inserted at the end of Section 6.6:
-14-
<PAGE>
"or (e) permit or suffer the transfer, conveyance, encumbrance
or other disposition of any interest, direct or indirect, in the
Borrower, whether now owned or hereafter acquired, by Host Marriott
or any affiliate, other than to Host Marriott or a wholly-owned
(directly or indirectly) subsidiary thereof; provided, that the
Borrower may transfer the Property to a newly formed, bankruptcy
remote, special purpose entity (complying with all rating agency
requirements), wholly owned (directly or indirectly) by Borrower, on
the condition that such transferee expressly assume all of the
Borrower's obligations under the Notes and the other Loan Documents
pursuant to an instrument in form and substance reasonably
satisfactory to Lender, and at Lender's election, such transferee
shall agree to such modification of the Loan Documents as shall be
reasonably required by the Lender."
51. In Section 7.1, in the 15th line, "B+" is deleted and: replaced with "A".
52. In Section 7.2, the following is added to the end of the second sentence:
", but in no event less than the coverage in effect as of the date
hereof".
53. In Section 8.1(c), in the 5th line, "three (3) days" is deleted and
replaced with "two (2) Business Days".
54. In Section 8.1(i), the following is added to the conclusion thereof:
"the General Partner shall cease to be the sole general partner of
Borrower or any of its existing authority with respect to the
Borrower's business and affairs shall be diminished; or Borrower
shall permit or suffer the transfer, conveyance, encumbrance or other
disposition of any interest, direct or indirect, in the Borrower,
whether now or hereafter acquired, by Host Marriott or any affiliate,
other than to Host Marriott or a wholly-owned (directly or
indirectly) subsidiary thereof; or"..
55. In Section 8.1(j), in the second line, "either or both" is deleted and
replaced with "any".
56. In Section 8.1, page 92, the following is added to the conclusion of
clause (i), immediately prior to the word "or":
"provided upon the occurrence of an Event of Default described in
--------
Section 8.1(f) with respect to Borrower, the Notes and such other
notes shall be automatically due and payable, both as to principal
and interest;"
57. Section 8.4 is hereby deleted.
58. In Article 9, references to "FNBC" are hereby deleted and replaced with
"GMAC Commercial Mortgage Corporation."
-15-
<PAGE>
59. In Section 11.1, the notice addresses are hereby deleted and replaced with
the following:
Borrower:
Desert Springs Marriott Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Law Department (#923)
with a copy to:
Desert Springs Marriott Limited Partnership
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Asset Management Department (#908)
Lenders:
GMAC Commercial Mortgage Corporation
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044
Attention: Executive Vice President, Loan Servicing
with a copy to:
GMAC Commercial Mortgage Corporation
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044
Attention: Chief Financial Officer
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Diane Citron
Goldman Sachs Mortgage Company
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Mr. Steven T. Mnuchin
-16-
<PAGE>
Goldman Sachs Mortgage Company
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
Attention: Ms. Lisa Payne
60. In Section 11.5(c), the final sentence thereof is deleted.
61. Section 11.10 is deleted.
62. In Section 11.12(b), the concluding proviso is deleted.
-------
63. In Section 11.14(a), in the 8th line, the phrase "which designation shall
be subject to the Borrower's approval, not to be unreasonably withheld" is
deleted.
64. All references to "Illinois" in Section 11.18 of the Existing Loan
Agreement are hereby deleted and replaced with "New York". Such Section
11.18, as modified, shall be applicable to each of the Modification
Documents, with the exception of the Security Agreement and the recorded
modification documents making specific reference to the applicability of
the laws of the State of California (either in whole or in part).
65. In Section 11.23, the following phrase is inserted as new clause (a)(vi)
after the word "hereof," in clauses (a)(v): ", and (vi) to GMAC Commercial
Mortgage Corporation, Goldman Sachs Mortgage Company, and their respective
agents, accountants, attorneys, contractors, and consultants."
66. In addition to the modifications made to the Existing Loan Documents in
Section 2 of this Modification, or in any of the other Modification
Documents, the following Sections of this Modification shall be applied to
the appropriate Sections of the other Existing Loan Documents, where
necessary:
(a) Section 59 of this Modification shall be applied to the notice
provisions of other Existing Loan Documents, including, without
limitation, Section 10(f) of the Existing Security Agreement and
Section 9 of the Existing Borrower Environmental Indemnity.
(b) Section 64 of this Modification shall be applied to similar
provisions selecting applicable law or forum in other Existing Loan
Documents, including, without limitation, Section 10 of the Existing
Borrower Environmental Indemnity.
(c) Section 30 of this Modification shall apply to Section 10(h) of the
Existing Security Agreement, such that the provisions thereof shall
conform to the provisions of Section 2.21 of the Loan Agreement.
-17-
<PAGE>
(d) The Existing Security Agreement is hereby modified as follows:
(i) Any and all references to "Agent", "Lenders", "Secured Party"
or "Secured Parties" in the Existing Security Agreement shall
be deemed and construed to refer to Lender.
(ii) Without limitation on any other provision of the Security
Agreement (including, without limitation, Section 2(h) of the
Security Agreement), the continuing first priority security
interest created by Borrower in favor of Lender under the
Security Agreement shall encumber, and Borrower hereby
confirms its grant of a continuing first priority security
interest in and a lien upon, all of Borrower's right, title
and interest in, to and under the DSLR Account described in
Section 5.16 of the Loan Agreement (as incorporated therein by
Section 43 of the Modification of Loan Agreement), including,
without limitation, all of Borrower's right, title and
interest in, to and under any and all funds on deposit in the
DSLR Account from time to time, and any and all proceeds
thereof, and all of such right, title and interest of Borrower
shall comprise a portion of the Collateral (as defined under
the Security Agreement) for all purposes.
(iii) Without limitation on any other provision of this Modification
or the Security Agreement, for the purposes of confirming and
ratifying the provisions of Section 4(b) of the Security
Agreement, Borrower hereby confirms to Lender (i) that
Borrower shall keep the records concerning its Accounts (as
defined in the Existing Security Agreement) at the Property or
at Borrower's chief executive office and chief place of
business, which chief executive office and the chief place of
business of Borrower is at 10400 Fernwood Road, Bethesda,
Maryland 20817, and (ii) that Borrower shall not, without
giving Lender not less than thirty (30) days' prior written
notice thereof, change the place where the records concerning
such Accounts are kept or the location of its chief executive
office or its chief place of business.
(iv) Without limitation on any other provision of this Modification
or the Security Agreement, Borrower hereby remakes as of the
Effective Date each of the representations and warranties of
Borrower (as "Debtor") under the Existing Security Agreement,
and hereby ratifies and confirms each of its covenants and
obligations under the Security Agreement.
(v) Beginning in Section 10(g), line 3, the phrase "Illinois,
provided, however, that to the extent the Collateral is
-------- -------
located in the State of California (1) matters of title, and
(2) matters of creation, perfection and priority of the
security interest created by this
-18-
<PAGE>
Agreement which are required to be governed by the laws of the
State of California shall be governed thereby and construed in
accordance therewith" is deleted and replaced with
"California".
(vi) In Section 5(b) of the Existing Security Agreement, the phrase
"the Illinois Uniform Commercial Code and" is hereby deleted.
(vii) In Section 5(b)(1) of the Existing Security Agreement, the
phrase "the Illinois Uniform Commercial Code," is hereby
deleted.
67. Upon the execution and delivery of this Modification, the Lender shall have
earned, and Borrower shall pay or cause to be paid to Lender, a fee
("Modification Fee") in the amount of $800,000.
----------------
68. In connection with the purchase and modification of the Existing Loans
contemplated in this Modification, Borrower will be responsible for, and
shall pay on demand, all expenses and costs incurred by Lender in
connection with the Loans, including fees and costs for income and expense
audits, travel, environmental and engineering consultants and reports,
credit reports, appraisals, reasonable attorneys' fees and expenses in
documenting and negotiating the Loan Documents and all certificates and
instruments related thereto, and due diligence, other out-of-pocket
expenses relating to credit and collateral evaluations and title insurance
premiums and charges, mortgage recording taxes and other filing fees and
escrow fees ("Lender Expenses"). Such Lender Expenses shall be paid by
---------------
Borrower to Lender in addition to the Modification Fee.
69. The following shall be additional conditions to Lender's obligations to be
satisfied by Borrower concurrently herewith, which Borrower hereby
covenants to satisfy:
(a) Borrower shall deliver to Lender audited financial statements of
Borrower for the prior three fiscal years certified by a "Big Six" or
other nationally recognized accounting firm acceptable to Lender, and
current results from operations certified by an Authorized Accounting
Officer of Borrower.
(b) Borrower shall have paid the Modification Fee and Lender Expenses.
(c) Borrower shall have executed and delivered the GSMC Long-Term
Financing Commitment (as defined in the Notes) and shall have paid
all fees due and owing thereunder.
(d) Borrower shall have provided Lender with the following items, each of
which must be acceptable to Lender in its sole discretion: (i)
engineering report (including building code and ADA compliance), (ii)
Phase I Environmental Report (and Phase II Environmental Report, if
recommended), (iii) MAI appraisal from an appraiser selected by
Lender, and (iv) reliance letters from such report and appraisal
providers, in each case, in form and substance satisfactory to
Lender.
-19-
<PAGE>
(e) Each of the conditions set forth in ANNEX C.
70. Failure to fund under the GSMC Long-Term Refinancing Commitment shall not
affect any of Lender's rights under the Notes, the Loan Agreement, the Deed
of Trust, or any of the other Loan Documents.
71. Borrower hereby acknowledges that the Lender named herein has purchased the
Existing Notes as an accommodation to Borrower and that the Lender named
herein (and its successors and assigns) shall under no circumstances have
any liability or obligation to the Borrower whatsoever as a result of or in
connection with any action or inaction taken or omitted by or on behalf of
any of the Existing Lenders or the Existing Agent under or in connection
with the Loan Documents.
72. All of the terms and provisions of the Existing Loan Documents (including,
without limitation, the Existing Security Agreement and the Existing
Borrower Environmental Indemnity), as modified and amended by the
Modification Documents, are hereby ratified and confirmed by Borrower as of
the date hereof to be in full force and effect in all respects. Borrower
hereby represents and warrants that as of the date of the execution and
delivery of this Modification: (i) other than the fact that the Existing
Notes have matured, there exists no default or events which, with the
giving of notice or passage of time, or both, would constitute a default
under the Notes, the Loan Agreement, the Deed of Trust or any other Loan
Document and (ii) Borrower has no offsets, defenses, counterclaims, setoffs
or similar rights with respect to its obligations of payment and
performance under the Notes, the Loan Agreement, the Deed of Trust or any
of the other Loan Documents. This Modification and the other Loan Documents
contain the entire agreement of the parties hereto and thereto in respect
of the transactions contemplated hereby and thereby, and all prior
agreements among or between such parties, whether oral or written, between
Borrower and Lender, in each case with respect to the subject matter
hereof, are superseded by the terms of this Modification and the other Loan
Documents.
73. All news releases, publicity or advertising by Borrower or Lender (or any
of their respective affiliates which they control) through any media
intended to reach the general public which refers to the Loan Documents or
the financing evidenced by the Loan Documents, to Borrower, Lender or
Goldman Sachs Mortgage Company (or any of their respective affiliates)
shall be subject to the prior written approval of Borrower, Lender or
Goldman Sachs Mortgage Company, as applicable.
74. This Modification shall in all respects be governed by, and be construed
and interpreted in accordance with, the laws of the State of New York.
75. This Modification may be executed and delivered in counterparts, and
counterparts executed and delivered by each of Lender and Borrower shall
together constitute one original.
76. No modification, amendment, extension, discharge, termination or waiver of
any provision of this Modification, or any Loan Document, nor consent to
any departure
-20-
<PAGE>
by Borrower therefrom, shall in any event be effective unless the same
shall be in a writing signed by the party against whom enforcement is
sought, and then such waiver or consent shall be effective only in the
specific instance, and for the purpose, for which given.
77. For the purpose of confirming the applicability of New York law, Borrower
hereby confirms its covenant to perform and comply with each of the
following sections of the Deed of Trust: 1.01 through 1.13, 1.15, 1.16
through 1.19, 2.07 and, to the extent that the same relate to any of the
foregoing sections, Section 3.01 through 3.07, 3.08 (other than subsections
(c) and (e)), 3.11, 3.12, 3.14 and 3.15. The foregoing shall not be deemed
to limit or modify any provisions of the Deed of Trust.
78. The parties acknowledge that certain provisions of the Existing Loan
Agreement and certain of the other Existing Loan Documents which have no
continuing relevance or effect remain in said Loan Documents following the
modification of said Existing Loan Documents by the Modification Documents
(such provisions, the "Historical Provisions"), to reflect directly in the
---------------------
Loan Documents the history of the Loans. The Historical Provisions include,
without limitation, Sections 1.4, 1.105, 1.112, 1.20, 1.80, 2.1(d) and
2.18, Article 3, Article 9, and Sections 11.5, 11.6, 11.8, 11.12, and
11.14 of the Existing Loan Agreement, and references to TWA and the
Equipment and the Equipment Lease in the Security Agreement. Borrower and
Lender hereby covenant and agree that notwithstanding the retention of the
Historical Provisions in the Loan Documents, the Historical Provisions
shall not be of any further force or effect, and without limitation on the
foregoing, none of the Historical Provisions, or their retention in the
Loan Documents, shall limit, expand or modify any of the obligations or
liabilities of Borrower, or the rights or remedies of Lender, under any of
the Loan Documents with regard to any such Historical Provisions.
-21-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have each caused this
Modification to be duly executed as of the date and year first above written.
BORROWER:
DESERT SPRINGS MARRIOTT LIMITED
PARTNERSHIP, a Delaware limited
partnership
By: MARRIOTT DESERT SPRINGS
CORPORATION, a Delaware
corporation, its general partner
By: /s/ Patricia K. Brady
---------------------------------
Name: Patricia K. Brady
Title: Vice President
LENDER:
GMAC COMMERCIAL MORTGAGE
CORPORATION, a California corporation
By: /s/ Karen Nee
------------------------
Name: Karen Nee
Title: Executive Vice President
<PAGE>
ANNEX A
REPRESENTATIONS AND WARRANTIES RE GROUND LEASE
With respect to the Leased Premises demised under the Golf Course
Lease, Borrower represents and warrants:
(i) the Golf Course Lease or a memorandum thereof has been duly
recorded; the lease permits the interest of the lessee thereunder to be
encumbered by the Deed of Trust and does not restrict the use of the
related property by the lessee, its successors or assigns in a manner that
would materially adversely affect the security provided by the Deed of
Trust; and a true and complete copy of the Golf Course Lease has been
delivered to Lender;
(ii) pursuant to the terms of the Golf Course Lease, the Golf Course
Lease may not be amended, modified, cancelled, supplemented or terminated
without the prior written consent of Lender, as Leasehold Mortgagee
provided that such Leasehold Mortgagee has provided the lessor a true and
correct copy of the modification and written notice specifying the name and
address of such Leasehold Mortgagee, and any such action without such
consent is of no force and effect;
(iii) the Golf Course Lease has an original term (or an original
term plus one or more optional renewal terms which have been exercised or
which may be exercised, and will under all circumstances be enforceable, by
a Leasehold Mortgagee) which extends not less than ten (10) years beyond
the Maturity Date; the base rental under the Golf Course Lease is $100,000
and shall be $100,000 for any renewal term which may be exercised;
(iv) the Golf Course Lease is not subject to any liens or
encumbrances superior to, or of equal priority with, the related Deed of
Trust (other than the related ground lessor's fee interest); there is no
deed of trust or Lien of record and to Borrower's knowledge there is no
deed of trust or Lien not recorded, in each case encumbering the related
ground lessor's fee interest (or if any such deed of trust or Lien exists,
it is subordinate to the Lien held by Lender under the Deed of Trust);
(v) the Golf Course Lease is assignable by a foreclosing Leasehold
Mortgagee without the consent of the lessor thereunder;
(vi) on the date hereof, the Golf Course Lease is in full force and
effect and no default has occurred under the Golf Course Lease nor, to the
best of Borrower's knowledge, is there any existing condition which, but
for the passage of time or the giving of notice, would result in a default
under the terms of the Golf Course Lease;
(vii) the Golf Course Lease requires the lessor thereunder to give
notice of any default by the lessee to the Leasehold Mortgagee; upon Lender
providing lessor with a true and correct copy of the Modification of Deed
of Trust and written notice
-23-
<PAGE>
specifying its name and address, Lender shall be recognized as a "Leasehold
Mortgagee" under the Golf Course Lease;
(viii) a Leasehold Mortgagee is permitted at least 30 days to cure
any default under the Golf Course Lease which is curable after the receipt
of notice of any such default before the lessor thereunder may terminate
the Golf Course Lease and such cure period shall be extended during such
time as Leasehold Mortgagee is actively pursuing an action for judicial or
nonjudicial foreclosure of the Tenant's interest in the premises or
Leasehold Mortgagee's prevented from exercising its rights and remedies
under the Loan Documents by reason of the bankruptcy of Tenant, an
injunction, court order or other similar prohibition provided that periodic
rent payments shall be paid in the case of any such default which is not
curable by such Leasehold Mortgagee, or in the event of the bankruptcy or
insolvency of the lessee under the Golf Course Lease, Leasehold Mortgagee
has the right, following termination of the existing Golf Course Lease or
rejection thereof by a bankruptcy trustee or similar party, to enter into a
new ground lease with the lessor on substantially the same terms and
conditions as the existing Golf Course Lease; and
(x) under the terms of the Golf Course Lease (together with the Deed
of Trust), any award from a condemnation will be applied (after payment to
the ground lessor of its proportionate share of the proceeds thereof) to
the payment of the Loans.
-24-
<PAGE>
ANNEX B
INCENTIVE PAYMENT
The "Incentive Payment" referred to in Section 5.16(c)(iii)(A) shall
be determined as follows for fiscal year 1997.
During the term of the Loans, Annual Rental under the Operating Lease
shall be deemed to equal $20.5 million. If actual Operating Profit (i.e. Annual
Rental) for fiscal year 1997 exceeds Debt Service, Operating Tenant shall be
entitled to an "Incentive Payment" (assuming a maximum amount of $2,000,000)
equal to a portion of such excess amount attributable to the term of the Loans,
pro-rated based upon the following cumulative percentages (limited to 100%)
applicable at the time the Loans (or a portion thereof) are paid or prepaid. If
the Loans (or a portion thereof) are paid or prepaid during a period, it will be
assumed for the purposes of calculating the Incentive Payment that such payment
or prepayment is made on the last day of such period. The Incentive Payment
shall be calculated as follows:
<TABLE>
<CAPTION>
Period/End Date Percentage Cumulative Periodic Payment
Payment Balance
Amount
<S> <C> <C> <C> <C>
Period 1 (1/31/97) 9.9% 9.9% $198,000 $198,000
Period 2 (2/28/97) 16.8% 26.7% $336,000 $534,000
Period 3 (3/28/97) 21.0% 47.7% $420,000 $954,000
Period 4 (4/25/97) 17.0% 64.7% $340,000 $1,294,000
Period 5 (5/23/97) 12.7% 77.4% $254,000 $1,548,000
Period 6 (6/20/97) 5.7% 83.1% $114,000 $1,662,000
Period 7 (7/18/97) (1.7%) 81.4% ($34,000) $1,628,000
Period 8 (8/15/97) (4.2%) 77.2% ($84,000) $1,544,000
Period 9 (9/12/97) (4.3%) 72.9% ($86,000) $1,458,000
Period 10 (10/10/97) 7.3% 80.2% $146,000 $1,604,000
Period 11 (11/7/97) 8.7% 88.9% $174,000 $1,778,000
Period 12 (12/5/97) 8.1% 97.0% $162,000 $1,940,000
Period 13 (1/2/98) 3.0% 100% $60,000 $2,000,000
</TABLE>
-25-
<PAGE>
In no event shall the Incentive Payment exceed $2,000,000. If
Operating Profit for the full 1997 fiscal year does not exceed Debt Service,
then no amounts shall be paid or owing to Operating Tenant from the amounts
contained in the DSLR Account.
Example 1:
Assume: (a) Long-Term Refinancing closes at the end of period 5, 1997
(b) Operating Profit for fiscal year 1997 = $22,000,000
Then: Incentive Payment = $1,161,000 (77.4% of $1,500,000)
$339,000 applied in accordance with Section 5.16(c)(iii)(B) and
(C)
Example 2:
Assume: (a) Long-Term Refinancing closes at the end of period 9, 1997
(b) Operating Profit for fiscal year 1997 = $24,000,000
Then: Incentive Payment = $1,458,000 (72.9% of $2,000,000)
$0 applied in accordance with Section 5.16(c)(iii)(B) and (C)
Example 3:
Assume: (a) Long-Term Refinancing closes at the end of period 6, 1997
(b) Operating Profit for fiscal year 1997 = $22,500,000
Then: Incentive Payment = $1,662,000 (83.1% of $2,000,000)
$0 applied in accordance with Section 5.16(c)(iii)(B) and (C)
Example 4:
Assume: (a) Long-Term Refinancing closes at the end of period 11, 1997
(b) Operating Profit for fiscal year 1997 = $20,500,000 or less
Then: Incentive Payment = $0
$1,778,000 applied in accordance with Section 5.16(c)(iii)(B)
and (C)
-26-
<PAGE>
ANNEX C
1. Notes. The Notes shall have been duly executed and delivered by
-----
the Borrower to the Lender.
2. Collateral Security. In order to secure the payment of the Loans
-------------------
when due, whether by acceleration or otherwise, and all other Indebtedness of
the Borrower to the Lender arising hereunder or related hereto:
(a) The Borrower shall have duly executed and delivered to the Lender
the Modification of Deed of Trust.
(b) The Borrower shall have furnished the Affirmation of General
Partner Guaranty duly executed and delivered by the General Partner, the
Affirmation of Host Marriott Guaranty duly executed and delivered by Host
Marriott, and the Affirmation of Guaranty, duly executed and delivered by
Marriott International, Inc.
(c) The Borrower shall have furnished the Affirmation of
Subordination and Attornment Agreement, duly executed and delivered by Operating
Tenant and Borrower, affirming, among other things, the subordination of the
Operating Lease to the Deed of Trust.
(d) The Borrower shall have furnished the Affirmation and
Modification of Assignment of Golf Course Lease, duly executed and delivered by
Golf Course B Owner and Borrower.
-27-
<PAGE>
(e) The Borrower shall have furnished the Affirmation and
Modification of Subordination Agreement, duly executed and delivered by the
General Partner and Host Marriott.
(f) The Borrower shall furnish the Affirmation of Subordination
Agreement, duly executed and delivered by Marriott International.
(g) The Borrower shall have furnished to the Lender the Affirmation
of Environmental Indemnity Agreement of Host Marriott duly executed and
delivered by Host Marriott.
(h) The Borrower shall have duly executed and delivered such
financing statements as the Lender or its counsel shall require to further
evidence, confirm and perfect the security interests granted or to be granted in
the Deed of Trust, Security Agreement and the other documents provided for
herein.
(i) The Borrower shall have duly executed and delivered such other
and further agreements, documents and instruments as the Lender or its counsel
may reasonably request to further evidence, perfect and preserve any of the
collateral security for the Borrower's obligations provided for herein.
3. Operating Lease. The Borrower and the Operating Tenant shall have
---------------
delivered to the Lender a copy of the Operating Lease, and all amendments
thereto, certified by them to be a true, correct and complete copy thereof.
-28-
<PAGE>
4. Golf Course Lease. The Borrower and the Golf Course B Owner shall
-----------------
have delivered to the Lender a copy of the Golf Course Lease, and all amendments
thereto, certified by them to be a true, correct and complete copy thereof.
5. Partnership Documents. The Borrower shall have delivered to the
---------------------
Lender the following: (a) a copy of the agreement of limited partnership of
Borrower, and all amendments thereto, certified by the General Partner to be a
true, correct and complete copy thereof, and copies of certificates of limited
partnership of Borrower, filed or recorded in the appropriate offices in the
State of Delaware and the State of California, each currently certified by the
General Partner to be a true, correct and complete copy thereof (collectively,
"Partnership Documents"), and (b) such other evidence as the Lender shall
require that the Borrower is qualified (to the extent such qualification is
necessary or appropriate) in the State of Delaware and the State of California.
6. General Partner's Corporate Documents. The Borrower shall have
-------------------------------------
delivered to the Lender the following: (a) a current certificate of the
secretary or an assistant secretary of the General Partner, certifying as to (i)
resolutions of the Board of Directors of the General Partner authorizing the
execution, delivery and performance of the Loan Documents and all other
documents or instruments to be executed and delivered by the General Partner
(either individually or on behalf of the Borrower) pursuant to the provisions
thereof; (ii) the full force and effect of such resolutions on such date; and
(iii) the incumbency and signature of each of the officers of the General
Partner signing such documents; (b) the Articles of Incorporation of the General
Partner, currently certified by the Secretary of State of the State of Delaware;
(c) a current good-standing certificate of the General Partner issued
-29-
<PAGE>
by the Secretary of State of the State of Delaware; (d) a current good-standing
certificate (or other proof of qualification and good standing satisfactory to
the Lender) evidencing the General Partner's qualification and good standing as
a foreign corporation in the State of California; (e) the bylaws of the General
Partner, currently certified by the secretary or assistant secretary of the
General Partner as being in full force and effect without further amendment or
modification; and (f) such additional supporting documents relating to the
General Partner as the Lender may reasonably request.
7. Operating Tenant's Corporate Documents. The Borrower shall have
--------------------------------------
delivered to the Lender the following: (a) a current certificate of the
secretary or an assistant secretary of the Operating Tenant, certifying as to
(i) resolutions of the Board of Directors of the Operating Tenant authorizing
the execution, delivery and performance of the Loan Documents to which Operating
Tenant is a party and all other documents or instruments to be executed and
delivered by the Operating Tenant (either individually or on behalf of the
Borrower) pursuant to the provisions hereof; (ii) the full force and effect of
such resolutions on such date; and (iii) the incumbency and signature of each of
the officers of the Operating Tenant signing such documents; (b) the Articles of
Incorporation of the Operating Tenant, currently certified by the Secretary of
State of the State of Delaware; (c) a current good-standing certificate of the
Operating Tenant issued by the Secretary of State of the State of Delaware; (d)
a current good-standing certificate (or other proof of qualification and good
standing satisfactory to the Lender) evidencing the Operating Tenant's
qualification and good standing as a foreign corporation in the State of
California; (e) the bylaws of the Operating Tenant, currently certified by the
secretary or assistant secretary of the Operating Tenant as being in full force
and effect without further amendment or modification; and (f) such
-30-
<PAGE>
additional supporting documents relating to the Operating Tenant as the Lender
may reasonably request.
8. Host Marriott Corporate Documents. The Borrower shall have
---------------------------------
delivered to the Lender the following: (a) a current certificate of the
secretary or an assistant secretary of Host Marriott, certifying as to the
incumbency and signature of each of the officers of Host Marriott signing such
documents; (b) the Articles of Incorporation of Host Marriott, currently
certified by the Secretary of State of the State of Delaware; (c) a current
good-standing certificate of Host Marriott issued by the Secretary of State of
the State of Delaware; (d) the bylaws of Host Marriott, currently certified by
the secretary or assistant secretary of Host Marriott as being in full force and
effect without further amendment or modification; and (e) such additional
supporting documents relating to Host Marriott as the Lender may reasonably
request.
9. Golf Course B Owner's Corporate Documents. The Borrower shall
-----------------------------------------
have delivered to the Lender the following: (a) a current certificate of the
secretary or an assistant secretary of the Golf Course B Owner, certifying as
to (i) resolutions of the Board of Directors of the Golf Course B Owner
authorizing the execution, delivery and performance of the Golf Course Lease,
the Golf Course Lease Assignment and all other documents or instruments to be
executed and delivered by the Golf Course B Owner pursuant to the provisions
hereof; (ii) the full force and effect of such resolutions; and (iii) the
incumbency and signature of each of the officers of the Golf Course B Owner
signing such documents; (b) the Articles of Incorporation of the Golf Course B
Owner currently certified by the Secretary of State of the State of Delaware;
(c) a current good-standing certificate of the Golf Course B Owner
-31-
<PAGE>
issued by the Secretary of State of the State of Delaware; (d) a current good-
standing certificate (or other proof of qualification and good standing
satisfactory to the Lender) evidencing the Golf Course B Owner's qualification
and good standing as a foreign corporation in the State of California; (e) the
bylaws of the Golf Course B Owner, currently certified by the secretary or
assistant secretary of the Golf Course B Owner as being in full force and effect
without further amendment or modification; and (f) such additional supporting
documents relating to the Golf Course B Owner as the Lender may reasonably
request.
10. Marriott International, Inc. Corporate Documents. The Borrower
------------------------------------------------
shall have delivered to the Lender the following: (a) a current certificate of
the secretary or an assistant secretary of the Marriott International,
certifying as to the incumbency and signature of each of the officers of
Marriott International signing such documents; (b) the Articles of Incorporation
of Marriott International currently certified by the Secretary of State of the
State of Delaware; (c) a current good-standing certificate of Marriott
International issued by the Secretary of State of the State of Delaware; (d) the
bylaws of the Marriott International, currently certified by the secretary or
assistant secretary of the Marriott International as being in full force and
effect without further amendment or modification; and (e) such additional
supporting documents relating to Marriott International as the Lender may
reasonably request.
11. Costs. The Borrower shall have paid (a) the Modification Fee,
-----
all intangible taxes and other taxes on the Notes and other similar taxes and
fees, all recording and filing fees and expenses, and all mortgage and stamp
taxes and (b) all appraisal fees, survey fees and expenses, title insurance
premiums and expenses, reasonable fees and expenses of the Lender's counsel and
all other costs and expenses that the Borrower is
-32-
<PAGE>
obligated to pay hereunder (including any amounts owed to the Existing Lenders
or their counsel).
12. Financial Statements. The Borrower shall have furnished to the
--------------------
Lender copies of the most current available financial statements of the Borrower
certified by an Authorized Accounting Officer of the General Partner as having
been prepared in accordance with generally accepted accounting principles and
the most current quarterly Financial Statements of Host Marriott.
13. Opinion of Local Counsel. The Lender shall have received from
------------------------
Cox, Castle and Nicholson, local counsel for the Borrower and the Marriott
Entities, an opinion reasonably satisfactory to Lender addressed to the Lender
and dated as of the date of the execution and delivery hereof, covering such
matters incident to the transactions herein contemplated as the Lender may
reasonably request.
14. Opinion of Counsel to Host Marriott. The Lender shall have
-----------------------------------
received from Christopher Townsend, counsel for the Borrower, General Partner
and Host Marriott, an opinion reasonably satisfactory to Lender addressed to the
Lender and dated on or after the date hereof, covering such matters incident to
the transactions herein contemplated as the Lender may reasonably request.
-33-
<PAGE>
15. Opinion of Counsel to Marriott International. The Lender shall
--------------------------------------------
have received from counsel for Marriott International, Operating Tenant and Golf
Course B Owner, an opinion reasonably satisfactory to Lender addressed to the
Lender and dated on or after the date hereof, covering such matters incident to
the transactions herein contemplated as the Lender may reasonably request.
16. Certificate Of Occupancy. The Borrower shall have furnished to
------------------------
Lender copies of a certificate of occupancy and of all other certificates,
licenses and permits necessary or appropriate for the full and complete
operation of the Improvements, issued by the Governmental Authorities having
jurisdiction over such matters.
17. Recording. The Modification of Deed of Trust shall have been
---------
recorded in the appropriate recording office in the jurisdiction in which the
Property is located, and such financing statements and other documents provided
for hereinabove shall have been filed in the appropriate filing offices;
provided that such recordation may be effected after the execution and delivery
hereof if Borrower shall have made provision for such recordation in a manner
satisfactory to Lender.
18. Title Insurance. There shall have been issued by the Title
---------------
Insurer to the Lender a policy of title insurance, which policy shall be dated
and effective as of the date hereof. Such policy shall insure in favor of Lender
the Lien of the Deed of Trust with respect to the Property (including the
leasehold estate under the Golf Course Lease), subject only to such exceptions,
and otherwise in form and substance, satisfactory to the Lender and the Lender's
counsel. Without limitation of the foregoing, the title insurance policy, as so
-34-
<PAGE>
endorsed, shall contain the following endorsements: (a) a "long-form" (3.1)
zoning endorsement; (b) a "doing business" endorsement; (c) a usury endorsement
(specifically referring to the usury laws of California); (d) a "comprehensive"
or other similar endorsement insuring that there are no encroachments affecting
the Property and that the Property is in compliance with all covenants,
conditions and restrictions of record; (e) a variable rate endorsement; (f) a
location endorsement; (g) a contiguity endorsement; (h) a Subdivision Map Act
endorsement; and (i) such other endorsements as the Lender may reasonably
require.
19. UCC Searches. The Lender shall have received advice from the
------------
Title Insurer or other source satisfactory to the Lender to the effect that a
search of the applicable public records of the States of Maryland and California
discloses no conditional sales contracts, chattel mortgages, leases of
personalty, financing statements or title retention agreements filed and/or
recorded against or with respect to Borrower or the Property or in respect of
any other property interests covered, or to be covered, by the Liens referred to
hereinabove, except (a) those granted to the Lender pursuant to the Security
Documents, (b) matters that, in the judgment of the Lender, do not adversely
affect the Borrower, the Property or the Lenders and (c) as otherwise permitted
hereunder.
20. Survey. The Borrower shall have furnished to the Lender a
------
current survey or surveys of the Property (including Golf Course B) and all
other properties subject to an easement in favor thereof, by a registered
surveyor satisfactory to the Lender, in form and content satisfactory to the
Lender and the Title Insurer, and certified to said parties as having been
prepared in accordance with American Land Title Association land survey
standards, showing (a) the legal description, (b) boundaries, established
building setback lines,
-35-
<PAGE>
if any, and the location of the Improvements as being within the boundaries of
the Land and any established recorded or zoning setback lines, (c) no
encroachments by any structures on adjoining property over the Land, and (d) no
other state of facts which, in the judgment of the Lender or the Lender's
counsel, would render title to the Property unmarketable or diminish the value
of the Property in any material respect.
21. Evidence of Insurance. The Lender shall have received original
---------------------
insurance certificates, original policies of insurance or certified true copies
of insurance policies evidencing hazard, liability, worker's compensation, flood
and other insurance in form, amount and with such coverages as are required in
the Loan Documents, naming the Lender (and Goldman Sachs Mortgage Company) as
insured interests for liability insurance, and naming the Lender as mortgagee
and loss payee for other insurance as required in the Loan Documents. If the
Property is not in a 100-year flood plain zone, the Borrower shall have
furnished evidence thereof satisfactory to the Lender.
22. Compliance, Access, Utilities. The Borrower shall have
-----------------------------
established to the satisfaction of the Lender that: (a) all required zoning,
planning, environmental and building code approvals relating to the acquisition,
construction and operation of the Property have been obtained and that the
Property conforms to and is permitted by all Laws; (b)all utility services
necessary for the use and operation of the Property are available and in
operation; and (c) the Borrower or the Golf Course B Owner has also obtained all
appropriate rights and easements to insure the availability of ingress and
egress to the Property from public highways.
-36-
<PAGE>
23. Estoppel Certificate from Operating Tenant. The Borrower shall
------------------------------------------
have delivered to the Lender an estoppel certificate, in form and substance
satisfactory to the Lender, duly executed and delivered by the Operating Tenant.
24. Estoppel Certificate from Golf Course B Owner. The Borrower
---------------------------------------------
shall have delivered to the Lender an estoppel certificate, in form and
substance satisfactory to the Lender, duly executed and delivered by the Golf
Course B Owner.
25. Additional Documents. The Borrower shall have furnished to the
--------------------
Lender copies of such other documents relating to the transactions contemplated
herein as the Lender may reasonably request.
26. No Default. There shall exist no Event of Default and no
----------
Potential Default.
27. Representations and Warranties. All representations and
------------------------------
warranties contained herein or in the other Loan Documents shall be true and
correct in all material respects, with the same force and effect as if made on
and as of the date hereof.
The execution and delivery of the Notes shall constitute a
representation and warranty by the Borrower to the Lender that all of the
conditions to the Lender's acquisition and modification of the Loan that are
specified in this Annex and elsewhere in the Loan Documents have been satisfied
as of the date hereof.
-37-
<PAGE>
EXHIBIT 10.7
AGREEMENT
This Agreement (hereinafter referred to as "Agreement") is made as of the
1st day of January, 1994, by and among MARRIOTT DESERT SPRINGS LIMITED
PARTNERSHIP, a Delaware limited partnership (hereinafter referred to as
"Owner"), DESERT SPRINGS HOTEL SERVICES, a venture controlled by Marriott
International, Inc. (hereinafter referred to as "Operator"), and MARRIOTT
OWNERSHIP RESORTS, INC., a Delaware corporation (hereinafter referred to as
"Developer").
RECITALS
--------
A. The parties hereto previously entered into that certain Recreational
License dated as of November 3, 1989 (the "Recreational License") and recorded
on March 23, 1990 as Instrument No. 106099 in the Office of the County Recorder
of Riverside County, California (the "Recorder's Office"), and on even date
therewith, the Developer assigned its rights and certain of its responsibilities
under the Recreational License to DESERT SPRINGS VILLAS TIMESHARE ASSOCIATION, a
California non-profit mutual benefit corporation (the "Association"), and the
parties (including the Association) subsequently entered into that certain First
Amendment to Recreational License dated February 12, 1991 (the "First
Amendment") and recorded on April 26, 1991 as Instrument No. 137896 in the
Recorder's Office, all of which relates to that certain timeshare project known
as Desert Springs Villas ("DSV I").
B. The parties hereto desire to amend certain provisions of the
Recreational License and First Amendment and propose entering into that certain
Amended and Restated Recreational License dated of even date herewith and
attached hereto as Exhibit A and have agreed to certain additional matters set
forth herein as an inducement to certain of the other parties agreeing to enter
into the Amended and Restated Recreational License.
C. The parties hereto are simultaneously entering into that certain
Recreational License dated of even date herewith and attached hereto as Exhibit
B, which relates to that certain timeshare project to be developed adjacent to
DSV I and to either be made a part of DSV I or developed as a separate timeshare
project to be known as Desert Springs Villas II or such other name chosen by the
Developer ("DSV II").
NOW, THEREFORE, in consideration of the mutual premises contained herein
and other good
1of 6
<PAGE>
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. RECITALS. The aforedescribed recitals are true and correct and
--------
incorporated herein by reference as if fully set forth.
2. AGREEMENTS FOR USE OF RESORT FACILITIES. Exhibits A and B attached
---------------------------------------
hereto are incorporated herein by reference as if fully set forth, and they
fully describe the rights and responsibilities of the parties hereto relative to
the use of certain facilities of Marriott's Desert Springs Resort and Spa (the
"Resort") described therein.
3. ADDITIONAL RIGHTS AND RESPONSIBILITIES. The parties hereto agree to
--------------------------------------
certain additional rights and responsibilities as follows:
(a) Upgrade to Resort Swimming Pool and Spa Facilities. Developer
--------------------------------------------------
agrees to pay $1.3 Million to the Owner to be used by it to upgrade the Resort
swimming pool and spa facilities substantially in accordance with the conceptual
drawings previously reviewed and agreed upon by the parties hereto and pursuant
to a construction schedule and payment schedule mutually agreed to by Owner and
Developer. Owner and Developer further agree to each paying one-half (1/2) of
the design costs for the upgraded pool charged by Marriott's Architecture and
Construction Division, which costs shall not exceed $30,000.
(b) Limitations on Rentals; Payment of Gross Rental Proceeds.
--------------------------------------------------------
Developer agrees not to separately rent out the second bedroom or guest suite
portion of a unit at DSV I or DSV II respectively, as applicable, (the "lock-out
unit"), except for use by it in the promotion of the sale of time-share
interests, for its own account during the period of construction and sell-out of
DSV I or DSV II respectively, as applicable. In addition to the foregoing
limitation as it applies to DSV II units, for units at DSV II," Developer
further agrees to require a minimum of a two night stay (except in its promotion
of the sale of its time-share interests) on all rentals of units at DSV II
rented by or through the Developer or its wholly owned subsidiary and management
company, Marriott Resorts Hospitality Corporation, or either of their successors
and/or assigns or affiliates.
2 of 6
<PAGE>
Developer agrees to pay to Owner 2.5% of the gross rental proceeds
realized by Developer on the rental of any of the condominium units at DSV I or
DSV II rented by it or its affiliates commencing upon the first to occur of
either (i) completion of construction of 100 condominium units at DSV II as
described in the attached Exhibit B hereto or (ii) January 1, 1996. Said
payments of a portion of the gross rental proceeds shall continue through the
initial term and any renewal term of the licenses described in the attached
Exhibits A and B hereto. Payments shall be due within 20 days of the end of each
accounting quarter of Developer. Upon not less than seventy-two (72) hours prior
written notice, Developer agrees to allow the Owner and/or Operator or either of
their respective agents to audit the Developer's books and records during
Developer's normal business hours to verify proper payment to Owner of the
aforedescribed payment of 2.5% of the gross rental proceeds.
(c) Construction of Additional Tennis Courts. At the option of Owner
----------------------------------------
and with agreement of the Developer, which agreement shall not be unreasonably
withheld, that the existing tennis courts to be used by hotel guests and
authorized users pursuant to Exhibits A and B hereto are insufficient to
reasonably accommodate the then-existing demand, the Developer agrees to fund
the construction of up to three (3) additional standard tennis courts, and with
the plans for such courts and any alterations thereto to receive the prior
approval of the Owner, which approval shall not be unreasonably withheld.
(d) Golf Course Alterations. The Owner and Operator agree to allow the
-----------------------
Developer to make the following alterations, at the Developer's sole cost and
expense and with the Owner's and Operator's prior approval, which approval shall
not be unreasonably withheld, to the Resort golf courses and related facilities:
(i) To alter Hole Nos. 10, 14 and 15 of the Valley Golf Course in
order to shorten Hole No. 10 by approximately 20 yards to move the green closer
to the tee box and add a water feature in front of the green, to shorten Hole
No. 14 by approximately 40 yards to relocate the tee boxes to allow for a
connector road, to relocate the Hole No. 15 tee boxes closer to the green to
allow for additional parking; and, if required as a result of the foregoing
alterations, to relocate the existing men's and women's restrooms;
3 of 6
<PAGE>
(ii) To alter and enhance the entrance to DSV I, to improve the
golf course crossing near the entrance, and to modify Hole Nos. 6 and 7 of the
Palm Golf Course, as necessary, to accomplish the foregoing; and
(iii) To make whatever reasonable additional alterations may be
required to maintain the "playability" and "interest" of the golf course in the
opinion of the golf course architect, Ted Robinson.
(e) Construction of DSV II Swimming Pool Facility. Developer agrees to
---------------------------------------------
construct a swimming pool facility as part of DSV II that will be attractive
enough to deter users of the DSV II units and facilities from using the Resort
swimming pool facility and to encourage them to utilize their on-site DSV II
swimming pool facility, and in connection with such construction, Developer
agrees to spend at least $1.3 million to accomplish the foregoing.
(f) Pre-Condition to Developer's Responsibilities. Notwithstanding
---------------------------------------------
anything to the contrary set forth herein, unless otherwise agreed to by the
Developer, the Developer shall not be obligated to perform its responsibilities
described in this Paragraph 3 until the earlier to occur of (i) issuance of a
final public report by the California Department of Real Estate ("DRE") for DSV
II or (ii) December 31, 1994, and prior to such date, the Developer may
terminate this Agreement and the Recreational License relative to DSV II should
it decide not to proceed with the development of DSV II.
4. ASSIGNMENT. This Agreement may not be assigned by any of the parties
----------
hereto without the prior written consent of the other parties, which consent
shall not be unreasonably withheld.
5. NOTICES. Any notices required hereunder shall be as set forth in the
-------
attached Exhibit A hereto.
6. WRITTEN AGREEMENT AS ENTIRE UNDERSTANDING OF THE PARTIES. This
--------------------------------------------------------
Agreement embodies the entire understanding of the parties hereto. There are no
other agreements or understandings, written or oral, in effect between the
parties related to the subject matter hereof. This Agreement may only be
modified by a written instrument signed by each of the respective parties
hereto.
4 of 6
<PAGE>
7. BINDING EFFECT. This Agreement is binding upon the successors and
--------------
assigns of the parties hereto.
8. GOVERNING LAW. The provisions of this Agreement shall be governed by
-------------
California law.
IN WITNESS WHEREOF, the parties hereto have set their respective hands and
seals on the dates hereinbelow listed.
OWNER:
MARRIOTT DESERT SPRINGS
LIMITED PARTNERSHIP
BY: Marriott Desert Springs Corporation,
a Delaware corporation,
General Partner
ATTEST: /s/Christopher G. Townsend BY: /s/Robert E Parsons, Jr,
--------------------------- -----------------------------
Christopher G. Townsend, Robert E Parsons, Jr,
Secretary President
(Corporate Seal) DATE:
-----------------------------
OPERATOR:
DESERT SPRINGS HOTEL SERVICES
BY: Marriott International, Inc.,
a Delaware Corporation, Joint Venturer
ATTEST: /s/Joan Rector McGlockton BY: /s/William R. Tiefel
--------------------------- ------------------------------
Joan Rector McGlockton, William R. Tiefel,
Secretary Vice President
(Corporate Seal) DATE:
-----------------------------------
5 of 6
<PAGE>
DEVELOPER:
MARRIOTT OWNERSHIP RESORTS, INC.
a Delaware corporation
ATTEST: /s/Joseph F. Scalo BY: /s/Robert A. Miller
-------------------------- ---------------------------------
Joseph F. Scalo, Robert A. Miller,
Assistant Secretary Executive Vice President
(Corporate Seal) DATE: January 1, 1994
---------------------------------
6 of 6
<PAGE>
EXHIBIT 10.8
AMENDED AND RESTATED RECREATIONAL LICENSE
-----------------------------------------
This AMENDED AND RESTATED RECREATIONAL LICENSE (hereinafter referred to as
"Agreement") is made as of the 1st day of January, 1994, by and among MARRIOTT
DESERT SPRINGS LIMITED PARTNERSHIP, a Delaware limited partnership (hereinafter
referred to as "OWNER"), DESERT SPRINGS HOTEL SERVICES, a joint venture
controlled by Marriott International, Inc. (hereinafter referred to as
"OPERATOR"), MARRIOTT OWNERSHIP RESORTS, INC., a Delaware corporation
(hereinafter referred to as "DEVELOPER"), and DESERT SPRINGS VILLAS TIMESHARE
ASSOCIATION, a California non-profit mutual benefit corporation (hereinafter
referred to as "ASSOCIATION").
RECITALS
--------
A. OWNER owns the Marriott's Desert Springs Resort and Spa (hereinafter
referred to as the "Resort") in Palm Desert, California located adjacent to the
site upon which Developer has developed and continues to develop a timeshare
condominium project known as Desert Springs Villas (hereinafter referred to as
---------------------
the "Project").
-------
B. OPERATOR is responsible for management and operation of the Resort.
C. The parties hereto, excluding the ASSOCIATION, previously entered into
that certain Recreational License dated as of November 3, 1989 and recorded on
March 23, 1990 as Instrument No. 106099 (the "Recreational License") in the
Office of the County Recorder of Riverside County, California (the "Recorder's
Office") wherein DEVELOPER secured for itself and for the benefit of owners of
timeshare interests in the Project (hereinafter referred to as the "Timeshare
Owners") certain use rights in various recreational facilities at the Resort
outlined below.
D. DEVELOPER on even date and simultaneous with execution and recording of
the aforedescribed Recreational License, entered into with the ASSOCIATION that
certain Assignment of Use Rights Under Recreational License pursuant to which it
assigned its rights and delegated most of its duties under the aforedescribed
Recreational License with regard to the Project to the ASSOCIATION.
E. The parties hereto subsequently entered into that certain First
Amendment to Recreational License dated February 12, 1991 and recorded on April
26, 1991 as Instrument No. 137896 (the "First Amendment") in the Recorder's
Office in order to amend and/or clarify certain provisions of the Recreational
License.
F. The parties hereto wish to amend and restate herein the Recreational
-------------------------------------------------
License and First Amendment.
- ----------------------------
NOW, THEREFORE, in consideration of the mutual premises contained herein
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
1 of 11
<PAGE>
1. RECITALS. The aforedescribed recitals are true and correct.
--------
2. GRANT OF LICENSE; NO INTEREST OR ESTATE GRANTED. OWNER hereby reconfirms
-----------------------------------------------
its grants to DEVELOPER, for the benefit of itself, its permitted assigns,
and its intended beneficiaries, the Timeshare Owners, and the DEVELOPER'S
subsequent assignment to the ASSOCIATION, of a license to use, subject to
all of the terms and conditions hereof, the Resort golf courses, tennis
courts, spa facilities and resort swimming pool specifically designated in
Paragraph 3 hereinbelow (hereinafter sometimes collectively referred to as
"Facilities"). DEVELOPER agrees that neither it nor any party(ies) claiming
rights through or under it have or shall claim, at any time, any interest
or estate of any kind or extent whatsoever in the Resort premises upon
which the Facilities are located by virtue of this Agreement or any
permitted use hereunder.
3. DESIGNATED USE OF SPECIFIC FACILITIES. With respect to the Facilities,
-------------------------------------
DEVELOPER and its permitted assigns, including the ASSOCIATION and the
Timeshare Owners and their family members, guests, certain renters and/or
other certain authorized users of an assigned condominium unit at the
Project, as applicable, (hereinafter for the sake of convenience sometimes
collectively referred to as "permitted users"), shall have the following
use rights during any period of time such certain permitted users are
occupying an assigned condominium unit at the Project:
(a) the right to use the Resort golf courses on the same basis, including
payment of standard greens fees, as hotel guests;
(b) the right to use the Resort tennis courts on the same basis as hotel
guests, except that they shall not be required to pay a fee for court
time;
(c) the right to use the Resort spa facilities on the same basis as hotel
guests, to include, for example, payment of a daily admission fee and
standard user fees except they and their permitted users shall not be
required to pay a daily admission or entry fee to gain access to the
Resort spa facilities, unless such permitted users other than
Timeshare Owners themselves are renters who may only have access to
the exercise and weight room free of charge and must pay the daily
admission or entry fee for the spa; and
(d) the right to use the Resort swimming pool on the same basis as hotel
guests.
4. FEES. DEVELOPER acknowledges the fact that permitted users will be charged
----
reasonable use fees for the use of the Facilities as imposed by OPERATOR
for hotel guests and/or the general public, whichever is less, except there
shall be no fee for tennis court time or entry into the Resort spa
facilities for permitted users (excluding renters) other than as discussed
in Subparagraphs 3(b) and 3(c) above.
DEVELOPER acknowledges the fact that the OPERATOR may increase the fees
imposed in the future, and all permitted users shall pay the same increased
fees as that
2 of 11
<PAGE>
paid by hotel guests and/or the general public at large, whichever is less.
There shall be no initiation fee charged to the DEVELOPER and/or its
permitted assigns and intended beneficiaries for the privileges granted
hereunder; however, there shall be an annual fee. The initial annual fee
was $20.00 per timeshare interest for each condominium unit at the Project
and is currently $28.80 per such timeshare interest. The annual fee in
either case shall begin when a unit is annexed into the Project and a
certificate of occupancy is issued for those weeks that are occupiable
during the first year of operation; thereafter, the annual fee shall be
collected for each of the fifty-one weeks or timeshare interests in each
condominium unit which is part of the Project as of January 1st of each
year. The OPERATOR reserves the right to adjust this fee annually to
reflect increased costs of operations. Notwithstanding the foregoing, the
annual increase in said annual fee shall not exceed the increase in the
Consumer Price Index (as hereinafter defined) plus one percent (1%) (e.g.,
if the Consumer Price Increase equals five percent (5%), then the annual
increase shall equal six percent (6%) since the date of the most recent
increase in such annual fee, but in no event shall the annual increase be
more than fifteen (15%) percent in any given year. For purposes hereof, the
Consumer Price Index shall mean the Revised Consumer Price Index for Urban
Wage Earners and Clerical Workers, all items 1982-4=100, for the Riverside
County, California Metropolitan Statistical Area presently published by the
U.S. Department of Labor, Bureau of Labor Statistics (the "Bureau"),
Washington, D.C. If the foregoing standard is no longer available, then the
parties may mutually agree to a different standard; if they cannot agree on
a different standard, then they shall submit the matter to binding
arbitration. Payment of the annual fees by DEVELOPER shall be due no later
than March 1st of each year for that year's play (except for the first year
of operation, where the annual fees will be paid in arrears on a monthly
basis as condominium units are annexed into the Project and a certificate
of occupancy is issued for same) or such other date as is mutually agreed
to by OPERATOR and DEVELOPER. Annual fees due and owing after March 1st or
such other date mutually agreed to by OPERATOR and DEVELOPER shall bear
interest at the rate of twelve percent (12%) per annum. Upon non-payment of
the annual fees required hereunder or any other default by DEVELOPER,
OPERATOR shall provide the DEVELOPER with a written notice of said default
and simultaneously provide a copy of such notice to the ASSOCIATION as
described in paragraph 10 hereinbelow. The DEVELOPER shall have fifteen
(15) days after receipt of said written notice to cure same. If such
defaults are not cured within this period, or as extended by OPERATOR in
its sole discretion, then the OWNER may terminate all of DEVELOPER's rights
hereunder, and this Agreement shall become null and void. In the event that
this Agreement is terminated pursuant to Paragraph 7 below prior to the end
of its normal term, as renewed, if any, then the DEVELOPER or the
ASSOCIATION, as applicable, shall be entitled to a refund of a pro-rated
portion of the annual fee for the unused portion of the year in which the
Agreement was terminated.
5. ADHERENCE TO PUBLISHED RULES; CONSEQUENCES OF VIOLATIONS. The DEVELOPER
--------------------------------------------------------
acknowledges that it, and those claiming rights to the use of the
Facilities under it, will obey all rules and regulations of the OPERATOR
and its staff
3 of 11
<PAGE>
for use of the Facilities. Violators will be subject to the reasonable
penalties for violations of the rules and regulations. However, such
violations shall not otherwise affect the rights of the DEVELOPER, its
permitted assigns and its intended beneficiaries under this Agreement.
6. RESPONSIBILITY FOR OPERATION, REPAIR AND MAINTENANCE OF FACILITIES. It is
------------------------------------------------------------------
understood by the parties hereto that the responsibility for operation,
repair and maintenance of the Facilities rests solely with the OWNER,
OPERATOR and/or its staff who shall maintain the Facilities in reasonably
satisfactory conditions. The DEVELOPER shall not be required to make any
repairs or maintain or operate the Facilities. The OWNER and/or OPERATOR
shall be permitted to close any of the Facilities for reasonable
maintenance and repairs, including, but not limited to, times during usual
and customary reseeding requirements of golf courses within the Coachella
Valley area, so long as some reasonable use of the Resort golf course,
tennis courts and/or Resort spa facilities is still available to the
DEVELOPER and/or any party(ies) claiming rights hereunder by or through it.
7. ADDITIONAL AND/OR CONTINUED USE OF FACILITIES. Nothing contained in this
---------------------------------------------
Agreement shall limit in any way the right of the OWNER or OPERATOR, or any
of their successors or assigns, to provide other persons or entities with
rights to use or otherwise enjoy the Facilities; provided, however that the
DEVELOPER and its permitted assigns and intended beneficiaries shall
continue to enjoy reasonable access to and use of the Facilities. The
rights and obligations of the parties contained herein are contingent on
the continued existence of such Facilities, and they shall be in effect
only for as long as such Facilities are in existence and the Resort is
operated as a hotel. The OWNER or OPERATOR shall have the right to remove
or change the design or use of any Facilities or discontinue the operation
of any portion of the Facilities, so long as golf, tennis, spa and swimming
pool facilities are still available to the DEVELOPER and its permitted
assigns and intended beneficiaries. Notwithstanding the foregoing, the
OWNER or OPERATOR may eliminate spa facilities if they no longer remain
economically feasible to operate and are no longer made available to hotel
guests, so long as OWNER or OPERATOR have provided not less than thirty
(30) days advanced written notice of such elimination to the DEVELOPER
and/or the ASSOCIATION, as applicable. Should the Facilities, or any
essential part thereof, be totally destroyed by fire or other casualty,
this Agreement shall immediately terminate. In the case of partial
destruction where use would be materially inhibited without major
reconstruction, this Agreement may be terminated by any party giving
written notice to the other party(ies) specifying the date of termination.
Such notice shall be given within thirty (30) days prior to the termination
date therein specified. The OWNER and OPERATOR make no representation that
any entity, including the OWNER, OPERATOR or Marriott International, Inc.,
will be or remain affiliated with the Resort or that the Resort will
continue to be operated as such in the future. However, so long as the
Resort is operated as a hotel and the Facilities continue to remain open to
hotel guests and/or the general public, the DEVELOPER and any party(ies)
claiming rights by or through the DEVELOPER shall continue to be allowed to
utilize the Facilities. If the Facilities are no longer available for use
as set forth herein for whatever reason,
4 of 11
<PAGE>
then the DEVELOPER (or the ASSOCIATION upon assignment of the DEVELOPER's
rights and responsibilities hereunder) may terminate this Agreement with
prior advanced written notice to the OPERATOR setting forth the reason for
termination, and no party hereto shall thereafter have any further
obligations hereunder.
8. INSTALLATION OR ATTACHMENT OF PROPERTY TO RESORT PREMISES; MODIFICATION OR
--------------------------------------------------------------------------
ALTERATION OF FACILITIES. The DEVELOPER agrees that neither it nor any
------------------------
party(ies) claiming rights hereunder by or through it shall install or
attach any property to the Resort premises upon which the Facilities are
located nor, in any way, modify or alter the Facilities.
9. TERM. Subject to Paragraph 7 above, this Agreement shall continue through
----
December 31, 2009, and it shall be automatically renewable for successive
five (5) year periods unless terminated sooner as provided herein. Subject
to Paragraph 7 above, any party may terminate this Agreement at the end of
the initial or subsequent term by giving written notice to the other
party(ies), specifying the date of termination, such notice to be given not
less than thirty (30) days prior to the end of the term.
10. ASSIGNMENT. No assignment of this Agreement shall be made by the
----------
DEVELOPER without the prior written consent of the OWNER, which approval
shall not be unreasonably withheld, except for an assignment, in whole or
in part, by the DEVELOPER to an affiliated entity of the DEVELOPER or to
the ASSOCIATION. Upon receipt of a certificate of occupancy for a
condominium unit constructed at the Project and such unit becoming part of
the timeshare plan, the DEVELOPER's rights to use of the recreational
facilities described herein shall automatically be assigned to the
ASSOCIATION and the ASSOCIATION agrees to assume any and all obligations of
the DEVELOPER hereunder, except for the requirement to provide
indemnification to the OWNER pursuant to Paragraph 11 herein. The
ASSOCIATION shall make the annual fee part of the ASSOCIATION's annual
budget, and it shall collect the annual fee as part of the annual
assessment and pay the entire amount for the annual fee due and owing to
the OPERATOR either to the DEVELOPER or, with the DEVELOPER's consent,
directly to the OPERATOR. The OWNER agrees to allow the ASSOCIATION and its
members to utilize the Facilities described herein and to allow the
ASSOCIATION to cure any defaults by the DEVELOPER hereunder. In this
regard, the OWNER and OPERATOR agree to provide the ASSOCIATION with a
written copy of any notice of a default hereunder sent to the DEVELOPER.
Similarly, should the ASSOCIATION not receive full payment of the annual
fees required to be paid hereunder due to non-payment of assessments by the
ASSOCIATION's members, then the DEVELOPER shall have the right to pay such
fees to the OPERATOR so as to not give rise to a default and termination of
its use rights hereunder, and thereafter, the DEVELOPER shall be entitled
to recoup all such monies from the ASSOCIATION.
11. INDEMNIFICATION. OPERATOR and DEVELOPER hereby jointly and severally
---------------
indemnify the OWNER and hold the OWNER harmless from and against any
claims, demands, damages, liabilities and expenses, including attorney's
fees and disbursements,
5 of 11
<PAGE>
arising out of or in connection with any claims by purchasers of timeshare
interests at the Project that they have not received rights to use any of
the Facilities or that such rights are misrepresented or not adequately
disclosed to them.
l2. NOTICES. Any notices required hereunder shall be delivered personally with
-------
evidence of receipt, by certified, U.S. mail, return receipt requested, or
by a nationally recognized overnight courier service at the addresses set
forth below or such other address designated by the parties hereto as
follows:
If to OWNER: MARRIOTT DESERT SPRINGS LIMITED
PARTNERSHIP
c/o Host Marriott Corporation
-----------------------------
Attn: Bruce Wardinski, Treasury Dept.
10400 Fernwood Drive (Dept. 72/924.11)
Washington, D.C. 20058
If to OPERATOR: DESERT SPRINGS HOTEL SERVICES
c/o Marriott Hotel Services, Inc.
Attn: James P. Graham, Accounting Dept.
74-855 Country Club Drive
Palm Desert, California 92260
If to DEVELOPER: MARRIOTT OWNERSHIP RESORTS, INC.
ATTN: Executive Vice President
and General Manager
1807 Crystal Lake Drive
Post Office Box 890 (33802 for P.O. Box)
Lakeland, Florida 33801
If to ASSOCIATION: DESERT SPRINGS VILLAS
TIMESHARE ASSOCIATION
c/o Marriott Resorts Hospitality
Corporation
ATTN: Vice President of Operations
1200 U.S. Highway South, Suite 10
Lakeland, Florida 33801
13. WRITTEN AGREEMENT AS ENTIRE UNDERSTANDING OF PARTIES. The making, execution
----------------------------------------------------
and delivery of this Agreement by the DEVELOPER and the ASSOCIATION have
been induced by no representations, statements, warranties, or agreements
other than those herein expressed. This Agreement embodies the entire
understanding of the parties. There are no other agreements or
understandings, written or oral, in effect between the parties, relating to
the subject matter hereof. This instrument may be amended or modified only
by a written instrument signed by the respective parties hereto.
6 of 11
<PAGE>
14. BINDING EFFECT. This Agreement is binding upon the successors and
--------------
assigns of the parties hereto.
15. GOVERNING LAW. The provisions of this Agreement shall be governed by
-------------
California law.
IN WITNESS WHEREOF, the parties hereto have set their respective hands and
seals on the dates hereinbelow listed.
OWNER:
MARRIOTT DESERT SPRINGS
LIMITED PARTNERSHIP
BY: Marriott Desert Springs Corporation,
a Delaware corporation,
General Partner
ATTEST: /s/ Christopher G. Towsend BY: /s/ Robert E. Parsons, Jr.
--------------------------- -------------------------------------
Christopher G Townsend, Robert E. Parsons, Jr.,
Secretary President
(Corporate Seal) DATE:
-----------------------------------
OPERATOR:
DESERT SPRINGS HOTEL SERVICES
BY: Marriott International, Inc., a
Delaware Corporation, Joint Venturer
ATTEST: /s/ Joan Rector McGlockton BY: /s/ William R. Tiefel
--------------------------- -------------------------------------
Joan Rector McGlockton, William R. Tiefel,
Secretary Vice President
(Corporate Seal) DATE:
-----------------------------------
7 of 11
<PAGE>
DEVELOPER:
MARRIOTT OWNERSHIP RESORTS, INC.
a Delaware corporation
ATTEST: /s/ Joseph F. Scalo BY: /s/ Robert M. Eckenroth
------------------------- -------------------------------------
Joseph F. Scalo, Robert M. Eckenroth,
Assistant Secretary Vice President
(Corporate Seal) DATE: January 1, 1994
-----------------------------------
ASSOCIATION:
DESERT SPRINGS VILLAS
TIMESHARE ASSOCIATION
a California non-profit mutual benefit
corporation
ATTEST: /s/ Robert M. Eckenroth, BY: /s/ Joseph Lawrence
------------------------- -------------------------------------
Robert M. Eckenroth, Joseph Lawrence,
Secretary President
(Corporate Seal) DATE: February 3, 1994
-----------------------------------
STATE OF MARYLAND )
) SS.
COUNTY OF MONTGOMERY )
On February 9, 1994, before me, the undersigned, a Notary Public in and for
said State, personally appeared Robert Parsons and Christopher Townsend,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the persons who executed the within instrument as President and Secretary
of Marriott Desert Springs Corporation, General Partner of Marriott Desert
Springs Limited Partnership that executed the within instrument, and
acknowledged to me that such corporation executed the within instrument pursuant
to its Bylaws or a resolution of its Board of Directors and under authority of
the partnership.
WITNESS my hand and official seal.
/s/ Laura Anna Babin
------------------------------------
Notary Public
LAURA ANNA BABIN
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires November 30, 1997
8 of 11
<PAGE>
STATE OF MARYLAND )
)SS.
COUNTY OF MONTGOMERY )
On February 10, 1994, before me, the undersigned, a Notary Public in and
for said State, personally appeared William R. Tiefel and Joan Rector
McGlockton, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the persons who executed the within instrument as Vice President
and Secretary of Marriott International, Inc., a joint venturer of Desert
Springs Hotel Services that executed the within instrument, and acknowledged to
me that such corporation executed the within instrument pursuant to its Bylaws
or a resolution of its Board of Directors and under authority of the joint
venture agreement.
WITNESS my hand and official seal.
/s/ Gail L. Kane
------------------------------------
Notary Public
[SEAL OF NOTARY PUBLIC APPEARS HERE]
STATE OF FLORIDA )
)ss.
COUNTY OF POLK )
On January 1, 1994, before me, the undersigned, a Notary Public in and for
said State, personally appeared Robert M.. Eckenroth and Joseph F. Scalo,
personally known to me (or proved to me on the basis of satisfactory evidence)
to be the persons who executed the within instrument as Vice President and
Assistant Secretary of Marriott Ownership Resorts, Inc. that executed the within
instrument, and acknowledged to me that such corporation executed the within
instrument pursuant to its Bylaws or a resolution of its Board of Directors.
/s/ Kathy L. Bedgood
-----------------------------------------------
(Signature of person taking acknowledgment)
[SEAL OF NOTRARY
PUBLIC APPEARS HERE] Kathy L. Bedgood
-----------------------------------------------
(Name of officer taking acknowledgment -
typed, printed or stamped)
-----------------------------------------------
(Title or rank)
-----------------------------------------------
(Serial number, if any)
9 of 11
<PAGE>
STATE OF CALIFORNIA )
)SS.
COUNTY OF LOS ANGELES )
On February 3, 1994, before me, the undersigned, a Notary Public in and
for said State, personally appeared, Joseph Lawrence personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person who
executed the within instrument as President of Desert Springs Villas Timeshare
Association, a California non-profit mutual benefit corporation, that executed
the within instrument, and acknowledged to me that such corporation executed the
within instrument pursuant to its Bylaws or a resolution of its Board of
Directors.
WITNESS my hand and official seal.
/s/ Marvett J. Bolding
------------------------------------
Notary Public
STATE OF FLORIDA ) [SEAL OF
)ss. NOTARY PUBLIC
COUNTY OF POLK ) APPEARS HERE]
On__________ , 19__, before me, the undersigned, a Notary Public in and for
said State, personally appeared Robert M. Eckenroth, personally known to me (or
proved to me on the basis of satisfactory evidence) to be the person who
executed the within instrument as Secretary of Desert Springs Villas Timeshare
Association, a California non-profit mutual benefit corporation, that executed
the within instrument, and acknowledged to me that such corporation executed the
within instrument pursuant to its Bylaws or a resolution of its Board of
Directors.
-----------------------------------------------
(Signature of person taking acknowledgment)
-----------------------------------------------
(Name of officer taking acknowledgment -
typed, printed or stamped)
-----------------------------------------------
(Title or rank)
-----------------------------------------------
(Serial number, if any)
10 of 11
<PAGE>
CONSENT
The undersigned, as holder of the beneficial interest in and under
that certain Deed of Trust dated July 26, 1989 and recorded on July 27,
1989 as Instrument No. 250481 in the Office of the County Recorder of
Riverside County, California which Deed of Trust is by and between
Marriott Desert Springs Limited Partnership, a Delaware limited
partnership, as Trustor, Commonwealth Land Title Company, a California
corporation, as Trustee, and the First National Bank of Chicago, a
National Banking Association, acting for itself and as "Agent" as
described in the Deed of Trust) as Beneficiary, hereby consents to the
rights of the Developer under that certain Amended and Restated
Recreational License dated the 1st day of January, 1994, by and among
Marriott Desert Springs Limited Partnership, a Delaware limited
partnership, as licensor, (the "OWNER"), Desert Springs Hotel Services
(the "OPERATOR") and Marriott Ownership Resorts, Inc., a Delaware
corporation, as licensee (the "Developer"), to which this Consent is
appended. The undersigned, should it acquire title to the real and
personal property through foreclosure or by deed in lieu of foreclosure,
shall recognize each and every right of the Developer and its permitted
assigns and/or intended beneficiaries under the Amended and Restated
Recreational License, provided that the Developer shall perform each of
its obligations thereunder. The undersigned, for the benefit of the
Developer and its successors and assigns, hereby declares that the
consents expressed hereunder shall be binding upon its successors and
assigns, shall be covenants running with the real property which is
subject to the Recreational License and shall comprise equitable
servitudes upon such property.
THE FIRST NATIONAL BANK OF CHICAGO,
a national banking association, for itself
and as Agent as aforesaid
BY:
---------------------------------------
Its:
-----------------------------------
DATE:
-------------------------------------
STATE OF_________________)
)ss.
COUNTY OF________________)
I hereby certify that on this ____ day of ______________, 1994, before the
subscriber _________________________, personally appeared ____________________,
____________________ of The First National Bank of Chicago, did acknowledge the
foregoing instrument to be the act and deed of The First National Bank of
Chicago.
------------------------------------
Notary Public
My commission expires:
11 of 11
<PAGE>
EXHIBIT 10.9
MARRIOTT HOTELS
OFFICE SPACE RENTAL AGREEMENT
-----------------------------
THIS AGREEMENT is made and entered into this 27th day of January, 1995, by
and between Desert Springs Marriott Limited Partnership, ("Lessor") and MARRIOTT
OWNERSHIP RESORTS, INC., ("Lessee") with offices at 1807 Crystal Lake Drive,
Lakeland, Florida 33801.
W I T N E S S E T H:
WHEREAS, Lessor operates a first-class hotel known as Marriott's
Desert Springs Resort and Spa located at 74855 Country Club Drive, Palm Desert,
CA 92260 ("Hotel") and
WHEREAS, Lessee is desirous of leasing that space ("Premises") in the Hotel
designated as rooms 1163, 1165, 1167, 1169, 1171, 1173, 1175, 1177, 1179,
1181, 1183, the adjacent hallway and adjoining linen closet respectively for
purposes of a vacation gallery and administrative offices.
NOW, THEREFORE, it is hereby agreed as follows:
1. Premises. Lessor hereby leases to Lessee that space ("Premises") in
--------
the Hotel designated as rooms 1163, 1165, 1167, 1169, 1171, 1173, 1175, 1177,
1179, 1181, 1183, the adjacent hallway and adjoining linen closet containing
approximately 5,800 sq. ft. Lessee has examined and agrees to accept the
Premises in "as is" condition.
1
<PAGE>
2. Term.
----
(a) Unless sooner terminated by law or as herein provided, the term of
this Agreement shall begin on April 1, 1995, and end on March 31, 1999.
(b) If the initial term has extended its full duration, it may be
continued thereafter for three (3) additional two (2) year renewal terms at
Lessee's option, (Lessee shall give twelve (12) months notice of exercise of
option to renew) provided, however, that the parties reach a mutually
satisfactory agreement regarding the rental fees. The renewal period rental fee
shall not be increased in any one year by more than the local area CPI plus one
(1) percent subject to a maximum of ten (10) percent in any one year. Unless
modified all other terms and conditions will remain the same.
3. Rental.
------
(a) Lessee agrees to pay to Lessor at its office or any other place
Lessor designates a rental during the first year of $150,000 per year, in
thirteen (13) periodic installments of $11,539 payable in advance of each
accounting period. The first period payment shall be due upon execution of the
Agreement.
(b) The annual rental may be increased in years two, three and four of
the rental term by the local area CPI plus one (1) percent subject to a maximum
of ten (10) percent in any one year.
(c) Lessee will also be subject to any other fees as outlined in this
Agreement.
2
<PAGE>
4. Use of Premises.
---------------
(a) Lessee will use the Premises for a Vacation Gallery and
administrative offices.
(b) Lessor will provide standard overhead lighting, and utilities for
the Premises.
(c) Lessee will be responsible for all decorations and renovations
including, but not limited to, wall, doors, entrance, floor coverings,
furnishings and fixtures for the entire Premises. Said renovations and
decorations shall be at the sole expense of Lessee. Such improvements require
Lessor's approval, not to be unreasonable withheld.
(d) Lessee may advertise and promote its business at the Hotel in a
tasteful manner, and may place, at locations specified by Lessor, approved
signs.
5. Fixtures Not To Be Removed. All fixtures at any time attached to the
--------------------------
Premises shall remain part of the Premises and be deemed the property of Lessor,
and shall not be removed by the Lessee except as expressly provided in the
Agreement. However, any fixtures or improvement installed at the sole expense
of Lessee and not as a required replacement may be removed from the Hotel by
Lessee prior to the expiration of the Agreement, and to the extent requested by
Lessor, must be so removed. The cost of such removal and any repair
necessitated by it shall be paid by the Lessee.
3
<PAGE>
6. Alteration, Maintenance and Repairs by Lessee.
---------------------------------------------
(a) Lessee at its own expense shall take good care of the Premises and
any fixtures, furnishings and improvements including making all repairs
necessary to keep the Premises in good conditions.
(b) Lessor will have the right of inspections and approval of the
Premises by its executives in order to ensure that it meets the specifications
agreed upon.
7. Mail. Lessor will provide, at no cost to Lessee, a mail slot at the
----
front desk. Lessor will place therein any mail for Lessee that is received at
the Hotel; provided, however, Lessor shall, under no circumstances, be liable
for any damages caused by the non-delivery of any of Lessee's mail.
8. Subordination. This Agreement shall be subordinate to any underlying
-------------
leases, mortgages or deeds of trust which now or hereafter affect the real
property of which the Premises now are a part.
9. Assignment, Mortgaging, Subletting. Lessee may not assign, mortgage or
----------------------------------
sublet this Agreement or the Premises or any part thereof, except to a wholly
owned subsidiary of Lessee. Any attempt to do so shall be null and void.
4
<PAGE>
10. Changes or Alteration By Lessor.
-------------------------------
(a) Lessor reserves the right to make such changes in or to the Hotel
as it may reasonably deem desirable; however, there will be no unreasonable
interference with the use of the Premises.
(b) Lessor reserves the right of inspection of the Premises during
reasonable hours by itself or prospective purchasers or lessees, provided,
however, that such inspection does not unreasonably interfere with Lessee's use
of the Premises as a Vacation Gallery and administrative office. If necessary,
Lessor may enter the Premises by means of a master key or otherwise without
thereby becoming liable to Lessee. Except in cases of emergencies, Lessor shall
advise Lessee twenty four (24) hours in advance of such inspection.
11. Surrender of Premises. On the last day of the original or a renewal
---------------------
term of this Agreement or any earlier termination date, Lessee shall: 1)
peaceably leave and surrender unto Lessor the Premises and fixtures and
improvements (except those fixtures and/or improvements installed by Lessee and
which can be removed without damage to the Premises, should Lessee desire and/or
if Lessor requests the removal of said fixtures or improvements) in good order
and repair (ordinary wear and tear excepted). Lessee shall indemnify Lessor
against loss or liability resulting from delay by the Lessee in surrendering the
Premises, including delay-based claims made by a succeeding tenant and holdover
costs incurred by Lessor; and 2) restore Premises to its
5
<PAGE>
original condition and function as eleven (11) hotel guest rooms.
12. Condemnation. If all or a substantial part of the Premises is taken
------------
for public or quasi public use under statute, eminent domain or by condemnation
proceedings, this Agreement shall immediately terminate with the same effect as
if the full term had expired. Lessee hereby expressly assigns to Lessor any and
all of its right, title and interest in or to any award that may be made in any
such proceedings.
13. Damage by Fire or Other Casualty.
--------------------------------
(a) If during the term of this Agreement the Premises are rendered
untenable by fire or other casualty such that repairs cannot be made within
sixty (60) days thereafter, then this Agreement may be terminated by either
party giving to the other party, within sixty (60) days after the date of such
damage, written notice specifying a termination date of at least thirty (30)
days after the notice date. If the damage can be repaired within sixty (60) days
after it occurs, this Agreement shall not be terminated, and Lessor shall
proceed to repair the building and Premises, but only to the extent of the
proceeds of any fire or other casualty insurance coverage. If these repairs are
not sufficient, Lessee may terminate this Agreement immediately upon notice to
Lessor. Lessor will have no obligation to replace any items or fixtures
belonging to Lessee. During such repairs the rent shall be proportionately
abated unless (i) other Hotel space
6
<PAGE>
reasonably suitable for temporary business as approved by Lessee (such approval
not to be reasonably withheld) is made available, or (ii) such damage is in any
way attributable to Lessee. Lessor shall not be liable for any inconvenience to
Lessee or injury to Lessee's business resulting from such damage or subsequent
repair.
(b) If Lessee shall be legally liable in connection with any damage to
the Premises or the Hotel by fire or other casualty, Lessee shall be fully
liable for the rent during the unexpired portion of the term, as well as for all
the restoration costs incurred by Lessor, but only to the extent of the proceeds
of any fire insurance coverage paid for by Lessee.
14. Lessor's Limitation for Damages. Except as expressly otherwise
-------------------------------
provided herein, Lessor shall not be responsible for any latent defect or change
in the condition of the Premises, damage to the Premises or to any property
within, injury to persons or property loss by theft or entrustment to Lessor
employees, unless the damage shall be due to the negligence of Lessor. If Lessee
is for any cause deprived of the use of the Premises or if Lessee claims that
there is any defect in the Premises caused by the negligence of the Lessor,
Lessee shall promptly give written notice to Lessor and request that Lessor
remedy the condition noted within a reasonable time period.
15. Utilities.
---------
(a) Lessor will provide within the Premises heating, air
7
<PAGE>
conditioning, electricity and hot/cold water in reasonable quantities for the
normal use of the Premises. Lessor shall not be liable for any failure to supply
such heat, air conditioning, water or electricity not due to negligence on its
part. Lessor reserves the privilege of stopping the service of such utilities at
such time as Lessor deems it desirable to do so for repairs, alterations or
emergencies, provided, however, when service is interrupted for repairs or
alterations, Lessor shall consult with Lessee to select a mutually convenient
time for such repairs or alterations.
(b) Lessee shall pay Lessor eight thousand seven hundred dollars
($8,700.00) per year during the initial term of this Agreement, for the
utilities specified in section 15 (a) above. The fee for the utilities during
the renewal terms shall be increased annually but shall not increase by more
than the local area CPI subject to a maximum of ten (10) percent in any one
year.
(c) Lessor will supply a telephone through the Hotel switchboard for
incoming calls only. Upon Lessor's prior approval, other telephone lines may be
installed at Lessee's expense, said approval not to be unreasonably withheld.
16. Termination.
-----------
(a) In the event that Lessee fails to carry out and comply with any
of the covenants, conditions and agreements to be performed by it, including but
not limited to failure to pay rent, then Lessor may notify Lessee of such
failure or default and demand that the same be remedied within ten (10) days. In
the event of Lessee's failure to so remedy the default within said period,
Lessor shall thereupon have the right to cancel and terminate this
8
<PAGE>
Agreement without further notice. Should Lessee receive a second notice of
failure or default, Lessee shall have no right of remedy and the Agreement shall
terminate at the end of the second notice period.
(b) Lessee shall remain liable for damages as provided herein or by
law, including all the rent for such time as the Agreement would have expired
but for such termination and all expenses incurred in removing Lessee and
reletting the Premises.
17. Property Taxes, Insurance and Indemnification.
---------------------------------------------
(a) Lessor shall pay real estate taxes and fire and extended coverage
insurance premiums on the Hotel and Premises.
(b) Lessee will provide and maintain, at its own expense:
I. Workers' Compensation insurance including employers'
liability which complies with the applicable workers'
compensation laws affecting the Lessee and all employees
working for the Lessee.
II. Comprehensive general liability insurance including products
and contractual liability for bodily injury or property
damage with a combined single limit of not less than $1
million each occurrence. Such insurance shall name Lessor as
additional insureds.
(c) All Lessee's policies shall be specifically endorsed
9
<PAGE>
to provide that the coverages obtained by virtue of this Agreement will be
primary and that any insurance carried by Lessor shall be excess and non-
contributory. All policies shall be specifically endorsed to provide that such
coverage shall not be canceled or materially changed without at least thirty
(30) days prior written notice to Lessor. Lessee shall deliver certificates of
insurance and any renewals thereof to Lessor which evidences the required
coverages.
(d) Lessee shall carry at its expense adequate insurance against loss
or damage by and other various risks on all fixtures, improvements and other
property controlled by Lessee and located upon the Premises, thereby holding
Lessor harmless for any losses or damages to such property.
(e) Lessee shall not allow any act or thing upon the Premises which
will conflict with the Hotel's insurance policies or might subject Lessor to
liability or responsibility for injury to persons or property.
(f) Lessee shall defend, indemnify and hold harmless Lessor, its
partners, officers, directors, agents and employees from and against any and all
actions, costs, claims, losses, expenses and/or damages (whether in contract, in
tort or otherwise), including attorney's fees arising out of or in any way
resulting from Lessee's use of the Premises or this Agreement ("Claims"). Lessee
shall further indemnify Lessor from and against any and all Claims for or
arising out of any personal injuries or
10
<PAGE>
the death of any of Lessee's employees working at the Hotel and during the
occupancy of all portions of the Hotel to which said employees are permitted
access. The provisions contained in this paragraph shall survive the
termination of the Agreement.
18. Compliance with Laws. The parties shall comply with all laws and
--------------------
ordinances and all rules, orders and regulations of all governmental authorities
and of all insurance bodies, applicable to the Premises or to parties'
compliance with this Agreement.
19. Waivers. Lessee hereby waives (i) all rights under any present or
-------
future law to redeem the Premises or to continue this Agreement for the full
term after the Lessee is dispossessed or ejected from the Premises by process of
law or under the terms of this Agreement; (ii) the provisions of any law
relating to notice or delay in execution of an eviction or dispossession of a
tenant for nonpayment of rent; and (iii) all rights to trial by jury in any
cause of action directly or indirectly involving the rental or terms, covenants
or conditions or the Agreement or the Premises, regardless of who institutes the
suit. The words "re-enter" and "re-entry" as used in this Agreement are not
restricted to their technical legal meaning.
20. Successors and Assigns. All provisions of this Agreement shall bind
----------------------
and benefit the respective permitted successors, assigns and legal
representatives of the parties to this Agreement.
11
<PAGE>
However, the covenants are obligations on the part of Lessor under this
Agreement shall not be binding upon Lessor with respect to any period subsequent
to a transfer of its interest in the Hotel.
21. No Partnership. This Agreement does not form in any way a joint
--------------
venture or partnership between the parties. Their relationship hereunder shall
always remain that of Landlord and Tenant.
22. Curing Lessee's Defaults - Additional Rent.
------------------------------------------
(a) If Lessee shall default in performance of any provision of this
Agreement, Lessor may perform the same at the expense of Lessee, such expenses
to include any legal expenses incurred by Lessor. If any rent or damages payable
to Lessor are not paid when due, the same shall bear interest at 10% per annum
or (if less) the highest legal rate, payable monthly, from the due date until
paid, with the interest deemed additional rent. If any such additional rent is
not paid, Lessor shall have the same rights and remedies as if Lessee defaulted
in the payment of the fixed rent. Where Lessee is in arrears in the payment of
any rent, Lessor may apply any payments to any items Lessor deems fit. Lessor
reserves the right without liability to Lessee, to suspend furnishing to Lessee
any property or service that Lessor is obligated to furnish at the expense of
Lessee during any period in which the Lessee is in arrears in paying Lessor for
such services and has been given five (5) days' notice by Lessor or general
12
<PAGE>
manager of such arrears.
(b) If Lessee defaults in the payment of any part of rent and such
nonpayment does not result from Lessor's breach of any obligations it has under
this Agreement, or if the above described notice shall have been given without
Lessee properly curing or if the Premises becomes vacant or deserted, Lessor may
immediately, or at any time thereafter, re-enter the Premises and remove all
persons and property by a suitable proceeding at law or by force or otherwise
without being liable to Lessee. Lessee shall be liable to Lessor for damages
equivalent in amount to all of the rent provided for in this Agreement to the
time when this Agreement would have expired but for such termination, and this
amount shall be immediately due and payable by the Lessee to Lessor. Lessee also
shall pay to Lessor on demand all legal and other expenses incurred in removing
Lessee, repairing and reletting the Premises, and such other expenses as Lessor
may incur.
23. Non-Exercise of Rights While in Default. Lessee may not exercise any
---------------------------------------
right of termination or other option granted herein to it at any time when
Lessee is in default under any provision of this Agreement.
24. Partial Invalidity. Any terms or provisions of this Agreement which
------------------
shall prove to be invalid, void or illegal shall in no way impair or invalidate
any other term or provision hereof and such remaining terms and provisions shall
remain in full force and
13
<PAGE>
effect.
25. Notices. All communications required under this Agreement shall be
-------
deemed to be properly served if sent by Registered or Certified Mail:
To Lessor At: Desert Springs Marriott Limited Partnership
c/o Host Marriott
Attn: Assistant General Counsel Asset Management
Dept. 72/923
10400 Fernwood Road
Bethesda, Maryland 20058
With a Copy To: David Rolston, General Manager
Marriott's Desert Springs Resort & Spa
74855 Country Club Dr.
Palm Desert, CA 92260
And to Lessee At: Marriott Ownership Resorts, Inc.
1807 Crystal Lake Drive
Lakeland, Florida 33802
Attn: Assistant General Counsel
Or to such other address as each may give to the other by written notice.
Except as otherwise provided in the Agreement, the date of service of such
notices shall be the date such notices are received.
26. Entire Agreement. This Agreement contains the entire agreement between
----------------
the parties hereto and shall not be modified in any manner except by an
instrument in writing executed by the parties.
IN WITNESS WHEREOF, Lessor and Lessee have duly executed this Agreement the
day and year first above written.
14
<PAGE>
"LESSOR"
DESERT SPRINGS MARRIOTT LIMITED
PARTNERSHIP
By:
--------------------------------------
Marriott Desert Springs
Corporation, General Partner
By: /s/ Bruce F. Stemerman
--------------------------------------
Bruce F. Stemerman, Vice President
"LESSEE"
MARRIOTT OWNERSHIP RESORTS, INC.
By: /s/ David E. Broderick 2/2/95
--------------------------------------
David E. Broderick
Vice President Western Region
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000832345
<NAME> DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 5,755
<SECURITIES> 3,678<F1>
<RECEIVABLES> 8
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 9,441
<PP&E> 217,060
<DEPRECIATION> (61,619)
<TOTAL-ASSETS> 164,882
<CURRENT-LIABILITIES> 484
<BONDS> 186,035
0
0
<COMMON> 0
<OTHER-SE> (21,637)
<TOTAL-LIABILITY-AND-EQUITY> 164,882
<SALES> 0
<TOTAL-REVENUES> 25,781
<CGS> 0
<TOTAL-COSTS> 10,171
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,501
<INCOME-PRETAX> 109
<INCOME-TAX> 0
<INCOME-CONTINUING> 109
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THIS IS OTHER ASSETS
</FN>
</TABLE>
