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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, 1997
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
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(Exact name of registrant as specified in its charter)
DELAWARE 52-1508601
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10400 FERNWOOD ROAD
Bethesda, Maryland 20817
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(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:
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 __X__ No _____ The Partnership became subject to Section
13 reporting 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
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DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
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TABLE OF CONTENTS
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PAGE NO.
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PART I
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Item 1. Business 2
Item 2. Property 6
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market For Registrant's Common Equity and
Related Security Holder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 33
PART III
Item 10. Directors and Executive Officers of the Registrant 33
Item 11. Management Renumeration and Transactions 34
Item 12. Security Ownership of Certain Beneficial Owners and Management 34
Item 13. Certain Relationships and Related Transactions 35
PART IV
Item 14. Exhibits, Supplemental Financial Statement Schedules
and Reports on Form 8-K 39
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PART 1
ITEM 1. BUSINESS
DESCRIPTION OF THE PARTNERSHIP
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Desert Springs Marriott Limited Partnership (the "Partnership"), a Delaware
limited partnership was formed on February 26, 1987 to own the 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."
On September 26, 1997, the General Partner received consents of limited partners
of the Partnership (the "Limited Partners") holding a majority of limited
partnership interests in the Partnership ("Units") approving certain amendments
to the Partnership's Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement"). The amendments, among other things, allowed the
formation of certain subsidiaries of the Partnership including DS Hotel LLC and
Marriott DSM LLC. The Partnership contributed the Hotel and its related assets
to Marriott DSM LLC, which in turn contributed them to DS Hotel LLC, a
bankruptcy remote subsidiary. Marriott DSM LLC, a bankruptcy remote subsidiary
owns 100% of the membership interest in DS Hotel LLC. The Partnership owns 100%
of the membership interest in Marriott DSM LLC.
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 owning the Hotel through its subsidiaries 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 was 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 had the right to use the Marriott name pursuant to the lease agreements.
See Item 13, "Certain Relationships and Related Transactions."
On November 25, 1997, in connection with the refinancing of the Partnership's
mortgage debt, the General Partner also negotiated with the Tenant to convert
the Operating Lease to a management agreement (the "Management Agreement"). The
Tenant became manager of the Hotel (the "Manager"). The initial term of the
Management Agreement continues through 2022 with four successive renewal options
of ten years each. Pursuant to the terms of the
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Management Agreement, the Hotel owner has the right to use the Marriott name. If
the Management Agreement is terminated, the Hotel owner will lose that right for
all purposes (except as part of the Hotel owner's name). See Item 13, "Certain
Relationships and Related Transactions".
The Hotel is among the premier resorts in the MII full service hotel system and
caters primarily to meetings/conventions, leisure and commercial travel. Since
the Hotel is located in the southern California desert, 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
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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 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.
AMENDMENTS TO THE PARTNERSHIP AGREEMENT
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The following amendments to the Partnership Agreement were approved by a
majority of the Limited Partners pursuant to the Consent Solicitation Statement
which was initiated on August 29, 1997: (i) an amendment to the Partnership
Agreement to authorize the General Partner to form or organize one or more
subsidiaries of the Partnership, to contribute assets of the Partnership to any
such subsidiary in exchange for the equity interests in such subsidiary, and to
delegate its authority to manage any such subsidiary to a governing entity or
other body in order to effect a structured refinancing such as the proposed
refinancing structures, (ii) an amendment to the Partnership Agreement to amend
the definition of "Affiliate" to make clear that a publicly-traded entity will
not be deemed an affiliate of the General Partner or any of its Affiliates
unless a person or group of persons directly or indirectly owns twenty percent
or more of the outstanding common stock of both the General Partner and such
other entity, (iii) an amendment to the Partnership
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Agreement to revise the provisions relating to the authority of the General
Partner to permit the General Partner, without obtaining the consent of the
Limited Partners, to sell or otherwise transfer the Hotel to an independent
third party, (iv) an amendment to the Partnership Agreement that would allow the
General Partner to incur indebtedness in order to capitalize the Junior Lender
(which will make the HM Junior Loan to the Partnership), (v) amendments to the
Partnership Agreement to revise the provisions limiting the voting rights of the
General Partner and its Affiliates to permit the General Partner and its
Affiliates to have full voting rights with respect to all Units acquired by the
General Partner and its Affiliates except on matters where the General Partner
and its Affiliates have an actual economic interest other than as a Unitholder
or general partner, (vi) amendments to the Partnership Agreement to amend
certain terms and sections of the Partnership Agreement in order to reflect the
fact that after the division of Marriott Corporation's operations into two
separate public companies in 1993, Host Marriott (formerly known as Marriott
Corporation) no longer owns the management business conducted by MII, delete
certain obsolete references to entities and agreements that are no longer in
existence and update the Partnership Agreement to reflect the passage of time
since the formation of the Partnership, and (vii) an amendment to the
Partnership Agreement to permit the General Partner, without the consent of the
Limited Partners, to make any amendment to the Partnership Agreement as is
necessary to clarify or update the provisions thereof so long as such amendment
does not adversely affect the rights of Unitholders under the Partnership
Agreement in any material respect.
COMPETITION
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The lodging industry as a whole, and the upscale and luxury full-service
segments in particular, is benefiting 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 1997, 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 in the upscale and luxury market in
which the Hotel competes. 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 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 added an additional 18,000 square foot ballroom and
a complete European health spa which opened in 1997. The Miramonte Resort, a
220 room upscale resort, opened in January 1998.
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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.
CONFLICTS OF INTEREST
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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.
Policies with Respect to Conflicts of Interest
It is the policy of the General Partner that the Partnership's 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 and the Second Amended and Restated Agreement of
Limited Partnership (the "Amended 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
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(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
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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 Manager.
ITEM 2. PROPERTY
THE HOTEL
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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
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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.
THE TWA AIRLINE EQUIPMENT
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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 initiated a Consent Solicitation Statement on August 29,
1997. Pursuant to the Consent Solicitation Statement, the General Partner asked
Limited Partners to consider and vote upon (i) incurrence of the HM Junior Loan,
(ii) an amendment to the Partnership Agreement to authorize the General Partner
to form or organize one or more subsidiaries of the Partnership, to contribute
assets of the Partnership to any such subsidiary in exchange for the equity
interests in such subsidiary, and to delegate its authority to manage any such
subsidiary to a governing entity or other body in order to effect a structured
refinancing such as the proposed refinancing structures, (iii) an amendment to
the Partnership Agreement to amend the definition of "Affiliate" to make clear
that a publicly-traded entity will not be deemed an affiliate of the General
Partner or any of its Affiliates unless a person or group of persons directly or
indirectly owns twenty percent or more of the outstanding common stock of both
the General Partner and such other entity, (iv) an amendment to the Partnership
Agreement to revise the provisions relating to the authority of the General
Partner to permit the General Partner, without obtaining the consent of the
Limited Partners, to sell or otherwise transfer the Hotel to an independent
third party, (v) an amendment to the Partnership Agreement that would allow the
General Partner to
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incur indebtedness in order to capitalize the Junior Lender (which will make the
HM Junior Loan to the Partnership), (vi) amendments to the Partnership Agreement
to revise the provisions limiting the voting rights of the General Partner and
its Affiliates to permit the General Partner and its Affiliates to have full
voting rights with respect to all Units acquired by the General Partner and its
Affiliates except on matters where the General Partner and its Affiliates have
an actual economic interest other than as a unitholder or general partner, (vii)
amendments to the Partnership Agreement to amend certain terms and sections of
the Partnership Agreement in order to reflect the fact that after the division
of Marriott Corporation's operations into two separate public companies in 1993,
Host Marriott (formerly known as Marriott Corporation) no longer owns the
management business conducted by Marriott International, Inc., delete certain
obsolete references to entities and agreements that are no longer in existence
and update the Partnership Agreement to reflect the passage of time since the
formation of the Partnership, and (viii) an amendment to the Partnership
Agreement to permit the General Partner, without the consent of the Limited
Partners, to make any amendment to the Partnership Agreement as is necessary to
clarify or update the provisions thereof so long as such amendment does not
adversely affect the rights of Unitholders under the Partnership Agreement in
any material respect.
A majority of the Limited Partner approved the incurrence of the HM Junior Loan
and all of the amendments to 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 December 31, 1997 there were 1,110 holders of record of the
900 Units.
In accordance with Sections 4.06 and 4.09 of the Amended Partnership Agreement,
cash available for distribution for any fiscal year will be distributed at least
annually, as follows:
(i) first, through and including the end of the Accounting Period, as defined,
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 1% to the
General Partner and 99% to the Limited Partners (this threshold has not
been met as of December 31, 1997).
(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
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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 December 1, 1997, the Partnership made a distribution of capital from the
proceeds of the refinancing in the amount of $22,727,000 as follows: $227,000
to the General Partner and $22,500,000 to the Limited Partners ($25,000 per
Unit).
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.
In accordance with Sections 4.07, 4.08 and 4.09 of the Amended Partnership
Agreement, Capital Receipts not retained by the Partnership will be distributed
to the owners of record on the last day of each Accounting Period 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 $90,909,100, and
(ii) thereafter, 10% to the General Partner and 90% to the Limited Partners.
As of December 31, 1997, cumulative distributions of Capital Receipts equaled
$40,773,400 ($407,500 to the General Partner and $40,365,900 to the Limited
Partners ($44,851 per Unit)).
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, 1997:
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1997 1996 1995 1994 1993
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(in thousands, except per Unit amounts)
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Income...................................................... $27,233 $25,781 $24,351 $22,641 $21,571
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Net income (loss) before extraordinary income............... $ 2,161 $ 109 $ 1,585 $ (2,264) $ (3,099)
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Extraordinary gain due to forgiveness of additional rental.. $ 27,538 $ -- $ -- $ -- $ --
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Net income (loss)........................................... $ 29,699 $ 109 $ 1,585 $ (2,264) $ (3,099)
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Net income (loss) per limited partner unit (900 Units)...... $ 32,669 $ 120 $ 1,743 $ (2,490) $ (3,409)
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Total Assets................................................ $172,156 $164,882 $173,742 $172,238 $175,451
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Total Obligations........................................... $186,821 $186,519 $193,941 $188,951 $185,941
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Cash Distributions per limited partner Unit (900 Units) $ 25,000 $ 1,702 $ 5,577 $ 4,404 $ 5,498
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
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The following discussion and analysis addresses the results of operations of the
Partnership for the fiscal years ended December 31, 1997, 1996 and 1995.
Growth in the Partnership's total Hotel room sales, and thus rental income and
revenue, 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 and revenue.
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, 1997,
1996 and 1995 was $124, $113 and $104, respectively. Food and beverage sales
increased to $40.4 million in 1997 from $38.4 million in 1996 from $33.5 million
in 1995 due to increased group sales.
Revenue for the period of November 25 through December 31, 1997 and net rental
income from the Hotel and Equipment rental are applied to debt service, property
taxes, partnership administrative costs, Partnership funded capital expenditures
and cash distributions to the partners.
RESULTS OF OPERATIONS
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1997 Compared to 1996
Hotel Rental Income. On November 25, 1997, in connection with the
refinancing, the General Partner also negotiated with the Tenant to convert the
Operating Lease to a management agreement (the "Management Agreement"). As a
result of this conversion, full year 1997 hotel rental income is not comparable
to full year 1996 hotel rental income. Hotel rental income for the period
January 1 through November 25,1997 was $24 million. For the year, total Hotel
sales increased 6% due primarily to a 7.5% increase in rooms revenue.
REVPAR improved 10% to $124 due to a 7% increase in average room rate to
approximately $170 and a 2.0 percentage point increase in average daily
occupancy to approximately 73%.
Hotel Revenues. Effective November 25, 1997, the Partnership records
revenues which represent gross hotel sales less property-level expenses,
excluding depreciation and amortization, base and incentive fees, property
taxes, insurance and certain other costs. As a result of the conversion from an
Operating Lease to a Management Agreement, Partnership hotel revenues were $2.6
million. This consists of the Hotel's operating results for the period of
November 25 through December 31, 1997.
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Airline Equipment Rental Income. Airline equipment rental income was $1.2
million in 1996. The airline equipment lease was terminated 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 45% from $1.1 million in 1996 to
$607,000 in 1997. The decrease is primarily due to the Partnership utilizing
$8.2 million of cash and cash equivalents to reduce the balance of its
outstanding mortgage debt combined with paying $2.7 million in refinancing
costs which decreased the cash balance on which interest income is earned.
Interest Expense. Interest expense decreased 5% from $15.5 million in 1996
to $14.8 million in 1997 due to a decrease in the Partnership's weighted average
interest rate from 9.0% to 8.4%. The Partnership's $160 million Bridge Loan
accrued interest at LIBOR plus 2.75 percentage points from January 1 through
November 25, 1997, the closing date of the Bridge Loan refinancing. The
weighted average interest rate for the Bridge Loan for this period was 8.4%
compared to 9.0% in 1996. The refinancing of the Bridge Loan consists of three
tiers of debt: a senior loan which bears interest at a fixed rate of 7.8%; a
mezzanine loan, which bears interest at a fixed rate of 10.365%; and a Host
Marriott junior loan which bears interest at a fixed rate of 13%.
Depreciation. Depreciation and amortization decreased by $550,000 due to
the retirement of $7 million of equipment in 1997.
Property Taxes. Property taxes were unchanged at $2.0 million for both
1997 and 1996.
Partnership Administration and Other. Partnership administration and other
decreased from $474,000 in 1996 to $445,000 in 1997 due to a slight decrease in
administrative costs related to the refinancing.
Base Management Fee. As a result of the conversion to a management
agreement, the Partnership recorded base management fees from November 26
through December 31, 1997. Base management fees are calculated as 3% of sales or
$281,000 for 1997.
Insurance and Other. As a result of the conversion to a management
agreement, insurance and other expense was $256,000. This expense includes a
loss of $163,000 on the retirement of fixed assets, $65,000 of insurance expense
and $28,000 in equipment rental and permits and licenses.
Incentive Management Fee. As a result of the conversion to a management
agreement, the Partnership's incentive management fee expense from November 26
through December 31, 1997 was $123,000. As further explained in Note 7 to the
financial statements, MII is entitled to a total of $2 million in fees for 1997,
$123,000 of which is incentive management fee expense.
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Extraordinary Items. The Partnership recognized an extraordinary gain in
1997 of $27.5 million representing the forgiveness of additional rental by the
Tenant/Manager.
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 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 weighted average
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. 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.
12
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
- -------------------------------
The Partnership's financing needs have been historically funded through loan
agreements with independent financial institutions. As a result of the
successful refinancing of the Partnership's mortgage debt, the General Partner
believes that the Partnership will have sufficient capital resources and
liquidity to conduct its operations in the ordinary course of business.
Principal Sources and Uses of Cash
The Partnership's principal source of cash was from the Hotel Operating Lease up
until November 25, 1997, at which time the Operating Lease was converted to the
Management Agreement. Upon conversion, the Partnership's principal source of
cash is from Hotel operations. 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 debt service and cash
distributions to the partners. Additionally, during 1996 and 1997, the
Partnership utilized cash to pay financing costs incurred in connection with the
refinancing of the mortgage debt.
The Hotel Operating Lease provided for the payment of the greater of Basic
Rental or Owner's Priority. Basic Rental equaled 80% of Operating Profit, as
defined in the Hotel Operating Lease. Owner's Priority equaled the greater of
(i) $20 million plus debt service on certain additional debt to expand the Hotel
or (ii) Debt Service, as defined.
Pursuant to an agreement reached with MII, for fiscal year 1997, the $20 million
Owner's Priority was increased to $20.5 million. MII was entitled only to the
next $2 million of Operating Profit. Any additional Operating Profit in excess
of $22.5 million was remitted entirely to the Partnership. For 1997, Operating
Profit was $23.7 million, MII earned $2.0 million and the remaining $1.2 million
was remitted to the Partnership. In connection with the long-term financing,
MII agreed to waive any and all claims to Additional Rental that accrued prior
to the consummation of the loan ($27.5 million).
On November 25, 1997, in connection with the refinancing, the General Partner
also negotiated with the Tenant to convert the Operating Lease to a management
agreement (the "Management Agreement"). The Tenant would become manager of the
Hotel (the "Manager"). The initial term of the Management Agreement continues
through 2022 with four successive renewal options of ten years each.
Beginning with fiscal year 1998 forward, the Management Agreement provides that
no incentive fee will be paid to the Manager with respect to the first $21.5
million of Operating Profit (the "Owner's Priority"). Thereafter the Manager
will receive the next $1.8 million of Operating Profit as an incentive
management fee and any Operating Profit in excess of the $23.3 million will be
divided 75% to the Partnership and 25% to the Manager. Any such payments will be
made annually after completion of the audit of the Partnership's books.
Total cash provided by operations of the Hotel was $12.4 million, $7.0 million
and $6.7 million for the years ended December 31, 1997, 1996 and 1995,
respectively. Proceeds from the sale of
13
<PAGE>
airline equipment were $0 for the year ended December 31, 1997, $2.5 million for
the year ended December 31, 1996, and $4.0 million for the year ended December
31, 1995 due to the sale of the equipment in 1996. Cash contributed to the
property improvement fund of the Hotel was $4.6 million, $4.4 million and $3.8
million for the years ended December 31, 1997, 1996 and 1995, respectively. Cash
distributed to the partners was $22.7 million, $1.5 million and $5.0 million
during the years ended December 31, 1997, 1996 and 1995, respectively. Financing
costs related to refinancing the mortgage debt were $1.2 million in 1997 and
$2.7 million in 1996. There were no refinancing costs in 1995.
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 and Management Agreement, the
Partnership is obligated to fund major improvements for the Hotel's mechanical
and heating systems. During 1998, the Partnership expects to fund approximately
$2.0 million for improvements to the Hotel's HVAC system (heating, ventilating
and air conditioning). Also, during 1998, the Partnership expects to fund
approximately $350,000 on roof repair projects. The Partnership has established
a reserve to pay for these improvements which is expected to be sufficient.
This reserve is being held by the mortgage loan lender. There are currently no
additional Partnership funded capital expenditure items expected for 1998.
DEBT FINANCING
- --------------
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 consisted of a $160 million
nonrecourse mortgage loan. The Partnership utilized $8.2 million from its
refinancing reserve to reduce the outstanding principal balance of the existing
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"), matured on October 31,
1997 and bore interest at the London Interbank Offered Rate ("LIBOR") plus 2.75
percentage points and required 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%. For the period of January 1 through November 25, 1997
the weighted average interest rate was 8.4%.
The Bridge Loan was 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.
14
<PAGE>
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 from 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 foreclosure
guarantee was not reaffirmed with the refinancing of the Bridge Loan.
On September 26, 1997, the General Partner received unrevoked consents approving
a new loan structure and certain amendments to the Partnership Agreement which
were necessary to refinancing negotiations of the Bridge Loan. An extension
agreement was signed with the current lender on October 30, 1997, extending the
maturity date and loan terms of the Bridge Loan from October 31, 1997 until
December 31, 1997, without penalty.
On November 25, 1997, the Partnership secured long-term refinancing for its $160
million Bridge Loan. The new financing consists of three tranches: 1) a $103
million senior loan, 2) a $20 million loan and 3) a $59.7 million junior loan.
The $103 million senior loan (the "Senior Loan") is from GMAC Commercial
Mortgage Company ("GMAC") to a newly formed bankruptcy remote subsidiary of the
Partnership, DS Hotel LLC, which owns the Hotel and related assets. The Senior
Loan matures in December, 2022 and is secured by a first mortgage lien on the
Hotel. The loan bears interest at a fixed rate of 7.8% and requires monthly
payments of interest and principal with amortization over its twenty-five year
term. On June 11, 2010 the interest rate increases to 200 basis points over the
then current yield on 12 year U.S. treasuries and also additional principal
payments will be required as defined in the loan agreement.
The second tranche of debt consists of a $20 million loan (the "Mezzanine Loan")
from Goldman Sachs Mortgage Company ("GSMC") to a newly formed bankruptcy remote
subsidiary of the Partnership, Marriott DSM LLC, which secures the loan.
Marriott DSM LLC owns a 100% interest in DS Hotel LLC. The Mezzanine Loan
consists of a fully amortizing $20 million loan maturing in December, 2010. The
loan bears interest at a fixed rate of 10.365% and requires monthly payments of
interest and principal with amortization over a twelve and one-half year term.
The third tranche of debt consists of a junior loan, (the "HM Junior Loan") to
the Partnership from MDSM Finance LLC ("MDSM"), a wholly owned subsidiary of the
General Partner. The HM Junior Loan has a term of thirty years and requires no
principal amortization for the first twelve and one-half years with a seventeen
and one-half year amortization schedule thereafter. Security for the HM Junior
Loan is the Partnership's 100% interest in Marriott DSM LLC. If remaining cash
flow is insufficient to pay interest on the HM Junior Loan, interest is deferred
and will accrue and compound and be payable from future cash flow. The HM
Junior Loan also entitles MDSM to receive 30% of any excess cash flow, as
defined, available annually, plus 30% of any net capital/residual proceeds after
full repayment of the Senior Loan, the Mezzanine Loan and the HM Junior Loan.
15
<PAGE>
In conjunction with the refinancing of the mortgage debt, the Partnership was
required to establish cash reserves which are held by an agent of the lender
including:
. $6.2 million debt service reserve
. $1.5 million reserve for capital expenditures
. $2.0 million reserve for payment of fees to the Tenant/Manager
The reserves were established from the Partnership's restricted cash related to
the Bridge Loan in addition to Partnership operating cash.
In addition, the Partnership is required to establish with the lender a separate
escrow account for payments of insurance premiums and real estate taxes for the
Hotel if the credit rating of MII is downgraded by Standard and Poor's Rating
Services. The Manager is a wholly-owned subsidiary of MII. In March 1997, MII
acquired the Renaissance Hotel Group N.V., adding greater geographic diversity
and growth potential to its lodging portfolio. The assumption of additional
debt associated with this transaction resulted in a single downgrade of MII's
long-term senior unsecured debt effective April, 1997. Therefore, the
Partnership was required to establish a reserve account for insurance and real
estate tax. As of December 31, 1997, $581,000 remains available to pay
insurance and real estate taxes. The escrow reserve is included in restricted
cash and the resulting tax and insurance liability is included in accounts
payable and accrued liabilities in the accompanying balance sheet.
The Partnership utilized $1.2 million from the refinancing reserve to pay costs
associated with the financing including lender or subsidiary fees, property
appraisals, environmental studies and legal fees.
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, bore interest at 8.5%
and was to be repaid from the property improvement fund as contributions were
made during the year. At December 31, 1996, the loan balance was $900,000. The
loan was fully repaid on March 28, 1997.
Property Improvement Fund
The Partnership is required to maintain the Hotel in good repair and condition.
The Hotel Operating Lease agreement and Management Agreement require the
Tenant/Manager 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 $3.8 million in 1995, $4.4 million in 1996 and
$4.6 million in 1997. The balance of the Hotel's property improvement fund was
$1.6 million as of December 31, 1997.
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
16
<PAGE>
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 repaid from the property
improvement fund 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 Marriott
Vacation Club International ("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, 1997, 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/Manager is
generally able to pass through increased costs to customers through higher room
rates. In 1997, the increase in average room rates at the Hotel exceeded 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.
17
<PAGE>
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.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
Index Page
- ----- ----
<S> <C>
Report of Independent Public Accountants............. 20
Statement of Operations.............................. 21
Balance Sheet........................................ 22
Statement of Changes in Partners' (Deficit) Capital.. 23
Statement of Cash Flows.............................. 24
Notes to Financial Statements........................ 25
</TABLE>
19
<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 and subsidiaries (a Delaware Limited Partnership) as of
December 31, 1997 and 1996, 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, 1997. These financial statements and the schedules
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 and subsidiaries as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1997, in conformity with generally accepted accounting
principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedules listed in the index at item 14(a)(2)
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly state in all material
respects the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 18, 1998
20
<PAGE>
STATEMENT OF OPERATIONS
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income
Rentals
Hotel................................... $24,016 $23,433 $19,851
Airline equipment (Note 6).............. -- 1,248 2,837
Hotel revenues (Note 10).................. 2,610 -- --
Other..................................... 607 1,100 1,663
------- ------- -------
27,233 25,781 24,351
------- ------- -------
EXPENSES
Interest.................................. 14,827 15,501 13,371
Depreciation.............................. 7,182 7,732 7,823
Property taxes............................ 1,958 1,965 1,219
Partnership administration and other...... 445 474 353
Base management fee....................... 281 -- --
Insurance and other....................... 256 -- --
Incentive management fee.................. 123 -- --
------- ------- -------
25,072 25,672 22,766
------- ------- -------
NET INCOME BEFORE EXTRAORDINARY ITEM....... 2,161 109 1,585
------- ------- -------
EXTRAORDINARY ITEM
Gain on forgiveness of additional rental.. $27,538 -- --
------- ------- -------
NET INCOME................................. $29,699 $ 109 $ 1,585
======= ======= =======
ALLOCATION OF NET INCOME
General partner........................... $ 297 $ 1 $ 16
Limited partners.......................... 29,402 108 1,569
------- ------- -------
$29,699 $ 109 $ 1,585
======= ======= =======
NET INCOME PER LIMITED PARTNER
UNIT (900 Units).......................... $32,669 $ 120 $ 1,743
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
BALANCE SHEET
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP AND SUBSIDIARIES
AS OF DECEMBER 31, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
ASSETS
<S> <C> <C>
Property and equipment, net................................. $151,401 $155,441
Due from Marriott International, Inc........................ 1,368 8
Property improvement fund................................... 1,598 1,041
Deferred financing, net of accumulated amortization......... 3,000 2,637
Restricted cash............................................. 10,236 --
Cash and cash equivalents................................... 4,553 5,755
-------- --------
$172,156 $164,882
======== ========
LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Mortgage debt............................................. $103,000 $160,000
Note payable.............................................. 20,000 --
Due to Host Marriott and affiliates....................... 59,727 --
Additional rental paid by hotel lessee.................... -- 25,013
Due to Marriott International, Inc........................ 2,122 1,022
Accounts payable and accrued expenses..................... 1,972 484
-------- --------
Total liabilities........................................ 186,821 186,519
-------- --------
PARTNERS' DEFICIT
General Partner
Capital contribution..................................... 909 909
Capital distributions.................................... (829) (602)
Cumulative net losses.................................... (101) (398)
-------- --------
(21) (91)
-------- --------
Limited Partners
Capital contributions, net of offering costs of $10,576.. 77,444 77,444
Investor notes receivable................................ (22) (22)
Capital distributions.................................... (82,084) (59,584)
Cumulative net losses.................................... (9,982) (39,384)
-------- --------
(14,644) (21,546)
-------- --------
Total Partners' Deficit.................................. (14,665) (21,637)
-------- --------
$172,156 $164,882
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
STATEMENT OF CHANGES IN
PARTNERS' (DEFICIT) CAPITAL
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
-------- --------- ---------
<S> <C> <C> <C>
Balance, December 31, 1994............ $ (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)
Net income........................... 297 29,402 29,699
Capital distributions................ (227) (22,500) (22,727)
----- -------- --------
Balance, December 31, 1997............ $ (21) $(14,644) $(14,665)
===== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
STATEMENT OF CASH FLOWS
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP AND SUBSIDIARIES
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income...................................................... $ 29,699 $ 109 $ 1,585
Extraordinary item.............................................. 27,538 -- --
--------- --------- -------
Income before extraordinary item................................ 2,161 109 1,585
Noncash items:
Depreciation.................................................. 7,182 7,732 7,823
Amortization of deferred financing costs as interest expense.. 807 104 135
Loss (gain) on dispositions of property and equipment......... 163 (1,248) (1,972)
Changes in operating accounts:
Due to/from Marriott International, Inc. and affiliates....... 640 2,287 (2,241)
Due from airline equipment lessee............................. -- -- 1,357
Accounts payable and accrued interest......................... 1,488 (1,967) 37
--------- --------- -------
Cash provided by operations................................. 12,441 7,017 6,724
--------- --------- -------
INVESTING ACTIVITIES
Additions to property and equipment............................. (3,318) (9,989) (3,979)
Change in property improvement fund, net........................ (544) 4,384 (2,035)
Proceeds from sales of airline equipment........................ -- 2,509 3,964
--------- --------- -------
Cash used in investing activities........................... (3,862) (3,096) (2,050)
--------- --------- -------
FINANCING ACTIVITIES
Proceeds from mortgage loan..................................... 182,727 160,000 --
Repayment of mortgage debt...................................... (160,000) (168,239) --
Capital distributions to partners............................... (22,727) (1,547) (5,071)
Change in restricted cash....................................... (10,236) -- --
Additional rental paid by hotel lessee.......................... 2,525 3,165 3,672
Payment of refinancing costs.................................... (1,170) (2,658) --
Repayment of note payable to Marriott International, Inc........ (900) (800) --
Advances from Marriott International, Inc....................... -- 1,700 --
--------- --------- -------
Cash used in financing activities........................... (9,781) (8,379) (1,399)
--------- --------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................. (1,202) (4,458) 3,275
CASH AND CASH EQUIVALENTS at beginning of year................... 5,755 10,213 6,938
--------- --------- -------
CASH AND CASH EQUIVALENTS at end of year $ 4,553 $ 5,755 $10,213
========= ========= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest and other $ 12,959 $ 17,372 $13,237
========= ========= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP AND SUBSIDIARIES
DECEMBER 31, 1997 AND 1996
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. 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 Corporation
("Host Marriott"). The Hotel was leased to Marriott Hotel Services, Inc. (the
"Tenant"), a wholly-owned subsidiary of Marriott International, Inc. ("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.
In connection with the mortgage debt refinancing in 1997 (see Note 5), the
General Partner received unrevoked consents of limited partners approving
certain amendments to the partnership agreement. The amendments, among other
things, allowed the formation of certain subsidiaries of the Partnership
including DS Hotel LLC and Marriott DSM LLC. The Partnership contributed the
Hotel and its related assets to Marriott DSM LLC, which in turn contributed them
to DS Hotel LLC, a bankruptcy remote subsidiary. Marriott DSM LLC, a bankruptcy
remote subsidiary of the Partnership owns 100% interest in DS Hotel LLC. The
Partnership owns 100% interest in Marriott DSM LLC. In addition, effective
November 25, 1997, the Hotel is managed by the Tenant (the "Manager").
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.
25
<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.
Revenues and Expenses
Effective November 25, 1997, the Partnership records hotel revenues which
represent house profit of the hotel since the Partnership has delegated
substantially all of the operating decisions related to the generation of house
profit of the Hotel to the Manager. House profit reflects Hotel operating
results, and represents gross hotel sales less property-level expenses,
excluding depreciation, base and incentive management fees, property taxes,
insurance and certain other costs, which are disclosed separately in the
statement of operations.
On November 20, 1997, the Emerging Issues Task Force ("EITF") of the Financial
Accounting Standards Board reached a consensus on EITF 97-2, "Application of
FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management
Entities and Certain Other Entities with Contractual Management Arrangements."
EITF 97-2 addresses the circumstances in which a management entity may include
the revenues and expenses of a managed entity in its financial statements.
The Partnership is assessing the impact of EITF 97-2 on its policy of excluding
the property-level revenues and operating expenses of the Hotel from its
statements of operations (see Note 10). If the Partnership concludes that EITF
97-2 should be applied to its hotels, it would include operating results of
those managed operations in its financial statements. Application of
26
<PAGE>
EITF 97-2 to financial statements as of and for the year ended December 31, 1997
would have increased both revenues and operating expenses by approximately $6.7
million and would have had no impact on operating profit or net income.
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 Senior Loan
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 Bridge Loan
totaled $2,658,000 at December 31, 1996. Total financing costs associated with
the Bridge Loan and long-term financing completed on November 25, 1997 totaled
$3,828,000. At December 31, 1997 and 1996, accumulated amortization of deferred
financing costs totaled $828,000 and $21,000, respectively.
Restricted Cash Reserves
In conjunction with the refinancing of the mortgage debt, the Partnership was
required to establish cash reserves which are held by an agent of the lender
including:
. $6.2 million debt service reserve
. $1.5 million reserve for capital expenditures
. $2.0 million reserve for payment of fees to the Tenant/Manager
In addition, the Partnership is required to establish with the lender a separate
escrow account for payments of insurance premiums and real estate taxes for the
Hotel if the credit rating of MII is downgraded by Standard and Poor's Rating
Services. The Manager is a wholly-owned subsidiary of MII. In March 1997, MII
acquired the Renaissance Hotel Group N.V., adding greater geographic diversity
and growth potential to its lodging portfolio. The assumption of additional
debt associated with this transaction resulted in a single downgrade of MII's
long-term senior unsecured debt effective April, 1997. Therefore, the
Partnership was required to establish a reserve account for insurance and real
estate tax. As of December 31, 1997, $581,000 remains available to pay
insurance and real estate taxes. The escrow reserve is included in restricted
cash and the resulting tax and insurance liability is included in accounts
payable and accrued liabilities in the accompanying balance sheet.
The reserves were established from the Partnership's restricted cash related to
the Bridge Loan in addition to Partnership operating cash.
Additional Rental
Under the terms of the Hotel operating lease (see Note 7), the Tenant paid
Additional Rental to the Partnership which was subject to possible repayment
under defined conditions; therefore, Additional Rental had been recorded as a
liability in the financial statements. At the termination of the Operating
Lease, all Additional Rental was forgiven and is recorded as an Extraordinary
Gain in the financial statements.
27
<PAGE>
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, 1997 and 1996 was $55.7 million and $26.0 million,
respectively.
New Statements of Financial Accounting Standards
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>
1997 1996
--------- ---------
<S> <C> <C>
Land and land improvements...... $ 13,690 $ 13,690
Building and improvements....... 155,497 155,570
Furniture and equipment......... 44,090 47,800
-------- --------
213,277 217,060
Less accumulated depreciation... (61,876) (61,619)
-------- --------
$151,401 $155,441
======== ========
</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, 1997 As of December 31, 1996
---------------------- -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- --------- ----------
<S> <C> <C> <C> <C>
Mortgage debt $103,000 $103,000 $160,000 $160,000
Note payable 20,000 20,000 -- --
Due to Host Marriott and affiliates 59,727 59,727 -- --
Note Payable to MII -- -- 900 900
Additional rental paid by Hotel lessee -- -- 25,013 --
</TABLE>
The estimated fair value of mortgage debt and other long term obligations is
based on the expected future debt service payments discounted at estimated
market rates. Additional rental paid by the Hotel lessee was valued based on
the expected future payments from operating cash flow discounted at a risk-
adjusted rate. As further explained in Note 7, upon closing of the permanent
financing, MII agreed to waive all claims to Additional Rental that had accrued
prior to the consummation of the loan. Consequently, the estimated fair value of
Additional Rental paid by the Hotel lessee is zero.
28
<PAGE>
NOTE 5. DEBT
In 1996, 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. Upon maturity, the Mortgage Debt went into default 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 was 2.5 percentage points above the Lender's Corporate Base Rate,
as defined, from the maturity date through December 23, 1996. The Mortgage Debt
was refinanced on December 23, 1996.
As of December 31, 1996, Partnership debt consisted of a $160 million
nonrecourse mortgage loan (the "Bridge Loan"). The Bridge Loan was originated
by Goldman, Sachs & Co. ("Goldman Sachs") and the lender was GMAC Commercial
Mortgage Corporation providing an interim $160 million mortgage loan bearing
interest at LIBOR plus 2.75 percentage points which matured on October 31, 1997.
Pursuant to the terms of the Bridge Loan, all excess cash from Hotel operations,
if any, was held in a debt service reserve for future debt service or to reduce
the outstanding principal balance upon maturity. Through November 25, 1997, the
weighted average interest rate on the Bridge Loan was 8.4%.
On September 26,1997, the General Partner received unrevoked consents approving
a new loan structure and certain amendments to the Partnership Agreement which
were necessary to refinancing negotiations of the Bridge Loan. An extension
agreement was signed with the current lender on October 30,1997, extending the
maturity date of the Bridge Loan from October 31, 1997 to December 31, 1997,
without penalty.
On November 25, 1997, the Partnership secured long-term financing for its $160
million Bridge Loan. The new financing consists of three tranches: 1) a $103
million senior loan, 2) a $20 million loan and 3) a $59.7 million junior loan.
The $103 million senior loan (the "Senior Loan") is from GMAC Commercial
Mortgage Company ("GMAC") to a newly formed bankruptcy remote subsidiary of the
Partnership, DS Hotel LLC, which owns the Hotel and related assets. The Senior
Loan matures in December, 2022 and is secured by a first mortgage lien on the
Hotel. The loan bears interest at a fixed rate of 7.8% and requires monthly
payments of interest and principal with amortization over its twenty-five year
term.
The second tranche of debt consists of a $20 million loan (the "Mezzanine Loan")
from Goldman Sachs Mortgage Company ("GSMC") to a newly formed bankruptcy remote
subsidiary of the Partnership, Marriott DSM LLC, which secures the loan. The
Mezzanine Loan consists of a fully amortizing $20 million loan bearing interest
at 10.365% for a twelve and one-half year term maturing in December, 2010.
The third tranche of debt consists of a junior loan, (the "HM Junior Loan") to
the Partnership from MDSM Finance LLC ("MDSM"), a wholly owned subsidiary of the
General Partner. The HM Junior Loan has a term of thirty years and requires no
principal amortization for the first twelve and one-half years with a seventeen
and one-half year amortization schedule thereafter. If remaining cash flow is
insufficient to pay interest on the HM Junior Loan, interest is deferred and
will accrue and compound and be payable from future cash flow. The HM Junior
Loan also entitles MDSM to receive 30% of any excess cash flow, as defined,
available annually, plus 30% of any net capital/residual proceeds after full
repayment of the Senior Loan, the Mezzanine Loan and the HM Junior Loan.
On the Closing Date, the Partnership was required to establish certain reserves
which are discussed in Note 2.
The Partnership utilized $1.2 million in 1997 from the refinancing reserve to
pay costs associated with the financing including lender or subsidiary fees,
property appraisals, environmental studies and legal fees.
29
<PAGE>
The required principal payments of the Senior Loan, Mezzanine Loan and the HM
Junior Loan at December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
1998 $ 2,186
1999 2,389
2000 2,581
2001 2,850
2002 3,116
Thereafter 169,605
--------
$182,727
--------
</TABLE>
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 matured on June 13, 1997, bearing interest at 8.5% and was
repaid from the property improvement fund as contributions were made during the
year. The loan was fully repaid on March 28, 1997.
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.
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 totaled $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 was recognized as income as lease payments were
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 leased 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") with renewal options for five successive periods of 10 years each.
Annual Rental was 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.
30
<PAGE>
Pursuant to an agreement reached with MII, for fiscal year 1997 the $20 million
Owner's Priority was increased to $20.5 million. MII was entitled only to the
next $2 million of Operating Profit. Any additional Operating Profit in excess
of $22.5 million was remitted entirely to the Partnership. In connection with
the long-term financing, MII agreed to waive any and all claims to Additional
Rental that accrued prior to the consummation of the loan. The Partnership
recorded an extraordinary gain of $27.5 million in 1997 to recognize the gain
which resulted from the forgiveness of these fees.
Rental income for 1997 included Basic Rental of $17,608,000 and Additional
Rental of $4,402,000. Operating Profit in 1997 totaled $23,698,000. In
accordance with an agreement reached with MII, the Partnership was entitled to
receive Owner's Priority of $20,500,000 and MII was entitled to the next
$2,000,000 with the remaining $1,198,000 to the Partnership.
In addition to the Annual Rental, the Tenant was 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. Funding by MVCI in 1995 was
$692,000, and was included in "Other Income" in the statement of operations.
NOTE 8. MANAGEMENT AGREEMENT
On November 25, 1997, in connection with the refinancing, the General Partner
also negotiated with the Tenant to convert the Operating Lease to a management
agreement (the "Management Agreement"). The Tenant would become manager of the
Hotel (the "Manager"). The initial term of the Management Agreement continues
through 2022 with four successive renewal options of ten years each. The
Manager is paid a base management fee equal to 3% of gross hotel sales.
Beginning in fiscal year 1998, the Management Agreement provides that no
incentive fee will be paid to the Manager with respect to the first $21.5
million of Operating Profit (the "Owner's Priority"). Thereafter the Manager
will receive the next $1.8 million of Operating Profit as incentive management
fee and any operating profit in excess of $23.3 million will be divided 75% to
the Partnership and 25% to the Manager. Any such payments will be made annually
after completion of the audit of the Partnership's books.
The Management Agreement provides that the owner may terminate the Management
Agreement if, in any two of three consecutive fiscal years, Operating Profit is
less than $15 million. The Manager may, however, prevent termination by paying
the owner such amounts as are necessary to achieve the performance standards.
Pursuant to the Management Agreement, the Manager is required to furnish the
Hotel with certain services ("Chain Services") which are generally provided on a
central or regional basis to all hotels in the Manager's full-service hotel
system. Chain Services include central training, advertising and promotion, a
national reservations system, computerized payroll and accounting services and
such additional services as needed which may be more efficiently performed on a
centralized basis. Costs and expenses incurred in providing such services are
allocated among all domestic full-service hotels managed, owned or leased by the
Manager or its subsidiaries. In addition, the Hotels also participate in the
Manager's Marriott Rewards Program. The cost of this program is charged to all
hotels in the Manager's full-service hotel system based upon the Marriott
Rewards sales at each hotel. The total amount of Chain Services and Marriott
Rewards costs charged to the Partnership from November 25 through December 31,
1997 were $169,000.
31
<PAGE>
The Management Agreements provide for the establishment of a property
improvement fund for the Hotel to cover the cost of certain non-routine repairs
and maintenance to the Hotel which are normally capitalized and the cost of
replacements and renewals to the Hotel's property and improvements.
Contributions to the property improvement fund are based on a percentage of
gross sales. Contributions to the property improvement fund are 4.5% in 1997
and 5.5% thereafter. Contributions to the property improvement fund from
November 25 through December 31, 1997 were $421,000.
NOTE 9. 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, 1997 (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
REVENUES
Rooms....................... $ 39,825 $37,031 $33,495
Food and beverage........... 40,366 38,431 33,453
Other....................... 23,130 22,437 18,450
-------- ------- -------
103,321 97,899 85,398
-------- ------- -------
EXPENSES
Departmental direct costs
Rooms...................... 8,933 8,545 7,715
Food and beverage.......... 27,642 26,623 23,335
Other operating expenses.... 43,048 41,686 35,987
-------- ------- -------
79,623 76,854 67,037
-------- ------- -------
OPERATING PROFIT............. $ 23,698 $21,045 $18,361
-------- ------- -------
</TABLE>
NOTE 10. REVENUES
Partnership revenues for the period of November 25 through December 31, 1997
consist of the Hotel's operating results (in thousands):
<TABLE>
<CAPTION>
1997
------
<S> <C>
HOTEL SALES
Rooms $3,620
Food and beverage 3,330
Other 2,403
------
9,353
------
HOTEL EXPENSES
Departmental direct costs
Rooms 801
Food and beverage 2,646
Other 3,296
------
Other Hotel operating expenses 6,743
------
HOTEL REVENUES $2,610
======
</TABLE>
32
<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, 1997
- ------------------------- --------------------------------------- -----------------
<S> <C> <C>
Bruce F. Stemerman President and Director 42
Robert E. Parsons, Jr. Vice President and Director 42
Christopher G. Townsend Vice President, Director, and Secretary 50
Patricia K. Brady Vice President, Chief Accounting
Officer and Treasurer 36
</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.
33
<PAGE>
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.
Patricia K. Brady has been Vice President, Chief Accounting Officer and
Treasurer of the General Partner since October, 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 and Management Agreement
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 of the
Partnership or employee of Host Marriott does devote time to the Partnership,
the General Partner is entitled to reimbursement for the cost of providing such
services. Any such costs may include a charge for overhead, but without a
profit to the General Partner. For the fiscal years ending December 31, 1997,
1996 and 1995, administrative expenses reimbursed to the General Partner totaled
$273,000, $250,000 and $67,000, 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 December 31, 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.
34
<PAGE>
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.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described below, the Partnership is party to important ongoing agreements
with MII pursuant to which the Hotel was leased and is now managed by 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 agreements 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 was for a term of
25 years from the opening of the hotel (through 2012) with renewal terms, at the
option of MHSI, of up to five additional 10-year periods.
The Hotel Operating Lease provided 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 equaled 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 would Owner's Priority for any year exceed Operating
Profit, as defined.)
35
<PAGE>
Pursuant to an agreement reached with MII on December 23, 1996, for fiscal year
1997, the $20 million Owner's Priority was increased to $20.5 million. MII was
entitled only to the next $2 million of Operating Profit, as defined. Any
additional Operating Profit in excess of $22.5 million was remitted entirely to
the Partnership. In connection with the long-term financing, MII agreed to
waive any and all claims to Additional Rental, as defined, that had accrued
prior to the consummation of such loan. Therefore, $27.4 million was forgiven
in 1997 and recorded as an extraordinary gain in the accompanying financials.
For the operating lease period ended November 25, 1997 and the lease years ended
December 31, 1996 and 1995 Basic Rental was $17.6 million, $16.8 million and
$14.7 million, respectively.
The Operating Lease provided that the Partnership could 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 could, 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,
1994 was $16.1 million, December 31, 1995 was $18.4 million, December 31, 1996
was $20 million and December 31, 1997 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 were subleased by the Partnership to the 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.
In conjunction with the refinancing of the mortgage debt, the golf course is no
longer subleased to the Operating Tenant. The Manager manages the golf course
for the Partnership pursuant to the terms of the Golf Course Lease.
Homeowners Agreement
A subsidiary of MII, 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
36
<PAGE>
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 1997 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.
Management Agreement
On November 25, 1997, General Partner negotiated with the Tenant to convert the
Operating Lease to a management agreement (the "Management Agreement"). The
Tenant became manager of the Hotel (the "Manager"). The initial term of the
Management Agreement continues through 2022 at the option of the Manager, with
four successive renewal options of ten years each.
For the term following 1997, the Management Agreement provides that no incentive
fee will be paid to the Manager with respect to the first $21.5 million of
Operating Profit (the "Owner's Priority"). Thereafter the Manager will receive
the next $1.8 million of Operating Profit as incentive management fee and any
operating profit in excess of $23.3 million will be divided 75% to the
Partnership and 25% to the Manager. Any such payments will be made annually
after completion of the audit of the Partnership's books.
The Management Agreement provides that the owner may terminate the Management
Agreement if, in any two of three consecutive fiscal years, Operating Profit is
less than $15 million. The Manager may, however prevent termination by paying
the owner such amounts as are necessary to achieve the performance standards.
37
<PAGE>
Pursuant to the Management Agreement, the Manager is required to furnish the
Hotel with certain services ("Chain Services") which are generally provided on a
central or regional basis to all hotels in the Manager's full-service hotel
system. Chain Services include central training, advertising and promotion, a
national reservations system, computerized payroll and accounting services and
such additional services as needed which may be more efficiently performed on a
centralized basis. Costs and expenses incurred in providing such services are
allocated among all domestic full-service hotels managed, owned or leased by the
Manager or its subsidiaries. In addition, the Hotels also participate in the
Manager's Marriott Rewards Program. The cost of this program is charged to all
hotels in the Manager's full-service hotel system based upon the Marriott
Rewards sales at each hotel. The total amount of Chain Services and Marriott
Rewards costs charged to the Partnership from November 25 through December 31,
1997 were $169,000.
The Management Agreements provide for the establishment of a property
improvement fund for the Hotel to cover the cost of certain non-routine repairs
and maintenance to the Hotel which are normally capitalized and the cost of
replacements and renewals to the Hotel's property and improvements.
Contributions to the property improvement fund are based on a percentage of
gross sales. Contributions to the property improvement fund are 4.5% in 1997
and 5.5% thereafter. Contributions to the property improvement fund from
November 25 through December 31, 1997 were $421,000.
PAYMENTS TO HOST MARRIOTT, MII AND THEIR AFFILIATES
- ---------------------------------------------------
The following table sets forth amounts paid by the Partnership to Host Marriott,
MII and their subsidiaries for the years ended December 31, 1997, 1996 and 1995
(in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Payments to Host Marriott and affiliates:
Administrative expenses...............................$ 273 $ 250 $ 67
Capital distributions................................. 227 15 51
----- ----- -----
$ 500 $ 265 $ 118
===== ===== =====
Payments to MII and affiliates:
Base management fees..................................$ 281 -- --
Chain services........................................ 169 -- --
Golf course rent......................................$ 100 $ 100 $ 100
Incentive management fees............................. 60 -- --
Interest on note payable to MII.......................$ 11 $ 48 --
----- ----- -----
$ 621 $ 148 $ 100
===== ===== =====
</TABLE>
38
<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.
3.2 Second Amendment and Restated Agreement of Limited Partnership
of Desert Springs Marriott Limited Partnership dated as of
September 26, 1997, by and among Marriott Desert Springs
Corporation, a Delaware corporation, as General Partner, and
those Persons who have been admitted as limited partners of the
Partnership in accordance with the provisions of the Amended and
Restated Agreement of Limited Partnership of Desert Springs
Marriott Limited Partnership (the "Partnership") dated as of
April 24, 1997 (the "Original Agreement") or this Agreement and
are identified in the books and records of the Partnership as
the Limited Partners.
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.
*10.21 First Amendment to Golf Course Lease between Marriott's Desert
Springs Development Corporation and Desert Springs Marriott
Limited Partnership dated March 31, 1994.
*10.22 Second Amendment to Golf Course Lease between Marriott's Desert
Springs Development Corporation and Desert Springs Marriott
Limited Partnership dated November 25, 1996.
39
<PAGE>
Exhibit # Description
--------- -----------
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.
10.10 Loan Agreement between DS Hotel, as Borrower and GMAC Commercial
Mortgage Corporation, as Lender dated November 25, 1997.
10.11 Promissory Note from DS Hotel LLC payable to the order of GMAC
Commercial Mortgage Corporation in the principal amount of
$103,000,000 dated November 25, 1997.
10.12 Fee and Leasehold Deed of Trust, Security Agreement and
Assignment of Leases and Rents made by DS Hotel LLC, as
Trustor/Borrower to Commonwealth Land Title Company as Trustee
for the benefit of GMAC Commercial Mortgage Corporation as
Beneficiary/Lender dated November 25, 1997.
10.13 Credit Agreement (Mezzanine Loan) between Marriott DSM LLC and
Goldman Sachs Mortgage Company dated November 25, 1997.
10.14 Promissory Note from Marriott DSM LLC payable to the order of
Goldman Sachs Mortgage Company in the principal amount of
$20,000,000 dated November 25, 1997.
10.15 Loan Agreement between Desert Springs Marriott Limited
Partnership and MDSM Finance LLC dated November 25, 1997.
40
<PAGE>
Exhibit # Description
--------- -----------
10.16 Promissory Note made by Desert Springs Marriott Limited
Partnership payable to the order of MDSM Finance LLC in the
principal amount of $59,727,272 dated November 25, 1997.
10.17 Management Agreement between DS Hotel LLC and Marriott Hotel
Services, Inc. dated November 25, 1997
27 Financial Data Schedule
- ---------------------
* Incorporated by reference to the same numbered exhibit in the Partnership's
December 31, 1996 10-K previously filed with the Commission.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during 1997.
41
<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 _________________.
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
By: MARRIOTT DESERT SPRINGS CORPORATION
General Partner
By:
--------------------------------------------
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)
- --------------------------
Bruce F. Stemerman President and Director
(Principal Executive Officer)
- --------------------------
Robert E. Parsons, Jr. Vice President and Director
- --------------------------
Christopher G. Townsend Vice President, Director and Secretary
42
<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______________________.
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.
- --------------------------
Robert E. Parsons, Jr. Vice President and Director
/s/ Christopher G. Townsend
- ---------------------------
Christopher G. Townsend Vice President, Director and Secretary
43
<PAGE>
SCHEDULE I
Page 1 of 4
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
------------- -------------
<S> <C> <C>
Investments in restricted subsidiaries...........................$ 44,947 $ 9,967
Other assets..................................................... 694 610
Cash and cash equivalents........................................ 197 5,755
-------- --------
Total Assets................................................$ 45,838 $ 16,332
======== ========
LIABILITIES
Debt.............................................................$ 59,727 $ 37,000
Due to Marriott International, Inc. and affiliates............... -- 900
Accounts payable and accrued expenses............................ 776 69
-------- --------
Total Liabilities........................................... 60,503 37,969
-------- --------
PARTNERS' DEFICIT
General Partner
Capital contribution........................................... 909 909
Cumulative net losses.......................................... (829) (602)
Capital distributions.......................................... (101) (398)
-------- --------
(21) (91)
-------- --------
Limited Partners
Capital contributions, net of offering costs of $10,576........ 77,444 77,444
Investor notes receivable...................................... (22) (22)
Capital distributions.......................................... (82,084) (59,584)
Cumulative net losses.......................................... (9,982) (39,384)
-------- --------
(14,644) (21,546)
-------- --------
Total Partners' Deficit.....................................$(14,665) $(21,637)
-------- --------
$ 45,838 $ 16,332
======== ========
</TABLE>
The notes to consolidated financial statements of Desert Springs Marriott
Limited Partnership are an integral part of these statements.
44
<PAGE>
SCHEDULE I
PAGE 2 OF 4
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ------
<S> <C> <C> <C>
Interest income................................................$ 579 $ 1,100 $1,663
Airline equipment.............................................. -- 1,248 2,837
Interest expense............................................... 3,802 3,621 3,092
Partnership expense and other.................................. 345 374 238
------- ------- ------
Income before equity in earnings of restricted subsidiaries.... (3,568) (1,647) 1,170
------- ------- ------
Equity in earnings of restricted subsidiaries.................. 33,267 1,756 415
------- ------- ------
Net income...................................................$29,699 $ 109 $1,585
======= ======= ======
</TABLE>
The notes to consolidated financial statements of Desert Springs Marriott
Limited Partnership are an integral part of these statements.
45
<PAGE>
SCHEDULE I
PAGE 3 OF 4
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FISCAL YEAR ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Cash (used in) from operations.............................$ (3,381) $ 227 $ 1,718
-------- ------- -------
INVESTING ACTIVITIES
(Investment in) dividends from restricted subsidiaries.... (1,277) 4,201 6,628
-------- ------- -------
Cash (used in) provided by investing activities.......... (1,277) 4,201 6,628
-------- ------- -------
FINANCING ACTIVITIES
Proceeds from issuance of debt............................ 59,727 -- --
Repayment of debt......................................... (37,000) (8,239) --
Capital distributions..................................... (22,727) (1,547) (5,071)
Advances from MII......................................... -- 1,700 --
Repayment of note payable................................. (900) (800) --
-------- ------- -------
Cash used in financing activities........................ (900) (8,886) (5,071)
-------- ------- -------
DECREASE IN CASH AND CASH EQUIVALENTS......................$ (5,558) $(4,458) $ 3,275
CASH AND CASH EQUIVALENTS at beginning of year............. 5,755 10,213 6,938
-------- ------- -------
CASH AND CASH EQUIVALENTS at end of year...................$ 197 $ 5,755 $10,213
-------- ------- -------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest on debt...........................$ 2,986 $ 3,559 $ 3,559
-------- ------- -------
</TABLE>
The notes to consolidated financial statements of Desert Springs Marriott
Limited Partnership are an integral part of these statements.
46
<PAGE>
SCHEDULE I
PAGE 4 OF 4
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A) The accompanying condensed financial statements have been prepared by Desert
Springs Marriott Limited Partnership (the "Partnership") without audit.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted from the accompanying statements.
The Partnership believes the disclosures made are adequate to make the
information presented not misleading. These condensed financial statements
should be read in conjunction with the Partnership's consolidated financial
statements.
On November 25, 1997, the Partnership secured long-term financing for its
$160 million Bridge Loan. The new financing consists of three tranches: 1) a
$103 million Senior Loan, 2) a $20 million Mezzanine Loan and 3) a $59.7
million Junior Loan.
In connection with the mortgage debt refinancing in 1997, the General
Partner received unrevoked consents of limited partners approving certain
amendments to the partnership agreement. The amendments, among other things,
allowed the formation of certain subsidiaries of the Partnership including
DS Hotel LLC, a bankruptcy remote subsidiary. Marriott DSM LLC, a bankruptcy
remote subsidiary owns 100% interest in DS Hotel LLC. The Partnership owns
100% interest in Marriott DSM LLC ("MDSM LLC").
The accompanying financial statements reflect the $103 million senior loan
and $20 million Mezzanine loan as a component of net investment in
restricted subsidiaries. Prior to the November 1997 issuance of this senior
loan and Mezzanine debt, the financial statements include the pushed down
effect of $123 million in mortgage debt, as the November 1997 proceeds of
the senior loan and Mezzanine debt were used to repay the Partnership's
mortgage debt.
DS Hotel LLC and MDSM LLC are restricted in their ability to dividend cash
to the parent and are accounted for under the equity method of accounting on
the accompanying condensed financial information of the Partnership.
B) The $103 million senior loan is from GMAC Commercial Mortgage Company
("GMAC") to a DS Hotel LLC which owns the Hotel and its related assets. The
senior loan bears interest at a fixed rate of 7.8%, requires monthly
payments of interest and principal with amortization over its twenty-five
year term, matures in 2022 and is secured by a first mortgage lien on the
Hotel. The $20 million Mezzanine Loan to MDSM LLC is secured by its 100%
interest in DS Hotel LLC. The loan bears interest at 10.365% with
amortization over a twelve and one-half year term maturing in December 2010.
47
<PAGE>
SCHEDULE III
PAGE 1 OF 2
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
PALM DESERT, CALIFORNIA
Real Estate and Accumulated Depreciation
December 31, 1997
(in thousands)
<TABLE>
<CAPTION>
Gross Amount at December 31, 1997
-------------------------------------
Initial Costs
-------------------- Subsequent
Buildings & Costs Buildings & Accumulated
Encumbrances Land Improvements Capitalized Land Improvements Total Depreciation
------------ ------- ------------ ----------- ---------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Marriott Desert Springs
Resort & Spa
Palm Desert, CA $103,000 $11,459 $146,687 $11,041 $11,459 $157,728 $169,187 $33,030
======== ======= ======== ======= ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
Marriott Desert Springs Date of
Resort & Spa Completion of Date Depreciation
Palm Desert, CA Construction Acquired Life
------------ -------- -------------
<S> <C> <C> <C>
1987 1987 50 years
</TABLE>
48
<PAGE>
SCHEDULE III
PAGE 2 OF 2
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
Notes:
(a) The changes in the total cost of land, buildings and improvements for the
three years ended December 31, 1996 were as follows:
<S> <C> <C> <C>
Balance at beginning of year $164,527 $166,939 $169,260
Capital expenditures 2,412 2,321 --
Dispositions -- -- (92)
-------- -------- --------
Balance at end of year $166,939 $169,260 $169,168
======== ======== ========
</TABLE>
(b) The changes in accumulated depreciation and amortization for the three
years ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Balance at beginning of year $ 22,096 $ 25,597 $ 29,230
Depreciation and amortization 3,501 3,633 3,849
Dispositions and other -- -- (49)
-------- -------- --------
Balance at end of year $ 25,597 $ 29,230 $ 33,030
======== ======== ========
</TABLE>
(c) The aggregate cost of land, buildings and improvements for Federal income
tax purposes was approximately $170,175,000 at December 31, 1997.
49
<PAGE>
Exhibit 3.2
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
DESERT SPRINGS MARRIOTT
LIMITED PARTNERSHIP
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE ONE DEFINED TERMS........................................................D-1
ARTICLE TWO FORMATION, NAME, PLACE OF BUSINESS, PURPOSE AND TERM
2.01 Formation.................................................................D-7
2.02 Name and Offices..........................................................D-7
2.03 Purpose...................................................................D-7
2.04 Term......................................................................D-8
2.05 Agent for Service of Process..............................................D-8
ARTICLE THREE PARTNERS AND CAPITAL
3.01 General Partner...........................................................D-8
3.02 [Intentionally Omitted]...................................................D-8
3.03 Limited Partners..........................................................D-8
3.04 Capital Contribution by the General Partner...............................D-8
3.05 Capital Contributions by the Limited Partners.............................D-8
3.06 Partnership Capital.......................................................D-11
3.07 Liability of the Limited Partners.........................................D-12
3.08 Liability of the General Partner..........................................D-12
ARTICLE FOUR ALLOCATION OF PROFITS AND LOSSES; DISTRIBUTIONS OF CASH
AND CERTAIN PROCEEDS
4.01 Allocation of Net Profits.................................................D-12
4.02 Allocation of Net Losses and Losses.......................................D-13
4.03 Allocation of Gain........................................................D-13
4.04 Allocation Among Limited Partners of Net Profits, Gains, Net Losses
and Losses...............................................................D-14
4.05 Allocation of Recapture Income............................................D-14
4.06 Distribution of Cash Available for Distribution...........................D-14
4.07 Distribution of Refinancing Proceeds......................................D-14
4.08 Distribution of Sale Proceeds.............................................D-15
4.09 Allocation Among Limited Partners of Cash Available for Distribution,
Refinancing Proceeds and Sale Proceeds...................................D-15
4.10 Section 754 Adjustments...................................................D-15
4.11 Special Allocation of Syndication Expenses................................D-15
4.12 Contingent Adjustments....................................................D-16
4.13 Special Allocation of Interest on Purchase Debt...........................D-17
4.14 Special Allocation in Event of Advances by General Partner................D-17
ARTICLE FIVE RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER
5.01 Authority of the General Partner to Manage the Partnership................D-17
5.02 Restrictions on Authority of the General Partner..........................D-20
5.03 Duties and Obligations of the General Partner.............................D-22
5.04 Compensation of the General Partner.......................................D-24
5.05 Other Business of Partners................................................D-24
</TABLE>
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<TABLE>
<S> <C>
5.06 Limitation on Liability of General Partner; Indemnification...............D-24
5.07 Designation of Tax Matters Partner and Designated Person for Purposes
of Investor List.........................................................D-26
ARTICLE SIX WITHDRAWAL AND REMOVAL OF GENERAL PARTNER
6.01 Limitation on Voluntary Withdrawal........................................D-28
6.02 Bankruptcy or Dissolution of the General Partner..........................D-28
6.03 Liability of Withdrawn General Partner....................................D-28
6.04 Removal of General Partner................................................D-28
6.05 Substitute General Partner................................................D-29
ARTICLE SEVEN ASSIGNABILITY OF UNITS
7.01 Restrictions on Assignments...............................................D-29
7.02 Assignees and Substituted Limited Partners................................D-30
ARTICLE EIGHT DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
8.01 Events Causing Dissolution................................................D-31
8.02 Liquidation...............................................................D-31
ARTICLE NINE BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX
ELECTIONS, ETC.
9.01 Books and Records.........................................................D-33
9.02 Accounting and Fiscal Year................................................D-33
9.03 Bank Accounts and Investments.............................................D-33
9.04 Reports...................................................................D-33
9.05 Tax Depreciation and Elections............................................D-34
9.06 Interim Closing of the Books..............................................D-35
ARTICLE TEN MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
10.01 Meetings.................................................................D-35
10.02 Special Voting Rights of Limited Partners................................D-36
ARTICLE ELEVEN MISCELLANEOUS PROVISIONS
11.01 Appointment of General Partner as Attorney-in-Fact.......................D-37
11.02 Amendments...............................................................D-38
11.03 General Partner Representations and Warranties...........................D-39
11.04 Binding Provisions.......................................................D-39
11.05 Applicable Law...........................................................D-39
11.06 Counterparts.............................................................D-39
11.07 Separability of Provisions...............................................D-39
11.08 Article and Section Titles...............................................D-40
11.09 Short Form Filings.......................................................D-40
</TABLE>
EXHIBIT A Limited Partner Note
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SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
This Second Amended and Restated Agreement of Limited Partnership, dated as
of September 26, 1997 is made and entered into by and among Marriott Desert
Springs Corporation, a Delaware corporation, as general partner (the "General
Partner"), and those Persons who have been admitted as limited partners of the
Partnership in accordance with the provisions of the Amended and Restated
Agreement of Limited Partnership of Desert Springs Marriott Limited Partnership
(the "Partnership") dated as of April 24, 1987 (the "Original Agreement") or
this Agreement and are identified in the books and records of the Partnership as
the Limited Partners.
The Partnership was formed pursuant to a Certificate of Limited Partnership
filed with the Office of the Secretary of State of the State of Delaware on
February 26, 1987. On April 27, 1987, the General Partner, Christopher G.
Townsend, as initial limited partner, and the Limited Partners who purchased
units of limited partnership interest (the "Units") in the Partnership in the
private placement effected pursuant to a Private Placement Memorandum dated
March 20, 1987 entered into the Original Agreement. The Partners are adopting
this Second Amended and Restated Agreement of Limited Partnership in order to
effect certain amendments to the Original Agreement approved by the General
Partner and the Limited Partners.
In consideration of the mutual agreements made herein, the parties hereby
agree to continue the Partnership as a limited partnership under the Act as
follows:
ARTICLE ONE
DEFINED TERMS
SECTION 1.01. The defined terms used in this Agreement shall, unless the
context otherwise requires, have the respective meanings specified in this
Section 1.01.
"Accounting Period" means the four week accounting periods having the same
beginning and ending dates as the General Partner's four week accounting
periods, except that an Accounting Period may occasionally contain up to five
weeks when necessary to conform the accounting system to the calendar year.
"Act" means the Delaware Revised Uniform Limited Partnership Act (6 Del. C.
(S) 17-101, et seq.), as amended from time to time.
"Adjustments" means the after-tax present values to the General Partner and
the Limited Partners of the Affected Items, as determined by the Expert.
"Affected Items" means those items of tax benefits that, because of the
Proposed Regulations, are lost by the Limited Partners or are received by the
General Partner.
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"Affected Year" means any Fiscal Year of the Partnership in which there are
Affected Items.
"Affiliate," "Affiliates" or "Affiliated Person" means, when used with
reference to a specified Person, (i) any Person that directly or indirectly
through one or more intermediaries controls or is controlled by or is under
common control with the specified Person, (ii) any Person that is an officer of,
partner in or trustee of, or serves in a similar capacity with respect to, the
specified Person or of which the specified Person is an officer, partner or
trustee, or with respect to which the specified Person serves in a similar
capacity, (iii) any Person that, directly or indirectly, is the beneficial owner
of 10% or more of any class of equity securities of the specified Person or of
which the specified Person is directly or indirectly the owner of 10% or more of
any class of equity securities, and (iv) any relative or spouse of the specified
Person who makes his or her home with that of the specified Person. Affiliate or
Affiliated Person of the Partnership or the General Partner does not include a
Person who is a partner of, or in a partnership or joint venture with, the
Partnership or any other Affiliated Person, if such Person is not otherwise an
Affiliate or Affiliated Person of the Partnership or the General Partner.
Notwithstanding the foregoing, no corporation whose common stock is listed on a
national securities exchange or authorized for inclusion on the NASDAQ National
Market, or any subsidiary thereof, shall be an "Affiliate" of the General
Partner or any Affiliate thereof unless a Person (or Persons if such Persons
would be treated as part of the same group for purposes of Section 13(d) or
13(g) of the Securities Exchange Act of 1934) directly or indirectly owns twenty
percent (20%) or more of the outstanding common stock of the General Partner and
such other corporation.
"Agreement" means this Second Amended and Restated Agreement of Limited
Partnership, as originally executed and as hereafter amended or modified from
time to time.
"Capital Account" or "Capital Accounts" means, with respect to a Partner,
the account maintained for such Partner which is determined and maintained in a
manner which the General Partner determines is in accordance with section
1.704-1(b)(2)(iv) of the Treasury Regulations, as amended.
"Capital Contribution" or "Capital Contributions" means, with respect to
any Partner, the total amount of money (and the agreed value of any property
contributed to the Partnership by the General Partner) contributed and agreed to
be contributed to the Partnership (prior to the deduction of any selling
commissions or expenses) by such Partner; provided, however, that as and to the
extent any placement agent retained by the General Partner to assist in the
private placement of the Units foregoes any portion of its fees or selling
commission with a consequent reduction in the offering price of any Units so
placed or as and to the extent any Limited Partner receives a discount of
$12,285 per Unit as a result his making a payment of $87,715 per Unit in cash
($77,715 per Unit if purchased in cash by the General Partner, its Affiliates,
or officers, directors or employees of the General Partner or its Affiliates, or
by the Placement Agents) upon execution of the subscription documents as full
payment of his Capital Contribution, the Limited Partners purchasing any such
Units shall nevertheless be deemed to have contributed to the
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Partnership the full amount of the offering price without deduction on account
of such reduced purchase price.
"Capital Receipts" means Sale Proceeds and/or Refinancing Proceeds.
"Cash Available for Distribution" means, with respect to any fiscal period,
the cash revenues of the Partnership from all sources during such fiscal period
other than Capital Receipts less (i) all cash expenditures of the Partnership
during such fiscal period, including, without limitation, repayment of all
Partnership indebtedness to the extent required to be paid, but not including
expenditures of Capital Receipts plus any fees for management services and
administrative expenses and (ii) such reserves as may be determined by the
General Partner, in its sole discretion, to be necessary to provide for the
foreseeable needs of the Partnership.
"Code" means the Internal Revenue Code of 1986, as amended (or any
corresponding provision or provisions of succeeding law).
"Consent" means either (a) the approval given by vote at a meeting called
and held in accordance with the provisions of Section 10.01, or (b) a prior
written approval required or permitted to be given pursuant to this Agreement or
the act granting such approval, as the context may require. Unless otherwise
specified, Consent of the Limited Partners shall mean Consent of a majority in
interest of the Limited Partners.
"Cumulative Capital" means, with respect to any Partner, the amount of
Capital Contributions actually contributed to the Partnership as of the date in
question (prior to the deduction of any selling commissions or expenses) by such
Partner; provided, however, that as and to the extent any placement agent
retained by the General Partner to assist in the private placement of the Units
foregoes any portion of its fees or selling commission with a consequent
reduction in the offering price of any Units so placed or as and to the extent
any Limited Partner receives a discount of $12,285 per Unit as a result of his
paying $87,715 per Unit in cash ($77,715 if purchased in cash by the General
Partner, its Affiliates, or officers, directors and employees of the General
Partner or its Affiliates, or by the Placement Agents) upon execution of the
subscription documents as full payment of the purchase price for such Unit the
Limited Partners purchasing any such Unit shall nevertheless be deemed to have
contributed to the Partnership the full amount of the offering price without
deduction on account of such reduced purchase price, provided, further that at
the time of any calculation of Cumulative Capital, there shall only be credited
to the Cumulative Capital of a Limited Partner an amount per Unit not in excess
of the amount of Capital Contribution required to be paid by Limited Partners
who pay for their Units in installments.
"Debt Service Guarantees" means the guarantees by Marriott and the General
Partner in an amount not exceeding $21,875,000 of interest and principal
payments owing by the Partnership under the Mortgage Debt.
"Defaulting Limited Partner" means a Limited Partner who fails to pay all
or any portion of any installment of his Capital Contribution for a period of 20
days after the date such installment was due.
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"Defaulting Limited Partner Allocation" means allocations of Net Losses,
Net Profits, Gains, Losses, and tax credits to a Defaulting Limited Partner.
"Default Notice" means the notice given by the General Partner to the
Partnership of its desire to purchase all or a portion of a Defaulting Limited
Partner's Interest in the Partnership.
"Designated Person" means the General Partner.
"Expert" means that independent expert retained by the General Partner who
will determine the respective after-tax present values to the General Partner
and the Limited Partners of the Affected Items.
"FF&E" means (i) furniture, fixtures and furnishings and equipment and (ii)
routine repairs and maintenance undertaken subsequent to the opening date of the
Hotel, the cost of which would not be expensed under generally accepted
accounting principles.
"Fiscal Quarter" means, for the respective fiscal periods in any year, (i)
the period beginning on January 1, and having the same ending date as the
General Partner's 12-week fiscal first quarter, (ii) the same period of time as
the General Partner's second fiscal quarter, (iii) the same period of time as
the General Partner's third fiscal quarter, and (iv) the period from the end of
the General Partner's third fiscal quarter through December 31 in such Fiscal
Year.
"Fiscal Year" means the fiscal year of the Partnership as established in
Section 9.02.
"Foreclosure Guarantee" means the guarantee of the General Partner in an
amount not exceeding $50 million of principal upon a foreclosure of the Hotel.
"Gain" or "Gains" means the gain or gains recognized by the Partnership for
Federal income tax purposes upon the sale or disposition of Partnership property
(other than the routine sale of used FF&E being replaced at the Hotel).
"General Partner" means Marriott Desert Springs Corporation, a Delaware
corporation and wholly owned subsidiary of Host, in its capacity as general
partner of the Partnership and its permitted successors or assigns.
"Host" means Host Marriott Corporation, a Delaware corporation.
"Hotel" means Marriott's Desert Springs Resort and Spa in Palm Desert,
California and the land on which the hotel and a golf course is located.
"Hotel Operating Lease" means that certain agreement with the Operating
Tenant, executed as of the closing of the offering pursuant to the Private
Placement Memorandum, whereby the Operating Tenant leases the Hotel and
subleases a golf course from the Partnership.
"Interest" means the entire interest of a Partner in the Partnership at
any particular time, including the right of such Partner to any and all benefits
to which a Partner may be entitled as
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provided in this Agreement, together with the obligations of such Partner to
comply with all the terms and provisions of this Agreement.
"Interested Transaction" means any matter in which the General Partner or
its Affiliates has an actual economic interest, other than an interest solely as
a result of its or an Affiliate's ownership of Units or a general partner
interest or as a result of its or an Affiliate's (and any group of which it is a
part for purposes of Section 13(d) or 13(g) of the Securities Exchange Act of
1934) direct or indirect ownership of less than twenty percent (20%) of the
outstanding common stock of both the General Partner and a corporation whose
common stock is listed on a national securities exchange or authorized for
inclusion in the NASDAQ National Market, or any subsidiary thereof.
"Invested Capital" means the excess, if any, of Cumulative Capital of a
Partner over cumulative distributions to him of Capital Receipts.
"Investor List" means that list, required by the Tax Reform Act of 1984, as
amended, identifying Persons to whom Interests in the Partnership were sold,
such Persons' addresses and taxpayer identification numbers, the dates on which
the Interests were acquired and the name and tax shelter registration number of
the Partnership.
"IRS" means the Internal Revenue Service.
"Limited Partner" means any Person admitted to the Partnership pursuant to
Section 3.03 including any Substituted Limited Partner.
"Loss" or "Losses" means the loss or losses recognized by the Partnership
for Federal income tax purposes upon the sale or disposition of Partnership
property other than the routine sale of used FF&E being replaced at the Hotel.
"Minimum Gain" means the Gain that would be recognized by the Partnership,
if property of the Partnership which is secured by a nonrecourse debt, were
foreclosed upon and such property were transferred to the creditor in
satisfaction thereof.
"Mortgage Debt" means the loan provided to the Partnership by The First
National Bank of Chicago and any other commercial banks in the principal amount
of $175 million.
"Net Profits" or "Net Losses" means, for any period, the net profits or net
losses of the Partnership for Federal income tax purposes during such period as
determined under section 702 of the Code, including gain or loss on the routine
sale of used FF&E not in connection with the sale of a Hotel, and from the sale
or other disposition of Equipment except in connection with a sale or other
disposition of all or substantially all the assets of the Partnership, and
excluding Gains and Losses and items specially allocated under Sections 4.05,
4.11, 4.13 and 4.14.
"Note" or "Notes" means the promissory note or notes given to the
Partnership by the Limited Partners pursuant to Section 3.05.
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"Notification" means a written notice, containing the information required
by this Agreement to be communicated to any Person, sent by registered,
certified or regular mail to such Person; provided, however, that any
communication containing such information sent to such Person and actually
received by such Person shall constitute Notification for all purposes of this
Agreement.
"Operating Tenant" means Marriott Hotel Services, Inc., a Delaware
corporation and wholly owned subsidiary of Marriott International Inc., as
lessee and operator of the Hotel.
"Original Limited Partner" means any Limited Partner who acquired Units in
the initial offering of Units pursuant to the Private Placement Memorandum.
"Partners" means, collectively, the Limited Partners as constituted from
time to time and the General Partner.
"Partnership" means the limited partnership formed under the Act and
continued pursuant to this Agreement by the parties hereto, as said Partnership
may from time to time be constituted.
"Partnership Debt" means any indebtedness for borrowed money incurred by
the Partnership.
"Person" means any individual, partnership, limited liability company,
corporation, trust or other legal entity.
"Placement Agents" means Smith Barney, Harris Upham & Co. Incorporated and
Mutual Benefit Financial Service Company.
"Prime Rate" means the base rate of interest announced from time-to-time by
Bankers Trust Company, New York, New York.
"Private Placement Memorandum" means the Partnership's confidential private
placement memorandum dated March 20, 1987, concerning the offering of the Units.
"Proposed Regulations" means, for purposes of computing Affected Items,
regulations proposed by the Department of the Treasury as directed by section 79
of the Tax Reform Act of 1984, as amended, or otherwise pursuant to section 704
or section 752 of the Code.
"Purchase Debt" means a loan in the maximum amount of up to $56,442,000
borrowed by the Partnership from Marriott Corporation to finance, among other
things, a portion of the purchase price of the Hotel.
"Refinancing Proceeds" means the net proceeds from any refinancing or
borrowing by the Partnership, the proceeds of which are applied to the repayment
of previously incurred debt of the Partnership, or borrowed for distributions to
the Partners including the proceeds of a sale and leaseback on which no taxable
gain is recognized for Federal income tax purposes.
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"Sale Proceeds" means any net proceeds received by the Partnership from (i)
the exchange, condemnation, eminent domain taking, casualty, sale or other
disposition of all or a portion of the Partnership's assets, or (ii) the
liquidation of the Partnership's property in connection with a dissolution of
the Partnership (in excess of the outstanding indebtedness and other liabilities
of the Partnership). Sale Proceeds shall not include the proceeds from the
routine sale of used FF&E not in connection with the disposition of the Hotel.
"Substituted Limited Partner" means any Person admitted to the Partnership
as a Limited Partner pursuant to the provisions of Section 7.02 and who is
listed as such in the books and records of the Partnership.
"Tax-Exempt Entity" means an entity or person defined in section 168(h)(2)
of the Code.
"Tax Matters Partner" means the General Partner.
"Total Partnership Distributions" means the total amount of cash and the
fair market value of any property (net of any associated liabilities)
distributed to the Partners pursuant to Sections 4.07 through 4.10.
"Treasury Regulations" means the regulations promulgated by the Department
of the Treasury as in effect as of the date of this Agreement.
"Unit" means the Interest of a Limited Partner represented by a Capital
Contribution of $100,000.
ARTICLE TWO
FORMATION, NAME, PLACE OF BUSINESS, PURPOSE AND TERM
SECTION 2.01. Formation. The parties have formed and do hereby continue the
Partnership pursuant to the provisions of the Act.
SECTION 2.02. Name and Offices. The name of the Partnership is and shall be
Desert Springs Marriott Limited Partnership. The principal offices of the
Partnership shall be located at 10400 Fernwood Road, Bethesda, Maryland 20817 or
at such other place or places as the General Partner may from time to time
determine. The address of the registered office of the Partnership in the State
of Delaware is at 1013 Centre Road, Wilmington, County of New Castle, Delaware
19805.
SECTION 2.03. Purpose. The purpose of the Partnership is, without
limitation, to directly or indirectly, (i) acquire, own, and then lease to, or
enter into a management agreement with, an operator the Hotel and a golf course
adjacent to the Hotel, (ii) lease a second golf course and sublease the course
to an operator, (iii) sell or otherwise dispose of the Hotel, and (iv) to engage
in any other activities related or incidental thereto as more fully set forth in
Section 5.01 hereof.
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SECTION 2.04. Term. The term of the Partnership shall continue in full
force and effect from the date of the filing of the original Certificate of
Limited Partnership until December 31, 2087, or until dissolution prior thereto
pursuant to the provisions of Article Eight.
SECTION 2.05. Agent for Service of Process. The name and address of the
agent for service of process on the Partnership in the State of Delaware is The
Prentice-Hall Corporation System, Inc., 1013 Centre Road, Wilmington, County of
New Castle, Delaware 19805.
ARTICLE THREE
PARTNERS AND CAPITAL
SECTION 3.01. General Partner. The General Partner of the Partnership is
and shall be Marriott Desert Springs Corporation, a Delaware Corporation and
wholly-owned subsidiary of Host, having its principal executive offices at 10400
Fernwood Road, Bethesda, Maryland 20817.
SECTION 3.02. [Intentionally Omitted]
SECTION 3.03. Limited Partners. The names and addresses of the Limited
Partners, the amount of their agreed upon Capital Contributions and the number
of Units held by them are set forth in the books and records of the Partnership
and a Person shall be deemed to be admitted as a Limited Partner when the
General Partner has accepted such Person as a Limited Partner of the
Partnership, the books and records reflect such Person as admitted to the
Partnership as a Limited Partner and such Person has executed this Agreement.
SECTION 3.04. Capital Contribution by the General Partner. The General
Partner has made a Capital Contribution in the amount of $909,100 in cash.
SECTION 3.05. Capital Contributions by the Limited Partners.
A. The number of Units subscribed for by each Limited Partner is set
forth in the subscription documents executed and delivered by such Limited
Partner. Each Original Limited Partner's contribution in respect of the Units
subscribed for was made (i) in cash and a fully recourse promissory note (the
"Note") of such Limited Partner payable as set forth in Section 3.05B or (ii) in
cash in the amount of $87,715 as full payment of the subscription price ($77,715
per Unit in cash if purchased by the General Partner, its Affiliates, or
officers, directors or employees of the General Partner or its Affiliates, or by
the Placement Agents). No Partner shall be paid interest on any Capital
Contribution.
B. The Original Limited Partners made Capital Contributions totaling up
to $90 million for which each such Limited Partner subscribed in Units of
$100,000 unless the General Partner in its sole discretion accepted
subscriptions for less than a full Unit. For each Unit purchased, an Original
Limited Partner made a Capital Contribution either by paying $87,715 per Unit in
cash ($77,715 per Unit in cash if purchased by the General Partner, its
Affiliates, or officers, directors or employees of the General Partner or its
Affiliates, or the Placement Agents)
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on execution of the subscription documents as full payment of the subscription
price or $100,000 in the following installments: (i) a first installment in the
amount of $25,000 payable on execution of the subscription documents; (ii) a
second installment in the amount of $30,000 payable on June 15, 1988; (iii) a
third installment in the amount of $25,000 payable on June 15, 1989; and (iv) a
fourth installment in the amount of $20,000 payable on June 15, 1990. Original
Limited Partners who purchased more or less than a full Unit were required to
make proportionate installments on the dates aforesaid. Original Limited
Partners could prepay, without any reduction in the amount thereof, the
foregoing installments, in whole or in part, at any time prior to their
respective due date.
C. The obligation of each Original Limited Partner to pay the
installments required by Section 3.05B, other than the first installment, was
evidenced by the delivery to the Partnership concurrently with payment of the
first installment of the Note in the form of Exhibit A attached hereto payable
to the Partnership in the amount of $75,000 for each Unit purchased (adjusted if
less than a full Unit is purchased) representing the amount of the remaining
unpaid Capital Contribution of such Original Limited Partner. Such Original
Limited Partners could prepay in whole, or in part, all of the installments. If
an Original Limited Partner paid $87,715 in cash per Unit at the time he
delivered an executed subscription agreement, then there was no obligation to
deliver a Note to the Partnership. That portion of such $87,715 payment in
excess of the amount that would have been paid upon subscription had the
Original Limited Partner selected the installment method of paying the
subscription price was used by the Partnership to reduce the Purchase Debt.
D. Each Original Limited Partner paying in installments pledged to the
Partnership his Interest as security for payment of the installments payable
under such Original Limited Partner's Note. The Partnership, acting through the
General Partner, shall have all rights and remedies granted to a secured party
under the Uniform Commercial Code as adopted in Delaware, including, but not
limited to, the right to sell such Interest, and such Limited Partner agrees to
execute such instruments, including, without limitation, a financing statement
on Form UCC-l, as the General Partner may from time to time require to perfect
such security interest. For purposes of the said Uniform Commercial Code, this
Agreement shall also be deemed to be a security agreement.
E. The following provisions applied in the event a Limited Partner failed
to make installment payments when due:
(i) A Limited Partner who failed to pay when due all or any portion
of any installment (a "Defaulting Limited Partner") for a period of 20 days
and such default continues, the Defaulting Limited Partner shall be
required to pay the Partnership a late payment charge equal to five percent
(5%) of such unpaid installment or portion thereof. At any time prior to
any sale of all or any portion of the Defaulting Limited Partner's Interest
as provided in this subsection E, the General Partner may but shall not be
obligated to accept full payment from the Defaulting Limited Partner of any
unpaid installment then overdue. The acceptance of such payment by the
General Partner shall extinguish the further right (as hereafter defined)
of the General Partner to purchase the
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Defaulting Limited Partner's Interest. If a default shall continue for more than
30 days after notice to the Defaulting Limited Partner, in addition to the
aforesaid late charge, the unpaid portion of such installment or portion thereof
shall bear interest from the date due until paid in full at a rate equal to the
lesser of (a) four percentage points in excess of the Prime Rate or (b) the
maximum rate permitted by law. If the late charge is deemed to be interest under
law, it may only be imposed to the extent it does not cause total interest to
exceed the rate permitted by law. A Defaulting Limited Partner shall have no
voting rights with respect to his Interest for so long as any unpaid
installments plus any late charge or interest attributable to such unpaid
installment or portion thereof remains unpaid. The General Partner will deduct
the amount of any delinquent installments, late penalty or interest from any
cash distributions to Limited Partners.
(ii) If a default shall continue for more than 30 days after notice to
the Defaulting Limited Partner, the General Partner shall have the option of
accelerating the payment of the entire unpaid balance of the Notes of the
Defaulting Limited Partner and the additional option of purchasing (for the
price set forth below) all or a portion of the Defaulting Limited Partner's
Interest. Such option may be exercised by the General Partner by giving the
Partner a Default Notice. The purchase price to be paid to the Defaulting
Limited Partner shall be an amount equal to the greater of (x) 10% of the amount
of Cumulative Capital of the Defaulting Limited Partner in respect of the
Interest being purchased less the sum of (i) the total amount of cash
distributions, if any, theretofore made to the Defaulting Limited Partner in
respect of the Interest being purchased, (ii) any reasonable expenses incurred
by the Partnership and by the General Partner in connection with such purchase,
(iii) all tax credits previously reported by the Partnership for all Fiscal
Years then ended allocable to the Interest being purchased, and (iv) 50% of the
Net Losses previously reported by the Partnership for all Fiscal Years then
ended allocable to the Interest being purchased, or (y) three percent (3%) of
the amount of the Cumulative Capital of the Defaulting Limited Partner in
respect of the Interest being purchased. Such purchase price shall be paid in
cash within 30 days after the date of the consummation of the purchase. The
General Partner shall also pay to the Partnership an amount equal to all Capital
Contribution installments in respect of the Interest being purchased then due
and not theretofore paid by the Defaulting Limited Partner (including the unpaid
installment giving rise to the default) and shall assume all other obligations
of the Defaulting Limited Partner in respect of the Interest being purchased, if
any, to the Partnership.
(iii) In the event that the General Partner does not acquire all of the
Interest of a Defaulting Limited Partner and after the exercise of due
diligence, the General Partner is unable to find a purchaser for all or the
balance of the Defaulting Limited Partner's Interest for the price set forth in
clause (ii) above, then the Defaulting Limited Partner shall sell such Interest
or the balance of such Interest, as the case may be, on such terms and
conditions as the General Partner deems reasonable under the circumstances;
provided that any purchaser shall be required to agree to assume the obligation
of the Defaulting Limited Partner to make payment of the unpaid balance of the
installments to the extent of the Interest so acquired. At the closing of any
purchase and sale pursuant to
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this clause (iii), the purchaser shall pay to the Partnership the unpaid
balance of the installments then due and owing by the Defaulting Limited
Partner and shall agree to thereafter make payment of any future
installments as and when the same shall become due and payable. The
Defaulting Limited Partner shall pay all of the Partnership's and General
Partner's costs and expenses incurred in connection with any purchase and
sale of a Defaulting Limited Partner's interest pursuant to this clause
(iii).
(iv) A purchaser of all or any part of the Interest of a Defaulting
Limited Partner will receive all of the cash allocable to such Interest
from and after the date of default and not actually distributed to the
Defaulting Limited Partner prior to default. All Net Profits and Net Losses
that would otherwise be allocated in accordance with Sections 4.01, 4.02
and 4.03 to a Defaulting Limited Partner ("Defaulting Limited Partner
Allocation") shall be allocated, from and after the date of default to, but
not including, the date, if any, on which the Interest of such Defaulting
Limited Partner shall be purchased, among the non-Defaulting Limited
Partners in proportion to the number of Units owned by each. All Defaulting
Limited Partner Allocations from and after the date of purchase of the
Defaulting Limited Partner's Interest until the expiration of the Fiscal
Year in which such purchase date falls shall be allocated to the purchaser.
In the following Fiscal Year or Fiscal Years, all Net Profits and Net
Losses of the Partnership allocable to the Limited Partners under Article
Four shall first be allocated until the purchaser's capital account balance
shall be equal in amount to the capital account balance of a non-Defaulting
Partner owning the same number of Units as the purchaser.
(v) Notwithstanding the foregoing provisions of this Section 3.05E,
the obligations of the Defaulting Limited Partner hereunder shall not be
extinguished by the existence of any option of the General Partner to
purchase the Interest of the Defaulting Limited Partner, or by its
exercise, or by any agreement by any Person to purchase such Interest, but
only to the extent of payment of the unpaid installments together with
interest thereon made in the Defaulting Limited Partner's stead by any
purchaser of such Interest.
(vi) In addition to the other rights of the Partnership against the
Defaulting Limited Partner, the Partnership may avail itself of appropriate
legal remedies at law or in equity to compel payment of any portion of the
installments remaining unpaid together with any interest thereon remaining
unpaid, together with reasonable court costs and legal fees in the event of
litigation against the Defaulting Limited Partner.
SECTION 3.06. Partnership Capital.
A. The Capital Contribution of each Limited Partner and the General
Partner shall be credited to each such Partner's Capital Account; provided,
however, that the deemed increase in the Capital Contribution of any Partner due
to (i) any relinquished selling commission or other fees with respect to such
Partner or (ii) any discount of $12,285 per Unit for any Limited Partner making
full payment of such Limited Partner's Capital Contribution ($22,285 for the
General Partner or any of its Affiliates of for officers, directors or employees
of the General Partner or
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any of its Affiliates, or the Placement Agents) upon execution of the
subscription agreement shall not be credited to such Partner's Capital Account
and a Limited Partner's obligation to make additional contributions in
installments shall not be credited to his Capital Account until the installments
are actually contributed. A Partner's Capital Account shall also be credited
with the amount of Net Profits or Gain allocable to the Partner, and shall be
debited with (x) such Partner's share of Total Partnership Distributions and (y)
the amount of Net Losses, Losses or deductions allocated to such Partner.
B. For purposes of this Section 3.06, upon a distribution in kind of
Partnership property, the Capital Accounts of Partners will be debited or
credited as though the property had been sold for an amount equal to its fair
market value, and gain or loss which would have been recognized for Federal
income tax purposes had the property actually been sold will be allocated to the
Partners under Article Four.
SECTION 3.07. Liability of the Limited Partners. Except as otherwise
required by the Act, no Limited Partner shall be liable for the debts,
liabilities, contracts or any other obligations of the Partnership. Except as
otherwise required by the Act, a Limited Partner has no liability in excess of
his Capital Contribution and his share of the Partnership's assets and
undistributed profits, and shall not be required to lend any funds to the
Partnership or, after his Capital Contribution has been paid, to make any
further Capital Contributions to the Partnership or to repay to the Partnership,
any Partner or to any creditor of the Partnership any portion or all of any
negative balance of his Capital Account.
SECTION 3.08. Liability of the General Partner. Except as provided in the
Act, the General Partner has the liabilities of a partner in a partnership
without limited partners to Persons other than the Partnership and the other
Partners. Except as provided in the Act or herein, the General Partner has the
liabilities of a general partner in a partnership without limited partners to
the Partnership and to the other Partners. This Agreement shall not be amended
to limit such liability of the General Partner.
ARTICLE FOUR
ALLOCATION OF PROFITS AND LOSSES; DISTRIBUTIONS OF CASH AND CERTAIN PROCEEDS
SECTION 4.01. Allocation of Net Profits. Net Profits for each Fiscal Year
shall be allocated to the Partners in the following order of priority:
(i) first, through and including the year ending on 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.
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SECTION 4.02. Allocation of Net Losses and Losses. Net Losses and Losses
for each Fiscal Year shall be allocated through December 31, 1990, 100% to the
General Partner, and in Fiscal Years thereafter, 70% to the General Partner and
30% to the Limited Partners; provided, however, that if and to the extent the
allocation of Net Losses and Losses in this manner would cause the negative
balances, if any, in the Capital Accounts of Limited Partners (deemed, for
purposes of this Section 4.02, to include the amount of any obligation to make
additional contributions to the capital of the Partnership) to exceed the
portions of the Minimum Gain which would be respectively allocated to such
Partners at the end of such Fiscal Year, then such Net Losses and Losses shall
instead be allocated to the General Partner.
SECTION 4.03. Allocation of Gain. Gain recognized by the Partnership shall
be allocated (after giving effect to the allocations referred to in Sections
4.01 and 4.02 and all distributions other than distributions pursuant to Section
4.08B) with respect to any Fiscal Year in the following order of priority:
(i) first, to all Partners whose Capital Accounts have a negative
balance, in the ratio of such negative balances until such negative
balances are brought to zero; provided, however, if there is insufficient
Gain to bring such negative balances to zero, then: (a) if the sum of such
negative balances is less than or equal to the Partnership Minimum Gain at
the end of the Fiscal Year, then Gain shall be allocated in the ratio of
the negative balances; and (b) if the sum of such negative balances exceeds
the Partnership Minimum Gain at the end of the Fiscal Year, then Gain shall
be allocated in the ratio of the deficit balance of the General Partner as
reduced by such excess to the deficit balances of the Limited Partners,
until the deficit balances of the Limited Partners are brought to zero, and
then to the General Partner until its deficit balance is brought to zero;
provided further, however, that solely for purposes of this Section
4.03(i), the Capital Account balance of a Limited Partner shall be deemed
to include the amount of any obligation to make additional contributions to
the capital of the Partnership;
(ii) second, to all Partners up to the amount necessary to bring
their respective Capital Account balances to an amount equal to their
respective Invested Capital; provided, however, that in calculating
Invested Capital solely for purpose of this Section 4.03(ii), Cumulative
Capital of a Limited Partner who paid $87,715 per Unit in cash ($77,715 if
purchased by the General Partner, its Affiliates, or officers, directors or
employees of the General Partner or its Affiliates), upon his execution of
the subscription documents as full payment of the purchase price of his
Unit shall be deemed to be $100,000;
(iii) third, in the case of Gain arising from the sale or disposition
(or from a related series of sales or dispositions) of all or substantially
all the Hotel or of all or substantially all 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 each year, over (2) the sum of distributions to
the Limited Partners of Cash Available for Distribution each year, and (b)
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next, to the General Partner until it has been allocated an amount equal to
10/90 times the amount allocated to the Limited Partners under clause (a);
and
(iv) thereafter, 12% to the General Partner and 88% to the Limited
Partners.
SECTION 4.04. Allocation Among Limited Partners of Net Profits, Gains, Net
Losses and Losses. Net Profits or Net Losses for any Fiscal Year allocable to
the Limited Partners shall be allocated among the Limited Partners pro rata in
accordance with the number of Units owned by each as of the end of such Fiscal
Year; provided that if any Unit is assigned during the Fiscal Year in accordance
with this Agreement, the Net Profits or Net Losses that are so allocable to such
Unit shall be allocated between the assignor and assignee of such Unit according
to the number of Accounting Periods in such Fiscal Year each owned such Unit.
Any Gains or Losses allocable to the Limited Partners shall be allocated among
the Limited Partners who held Units on the last day of the Accounting Periods in
which the sale or disposition giving rise to such Gains or Losses occurred, pro
rata in accordance with the number of Units owned by each such Limited Partner.
If any Unit is assigned by a Limited Partner other than on the first day of an
Accounting Period (in contravention of the Agreement), then the Partnership
shall recognize such assignment for the purposes of allocating Net Profits,
Gains, Net Losses or Losses if, and to the extent, it is legally required to so
do in the opinion of legal counsel.
SECTION 4.05. Allocation of Recapture Income. Notwithstanding Sections
4.01, 4.02 and 4.03, "recapture income," if any, realized by the Partnership
pursuant to section 1245 or section 1250 of the Code shall be allocated to the
Partners to whom the prior corresponding depreciation deductions were allocated,
such allocations to be made pro rata to the Partners in accordance with the
manner in which such depreciation deductions were allocated.
SECTION 4.06. Distribution of Cash Available for Distribution. Cash
Available for Distribution with respect to each Fiscal Year shall be distributed
at least annually as follows:
(i) through and including the end of the Accounting Period during
which the General Partner and the Limited Partners shall have received
cumulative distributions of Capital Receipts equal to $45,454,545, 1% to
the General Partner and 99% to the Limited Partners;
(ii) thereafter, 10% to the General Partner and 90% to the Limited
Partners.
SECTION 4.07. Distribution of Refinancing Proceeds. Refinancing Proceeds
shall, unless the General Partner, in its sole discretion, shall determine to
retain any such amounts in the Partnership, be distributed as follows:
(i) first, 1% to the General Partner and 99% to the Limited
Partners, until the Partners shall 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.
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SECTION 4.08. Distribution of Sale Proceeds.
A. Sale Proceeds from the sale or other disposition of less than
substantially all of the assets of the Partnership, other than from the sale or
other disposition of all or substantially all the Hotel, shall, unless the
General Partner, in its sole discretion, shall determine to retain any such
amounts in the Partnership, be distributed:
(i) first, until the Partners shall have received cumulative
distributions of Capital Receipts equal to $90,909,100, 1% to the General
Partner and 99% to the Limited Partners; and
(ii) thereafter, 10% to the General Partner and 90% to the Limited
Partners.
B. Sale Proceeds from the sale or other disposition (or from a related
series of sales or dispositions) of all or substantially all of the assets of
the Partnership or all or substantially all the Hotel shall be distributed in
accordance with Section 8.02.
SECTION 4.09. Allocation Among Limited Partners of Cash Available for
Distribution, Refinancing Proceeds and Sale Proceeds. Cash Available for
Distribution distributable with respect to any Accounting Period to the Limited
Partners pursuant to Section 4.06, shall be distributed to the Limited Partners
pro rata in accordance with the number of Units owned by each as of the end of
such Accounting Period. Proceeds distributable to the Limited Partners pursuant
to Section 4.07 or Section 4.08A shall be distributed to the Limited Partners
pro rata in accordance with the number of Units owned by each such Limited
Partner on the last day of the Accounting Period in which the transaction giving
rise to such proceeds was completed. If a Unit is assigned by a Limited Partner
other than on the first day of an Accounting Period (in contravention of this
Agreement), then the Partnership shall recognize such assignment for the purpose
of distributing amounts pursuant to Sections 4.06, 4.07 and 4.08 if, and to the
extent, it is legally required to do so in the opinion of legal counsel.
SECTION 4.10. Section 754 Adjustments. For income tax purposes (but not for
purposes of adjusting the Capital Accounts of the Partnership, except as
otherwise provided in section 1 .704-l(b)(2)(iv) of the Treasury Regulations),
appropriate adjustments shall be made in the allocations to Limited Partners
under this Article Four in order to reflect adjustments in the basis of
Partnership property permitted pursuant to any election under section 754 of the
Code, provided by the General Partner, in its sole discretion, makes such
election. If such an election is made, the Partnership will make the basis
adjustments and calculate depreciation deductions in accordance with such
adjustments for those transferee Limited Partners who advise the Partnership of
this obligation with sufficient information to enable the Partnership to
determine when, and at what price, such transferee Limited Partners acquired
Units. In the case of a transferee Limited Partner who does not advise the
Partnership of such information, the Partnership will attempt to supply such
Limited Partner with reasonably available information that will permit such
Limited Partner to make the required basis adjustment calculation.
SECTION 4.11. Special Allocation of Syndication Expenses. Any "syndication
expenses," as described in the regulations under section 709 of the Code, paid
or incurred by the
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Partnership in any Accounting Period in respect of any Unit shall be specially
allocated to and charged to the Capital Account of the Limited Partner owning
such Unit during such Accounting Period.
SECTION 4.12. Contingent Adjustments.
A. If prior to 1992, regulations shall have been proposed by the
Department of the Treasury, as directed by section 79 of the Deficit Reduction
Act of 1984 or otherwise pursuant to sections 704 or 752 of the Code (the
"Proposed Regulations"), and the General Partner (i) is of the opinion (based
upon advice of counsel) taking into account the Proposed Regulations for any
Fiscal Year of the Partnership (an "Affected Year"), that the amount of Net
Losses allocated to the General Partner should be increased, that the amount of
Net Profits allocated to the General Partner should be decreased or that the
General Partner or its Affiliates receive tax benefits (including the avoidance
or delay of the recognition of income) (the "Affected Items") and (ii) shall
have taken such steps to ameliorate the potential adverse effect of the Proposed
Regulations on the tax consequences of an investment in the Partnership by
Limited Partners that the General Partner (upon advice of counsel) shall
consider reasonable under the circumstances (taking into account economic,
financial, accounting, regulatory and any other facts or circumstances existing
at the time), then to the extent that a change in the allocations is still
required, the adjustments required by the Proposed Regulations shall be made and
the General Partner shall retain a qualified expert (the "Expert"), the fees and
expenses of which shall be paid by the Partnership, which will be requested to
determine at the beginning of each Affected Year the respective after-tax
present values to the General Partner or its Affiliates and the Limited Partners
of the Affected Items for such Affected Year (the "Adjustments").
B. In determining such Adjustments the Expert shall (i) assume that the
Hotel will be sold in 2002 for an amount equal to its original cost, or
outstanding indebtedness, if greater, and that the Limited Partners and the
General Partner are subject to Federal income tax at the highest marginal tax
rates (for individual taxpayers in the case of the Limited Partners and for
corporate taxpayers in the case of the General Partner) in effect at the times
relevant to such determination and (ii) use such cash flow forecasts and other
economic data that the General Partner shall provide to assist the Expert in
making such determination. For each Affected Year, the General Partner will make
a Capital Contribution to the Partnership at the end of the Affected Year equal
to the adjustment to the General Partner or to the Limited Partners, whichever
is less. Each such Capital Contribution made by the General Partner shall be
promptly distributed to the Limited Partners in accordance with the ratios in
which Cash Available for Distribution would be distributed pursuant to Section
4.06 for such Affected Year; and provided further that, notwithstanding the
foregoing proviso, if the Proposed Regulations shall be promulgated in a form
other than the form in which they shall have been proposed, then the General
Partner shall make such reasonable adjustments to the amount of any such Capital
Contribution as it shall consider appropriate under the circumstances. Any
contribution or distribution of cash required by this Section 4.12 shall be
appropriately reflected in the Capital Accounts of the Partners but shall not
affect the amount or computation of Capital Contributions, Cumulative Capital or
Invested Capital and shall not be deemed a distribution of Capital Receipts or
Cash Available for Distribution for purposes of Article Four of this Agreement.
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SECTION 4.13. Special Allocation of Interest on Purchase Debt.
Notwithstanding Sections 4.01, 4.02, and 4.04, the deduction for interest on the
Purchase Debt incurred in each Fiscal Year shall be allocated to the Limited
Partners owning the Units during each Fiscal Year with respect to which Capital
Contributions are being paid in installments pro rata in proportion to the
number of Units held by each such Partner on each day of the Fiscal Year;
provided, however, that the total allocation under this Section 4.13 with
respect to any Unit since the formation of the Partnership shall not exceed
$12,285.
SECTION 4.14. Special Allocation in Event of Advances by General Partner.
Notwithstanding any other provision of this Article, in the event of the General
Partner makes an advance which is described in Section 5.06C, then before any
Net Losses or Losses attributable to the Accounting Period in which such an
advance is made, or any subsequent Accounting Period, are allocated pursuant to
Section 4.02, there shall first be allocated to the General Partner an amount of
Net Losses or Losses equal to the amount of any advance.
ARTICLE FIVE
RIGHTS, POWERS AND DUTIES OF THE GENERAL PARTNER
SECTION 5.01. Authority of the General Partner to Manage the Partnership.
A. The General Partner shall have the exclusive right and power to
conduct the business and affairs of the Partnership and to do all things
necessary to carry on the business of the Partnership, and is hereby authorized
to take any action of any kind and to do anything and everything it deems
necessary or appropriate in accordance with the provisions of this Agreement and
applicable law. Except as expressly provided herein, the authority of the
General Partner to conduct the business of the Partnership shall be exercised
only by the General Partner.
B. No Limited Partner shall participate in or have any control whatsoever
over the Partnership's business or have any authority or right to act for or
bind the Partnership. The Limited Partners hereby unanimously Consent to the
exercise by the General Partner of the powers conferred on it by this Agreement.
C. Except to the extent otherwise provided herein, the General Partner is
hereby authorized, without Consent of the Limited Partners, to:
(i) execute any and all agreements, contracts, documents,
certifications and instruments necessary or convenient in connection with
the development, expansion, improvement, financing, management,
maintenance, operation, re-leasing, sale or other disposition of the
Partnership's properties and assets, except as otherwise limited by this
Agreement;
(ii) borrow money from itself or others (including Affiliates of any
general partner of the Partnership) and issue evidences of indebtedness
necessary, convenient or incidental to the accomplishment of the purposes
of the Partnership and to secure the same by mortgage, pledge or other lien
on the assets of the Partnership, such borrowing
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and security to be only with respect to the following: (a) the Purchase Debt,
(b) any amounts advanced by the General Partner or an Affiliate of the General
Partner (which amounts may or may not be secured) or any other lender to enable
the Partnership to satisfy its obligations arising in the normal course of its
business, to make payments of principal, interest, premium or penalty on any
debt of the Partnership or to make capital repairs, improvements and expansions,
provided any required Consents of Partners are obtained, (c) the Mortgage Debt,
(d) amounts incurred for the purpose of a distribution to the Partners of the
Partnership, (e) any indebtedness the incurrence of which must be specifically
Consented to by the Limited Partners under Section 5.02B and (f) any
indebtedness incurred to refinance (and thereafter further refinance as often as
shall be necessary) the unamortized portion of any of the foregoing from time to
time outstanding. In connection with the borrowing of money on a nonrecourse
basis, no lender shall be granted or acquire, at any time as a result of making
such a loan, any direct or indirect interest in the profits, capital or property
of the Partnership other than as a secured creditor;
(iii) prepay in whole or in part, refinance (to the extent permitted by
clause (ii) above), fix the interest rate on, recast, modify or extend any debt
and in connection therewith execute any extensions, consolidations,
modifications or renewals of mortgages on any assets of the Partnership;
(iv) deal with, or otherwise engage in business with, or provide services
to and receive compensation therefor from, any Person who has provided or may in
the future provide any services, lend money or sell property to or purchase
property from the General Partner or any Affiliate of the General Partner. No
such dealing, engaging in business or providing of services may involve any
direct or indirect payment by the Partnership of any rebate or any reciprocal
arrangement for the purpose of circumventing any restriction set forth herein
upon dealings with the General Partner or any Affiliate of the General Partner.
The General Partner may on behalf of the Partnership enter into agreements to
employ agents, attorneys, accountants, engineers, appraisers, or other
consultants or contractors who may be Affiliates of the General Partner and may
enter into agreements to employ Affiliates of the General Partner to provide
further or additional services to the Partnership; provided that any employment
of such Persons is on terms not less favorable to the Partnership than those
offered by Persons who are not Affiliates of the General Partner for comparable
services;
(v) engage in any kind of activity and perform and carry out contracts
of any kind necessary to, or in connection with, or incidental to the
accomplishment of the purposes of the Partnership, as may be lawfully carried on
or performed by a limited partnership under the laws of the State of Delaware
and State of California and in each state where the Partnership has been
qualified to do business;
(vi) sell or otherwise dispose of or consent to the sale or disposition
of any assets of the Partnership to any Person provided that such Person is not
a general partner of the Partnership or an Affiliate of any such general
partner; and
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(vii) take such actions as the General Partner determines are
advisable or necessary, and will not result in any material adverse effect
on the economic position of holders of a majority of the Units, to preserve
the tax status of the Partnership as a partnership for Federal income tax
purposes.
D. Any Person dealing with the Partnership or the General Partner may
rely upon a certificate signed by the Secretary or Assistant Secretary,
Controller or Treasurer of the General Partner, thereunto duly authorized, as
to:
(i) the identity of the General Partner or any Limited Partner;
(ii) the existence or non-existence of any fact or facts which
constitute a condition precedent to the acts by the General Partner or in
any other manner germane to the affairs of the Partnership;
(iii) the Persons who are authorized to execute and deliver any
instrument or document of the Partnership; and
(iv) any act or failure to act by the Partnership or as to any other
matter whatsoever involving the Partnership or any Partner.
E. Any agreements, contracts and arrangements between the Partnership and
the General Partner or any of its Affiliates, except for rendering legal, tax,
accounting, procurement and engineering services by employees of the General
Partner and Affiliates of the General Partner and which agreements will be on
commercially reasonable terms, shall be subject to the following additional
conditions:
(i) the General Partner or any such Affiliate must be actively
engaged in the business of rendering such services or selling or leasing
such goods independently of its dealings with the Partnership and as an
ordinary ongoing business or must enter into and engage in such business
with Marriott system hotels or hotel owners generally and not exclusively
with the Partnership;
(ii) such agreements, contracts or arrangements must be fair to the
Partnership and reflect commercially reasonable terms and shall be embodied
in a written contract which precisely describes the subject matter thereof
and all compensation to be paid therefor;
(iii) no rebates or give-ups may be received by the General Partner
or any such Affiliate, nor may the General Partner or any such Affiliate
participate in any reciprocal business arrangements which would have the
effect of circumventing any of the provisions of this Agreement;
(iv) no such agreement, contract or arrangement as to which the
Limited Partners had previously given approval may be amended in such a
manner as to increase the fees or other compensation payable by the
Partnership to the General Partner or any of
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its Affiliates or to decrease the responsibilities or duties of the General
Partner or any such Affiliates in the absence of the Consent contemplated
by Section 5.02B(iii); and
(v) any such agreement, contract or arrangement which relates to or
secures any funds advanced or loaned to the Partnership by the General
Partner or any Affiliate of the General Partner must reflect commercially
reasonable terms.
F. Notwithstanding anything to the contrary contained in this Agreement,
the General Partner shall have full power and authority, without the Consent of
the Limited Partners, (i) to form or organize one or more Subsidiaries of the
Partnership; (ii) to contribute any properties and assets or interests therein
to one or more Subsidiaries of the Partnership; (iii) to undertake any action in
connection with the Partnership's direct or indirect investment in any such
Subsidiary; (iv) to delegate authority to manage the business and affairs of any
Subsidiary of the Partnership to a governing entity or other body (including,
without limitation, a board of directors) other than the General Partner; and
(v) to exercise any of the powers of the General Partner enumerated in this
Agreement on behalf of, or in connection with, any Subsidiary of the
Partnership, or jointly with any such Subsidiary, or delegate the exercise
thereof pursuant to clause (iv) above. The term "Subsidiary" shall mean any
partnership, corporation, trust, limited liability company or other entity that
is not less than 99% owned, directly or indirectly, by the Partnership, provided
that no Subsidiary that is a corporation or otherwise is not entitled to flow-
through tax treatment under the Code can own directly the Hotel or an interest
that is greater than 1% in another Subsidiary that owns the Hotel. A Subsidiary
shall not be deemed an Affiliate of the General Partner for the purposes of this
Agreement. The term "Partnership" shall, as the context requires, include each
Subsidiary of the Partnership.
SECTION 5.02. Restrictions on Authority of the General Partner.
A. Without the Consent of all the Limited Partners, the General Partner
shall not have authority on behalf of the Partnership to:
(i) do any willful act in contravention of this Agreement;
(ii) do any willful act which would make it impossible to carry on
the ordinary business of the Partnership;
(iii) confess a judgment in a material amount against the
Partnership;
(iv) convert property of the Partnership to its own use, or assign
any rights in specific property of the Partnership for other than a purpose
of the Partnership;
(v) admit a Person as a Limited Partner, except as provided in this
Agreement; or
(vi) perform any act that would subject any Limited Partner to
liability as a general partner in any jurisdiction or any other liability
except as provided for herein or under the Act.
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B. Without the Consent of Limited Partners holding a majority of the
Units, the General Partner shall not have the authority on behalf of the
Partnership to:
(i) have the Partnership acquire interests in other hotel
properties in addition to the Hotel or in other entities;
(ii) sell or otherwise dispose of or consent to the sale or
disposition of the Hotel to the General Partner or an Affiliate of the
General Partner; provided, however, that if it is proposed that the
Partnership sell the Hotel to the General Partner or an Affiliate of the
General Partner, the following procedures shall also be followed: (a) the
General Partner shall first give notice of the proposed sale to the Limited
Partners who shall thereafter have 30 days within which to elect a
nationally recognized appraiser having the approval of Limited Partners
holding a majority of the Units, (b)the appraiser elected under clause (a)
above shall have 30 days from the date of election to prepare and submit to
the General Partner an appraisal of the fair market value of the Hotel, (c)
the purchaser shall submit to the General Partner an appraisal of the fair
market value of the Hotel, such appraisal to be submitted within the time
limit provided by clause (b) above in the case of the appraisal to be
submitted by the appraiser elected by the Limited Partners, and (d) the
General Partner shall thereafter make formal request for the required
Consent and in connection therewith shall submit to the Limited Partners
the two appraisals contemplated by clauses (b) and (c) above; provided,
further, however, that if the Limited Partners do not elect an appraiser as
contemplated by clause (a) above or if such appraiser does not supply an
appraisal within the time period required by clause (b) above, the General
Partner will not request the Consent to the sale of the Hotel to the
General Partner or an Affiliate of the General Partner unless such request
is accompanied by three appraisals as to market value of the Hotel, one
such appraisal to be prepared by an appraiser elected by the purchaser and
the other two appraisals to be prepared by appraisers elected by the first
such appraiser, the cost of all such appraisals to be borne by the
purchaser;
(iii) effect any amendment to any agreement, contract or arrangement
with the General Partner or any of its Affiliates which reduces the
responsibilities or duties of the General Partner as a general partner of
the Partnership or any of its Affiliates or which increases the
compensation payable to the General Partner or any of its Affiliates, or
which adversely affects the rights of the Limited Partners;
(iv) incur debt of the Partnership in excess of the limitations set
forth in Section 5.01C(ii);
(v) agree to the addition of transient guest rooms at the Hotel
unless (a) the Hotel has had an average occupancy rate of at least 68% for
a period consisting of at least 12 consecutive months and (b) the
Partnership has obtained debt financing to finance the costs of the
addition on a nonrecourse basis as to all the Partners and the Partnership
(including the General Partner) except as provided in Section 5.02B(ix)
below;
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(vi) except as otherwise provided in Section 5.02B(ix), incur any
debt of the Partnership which does not provide by its terms that it shall
be nonrecourse as to all the Partners;
(vii) make any election to continue beyond its term, discontinue or
dissolve the Partnership;
(viii) admit any other Person as a General Partner or voluntarily
withdraw as a General Partner except as necessary to alleviate the negative
effect of any Affected Items pursuant to Section 4.12; and
(ix) guaranty, become personally liable or otherwise bear the risk
of loss, or permit any Affiliate to take any such action, with respect to
any portion of any Partnership debt otherwise permitted to be incurred
pursuant to the terms of this Agreement unless (a) the General Partner, in
accordance with its fiduciary duties as General Partner and taking into
consideration the tax consequences to the Limited Partners, determines that
such actions are in the best interests of the Partnership and the Limited
Partners, (b) assuming operating results then projected through 2001 by the
General Partner, such action (1) will not cause any deficit in the Capital
Account of any Limited Partner at any time to exceed the sum of such
Limited Partner's obligation to make additional capital contributions and
the portion at such time of Minimum Gain that would be allocated to him on
sale of the Hotel and (2) in the opinion of tax counsel, will not at any
time cause the recognition or allocation of income or gain to the Limited
Partners not within the parameters of the forecast allocations of income,
gain, loss and deduction set forth in the Financial Forecast in the Private
Placement Memorandum, or (c) with respect to a guarantee or incurrence of
personal liability or a risk of loss by the General Partner or its
Affiliates aggregating $71,875,000 million or less, the General Partner
agrees to apply the procedures set forth in Section 4.12 as if any benefit
to the General Partner (including the delay or avoidance of the recognition
of income) and any adverse tax consequences to the Limited Partners
resulting from such guaranty, personal liability or bearing of risk of loss
were attributable to Proposed Regulations prior to 1992; provided, however,
that the General Partner's rights pursuant to this clause (c) are
contingent on the General Partner's ability to fully meet its obligations
to make Capital Contributions required under Section 4.12.
SECTION 5.03. Duties and Obligations of the General Partner.
A. The General Partner shall take all action which may be necessary or
appropriate for the development, maintenance, preservation and operation of the
properties and assets of the Partnership in accordance with the provisions of
this Agreement and applicable laws and regulations (it being understood and
agreed, however, that the direct performance of day-to-day management or
operational services for the Hotel and other properties of the Partnership is
not an obligation of the General Partner as general partner of the Partnership).
B. The General Partner shall not (i) directly or through a subsidiary
engage in any business other than that of acting as general partner of the
Partnership, (ii) pay dividends or make
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other distributions or payments on its stock or incur any obligations if, as a
result, its net worth would be reduced below the requirement of Section 5.03C,
(iii) merge or consolidate with another corporation except Host or a wholly-
owned direct or indirect subsidiary of Host, (iv) dissolve, or (v) borrow any
funds or become liable for any obligations of third parties except to the extent
that any such borrowings or liabilities are directly related to meeting the
financial needs of the Partnership. The General Partner further agrees that so
long as the General Partner is the general partner of the Partnership, its
parent company, Host, will not transfer its stock of the General Partner except
to a wholly-owned, direct or indirect, subsidiary of Host.
The General Partner shall devote to the Partnership such time as may be
necessary for the proper performance of its duties hereunder, but the officers
and directors of the General Partner shall not be required to devote their full
time to the performance of duties of the General Partner.
C. The General Partner shall use its reasonable best efforts to maintain
at all times a net worth at a level sufficient to meet all requirements of the
Code and applicable regulations, rulings and revenue procedures of the IRS and
to meet any future requirements set by Congress, the IRS, any agency of the
Federal government or any court of competent jurisdiction, to assure that the
Partnership will be classified for Federal income tax purposes as a partnership
and not as an association taxable as a corporation. These provisions are
designed to ensure that the equity capitalization of the General Partner will be
available to meet any legal obligations which the General Partner may have in
its role as the general partner of the Partnership.
D. The General Partner shall take such action as may be necessary or
appropriate in order to form or qualify the Partnership under the laws of any
jurisdiction in which the Partnership is doing business or owns property or in
which such formation or qualification is necessary in order to protect the
limited liability of the Limited Partners or in order to continue in effect such
formation or qualification. If required by law, the General Partner shall file
or cause to be filed for recordation in the office of the appropriate
authorities of the State of Delaware, and in the proper office or offices in
each other jurisdiction in which the Partnership is formed or qualified, such
certificates (including limited partnership and fictitious name certificates)
and other documents as are required by the applicable statutes, rules or
regulations of any such jurisdiction or as are necessary to reflect the identity
of the Partners and the amounts of their respective Capital Contributions.
E. The General Partner shall be obligated to use its best efforts to
remove any General Partner or Affiliate guaranty, personal liability, and other
risk of loss with respect to any Partnership debt, which was permitted under
Section 5.02B(ix) hereof when such action was incurred, but which subsequently
results in adverse tax consequences to the Limited Partners and which would no
longer be permitted if first being incurred at the time of such adverse
consequences. The General Partner shall use its best efforts, in the conduct of
the Partnership's business, to put all suppliers and other Persons with whom the
Partnership does business on notice that the Limited Partners are not liable for
Partnership obligations, and all agreements to which the Partnership is a party
shall include a statement to the effect that the Partnership is a limited
partnership organized under the Act; but the General Partner shall not be liable
to any
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Limited Partner for any failure to give such notice to such suppliers or other
Persons or to have any such agreement fail to contain such statement.
F. The General Partner shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any Federal, state or
local tax returns required to be filed by the Partnership. The General Partner
shall cause the Partnership to pay any taxes payable by the Partnership.
G. The General Partner shall be under a duty to conduct the affairs of
the Partnership in good faith and in accordance with the terms of this Agreement
and in a manner consistent with the purposes set forth in Section 2.03.
H. The General Partner shall use its best efforts to ensure that the
Partnership shall not be deemed an investment company as such term is defined in
the Investment Company Act of 1940.
SECTION 5.04. Compensation of the General Partner. The General Partner as
general partner of the Partnership shall not in such capacity receive any
salary, fees, profits or distributions except for such allocations or
distributions to which it may be entitled under Article Four, Article Five or
Article Eight. Notwithstanding the foregoing, however, the Partnership shall
reimburse the General Partner for the cost of providing any administrative or
other services required or contemplated by this Agreement.
SECTION 5.05. Other Business of Partners. Any Limited Partner may engage
independently or with others in other business ventures of every nature and
description. Nothing in this Agreement shall be deemed to prohibit any Affiliate
of the General Partner from dealing, or otherwise engaging in business with
Persons transacting business with the Partnership or from providing services
relating to the purchase, sale, financing, management, development or operation
of hotels, motels, restaurants catering operations, including airline catering
operations, or other food and lodging facilities and receiving compensation
therefor. The relationship created hereby in or to such other ventures or
activities or to the income or proceeds derived therefrom, and the pursuit of
such ventures, even if competitive with the business of the Partnership, shall
not be deemed wrongful or improper. Neither the General Partner nor any
Affiliate of the General Partner shall be obligated to present any particular
opportunity to the Partnership even if such opportunity is of a character which,
if presented to the Partnership, could be taken by the Partnership, and any
Affiliate of the General Partner shall have the right to take for its own
account (individually or as a trustee, partner or fiduciary) or to recommend to
others any such particular opportunity.
SECTION 5.06. Limitation on Liability of General Partner; Indemnification.
A. Other than pursuant to Section 5.07, the General Partner shall not be
liable to the Partnership or any Limited Partner because any taxing authority
disallows or adjusts any deductions or credits in the Partnership income tax
return unless such action by the taxing authority is due to the negligence of
the General Partner. The indemnification under this subsection is not broader
than any other indemnification contained in this Section 5.06. The
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General Partner shall not be liable for the return of the Capital Contributions
of the Limited Partners or for any portion thereof, it being expressly
understood that any return of capital shall be made solely from the assets of
the Partnership; nor shall the General Partner be required to pay to the
Partnership or to any Limited Partner any deficit in the Capital Account of any
Partner upon dissolution or otherwise, except as otherwise provided in Section
8.02E.
B. The General Partner shall have no liability, responsibility or
accountability in damages or otherwise to any other Partner or to the
Partnership for, and the Partnership agrees to indemnify, pay, protect and hold
harmless the General Partner (on the demand of and to the reasonable
satisfaction of the General Partner and to the extent permitted by law) from and
against any and all liabilities, losses, judgments, and expenses of any kind or
nature whatsoever (including, without limitation, all costs and expenses of
defense, appeal and settlement of any and all suits, actions or proceedings
threatened or instituted against the General Partner or the Partnership and all
costs of investigations in connection therewith) which may be imposed on,
incurred by, or assessed against the General Partner or the Partnership in any
way relating to or arising out of, or alleged to relate to or arise out of, any
action or inaction on the part of the Partnership, or on the part of the General
Partner as the General Partner of the Partnership including any action or
inaction in connection with the General Partner acting as Tax Matters Partner or
Designated Person under Section 5.07; provided, that the General Partner shall
be liable, responsible and accountable, and the Partnership shall not be liable
to the General Partner for any portion of such liabilities, losses, judgments,
or expenses (including, without limitation, all costs and expenses of defense,
appeal and settlement of any and all suits, actions or proceedings threatened or
instituted against the General Partner or the Partnership and all costs of
investigations in connection therewith) which resulted from the General
Partner's own fraud, negligence, or other breach of fiduciary duty to the
Partnership or any Partner. The indemnification set forth above shall not
include advances by the Partnership to the General Partner for legal expenses
and other costs incurred by the General Partner as a result of any legal action
initiated against the General Partner by a Limited Partner. Said indemnification
shall include, however, advances by the Partnership to the General Partner for
legal fees and other costs incurred by the General Partner as a result of a
legal action initiated by a third party, who is not a Limited Partner, which
relates to the performance of the General Partner's duties or services. The
General Partner hereby agrees to repay any advances if the General Partner is
not otherwise entitled to be indemnified under this Agreement. The satisfaction
of the obligations of the Partnership under this Section 5.06 shall be from and
limited to the assets of the Partnership and no Limited Partner shall have any
personal liability on account thereof. The provisions of this indemnification
shall also extend to any person performing services on behalf of the Partnership
who is an officer, director, employee or owner of 10% or more of the voting
securities of the General Partner.
C. The General Partner shall have no liability or responsibility
hereunder to make loans, advances or additional Capital Contributions to the
Partnership except as specified in Section 3.04 and Section 4.12 and except as
may otherwise be provided as a matter of law or under the Mortgage Debt.
However, except for advances made pursuant to the Debt Service Guarantees and
Foreclosure Guarantee which will be repaid as noted below, to the extent the
General Partner advances any funds to meet any liabilities or obligations of the
Partnership, any
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such advances shall be deemed loans to the Partnership by the General Partner
[and shall accrue interest per annum at one percentage point in excess of the
Prime Rate payable in arrears on the first day of each Fiscal Quarter and such
amounts shall be due and payable upon that date which is the fifth anniversary
of the date on which any such advances were made]; provided, however, that any
and all such advances shall be paid prior to distributions to Partners out of
any Cash Available for Distribution to the Partners, upon the liquidation of the
Partnership, or the sale of the Hotel and the receipt by the Partnership of the
proceeds of such sale. Advances, if any, to the Partnership by the General
Partner or its Affiliates pursuant to the Debt Service Guarantees or Foreclosure
Guarantee will bear interest at one percentage point in excess of the Prime Rate
and will be paid as follows: (i) out of Partnership cash flow after payment of
Debt Service on the Mortgage Debt; (ii) out of Capital Receipts before any
distribution to the Partners; and (iii) in any event, not later than December
31, 1997. Advances under the Debt Service Guarantees may be secured by a
mortgage on the Hotel junior to the Mortgage Debt.
D. Notwithstanding the foregoing, the General Partner shall not be
indemnified by the Partnership for any losses, liabilities or expenses arising
from or out of an alleged violation of Federal and state securities laws unless
(i) there has been a successful adjudication in favor of the General Partner on
the merits of each count involving alleged securities law violations; or (ii)
such claims against the General Partner have been dismissed with prejudice on
the merits by a court of competent jurisdiction; or (iii) a settlement of the
claims is approved by a court of competent jurisdiction. Pursuant to that
certain Agency Agreement among the Partnership, the General Partner, the
Placement Agents and others, the Placement Agents are to receive certain
indemnifications. Such indemnifications, however, shall be limited to the same
extent that the General Partner's indemnifications are limited by this
subsection D. In any claim for indemnification for Federal or state securities
law violations, the party seeking indemnification shall place before the court
the position, if available, of the Securities and Exchange Commission and the
Massachusetts Securities Division with respect to the issue of indemnification
for securities law violation.
SECTION 5.07. Designation of Tax Matters Partner and Designated Person for
Purposes of Investor List.
A. The General Partner shall act as the Tax Matters Partner of the
Partnership, as provided in regulations pursuant to section 6231 of the Code and
as the Designated Person for purposes of maintaining the Investor List. Each
Partner hereby approves of such designation and agrees to execute, certify,
acknowledge, deliver, swear to, file and record at the appropriate public
offices such documents as may be deemed necessary or appropriate to evidence
such approval.
B. To the extent and in the manner provided by applicable Code sections
and regulations thereunder, the Tax Matters Partner shall furnish the name,
address, profits, interest and taxpayer identification number of each Partner to
the IRS.
C. To the extent and in the manner provided by applicable Code sections
and regulations thereunder, the Tax Matters Partner shall inform each Partner of
administrative or
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judicial proceeding for the adjustment of Partnership items required to be taken
into account by a Partner for income tax purposes (such administrative
proceedings being referred to as a "tax audit" and such judicial proceedings
being referred to as `judicial review").
D. The Tax Matters Partner is authorized, but not required:
(a) to enter into any settlement with the IRS with respect to
any tax audit or judicial review, and in the settlement agreement the
Tax Matters Partner may expressly state that such agreement shall bind
all Partners except that such settlement agreement shall not bind any
Partner who (within the time prescribed pursuant to the Code and
regulations thereunder) files a statement with the IRS providing that
the Tax Matters Partner shall not have the authority to enter into a
settlement agreement on behalf of such Partner;
(b) in the event that a notice of a final administrative
adjustment at the Partnership level of any item required to be taken
into account by a Partner for tax purposes (a "final adjustment") is
mailed to the Tax Matters Partner, to seek judicial review of such
final adjustment, including the filing of a petition for readjustment
with the Tax Court or the United States Claims Court, or the filing of
a complaint for refund with the District Court of the United States
for the district in which the Partnership's principal place of
business is located;
(c) to intervene in any action brought by any other Partner for
judicial review of a final adjustment;
(d) to file a request for an administrative adjustment with the
IRS at any time and, if any part of such request is not allowed by the
IRS to file an appropriate pleading (petition or complaint) for
judicial review with respect to such request;
(e) to enter into an agreement with the IRS to extend the period
for assessing any tax which is attributable to any item required to be
taken into account by a Partner for tax purposes, or an item affected
by such item; and
(f) to take any other action on behalf of the Partners or the
Partnership in connection with any tax audit or judicial review
proceeding to the extent permitted by applicable law or regulations.
E. Notwithstanding any other provision of this Agreement, the Partnership
shall indemnify and reimburse, to the full extent provided by law, the Tax
Matters Partner for all expenses, including legal and accounting fees (as such
fees are incurred), claims, liabilities; losses and damages incurred in
connection with any tax audit or judicial review proceeding with respect to the
tax liability of the Partners, the payment of all such expense shall be made
before the distribution of Cash Available for Distribution to the Partners.
Neither the General Partner nor any of its Affiliates nor other person shall be
obligated to provide funds for such purpose.
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The taking of any action and the incurring of any expense by the Tax
Matters Partner in connection with any such proceeding, except to the extent
required by law, is a matter in the sole discretion of the Tax Matters Partner
and the provisions on limitations of liability of the General Partner and
indemnification set forth in Section 5.06 of this Agreement shall be fully
applicable to the Tax Matters Partner in its capacity as such. The
indemnification under this subsection is no broader than any other
indemnification contained in Section 5.06.
ARTICLE SIX
WITHDRAWAL AND REMOVAL OF GENERAL PARTNER
SECTION 6.01. Limitation on Voluntary Withdrawal. Except as permitted in
Section 5.02B, the General Partner shall not retire or withdraw voluntarily from
the Partnership. The General Partner shall not sell, transfer or assign its
entire general partnership Interest or any portion thereof other than as
provided below. The General Partner shall be permitted to assign its rights to
up to 80% of its interest in the Net Profits, Net Losses, Losses, Gain, Cash
Available for Distribution, Capital Receipts and other allocations and
distributions. The General Partner shall not be permitted to assign such rights
unless the General Partner receives an opinion of counsel that such assignment
shall not cause any adverse tax consequences to the Partnership or the Limited
Partners or cause a default under any Partnership debt obligation.
Notwithstanding anything to the contrary set forth in this Agreement,
notwithstanding the assignment by the General Partner of its Interest in the
Partnership, upon any such assignment (i) the General Partner shall not cease to
be a general partner of the Partnership, and shall continue to be a general
partner of the Partnership, and (ii) the General Partner shall not cease to have
any and all rights and powers of a general partner under this Agreement and the
Act and the power to exercise any and all rights and powers of a general partner
under this Agreement and the Act and shall continue to have any and all such
rights and powers and the assignee shall not acquire any such rights and powers
of a general partner.
SECTION 6.02. Bankruptcy or Dissolution of the General Partner. In the
event of the bankruptcy or dissolution of the General Partner, the General
Partner shall immediately cease to be the General Partner and its Interest shall
terminate; provided, however, that such termination shall not affect any rights
or liabilities of the General Partner which matured prior to such event, or the
value, if any, at the time of such event of the Interest of the General Partner.
SECTION 6.03. Liability of Withdrawn General Partner. If the General
Partner shall cease to be the General Partner of the Partnership, it shall be
and remain liable for all obligations and liabilities incurred by it as General
Partner prior to the time such withdrawal shall have become effective, but it
shall be free of any obligation or liability incurred on account of the
activities of the Partnership from and after the time such withdrawal shall have
become effective.
SECTION 6.04. Removal of General Partner. In the event of the removal of
the General Partner pursuant to Section l0.02B, the removed General Partner's
Interest as General Partner in the Partnership shall become a limited
partnership interest but without any voting or consensual rights which other
Limited Partners may have.
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SECTION 6.05. Substitute General Partner. If the General Partner shall
withdraw, be removed, dissolve or become bankrupt, it shall promptly notify the
Limited Partners and thereafter the Limited Partners may elect by written vote
of Limited Partners holding all of the Units within 90 days of such withdrawal,
removal, dissolution or bankruptcy to continue the Partnership and appoint a
substitute general partner effective as of the withdrawal, removal, dissolution
or bankruptcy of the retiring General Partner. Within 120 days following the
withdrawal, removal, dissolution or bankruptcy of the General Partner, in the
event action pursuant to this Section 6.05 is not taken, the Limited Partners,
acting by affirmative vote of a majority in interest thereof, may elect in
writing to reconstitute and continue the business of the Partnership by forming
a new partnership upon terms identical to the terms set forth in this Agreement.
Any such election must also provide for the election of a general partner to the
new partnership. If such an election is made, all of the Limited Partners of the
Partnership shall continue as Limited Partners of the new limited partnership.
ARTICLE SEVEN
ASSIGNABILITY OF UNITS
SECTION 7.01. Restrictions on Assignments.
After the admission to the Partnership of the Limited Partners, no Limited
Partner shall have the right to assign any Interest except with the Consent of
the General Partner, the giving or withholding of which is exclusively within
the discretion of the General Partner, and provided further that:
A. No assignment of any Interest may be made other than on the first day
of an Accounting Period.
B. No assignment of any Interest may be made if the assignment is
pursuant to a sale or exchange of the Interest and if the Interest sought to be
assigned, when added to the total of all other Interests assigned within a
period of 12 consecutive months prior thereto, would, in the opinion of legal
counsel for the Partnership, result in the Partnership being deemed to have been
terminated within the meaning of section 708 of the Code. The General Partner
shall give Notification to all Limited Partners in the event that sales or
exchanges should be suspended for such reason. Any deferred sales or exchanges
shall be made (in chronological order to the extent practicable) as of the first
day of an Accounting Period after the end of any such 12-month period, subject
to the provisions of this Article Seven.
C. The General Partner may require that any assignment of an Interest in
the Partnership be made only if the assignor or assignee provides an opinion of
counsel that such assignment would not require filing of a registration
statement under the Securities Act of 1933, as amended, and would otherwise not
be in violation of any Federal or state securities or Blue Sky laws (including
any investment suitability standards) applicable to the Partnership. At any time
within one year of the closing of the sale of the Units, the General Partner
will require such an opinion of counsel for any assignment.
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D. No purported assignment by the holder of any Unit after which the
assignor or the assignee would hold a fraction of a Unit (other than a one-half
Unit) will be permitted or recognized (except for assignments by gift,
inheritance or family dissolution or assignments to Affiliates of the assignor).
E. No assignment of any Interest may be made if, in the opinion of
legal counsel to the Partnership, it would result in the Partnership being
treated as an association taxable as a corporation.
F. No assignment of any Interest may be made if, in the opinion of
legal counsel to the Partnership, it would result in the Partnership not being
able to obtain or continue in effect any license permitting the service or sale
of alcoholic beverages in the Hotel.
G. No assignment of any Interest may be made to a Tax-Exempt Entity
including, without limitation, foreign persons and entities.
SECTION 7.02. Assignees and Substituted Limited Partners.
A. If a Limited Partner dies, the executor, administrator or
trustee, or, if a Limited Partner is adjudicated incompetent or insane, the
committee, guardian or conservator, or, if a Limited Partner becomes bankrupt,
the trustee or receiver of the estate, shall have all the rights of a Limited
Partner for the purpose of settling or managing the estate and such power as the
decedent or incompetent possessed to assign all or any part of the Units and to
join with the assignee thereof in satisfying conditions precedent to such
assignee becoming a Substituted Limited Partner. The death, dissolution,
adjudication of incompetence or bankruptcy of a Limited Partner in and of itself
shall not dissolve the Partnership.
B. The Partnership need not recognize for any purpose any assignment
of any Interest unless there shall have been filed with the Partnership a duly
executed and acknowledged counterpart of the instrument making such assignment
signed by both the assignor and the assignee and such instrument evidences the
written acceptance by the assignee of all of the terms and provisions of this
Agreement and represents that such assignment was made in accordance with all
applicable laws and regulations (including investment suitability requirements).
C. Limited Partners who shall assign all their Interests shall cease
to be Limited Partners of the Partnership except that unless and until a
Substituted Limited Partner is admitted in his stead, the assigning Limited
Partner shall not cease to be a Limited Partner of the Partnership and shall
retain the statutory rights and powers of a limited partner under the Act.
D. Any Person who is an assignee of any of the Interests of a
Limited Partner and who has satisfied the requirements of Section 7.01 and
Section 7.02B shall become a Substituted Limited Partner when the General
Partner has accepted such Person as a Limited Partner of the Partnership and the
books and records of the Partnership reflect such Person as admitted to the
Partnership as a Limited Partner and when such Person shall have satisfied the
conditions of Section 11 .02A and shall have paid all reasonable legal fees and
filing costs in connection with the substitution as a Limited Partner; provided,
however, that the General Partner's consent to the
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substitution of any assignee of an Interest as a Substituted Limited Partner may
be granted or withheld in its sole discretion.
E. Any Person who is the assignee of an Interest of a Limited
Partner, but who does not become a Substituted Limited Partner and desires to
make a further assignment of any such Interests, shall be subject to all the
provisions of this Article Seven to the same extent and in the same manner as
any Limited Partner desiring to make an assignment of the Interests.
F. There shall be no restrictions on the assignments of Interests
except as provided in Article Six or this Article Seven.
ARTICLE EIGHT
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
SECTION 8.01. Events Causing Dissolution.
A. The Partnership shall be dissolved on the first to occur of the
following events:
(i) the bankruptcy of the Partnership;
(ii) the withdrawal or removal of the General Partner, unless
the Partnership is continued pursuant to Section 6.05;
(iii) the dissolution or bankruptcy of the General Partner,
unless the Partnership is continued pursuant to Section 6.05;
(iv) the sale or other disposition of all of the property of
the Partnership; or
(v) the expiration of the term of the Partnership.
Dissolution of the Partnership shall be effective on the day on which
the event occurs giving rise to the dissolution. The Partnership shall not
terminate until the assets of the Partnership shall have been liquidated as
provided in Section 8.02. Notwithstanding the dissolution of the Partnership,
prior to the termination of the Partnership, as aforesaid, the business of the
Partnership and the affairs of the Partners as such, shall continue to be
governed by this Agreement.
B. Except as otherwise provided in Section 8.02E, Partners shall
look solely to the assets of the Partnership for all distributions with respect
to the Partnership and their Capital Contribution thereto, and shall have no
recourse therefor (upon dissolution or otherwise) against the General Partner or
any Limited Partner.
SECTION 8.02. Liquidation.
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A. Upon dissolution of the Partnership, the General Partner shall
liquidate the assets of the Partnership and the proceeds of such liquidation
shall be applied and distributed in the following order of priority:
(i) to the payment of the expenses of the liquidation;
(ii) to the payments of Partnership Debt and all other
liabilities of the Partnership owing to creditors of the Partnership
other than Partners who are creditors;
(iii) to the payment of any loans or advances that may have been
made by any of the Partners to the Partnership; and
(iv) pro rata to the General Partner and to the Limited Partners
to reduce any net balances then existing in the Capital Accounts of
the Partners.
B. Notwithstanding the foregoing, in the event the General Partner
shall determine that an immediate sale of all or part of the Partnership assets
would cause undue loss to the Partners, the General Partner, in order to avoid
such loss, may, after having given notification to all the Limited Partners, to
the extent not then prohibited by the limited partnership act of any
jurisdiction in which the Partnership is then formed or qualified and applicable
in the circumstances, either defer liquidation of and withhold from distribution
for a reasonable time any assets of the Partnership except those necessary to
satisfy the Partnership's debts and obligations, or distribute the assets of the
Partnership in kind.
C. If any assets of the Partnership are to be distributed in kind,
such assets shall be distributed on the basis of the fair market value thereof,
and any Partner entitled to any interest in such assets shall receive such
interest therein as a tenant-in-common with all other Partners so entitled. The
fair market value of such assets shall be determined by an independent appraiser
to be selected by the General Partner by random number from a list of three
qualified appraisers obtained by the General Partner from the American Institute
of Real Estate Appraisers.
D. The General Partner shall cause the liquidation and distribution
of all the Partnership's assets and shall cause the cancellation of the
Partnership's certificate of limited partnership upon completion of winding up
the business of the Partnership.
E. Upon a dissolution of the Partnership if, after giving effect to
Sections 8.02A through 8.02D hereof for the Fiscal Year in which such
dissolution occurs, there shall be a deficit in the Capital Account of the
General Partner, while there is a positive balance in the capital account of any
other Partner, the General Partner shall contribute to the Partnership (in cash)
the amount of such deficit, which thereupon shall be distributed by the
Partnership pro rata to any Partner possessing a positive balance in his capital
account. Such contribution by the General Partner is to be made to the
Partnership not later than the close of the taxable year in which the
dissolution occurs.
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ARTICLE NINE
BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS, ETC.
SECTION 9.01. Books and Records. The books and records of the
Partnership shall be maintained by the General Partner in accordance with
applicable law at the principal office of the Partnership and shall be available
for examination at such location by any Partner or such Partner's duly
authorized representatives at any and all reasonable times for any purpose
reasonably related to the Partner's interest in the Partnership. Any Partner,
upon paying the costs of collating, duplication and mailing, shall be entitled,
upon written application to the General Partner, to a copy of the list of the
names and addresses of the Limited Partners and the number of Units owned by
each of them for any purpose reasonably related to the Partners' interests in
the Partnership.
SECTION 9.02. Accounting and Fiscal Year. The books of the Partnership
will be kept on the accrual basis. The Partnership will report its operations
for tax purposes on the accrual method. The Fiscal Year of the Partnership shall
end December 31 in each year.
SECTION 9.03. Bank Accounts and Investments. The bank accounts of the
Partnership shall be maintained in such banking institutions as the General
Partner shall determine, and withdrawals shall be made only in the regular
course of Partnership business on such signature or signatures as the General
Partner may determine. All deposits and other funds not needed in the operation
of the business or not yet invested may be invested as provided in Section 5.01C
or in U.S. government securities, securities issued or guaranteed by U.S.
government agencies, securities issued or guaranteed by states or
municipalities, certificates of deposit and time or demand deposits in
commercial banks, bankers' acceptances, savings and loan association deposits or
deposits in members of the Federal Home Loan Bank System. The funds of the
Partners shall not be commingled with the funds of any other Person.
SECTION 9.04. Reports. The General Partner shall deliver to each
Partner the following:
A. As soon as practicable but in no event later than 75 days after the
end of each Fiscal Year of the Partnership, such information as shall be
necessary for the preparation by such Partner of a Federal income tax return,
and state income or other tax returns with regard to the jurisdictions in which
the Hotel is located. Such information shall include computation of the
distributions to such Partner and the allocation to such Partner of the Net
Profits or Net Losses, as the case may be, the Gain or Loss, as the case may be,
recognized by or allocated to the Partnership on the sale of the Hotel or other
Partnership properties during such Fiscal Year; and
B. Within 120 days after the end of each Fiscal Year of the
Partnership, a statement prepared by the General Partner on an accrual basis of
accounting which statement is to be audited and certified by a firm of
independent public accountants selected by the General Partner, setting forth
its opinion as to the items in clauses (i) and (ii) below, which statement shall
set forth the following:
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<PAGE>
(i) a statement of assets, liabilities and Partners' capital,
a statement of income and expenses on an accrual basis and a statement
of cash flows, and a statement of changes in Partners' capital;
(ii) the balances in the Capital Accounts of the Limited
Partners in the aggregate and of the General Partner;
(iii) a report (which need not be audited) summarizing the fees,
commissions, compensation and other remuneration and reimbursed
expenses paid by the Partnership for such Fiscal Year to the General
Partner or any Affiliate of the General Partner and the services
performed; and
(iv) a budget (which need not be audited) setting forth the
expected Net Profits and Net Losses per Unit, for the current Fiscal
Year.
C. Within 75 days after the end of each of the first three Fiscal
Quarters of each Fiscal Year of the Partnership, the General Partner shall send
to each Person who was a Limited Partner at any time during the Fiscal Quarter
then ended (i) a balance sheet (which need not be audited) and (ii) a profit and
loss statement (which need not be audited) and any other pertinent information
regarding the Partnership and its activities during the period covered by the
report.
D. Concurrent with the report sent pursuant to Section 9.04C for the
third Fiscal Quarter of each Fiscal Year, the Partner will be furnished an
estimate of Net Profits or Net Losses per Unit for such Fiscal Year.
E. The General Partner may prepare and deliver to the Limited
Partners from time to time in its sole discretion during each Fiscal Year, in
connection with cash distributions, unaudited statements showing the results of
operations of the Partnership to the date of such statement.
F. The General Partner shall prepare and file such registration
statements, annual reports, quarterly reports, current reports, proxy statements
and other documents, if any, as may be required under the Securities Exchange
Act of 1934 and the rules and regulations of the Securities and Exchange
Commission thereunder.
SECTION 9.05. Tax Depreciation and Elections.
A. With respect to all depreciable assets of the Partnership, the
General Partner may, in its sole discretion, elect to use such depreciation
method for Federal tax purposes as it deems appropriate and in the best interest
of the Partners generally.
B. The General Partner shall be permitted in any Fiscal Year to make
an election under section 754 of the Code and such other tax elections as it may
from time to time deem necessary or appropriate.
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<PAGE>
SECTION 9.06. Interim Closing of the Books. There shall be an interim
closing of the books of account of the Partnership (i) at the date of the
admission to the Partnership of the Original Limited Partners, (ii) at any time
a taxable year of the Partnership ends pursuant to the Code and (iii) at such
other times as the General Partner shall determine are required by good
accounting practice or may be appropriate under the circumstances.
ARTICLE TEN
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
SECTION 10.01. Meetings.
A. Meetings of the Limited Partners for any purpose may be called by
the General Partner and shall be called by the General Partner upon receipt of a
request in writing signed by Limited Partners holding 10% or more of the Units.
Notification of any such meeting shall be sent to the Limited Partners within 10
business days after receipt of such a request. Such request or any notification
from the General Partner shall state the purpose of the proposed meeting and the
matters proposed to be acted upon thereat. Such meeting may be held at the
principal office of the Partnership or at such other location within the United
States as the General Partner may deem appropriate or desirable. In addition,
the General Partner may, and upon receipt of a request in writing signed by
Limited Partners holding 25% or more of the Units, the General Partner shall
submit any matter (upon which the Limited Partners are entitled to act) to the
Limited Partners for a vote by written Consent without a meeting.
B. Notification of any such meeting shall be given not less than 10
days nor more than 60 days before the date of the meeting, to the Limited
Partners at their record addresses, or at such other address which they may have
furnished in writing to the General Partner. Such Notification shall be in
writing, and shall state the place, date, hour and purpose of the meeting, and
shall indicate that it is being issued at or by the direction of the Partner or
Partners calling the meeting. If a meeting is adjourned to another time or
place, and if any announcement of the adjournment of time or place is made at
the meeting, it shall not be necessary to give Notification of the adjourned
meeting. The presence in person or by proxy of Limited Partners holding a
majority of the Units (which, in the case of an Interested Transaction, must
include a majority of the Units held by Limited Partners other than the General
Partner and its Affiliates) shall constitute a quorum at all meetings of the
Limited Partners; provided, however, that if there be no such quorum, Limited
Partners holding a majority of the Units so present or so represented may
adjourn the meeting from time to time without further notice, until a quorum
shall have been obtained. No Notification of the time, place or purpose of any
meeting of Limited Partners need be given to any Limited Partner who attends in
person or is represented by proxy (except when a Limited Partner attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business on the ground that the meeting is not lawfully
called or convened), or to any Limited Partner entitled to such notice who, in a
writing executed and filed with the records of the meeting, either before or
after the time thereof, waives such Notification.
C. For the purpose of determining the Limited Partners entitled to
vote at any meeting of the Partnership or any adjournment thereof, or entitled
to Consent to any matter upon
D-35
<PAGE>
which the Limited Partners are entitled to act by written Consent without a
meeting, the General Partner or the Limited Partners requesting such meeting may
fix, in advance, a date as the record date for any such determination of Limited
Partners. Such date shall be not more than 60 days nor less than 10 days before
any such meeting.
D. The Limited Partners may authorize any Person to act for them by
proxy in all matters in which a Limited Partner is entitled to participate,
whether by waiving notice of any meeting, or voting or participating at a
meeting. Every proxy must be signed by the Limited Partner or the Partner's
attorney-in-fact. No proxy shall be valid beyond the period permitted by law.
Every proxy shall be revocable at the pleasure of the Limited Partner executing
it.
E. At each meeting of Limited Partners, the General Partner shall
appoint such officers and adopt such rules for the conduct of such meeting as
the General Partner shall deem appropriate.
F. As and to the extent that the Securities Exchange Act of 1934 is
applicable to the procedural rules governing any meeting of Limited Partners
(including any proxies or proxy statement related thereto), the provisions of
such Act shall take precedence over any provision of this Section 10.01 which
may be inconsistent therewith.
G. If any Consents, determinations or votes of Limited Partners,
with or without a meeting, are to be requested, made or taken with respect to an
Interested Transaction, Units held by, the General Partner or any of its
Affiliates (other than officers, directors or employees of the General Partner
or any of its Affiliates) shall be voted in the same manner as the vote of
Limited Partners holding, in their capacity as Limited Partners and not as
assignees, a majority of the outstanding Units actually voting on the Interested
Transaction (not including those Units held by the General Partner or any of its
Affiliates other than officers, directors or employees of the General Partner or
any of its Affiliates); provided, however, that no Interested Transaction shall
be deemed to be approved unless a majority of the Units held by Limited Partners
other than the General Partner and its Affiliates are present in person or by
proxy at the meeting at which such Interested Transaction is considered, or, if
written consents are sought with respect to such Interested Transaction,
consents representing a majority of the Units held by Limited Partners other
than the General Partner and its Affiliates are returned and not withdrawn prior
to the expiration of the consent solicitation period. With respect to all
matters other than an Interested Transaction, the General Partner and its
Affiliates may vote Units held by them as Limited Partners in their sole and
absolute discretion.
SECTION 10.02. Special Voting Rights of Limited Partners.
A. If at any time any agreement (including the Hotel Operating
Lease, if the Operating Tenant is an Affiliate of the General Partner) pursuant
to which operating management of any property of the Partnership is vested in
the General Partner or an Affiliate of the General Partner or in Marriott
International, Inc. or any of its Affiliates and if pursuant to the terms of
such agreement the Partnership has a right to terminate such agreement as a
result of the failure of the operation of such property to attain any economic
objective, the Limited Partners, without the Consent of the General Partner,
may, upon the affirmative vote of Limited Partners holding a
D-36
<PAGE>
majority of the Units, take action to exercise the right of the Partnership to
terminate such agreement.
B. To the extent not inconsistent with applicable law, in the event
that the General Partner has breached its obligations under Section 5.03B, has
committed any act of fraud or has committed and not, within a reasonable period
of time, remedied any act of bad faith or gross negligence in carrying out its
duties as the general partner, Limited Partners holding a majority of the Units
may, without the Consent of the General Partner, vote to:
(i) amend this Agreement, provided, however, that the
allocable percentage interests of the Partners in the allocations set
forth in Article Four may not be altered, and no new material
obligation may be imposed on any Partner without such Partner's
approval;
(ii) dissolve the Partnership; or
(iii) remove the General Partner.
ARTICLE ELEVEN
MISCELLANEOUS PROVISIONS
SECTION 11.01. Appointment of General Partner as Attorney-in-Fact.
A. Each Limited Partner, including each Substituted Limited Partner,
by the execution and delivery of this Agreement, irrevocably constitutes and
appoints the General Partner and the President, any Vice President, Secretary,
Treasurer, Assistant Secretary and Assistant Treasurer of any corporate General
Partner as his true and lawful attorney-in-fact with full power and authority in
such Limited Partner's name, place, and stead to execute, acknowledge, deliver,
swear to, file, and record at the appropriate public offices such documents as
may be necessary or appropriate to carry out the provisions of this Agreement,
including but not limited to:
(i) all counterparts of this Agreement, and any amendment or
restatement thereof, including all certificates and instruments, which
the General Partner deems appropriate to form, qualify or continue the
Partnership as a limited partnership (or a partnership in which the
Limited Partners will have limited liability comparable to that
provided by the Act) in the jurisdictions in which the Partnership may
conduct business or in which such formation, qualification or
continuation is, in the opinion of the General Partner, necessary or
desirable to protect the limited liability of the Limited Partners;
(ii) all amendments to this Agreement adopted in accordance with
the terms hereof and all instruments which the General Partner deems
appropriate to reflect a change or modification of the Agreement in
accordance with the terms hereof;
(iii) all documents or instruments which the General Partner
deems appropriate to reflect the admission of a Limited Partner
(including any Substituted Limited Partner),
D-37
<PAGE>
in accordance with this Agreement, the dissolution of the Partnership,
sales or transfers of Partnership property, sales or transfers of
Interests, or the initial amount or increase or reduction in amount of
any Partner's Capital Contribution or reduction in any Partner's
Capital Account;
(iv) any instrument or document requested by the Partnership
or any purchaser of the Interest of a Defaulting Limited Partner under
the provisions of Section 3.05 of this Agreement;
(v) all documents, including but not limited to financing
statements, necessary or appropriate to perfect and continue the
Partnership's security interest in such Limited Partner's Interest; and
(vi) any instrument, certificate or document to implement the
provisions of Section 5.01C(vii).
B. The appointment by all Limited Partners of the General Partner
and the aforesaid officers of any corporate General Partner as attorney-in-fact
shall be deemed to be a power coupled with an interest, in recognition of the
fact that each of the Partners under this Agreement will be relying upon the
power of the General Partner to act as contemplated by this Agreement in any
filing and other action by it on behalf of the Partnership, and shall survive,
and not be affected by the subsequent bankruptcy, death, incapacity, disability,
adjudication of incompetence or insanity, or dissolution of any Person hereby
giving such power and the transfer or assignment of all or any part of the Units
or Interest of such Person; provided, however, that in the event of the transfer
by a Limited Partner of all of such Limited Partner's Interest, the foregoing
power of attorney of a transferor Partner shall survive such transfer only until
such time as the transferee shall have been admitted to the Partnership as a
Substituted Limited Partner and all required documents and instruments shall
have been duly executed, filed and recorded to effect such substitution.
SECTION 11.02 Amendments.
A. Each Limited Partner, Substituted Limited Partner and any
successor General Partner shall become a signatory hereof by signing such number
of counterpart signature pages to this Agreement and such other instrument or
instruments, and in such manner, as the General Partner shall determine. By so
signing, each Limited Partner, Substituted Limited Partner or successor General
Partner, as the case may be, shall be deemed to have adopted, and to have agreed
to be bound by all the provisions of, this Agreement subject to the provisions
of Section 7.02D.
B. In addition to the amendments otherwise authorized herein,
amendments may be made to this Agreement from time to time by the General
Partner with the Consent of the holders of a majority of the Units; provided,
however, that without the Consent of all Partners, this Agreement may not be
amended so as to (i) convert the Interest of a Limited Partner into a general
partner's Interest; (ii) modify the limited liability of a Limited Partner;
(iii) alter the
D-38
<PAGE>
Interest of a Partner in Net Profits, Net Losses, or Gain or Loss or
distributions of Cash Available for Distribution, Sale Proceeds, Refinancing
Proceeds or change the percentage of Partners which is required to Consent to
any action hereunder; (iv) modify the liability of the General Partner as
provided in Section 3.08; (v) permit the General Partner to take any action
prohibited by Section 5.02; (vi) cause the Partnership to be treated for Federal
income tax purposes as an association taxable as a corporation; or (vii) effect
any amendment or modification to this Section 11.02B.
C. If this Agreement shall be amended as a result of adding or
substituting a Limited Partner, the amendment to this Agreement shall be signed
by the General Partner and by the Person to be substituted or added and, if a
Limited Partner is to be substituted, by the assigning Limited Partner. If this
Agreement shall be amended to reflect the withdrawal or removal of the General
Partner when the business of the Partnership is being continued, such amendment
shall be signed by the withdrawing General Partner (and the General Partner
hereby so agrees) and by the successor General Partner.
D. In making any amendments, there shall be prepared and filed for
recordation by the General Partner such documents and certificates as shall be
required to be prepared and filed, no such filing being required solely by
reason of this Agreement, under the Act and under the laws of the other
jurisdictions under the laws of which the Partnership is then formed or
qualified, not less frequently, in the case of a substitution of a Limited
Partner, than once each calendar quarter.
F. The General Partner may, without the Consent of the Limited Partners,
make any amendment to this Agreement as is necessary to clarify the provisions
hereof so long as such amendment does not adversely affect the rights of the
Limited Partners or assignees of their Interests under this Agreement in any
material respect.
SECTION 11.03. General Partner Representations and Warranties The General
Partner represents that the Partnership shall not incur the cost of any
insurance which insures any party against any liability as to which such party
is prohibited from being indemnified under this Agreement.
SECTION 11.04. Binding Provisions. The covenants and agreements contained
herein shall be binding upon, and inure to the benefit of, the heirs, executors,
administrators, personal representatives, successors and assigns of the
respective parties hereto.
SECTION 11.05. Applicable Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Delaware.
SECTION 11.06. Counterparts. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all the parties have not signed the
same counterpart.
SECTION 11.07. Separability of Provisions. Each provision of this Agreement
shall be considered separable and if for any reason any provision or provisions
hereof are determined to
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<PAGE>
be invalid and contrary to any existing or future law, such invalidity shall not
impair the operation of or affect those portions of this Agreement which are
valid.
SECTION 11.08. Article and Section Titles. Article and section titles are
for descriptive purposes only and shall not control or alter the meaning of this
Agreement as set forth in the text.
SECTION 11.09. Short-Form Filings. The General Partner shall have authority
to sign any short form Certificate of Limited Partnership or restated or amended
Certificate of Limited Partnership meeting the requirement of applicable law
which reflects this Agreement, as same may be amended.
D-40
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
GENERAL PARTNER:
MARRIOTT DESERT SPRINGS CORPORATION
By /s/ P.K. Brady
--------------------------------------------
Vice President
LIMITED PARTNERS:
All Limited Partners now and hereafter admitted to
the Partnership as limited partners of the
Partnership pursuant to powers of attorney now and
hereafter executed in favor of and delivered to the
General Partner.
By: MARRIOTT DESERT SPRINGS CORPORATION
as Attorney-in-Fact for all the Limited Partners
By /s/ P.K. Brady
--------------------------------------------
Vice President
D-41
<PAGE>
ACKNOWLEDGEMENT
STATE OF MARYLAND )
COUNTY OF MONTGOMERY )
On this 26th day of September, 1997, before me personally appeared
, to me known, who, first by me duly sworn, did depose
and say that he is the Vice President of Marriott Desert Springs Corporation
that he knows the seal of such corporation and that such seal hereto affixed is
such seal and that it was so affixed by order of the Board of Directors of
Marriott Desert Springs Corporation and that he signed his name thereof on
behalf of the General Partner by order of the Board of Directors of Marriott
Desert Springs Corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/ Susan Levenson
--------------------------------------------
(SEAL) Notary Public for:
My Commission Expires:
SUSAN LEVENSON
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires October 18, 1998
ACKNOWLEDGEMENT
STATE OF MARYLAND )
COUNTY OF MONTGOMERY )
On this 26th day of September, 1997, before me personally appeared
, to me known, who, first by me duly sworn, did depose
and say that he is the Vice President of Marriott Desert Springs Corporation
that he knows the seal of such corporation and that such seal hereto affixed is
such seal and that it was so affixed by order of the Board of Directors of
Marriott Desert Springs Corporation, and that he signed his name thereto on
behalf of the General Partner as attorney in fact for all the Limited Partners
of the Partnership.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
D-42
<PAGE>
/s/ Susan Levenson
--------------------------------------------
(SEAL) Notary Public for:
My Commission Expires:
SUSAN LEVENSON
NOTARY PUBLIC STATE OF MARYLAND
My Commission Expires October 18, 1998
D-43
<PAGE>
Exhibit A
$75,000 per Unit , 1987
------------------
Units
- ------------
LIMITED PARTNER NOTE
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Desert
Springs Marriott Limited Partnership, a Delaware limited partnership (the
"Partnership") at its offices at 10400 Fernwood Road, Bethesda, MD 20058, or at
such other place as the holder hereof from time to time shall designate in
writing to the undersigned, the principal sum of Seventy Five Thousand Dollars
($75,000) per Unit for the number of Units set forth above, without interest, in
the following installments per Unit at the following times:
Due Date Amount
-------- ------
June 15, 1988.............................. $30,000 per Unit for
the number of Units
set forth above
June 15, 1989.............................. $25,000 per Unit for
the number of Units
set forth above
June 15, 1990.............................. $20,000 per Unit for
the number of Units
set forth above
In the event the undersigned fails to pay in lawful money of the United
States of America any amount which he is required to pay to the Partnership on
or before the 20th day following the date when such amount is due and payable, a
late payment fee of five percent (5%) of the amount of the overdue payment shall
be added to the amount due. If default shall continue beyond 30 days after
notice thereof to the undersigned, in addition to the aforesaid late charge, the
unpaid portion of such installment shall bear interest from the due date of such
installment until paid in full at a rate equal to the lesser of four percentage
points in excess of the base rate of interest announced from time-to-time by
Bankers Trust Company, New York, New York, charged to its best commercial
customers, or the maximum rate permitted by law. In no event may the late
charge, if deemed to be interest under law, when added to any interest exceed
the rate permitted by law. If the default continues beyond 30 days after notice
thereof to the undersigned, the general partner of the Partnership (the "General
Partner") shall also have the option of accelerating the payment of the entire
unpaid balance of the note, and exercising all of the Partnership's rights and
remedies under the provisions of the Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement"), as hereinafter defined.
The undersigned shall have the right to repay, in whole or in part, at any
time, the unpaid principal balance to this note.
D-44
<PAGE>
All the provisions of the Partnership Agreement regarding this note are
incorporated herein by reference.
The undersigned agrees that in the event his subscription for a limited
partnership interest in the Partnership is reduced, this note may be modified by
the General Partner in its sole discretion, to reflect a corresponding reduction
of the principal amount hereof, and the General Partner shall allocate such
reduction equally among the installment payments due under this note.
This note may not be modified orally, and shall be governed by, enforced,
determined and construed in accordance with the laws of the State of Delaware.
The undersigned hereby consents to the non-exclusive jurisdiction and venue of
the courts of the State of Delaware and of the United States for the District of
Delaware in connection with the collection of this note or any matter relating
thereto and hereby irrevocably appoints the General Partner as its agent to
receive service of process in the State of Delaware in connection with any such
matter.
In the event of default, the undersigned agrees to pay the costs of
collection, including, without limitation, reasonable attorneys' fees and
disbursements and court costs.
The undersigned waives presentment, demand for payment, notice of dishonor,
notice of protest, protest and all other notices or demands in connection with
the delivery, acceptance, performance, default, endorsement or guaranty of this
instrument, except as set forth in the Partnership Agreement. No failure or
delay by the holder of this note in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise thereof or course of dealing preclude any other or further exercise
thereof or the exercise of any other right, power or privilege.
To secure repayments of the outstanding amounts hereunder, the undersigned
has, pursuant to the Partnership Agreement, hereby granted to the Partnership a
security interest in all of the undersigned's right, title and interest in the
undersigned's limited partnership interest in the Partnership. In the event that
this note is negotiated, endorsed, assigned, transferred and/or pledged, all
references to the Partnership shall apply to the one which receives the
Partnership's interest as if the one instead of the Partnership was named as the
original payee under this note.
If any part of this note is determined by any court to be invalid or
unenforceable, the remaining portions of this note will remain in effect. Any
ambiguity or uncertainty in the note will be construed in favor of the
Partnership.
The terms of this note shall be binding upon and inure to the benefit of
the respective successors and assigns of the Partnership and the undersigned.
All definitions as used herein shall have the same meaning as such terms
are used in the Partnership Agreement:
If Subscriber is an individual:
D-45
<PAGE>
------------------------------------ ------------------------------------
Print Name of Subscriber Signature of Subscriber
------------------------------------ ------------------------------------
Print Name of Co-Subscriber (if any) Signature of Co-Subscriber (if any)
If Subscriber is a corporation, partnership or trust:
By:
---------------------------------------------------------------------------
Print Name of Subscribing Entity
------------------------------------ ------------------------------------
Print Name of Authorized Signature of Authorized Officer,
Officer, Partner or Trustee Partner or Trustee
------------------------------------
Print Title of Authorized
Partner or Trustee
------------------------------------ ------------------------------------
Print Name of Co-Trustee Signature of Co-Trustee
(if required by trust instrument) (if required by trust instrument)
D-46
<PAGE>
Exhibit 10.1
- --------------------------------------------------------------------------------
LOAN AGREEMENT
Dated as of November 25, 1997
Between
DS HOTEL LLC,
as Borrower
and
GMAC COMMERCIAL MORTGAGE CORPORATION,
as Lender
Secured by:
Marriott's Desert Springs Resort and Spa
74855 Country Club Drive
Palm Desert, California
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SCHEDULES V
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION............................... 1
Section 1.1 Definitions............................................ 1
Section 1.2 Principles of Construction............................. 30
II. GENERAL.............................................................. 31
Section 2.1 The Loan............................................... 31
2.1.1 Commitment............................................. 31
2.1.2 Disbursement to Borrower............................... 31
2.1.3 The Note............................................... 31
2.1.4 Use of Proceeds of Loan................................ 31
Section 2.2 Principal and Interest................................. 32
2.2.1 Principal and Interest................................. 32
2.2.2 Default Rate........................................... 33
Section 2.3 Loan Repayment and Defeasance.......................... 34
2.3.1 Repayment.............................................. 34
2.3.2 Voluntary Defeasance of the Note....................... 34
2.3.3 Repayment After Anticipated Repayment Date............. 38
2.3.4 Repayment Upon Default................................. 38
Section 2.4 Release of the Mortgaged Property...................... 38
Section 2.5 Payments and Computations.............................. 39
2.5.1 Making of Payments..................................... 39
2.5.2 Computations........................................... 39
Section 2.6 Maximum Rate of Interest............................... 39
III. CONDITIONS PRECEDENT................................................ 40
Section 3.1 Conditions Precedent to the Loan....................... 40
IV. REPRESENTATIONS AND WARRANTIES........................................ 44
Section 4.1 Borrower Representations............................... 44
Section 4.2 Survival of Representations............................ 44
</TABLE>
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<TABLE>
<S> <C>
V. AFFIRMATIVE COVENANTS................................................. 45
Section 5.1 Borrower Covenants..................................... 45
VI. NEGATIVE COVENANTS.................................................... 57
Section 6.1 Borrower's Negative Covenants.......................... 57
VII. ALTERATIONS; LEASING................................................ 65
Section 7.1 Alterations............................................ 65
VIII. CASUALTY AND CONDEMNATION........................................... 69
Section 8.1 Insurance; Casualty and Condemnation................... 69
8.1.1 Insurance.............................................. 69
8.1.2 Casualty; Application of Proceeds...................... 76
8.1.3 Condemnation........................................... 79
IX. ACCOUNTS AND RESERVES................................................ 81
Section 9.1 Establishment and Maintenance of Reserve Accounts...... 81
Section 9.2 Maintenance Reserve Accounts........................... 81
9.2.1 Establishment.......................................... 81
9.2.2 Disbursements from the Chiller Work Reserve............ 81
9.2.3 Reserved............................................... 82
9.2.4 Reserved............................................... 82
9.2.5 Obligations Unaffected................................. 82
Section 9.3 Reserved............................................... 82
Section 9.4 Reserved............................................... 82
Section 9.5 Reserved............................................... 82
Section 9.6 Grant of Security Interest; Rights upon Default........ 82
Section 9.7 Lender Not Responsible................................. 83
Section 9.8 Inspections; Undertaking of Work....................... 83
X. DEFAULTS.............................................................. 84
Section 10.1 Event of Default....................................... 84
Section 10.2 Remedies............................................... 87
Section 10.3 Remedies Cumulative.................................... 88
Section 10.4 Cure Right of Agent.................................... 88
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C>
XI. INTENTIONALLY OMITTED................................................ 88
XII. MANAGEMENT........................................................... 88
Section 12.1 Termination of Manager................................. 88
XIII. MISCELLANEOUS....................................................... 89
Section 13.1 Survival.............................................. 89
Section 13.2 Permitted Investments; Eligible Accounts; Eligible
Institutions.......................................... 89
Section 13.3 Governing Law; Consent to Jurisdiction................ 91
Section 13.4 Modification, Waiver in Writing....................... 92
Section 13.5 Delay Not a Waiver.................................... 92
Section 13.6 Notices............................................... 93
Section 13.7 Trial by Jury......................................... 94
Section 13.8 Headings.............................................. 95
Section 13.9 Severability.......................................... 95
Section 13.10 Preferences........................................... 95
Section 13.11 Waiver of Notice...................................... 95
Section 13.12 Remedies of Borrower.................................. 95
Section 13.13 Expenses; Indemnity................................... 96
Section 13.14 Exhibits and Schedules Incorporated................... 97
Section 13.15 Offsets, Counterclaims and Defenses................... 97
Section 13.16 No Joint Venture or Partnership....................... 97
Section 13.17 Lender's Statement.................................... 97
Section 13.18 Waiver of Marshalling of Assets....................... 97
Section 13.19 Waiver of Counterclaim................................ 98
Section 13.20 Conflict; Construction of Documents................... 98
Section 13.21 Brokers and Financial Advisors........................ 98
Section 13.22 No Third Party Beneficiaries.......................... 99
Section 13.23 Prior Agreements...................................... 99
Section 13.24 Exculpation........................................... 99
Section 13.25 Loan Assignability by Lender.......................... 101
Section 13.26 Disclosure............................................ 101
</TABLE>
-iv-
<PAGE>
SCHEDULES
<TABLE>
<S> <C>
Schedule 1 - [Intentionally Omitted]
Schedule 2 - Deferred Maintenance Conditions
Schedule 4A - Representations and Warranties of Borrower
Schedule 4A-6 - Rent Roll
Schedule 4A-8 - Engineering Reports
Schedule 4B - Representations and Warranties of
Borrower's Single Purpose
Schedule 4(C) - Exceptions to Representations and Warranties
Schedule 6.3 - Permitted Reorganization
EXHIBITS
Exhibit A - [Intentionally Omitted]
Exhibit B - Cash Management Procedures
Exhibit C - Ground Leased Property
Exhibit D - Operating Budget
Exhibit E - Capital Budget
Exhibit F - Periodic Financial Statements
</TABLE>
-v-
<PAGE>
INDEX OF SCHEDULES
<TABLE>
<S> <C>
Schedule 1..................................................iii,.1
Schedule 2............................................iv, 8, 93,.2
Schedule 4......................................................iv
Schedule 4(C)...................................................iv
Schedule 6.3.....................................................v
</TABLE>
-vi-
<PAGE>
THIS LOAN AGREEMENT, dated as of November 25, 1997 (as amended,
restated, replaced, supplemented or otherwise modified from time to time, this
"Agreement"), is made between DS HOTEL LLC, a Delaware limited liability
- ----------
company, and GMAC COMMERCIAL MORTGAGE CORPORATION, a California corporation.
All capitalized terms used herein shall have the respective meanings
set forth in Section 1.1 hereof.
W I T N E S S E T H:
-------------------
WHEREAS, Borrower desires to obtain the Loan from Lender and secure
the same by, among other things, Borrower's interest in the real property
commonly known as "Marriott's Desert Springs Resort and Spa", at 74855 Country
Club Drive, Palm Desert, California; and
WHEREAS, Lender is willing to make the Loan to Borrower, subject to
and in accordance with the terms of this Agreement and the other Loan Documents.
NOW, THEREFORE, in consideration of the making of the Loan by Lender
and the covenants, agreements, represen tations and warranties set forth in
this Agreement, the parties hereto hereby covenant, agree, represent and warrant
as follows:
I. DEFINITIONS; PRINCIPLES OF CONSTRUCTION
---------------------------------------
Section 1.1 Definitions.
-----------
For all purposes of this Agreement, except as otherwise expressly
provided herein:
"Acceptable Manager" shall mean (i) MII or a wholly-owned subsidiary
-------------------
of MII, or (ii) a nationally recognized hotel operator acceptable to Lender, in
the exercise of its reasonable discretion, which is engaged by Borrower to
operate the Hotel as part of a comparable nationally recognized hotel system
acceptable to Lender pursuant to a replacement management agreement, and as to
which Borrower shall have obtained a Rating Confirmation.
"Accounting Period" shall mean, initially, each accounting period of
-----------------
four consecutive weeks having the same
-1-
<PAGE>
beginning and ending dates as the Manager's corresponding four week accounting
periods, except that the last Accounting Period in a Fiscal Year may be longer
than four consecutive weeks when and to the extent necessary to conform the
accounting system to the calendar, or if the accounting year on the basis of
which the Mortgaged Property is operated is changed to a calendar year or a
conventional 365-day fiscal year, "Accounting Period" shall mean each calendar
month in such fiscal year.
"Accounting Quarter" shall mean, initially, three (or in the case of
------------------
the last Accounting Quarter in any Fiscal Year, four) consecutive Accounting
Periods, ending on the last day of the third, sixth, ninth and last Accounting
Period in each Fiscal Year, or, if the accounting year on the basis of which the
Mortgaged Property is operated is changed to a calendar year or a conventional
365-day fiscal year, "Accounting Quarter" shall mean each of the fiscal quarters
in such fiscal year (i.e., there shall be four consecutive Accounting Quarters
----
of three months each).
"Additional Interest" shall mean the excess of the amount payable as
-------------------
interest under the Note at the Revised Interest Rate over the amount that would
have been payable as interest under the Note at the Initial Interest Rate.
"Affiliate" shall mean a Person or Persons directly or indirectly,
---------
through one or more intermediaries, controlling, controlled by or under common
control with the Person or Persons in question. The term "control", as used in
the immediately preceding sentence, shall mean, with respect to a Person that is
a corporation, the right to exercise, directly or indirectly, more than 10% of
the voting rights attributable to the shares of the controlled corporation and,
with respect to a Person that is not a corporation, the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of the controlled Person. Notwithstanding the foregoing, MII and its
Affiliates shall not be deemed to be Affiliates of the Borrower or any of its
members.
"ALTA" shall mean American Land Title Association, or any successor
----
thereto.
"Alteration" shall have the meaning set forth in Section 7.1.
----------
-2-
<PAGE>
"Anticipated Repayment Date" shall mean the Payment Date occurring on
--------------------------
June 11, 2010 (or, if such date is not a Business Day, the immediately preceding
Business Day).
"Approved Banks" shall mean banks or other finan cial institutions
--------------
which have a minimum long-term unsecured debt rating from the applicable Rating
Agencies at least equivalent to the Required Rating.
"Basic Carrying Costs" shall mean the sum of the
--------------------
following obligations of Borrower associated with the Mortgaged Property: (i)
real property taxes, (ii) insurance premiums and (iii) ground rent.
"Borrower" shall mean DS Hotel LLC, a Delaware limited liability
--------
company, together with its successors and assigns as permitted hereunder.
"Business Day" shall mean any day other than a Saturday, Sunday or any
------------
other day on which national banks in New York or the corporate trust office of
Lender or comparable office of Servicer are not open for business.
"Cash" shall mean coin or currency of the United States of America or
----
immediately available federal funds, including such funds delivered by wire
transfer.
"Cash and Cash Equivalents" shall mean (i) Cash, (ii) U.S. Government
-------------------------
Securities, (iii) interest bearing or discounted obligations of federal agencies
and government sponsored entities or pools of such instruments offered by
Approved Banks and dealers, including, without limitation, Federal Home Loan
Mortgage Corporation participation sale certificates, Government National
Mortgage Association modified pass-through certificates, Federal National
Mortgage Association bonds and notes, Federal Farm Credit System securities
(provided all of the obligations described in this clause (iii) shall be rated
"AAA" or backed by the full faith and credit of the United States government for
full and timely payment), (iv) time deposits, domestic and Eurodollar
certificates of deposit, bankers acceptances or commercial paper rated at least
A-l+ (or its equivalent, as determined by the applicable Rating Agencies) by the
applicable Rating Agencies, and/or guaranteed by an entity having a long-term
rating at least equal to the Required Rating, floating rate notes, other money
market instruments and letters of credit each issued by Approved Banks
-3-
<PAGE>
(provided that if the scheduled maturity of any such note, instrument or letter
of credit is more than six (6) months after the date of purchase of such
obligation by Borrower or Lender, the note, instrument or letter of credit must
be issued by a bank having a long-term unsecured debt rating from the applicable
Rating Agencies at least equal to the Required Rating), (v) obligations issued
by state and local governments or their agencies, carrying a rating at least
equal to the Required Rating and/or guaranteed by an irrevocable letter of
credit of an Approved Bank (provided that if the scheduled maturity of any such
obligation is more than six (6) months after the date of purchase by Borrower or
Lender and such obligation is guaranteed by a letter of credit, the letter of
credit guaranteeing such obligation must be issued by an Approved Bank), (vi)
repurchase agreements with major banks and primary government securities dealers
fully secured by U.S. govern ment or agency collateral with a value equal to or
exceeding the principal amount on a daily basis and held in safekeep ing
(provided that at the time of purchase the counterparty to such repurchase
agreement must have a long-term unsecured debt rating at least equal to the
Required Rating), (vii) investments in money market funds and money market
mutual funds all the assets of which are comprised of investments described in
clauses (i) through (vi) above, and (viii) any other investment which each of
the applicable Rating Agencies confirm in writing will not in and of itself
result in a downgrading or withdrawal of any of the ratings then assigned to any
Certificates. Except as otherwise provided in this definition, Cash and Cash
Equivalents shall not include any investments commonly known as "derivatives",
any investments requiring a payment above par for an obligation, and under no
circumstances shall Cash and Cash Equivalents include interest-only strips. Any
investment in Cash and Cash Equivalents shall have a maturity date not later
than one Business Day prior to the date that the proceeds therefrom are required
hereunder.
"Cash Collateral Account" shall mean the account established and held
-----------------------
by Servicer pursuant to Section 4.1 of the Cash Management Procedures.
"Cash Management Procedures" shall mean the provisions of Exhibit B.
--------------------------
"Casualty" shall have the meaning specified in Section 8.1.2(a).
--------
-4-
<PAGE>
"Certificates" shall have the meaning specified in the Cooperation
------------
Agreement.
"Chiller Work" means the work described in Schedule 3 attached hereto.
------------
"Chiller Work Reserve" shall mean that certain reserve account
--------------------
established at closing to provide funds toward the installation of a back-up
chilled water system in accordance with the Claris Services Corporation report,
updated November 5, 1997.
"Closing Date" shall mean the date of the funding of the Loan.
------------
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
----
as it may be further amended from time to time, any successor statutes thereto,
and applicable U.S. Department of Treasury regulations issued pursuant thereto
in temporary or final form.
"Commitment Fee" shall have the meaning given such term in that
--------------
certain letter agreement, dated as of December 23, 1996 between DSMLP and
Goldman Sachs Mortgage Company ("GSMC"), as amended by that certain letter
----
agreement, dated as of September 2, 1997, between DSMLP and GSMC, as further
amended by that certain letter agreement, dated as of October 30, 1997, between
DSMLP and GSMC.
"Condemnation" shall have the meaning set forth in Section 8.1.3.
------------
"Consent of Manager" shall mean that Collateral Assignment of
------------------
Management Agreement and Subordination Agreement, dated as of the date hereof,
by and among Borrower, Manager and Lender.
"Cooperation Agreement" shall mean that certain Mortgage Loan
---------------------
Cooperation Agreement, dated as of the date hereof, by and among Borrower,
DSMLP, Host Marriott, Lender and GSMC.
"CPI Percentage" shall mean the percentage by which the "Consumer
--------------
Price Index for all urban consumers (CPI-U; U.S. City Average 1982-84 = 100, All
Items" (or appropriate substitute index if such index is no longer
-5-
<PAGE>
published) (the "CPI") for December of the preceding Fiscal Year exceeds the CPI
---
for December 1997.
"Debt" shall mean the outstanding principal amount evidenced by the
----
Note, together with all interest accrued and unpaid thereon and all other sums
due to Lender in respect of the Loan, including the Yield Maintenance Payments,
if any, and any sums due under the Note, this Agreement, the Mortgage or in any
other Loan Document.
"Debt Securities" shall mean debt obligations, other than U.S.
---------------
Government Securities, of any Person, whether evidenced by bonds, notes,
debentures, certificates, book entry deposits, certificates of deposit,
commercial paper, bankers acceptances, reinvestment letters, funding agreements
or other instruments, which (x) are not subject to prepayment or redemption
prior to maturity and (y) are rated not less than the then Required Rating; or
any combination of the foregoing.
"Debt Service" shall mean, with respect to any specified date or a
------------
particular period of time, scheduled principal and interest payments under the
Note due as of such date or payable during such period (including the last day
thereof), as applicable.
"Debt Service Reserve Account" shall have the meaning set forth in
----------------------------
Section 5.1.1 of the Cash Management Procedures.
"Default" shall mean the occurrence of any event hereunder or under
-------
any other Loan Document which, but for the giving of notice or passage of time,
or both, would be an Event of Default.
"Default Rate" shall mean a rate per annum equal to two percent (2%)
------------
in excess of the applicable Interest Rate, but in no event less than the "Prime
Rate" as published from time to time in The Wall Street Journal.
"Defeasance" shall have the meaning set forth in Section 2.3.2(a)
----------
hereof.
"Defeasance Date" shall have the meaning set forth in Section
---------------
2.3.2(a)(i) hereof.
-6-
<PAGE>
"Defeasance Deposit" shall mean an amount in cash equal to the sum of
------------------
(i) all costs and expenses (including, without limitation, the purchase price)
incurred or to be incurred in the purchase of U.S. Government Securities
necessary to meet the Scheduled Defeasance Payments, and (ii) any revenue,
documentary stamp or intangible taxes in connection with the transfer of the
Note.
"Deferred Maintenance Conditions" shall mean the conditions at the
-------------------------------
Mortgaged Property described on SCHEDULE 2 hereto.
"DSMLP" shall mean Desert Springs Marriott Limited Partnership, a
-----
Delaware limited partnership.
"Eligible Account" shall have the meaning given such term in Section
----------------
13.2.
"Eligible Collateral" shall mean U.S. Government Securities, Debt
-------------------
Securities, or Cash and Cash Equivalents, or any combination thereof.
"Eligible Institution" shall have the meaning given such term in
--------------------
Section 13.2.
"Employee Benefit Plan" shall have the meaning specified in Section
---------------------
6.1(j)(ii)(B).
"Environmental Indemnity" shall mean that certain Environmental
-----------------------
Indemnity Agreement, dated as of the date hereof, executed by Borrower, in
connection with the Loan, for the benefit of Lender.
"Equipment" shall have the meaning given such term in the Mortgage.
---------
"Event of Default" shall have the meaning set forth in Section 10.1(a)
----------------
hereof.
"FF&E" shall mean furniture; furnishings; fixtures; all fabric,
----
textile and flexible plastic products (not including items which are classified
as "Fixed Asset Supplies" under the Uniform System of Accounts) which are used
in furnishing the Hotel, including, without limitation, carpeting, drapes,
bedspreads, wall and floor coverings, mats, shower curtains and similar items;
furniture and furnishings used in the Hotel, including, without
-7-
<PAGE>
limitation, chairs, beds, chests, headboards, desks, lamps, tables, television
sets, mirrors, pictures, wall decorations and similar items; signage; and
equipment at the Hotel (including, without limitation, facsimile machines,
communication systems, audio-visual equipment, and all computer and other
equipment needed for the reservation system and the property management system,
and all other electronic systems needed for the Hotel, from time to time, as
well as any other similar systems based on other technologies which may be
developed in the future).
"FF&E Expenditures" shall have the meaning given such term in the Cash
-----------------
Management Procedures.
"FF&E Loan" shall mean a loan or loan(s) from MII or an affiliate
---------
thereof or an affiliate of Borrower to Borrower for purposes of upgrading FF&E
at the Hotel, and subject to the restrictions set forth in Permitted
Indebtedness, below.
"FF&E Reserve Account" shall mean the account established pursuant to
--------------------
Section 6 of the Cash Management Procedures.
"Final Completion" shall mean, with respect to any specified work, the
----------------
final completion of all such work, including the performance of all "punch list"
items, as confirmed by an Officer's Certificate or, with respect to any Material
Alteration, a certificate of the Independent Architect or Engineer.
"Fiscal Year" shall mean the period commencing on Closing Date and
-----------
ending on and including the final day of the thirteenth Accounting Period
occurring in the calendar year in which the Closing occurs and thereafter, each
thirteen Accounting Periods, until the Debt is repaid in full.
"GAAP" shall mean generally accepted accounting principles in the
----
United States of America as of the relevant date in question.
"Governmental Authority" shall mean any court, board, agency,
----------------------
commission, office or authority of any nature whatsoever of or for any
governmental unit (federal, state, county, district, municipal, city or
otherwise), whether now or hereafter in existence.
-8-
<PAGE>
"Gross Revenues" shall mean, for any period, all revenues and receipts
--------------
of every kind derived from or otherwise relating to the Mortgaged Property and
all departments and parts thereof during such period, including, but not limited
to: income (from both cash and credit transactions), before commissions and
discounts for prompt or cash payments, from rental of rooms, stores, offices,
exhibit or sales space of every kind; license, lease and concession fees and
rentals (not including gross receipts of licensees, lessees and
concessionaires); golf course membership and greens fees and all other revenues
from the operation of the golf courses owned or leased by Borrower and
facilities related thereto; income from vending machines; health club membership
fees; food and beverage sales; sales of merchandise (other than proceeds from
the sale of FF&E no longer necessary to the operation of the Hotel, which shall
be deposited into the FF&E Reserve in accordance with the Management Agreement
or Cash Management Procedures, as applicable), service charges, to the extent
not distributed to the employees at the Hotel as, or in lieu of, gratuities to
the extent not included in Management Expenses; and proceeds, if any, from
business interruption or other loss of income insurance; provided, however, that
all refunds, rebates, discounts and credits of a similar nature, given, paid or
returned by Borrower or Manager in the course of obtaining all such revenue and
income and not otherwise included in Management Expenses shall be excluded; and
provided further, that Gross Revenues shall not include the following: (i)
gratuities to employees of the Hotel; (ii) federal, state or municipal excise,
sales, use or similar taxes collected directly from patrons or guests or
included as part of the sales price of any goods or services (but only to the
extent such taxes and gratuities are not included in Management Expenses); (iii)
Insurance Proceeds (other than proceeds from business interruption or other loss
of income insurance); (iv) net Condemnation Proceeds (other than for a temporary
taking); (v) any proceeds from the sale or refinancing of the Mortgaged
Property, (vi) proceeds from the disposition of FF&E no longer necessary for the
operation of the Hotel (which shall be deposited into the FF&E Reserve in
accordance with the terms of the Management Agreement); or (vii) interest which
accrues on amounts deposited in either the FF&E Reserve or any escrow accounts
which are established in accordance with Section 13.01C of the Management
Agreement.
-9-
<PAGE>
"Ground Lease" shall mean the lease, dated April 24, 1987 between
------------
Ground Lessor as lessor and DSMLP as lessee, as amended from time to time, as
assigned by DSMLP to Mezzanine Borrower, and further assigned by the Mezzanine
Borrower to Borrower.
"Ground Leased Property" shall mean the land legally described in
----------------------
Exhibit C hereto.
"Ground Lessor" means Marriott's Desert Springs Development
-------------
Corporation, a Delaware corporation, and its successors and assigns.
"Ground Rent" shall mean the rental payments payable under the Ground
-----------
Lease.
"Host Marriott" shall mean Host Marriott Corporation, a Delaware
-------------
corporation, and its successors and assigns.
"Hotel" shall mean the hotel and the hotel operations located at the
-----
Mortgaged Property.
"Improvements" shall have the meaning set forth in the Mortgage.
------------
"Independent Architect or Engineer" shall mean any reputable
---------------------------------
architecture, engineering or construction management firm that is licensed or
registered in the state where the Mortgaged Property is located, if required by
the laws of such state, and not an Affiliate of Borrower (provided that a
licensed or registered professional described above who is employed by the
architecture and construction department of MII may serve as an Independent
Architect or Engineer).
"Independent Person/Independent Manager" shall have the meaning set
--------------------------------------
forth in Schedule 4B hereto.
"Initial Interest Rate" means a rate per annum equal to 7.8%.
---------------------
"Insurance Premiums" shall have the meaning set forth in Section
------------------
8.1.1(d) hereof.
"Insurance Requirements" shall mean all terms of any insurance policy
----------------------
required hereunder covering or
-10-
<PAGE>
applicable to the Mortgaged Property or any part thereof, all requirements of
the issuer of any such policy, and all orders, rules, regulations and other
requirements of the National Board of Fire Underwriters (or any other body
exercising similar functions) applicable to or affecting the Mortgaged Property
or any part thereof or any use of the Mortgaged Property or any part thereof.
"Interest Accrual Period", with respect to a Payment Date, shall mean
-----------------------
the period beginning (and including) the eleventh (11th) day of the month
preceding such Payment Date (or with respect to the first Interest Accrual
Period, from the Closing Date) to (but excluding) the eleventh (llth) day of the
month in which such Payment Date occurs.
"Interest Rate" shall mean (i) the Initial Interest Rate, with respect
-------------
to the period from and including the Closing Date to but excluding the
Anticipated Repayment Date, and (ii) the Revised Interest Rate, with respect to
the period from and including the Anticipated Repayment Date to but excluding
the Maturity Date.
"Investment Grade" shall mean having a long term unsecured debt rating
----------------
not lower than BBB (or the equivalent) by the applicable Rating Agencies.
"Junior Lender" shall mean MDSM Finance LLC, a Delaware limited
-------------
liability company.
"Lease" shall mean any lease, sublease, sub sublease, license,
-----
letting, concession, occupancy agreement or other similar agreement (whether
written or oral and whether now or hereafter in effect), existing as of the date
hereof or hereafter entered into by Borrower, pursuant to which any Person is
granted a possessory interest in, or right to use or occupy all or any portion
of any space in the Mortgaged Property, and every modification, amendment or
other agreement relating to such lease, sublease, sub-sublease or other similar
agreement entered into in connection with such lease, sublease, sub-sublease or
other similar agreement, and all agreements related thereto, and every guarantee
of the performance and observance of the covenants, conditions and agreements to
be performed and observed by the other party thereto.
-11-
<PAGE>
"Legal Requirements" shall mean all federal, state, county, municipal
------------------
and other governmental statutes, laws, rules, orders, regulations, ordinances,
judgments, decrees and injunctions of Governmental Authorities binding upon
Borrower or the Mortgaged Property or any part thereof or the construction, use,
alteration or operation thereof, or any part thereof, and having the force of
law whether now or hereafter enacted and in force, and all permits, licenses and
authorizations and regulations relating thereto, and all covenants, agreements,
restrictions and encumbrances contained in any instruments binding upon Borrower
or to which the Mortgaged Property or any part thereof is subject, at any time
in force, including any which may (i) require repairs, modifications or
alterations in or to the Mortgaged Property or any part thereof, or (ii) in any
way limit the use and enjoyment thereof.
"Lender" shall mean GMAC Commercial Mortgage Corporation, a California
------
corporation, its successors and assigns.
"Lender Origination Expenses" shall have the meaning given such term
---------------------------
in Section 5.1(g)(ii).
"Lien" shall mean any mortgage, deed of trust, lien, pledge,
----
hypothecation, assignment, security interest, or any other encumbrance, charge
or transfer of, on or affecting the Mortgaged Property or any portion thereof or
Borrower, or any interest therein (excluding pledges in favor of the Mezzanine
Lender), including any conditional sale or other title retention agreement, any
financing lease having substantially the same economic effect as any of the
foregoing, the filing of any financing statement, and mechanic's, materialmen's
and other similar liens and encumbrances.
"Loan" shall mean the loan made to Borrower by Lender pursuant hereto
----
and the other Loan Documents in the original principal amount of ONE HUNDRED AND
THREE MILLION and NO/100 DOLLARS ($103,000,000.00) and evidenced by the Note,
secured inter alia by the Mortgage and certain other Loan Documents.
"Loan Documents" shall mean, collectively, this Agreement, the Note,
--------------
the Mortgage, the Environmental Indemnity, the Cooperation Agreement, and any
other document executed in connection with the Loan, as well as all other
-12-
<PAGE>
documents executed and delivered in connection with the Loan or hereafter
executed and delivered by or on behalf of Borrower pursuant to the requirements
hereof or of any other Loan Document.
"Local Account" shall have the meaning set forth in Section 3 of the
-------------
Cash Management Procedures.
"Lockbox Account" shall have the meaning set forth in Section 7.2.2.
---------------
of the Cash Management Procedures.
"Lockbox Event" shall have the meaning set forth in Section 7 of the
-------------
Cash Management Procedures.
"Lockbox Period" shall have the meaning set forth in Section 7 of the
--------------
Cash Management Procedures.
"Management Agreement" shall mean that certain Management Agreement,
--------------------
dated of even date herewith, between Manager and Borrower, pursuant to which
Manager is to provide property management and other services with respect to the
Mortgaged Property; provided that as used herein with respect to the obligations
of Borrower and Manager under the Management Agreement the same shall be deemed
as modified by the Consent of Manager.
"Management Expenses" shall mean (a) the cost of sales including
-------------------
salaries, wages, employee benefits, Employee Claims (as defined in the
Management Agreement) (except to the extent specifically set forth in Section
14.01 C or D of the Management Agreement), payroll taxes and other costs
related to Hotel employees; (b) departmental expenses, administrative and
general expenses, relocation expenses not otherwise paid as part of Chain
Services (as defined in the Management Agreement), the cost of Hotel advertising
and business promotion expenses; the cost of heat, light, power water and other
utility costs; and the cost of routine repairs, maintenance and minor
alterations treated as Deductions under Section 8.01 of the Management
Agreement; (c) the cost of Inventories and Fixed Asset Supplies (as such terms
are defined in the Management Agreement) consumed in the operation of the Hotel;
(d) a reasonable reserve for uncollectible accounts receivable as determined by
the Manager; (e) all reasonable costs and fees of independent professionals or
other third parties who are retained by Manager to perform services required or
permitted under the Management Agreement; (f) the reasonable cost and expense of
-13-
<PAGE>
technical consultants and operational experts who are employees of the Manager
or one of its Affiliates, for specialized services in connection with non-
routine Hotel work (but only to the extent such costs and expenses are
reasonably and competitively priced, as compared to similar work done by outside
consultants or experts); (g) the Base Management Fee (as defined in the
Management Agreement); (h) the Hotel's pro rata share of costs and expenses
incurred by the Manager or its Affiliates) in providing Chain Services (as
defined in the Management Agreement); (i) the Hotel's pro rata share of costs
and expenses incurred in connection with sales, advertising, and/or promotional
programs developed for or within the Marriott Hotel System, such as (without
limitation) the Marriott Rewards Program, where such costs and expenses are not
deducted as either departmental expenses under (b) above or as Chain Services
under (h) above; (j) insurance costs and expenses under Sections 12.04 B of the
Management Agreement; (k) any amounts transferred into the FF&E Reserve Account
in accordance with Section 8.02 of the Management Agreement; (l) license fees or
taxes, if any, payable by or assessed against the Manager related to the Hotel,
the Management Agreement or to Manager's operation of the Hotel (exclusive of
the Manager's income taxes or franchise taxes) including any Impositions
assessed against the Hotel; (m) lease payments pursuant to leases of Telephones
and Miscellaneous Equipment (as defined in the Management Agreement); (n) all
maintenance and operational costs related to the Golf Courses (as defined in the
Management Agreement); (o) rental payments made by or on behalf of Borrower
pursuant to the Ground Lease; and (p) such other costs and expenses as
specifically provided for as Deductions in the Management Agreement or are
otherwise reasonably necessary for the proper and efficient operation of the
Hotel; provided, however, that Management Expenses shall not include the costs
and expenses of providing Central Office Services (as defined in the Management
Agreement).
"Management Incentive Reserve Account" shall mean an account
------------------------------------
established by Servicer on or after the Anticipated Repayment Date, to be funded
as provided for in the Cash Management Procedures.
"Management Termination Event" shall mean any of the following:
----------------------------
-14-
<PAGE>
(i) a Foreclosure (as defined in the Consent of Manager), or
(ii) if, for any two of three consecutive Fiscal Years, the annual
Operating Profit of the Mortgaged Property falls below
$15,000,000 and Manager shall have not paid into a subaccount of
the Cash Collateral Account the difference between $15,000,000
and the Operating Profit for each of such two Fiscal Years, which
amount, shall be treated in accordance with Section 5.3.2 shall
be held by Servicer on behalf of Lender as additional cash
collateral for the Loan.
"Manager" shall mean Marriott Hotel Services, Inc. or any replacement
-------
"Acceptable Manager" appointed in accordance with Section 12.1 hereof.
"Manager's Account" shall have the meaning set forth in Section 1.1 of
-----------------
the Cash Management Procedures.
"Material Adverse Effect" shall mean any event or condition that has a
-----------------------
material adverse effect upon (i) the business operations, economic performance,
Mortgaged Property, asset or condition (financial or otherwise) of Borrower,
(ii) the ability of Borrower to perform in all material respects the provisions
of any of the Loan Documents, (iii) the enforceability or validity of any Loan
Document or the perfection or priority of any Lien created under any Loan
Document, (iv) the value of, or cash flow from, the Mortgaged Property or the
operation thereof, or (v) the rights and remedies of Lender under the Loan
Documents.
"Material Agreements" shall mean the Management Agreement and the
-------------------
Ground Lease.
"Material Alteration" shall mean any Alteration or series of
--------------------
related Alterations (i.e., two or more Alterations that would not reasonably be
- -
performed one without the other) to be performed by or on behalf of Borrower at
the Mortgaged Property reasonably estimated by an Independent Architect or
Engineer to exceed the Threshold Amount.
"Material Casualty" shall have the meaning set forth in Section
-----------------
8.1.2(c) hereof.
-15-
<PAGE>
"Material Condemnation" shall have the meaning set forth in Section
---------------------
8.1.2(c) hereof.
"Maturity Date" shall mean the date on which the final payment of
-------------
principal of the Note becomes due and payable as therein provided, whether at
the Stated Maturity Date, by declaration of acceleration, or otherwise.
"Maximum Rate" shall have the meaning set forth in Section 2.6.
------------
"Mezzanine Borrower" shall mean Marriott DSM LLC, a Delaware limited
------------------
liability company, together with its permitted successors and assigns pursuant
to the Mezzanine Loan Documents.
"Mezzanine Lender" shall mean GSMC, together with its permitted
----------------
successors and assigns.
"Mezzanine Loan" shall mean that loan arranged pursuant to the
--------------
Mezzanine Loan Agreement.
"Mezzanine Loan Agreement" shall mean that Credit Agreement, dated as
------------------------
of the Closing Date, by and among Mezzanine Borrower, GSMC as Agent for the
lenders thereunder, and Mezzanine Lender.
"Mezzanine Loan Documents" shall mean the Mezzanine Loan Agreement,
------------------------
together with all and any documents and instruments executed and delivered in
connection therewith (including, without limitation, all documents evidencing or
securing the loan made pursuant thereto), as the same may be amended, restated,
replaced, supplemented, consolidated or otherwise modified from time to time.
"Mezzanine Loan Transfer Agreement" shall mean the
---------------------------------
agreement so captioned, dated as of the date hereof, among Borrower, Lender,
Agent and Mezzanine Lender.
"MII" shall mean Marriott International, Inc., a Delaware corporation,
---
or a transferee of or successor to all or substantially all of the lodging
management and franchise business currently conducted by such entity and its
affiliates, or the wholly owned affiliates of such transferee or successor.
-16-
<PAGE>
"MII Cash Management Conditions" shall mean the conditions that the
------------------------------
Mortgaged Property is managed by a manager under the Management Agreement and
the Manager is MII or a wholly owned, direct or indirect, subsidiary of MII.
"Monthly Debt Service Payment Amount" shall have the meaning set forth
-----------------------------------
in Section 2.2.1(b) hereof.
"Mortgage" shall mean that certain first priority Fee and Leasehold
--------
Deed of Trust, Security Agreement, Assignment of Leases and Rents and Fixture
Filing, dated as of the date hereof, executed and delivered by Borrower as
security for the Loan and encumbering, among other things, the real property
commonly known as, "Marriott's Desert Springs Resort and Spa", 74855 Country
Club Drive, Palm Desert, California, as the same may be amended, restated,
replaced, supplemented, consolidated or otherwise modified from time to time.
"Mortgaged Property" shall have the meaning given such term in the
------------------
Mortgage.
"Note" shall mean that certain Promissory Note of even date herewith,
----
made by Borrower in favor of Lender, as the same may be amended, restated,
replaced, supplemented, consolidated or otherwise modified from time to time.
"Officer's Certificate" shall mean a certificate made by an individual
---------------------
authorized to act on behalf of Borrower or the Manager (acting as Borrower's
agent) or to the extent applicable, any constituent Person with respect to
Borrower. Without limiting the foregoing, if the individual signing the
certificate is doing so on behalf of a corporation, then such individual shall
hold the office of President, Vice President or Chief Accounting Officer (or the
equivalent) with respect to such corporation. Any such certificate may be
based, insofar as it relates to legal, accounting, architectural or engineering
matters or matters customarily dealt with by experts, upon the written advice of
counsel, an accountant, architect, engineer or such expert, as applicable,
provided the individual signing the certificate believes in good faith that such
- --------
reliance is justified.
"Operating Account" shall have the meaning set forth in Section 7.9 of
-----------------
the Cash Management Procedures.
-17-
<PAGE>
"Operating Budget" shall mean Borrower's annual budget setting forth,
----------------
in reasonable detail, good faith estimates of the anticipated results of
operations of the Mortgaged Property, including revenues from all sources, all
Management Expenses, management fees and capital expenditures.
"Operating Profit" shall mean the excess of Gross Revenues over
----------------
Management Expenses.
"Operating Profit Payment Date" shall have the meaning described in
-----------------------------
the Cash Management Procedures.
"Optional Defeasance Date" shall mean the earlier of (a) the Payment
------------------------
Date following the fourth anniversary of the Closing Date and (b) two (2) years
from the "start-up day" (within the meaning of Section 860G(a)(9) of the Code)
of the REMIC Trust, as determined by the Lender named herein.
"Other Charges" shall mean all ground rents, maintenance charges,
-------------
impositions other than Taxes, and any other charges, including vault charges and
license fees for the use of vaults, chutes and similar areas adjoining the
Mortgaged Property, now or hereafter levied or assessed or imposed against the
Mortgaged Property or any part thereof and payable by Borrower.
"Payment Date" shall mean the eleventh (11th) day of each calendar
------------
month or, if in any month the eleventh (11th) day is not a Business Day, then
the Payment Date for such month shall be the immediately preceding Business Day.
"Permits" shall have the meaning set forth in Schedule 4A(10) hereof.
-------
"Permitted Encumbrances" shall mean, collectively, (a) the Liens and
----------------------
security interests created by the Loan Documents, (b) all Liens, encumbrances
and other matters disclosed in the Qualified Title Policy, (c) Liens, if any,
for Taxes or Other Charges not yet delinquent or which are being diligently
contested in good faith in accordance with Section 5.1(b)(ii) hereof, (d) Liens
in respect of property or assets imposed by law such as carriers',
warehousemen's, landlord's, mechanic's, materialmen's repairmen's and other
similar Liens arising in the ordinary course of business, and Liens for workers'
compensation, unemployment insurance and similar programs, which are being
diligently contested
-18-
<PAGE>
in good faith in accordance with Section 5.1(b)(ii) hereof, (e) Leases, (f)
easements, rights-of-way, restrictions, minor defects or irregularities in title
and other similar charges or encumbrances (including any of such matters
incurred or entered into by Borrower following the date of this Agreement) which
in each case do not diminish in any material respect the value of the Mortgaged
Property or affect in any material respect the validity, enforceability or
priority of the Liens created by the Loan Documents, and (g) such other title
and survey exceptions as Lender has approved or may approve in writing in
Lender's sole discretion.
"Permitted Indebtedness" shall mean, with respect to Borrower, (a) the
----------------------
Debt, (b) non-capital equipment leases entered into in the ordinary course of
Borrower's business, not to exceed required annual payments of $1.1 million in
the aggregate during any calendar year, of which payments of no more than
$600,000 in the aggregate during any calendar year may come from a source other
than the FF&E Reserve, and Account and (c) FF&E Loans not exceeding $5.0
million, provided that (i) the lender thereunder shall agree not to assert any
remedies with respect to the non-payment thereof so long as the Loan is
outstanding, (ii) no amounts shall be paid or payable in respect such debt if
there shall exist any default under this Loan or the Mezzanine Loan, (iii) the
FF&E Loan shall be payable only from the FF&E Reserve Account, and to the extent
that revenues from the Mortgaged Property are insufficient to pay amounts owed
to third parties that are payable from the FF&E Reserve Account, amounts payable
on the FF&E Loan shall not be payable currently and shall accrue, and (d)
unsecured Trade Payables incurred in the ordinary course of Borrower's business,
customarily paid by Borrower's predecessor in interest within sixty (60) days of
incurrence and in fact not more than sixty (60) days outstanding. "Permitted
Indebtedness", with respect to Mezzanine Borrower, shall mean, (a) the Mezzanine
Debt, and (b) unsecured debt incurred in the ordinary course of business not
exceeding $2.0 million for purposes related to the Mortgaged Property, provided
that (i) such debt shall be fully subordinated to the Debt and the Mezzanine
Debt, (ii) no amounts shall be paid or payable on such debt until all payments
and deposits to be made pursuant to Section 4.3, 4.4, 7.9.4, or 7.9.5 of the
Cash Management Procedures, as applicable, and payments on account of the
Incentive Management Fee shall have been paid or fully provided for and (iii) if
such debt is provided by Host Marriott or MII or any affiliate thereof, the
payee
-19-
<PAGE>
thereof shall agree not to assert any remedies with respect to the non-payment
thereof so long as the Debt and the Mezzanine Debt are outstanding.
"Permitted Investments" shall mean the following, subject to
---------------------
qualifications hereinafter set forth:
1. Obligations of, or obligations guaranteed as to principal and interest
by, the U.S. government or any agency or instrumentality thereof, when
such obligations are backed by the full faith and credit of the U.S.
These obligations include, but are not limited to:
. U.S. Treasury obligations
All direct or fully guaranteed obligations
. Farmers Home Administration
Certificates of beneficial ownership
. General Services Administration
Participation certificates
. U.S. Maritime Administration
Guaranteed Title XI financing
. Small Business Administration
Guaranteed participation certificates
Guaranteed pool certificates
. U.S. Department of Housing and Urban Development
Local authority bonds
. Washington Metropolitan Area Transit Authority
Guaranteed transit bonds
2. Federal Housing Administration debentures.
3. Obligations of government-sponsored agencies that are not backed by the
full faith and credit of the U.S., where the obligation is limited to
those instruments that have a predetermined fixed dollar amount of
principal due at maturity that cannot vary or change. These obligations
are limited to:
. Federal Home Loan Mortgage Corp. (FHLMC)
Debt obligations
. Farm Credit System (formerly: Federal land Banks, Federal
Intermediate Credit Banks, and Banks for Cooperatives)
Consolidated system wide bonds and notes
. Federal Home Loan Banks (FHL Banks)
-20-
<PAGE>
Consolidated debt obligations
. Federal National Mortgage Association (FNMA)
Debt obligations
. Student Loan Marketing Association (SLMA)
Debt obligations
. Financing Corp. (FICO)
Debt obligations
. Resolution Funding Corp. (REFCORP)
Debt obligations.
4. Federal funds, unsecured certificates of deposit, time deposits,
banker's acceptances, and repurchase agreements having maturities of
not more than 365 days of any bank, the short-term debt obligations of
which are rated "A-l+" (or the equivalent) by the applicable Rating
Agencies.
5. Deposits that are fully insured by the Federal Deposit Insurance Corp.
(FDIC).
6. Debt obligations maturing in 365 days or less that are rated "AAA" or
higher (or the equivalent) by the applicable Rating Agencies.
7. Commercial paper rated "A-l+" (or the equivalent) by the applicable
Rating Agencies and maturing in 365 days or less.
8. Investments in certain short-term debt of issuers rated "A-1+" (or the
equivalent) by the applicable Rating Agencies may be permitted with
certain restrictions. The total amount of debt from "A-1+" issuers must
be limited to the investment of an amount equal to Monthly Debt Service
Payment Amount. The total amount of "A-1+" investments should not
represent more than 20% of the rated issue's outstanding principal
amount and each investment should not mature beyond 30 days. Investment
in "A-1+" (or the equivalent) rated securities are not eligible for
reserve accounts, cash collateral accounts, or other forms of credit
enhancement. Short-term debt for purposes of this definition includes:
commercial paper, federal funds, repurchase agreements, unsecured
certificates of deposit, time deposits, and banker's acceptances.
-21-
<PAGE>
9. Investment in money market funds rated "AAA" (or the equivalent) by the
applicable Rating Agencies.
10. Such other investments as shall be approved in writing by means of a
Rating Confirmation.
Notwithstanding the foregoing, "Permitted Investments": (i) shall exclude any
security with the Standard & Poor's "r" symbol (or any other Rating Agency's
corresponding symbol) attached to the rating (indicating high volatility or
dramatic fluctuations in their expected returns because of market risk), as well
as any mortgage-backed securities; (ii) shall not have maturities in excess of
one year; (iii) as to the investments described in (1), (3), (4), (5), (6), (7)
and (8): the obligations shall be limited to those instruments that have a
predetermined fixed dollar of principal due at maturity that cannot vary or
change; interest may either be fixed or variable; and any variable interest
should be tied to a single interest rate index plus a single fixed spread (if
any), and move proportionately with that index; and (iv) shall exclude any
investment where the right to receive principal and interest derived from the
underlying investment provide a yield to maturity in excess of 120 percent of
the yield to maturity at par of such underlying investment. No investment shall
be made which requires a payment above par for an obligation if the obligation
may be prepaid at the option of the issuer thereof prior to its maturity. All
investments shall mature or be redeemable upon the option of the holder thereof
on or prior to the earlier of (x) three (3) months from the date of their
purchase or (y) the Business Day preceding the day before the date such amounts
are required to be applied hereunder.
"Permitted Owners" shall have the meaning set forth in Section
----------------
6.1(j)(iii) hereof.
"Person" shall mean any individual, sole proprietorship, corporation,
------
general partnership, limited partnership, limited liability company or
partnership, joint venture, association, joint stock company, insurance company
separate account, bank, trust, estate, unincorporated organization, any federal,
state, county or municipal government (or any agency or political subdivision
thereof), endowment fund or any other form of entity or investment vehicle.
-22-
<PAGE>
"Policies" shall have the meaning specified in Section 8.1.1(c).
--------
"Proceeds" shall mean amounts, awards or payments payable to Borrower
--------
or Lender in respect of all or any part of the Mortgaged Property in connection
with a Casualty or Condemnation thereof (after the deduction therefrom and
payment to Borrower and Lender, respectively, of any and all reasonable expenses
incurred by Borrower and Lender in the recovery thereof, including all
reasonable attorneys' fees and expenses, the fees of insurance experts and
adjusters and the costs incurred in any litigation or arbitration with respect
to such Casualty or Condemnation).
"Qualified Survey" shall mean a current ALTA survey of the Mortgaged
----------------
Property, certified to the title company and Lender and their successors and
assigns, that (A) is in form and content reasonably satisfactory to Lender, (B)
is prepared by a professional and properly licensed land surveyor satisfactory
to Lender in accordance with the 1992 Minimum Standard Detail Requirements for
ALTA/ACSM Land Title Surveys, (C) meets the classification of an "Urban Survey",
and the following additional items from the list of "Optional Survey
Responsibilities and Specifications" (Table A) should be added to each survey:
2, 3, 4, 6, 7, 8, 9, 10, 11 and 13, (D) reflects the same legal description
contained in the Qualified Title Policy relating to the Mortgaged Property, and
(E) contains a certification in form and substance reasonably acceptable to
Lender.
"Qualified Title Policy" shall mean a policy (with endorsements)
----------------------
comparable to an ALTA title insurance policy (1970 unmodified form, where
issuable) issued by a title company reasonably acceptable to Lender, with
reinsurance and direct access agreements reasonably acceptable to Lender, which
title insurance policy shall (A) provide coverage in the amount of the Loan, (B)
insure Lender that the Mortgage creates a valid first deed of trust lien on the
Mortgaged Property, free and clear of all exceptions from coverage other than
Permitted Encumbrances and such standard exceptions and exclusions from coverage
as Lender shall approve, (C) contain such endorsements and affirmative coverages
as Lender may reasonably request, (D) name Lender as the insured and (E) be
assignable by its terms with a transfer of the Loan.
-23-
<PAGE>
"Rating Agency" shall mean each of the following who rate the
-------------
Certificates: Standard & Poor's Ratings Group, a division of McGraw-Hill, Inc.,
Moody's Investors Service, Inc., Duff & Phelps Credit Rating Co. and Fitch
Investors Service, L.P.
"Rating Confirmation," with respect to the matter in question, shall
-------------------
mean that as a condition thereto the Rating Agencies shall have confirmed in
writing that (i) such investment, replacement or action shall not result, in and
of itself, in a reduction, withdrawal or qualification of any rating then
assigned to any outstanding Certificates (if the Securitization has occurred),
or (ii) such investment, replacement or action would not result, in and of
itself, in a reduction, withdrawal or qualification of any rating for proposed
Certificates then under consideration by the Rating Agencies (if the
Securitization has not yet occurred); provided that if the Securitization has
not taken (and as certified by Lender, will not take) the form of a transaction
rated by the Rating Agencies, then "Rating Confirmation" shall instead mean that
the matter in question shall be subject to the prior approval of the Lender
(which shall not be withheld or conditioned unreasonably).
"REMIC" shall mean a "real estate mortgage investment conduit" within
-----
the meaning of Section 860D of the Code.
"REMIC Trust" shall mean a REMIC which holds the Note.
-----------
"Rents" shall mean all rents, rent equivalents, moneys payable as
-----
damages or in lieu of rent or rent equivalents, royalties (including all oil and
gas or other mineral royalties and bonuses), income, receivables, receipts,
revenues, deposits (including security, utility and other deposits), accounts,
cash, issues, profits, charges for services rendered, and other consideration of
whatever form or nature received by or paid to or for the account of or benefit
of Borrower or its agents or employees from any or all sources arising from or
attributable to the Mortgaged Property, including all room rents related to the
overnight occupancy of guests at the Mortgaged Property, all banquet, conference
or other room rentals, fees or consideration of any sort, credit card
receivables, and all deposits of money as advance rent, for security or as
-24-
<PAGE>
earnest money or as a down payment or deposit for the reservation of rooms or
other facilities in the Mortgaged Property and any obligations now existing or
hereafter arising or created out of the sale, Lease or other grant of the right
of the use and occupancy of property or rendering of services by the Borrower
and proceeds, if any, from business interruption or other loss of income
insurance. Without limitation of the foregoing, "Rents" shall include "Gross
-----
Revenues."
"Required Rating" shall mean the higher of (i) the highest rating then
---------------
assigned by the applicable Rating Agencies to any of the Certificates, and (ii)
"A" (or its equivalent) by S&P and Moody's.
"Required Records" shall have the meaning set forth in Section
----------------
5.1(j)(x) hereof.
"Reserve Account" shall have the meaning set forth in Section 9.1
---------------
hereof.
"Restoration" shall have the meaning set forth in Section 8.1.2(b).
-----------
"Revised Interest Rate" shall mean the per annum rate equal to the sum
---------------------
of (a) the greater of (i) the Initial Interest Rate or (ii) the then-current
yield on 12-year United States Treasury obligations, plus (b) two percent
(2.00%).
"Scheduled Defeasance Payments" shall have the meaning set forth in
-----------------------------
Section 2.3.2(b) hereof.
"Secured Obligations" shall have the meaning set forth in the
-------------------
Mortgage.
"Securities Act" shall have the meaning set forth in Section
--------------
5.1(j)(ix) hereof.
"Securitization" shall have the meaning set forth in the Cooperation
--------------
Agreement.
"Security Agreement" shall have the meaning set forth in Section
-------------------
2.3.2(a)(vi) hereof.
"Servicer" shall mean Lender or any other Person appointed by Lender
--------
to service the Loan appointed pursuant to the Servicing Agreement. If at any
time no entity shall
-25-
<PAGE>
be so appointed, Servicer shall be deemed to refer to Lender.
"Servicing Agreement" shall mean any trust, pooling and servicing
-------------------
agreement or trust and servicing agreement that may be entered into from time to
time in connection with any Securitization of the Loan.
"Special Purpose" means, with respect to a Person, that such Person:
---------------
(A) at all times since its formation, (i) has been a duly formed and
existing limited partnership, limited liability company or corporation, as
the case may be; (ii) has observed all customary formalities regarding its
partnership, limited liability company, or corporate existence; (iii) has
maintained financial statements, accounting records, and other partnership,
limited liability company, or corporate documents separate from those of
any other Person (provided that nothing shall prohibit such Person from
being included in the consolidated financial statements or tax group of
another Person); (iv) has not commingled its assets with those of any other
Person; (v) has paid its own liabilities out of its own funds, including
funds contributed to its capital by its respective equity holders, and all
such capital contributions have been reflected properly in its books and
records; (vi) has allocated fairly and reasonably any overhead for shared
office expenses; (vii) has identified itself in all dealings with the
public under its own name and as a separate and distinct entity; (viii) has
not identified itself as being a division or part of any other Person; (ix)
has not identified any other Person as being a division or part of such
Person; (x) has corrected any known misunderstandings regarding its
separate identity; (xi) has been adequately capitalized in light of the
nature of its business; and (xii) has not assumed or guaranteed the
obligations of any other Person; and
(B) has and covenants to maintain customary "special purpose" and
"bankruptcy remoteness" provisions in its organizational documents
consistent with the requirements of the Rating Agencies, including:
-26-
<PAGE>
(i) if the Person in question is a corporation, it shall have an
Independent Person whose vote shall be required each of the Specified
Special-Purpose Matters; and
(ii) if the Person in question is a limited liability company,
(w) at least one of its managers must be an Independent Person (the
"Independent Manager") whose vote shall be required for all matters
--------------------
or, to the extent permitted by applicable law, the Specified Special-
Purpose Matters, (x) the operating agreement of such limited liability
company shall expressly provide that the bankruptcy, insolvency or
dissolution (or similar event) of one or more of its members (or, if
applicable, its sole member) shall not result in the dissolution of
such limited liability company, (y) such operating agreement shall
expressly provide that the insolvency, bankruptcy, dissolution,
resignation or withdrawal of such single member shall result in the
immediate admission of the Independent Manager as a member (which may
be a non-economic member), and (z) without limiting the foregoing,
such operating agreement and the articles of organization of such
limited liability company shall be substantially the same as those of
the Senior Borrower named herein.
Further, if such Person is a limited partnership, at least one of its
general partners must itself be a Special-Purpose Entity, with a
corporation, limited liability company or limited partnership as its
managing general partner that satisfies the requirements set forth in this
definition of "Special Purpose," including the requirements with respect an
Independent Person as a director or manager, as applicable.
"Specified Special-Purpose Matters" shall mean (i) the dissolution,
---------------------------------
liquidation, consolidation, merger and the sale of all or substantially all of
the assets of the Special-Purpose Entity, (ii) with respect to the Senior
Borrower, the engagement by the Special Purpose Entity in any other business
other than acquiring, owning, developing, mortgaging, encumbering,
hypothecating, leasing, selling, maintaining, improving, altering, expanding,
managing, and otherwise operating and dealing with all or part of the
-27-
<PAGE>
Mortgaged Property, (iii) the filing, or consent to the filing, of bankruptcy or
insolvency petitions, any general assignment for the benefit of creditors, or
the institution of any other insolvency proceedings, and (iv) the amendment of
such Special Purpose Entity's organizational documents with respect to any
provision thereof necessary or appropriate for the satisfaction of "special
purpose" and "bankruptcy-remoteness" criteria.
"Special Servicer" shall mean the entity appointed by Lender to
----------------
specially service the Loan or its successor in interest, or if any successor
special servicer is appointed pursuant to the Servicing Agreement. If at any
time no entity shall be so appointed, Special Servicer shall be deemed to refer
to Servicer, or if there is no Servicer, Lender.
"Stated Maturity Date" shall mean December 11, 2022 (or, if such date
--------------------
is not a Business Day, the immediately preceding Business Day).
"Successor Borrower" shall have the meaning set forth in Section
------------------
2.3.2(c)(ii) hereof.
"Tax and Insurance Reserve Account" shall have the meaning set forth
---------------------------------
in Section 4.2 of the Cash Management Procedures.
"Taxes" shall mean all real estate and personal property taxes,
-----
assessments, fees, taxes on rents or rentals, water rates or sewer rents, and
other governmental charges now or hereafter levied or assessed or imposed
against Borrower or the Mortgaged Property or rents therefrom or which may
become Liens.
"Tenant" shall mean any Person liable by contract or otherwise to pay
------
monies (including a percentage of gross income, revenue or profits) pursuant to
a Lease.
"Threshold Amount" shall mean One Million Dollars ($1,000,000).
----------------
"Trade Payables" shall mean amounts payable by or on behalf of
--------------
Borrower for or in respect of the operation of the Mortgaged Property in the
ordinary course and which would under GAAP be regarded as ordinary expenses,
including amounts payable to suppliers, vendors, contractors,
-28-
<PAGE>
mechanics, materialmen or other Persons providing property or services to the
Mortgaged Property or Borrower.
"Treasury Constant Yield" shall mean the arithmetic mean of the
-----------------------
rates published as "Treasury Constant Maturities" as of 5:00 p.m., New York
time, for the five Business Days preceding the date on which acceleration has
been declared, as shown on the USD screen of the Telerate service, or if such
service is not available, the Bloomberg service, or if neither the Telerate nor
the Bloomberg service is available, under Section 504 in the weekly statistical
release designated H.15(519) (or any successor publication) published by the
Board of Governors of the Federal Reserve System, for "On the Run" U.S. Treasury
obligations maturing on the Payment Date occurring on the Anticipated Repayment
Date; if no such maturity shall so exactly correspond, yields for the two most
closely corresponding published maturities shall be calculated pursuant to the
foregoing sentence and the Treasury Constant Yield shall be interpolated or
extrapolated (as applicable) from such yields on a straight-line basis
(rounding, in the case of relevant periods, to the nearest month).
"UCC" or "Uniform Commercial Code" shall mean the Uniform Commercial
--- -----------------------
Code as in effect in the state in which
the Mortgaged Property is located.
"U.S. Government Securities" shall mean securities evidencing an
--------------------------
obligation to pay principal and interest in a full and timely manner that are
(x) direct obligations of the United States of America for the payment of which
its full faith and credit is pledged or (y) obligations of a Person controlled
or supervised by and acting as an agency or instrumentality of and guaranteed as
a full faith and credit obligation by the United States of America, which in
either case are not callable or redeemable at the option of the issuer thereof
(including a depository receipt issued by a bank (as defined in Section 3(a)(2)
of the Securities Act) as custodian with respect to any such securities or a
specific payment of principal or interest on any such securities held by such
custodian for the account of the holder of such depository receipt; provided
that (except as required by law) such custodian is not authorized to make any
deduction from the amount payable to the holder of such depository receipt from
any amount received by the custodian in respect of the securities or the
specific payment of
-29-
<PAGE>
principal of or interest on the securities evidenced by such depository receipt.
"Yield Maintenance Payments" shall have the meaning set forth in
--------------------------
Section 2.3.4 hereof.
Section 1.2 Principles of Construction.
--------------------------
All references to sections, schedules and exhibits are to sections,
schedules and exhibits in or to this Agreement unless otherwise specified.
Unless otherwise specified, the words "hereof", "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
words "includes", "including" and similar terms shall be construed as if
followed by the words "without limitation". The term "Mortgaged Property" shall
be construed to be followed with the phrase "or any part or portion thereof".
Unless otherwise specified, all meanings attributed to defined terms herein
shall be equally applicable to both the singular and plural forms of the terms
so defined. All accounting terms not specifically defined herein shall be
construed in accordance with GAAP, as may be modified herein. As a matter of
convenience herein, rating categories are generally stated in the Standard &
Poor's nomenclature, it being understood that unless otherwise expressly stated
to the contrary, the category indicated will instead be deemed to be the
equivalent category of the applicable Rating Agencies; provided that if a
specified rating (or its equivalent) from the applicable Rating Agencies is
required hereunder with respect to an issuer or a security (other than the
Certificates), and Fitch Investors Service, L.P., as one of the applicable
Rating Agencies in connection with a Securitization, does not rate the issuer or
security in question, then such requirement hereunder shall nevertheless be
deemed satisfied so long as Standard & Poor's Ratings Group and Moody's
Investors Service, Inc. rate such issuer or security at or greater than the
required rating level.
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II. GENERAL
-------
Section 2.1 The Loan.
--------
2.1.1 Commitment. Subject to and upon the terms and conditions set
----------
forth herein, including the conditions precedent set forth in Section 3.1,
Lender hereby agrees to make the Loan to Borrower on the Closing Date, which
Loan shall mature on the Stated Maturity Date. Borrower hereby agrees to accept
the Loan on the Closing Date, subject to and upon the terms and conditions set
forth herein.
2.1.2 Disbursement to Borrower. Borrower may request and receive
------------------------
only one disbursement hereunder in respect of the Loan. Borrower shall receive
the proceeds of the Loan on the Closing Date, subject to the direction given by
Borrower as to the application of Loan proceeds to pay the Lender Origination
Expenses and the Commitment Fee and to fund (i) the Chiller Work Reserve in the
amount of $1,500,000, (ii) a distribution to the Mezzanine Borrower, for further
distribution to DSMLP, for further distribution to the partners of DSMLP, in the
amount of up to $2,727,272, and (iii) any other escrow or reserve account
contemplated hereunder or under any other Loan Document to be funded at or prior
to the Closing Date, all in accordance with the provisions of this Agreement.
Any amount borrowed and repaid hereunder in respect of the Loan may not be
reborrowed.
2.1.3 The Note. The Loan shall be evidenced by the Note, in the
--------
original principal amount of the Loan. The Note shall bear interest at the
Interest Rate. The Note shall be subject to repayment as provided in Section
2.3, shall be entitled to the benefits of this Agreement and shall be secured by
the Mortgage granting a first deed of trust lien on the Mortgaged Property and
by certain of the other Loan Documents.
2.1.4 Use of Proceeds of Loan. Borrower shall use the proceeds of
-----------------------
the Loan, together with other contributed capital of Borrower, to (i) repay the
existing debt secured by the Mortgaged Property and pay all costs and expenses
incurred in connection therewith, (ii) pay all past-due Basic Carrying Costs, if
any, in respect of the Mortgaged Property, (iii) fund the Chiller Work Reserve
in the amount of $1,500,000, (iv) pay costs and expenses actually incurred in
connection with the Closing of the Loan, (v) pay Lender Origination Expenses,
(vi) pay the
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remaining balance of the Commitment Fee, (vii) pay related costs or expenses in
connection with any of the foregoing, and (viii) a distribution to the Mezzanine
Borrower, for further distribution to DSMLP, for further distribution to the
partners of DSMLP, in the amount of up to $2,727,272.
Section 2.2 Principal and Interest.
----------------------
2.2.1 Principal and Interest.
----------------------
(a) Subject to Section 2.2.2, from the date hereof to but excluding
the Maturity Date, Borrower shall pay interest on the outstanding principal
balance of the Loan at the applicable Interest Rate in accordance with Section
2.5.2 hereof (it being acknowledged that from and after the Anticipated
Repayment Date, interest on the Note shall accrue at the Revised Interest Rate).
On the date hereof, Borrower shall make a payment of interest only on the Loan
at the Initial Interest Rate for the period from the date hereof to but
excluding the Payment Date on December 11, 1997.
(b) Commencing with the initial Payment Date on January 11, 1998 and
on each and every Payment Date thereafter through and including the Maturity
Date, the principal amount of the Loan and interest thereon at the applicable
Interest Rate (subject, with respect to interest, to the terms of Sections
2.2.1(d) and (e)) shall be payable on each Payment Date in monthly installments
(each, a "Monthly Debt Service Payment Amount") of principal and interest in
-----------------------------------
accordance with the amortization schedule set forth in the Note (which assumes
throughout the term of the Loan interest at the Initial Interest Rate).
(c) Commencing with the Anticipated Repayment Date, in addition to the
principal to be repaid pursuant to Section 2.2.1(b), Borrower shall repay on
each Payment Date the principal of the Loan to the extent provided for under
Section 2.2.1(e).
(d) Commencing with the Anticipated Repayment Date, Additional
Interest shall be due and payable in accordance with the terms of Section
2.2.1(e) and, to the extent unpaid by reason of insufficient Gross Revenues less
Management Expenses(after application in accordance with Section 2.2.1(e)),
shall be deferred and added to the Debt and, to the extent permitted by
applicable law, accrue interest at the Revised Interest Rate.
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(e) Commencing on the Anticipated Repayment Date and continuing on
each Payment Date thereafter until the entire Debt has been paid in full, any
and all Gross Revenues, less Management Expenses, whether the same are deposited
into the Cash Collateral Account or otherwise received by Borrower, the Manager
or Lender during the immediately preceding calendar month, shall be applied in
the order set forth in Section 4.4 or Section 7.9.5 of the Cash Management
Procedures, as applicable.
Notwithstanding anything herein to the contrary, the failure of
Borrower from and after the Anticipated Repayment Date to make all of the
payments required under clauses (A) through (C) of Section 4.4 of the Cash
Management Procedures, or Section 7.9.1(A) and (B) and Section 7.9.5(A) of the
Cash Management Procedures, as applicable, in each case in full shall constitute
an Event of Default. However, the failure of Borrower to pay any amounts
required to be paid under Section 4.4(D)through (M) of the Cash Management
Procedures, or any amount under Section 7.9.5(B) through (K) of the Cash
Management Procedures, including Additional Interest on a Payment Date, as a
result of insufficient Gross Revenues for such payment (after application of
Gross Revenues in accordance with the Cash Management Procedures)shall not in
itself constitute a Default or Event of Default hereunder. All accrued and
unpaid Additional Interest shall nonetheless be due and payable on the Maturity
Date.
(f) Unless otherwise expressly provided herein, in the Cash Management
Procedures or elected by Lender, payments made by Borrower in respect of the
principal and interest of the Loan shall be applied first to the payment of
interest then due and payable, with the remainder of such payment being applied
to the reduction of the outstanding principal balance of the Note.
2.2.2 Default Rate. If an Event of Default shall have occurred and
------------
is continuing (including the failure of Borrower to make a payment of principal
or interest on the Payment Date therefor), Borrower shall pay interest at the
Default Rate on the outstanding amount of the Loan and due but unpaid interest
thereon, upon demand from time to time, to the extent permitted by applicable
law. Payment or acceptance of the increased rates provided for in this
subsection is not a permitted alternative to timely payment or full performance
by Borrower and shall not constitute a waiver of any Default or Event of Default
or an amendment to
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this Agreement or any other Loan Document and shall not otherwise prejudice or
limit any rights or remedies of Lender.
Section 2.3 Loan Repayment and Defeasance.
-----------------------------
2.3.1 Repayment. Borrower shall repay any outstanding principal
---------
indebtedness of the Loan in full on the Maturity Date of the Loan, together with
all accrued and unpaid interest thereon to (but excluding) the date of
repayment. Other than as specifically set forth herein, Borrower shall have no
right to prepay all or any portion of Loan.
2.3.2 Voluntary Defeasance of the Note.
--------------------------------
(a) On or after the Optional Defeasance Date and subject to the terms
and conditions set forth in this Section 2.3.2, Borrower may defease all (but
not less than all) of the Loan evidenced by the Note with U.S. Government
Securities (a "Defeasance"). Borrower's right to effect a Defeasance shall be
----------
subject to the satisfaction of the following conditions precedent:
(i) Borrower shall provide not less than thirty (30) days' prior
written notice to Lender specifying the date (the "Defeasance Date") on
---------------
which the Defeasance Deposit is to be made and on which the Defeasance is
to occur, as well as the anticipated outstanding principal balance of the
Note as of Defeasance Date.
(ii) Borrower shall pay to Lender all accrued and unpaid
interest on the principal balance of the Note to but not including the
Defeasance Date (and if the Defeasance Date is not a Payment Date, the
Defeasance Deposit shall take into account the interest that would have
accrued on the Note to but not including the next Payment Date).
(iii) Borrower shall pay to Lender all other sums, not including
scheduled interest or principal payments, then due under the Note, this
Agreement, the Mortgage and the other Loan Documents.
(iv) No Event of Default shall exist on the Defeasance Date or
on the date that the written notice described in clause (i) above is given.
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<PAGE>
(v) Borrower shall pay to Lender the required Defeasance Deposit
for the Defeasance.
(vi) Borrower shall execute and deliver a security agreement
(the "Security Agreement"), in form and substance satisfactory to Lender,
------------------
creating a first priority perfected security interest in favor of Lender in
the Defeasance Deposit and the U.S. Government Securities purchased with
the Defeasance Deposit in accordance with the provisions of this Section
2.3.2 (together, the "Defeasance Collateral").
---------------------
(vii) Borrower shall deliver to Lender a release for the
Mortgaged Property from the lien of the Mortgage (for execution by Lender)
in form appropriate for the jurisdiction in which the Mortgaged Property is
located.
(viii) Borrower shall deliver to Lender an opinion of counsel for
Borrower (which may be a customarily "reasoned" opinion in the case of
clauses (i) and (iii)) in form and substance satisfactory to Lender that
(i) the transfer of the Defeasance Collateral in exchange for the release
of the Mortgaged Property will not constitute an avoidable preference under
Section 547 of the United States Bankruptcy Code in the event of a filing
of a petition for relief under the United States Bankruptcy Code for or
against Borrower, (ii) the Defeasance Collateral has been duly and validly
transferred and assigned to (A) Lender, if a Securitization has not yet
occurred, or (B) the trustee for the benefit of the holders of the
securities, if a Securitization has occurred, (iii) (A) Lender holds a
first priority perfected security interest in the Defeasance Collateral, if
a Securitization has not yet occurred, or (B) the trustee holds a first
priority perfected security interest in the Defeasance Collateral for the
benefit of the holders of securities, if a Securitization has occurred, and
(iv) if a Securitization has occurred, (A) such transfer will not result in
a deemed exchange of the Certificates pursuant to Section 1001 of the Code,
(B) such transfer will not, by itself, adversely affect the status of the
Certificates as indebtedness for federal income tax purposes, and (C) such
transfer will not adversely affect the status of the entity holding the
Note as a REMIC (assuming for such purposes that such entity otherwise
qualifies as a REMIC and
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<PAGE>
that the Note was transferred to such REMIC not later that two years prior
to the Defeasance Date).
(ix) Borrower shall deliver to Lender an Officer's Certificate
certifying that the requirements set forth in this Section 2.3.2(a) have
been satisfied.
(x) Borrower shall deliver such other certificates, documents or
instruments as Lender may reasonably request.
(xi) Borrower shall pay all reasonable costs and expenses of
Lender incurred in connection with the Defeasance, including, if required
by the applicable Rating Agencies, reasonable legal expenses of Lender's
counsel incurred in connection with the delivery of a non-consolidation
opinion with respect to the Successor Borrower, if any, in form and
substance satisfactory (in light of such opinions then customarily
delivered) to the applicable Rating Agencies and any reasonable costs and
expenses associated with a release of the Mortgage or the lien of the other
Loan Documents as provided in Section 2.4 hereof and reasonable attorneys'
fees and expenses.
(xii) Borrower shall deliver to Lender a confirmation, in form
and substance reasonably satisfactory to Lender, by a "Big Six" independent
certified public accounting firm, that the Defeasance Deposit is sufficient
to pay all Scheduled Defeasance Payments in a timely manner as contemplated
in this Section 2.3.2.
(xiii) If the Securitization has occurred, Borrower shall deliver
to Lender a Rating Confirmation from the applicable Rating Agencies with
respect to the proposed Defeasance.
(b) In connection with the conditions set forth above in Section
2.3.2(a), Lender shall use the Defeasance Deposit in accordance with Borrower's
express instructions to purchase U.S. Government Securities which provide
payments on or prior to, but as close as possible to, all successive Payment
Dates after the Defeasance Date and in amounts equal to the Debt Service due on
such dates under the Note (the "Scheduled Defeasance Payments"), provided that
-----------------------------
for purposes of the foregoing, the principal portion of
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<PAGE>
the Scheduled Defeasance Payment on the Anticipated Repayment Date shall be
deemed to include the entire scheduled outstanding principal of the Loan as of
such Payment Date. Borrower, pursuant to the Security Agreement or other
appropriate document, shall irrevocably authorize and direct that the payments
received from the U.S. Government Securities shall be made directly to Lender
and applied to satisfy the obligations of Borrower under the Note. Any portion
of the Defeasance Deposit in excess of the amount necessary to purchase the U.S.
Government Securities required by this Section 2.3.2 and satisfy Borrower's
obligations under Section 2.3 shall be remitted to Borrower promptly following
the purchase of such U.S. Government Securities.
(c) Upon compliance with the requirements of this Section 2.3.2:
(i) the pledged U.S. Government Securities shall be the sole
source of collateral securing the Note and the provisions of Section 2.4
shall apply;
(ii) Lender shall designate a successor entity (the "Successor
---------
Borrower") to which Borrower shall transfer and assign all obligations,
--------
rights and duties under and to the Note and the pledged U.S. Government
Securities (and the obligation of the Lender named herein to designate a
Successor Borrower shall be retained by the Lender named herein
notwithstanding the sale or transfer of the Loan unless such obligation is
specifically assumed by a transferee of the Loan). The Successor Borrower
shall assume the obligations under the Note and the Security Agreement, and
Borrower shall be relieved of all of its obligations thereunder and
released from all of its obligations in respect of the Loan. Borrower
shall pay $1,000 to any such Successor Borrower as consideration for
assuming the obligations under the Note and the Security Agreement, and no
other assumption fee shall be payable to the Successor Borrower in
consideration for its assumption of the Note and the Security Agreement in
accordance with this Section 2.3.2(c). Borrower shall pay all reasonable
out-of-pocket costs and expenses of Lender, including Lender's reasonable
attorneys' fees and expenses, incurred in connection with the assignment of
the Loan to the Successor Borrower.
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<PAGE>
2.3.3 Repayment After Anticipated Repayment Date. From and after the
------------------------------------------
Anticipated Repayment Date, Borrower shall have the right, on not less than
thirty (30) days' notice, to prepay the Loan, in whole or in part, on any
Payment Date, without defeasance and without Yield Maintenance Payments or other
penalties or premiums (except no notice shall be required for principal
repayment under Section 2.2.1(c)).
2.3.4 Repayment Upon Default. If all or any part of the principal
----------------------
amount of the Loan is prepaid upon acceleration of the Loan following the
occurrence of an Event of Default at any time prior to the Anticipated Repayment
Date, Borrower shall be required to make such payments (the "Yield Maintenance
-----------------
Payments") in an amount equal to the excess, if any, of (i) the sum of (A) the
- --------
aggregate respective present values of all scheduled interest payments in
respect of the Loan (or the portion of all such interest payments corresponding
to the portion of the principal of the Loan to be prepaid upon acceleration) for
the period from the date of such prepayment upon acceleration to (and including)
the Anticipated Repayment Date, discounted monthly at a rate equal to the
Treasury Constant Yield and based on a 360-day year of twelve 30-day months and
(B) the aggregate respective present values of all scheduled principal payments
in respect of the Loan (or the then unpaid portion thereof to be prepaid upon
acceleration), assuming for these purposes that the entire outstanding scheduled
principal amount of the Loan as of the Anticipated Repayment Date were to be
paid in full on such Payment Date (rather than over the period ending on the
Stated Maturity Date), discounted monthly at a rate equal to the Treasury
Constant Yield and based on a 360-day year of twelve 30-day months over (ii) the
then current outstanding principal amount of the Loan (or the then unpaid
portion thereof to be prepaid upon acceleration). If the Yield Maintenance
Payments as calculated pursuant to this Section 2.3.4 would not be a positive
number, the Yield Maintenance Payments are zero. For purposes of this Section
2.3.4, the amount of the Loan on the date of prepayment shall be determined
after giving effect to any payment of principal scheduled to be made on such
date pursuant to the Note and actually made on such date. The determination of
the Yield Maintenance Premium by Lender shall be conclusive and binding on
Borrower in the absence of manifest error.
Section 2.4 Release of the Mortgaged Property. If Borrower has
---------------------------------
elected Defeasance, and the requirements of
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Section 2.3.2 have been satisfied, or if all of the Debt shall have been paid in
full in accordance with the terms of the Loan Documents, Lender shall promptly
release the Mortgaged Property from the Lien of the Mortgage and other Loan
Documents, and, where Borrower has effected a Defeasance, the U.S. Government
Securities pledged pursuant to the Security Agreement shall be the sole source
of collateral securing the Note.
In connection with the release of the Lien contemplated in this
Section 2.4, Borrower shall submit to Lender a release of Lien (and related Loan
Documents) for the Mortgaged Property (for execution by Lender) in a form
appropriate in the applicable state and otherwise satis factory to Lender in
its reasonable discretion.
Section 2.5 Payments and Computations.
-------------------------
2.5.1 Making of Payments. Each payment by Borrower hereunder or
------------------
under the Note shall be made in funds settled through the New York Clearing
House Interbank Payments System or other funds immediately available to Lender
by 11:00 a.m., New York City time, on the date such payment is due, to Lender by
deposit to such account as Lender may designate by written notice to Borrower.
When ever any payment hereunder or under the Note shall be stated to be due on
a day which is not a Business Day, such payment shall be made on the first
Business Day preceding such date.
2.5.2 Computations. Interest, with respect to each Payment Date,
------------
will be computed based on the actual number of days in the related Interest
Accrual Period and a 360-day year.
Section 2.6 Maximum Rate of Interest. This Agreement, the Note and
------------------------
each of the other Loan Documents are subject to the express condition that at no
time shall Borrower be obligated or required to pay interest on the principal
amount of the Note at a rate that could subject the holder of this Note to
either civil or criminal liability as a result of being in excess of the highest
lawful rate permitted under applicable usury law to be charged to Borrower (the
"Maximum Rate"). If by the terms of the Note, this Loan Agreement or any of the
------------
other Loan Documents, Borrower is at any time required or obligated to pay
interest on the principal amount due under the Note at a
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<PAGE>
rate in excess of such Maximum Rate, the rate of interest under the Note and the
other Loan Documents shall be deemed to be immediately reduced to such Maximum
Rate and the interest payable shall be computed at such Maximum Rate and all
prior interest payments in excess of such Maximum Rate shall be deemed to have
been the result of a mistake on the part of both Borrower and Lender, and Lender
shall promptly credit such excess (to the extent only of such interest payments
in excess of the Maximum Rate) against the unpaid principal amount of the Note
to which such excess may lawfully be credited, and any portion of such excess
payments not capable of being so credited shall be refunded to Borrower.
III. CONDITIONS PRECEDENT
--------------------
Section 3.1 Conditions Precedent to the Loan. The obligation of
--------------------------------
Lender to make the Loan is subject to the fulfillment by Borrower or waiver by
Lender of the following conditions precedent no later than the Closing Date:
(a) Representation and Warranties; Compliance with Conditions. The
----------------------------------------- ---------------
representations and warranties of Borrower contained in this Agreement or any
other Loan Document shall be true and correct in all material respects on and as
of the Closing Date with the same effect as if made on and as of such date, and
no Default or Event of Default shall have occurred and be continuing; and
Borrower shall be in compliance in all material respects with all terms and
conditions set forth in this Agreement and in each other Loan Document on its
part to be observed or performed.
(b) Loan Agreement and Note. Lender shall have received a copy of
-----------------------
this Agreement and the Note, in each case, duly executed and delivered on behalf
of Borrower.
(c) Delivery of Loan Documents; Title Insurance; Reports; Leases.
-------------------------------------------- ---------------
(i) Mortgage. Lender shall have received from Borrower a fully
--------
executed and acknowledged counterpart of the Mortgage and evidence that
such counterpart has been delivered to the title company for recording, in
the reasonable judgment of Lender, so as to effectively create upon such
recording a valid and enforceable Lien upon the Mortgaged Property, of
first lien priority, in favor of Lender (or a deed trustee if required or
desired under local law), subject only to
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<PAGE>
the Permitted Encumbrances and such other Liens as are permitted pursuant
to the Loan Documents. Lender shall have also received from Borrower fully
executed counterparts of the Environmental Indemnity, the other Loan
Documents and appropriate UCC-1 financing statements.
(ii) Title Insurance. Lender shall have received a Qualified
---------------
Title Policy and evidence that all premiums in respect thereof have been
paid.
(iii) Survey. Lender shall have received a Qualified Survey.
------
(iv) Insurance. Lender shall have received valid certificates
---------
of insurance evidencing the insurance coverages, amounts and other
requirements set forth in this Agreement, which name Lender as an
additional insured, satisfactory to Lender in its reasonable discretion,
and evidence of the payment of all premiums payable for the current policy
period.
(v) Environmental Reports. Lender shall have received an
---------------------
environmental report (or an update of an environmental report) in respect
of the Mortgaged Property that is satisfactory to Lender.
(vi) Zoning. Lender shall have received a zoning endorsement to
------
the Qualified Title Policy reasonably acceptable to Lender.
(vii) Encumbrances. Borrower shall have taken or caused to be
------------
taken such actions in such a manner so that Lender has a valid and
perfected Lien of the requisite priority as of the Closing Date with
respect to the Mortgage on the Mortgaged Property, subject only to the
Permitted Encumbrances and such other Liens as are permitted pursuant to
the Loan Documents, and Lender shall have received satisfactory evidence
thereof.
(viii) Engineering Reports. Lender shall have received an
-------------------
engineering report (or an update of an existing engineering report) in
respect of the Mortgaged Property satisfactory to Lender.
(ix) Ground Lease. Lender shall have received a true and
------------
complete copy of the Ground Lease.
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<PAGE>
(d) Intentionally Omitted.
---------------------
(e) Delivery of Organizational Documents and Qualifications. On or
---------------------------------------- --------------
before the Closing Date, Borrower shall deliver or cause to be delivered to
Lender copies certified by an officer of Borrower of all organizational
documentation related to Borrower and/or the formation, structure, existence,
good standing and/or qualification to do business as Lender may request in its
sole discretion, including good standing certificates, qualifications to do
business in the appropriate jurisdictions, resolutions authorizing the entering
into of the Loan and incumbency certificates as may be requested by Lender.
(f) Opinions of Borrower's Counsel. Lender shall have received legal
------------------------------
opinions of Borrower's counsel (which shall be a law firm or firms reasonably
satisfactory to Lender or, in the case of certain of the opinions described in
clause (ii) below, from the in-house counsel office of Host Marriott) (i) with
respect to the non-consolidation of each of Borrower and its member (as well as
such member (a limited liability company) and its sole member) in the event of
an insolvency proceeding being brought against, or the bankruptcy of such member
(or its member and certain affiliates); and (ii) with respect to due execution,
delivery, authority, enforceability of the Loan Documents and such other matters
as Lender may reasonably require, all such opinions in form, scope and substance
satisfactory to Lender and Lender's counsel in their sole discretion.
(g) Budgets. Borrower shall have delivered, and Lender shall have
-------
approved (to the extent Borrower may approve such Operating Budget under the
Management Agreement, the Operating Budget for the Mortgaged Property for the
balance of the current Fiscal Year and the preliminary Operating Budget for
Fiscal Year 1998, as well as the budget for administrative expenses of Borrower,
Mezzanine Borrower and DSMLP.
(h) Debt Service Reserve Account. The Debt Service Reserve Account
----------------------------
shall contain an amount not less than six months' Monthly Debt Service
Payments(disregarding for this purpose any such payments being made for a
portion of an Interest Accrual Period).
(i) Completion of Proceedings. All corporate and
-------------------------
other proceedings taken or to be taken in connection with the transactions
contemplated by this Agreement and other
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<PAGE>
Loan Documents and all documents incidental thereto shall be satisfactory in
form and substance to Lender, and Lender shall have received all such
counterpart originals or certified copies of such documents as Lender may
reasonably request.
(j) Intentionally Omitted.
---------------------
(k) Ground Lessor Estoppel. Lender shall have received an executed
----------------------
estoppel letter from the lessor of the Ground Leased Property, which shall be in
form and substance satisfactory to Lender.
(l) Cooperation Agreement. Lender shall have received the Cooperation
---------------------
Agreement, duly executed by Borrower, DSMLP, Host Marriott, Lender and GSMC.
(m) Appraisal. Lender shall have received an appraisal for the
---------
Mortgaged Property satisfactory to Lender evidencing that the Loan Amount is not
more than 49 percent of the value of the Mortgaged Property as of the date
hereof.
(n) Financial Statements. Borrower shall have provided Lender with
--------------------
audited financial statements of the prior owner of the Mortgaged Property for
the three Fiscal Years 1996, 1995 and 1994, certified by Arthur Andersen LLP or
another nationally recognized accounting firm acceptable to Lender. Borrower
shall also deliver to Lender an unaudited quarterly report for each completed
Accounting Quarter since January 1, 1997 through September 12, 1997, certified
to by an officer of Borrower.
(o) Reliance Letters. The Persons providing the reports and studies
----------------
described in Sections 3.1(c)(v), 3.1(c)(viii), and 3.1(m) shall have delivered
to Lender letters permitting Lender and other parties with interests in the Loan
to rely on the reports described in said sections and to publish the results of
such reports in offering materials in connection with the Securitization, such
letters to be in form and substance satisfactory to Lender.
(p) Seismic Information. Lender shall have received such information
-------------------
and reports regarding seismic conditions at the Property as it shall have
requested and shall find the same to be satisfactory in form and substance.
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(q) Photographs; Property Descriptions and Loan Descriptions. Lender
--------------------------------------------------------
shall have received photographs of the interior and exterior of the Mortgaged
Property, and Borrower shall have approved complete narrative descriptions of
the Mortgaged Property and its environs, and a summary of the Loan Documents, in
each case, in form and substance appropriate for inclusion in offering materials
for a Securitization and reasonably satisfactory to Lender.
(r) Assignment of Operating Lease; Termination of Operating Lease.
-------------------------------------------------------------
Lender shall have received documentation in recordable form evidencing the
assignments of the owner's interest under the operating lease previously
governing the operation of the Hotel from DSMLP to Mezzanine Borrower and from
Mezzanine Borrower to Borrower, executed by Manager, DSMLP, Mezzanine Borrower
and Borrower and documentation in recordable form evidencing the termination of
the operating lease previously governing the operation of the Hotel, executed by
Manager and Borrower.
(s) Management Agreement; Consent of Manager. Lender shall have
----------------------------------------
received from Borrower a true and correct copy of the Management Agreement, in
form and substance satisfactory to the Lender, together with the Consent of
Manager, executed by Manager and Borrower.
(t) Assignment of Ground Lease; Deeds. Lender shall have received
---------------------------------
documentation in recordable form evidencing the assignments of DSMLP's interest
under the Ground Lease from DSMLP to Mezzanine Borrower and from Mezzanine
Borrower to Borrower, executed by Ground Lessor, DSMLP, Mezzanine Borrower and
Borrower and deeds in recordable form evidencing the transfer of DSMLP's
interest in the Mortgaged Property (other than the Ground Leased Property) from
DSMLP to Mezzanine Borrower and from Mezzanine Borrower to Borrower.
IV. REPRESENTATIONS AND WARRANTIES
------------------------------
Section 4.1 Borrower Representations. Borrower hereby represents,
------------------------
warrants and covenants as to the matters set forth in SCHEDULE 4A and SCHEDULE
4B.
Section 4.2 Survival of Representations. Borrower agrees that all of
---------------------------
the representations and warran ties of Borrower set forth in SCHEDULE 4A and
SCHEDULE 4B and elsewhere in this Agreement and in the other Loan
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<PAGE>
Documents shall survive for so long as any portion of the Debt is outstanding
(it being acknowledged by Lender that such representations and warranties have
been made as of the Closing Date). All representations, warranties, covenants
and agreements made in this Agreement or in the other Loan Documents by Borrower
shall be deemed to have been relied upon by Lender notwithstanding any
investigation heretofore or hereafter made by Lender or on its behalf.
V. AFFIRMATIVE COVENANTS
---------------------
Section 5.1 Borrower Covenants. Borrower hereby covenants and
------------------
agrees with Lender that:
(a) Existence; Compliance with Legal Requirements; Insurance.
--------------------------------------------------------
Borrower shall do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its existence. Borrower shall comply in all
material respects with all Legal Requirements applicable to it and the Mortgaged
Property. Borrower shall at all times maintain and preserve the Mortgaged
Property and shall keep the Mortgaged Property in first-class, good working
order and repair, reasonable wear and tear excepted, and from time to time make,
or cause to be made, all reasonably necessary repairs, renewals, replacements,
betterments and improvements thereto. Borrower will operate, maintain, repair
and improve the Mortgaged Property in compliance in all material respects with
all Legal Requirements, and will not commit or permit waste.
(b) Taxes and Other Charges; Contest for Taxes and Other Charges,
-------------------------------------------------------------
Legal Requirements and Liens.
- ----------------------------
(i) Subject to the provisions of Section 5.1(b)(ii), Borrower
shall pay all Taxes and Other Charges now or hereafter levied or assessed
or imposed against the Mortgaged Property or any part thereof prior to
delinquency thereof. Borrower will deliver to Lender, upon request,
receipts for payment or other evidence reasonably satisfactory to Lender
that the Taxes and Other Charges have been so paid (provided, however,
-------- -------
Borrower is not required to furnish such receipts for payment of Taxes in
the event that such Taxes have been paid by Lender pursuant to Section
4.3(A), 4.4(A), 7.9.1(A) of the Cash Management Procedures). Borrower
shall not suffer and shall promptly cause to be paid and discharged (or
bonded)
-45-
<PAGE>
any lien or charge whatsoever which may be or become a lien or charge
against the Mortgaged Property, and shall promptly pay for all utility
services provided to the Mortgaged Property. Subject to Section 5.1(b)(ii),
Borrower shall pay, bond or otherwise discharge, from time to time when the
same shall become due, all claims and demands of mechanics, materialmen,
laborers and others that, if unpaid, might result in, or permit the
creation of, a lien or encumbrance on the Mortgaged Property (as defined in
the Mortgage), or on the Rents or Gross Revenues arising therefrom.
(ii) After prior written notice to Lender, Borrower, at its own
expense, may contest by appropriate legal, administrative or other
proceeding, timely initiated and conducted in good faith and with due
diligence, the amount or validity or application in whole or in part of any
Taxes or Other Charges or Lien therefor or any Legal Requirement or
Insurance Requirement or the application of any instrument of record
affecting the Mortgaged Property or any part thereof (other than the Loan
Documents) or any claims or judgments of mechanics, materialmen, suppliers,
vendors or other Persons or any Lien therefor, and may withhold payment of
the same pending such proceedings if permitted by law; provided that (A) no
Event of Default has occurred and remains uncured, (B) such proceeding
shall suspend any collection of the contested Taxes, Other Charges or Liens
from the Mortgaged Property, Borrower or Lender, or adequate time shall at
all times remain prior to such collection, (C) such proceeding shall be
permitted under and be conducted in accordance with the provisions of any
other instrument to which Borrower is subject and shall not constitute a
default thereunder, (D) neither the Mortgaged Property nor any part thereof
or interest therein will be in imminent danger of being sold, forfeited,
terminated, canceled or lost, (E) Borrower shall have furnished Lender with
security (which may include amounts contained in the Tax and Insurance
Reserve Account and FF&E Reserve Account to the extent the amounts therein
have been specifically earmarked for the matter in question), (in an amount
reasonably satisfactory to Lender), to insure the payment of any such Taxes
or Other Charges, or the cost of compliance with the contested Legal
Requirement or Insurance Requirement or the cost of the removal of the
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<PAGE>
Lien, in each case together with all reasonably anticipated interest and
penalties thereon, provided no such security shall be required to the
extent that the amount that would otherwise be required to be escrowed
under this clause (E) shall be less than $1,000,000 in the aggregate, (F)
in the case of an Insurance Requirement, the failure of Borrower to comply
therewith shall not impair the validity of any insurance required to be
maintained by Borrower hereunder or the right to full payment of any claims
thereunder, (G) in the case of any essential or significant service with
respect to the Mortgaged Property, any contest or failure to pay will not
result in a discontinuance of any such service, unless the services will be
provided by a comparable service provider, (H) in the case of any
instrument of record affecting the Mortgaged Property or any part thereof,
the contest or failure to perform under any such instrument shall not
result in the placing of any Lien on the Mortgaged Property or any part
thereof (except if such Lien would be removed upon completion of such
proceedings and the compliance by the parties with the terms of the
resulting order, decision or determination and the removal costs for such
Lien have been escrowed with Lender or in the proceeding), (I) except to
the extent Borrower has provided sufficient Eligible Collateral therefor in
accordance with clause (E) in this Section 5.1(b)(ii), neither the failure
to pay or perform any obligation which Borrower is permitted to contest
under this Section nor an adverse determination of any such contest shall
result in a Material Adverse Effect, and (J) Borrower shall promptly upon
final determination thereof pay the amount of any such Taxes, Other Charges
or Liens, together with all costs, interest and penalties which may be
payable in connection therewith. Lender may pay over any such cash deposit
or part thereof held by Lender to the claimant entitled thereto at any time
when the entitlement of such claimant is finally established judicially or
by settlement, and Lender shall otherwise remit any such amounts to
Borrower. Subject to the foregoing, at Borrower's timely request, Lender
shall not pay from the Tax and Insurance Reserve Account, if such Tax and
Insurance Reserve Account has been established, the contested Taxes or
Other Charges being contested.
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<PAGE>
(c) Litigation. Borrower shall give prompt written notice to Lender
----------
of any litigation or governmental proceedings pending or threatened in writing
against Borrower or against or affecting the Mortgaged Property which, if
determined adversely to Borrower or the Mortgaged Property, would reasonably be
expected to have a Material Adverse Effect.
(d) Inspection. Borrower shall permit agents, representatives and
----------
employees of Lender (including Servicer and Special Servicer) to inspect the
Mortgaged Property on any Business Day at reasonable hours upon reasonable
advance notice.
(e) Perform Loan Documents. Borrower shall observe, perform and
----------------------
satisfy all the terms, provisions, covenants and conditions of, and shall pay
when due all costs, fees and expenses to the extent required under the Loan
Documents.
(f) Insurance Benefits. Borrower shall cooperate with Lender in
------------------
obtaining for Lender the benefits of any insurance proceeds payable in
connection with the Mortgaged Property, and Lender shall be reimbursed for any
reasonable out-of-pocket expenses reasonably incurred in connection therewith
(including reasonable attorneys' fees and disbursements, and, if reasonably
necessary to collect such proceeds, the expense of an appraisal on behalf of
Lender in case of a fire or other casualty affecting the Mortgaged Property or
any part thereof) out of such insurance proceeds.
(g) Further Assurances; Lender Costs. Borrower shall, at Borrower's
--------------------------------
sole cost and expense:
(i) execute and deliver to Lender such documents, instruments,
certificates, assignments and other writings, and do such other acts
necessary or desirable, to evidence, preserve and/or protect the Lien of
the Lender at any time securing or intended pursuant to the provisions
hereof to secure the obligations of Borrower under the Loan Documents, as
Lender may reasonably require;
(ii) be responsible for, and shall pay on demand, all reasonable
third-party costs and expenses incurred by Lender in connection with the
origination of the Loan, including reasonable fees and costs for
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<PAGE>
income and expense audits, travel, environmental and engineering
consultants and reports, and appraisals, reasonable attorney's fees and
expenses in documenting and negotiating the Loan and performing due
diligence, other reasonable out-of-pocket expenses relating to credit and
collateral evaluations, recording and filing fees (collectively, "Lender
------
Origination Expenses"); and
--------------------
(iii) do and execute all and such further lawful and reasonable
acts, conveyances and assurances for the better and more effective carrying
out of the expressed intents and purposes of this Agreement and the other
Loan Documents, as Lender shall reasonably require from time to time.
(h) Reserved.
(i) Reserved.
(j) Financial Reporting and Other Information.
-----------------------------------------
(i) Generally. Borrower will keep and maintain or will cause to
be kept and maintained on a Fiscal Year basis, in accordance with GAAP,
proper and accurate books, records and accounts reflecting all of the
financial affairs of Borrower. Lender shall have the right from time to
time at all times during normal business hours upon reasonable prior
written notice to examine such books, records and accounts at the office of
Borrower or other Person maintaining such books, records and accounts and
to make such copies or extracts thereof as Lender shall desire. Provided
no Event of Default is then continuing, Lender shall pay its own expenses
in connection with such examination; if an Event of Default shall then be
continuing, Borrower shall pay any reasonable out-of-pocket costs and
expenses incurred by Lender in any such examination and copying (or
extraction).
(ii) Annual Reports. Borrower will furnish to Lender within
eighty-five (85) days following the end of each Fiscal Year of Borrower, a
complete copy of Borrower's annual financial statements, audited by Arthur
Andersen LLP. or another nationally recognized accounting firm reasonably
satisfactory to Lender, in accordance with GAAP, covering the Mortgaged
Property, for such Fiscal Year and containing balance sheets for
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<PAGE>
Borrower and statements of profit and loss for Borrower and the Mortgaged
Property in such detail as Lender may reasonably request. Such statements
shall set forth the financial condition and the income and expenses for the
Mortgaged Property for the immediately preceding calendar year, including
(in the footnote to such statement or elsewhere) statements of annual
Operating Profit. Borrower's annual financial statements shall be
accompanied by a Officer's Certificate certifying that such annual
financial statement presents fairly the financial condition of the
Mortgaged Property and has been prepared in accordance with GAAP. Together
with Borrower's annual financial statements, Borrower shall furnish to
Lender an Officer's Certificate certifying as of the date thereof whether,
to Borrower's knowledge, there exists a Default or Event of Default, and if
such Default or Event of Default exists, the nature thereof, the period of
time it has existed and the action then being taken to remedy the same.
(iii) Periodic Reports. Borrower will furnish, or cause to be
furnished, to Lender on or before the twenty-seventh (27th) day after the
end of each Accounting Period, unaudited financial statements substantially
in the form of Exhibit F attached hereto (Format 90 and Rent Letter)
covering such Accounting Period and the annual period to date, accompanied
by an Officer's Certificate, certifying that such items are true, correct,
accurate, and complete and fairly present the financial condition and
results of the operations of Borrower and the Mortgaged Property. Such
statements shall show in detail, among other things:
(A) a breakdown of sales revenues and operating expenses and the
calculation of house profit, average daily room and average occupancy
rates, each of the foregoing with a comparison to budget and prior
year;
(B) an unaudited profit and loss statement and escrow analysis;
and
(C) unaudited periodic and year-to-date reports detailing the
calculation of Operating Profit.
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<PAGE>
(iv) Accounting Quarter Reports. Borrower will furnish, or cause
to be furnished, to Lender on or before the thirty-fifth (35th) day after
the end of each Accounting Quarter, drafts of the following items, and on
or before the forty-third (43rd) day after the end of each Accounting
Quarter, the final version of the following items, accompanied by an
Officer's Certificate, certifying that such items are true, correct,
accurate and complete and fairly present the financial condition and
results of the operations of Borrower and the Mortgaged Property in a
manner consistent with GAAP (subject to normal year-end adjustments) as
applicable:
(A) quarterly and year-to-date unaudited financial statements
(including, without limitation, Borrower's balance sheets, income
statements, statements of cash flows and such other financial
information as was provided by Borrower's predecessor in interest to
its limited partners.
(v) Supplemental Information. Borrower shall furnish to Lender
within ten (10) Business Days after request, such further detailed
information with respect to the operation of the Mortgaged Property and the
financial affairs of Borrower as may be reasonably requested by Lender
(including any of the foregoing requesting by a Rating Agency), provided
the same may be provided without material expense or material burden to
Borrower.
(vi) Governmental Notices. Borrower shall furnish to Lender,
promptly after receipt, a copy of any material notice received by or on
behalf of Borrower from any Governmental Authority having jurisdiction of
the Mortgaged Property with respect to an adverse condition existing or
alleged to exist or emanate therefrom or thereat.
(vii) Auditor's Consent. In connection with Lender's disclosure
requirements under the Securities Act in connection with a Securitization,
Borrower will, from time to time, within a reasonable time after written
request by Lender, and at Lender's expense (to the extent there are any
incremental costs actually charged in connection with such consent letter),
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<PAGE>
provide a consent letter of Arthur Andersen LLP or another nationally
recognized accounting firm satisfactory to Lender which audits Borrower's
annual financial statement, consenting to the filing of such auditor's
report as part of the registration statement filed in connection with a
Securitization and/or as part of Lender's periodic reporting under the
Securities Exchange Act of 1934, as amended.
(viii) Manager's Reports. Borrower shall furnish to Lender
copies of all rent letters, Format 90s and other periodic reports received
from the Manager relating to the Mortgaged Property promptly upon receipt
thereof.
(ix) 144A Reporting. Borrower will, at any and all times,
within a reasonable time after written request by Lender, furnish or cause
to be furnished to Lender, in such manner and in such detail as may be
reasonably requested by Lender, such information as may be necessary to
permit Lender to comply with any request for information made by an
investor or prospective investor in the Certificates and to be furnished
under Rule 144A(d) under the Securities Act of 1933, as amended (the
"Securities Act")
---------------
(x) Failure to Report. If Borrower fails to provide to Lender
or its designee any of the financial statements, certificates, reports or
information (the "Required Records") required by this Section 5.1(j) within
----------------
thirty (30) days after the date upon which such Required Record is due, the
same shall be an Event of Default; provided that Lender shall have given to
--------
Borrower at least ten (10) days' prior written notice of such failure by
Borrower to timely submit the applicable Required Record.
(k) Business and Operations. Borrower will qualify to do business and
-----------------------
will remain in good standing under the laws of each jurisdiction as and to the
extent the same are required for the ownership, maintenance, management and
operation of the Mortgaged Property.
(l) Title to the Mortgaged Property. Borrower will warrant and defend
-------------------------------
against the claims of all Persons whomsoever (i) the title to the Mortgaged
Property and every part thereof and (ii) the validity and priority of the Lien
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<PAGE>
of the Mortgage, subject only in each case to Liens permitted under the Loan
Documents (including Permitted Encumbrances).
(m) Costs of Enforcement. In the event (i) that the Mortgage is
--------------------
foreclosed in whole or in part or the Note, any Loan Document, including the
Mortgage, is put into the hands of an attorney for collection, suit, action or
foreclosure, (ii) of the foreclosure of any Lien or mortgage prior to or
subsequent to the Mortgage in which proceeding Lender is made a party, (iii) of
the bankruptcy, insolvency, rehabilitation or other similar proceeding in
respect of Borrower or an assignment by Borrower for the benefit of its
creditors, or (iv) Lender shall attempt to remedy any Event of Default
hereunder, Borrower, its successors or assigns, shall be chargeable with and
agrees to pay all reasonable costs incurred by Lender as a result thereof,
including reasonable costs of collection and defense, including reasonable
attorneys' fees (and experts', consultants' and witnesses' fees) in connection
therewith and in connection with any appellate proceeding or post-judgment
action involved therein, which shall be due and payable together with all
required service or use taxes.
(n) Estoppel Statement. After written request by Lender, Borrower
------------------
shall within twenty (20) days furnish Lender with a statement, duly acknowledged
and certified, setting forth (A) the unpaid principal amount of the Note, (B)
the applicable Interest Rate, (C) the date installments of interest and/or
principal were last paid, (D) any offsets or defenses to the payment of the
Debt, (E) that the Note, this Agreement, the Mortgage and the other Loan
Documents are in full force and effect and have not been modified or if
modified, are in full force and effect as so modified and giving particulars of
such modification, and (F) such other matters as Lender may reasonably request.
Any prospective purchaser or assignee of any interest in the Loan shall be
permitted to rely on such certificate.
(o) Loan Proceeds. Borrower shall use the proceeds of the Loan
-------------
received by it on the Closing Date only for the purposes set forth in Section
2.1.4.
(p) Reserved.
(q) Operating Budget. Borrower shall furnish to the Lender on or
----------------
before January 20 of each year commencing
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<PAGE>
on January 20, 1998, an annual plan (the "Annual Plan") for such year for the
-----------
Mortgaged Property which Annual Plan shall include a detailed operating budget
(an "Operating Budget") and a detailed capital expenditure budget (a "Capital
---------------- -------
Budget"), reflecting Manager's best good faith estimate of its anticipated
- ------
results of operations, including revenues from all sources, all operating
expenses, management fees, Management Expenses, and capital and FF&E
Expenditures. The Annual Plan shall contain provisions for deposit into the FF&E
Reserve Account of an aggregate amount equal to at least 5.5% of projected Gross
Revenues for each year, the specific percentage to be determined by the
requirements for such purpose of the Management Agreement; provided, however,
that for the remainder of Fiscal Year 1997, the Annual Plan shall contain
provisions for deposit into the FF&E Reserve Account of an aggregate amount
equal to at least 4.5% of projected Gross Revenues for the remainder of Fiscal
Year 1997.
In addition to the foregoing, Borrower shall submit to Lender, for
Lender's approval (which approval shall not be unreasonably withheld or
delayed), a proposed annual budget of administrative expenses (which may include
reasonable allocations of internal costs of Borrower's affiliates) of Borrower,
Mezzanine Borrower and DSMLP. Such budget shall be approved or disapproved by
Lender within ten (10) Business Days after Borrower's submission thereof. Upon
approval of such budget, the disbursements to be made on each Payment Date under
the Cash Management Procedures in respect of such administrative expenses for
each of Borrower, Mezzanine Borrower and DSMLP shall equal one-twelfth (1/12th)
of the approved amount for each such Person.
(r) No Joint Assessment. Borrower shall not suffer, permit or
-------------------
initiate the joint assessment of the Mortgaged Property (i) with any other real
property constituting a tax lot separate from the Mortgaged Property, and (ii)
unless required by applicable law, with any portion of the Mortgaged Property
which may be deemed to constitute personal property, or any other procedure
whereby the lien of any taxes which may be levied against such personal property
shall be assessed or levied or charged to the Mortgaged Property.
(s) Leasing Matters. In addition and subject to the terms of Section
---------------
7.2:
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<PAGE>
(i) Borrower shall furnish Lender with an executed copy of each
Lease within thirty (30) days after execution thereof.
(ii) All Leases entered into from and after the date hereof
shall be the result of arms'-length negotiations, shall provide for
commercially reasonable rental rates and other terms and shall not contain
any terms which would materially adversely affect Lender's rights under the
Loan Documents.
(iii) All Leases shall provide that they are or as a matter of
law, shall be, subordinate to the Mortgage.
(iv) Borrower shall observe and perform in all material respects
the obligations imposed upon the lessor under the Leases in a commercially
reasonably manner.
(v) Borrower shall not enter into any lease in excess of 10,000
rentable square feet or, and at no one time shall there be under lease more
than 30,000 rentable square feet, without in each case Lender's prior
written consent (which consent shall not be unreasonably withheld,
conditioned or delayed).
(t) Reserved.
(u) Material Agreements. Subject to any express provisions hereof to
-------------------
the contrary, Borrower shall:
(i) timely perform and/or observe all of the material covenants
and agreements required to be performed and observed by it under any
Material Agreement, and do all things necessary to preserve and to keep
unimpaired its material rights thereunder;
(ii) promptly notify Lender of the giving of any notice of any
material default by any party under any Material Agreement of which it is
aware or, with respect to the Management Agreement, the giving of any
notice by Manager altering in any material respect the rules, standards and
requirements of the Manager; and
(iii) promptly enforce the performance and observance of all of
the material covenants and
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<PAGE>
agreements required to be performed and/or observed by the other party
under the Management Agreement and each other Material Agreement.
(v) Budget Approvals. Borrower shall, (i) if Borrower has the right
----------------
under the Management Agreement to approve any aspect of each Operating Budget or
the FF&E Estimate (as such terms are defined in the Management Agreement) or any
other budget, submit each of the foregoing to Lender for its approval; and (ii)
submit to the Lender for its approval the Building Estimate (as such term is
defined in the Management Agreement); provided that the Lender's review and
approval of each of the foregoing shall not be unreasonably withheld or delayed,
and Lender shall issue its approval or disapproval within ten (10) Business Days
after Lender's receipt thereof.
(w) Reserved.
(x) Payment of Operating Expenses, etc. Borrower shall pay or cause
----------------------------------
to be paid all operating expenses and all other costs and expenses associated
with the operation and maintenance of the Mortgaged Property in accordance with
the provisions of the Management Agreement.
(y) Completion of Work. Borrower shall diligently perform, and
------------------
complete on or before the dates specified on Schedule 2 and 3, the items of work
specified in said Schedule.
(z) Standard for Hotel. Borrower shall perform such work that shall
------------------
be necessary to maintain standards at least as high as those standards that
apply generally to first class full service resort hotels, in compliance with
the Marriott standards and the Management Agreement.
(aa) Hotel Open for Business. Borrower shall operate (or cause the
-----------------------
Manager to operate) the Mortgaged Property as a hotel open for business under
the Management Agreement.
(ab) Accounts Statement. Borrower shall, promptly upon Lender's
------------------
written request, from time to time, deliver to the Lender a statement setting
forth all of the accounts Borrower or the Manager maintains with respect to the
Hotel and the Mortgaged Property, the purposes of such accounts and the balances
thereof.
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<PAGE>
(ac) Reserved.
(ad) Liquor Licenses; Permits. Borrower shall maintain or cause to be
------------------------
maintained each of the liquor licenses and all other Permits in connection with
the Hotel in full force and effect (and replace any thereof that may be canceled
or otherwise lapsed), and observe and perform or cause to be observed and
performed all of Borrower's obligations thereunder.
(ae) Payment of Trade Payables. Borrower shall pay (or ensure that
-------------------------
the Manager pays) all Trade Payables within 60 days of the date incurred except
for such trade indebtedness that is subject to a bona fide dispute.
VI. NEGATIVE COVENANTS
------------------
Section 6.1 Borrower's Negative Covenants. Borrower covenants and
-----------------------------
agrees with Lender that it will not do, directly or indirectly, any of the
following:
(a) Operation of Mortgaged Property; Material Agreements.
----------------------------------------------------
(i) Material Agreements. Borrower shall not, without Lender's prior
consent (except as elsewhere herein expressly provided): (1) surrender or
terminate any Material Agreement other than the Management Agreement (which is
covered in Section 6.1(a)(iii) hereof), unless the other party thereto is in
material default and the termination of such agreement would be commercially
reasonable, (2) increase or consent to the increase in any material respect of
the amount of any charges payable by Borrower under any Material Agreement,
except as currently expressly provided therein; (3) reduce or consent to the
reduction of any amounts payable by the other party to the Material Agreement,
except as currently expressly provided therein; or (4) otherwise modify, change,
supplement, alter or amend, or waive or release any of its rights and remedies
under any Material Agreement in any manner which would have a Material Adverse
Effect.
(ii) Event of Default. Upon the occurrence and during the
continuance of an Event of Default, Borrower shall not terminate, surrender,
amend or modify, or make any election, exercise any voting or approval powers or
grant
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<PAGE>
any waivers with respect to, any Material Agreement, without in each case the
prior written consent of Lender.
(iii) Management Agreement. Borrower shall not, without Lender's
prior written consent, (1) cancel, release, terminate or surrender the
Management Agreement or permit any cancellation, release, termination or
surrender thereof, (2) amend, modify or alter the terms of the Management
Agreement in any material respect or (3) permit or suffer any significant
delegation or contracting of the Manager's duties; provided, however, that
Borrower may cancel, release, terminate, surrender, amend, modify or alter the
Management Agreement in connection with the replacement of the Manager if,
before the date on which the Manager ceases to be the Manager of the Hotel, it
causes the Hotel to come under management by an Acceptable Manager pursuant to a
management agreement in form and substance reasonably satisfactory to Lender,
with terms as favorable to Borrower as the Management Agreement in effect on the
date hereof, and as to which Borrower has received a Rating Confirmation from
the applicable Rating Agencies.
(b) Liens. Subject to Section 5.1(b)(ii), Borrower shall not, without
-----
the prior written consent of Lender, create, incur, assume, permit or suffer to
exist any Lien on any portion of the Mortgaged Property or Borrower or any
interest therein, except (i) Permitted Encumbrances, (ii) Liens created by or
expressly permitted pursuant to the Loan Documents, (iii) Liens for Taxes or
Other Charges not yet delinquent, (iv) Liens securing the Mezzanine Debt
pursuant to the Mezzanine Loan Documents, and (v) Liens created under non-
capital equipment leases described in clause (b) of the paragraph captioned
"Permitted Indebtedness" which relates to the equipment described therein.
(c) Dissolution. Except as permitted in Schedule 6.3, Borrower shall
-----------
not dissolve, terminate, liquidate, merge with or consolidate into another
Person.
(d) Change in Business. Borrower shall not enter into any line of
------------------
business other than the ownership, maintenance, financing, refinancing and
operation of the Mortgaged Property (subject to the terms hereof), or make any
material change in the scope or nature of its business objectives or purposes,
or undertake or participate in
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<PAGE>
activities other than the continuance of its present business.
(e) Debt Cancellation. Borrower shall not cancel or otherwise forgive
-----------------
or release any material claim or debt owed to Borrower by any Person except for
adequate consideration in the ordinary course of Borrower's business and on
commercially reasonable terms, subject to other restrictions contained herein or
in any other Loan Document.
(f) Affiliate Transactions. Borrower shall not enter into, or be a
----------------------
party to, any transaction with an Affiliate of Borrower except (i) other than in
respect of the Leases, in the ordinary course of business and (ii) in all cases,
on market terms no less favorable to Borrower or such Affiliate than would be
obtained in a comparable arms'-length transaction with an unrelated third party.
(g) Zoning and Uses. Borrower shall not (i) initiate or support any
---------------
limiting change in the permitted uses of the Mortgaged Property (or to the
extent applicable, zoning reclassification of the Mortgaged Property) or any
portion thereof, seek any variance under existing land use restrictions, laws,
rules or regulations (or, to the extent applicable, zoning ordinances)
applicable to the Mortgaged Property or use or permit the use of the Mortgaged
Property in a manner that would result in such use becoming a non-conforming use
under applicable land-use restrictions (and, if any, zoning ordinances) or that
would violate the terms of the Ground Lease, the Management Agreement, Insurance
Requirement, Legal Requirement, Permitted Encumbrance or other agreement binding
on Borrower or the Mortgaged Property, (ii) modify, amend or supplement any of
the terms of the Ground Lease or any other Permitted Encumbrance in a manner
adverse in any material respect to the interests of Borrower or Lender, (iii)
impose or permit or suffer the imposition of any restrictive covenants,
easements or encumbrances upon the Mortgaged Property in any manner that
adversely affects in any material respect the value or utility of the Mortgaged
Property, (iv) execute or file any subdivision plat affecting the Mortgaged
Property, institute, or permit the institution of, proceedings to alter any tax
lot comprising the Mortgaged Property, or (v) permit or suffer the Mortgaged
Property to be used by the public or any Person in such manner as might make
possible a claim of adverse usage or possession or of any implied dedication or
easement.
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(h) Debt. Borrower shall not create, incur or assume any debt
----
(secured or unsecured) other than the Debt and Permitted Indebtedness. Borrower
shall, however, be permitted to have indebtedness in the form of Trade Payables
not more than sixty (60) days outstanding, in an amount appropriate for
properties such as the Mortgaged Property and reflective of the level at which
Trade Payables have been historically carried for the Mortgaged Property.
(i) Reserved.
--------
(j) Transfers.
---------
(i) General Limitation. Unless such action is permitted by the
------------------
subsequent provisions of this Section 6.1(j) or any other express provision
hereof, Borrower will not, without Lender's consent (which shall not be
unreasonably withheld or delayed) and a Rating Confirmation with respect to
the transfer or other matter in question, (A) sell, assign, convey,
transfer or otherwise dispose of or encumber legal, beneficial or equitable
interests in all or any part of the Mortgaged Property, (B) permit or
suffer any owner, directly or indirectly, of a beneficial interest in the
Mortgaged Property to transfer such interest, whether by transfer of stock
or other beneficial interest in any entity or otherwise, (C) mortgage,
hypothecate or otherwise encumber or grant a security interest in all or
any part of the Mortgaged Property or (D) file a declaration of condominium
with respect to the Mortgaged Property; provided, however, that transfers
of limited partnership interests in DSMLP in accordance with the provisions
of the partnership agreement of DSMLP shall not be prohibited by clause (B)
of this Section 6.1(j)(i).
(ii) Sale of the Mortgaged Property. Except as may be set forth
------------------------------
in the last sentence of this clause (ii) or elsewhere in this Section 6.1,
Borrower may only sell, assign, convey, transfer or otherwise dispose of
legal or equitable title to or any interest in the Mortgaged Property from
time to time and at any time if:
(A) after giving effect to the proposed
transaction:
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(1) the Mortgaged Property will be owned by a Special
Purpose Entity which will be in compliance with the representations,
warranties and covenants contained in SCHEDULE 4B hereof (as if
Borrower shall have remade all of such representations, warranties and
covenants as of, and after giving effect to, the proposed
transaction), and which shall have assumed (subject to the terms of
Section 13.24 hereof) and agreed in writing to comply with all the
terms, covenants and conditions set forth in this Agreement and the
other Loan Documents,
(2) Borrower will be owned and controlled by a
Permitted Owner,
(3) an Acceptable Manager shall act as Manager, and
(4) no Event of Default shall have occurred and be
continuing, and
(B) prior to any such transaction, the proposed transferee shall
deliver to Lender an Officer's Certificate stating that either (x) such
transferee is an employee pension plan or other retirement arrangement or
account ("Employee Benefit Plan") that is subject to Title I of ERISA or is
---------------------
a "Plan" within the meaning of Section 4975 of the Code, and the
obligations under this Agreement are not, and the exercise of rights under
this Agreement will not, constitute a nonexempt prohibited transaction; or
(y) the transferee is a "governmental plan" (as defined in section 3(32) of
ERISA), and the obligations under this Agreement, and the exercise of
rights under this Agreement, do not and will not violate any applicable
state statutes regulating investments by or fiduciary obligations with
respect to governmental plans; or (z) the proposed transferee is neither an
Employee Benefit Plan nor a "governmental plan" or a "Plan" within the
meaning of Section 4975 of the Code, and (i) such proposed transferee is
not subject to state statutes regulating investments by or fiduciary
obligations with respect to "governmental plans" and (ii) the underlying
assets of the proposed transferee do not, for purposes of ERISA, constitute
assets of the Employee Benefit
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<PAGE>
Plans holding an equity interest in such proposed transferee.
(iii) "Permitted Owners" means one or more of the following (the
----------------
figures used below in this Section 6.1(j)(iii)(B) and (C) are to be
calculated exclusive of the Mortgaged Property):
(A) a Person that is controlled by DSMLP where the sole general
partner of DSMLP is an entity wholly owned (directly or indirectly) and
controlled by Host Marriott, or
(B) an insurance company with total hotel assets of $500 million
or more, or
(C) a Person that is a pension fund, pension trust or pension
account, or investment vehicle established by such an entity, that has
total assets of $500 million or more, and that is managed by a Person that
controls at least $1 billion in hotel assets, or
(D) a Person in which one or more of the Persons, together with
their wholly-owned Affiliates, described in (1), (2) or (3) above,
collectively own and control (directly and indirectly) at least a 51%
interest, or
(E) any Person as to which Borrower shall have received a Rating
Confirmation.
(iv) Transfers of Interests in Borrower. Except for transfers of
----------------------------------
limited partners in DSMLP, who may transfer limited partnership interests
in DSMLP in accordance with the terms of the partnership agreement of
DSMLP, the holder of any direct or indirect interest in Borrower may
transfer such interest to any Person if after giving effect to such
transfer:
(A) Borrower will be a Special Purpose Entity in compliance
with the representations, warranties and covenants in SCHEDULE 4B
(as if Borrower shall have remade all of such representations,
warranties and covenants as of, and after giving effect to, the
transfer),
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(B) Borrower will either be a Permitted Owner or be owned,
and will be controlled (directly or indirectly), by a Permitted
Owner,
(C) if there has been a transfer of 25% or more of the
membership interests, stock or other direct equity ownership
interests in Borrower or a transfer or issuance of a membership
interest in Borrower, Borrower shall have first delivered to
Lender the Officer's Certificate and legal opinion described in
clause 6.1(j)(v) below, and
(D) if there has been a transfer of any interest in the
member of Borrower (or in DSMLP) where, as a result of any
transfer, any member or other Person shall own (directly or
indirectly) a 49 percent or more economic or controlling interest
in Borrower or a direct or indirect owner thereof, Borrower shall
have first delivered the Officer's Certificate and legal opinion
described in clause 6.1(j)(v) below.
(v) Notice Required. Not less than five (5) Business Days prior
---------------
to the closing of any transaction permitted under the provisions of this
Section 6.1(j), Borrower shall deliver or cause to be delivered to Lender
(A) an Officer's Certificate describing the proposed transaction and
stating that such transaction is permitted hereunder and under the other
Loan Documents, together with any documents upon which such Officer's
Certificate is based, and (B) a legal opinion of counsel to Borrower or the
transferee selected by either of them (unless reasonably disapproved by
Lender or the Rating Agencies), in form and substance consistent with
similar opinions then being required by the Rating Agencies, confirming,
among other things, that the assets and liabilities of Borrower, and of its
managing general partner or managing member, as applicable, will not be
substantively consolidated with the assets of such owners or controlling
Persons of Borrower or such managing member or general partner as Lender or
the Rating Agencies may reasonably specify (including any member or other
Person owning (directly or indirectly)
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<PAGE>
49 percent or more of Borrower), in the event of a bankruptcy or similar
proceeding involving such owners or controlling Persons (or such member or
other Person).
(vi) Sale of Equipment. Notwithstanding the above provisions of
-----------------
this Section 6.1(j), Borrower may transfer or dispose of Equipment that is
either being replaced or that is no longer necessary in connection with the
operation of the Mortgaged Property free from the interest of Lender under
this Agreement or any other Loan Document, provided such transfer or
--------
disposal (when compared to the non-transfer or non-disposal of such
Equipment) will not materially adversely affect the value of the Mortgaged
Property, will not materially impair the utility thereof and will not
violate any Material Agreement, Permitted Encumbrance or Legal Requirement
and will not result in a reduction or abatement of, or right of offset
against, the rentals or other amounts payable under any Lease as a result
thereof, provided that any new Equipment acquired by Borrower (and not so
--------
disposed of) shall be subject to the interest of Lender under this
Agreement and the other Loan Documents unless leased to Borrower (in which
event, Lender shall be made a collateral assignee of Borrower's interest in
such lease (but, unless expressly subsequently assumed by Lender, Lender
shall have no obligations under Borrower's interest therein)).
(vii) Pledges to Mezzanine Lender. Notwithstanding the foregoing
---------------------------
terms of this Section 6.1(j), the pledge of ownership interests by the
member of Borrower to the Mezzanine Lender, and any transfer upon or in
lieu of foreclosure in respect of such pledge, and any transfer by such
pledgee after either foreclosure or transfer in lieu of foreclosure, shall
not be a default hereunder, provided such pledgee or transferee, as
applicable, shall have complied with the terms of the Mezzanine Loan
Transfer Agreement.
(k) Nonexempt ERISA Transactions. Borrower shall not engage in a
----------------------------
nonexempt prohibited transaction described in Section 406 of ERISA or Section
4975 of the Code, as such sections relate to Borrower, or in any transaction
that would cause any obligation or action taken or to be taken hereunder (or the
exercise by Lender of any of its rights
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<PAGE>
under the Note, this Agreement, the Mortgage or any other Loan Document) to be a
non-exempt prohibited transaction under ERISA.
(l) No Distributions. Except in accordance with the Cash Management
----------------
Procedures, Borrower shall not, without the prior written consent of the Lender,
make any distributions of cash to its members.
VII. ALTERATIONS; LEASING.
--------------------
Section 7.1 Alterations. Borrower will not make or permit any
-----------
demolition, alteration, installation, improvement, expansion or reduction of or
to the Mortgaged Property or any part thereof, (each, an "Alteration") except in
----------
accordance with the following terms and conditions:
(a) The Alteration shall be undertaken in accordance with the
applicable provisions of this Agreement, the other Loan Documents, the Material
Agreements and all Legal Requirements.
(b) No Event of Default shall have occurred and be continuing or shall
occur as a result of such action.
(c) The Alteration will not, either during the Alteration or upon
completion, result in a Material Adverse Effect.
(d) Lender's approval (not to be unreasonably withheld) shall be
required for any Material Alteration.
(e) A Material Alteration shall be conducted under the supervision of
an Independent Architect or Engineer and shall not be undertaken until ten (10)
Business Days after there shall have been filed with Lender, detailed plans and
specifications and cost estimates therefor, prepared and approved in writing by
such Independent Architect or Engineer. Such plans and specifications may be
revised at any time and from time to time, provided that material revisions of
such plans and specifications shall be filed with Lender.
(f) Reserved.
(g) All work done in connection with any Alteration shall be performed
with due diligence in a good
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and workman-like manner, all materials used in connection with any Alteration
shall be not less than the standard of quality of the materials generally used
at the Mortgaged Property as of the date hereof (or, if greater, the then-
current customary quality for full-service resort hotels) and all work shall be
performed and all materials used in accordance with all applicable Legal
Requirements and Insurance Requirements.
(h) With respect to a Material Alteration, no payment made prior to
the Final Completion of a Material Alteration to any contractor, subcontractor,
materialman, supplier, engineer, architect, project manager or other Person who
renders services or furnishes materials in connection with such Material
Alteration shall exceed ninety five percent (95%) of the value of the work
performed from time to time and materials furnished and incorporated into the
Improvements.
(i) Reserved.
(j) For any Material Alteration (other than tenant improvements),
Borrower shall be obligated to either (x) deliver to Lender Eligible Collateral
to be held in escrow in the amount of such Material Alteration, which Eligible
Collateral shall be held by Lender as security for the Debt and released to
Borrower as such work progresses in accordance with Section 7.1(k) or (y)
establish to Lender's reasonable satisfaction that there will be sufficient
funds maintained in the FF&E Reserve Account or the Excess Cash Flow Escrow
Account with Manager that are or will be available for such Alterations.
(k) With respect to any Material Alteration as to which Borrower shall
have delivered Eligible Collateral to be held in escrow, or established to
Lender's reasonable satisfaction that there are sufficient funds therefor in one
or more accounts held with Lender, in each case in accordance with Section
7.1(j):
(i) Borrower shall deliver to Lender a schedule (which shall be
concurred in by the Independent Architect or Engineer, if applicable)
setting forth the projected stages of completion of such Alteration(s) and
the corresponding amounts expected to be due and payable by or on behalf of
Borrower in connection with such completion, such
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schedule to be updated quarterly by Borrower (and concurred with by an
Independent Architect or Engineer) during the performance of such
Alteration(s).
(ii) Any Eligible Collateral that Borrower delivers to Lender
pursuant hereto (and the proceeds of any such Eligible Collateral) shall be
invested by Lender in Permitted Investments for a period of time consistent
with the date on which Borrower notifies Lender that Borrower expects to
request a release of such Eligible Collateral in accordance with the next
succeeding sentence. From time to time (but in no event more often than
monthly) as the Alteration progresses, the amount of any Eligible
Collateral so therefore furnished may, upon the written request of Borrower
to Lender, be withdrawn by Borrower and paid or otherwise applied by or
returned to Borrower in an amount equal to the amount Borrower would be
entitled to so withdraw if Section 8.1.2(e) hereof were applicable. In
connection with the above-described quarterly update of the projected
stages of completion of the Material Alteration (as concurred with by an
Independent Architect or Engineer), Borrower shall increase (or be
permitted to decrease, as applicable) the Eligible Collateral then
deposited with Lender as necessary to comply with Section 7.1(j) hereof or
shall establish to Lender's reasonable satisfaction in accordance with
Section 7.1(j) the sufficiency of available funds in the reserve accounts
specified in Section 7.1(j)(y).
(iii) At any time after Final Completion of such Alterations,
the whole balance of any Cash or other security deposited with Lender
pursuant to Section 7.1(j) then remaining on deposit may be withdrawn by
Borrower and shall be paid promptly by Lender to Borrower, and any Eligible
Collateral so deposited shall, to the extent it has not been called upon,
reduced or theretofore released, be released by Lender to Borrower, within
ten (10) days after receipt by Lender of an application for such withdrawal
and/or release together with an Officer's Certificate, and as to the
following clauses (A) and (B) of this clause also a certificate of the
Independent Architect or Engineer, setting forth in substance as follows:
(A) that, except for to minor punch-list items, such
Alteration(s) has been completed
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in accordance with any plans and specifications therefor previously
filed with Lender under Section 7.1(e) hereof and otherwise in
accordance with the terms of this Agreement;
(B) that to the knowledge of the certifying Person, (x) such
Alteration(s) has been completed in compliance with all Legal
Requirements and Insurance Requirements, and (y) to the extent
required for the legal use or occupancy of the portion of the
Mortgaged Property affected by such Alteration(s), Borrower has
obtained a temporary or permanent certificate of occupancy (or similar
certificate) or, if no such certificate is required, a statement to
that effect;
(C) that to the knowledge of the certifying Person, all
amounts that Borrower is or may become liable to pay in respect of
such Alteration(s) through the date of the certification have been
paid in full or adequately provided for and, to the extent that such
are customary and reasonably obtainable by prudent property owners in
the area where the Mortgaged Property is located, that Lien waivers
have been obtained from the general contractor and major
subcontractors performing such Alteration or, at Borrower's option, at
its sole cost and expense, Borrower shall cause a nationally
recognized title insurance company to deliver to Lender an endorsement
to the Qualified Title Policy, updating such policy and insuring over
such Liens without further exceptions to such policy other than
Permitted Encumbrances, or shall, at its sole cost and expense, cause
a reputable title insurance company to deliver a lender's title
insurance policy, in such form, in such amounts and with such
endorsements as the Qualified Title Policy, which policy shall be
dated the date of completion of the Material Alteration and shall
contain no exceptions other than Permitted Encumbrances; provided,
--------
however, that if, for any reason, Borrower is unable to deliver the
certification required by this clause (C) with respect to any costs or
expenses relating to the Alteration, then, assuming Borrower is able
to satisfy each of the other requirements set forth
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<PAGE>
in clauses (A) and (B) above, Borrower shall be entitled to the
release of the difference between the whole balance of such Eligible
Collateral and the total of all costs and expenses to which Borrower
is unable to certify; and
(D) that to the knowledge of the certifying Person, no Event
of Default has occurred and is continuing.
VIII. INSURANCE; CASUALTY AND CONDEMNATION
------------------------------------
Section 8.1 Insurance; Casualty and Condemnation.
------------------------------------
8.1.1 Insurance. (a) Borrower, at its sole cost and expense, for the
---------
mutual benefit of Borrower and Lender, shall keep the Mortgaged Property insured
and obtain and maintain policies of insurance insuring against loss or damage by
standard perils included within the classification "All Risks of Physical Loss".
Such insurance (i) shall be in an aggregate amount equal to the then full
replacement cost of the Mortgaged Property and the Equipment (without deduction
for physical depreciation) and (ii) shall have deductibles for the Mortgaged
Property no greater than those existing on the date hereof (provided, to the
extent higher deductibles are commercially reasonable, Borrower shall have the
right to such higher deductibles, but in no event in excess of $100,000 without
Rating Confirmation, except with respect to earthquake insurance). The policies
of insurance carried in accordance with this paragraph shall be paid annually in
advance and shall contain a "Replacement Cost Endorsement" with a waiver of
depreciation (with current replacement cost being $165,216,000, to be adjusted
annually). In addition, Borrower shall maintain earthquake coverages at the
same levels as in effect as of the date hereof (namely, coverages in the maximum
probable loss amount (less the insurer required deductible) for the Mortgaged
Property and other hotel properties insured under the blanket insurance
program), with a deductible of not greater than 5% of the replacement value of
the Mortgaged Property (as set forth in such insurance policy) unless a Rating
Confirmation has been obtained with respect thereto.
(b) Borrower, at its sole cost and expense, for the mutual benefit of
Borrower and Lender, shall also obtain and maintain the following policies of
insurance:
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(i) Flood insurance if any part of the Mortgaged Property is
located in an area identified by the Federal Emergency Management Agency as
an area federally designated a "100 year flood plain" and (A) flood
insurance is generally available at reasonable premiums and in such amount
as generally required by institutional lenders for similar properties or
(B) if not so available from a private carrier, from the federal government
at commercially reasonable premiums to the extent available.
(ii) Commercial general liability insurance, including broad
form property damage, blanket contrac tual and personal injuries
(including death resulting therefrom) coverages and containing minimum
limits of $50,000,000 per occurrence (whether from primary or excess and/or
umbrella coverage) for any policy year, including all legal liability
imposed upon Borrower and all related court costs and attorneys' fees (it
being agreed that Borrower shall increase its liability insurance in
accordance with commercially reasonable practices to the extent that claims
are asserted against the liability coverages in amounts in excess of
$50,000,000 in the aggregate except to the extent Borrower or Manager
reasonably determines that such claims are not likely to result in paid
claims in excess of $50,000,000).
(iii) Rental loss and/or business interruption insurance in an
amount sufficient to avoid any coinsurance penalty and equal to the greater
of (A) the estimated Operating Profit and necessary continuing expenses
from the operation of the Mortgaged Property, for a period of up to the
next succeeding twenty-four (24) months, or (B) the projected Management
Expenses, plus debt service on the Loan and the Mezzanine Loan, for the
maintenance and operation of the Mortgaged Property for a period of up to
the next succeeding twenty-four (24) months, as the same may be reduced or
increased from time to time due to changes in such Management Expenses.
The amount of such insurance shall be increased from time to time as and
when the Operating Profit (or the estimate thereof) or Management Expenses
increase.
(iv) Insurance against loss or damage from (A) leakage of
sprinkler systems and (B) explosion of steam boilers, air conditioning
equipment, high
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pressure piping, machinery and equipment, pressure vessels or similar
apparatus now or hereafter installed in any of the Improvements (without
exclusion for explosions) and insurance against loss of occupancy or use
arising from any insurable breakdown, in such amounts as are generally
available at reasonable premiums and are generally required by
institutional lenders for properties comparable to the Mortgaged Property.
(v) Worker's compensation insurance (or be qualified as a self
insurer) with respect to employees (if any) of Borrower or Manager, as and
to the extent required by any Governmental Authority or Legal Requirement.
(vi) During any period of repair or restoration costing in
excess of $100,000, builder's "all risk" insurance in an amount equal to
not less than the full insurable value of the Mortgaged Property against
such risks (including fire and extended coverage and collapse of the
Improvements to agreed limits) as Lender may reasonably request, in form
and substance reasonably acceptable to Lender.
(vii) To the extent available at commercially reasonable rates,
coverage to compensate for the cost of demolition and the increased cost of
construction for the Mortgaged Property in an amount satisfactory to
Lender.
(viii) Such other insurance as may from time to time be
reasonably required by Lender in order to protect its interests, provided
the same shall not result in a material additional cost to Borrower.
(c) All policies of insurance (the "Policies") required pursuant to
--------
Section 8.1.1 (other than earthquake and flood insurance policies and, if self-
insured, workers' compensation) shall be issued by companies reasonably
acceptable by Lender and licensed to do business in the state where the
Mortgaged Property is located. Further, unless otherwise approved by Lender and
the applicable Rating Agencies in writing (and Lender and the applicable Rating
Agencies shall be deemed to have approved all of the insurers providing coverage
as of the date hereof to the extent of such coverages, as well as any
replacement insurers to the extent of the replaced insurer's coverages
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if the replacing insurer has at least the same or better rating by Best's and
Standard & Poor's as the insurer being replaced):
(x) the insurer(s) of the Policies required under Section
8.1.1(a) (other than the earthquake coverage required thereunder) shall
have a claims-paying-ability of "A-/X" or better by Best's; and claims-
paying-ability ratings by Standard & Poor's of not less than "AA" (or as
otherwise reasonably approved by Lender and approved by the applicable
Rating Agencies);
(y) the issuer(s) of the earthquake coverage required under
Section 8.1.1(a) shall have a claims-paying-ability rating of "A-/V" or
better by Best's and Standard & Poor's "BBBq" or better and the first
$25,000,000 of such coverage shall be provided by issuers with claims-
paying-ability ratings by Standard & Poor's of "AA" or better (or as
otherwise approved by Lender and the applicable Rating Agencies); and
(z) the issuer(s) of the coverage required under Section
8.1.1(b)(ii) shall have a claims-paying-ability rating of "A-/VIII" or
better by Best's, with the first $10 million of such coverage shall be
provided by issuers with claims-paying-ability ratings by Standard & Poor's
of "AA" and the remaining amount of such coverage shall be provided by
issuers with claims-paying-ability ratings by Standard & Poor's of "BBBq"
or better (or as otherwise reasonably approved by Lender and approved by
the applicable Rating Agencies).
The Policies (original policies of which shall, at Lender's request, be made
available for Lender's review in the offices of Borrower or Manager upon
reasonable prior notice during normal business hours) (i) shall name Lender and
its successors and/or assigns as their interest may appear as an additional
insured or as a loss payee (except that in the case of workers' compensation and
commercial general liability insurance, Lender shall be named an additional
insured and not a loss payee); (ii) shall contain a Non-Contributory Standard
Lender Clause and, except with respect to commercial general liability
insurance, a Lender's Loss Payable Endorsement, or their equivalents, naming
Lender as the person to which all payments made by such insurance company shall
be paid to the extent of Lender's interest in
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such loss; (iii) shall include effective waivers by the insurer of all claims
for insurance premiums against all loss payees, additional insureds and named
insureds (other than Borrower) and all rights of subrogation against any loss
payee, additional insured or named insured; (iv) shall provide that neither
Borrower, Lender nor any other party shall be a co-insurer under said Policies
and that no reduction in amount, or cancellation or termination in coverage, of
any of the Policies shall be effective until at least thirty (30) days after
receipt by each named insured, additional insured and loss payee of written
notice thereof; (v) shall permit Lender to pay the premiums and continue any
insurance upon failure of Borrower to pay premiums when due (it being understood
that Borrower's rights to coverage under such policies may not be assignable
without the consent of the insurer); and (vi) shall provide that any proceeds
(other than from liability insurance or workers' compensation) shall be payable
jointly to Lender and Borrower (to be held, disbursed and applied in accordance
with the terms hereof) and that the insurance shall not be impaired or
invalidated by virtue of (A) any act, failure to act, negligence of, or
violation of declarations, warranties or conditions contained in such policy by
Borrower, Lender or any other named insured, additional insured or loss payee,
except for the willful misconduct of Lender knowingly in violation of the
conditions of such policy, (B) the occupation, use, operation or maintenance of
the Mortgaged Property for purposes more hazardous than permitted by the terms
of the Policy, (C) any foreclosure or other proceeding or notice of sale
relating to the Mortgaged Property or (D) any change in the possession of the
Mortgaged Property without a change in the identity of the holder of actual
title to the Mortgaged Property (provided that with respect to items (C) and
-------- ----
(D), any notice requirements of the applicable Policies are satisfied).
(d) Insurance Premiums; Certificates of Insurance.
---------------------------------------------
(i) Borrower shall pay the premiums for such Policies (the
"Insurance Premiums") as the same become due and payable and shall furnish
-------------------
to Lender evidence of such payment reasonably satisfactory to Lender
(provided, however, that Borrower is not required to furnish such evidence
--------- -------
of payment to Lender if such Insurance Premiums are to be paid by Lender
pursuant to the terms of this Agreement). In the event Borrower satisfies
the requirements under this Section 8.1.1
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through the use of a Policy covering properties in addition to the
Mortgaged Property, then Borrower shall provide evidence reasonably
satisfactory to Lender (which may be in the form of a letter from the risk
management department of MII, reasonably satisfactory to Lender) that the
Insurance Premiums for the Mortgaged Property are separately allocated
under such Policy to the Mortgaged Property. If no such allocation is
available, Lender shall have the right to increase the Tax and Insurance
Reserve Account in an amount sufficient to purchase a non-blanket Policy
covering the Mortgaged Property covered by such Policy from insurance
companies which qualify under this Agreement.
(ii) Borrower shall deliver to Lender on or prior to the Closing
Date certificates setting forth in reasonable detail the material terms
(including any applicable notice requirements) of all Policies from the
respective insurance companies (or their authorized agents) that issued the
Policies, including that such Policies may not be canceled or reduced
without thirty (30) days' prior notice to Lender. Borrower shall deliver
to Lender, concurrently with each material change in any Policy, a
certificate with respect to such changed Policy certified by the insurance
company issuing that Policy, in substantially the same form and containing
substantially the same information as the certificates required to be
delivered by Borrower pursuant to the first sentence of this clause (d)(ii)
and stating that all premiums then due thereon have been paid to the
applicable insurers and that the same are in full force and effect (or if
such certificate and report shall not be obtainable by Borrower, Borrower
may deliver an Officer's Certificate to such effect in lieu thereof).
(e) Renewal and Replacement of Policies.
-----------------------------------
(i) Not less than five (5) Business Days prior to the expiration,
termination or cancellation of any Policy, Borrower shall renew such policy
or obtain a replacement policy or policies (or a binding commitment for
such replacement policy or policies), which shall be effective no later
than the date of the expiration, termination or cancellation of the
previous policy, and shall deliver to Lender (A) a certificate in respect
of such policy or policies containing the
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same information as the certificates required to be delivered by Borrower
pursuant to clause (d)(ii) above, or a copy of the binding commitment for
such policy or policies (B) an Officer's Certificate confirming that such
policy complies with all requirements hereof.
(ii) If Borrower does not furnish to Lender the certificates or
binding commitment as required under clause (e)(i), then on two (2)
Business Day's prior written notice to Borrower, Lender may procure, but
shall not be obligated to procure, such replacement policy or policies and
pay the Insurance Premiums therefor, and Borrower agrees to reimburse
Lender for the cost of such Insurance Premiums promptly on demand.
(iii) Concurrently with the delivery of each replacement policy
or a binding commitment for the same
pursuant to this clause (e) and in any event not less often than once each
Fiscal Year, Borrower shall deliver to Lender either an Officer's
Certificate or a report from a reputable and experienced insurance broker
or from the insurer, setting forth the particulars as to all insurance
obtained by Borrower pursuant to this Section 8.1.1 and then in effect and
stating that all Insurance Premiums then due thereon have been paid in full
to the applicable insurers, that such insurance policies are in full force
and effect and that, in the opinion of such insurance broker or insurer or
the signer of the Officer's Certificate, such insurance otherwise complies
in all material respects with the requirements of this Section 8.1.1.
(f) Separate Insurance. Borrower will not take out separate
------------------
insurance concurrent in form or contributing in the event of loss with that
required to be maintained pursuant to this Article 8.1.1 unless such insurance
complies with clause (c) above.
(g) Securitization. In the event of a Securitization, Borrower shall
--------------
name any trustee, Servicer or Special Servicer designated by Lender as a loss
payee or as additional insureds, with respect to any Policy for which Lender is
to be so named hereunder.
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8.1.2 Casualty; Application of Proceeds.
---------------------------------
(a) Right to Adjust.
---------------
(i) If any portion of the Mortgaged Property is damaged or
destroyed, in whole or in part, by fire or other casualty (a "Casualty") in
--------
excess of $500,000, Borrower shall give prompt written notice thereof to
Lender, generally describing the nature and extent of such Casualty.
Following the occurrence of a Casualty, Borrower, regardless of whether
proceeds are available, shall in a reasonably prompt manner proceed to
restore, repair, replace or rebuild the affected Mortgaged Property to the
extent practicable to be of at least equal value and of substantially the
same character as prior to the Casualty, all in accordance with the terms
hereof applicable to Alterations.
(ii) Subject to clause (v) below, in the event of a Casualty
that does not exceed $1,000,000, Borrower may settle and adjust such claim;
provided that such adjustment is carried out in a reasonably competent and
--------
timely manner. In such case, Borrower is hereby authorized to collect and
receipt for Lender any Proceeds.
(iii) Subject to clause (v) below, in the event a Casualty shall
exceed $1,000,000, Borrower may settle and adjust such claim only with the
consent of Lender (which consent shall not be unreasonably withheld or
delayed) and Lender shall have the opportunity to participate, at
Borrower's cost, in any such adjustments.
(iv) The Proceeds on account of any Casualty or Condemnation
shall be delivered to Lender and held and applied in accordance with the
terms hereof. So long as no Event of Default shall have and occurred and
be continuing, Borrower shall have the right to receive directly casualty
proceeds and condemnation awards in amounts of $1,000,000 or less, provided
--------
all such proceeds and awards shall be held in trust by Borrower and applied
to the restoration of the Mortgaged Property in accordance with the terms
of the Loan Documents.
(v) Notwithstanding the terms of clauses (ii) and (iii) above,
Lender shall have the sole
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authority to adjust any claim with respect to a Casualty and to collect all
Proceeds if an Event of Default shall have occurred and is continuing.
(b) Borrower's Right to Apply to Restoration. In the event of a
----------------------------------------
Casualty that involves a loss of the cost of which to repair is less than 30% of
the replacement cost of the Improvements or a Condemnation that affects less
than 15% of the usable square footage of the Improvements, Lender shall permit
the application of the Proceeds (after reimbursement of any reasonable costs and
expenses incurred by Lender in connection with the collection of such Proceeds)
to pay for the cost of restoring, repairing, replacing or rebuilding the
Mortgaged Property (the "Restoration"), in the manner required hereby, provided
----------- --------
and on the condition that, no Default or Event of Default shall have occurred
and be then continuing (other than a Default or Event of Default caused solely
by such casualty or condemnation) and, in the reasonable judgment of Lender:
(i) the Mortgaged Property can be restored to an economically
viable unit with a resulting Loan to value (as reasonably determined by
Lender, taking into account the original underwriting criteria employed by
Lender),
(ii) Lender shall have received reasonably satisfactory evidence
that the Restoration can be completed by the earliest to occur of:
(A) the 365th day following the later of (x) receipt of the
Proceeds, or, with a Ratings Confirmation, such longer period as may
reasonably be required, or (y) notice of Lender's election under the
provisions set forth below in this Section 8.1.2(b),
(B) the Anticipated Repayment Date, and
(C) with respect to a Casualty, the expiration of the
payment period on the rental loss insurance coverage in respect of
such Casualty, and
(iii) after Lender's receipt of reasonably satisfactory evidence
to such effect, during the period of the Restoration, the sum of (A) income
derived from the Mortgaged Property, plus (B) proceeds of rent loss
insurance or business interruption insurance, if any,
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payable, together with such other monies as Borrower may irrevocably make
available, will equal or exceed the sum of (1) expenses in connection with
the operation of the Mortgaged Property and (2) the Debt Service for the
Mortgaged Property.
(c) Lender's Right to Apply to Repayment. If any of the conditions
------------------------------------
set forth in the proviso above in Section 8.2(b) is not satisfied, or if there
occurs Casualty the cost of which to repair is 30% of the replacement cost of
the Improvements or more or a Condemnation that affects 15% or more of the
usable square footage of the Improvements, then, notwithstanding anything herein
to the contrary, unless Lender shall otherwise elect, at its sole option, the
Proceeds shall be applied to the prepayment of the Loan in accordance with the
terms of Section 8.1.2(d) (and Borrower shall be entitled to receive a release
of the Lien of the Mortgage and the other Loan Documents in accordance with the
terms of Section 2.4.2 hereof if the Debt has been paid in full). Lender shall
notify Borrower of such election regarding the application of Proceeds not later
than the sixtieth (60th) day after it shall have received from Borrower all of
the evidence Lender is entitled to receive under this Section 8.1.2(b) and such
other information it may reasonably require to make such election.
(d) Application of Prepayment. Any application of Proceeds to
-------------------------
the Debt pursuant to Section 8.1.2(c) shall be without any prepayment premium or
penalty or Yield Maintenance Payment except that if an Event of Default has
occurred and is continuing (other than an Event of Default caused solely by the
Casualty or Condemnation in question), then Borrower shall pay to Lender an
additional amount equal to the Yield Maintenance Payments, if any, that would be
required in respect of the principal being prepaid, assuming Section 2.3.4
hereof were applicable. Any such application to the Debt shall be applied to
those payments of principal and interest last due under the Note and shall not
postpone or reduce any payments otherwise required pursuant to the Note other
than such last due payments.
(e) Manner of Restoration and Reimbursement. If Borrower is entitled
---------------------------------------
pursuant to Section 8.1.2(b) to the Proceeds and the conditions specified
therein shall have been satisfied, such Proceeds shall be disbursed from time to
time (but no more often than once monthly) upon Lender being furnished with (i)
such customary architect's
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certificates, waivers of lien, contractor's sworn statements, title insurance
endorsements, bonds, plats of survey and such other evidences of cost, payment
and performance as Lender may reasonably require and reasonably approve, and
(ii) all plans and specifications for such Restoration, such plans and
specifications to be approved by Lender prior to commencement of any work (such
approval not to be unreasonably withheld or delayed). In addition, no payment
made prior to the Final Completion of the Restoration shall exceed ninety-five
percent (95%) of the value of the work performed from time to time; and at all
times, the undisbursed balance of such Proceeds remaining in the hands of
Lender, together with funds deposited with Lender for the Restoration, shall be
at least sufficient in the reasonable judgment of Lender to pay for the cost of
completion of the Restoration, free and clear of all Liens. As a condition to
any disbursement, Lender shall have received evidence reasonably satisfactory to
it of the estimated cost of completion of the Restoration (such estimate to be
made by Borrower's independent architect or contractor and approved by Lender in
its reasonable discretion), and Borrower shall have deposited with Lender
Eligible Collateral in an amount equal to the excess (if any) of such estimated
cost of completion over the net Proceeds. Any surplus which may remain out of
Proceeds received pursuant to a Casualty shall promptly be paid to Borrower
after payment of such costs of Restoration. Any surplus which may remain out of
Proceeds received pursuant to a Condemnation after payment of such costs of
Restoration shall be paid to Borrower, provided the conditions specified in
Section 8.1.2(b)(i) have in fact been satisfied (regardless of the extent of the
Condemnation) and otherwise shall be escrowed with and pledged to Lender as
security for the Debt.
8.1.3 Condemnation. (a) Borrower shall promptly give Lender written
------------
notice of the actual or threatened commencement of any condemnation or eminent
domain proceed ing affecting the Mortgaged Property (a "Condemnation") and
------------
shall deliver to Lender copies of any and all papers served in connection with
such Condemnation. Following the occurrence of a Condemnation, unless Borrower
shall have repaid the Loan and all accrued interest thereon in full, Borrower,
regardless of whether Proceeds are available, shall promptly proceed to restore,
repair, replace or rebuild the same to the extent practicable to be of at least
equal value and of substantially the same character as prior
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to such Condemnation, all to be effected in accordance with the terms hereof
applicable to Alterations.
(b) Lender is hereby irrevocably appointed as Borrower's attorney-in-
fact, coupled with an interest, with exclusive power to collect, receive and
retain any Proceeds in respect of a Condemnation and to make any compromise or
settlement in connection with such Condemnation, subject to the provisions of
this Section. Provided no Event of Default has occurred and is continuing, (x)
in the event of a Condemnation where the loss does not exceed $1,000,000,
Borrower may settle and compromise such Proceeds, provided that the same is
--------
effected in a reasonably competent and timely manner, and (y) in the event of a
Condemnation where the loss equals or exceeds $1,000,000, Borrower may settle
and compromise the Proceeds only with the consent of Lender (which consent shall
not be unreasonably withheld or delayed) and Lender shall have the opportunity
to participate, at Borrower's cost, in any litigation and settlement discussions
in respect thereof. If Lender shall so elect to participate in such litigation
and settlement discussion, Lender shall cooperate fully with Borrower and
participate in a timely manner, and Lender shall not unreasonably withhold or
delay its consent to any settlement proposal acceptable to Borrower.
Notwithstanding any Condemnation by any public or quasi-public authority
(including any transfer made in lieu of or in anticipation of such a
Condemnation), Borrower shall continue to pay the Debt at the time and in the
manner provided for in the Note, this Agreement and the other Loan Documents,
and the Debt shall not be reduced unless and until any Proceeds shall have been
actually received and applied by Lender to its reasonable costs and expenses in
collecting such Proceeds and to discharge of the Debt. Lender shall not be
limited to the interest paid on the Proceeds by the condemning authority but
shall be entitled to receive out of the Proceeds interest on the Note at the
rate or rates provided therein and herein. Borrower shall cause any Proceeds
that are payable to Borrower to be paid directly to Lender to be held and
applied in accordance with the terms hereof, provided no Event of Default shall
--------
have occurred and be continuing, Borrower shall have the right to receive
directly Proceeds in amounts of $1,000,000 or less, provided all such proceeds
--------
and awards shall be held in trust by Borrower and applied to the restoration of
the Mortgaged Property in accordance with the terms of the Loan Documents.
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IX. ACCOUNTS AND RESERVES
---------------------
Section 9.1 Establishment and Maintenance of Reserve Accounts.
-------------------------------------------------
Borrower shall establish or cause the establishment of the accounts provided for
in the Cash Management Procedures, in accordance with and subject to the terms
and conditions set forth therein. Except as otherwise provided in the Cash
Management Procedures, (a) for each Reserve Account, Borrower shall establish
with one or more depository institutions selected by Lender, a separate account
(each, a "Reserve Account"), and (b) each Reserve Account shall be in the name
---------------
of and under the sole dominion and control of Lender or its Agent, subject to
Lender's obligations hereunder, including without limitation, to advance funds
therefrom in accordance with the Loan Documents and the Cash Management
Procedures, and Borrower shall not have the authority or power to make
withdrawals from any Reserve Account.
Section 9.2 Maintenance Reserve Accounts.
----------------------------
9.2.1 Establishment. Concurrently herewith, Borrower is establishing
-------------
with a depository institution designated by Lender a Chiller Work Reserve in the
amount of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000) for the payment
of the work related to the installation of a backup chilled water system for the
Hotel. Pursuant to and in accordance with the Cash Management Procedures, an
additional amount of FIVE HUNDRED THOUSAND DOLLARS ($500,000) is to be deposited
into the Chiller Work Reserve. All amounts in the Chiller Work Reserve shall be
invested in Permitted Investments.
9.2.2 Disbursements from the Chiller Work Reserve. Borrower shall
-------------------------------------------
have the right to obtain disbursements at any time and from time to time, with
respect to the Chiller Work Reserve, for expenses incurred by Borrower in
performing the Chiller Work in accordance with the terms hereof, in each case on
the following terms and conditions:
(a) disbursements shall be made only to pay or to reimburse Borrower
(or Manager on Borrower's behalf) in respect of the actual costs (including
"soft" costs) of the performing the Chiller Work;
(b) each request for disbursement from the Chiller Work Reserve shall
specify the work for which the
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disbursement is requested and shall include an Officer's Certificate certifying
that such funds will be applied to pay or reimburse for materials or work done
in accordance herewith and copies of invoices for all items or materials
purchased and all contracted labor or services provided.
Upon the substantial completion of the Chiller Work to the reasonable
satisfaction of Lender, Lender shall disburse from the Chiller Work Reserve any
amounts remaining therein.
9.2.3 Reserved.
--------
9.2.4 Reserved.
--------
9.2.5 Obligations Unaffected. The insufficiency of any balance in
----------------------
the Chiller Work Reserve shall not relieve Borrower from its obligation to
fulfill all preservation and maintenance covenants in the Loan Documents.
Section 9.3 Reserved.
---------
Section 9.4 Reserved
--------
Section 9.5 Reserved
--------
Section 9.6 Grant of Security Interest; Rights upon Default. (a)
-----------------------------------------------
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 each Reserve Account, together with the
deposits therein, including all interest earned thereon and Permitted
Investments held therein. Borrower shall not, without obtaining the prior
written consent of Lender, further pledge, assign or grant any security interest
in any Reserve Account, or permit any Lien or encumbrance to attach thereto, or
any levy to be made thereon, or any UCC-1 Financing Statements, except those
naming Lender as the secured party, to be filed with respect thereto.
(b) Subject to any applicable provisions of the Consent of Manager,
upon the occurrence of an Event of Default, Lender may apply amounts in any
Reserve Account for any of the following purposes relating to the Loan or
Borrower's obligations hereunder or under any other Loan
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Document, and in any order, as Lender shall elect in its sole discretion: (i)
Taxes and Other Charges; (ii) Insurance Premiums; (iii) interest on the unpaid
principal balance of the Note; (iv) amortization of the unpaid principal balance
of the Note; (v) completion of all work required to be performed hereunder; (vi)
the cost of any repair or replacement to the Mortgaged Property; (vii) payment
of any amount expended in exercising rights and remedies available to Lender at
law or in equity or under this Agreement or under any of the other Loan
Documents; or (viii) any other portion of the Debt, including the Yield
Maintenance Payments applicable to any full or partial prepayment; provided
Yield Maintenance Payments will not be applied to repayment of the Debt prior to
payment in full of all principal and accrued interest.
Section 9.7 Lender Not Responsible. Nothing in this Article IX or
----------------------
elsewhere in the Loan Documents shall make Lender responsible for making or
completing any work in respect of the Mortgaged Property, or obligate Lender to
demand from Borrower additional sums to make or complete any work.
Section 9.8 Inspections; Undertaking of Work.
--------------------------------
Borrower shall permit Lender and Lender's agents and representatives
(including Servicer, Special Servicer, Lender's engineer, architect or
inspector) to enter onto the Mortgaged Property during normal business hours
after reasonable prior written notice (subject to the rights of Tenants under
the Leases) to inspect the progress of the Chiller Work, the work described on
Schedule 2 hereof and any Material Alterations, and all materials being used in
connection therewith, to examine all plans and shop drawings relating thereto
and, during the continuance of an Event of Default, to undertake and complete
any work required to be undertaken in accordance with the terms hereof.
Borrower shall cause all contractors and subcontractors to cooperate with Lender
or Lender's representatives or such other persons described above in connection
with inspections described in this Section 9.8 or the undertaking or completion
of work pursuant to this Section 9.8.
Upon Lender's written request, Borrower shall collaterally assign to
Lender, as additional security for the Loan, all rights and claims Borrower may
have against all Persons supplying labor or materials in connection with any
Alterations; provided, however, Lender may not pursue
-------- -------
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any such right or claim unless an Event of Default has occurred and remains
uncured.
X. DEFAULTS
--------
Section 10.1 Event of Default.
----------------
(a) Each of the following events shall constitute an event of default
hereunder (each, an "Event of Default");
----------------
(i) if any portion of the Debt is not paid when due;
(ii) if any of the Taxes or Other Charges are not paid within ten
(10) Business Days after the same are due, subject to Borrower's right to
contest Taxes in accordance with Section 5.1(b)(ii) hereof;
(iii) if the Policies are not kept in full force and effect, or
if the certificates therefor are not delivered to Lender upon request and
such nondelivery is not cured within ten (10) days after written notice
thereof from Lender;
(iv) (A) if Borrower voluntarily transfers or encumbers all or
any portion of the Mortgaged Property; or (B) if any direct or indirect
interest in Borrower is voluntarily transferred or assigned, other than, in
each case, for Permitted Encumbrances or as is permitted hereunder;
(v) if any representation or warranty made by Borrower herein or
in any other Loan Document shall be false in any manner which would have a
Material Adverse Effect as of the date the representation or warranty was
made and such Default is not cured within thirty (30) days after written
notice thereof from Lender (if such default is susceptible to cure);
provided, however, that if such Default is susceptible of cure but cannot
-------- -------
reasonably be cured within such 30-day period and provided further that
Borrower shall have commenced to cure such Default within such 30-day
period and thereafter diligently and expeditiously proceeds to cure the
same, such 30-day period shall be extended for an additional period of time
as is reasonably necessary for Borrower in the exercise of due diligence to
cure such Default, but the aggregate
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cure period under this subsection (v) shall not exceed one hundred and
twenty (120) days;
(vi) if Borrower shall make an assignment for the benefit of
creditors, or if Borrower shall generally not be paying its debts as they
become due;
(vii) if a receiver, liquidator or trustee shall be appointed
for Borrower or if Borrower shall be adjudicated a bankrupt or insolvent,
or if any petition for bankruptcy, reorganization or arrangement pursuant
to federal bankruptcy law, or any similar federal or state law, shall be
filed by or against, consented to, or acquiesced in by, Borrower, or if any
proceeding for the dissolution or liquidation of Borrower shall be
instituted; provided, however, if such appointment, adjudication, petition
-------- -------
or proceeding was involuntary and not consented to by Borrower, upon the
same not being discharged, stayed or dismissed within 90 days;
(viii) Reserved;
(ix) if Borrower takes any action that breaches in any material
and adverse respect any of its negative covenants contained in Section 6.1
or if Borrower breaches in any material and adverse respect any covenant
contained in SCHEDULE 4B hereof and, if the same is susceptible of cure,
the same is not cured within thirty (30) days after written notice thereof
from Lender; provided, that no such cure of a breach of any covenant
contained in SCHEDULE 4B hereof shall be effective unless Borrower causes
to be delivered to an opinion as to non-consolidation in form and substance
and from counsel satisfactory to Lender, which opinion takes into account
such breach;
(x) if an Event of Default as defined or
described in any of the other Loan Documents occurs;
(xi) if Borrower shall continue to be in default under any of
the other terms, covenants or conditions of this Agreement or any other
Loan Document not otherwise specified in this Section 10.1(a) for ten (10)
days after notice to Borrower from Lender, in the case of any Default which
can be cured by the payment of a sum of money, or for thirty (30) days
after notice from Lender in the case of any other Default; provided,
--------
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however, that if such non-monetary Default is susceptible of cure but
-------
cannot reasonably be cured within such 30-day period and provided further
that Borrower shall have commenced to cure such default within such 30-day
period and thereafter diligently and expeditiously proceeds to cure the
same, such 30-day period shall be extended for an additional period of time
as is reasonably necessary for Borrower in the exercise of due diligence to
cure such Default, but the aggregate cure period under this subsection (xi)
shall not exceed one hundred and twenty (120) days;
(xii) unless (a) Borrower, after obtaining any consents or
waivers from the ground lessor under the Ground Lease, causes the Mortgaged
Property then owned by Borrower to come under management by another
Acceptable Manager: (A) the Manager shall commence any action or
proceeding (y) under any federal or state bankruptcy, insolvency,
rehabilitation or liquidation law now or hereafter in effect, seeking to
have an order for relief entered with respect to it, or seeking to
adjudicate it a bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition
or other relief with respect to it or its debts, or (z) seeking appointment
of a trustee, receiver or custodian under any such law for it or for all or
substantially all of its assets, or the Manager shall make a general
assignment for the benefit or its creditors; or (B) there shall be
commenced against the Manager any action or proceeding of a nature referred
to in clause (A) above which (y) results in the entry of any order for
relief or any such adjudication or appointment and (z) remains undismissed,
undischarged or unbonded for a period of 60 days; or (C) there shall be
commenced against the Manager any action or proceeding seeking issuance of
a warrant of attachment, execution, distraint or similar process against
all or substantially all of its assets which results in the entry of an
order for any such relief that shall not have been vacated, discharged,
stayed satisfied or bonded pending appeal within 60 days from the entry
thereof; or (D) the Manager shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due.
(xiii) If Borrower shall default, beyond any applicable notice
and grace period permitted to
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Borrower under the Ground Lease, in the payment of any rent, additional
rent or other charge made payable by the Ground Lease or in the performance
of any other obligation to be performed by Borrower thereunder; or if the
leasehold estate created by the Ground Lease shall be surrendered or
terminated or cancelled for any reason or under any circumstances
whatsoever.
(b) Upon the occurrence of an Event of Default and at any time
thereafter, Lender may, in addition to any other rights or remedies available to
it pursuant to this Agreement or any other Loan Document, or at law or in
equity, take such action, without notice or demand, that Lender deems advisable
to protect and enforce its rights against Borrower and in and to all or any of
the Mortgaged Property, including declaring the Debt to be immediately due and
payable (provided, however, with respect to an Event of Default described in
-------- -------
clauses (vi) or (vii) above, the Debt and all other obligations of Borrower
hereunder and under the other Loan Documents shall immediately and automatically
become due and payable, without notice or demand, and Borrower hereby expressly
waives any such notice or demand, anything contained herein or in any other Loan
Document to the contrary notwithstanding), and Lender may enforce or avail
itself of any or all rights or remedies provided in the Loan Documents against
Borrower and all or any portion of the Mortgaged Property, including all rights
or remedies available at law or in equity.
Section 10.2 Remedies. Upon the occurrence of an Event of Default,
--------
all or any one or more of the rights, powers, privileges and other remedies
available to Lender against Borrower under this Agreement or any of the other
Loan Documents executed and delivered by, or applicable to, Borrower or at law
or in equity may be exercised by Lender at any time and from time to time,
whether or not all or any of the Debt shall be declared due and payable, and
whether or not Lender shall have commenced any foreclosure proceeding or other
action for the enforcement of its rights and remedies under any of the Loan
Documents with respect to all or any portion of the Mortgaged Property. Any
such actions taken by Lender shall be cumulative and concurrent and may be
pursued independently, singly, successively, together or otherwise, at such time
and in such order as Lender may determine in its sole discretion, to the fullest
extent permitted by law, without impairing or otherwise affecting the other
rights and remedies of Lender permitted by law, equity or contract or as set
forth herein or in the
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other Loan Documents. Without limiting the generality of the foregoing, Borrower
agrees that if an Event of Default is continuing all liens and other rights,
remedies or privileges provided to Lender shall remain in full force and effect
until Lender has exhausted all of its remedies against the Mortgaged Property
and the Mortgage has been foreclosed, sold and/or otherwise realized upon in
satisfaction of the Debt or the Debt has been paid in full.
Section 10.3 Remedies Cumulative. The rights, powers and remedies of
-------------------
Lender under this Agreement shall be cumulative and not exclusive of any other
right, power or remedy which Lender may have against Borrower pursuant to this
Agreement or the other Loan Documents, or existing at law or in equity or
otherwise. Lender's rights, powers and remedies may be pursued singly,
concurrently or otherwise, at such time and in such order as Lender may
determine in Lender's sole discretion. No delay or omission to exercise any
remedy, right or power accruing upon an Event of Default shall impair any such
remedy, right or power or shall be construed as a waiver thereof, but any such
remedy, right or power may be exercised from time to time and as often as may be
deemed expedient. A waiver of one Default or Event of Default with respect to
Borrower shall not be construed to be a waiver of any subsequent Default or
Event of Default with respect to Borrower or to impair any remedy, right or
power consequent thereon.
Section 10.4 Cure Rights of Agent. For so long as the Mezzanine Loan
--------------------
remains outstanding, Mezzanine Lender shall have certain rights to cure defaults
under the Loan Documents, as set forth in the Mortgage Loan Cure Rights
Agreement, dated as of the date hereof, by and between Lender and GSMC, as Agent
for the Mezzanine Lender. Borrower hereby acknowledges and consents to such cure
rights on the part of Mezzanine Lender.
XI. INTENTIONALLY OMITTED
---------------------
XII. MANAGEMENT
----------
Section 12.1 Termination of Manager. Borrower represents, warrants
----------------------
and covenants that the Mortgaged Property shall at all times, without any
interruption whatsoever, be managed by an Acceptable Manager pursuant to
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a Management Agreement in form and substance satisfactory to Lender in its
reasonable discretion (and collaterally assigned to Lender pursuant to
collateral assignment acceptable to Lender). Without limiting the foregoing,
unless otherwise waived by Lender, any replacement Management Agreement shall
terminate within thirty (30) days after the occurrence of a Management
Termination Event. Borrower and Lender agree that the Management Agreement shall
be terminable by Lender upon and during the continuance of an Event of Default
and an acceleration of the debt (provided the foregoing shall not affect the
--------
agreement of Lender in favor of the Manager in the Consent of Manager).
XIII. MISCELLANEOUS
-------------
Section 13.1 Survival. This Agreement and all covenants, agreements,
--------
representations and warranties made herein and in the certificates delivered
pursuant hereto shall survive the making by Lender of the Loan and the execution
and delivery to Lender of the Note, and shall continue in full force and effect
so long as all or any of the Debt of Borrower is outstanding and unpaid.
Whenever in this Agreement any Person is referred to, such reference shall be
deemed to include the legal representatives, successors and assigns of such
Person (provided that the foregoing shall not be deemed to permit any transfer
of any ownership interest that is otherwise prohibited hereunder). All
covenants, promises and agreements in this Agreement contained, by or on behalf
of Borrower, shall inure to the benefit of the respective legal representatives,
successors and assigns of Lender.
Section 13.2 Permitted Investments; Eligible Accounts; Eligible
------------------------------- ------------------
Institutions. Lender shall invest any amounts to be held by Lender in
- ------------
accordance with the terms of this Agreement or any other Loan Document, pending
the application of such amounts to the purposes herein or therein provided, in
one of the Permitted Investments as directed by Borrower from time to time
(provided no Event of Default has occurred and is continuing) or Lender from
time to time (if any Event of Default has occurred and is continuing). Lender
shall not be responsible for its inability to invest funds received after 1:30
p.m. New York City time, but shall invest such sums on the following Business
Day. After application to the purposes for which any amounts invested pursuant
to this Section 13.2 are held
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and so long as no Event of Default has occurred and is continuing hereunder, any
investment income earned from such investments shall be paid to Borrower. Except
as may otherwise be expressly provided in the Cash Management Procedures,
Reserve Accounts maintained hereunder, shall, at Lender's election, be (1) an
account or account maintained with a federal or state chartered depository
institution or trust company which complies with the definition of Eligible
Institution (as defined below), (2) a segregated trust account or accounts
maintained with the corporate trust department of a federal depository
institution or state chartered depository institution subject to regulations
regarding fiduciary funds on deposit similar to Title 12 of the Code of Federal
Regulations Section 9.10(b) which, in either case, has corporate trust powers,
acting in its fiduciary capacity, or (3) an account naming another insured
depository institution reasonably acceptable to Lender, so long as, prior to the
establishment of an account naming such other depository institution, each of
the Rating Agencies shall have delivered a Rating Confirmation with respect
thereto (such accounts, "Eligible Accounts"). "Eligible Institutions" are
----------------- ---------------------
institutions whose (1) commercial paper, short-term debt obligations or other
short-term deposits are rated at least "A-l+" by the applicable Rating Agencies,
if the deposits are to be held in the account for up to 30 days, or (2) long-
term unsecured debt obligations are rated at least "AA", if the deposits are to
be held in the account for more than 30 days. Following a rating downgrade,
withdrawal, qualification or suspension of such institution's rating, each
account must promptly (and in any case within not more than 30 calendar days) be
moved to a qualifying institution or to one or more segregated trust accounts in
the trust department of such institution, if permitted. No Eligible Account
shall be evidenced by a certificate of deposit, passbook or other instrument.
Each Eligible Account (A) shall be a separate and identifiable account from all
other funds held by the holding institution, (B) shall be established and
maintained in the name of the Lender (and subsequent to any Securitization,
shall bear a designation clearly indicating that the funds deposited therein are
held for the benefit of the holders of the Certificates), (C) shall be under the
sole dominion and control of Lender, and should contain only funds held for its
benefit. The out-of-pocket costs reasonably incurred in establishing and
maintaining any account or reserve held by Lender pursuant to this Agreement or
any other Loan Document shall be borne by Borrower and, at Lender's election,
such costs may be taken by Lender from
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amounts then on deposit in any account or reserve. Lender shall notify Borrower
promptly after any such deduction. PNC Bank, N.A., so long as it maintains a
long-term unsecured debt rating of "A" or higher (or the equivalent) by each
Rating Agency, shall be deemed an Eligible Institution for purposes of
maintaining all accounts hereunder and any such accounts so maintained shall be
Eligible Accounts.
Section 13.3 Governing Law; Consent to Jurisdiction. (a) THIS
------------------------- ------------
AGREEMENT WAS NEGOTIATED AND MADE IN THE STATE OF NEW YORK, AND THE PROCEEDS OF
THE NOTES DELIVERED PURSUANT HERETO WERE DISBURSED FROM THE STATE OF NEW YORK,
WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND
TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA,
EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND
ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT HERETO AND
PURSUANT TO THE OTHER LOAN DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED
ACCORDING TO THE LAW OF THE STATE IN WHICH THE MORTGAGED PROPERTY IS LOCATED, IT
BEING UNDERSTOOD THAT, TO THE FULLEST EXTENT PERMITTED BY THE LAW OF SUCH STATE,
THE LAW OF THE STATE OF NEW YORK SHALL GOVERN THE VALIDITY AND THE
ENFORCEABILITY OF THIS AGREEMENT AND THE NOTE AND ALL OF THE INDEBTEDNESS OR
OBLIGATIONS ARISING HEREUNDER OR THEREUNDER. TO THE FULLEST EXTENT PERMITTED BY
LAW, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT
THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT AND THE NOTE, AND
THIS AGREEMENT AND THE NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO (S) 5-1401 OF THE NEW YORK
GENERAL OBLIGATIONS LAW.
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER
ARISING OUT OF OR RELATING TO THIS AGREEMENT MAY BE INSTITUTED IN ANY FEDERAL OR
STATE COURT IN NEW YORK, NEW YORK, PURSUANT TO (S) 5-1402 OF THE NEW YORK
GENERAL OBLIGATIONS LAW, AND BORROWER AND LENDER EACH WAIVES ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
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PROCEEDING, AND BORROWER AND LENDER EACH HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES
HEREBY DESIGNATE AND APPOINT CORPORATION SERVICE COMPANY, WITH AN ADDRESS AT 80
STATE STREET, ALBANY, NEW YORK 12207-2543, AS ITS AUTHORIZED AGENT TO ACCEPT AND
ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN
ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK,
NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND
WRITTEN NOTICE OF SAID SERVICE OF BORROWER MAILED OR DELIVERED TO BORROWER IN
THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON BORROWER, IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF
NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED
ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO
TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW
YORK (WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS),
AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT
CEASES TO MAINTAIN THE ABOVE-REFERENCED OFFICE (OR ANY SUCCESSOR OFFICE SO
DESIGNATED) OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.
Section 13.4 Modification, Waiver in Writing. No modification,
-------------------------------
amendment, extension, discharge, termination or waiver of any provision of this
Agreement, or of the Note, or of any other Loan Document, nor consent to any
departure 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. Except as otherwise expressly
provided herein, no notice to, or demand on Borrower, shall entitle Borrower to
any other or future notice or demand in the same, similar or other circum
stances.
Section 13.5 Delay Not a Waiver. Neither any failure nor any delay
------------------
on the part of Lender in insisting upon strict performance of any term,
condition, covenant or agreement, or exercising any right, power, remedy or
privilege hereunder, or under the Note or under any other Loan Document, or any
other instrument given as security therefor, shall operate as or constitute a
waiver thereof, nor shall a single or partial exercise thereof preclude any
other future exercise, or the exercise of any other right, power, remedy or
privilege. In particular, and not by way of limitation, by accepting payment
after the due date of any amount payable under this Agreement, the Note or any
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other Loan Document, Lender shall not be deemed to have waived any right either
to require prompt payment when due of all other amounts due under this
Agreement, the Note or the other Loan Documents, or to declare a default for
failure to effect prompt payment of any such other amount.
Section 13.6 Notices. All notices, consents, approvals and requests
-------
required or permitted hereunder or under any other Loan Document shall be given
in writing and shall be effective for all purposes if hand delivered or sent by
(a) certified or registered United States mail, postage prepaid, or (b)
expedited prepaid delivery service, either commercial or United States Postal
Service, with proof of attempted delivery, or (c) by facsimile (with telephonic
confirmation), addressed as follows (or at such other address and person as
shall be designated from time to time by any party hereto, as the case may be,
in a written notice to the other parties hereto in the manner provided for in
this Section):
If to Lender:
GMAC Commercial Mortgage Corporation
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044
Attention: Executive Vice President,
Loan Servicing
Facsimile: (215) 328-3478
with copies to:
GMAC Commercial Mortgage Corporation
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044
Attention: Chief Financial Officer
Facsimile: (215) 328-1530
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Diane Citron, Esq.
Facsimile: (312) 701-7711
Goldman Sachs Mortgage Company
85 Broad Street
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New York, New York 10004
Attention: P. Sheridan Schechner
Facsimilie: (212) 357-5505
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Arthur S. Adler, Esq.
Facsimile: (212) 558-3588
If to Borrower:
DS Hotel LLC
c/o Host Marriott Corporation
10400 Fernwood Road, Dept. 923
Bethesda, Maryland 20817-1109
Attention: Assistant General Counsel,
Asset Management
Facsimile: (301) 380-6332
with a copy to:
DS Hotel LLC
c/o Host Marriott Corporation
10400 Fernwood Road, Dept. 908
Bethesda, Maryland 20817-1109
Attention: Director, Asset Management
Department
Facsimile: (301) 380-8260
notice shall be deemed to have been given: in the case of hand delivery, at the
time of delivery; in the case of registered or certified mail, when delivered or
the first attempted delivery on a Business Day; or in the case of expedited
prepaid delivery, upon the first attempted delivery on a Business Day; or in the
case of facsimile, upon receipt with telephonic confirmation thereof.
Section 13.7 Trial by Jury. LENDER AND BORROWER HEREBY AGREE NOT TO
-------------
ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVE ANY RIGHT
TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER
EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER
ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY
IS GIVEN KNOWINGLY AND VOLUNTARILY BY LENDER AND BORROWER AND IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
TRIAL BY JURY WOULD
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OTHERWISE ACCRUE. EACH OF LENDER AND BORROWER IS HEREBY AUTHORIZED TO FILE A
COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER
BY THE OTHER PARTY.
Section 13.8 Headings. The Article and/or Section headings and the
--------
Table of Contents in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.
Section 13.9 Severability. Wherever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
Section 13.10 Preferences. Except as explicitly provided in the Cash
-----------
Management Procedures or herein, 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. To the extent Borrower makes
a payment or payments to Lender, which payment or proceeds or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required to be repaid to a trustee, receiver or any other party under
any bankruptcy law, state or federal law, common law or equitable cause, then,
to the extent of such payment or proceeds received, the obligations hereunder or
part thereof intended to be satisfied shall be revived and continue in full
force and effect, as if such payment or proceeds had not been received by
Lender.
Section 13.11 Waiver of Notice. Borrower shall not be entitled to
----------------
any notices of any nature whatsoever from Lender except with respect to matters
for which this Agreement or the other Loan Documents specifically and expressly
provide for the giving of notice by Lender to Borrower and except with respect
to matters for which Borrower is not, pursuant to applicable Legal Requirements,
permitted to waive the giving of notice.
Section 13.12 Remedies of Borrower. In the event that a claim or
--------------------
adjudication is made that Lender or its
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agents, including Servicer or Special Servicer, have acted unreasonably or
unreasonably delayed (or refrained from), acting in any case where by law or
under this Agreement or the other Loan Documents, Lender or such agent, as the
case may be, has an obligation to act reasonably or promptly, Borrower agrees
that neither Lender nor its agents, including Servicer and Special Servicer,
shall be liable for any monetary damages, and Borrower's sole remedies shall be
limited to commencing an action seeking injunctive relief or declaratory
judgment, except in any instance in which it has been finally determined that
such action, delay, or inaction by Lender or its agents has constituted gross
negligence, fraud, willful misconduct or an illegal act. The parties hereto
agree that any action or proceeding to determine whether Lender or its agents
have acted reasonably shall be determined by an action seeking declaratory
judgment.
Section 13.13 Expenses; Indemnity. Borrower covenants and agrees to
-------------------
reimburse Lender promptly following receipt of written notice from Lender for
all reasonable costs and expenses (including reasonable attorneys' fees and
disbursements) incurred by or on behalf of Lender (together with reasonable and
customary detail therefor) in connection with (i) filing and recording fees and
expenses, title insurance premiums and other similar expenses incurred in
creating and perfecting the Liens in favor of Lender pursuant to this Agreement
and the other Loan Documents; (ii) enforcing or preserving any rights in
response to third party claims against, under or affecting Borrower, this
Agreement, the other Loan Documents or any security given for the Loan;(iii)
enforcing any obligations of or collecting any payments past due from Borrower
under this Agreement, the other Loan Documents or with respect to the Mortgaged
Property or in connection with any refinancing or restructuring of the credit
arrangements provided under this Agreement in the nature of a "work-out" or of
any insolvency or bankruptcy proceedings; and (iv) any reasonable costs and
expenses incurred in connection with seeking or obtaining a Rating Confirmation
required by this Agreement or the other Loan Documents; provided, Borrower shall
--------
not be liable for the payment of any such costs and expenses to the extent the
same are not reasonably incurred or arise by reason of the gross negligence,
illegal acts, fraud or willful misconduct of Lender. Any costs and expenses due
and payable to Lender hereunder which are not paid by Borrower within ten (10)
Business Days after demand may be paid from any amounts in the Cash Collateral
Account, with notice thereof to Borrower.
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Section 13.14 Exhibits and Schedules Incorporated. The Exhibits and
-----------------------------------
Schedules annexed hereto are hereby incorporated herein as a part of this
Agreement with the same effect as if set forth in the body hereof.
Section 13.15 Offsets, Counterclaims and Defenses. Any assignee of
-----------------------------------
Lender's interest in and to this Agreement, the Notes and the other Loan
Documents shall take the same free and clear of all offsets, counterclaims, or
defenses which are unrelated to such documents which Borrower may otherwise have
against any assignor of such documents, and no such unrelated counterclaim or
defense shall be interposed or asserted by Borrower in any action or proceeding
brought by any such assignee upon such documents and any right to interpose or
assert any such unrelated offset, counterclaim or defense in any such action or
proceeding is hereby expressly waived by Borrower.
Section 13.16 No Joint Venture or Partnership. Borrower and Lender
-------------------------------
intend that the relationships created hereunder and under the other Loan
Documents be solely that of borrower and lender. Nothing herein or therein is
intended to create a joint venture, partnership, tenancy-in-common, or joint
tenancy relationship between Borrower and Lender nor to grant Lender any
interest in the Mortgaged Property other than that of mortgagee or lender.
Section 13.17 Lender's Statement. After written request by Borrower,
------------------
Lender shall, within twenty (20) days, furnish Borrower with a statement, duly
acknowledged and certified, setting forth (A) the unpaid principal amount of the
Note, (B) the applicable Interest Rate, (C) the date installments of interest
and/or principal were last paid, (D) that the Note, this Agreement, the Mortgage
and the other Loan Documents are in full force and effect and have not been
modified or if modified, are in full force and effect as so modified and giving
particulars of such modifi cation, and (E) such other matters as Borrower may
reasonably request. Any prospective permitted purchaser or assignee of any
interest in Borrower or the Mortgaged Property (as well as any lender to any
such owner) shall be permitted to rely on such certificate.
Section 13.18 Waiver of Marshalling of Assets. To the fullest extent
-------------------------------
Borrower may legally do so, Borrower waives all rights to a marshalling of the
assets of Borrower, Borrower's partners, if any, and others with interests in
Borrower, and of the Mortgaged Property, or to
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a sale in inverse order of alienation in the event of foreclosure of the
interests hereby created, and agrees not to assert any right under any laws
pertaining to the marshalling of assets, the sale in inverse order of
alienation, homestead exemption, the administration of estates of decedents, or
any other matters whatsoever to defeat, reduce or affect the right of Lender
under the Loan Documents to a sale of the Mortgaged Property for the collection
of the related Debt without any prior or different resort for collection, of the
right of Lender or any deed of trust trustee to the payment of the related Debt
out of the net proceeds of the Mortgaged Property in preference to every other
claimant whatsoever. In addition, Borrower, for itself and its successors and
assigns, waives in the event of foreclosure of any or all of the Mortgage, any
equitable right otherwise available to Borrower which would require the separate
sale of portions of the Mortgaged Property.
Section 13.19 Waiver of Counterclaim. Borrower hereby waives the
----------------------
right to assert a counterclaim, other than a compulsory counterclaim, in any
action or proceeding brought against it by Lender or its agents, including
Servicer or Special Servicer.
Section 13.20 Conflict; Construction of Documents. In the event of
-----------------------------------
any conflict between the provisions of this Agreement and any of the other Loan
Documents, the provisions of this Agreement shall control. The parties hereto
acknowledge that they were represented by counsel in connection with the
negotiation and drafting of the Loan Documents and that such Loan Documents
shall not be subject to the principle of construing their meaning against the
party which drafted same.
Section 13.21 Brokers and Financial Advisors. Borrower and Lender each
------------------------------
hereby represents that it has dealt with no financial advisors, brokers,
underwriters, placement agents, agents or finders in connection with the
transactions contemplated by this Agreement. Each of Borrower and Lender hereby
agrees to indemnify the other and holds the other harmless from and against any
and all claims, liabilities, costs and expenses of any kind in any way relating
to or arising from a claim by any Person that such Person acted on behalf of
Borrower or Lender, as the case may be, in connection with the transactions
contemplated herein. The provisions of this Section 13.21
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shall survive the expiration and termination of this Agreement and the repayment
of the Debt.
Section 13.22 No Third Party Beneficiaries. Except as specifically set
----------------------------
forth herein, this Agreement and the other Loan Documents are solely for the
benefit of Lender and Borrower, and nothing contained in this Agreement or the
other Loan Documents shall be deemed to confer upon anyone other than Lender and
Borrower any right to insist upon or to enforce the performance or observance of
any of the obligations contained herein or therein. All conditions to the
obligations of Lender to make the Loan hereunder are imposed solely and
exclusively for the benefit of Lender, and no other Person shall have standing
to require satisfaction of such conditions in accordance with their terms or be
entitled to assume that Lender will refuse to make the Loan in the absence of
strict compliance with any or all thereof and no other Person shall under any
circumstances be deemed to be a beneficiary of such conditions, any or all of
which may be freely waived in whole or in part by Lender if, in Lender's sole
discretion, Lender deems it advisable or desirable to do so. Borrower and
Lender hereby expressly acknowledge and agree that Mezzanine Lender is a third
party beneficiary of those provisions of the Cash Management Procedures that
provide for the payment of debt service on the Mezzanine Loan and the funding of
the debt service reserve account relating to the Mezzanine Loan from certain
accounts. Borrower and Lender hereby expressly acknowledge and agree that
Junior Lender is a third party beneficiary of those provisions of the Cash
Management Procedures that provide for the payment of debt service on the Junior
Loan.
Section 13.23 Prior Agreements. This Agreement 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 are superseded by the terms of this Agreement and the other
Loan Documents.
Section 13.24 Exculpation. Subject to the qualifications below,
-----------
Lender shall not seek to enforce or enforce the liability and obligation of
Borrower to perform and observe the obligations contained in the Note, this
Agreement, the Mortgage or the other Loan Documents by any action or proceeding
wherein a money judgment shall be sought against Borrower (or any member,
shareholder, partner
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or other owner of Borrower, or any separate account contract holder, beneficial
owner, advisor, consultant, manager, fiduciary, director, officer or employee of
any of the foregoing), except that Lender may bring a foreclosure action, an
action for specific performance or any other appropriate action or proceeding to
enable Lender to enforce and realize upon its interest under the Note, this
Agreement, the Mortgage and the other Loan Documents, or in the Mortgaged
Property, the Rents, or any other collateral given to Lender pursuant to the
Loan Documents; provided, however, except as specifically provided herein, any
judgment in any such action or proceeding shall be enforceable against Borrower
only to the extent of Borrower's interest in the Mortgaged Property, the Rents
and any other collateral given to Lender, and Lender, by accepting the Note,
this Agreement, the Mortgage and the other Loan Documents, agrees that it shall
not sue for, seek or demand any deficiency judgment against Borrower in any such
action or proceeding under or by reason of or under or in connection with the
Note, this Agreement, the Mortgage or the other Loan Documents. The provisions
of this Section shall not, however, (a) constitute a waiver, release or
impairment of any obligation evidenced or secured by any of the Loan Documents;
(b) impair the right of Lender to name Borrower as a party defendant in any
action or suit for foreclosure and sale under any of the Mortgage; (c) affect
the validity or enforceability of or any guaranty or indemnity of Borrower made
in connection with the Loan or any of the rights and remedies of Lender
thereunder; (d) impair the right of Lender to obtain the appointment of a
receiver; (e) impair the enforcement of the assignment of leases set forth in
the Mortgage; or (f) constitute a waiver of the right of Lender to enforce the
liability and obligation of Borrower, by money judgment or otherwise, to the
extent of any loss, damage, cost, expense, liability or other obligation
incurred by Lender (including attorneys' fees and costs reasonably incurred)
arising out of or in connection with (but only to the extent of) the following:
(i) waste with respect to the Mortgaged Property;
(ii) fraud, misrepresentation or misapplication of funds by Borrower
in connection with the Loan;
(iii) any liability under the Environmental
Indemnity;
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(iv) the removal or disposal by Borrower of any portion of the
Mortgaged Property in violation of the Loan Documents after an Event of Default;
(v) the application by Borrower of any Proceeds other than in
accordance with the terms of this Agreement, or the application of any Rents or
other revenues from the Mortgaged Property, following an Event of Default,
except to the Management Expenses of the Mortgaged Property or to repay the Debt
or other amounts due hereunder or under the other Loan Documents or as otherwise
permitted by the terms of the Loan Documents; and
(vi) any security deposits or advance booking deposits collected with
respect to the Mortgaged Property which are not delivered to Lender upon a
foreclosure of the Mortgaged Property or sale or deed in lieu thereof.
Notwithstanding anything to the contrary in this Agreement or any of the Loan
Documents, Lender shall not be deemed to have waived any right which Lender may
have under Section 506(a), 506(b) or 1111(b) or any other provisions of the U.S.
Bankruptcy Code to file a claim for the full amount of the Debt secured by the
Mortgage or to require that all collateral shall continue to secure all of the
Debt owing to Lender in accordance with the Loan Documents.
Section 13.25 Loan Assignability by Lender. The Loan, and all of
----------------------------
Lender's rights, remedies and privileges hereunder and the other Loan Documents,
shall be assignable by Lender at any time and from time to time. Lender shall
provide Borrower with written notice of any such assignment in accordance with
Section 13.6 hereof; provided, however, that failure to provide such notice
shall in no way impair the rights, remedies and privileges of Lender or its
assignee hereunder and under the other Loan Documents.
Section 13.26 Disclosure. Notwithstanding anything in the Management
----------
Agreement, Borrower, the Lender, the Servicer and the Special Servicer may
disclose information regarding such agreement and the operation of the Hotel,
and provide copies of such agreement and any financial statements or reports
delivered by the Manager pursuant to such agreement, to holders of the Loan or
the Certificates, and any counsel to or agents, officers, employees and
representatives of any such holder, and may disclose and describe the terms
hereof and thereof in any
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offering memorandum, prospectus, or registration statement or other filing
required under applicable law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives, all as of the day and
year first above written.
DS HOTEL LLC
By: /s/ Patricia K. Brady
------------------------------
Name: Patricia K. Brady
Title: Vice President
GMAC COMMERCIAL MORTGAGE CORPORATION
By: /s/ James C. Poff
------------------------------
Name: James C. Poff
Title: Vice President
<PAGE>
Schedule 1
----------
Intentionally Omitted
<PAGE>
Schedule 2
----------
DEFERRED MAINTENANCE CONDITIONS
-------------------------------
<PAGE>
Deferred Maintenance Items
All items to be completed by December 31, 1998
<TABLE>
<CAPTION>
CORRECTION ESTIMATE STATUS REPORT Page 1 Date: October 11, 1996
==================================================================================================================================
Marriott's Desert Springs Resort and Spa Revision Date: November 5, 1997
74855 Country Club Drive, Palm Desert, CA 92260
COST TO CORRECT
DEFICIENCY DESCRIPTION (Lump Sum)
SITE Immediate Photo
- ---- ----------------------------
<S> <C> <C>
HOTEL GROUNDS:
Replace concrete sidewalk section at Mikado boat dock adjacent to fountain $1,350 50
- -------------------------------------------------------------------------------------------------------------------------------
** Repair or replace cracked concrete cracking at the Springs Pool area $ 0
- -------------------------------------------------------------------------------------------------------------------------------
* Repair bent and replace missing rods and anodized aluminum fencing at oasis pool area $ 0
- -------------------------------------------------------------------------------------------------------------------------------
* Provide additional sand and soil at sidewalk transition behind spring pool snack building $ 0
- -------------------------------------------------------------------------------------------------------------------------------
(8" minimum step)
- -------------------------------------------------------------------------------------------------------------------------------
* Clean out soil and debris from dry well trench drains at parking areas $ 0
- -------------------------------------------------------------------------------------------------------------------------------
Repair bent center rail post at exterior ballroom pre-function steps $ 750 49
- -------------------------------------------------------------------------------------------------------------------------------
* Drive in exposed nail heads at Mikado's wooden bridge $ 0
- -------------------------------------------------------------------------------------------------------------------------------
Repair and replace sidewalk lights bollards $1,400 55
- -------------------------------------------------------------------------------------------------------------------------------
* Repair or repaint cracked and loose slate tile at the Mikado stairway $ 0
- -------------------------------------------------------------------------------------------------------------------------------
* Replace cracked and partial wheel stops at northwest parking lot $ 0
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal - Hotel Grounds $3,500
===========================
PARKING GARAGE:
* Remove existing expansion joint material, install new caulking, and secure aluminum covers $ 0
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal - Parking Garage $ 0
===========================
GOLF COURSE:
* Replace dead trees and shrubs at selected areas $ 0
- -------------------------------------------------------------------------------------------------------------------------------
* Clean out dry well area adjacent to head walls $ 0
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal - Golf Course $ 0
===========================
ROOFING
- -------
HOTEL:
** Repair or replace damaged roof membrane at all hotel, spa, and outbuilding areas $ 0 57 & 58
- -------------------------------------------------------------------------------------------------------------------------------
** Install and replace damaged vent caps and roof drains $ 0
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal - Hotel Roofing $ 0
===========================
SPA:
*** Remove and replace roofing system at spa building (except weight room addition) $ 0
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Subtotal - Spa Roofing $ 0
===========================
SUBTOTAL - Page 1 $3,500
======
</TABLE>
* Work Completed
** Work in Progress
*** Work Scheduled for Years 1 through 10 - Reference Replacement Reserve
Analysis
<PAGE>
CORRECTION ESTIMATE STATUS REPORT Page 2 Date: October 11, 1996
================================================================================
Marriott's Desert Springs Resort and Spa Revision Date: November 5, 1997
74855 Country Club Drive, Palm Desert, CA 92260 COST TO CORRECT
<TABLE>
<CAPTION>
DEFICIENCY DESCRIPTION (Lump Sum)
EXTERIOR Immediate Photo
- ---------------------- ----------- ---------
<S> <C> <C>
HOTEL:
* Repair and repaint scratched exterior anodized
aluminum doors and frames at Building B $0
- --------------------------------------------------------------------------------
* Replace cracked and chipped marble veneer at porte
cochere entry $0
- --------------------------------------------------------------------------------
Replace cracked ceramic tile at exterior guest
corridor for Buildings D and G $1,750 53
- --------------------------------------------------------------------------------
** Repair minor damaged stucco finishes at selected
areas Warranty Work
- --------------------------------------------------------------------------------
* Pressure wash stains from planter boxes at selected
areas $0
- --------------------------------------------------------------------------------
Subtotal - Hotel Exterior $1,750
=====================
SPA:
** Repair cracked and chipped stucco finish at selected
areas Warranty Work
- --------------------------------------------------------------------------------
* Replace hollow metal doors and frames at mechanical
area $0
- --------------------------------------------------------------------------------
* Replace insulated glazed window at men's breathing
room $0
- --------------------------------------------------------------------------------
Clean, prep, and paint mechanical doors and frames $1,200 56
- --------------------------------------------------------------------------------
Subtotal - Spa Exterior $1,200
=====================
OUT BUILDINGS:
** Repair stucco finish at spring pool snack building Warranty Work
- --------------------------------------------------------------------------------
* Clean, prep, and paint metal doors and frames at
spring pool $0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Subtotal - Out Buildings Exterior $0
=====================
INTERIOR
- ----------------------
* Replace softgoods and casegoods at lobby $0
- --------------------------------------------------------------------------------
* Repair walls, floor and ceiling finishes at Main
and Banquet Kitchens $0
- --------------------------------------------------------------------------------
* Replace meeting room carpet $0
- --------------------------------------------------------------------------------
Subtotal - Interior $0
=====================
PLUMBING
- ----------------------
* Repair or replace hot water insulation $0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Subtotal - Plumbing $0
=====================
ELECTRICAL
- ----------------------
* Provide miscellaneous "J" box covers at mechanical
areas $0
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Subtotal - Electrical $0
=====================
* Work Completed
** Work in Progress SUBTOTAL - Page 2 $2,950
=============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CORRECTION ESTIMATE STATUS REPORT Page 3 Date: October 11, 1996
==========================================================================================================================
Marriott's Desert Spring Resort and Spa Revision Date: November 5, 1997
74855 Country Club Drive, Palm Desert, CA 92260
COST TO CORRECT
DEFICIENCY DESCRIPTION
(Lump Sum)
Immediate Photo
------------------------------
<S> <C> <C>
MECHANICAL
- ------------------
Clean calcium and mineral build-up and service cooling tower $4,500 52
- --------------------------------------------------------------------------------------------------------------------------
* Remove plastic elbow insulation cover and replace with aluminum
and new insulation at rooftop piping $0
- --------------------------------------------------------------------------------------------------------------------------
Replace laundry steam hot water boiler (in 1998 CapEx Budget) $75,000 51
- --------------------------------------------------------------------------------------------------------------------------
* Replace laundry expansion tank insulation and related piping $0
- --------------------------------------------------------------------------------------------------------------------------
* Replace hot and chilled water piping insulation at selected areas $0
- --------------------------------------------------------------------------------------------------------------------------
* Replace filter and clean and service rooftop evaporative and package units $0
- --------------------------------------------------------------------------------------------------------------------------
* Provide an in-depth engineering report to study hydraulic piping deficiencies
and options for a back-up/redundant chilled water system $0
- --------------------------------------------------------------------------------------------------------------------------
Subtotal - Mechanical $79,500
==============================
FIRE & LIFE SAFETY
- ------------------
* Install new lamps at "Exit" signs for Buildings C-1 and C-2 $0
- --------------------------------------------------------------------------------------------------------------------------
Subtotal - Fire & Life Safety $0
==============================
ADA "READILY ACHIEVABLE"
- -----------------------
** Provide ADA compliant signage at public areas (cost amount to complete) $10,000
- --------------------------------------------------------------------------------------------------------------------------
** Provide resort accessibility plan for handicap guests $0
- --------------------------------------------------------------------------------------------------------------------------
Provide six handicap signs for Exhibit Hall and Tennis Club parking spaces $900 54
- --------------------------------------------------------------------------------------------------------------------------
Subtotal - ADA "Readily Achievable" $10,900
-----------
SUBTOTAL - PAGE 3 $90,400
===========
TOTAL - PAGES 1-3 $96,850
===========
</TABLE>
<PAGE>
ENVIRONMENTAL DEFERRED MAINTENANCE ITEMS
The following items are to be completed by December 31, 1998 in a manner
consistent with the letter dated April 26, 1996 from Petro-Analytical, Inc. to
Scott Carlson of Marriott Desert Springs Resort.
1) Upgrading or removal of four USTs on golf course.
2) Upgrading of Main Generator UST.
<PAGE>
CHILLER WORK
TO BE COMPLETED BY DECEMBER 31, 1999
Mechanical - Potential Option Based on P2S Engineering Report:
Provide redundant chilled water system
(one 1,000 ton chiller and cooling tower) 2,000,000
<PAGE>
Schedule 4A
-----------
REPRESENTATIONS AND WARRANTIES OF BORROWER
------------------------------------------
Except as may be set forth on Schedule 4C:
1. Authority; Binding on Borrower; Enforceability. Borrower is a
----------------------------------------------
limited liability company, duly formed, validly existing and in good standing
under the laws of the State of Delaware. Borrower has taken all company action
required to make the provisions of the Loan Documents the valid and enforceable
obligations they purport to be. Borrower is duly qualified and in good standing
as a foreign limited liability company in California and all other jurisdictions
where it is required to so be qualified, except for failures to be so qualified
that do not in the aggregate have any Material Adverse Effect. Borrower has the
full right, authority and power to own the Mortgaged Property and to conduct its
business. Each of the Loan Documents has been duly authorized, executed and
delivered by Borrower and constitutes the valid and legally binding obligation
of Borrower, enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors rights and to general
equity principles.
2. Conflict with Existing Laws or Contracts; Consents. The
----------------------------------------- --------
execution and delivery of the Loan Documents and all related documents and the
performance of its obligations hereunder and thereunder by Borrower do not
conflict with any provision of any applicable law or regulation to which
Borrower is subject, or conflict with or result in a breach of or constitute a
default under any of the terms, conditions or provisions of any agreement or
instrument to which Borrower is a party or by which Borrower is bound or any
order or decree applicable to Borrower, or result in the creation or imposition
of any lien on any of its assets or property. Borrower has obtained all
consents, approvals, authorizations or orders of any court, governmental agency
or body and of all third parties, if any, required for the execution, delivery
and making by Borrower of the Loan Documents and the consummation of the
transactions contemplated thereby.
3. Bankruptcy or Debt of Borrower; Financial Condition. Borrower
---------------------------------------------------
has not filed and is not contemplating the filing of any petition seeking or
acquiescing in any
4A-1
<PAGE>
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any law relating to bankruptcy or insolvency, nor has
any such petition been filed against Borrower. No general assignment of
Borrower's property has been made for the benefit of creditors, and no receiver,
master, liquidator or trustee has been appointed for Borrower or any of its
property. Borrower is not insolvent and the consummation of the transactions
contemplated by the Loan Documents shall not render Borrower insolvent.
4. Litigation; Condemnation. There are no actions, suits or
------------------------
proceedings at law or in equity by or before any Governmental Authority or other
agency now pending, or to the best of Borrower's knowledge, threatened against
or affecting Borrower or the Mortgaged Property, which actions, suits or
proceedings, alone or in the aggregate, if determined against Borrower or the
Mortgaged Property, would have a Material Adverse Effect. There are no pending,
and Borrower has no knowledge of any threatened, condemnation or similar
proceeding affecting the Mortgaged Property.
5. Title. Borrower has good and marketable title in fee to the real
-----
property comprising the Mortgaged Property (other than the parcel described on
Exhibit C), and good and marketable leasehold title to the parcel described on
Exhibit C, and good and marketable title to the balance of the Mortgaged
Property, in each case free and clear of all Liens whatsoever except the
Permitted Encumbrances, such other Liens as are permitted pursuant to the Loan
Documents and the Liens created by the Loan Documents. The Mortgage, when
properly recorded in the appropriate records, together with any Uniform
Commercial Code financing statements required to be filed in connection
therewith, will create (i) a valid, perfected first priority lien on the
Mortgaged Property, subject only to Permitted Encumbrances and the Liens created
by the Loan Documents and (ii) perfected security interests in and to, and
perfected collateral assignments of, all personalty (including the Leases), all
in accordance with the terms thereof, in each case subject only to any Permitted
Encumbrances, such other Liens as are permitted pursuant to the Loan Documents
and the Liens created or permitted by the Loan Documents. The Permitted
Encumbrances do not and will not have a Material Adverse Effect. Except as
insured over by a Qualified Title Insurance Policy, to Borrower's knowledge,
there are no claims for payment for work, labor or materials affecting the
Mortgaged Property which are or may become a lien prior to, or of equal priority
with, the Liens created by the Loan
4A-2
<PAGE>
Documents (other than mechanics' or materialmen's liens for work or materials
performed or supplied but the costs for which are not yet past due or which are
being contested in accordance with Section 5.1(b)(ii) of the Loan Agreement).
(Nothing in this paragraph may be relied on by the title insurance company
issuing a policy covering the Mortgaged Property.)
6. Leases; Lease Obligations. SCHEDULE 4A-6 hereto sets forth all
-------------------------
leases, under which any Person leases, any portion of the Mortgaged Property
(each, a "Tenant") and is true and complete. Such leases, have not been amended
------
or modified, except as set forth on said Schedule. Borrower has delivered to
Lender true, correct and complete copies of all such leases, as the same are
currently in effect. Except as may be set forth on SCHEDULE 4A-6 or, with
respect to items (a), (c), (d) and (e), to the extent not covered in said
Schedule, in any tenant estoppel certificate being delivered to Lender
concurrently herewith:
(a) Borrower has received no written notice of any insolvency or
bankruptcy proceeding pending or threatened involving any Tenant;
(b) there are no agreements for the use, occupancy or possession of
the Land or Improvements presently in force;
(c) there are no (and after Closing there will not be any) prepaid
rentals, free rent or rent concessions in connection with any of the Leases;
(d) no default exists in any material respect with respect to either
the landlord's or Tenant's obligations under the Leases, and there are no
pending claims asserted by any Tenant for offsets or abatements against rent or
any other monetary claim;
(e) Borrower is the sole owner of the lessor's interest in all of the
Leases and, except for any collateral assignments of leases and rent given or
made to any existing mortgage holder of the Mortgaged Property and which will be
released and canceled of record at Closing, Borrower has not given or suffered
any other assignment, pledge or encumbrance in respect of any of the Leases or
its interests thereunder, and Borrower has the sole right to collect rents and
other amounts due under the Leases.
4A-3
<PAGE>
7. Rights of Offer and Refusal. Except as provided in the
---------------------------
Management Agreement, but subject to the Consent of Manager, no Person has any
option, right to acquire any portion of the Mortgaged Property or any interest
relating thereto, or a right of first offer or right of refusal to do so
(whether exercisable now or upon any subsequent resale of the Mortgaged Property
or any portion thereof).
8. Physical Condition. Except as disclosed in the engineering
------------------
reports or described in the definition of "Chiller Work Reserve", there is no
material structural or other material defect or material damage in or to the
Mortgaged Property, (except as may be included in Deferred Maintenance
Conditions, in respect of which reserves are being established with Lender).
Borrower has no knowledge of any notice from an insurance company or bonding
company of any defects or inadequacies in the Mortgaged Property which would,
alone or in the aggregate, adversely affect in any material respect the
insurability of the same or cause the imposition of extraordinary premiums or
charges thereon or of any termination or threatened termination of any policy of
insurance or bond.
9. Compliance. Borrower and the Mortgaged Property and the use
----------
thereof, comply in all material respects with all applicable Legal Requirements,
including building codes, zoning, subdivision, land use and similar laws,
ordinances, plans and orders having the force of law. Neither the Mortgaged
Property nor the Borrower thereof is in default or violation of any order, writ,
injunction, decree or demand of any Governmental Authority having jurisdiction
over the Mortgaged Property, the violation of which would materially adversely
affect the Mortgaged Property or the financial condition of Borrower. There has
not been committed by Borrower any act affording the federal government or any
state or local government the right of forfeiture as against the Mortgaged
Property or any part thereof or any monies paid in performance of Borrower's
obligations under any of the Loan Documents. Borrower hereby covenants and
agrees not to commit any act or omission affording such right of forfeiture.
10. Licenses. Borrower has all material certifications, permits,
--------
licenses, approvals and other authorizations from governmental political
subdivisions or regulatory authorities (collectively "Permits") as are necessary
for the ownership, use and operation of the Mortgaged Property. Borrower has no
knowledge on the part of any issuing authority which intends to cancel and
suspend or
4A-4
<PAGE>
to institute proceedings to cancel and suspend any of the Permits.
11. Outstanding Contracts. To Borrower's knowledge, Borrower has
---------------------
delivered a true and correct copy of each contract, as in effect on the date
hereof, affecting the Mortgaged Property or Borrower in effect as of the date
hereof. Borrower has not delivered to or received from the other party to any
such contract notice of a default thereunder which remains uncured. Except for
the Leases and contracts provided to Lender, there are no material contractual
agreements of any kind with respect to the Mortgaged Property.
12. Employees. Other than union contracts disclosed to Lender, there
---------
are no collective bargaining, employment or other similar agreements relating to
the employees at the Mortgaged Property that are binding on Borrower or the
Mortgaged Property.
13. Environmental Matters. (i) No notice, demand, letter, claim or
---------------------
request for information has been issued to Borrower or DSMLP or otherwise known
to either of Borrower or DSMLP by any Governmental Authority regarding the
presence of Hazardous Substances (as defined in the Environmental Indemnity
Agreement) or liability under any Environmental Law with respect to the
Mortgaged Property; (ii) the Mortgaged Property is not subject to any orders,
decrees, injunctions or any other proceedings or requirements imposed by any
governmental authority or third party relating to any Environmental Law or
Hazardous Substances; and (iii) all underground storage tanks located on, in or
under the Mortgaged Property are properly registered and licensed in accordance
with any applicable Environmental Law.
14. Casualty. No material casualty has occurred with respect to the
--------
Mortgaged Property within the last 12 months which has not been fully restored
or repaired.
15. Assessments. Other than ad valorem taxes for the year of Closing
-----------
which are not yet due and payable, or as disclosed in the Qualified Title Report
or documents referenced therein, the Mortgaged Property is not subject to any
assessment, reassessment, special assessment, user fee, charge, levy, tax or tax
increase of any nature whatsoever (other than reassessment charge, levy tax or
tax increase arising by reason of Borrower's acquisition of the Mortgaged
Property and a transfer tax).
4A-5
<PAGE>
16. FIRPTA. Borrower is not a "foreign person" as defined in Section
------
1445 of the Internal Revenue Code of 1986, as amended, and the regulations
promulgated thereunder.
17. Investment Company Act. Borrower is not (i) an "investment
----------------------
company" or a company "controlled" by an "investment company," within the
meaning of the Investment Company Act of 1940, as amended; or (ii) a "holding
company" or a "subsidiary company" of a "holding company" or an "affiliate" of
either a "holding company" or a "subsidiary company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended. Borrower's sole
business is the ownership, operation, maintenance, repair, financing,
refinancing and disposition of the Mortgaged Property and such matters as are
incidental to the foregoing.
18. Financial Information. The financial information prepared by or
---------------------
on behalf of Borrower (or its predecessor in interest) in respect of the
Mortgaged Property and delivered to Lender prior to the date hereof, (i) is
true, complete and correct in all material respects, (ii) represents the
financial condition of the Hotel and Mortgaged Property as of the date of such
information, and (iii) has been prepared on a sound basis consistently applied
throughout the periods covered, except as disclosed therein. Borrower does not
have any contingent liabilities, liabilities for taxes, unusual forward or long-
term commitments or unrealized or anticipated losses from any unfavorable
commitments, that are known to Borrower and reasonably likely to have a Material
Adverse Effect, except as disclosed in writing to Lender. Since the date of
such financial information, there has been no materially adverse change in the
financial condition, operations or business of Borrower from that set forth in
said financial information.
19. No Plan Assets. Borrower is not an "employee benefit plan," as
--------------
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), subject to Title I of ERISA. The execution and delivery
-----
of the Loan Documents, and the borrowing of indebtedness hereunder, does not
constitute a non-exempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code. Borrower shall not engage in a nonexempt prohibited
transaction described in Section 406 of ERISA or Section 4975 of the Code, as
such sections relate to Borrower, or in any transaction that would cause any
obligation or action taken or to be taken hereunder (or the exercise by Lender
of any of its
4A-6
<PAGE>
rights under the Loan Documents) to be a non-exempt prohibited transaction under
ERISA.
20. Reserved.
21. Material Agreements. True and complete copies of the Material
-------------------
Agreements relating to the Mortgaged Property (including all amendments,
agreements, side letters and all other material documents relating thereto other
than those effected in the ordinary course of business and which individually or
in the aggregate do not have a Material Adverse Effect) have been made available
to the Lender; each such agreement is unmodified and in full force and effect;
there is no default by any party thereunder and no event has occurred and is
continuing which, with the passage of time and/or the giving of notice, would
constitute a default or an event of default by it thereunder in such
circumstances that such default or event of default might have a Material
Adverse Effect.
22. Operating Budget. The Operating Budget annexed hereto as Exhibit
----------------
D contains all anticipated operating expenses for the Mortgaged Property for the
Fiscal Year ending December 31, 1997. The preliminary Capital Budget annexed
hereto as Exhibit E contains all presently anticipated Capital and FF&E
Expenditures for the Mortgaged Property for the Fiscal Year ending December 31,
1997.
23. Reserved.
24. Adequate Parking. The Mortgaged Property has available to it
----------------
adequate parking to comply with all Legal Requirements and to permit the
operation of the Mortgaged Property as a first class full service resort hotel,
operated in compliance with Marriott standards and the Management Agreement.
25. Reserved.
26. Reserved.
27. Rooms in Service. All of the rooms at the Hotel are in service,
----------------
except for rooms that are temporarily out of service for routine maintenance and
repair.
28. Funds for Capital and FF&E Expenses. Borrower has or anticipates
-----------------------------------
that it will have sufficient funds
4A-7
<PAGE>
available to it for implementing its reasonable anticipated capital and FF&E
Expenditures.
29. Ground Lease. With respect to the Ground Lease and an estoppel
------------
letter from the Ground Lessor, Borrower represents and warrants:
A. The Ground Lease or a memorandum thereof has been duly
recorded, the Ground Lease permits the interest of the lessee thereunder to
be encumbered by the Mortgage, does not restrict the use of the Mortgaged
Property, by lessee, its successors and assigns in a manner that would
adversely affect the security provided by the Mortgage, and there has not
been a material change in the terms of the Ground Lease since its
recordation, with the exception of written instruments which have been
delivered to Lender.
B. The Ground Lease is not subject to any liens or encumbrances
superior to, or of equal priority with, the Mortgage, other than the Ground
Lessor's fee interest.
C. The Borrower's interest in the Ground Lease is assignable to
the Lender upon notice to, but without the consent of, the Ground Lessor
and, in the event that it is so assigned, it is further assignable by the
Lender to a trustee or servicer and its successors and assigns upon notice
to, but without a need to obtain the consent of, such Ground Lessor.
D. The Ground Lease is in full force and effect and no material
default has occurred under the Ground Lease and there is no existing
condition which, but for the passage of time or the giving of notice, would
result in a default under the terms of the Ground Lease.
E. The Ground Lease requires the Ground Lessor to give notice of
any default by the Borrower to Lender; and the Ground Lease, or an estoppel
letter received by the Lender from the Ground Lessor, further provides that
notice of termination given under the Ground Lease is not effective against
the Lender unless a copy of the notice has been delivered to the Lender in
the
4A-8
<PAGE>
manner described in such Ground Lease or estoppel letter.
F. The Lender is permitted a reasonable opportunity (including,
where necessary, sufficient time to gain possession of the interest of the
lessee under the Ground Lease) to cure any default under the Ground Lease,
which is curable after the receipt of notice of any default before the
Ground Lessor may terminate the Ground Lease.
G. The Ground Lease has a term which, when taken together with
the renewal options under the Ground Lease, extends not less than 10 years
beyond the Stated Maturity Date.
H. The Ground Lease or estoppel letter require the Ground Lessor
to enter into a new lease with the Lender upon termination of the Ground
Lease for any reason, including rejection of the Ground Lease in a
bankruptcy proceeding, provided Lender cures the lessee's defaults.
I. Under the terms of the Ground Lease, the Borrower is
permitted to apply all insurance proceeds to the repair or restoration of
all or part of the Mortgaged Property, with the Lender having the right to
hold and disburse the Proceeds as the repair of restoration progresses.
J. The Ground Lease does not impose any material restrictions on
subletting.
K. The Ground Lease contains the lessor's covenant that the
Ground Lease shall not be amended, canceled, or terminated without the
prior written consent of Lender.
L. Either the Ground Lease or an estoppel letter contains a
covenant that the lessor thereunder is not permitted, in the absence of an
uncured default under the Ground Lease, to disturb the possession, interest
or quiet enjoyment of any lessee in the relevant portion of the Mortgaged
Property subject to the Ground Lease for any reason, or in any manner,
which would materially adversely affect the security provided by the
Mortgage.
4A-9
<PAGE>
Schedule 4B
-----------
REPRESENTATIONS AND WARRANTIES OF
---------------------------------
BORROWER'S SINGLE PURPOSE
-------------------------
(1) Single-Purpose. Borrower hereby represents and warrants to, and
--------------
covenants with, Lender that, as of the date hereof and until such time as the
Debt shall be paid in full:
(i) Borrower has not owned and will not own any property other
than (A) the Mortgaged Property and (B) incidental personal property
relating to the ownership or operation of the Mortgaged Property.
(ii) Borrower has not engaged and will not engage in any
business other than the ownership, management, financing and operation of
the Mortgaged Property.
(iii) Borrower has not entered and will not enter into any
contract or agreement with any Affiliate of Borrower, any constituent party
of Borrower or any Affiliate of any constituent party, other than upon
terms and conditions that are substantially similar to those that would be
available on an arm's length basis with third parties.
(iv) Borrower has not incurred and will not incur any
indebtedness, secured or unsecured, direct or indirect, absolute or
contingent (including guaranteeing any obligation), other than the
Permitted Indebtedness. Except as set forth in the immediately preceding
sentence, no indebtedness other than the Debt may be secured (whether
senior, subordinate or pari passu) by the Mortgaged Property.
---- -----
(v) Borrower has not made and will not make any loans or
advances to any other Person (including any Affiliate or constituent party
or any Affiliate of any constituent party).
(vi) Borrower is and will remain solvent and Borrower will
generally pay its debts and liabilities (including employment and overhead
expenses) from its assets as the same shall become due.
4B-1
<PAGE>
(vii) Borrower has done or caused to be done and will do all
things necessary to observe corporate or partnership (or other applicable
organizational) formalities, as the case may be, and preserve its
existence, and Borrower will not, nor will Borrower permit or suffer any
constituent party to amend, modify or otherwise change the partnership
certificate, partnership agreement, articles of incorporation and bylaws,
trust or other organizational documents of Borrower or such constituent
party in a manner which would adversely affect Borrower's existence as a
Special Purpose Entity.
(viii) Borrower will maintain books and records and bank
accounts separate from those of its Affiliates and any constituent party
(provided that nothing shall prohibit Borrower from being included in the
consolidated financial statements or tax group of another Person to the
extent required by GAAP or applicable law, respectively) and Borrower will
file its own tax returns (except to the extent consolidation is required as
a matter of law).
(ix) Borrower will be, and at all times will hold itself out to
the public as, a legal entity separate and distinct from any other entity
(including any Affiliate of Borrower, any constituent party of Borrower or
any Affiliate of any constituent party), shall conduct business in its own
name and shall maintain and utilize separate stationery, invoices and
checks.
(x) Borrower will maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and character
and in light of its contemplated business operations.
(xi) Neither Borrower nor any constituent party will seek the
dissolution or winding up, in whole or in part, of Borrower.
(xii) Borrower will not commingle the funds and other assets of
Borrower with those of any Affiliate or constituent party or any Affiliate
of any constituent party or any other Person (except as specifically
contemplated by the Cash Management Procedures).
(xiii) Borrower has and will maintain its assets in such a
manner that it will not be costly or
4B-2
<PAGE>
difficult to segregate, ascertain or identify its individual assets from
those of any Affiliate or constituent party or any Affiliate of any
constituent party or any other Person.
(xiv) Borrower has not held and will not hold itself out to be
responsible for the debts or obligations of any other Person.
(xv) If Borrower is a limited partnership, at least one of
general partners shall be a Special Purpose Entity whose sole asset is its
interest in Borrower, and Borrower shall be deemed hereby to have made each
of the representations, warranties and covenants contained in this SCHEDULE
with respect to such general partner.
(xvi) Borrower shall at all times cause there to be at least one
duly appointed member of the board of directors of the general partner of
Borrower or manager of Borrower (an "Independent Director/Manager")
----------------------------
reasonably satisfactory to Lender who shall be "Independent" at the time of
such individual's appointment. "Independent" shall mean that such Person
is not, and has not within the preceding five years been (i) an officer,
director, employee, partner, member, beneficial interest holder or
stockholder of Borrower or any of its members, (ii) an officer, director,
employee, partner, member, beneficial interest holder or stockholder of any
Affiliate of Borrower or any of its members, (iii) a customer, supplier or
service provider of Borrower or any Affiliate thereof (other than a hotel
guest or a customer, supplier or service provider that does not derive more
than 10% of its revenues from its activities with Borrower or any
Affiliate), or (iv) a spouse, parent, sibling or child of any of any person
described in (i), (ii) or (iii); provided, however, that a person shall not
be deemed to be a director of a member or an Affiliate of Borrower solely
by reason of such person being an Independent Director/Manager of a single-
purpose entity that would otherwise be deemed to be an Affiliate because
they are under common control; provided further, however, that the
Independent Director/Managers of the Senior Borrower, Mezzanine Borrower
and Junior Lender shall at all times be different individuals. As used
herein, the term control means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies
of a Person whether through ownership of voting securities, by
4B-3
<PAGE>
contract or otherwise. Upon the conditions specified in Borrower's
Operating Agreement, the Independent Director/Manager shall also be a non-
economic member with authority to continue Borrower's existence upon
bankruptcy or dissolution of any other member.
(xvii) Borrower shall not cause or permit the board of managers
or directors of Borrower (if it is a limited liability company or
corporation, respectively), or take any action which, under applicable law
or the terms of any certificate of incorporation, operating agreement, by-
laws or any voting trust agreement with respect to any common stock,
requires the vote of the board of managers or directors of Borrower or the
consent of its manager, unless at the time of such action there shall be at
least one person who is an Independent Director/Manager; provided, however,
-------- -------
that subject to any applicable Legal Requirement, Borrower may, at its
discretion, limit the first sentence of this clause (xvii) to the following
actions: (A) the dissolution, liquidation, consolidation, merger and the
sale of all or substantially all of the properties and assets of Borrower,
(B) the engagement by Borrower in any business other than the ownership,
maintenance and operation of the Mortgaged Property, (C) the filing, or
consent to the filing, of a bankruptcy or insolvency petition, any general
assignment for the benefit of creditors or the institution of any other
insolvency proceeding, and (D) the amendment or modification of any
provision of Borrower's limited partnership agreement which amendment or
modification materially adversely affects any of the Special Purpose Entity
requirements.
(xviii) The consent of the Independent Director/Manager shall be
required for the taking of any action described in subclauses (A) through
(D) of clause (xvii) (except where such Independent Director/Manager is not
required under this Schedule or the Loan Agreement).
4B-4
<PAGE>
Schedule 4C
-----------
Exceptions to Representations and Warranties
--------------------------------------------
NONE
<PAGE>
RENT ROLL
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Tenant Sq. Ft Lease Lease Rent Sq. Ft. Annual Rent % Rent
Begin end
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Arrangements 1000 10/15/94 12/31/00 Years 1/$10.42 $10,420.80 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$11.65 $11,632.60
- --------------------------------------------------------------------------------------------------------------
Year 3/$12.88 $12,881.58
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Classic Touch --- 01/01/93 12/31/00 Year 1/$78.92 $15,628.16 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$81.29 $16,904.57
- --------------------------------------------------------------------------------------------------------------
Year 3/$83.73 $18,011.71
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Excessories 678 04/13/90 12/31/02 Years 1/$67.30 $41,588.40 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$69.32 $42,839.14
- --------------------------------------------------------------------------------------------------------------
Year 3/$71.40 $44,124.31
- --------------------------------------------------------------------------------------------------------------
Year 4/$73.54 $45,440.04
- --------------------------------------------------------------------------------------------------------------
Year 5/$75.75 $45,611.48
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Jose Eber Salon 1192 09/01/86 12/31/03 Year 1/$38.90 $46,384.80 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$40.08 $47,772.14
- --------------------------------------------------------------------------------------------------------------
Year 3/$41.28 $48,206.30
- --------------------------------------------------------------------------------------------------------------
Year 4/$42.52 $50,681.46
- --------------------------------------------------------------------------------------------------------------
Year 5/%43.79 $52,201.90
- --------------------------------------------------------------------------------------------------------------
Year 6/$45.11 $53,767.96
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Lam Tatum's Show 617 10/01/87 12/31/03 Year 1/$67.40 $41,598.40 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$69.42 $42,833.37
- --------------------------------------------------------------------------------------------------------------
Year 3/$71.50 $44,115.27
- --------------------------------------------------------------------------------------------------------------
Year 4/$73.65 $45,447.92
- --------------------------------------------------------------------------------------------------------------
Year 5/$75.86 $48,205.18
- --------------------------------------------------------------------------------------------------------------
Year 6/$78.14 $48,209.34
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Mary Heren's 617 01/01/96 12/31/02 Year 1/$63.21 $39,002.52 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$67.06 $41,375.71
- --------------------------------------------------------------------------------------------------------------
Year 3/$69.07 $42,616.98
- --------------------------------------------------------------------------------------------------------------
Year 4/$71.14 $43,895.49
- --------------------------------------------------------------------------------------------------------------
Year 5/$73.28 $45,212.35
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Sun Optics 317 01/01/93 12/31/02 Year 1/$90.13 $28,571.76 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$92.83 $29,428.35
- --------------------------------------------------------------------------------------------------------------
Year 3/$95.62 $30,311.20
- --------------------------------------------------------------------------------------------------------------
Year 4/$98.49 $31,220.54
- --------------------------------------------------------------------------------------------------------------
Year 5/$101.44 $32,157.16
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Western Contam. 290 01/10/93 12/31/00 Year 1/$77.98 $22,614.60 YES
- --------------------------------------------------------------------------------------------------------------
Year 2/$80.32 $23,292.63
- --------------------------------------------------------------------------------------------------------------
Year 3/$82.73 $23,991.41
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Schedule 4A-8
ENGINEERING REPORTS
<TABLE>
<CAPTION>
Report Company Date Issued
------ ------- -----------
<S> <C> <C>
Structural
Engineering/
Seismic & PML
ALTA Survey
MECHANICAL
AND
ELECTRICAL
ENGINEERING
AND FIRE
PROTECTION
AND LIFE
SAFETY
SYSTEMS
PHASE I
ENVIRONMENTAL
& SOILS
ENGINEERING
</TABLE>
4A8-1
<PAGE>
Schedule 6-3
PERMITTED REORGANIZATION
NONE.
<PAGE>
Exhibit A
---------
Intentionally Omitted
<PAGE>
Exhibit A
---------
Intentionally Omitted
<PAGE>
EXHIBIT B
CASH MANAGEMENT PROCEDURES
(DESERT SPRINGS)
Capitalized terms used but not defined in this Exhibit shall have the meanings
ascribed to them in the Loan Agreement and if not defined therein, in the
Management Agreement. References to Sections shall mean the Sections of this
Exhibit unless otherwise stated.
1. MANAGER'S ACCOUNT
1.1 The Manager will establish, on or before January 27, 1998, a
segregated account for the Mortgaged Property in its name for which accounting
of deposits and withdrawals shall be maintained (the "Manager's Account"). The
-----------------
Manager may also establish segregated accounts for the Mortgaged Property (a)
from which payments for alcoholic beverages purchased for the Hotel are made,
(b) in which accounts receivable from credit card companies are deposited, (c)
with respect to which charges for returned checks are made and (d) into which
excess funds not currently needed for Management Expenses are deposited for
investment; provided, however, that each such account other than the account
referred to in clause (d) shall be a "zero-balance" account except for de
--
minimis amounts retained therein, i.e., at the end of each day the amounts
- ------- - -
contained therein shall be transferred to the Manager's Account.
2. PAYMENTS OF MANAGEMENT EXPENSES; REMITTANCES
2.1 The Manager shall deposit into the Manager's Account (or during a
Lockbox Period, into the Lockbox Account), within one full Business Day after
the receipt thereof, all Gross Revenues received by the Manager, other than
customary amounts of petty cash and amounts in the "house banks" held at the
Mortgaged Property, and shall direct all third parties from whom Borrower has
accounts receivable, including, without limitation, credit card companies, but
excluding guests who pay by cash or check at the Hotel ("Third Party Payors") to
------------------
send their payments with respect to the Mortgaged Property directly to the
Manager's Account; provided, however, that accounts receivables from credit card
companies may be deposited in the credit card account referred to in Section
1.1(b).
2.2 The Manager's Account shall be controlled by the Manager. Funds
on deposit in the Manager's Account shall not be commingled with funds related
to any other properties owned or managed by the Manager or any other Person.
2.3 From and after the Closing Date, and except during a Lockbox
Period, the Manager shall make disbursements for the Mortgaged Property on
behalf of Borrower from funds
-1-
<PAGE>
on deposit in the Manager's Account or from petty cash at the Mortgaged
Property, to pay Management Expenses, including, without limitation, to make
deposits into the FF&E Reserve Account as required by Section 6. Such
disbursements may include disbursements to the accounts referred to in clauses
(a), (c) and (d) of the second sentence of Section 1.1. "Management Expenses"
shall include amounts that may be recouped by Manager pursuant to Section 9.04
of the Management Agreement, to the extent permitted by such Section.
2.4 Not later than the twentieth day (or if such day is not a
Business Day, the immediately succeeding Business Day) after the end of each
Accounting Period (the "Operating Profit Payment Date") commencing with November
-----------------------------
28, 1997 (which relates to the Operating Profit for the Accounting Period that
began on October 11, 1997), the Manager shall transfer from the Manager's
Account to the Cash Collateral Account for application by the Servicer on the
next Payment Date an amount equal to the Operating Profit as of the end of the
immediately preceding Accounting Period, calculated on a cumulative basis
(taking into account previous transfers). Such transfer shall be effected by
federal wire, automated clearing house funds, or other transfer of next-day
available funds, to the Cash Collateral Account; provided, however, that any
such transfer required to be made within five days prior to a Payment Date shall
be made by federal wire of immediately available funds. On or before the last
Business Day of the fourth week in each Accounting Period, Borrower will provide
(or will cause the Manager to provide) to the Lender and the Agent under the
Mezzanine Loan a statement setting forth the calculation of the amount of
Operating Profit transferred to the Cash Collateral Account with respect to the
immediately preceding Accounting Period and certifying that the correct amount
has been transferred.
2.5 If on any Payment Date the amount in the Cash Collateral Account
shall be sufficient to make all of the transfers described in clauses (A)
through (C) of Section 4.3 or 4.4, as applicable, or in clauses (A) and (B) of
Section 7.9.1, and Section 7.9.4(A)(i) and 7.9.5(A)(i), as applicable, Borrower
shall be deemed to have paid the Monthly Debt Service Payment Amount unless
Servicer is legally constrained from transferring such amount in accordance with
said Sections, including by reason of any bankruptcy or insolvency related to
Borrower (but excluding any legal constraint applicable to Lender or Servicer
but not related to Borrower).
3. LOCAL ACCOUNT
The Manager shall be entitled to establish, from time to time, a
segregated bank account in the name of Manager (or the name under which the
Hotel is operated), which is not required to be an Eligible Account, at a
financial institution located in the vicinity of the Mortgaged Property (the
"Local Account"), which shall be maintained solely for the purpose of (i)
- --------------
receiving deposits in the ordinary course of business of certain Gross Revenues
from the Hotel (but in no event payments from credit card companies) and (ii)
paying certain Management Expenses that, in the ordinary course of operating the
Hotel, are customarily paid from the Local Account. Funds on deposit in the
Local Account shall not be commingled with funds related to
-2-
<PAGE>
any other properties owned or managed by the Manager or by any person other than
the Borrower. At least twice each week, the Manager shall transfer, by federal
wire, automated clearing house funds, or other transfer of next-day available
funds, into the Manager's Account (or, if the procedures described in Section 7
hereof are then applicable, into the Lockbox Account), all available funds then
on deposit in the Local Account, less amounts that are required to pay
Management Expenses customarily paid out of the Local Account in the ordinary
course of operating the Hotel and an amount to be held for petty cash and the
"house banks" held at the Mortgaged Property; provided, however, that (a) such
amounts shall not exceed $150,000 (subject to adjustment at the end of each
Fiscal Year for increases in the CPI Percentage) and (b) such amount shall be
increased, by agreement of Borrower, the Manager and the Lender, if the
Mortgaged Property shall be expanded to increase the number of rooms contained
therein.
4. CASH COLLATERAL ACCOUNT
4.1 On or before the Closing Date, the Servicer shall establish and
maintain a segregated account in its name on behalf of the Lender (the "Cash
----
Collateral Account"), which must be an Eligible Account, into which all amounts
- ------------------
received by the Servicer from the Manager's Account (and, during a Lockbox
Period from the Lockbox Account and any other account functioning as a lockbox
account), and all other funds of Borrower held as security for the Loan shall be
deposited. The Servicer shall provide to the Manager and Borrower such
information relating to the transactions in the Cash Collateral Account as the
Manager or Borrower, respectively, shall reasonably request, including, without
limitation, the amounts received in and disbursed from the Cash Collateral
Account (including the Sub-Accounts) and the amounts received in and disbursed
from the Lockbox Account.
4.2 From time to time, the Servicer will establish the following
segregated sub-accounts (the "Sub-accounts") of the Cash Collateral Account for
------------
each of the items described in clauses (a) through (h) below, into which the
amounts described in said clauses will be deposited:
(a) Proceeds held by the Lender in accordance with Section 8.1.2
of the Loan Agreement,
(b) the tax and insurance escrows required by Section 6.1 hereof
(the "Tax and Insurance Reserve Account"),
---------------------------------
(c) the FF&E Reserve Account required by Section 6.3 hereof,
(d) the Debt Service Reserve Account required by Section 5.1.1
hereof,
(e) the Excess Cash Flow Escrow Account required by Section 5.3
hereof,
(f) the Management Incentive Reserve Account required by Section
5.4
-3-
<PAGE>
hereof,
(g) any security required to be delivered pursuant to a specific
provisions of the Loan Agreement, including Section 5.1(b)(ii)(E) and
Section 7.1(j) thereof (except as elsewhere stated in these clause (a)
through (i)),
(h) the Chiller Work Reserve pursuant to Section 9.2.1 of the
Loan Agreement; provided that after $500,000 shall have been deposited in
such reserve in accordance with Section 4.3(N), Section 5.3.1 and Section
7.9.4(L), and all amounts in such reserve are expended in accordance with
Section 9.2.1 of the Loan Agreement, then such reserve shall be eliminated,
and
(i) the Manager Deficit Contribution Account required by Section
5.3.2 hereof.
Amounts in all Sub-accounts shall be deposited into the appropriate Sub-account
to be disbursed by the Servicer in the manner contemplated hereby or by the Loan
Agreement.
Servicer will also establish the Mezzanine Debt Service Reserve
Account in accordance with Section 5.2.1, provided that such account shall not
be a Sub-account and shall instead be held as security for the benefit of the
Mezzanine Lender for the performance by the Mezzanine Borrower of all of its
obligations under the Mezzanine Loan.
4.3 On each Payment Date up to and including the Anticipated
Repayment Date, except during a Lockbox Period, withdrawals from the Cash
Collateral Account (excluding amounts held in a Sub-account, which shall be
withdrawn and applied solely for the purposes for which such Sub-account is
maintained in accordance with the applicable terms of this Exhibit or the Loan
Documents) shall be made by the Servicer only for the following purposes and in
the following order of priority:
(A) if required under the terms of Section 6, to fund any amounts
to be funded into the Tax and Insurance Reserve Account;
(B) if required under the terms of Section 6, to fund any amounts
to be funded into the FF&E Reserve Account;
(C) (i) if the Securitization has been effected, to transfer
funds to the Servicer or the "Collection Account" established in the
name of Lender or Servicer under a pooling and servicing agreement or
to such other account as the Lender or Servicer may designate (the
"Collection Account"), in which account neither Borrower nor Manager
-------------------
shall have any interest whatsoever, in the amount needed to pay the
fees, costs and expenses (together, the "Servicing Expenses") incurred
------------------
in connection with the operation and maintenance of any of the
accounts
-4-
<PAGE>
maintained hereunder by the Servicer and incurred in accordance with
the Loan Documents as a result of an Event of Default (including
Special Servicer fees) to the parties entitled thereto, and then, (a)
first, to the payment of the interest, at the Initial Interest Rate,
then due and payable, and (b) next, to the payment of the principal
amount then due and payable under the Note, and (c) next, to the
payment of any other Debt then due and payable to the Lender
(items (a) and (b), hereinafter, the "Monthly Debt Service Payment");
----------------------------
(ii) if the Securitization has not been effected, to the
payment of Servicing Expenses and then, to the payment of the Monthly
Debt Service Payment, and next, to the payment of any other Debt then
due and payable to the Lender;
(D) to fund any expenditures for capital items that, in the
judgment of Borrower, as concurred in by the Lender, in its reasonable
discretion, are necessary to be performed at such time to ensure the safe
and continuous operation of the Mortgaged Property;
(E) to fund the Debt Service Reserve Account in the amount
required under Section 5.1.3;
(F) to fund any expenditures for capital items approved by the
Lender, in its reasonable discretion, including Borrower-funded capital
expenditures, of a discretionary nature and not included in clause (D)
above;
(G) to the Mezzanine Lender in accordance with the letter of
direction (the "Mezzanine Loan Direction Letter") given pursuant to Article
-------------------------------
XI of the Credit Agreement, dated as of the date hereof, between the
Mezzanine Borrower and the Mezzanine Lender (the "Credit Agreement"), in an
----------------
amount equal to (a) the scheduled interest due and payable at the "Interest
Rate" (as defined in the Credit Agreement), without regard to any default
rate under or acceleration of the Mezzanine Loan, and (b) the scheduled
principal amount then due and payable under the Note (as defined in the
Credit Agreement), without regard to any acceleration of the Mezzanine Loan
(items (a) and (b) with respect to the Mezzanine Note hereinafter, the
"Mezzanine Monthly Debt Service Payment");
---------------------------------------
(H) to Borrower, in an amount equal to the administrative
expenses of Borrower (including reasonable allocations of internal costs)
to the extent approved by the Lender in accordance with Section 5.1(q) of
the Loan Agreement;
(I) to Borrower, for distribution to the Mezzanine Borrower in
an amount equal to the administrative expenses of Mezzanine Borrower
(including reasonable allocations of internal costs) to the extent approved
by Lender in accordance
-5-
<PAGE>
with Section 5.1(q) of the Loan Agreement;
(J) to Borrower, for distribution to the Mezzanine Borrower, and
for distribution from Mezzanine Borrower to DSMLP, in amount equal to the
administrative expenses of DSMLP (including reasonable allocations of
internal costs) to the extent approved by Lender in accordance with Section
5.1(q) of the Loan Agreement;.
(K) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter, in the amount required to be funded into the Mezzanine
Debt Service Reserve Account in accordance with Section 5.2.3 hereof;
(L) to fund the Debt Service Reserve Account, until such account
has funds equal to 600 percent of the Monthly Debt Service Payment;
(M) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter, in an amount necessary to fund the Mezzanine Debt Service
Reserve Account up to 600 percent of the Mezzanine Monthly Debt Service
Payment; and
(N) to the Chiller Work Reserve, until all amounts deposited into
the Chiller Work Reserve under this clause (N), Section 5.3.1 and Section
7.9.4(L) shall equal in the aggregate $500,000 (but only to the extent
still operative in accordance with Section 4.2(h) hereof and only to the
extent that said $500,000 has not been previously funded from deposits in
accordance with such specified provisions); and
(O) to the Excess Cash Flow Escrow Account, any funds remaining
in the Cash Collateral Account, to be held until after the annual audit of
Borrower to determine Operating Profit in accordance with the Management
Agreement for the applicable Fiscal Year, which shall be completed not
later than April 15th of the year following such Fiscal Year (and at such
time, the amount in such account shall be distributed in accordance with
Section 5.3 hereof).
The following rules ("Supplemental Disbursement Rules") shall be
-------------------------------
applicable to Sections 4.3, 4.4, 7.9.1, 7.9.4 and 7.9.5 in accordance with their
terms:
1. The Servicer may rely conclusively on written instructions that
the Manager shall provide prior to 11:00 a.m. (New York time) at least one
Business Day prior to the Payment Date (with copies to Borrower) as to the
amounts to be deposited into the FF&E Reserve Account specified in clause
(B) above, as well as in Sections 4.4(B) and 7.9.1(B)). The Servicer shall
have no duty to recompute, recalculate, or verify the data contained in
such instructions or information and shall incur no liability to Borrower
or the Manager if the Servicer acts in accordance therewith.
2. If on any Payment Date the application of the funds available in
the Cash
-6-
<PAGE>
Collateral Account or the specific Sub-Account are not sufficient
for the payment of the amounts described in clauses (A) and (B) of this
Section 4.3, or Sections 4.4(A) and (B), 7.9.1(A) and (B), as applicable,
then the Servicer shall transfer funds from the Excess Cash Flow Account,
for the payment of such amounts; if following such payment, there remain
insufficient funds to make the payments described in clauses (A) through
(C) of this Section 4.3, or Sections 4.4(A) through (C), 7.9.1(A) and (B),
and 7.9.4(A)(i) and 7.9.5(A)(i), as applicable, the Servicer shall transfer
funds from the Debt Service Reserve Account for the payment of such
amounts.
3. For the benefit of the Mezzanine Lender, if on any Payment Date
the application of funds in the Cash Collateral Account in the manner
provided for herein are not sufficient for the payment of the amount
described in Section 4.3(G) or Section 7.9.4(G), the Servicer shall
transfer funds from the Mezzanine Debt Service Reserve Account for the
payment of such amount.
4. At such time as each of the Loan and the Mezzanine Loan has been
paid in full, and all obligations under the Loan Agreement and other Loan
Documents and the Mezzanine Loan Documents, respectively, have been
satisfied, the Servicer shall remit (a) to the Manager, for application
consistent with the Management Agreement, any funds remaining in the
Management Incentive Reserve Account, FF&E Reserve Account, and Tax and
Insurance Escrow Account and (b) with respect to all other amounts in the
Operating Account, Lockbox Account and Cash Collateral Account (including
Sub-accounts thereof, other than those referred to in clause (a)), to the
Person entitled to the monies described above in Section 7.9.4(M) or
7.9.5(K), as applicable.
5. Nothing herein shall be construed to modify Manager's obligation
under Section 9.04 of the Management Agreement.
4.4 Until the Note has been paid in full and all obligations under
the Loan Agreement and other Loan Documents have been satisfied, except during a
Lockbox Period, on each Payment Date after the Anticipated Repayment Date,
withdrawals from the Cash Collateral Account (excluding amounts held in escrow,
reserve, or other Sub-accounts, which shall be withdrawn and applied solely for
the purposes for which such Sub-accounts are maintained) shall be made by the
Servicer only for the following purposes and in the following order of priority:
(A) if required under the terms of Section 6, to fund any amounts
to be funded into the Tax and Insurance Reserve Account;
(B) if required under the terms of Section 6, to fund any amounts
to be funded into the FF&E Reserve Account;
(C) (i) if the Securitization has been effected, to transfer
funds to the Servicer (or to the Collection Account) in the amount
needed to pay Servicing
-7-
<PAGE>
Expenses and then, (a) first, to the payment of the Monthly Debt
Service Payment, and (b) next, to the payment of any other Debt then
due and payable to the Lender;
(ii) if the Securitization has not been effected, to the
payment of the Servicing Expenses and then, to the payment of the
Monthly Debt Service Payment, and next, to the payment of any other
Debt then due and payable to the Lender;
(D) to fund any expenditures for capital items that, in the
judgment of Borrower, as concurred in by the Lender, in its reasonable
discretion, are necessary to be performed at such time to ensure the safe
and continuous operation of the Mortgaged Property;
(E) to fund the Debt Service Reserve Account in the amount
required under Section 5.1.3;
(F) to fund expenditures for capital items approved by the
Lender, acting in its reasonable discretion, including Borrower-funded
capital expenditures, of a discretionary nature and not included in clause
(D) above;
(G) to Borrower, in an amount equal to the administrative
expenses of Borrower (including reasonable allocations of internal costs)
to the extent approved by the Lender accordance with Section 5.1(q) of the
Loan Agreement;
(H) to Borrower, for distribution to the Mezzanine Borrower in
an amount equal to the administrative expenses of Mezzanine Borrower
(including reasonable allocations of internal costs) to the extent approved
by Lender in accordance with Section 5.1(q) of the Loan Agreement;
(I) to Borrower, for distribution to the Mezzanine Borrower, and
for distribution from Mezzanine Borrower to DSMLP, in an amount equal to
the administrative expenses (including reasonable allocations of internal
costs) to the extent approved by Lender in accordance with Section 5.1(q)
of the Loan Agreement;
(J) to fund the Debt Service Reserve Account, until such account
has funds equal to 600 percent of the Monthly Debt Service Payment;
(K) to the extent provided for under Section 5.4, if Operating
Profit (as defined in the Management Agreement) for such Fiscal Year shall
have exceeded Owner's Priority for such Fiscal Year, to fund the Management
Incentive Reserve Account in accordance with Section 5.4;
(L) to the Servicer, (a) first, to repayment of the principal
amount of
-8-
<PAGE>
the Note, until the principal of the Note has been paid in full,
and (b) next, to the payment of the Additional Interest accrued and unpaid
on the Note; and
(M) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter or, if the Mezzanine Loan Direction Letter has been
rescinded by the Mezzanine Lender, to the Junior Lender in accordance with
the Junior Loan Direction Letter.
At such time as the Note has been paid in full, and all obligations
under the Loan Agreement and other Loan Documents have been satisfied, the
Servicer shall remit (a) to the Manager, for application consistent with the
Management Agreement, any funds remaining in the Management Incentive Reserve
Account, FF&E Reserve Account, and Tax and Insurance Reserve Account and (b)
with respect to all other amounts in the Cash Collateral Account (including Sub-
accounts thereof, other than those referred to in clause (a)), to the Person
entitled to the monies described above in Section 4.4(M) hereof.
In addition, the Supplemental Disbursement Rules shall be applicable
to this Section 4.4 in accordance with their terms.
5. DEBT SERVICE RESERVES; EXCESS CASH FLOW; MANAGEMENT INCENTIVE RESERVE
ACCOUNT
5.1 MORTGAGE LOAN DEBT SERVICE RESERVE
5.1.1 The Servicer shall maintain, as a Sub-account of the Cash
Collateral Account, an account (the "Debt Service Reserve Account") to be used
----------------------------
by the Servicer to pay the Monthly Debt Service Payment pursuant to Section
4.3(C), 4.4(C) or 7.9.4(A)(i) or 7.9.5(A)(i), as applicable, if the amounts
available from Operating Profit or, during any Lockbox Period, Gross Revenue are
insufficient for such purpose.
5.1.2 As a condition to the origination of the Loan, Borrower is
depositing as of the date hereof into the Debt Service Reserve Account an amount
equal to 600 percent of the Monthly Debt Service Payment.
5.1.3 On each Payment Date, subject to Section 5.1.4, the Servicer
shall cause to be deposited from the Cash Collateral Account, to the extent
available, into the Debt Service Reserve Account, pursuant to Section 4.3(E),
4.4(E), 7.9.4(C) or 7.9.5(C), as applicable, an amount equal the Monthly Debt
Service Payment plus, if such Payment Date occurs during any of Accounting
----
Periods two through five, inclusive, an additional amount equal to the sum of
(A) one-half of the Monthly Debt Service Payment and (B) such additional amount
as may be required to cause the amount in the Debt Service Reserve Account to be
not less than the following percentages of the Monthly Debt Service Payment as
of the end of each of the following Accounting Periods (applied on a cumulative
basis):
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<TABLE>
<S> <C>
Accounting Period 2: 150%
Accounting Period 3: 300%
Accounting Period 4: 450%
Accounting Period 5: 600%
</TABLE>
5.1.4 The maximum amount to be retained in the Debt Service Reserve
Account shall be 600% of the Monthly Debt Service Payment.
5.2 MEZZANINE LOAN DEBT SERVICE RESERVE
5.2.1 The Servicer shall maintain, as a separate Eligible Account in
the name of and under the dominion and control of the Agent for the benefit of
the Mezzanine Lender, an account (the "Mezzanine Debt Service Reserve Account")
--------------------------------------
to be used by the Servicer to pay the Mezzanine Monthly Debt Service Payment, if
the amounts available from Operating Profit or, during any Lockbox Period, Gross
Revenues pursuant to Section 4.3(G) or Section 7.9.4(E), as applicable, are
insufficient for such purpose. Neither the Lender nor the Borrower shall have
any right, title or interest in, or lien upon, any funds deposited in the
Mezzanine Debt Service Reserve Account. As provided above in Section 4.3, if on
any Payment Date the application of funds in the Cash Collateral Account in the
manner provided for herein are not sufficient for the payment of the amount
described in Section 4.3(G) or Section 7.9.4(E), the Servicer shall transfer
funds from the Mezzanine Debt Service Reserve Account for the payment of such
amount.
5.2.2 Pursuant to the terms of the Mezzanine Loan Agreement, the
Mezzanine Borrower is as of the date hereof depositing into a "Mezzanine Debt
Service Reserve Account" the amount of 600 percent of the Mezzanine Monthly Debt
Service Payment.
5.2.3 On each Payment Date, subject to Section 5.2.4, pursuant to
Mezzanine Loan Direction Letter, the Servicer shall cause to be deposited from
the Cash Collateral Account, pursuant to Section 4.3(K) or 7.9.4(I), as
applicable, an amount equal the Mezzanine Monthly Debt Service Payment.
5.2.4 The maximum amount to be retained in the Mezzanine Debt Service
Reserve Account shall be 600 percent of the Mezzanine Monthly Debt Service
Payment.
5.3 EXCESS CASH FLOW ESCROW ACCOUNT
5.3.1 Prior to the Anticipated Repayment Date, prior to the
determination of audited Operating Profit for each Fiscal Year and the
disbursement of funds from such accounts in accordance with the terms of this
Section 5.3, the Servicer shall maintain, as Sub-accounts of
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the Cash Collateral Account, an account for each Fiscal Year for which funds are
then retained (each, an "Excess Cash Flow Escrow Account"), which will be used
-------------------------------
to hold amounts in the Cash Collateral Account for such Fiscal Year in the
manner described in Section 4.3, 4.4, 7.9.4 and 7.9.5, as applicable. The
amounts deposited in such Excess Cash Flow Escrow Account for such Fiscal Year
shall be held in such account until after the annual audit determines the
Operating Profit for such Fiscal Year. Disbursement of amounts contained in such
Excess Cash Flow Escrow Account in accordance with the provisions of this
Section 5.3.1 below shall be made upon the submission of the following:
(i) a letter executed by Manager (the "Incentive Management Fee
------------------------
Letter") specifying the Incentive Management Fee then due and payable to
------
Manager (but not greater than the amount then contained in such Excess Cash
Flow Escrow Account and the Manager Deficit Contribution Account), and
showing the calculation thereof,
(ii) a letter of Borrower's independent auditors setting forth
the audited Operating Profit for such Fiscal Year (the "Auditors'
----------
Letter"), which supports the Incentive Management Fee claimed by Manager.
Within five (5) Business Days after the delivery to Servicer of the later of the
letters described in clauses (i) through (ii) above, the amounts contained in
such Excess Cash Flow Escrow Account shall be distributed by Servicer in the
following order of priority:
(a) to the Chiller Work Reserve in an amount such that the
amounts deposited therein pursuant to this Section 5.3.1 and Section 4.3(N)
and 7.9.4(L) shall equal in the aggregate $500,000 (but only to the extent
still operative in accordance with Section 4.2(h) hereof and only to the
extent that said $500,000 has not been previously funded from deposits in
accordance with such specified provisions),
(b) to the Manager, for the payment of the Incentive Management
Fee,
(c) to the Senior Lender, if an "Event of Default" exists under
the Senior Loan,
(d) to the Mezzanine Lender, if Mezzanine Lender shall have
delivered to Servicer a notice that there exists an "Event of Default"
under the Mezzanine Loan,
(e) provided that the Junior Lender shall have delivered to
Servicer a letter (the "Junior Loan Direction Letter") specifying the
----------------------------
amount of principal and interest due under the Junior Note and any other
amounts due and owing thereunder, the amount specified in such Junior Loan
Direction Letter, and
(f) the balance shall be given to Borrower.
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The amounts deposited into the Excess Cash Flow Escrow Account for one Fiscal
Year shall not be commingled with, and shall be placed in a separate Sub-account
from, the amounts to be deposited into the Excess Cash Flow Escrow Account for
any other Fiscal Year.
5.3.2 If Manager pays any amounts pursuant to Section 4.03B of the
Management Agreement, such amounts shall be given to Servicer to be deposited
into the Management Deficit Contribution Account. If on any Payment Date, the
application of the funds available in the Cash Collateral Account or the
specific Sub-account are not sufficient for the payment of the items described
in Section 4.3(A) through (N), Section 4.4(A) through (L), Section 7.9.1(A) and
(B), Section 7.9.4(A) through (L) or Section 7.9.5(A) through (J), as
applicable, then Servicer shall transfer funds from the Management Deficit
Contribution Account for the payment of such amounts. At such time as Manager
shall be entitled to its Incentive Management Fee from the Excess Cash Flow
Escrow Account, then any amounts in the Management Deficit Contribution Account
shall also be paid over to Manager in accordance with the Management Agreement.
5.4 MANAGEMENT INCENTIVE RESERVE ACCOUNT
From and after the Anticipated Repayment Date, the Servicer shall
maintain, as a Sub-account of the Cash Collateral Account, an account (the
"Management Incentive Reserve Account") to be used to make payments of the
- -------------------------------------
Incentive Management Fee to Manager. In any Fiscal Year, no funds shall be
deposited into the Management Incentive Reserve Account until Operating Profit
for such Fiscal Year shall have exceeded the Owner's Priority for such Fiscal
Year (as determined based on the periodic financial statements required pursuant
to Section 5.1(j)(iii) of the Loan Agreement). After Operating Profit for such
Fiscal Year shall have exceeded the Owner's Priority for such Fiscal Year, the
Management Incentive Reserve Account shall be funded in accordance with Section
4.4(K) or 7.9.5(I), as applicable, in the amount of the lesser of (i) the excess
of the Operating Profit over the Owner's Priority and (ii) $1,800,000. The
amounts deposited in the Management Incentive Reserve Account shall be held in
such account until after the annual audit determines the Operating Profit for
such Fiscal Year. Disbursement of amounts contained in the Management Incentive
Reserve Account shall be made upon submission of an Incentive Management Fee
Letter specifying the Incentive Management Fee then due and payable to Manager
(but not greater than the amount then contained in the Management Incentive
Reserve Account), attached to which shall be the Auditors' Letter setting forth
the audited Operating Profit for such Fiscal Year. Within five (5) Business
Days of delivery to Servicer of the Incentive Management Fee Letter, the
amounts contained in such Management Incentive Reserve Account shall be
disbursed to the Manager toward payment of the Incentive Management Fee.
6. SINGLE DOWNGRADE PROCEDURES
In addition to the other procedures set forth in this Exhibit, the
procedures set forth in this Section 6 shall apply during each period, if any,
from time to time, (a) beginning with the first
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day of the first full Accounting Period following such time as (i) the long-term
senior unsecured debt of MII, or in the event that another company succeeds to
or is the transferee of all or substantially all of the lodging management and
franchise business currently conducted by MII, the long-term senior unsecured
debt of such successor or transferee (in either such case, the "MII Debt") is
--------
rated BBB+ (or less) by S&P (unless a Lockbox Event has occurred and is
continuing, in which event the procedures in Section 7 shall apply) and (ii) the
Servicer delivers a notice to the Manager and Borrower that such procedures are
in effect and (b) ending on the date set forth in Section 6.7. (The parties
acknowledge that, as of November 25, 1997, such procedures shall be in effect
and that the notice described in clause (a)(ii) above is waived.) Borrower will
notify the Servicer and the Lender promptly after becoming aware of the event
described in subparagraph 6(a)(i) above. Borrower and Manager each acknowledge
that this Section 6 is applicable as of the date of the Loan Agreement.
6.1 The Servicer will maintain the Tax and Insurance Reserve Account,
as a Sub-account of the Cash Collateral Account, for payments of the next
succeeding payments of all insurance premiums (including property, liability,
and other insurance, but not including workers' compensation insurance) and real
estate taxes coming due for the Mortgaged Property. The escrow accounts will be
funded (i) upon commencement of these procedures pursuant to the first paragraph
of this Section 6, by transfers from the Manager's Account to the Cash
Collateral Account of amounts previously deducted by the Manager for payment of
future insurance premiums and real estate taxes, but not expended and (ii)
thereafter, from cash in the Cash Collateral Account on each Payment Date in
accordance with Sections 4.3(A) and 4.4(A), such that the balance in each escrow
account is equal, with respect to each tax payment or insurance premium owing
with respect to the Mortgaged Property, to the product of (x) the amount of such
next payment or premium (or, the most recent payment or premium if the amount of
the next payment or premium is unknown) times (y) a fraction, the numerator of
which is the number of whole Accounting Periods since the date of the last
payment of the applicable tax or premium and the denominator of which is the
number of whole Accounting Periods from the date of the last payment of the
applicable tax or premium to the date of the next payment of such tax or
premium. With regard to any insurance obtained for the Mortgaged Property from
the blanket insurance program of the Manager or its Affiliates, the premiums
shall be the Mortgaged Property's allocable share of insurance premiums and such
premiums shall be paid directly to the Manager when due out of such escrows or
other funds in the Cash Collateral Account or provided by Borrower.
6.2 Provided that the necessary invoices or bills have been provided
to the Servicer by the Manager or Borrower, the Servicer shall pay directly all
real estate taxes and insurance premiums (determined in accordance with the last
sentence of Section 6.1, to the extent said sentence is applicable) with respect
to which escrows have been established from the Tax and Insurance Reserve
Account or, if such amounts are insufficient, from amounts available in the
Excess Cash Flow Account or additional funds provided by Borrower, and the
Manager will be relieved of any such obligation. Borrower and/or the Manager
shall promptly send all such invoices or bills to the Servicer. Upon
acceleration of the maturity of the Note following an
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<PAGE>
Event of Default, the Lender shall be entitled to apply the funds held in such
escrows (other than escrows for payment of liability insurance premiums) to
payment of the Note.
6.3 The Servicer will maintain an escrow account, as a Sub-account of
the Cash Collateral Account, for payment of amounts provided for under the FF&E
Reserve Account maintained by Manager pursuant to the Management Agreement. The
escrow account will be funded (i) upon commencement of these procedures, by a
transfer of all funds in the FF&E Reserve Account maintained pursuant to the
Management Agreement to the FF&E Reserve Account to be maintained hereunder as a
Sub-account of the Cash Collateral Account (less amounts required to cover
outstanding checks), and (ii) thereafter, from cash in the Cash Collateral
Account on each Payment Date in accordance with Sections 4.3(B) and 4.4(B), such
that the balance in the escrow account is equal to the amount which otherwise
would be required to be maintained into the FF&E Reserve Account pursuant to
Section 8.02 of the Management Agreement (which amount shall be net of
expenditures made for the replacements and renewals of the Mortgaged Property's
FF&E and repairs to the Mortgaged Property of the nature described in Section
8.02 of the Management Agreement ("FF&E Expenditures") for such Accounting
Period in question.
6.4 During any period when the procedures set forth in this Section 6
apply, the Manager shall be permitted to request disbursements from the FF&E
Reserve Account once each week (or more frequently in the case of an emergency
requiring the immediate expenditure of funds in order to protect the Mortgaged
Property, as certified by Manager to Lender), based on its reasonable estimate
of upcoming, near-term FF&E Expenditures (or with respect to such emergency).
By making a request for funds from the FF&E Reserve Account, or in depositing
funds under Section 6.3 on a net basis, the Manager shall be deemed to have
certified to Lender the (i) the amounts requested are necessary and proper FF&E
Expenditures, (ii) all funds that it previously has withdrawn from the FF&E
Reserve Account (other than amounts being retained for reasonably estimated
near-term, future FF&E Expenditures) have been used to pay FF&E Expenditures,
and (iii) that, to the Best Knowledge of Manager, there are no other accounts
payable of the Mortgaged Property for FF&E Expenditures with an unpaid balance
of more than $25,000 individually, or more than $200,000 in the aggregate, that
are more than 60 days past due (unless payment is being contested in good faith
in accordance with the applicable procedures in the Loan Agreement), except as
otherwise stated with an explanation therefor. The Manager will not be required
to obtain approval of the Lender or any other Person for individual
expenditures, except as otherwise required by the Management Agreement and the
Consent of Manager (as defined in the Loan Agreement). Upon the request of the
Lender in writing, the Borrower or Manager will provide a detailed written
accounting of expenditures for FF&E Expenditures, in a form customarily
maintained by Manager in the ordinary course of business.
6.5 [Intentionally Omitted]
6.6 During any period when the procedures set forth in this Section 6
apply, the amounts of Operating Profit remitted by the Manager to the Cash
Collateral Account
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<PAGE>
pursuant to Section 2.4 shall be calculated without deduction for any real
estate taxes or insurance premiums referred to in Section 6.1 or payments
required to be made into the FF&E Reserve Account pursuant to Section 6.3 or any
other expense normally included in Management Expenses but in fact are paid
directly by Borrower.
6.7 Beginning with the first full Accounting Period following such
time as the MII Debt is rated at least A- by S&P, Borrower will no longer be
required to maintain the escrow accounts described in Section 6.1 and Section
6.3, and all amounts then held in such escrow accounts will be transferred, in
the case of Section 6.1, to the Manager's Account, and in the case of Section
6.3, to the FF&E Reserve Account to be maintained by Manager pursuant to the
Management Agreement, pursuant to the Manager's instructions and thereafter the
Manager will be responsible for paying real estate taxes, insurance premiums,
and amounts payable from the FF&E Reserve Account in accordance with the terms
of the Management Agreement.
7. LOCKBOX
A "Lockbox Event" shall occur at any time or times if (a) (i) any of the
-------------
MII Cash Management Conditions are not satisfied or (ii) S&P does not rate the
MII Debt at least BBB+ and (b) the Servicer delivers a notice to the Manager and
Borrower that the procedures described in this Section 7 are in effect. If a
Lockbox Event occurs, such procedures shall apply in lieu of the procedures set
forth in Sections 2, 4.3, 4.4 and 6 during the period, as provided below,
beginning no later than the later of (A) two weeks after the date on which the
Servicer delivers the notice described in subclause (b) above and (B) 120 days
after the Closing Date, and continuing thereafter until the first day of the
first full Accounting Period after (i) each of the MII Cash Management
Conditions is again satisfied and (ii) S&P rates the MII Debt at least BBB+ (any
such period, a "Lockbox Period"). The Servicer shall advise the Manager when
--------------
the procedures set forth in this Section 7 are no longer in effect. Borrower
will notify the Lender and the Servicer promptly after becoming aware that a
Lockbox Event has occurred.
7.1 [Omitted]
7.2 The following transition procedures will apply after a Lockbox
Event:
7.2.1 As soon as possible but, in any event, not later than seven
(7) Business Days after the occurrence of a Lockbox Event, if the Manager's
Account is an Eligible Account, the Manager shall change the name on the
Manager's Account to the Servicer.
7.2.2 Not later than two weeks after the occurrence of a Lockbox
Event (or, if later, two weeks after the Servicer's establishment of the
Operating Account pursuant to Section 7.9), the Manager shall establish a
lockbox account (a "Lockbox Account"), as a segregated account in the name of
---------------
the Servicer on behalf of the Lender, into which the Gross Revenues will be
deposited and, if the Manager's Account does not become a Lockbox Account, funds
from the Local Account established pursuant to Section 3 will be transferred
during the
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Lockbox Period pursuant to Section 3. The Manager may also establish
the accounts described in clauses (a), (c) and (d) of the second sentence of
Section 1.1. The Lockbox Account shall be an Eligible Account and shall be
either the same account as the Manager's Account or a newly established Eligible
Account, subject to the following:
(i) if the Manager's Account is an Eligible Account or if the
Manager's Account is not an Eligible Account and the Manager
determines after consultation with the Lender or if the
Securitization has occurred, with the Rating Agencies, that the
Manager's Account can become the Lockbox Account, then the name
on the Manager's Account shall be changed to the Servicer (if
not already done pursuant to Section 7.2.1) and the Manager's
Account shall become the Lockbox Account. The Servicer on
behalf of the Lender will have sole control over the Lockbox
Account.
(ii) If the Manager's Account is not an Eligible Account and the
Manager is unable to so determine that the Manager's Account
can become the Lockbox Account, then the Servicer shall open a
new Eligible Account to be the Lockbox Account and will convert
the Manager's Account into a lockbox account, in the name of
the Servicer over which the Servicer on behalf of the Lender
will have sole control, and during the Transition Period (as
defined below), the transition procedures outlined in Section
7.3 will apply.
(iii) If the Manager determines, in its good faith reasonable
judgment after due inquiry, that LaSalle National Bank or any
other bank suggested by the Servicer appears capable of putting
in place within the Transition Period the systems required to
service the Manager's cash management needs and LaSalle
National Bank or such other suggested bank then meets the
requirements for establishing an Eligible Account, then the
Manager shall select such bank to hold each Lockbox Account.
7.3 If the Manager's Account does not become a Lockbox Account, the
transition procedures described in this Section 7.3 will apply for a period (the
"Transition Period") of up to 120 days after the beginning of the Lockbox
-----------------
Period:
7.3.1 The Manager will notify Third Party Payors in their billing
statements or otherwise that all payments owing to Borrower thereafter should be
sent to the Lockbox Account. The Manager will work diligently with Third Party
Payors to enable them to send their payments to the Lockbox Account at the
earliest reasonably practicable date and in any event within 120 days after the
occurrence of the Lockbox Event. During the Transition Period, Third Party
Payors may continue to send their payments to the Manager's Account. Any
amounts received into the Manager's Account during the Lockbox Period will be
transferred by Manager within one Business Day of receipt, to the Cash
Collateral Account. Within 60 days after the
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beginning of the Lockbox Period, the Manager shall deliver a report to Borrower,
and shall provide copies thereof to the Lender regarding the status of the
transition to the new cash management procedures, and upon the request of Lender
shall provide up to two additional reports (no more frequently than 30 days
after the prior report) regarding the status thereof.
7.4 [Omitted]
7.5 [Omitted]
7.6 [Omitted]
7.7 Any funds received by Borrower or the Manager during a Lockbox
Period and not yet deposited into a Lockbox Account shall irrevocably be deemed
to be held in trust for the benefit of the Lender and (other than receipts
received at the Mortgaged Property and held as petty cash and the "house banks"
held at the Mortgaged Property) shall immediately upon receipt (and in no event
later than one full Business Day after receipt) be deposited by Borrower or the
Manager, as applicable, into the Lockbox Account. Funds on deposit in the
Lockbox Account shall not be commingled with funds related to any other
properties owned or managed by the Manager or any other Person.
7.8 During a Lockbox Period, the Servicer shall maintain escrow
accounts, as Sub-accounts of the Cash Collateral Account, for prepayments of the
next succeeding payments of all insurance premiums and real estate taxes, and an
FF&E Reserve Account, as described in Section 6. During a Lockbox Period,
provided that the necessary invoices or bills have been provided to the Servicer
by the Manager or Borrower, the Servicer will pay directly all real estate
taxes, insurance premiums and expenses normally paid from the FF&E Reserve
Account maintained by Manager pursuant to the Management Agreement, with respect
to which escrows have been established from the amounts held in such escrows or,
if such amounts are insufficient, from amounts available in the Excess Cash Flow
Reserve or additional funds provided by Borrower, and the Manager will be
relieved of any such obligation. Borrower and/or the Manager shall promptly
send all such invoices or bills to the Servicer. Such payments shall be made
before any fine, penalty, interest or cost may be added for non-payment,
provided that the necessary invoices or bills shall have been provided to
Servicer at least 10 days prior to the due date therefor and sufficient funds
are available from the applicable Sub-account. Upon acceleration of the
maturity of the Note following an Event of Default, the Lender shall be entitled
to apply all of the funds held in such Sub-Accounts (other than escrows for
payment of liability insurance premiums) to payment of the Note.
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7.9 Following a Lockbox Event and prior to commencement of a Lockbox
Period, the Servicer will establish a segregated account (the "Operating
---------
Account"), in its name on behalf of the Lender, which shall be an Eligible
- --------
Account at a bank selected by the Manager and reasonably acceptable to the
Lender. If the Manager determines, in its good faith reasonable judgment after
due inquiry, that LaSalle National Bank or any other bank suggested by the
Servicer appears capable of putting in place the systems required to service the
Manager's cash management needs and LaSalle National Bank or such other
suggested bank then meets the requirements of an Eligible Account, then the
Manager shall select such bank to hold the Operating Account. At the beginning
of the Lockbox Period, the Manager shall transfer, by immediately available
funds, to the Operating Account, all funds of Borrower then held in the
Manager's Account, less amounts required to cover outstanding checks issued by
the Manager, which the Manager shall honor. Provided that the Manager shall at
all times comply with the priority of application of funds in the Operating
Account, as set forth in this Section 7, and so long as the Manager shall not be
in material default under the Management Agreement, the Manager will have the
authority to write checks on, and make other transfers from, the Operating
Account for (i) payment of Management Expenses (excluding real estate taxes and
insurance premiums with respect to which escrows are being maintained by the
Servicer) and (ii) making FF&E Expenditures which will be netted against the
amount that would otherwise be deposited into the FF&E Reserve Account as
required by Section 7.91(B), as well as for the disbursement of funds from the
Operating Account to the segregated accounts provided for in clauses (a), (c)
and (d) of Section 1.1 in accordance with the provisions thereof. Within twenty
(20) days following the end of each Accounting Period ending after funds are
first deposited into the Operating Account, the Manager will be required to
certify (A) that all prior expenditures from the Operating Account have been for
Management Expenses (which shall include actual amounts expended by Manager on
FF&E Expenditures to be netted against the amount to be deposited in the FF&E
Reserves and shall exclude real estate taxes and insurance premiums and deposits
into the FF&E Reserves with respect to which escrows are being maintained) or
for the purposes specified in the immediately preceding sentence, and (B) that,
to the best of the Manager's knowledge, there are no accounts payable, either
singly or in the aggregate, of the Mortgaged Property with any unpaid balance of
more than $200,000 that are more than 60 days past due (except as disclosed to
Servicer where such payment is being contested in accordance with the Loan
Agreement).
7.9.1 TRANSFER OF GROSS REVENUES FROM LOCKBOX TO CASH COLLATERAL
ACCOUNT
During a Lockbox Period, whether prior or subsequent to the
Anticipated Repayment Date, until the Loan and the Mezzanine Loan each has been
paid in full and all obligations in connection therewith have been satisfied,
all Gross Revenues that are received in cash in the Lockbox Account shall be
deposited into the Cash Collateral Account and applied by the Servicer as
follows in the following order of priority:
(A) to fund any amounts to be funded into the Tax and Insurance
Reserve Account; and
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(B) to fund an estimate of any amounts to be funded into the FF&E
Reserve Account (net of an amount equal to the FF&E Expenditures made by
Manager in the prior Accounting Period from Gross Revenues and not from the
FF&E Reserve Account).
7.9.2 TRANSFER OF GROSS REVENUES FROM LOCKBOX TO OPERATING ACCOUNT
After the amounts described in Section 7.9.1(A) through (B) have been
fully funded, on the first day of the first week of the Lockbox Period, and on
the first day of each two-week period thereafter, Servicer shall transfer from
the Lockbox Account to the Operating Account, 50% of the Management Expenses
(other than taxes, insurance and FF&E Expenditures which have been provided for
in Section 7.9.1) budgeted pursuant to the Operating Budget for the then-current
Accounting Period, and Manager shall pay such Management Expenses from the
Operating Account in accordance with the terms of the Management Agreement
(provided that Servicer shall add or deduct to such transfers to the Operating
Account in accordance with Section 7.9.3(i) or (ii)).
7.9.3 SETTLING UP OF MANAGEMENT EXPENSES; TRANSFER OF OPERATING
PROFIT TO CASH COLLATERAL ACCOUNT
Within the third week following the end of each Accounting Period,
Manager will provide Servicer with a statement showing the difference between
Management Expenses for such Accounting Period and amounts disbursed to the
Operating Account from the Lockbox Account with respect to such Accounting
Period in accordance with Section 7.9.2, and
(i) to the extent that such Management Expenses exceed the
amounts so disbursed, then such excess shall be added to the amount next to
be disbursed to the Operating Account in accordance with Section 7.9.2
hereof; and
(ii) to the extent that amounts so disbursed to the Operating
Account exceeded such Management Expenses, then such excess shall be
deducted from the amount next to be disbursed to the Operating Account in
accordance with Section 7.9.2 hereof.
On each Operating Profit Payment Date, the Manager shall notify
Servicer of the Operating Profit as of the end of the immediately preceding
Accounting Period, calculated on a cumulative basis, and the Servicer shall
transfer such amount from the Lockbox Account to the Cash Collateral Account.
The Servicer shall be permitted to rely on the Manager's calculation of
Operating Profit.
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<PAGE>
7.9.4 APPLICATION OF CASH COLLATERAL ACCOUNT PRIOR TO ANTICIPATED
REPAYMENT DATE
On and prior to the Anticipated Repayment Date, all Operating Profit
transferred to the Cash Collateral Account in accordance with Section 7.9.3
shall be applied by the Servicer only for the following purposes and in the
following order of priority:
(A) to the payment of (i) Servicing Expenses and the Monthly
Debt Service Payment and then (ii) any other Debt then due and payable to
the Lender;
(B) to fund any capital expenditures that, in the judgment of
Borrower, as concurred in by the Lender, acting in its reasonable
discretion, are necessary to be performed at such time to ensure the safe
and continuous operation of the Mortgaged Property;
(C) to fund the Debt Service Reserve Account in the amount
required under Section 5.1.3;
(D) to fund any expenditures for capital items approved by the
Lender, acting in its reasonable discretion, including Borrower-funded
capital expenditures, of a discretionary nature and not included in clause
(B) above;
(E) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter in an amount equal to the Mezzanine Monthly Debt Service
Payment;
(F) to Borrower, in an amount equal to the administrative
expenses of Borrower (including reasonable allocations of internal costs)
to the extent approved by Lender in accordance with Section 5.1(q) of the
Loan Agreement;
(G) to Borrower, for distribution to the Mezzanine Borrower in
an amount equal to the administrative expenses of Mezzanine Borrower
(including reasonable allocations of internal costs) to the extent approved
by Lender in accordance with Section 5.1(q) of the Loan Agreement;
(H) to Borrower, for distribution to the Mezzanine Borrower, and
for distribution from Mezzanine Borrower to DSMLP, in amount equal to the
administrative expenses of DSMLP (including reasonable allocations of
internal costs) to the extent approved by Lender in accordance wit Section
5.1(q) of the Loan Agreement;
(I) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter, in the amount required to be funded into the Mezzanine
Debt Service Reserve Account in accordance with Section 5.2.3 hereof;
-20-
<PAGE>
(J) to fund the Debt Service Reserve Account, until such account
has funds equal to 600 percent of the Monthly Debt Service Payment Amount;
(K) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter, in an amount necessary to fund the Mezzanine Debt Service
Account in an amount equal to 600 percent of the Mezzanine Monthly Debt
Service Payment;
(L) to the Chiller Work Reserve, until all amounts deposited into
the Chiller Work Reserve under this Section 7.9.4(L) and Section 4.3(N) and
Section 5.3.1 shall equal in the aggregate $500,000 (but only to the
extent still operative in accordance with Section 4.2(h) hereof and only to
the extent that said $500,000 has not been previously funded from deposits
in accordance with such specified provisions); and
(M) to the Excess Cash Flow Escrow Account, any funds remaining
in the Cash Collateral Account, to be held in until after the annual audit
of Borrower to determine Operating Profit in accordance with the Management
Agreement for the applicable Fiscal Year, which shall be completed not
later than April 15th of the year following such Fiscal Year (and at such
time, the amount in such account shall be distributed in accordance with
Section 5.3 hereof).
In addition, the Supplemental Disbursement Rules shall be applicable
to this Section 7.9.4 in accordance with their terms.
7.9.5 APPLICATION OF CASH COLLATERAL ACCOUNT ON AND SUBSEQUENT TO
ANTICIPATED REPAYMENT DATE
On and after the Anticipated Repayment Date, all Operating Profit
transferred to the Cash Collateral Account in accordance with Section 7.9.3
shall be applied by the Servicer only for the following purposes and in the
following order of priority:
(A) to the payment of (i) Servicing Expenses and the Monthly
Debt Service Payment and then (ii) any other Debt then due and payable to
the Lender;
(B) to fund any capital expenditures, which in the judgment of
Borrower, as concurred in by the Lender, acting in its reasonable
discretion, are necessary to be performed at such time to ensure the safe
and continuous operation of the Mortgaged Property;
(C) to fund the Debt Service Reserve Account in the amount
required under Section 5.1.3;
(D) to fund any capital items approved by the Lender, in its
reasonable discretion, including Borrower-funded capital expenditures, of a
discretionary nature and
-21-
<PAGE>
not included in clause (B) above;
(E) to fund the administrative expenses of Borrower (including
reasonable allocations of internal costs) to the extent approved by Lender
in its reasonable discretion;
(F) to Borrower, for distribution to the Mezzanine Borrower in
an amount equal to the administrative expenses of Mezzanine Borrower
(including reasonable allocations of internal costs) to the extent approved
by Lender in accordance with Section 5.1(q) of the Loan Agreement;
(G) to Borrower, for distribution to the Mezzanine Borrower, and
for distribution from Mezzanine Borrower to DSMLP, in an amount equal to
the administrative expenses (including reasonable allocations of internal
costs) to the extent approved by Lender in accordance with Section 5.1(q)
of the Loan Agreement;
(H) to fund the Debt Service Reserve Account, until such account
has funds equal to 600 percent of the Monthly Debt Service Payment;
(I) to the extent provided for under Section 5.4, if Operating
Profit for such Fiscal Year shall have exceeded Owner's Priority for such
Fiscal Year, to the Management Incentive Reserve Account;
(J) to the Servicer, (a) first, to repayment of the principal
amount of the Note, until the principal of the Note has been paid in full,
and (b) next, to the payment of the Additional Interest accrued and unpaid
on the Note; and
(K) to the Mezzanine Lender in accordance with the Mezzanine Loan
Direction Letter or, if the Mezzanine Loan Direction Letter has been
rescinded by the Mezzanine Lender, to the Junior Lender in accordance with
the Junior Loan Direction Letter.
In addition, the Supplemental Disbursement Rules shall be applicable
to this Section 7.9.5 in accordance with their terms.
7.10 At such time as the Lockbox Period terminates and until a
further Lockbox Event occurs, the Manager shall have the option of reinstating
the cash management procedures set forth in Sections 2, 4.3, 4.4 and 6 (as
applicable) by notice to the Lender, the Servicer, Borrower, and all funds then
held in the Operating Account shall be transferred to the Lockbox Account and
the Lockbox Account will be changed to a Manager's Account and unless the
provisions of Section 6 apply, all funds held in the Tax and Insurance Reserve
Account shall be transferred to the Manager's Account.
-22-
<PAGE>
7.11 If an entity that is an Affiliate of MII or MII itself is not
the manager of an the Mortgaged Property, Borrower shall take such action as may
be required to ensure that the procedures set forth in Section 7, to the maximum
extent possible, are followed by a replacement manager at the Mortgaged
Property. In any event, Borrower shall ensure that credit card companies
continue to send payments directly to the Lockbox Account.
8. [OMITTED]
9. SECURITY FOR LOAN
The funds on deposit in the Lockbox Account, the Operating Account,
and the Cash Collateral Account and each Sub-account thereof, and all Permitted
Investments thereof, are pledged to the Lender as further security for the Loan
pursuant to the Loan Agreement and the Collateral Account Agreement. The
authority of the Manager to pay Management Expenses in the manner set forth in
this Exhibit shall not be terminated, unless the Management Agreement shall have
been terminated and until all Management Expenses incurred or contracted for
prior to or as a result of such termination have been paid or an amount
sufficient to pay such expenses is set aside in a reserve. Unless and until the
Management Agreement is terminated and all expenses relating to FF&E
replacements made or contracted for prior to the termination have been paid in
full (or an amount sufficient to pay such expenses has been set aside as a
reserve), (i) the Servicer shall not freeze or otherwise restrict the ability of
the Manager to obtain disbursements of funds from the FF&E Reserve Account in
accordance with Sections 6 and 7 hereof or apply funds on deposit in the FF&E
Reserve Account to repayment of the Note and (ii) the right of the Manager to
direct the expenditure of funds in the FF&E Reserve Account in accordance with
Sections 6 and 7 hereof shall not be terminated unless otherwise agreed to by
the Servicer, the Borrower and the Manager.
10. INVESTMENT OF FUNDS IN ACCOUNTS
Borrower shall have the right to instruct the Servicer to invest
funds, if any, in the Cash Collateral Account, Lockbox Account, Operating
Account, any Sub-accounts thereof, at the risk of and for the benefit of
Borrower, in Permitted Investments.
11. NOTICE OF NEW ACCOUNTS
The Manager shall notify the Lender in writing of the account name and
account number of the Manager's Account and any Local Account and of each
supplemental or replacement account established by the Manager from time to time
in connection with the Mortgaged Property, and the institution in which each
such account is maintained. The Manager shall not change the Manager's Account
without obtaining the consent of the Lender, which shall not be unreasonably
withheld and shall be granted if a supplemental or replacement account is an
Eligible Account. If the Manager's Account or any Local Account shall be
changed, or any new Manager's Account or Local Account shall be opened, by the
Manager or Borrower, the Manager
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<PAGE>
or Borrower, as the case may be, shall send a notice to the Lender, specifying
the new or changed Manager's Account or Local Account and the Manager's Account
or Local Account replaced thereby.
12. GENERAL
12.1 The Servicer shall permit the Manager and Borrower to have
access to information each Business Day regarding activity (including
disbursements) and balances and source of receipts in the Cash Collateral
Account and all Sub-accounts thereof, the Operating Account and the Lockbox
Account and any other accounts maintained by Servicer pursuant to this Exhibit.
12.2 Unless the context specifies otherwise, transfers of funds held
in any account that are required by this Agreement shall require only the
transfer of available funds.
12.3 [Reserved].
12.4 [Reserved].
12.5 Upon the occurrence of an Event of Default or a monetary Default
under the Loan Agreement, Lender shall have the right to apply or direct the
application of Gross Revenues, including any amounts in the Lockbox Account or
any of the Sub-Accounts (unless otherwise provided herein), to such uses and in
such order as Lender, in its sole discretion, shall determine, including, first,
to payment of the Monthly Debt Service Payment Amount; provided, however, that
until such time as Lender shall have foreclosed on the Mortgage and terminated
the Management Agreement, Gross Revenues shall first be applied in the manner
set forth above to Management Expenses to the extent that such amounts do not
exceed 105% of Management Expenses for the comparable period's prior Fiscal
Year, without Lender's prior written consent.
-24-
<PAGE>
EXHIBIT C
A leasehold estate disclosed by Memorandum of Lease dated April 23, 1987,
executed by Marriott's Desert Springs Development Corporation, a Delaware
Corporation, hereinafter "Lessor", and by Desert Springs Marriott Limited
Partnership, a Delaware Limited Partnership, hereinafter "Lessee", for a term
and upon the terms, covenants and conditions therein provided, recorded April
24, 1987 as Instrument No. 114104, Official Records of Riverside County,
California ("Official Records") as amended by that certain First Amendment to
Golf Course Lease dated March 31, 1994 between Lessor and Lessee and recorded
May 27, 1994 as Instrument No. 217099, Official Records, and further amended by
that certain Second Amendment to Golf Course Lease dated November 25, 1996
between Lessor and Lessee, recorded December 20, 1996 as Instrument No. 480355,
Official Records.
<PAGE>
Exhibit D
---------
Operating Budget
<PAGE>
EXHIBIT E
---------
Capital Budget
<PAGE>
Marriott Hotels, Resorts, & Suites
1998 Capital Expenditure Budget Summary
Currency Form of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property: TEA/DESERT SPRINGS Opening Dates:
Original 2/2/87
Marriott 2/2/87
Ownership: HOST JOINT VENTURE Expansion
Rooms 0
<TABLE>
<CAPTION>
1997
Forecast 1998 1999 2000 2001 2003
-------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales 106,605.0 109,803.0 113,097.0 116,490.0 119,985.0
Escrow % 5.5 5.5 5.5 5.5 5.5
Escrow Contribution 5,863.3 6,039.2 6,220.3 6,407.0 6,599.2
Beginning Escrow Balance 1,700.0 2,510.9 6,049.1 10,250.4 3,523.3
Other 0.0 0.0 0.0 0.0 0.0
Interest Earned on Escrow Acct. 112.0 221.0 429.0 383.0 277.0
Available Escrow Funds 7,675.3 8,771.0 12,698.4 17,040.3 10,399.5
New Loan 0.0 0.0 0.0 0.0 0.0
Loan Repayments 0.0 0.0 0.0 0.0 0.0
--------- --------- --------- --------- ---------
Total Available for CEP 7,675.3 8,771.0 12,698.4 17,040.3 10,993.5
========= ========= ========= ========= =========
$0 - 20k 400.0 1,008.4 571.0 588.0 606.0 624.0
$21k - 199k 1,260.0 2,307.0 1,931.0 1,047.0 561.0 642.0
$2000k 1,180.0 1,849.0 220.0 813.0 12,350.0 2,700.0
-------- --------- --------- --------- --------- ---------
Total Budget from Escrow 2,880.0 5,164.0 2,722.0 2,448.0 13,517.0 3,966.0
======== ========= ========= ========= ========= =========
Ending Escrow 1,700.0 2,510.9 6,049.1 10,250.4 3,523.3 6,433.5
======== ========= ========= ========= ========= =========
2,050.0 260.0 270.0 280.0 290.0
Projects Funded Outside
of Escrow Funds:
Schedule Historical Forecast
--------------------------------- ---------------------------------
Year 1992 1996 2001
# of Rooms 895 884 884
Type of Soft Total Soft
Scope N/A
Total Cost 5,170,000 9,100,000 12,349,999
Cost Per Room 3,777 10,294 13,971
Years Since Last Case Redo N/A N/A 5
Years Since Last Soft Redo N/A N/A 5
Annual Set Aside to fund Redo N/A N/A 2,469,999
</TABLE>
Property Comments:
RVP Comments:
SVP Comments:
<PAGE>
Print Date: 11/12/97 (R)
WARNING One or more columns are
out of balance with budgeted amount!
MARRIOTT HOTELS, RESORTS, & SUITES
1998 CAPITAL EXPENDITURE BUDGET SUMMARY
1998 ESCROW CASHFLOW
(000) Conversion Rate:1:00
Property: 7E4/DESERT SPRINGS
<TABLE>
<CAPTION>
1997 Period Period Period
Forecast 1 2 3
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales 9,482.1 11,340.9 12,564.0
Escrow % 5.5 5.5 5.5
Escrow Contribution 521.5 623.8 691.0
Beginning Escrow Balance 1,700.0 1,741.3 1,919.9
Interest Earned on Escrow Acct 8.6 8.6 8.6
Other Escrow Activity 0.0 0.0 0.0
Available Escrow Funds 2,230.1 2,373.7 2,619.5
New Loans 0.0 0.0 0.0
Loan Repayments 0.0 0.0 0.0
------------- ------------- -------------
Total Available for CEP 2,230.1 2,373.7 2,619.5
============= ============= =============
Less Expenditures from Escrow
1997 Expenditures 2,880.0
1997 Carry-Over projects 0.0 0.0 0.0
1998 Approved budget projects 0.0 488.8 453.8 453.0
1999 Early start projects 0.0 0.0 0.0 0.0
------------- ------------- ------------- -------------
Total Expenditures 2,880.0 488.8 453.8 453.8
============= ============= ============= =============
Period Ending Escrow Balance 1,700.0 1,741.3 1,919.9 2,165.7
============= ============= ============= =============
<CAPTION>
Period Period Period Period
4 5 6 7
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales 11,169.2 10,925.1 6,878.3 4,040.4
Escrow % 5.5 5.5 5.5 5.5
Escrow Contribution 614.3 600.9 378.3 222.2
Beginning Escrow Balance 2,165.7 2,384.9 2,690.5 2,698.7
Interest Earned on Escrow Acct 8.6 8.6 8.6 8.6
Other Escrow Activity 0.0 0.0 0.0 0.0
Available Escrow Funds 2,788.7 2,994.3 3,077.5 2,919.5
New Loans 0.0 0.0 0.0 0.0
Loan Repayments 0.0 0.0 0.0 0.0
------------ ------------- ------------- -------------
Total Available for CEP 2,788.7 2,994.3 3,077.5 2,919.5
============ ============= ============= =============
Less Expenditures from Escrow
1997 Expenditures
1997 Carry-Over projects 0.0 0.0 0.0 0.0
1998 Approved budget projects 403.8 303.8 388.8 388.8
1999 Early start projects 0.0 0.0 0.0 0.0
------------ ------------- ------------- -------------
Total Expenditures 403.8 303.8 388.8 388.8
============ ============= ============= =============
Period Ending Escrow Balance 2,384.9 2,690.5 2,688.7 2,530.7
============ ============= ============= =============
<CAPTION>
Period Period Period Period
8 9 10 11
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales 4,087.5 4,529.2 7,396.8 9,098.3
Escrow % 5.5 5.5 5.5 5.5
Escrow Contribution 224.8 249.1 406.8 500.4
Beginning Escrow Balance 2,530.7 2,375.3 2,244.3 2,270.9
Interest Earned on Escrow Acct 8.6 8.6 8.6 8.6
Other Escrow Activity 0.0 0.0 0.0 0.0
Available Escrow Funds 2,764.1 2,633.1 2,659.7 2,779.9
New Loans 0.0 0.0 0.0 0.0
Loan Repayments 0.0 0.0 0.0 0.0
------------ ------------- ------------- -------------
Total Available for CEP 2,764.1 2,633.1 2,659.7 2,779.9
============ ============= ============= =============
Less Expenditures from Escrow
1997 Expenditures
1997 Carry-Over projects 0.0 0.0 0.0 0.0
1998 Approved budget projects 388.8 388.8 388.8 388.8
1999 Early start projects 0.0 0.0 0.0 0.0
------------ ------------- ------------- -------------
Total Expenditures 388.8 388.8 388.8 388.8
============ ============= ============= =============
Period Ending Escrow Balance 2,375.3 2,244.3 3,270.9 2,391.1
============ ============= ============= =============
<CAPTION>
Period Period Period Period Period
12 13 1 1999 2 1999 3 1999
------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Sales 9,209.7 5,883.3 9,766.5 11,681.2 12,941.0
Escrow % 5.5 5.5 5.5 5.5 5.5
Escrow Contribution 506.5 333.5 537.2 642.5 711.8
Beginning Escrow Balance 2,391.1 2,517.5 2,465.3 3,019.4 3,678.9
Interest Earned on Escrow Acct 8.6 8.6 17.0 17.0 17.0
Other Escrow Activity 0.0 0.0 0.0 0.0 0.0
Available Escrow Funds 2,906.3 2,849.7 3,019.4 3,678.9 4,407.6
New Loans 0.0 0.0 0.0 0.0 0.0
Loan Repayments 0.0 0.0 0.0 0.0 0.0
------------ ------------- ------------- ------------- -------------
Total Available for CEP 2,906.3 2,849.7 3,019.4 3,678.9 4,407.6
============ ============= ============= ============= =============
Less Expenditures from Escrow
1997 Expenditures
1997 Carry-Over projects 0.0 0.0 0.0 0.0 0.0
1998 Approved budget projects 388.8 384.4 0.0 0.0 0.0
1999 Early start projects 0.0 0.0 0.0 0.0 0.0
------------ ------------- ------------- ------------- -------------
Total Expenditures 388.8 384.4 0.0 0.0 0.0
============ ============= ============= ============= =============
Period Ending Escrow Balance 2,517.5 2,465.3 3,019.4 3,678.9 4,407.6
============ ============= ============= ============= =============
</TABLE>
<PAGE>
Page: 1 Schedule: A-1
Print Date: 11/12/97 (R)
MARRIOTT HOTELS, RESORTS & SUITES
1998 CAPITAL EXPENDITURE BUDGET
ESCROW AND LOAN PROJECTS
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS 1998 Sales: 106,605.0
# of Rooms: 884 1997 Ending Escrow Balance: 1,700.0
Operating Date: 2/2/97
Hotel Age: 11
Ownership: HOST JOINT VENTURE
<TABLE>
<CAPTION>
Asset A&C PAR Work
Priority Age Title/Description Involvement Req.? Cat Total Cost Funding
- -------- ----- --------------------------------------------------------------- ----------- ----- ---- ---------- -------
<C> <C> <S> <C> <C> <C> <C> <C>
2.0 5 LAKEVIEW RESTAURANT REDO MSR No FB 430.0 Escrow
Average softgoods redo that will modify the restaurant's
entrance, replace carpet & padding, window draperies, wall
covering, artwork, lighting re-upholster chairs & booths,
refinish tables & chairs, and painting. 2 server stations will
be added to the back of the restaurant. The cost estimates are
based on a 230 seat, 6500 square foot restaurant. A&C will be
used for procurement and our DOE will be utilized as advisors.
3.0 11 MEETING ROOMS MSR No BQ 500.0 Escrow
Extensive meeting rooms redo to include painting ceiling,
cornices, chair rail and moldings; install new wall vinyl.
Cutting edge dimming and sound systems will replace the
existing systems to accommodate changing needs of guests. Add
permanent AV and technology to the room. This is not an ROI --
just cost of keeping pace with our competitive set (i.e. Ritz
Carlton - Laguna Niguel, Phoenician) and meeting our groups'
expectations. The Resort has two (2) $520
6.0 11 COSTAS LOUNGE/NIGHT CLUB MSR No FB 500.0 Escrow
Extensive and soft & casegoods redo to replace carpet, padding,
painting, wall vinyl, resurface bar areas, hardware on bar
area, and upgrade d.j. booth & props. Cost estimates based on
design specs. done previously. Costas is a huge positioning
factor for our leisure/local market, and this will be its first
redo since the Resort's opening in 1987. In addition our
competitive set continues to upgrade with leading edge
technology (i.e. Pompeii Nightclub). $300,000 in FFE
Contingent on Regional Team review and involvement.
7.0 11 SEAGRILLE BAR REDO NO No FB 30.0 Escrow
Construction of red oak bar with brass trim and corian and
granite courier tops. The construction
</TABLE>
<PAGE>
Page: 2 Schedule: A-1
Print Date: 11/12/97 (R)
MARRIOTT HOTELS, RESORTS & SUITES
1998 CAPITAL EXPENDITURE BUDGET
ESCROW AND LOAN PROJECTS
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS 1998 Sales: 106,605.0
# of Rooms: 884 1997 Ending Escrow Balance: 1,700.0
Operating Date: 2/2/97
Hotel Age: 11
Ownership: HOST JOINT VENTURE
<TABLE>
<CAPTION>
Asset A&C PAR Work
Priority Age Title/Description Involvement Req.? Cat Total Cost Funding
- -------- ----- --------------------------------------------------------------- ----------- ----- ---- ---------- -------
<C> <C> <S> <C> <C> <C> <C> <C>
will include plumbing, drywall, electrical work and flooring.
8.0 5 HOLIDAY LIGHTING NO No MO 25.0 Escrow
Addition of new holiday decorations as well as the replacement
of damaged lighting to complement the resort's holiday theme.
9.0 5 TECHNOLOGY FUND NO No SY 25.0 Escrow
This is a standard annual budget to replace damaged and
obsolete technology equipment. The strategy is to have funds
available to replace older technology with new leading edge
technology.
10.0 11 GROVE REDO NO No MO 50.0 Escrow
The scope includes additional palm trees, up lighting and white
lighting around trunks. Replace and redo general landscaping.
The modifications will further allow the resort to better
utilize existing space for banquet and catering functions.
11.0 3 OASIS POOL FOUNTAIN NO No GO 50.0 Escrow
A modification that will provide more excitement and appeal to
the main pool area and will keep us in line with our
competitor's pools.
12.0 3 AUDIO VISUAL EQUIPMENT NO Yes RI 75.0 Escrow
This is a standard annual budget to replace lost or damaged
equipment and to add current technology to inventory if
needed. The Audio Visual replacement strategy is based on MVP
and guest feedback. The amount designated for this project
represents 3% of 1998 sales.
1997: $50K/5.1% of sales 1996: $51K/3.8% of sales
1995: $59K/5.2% of sales 1994: $51K/4.9% of sales
Purchase of new items is contingent upon ROI approval
</TABLE>
<PAGE>
Page: 3 Schedule: A-1
Print Date: 11/12/97 (R)
MARRIOTT HOTELS, RESORTS & SUITES
1998 CAPITAL EXPENDITURE BUDGET
ESCROW AND LOAN PROJECTS
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS 1998 Sales: 106,605.0
# of Rooms: 884 1997 Ending Escrow Balance: 1,700.0
Operating Date: 2/2/97
Hotel Age: 11
Ownership: HOST JOINT VENTURE
<TABLE>
<CAPTION>
Asset A&C PAR Work
Priority Age Title/Description Involvement Req.? Cat Total Cost Funding
- -------- ----- --------------------------------------------------------------- ----------- ----- ---- ---------- -------
<C> <C> <S> <C> <C> <C> <C> <C>
13.0 3 GOLF CART LEASE NO No GO 150.0 Escrow
This is the third year of a four year lease.
14.0 5 SPA EXERCISE EQUIPMENT NO No GO 55.0 Escrow
Replace treadmills, free climbers, rowing machine, shoulder
press machine, ten (10) massage tables and other exercise
machines. This will enable the resort to maintain an inventory
of the latest exercise equipment.
15.0 11 GOLF GROUND IMPROVEMENTS NO No MO 50.0 Escrow
This project consists of repairs to selected tee boxes,
concrete work on cart path and addition of curbing in
selected areas.
16.0 11 OUTDOOR LIGHTING AND NO No EG 21.0 Escrow
Replacement and addition of selective lighting fixtures for
palm tree down lights and walkways.
17.0 11 RESURFACE TENNIS COURTS NO No GO 26.0 Escrow
Resurface courts 11-15, repair "hump" on court 11, add
windscreens and fences to courts 11-15 and clay courts A-C. A
total of eight (8) courts would be resurfaced.
18.0 4 PAINT PERIMETER WALLS NO No EG 25.0 Escrow
Approximately 3 miles of mixed stucco and steel fence is in
need of some replacement steel pieces and a repainting of
the stucco finish. Last done in 1994.
19.0 11 BANQUET CHAIRS (1500) NO No BQ 180.0 Escrow
Replacement of 1500 banquet chairs that are 11 years old have
been refinished and
</TABLE>
<PAGE>
Page: 4 Schedule: A-1
Print Date: 11/12/97 (R)
Marriott Hotels, Resolrts & Suites
1998 Capital Expenditure Budget
Escrow and Loan Projects
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87
Hotel Age: 11 1998 Sales: 106,605.0
Ownership: HOST JOINT VENTURE 1997 Ending Escrow Balance: 1,700.0
<TABLE>
<CAPTION>
Asset A&C PAR Work Total
Priority Age Title/Description Involvement Req.? Cat Cost Funding
- -------- ----- ----------------------------------------------------------------- ----------- ------ ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
reupholstered six (6) years ago. The purchase will be done in
two (2) parts in 1998 and 1999. Desert Springs has decided not
to go with the Shelby Williams spec. chair. Instead, we will be
going with an upgraded Shelby chair to address the Resort's
image, meet the expectations of our clients and to remain
competitive with our Destination Resort competitive set. The
cost will be
20.0 11 Bed Replacement NO No RO 210.0 Escrow
Replace 11 year old box springs in guest rooms. This will in-
clude 816 Double/Double box springs at $110 each and 477 Kings
at $154.
21.0 11 Tuscany's Restrooms NO No FB 55.0 Escrow
Remove existing wall covering and stalls, replace with marble
and stone; upgrade existing restroom fixtures. Cost estimates
are based on local contractors designs and bids.
22.0 11 Banquet Restrooms NO No PS 199.0 Escrow
Remove existing wall covering and stalls, replace with marble
and stone; upgrade existing restroom fixtures and flooring. Cost
estimates are based on local contractors designs and bids.
23.0 11 Laundry Boiler Project NO No LA 75.0 Escrow
Replacement of existing boiler which serves the laundry. The
current boiler had unsuccessfully been converted to satisfy
LaNox air quality regulations and is at a point of noncom-
pliance, poor efficiency and regular gasket failures caused by
retrofit burners.
24.0 11 Laundry Contingency NO No LA 21.0 Escrow
Major components of ironers, folders, and dryers are nearing the
end of their useful life and will be receiving rebuilds as
required.
25.0 11 Chiller Redo/Overhaul NO No EG 25.0 Escrow
</TABLE>
<PAGE>
Page: 5 Schedule: A-1
Print Date: 11/12/97 (R)
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Escrow and Loan Projects
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87
Hotel Age: 11 1998 Sales: 106,605.0
Ownership: HOST JOINT VENTURE 1997 Ending Escrow Balance: 1,700.0
<TABLE>
<CAPTION>
Asset A&C PAR Work Total
Priority Age Title/Description Involvement Req.? Cat Cost Funding
- -------- ----- ----------------------------------------------------------------- ----------- ------ ----- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Regular Six Year overhaul with a refrigerator conversion. The
machine is due for a major bearing and seal replacement due to
the number of operating hours.
26.0 0 NGS Lease NO No SY 199.0 Escrow
The lease amount is the estimated lease cost for NGS in year
three of a five year lease.
27.0 0 Spa POS-Reservation System NO Yes RI 100.0 Escrow
Purchase of a fully integrated software package consisting of
appointment scheduling, point of sale, client management, inven-
tory control and reporting. ROI Project.
28.0 11 Atrium Lounge Redo NO No FB 60.0 Escrow
Artwork, millwork and signage in Atrium Lobby Lounge to make more
consistent with newly renovated Lobby.
29.0 11 Spa Pool Equipment NO No GO 35.0 Escrow
Add badly needed shade covering, replace existing lounge chairs,
and add cabanas for outdoor treatments. This will allow the
spa to expand its treatment area and generate additional spa
revenue.
30.0 0 Connecting Doors Project NO No RO 21.0 Escrow
Add 20 connecting doors to existing rooms inventory to
accommodate our leisure family market. Currently we have 108
connecting pairs or 216 rooms.
31.0 0 Coffee Pots NO No RO 30.0 Escrow
Corporate Initiative to have coffee makers in every guest room.
32.0 11 Golf Grounds Landscaping/Underground Storage Tank NO No MO 209.0 Escrow
</TABLE>
<PAGE>
Page: 6 Schedule: A-1
Print Date: 11/12/97 (R)
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Escrow and Loan Projects
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
<TABLE>
<CAPTION>
Asset A&C PAR Work Total
Priority Age Title/Description Involvement Req.? Cat Cost Funding
- -------- ----- -------------------------------------------------------------------- ----------- ----- ---- ----- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
For Federal EPA and CA regulations, we must replace (2) 1000 gal
UST's, (2) 500 gal and (1) 5000 gal double-wall fiberglass UST used
for diesel fuel, gasoline and waste oil. Moreover, a wash pad and
green waste trash bin will be added to comply with EPA and CA
regulations. This project after review with owner representatives
was deemed appropriate to fund through escrow.
33.0 8 Ground Trucks NO No VE 60.0 Escrow
Replace of 4 utility vehicles with Cushmans that have dump bed and
Power Takeoff (PTO) accessories. The vehicles that are being re-
placed are eight (8) years old.
34.0 6 Tuscany's Chairs NO No FB 40.0 Escrow
Replacement of aged chairs with new Highback Armchairs. 80 chairs
will be replaced in 1997 and 80 chairs will be replaced in 1998.
The cost estimate includes both tax and freight.
35.0 6 Men's Spa Redo NO No GO 100.0 Escrow
Men's Spa Redo includes window covers, drapes, wall covering, re-
finish and replace selective case goods and furniture and lamps.
In addition, three (3) program desks will be modified to address
aesthetic and ergonomic challenges. We would like to schedule the
redo for July/August and use local designers and contractors with
the Resort's D.O.E. as an advisor.
36.0 0 Lobby Corner Shop NO No RI 50.0 Escrow
Convert corner waiting area into a 200 square foot retail shop
near lobby. The retail space is similar to Desert Designs which
generates $400K in sales and $100K in profit annually. ROI will
be provided.
37.0 6 Dish Machines NO No MO 50.0 Escrow
</TABLE>
<PAGE>
Page: 7 Schedule: A-1
Print Date: 11/12/97 (R)
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Escrow and Loan Projects
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
<TABLE>
<CAPTION>
Asset A&C PAR Work Total
Priority Age Title/Description Involvement Req.? Cat Cost Funding
- -------- ---- ----------------------------------------------------------------------- ----------- ----- ---- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Provide a separate wash for glassware to improve quality of appear-
ance that is difficult to obtain from our undercapacity dish machine.
Replace dishroom floor.
38.0 0 Banquet Truck NO No VE 30.0 Escrow
Purchase of banquet truck to facilitate off property catering functions.
The Resort currently spends $15K annually to rent trucks for outside
and offsite catering functions. The Resort would recognize cost
savings by purchasing a truck.
39.0 0 Enlarge Golf Shop/Redo NO Yes RJ 125.0 Escrow
Convert Photo Shop and other office space into 1,000 square foot
retail golf equipment shop. In addition, the original golf shop will
be updated and refurbished with wall treatments, merchandise fixtures,
carpet and wall cabinets.
This project contingent on Regional Office review of ROI and scope
of project.
40.0 6 Ice Machines NO No MO 40.0 Escrow
Replacement of existing machines with higher production machine needed
to provide for three restaurants and room service.
41.0 0 Dewater Project NO Yes RJ 150.0 Escrow
ROI project that will allow us to reduce the number and weight of
refuse loads by removing the water. The expected payback is 18 months.
42.0 11 Boats (3) NO No MO 80.0 Escrow
Addition of Duffy Electric Boats that boast the following improve-
ments over our existing boats:
</TABLE>
<PAGE>
Page: 0
Print Date: 11/12/97 (R) Schedule: A-1
<TABLE>
<CAPTION>
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Escrow and Loan Projects
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
Asset A & C PAR Work
Priority Age Title/Description Involvement Req.7 Cat Total Cost Funding
- ---------- ----- ------------------------------------- ----------- ----- ---- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Safer access, flexible surrey frame,
increased stability and balance,
increased maneuverability, cosmetic
damage protection and maintenance
improvements. Current boats are
originals and are 11 years old and
have had major repairs in the past
two years. Desert boats are like
Mickey
-----------
Total Over 20K Projects 4,156.0
===========
50 - 20K Guideline Amount
884 Rooms @ $514.00/Room >> 454.38 Under 20K Projects 1,008.4
------------
Total Escrow and Loan Projects 5,164.4
============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page: 1
Print Date:11/12/97 (R) Schedule: A-2
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Projects Funded Under $20K
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
Asset A&C PAR Work
Priority Age Title/Description Involvement Req. ? Cat Total Cost Funding
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
0.0 0 0-20K Projects NO No MO 554.0 Escrow
$0-20K Formula does not fully take 0.0
into account Desert Springs' mix in
revenue and extensive plant. Below
are two resorts of similar volume:
Marco 734 rooms/$58 million total
revenue/$30 million room revenue/
$411K 0-20K Budget. Orlando World
Center 1500 rooms/$124 million
total revenue/$62 million room
revenue/$700K 0-20K budget.
0.0 0 $0-20K Projects No MO 454.4 Escrow
0.0
----------
Total Under 20K Projects 1,008.4
==========
$0-20K Guideline Amount
884 Rooms @ $14.00/Room >> 454.38
</TABLE>
<PAGE>
Page: 1 Schedule: A-3
Print Date: 11/12/97 (R)
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Projects Funded Outside of Escrow
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
<TABLE>
<CAPTION>
Asset A&C PAR Work
Priority Age Title/Description Involvement Req.? Cat Total Cost Funding
- ---------- ----- ---------------------------------------- ----------- ------- ------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
4.0 0 Chilled Water Flow Study, Phase II NO Yes MO 200.0 Owner
PHASE II. Evaluation of system performance
by use of Pre-Flo computer modeling to
determine flow and pressure within the
system with recommendations for
modifications. Improvements are targeted
for summer of 1997 when building sections
can be isolated for modifications.
5.0 11 Plant Room NO Yes MO 1,500.0 Owner
A study is underway to determine the most
beneficial, cost effective means for
providing redundancy in the cooling plant.
The recommendations are due in May.
43.0 0 Roof Projects A& Yes EG 350.0 Owner
Slurry Seal Roofing to prevent further
deterioration caused by high temperatures
and minimal precipitation. This will be
the first in five years of roof
replacement projects for Desert Springs.
This project will concentrate on replacing
the roof covering the lobby, kitchen and
admin offices.
Total Under 20K $0.0
-----------
Total Outside of Escrow Project $2,050.0
===========
</TABLE>
<PAGE>
Page: 1
Print Date: 11/12/97 (R) Schedule: A-4
Marriott Hotels, Resorts & Suites
1998/1999 Capital Expenditure Budget
with a project start date before 4/1/99
$200K + Projects
Currency Format of Report in U.S. Dollars
(000)
Inflation Date: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 General Manager: Tim Sullivan
Hotel Age: 11 Phone: (760) 341-2211
Ownership: HOST JOINT VENTURE Fax:
<TABLE>
<CAPTION>
Asset PAR Square # of Scheduling Final
Priority Age Title/Description Req.? Feet Rooms 1st Choice 2nd Choice Project Cost Funding
- -------- ----- ----------------------------------- ------- ------ ----- ----------- ---------- ------------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
2.0 5 Lakeview Restaurant Redo No 6,502 n/a 7/1/98 430.0 Escrow
Average softgoods redo that will 9/1/98
modify the restaurant's entrance,
replace carpet & padding, window
draperies, wall covering, artwork,
lighting, re-upholster chairs &
booths, refinish tables & chairs,
and painting. 2 server stations
will be added to the back of the
restaurant.
3.0 11 Meeting Rooms No 51,000 n/a 6/1/98 500.0 Escrow
Extensive meeting rooms redo to 10/19/98
include painting ceiling, cornices,
chair rail and moldings; install
new wall vinyl. Cutting edge
dimming & sound systems will
replace the existing systems to
accommodate changing needs of
guests. Add permanent AV and
technology to the room.
4.0 0 Chilled Water Flow Study, Phase II Yes 1 1 1/1/98 200.0 Owner
Phase II. Evaluation of system 3/1/98
performance by use of Pre-Flo
computer modeling to determine
flow and pressure within the
system with recommendations for
modifications. Improvements are
targeted for summer of 1997 when
building sections can be isolated
for modifications.
5.0 11 Plant Room Yes n/a n/a 1/ 1/98 1,500.0 Owner
A study is underway to determine 3/19/98
the most beneficial, cost effective
means for providing redundancy in
the cooling
</TABLE>
<PAGE>
Page: 2 Schedule: A-4
Print Date: 11/12/97 (R)
Marriott Hotels, Resorts & Suites
1998/1999 Capital Expenditure Budget
with a project start date before 4/1/99
$200K + Projects
Currency format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 General Manager: Tim Sullivan
Hotel Age: 11 Phone: (760) 341-2211
Ownership: HOST JOINT VENTURE Fax:
<TABLE>
<CAPTION>
Asset PAR Square # of Scheduling Final
Priority Age Title/Description Req.? Feet Rooms 1st Choice 2nd Choice Project Cost Funding
- ---------- ----- ------------------------------------- ----- --------- ------- ----------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
plant. The recommendations are due
in May.
6.0 11 Costas Lounge/Night Club No 4,960 n/a 1/1/98 500.0 Escrow
Extensive soft & casegoods redo to 3/1/98
replace carpet, padding, painting,
wall vinyl, resurface bar areas,
hardware on bar area, and upgrade
d.j. booth & props. Cost estimates
based on design specs. done
previously. Costas is a huge
positioning factor for our leisure/
local market. Contingent on Regional
Team review and involvement.
20.0 11 Bed Replacement No n/a n/a 5/1/98 210.0 Escrow
Replace 11 year old box springs in 3/31/97
guest rooms. This will include 816
Double/Double box springs at $110
each and 477 Kings at $154.
32.0 11 Golf Grounds Landscaping/Underground No 1 n/a 1/198 209.0 Escrow
Storage 2/1/98
For Federal EPA and CA regulations,
we must replace (2) 1000 gal USTs,
(2) 500 gal and (1) 5000 gal double-
wall fiberglass UST used for diesel
fuel, gasoline and waste oil. Moreover,
a wash pad and green waste trash bin
will be added to comply with EPA and CA
regulations.
43.0 0 Roof Projects Yes 2,660 n/a 6/1/98 350.0 Owner
Slurry Seal Roofing to prevent
further deterioration caused 9/1/98
</TABLE>
<PAGE>
Page: 3 Schedule: A-4
Print Date: 11/12/97 (R)
Marriott Hotels Resorts & Suites
1998/1999 Capital Expenditure Budget
with a project start date before 4/1/99
$200K + Projects
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
PROPERTY #: 7E4/DESERT SPRINGS
# OF ROOMS: 884
OPENING DATE: 2/2/87 GENERAL MANAGER: Tim Sullivan
HOTEL AGE: 11 PHONE: (760) 341-2211
OWNERSHIP: HOST JOINT VENTURE FAX:
<TABLE>
<CAPTION>
Asset Par Square # Of Scheduling Final
Priority Age Title/Description Req.? Feet Rooms 1st Choice 2nd Choice Project Cost Funding
- -------- ------ ----------------------------------- ----- ------ ----- ----------- ---------- ------------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
by high temperatures and minimal
precipitation. This will be the
first in five years of roof
replacement projects for Desert
Springs. This project will
concentrate on replacing
the roof covering the lobby,
kitchen and admin offices.
Yearly Total $200K + Projects 3,899.0
=======
1999
1.0 0 ENERGY MANAGEMENT SYSTEM Yes n/a n/a 1/1/99 220.0 Escrow
The Resort's energy management 2/1/99
system will be 13 years old and at
the present time is presenting
challenges. The existing EMS will
be replaced with new hardware and
software. The resort has obtained
cost through Marriott approved
purveyors to be approximately
$720,000.
3.0 12 ROOF PROJECT Yes n/a n/a 1/1/99 260.0 Owner
Slurry Seal Roofing to prevent 3/1/99
further deterioration caused by
high temperatures and minimal
precipitation. This will be the
second in five years of roof Yearly Total $200K + Projects 480.0
replacement projects for Desert =====
Springs.
</TABLE>
<PAGE>
Page: 1
Print Date: 11/12/97 (R) Schedule: A-5
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Projects $200k+ In Future Years
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
<TABLE>
<CAPTION>
Asset A&C Work
Priority Age Title/Description Involvement Cat Total Cost Funding
- -------- -------- -------------------------------------- ----------- ---- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
1999 PROJECTS
----- --------
1.0 0 ENERGY MANAGEMENT SYSTEM NO EG 220.0 Ecrow
Then Resort's energy management
system will be 13 years old and
at the present time is presenting
challenges. The existing EMS will
be replaced with new hardware and
software. The resort has obtained
cost through Marriott approved
purveyors to be approximately
$220,000. Utility rebates are not
available. Because interruptable
power expires in August 1997, a
"more intelligent" EMS will be
required to make "real time" pricing
decisions. In addition, the increased
3.0 12 ROOF PROJECT NO EG 260.0 Owner
Slurry Seal Roofing to prevent further
deterioration caused by high
temperatures and minimal precipitation.
This will be the second in five years
of roof replacement projects for Desert
Springs.
YEARLY TOTAL: 480.0
==========
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
2000 PROJECTS
----- --------
1.0 13 ROOF PROJECT NO EG 270.0 Owner
Slurry Seal Roofing to prevent further
deterioration caused by high
temperatures and minimal precipitation.
This will be the third in five years of
roof replacement projects for Desert
Springs.
2.0 4 LOBBY REDO NO PS 500.0 Escrow
The lobby redo project scope will
include refinishing and reupholstering
furniture, replace carpet and padding,
replace draperies and selective
artificasts. The project has taken into
consideration the cost of the most
recent redo, inflationary factors and
modifications from most recent redo.
The carpet and padding area is 2,120
square feet. This project is tentatively
scheduled for early December. Historically,
the Resort has redone the Lobby every four
(4) years. Desert Springs is one of
2.0 5 PREFUNCTION AREA REDO MSR BQ 313.0 Escrow
</TABLE>
<PAGE>
Page: 2
Print Date: 11/12/97 (R) Schedule: A-5
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Projects $200k+ In Future Years
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
<TABLE>
<CAPTION>
Asset A&C Work
Priority Age Title/Description Involvement Cat Total Cost Funding
- -------- -------- -------------------------------------- ----------- ---- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Replace aging carpet, artwork,
millwork, vinyl and furniture
in the ballroom foyer area.
North foyer is 2,355 square feet,
southwest foyer is 3,036 square feet
and west foyer is 11,900 square feet.
Total prefunction space is 17,291
square feet. A&C worksheet used.
YEARLY TOTAL: 1,083.0
==========
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
2001 PROJECTS
----- --------
1.0 5 ROOMS REDO A&C RO 12,350.0 Escrow
An extensive softgoods redo on 833 guest
rooms and 51 suites, consists of normal
scope of rooms, bathrooms, corridors
and suites. Optional items included in
scope are replacement of tub and adding
tile flooring. A&C Worksheet used.
2.0 8 ROOF PROJECT NO EG 210.0 Owners
Slurry Seal Roofing to prevent further
deterioration by high temperatures and
minimal precipitation. This will be the
fourth in five years of roof replacement
projects.
YEARLY TOTAL: 12,630.0
==========
- -------------------------------------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
2002 PROJECTS
----- --------
1.0 9 ROOF PROJECTS A&C EG 290.0 Owners
Slurry Seal Roofing to prevent further
deterioration caused by high temperatures
and minimal precipitation. This will be the
first in five years of roof replacement
projects for Desert Springs.
2.0 3 BALLROOM REDO MSR BQ 2,700.0 Escrow
Average ballroom and meeting room redo
that includes operable partitions,
dimming systems and sound systems. In
addition, the partition walls will be
resurfaced. DOE and Chief Engineer to
lead
</TABLE>
<PAGE>
Page: 3
Print Date: 11/12/97 Schedule: A-5
Marriott Hotels, Resorts & Suites
1998 Capital Expenditure Budget
Projects $200k+ In Future Years
Currency Format of Report is: U.S. Dollars
(000)
Inflation Rate: 3.20%
Property #: 7E4/DESERT SPRINGS
# of Rooms: 884
Opening Date: 2/2/87 1998 Sales: 106,605.0
Hotel Age: 11 1997 Ending Escrow Balance: 1,700.0
Ownership: HOST JOINT VENTURE
<TABLE>
<CAPTION>
Asset A&C Work
Priority Age Title/Description Involvement Cat Total Cost Funding
- -------- -------- -------------------------------------- ----------- ---- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
this project. A&C Worksheet used.
Yearly Total: 2,990.0
==========
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit F
---------
Periodic Financial Statements
<PAGE>
MARRIOTT DESERT SPRINGS
C.E.P. RESERVE ANALYSIS
<TABLE>
<CAPTION>
PERIOD FISCAL YEAR LIFE
9 TO DATE TO DATE
-------------- -------------- -------
<S> <C> <C> <C>
Beginning Escrow Balance $1,300,333.25 $1,045,393.63 $0.00
Contribution
Interest
Loss on Sale of Investments
Disposition Proceeds
Expenditures
Loan
Loan Payment
Ending Escrow Balance
</TABLE>
<PAGE>
MARRIOTT'S DESERT SPRINGS RESORTS & SPA
PERIOD 9, 1997
FINANCIAL RESULTS PERIOD YEAR
================= 9 TO DATE
------- -------
Precent Occupancy
Average Rate
Gross Revenue
House Profit (Loss)
Deductions:
Central Office Fee (3.0%)
FF & E Escrow Provision (4.5%)
Equipment Rental
Permits & Licenses
Fire Insurance
Real Estate Taxes
Personal Property Taxes
Golf Course Lease
Prior Year Adjustment
Net Operating Profit (Loss)
PARTNERSHIP ANNUAL PRIORITY
===========================
The Greater Of
1) $20,500,000, or
2) YTD Debt Service of $9,138,744
PARTNERSHIP RENT CALCULATION
============================
1) Basic Rent
80% of Operating Profit
2) Additional Rent
20% of Operating Profit
Total Rent Due
DISTRIBUTION OF PROCEEDS
========================
1) Total Rent To Partnership
2) Golf Course Lease
Balance Due Partnership
<PAGE>
<TABLE>
<CAPTION>
UNIT 35 7E4 FORMAT 90 PAGE 1,706
PALM DESERT MAR DIVISION 33 DISTRICT 896 RUN DATE 09/19/97
PD 09 YR 97 ------------------P E R I O D-------------------- ------------------Y E A R T O D A T E-------------------
SALES $ACTUAL% $BUDGET% $LAST YEAR% $ACTUAL% $BUDGET% $LAST YEAR%
<S> <C> <C> <C> <C> <C> <C>
ROOMS
TELEPHONE
GIFT SHOP
SPECIALTY SHOP
RESTAURANT
LOUNGE
AUDIO VISUAL
BANQUET
SPECIALTY REST
SPECIALTY F & B
ROOM SERVICE
TOT FOOD & BEV
RECREATION CENTER
SPA
GOLF
TENNIS
DESTINATION MGMT
BUSINESS CENTER
OTHER INC, RENTS
TRADEOUT
TOTAL SALES
ROOMS
TIME SHARE
LAUNDRY
VALET
TELEPHONE
GIFT SHOP
SPECIALTY SHOP
RESTAURANT
LOUNGE
AUDIO VISUAL
BANQUET
SPECIALTY REST
SPECIALTY F & B
ROOM SERVICE
TOT FOOD & BEV
RECREATION CENTER
SPA
GOLF
TENNIS
DESTINATION MGMT
CAFETERIA
BUSINESS CENTER
OTHER INC, RENTS
TRADEOUT
TOT DEPT PROFIT
LOCAL G & A
CR CARD DIS. EXP
HEAT, LIGHT POWER
REPAIRS & MAINT
CNTR TRAIN & RELO
ACCIDENTS
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNIT 35 7E4 FORMAT 90 PAGE 1,707
PALM DESERT MAR DIVISION 35 DISTRICT 096 RUN DATE 09/19/97
PD 09 YR 97 ------------------P E R I O D-------------------- ------------------Y E A R T O D A T E-------------------
SALES $ACTUAL% $BUDGET% $LAST YEAR% $ACTUAL% $BUDGET% $LAST YEAR%
<S> <C> <C> <C> <C> <C> <C>
SALES PROMOTION
LOCAL ADV & BROCH
NATIONAL ADV ALOC
NATIONAL SLS ALOC
EMPLOYMENT OFFICE
TOTAL DEDUCT
HOUSE PROFIT
BASE MGMT FEE
FF&E ESCROW
PROP/RE TAXES
OTHER DEDUCTIONS
NET HOUSE PROFIT
OWNER PRFT DISTRD
BHF LESS HI EXP
OPERATING PROFIT
NET TOTAL OCCPNCY
NET AVAIL OCCPNCY
NET RM RATE&% CHG
MAN HRS &% CHANGE
SLS/M-M &% CHANGE
F/R TOTAL OCCPNCY
F/R AVAIL OCCPNCY
F/R RM RATE&% CHG
ROOMS SOLD
TOTAL ROOMS
</TABLE>
<PAGE>
Exhibit 10.11
Promissory Note
---------------
$103,000,000.00 November 25, 1997
FOR VALUE RECEIVED, the undersigned, DS HOTEL LLC, a Delaware limited
liability company ("MAKER"), promises to pay to the order of GMAC COMMERCIAL
MORTGAGE CORPORATION, a California corporation, its successors and assigns
("HOLDER"), on or before the Stated Maturity Date at such place as Holder may
from time to time designate in writing, the principal sum of ONE HUNDRED THREE
MILLION DOLLARS ($103,000,000) in lawful money of the United States of America,
together with interest thereon, to be computed and paid as specified in Section
1 below.
Except as otherwise defined or limited herein, capitalized terms used
herein shall have the meanings ascribed to them in that certain Loan Agreement
(the "LOAN AGREEMENT"), dated as of November 25, 1997, by and between Maker and
Holder. This is the Note referred to in the Loan Agreement. The terms of this
Note are hereby supplemented in full by the terms of the Loan Agreement, the
Mortgage and the other Loan Documents, including, without limitation, with
respect to Loan repayment and Defeasance, Yield Maintenance Payments, offsets,
counterclaims and defenses and expenses of Lender.
1. PAYMENTS OF PRINCIPAL AND INTEREST
Commencing with the Payment Date on December 11, 1997, and on each and
every Payment Date thereafter through but excluding the Stated Maturity Date,
the principal amount of the Loan and interest thereon at the applicable Interest
Rate shall be payable in monthly installments of principal and interest
(computed on the basis of the actual number of days in the Interest Accrual
Period), as set forth in Schedule A attached hereto. In addition, as set forth
----------
in the Loan Agreement, commencing with the Anticipated Repayment Date, and on
each and every Payment Date thereafter through the Stated Maturity Date, Maker
shall make additional payments of principal and interest on the Loan in
accordance with Section 2.2.1(e) thereof. On the date hereof, Maker shall make
a payment of interest only on the Loan at the Initial Interest Rate for the
period beginning on the date hereof to but excluding the Payment Date on
December 11, 1997.
On the Stated Maturity Date, payment in full of all remaining obligations
of Maker under this Note, the Loan Agreement and the other Loan Documents shall
be due and paid.
Payments made at any time hereon (including payments from the proceeds of
any sale of any Collateral (as hereinafter defined)) pursuant to any of the Loan
Documents shall be applied as provided in the Loan Agreement and the Mortgage.
For purposes of this Note, "COLLATERAL" shall mean all monies, accounts,
instruments and other property
-1-
<PAGE>
(including, without limitation, all rent, revenues, issues, Proceeds, profits,
security and other monies payable or receivable under any Loan Document or with
respect thereto and the after-acquired property clauses thereof) subject or
intended to be subject to the lien of the Mortgage and the other Loan Documents
for the performance by Maker of its obligations thereunder or hereunder as of
any particular time, and the proceeds of the foregoing.
2. SECURITY FOR THE LOAN.
This Note is secured by, among other things, the Mortgaged Property,
including all assets of Maker related thereto, pursuant to the Mortgage
encumbering the Land (as defined in the Mortgage) and Improvements and granting
a Lien on and security interest in certain other property described therein, and
by other Loan Documents affecting and granting a Lien on and security interest
in other portions of the Collateral.
3. EVENTS OF DEFAULT.
The entire Debt or any portion thereof, shall without notice, except such
notice as is required under the terms of any Loan Document, become immediately
due and payable at the option of Holder, unless otherwise specified under the
applicable Loan Document, if an Event of Default shall have occurred and be
continuing. In the event that Holder retains counsel to collect all or any part
of the Debt, or to protect, or foreclose the Collateral, Maker agrees to pay
reasonable costs of collection incurred by Holder, including reasonable
attorneys' fees.
4. DEFAULT INTEREST RATE.
Maker does hereby agree that, if an Event of Default shall have occurred
and is continuing, Maker shall pay interest at the Default Rate on the
outstanding amount of the Loan and due but unpaid interest thereon, upon demand
from time to time, to the extent permitted by applicable law.
5. AUTHORITY.
Maker represents that it has full power, authority and legal right to
execute and deliver this Note and to perform its obligations hereunder, and that
this Note constitutes the valid and binding obligation of Maker, enforceable
against Maker in accordance with its terms, except as enforceability may be
limited by (i) applicable bankruptcy, insolvency,
-2-
<PAGE>
reorganization, moratorium, or similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity, regardless of
whether considered in proceedings at law or in equity.
6. NOTICES.
All notices or other communications required or permitted to be given
pursuant hereto shall be given in the manner specified in the Loan Agreement
directed to the parties at their respective addresses as provided therein.
7. CONSENT TO JURISDICTION; GOVERNING LAW.
(a) THIS NOTE WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY MAKER
AND ACCEPTED BY HOLDER IN THE STATE OF NEW YORK, AND THE PROCEEDS DELIVERED
PURSUANT HERETO WERE DIS BURSED FROM THE STATE OF NEW YORK, WHICH STATE THE
PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE
UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS NOTE AND THE
OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO NOTES MADE
AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF
AMERICA, IT BEING UNDERSTOOD THAT THE LAW OF THE STATE OF NEW YORK SHALL
GOVERN THE VALIDITY AND THE ENFORCEABILITY OF THE NOTE AND ALL OF THE
INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER OR UNDER THE LOAN AGREEMENT.
TO THE FULLEST EXTENT PERMITTED BY LAW, MAKER HEREBY UNCONDITIONALLY AND
IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION
GOVERNS THIS NOTE, AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST MAKER OR HOLDER ARISING
OUT OF OR RELATING TO THIS NOTE SHALL BE INSTITUTED IN ANY FEDERAL OR STATE
COURT IN NEW YORK, NEW YORK, AND MAKER WAIVES ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR
PROCEEDING, AND MAKER HEREBY IRREVOCABLY SUBMITS
-3-
<PAGE>
TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING.
MAKER DOES HEREBY DESIGNATE AND APPOINT CORPORATION SERVICE COMPANY, WITH
OFFICES AT 80 STATE STREET, ALBANY, NY 12207-2543, AS ITS AUTHORIZED AGENT TO
ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY
BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE
COURT IN NEW YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID
AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID SERVICE OF MAKER MAILED OR
DELIVERED TO MAKER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY
RESPECT EFFECTIVE SERVICE OF PROCESS UPON MAKER, IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN THE STATE OF NEW YORK. MAKER (I) SHALL GIVE PROMPT NOTICE TO
HOLDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT
ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH
AN OFFICE IN NEW YORK, NEW YORK (WHICH OFFICE SHALL BE DESIGNATED AS THE
ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A
SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO MAINTAIN THE ABOVE-REFERENCED
OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.
8. MISCELLANEOUS.
(a) No release of any security for the Debt or any Person liable for
payment of the Debt, no extension of time for payment of this Note or any
installment hereof, and no alteration, amendment or waiver of any provision
of the Loan Documents made by agreement between Holder and any other Person
or party shall release, modify, amend, waive, extend, change, discharge,
terminate or affect the liability of Maker or any other Person or party who
might be or become liable for the payment of all or any part of the Debt,
under the Loan Documents, except as explicitly provided in a writing
satisfying the requirements of paragraph 8(c) hereof.
(b) Maker and all others who may become liable for the payment of all or
any part of the Debt do hereby severally waive presentment and demand for
payment, notice of dishonor, protest, notice of protest, notice of non-
payment, and notice of intent to accelerate the maturity hereof and (except
as may be expressly provided for in the Loan Documents) of acceleration.
(c) This Note may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part
of Maker or
-4-
<PAGE>
Holder, but only by an agreement in writing signed by the party against whom
enforcement of any modification, amendment, waiver, extension, change,
discharge or termination is sought.
(d) Whenever used, the singular number shall include the plural, the
plural the singular, and the words "Holder" and "Maker" shall include their
respective successors, assigns, heirs, executors and administrators as
permitted under the Loan Documents.
9. EXCULPATION
NOTWITHSTANDING ANYTHING HEREIN THAT MAY BE CONSTRUED TO THE CONTRARY,
THE TERMS OF SECTION 13.24 OF THE LOAN AGREEMENT RELATING TO THE EXCULPATION
OF BORROWER ARE INCORPORATED HEREIN BY REFERENCE AS IF FULLY SET FORTH
HEREIN. NO NEGATIVE INFERENCE REGARDING THE TERMS OF THIS NOTE IS TO BE
DRAWN BY REFERENCE TO SAID SECTION 13.24 IN ONLY CERTAIN PROVISIONS HEREOF.
10. CONFLICTS
In the event of any conflict between the provisions of this Note and
the Loan Agreement, the provisions of the Loan Agreement shall control.
-5-
<PAGE>
IN WITNESS WHEREOF, Maker has duly executed or has caused its respective
duly authorized officers to execute this Note on its behalf, as of the day and
year first above written.
MAKER:
DS HOTEL LLC, a Delaware limited liability
company
By: /s/ Patricia K. Brady
-----------------------------
Name: Patricia K. Brady
Title: Vice President
-6-
<PAGE>
SCHEDULE A
-7-
<PAGE>
Amortization Schedule: $103,000,000 Grande
Interpolated 12-yr UST 5.87%
Spread 1.93%
Coupon (Actual/360) 7.80%
Amortization 25.00
Anticipated Maturity 12.50
Constant 9.19%
<TABLE>
<CAPTION>
Closing Date: 11/26/97
Senior Place
Payment Date Month Beginning Balance Interest Principal Payment End Balance
<S> <C> <C> <C> <C> <C> <C> <C>
12/11/97 15 1 103,000,000.00 334,750.00 - 334,750.00 103,000,000.00
1/11/98 31 2 103,000,000.00 691,816.67 96,909.57 788,726.24 102,903,090.43
2/11/98 31 3 102,903,090.43 691,165.76 97,560.48 788,726.24 102,805,529.94
3/11/98 28 4 102,805,529.94 623,686.88 165,039.36 788,726.24 102,640,490.58
4/11/98 31 5 102,640,490.58 680,401.96 99,324.28 788,726.24 102,541,166.30
5/11/98 30 6 102,541,166.30 666,517.58 122,208.66 788,726.24 102,416,957.64
6/11/98 31 7 102,418,957.64 687,914.00 100,812.24 788,726.24 102,318,145.40
7/11/98 30 8 102,318,145.40 665,067.95 123,658.30 788,726.24 102,194,487.10
8/11/98 31 9 102,194,487.10 686,406.31 102,319.94 788,726.24 102,092,167.17
9/11/98 31 10 102,092,167.17 685,719.06 103,007.18 788,726.24 101,989,159.98
10/11/98 30 11 101,989,159.98 662,929.54 125,796.70 788,726.24 101,863,363.28
11/11/98 31 12 101,863,363.28 684,182.26 104,543.96 788,726.24 101,758,818.30
12/11/98 30 13 101,768,819.30 661,432.33 127,293.92 788,726.24 101,631,525.38
1/11/99 31 14 101,831,525.36 682,625.08 106,101.16 788,726.24 101,525,424.22
2/11/99 31 15 101,525,424.22 681,912.43 106,613.81 788,726.24 101,418,610.41
3/11/99 28 16 101,418,610.41 615,272.90 173,453.34 788,726.24 101,246,167.07
4/11/99 31 17 101,246,167.07 680,029.97 106,696.27 788,726.24 101,136,460.80
5/11/99 30 18 101,136,460.80 657,387.00 131,339.25 788,726.24 101,005,121.56
6/11/99 31 19 101,005,121.56 678,417.73 110,308.51 788,726.24 100,894,813.05
7/11/99 30 20 100,894,813.05 655,816.29 132,909.96 788,726.24 100,761,903.09
8/11/99 31 21 100,761,903.09 676,784.12 111,942.13 788,726.24 100,649,960.97
9/11/99 31 22 100,649,960.97 676,032.24 112,694.00 788,726.24 100,537,266.97
10/11/99 30 23 100,537,266.97 653,492.24 135,234.01 788,726.24 100,402,032.96
11/11/99 31 24 100,402,032.96 674,366.99 114,359.25 788,726.24 100,287,673.71
12/11/99 30 25 100,287,673.71 651,869.68 136,856.36 788,726.24 100,150,817.34
1/11/00 31 26 100,150,817.34 672,679.66 116,046.58 788,726.24 100,034,770.76
2/11/00 31 27 100,034,770.76 671,900.21 116,828.03 788,726.24 99,917,944.73
3/11/00 29 28 99,917,944.73 627,817.75 160,908.49 788,726.24 99,757,036.24
4/11/00 31 29 99,757,036.24 670,034.76 118,691.48 788,726.24 99,638,344.76
5/11/00 30 30 99,638,344.76 647,649.24 141,077.00 788,726.24 99,497,257.76
6/11/00 31 31 99,497,267.76 668,289.98 120,438.28 788,726.24 99,376,831.50
7/11/00 30 32 99,376,831.50 645,949.40 142,776.64 788,726.24 99,234,054.66
8/11/00 31 33 99,234,054.66 686,522.07 122,204.17 788,726.24 99,111,850.40
9/11/00 31 34 99,111,850.40 685,701.26 123,024.98 788,726.24 98,988,825.51
10/11/00 30 35 98,988,825.51 643,427.37 145,298.88 788,726.24 98,843,526.64
11/11/00 31 36 98,843,526.64 663,899.02 124,827.22 788,726.24 98,718,899.42
12/11/00 30 37 98,718,899.42 641,671.55 147,054.69 788,726.24 98,571,644.72
1/11/01 31 38 98,671,644.72 662,072.88 126,853.36 788,726.24 98,444,991.36
2/11/01 31 39 98,444,991.36 661,222.19 127,504.05 788,726.24 98,317,487.31
3/11/01 28 40 98,317,487.31 596,459.42 192,266.62 788,726.24 96,125,220.49
4/11/01 31 41 96,125,220.49 659,074.40 129,651.64 788,726.24 97,995,568.65
5/11/01 30 42 97,995,568.65 638,971.20 151,755.04 788,726.24 97,843,513.60
6/11/01 31 43 97,843,513.60 657,184.26 131,541.96 788,726.24 97,712,271.65
7/11/01 30 44 97,712,271.65 635,129.77 153,596.48 788,726.24 97,558,675.17
8/11/01 31 45 97,558,675.17 655,260.10 133,457.14 788,726.24 97,425,218.03
9/11/01 31 46 97,425,218.03 654,372.71 134,353.53 788,726.24 97,290,864.50
10/11/01 30 47 97,290,864.50 632,390.62 156,335.62 788,726.24 97,134,528.88
11/11/01 31 48 97,134,528.88 552,420.25 136,305.99 788,726.24 96,998,222.89
12/11/01 30 49 96,998,222.89 630,488.45 158,237.79 788,726.24 96,839,985.10
1/11/02 31 50 96,839,985.10 650,441.90 138,284.34 788,726.24 96,701,700.76
2/11/02 31 51 96,701,700.76 649,513.09 139,213.15 788,726.24 96,582,487.61
3/11/02 28 52 96,562,487.61 585,812.42 202,913.82 788,726.24 96,359,573.79
4/11/02 31 53 96,359,573.79 647,215.14 141,511.10 788,726.24 96,218,062.69
5/11/02 30 54 96,218,062.69 625,417.41 163,308.83 788,726.24 96,054,753.85
6/11/02 31 55 96,054,753.85 645,167.76 143,558.46 788,726.24 95,911,195.38
7/11/02 30 56 95,911,195.38 623,422.77 165,303.47 788,726.24 95,745,091.91
8/11/02 31 57 95,745.891.91 643,093.24 145,633.00 788,726.24 95,600,258.91
9/11/02 31 58 95,600,258.91 642,115.07 146,611.17 788,726.24 95,453,647.74
10/11/02 30 59 95,453,647.74 620,446.71 168,277.53 788,726.24 95,285,370.21
11/11/02 31 60 95,285,370.21 640,000.07 146,726.17 788,726.24 95,136,644.03
12/11/02 30 61 95,136,544.03 618,366.19 170,338.05 788,726.24 94,966,305.98
1/11/03 31 62 94,966,305.98 637,857.02 150,869.22 788,726.24 94,815,436.76
2/11/03 31 63 94,815,436.76 636,843.68 151,882.56 788,726.24 94,683,554.20
3/11/03 28 64 94,683,554.20 574,292.23 214,434.01 788,726.24 94,449,120.19
4/11/03 31 65 94,449,120.19 634,383.26 154,342.98 788,726.24 94,294,777.21
</TABLE>
<PAGE>
Amortization Schedule: $103,000,000 Grande
Interpolated 12-yr UST 5.8%
Spread 1.93%
Coupon (Actual/360) 7.80%
Amortization 25.00
Anticipated Maturity 12.50
Constant 9.919%
<TABLE>
<CAPTION>
Closing Date: 11/26/97
Senior Place
Payment Date Month Beginning Balance Interest Principal Payment End Balance
<S> <C> <C> <C> <C> <C> <C> <C>
5/11/03 30 66 94,294,777.21 612,916.05 175,810.19 788,726.24 94,118,967.02
6/11/03 31 67 94,118,967.02 632,165.73 158,560.51 788,726.24 99,062,406.51
7/11/03 30 68 93,962,406.51 610,755.64 177,970.60 788,726.24 93,784,435.91
8/11/03 31 69 93,784,435.91 629,918.79 158,807.45 788,726.24 93,625,626.46
9/11/03 31 70 93,625,628.46 628,852.14 159,874.10 788,726.24 93,465,754.36
10/11/03 30 71 93,465,754.36 607,527.40 181,198.84 788,726.24 93,284,555.52
11/11/03 31 72 93,284,555.52 626,561.26 162,164.98 788,726.24 93,122,390.54
12/11/03 30 73 93,122,390.54 605,295.54 183,430.70 788,726.24 92,936,959.84
1/11/04 31 74 92,938,959.84 624,240.01 164,466.23 788,726.24 92,774,479.61
2/11/04 31 75 92,774,479.61 623,135.21 165,591.03 788,726.24 92,606,882.59
3/11/04 29 76 92,606,882.59 581,892.48 206,633.76 788,726.24 92,402,048.82
4/11/04 31 77 92,402,048.82 620,633.76 168,092.48 788,726.24 92,233,956.34
5/11/04 30 78 92,233,956.34 599,620.72 189,205.52 788,726.24 92,044,760.82
6/11/04 31 79 92,044,760.82 618,233.76 170,493.33 788,726.24 91,874,258.49
7/11/04 30 80 91,874,258.49 507,182.68 191,643.56 788,726.24 91,682.714.93
8/11/04 31 81 91,682.714.93 615,802.24 172,924.01 788,726.24 91,509,790.72
9/11/04 31 82 91,509,790.72 614,640.76 174,085.48 788,726.24 91,335,705.44
10/11/04 30 83 91,335,705.44 593,682.09 195,044.16 788,726.24 91,140,661.29
11/11/04 31 84 91,140,661.29 612,161.44 176,564.80 788,726.24 90,964,096.49
12/11/04 30 85 90,964,096.49 591,266.63 197,459.61 788,726.24 90,766,656.87
1/11/05 31 86 90,766,656.87 609,649.24 179,077.00 788,726.24 90,587,559.88
2/11/05 31 87 90,587,559.88 808,448.44 180,279.80 788,726.24 90,407,280.08
3/11/05 28 88 90,407,280.08 548,470.83 240,255.41 788,726.24 90,167,024.67
4/11/05 31 89 90,167,024.67 605,621.85 183,104.39 788,726.24 90,983,920.28
5/11/05 30 90 90,983,920.28 584,895.48 203,830.76 788,726.24 89,780,089.52
6/11/05 31 91 89,780,089.52 603,022.93 185,703.31 788,726.24 89,594,386.21
7/11/05 31 92 89,594,386.21 582,363.51 206,362.73 788,726.24 89,388,023.46
8/11/05 31 93 89,388,023.46 600,389.56 188,336.68 788,726.24 89,199,686.80
9/11/05 31 94 89,199,686.80 599,124.66 189,601.68 788,726.24 89,010,085.12
10/11/05 30 95 89,010,085.12 578,565.55 210,160.66 788,726.24 88,799,924.43
11/11/05 30 96 88,799,924.43 596,439.49 192,286.76 788,726.24 88,607,637.68
12/11/05 30 97 88,607,637.68 575,949.64 212,776.60 788,726.24 88,394,061.09
1/11/06 31 98 88,394,061.09 593,718.62 195,007.42 788,726.24 88,199,853.66
2/11/06 31 99 88,199,853.66 592,409.02 196,317.22 788,726.24 88,003,536.44
3/11/06 28 100 88,003,536.44 533,888.12 254,838.12 788,726.24 87,748,698.32
4/11/06 31 101 87,748,698.32 580,378.76 189,347.48 788,726.24 87,540,350.84
5/11/06 30 102 87,549,350.84 568,070.78 219,655.46 788,726.24 87,329,695.37
6/11/06 31 103 87,329,695.37 586,564.45 202,161.79 788,726.24 87,127,533.59
7/11/06 30 104 87,127,533.59 566,328.97 222,397.27 788,726.24 86,906,136.31
8/11/06 31 105 86,905,136.31 583,712.83 205,013.41 788,726.24 86,700,122.91
9/11/06 31 106 86,700,122.91 582,335.83 206,390.42 788,726.24 86,493,732.49
10/11/06 30 107 86,493,732.49 562,209.26 226,516.96 788,726.24 86,267,215.51
11/11/06 31 108 86,267,215.51 579,426.13 209,298.11 788,726.24 86,057,917.40
12/11/06 30 109 86,057,917.40 559,376.46 229,349.78 788,726.24 85,828,567.62
1/11/07 31 110 85,828,567.62 576,481.88 212,244.36 788,726.24 85,616,323.26
2/11/07 31 111 85,616,323.26 575,058.30 213,619.94 788,726.24 85,402,653.32
3/11/07 28 112 85,402,653.32 518,109.43 270,616.81 788,726.24 85,132,036.51
4/11/07 31 113 85,132,036.51 571,803.51 216,922.73 788,726.24 84,915,113.78
5/11/07 30 114 84,915,113.78 551,948.24 236,778.00 788,726.24 84,678,335.78
6/11/07 31 115 84,678,335.78 568,756.16 219,970.09 788,726.24 84,458,365.70
7/11/07 30 116 84,458,365.70 548,979.38 239,746.86 788,726.24 84,218,618.83
8/11/07 31 117 84,218,618.83 565,668.39 223,057.85 788,726.24 83,995,560.98
9/11/07 31 118 83,995,560.98 564,170.18 224,556.06 788,726.24 83,771,004.92
10/11/07 30 119 83,771,004.92 544,511.53 244,214.71 788,726.24 83,526,790.22
11/11/07 31 120 83,526,790.22 561,021.61 227,704.63 788,726.24 83,299,085.58
12/11/07 30 121 83,299,085.58 541,444.06 247,282.16 788,726.24 83,051,803.40
1/11/08 31 122 83,051,803.40 557,831.28 230,894.96 788,726.24 82,820,908.44
2/11/08 31 123 82,820,908.44 556,280.43 232,445.81 788,726.24 82,588,462.63
3/11/08 29 124 82,588,462.63 518,930.84 269,795,40 788,726.24 82,318,667.23
4/11/08 31 125 82,318,667.23 552,907.05 235,810.19 788,726.24 82,082,848.04
5/11/08 30 126 82,082,848.04 533,538.51 255,187.73 788,726.24 81,827,660.31
6/11/08 31 127 81,827,660.31 549,609.12 239,117.12 788,726.24 81,588,543.18
7/11/08 30 128 81,588,543.18 530,325.53 258,400.71 788,726.24 81,330,142.47
8/11/08 31 129 81,330,142.47 546,267.46 242,458.78 788,726.24 81,087,683.69
9/11/08 31 130 81,087,683.69 544,638.94 244,087.30 788,726.24 80,843,596.39
</TABLE>
<PAGE>
Amortization Schedule: $103,000,000 Grande
Interpolated 12-yr UST 5.87%
Spread 1.93%
Coupon (Actual/360) 7.80%
Amortization 25.00
Anticipated Maturity 12.50
Constant 9.19%
<TABLE>
<CAPTION>
Closing Date: 11/26/97
Senior Place
Payment Date Month Beginning Balance Interest Principal Payment End Balance
<S> <C> <C> <C> <C> <C> <C> <C>
10/11/08 30 131 80,843,596.39 525,483,38 263,242.85 788,726.24 80,580,353.53
11/11/08 31 132 80,580,353.53 541,231.37 247,494.57 788,726.24 80,332,858.66
12/11/08 30 133 80,332,858.66 522.163.58 266,562.66 788,726.24 80,066,296.00
1/11/09 31 134 80,066,296.00 537,778.62 250,947.62 788,726.24 79,815,348.38
2/11/09 31 135 79,815,348.38 536,093.09 252,633.15 788,726.24 79,582,715.23
3/11/09 28 136 79,562,715.230 482,680.47 306,045.77 788,726.24 79,256,669.46
4/11/09 31 137 79,256,669.46 532,340.63 256,385.61 788,726.24 79,000,283.85
5/11/09 30 138 79,000,283.85 513,601.85 275,224.40 788,726.24 78,725,059.46
6/11/09 31 139 78,725,059.45 528,769.98 259,956.26 788,726.24 78,465,103.19
7/11/09 30 140 78,465,103.19 510,023.17 278,703.07 788,726.24 78,156,400.12
8/11/09 31 141 78,186,400.12 525,151.99 263,574.25 788,726.24 77,922,825.87
9/11/09 31 142 77,922,825.87 523,344.59 265,344.59 788,726.24 77,657,481.28
10/11/09 30 143 77,657,481.28 504,773.63 283,952.61 788,726.24 77,373,528.66
11/11/09 31 144 77,373,528.66 519,692.20 269,034.04 788,726.24 77,104,494.62
12/11/09 30 145 77,104,494.62 501,179.22 287,547.03 788,726.24 76,616,947.60
1/11/10 31 146 76,816,947.60 515,953.83 272,772.41 788,726.24 76,544,175.19
2/11/10 31 147 76,544,175.19 514,121.71 274,604.53 788,726.24 76,269,570.66
3/11/10 28 148 76,269,570.66 462,702.06 326,024.18 788,726.24 75,943,546.48
4/11/10 31 149 75,943,546.48 510,087.49 278,638.75 788,726.24 75,664,907.72
5/11/10 30 150 75,664,907.12 491,821.90 296,904.34 788,726.24 75,368,003.38
6/11/10 31 151 75,368,003.38 506,221.76 282,504.49 788,726.24 75,085,498.90
7/11/10 30 152 75,085,498.90 488,055.74 300,670.50 788,726.24 74,784,828.40
8/11/10 31 153 74,784,828.40 502,304.76 286,421.48 788,726.24 74,498,406.92
9/11/10 31 154 74,498,406.92 500,380.97 288,345.27 788,726.24 74,210,061.65
10/11/10 30 155 74,210,061.65 482,365.40 306,360.84 788,726.24 73,903,700.81
11/11/10 31 156 73,903,700.81 496,386.52 292,339.72 788,726.24 73,611,361.09
12/11/10 30 157 73,611,361.09 478,473.85 310,252.39 788,726.24 73,301,108.70
1/11/11 31 158 73,301,108.70 492,339.11 296,387.13 788,726.24 73,004,721.57
2/11/11 31 159 73,004,721.57 490,348.38 298,377.86 788,726.24 72,706,343.71
3/11/11 28 160 72,706,343.71 441,085.15 347,641.09 788,726.24 72,358,702.62
4/11/11 31 161 72,358,702.62 488,009.29 302,716.96 788,726.24 72,055,985.66
5/11/11 30 162 72,055,985.66 488,363.91 320,362.33 788,726.24 71,735,623.33
6/11/11 31 163 71,735,623.33 481,824.27 306,901.97 788,726.24 71,428,721.36
7/11/11 30 164 71,428,721.36 464,286.69 324,439.55 788,726.24 71,104,281.80
8/11/11 31 165 71,104,281.80 477,583.76 311,142.48 788,726.24 70,793,139.32
9/11/11 31 166 70,793,139.32 475,493.92 313,232.32 788,726.24 70,479,907.00
10/11/11 30 167 70,479,907.00 458,119.40 330,606.85 788,726.24 70,149,300.16
11/11/11 31 168 70,149,300.16 471,109.47 317,558.78 788,726.24 69,831,743.38
12/11/11 30 169 69,831,743.38 453,906.33 334,819.91 788,726.24 69,495,923.47
1/11/12 31 170 69,496,923.47 466,787.67 321,938.57 788,726.24 69,174,984.90
2/11/12 31 171 69,174,984.90 464,625.32 324,100.93 788,726.24 68,860,883.97
3/11/12 29 172 68,850,883.97 432,613.05 356,113.19 788,726.24 68,494,770.79
4/11/12 31 173 68,494,770.79 460,056.54 328,669.70 788,726.24 68,166,101.09
5/11/12 30 174 68,166,101.09 443,079.66 345,646.58 788,726.24 67,820,454.51
6/11/12 31 175 67,820,454.51 455,527.39 333,198.85 788,726.24 67,487,255.66
7/11/12 30 176 67,487,255.65 438,667.16 360,069.08 788,726.24 67,137,196.57
8/11/12 31 177 67,137,196.57 450,938.17 337,788.07 788,726.24 66,799,408.50
9/11/12 31 178 66,799,408.50 448,669.36 340,056.88 788,726.24 66,459,351.62
10/11/12 30 179 66,459,351.62 431,985.79 356,740.46 788,726.24 66,102,611.16
11/11/12 31 180 66,102,611,16 443,989.20 344,737.04 788,726.24 65,757,874.13
12/11/12 30 181 65,757,874.13 427,426.18 361,300.06 788,726.24 65,396,574.07
1/11/13 31 182 65,396,574.07 439,246.25 349,479.25 788,726.24 65,047,094.82
2/11/13 31 183 65,047,094.82 436,899.65 351,826.59 788,726.24 64,695,268.23
3/11/13 28 184 64,695,268.23 392,484.63 396,241.61 788,726.24 64,299,026.62
4/11/13 31 185 64,299,026.62 431,875.13 356,651.11 788,726.24 63,942,175.50
5/11/13 30 186 63,942,175.50 415,624.14 373,102.10 788,726.24 63,569,073.40
6/11/13 31 187 63,569,073.40 426,972.28 361,753.96 788,726.24 63,207,319.44
7/11/13 30 188 63,207,319.44 410,847.58 377,878.66 788,726.24 62,829,440.77
8/11/13 31 189 62,829,440.77 422,004.41 366,721.83 788,726.24 62,462,718.94
9/11/13 31 190 62,462,718.94 419,541.26 369,184.98 788,726.24 62,093,533.96
10/11/13 30 191 62,093,533.96 403,607.97 385,118.27 788,726.24 61,708,415.69
11/11/13 31 192 61,708,415.69 414,474.88 374,251.38 788,726.24 61,334,154.31
12/11/13 30 193 61,334,164.31 398,672.07 390,054.17 788,726.24 60,944,110.14
1/11/14 31 194 60,944,110.14 409,341.27 379,384.97 788,726.24 60,564,725.17
2/11/14 31 195 60,564,725.17 406,793.07 381,933.17 788,726.24 60,182,792.00
</TABLE>
<PAGE>
Amortization Schedule: $103,000,000 Grande
Interpolated 12-yr UST 5.87%
Spread 1.93%
Coupon (Actual/360) 7.80%
Amortization 25.00
Anticipated Maturity 12.50
Constant 9.19%
<TABLE>
<CAPTION>
Closing Date: 11/26/97
Senior Place
Payment Date Month Beginning Balance Interest Principal Payment End Balance
<S> <C> <C> <C> <C> <C> <C> <C>
3/11/14 28 196 60,182,792.00 365,108.94 423,617.30 788,726.24 59,759,174.70
4/11/14 31 197 59,759,174.70 401,382.46 387,343.78 766,726.24 59,371,830.91
5/11/14 30 198 59,371,830.91 385,916.90 402,809.34 788,726.24 58,969,021.57
6/11/14 31 199 58,969,021.57 396,075.26 392,660.98 788,726.24 58,576,370.59
7/11/14 30 200 58,576,370.59 380,746.41 407,979.83 788,726.24 58,168,390.76
8/11/14 31 201 58,168,390.76 390,697.69 398,028.55 788,726.24 57,770,362.21
9/11/14 31 202 57,770,362.21 388,024.27 400,701.97 788,726.24 57,369,660.24
10/11/14 30 203 57,369,660.24 372,902.79 415,823.45 788,726.24 56,953,836.79
11/11/14 31 204 56,953,836.79 382,630.94 406,168.30 788,726.24 58,547,650.48
12/11/14 30 205 56,547,650.48 367,559.73 421,166.51 788,726.24 56,126,483.97
1/11/15 31 206 56,126,483.97 376,982.88 411,743.36 788,726.24 55,714,740.61
2/11/15 31 207 55,714,740.61 374,217.34 414,508.90 788,726.24 55,300,231.71
3/11/15 28 208 55,300,231.71 335,488.07 453,238.17 788,726.24 54,646,993.54
4/11/15 31 209 54,846,993.54 368,388.97 420,337.27 788,726.24 54,426,656.28
6/11/15 30 210 54,426,656.28 353,773.27 434,952.98 788,726.24 53,991,703.30
6/11/15 31 211 53,991,703.30 382,644.27 426,081.97 788,726.24 53,565,621.33
7/11/15 30 212 63,686,621.33 348,176.54 440,549.70 788,726.24 53,125,071.63
8/11/15 31 213 53,125,071.63 356,823.40 431,902.84 788,726.24 52,693,168.79
9/11/15 31 214 52,693,168.79 353,922.45 434,803.79 788,726.24 62,268,366,00
10/11/15 30 215 52,268,385.00 339,679.37 449,046.87 788,726.24 51,809,318.13
11/11/15 31 216 51,809,318.13 347,985.92 440,740.32 788,726.24 51,368,577.81
12/11/15 30 217 51,388,577.81 333,895.76 454,830.40 788,726.24 50,913,747.32
1/11/16 31 218 50,913,747.32 341,970.67 446,755.57 788,726.24 50,466,991.75
2/11/16 31 219 50,466,991.75 338,959.96 440,758.28 788,726.24 50,017,235.47
3/11/16 29 220 50,017,235.47 314,274.96 474,451.28 788,726.24 49,542,784.19
4/11/16 31 221 49,542,784.19 332,762.37 455,983.87 788,726.24 49,088,820.32
5/11/16 30 222 49,086,820.32 319,064.33 469,661.91 788,726.24 48,617,168.41
6/11/16 31 223 48,617,158.41 326,545.25 462,180.99 788,726.24 48,154,977.42
7/11/16 30 224 48,154,977.42 313,007.35 475,718.89 788,726.24 47,679,258.53
8/11/16 31 225 47,679,258.53 320,245.69 468,480.55 788,726.24 47,210,777.97
9/11/16 31 226 47,210,777.97 317,099.06 471,627.18 788,726.24 46,739,160.79
10/11/16 30 227 46,739,150.79 303,804.48 484,921.76 788,726.24 46,254,229.03
11/11/16 31 228 46,254,229.03 310,674.24 478,052.00 788,726.24 45,776,177.03
12/11/16 30 229 45,776,177.03 297,545.15 491,181.09 788,726.24 45,284,995.94
1/11/17 31 230 45,284,995.94 304,164.22 484,562.02 788,726.24 44,800,433.92
2/11/17 31 231 44,800,433.92 300,909.58 467,816.66 788,726.24 44,312,617.26
3/11/17 28 232 44,312,617.26 268,829.88 519,896.36 788,726.24 43,792,720.00
4/11/17 31 233 43,792,720.90 294,141.11 494,585.13 788,726.24 43,298,135.76
5/11/17 30 234 43,298,135,76 281,437.88 507,288.36 788,726.24 42,790,847.40
6/11/17 31 235 42,790,847.40 287,411.86 501,314.38 788,726.24 42,289,533.02
7/11/17 30 236 42,289,633.02 274,681.96 513,844.28 788,726.24 41,775,688.75
8/11/17 31 237 41,775,688.75 280,593.38 508,132.87 788,726.24 41,267,555.88
9/11/17 31 238 41,267,555.88 277,180.42 511,545.82 788,726.24 40,756,010.06
10/11/17 30 239 40,756,010.06 264,914.07 523,812.18 788,726.24 40,232,107.88
11/11/17 31 240 40,232,197.88 270,226.26 518,499.98 788,726.24 39,713,697.90
12/11/17 30 241 39,713,697.90 258,130.04 530,587.20 788,726.24 39,183,110.70
1/11/18 31 242 39,183,110.70 263,179.89 525.546.35 788,726.24 38,667,684.35
2/11/18 31 243 38,657,564.35 259,649.97 529,076.27 788,726.24 38,128,488.08
3/11/18 28 244 38,128,488.08 231,312.83 557,413.41 788,726.24 37,571,074.87
4/11/18 31 245 37,671,074.67 252,362.38 636,373.86 788,726.24 37,034,700.81
5/11/18 30 246 37,034,700.81 240,725.56 548,000.69 788,726.24 36,486,700.13
6/11/18 31 247 36,486,700.13 245,069.00 543,657.24 788,726.24 35,943,042.89
7/11/18 30 248 35,943,042.89 233,629.78 555,096.46 788,726.24 35,387,948.43
8/11/18 31 249 35,387,946.43 237,689.04 551,037.20 788,726.24 34,836,909.22
9/11/18 31 250 34,836,909.22 233,987.91 554,738,33 788,726.24 34,282,170.80
10/11/18 30 251 34,282,170.89 222,834.11 565,892.13 788,726.24 33,716,278.76
11/11/18 31 252 33,716,278.76 226,461.01 562,265.24 788,726.24 33,154,013.52
12/11/18 30 253 33,154,013.52 215,501.09 573,225.15 788,726.24 32,580,788.37
1/11/19 31 254 32,580,788.37 218,834.30 569,891.95 788,726.24 32,010,896.43
2/11/19 31 255 32,010,896.43 215,006.52 573,719.72 788,726.24 31,437,176.71
3/11/19 28 256 31,437,176.71 190,718.87 598,007.37 788,726.24 30,839,169.34
4/11/19 31 257 30,839,169.34 207,136.42 581,589.82 788,726.24 30,257,579.52
5/11/19 30 258 30,257,579.52 196,674.27 592,051.97 788,726.24 29,665,527.54
6/11/19 31 259 29,666,527.54 199,253.46 589,472.78 788,726.24 29,076,054.76
7/11/19 30 260 29,076,054.76 188,994.36 599,731.89 788,726.24 28,476,322.88
</TABLE>
<PAGE>
Amortization Schedule: $103,000,000 Grande
Interpolated 12-yr UST 5.87%
Spread 1.93%
Coupon (Actual/360) 7.80%
Amortization 25.00
Anticipated Maturity 12.50
Constant 9.19%
<TABLE>
<CAPTION>
Closing Date: 11/26/97
Senior Place
Payment Date Month Beginning Balance Interest Principal Payment End Balance
<S> <C> <C> <C> <C> <C> <C> <C>
8/11/19 31 261 28,476,322.88 191,265.97 697,460.27 788,726.24 27,878.8
9/11/19 31 262 27,876,862.60 187,253.03 601,473.21 788,726.24 27,277.3
10/11/19 30 263 27,277,389.30 177,303.03 611,423.21 788,726.24 26,665.
11/11/19 31 264 26,665,966.18 179,106.41 609,619.63 788,726.24 26,056.3
12/11/19 30 265 26,056,346.34 169,366.25 619,359.99 788,726.24 25,436.
1/11/20 31 266 25,436,986.35 170,851.76 617,674,48 788,726.24 24,819.1
2/11/20 31 267 24,819,111.87 166,701.70 622,024.54 788,726.24 24,197.0
3/11/20 29 268 24,197,087.33 152,036.37 636,687.88 788,726.24 23,580.
4/11/20 31 269 23,560,399.48 158,247.35 630,478.89 788,726.24 22,929.
5/11/20 30 270 22,929,920.57 149,044.48 639,681.76 788,726.24 22,290.
6/11/20 31 271 22,290,236.61 149,716.10 639,010.14 788,726.24 21,651.2
7/11/20 30 272 21,651,228.67 140,732.99 647,993.25 788,726.24 21,003.2
8/11/20 31 273 21,003,235.42 141,071.73 647,654.51 788,726.24 20,355.
9/11/20 31 274 20,355,580.91 136,721.65 652,004.59 788,726.24 19,703.
10/11/20 30 275 19,703,576.32 128,073.25 660,653.00 788,726.24 19,042.
11/11/20 31 276 19,042,923.32 127,904.97 660,821.27 788,726.24 18,382.
12/11/20 30 277 18,382,102.05 119,463.66 66 ,242.58 788,726.24 17,712.
1/11/21 31 278 17,712,859.47 118,971.37 669,754.87 788,726.24 17,043.
2/11/21 31 279 17,043,104.60 114,472.85 674,253.39 788,726.24 16,368.
3/11/21 28 280 16,388,851.21 99,304.36 689,421.88 788,726.24 15,679.
4/11/21 31 281 15,679,429.34 105,313.50 683,412.74 788,726.24 14,996.
5/11/21 30 282 14,996,016.60 97,474.11 691,252.13 788,726.24 14,304.
6/11/21 31 283 14,304,764.46 96,080.33 692,645.91 788,726.24 13,612.
7/11/21 30 284 13,612,118.56 86,478.77 700,247.47 788,726.24 12,911.
8/11/21 31 285 12,911,671.09 86,724.73 702,001.51 788,726.24 12,209.
9/11/21 31 286 12,209,869.58 82,009.52 706,716.62 788,726.24 11,503.
10/11/21 30 287 11,503,152.96 74,770.49 713,955.75 788,726.24 10,789.
11/11/21 31 288 10,789,197.22 72,467.44 716,258.80 788,726.24 10,072.
12/11/21 30 289 10,072,938.42 65,474.10 723,252.14 788,726.24 9,349.
1/11/22 31 290 9,349,886.27 62,796.73 725,927.51 788,726.24 8,623.
2/11/22 31 291 6,523,758.78 67,922.91 730,803.33 788,726.24 7,892.
3/11/22 28 292 7,602,955.43 47,883.93 740,842.31 788,726.24 7,152.
4/11/22 31 293 7,152,113.12 48,038.36 740,687.88 788,726.24 6,411.
5/11/22 30 294 6,411,425.24 41,674.26 747,051.98 788,726.24 5,664.
6/11/22 31 295 5,664,373.26 38,045.71 750,680.53 788,726.24 4,913.
7/11/22 30 296 4,913,692.73 31,939.00 756,787.24 788,726.24 4,156.
8/11/22 31 297 4,156,905.49 27,920.55 760,805.6 788,726.24 3,396.
9/11/22 31 298 3,396,099.80 22,810.47 765,915.77 788,726.24 2,630.
10/11/22 30 299 2,630,184.03 17,096.20 771,630.04 788,726.24 1,858.
11/11/22 31 300 1,858,553.98 12,483.29 776,242.95 788,726.24 1,082.
12/11/22 30 301 1,082,311.03 7,035.02 1,082,311.03 1,089,348.05
</TABLE>
<PAGE>
Exhibit 10.12
Recording requested by and
When Recorded please return to:
GMAC Commercial Mortgage Corporation
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044
Attention: Executive Vice President, Loan Servicing
FEE AND LEASEHOLD DEED OF TRUST,
SECURITY AGREEMENT, ASSIGNMENT OF LEASES
AND RENTS AND FIXTURE FILING
Dated as of November 25, 1997
Made by
DS HOTEL LLC,
a Delaware limited liability company
as Trustor/Borrower,
to
COMMONWEALTH LAND TITLE COMPANY, a California corporation,
as Trustee for the benefit of
GMAC COMMERCIAL MORTGAGE CORPORATION,
a California corporation,
as Beneficiary/Lender.
<PAGE>
THIS FEE AND LEASEHOLD DEED OF TRUST, SECURITY AGREEMENT,
ASSIGNMENT OF LEASES AND RENTS AND FIXTURE FILING (this "Mortgage") is
--------
dated as of November 25, 1997 and is made by DS HOTEL LLC, a Delaware
limited liability company having an address for notices c/o Host Marriott
Corporation, 10400 Fernwood Road, Dept. 923, Bethesda, Maryland 20817-
1109, Attention: Assistant General Counsel, Asset Management ("Borrower" or
--------
"Trustor"), in consideration of the premises and covenants hereinafter set
-------
forth and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, to COMMONWEALTH LAND TITLE
COMPANY, a California corporation, having an address for notices at 275
West Hospitality Lane, Suite 200, San Bernadino, California 92408
("Trustee") for the benefit of GMAC COMMERCIAL MORTGAGE CORPORATION, a
-------
California corporation having an address for notices of 650 Dresher Road,
P.O. Box 1015, Horsham, Pennsylvania 19044, Attention: Executive Vice
President, Loan Servicing ("Lender" or "Beneficiary").
------ -----------
PRELIMINARY STATEMENT
Borrower is concurrently executing and delivering herewith in favor of
Lender a note in the principal amount of $103,000,000 and a Loan Agreement,
between Lender and Borrower, each dated as of the date hereof.
Borrower is the owner of that certain parcel of real estate (the
"Fee Parcel") described on Exhibit A hereto.
---------- ---------
Borrower is the owner of that certain leasehold estate (the "Ground
-------
Leasehold Estate" and, together with the Fee Parcel, the "DSM Property") in that
- ---------------- ------------
land described on Exhibit B hereto pursuant to the terms of that certain lease
---------
identified on Exhibit C.
---------
Borrower is granting this Mortgage in order to secure the payment of
the Debt and to secure the performance by Borrower of the covenants and
agreements contained in the Mortgage and the other Loan Documents.
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<PAGE>
Borrower has duly authorized the execution and delivery of this
Mortgage and has taken all actions required by law and all other actions of
Borrower required therefor.
Any capitalized term used but not otherwise defined herein shall have
the meaning given such term in Article 1 hereof and if not defined in said
Article 1 shall have the meaning given such term in the above referenced Loan
Agreement.
NOW, THEREFORE, in order to secure: (i) payment by Borrower of the
Debt; (ii) the performance by Borrower of all the covenants and agreements
contained in the Note, this Mortgage and the other Loan Documents as the same
may be amended, modified or supplemented to be performed or observed by or on
the part of Borrower (items (i) and (ii) being referred to herein as the
"Secured Obligations"), Borrower and Lender by these presents do hereby agree as
-------------------
follows:
BORROWER HEREBY IRREVOCABLY GRANTS, BARGAINS, SELLS, PLEDGES, CONVEYS,
TRANSFERS, MORTGAGES AND ASSIGNS unto Trustee, for the benefit of Lender, its
successors and assigns WITH POWER OF SALE forever, and grants a security
interest to Lender WITH POWER OF SALE in, all of the following property (such
property is hereinafter referred to collectively as the "Mortgaged Property"):
------------------
A. ALL estate, right, title and interest of Borrower, now owned
or hereafter acquired, in and to the DSM Property, together with all rights
of way or use, sidewalks, alleys, strips, gores, rights (including rights
in streets (including those vacated or to be vacated), privileges, air
rights and development rights, sewer rights, waters, water courses, water
rights and powers, servitudes, estates, licenses, easements, tenements,
hereditaments and appurtenances incident, belonging or pertaining to such
land, including any mineral, mining, oil and gas rights and rights to
produce or share in the production of anything related thereto and similar
or comparable rights of any nature whatsoever now or hereafter appurtenant)
(collectively, the "Land"), and all estate, right, title and interest of
----
Borrower in the buildings, structures, fixtures and improvements now or
hereafter located or placed thereon (which buildings and improvements,
together with any additions thereto or alterations or replacements thereof,
are referred to as the "Improvements");
------------
B. all machinery, apparatus, equipment, materials, fittings,
fixtures, chattels, articles of personal property and all other property
(real, personal or
-2-
<PAGE>
mixed), and all appurtenances and additions thereto and betterments,
renewals, substitutions and replacements thereof, now or hereafter owned by
Borrower or in which Borrower has or shall acquire an interest (to the
extent of such interest), and now or hereafter located on, attached to or
contained in or used in connection with the Land or the Improvements, or
placed on any part thereof though not attached thereto, including all
indoor and outdoor furniture, landscaping, indoor plants, tools, screens,
awnings, shades, blinds, curtains, draperies, partitions, carpets, rugs,
furniture and furnishings, heating, lighting, plumbing, water heating,
cooking, monitoring, ventilating, air conditioning, refrigerating,
sanitation, waste removal, incinerating or compacting plants, systems,
fixtures and equipment, elevators, escalators, stoves, ranges, vacuum
systems, window washing and other cleaning systems, call systems, sprinkler
systems and other fire prevention and extinguishing apparatus and
materials, alarms, telecommunications, entertainment, recreational or
security systems and equipment, motors, machinery, pipes, ducts, conduits,
dynamos, engines, compressors, generators, boilers, stokers, furnaces,
pumps, tanks, and appliances (collectively, "Equipment");
C. all personal property now or hereafter located at or used in
connection with the Premises (defined below) and owned by Borrower;
D. all real estate tax refunds and credits and all awards or
payments, including interest on any of them, and the right to receive the
same which Borrower may have, which may be made with respect to any of the
Premises whether from a condemnation or eminent domain proceeding thereof
or for any other injury to, decrease in the value of, or other occurrence
affecting any of the Premises, subject, in each case, to the rights of
Tenants under Leases or the Manager under the Management Agreement, to the
extent such Leases or the Management Agreement are not subordinate to the
terms of this Mortgage;
E. all monies, accounts, instruments and other property
(including all Eligible Collateral, additional collateral and other pledges
of money provided to Lender pursuant to the terms of this Mortgage or any
other Loan Documents) constituting a part of the security for the Loan or
the performance by Borrower of its obligations under this Mortgage or the
other Loan Documents as of any particular time, including all collateral
subject to the lien evidenced by any of the Loan Documents or assigned to
Borrower after the date hereof, and any proceeds of the foregoing;
-3-
<PAGE>
F. all proceeds of, and any unearned premiums or refunds of
premiums on, any insurance policies covering all or any part of the
Premises or other portion of the Mortgaged Property, including the right to
receive and apply the proceeds of any insurance, judgments or settlements
made in lieu thereof for damage to or the diminution of the Premises, but
subject, in each case, to the rights of Tenants under Leases or the Manager
under Management Agreement to the extent such Leases and Management
Agreement are not subordinate to the terms of this Mortgage;
G. all general intangibles relating to design, development,
operation, management and use of the Premises, all certificates of
occupancy, zoning variances, building, use or other permits, approvals,
authorizations, licenses and consents obtained from any Governmental
Authority in connection with the development, use, operation or management
of the Premises, all construction, service, engineering, consulting,
management, leasing, architectural and other similar contracts concerning
the design, construction, management, operation, occupancy and/or use of
the Premises, all architectural drawings, plans, specifications, soil
tests, appraisals, engineering reports and similar materials relating to
all or any portion of the Premises and all payment and performance bonds or
warranties or guarantees relating to the Premises, and all agreements,
contracts and instruments pursuant to which Borrower acquired its interest
in the Mortgaged Property, all to the extent assignable;
H. all trademarks, trade names, corporate names, company names,
business names, fictitious business names, trade styles, service marks,
logos, other source and business identifiers, trademark registrations and
applications for registration used exclusively at or relating exclusively
to the Premises or any portion thereof; all renewals, extensions and
continuations-in-part of the items referred to above; any written agreement
granting to Borrower any right to use any trademark or trademark
registration at or in connection with any of the Premises; and the right of
Borrower to sue for past, present and future infringements of the
foregoing;
I. the right in the name and on behalf of Borrower to appear in
and defend any action or proceeding brought with respect to any of the
Premises or any other component of the Mortgaged Property, and to commence
any action or proceeding to protect the interest of Lender therein;
-4-
<PAGE>
J. all right, title and interest of Borrower in the Management
Agreement;
K. any of the foregoing to the extent acquired from and after
the date hereof; and
L. all of Borrower's interest in and to all proceeds, including
interest receivable thereon, of the voluntary or involuntary conversion of
any of the foregoing, including proceeds of insurance and condemnation
awards, into cash or liquidated claims.
TO HAVE AND TO HOLD the above granted and described property, subject
in all respects only to the Permitted Encumbrances, unto and to the proper use
and benefit of Lender, its successors and assigns, WITH POWER OF SALE, forever,
upon the terms and conditions set forth herein.
The following actions of Lender shall not affect the liability of
Borrower for payment and performance of the Secured Obligations, and shall not
affect the lien hereof upon any portion of the Mortgaged Property not expressly
released herefrom: if Lender shall, with or without notice (a) retain or obtain
a security interest in any property to secure all or any portion of the Secured
Obligations, (b) retain or obtain the primary or secondary liability of any
party or parties with respect to all or any portion of the Secured Obligations,
(c) alter, exchange, extend, renew, modify, release or cancel for any period
(whether or not longer than their original maturity) any terms, conditions,
provisions or covenants contained in any or all of the Loan Documents, (d)
release or compromise any liability of any party or parties primarily or
secondarily liable on all or any portion of the Secured Obligations, (e) release
its security interest, if any, in all or any portion of the Mortgaged Property
and/or permit any substitution or exchange for any such portion of the Mortgaged
Property, (f) resort to the Mortgaged Property conveyed by this Mortgage, or any
portion thereof, for payment of the Secured Obligations, or any portion thereof,
whether or not Lender shall have resorted to any other property otherwise
securing the Secured Obligations, or to the extent permitted by law shall have
proceeded against any other party primarily or secondarily liable on the Secured
Obligations, and (g) apply all or any portion of the Mortgaged Property or
direct the order or manner of sale thereof as Lender in its sole discretion
chooses in accordance with the terms of this Mortgage.
-5-
<PAGE>
AND, to protect the security of this Mortgage, Borrower covenants and
agrees with and represents and warrants to Lender, subject in all respects to
the Permitted Encumbrances, as follows:
1. CERTAIN DEFINITIONS.
-------------------
1.1. Capitalized terms, not otherwise defined in this Mortgage, shall
have the respective meanings assigned thereto in the Loan Agreement.
1.2. For all purposes of this Mortgage, except as otherwise expressly
provided or unless the context otherwise requires:
(a) The terms defined in this Article shall have the meanings
assigned to them in this Article and shall include the plural as well as
the singular.
(b) All accounting terms not otherwise defined herein shall have
the meanings assigned to them in accordance with generally accepted
accounting principles in the United States of America, and, except as
otherwise herein expressly provided, the term "generally accepted
accounting principles" with respect to any computation required or
permitted hereunder shall mean such accounting principles as are generally
accepted in the United States of America as of the date of such
computation.
(c) The word "including" shall be construed to be followed by
the words "without limitation".
(d) Captions are for the convenience of the reader and shall not
be considered in interpreting this Mortgage or the intent of the parties
hereto.
(e) The words "herein", "hereof" and "hereunder" and other words
of similar import shall refer to this Mortgage as a whole and not to any
particular Article, Section or other subdivision.
(f) The term "Mortgaged Property" shall be deemed to mean
"Mortgaged Property or any portion thereof".
1.3. As used in this Mortgage the following terms have the
following respective meanings:
-6-
<PAGE>
Borrower shall mean DS Hotel LLC, for the period during which the
--------
same shall own the Mortgaged Property, and following any conveyance of the
Mortgaged Property which is permitted by the terms of this Mortgage, shall
mean the transferee for the period during which each transferee shall own
the Mortgaged Property.
Borrower's Contest Right shall mean Borrower's right to contest
------------------------
certain matters pursuant to Section 5.1(b)(ii) of the Loan Agreement,
subject to all of the terms and conditions set forth in said Section.
Equipment shall have the meaning stated in the Preliminary
---------
Statement hereof.
Improvements shall have the meaning stated in the Preliminary
------------
Statement hereof.
Land shall have the meaning stated in the Preliminary Statement
----
hereof.
Management Agreement shall mean that certain Management
--------------------
Agreement, dated as of November 25, 1997, between Borrower and Marriott
Hotel Services, Inc., as it may be amended, modified, supplemented or
replaced from time to time, providing for the management by Manager of the
DSM Property and the Premises.
Mortgage shall mean this Deed of Trust, Security Agreement,
--------
Assignment of Leases and Rents and Fixture Filing, as modified, amended or
supplemented from time to time pursuant to the provisions hereof.
Mortgaged Property shall have the meaning stated in the
------------------
Preliminary Statement hereof.
Personal Property shall have the meaning stated in Section 21.1.
-----------------
Premises shall mean the Land, Improvements and Equipment and all
--------
accessions and additions thereto and increases therein which constitute a
part of the Land, Improvements and/or Equipment.
Secured Obligations shall have the meaning stated in the
-------------------
Preliminary Statement hereof.
-7-
<PAGE>
2. PAYMENT OF THE NOTE, ALL OTHER DEBT AMOUNTS. Borrower will duly
-------------------------------------------
pay all amounts owed under the Note and the other portions of the Debt,
including all amounts due under this Mortgage and any other Loan Document, at
the places, at the respective times and in the manner provided therein and
herein (as applicable).
3. PERFORMANCE AND OBSERVANCE OF LOAN AGREEMENT COVENANTS. Borrower
------------------------------------------------------
will duly perform, observe and comply with all of the affirmative and negative
covenants, agreements and obligations to be performed, observed and complied
with by Borrower, and all of the other terms and conditions applicable to
Borrower, under the terms of the Loan Agreement and any other Loan Document, as
if each such covenant, agreement, obligation, term and condition were expressly
set forth herein in full. Without limiting the generality of the foregoing,
Borrower will, or will cause the Manager to, perform each of the following:
maintain the Premises, pay Taxes and Other Charges, obtain and maintain
insurance, keep the Mortgaged Property free of Liens (other than Permitted
Encumbrances), pay the utility charges for the Premises, perform alterations and
repairs in respect of the Premises, cause the Premises to comply with all Legal
Requirements, transfer (or refrain from transferring) the Mortgaged Property,
fund the Tax and Insurance Reserve Account (in accordance with the Cash
Management Procedures), and restore the Premises upon any Casualty or
Condemnation, all to the extent required by, in accordance with and subject to
all of the applicable terms and conditions of the Loan Agreement and the other
Loan Documents.
4. MAINTENANCE OF VALIDITY AND RECORDING.
-------------------------------------
4.1. Borrower covenants that it will forthwith after the execution
and delivery of this Mortgage and thereafter as necessary from time to time
cause this Mortgage and the other Loan Documents and any continuation statement
or similar instrument relating to the property intended under the express terms
of this Mortgage or any other Loan Document to be granted, conveyed, transferred
and assigned hereby or thereby to be filed, registered and recorded in such
manner and in such places as may be required by law in order to publish notice
of and fully to protect the validity thereof or the grant thereby of the
property subject thereto and the interest and rights of Lender therein.
Borrower covenants that it has paid or will pay or cause to be paid all taxes
and fees incident to such filing, registration and recording, and, subject to
the limitations set forth in the Loan Agreement, all expenses incident to the
preparation, execution and acknowledgment thereof, and of any instrument of
further assurance, and
-8-
<PAGE>
all federal or state stamp taxes or other charges arising out of or in
connection with the execution and delivery of such instruments.
4.2. Borrower covenants that at all times it will itself preserve,
warrant and defend Lender's title and right in and to the Mortgaged Property,
subject to the Permitted Encumbrances and items then being contested in
accordance with Borrower's Contest Right, against the claims of all Persons and
will maintain and preserve such title and right so long as the Debt is
outstanding.
4.3. Borrower shall maintain the validity, perfection, priority and
effectiveness of this Mortgage and the other Loan Documents. Unless otherwise
permitted in this Mortgage and the other Loan Documents, Borrower will not take
any action, will not permit action to be taken by others and will not omit to
take any action, nor will Borrower give any notice, approval or consent or
exercise, waive or modify any rights under or in respect of the Permitted
Encumbrances, which action, omission, notice, approval, consent or exercise,
waiver or modification of rights would release Borrower from, or reduce any of
Borrower's obligations or liabilities under, or would result in the termination,
surrender or assignment of, or the amendment or modification of, any of the Loan
Documents, or would impair the validity of this Mortgage or any of the other
Loan Documents, or would affect the Mortgaged Property in any way which would
have a Material Adverse Effect, without Lender's consent, and any attempt to do
any of the foregoing without such consent shall be of no force and effect.
4.4. Borrower, at its expense, will execute, acknowledge and deliver
all such instruments and take all such actions as Lender from time to time
reasonably may request or as may be reasonably necessary or proper for the
better assuring to Lender of the property and rights now or hereafter subject to
the Lien hereof or intended under the express terms of this Mortgage so to be.
5. INTENTIONALLY OMITTED.
---------------------
6. NO CLAIMS AGAINST LENDER. Nothing contained in this Mortgage or
------------------------
in any other Loan Document shall constitute any consent or request by Lender,
express or implied, for the performance of any labor or services or the
furnishing of any materials or other property in respect of the Mortgaged
Property or any part thereof, nor as giving Borrower any right, power or
authority to contract for or permit the performance of any labor or services or
the furnishing of any materials or other property in such fashion as would
permit the making of any claim against Lender in respect thereof or any claim
that any Lien based on the performance of such labor or
-9-
<PAGE>
services or the furnishing of any such materials or other property is prior to
the interest of Lender under this Mortgage.
7. INDEMNIFICATION. During the term of the Loan, Borrower will
---------------
protect, indemnify and save harmless Lender from and against: all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including all reasonable attorneys' fees and expenses) imposed upon or incurred
by or asserted against Lender (unless based upon the bad faith, negligence or
wilful misconduct of Lender) by reason of the occurrence or existence of any of
the following (to the extent the insurance proceeds payable on account of the
following and received by Lender shall be inadequate) prior to the payment in
full of the Debt and the satisfaction of all conditions for the satisfaction and
release or Defeasance of this Mortgage: (a) ownership or possession of
Borrower's interest in the Mortgaged Property, or any interest therein, or
receipt of any rent or other sum therefrom, (b) any accident, injury to or death
of any persons or loss of or damage to property occurring on or about the
Premises or any part thereof or the adjoining parking areas, sidewalks, curbs,
vaults and vault space, if any, streets or ways, (c) any use, non-use or
condition of the Mortgaged Property or any part thereof or the adjoining parking
areas, sidewalks, curbs, streets or ways, including claims or penalties arising
from violation of any Legal Requirement or Insurance Requirement, as well as any
claim based on any patent or latent defect, whether or not discoverable by
Lender, any claim the insurance as to which is inadequate, and any claim in
respect of any adverse environmental impact or effect, (d) any failure on the
part of Borrower to perform or comply with any of the terms of this Mortgage,
any Lease, or any other Loan Document to which it is a party and any breach of
any representation made by Borrower herein or in any other Loan Document, (e)
any performance of any labor or services or the furnishing of any materials or
other property in respect of the Mortgaged Property or any part thereof, (f) any
bad faith, negligence or tortious act or omission on the part of Borrower or any
of its agents, contractors, servants, employees, sublessees, licensees or
invitees, (g) any contest undertaken by Borrower (even if the same is permitted
by the terms of the Loan Documents), or (h) the presence at, on, or under the
Premises or the migration from or release at, on, or from the Premises of any
pollutant or Hazardous Substance (as defined in the Environmental Indemnity), in
violation of any Legal Requirement. Lender shall give notice to Borrower of any
claims, liabilities, obligations, damages, penalties, costs or causes of action
for which Lender believes it is entitled to indemnification hereunder promptly
upon its discovery of the action or event giving rise to such claim, but the
failure of Lender to provide such notice shall neither cause the forfeiture of
the right to receive indemnity hereunder nor limit such right except to the
extent, if any, that Borrower is materially prejudiced by the failure of the
Indemnified
-10-
<PAGE>
Party (as defined in the Environmental Indemnity) to promptly give such notice.
Any amounts due and payable under this Section to Lender that are not paid
within ten (10) Business Days after written demand therefor by Lender, setting
forth in reasonable detail the amount of such demand and the basis therefor,
shall bear interest from the date of demand until paid at the Default Rate and
shall be secured by this Mortgage. In case any action, suit or proceeding is
brought against Lender by reason of any such occurrence, Borrower, upon the
request of Lender, will (or at the option of Borrower, Borrower may) at
Borrower's expense resist and defend such action, suit or proceeding or cause
the same to be resisted and defended by counsel for the insurer of the liability
or by counsel selected by Borrower (unless reasonably disapproved by Lender). So
long as Borrower is resisting and defending such action, suit or proceeding as
provided above in a prudent and commercially reasonable manner, Lender shall not
be entitled to settle such action, suit or proceeding or claim the benefit of
this Article with respect to such action, suit or proceeding (including the
right to reimbursement of Lender's counsel fees and expenses), and Lender agrees
that it will not settle any such action, suit or proceeding without the written
consent of Borrower; provided if Borrower is not diligently defending such
action, suit or proceeding in a prudent and commercially reasonable manner as
provided above, Lender may settle such action, suit or proceeding subject only
to the written consent of Borrower, which consent shall not be unreasonably
withheld or delayed, and claim the benefit of this Article with respect to
settlement of such action, suit or proceeding. As used in this Article, the term
"Lender" shall be deemed to include both or either of the Lender and any
Servicer, as applicable.
8. NO ENDORSEMENT. Lender shall not become or be considered to be an
--------------
endorser, co-maker or co-obligor on the Note or on any obligation of Borrower
secured by this Mortgage.
9. BRUNDAGE; NO CREDIT FOR PAYMENT OF TAXES OR OTHER CHARGES.
---------------------------------------------------------
9.1. Borrower shall pay any taxes imposed by any law of the United
States or of the state or municipality where the Mortgaged Property is located,
adopted after the date hereof, (i) changing in any way the laws for the taxation
of mortgages or debts secured thereby for federal, state or local purposes, or
the manner of collection of any such taxes, and (ii) imposing a tax, either
directly or indirectly, on mortgages or debts secured thereby (other than a tax
that may arise in connection with ownership or transfer of the Note or that is
imposed upon the income of Lender).
-11-
<PAGE>
9.2. Borrower shall not be entitled to any credit against the principal,
interest or other amounts, if any, payable on the Note or under any other Loan
Document, and Borrower shall not be entitled to any credit against any other
amounts which may become payable under the terms thereof or hereof, by reason of
the payment of any Taxes or Other Charges on the Mortgaged Property or any part
thereof or by reason of payment of any other amount required to be paid
hereunder. No deduction shall be made or claimed from the taxable value of the
Mortgaged Property or any part thereof by reason of this Mortgage.
10. COVENANTS REGARDING GROUND LEASE.
--------------------------------
Borrower covenants, warrants and agrees to and with Trustee and
Beneficiary as follows with respect to the Ground Leasehold Estate:
10.1 Borrower shall promptly notify Beneficiary in writing of the
giving to or service upon Borrower by the Ground Lessor under the Ground Lease
or any notice of default on the part of the terms, covenants and conditions to
be kept, performed or observed by Borrower under the Ground Lease, and, provided
Lender complies with the requirements of Section 7.1 of the Ground Lease,
Borrower shall cause a copy of any notice furnished or delivered to Borrower by
the Ground Lessor under the Ground Lease to be delivered forthwith to
Beneficiary.
10.2 (a) Borrower will not surrender the Ground Lease or the Ground
Leasehold Estate or the interest of Borrower in or under the Ground Lease, nor
shall the Ground Lease be terminated or canceled by Borrower, nor shall
Borrower, without the prior written consent of Beneficiary being first had and
obtained, modify, change, supplement, amend or alter the Ground Lease or consent
to any of the foregoing, and Borrower hereby transfers and relinquishes unto
Beneficiary all rights, privileges and prerogatives of Borrower to terminate,
cancel, modify, change, supplement, amend or alter the Ground Lease, and any
such termination, cancellation, modification, change, supplement, amendment or
alteration of the Ground Lease made, suffered to be made, or consented to by
Borrower without the prior written consent thereto on the part of Beneficiary
being first had and obtained, shall be void and of no force or effect.
(b) Beneficiary shall consent to the amendment of the Ground Lease if
the same would not, in the reasonably exercised judgment of Beneficiary, have a
Material Adverse Effect, and shall not unreasonably delay any consent
Beneficiary is obligated to give under this sentence.
-12-
<PAGE>
10.3 Borrower shall exercise any, option to renew or extend the
Ground Lease if, at the time such option becomes exercisable, any Secured
Obligations have not been fully paid (or satisfied) and discharged and Borrower
shall give written confirmation thereof to Beneficiary within ten (10) days
after the date on which such option first becomes exercisable; and Borrower
hereby irrevocably appoints Beneficiary as its attorney-in-fact, with power of
substitution, to exercise such option on behalf of Borrower if Borrower is
required under the foregoing provisions to exercise said option but for any
reason fails or refused to exercise said option within a reasonable time prior
to the expiration of Borrower's time to exercise the option.
10.4 Borrower covenants and agrees that if at any time Borrower fails
to comply fully or in a timely manner with any of the Borrower's obligations
under the Ground Lease, and such failure threatens the value or existence of
Beneficiary's security hereunder or Beneficiary is given the right to cure
Borrower's defaults under the terms of the Ground Lease, Beneficiary may,
without obligation to do so and without notice to or demand upon Borrower and
without relieving Borrower from any obligation hereunder or removing or waiving
any corresponding default hereunder, perform on behalf of Borrower any such
obligations, and any and all costs and expenses (including without limitation
reasonable attorneys' fees) incurred by Beneficiary in connection therewith
shall be repayable by Borrower, with interest thereon at the Default Rate (as
defined in the Loan Agreement), without demand and shall be secured hereby;
provided that the foregoing shall not be construed to require Beneficiary to
incur any expense or take any action with action with respect to Borrower's
failure to comply with any of Borrower's obligations under the Ground Lease.
10.5 Borrower hereby unconditionally assigns, transfers, and sets over
to Beneficiary all of Borrower's claims and rights to any damages arising from
any rejection of the Ground Lease by the Ground Lessor under the Ground Lease
pursuant to the Bankruptcy Code (11 U.S.C. (S) 101 et seq. (the "Bankruptcy
-- --- ----------
Code")). Beneficiary shall have the right to proceed in its own name or in the
- ----
name of Borrowerr with respect to any claim, suit, action, or proceeding
relating to the rejection of the Ground Lease by the Ground Lessor, including,
but not limited to, the right to file and prosecute on any case under the
Bankruptcy Code, to the exclusion of Borrower, any proofs of claim, complaints,
motions, applications, notices, or other documents; provided that the foregoing
shall not be construed to require Beneficiary to incur an expense or take any
action relating to the rejection of the Ground Lease by the Ground Lessor. This
assignment constitutes a present, irrevocable, and unconditional assignment of
the foregoing claims and rights, and shall continue in effect until all of the
Secured Obligations have been satisfied and discharged in full. Any amounts
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<PAGE>
received by Beneficiary as damages from the Ground Lessor's rejection of the
Ground Lease shall be applied first to the payment of all costs and expenses
(including, but not limited to, legal fees and disbursements) paid or incurred
by Beneficiary in obtaining such damages and then to the payment of the Secured
Obligations, in any order that Beneficiary chooses. Upon demand, Borrower shall
pay to Beneficiary all of the foregoing costs and expenses not satisfied by the
amounts received by Borrower as damages. Any such costs or expenses not paid by
Borrower upon demand shall be added to the Secured Obligations, shall bear
interest at the Default Rate, and shall be secured by the lien of this Mortgage.
10.6 The lien of this Mortgage shall attach to all of Borrower's rights
and remedies at any time arising under or pursuant to Section 365(h) of the
Bankruptcy Code (11 U.S.C. (S) 365(h)), including, but not limited to, all of
Borrower's rights to remain in possession of the Premises.
10.7 Borrower shall not elect to treat the Ground Lease as terminated
under Section 365(h)(1) of the Bankruptcy Code (11 U.S.C. (S) 365(h)(1)) without
Beneficiary's prior written consent. Any such election without Beneficiary's
prior written consent shall be void and of no force or effect.
10.8 If, pursuant to Section 365(h)(2) of the Bankruptcy Code
(11 U.S.C. (S) 365(h)(2)), Borrower seeks to offset against the rent reserved in
the Ground Lease the amount of any damages caused by the non-performance by the
Ground Lessor under the Ground Lease of any of such Ground Lessor's obligations
under the Ground Lease after the rejection by such Ground Lessor of the Ground
Lease pursuant to the Bankruptcy Code, Borrower, prior to making such offset,
shall notify Beneficiary of Borrower's intent to do so, setting forth the
amounts proposed to be offset and the basis for such offset. Beneficiary shall
have the right to object to all or any part of such offset, and, in the event of
such objection, Borrower shall not offset any of the amounts objected to by
Beneficiary. If Beneficiary has failed to object to Borrower's proposed offset
within ten (10) days after notice from Borrower in accordance with the first
sentence of this paragraph, Borrower may proceed to offset all or any part of
the amounts set forth in Borrower's notice. Neither Beneficiary's failure to
object to Borrower's proposed offset, nor any objection or other communication
between Beneficiary and Borrower relating to such offset shall constitute an
approval of any such offset by Beneficiary. Borrower shall defend and hereby
indemnifies and holds Beneficiary harmless from and against any and all claims,
demands, actions, suits, proceedings, damages, losses, costs, and expenses of
every nature whatsoever
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<PAGE>
(including, but not limited to, reasonable legal fees and disbursements) arising
from or relating to any offset by Borrower against the rent reserved in the
Ground Lease.
10.9 In the event any action, proceeding, motion, or notice shall be
commenced or filed with respect to the Ground Leasehold Estate secured hereby in
connection with any case under the Bankruptcy Code, Beneficiary shall have the
option, to participate in (and, during the continuance of any Event of Default,
to the exclusion of Borrower), exercisable upon notice from Beneficiary to
Borrower, to conduct and control any such litigation with counsel of
Beneficiary's choice. Beneficiary may proceed in its own name or in the name of
Borrower in connection with any such litigation, and Borrower shall execute any
and all powers, authorizations, consents, and other documents required by
Beneficiary in connection therewith. Upon demand, Borrower shall pay to
Beneficiary all costs and expenses (including, but not limited to, reasonable
legal fees and disbursements) paid or incurred by Beneficiary in connection with
the prosecution or conduct of any such litigation. Any such costs or expenses
not paid by Borrower upon demand shall be added to the Secured Obligations,
shall bear interest at the Default Rate, and shall be secured by the lien of
this Mortgage. Borrower shall not commence any action, suit, proceeding, or
case, or file any application or make any motion, with respect to the Ground
Lease in any such case under the Bankruptcy Code without the prior written
consent of Beneficiary.
10.10 Borrower promptly shall notify Beneficiary of any information
Borrower receives about any filing by or against the Ground Lessor under the
Ground Lease of a petition under the Bankruptcy Code. Borrower shall provide all
information available to Borrower as of the date of such filing, including, but
not limited to, the court in which such petition was filed and the relief sought
therein. Borrower promptly shall deliver to Beneficiary copies of any and all
notices, summons, pleadings, applications, and other documents received by
Borrower in connection with any such petition and any proceedings relating to
such petition.
10.11 In the event there is filed by or against Borrower a petition
under the Bankruptcy Code, and Borrower, as lessee under the Ground Lease, shall
determine to reject the Ground Lease pursuant to Section 365(a) of the
Bankruptcy Code (11 U.S.C. (S) 365(a)), Borrower shall give Beneficiary not less
than ten (10) days' prior notice of the date on which Borrower shall apply to
the bankruptcy court for authority to reject the Ground Lease. Beneficiary shall
have the right, but not the obligation, to serve upon Borrower within such ten-
day period of notice stating that (i) Beneficiary demands that Borrower assume
and assign the Ground Lease to Beneficiary pursuant to Section 365 of the
Bankruptcy Code, and (ii) Beneficiary covenants to cure or provide
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<PAGE>
adequate assurances of future performance under the Ground Lease. If Beneficiary
serves upon Borrower the notice described in the preceding sentence of this
paragraph, Borrower shall not seek authorization to reject the Ground Lease and
shall comply with the demand provided for in clause (i) of the preceding
sentence within thirty (30) days after the notice shall have been served upon
Borrower, subject to the performance by Beneficiary of the covenant provided for
in clause (b) of the preceding sentence. Effective upon the entry of an order
for relief with respect to Borrower under the Bankruptcy Code, Borrower hereby
assigns and transfers to Beneficiary a non-exclusive right to apply to the
bankruptcy court for an order extending the period during which the Ground Lease
may be rejected or assumed.
11. FORECLOSURE.
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11.1. Foreclosure.
-----------
(a) Except as provided in the Loan Agreement, if any Event of Default shall
have occurred, Trustee or Lender may at any time proceed, at law or in equity or
otherwise, to enforce the payment of the Note in accordance with the terms
thereof and, if the Note has been declared due and payable:
(i) to institute an action to foreclose its interest under the Lien of
this Mortgage against the Mortgaged Property by judicial foreclosure sale
or strict foreclosure in a proceeding and to have the same sold under the
judgment or decree of a court of competent jurisdiction or proceed to take
any of such actions;
(ii) to take such other action at law or in equity or otherwise for the
enforcement of this Mortgage and the realization, upon obtaining a judgment
for foreclosure, on the security or any other security herein or elsewhere
provided for, in such manner and at such times as the law may allow, and
may proceed therein to the extent permitted, and subject to the limitations
imposed, by law to final judgment and execution for the entire unpaid
balance of the Debt, together with all other sums payable by Borrower in
accordance with the provisions of the Note, this Mortgage and the other
Loan Documents, and all sums which may have been advanced by Lender for
Taxes and Other Charges, ground rents under the Ground Lease, water or
sewer rents, charges or claims, payment on prior liens, insurance or
repairs to the Mortgaged Property, all costs of suit, together with
interest thereon at such interest rate as may be awarded in any judgment
obtained by Lender, as the case may be, from and after the date of any
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foreclosure sale until actual payment is made to Lender of the full amount
due Lender, and reasonable attorneys' fees through and including all
appellate levels; and/or
(iii) to sell, assign, transfer and deliver the whole or, from time to
time, any part of the Mortgaged Property, or any interest in any part
thereof, at any private sale or at public auction permitted by law, with
such demand, advertisement or notice as required by law, and on such other
terms as required or permitted by law.
(b) Should Lender elect to foreclose by exercise of the power of sale
herein contained, Lender shall notify Trustee and shall deposit with Trustee
this Mortgage and such receipts and evidence of expenditures made and secured
hereby as Trustee may require.
(i) Upon receipt of such notice from Lender, Trustee shall cause to be
recorded, mailed or delivered to Borrower such notice of default and
election to sell as is then required by law and by this Mortgage. Trustee
shall, without demand on Borrower, after lapse of such time as may then be
required by law and after recordation of such notice of default and after
notice of such sale has been given as required by law, sell the Mortgaged
Property at time and place of sale fixed by it in said notice of sale,
either as a whole, or in separate lots or parcels or items as Trustee shall
deem expedient, and in such order as it may determine, at public auction,
to the highest bidder for cash in lawful money of the United States payable
at the time of sale. Trustee shall deliver to such purchaser or purchasers
thereof its good and sufficient deed or deeds conveying the property so
sold, but without any covenant or warranty, expressed or implied. The
recitals in such deed of any matters or facts shall be conclusive proof of
the truthfulness thereof. Any person, including, without limitation,
Borrower, Trustee or Lender, may purchase at such sale and Borrower hereby
covenants to warrant and defend the title of such purchaser or purchasers.
If allowed by law, Lender, if it is the purchaser, may credit bid the
outstanding amount of the indebtedness secured hereby toward payment of the
purchase price. Borrower hereby expressly waives and right of redemption
after sale that Borrower may have at the time of sale or that may apply to
the sale.
(ii) After deducting all costs, fees and expenses of Trustee and of this
Mortgage, including costs of evidence of title in connection with sale and
reasonable Trustee's and reasonable attorneys' fees for conducting the
sale,
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<PAGE>
Trustee shall apply the proceeds of sale or payment of all sums expended
under the terms hereof and not then repaid (with accrued interest thereon
at the Default Rate), and to all other sums then secured hereby in
accordance herewith, and the remainder, if any, to the person or persons
legally entitled thereto.
(iii) Trustee may postpone sale of all or any portion of the Mortgaged
Property by public announcement at such time and place of sale, and from
time to time thereafter may postpone such sale by public announcement at
the time fixed by the preceding postponement or by subsequently noticed
sale, and without further notice make such sale at the time fixed by the
last postponement; or Trustee may, in its discretion, give a new notice of
sale. Lender may rescind and such notice of default at any time before
Trustee=s sale by executing a notice of rescission and recording the same.
The recordation of such notice shall constitute a cancellation of any prior
declaration of default and demand for sale and of any acceleration of
maturity of the indebtedness secured hereby effected by any prior
declaration or notice of default. The exercise by Lender of the right of
rescission shall not constitute a waiver of any default and demand for
sale, or notice of default and election to cause the said real estate to be
sold, nor otherwise affect any of the Loan Documents or this Mortgage, or
any of the rights, obligations or remedies of Lender or Trustee hereunder.
Before taking title to or possession of all or any portion of the Mortgaged
Property, Lender may order the performance of environmental assessments of the
Mortgaged Property by qualified professionals, the cost of which shall borne by
Borrower and secured hereby.
11.2. Borrower's Waivers. It shall not be necessary for Trustee or
------------------
Lender to have actual or constructive possession of any part of the Mortgaged
Property in order to pass the title to and the right of possession of the
Mortgaged Property in connection with a foreclosure, and the title to and the
right of possession of the Mortgaged Property shall pass to the purchaser or
purchasers thereof at any foreclosure sale hereunder as fully as if the same
actually had been present and delivered. To the fullest extent allowed by
applicable law, upon foreclosure of this Mortgage, whether by power of sale or
any other nonjudicial or judicial foreclosure process, Borrower or any person
claiming any part of the Mortgaged Property by, through or under Borrower shall
not be entitled to direct the order of sale or to a marshalling of assets or a
sale in inverse order of alienation. The recitals and statements of fact
contained in any notice or in any conveyance to the purchaser or purchasers at
any sale hereunder shall be prima facie evidence of the truth of such facts, and
all prerequisites and requirements
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necessary to the validity of any such sale shall be presumed to have been
performed. In the event of a foreclosure sale, to the extent that Borrower is in
possession of the Mortgaged Property, Borrower shall be deemed a tenant at will
of the purchaser at such judicial foreclosure sale and shall be liable for a
reasonable rental for the use of the Mortgaged Property; and if Borrower refuses
to surrender possession of the Mortgaged Property upon demand, the purchaser
shall be entitled to institute and maintain the statutory action of forcible
entry and detainer and procure a writ of possession thereunder, and Borrower
expressly waives all damages sustained by reason thereof and Borrower agrees to
pay to the purchaser the reasonable costs and expenses (including all reasonable
attorneys' fees and expenses) of such action and writ.
11.3. Recovery of Advances. Subject to the terms of Section 13.24
--------------------
of the Loan Agreement, to the extent permitted by law, Lender shall have the
right, from time to time, to bring an appropriate action to recover any sums
required to be paid by Borrower under the terms of this Mortgage and/or the Note
as they become due, without regard to whether the principal indebtedness
evidenced by the Note or any other sums secured by this Mortgage shall be due,
and, subject to the limitations imposed by law, without prejudice to the right
of Lender thereafter to bring an action of foreclosure, or any other action, for
any default by Borrower existing at the time the earlier action was commenced.
11.4. Sale. Upon the completion of any sale or sales of all or any
----
portion of the Mortgaged Property by virtue of this Article, Trustee, Lender or
any officer of any court empowered to do so, shall execute and deliver to the
accepted purchaser or purchasers, good and sufficient instrument or instruments
conveying, assigning and transferring all estate, right, title and interest in
and to the property and rights sold. In such event, each of Trustee and Lender
is hereby irrevocably appointed the true and lawful attorney of Borrower, in its
name and stead, to make all the necessary conveyances, assignments, transfers
and deliveries of any part of the Mortgaged Property and rights so sold, and for
that purpose Trustee or Lender may execute all necessary instruments of
conveyance, assignment and transfer and may substitute one or more Persons with
like power, Borrower hereby ratifying and confirming all that Trustee or Lender,
Borrower's said attorney or such substitute or substitutes shall lawfully do by
virtue hereof. Nevertheless, Borrower shall, if so requested by Trustee or
Lender, ratify and confirm any such sale or sales by executing and delivering to
Trustee, Lender or to such purchaser or purchasers all such instruments as may
be advisable, in the judgment of Trustee or Lender, for the purpose and as may
be designated in such request. To the extent permitted by law, any such sale or
sales shall operate to divest all the estate, right, title, interest, claim and
demand
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<PAGE>
whatsoever, whether at law or in equity, of Borrower in and to the properties,
interests and rights so sold, and shall be a perpetual bar both at law and in
equity against Borrower and against any and all Persons claiming or who may
claim the same, or any part thereof from, through or under Borrower.
11.5. Several Parcels. To the extent permitted by law, if any Event
---------------
of Default shall have occurred and the Note shall have been declared due and
payable, Trustee or Lender shall have the right to sell all or any portion of
the Mortgaged Property, and the right of sale hereunder shall not be exhausted
by one or more sales, but to the extent permitted by law successive sales may be
had until all of the Mortgaged Property has been legally sold. To the extent
permitted by law, in the event any sale hereunder is not completed or is
defective in the opinion of Trustee or Lender, such sale shall not exhaust the
power of sale hereunder, and Lender shall have the right to cause a subsequent
sale or sales.
11.6. Lender Authorized to Execute Instruments. Borrower irrevocably
----------------------------------------
appoints (which appointment is coupled with an interest) each of Trustee and
Lender the true and lawful attorney-in-fact of Borrower, in its name and stead
and on its behalf, for the purpose of effectuating any sale, assignment,
transfer or delivery for the enforcement of this Mortgage after the occurrence
and during the continuance of an Event of Default hereunder, to execute and
deliver all such deeds, assignments, bills of sale and other instruments
(without recourse, warranty or representation of any kind) as Trustee or Lender
may consider necessary or appropriate, with full power of substitution, Borrower
hereby ratifying and confirming all that such attorney or any substitutes
thereof shall lawfully do by virtue hereof. Nevertheless, if so requested by
Trustee, Lender or any purchaser, Borrower shall ratify and confirm any such
sale, assignment, transfer or delivery by executing and delivering to Trustee,
Lender or such purchaser, respectively, all deeds, assignments, bills of sale,
releases and other proper instruments (which in each case shall be without
recourse to or representation or warranty by Borrower) to effect such
ratification and confirmation as may be designated in any such request.
11.7. Purchase of Mortgaged Property by Lender. Lender or any
----------------------------------------
nominee of Lender may be a purchaser of the Mortgaged Property or of any
interest therein at any sale thereof, and may apply to the purchase price all or
any part of the Debt secured hereby in lieu of payment in cash of the amount of
such Debt applied. Any such purchaser shall, upon any such purchase, acquire
good title to the property so purchased, free of the Lien of this Mortgage and,
to the extent permitted by law, free of all rights of redemption in Borrower.
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<PAGE>
11.8. Receipt a Sufficient Discharge to Purchaser. Upon any sale of
-------------------------------------------
the Mortgaged Property after the Note becomes due and payable, whether at
maturity, by declaration of acceleration or by automatic acceleration after an
Event of Default or otherwise, the receipt of Lender or Trustee, or the receipt
of the officer making the sale under judicial proceedings shall, to the full
extent legally permitted, be sufficient discharge to the purchaser for the
purchase money, and such purchaser shall not be obligated to see to the
application thereof.
11.9. Waiver of Marshalling, Appraisement, Valuation. To the extent
----------------------------------------------
permitted by law, Borrower hereby waives all rights, legal and equitable, it may
now or hereafter have to require marshalling of assets, or to require upon
foreclosure, sales of assets in a particular order. Each successor and assign
of Borrower, including a holder of a Lien subordinate to the Lien created hereby
(without implying that Borrower has, except as may be expressly provided herein,
a right to grant an interest in, or a subordinate Lien on, the Mortgaged
Property or any part thereof), by acceptance of its interest or Lien agrees that
it shall be bound by the above waiver, as if it gave the waiver itself.
11.10. Sale Shall be a Bar Against Borrower. To the extent permitted
------------------------------------
by law, the sale of all or any portion of the Mortgaged Property in connection
with the exercise of remedies under this Mortgage after the Note becomes due and
payable, whether at maturity, by declaration of acceleration or by automatic
acceleration after an Event of Default or otherwise, shall, to the full extent
legally permitted, forever be a perpetual bar against Borrower's asserting any
claim to title to such portion of the Mortgaged Property so sold.
11.11. Application of Sale Proceeds. After deducting all
----------------------------
costs, fees and expenses of Trustee and of this Mortgage, including costs of
evidence of title in connection with sale, the remaining proceeds of any sale
made under or by virtue of this Section 11, together with any other sums which
then may be held by Trustee or Lender under this Mortgage, whether under the
provisions of this section or otherwise, shall be applied by Trustee in the
following priority, to payment of: (x) first, all sums expended under the terms
hereof, not then repaid, with accrued interest at the rate specified in the Loan
Documents; (y) second, all other sums then secured hereby; and (z) the
remainder, if any, to the person or persons legally entitled thereto.
12. APPOINTMENT OF RECEIVER. If an Event of Default shall have occurred
-----------------------
and be continuing, Lender shall, to the fullest extent permitted by law, as
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a matter of right, be entitled to the appointment of a receiver for all or any
part of the Mortgaged Property, whether such receivership be incidental to a
proposed sale of the Mortgaged Property or otherwise, and Borrower hereby
consents to the appointment of such a receiver and will not oppose any such
appointment.
13. POSSESSION, MANAGEMENT AND INCOME UPON DEFAULT.
----------------------------------------------
13.1. To the extent permitted in the Loan Agreement, if an Event of
Default shall have occurred and be continuing, Lender, with such notice, if any,
to Borrower as required by law or as Lender considers appropriate in the
circumstances, and subject to the rights of Tenants and the Manager under the
Management Agreement, as amended by the Consent of Manager, and the provisions
of applicable law, may immediately enter upon and take possession of the
Premises by self-help, summary proceedings, ejectment or otherwise, and may
remove Borrower and all other Persons and any and all property therefrom, and
may hold, operate and manage the same and receive all earnings, income, rents,
issues and proceeds accruing with respect thereto. Lender shall be under no
liability for or by reason of any such taking of possession, entry, removal or
holding, operation or management, except (i) for its gross negligence, bad faith
or willful misconduct or (ii) to the extent required by applicable law, and
except that any amounts so received by Lender shall be applied as set forth in
the Note.
13.2. At the request of Lender, Borrower shall promptly execute and
deliver to Lender such deeds, instruments of assignment and other documents as
Lender may reasonably deem necessary or advisable to enable Lender or any agent
or representative designated by Lender, at such time or times and place or
places as Lender may reasonably specify, to obtain possession of all or any
portion or portions of the Mortgaged Property to which Lender shall at the time
be entitled hereunder, subject to the rights of Tenants and Manager under the
Management Agreement, as amended by the Consent of Manager. If Borrower shall
fail for any reason to execute and deliver such instrument or document after
such request by Lender, Lender, to the fullest extent permitted by law, may (i)
obtain a judgment conferring on Lender the right to immediate possession and
requiring Borrower to execute and deliver such instruments and documents to
Lender, which entry of judgment Borrower, to the extent it may lawfully do so,
hereby specifically consents and (ii) pursue the Mortgaged Property wherever it
may be found and to the extent lawfully permitted, take possession of and remove
the same, subject to the rights of Tenants.
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<PAGE>
13.3. Upon every taking of possession pursuant to this Article, Lender
may (but shall have no obligation to), from time to time, at the expense of
Borrower and such expenses to constitute additional indebtedness secured by the
affected Mortgaged Property, make all such expenditures for maintenance,
insurance, repairs, replacements, alterations, additions and improvements to and
of the Premises, as it may reasonably deem proper. In such case, subject to the
rights of Manager under the Management Agreement, as amended by the Consent of
Manager, Lender, to the fullest extent permitted by law, shall have the right to
manage, control, use, operate, store, lease or otherwise deal with the Mortgaged
Property and to carry on the business and exercise all the rights and powers of
Borrower relating thereto, as Lender shall deem best, including the right to
enter into any and all such agreements with respect to the management, cleaning,
control, use, operation, storage, leasing of or otherwise dealing with the
Mortgaged Property, or any part thereof, as Lender may determine; and, to the
fullest extent permitted by law, Lender shall be entitled to collect and receive
all tolls, rents, revenues, issues, income, products and profits of the
Mortgaged Property and every part thereof. Such tolls, rents, revenues, issues,
income, products and profits may be applied to pay the expenses of the
management, control, use, operation, storage, leasing of or otherwise dealing
with the Premises and of conducting the business thereof, and of all
maintenance, repairs, replacements, alterations, additions and improvements, and
to make all payments which Lender may be required or may elect to make, if any,
for Taxes, Other Charges, assessments, insurance or other proper charges upon
the Mortgaged Property or any part thereof (including the employment of
engineers and accountants to examine, inspect and make reports), and all other
payments which Lender may be required or authorized to make under any provision
of this Mortgage.
14. RIGHT OF LENDER TO PERFORM BORROWER'S COVENANTS. Upon the occurrence
-----------------------------------------------
of and during the continuance of an Event of Default, but without waiving or
releasing any obligation, Default or Event of Default, Lender may (but shall be
under no obligation to) at any time thereafter make such payment or perform such
act for the account and at the expense of Borrower, and, to the extent permitted
by applicable law, may enter upon the Premises for such purpose and take all
such action thereon as, in the judgment of Lender, may be reasonably necessary
or appropriate therefor, subject to the rights of Tenants and the Manager under
the Management Agreement, as amended by the Consent of Manager. All sums
properly paid by Lender and all reasonable costs and expenses (including all
reasonable attorneys' fees and expenses) so incurred, together with interest
thereon at the Default Rate from the date of payment by Lender until paid, shall
constitute additional
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indebtedness secured by this Mortgage and shall be paid by Borrower to Lender
upon demand therefor.
15. WAIVER OF LIEN. In accordance with California Code of Civil
--------------
Procedure Section 726.5, Lender may waive its lien against the Property or any
portion thereof, together with fixtures or personal property thereon, to the
extent such property is found to be environmentally impaired, and may exercise
any and all rights and remedies of an unsecured creditor against Borrower and
all of Borrower's assets and property for the recovery of any deficiency,
including, without limitation, seeking an attachment order under California Code
of Civil Procedure Section 483.010. No such waiver shall be final or binding on
Lender unless and until a final money judgment is obtained against Borrower. As
between Lender and Borrower, for purposes of California Code of Civil Procedure
Section 726.5, Borrower shall have the burden of proving that the release or
threatened release was not knowingly or negligently caused or contributed to, or
knowingly or willfully permitted or acquiesced to by Borrower or any related
party (or any affiliate or agent of Borrower or any related party) and that
Borrower made written disclosure of the release to Lender or that Lender
otherwise obtained actual knowledge thereof prior to the making of the loan
evidenced by the Note. Notwithstanding anything to the contrary contained in
this Mortgage or the other Loan Documents, Borrower shall be fully and
personally liable for all judgments and awards entered against Borrower pursuant
to California Code of Civil Procedure Section 726.5 and such liability shall be
an exception to any nonrecourse or exculpatory provision in this Mortgage or the
other Loan Document and shall not be limited to the original principal amount of
the obligations secured by this Mortgage. Borrower's obligations hereunder shall
survive the foreclosure, deed in lieu of foreclosure, release, reconveyance or
any other transfer of the Property or this Mortgage. For the purpose of any
action brought under this Section, Borrower hereby waives the defense of laches
and any applicable statute of limitations. For purposes of California Code of
Civil Procedure Section 726.5, the acts, knowledge and notice of each "726.5
Party" shall be attributed to and be deemed to have been performed by the party
or parties then obligated on and liable for payment of the Note. As used herein,
"726.5 Party" shall mean Borrowerr, any successor owner to Borrower of all or
any portion of the Mortgaged Property, any related party of Borrower or any such
successor and any affiliate or agent of Borrower, any such successor or any such
related party.
16. APPLICABLE LAW. This Mortgage shall be governed by the substantive
--------------
laws of the State of California. The preceding sentence shall in no way govern
or otherwise affect those provisions of the Loan Documents that are
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<PAGE>
incorporated in this Mortgage by reference (which provisions shall be governed
by the substantive laws governing the respective Loan Documents in which such
provisions appear).
17. NO WAIVER. No failure by Lender to insist upon the strict
---------
performance of any term hereof or to exercise any right, power or remedy
consequent upon a breach thereof shall constitute a waiver of any such term or
of any such breach. No waiver of any breach shall affect or alter this Mortgage,
which shall continue in full force and effect, or shall affect or alter the
rights of Lender with respect to any other then-existing or subsequent breach.
Neither Borrower nor any other Person now or hereafter obligated for payment of
all or any part of the sums now or hereafter secured by this Mortgage shall be
relieved of such obligation by reason of the failure of Lender to comply with
any request of Borrower or of any other Person so obligated, to take action to
foreclose on this Mortgage or otherwise to enforce any provisions of this
Mortgage or the Note or by reason of the release, regardless of consideration,
of all or any part of the security held for the Debt secured by this Mortgage,
or by reason of any agreement or stipulation between any subsequent owner of any
of the Mortgaged Property and Lender extending the time of payment or modifying
the terms of this Mortgage or the Note without first having obtained the consent
of Borrower or such other persons; and in the latter event Borrower and all such
other persons shall continue to be liable to make payments according to the
terms of any such extension or modification agreement, unless expressly released
and discharged in writing by Lender.
18. EXCULPATION. NOTWITHSTANDING ANYTHING HEREIN THAT MAY BE CONSTRUED
-----------
TO THE CONTRARY, THE TERMS OF SECTION 13.24 OF THE LOAN AGREEMENT (RELATING TO
EXCULPATION) ARE INCORPORATED HEREIN BY REFERENCE AS IF FULLY SET FORTH HEREIN.
NO NEGATIVE INFERENCE REGARDING THE APPLICATION OF SAID SECTION 13.24 TO ALL OF
THE TERMS OF THIS MORTGAGE IS TO BE DRAWN BY THE REFERENCE TO SAID SECTION 13.24
IN ONLY CERTAIN PROVISIONS HEREOF.
19. ADDITIONAL SECURITY. Without notice to or consent of Borrower and
-------------------
without impairment of the Lien and rights created by this Mortgage, Lender may
accept (but Borrower shall not be obligated to furnish unless otherwise required
under the Loan Documents) from Borrower or from any other Person or Persons,
additional security for the Note.
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<PAGE>
20. RELEASE. The provisions of Section 2.4 of the Loan Agreement shall
-------
apply with respect to the discharge and satisfaction of this Mortgage.
21. SECURITY AGREEMENT, ETC.
------------------------
21.1. Grant of Security. This Mortgage is a security agreement within
-----------------
the meaning of the Uniform Commercial Code of the state where the Premises is
located with respect to all personal property now or hereafter located at the
Premises and owned by Borrower as to which the creation and perfection of a
security interest are subject to such Uniform Commercial Code (the "Personal
--------
Property"), and is also a mortgage as to those portions of the Mortgaged
- --------
Property that are classified as real property. Borrower hereby grants to Lender
a security interest in and to the Personal Property to secure the payment of the
Note. Any completely executed counterpart of this instrument may be filed as a
mortgage on real property or fixtures, as a security agreement or financing
statement on personal property or as both. The address of Borrower, as debtor,
and the address of Lender, as secured party, are shown on page 1 of this
Mortgage.
21.2. Financing Statements. Borrower shall cause all financing and
--------------------
continuation statements and other instruments with respect to the Personal
Property at all times to be kept recorded, filed or registered in such manner
and in such places as may be required by law fully to evidence, perfect and
secure the interests of Lender in the Personal Property, and shall pay all
filing fees in connection therewith. Borrower hereby appoints Lender as its
attorney-in-fact to perform the obligations of Borrower under this Section, at
the expense of Borrower, in the event it fails to do so.
21.3. Multiple Remedies. If an Event of Default shall have occurred
-----------------
and be continuing, Lender shall have the option of proceeding, to the extent
permitted under applicable law, as to both real and personal property in
accordance with its rights and remedies in respect of the real property as an
alternative to proceeding in accordance with the provisions of the Uniform
Commercial Code; and Lender may exercise any and all of the other rights of a
secured party under such Uniform Commercial Code.
21.4. Waiver of Rights. To the extent permitted under the Loan
----------------
Agreement and applicable law, Borrower waives all rights of redemption after
foreclosure and all other rights and remedies of a debtor thereunder and all
formalities prescribed by law relative to the sale or disposition of the
Personal Property after the occurrence and during the continuance of an Event of
Default hereunder and all other
-26-
<PAGE>
rights and remedies of Borrower with respect thereto. In exercising its right to
take possession of the Personal Property upon the occurrence and during the
continuance of an Event of Default hereunder, Lender, personally or by its
agents or attorneys, and subject to the rights of any Tenant or Manager under
the Management Agreement, as amended by the Consent of Manager, may, to the
extent permitted by law, enter upon any part of the Premises without being
guilty of trespass or any wrongdoing, and without liability for damages thereby
occasioned, except damages arising from Lender's negligence or willful
misconduct. To the extent any notice of sale or other disposition of the
Personal Property is required and cannot be waived, in the event Lender elects
to proceed with respect to the Personal Property separately from the real
property, Lender shall give at least ten (10) Business Days' notice to Borrower
of the sale of the Personal Property, which shall for all purposes be deemed to
be commercially reasonable. All recitals in any instrument of assignment or any
other instrument executed by Lender incident to any sale, transfer, assignment,
lease or other disposition or utilization of the Personal Property or any part
thereof after the occurrence of an Event of Default shall be full proof of the
matter stated therein and no other proof shall be required to establish full
legal propriety of the sale or other action taken by Lender or of any fact or
condition incident thereto, all of which shall be deemed conclusively to have
been performed or to have occurred.
21.5. Expenses of Disposition of Personal Property. Borrower shall
--------------------------------------------
reimburse Lender, within ten (10) days after demand, for all reasonable expenses
of retaking, holding, preparing for sale, lease or other use or disposition,
selling, leasing or otherwise using or disposing of the Personal Property in
accordance with the terms of the Loan Documents which are incurred by Lender,
including all reasonable attorneys' fees and expenses, and all such expenses
shall be added to Borrower's obligations to Lender and shall be secured hereby.
22. FINANCING STATEMENT. This Mortgage shall be deemed to be and may
-------------------
be enforced from time to time as a mortgage, chattel mortgage, assignment,
contract, security agreement, financing statement, or Lien on machinery or other
Equipment situated on the Premises, and from time to time as any one or more
thereof, and shall constitute a "fixture filing" for the purposes of Article 9
of the Uniform Commercial Code as enacted in the State where the Premises is
located.
23. EXPENSES OF LENDER.
------------------
23.1. If any action, suit or other proceeding affecting the Mortgaged
Property or any part thereof shall be commenced in which action, suit or
proceeding
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<PAGE>
Lender is made a party or participates or in which the right to use the
Mortgaged Property or any part thereof is threatened, or in which it becomes
necessary in the reasonable judgment of Lender to defend or uphold the interest
of Lender under this Mortgage (including any action, suit or proceeding to
establish or uphold the compliance of the Improvements with any Legal
Requirement), then all reasonable out-of-pocket amounts reasonably paid or
incurred by Lender for the expense of any such action, suit or other proceeding
or to protect its rights therein (whether or not Lender is made or becomes a
party thereto) or otherwise to enforce or defend the rights and lien created by
this Mortgage (including all reasonable attorneys' fees and expenses), shall be
paid by Borrower upon demand and, if not paid within ten (10) days of the giving
of such demand, shall bear interest at the Default Rate from the date of the
payment or incurring thereof, and any such amount and the interest thereon shall
be a Lien on the Mortgaged Property, prior to any right, or right to, interest
in, or claim upon the Mortgaged Property attaching or accruing subsequent to or
otherwise subordinate to the Lien of this Mortgage, and the same shall be deemed
to be indebtedness secured hereby.
23.2. In the event this Mortgage or the Note is placed in the hands of
counsel for collection of any amount payable hereunder or thereunder or for the
enforcement of any of the provisions hereof or thereof and if an Event of
Default shall have occurred and shall then be continuing, Borrower agrees to pay
all reasonable costs associated therewith incurred by Lender, either with or
without the institution of an action, suit or other proceeding, in addition to
all reasonable costs, disbursements and allowances provided by law, all such
costs to be paid upon demand, together with interest thereon at the Default Rate
from the date of notice or incurring thereof, and the same shall be deemed to be
part of the indebtedness secured hereby.
24. MISCELLANEOUS. This Mortgage may be discharged or terminated only by
-------------
an instrument in writing signed by the party against which enforcement of such
discharge or termination is sought. This Mortgage shall be binding upon each of
Borrower and Lender and their respective successors and permitted assigns and
all Persons claiming under or through Borrower and Lender or any such successors
or permitted assigns, and shall inure to the benefit of and be enforceable by
Borrower and Lender and their respective successors and permitted assigns. This
Mortgage may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one and the same
instrument.
-28-
<PAGE>
25. NON-MERGER. It is the intention and agreement of Borrower and Lender
----------
there shall be no merger of this Mortgage and any estate in the Premises, by
reason of the fact that the same Person may own or hold the Premises, and/or
this Mortgage. Borrower further agrees that so long as any of the indebtedness
secured by this Mortgage shall remain unpaid, then, unless a contrary intent is
manifested by the Lender as evidenced by an express statement to that effect in
an appropriate document duly recorded, the fee title and the leasehold estate in
the Ground Leasehold Estate shall not merge but shall always be kept separate
and distinct notwithstanding the union of said estates either in the Borrower or
the Ground Lessee, or in a third party, by purchase or otherwise; and Borrower
further covenants and agrees, that in case it shall acquire the fee title, or
any other estate, title or interest in the Ground Leasehold Estate, this
Mortgage shall attach to and cover and be a first lien upon such fee title or
other estate so acquired, and such fee title or other estate so acquired by the
Borrower shall be considered as mortgaged, assigned or conveyed to the Lender
and the lien hereof spread to cover such estate with the same force and effect
as though specifically herein mortgaged, assigned or conveyed and spread. The
provisions of the immediately preceding sentence of this paragraph shall not
apply in the event the Lender acquires the fee of the Ground Leasehold Estate
except if the Lender shall so elect.
26. ASSIGNMENT OF RENTS AND BORROWER'S INTEREST IN LEASES.
-----------------------------------------------------
26.1. During the term hereof, Borrower hereby pledges, grants, sells,
assigns, conveys, delivers, transfers and sets over to Lender, to the extent
permitted by law and subject to the terms and conditions hereof, all of
Borrower's right, title and interest, now or hereafter acquired, in and to any
and all existing Leases and any Leases that may hereafter be entered into by
Borrower, and any modifications, renewals, extensions or replacements thereof,
and any guaranties of the Tenant's obligations under any Lease (each such
guaranty, a "Guaranty" and collectively, "Guaranties") and all right, title and
-------- ----------
interest of Borrower thereunder, including all claim, right and demand to
receive, collect and retain all rents and all other amounts due thereunder and
under any modifications, renewals or extensions thereof, including:
(a) the immediate and continuing right to receive and collect all
amounts payable by all Tenants, subtenants or other parties pursuant to the
Leases, and Guaranties, including (A) all rents (including all amounts
payable to Borrower on account of maintenance, repairs, taxes, insurance
and common area charges or similar charges), income, revenues, issues,
profits, insurance proceeds, condemnation awards and other payments,
tenders and security payable to or
-29-
<PAGE>
receivable by Borrower under the Leases and the , (B) all damages or other
amounts payable in the event of any disposition, expiration or termination
of any Lease pursuant to the terms thereof, by operation of law or
otherwise, (C) any indemnification against, or reimbursement for, sums paid
and costs and expenses incurred by Borrower under any Lease or otherwise,
(D) any award in the event of the bankruptcy of any Tenant or guarantor of
a Lease and (E) any security deposits, other security instruments, other
deposits or prepayments with respect to any such Lease;
(b) all claims, rights, powers, privileges and remedies of Borrower,
whether provided for in any Lease, or Guaranty or arising by statute or at
law or in equity or otherwise, consequent to any failure on the part of any
Tenant to perform or comply with any term of any Lease or any other party
to comply with any Guaranty;
(c) all right to take all action upon the happening of a default under
any Lease or Guaranty as shall be permitted by any such Lease Guaranty, or
by law, including the commencement, conduct and consummation of proceedings
at law or in equity; and (d the full power and authority, in the name of
Borrower or otherwise, to enforce, collect, receive and make receipt for
any and all of the foregoing and to do any and all other acts and things
whatsoever that Borrower is or may be entitled to do under any Lease or
Guaranty.
26.2. Except as otherwise required by applicable law or as provided for
in the Loan Documents, any funds received by Lender under this Article may be
applied by Lender to the Debt in such order as Lender may in its sole discretion
determine to be appropriate, including the payment of costs and expenses in
connection with the maintenance, operation, improvement, insurance, taxes and
upkeep of the Mortgaged Property and payment of amounts then due and payable
under the Loan Agreement or the other Loan Documents. Lender shall be
accountable to Borrower only for monies actually received by Lender pursuant
hereto. Neither the collection of said funds and the application thereof as
aforesaid, nor any act done or omitted pursuant to the power and rights granted
to Lender hereunder, shall cure or waive any Default or Event of Default or
waive, modify or affect any notice of Default or Event of Default or invalidate
any act done pursuant to such notice, nor shall the same be a waiver of any of
Lender's rights and remedies under the Note, this Mortgage, the Loan Agreement
or the other Loan Documents.
-30-
<PAGE>
26.3. (a) This Article 26 constitutes a present, absolute, effective,
irrevocable and completed assignment by Borrower to Lender of the Leases and the
right to collect all sums payable to Borrower thereunder and apply the same,
which is not conditioned upon Lender being in possession of the Premises.
However, so long as no Event of Default shall have occurred and be continuing,
Borrower shall have a license to enforce the obligations of Tenants under the
Leases and of parties under the , and to exercise all the rights and remedies of
the landlord under the Leases and the (including, without limitation, the right
to receive all rents and other amounts described above), subject, however, to
compliance with the provisions of this Mortgage and the other Loan Documents.
(b) To the extent permitted by law, if any Event of Default shall have
occurred and be continuing, the license granted in Section 26.3(a) shall
immediately cease and terminate, without waiver of such Event of Default, with
or without notice, any action or proceeding or the intervention of a receiver
appointed by a court, and Lender or an agent or receiver appointed by Lender
may, without regard for the adequacy of the security for the indebtedness
secured hereby, the commission of waste or the solvency of Borrower, and subject
to applicable statutory requirements, if any, do any or all of the following:
(i) exercise any of Borrower's rights under the Leases, and
Guaranties;
(ii) enforce the Leases, and Guaranties;
(iii) demand, collect, sue for, attach, levy, recover, receive,
compromise and adjust, and make, execute and deliver receipts and releases
for all rents or other payments that may then be or may thereafter become
due, owing or payable with respect to the Leases, and Guaranties;
(iv) demand that any sums held by Borrower with respect to any
Lease, or Guaranties (including any security deposits, other deposits or
prepayments) be immediately remitted to Lender; and
(v) generally, do, execute and perform any other act, deed, matter
or thing whatsoever that ought to be done, executed and performed in and
about or with respect to the Leases and Guaranties.
-31-
<PAGE>
26.4. During the term hereof, Borrower hereby irrevocably authorizes and
directs each Tenant under a Lease and each other party under an or Guaranty, at
the request of Lender accompanied by a certification from Lender stating that an
Event of Default has occurred and is continuing under the Loan Agreement, to pay
by direct deposit to such account as the Lender may time to time designate, all
rents, issues and profits accruing or due under such Tenant's Lease or such
other party's Guaranty.
26.5. To the extent permitted under the Loan Agreement, Borrower at its
expense will prudently enforce in all material respects each of the Leases and
Guaranties in accordance with their terms. Neither the execution and delivery of
the Mortgage or any other Loan Document nor any action or inaction on the part
of Lender shall release (i) any Tenant from its Lease, (ii) any guarantor from
any Guaranty or (iv) Borrower from any of its obligations under the Leases, or
constitute an assumption of any such obligation on the part of Lender. No action
or failure to act on the part of Borrower shall adversely affect or limit the
rights of Lender under this Mortgage, through this Mortgage, under the Leases,
or the Guaranties.
26.6. During the term hereof, all rights, powers and privileges of
Lender herein set forth are coupled with an interest and are irrevocable,
subject to the terms and conditions hereof, and Borrower will not take any
action under the Leases, or otherwise which is inconsistent with the terms
hereof, and any such action inconsistent herewith or therewith, as well as any
further assignment of any rents, issue or profits from the Premises, shall be
void. To the extent permitted by law, Borrower hereby waives any requirement
that Lender commence any foreclosure proceeding with respect to the property
prior to enforcement of any remedies pursuant to this Article, including the
right to commence and prosecute an action to appoint a receiver for rents and
all other amounts due under any Leases or Guaranties. Borrower will, from time
to time, upon request of Lender, at Borrower's sole cost and expense, execute
(subject to Section 13.24 of the Loan Agreement) all instruments and further
assurances and all supplemental instruments and take all such action as Lender
from time to time may reasonably request in order to perfect, preserve and
protect the interests intended to be assigned to Lender hereby.
26.7. Borrower hereby agrees that, except as permitted in the Loan
Agreement, it will not, unilaterally or by agreement, subordinate, amend,
modify, extend, discharge, terminate, surrender, waive or otherwise change any
term of any of the Leases, or Guaranties in any manner that would violate this
Mortgage or any other Loan Document. If any of the Leases, or Guaranties shall
be amended as permitted
-32-
<PAGE>
thereby, they shall continue to be subject to the provisions hereof without the
necessity of any further act by any of the parties hereto.
26.8. Upon the payment, or the provision, in accordance with the
applicable provisions of this Mortgage and the other provisions of the Loan
Documents, for payment in full, of the Debt on the Maturity Date, the assignment
made in this Article and all rights hereunder assigned to Lender shall cease and
terminate and shall revert to Borrower.
26.9. This Article shall not be construed to bind Lender to the
performance of any of the covenants, conditions or provisions contained in any
Lease, or Guaranty or otherwise impose any obligation upon Lender. Lender shall
not be liable for any loss sustained by Borrower resulting from Lender's failure
to let the Premises or from any other act or omission of Lender in managing the
Premises after an Event of Default, unless such loss is caused by the
negligence, willful misconduct or bad faith of Lender. This Article shall not
operate to place any obligation or liability for the control, care, management
or repair of the Premises upon Lender, nor for the carrying out of any of the
terms and conditions of the Leases or any Guaranty; nor shall it operate to make
Lender responsible or liable for any waste committed on the Premises, including
the presence of any Hazardous Substances (as defined in the Environmental
Indemnity), or for any negligence by any person other than Lender in the
management, upkeep, repair or control of the Premises resulting in loss or
injury or death to any tenant, licensee, employee or stranger; provided,
however, Lender shall remain liable for its own negligence, willful misconduct
or bad faith. Nothing in this Article shall be construed as constituting Lender
a "mortgagee in possession" in the absence of the taking of actual possession of
the Premises by Lender.
26.10. (a) If an Event of Default shall have occurred and be continuing,
Lender shall have the right to proceed in its own name or in the name of
Borrower in respect of any claim, suit, action or proceeding relating to
the rejection of any Lease, or Guaranty by or on behalf of any lessee or
other party thereunder, including the right to file and prosecute, to the
exclusion of Borrower, any proofs of claim, complaints, motions,
applications, notices and other documents, in any case in respect of the
lessee under such Lease or of any other party under any Guaranty under the
Bankruptcy Code.
(b) If there shall be filed by or against Borrower a petition under the
Bankruptcy Code, and Borrower, as lessor under any Lease, shall determine
to reject such Lease pursuant to Section 365(a) of the Bankruptcy Code,
then
-33-
<PAGE>
Borrower shall give Lender not less than ten (10) days' prior notice of the
date on which Borrower shall apply to the bankruptcy court for authority to
reject such Lease. Lender shall have the right, but not the obligation, to
serve upon Borrower within such ten-day period a notice stating that (A)
Lender demands that Borrower assume and assign such Lease to Lender
pursuant to Section 365 of the Bankruptcy Code and (B) Lender covenants to
cure or provide adequate assurance of future performance under such Lease.
If Lender serves upon Borrower the notice described in the preceding
sentence, Borrower shall not seek to reject such Lease and shall comply
with the demand provided for in clause (A) of the preceding sentence within
thirty (30) days after the notice shall have been given, subject to the
performance by Lender of the covenant provided for in clause (B) of the
preceding sentence.
27. NOTICES.
-------
27.1. All notices, consents, approvals and requests required or
permitted hereunder shall be given in writing and shall be effective for all
purposes if hand delivered or sent by (a) certified or registered United States
mail, postage prepaid, (b) expedited prepaid delivery service, either commercial
or United States Postal Service, with proof of attempted delivery, or (c) by
facsimile (with telephonic confirmation) addressed as follows (or at such other
address and person as shall be designated from time to time by any party hereto,
as the case may be, in a written notice to the other parties hereto in the
manner provided for in this Article):
If to Lender:
GMAC Commercial Mortgage Corporation
650 Dresher Road
P.O. Box 1015
Horsham, Pennsylvania 19044
Attention: Executive Vice President,
Loan Servicing
Fax: (215) 328-3478
with copies to:
GMAC Commercial Mortgage Corporation
650 Dresher Road
P.O. Box 1015
-34-
<PAGE>
Horsham, Pennsylvania 19044
Attention: Chief Financial Officer
Fax: (215) 328-1530
Mayer, Brown & Platt
190 South LaSalle Street
Chicago, Illinois 60603
Attention: Diane Citron, Esq.
Fax: (312) 701-7711
Goldman Sachs Mortgage Company
85 Broad Street
New York, New York 10004
Attention: P. Sheridan Schechner
Fax: (212) 357-5505
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Arthur S. Adler, Esq.
Fax: (212) 558-3588
If to Trustee:
Commonwealth Land Title Company
275 West Hospitality Lane
Suite 200
San Bernardino, California 92408
Fax: (909) 885-2464
If to Borrower:
DS Hotel LLC
c/o Host Marriott Corporation
10400 Fernwood Road, Dept. 923
Bethesda, Maryland 20817-1109
Attention: Assistant General Counsel, Asset Management
Fax: (301) 380-6332
-35-
<PAGE>
with a copy to:
DS Hotel LLC
c/o Host Marriott Corporation
10400 Fernwood Road, Dept. 908
Bethesda, Maryland 20817-1109
Attention: Director, Asset Management Department
Fax: (301) 380-8260
A notice shall be deemed to have been given: in the case of hand delivery, at
the time of delivery; in the case of registered or certified mail, when
delivered or the first attempted delivery on a Business Day; or in the case of
expedited prepaid delivery, upon the first attempted delivery on a Business Day;
or in the case of facsimile, upon receipt with telephonic confirmation.
27.2. Borrower hereby requests and shall be entitled to a copy of any
notice of default and any notice of sale hereunder, each of which shall be
mailed to it at the address set forth in Section 27.1 above.
28. WAIVER OF CLAIMS. Borrower hereby waives any and all right to
-----------------
assert any setoff or counterclaim of any nature whatsoever with respect to the
Secured Obligations in any action or proceeding by Lender to collect the same,
or any portion thereof, or to enforce and realize upon the Lien and security
interest created by this Mortgage or any other Loan Documents, provided,
--------
however, that Borrower expressly reserves the right to assert any such claim in
- -------
a separate proceeding and provided further that Borrower expressly reserves the
-------- -------
right to assert any claim in the same action commenced by Lender if such claim
is of a mandatory or compulsory nature or would be barred or materially impaired
if not asserted in the action commenced by Lender.
29. SEVERABILITY. In case any one or more of the provisions
------------
contained in this Mortgage shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired thereby.
30. TRUSTEE'S POWERS. At any time, or from time to time, without
----------------
liability therefor and without notice, upon written request of Lender and
presentation of this Mortgage and the Note secured hereby for endorsement,
Trustee
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<PAGE>
may (a) reconvey any part of the Mortgaged Property, (b) consent in writing to
the making of any map or plat thereof, (c) join in granting any easement
thereon, or (d) join in any extension agreement or any agreement subordinating
the Lien or charge hereof.
31. Intentionally Omitted.
32. RECONVEYANCE BY TRUSTEE. Upon written request of Lender stating
-----------------------
that all sums secured hereby have been paid, and upon surrender of this Mortgage
and the Note to Trustee for cancellation and retention and upon payment by
Borrower of Trustee's fees, Trustee shall reconvey to Borrower or to the Person
or Persons legally entitled thereto, without warranty, any portion of the
Mortgaged Property then held hereunder. The recitals in such reconveyance of any
matters or facts shall be conclusive proof of the truthfulness thereof. The
grantee in any reconveyance may be described as "the person or persons legally
entitled thereto." Such grantee shall pay Trustee a reasonable fee and Trustee's
costs incurred in so reconveying the Mortgaged Property.
33. SUBSTITUTE TRUSTEE. Lender, at any time and from time to time, by
------------------
instrument in writing and after notice to Borrower, may substitute and appoint a
successor Trustee (either corporate or individual) to any Trustee named herein
or previously substituted hereunder, which instrument when executed,
acknowledged, and recorded in the Official Records of the Office of the Recorder
of the county or counties where the Mortgaged Property is located shall be
conclusive proof of the proper substitution and appointment of each successor
trustee or trustees, who shall then have all the title, powers, duties and
rights of the predecessor Trustee, without the necessity of any conveyance from
such predecessor. Trustee shall not be obligated to notify any party hereto of
any pending sale under any other mortgage or deed of trust or, unless brought by
Trustee, any action or proceeding in which Borrower, Lender or Trustee shall be
a party.
34. CONFLICTS. In the event of any conflict between the provisions of
---------
this Mortgage and of the Loan Agreement, the provisions of the Loan Agreement
shall control.
Borrower hereby acknowledges receipt, without charge, of a true copy
of this Mortgage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-37-
<PAGE>
BORROWER PLEASE NOTE: UPON THE OCCURRENCE OF A DEFAULT, CALIFORNIA PROCEDURE
PERMITS THE TRUSTEE TO SELL THE MORTGAGED PROPERTY DESCRIBED HEREIN AT A SALE
HELD WITHOUT SUPERVISION BY ANY COURT AFTER EXPIRATION OF A PERIOD PRESCRIBED BY
LAW. UNLESS YOU PROVIDE AN ADDRESS FOR THE GIVING OF NOTICE, YOU MAY NOT BE
ENTITLED TO NOTICE OF THE COMMENCEMENT OF ANY SALE PROCEEDINGS. BY EXECUTION OF
THIS MORTGAGE, YOU CONSENT TO SUCH PROCEDURE. LENDER URGES YOU TO GIVE PROMPT
NOTICE OF ANY CHANGE IN YOUR ADDRESS SO THAT YOU MAY RECEIVE PROMPTLY ANY NOTICE
GIVEN PURSUANT TO THIS MORTGAGE.
IN WITNESS WHEREOF, Borrower and Lender have caused this Mortgage to
be duly executed and delivered as of the date first above written.
Signed and acknowledged in
the presence of:
/s/ Rolisa C. Anthony DS HOTEL LLC, a Delaware limited liability company
- --------------------------
/s/ Patricia K. Brady
By: ______________________________
Name: Patricia K. Brady
(Rolisa C. Anthony) Title: Vice President
- --------------------------
/s/ Rex Palmer
- --------------------------
Rex Palmer
-38-
<PAGE>
STATE OF NEW YORK )
)ss:
COUNTY OF NEW YORK )
On 11-25, 1997, before me, Sheila A. Lynch, personally appeared Patricia K.
Brady, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose Name(s) is (are) subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their signature(s)
on the instrument the person(s), or the entity upon behalf of which the
person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature /s/ Sheila A. Lynch
______________________
Notary Public
My commission expires: 12-21-98
___________
[seal]
SHEILA A. LYNCH
Notary Public, State of New York
No. 5006835
Qualified in Kings County
Certificate Filed in New York County
Commission Expires December 21, 1998
<PAGE>
EXHIBIT A
---------
DESCRIPTION OF FEE PARCEL
A-1
<PAGE>
EXHIBIT B
---------
DESCRIPTION OF LEASEHOLD ESTATE
<PAGE>
EXHIBIT C
---------
DESCRIPTION OF LEASE
<PAGE>
EXHIBIT "A"
Parcel A:
Lots 1 and 4 through 7, inclusive, of Tract 19619, in the City of Palm Desert,
County of Riverside, State of California, as per map recorded in Book 159,
page(s) 30 through 37, inclusive, of maps, in the office of the County Recorder
of said County.
Except all oil, gas and other petroleum and mineral substances in and under all
of said foregoing lands with the right to mine, excavate, drill for, remove and
sell the same, all of which rights are limited to that portion of the lands
lying below a depth of 500.00 feet measured from the surface of said lands,
without the right to go upon or use the surface of said lands, as reserved by
Plaza Investment Company, a California General Partnership and William Bone, a
married man, as his sole and separate property in deed recorded August 4, 1983
as Instrument No. 157881, Official Records.
Parcel A1:
An appurtenant and perpetual easement over that portion of Lot 3 of Tract 19619
designated as 25.00 foot golf course access easements, as dedicated on the map
of Tract 19619, as per map recorded in Book 159, pages 30 through 37, inclusive,
of maps, in the Office of the County Recorder of said County, and the rear 25.00
feet of Lots 1 through 34 of Tract 21698, as per map recorded in Book 166, pages
64 through 66, inclusive, of maps, in the office of the County Recorder of said
County, as further evidenced by that certain Grant of Easement made by
Marriott's Desert Springs Development Corporation in favor of Desert Springs
Marriott Limited Partnership, dated April 23, 1987 and recorded April 24, 1987
as Instrument No. 114105, Official Records.
Parcel A2:
An appurtenant and perpetual easement for an underground tunnel and underground
golf cart path over a portion of Lot A of Tract 21698, as per map recorded in
Book 166, pages 64 through 66, inclusive, of maps, in the office of the County
Recorder of said County, recorded October 25, 1994, as Instrument No. 408533,
Official Records, more fully described as being a portion of Lot A consisting of
a 15 foot wide permanent easement, the centerline of which is more particularly
described as follows: Beginning at the most westerly corner of Lot 1 of said
Tract No. 21698; thence North 59 degrees 24' 02" East along the northwesterly
boundary line of said Lot 1, a distance of 10.00 feet to the beginning of a
non-tangent are concave northeast having a radius of 237.50 feet and a radial
bearing of North 59 degrees 24' 02" East; said are being a portion of the
easterly boundary line of Lot A; thence northerly along said are through a
central angle of 20 degrees 36' 54" an arc distance of 55.45 feet to the True
Point of Beginning; thence South 89 degrees 30' 36" West, a distance of 65.71
feet to a Point of Terminus on the westerly boundary line of said Lot A. The
northerly and southerly side lines of the above described easement shall be
lengthened or shortened so as to terminate on the easterly and westerly boundary
lines of said Lot A. The area of the above described easement is 966.73 square
feet, more or less.
<PAGE>
Parcel A3:
An appurtenant and perpetual easement established by Parcel Map 27563, as per
map recorded in Book 183, pages 3 through 10, inclusive, of maps, in the office
of the County Recorder of said County, over (a) that portion of Parcel 2 of
Parcel Map 27563 designated as 25.00 foot wide easement for golf course purposes
and (b) that portion of Parcel 4 of Parcel Map 27563 designated as 15.00 foot
wide and 20.00 foot wide easements for golf course purposes.
<PAGE>
EXHIBIT "B"
Parcel B:
Parcels 1 and 3 of Parcel Map 27563, in the City of Palm Desert, County of
Riverside, State of California, as per map recorded in Book 183, pages 3 through
10 inclusive, of Parcel Maps, in the office of the County Recorder of said
County.
Except from Parcel 1, that portion conveyed to Marriott Ownership Resorts, Inc.,
a Delaware corporation, in Deed recorded December 20, 1996 as Instrument No.
480352, Official Records, described as follows:
Beginning at the Northwest corner of Lot 5 of Tract 27570-3, in the City of Palm
Desert, County of Riverside, State of California, as per map recorded in Book
251, page(s) 32 and 33 of Maps, in the Office of the County Recorded of said
County;
thence South 00 degrees 15' 23" East, 104.43 feet;
thence North 54 degrees 40' 48" West, 88.79 feet;
thence North 00 degrees 15' 23" West, 52.77 feet;
thence North 89 degrees 44' 37" East, 72.22 feet to the Point of Beginning.
Said description is also shown of Parcel Map Waiver P.M.W. 96-11, recorded
December 10, 1996 as Instrument No. 480351, Official Records.
<PAGE>
EXHIBIT C
Ground Lease between Marriott's Desert Springs Development Corporation, as
Lessor, and Desert Springs Marriott Limited Partnership, a Delaware limited
partnership (the "Original Lessee") pursuant to that certain Golf Course Lease
made April 24, 1987 between Lessor and Original Lessee, a memorandum of said
lease dated April 23, 1987 having been executed by Lessor and Original Lessee
and recorded April 24, 1987 as Instrument No. 114104 in the Official Records of
Riverside County, California (the "Official Records"), and said lease having
been amended by that certain First Amendment to Golf Course Lease between Lessor
and Original Lessee dated March 31, 1994 (the "First Amendment") and recorded
May 27, 1994 as Instrument No. 217099 in the Official Records, as subsequently
amended by that certain Second Amendment to Golf Course Lease between Lessor and
Original Lessee dated November 25, 1996 (the "Second Amendment") and recorded
December 20, 1996 as Instrument No. 480355 in the Official Records (said lease,
as so amended, being referred to herein as the "Lease").
The Original Lessee conveyed its interest in the Lease to Marriott DSM LLC,
a Delaware limited liability company, which, in turn conveyed its interest in
the Lease and Premises to DS Hotel LLC, a Delaware limited liability company,
the current Lessee.
<PAGE>
Exhibit 10.13
CREDIT AGREEMENT
Dated as of November 25, 1997
between
MARRIOTT DSM LLC,
as Borrower,
and
GOLDMAN SACHS MORTGAGE COMPANY,
as Agent and a Lender
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
DEFINITIONS; PRINCIPLES OF CONSTRUCTION
---------------------------------------
<S> <C> <C>
Section 1.1 Definitions.................................................... 1
-----------
Section 1.2 Principles of Construction..................................... 11
--------------------------
ARTICLE II
GENERAL
-------
Section 2.1 The Loan....................................................... 11
--------
2.1.1 Commitment............................................ 11
----------
2.1.2 Disbursement to Borrower.............................. 11
------------------------
2.1.3 The Note.............................................. 12
--------
2.1.4 Use of Proceeds of Loan............................... 12
-----------------------
Section 2.2 Maturity....................................................... 12
--------
2.2.1 Maturity Date......................................... 12
-------------
2.2.2 Reserved.............................................. 12
--------
2.2.3 Payment............................................... 12
-------
Section 2.3 Principal and Interest......................................... 12
----------------------
2.3.1 Principal and Interest................................ 12
----------------------
2.3.2 Default Rate and Repayment Upon Default............... 13
---------------------------------------
Section 2.4 Loan Repayment................................................. 13
--------------
2.4.1 Maturity.............................................. 13
--------
2.4.2 Voluntary Prepayments................................. 13
---------------------
2.4.3 Mandatory Prepayments................................. 14
---------------------
Section 2.5 Payments and Computations...................................... 15
-------------------------
2.5.1 Making of Payments.................................... 15
------------------
2.5.2 Computations.......................................... 15
------------
Section 2.6 Pro Rata Treatment............................................. 15
------------------
Section 2.7 Sharing of Payments............................................ 15
-------------------
</TABLE>
-i-
<PAGE>
<TABLE>
ARTICLE III
CONDITIONS PRECEDENT
--------------------
<S> <C> <C>
Section 3.1 Conditions Precedent to the Loan............................... 16
--------------------------------
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BORROWER
------------------------------------------
Section 4.1 Representations and Warranties................................. 18
------------------------------
Section 4.2 Survival of Representations.................................... 24
---------------------------
ARTICLE V
AFFIRMATIVE COVENANTS OF BORROWER
---------------------------------
Section 5.1 Information Covenants.......................................... 25
---------------------
Section 5.2 Preservation of Existence and Franchises....................... 26
----------------------------------------
Section 5.3 Books, Records and Inspections................................. 26
------------------------------
Section 5.4 Compliance with Law............................................ 26
-------------------
Section 5.5 Insurance...................................................... 27
---------
Section 5.6 Ownership of Borrower; Permitted Reorganization............... 27
------------------------------------------------
Section 5.7 Plan Assets, Etc............................................... 29
----------------
Section 5.8 Further Assurances............................................. 29
------------------
Section 5.9 Annual Plan and Budget......................................... 30
----------------------
Section 5.10 Reserved....................................................... 30
--------
Section 5.11 Covenants of Borrower Regarding the Mortgage Loan.............. 30
-------------------------------------------------
Section 5.12 Costs of Enforcement........................................... 31
--------------------
Section 5.13 Estoppel Statement............................................. 31
------------------
ARTICLE VI
NEGATIVE COVENANTS
------------------
Section 6.1 Indebtedness................................................... 32
------------
Section 6.2 Liens.......................................................... 32
-----
Section 6.3 Nature of Business............................................. 32
------------------
Section 6.4 Consolidation, Merger, Sale or Purchase of Assets, Etc......... 33
------------------------------------------------------
Section 6.5 Advances, Investments and Loans................................ 33
-------------------------------
Section 6.6 Transactions with Affiliates................................... 33
----------------------------
Section 6.7 Operating Lease Obligations.................................... 33
---------------------------
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C> <C>
Section 6.8 Sale and Leaseback.............................................. 33
------------------
Section 6.9 Governing Documents............................................. 34
-------------------
Section 6.10 ERISA........................................................... 34
-----
Section 6.11 Distributions................................................... 34
-------------
ARTICLE VII
DEFAULTS
--------
Section 7.1 Events of Default............................................... 34
-----------------
Section 7.2 Remedies........................................................ 37
--------
ARTICLE VIII
RESERVED
--------
ARTICLE IX
AGENCY DECISIONS
----------------
Section 9.1 Appointment and Authorization................................... 38
-----------------------------
Section 9.2 Delegation of Duties............................................ 39
--------------------
Section 9.3 Liability of Agent.............................................. 39
------------------
Section 9.4 Reliance by Agent............................................... 39
-----------------
Section 9.5 Notice of Default............................................... 40
-----------------
Section 9.6 Credit Decision................................................. 40
---------------
Section 9.7 Indemnification................................................. 41
---------------
Section 9.8 Agent in Individual Capacity.................................... 42
----------------------------
Section 9.9 Successor Agents................................................ 42
----------------
Section 9.10 One Agent....................................................... 43
---------
Section 9.11 Required Lenders................................................ 43
----------------
Section 9.12 One Voice....................................................... 43
---------
Section 9.13 Certain Agreements with Respect to Transfers.................... 43
--------------------------------------------
ARTICLE X
MISCELLANEOUS
-------------
Section 10.1 Survival........................................................ 43
-------------
Section 10.2 Governing Law; Consent to Jurisdiction.......................... 44
-------------
Section 10.3 Modification, Waiver in Writing................................. 45
-------------
</TABLE>
-iii-
<PAGE>
<TABLE>
<S> <C> <C>
Section 10.4 Delay Not a Waiver............................................ 45
------------------
Section 10.5 Notices....................................................... 46
-------
Section 10.6 Trial by Jury................................................. 47
-------------
Section 10.7 Headings...................................................... 48
--------
Section 10.8 Severability.................................................. 48
------------
Section 10.9 Preferences................................................... 48
-----------
Section 10.10 Waiver of Notice.............................................. 48
----------------
Section 10.11 Remedies of Borrower.......................................... 48
--------------------
Section 10.12 Expenses; Indemnity........................................... 49
-------------------
Section 10.13 Exhibits and Schedules Incorporated........................... 50
-----------------------------------
Section 10.14 Offsets, Counterclaims and Defenses........................... 50
-----------------------------------
Section 10.15 No Joint Venture or Partnership............................... 50
-------------------------------
Section 10.16 Waiver of Marshaling of Assets................................ 50
------------------------------
Section 10.17 Waiver of Counterclaim........................................ 51
----------------------
Section 10.18 Construction of Documents..................................... 51
-------------------------
Section 10.19 Brokers and Financial Advisors................................ 51
------------------------------
Section 10.20 No Third Party Beneficiaries.................................. 51
----------------------------
Section 10.21 Prior Agreements.............................................. 52
----------------
Section 10.22 Counterparts.................................................. 52
------------
Section 10.23 Right of Set-Off.............................................. 52
-----------------
Section 10.24 Amendments, Waivers and Consents.............................. 52
--------------------------------
Section 10.25 Benefit of Agreement.......................................... 53
--------------------
Section 10.26 Ability to Disclose........................................... 54
-------------------
Section 10.27 Exculpation................................................... 54
-----------
Section 10.28 Subordination................................................. 55
-------------
ARTICLE XI
MEZZANINE DEPOSIT ACCOUNT
-------------------------
Section 11.1 Mezzanine Deposit Account..................................... 55
-------------------------
Section 11.2 Disbursements from the Mezzanine Deposit Account; Borrower's
------------------------------------------------------------
Obligation to Fund Deposit Account.......................... 56
----------------------------------
11.2.1 Disbursements....................................... 56
-------------
11.2.2 Obligation to Fund; Deemed Payment.................. 57
----------------------------------
Section 11.3 No Release if Event of Default Exists......................... 57
-------------------------------------
Section 11.4 Grant of Security Interest; Rights upon Default............... 57
-----------------------------------------------
Section 11.5 Agents and the Lenders Not Responsible........................ 58
--------------------------------------
</TABLE>
-iv-
<PAGE>
SCHEDULES
Schedule A - Commitment Percentage
Schedule B - Amortization Schedule
EXHIBITS
Exhibit A - Form of Promissory Note
-v-
<PAGE>
THIS CREDIT AGREEMENT, dated as of November 25, 1997 (as amended,
restated, replaced, supplemented or otherwise modified from time to time, this
"Credit Agreement"), is made among MARRIOTT DSM LLC, a Delaware limited
- -----------------
liability company, as borrower, GOLDMAN SACHS MORTGAGE COMPANY, a New York
limited partnership, in its capacity as agent and any successor agent appointed
hereunder ("Agent"); GOLDMAN SACHS MORTGAGE COMPANY, a New York limited
-----
partnership, as the lender, and the other Lenders from time to time party
hereto.
All capitalized terms used herein shall have the respective meanings
set forth in Section 1.1 hereof or elsewhere in this Credit Agreement.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Borrower desires to obtain the Loan from the Lenders; and
WHEREAS, the Lenders are willing to make the Loan to Borrower, subject
to and in accordance with the terms of this Credit Agreement and the other Loan
Documents.
NOW, THEREFORE, in consideration of the making of the Loan by the
Lenders and the covenants, agreements, representations and warranties set forth
in this Credit Agreement, the parties hereto hereby covenant, agree, represent
and warrant as follows:
ARTICLE I
DEFINITIONS; PRINCIPLES OF CONSTRUCTION
---------------------------------------
Section 1.1 Definitions.
-----------
For all purposes of this Credit Agreement, except as otherwise
expressly required or unless the context clearly indicates a contrary intent:
"Affiliate" has the meaning set forth in the Mortgage Loan Agreement.
---------
"Agent" shall have the meaning specified in the first paragraph of
-----
this Credit Agreement and any successor Agent appointed hereunder.
"Agent-Related Persons" shall have the meaning specified in Section
---------------------
9.3.
"Basic Carrying Costs" has the meaning set forth in the Mortgage Loan
--------------------
Agreement.
<PAGE>
"Borrower" means the Person identified as such in the introductory
--------
paragraph hereto, together with any of its successors or assigns as permitted
hereunder.
"Business Day" has the meaning set forth in the Mortgage Loan
------------
Agreement.
"Cash Management Procedures" has the meaning set forth in the Mortgage
--------------------------
Loan Agreement.
"Casualty" has the meaning set forth in Section 8.1.2(a) of the
--------
Mortgage Loan Agreement.
"Closing Date" means the date of the funding of the Loan.
------------
"Code" means the Internal Revenue Code of 1986, as amended, and as it
----
may be further amended from time to time, any successor statutes thereto, and
applicable U.S. Department of Treasury regulations issued pursuant thereto in
temporary or final form.
"Commitment Percentage" means, for each Lender, the percentage
---------------------
identified as its Commitment Percentage on Schedule A hereto, as such percentage
----------
may be modified by assignment in accordance with the terms of this Credit
Agreement.
"Condemnation" has the meaning set forth in Section 8.1.3 of the
------------
Mortgage Loan Agreement.
"Cooperation Agreement" means that certain Loan Cooperation Agreement,
---------------------
dated as of the date hereof, among the Agent, DSMLP, Host Marriott and Borrower.
"Credit Agreement" means this Credit Agreement, as amended, restated,
----------------
replaced, supplemented or modified from time to time.
"Debt" means the outstanding principal amount set forth in, and
----
evidenced by, the Note, together with all interest accrued and unpaid thereon
and all other sums due to the Lenders and the Agent in respect of the Loan,
including any sums due under the Note, this Credit Agreement, the Pledge or any
other Loan Document.
"Default" means the occurrence of any event hereunder or under any
-------
other Loan Document which, but for the giving of notice or passage of time, or
both, would be an Event of Default.
-2-
<PAGE>
"Default Rate" has the meaning set forth in Section 2.3.2 hereof.
------------
"DSMLP" means Desert Springs Marriott Limited Partnership, a Delaware
-----
limited partnership.
"Eligible Account" has the meaning set forth in the Mortgage Loan
----------------
Agreement.
"ERISA" has the meaning set forth in Section 4.1(h) hereof.
-----
"ERISA Affiliate" means each person (as defined in Section 3(9) of
---------------
ERISA) which together with Borrower or any Subsidiary thereof would be deemed to
be a member of the same "controlled group" within the meaning of Section 414(b),
(c), (m) and (o) of the Code.
"Event of Default" has the meaning set forth in Section 7.1 hereof.
----------------
"Federal Funds Rate" means, for any period, the rate set forth in the
------------------
weekly statistical release designated as H.15 (519), or any successor
publication, published by the Federal Reserve Board (including any such
successor, "H.15 (519)"), for such day opposite the caption "Federal Funds
(Effective)". If on any relevant day such rate is not yet published in
H.15(519), the rate for such day will be the rate set forth in the daily
statistical release designated as the Composite 3:30 p.m. Quotations for U.S.
Government Securities, or any successor publication, published by the Federal
Reserve Bank of New York (including any such successor, the "Composite 3:30 p.m.
Quotation") for such day under the caption "Federal Funds Effective Rate". If
on any relevant day the appropriate rate for such previous day is not yet
published in either H.15(519) or the Composite 3:30 p.m. Quotations, the rate
for such day will be the arithmetic mean of the rates for the last transaction
in overnight Federal funds arranged prior to 9:00 a.m. (New York time) on that
day by each of three (3) leading brokers of Federal funds transactions in New
York City selected by the Agent.
"Federal Reserve Board" means the Board of Governors of the Federal
---------------------
Reserve System or any successor thereof.
"First Interest Period" means the period commencing on (and including)
---------------------
the Closing Date and ending on (but excluding) the first Payment Date.
"Fiscal Year" has the meaning given such term in the Mortgage Loan
-----------
Agreement.
-3-
<PAGE>
"GAAP" means generally accepted accounting principles in the United
----
States of America, consistently applied, as of the relevant date in question.
"Governmental Authority" means any court, board, agency, commission,
----------------------
office or authority of any nature whatsoever of or for any governmental unit
(federal, state, county, district, municipal, city or otherwise), whether now or
hereafter in existence.
"GSMC" means Goldman Sachs Mortgage Company, a New York limited
----
partnership.
"Guaranty Obligations" means any obligations (other than endorsements
--------------------
in the ordinary course of business of negotiable instruments for deposit or
collection) guaranteeing any Indebtedness, leases, dividends or other
obligations of any other Person in any manner, whether direct or indirect, and
including any obligation, whether or not contingent, (i) to purchase any such
Indebtedness or other obligation or any property constituting security therefor,
(ii) to advance or provide funds or other support for the payment or purchase of
such Indebtedness or obligation or to maintain working capital, solvency or
other balance sheet condition of such other Person (including without limitation
keep well agreements, maintenance agreements, comfort letters or similar
agreement or arrangement), (iii) to lease or purchase property, securities or
services primarily for the purpose of assuring the owner of such Indebtedness or
obligation, or (iv) otherwise assure or hold harmless the owner of such
Indebtedness or obligation against loss in respect thereof.
"Host Marriott" means Host Marriott Corporation, a Delaware
-------------
corporation, and its permitted successors and assigns.
"Indebtedness" means, with respect to any Person, without duplication,
------------
the following, whether direct or contingent:
(a) all indebtedness for borrowed money;
(b) the deferred purchase price of assets or services which in
accordance with GAAP would be shown to be a liability (or on the liability side
of a balance sheet);
(c) all Guaranty Obligations;
(d) the maximum amount of all letters of credit issued or acceptance
facilities established for the account of such Person and, without duplication,
all drafts drawn thereunder (other than letters of credit (i) supporting other
Indebtedness of
-4-
<PAGE>
Borrower, or (ii) offset by a like amount of cash or government securities held
in escrow to secure such letter of credit and draws thereunder);
(e) all capitalized lease obligations;
(f) all Indebtedness of another Person secured by any lien on any
property of Borrower, whether or not such indebtedness has been assumed;
(g) all obligations under take-or-pay or similar arrangements or under
interest rate, currency, or commodities agreements;
(h) indebtedness created or arising under any conditional sale or
title retention agreement (other than conditional sale and title retention
agreements entered into in the ordinary course of business for assets incidental
to the management and operation of the Mortgaged Property); and
(i) obligations of such Person with respect to withdrawal liability or
insufficiency under ERISA or under any qualified plan or related trust;
provided, however, that Indebtedness shall not include (i) current accounts
payable (other than for borrowed money or purchase money obligations) incurred
in the ordinary course of business, provided that all such liabilities, accounts
and claims shall be paid when due and payable (or in conformity with customary
trade terms) and accrued expenses (other than for borrowed money or purchase
money obligations) incurred in the ordinary course of business, in each case
customarily paid by such Person and (ii) indemnification, recourse carve-out and
similar contingent obligations which are not assurances of payment of the items
described in subclauses (a) through (i) of this definition.
"Intercreditor Agreement" has the meaning given such term in Section
-----------------------
7.1(m).
"Interest Period" means (i) the First Interest Period and (ii) each
---------------
successive period beginning on (and including) the twelfth (12/th/) day of each
month and ending on (but excluding) the twelfth (12/th/) day of the next
succeeding Payment Date.
"Interest Rate" shall mean 10.365 percent per annum.
-------------
"Junior Lender" shall mean MDSM Finance LLC, a Delaware limited
-------------
liability company.
"Lenders" means GSMC and such other lenders that are from time to time
-------
parties hereto pursuant to Section 10.25(b) hereof.
-5-
<PAGE>
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, security interest, encumbrance, lien (statutory or otherwise),
preference, priority or charge of any kind (including any agreement to give any
of the foregoing, any conditional sale or other title retention agreement, any
financing or similar statement or notice perfecting a security interest under
the Uniform Commercial Code as adopted and in effect in the relevant
jurisdiction, or other similar recording or notice statute, and any lease in the
nature thereof).
"Loan" means the loan made by Lender to Borrower pursuant to Section
----
2.1 hereof, in the original aggregate principal amount of the Total Commitment
and evidenced by the Note and made pursuant to and secured by the Pledge and the
other Loan Documents.
"Loan Documents" means, collectively, this Credit Agreement, the Note,
--------------
the Pledge (including any stock power and financing statements executed and
delivered in connection therewith), as well as other documents executed and/or
delivered in connection with the Loan or hereafter delivered by or on behalf of
Borrower pursuant to the requirements hereof or of any other Loan Document;
provided that Loan Documents shall not include the Mortgage Loan Documents.
- --------
"Loan Expenses" means all reasonable out-of-pocket expenses and costs
-------------
incurred by Agent or Lender (or any of its Affiliates) with respect to the
making of the Loan (excluding costs of Securitization to be borne by Lender),
including reasonable travel expenses, surveys, title insurance, engineering
reports, environmental reports, credit reports and appraisals, the preparation,
negotiation, execution and delivery (and where, appropriate, recordation or
filing) of this Credit Agreement and the other Loan Documents, and the
consummation of the transactions contemplated hereby and thereby (including
reasonable attorneys' fees and expenses in connection therewith and in
connection with Agent's due diligence).
"Manager" has the meaning given such term in the Mortgage Loan
-------
Agreement.
"Material Adverse Effect" means any event or condition that has a
-----------------------
material adverse effect upon (i) the business operations, economic performance,
Mortgaged Property, assets or condition (financial or otherwise) of Borrower or
the Property Owner, in each case taken as a whole, (ii) the ability of Borrower
(or any guarantor of its obligations under the Loan), taken as a whole, to
perform, in all material respects, its obligations under each of the Loan
Documents or the ability of the Property Owner (or any guarantor of its
obligations under the Mortgage Loan) to perform its obligations under each of
the Mortgage Loan Documents, (iii) the enforceability or validity of any Loan
Document or the perfection or priority of any Lien created under any Loan
-6-
<PAGE>
Document, (iv) the value of, or cash flow from, the Mortgaged Property, taken as
a whole, or the operations thereof or (v) the rights, interests and remedies of
Agent or any of the Lenders under the Loan Documents.
"Maturity Date" means the date on which the final payment of principal
-------------
of the Note becomes due and payable as herein provided, whether at the Specified
Maturity Date, by declaration of acceleration, or otherwise.
"Mezzanine Deposit Account" has the meaning set forth in Section
-------------------------
11.1(a) hereof.
"Mortgage" has the meaning given such term in the Mortgage Loan
--------
Agreement.
"Mortgage Lender" has the meaning of "Lender" in the Mortgage Loan
---------------
Agreement.
"Mortgage Loan" means the mortgage loan made to the Property Owner by
-------------
the Mortgage Lender in the original principal amount of $103,000,000.00 and
evidenced by the Mortgage Note and secured by the Mortgage and the other
Mortgage Loan Documents.
"Mortgage Loan Agreement" means the Loan Agreement, dated as of the
-----------------------
date hereof, between the Property Owner, as Borrower, and GMAC Commercial
Mortgage Corporation, as lender, as the same may be amended, restated, replaced,
supplemented, consolidated or otherwise modified from time to time.
"Mortgage Loan Cooperation Agreement" means that certain Mortgage Loan
-----------------------------------
Cooperation Agreement, dated as of the date hereof, among the Property Owner,
DSMLP, Host Marriott, the Mortgage Lender and GSMC.
"Mortgage Loan Documents" has the meaning given to the term "Loan
-----------------------
Documents" in the Mortgage Loan Agreement.
"Mortgage Note" has the meaning given to the term "Note" in the
-------------
Mortgage Loan Agreement.
"Mortgaged Property" has the meaning set forth in the Mortgage Loan
------------------
Agreement.
"Note" means the promissory note of Borrower in favor of the Lenders
----
evidencing the Loan and provided in accordance with Section 2.1.3 hereof, as
well as any
-7-
<PAGE>
additional notes issued in exchange therefor in accordance with the terms
hereof, as such promissory note or notes may be amended, modified, supplemented
or replaced from time to time.
"Officer's Certificate" means a certificate made by an individual
---------------------
authorized to act on behalf of Borrower and, to the extent applicable, any
constituent Person with respect to Borrower. Without limiting the foregoing, if
the individual signing the certificate is doing so on behalf of a corporation,
then such individual shall hold the office of President, Vice President or Chief
Accounting Officer (or the equivalent) with respect to such corporation. Any
such certificate may be based, insofar as it relates to legal, accounting,
architectural or engineering matters or matters customarily dealt with by
experts, upon the written advice of counsel, an accountant, architect, engineer
or such expert, as applicable, provided the individual signing the certificate
--------
believes in good faith that such reliance is justified.
"Operating Budget" has the meaning given such term in the Mortgage
----------------
Loan Agreement.
"Payment Date" means the twelfth (12th) day of each calendar month
------------
beginning in December, 1997, or, if in any month such twelfth (12th) day is not
a Business Day, then the Payment Date for such month shall be the first Business
Day preceding such day.
"Permitted Liens" means (i) Liens created by, under or in connection
---------------
with this Credit Agreement or the other Loan Documents or the Mortgage Loan
Documents, (ii) Liens for taxes and other charges not yet due or Liens for taxes
being contested in good faith by appropriate proceedings for which adequate
reserves have been established or otherwise in compliance with the terms of the
Mortgage Loan Documents (and as to which the property subject to such Lien is
not yet subject to foreclosure, sale or loss on account thereof), (iii) Liens in
respect of property imposed by law arising in the ordinary course of business
such as materialmen's, mechanics', warehousemen's and other like Liens, provided
that such Liens secure only amounts not yet due and payable or amounts being
contested in good faith by appropriate proceedings for which Borrower has
adequate reserves or otherwise in compliance with the terms of the Mortgage Loan
Documents (and as to which the property subject to such lien is not yet subject
to foreclosure, sale or loss on account thereof), (iv) pledges or deposits made
to secure payment under worker's compensation insurance, unemployment insurance,
pensions, social security programs, public liability laws or similar
legislation, (v) Liens arising from good faith deposits in connection with or to
secure performance of tenders, statutory obligations, surety and appeal bonds,
bids, leases, contracts, performance and return-of-money bonds and other similar
obligations incurred in the ordinary course of business (other than obligations
in respect of the payment of borrowed money),
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<PAGE>
(vi) easements, rights-of-way, restrictions (including zoning restrictions),
defects or irregularities in title and other similar charges or encumbrances
not, in any material respect, interfering with the ordinary conduct of business
at the relevant property, (vii) leases or subleases granted to others, whether
existing now or hereafter entered into, in the ordinary course of business or
otherwise in compliance with the terms of the Mortgage Loan Documents, not
interfering in any material respect with the business or operations of Borrower,
(viii) any attachment or judgment lien, unless the judgment it secures shall
not, within thirty (30) days after the entry thereof, have been discharged or
execution thereof stayed pending appeal, or shall not have been discharged
within thirty (30) days after the expiration of any such stay and (ix) Permitted
Encumbrances (as defined under the Mortgage Loan Agreement).
"Person" means any individual, sole proprietorship, corporation,
------
general partnership, limited partnership, limited liability company or
partnership, joint venture, association, joint stock company, bank, trust,
estate, unincorporated organization, any federal, state, county or municipal
government (or any agency or political subdivision thereof), endowment fund or
any other form of entity.
"Plan" means any multiemployer or single-employer plan as defined in
----
Section 4001 of ERISA, which is maintained, or at any time during the five
calendar years preceding the date of this Credit Agreement was maintained, for
employees of Borrower, any Subsidiary or an ERISA Affiliate.
"Plan Assets" means such term within the meaning and as defined in the
-----------
Department of Labor Regulation 29 CFR (S) 2510.3-101, as amended, and the
advisory opinions and rulings issued thereunder.
"Pledge" means the Pledge and Security Agreement, dated as of the date
------
hereof, between Borrower and Agent on behalf of the Lenders, pursuant to which
Borrower is pledging the Pledged Collateral.
"Pledged Collateral" has the meaning set forth in the Pledge.
------------------
"Prepayment Premium" shall mean (i) for the period from the Closing
------------------
Date to (but excluding) the first anniversary thereof, four percent (4%), (ii)
for the period from the first anniversary of the Closing Date to (but excluding)
the second anniversary thereof, three percent (3%), (iii) for the period from
the second anniversary of the Closing Date to (but excluding) the third
anniversary thereof, two percent (2%), and (iv) for the period from the third
anniversary of the Closing Date to (but excluding) the fourth anniversary
thereof, one percent (1%), in each case of the principal amount being prepaid.
From and after the fourth anniversary of the Closing Date, no Prepayment Premium
shall be due or payable.
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"Property Owner" means "Borrower" under the Mortgage Loan Agreement.
--------------
"Qualified Title Insurance Policy" has the meaning set forth in the
--------------------------------
Mortgage Loan Agreement.
"Rating Agency" means each of the following who rate the Certificates
-------------
(as defined in the Mortgage Loan Agreement): Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc., Moody's Investors Service, Inc., Duff & Phelps
Credit Rating Co. and Fitch Investors Service, L.P.
"Rating Confirmation" shall have the meaning set forth in the Mortgage
-------------------
Loan Agreement.
"Regulation D, G, T, U, or X" means, respectively, Regulation D, G, T,
---------------------------
U and X of the Board of Governors of the Federal Reserve System as from time to
time in effect and any successor to all or a portion thereof establishing
reserve requirements.
"Required Lenders" means, if there is only one Lender hereunder, that
----------------
Lender, and if there is more than one Lender, at least one or more Lenders
holding more than 50% of the total principal amount outstanding under the Loan.
"Securities Act" means the Securities Act of 1933, as amended.
--------------
"Securitization" has the meaning given such term in the Mortgage Loan
--------------
Cooperation Agreement.
"Special Purpose" shall have the meaning given such term in the
---------------
Intercreditor Agreement, and "Special Purpose Entity" means a Person that is
----------------------
Special Purpose as so defined.
"Specified Maturity Date" shall mean December 12, 2010.
-----------------------
"Subsidiary" means (i) any corporation more than 25% of whose stock of
----------
any class or classes having by the terms thereof ordinary voting power to elect
a majority of the directors of such corporation (irrespective of whether or not
at the time, any class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time owned
by such Person directly or indirectly through Subsidiaries, and (ii) any
partnership, limited liability company, association, trust, joint venture or
other entity in which such Person directly or indirectly through Subsidiaries
has more than 25% equity interest at any time.
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<PAGE>
"Term" means the entire term of this Credit Agreement, which shall
----
expire upon repayment in full of the Debt and full performance of each and every
obligation to be performed by Borrower pursuant to the Loan Documents.
"Total Commitment" means $20,000,000.00.
----------------
Section 1.2 Principles of Construction.
--------------------------
All references to sections, schedules and exhibits are to sections,
schedules and exhibits in or to this Credit Agreement unless otherwise
specified. Unless otherwise specified, the words "hereof", "herein" and
"hereunder" and words of similar import, when used in this Credit Agreement,
shall refer to this Credit Agreement as a whole and not to any particular
provision of this Credit Agreement. The words "includes", "including" and
similar terms shall be construed as if followed by the words "without
limitation". Unless otherwise specified, all meanings attributed to defined
terms herein shall be equally applicable to both the singular and plural forms
of the terms so defined. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP.
ARTICLE II
GENERAL
-------
Section 2.1 The Loan.
--------
2.1.1 Commitment. The Lender named herein will make the Loan available
----------
to Borrower upon satisfaction of the conditions set forth in Section 3.1, by
making a wire transfer in such amount to Agent at its payment office set forth
below its signature hereon. On the same Business Day, the Agent shall disburse
the Loan to Borrower by paying the costs and expenses required to be paid by
Borrower hereunder or under any other Loan Document on the Closing Date, as
directed by Borrower pursuant to Section 2.1.2 hereof, and by wire transferring
the remainder of the Total Commitment, in accordance with Borrower's wire
transfer instructions to the Agent. Borrower hereby agrees to accept the Loan to
be made to it on the Closing Date, subject to and upon the terms and conditions
set forth herein.
2.1.2. Disbursement to Borrower. Borrower may request and receive only
------------------------
one borrowing hereunder in respect of the Loan. Borrower shall receive the full
amount of the Loan on the Closing Date, subject to the direction given by
Borrower to the Agent as to the application of Loan proceeds to pay the Loan
Expenses and any other fees and expenses payable by Borrower under any Loan
Document, all in accordance with the provisions of this Credit Agreement.
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<PAGE>
2.1.3 The Note. Each Lender's Commitment Percentage of the Loan shall
--------
be evidenced by a duly executed promissory note of Borrower to such Lender in
the original principal amount of each Lender's Commitment Percentage of such
Loan, and shall be substantially in the form of Exhibit A attached hereto. The
---------
Note shall bear interest as provided herein. The Note shall be subject to
repayment as provided in Section 2.4 hereof, if and when there are multiple
Notes in accordance herewith, the Notes shall be cross-defaulted, shall be
entitled to the benefits of this Credit Agreement and shall be secured by the
Pledge and the other Loan Documents.
2.1.4 Use of Proceeds of Loan. Borrower shall use the proceeds of the
-----------------------
Loan to (i) pay fees, costs and expenses actually incurred in connection with
the closing of the Loan, (ii) pay the Loan Expenses as set forth in Section
10.12 hereof, (iii) make distributions to DSMLP for further distribution to its
partners or on behalf of Borrower, (iv) pay the interest for the First Interest
Period, and (v) pay related costs or expenses in connection with any of the
foregoing.
Section 2.2 Maturity.
--------
2.2.1 Maturity Date. The Loan shall be due and payable on the
-------------
Specified Maturity Date, or, if such day is not a Business Day, the next
immediately preceding Business Day.
2.2.2 Reserved.
--------
2.2.3 Payment. Borrower agrees to pay all outstanding principal
-------
amounts under the Note, together with all accrued but unpaid interest thereon
(but excluding the date of repayment) and all other amounts owing from Borrower
to the Lenders or the Agent hereunder and under the other Loan Documents, on the
Specified Maturity Date.
Section 2.3 Principal and Interest.
----------------------
2.3.1 Principal and Interest. (a) The principal balance outstanding
----------------------
under the Loan from time to time shall bear interest at a per annum rate equal
to the Interest Rate from time to time from (and including) the Closing Date to
(but excluding) the Maturity Date.
Notwithstanding anything to the contrary in this Credit Agreement and
to the extent permitted by applicable law, if the aggregate amount of interest
payable in respect of the Note pursuant to this Section 2.3 and all other
consideration which would constitute interest for any Interest Period under
applicable law results in an effective rate of interest for any Interest Period
on such Note in excess of the maximum rate permitted by law applicable to such
Note (after giving effect to any adjustment permitted by law to
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the interest rate paid or payable in any Interest Periods other than such
Interest Period), the effective rate of interest for such Interest Period for
such Note shall be limited to a rate of interest which would not cause the
effective rate to exceed the maximum legal rate.
(b) Commencing with the Payment Date on January 12, 1997, and on each
and every Payment Date thereafter through but excluding the Maturity Date, the
principal amount of the Loan and interest thereon at the Interest Rate shall be
payable in monthly installments of (i) principal based on a fully amortizing
basis (such that the entire principal amount shall be amortized as of the
Specified Maturity Date), as set forth in Schedule C attached hereto, and (ii)
----------
interest at the Interest Rate. Unless otherwise elected by Agent on behalf of
the Lenders or otherwise provided in the Cash Management Procedures, such
payments shall be applied first to the payment of interest with the remainder of
such payment being applied to the reduction of the outstanding principal balance
of the Loan.
2.3.2 Default Rate and Repayment Upon Default. (a) Notwithstanding
---------------------------------------
the foregoing, upon the occurrence and during the continuance of an Event of
Default, the principal of and interest on the Loan shall bear interest, payable
on demand, at a rate equal to the rate (the "Default Rate") that is the higher
------------
of (i) two percent (2%) per annum in excess of the Interest Rate and (ii) the
"Prime Rate" as published from time to time in The Wall Street Journal. Payment
or acceptance of the increased rates provided for in this Subsection 2.3.2 is
not a permitted alternative to timely payment or full performance by Borrower
and shall not constitute a waiver of any Default or Event of Default or an
amendment to this Credit Agreement or any other Loan Document and shall not
otherwise prejudice or limit any rights or remedies of Agent or the Lenders.
(b) If all or any part of the principal amount of the Note is paid
upon acceleration of the Loan following the occurrence of an Event of Default
then, in addition to such principal payment, Borrower shall be required to pay
the Prepayment Premium on the amount so paid which would be due if such Note had
been voluntarily prepaid on such date pursuant to Section 2.4.2.
Section 2.4 Loan Repayment.
--------------
2.4.1 Maturity. Borrower shall repay any outstanding principal
--------
indebtedness of its Loan in full on the Specified Maturity Date of its Loan,
together with all accrued and unpaid interest thereon to (but excluding) the
date of repayment.
2.4.2 Voluntary Prepayments. Borrower may prepay all or any portion of
---------------------
its Loan, together with accrued interest to the date of such prepayment on the
principal amount prepaid, on any Payment Date, provided (i) Borrower shall
--------
provide not less than
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three (3) Business Days' prior irrevocable written notice to Agent specifying
the Payment Date on which such prepayment is to occur and indicating the
principal amount of the Note to be so prepaid, and (ii) Agent on behalf of the
Lenders is paid the applicable Prepayment Premium, if any, on or before the date
of such prepayment. Upon the giving of the notice in clause (i) above, the
principal amount of the Loan specified to be prepaid shall become due and
payable on the date specified for such prepayment. If Borrower delivers to Agent
a notice of prepayment pursuant to this Section 2.4.2 and fails to prepay its
Loan in accordance therewith, the amount of the prepayment designated in such
notice and not prepaid shall bear interest at the Default Rate. All prepayments
of principal may be made only on an Payment Date and shall include the accrued
but unpaid interest on the principal amount prepaid. Amounts prepaid on the Loan
hereunder may not be reborrowed.
2.4.3 Mandatory Prepayments. Without relieving Borrower of its
---------------------
obligations under Section 2.4.2, Borrower shall be obligated to prepay its Loan
as follows:
(a) Except as described in Section 2.4.3(b), if the Mortgaged Property
or the Property Owner's interests therein is sold, transferred or otherwise
disposed of, voluntarily or involuntarily, or if the lien of the Mortgage is
released from the Mortgaged Property, then, not later than the closing date or
effective date of such sale, transfer, disposition or release, Borrower shall
repay the Loan, in full, together with the applicable Prepayment Premium, if
any.
(b) If there shall occur a Casualty or Condemnation (as such terms are
defined in the Mortgage Loan Agreement) in respect of the Mortgaged Property and
as a result thereof the Mortgage Loan is prepaid in whole or in part, then, to
the extent that there shall be excess proceeds or awards available following the
application of the proceeds or awards pursuant to the terms of the Mortgage Loan
Documents, Borrower shall repay the Loan, or a portion thereof, in the amount of
such available excess proceeds or awards, without any Prepayment Premium.
Prepayments required under this subsection (b) shall be due on the first Payment
Date occurring after the determination under the Mortgage Loan Agreement that
the related proceeds or award will be applied to the Mortgage Loan or, if such
first Payment Date is within three (3) Business Days of such determination, then
on the second Payment Date after such determination.
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Section 2.5 Payments and Computations.
-------------------------
2.5.1 Making of Payments. (a) All payments hereunder or under any
------------------
other Loan Document shall be made to the Agent, on behalf of the Lenders, in
U.S. dollars in immediately available funds to the account of Agent designated
by Agent (or to such other account as Agent may instruct Borrower in writing at
least three (3) Business Days prior to the applicable payment date) no later
than 11:00 a.m. (New York time) on the date when due. Payments received after
such time shall be deemed to have been received on the next succeeding Business
Day. Whenever any payment hereunder shall be stated to be due on a day which is
not a Business Day, such payment shall be made on the first Business Day
preceding such day. Interest shall accrue from and include the date of the
Loan, but exclude the date of payment.
(b) Unless the Agent shall have received notice from Borrower prior
to the date on which any payment is due to the Lenders hereunder that Borrower
will not make such payment in full, the Agent may assume that Borrower has made
such payment in full to the Agent on such date, and the Agent may (but shall not
be required to), in reliance upon such assumption, cause to be distributed to
each Lender on such due date the amount then due such Lender. If and to the
extent Borrower shall not have made such payment in full to the Agent, each
Lender shall repay to the Agent on demand such amount distributed to such
Lender, together with interest thereon for each day from the date such amount is
distributed to such Lender until the date such Lender repays such amount to the
Agent, at the Federal Funds Rate as in effect for each such day.
2.5.2 Computations. Interest payable on the Loan on each Payment Date
------------
shall be computed on the basis of the actual number of days elapsed in the
period in question (i.e., with respect to the interest due on a given Payment
----
Date, from and including the last Payment Date to but excluding the current
Payment Date) over a year of 360 days.
Section 2.6 Pro Rata Treatment. Except to the extent otherwise
------------------
provided herein, the Loan, each payment or prepayment of principal of the Loan,
and each payment of interest on the Loan, shall be allocated by the Agent pro
rata among the Lenders in accordance with the Commitment Percentages of such
Lenders. The Agent agrees to forward to the Lenders such principal and interest
payments on the same Business Day as such amounts are received, collected or
applied by the Agent from Borrower unless the Agent receives such amounts after
11:00 a.m., New York time, in which case such payments shall be forwarded by the
Agent to the Lenders on the next Business Day.
Section 2.7 Sharing of Payments. Each Lender agrees that, in the
-------------------
event that any Lender shall obtain payment in respect of any Loan owing to such
Lender under this Credit Agreement through the exercise of a right of set-off,
banker's lien,
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<PAGE>
counterclaim or otherwise (including, but not limited to, pursuant to the U.S.
Bankruptcy Code) in excess of its Commitment Percentage thereof as provided for
in this Credit Agreement, such Lender shall promptly notify the Agent of such
fact and purchase from the other Lenders a participation in such Lenders' Loan,
in such amounts and with such other adjustments from time to time, as shall be
equitable in order that all Lenders share such payment in accordance with their
respective Commitment Percentages as provided for in this Credit Agreement. Each
Lender further agrees that if a payment to a Lender (which is obtained by such
Lender through the exercise of a right of set-off, banker's lien, counterclaim
or otherwise) shall be rescinded or must otherwise be restored, each Lender
which shall have shared the benefit of such payment shall, by repurchase of a
participation theretofore sold, return its share of that benefit to each Lender
whose payment shall have been rescinded or otherwise restored. Borrower agrees
that any Lender so purchasing such a participation may, to the fullest extent
permitted by law, exercise all rights of payment, including set-off, banker's
lien or counterclaim, with respect to such participation as fully as if such
Lender were a holder of the Loan or other obligation in the amount of such
participation. The Agent shall keep records (which shall be conclusive and
binding in the absence of manifest error) of participations purchased pursuant
to this Section 2.7 and shall in each case notify the Lenders following any such
purchases. Except as otherwise expressly provided in this Credit Agreement, if
any Lender shall fail to remit to the Agent or any other Lender an amount
payable by such Lender to the Agent, or such other Lender pursuant to this
Credit Agreement on the date when such amount is due, such payments shall accrue
interest thereon, for each day from the date such amount is due until the day
such amount is paid to the Agent or such other Lender, at a rate per annum equal
to the Federal Funds Rate.
ARTICLE III
CONDITIONS PRECEDENT
--------------------
Section 3.1 Conditions Precedent to the Loan. The obligation of the
--------------------------------
Lenders to make the Loan hereunder is subject to the fulfillment by Borrower or
waiver by the Lenders of the following conditions precedent no later than the
Closing Date:
(a) Representations and Warranties; Compliance with Conditions. The
----------------------------------------------------------
representations and warranties of Borrower contained in this Credit Agreement
and the other Loan Documents shall be true and correct in all material respects
on and as of the Closing Date with the same effect as if made on and as of such
date, and no Default or Event of Default shall have occurred and be continuing;
and Borrower shall be in compliance in all material respects with all terms and
conditions set forth in this Credit Agreement and in each other Loan Document on
its part to be observed or performed.
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<PAGE>
(b) Credit Agreement and Note. Agent on behalf of the Lenders shall
-------------------------
have received a copy of this Credit Agreement and the Note, in each case, duly
executed and delivered on behalf of Borrower.
(c) Costs; Expenses; Fees. All Loan Expenses shall have been paid.
---------------------
(d) Financial Statements. Borrower shall have provided Agent, with
--------------------
respect to the Property Owner, (A) audited financial statements for 1996 for
DSMLP and (B) the financial statements described in Section 3.1(n) of the
Mortgage Loan Agreement, certified as provided therein.
(e) Delivery of Other Loan Documents. Agent on behalf of the Lenders
--------------------------------
shall have received from Borrower fully executed and acknowledged counterparts
of the Pledge, trust certificates, if any, the Cooperation Agreement, and UCC-1
financing statements evidencing the pledge of all of the Pledged Collateral,
together with any necessary consents thereto, and the other Loan Documents.
(f) Delivery of Organizational Documents. On or before the Closing
------------------------------------
Date, Borrower shall deliver or cause to be delivered to Agent on behalf of the
Lenders copies certified by Borrower of all organizational documentation related
to each of Borrower and the Property Owner and/or the formation, structure,
existence, good standing and/or qualification to do business, as Agent on behalf
of the Lenders may request in its sole discretion, including good standing
certificates, qualifications to do business in the appropriate jurisdictions,
resolutions authorizing the entering into of the Loan Documents, and incumbency
certificates as may be requested by Agent on behalf of the Lenders.
(g) Opinions of Borrower's Counsel. Agent on behalf of the Lenders
------------------------------
shall have received (i) opinions of Borrower' counsel with respect to due
execution, delivery, authority, enforceability of the Loan Documents by
Borrower, requisite consents obtained by Borrower, perfection of the security
interests granted under the Pledge, and such other matters as Agent may
reasonably require and (ii) opinions of Borrower' counsel with respect to non-
consolidation of Borrower and its member, all such opinions in form, scope and
substance satisfactory to Agent and its counsel in their sole discretion.
(h) Mortgage Loan. The Mortgage Loan shall have closed or is closing
-------------
concurrently with the Loan.
(i) Officer's Certificate. An Officer's Certificate of the Borrower
---------------------
certifying to the fulfillment of the conditions set forth in Section 3.1(a)
hereof.
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(j) No Material Adverse Change. The Lenders shall be satisfied that
--------------------------
as of the Closing Date, there shall be no material adverse change or
development, since September 12, 1997, to the Mortgaged Property, or to the
financial condition or operations of Borrower, the Manager or the Property
Owner.
(k) Borrower Assets. An Officer's Certificate of Borrower to the
---------------
effect that the only asset of Borrower, as of the Closing Date, shall be
Borrower's interest in the Property Owner.
(l) Direction Letters. Borrower shall have delivered the direction
-----------------
letters provided for in Article XI hereof.
(m) Operating Budgets. Borrower shall have delivered to Agent on
-----------------
behalf of the Lenders the Operating Budget for the Mortgaged Property for Fiscal
Year 1997.
(n) Certified Ownership Structure Chart. Agent on behalf of the
-----------------------------------
Lenders shall have received a chart detailing the ownership structure of
Borrower, as well as the ownership structure of the Property Owner, in form and
substance reasonably acceptable to Agent on behalf of the Lenders and Borrower
accompanied by an Officer's Certificate certifying that such chart is true,
complete and correct in all respects as of the Closing Date.
(o) Insurance Certificates. Borrower shall deliver to Agent on behalf
----------------------
of the Lenders copies of all insurance certificates delivered to Mortgage Lender
in connection with the closing of the Mortgage Loan.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BORROWER
------------------------------------------
Section 4.1 Representations and Warranties. Borrower hereby
------------------------------
represents and warrants to the Agent and the Lenders on its own behalf as of the
Closing Date that:
(a) Authority; Binding on Borrower; Enforceability. Each of Borrower
----------------------------------------------
or the Property Owner is a limited liability company, duly formed, validly
existing and in good standing under the laws of the State of Delaware. Borrower
has taken all company action required to make of the provisions of the Loan
Documents the valid and enforceable obligations they purport to be. Each of
Borrower and the Property Owner is duly qualified and in good standing as a
foreign limited liability company in California and all other jurisdictions
where it is required to so be qualified, except for
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<PAGE>
failures to be so qualified that do not in the aggregate have any Material
Adverse Effect. Borrower has the full right, authority and power to own the
Property Owner and to conduct its business.
(b) Proceedings. All necessary action has been taken by Borrower to
-----------
authorize the execution, delivery and performance of this Credit Agreement and
the other Loan Documents to which each is a party. This Credit Agreement and
such other Loan Documents have been duly authorized, executed and delivered by
Borrower and constitute Borrower's legal, valid and binding obligations,
enforceable against Borrower in accordance with its terms, subject, as to
enforceability, to applicable bankruptcy, insolvency and similar laws affecting
rights of creditors generally and general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law) without
offset, defense or counterclaim. The Pledge creates, and together with the
execution, delivery and filing of the financing statements therein described,
perfects a valid and enforceable first priority security interest in and to the
Pledged Collateral in favor of Agent on behalf of the Lenders to the extent the
same may be perfected under the Uniform Commercial Code, and Agent on behalf of
the Lenders has a valid and enforceable first priority lien and security
interest in and to the Mezzanine Deposit Account. The principal place of
business of Borrower is 10400 Fernwood Road, Bethesda, Maryland 20817-1109.
(c) Conflict with Existing Laws or Contracts; Consents. The execution
----------------------------------------- --------
and delivery of the Loan Documents and all related documents and the performance
of its obligations hereunder and thereunder by Borrower do not conflict with any
provision of any applicable law or regulation to which Borrower is subject, or
conflict with or result in a breach of or constitute a default under any of the
terms, conditions or provisions of any agreement or instrument to which Borrower
is a party or by which Borrower is bound or any order or decree applicable to
Borrower, or result in the creation or imposition of any lien on any of its
assets or property. Borrower has obtained all consents, approvals,
authorizations or orders of any court, governmental agency or body and of all
third parties, if any, required for the execution, delivery and making by
Borrower of the Loan Documents and the consummation of the transactions
contemplated thereby.
(d) Litigation. There are no actions, suits or proceedings at law or
----------
in equity by or before any Governmental Authority or other agency now commenced
or, to Borrower's knowledge, threatened against or affecting Borrower or the
Property Owner, as applicable, which actions, suits or proceedings, alone or in
the aggregate, if adversely determined against Borrower or the Property Owner,
as applicable, is reasonably likely to have a Material Adverse Effect.
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(e) Agreements. Neither Borrower nor the Property Owner is in default
----------
in any material respect in the performance, observance or fulfillment of any of
the material obligations, covenants or conditions contained in any agreement or
instrument to which it is a party or by which it is bound except to the extent
such default is not reasonably likely to have a Material Adverse Effect.
(f) No Bankruptcy Filing. None of Borrower nor the Property Owner is
--------------------
contemplating either the filing of a petition by it under any state or federal
bankruptcy or insolvency laws or the liquidation of its assets or property, and
none of Borrower nor the Property Owner has knowledge of any Person
contemplating the filing of any such petition against Borrower or the Property
Owner.
(g) Full and Accurate Disclosure. There is no material fact or
----------------------------
circumstance which has not been disclosed to Agent and which has or is
reasonably likely to have a Material Adverse Effect.
(h) No Plan Assets. Neither Borrower nor any of its Subsidiaries is
--------------
an "employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), subject to Title I
-----
of ERISA, and none of the assets of Borrower or any of its Subsidiaries
constitutes or will constitute "plan assets" of one or more such plans within
the meaning of 29 C.F.R. Section 2510.3-101.
(i) Compliance. Borrower and the Property Owner each is in compliance
----------
in all respects with all laws, rules, regulations, orders and decrees (including
environmental laws) applicable to it, or to its properties other than those
where non-compliance could not have a Material Adverse Effect.
(j) Financial Information. All financial data prepared by or on
---------------------
behalf of Borrower or the Property Owner provided to the Agent on behalf of the
Lenders prior to the date hereof, including without limitation, the financial
statements delivered pursuant to Section 3.1(d), (i) are true, complete and
correct in all material respects and (ii) accurately represent the operating
results and the financial condition of the Mortgaged Property with respect to
the period covered, and (iii) have been prepared on a sound basis consistently
applied throughout the periods covered, except as disclosed therein, and with
respect to such financial statements, in accordance with GAAP. Neither Borrower
nor the Property Owner has any contingent liabilities, liabilities for taxes,
unusual forward or long-term commitments or unrealized or anticipated losses
from any unfavorable commitments, that are known to it and are reasonably likely
to have a Material Adverse Effect, except as otherwise referred to or reflected
in said financial statements. Since the date of such financial statements, there
has been no material adverse change in the financial condition, operations or
business of such Person, property or Mortgaged Property from that set forth in
said financial statements.
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(k) Title; Liens. Borrower has good and marketable title to all of
------------
its properties and assets, including the Property Owner, free and clear of all
liens, encumbrances, mortgages, pledges, security interests and other adverse
claims of any nature, except for the Pledge in favor of Agent on behalf of the
Lenders and Permitted Liens.
(l) Indebtedness. Borrower and Property Owner each has no
------------
Indebtedness except for the Loan and the Indebtedness expressly permitted under
Section 6.1(h) of the Mortgage Loan Agreement.
(m) Taxes. Borrower and the Property Owner each has filed, or caused
-----
to be filed, all material tax returns (federal, state, local and foreign)
required to be filed and paid all amounts of taxes shown thereon to be due
(including interest and penalties) and has paid all other taxes (including
intangible fees, assessments and other governmental charges or taxes) owing (or
necessary to preserve any Liens in favor of Agent on behalf of the Lenders), by
it, except for such taxes (i) which are not yet delinquent or (ii) as are being
contested in good faith and by proper proceedings, and against which adequate
reserves are being maintained in accordance with GAAP, but only so long as there
is no liability or risk of loss, sale or forfeiture of any collateral pledged to
the Agent on behalf of the Lenders. Borrower is not aware of any proposed tax
assessments (other than ad valorem taxes for the year in which the Closing
occurs which are not yet due and payable, or as disclosed in the Qualified Title
Report provided pursuant to the Mortgage Loan Agreement) against it or the
Property Owner. No extension of time for assessment or payment by Borrower or
the Property Owner of any federal, state or local tax is in effect.
(n) Not a Foreign Person. Neither Borrower nor the Property Owner is
--------------------
a "foreign person" within the meaning of (S) 1445(f)(3) of the Code.
(o) Enforceability. The Loan Documents are not subject to any right
--------------
of rescission, set-off, counterclaim or defense by Borrower, including the
defense of usury, nor would the exercise of any of the terms of the Loan
Documents, or the exercise of any right thereunder, render the Loan Documents
unenforceable.
(p) Use of Proceeds. None of the proceeds of the Loan will be used
---------------
for the purpose of purchasing or carrying any "margin stock" as defined in
Regulation U, Regulation X, Regulation G, or Regulation T or for the purpose of
reducing or retiring any Indebtedness which was originally incurred to purchase
or carry "margin stock" or for any other purpose which might constitute this
transaction a "purpose credit" within the meaning of Regulation U, Regulation X
or Regulation G. As of the Closing Date, no Borrower nor any of its
Subsidiaries owns "margin stock".
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(q) Investment Company Act. Neither Borrower nor the Property Owner
----------------------
is (i) an "investment company" registered or required to be registered under the
Investment Company Act of 1940, as amended, and is not "controlled" by such a
company, within the meaning of the Investment Company Act of 1940, as amended;
or (ii) is a "holding company" or a "subsidiary company" of a "holding company"
or an "affiliate" of either a "holding company" or a "subsidiary company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.
(r) Fraudulent Transfer. Borrower has not entered into the Loan or
-------------------
any Loan Document with the actual intent to hinder, delay, or defraud any
creditor. It has received reasonably equivalent value in exchange for its
obligations under the Loan Documents and giving effect to the transactions
contemplated by the Loan Documents, the fair saleable value of its assets
exceeds and will, immediately following the execution and delivery of the Loan
Documents, exceed its total liabilities, including subordinated, unliquidated,
disputed or contingent liabilities. The fair saleable value of its assets is
and will, immediately following the execution and delivery of the Loan
Documents, be greater than its probable liabilities, including the probable
maximum amount of its contingent liabilities or its debts as such debts become
absolute and matured. Its assets do not, and immediately following the
execution and delivery of the Loan Documents will not, constitute unreasonably
small capital to carry out its business as conducted or as proposed to be
conducted. It does not intend to, and does not believe that it will, incur
debts and liabilities (including contingent liabilities and other commitments)
beyond its ability to pay such debts as they mature (taking into account the
timing and amounts to be payable on or in respect of its obligations).
(s) Employees. Borrower and the Property Owner each either has no
---------
employees or has no material liability which has been incurred by it and remains
unsatisfied beyond any applicable payment date for any taxes or penalties with
respect to (i) any employee benefit plan (within the meaning of Section 3(3) of
ERISA) established, sponsored, maintained or contributed to by it on behalf of
its employees at the Mortgaged Property or (ii) any "multiemployer plan" (as
defined in Section 4001(a)(3) of ERISA) as to which it is making or has an
obligation to make contributions or (iii) any lien which has been imposed on its
assets pursuant to Section 412 of the Code or Section 302 or 4086 of ERISA.
(t) Special Purpose. Borrower hereby represents and warrants to, and
---------------
covenants with, Agent and the Lenders as to itself only, that, as of the date
hereof and until such time as the Debt shall be paid in full, Borrower is and
shall be a Special Purpose Entity, including without limitation:
(i) Borrower has not owned and will not own any property or any
other assets, except that immediately prior to the transfer of the
Mortgaged
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Property to the Property Owner on the date hereof, Borrower owned and
operated the Mortgaged Property, as to which Borrower has no liability
(contingent or actual), and as of the date hereof, Borrower owns and will
own the Property Owner.
(ii) Borrower has not engaged and will not engage in any
business other than the ownership and operation of the Property Owner,
except that immediately prior to the transfer of the Mortgaged Property to
the Property Owner on the date hereof, Borrower owned and operated the
Mortgaged Property.
(iii) Borrower has not entered and will not enter into any
contract or agreement with any of its Affiliates, any of its constituent
parties or any Affiliate of any constituent party, except upon terms and
conditions that are substantially similar to those that would be available
on an arm's-length basis with third parties.
(iv) Borrower has not incurred and will not incur any
indebtedness, secured or unsecured, direct or indirect, absolute or
contingent (including guaranteeing any obligation) other than the
Indebtedness described in Section 6.1(h) of the Mortgage Loan Agreement.
(v) Borrower has not made and will not make any loans or
advances to any other Person (including any Affiliate or constituent party
or any Affiliate of any constituent party).
(vi) Borrower is and will remain solvent and it will pay its
debts and liabilities (including employment and overhead expenses) from its
assets as the same shall become due.
(vii) Borrower has done or caused to be done and will do all
things necessary to observe limited liability company formalities, and
preserve its existence, and it will not, nor will it permit or suffer any
constituent party to amend, modify or otherwise change its articles of
organization, operating agreement or other organizational documents or
those of such constituent party in a manner which would adversely affect
its existence as a Special Purpose Entity.
(viii) Borrower will maintain books and records and bank accounts
separate from those of its Affiliates and any constituent party.
(ix) Borrower will be, and at all times will hold itself out to
the public as, a legal entity separate and distinct from any other entity
(including any of its Affiliates, any of its constituent parties or any
Affiliate of any constituent party),
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shall conduct business in its own name and shall maintain and utilize
separate stationery, invoices and checks.
(x) Borrower will maintain adequate capital for the normal
obligations reasonably foreseeable in a business of its size and character
and in light of its contemplated business operations.
(xi) Neither Borrower nor any constituent party will seek its
dissolution or winding up, in whole or in part.
(xii) Borrower will not commingle its funds and other assets with
those of any Affiliate or constituent party or any Affiliate of any
constituent party or any other Person, provided that the foregoing shall
not supersede any applicable provision of the Cash Management Procedures.
(xiii) Borrower has and will maintain its assets in such a manner
that it will not be costly or difficult to segregate, ascertain or identify
its individual assets from those of any Affiliate or constituent party or
any Affiliate of any constituent party or any other Person.
(xiv) Borrower has not held and will not hold itself out to be
responsible for the debts or obligations of any other Person except
pursuant to the terms hereof.
(xv) Borrower has no liabilities, contingent or otherwise, other
than those normal and incidental to the ownership of the Property Owner and
Indebtedness permitted under Section 6.1(h) of the Mortgage Loan Agreement.
Section 4.2 Survival of Representations. Borrower hereby agrees that
---------------------------
all of the representations and warranties of Borrower set forth in Section
4.1(a) through (s) hereof and elsewhere in this Credit Agreement and in the
other Loan Documents shall survive for so long as any amount remains owing to
the Lenders or the Agent under this Credit Agreement or any of the other Loan
Documents by Borrower, provided that the representations and warranties set
forth in Section 4.1(a) through (s) have been made as of the Closing Date and
are not continuing covenants. Borrower acknowledges and agrees that all
representations, warranties, covenants and agreements made in this Credit
Agreement or in the other Loan Documents by Borrower are a material inducement
to the making of the Loan hereunder by the Agent and the Lenders.
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ARTICLE V
AFFIRMATIVE COVENANTS OF BORROWER
---------------------------------
Section 5.1 Information Covenants.
---------------------
(a) Borrower will furnish, or cause to be furnished, to the Agent on
behalf of the Lenders, each of the financial statements, reports, and other
information required under Section 5.1(j) of the Mortgage Loan Agreement, within
the same time frames set forth therein (regardless whether the Property Owner
shall obtain a waiver or amendment in respect of such requirements). In
addition, at the time of delivery of the annual financial statements required to
be delivered under said Section 5.1(j), Borrower shall deliver an Officer's
Certificate on behalf of Borrower, certifying as of the date thereof whether an
Event of Default exists, and specifying the nature and extent thereof and what
action Borrower proposes to take with respect thereto. Promptly upon receipt
thereof, Borrower shall also furnish Lender with if requested by Agent on behalf
of the Lenders, a copy of Borrower's federal tax return. With reasonable
promptness upon any such request, Borrower shall furnish such other information
regarding the business, properties or financial condition of Borrower or the
Property Owner as the Agent may reasonably request.
(b) Notice of Default or Litigation. Promptly (but in any event
-------------------------------
within five (5) Business Days) upon Borrower obtaining knowledge thereof,
Borrower will give written notice to the Agent on behalf of the Lenders, of the
occurrence of any of the following with respect to Borrower or the Property
Owner:
(i) the occurrence of a Default or an Event of Default,
(ii) the commencement of any litigation, arbitral or
governmental proceeding against Borrower or the Property Owner in respect
of environmental matters in which damages are sought or environmental
remediation demanded which exceeds $100,000 in any instance or $250,000 in
the aggregate or which would might otherwise have a Material Adverse
Effect, or the receipt of notice of potential liability or responsibility
for any violation, or alleged violation, of any environmental law the
violation of which could give rise to a material liability of, or a
Material Adverse Effect,
(iii) the commencement of any litigation, arbitral or
governmental proceeding against Borrower or the Property Owner in which
damages are sought or demanded which exceeds $250,000 in any instance or
$500,000 in the aggregate (except to the extent that the related claim is
insured and the insurer has
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<PAGE>
not disclaimed coverage) or which might otherwise have a Material Adverse
Effect,
(iv) any levy of an attachment, execution or other process
against Borrower or the Property Owner's assets with respect to a judgment,
claim or other liability that exceeds $100,000 in any instance or $250,000
in the aggregate,
(v) with respect to Borrower or the Property Owner, the
occurrence of an "Event of Default" (after applicable notice and cure
periods) by reason of an event of default under any other agreement for
borrowed money,
(vi) any development in Borrower or the Property Owner's
respective businesses or affairs which has resulted in, or which Borrower
reasonably believes may result in, a Material Adverse Effect, or
(vii) the casualty or condemnation of any property owned by it or
the Property Owner (including the Mortgaged Property) involving or
reasonably likely to involve Proceeds of $500,000 or more.
Section 5.2 Preservation of Existence and Franchises. Borrower will
----------------------------------------
do or cause to be done all things necessary to preserve and keep in full force
and effect its and the Property Owner's existence, rights, franchises and
authority.
Section 5.3 Books, Records and Inspections. Each of Borrower and the
------------------------------
Property Owner will keep complete and accurate books and records of its
transactions in accordance with good accounting practices on the basis of GAAP
applied on a consistent basis. Borrower will permit, on reasonable notice and
during reasonable hours, officers or designated representatives of the Agent to
visit and inspect its books of account and records and any of its properties or
assets (in whomever's possession), including the Mortgaged Property, and to
discuss the affairs, finances and accounts of Borrower and the Property Owner
with, and be advised as to the same by, their respective officers, directors,
partners and independent accountants; provided that, unless an Event of Default
shall have occurred and be continuing, (i) Agent shall make reasonable efforts
to coordinate any such inspections annually among all such inspections that may
be requested by Agent, the Lenders and the Mortgage Lender (or the Servicer),
(ii) such visits, inspection and discussions shall be on not less than ten (10)
Business Days' notice from any Lender or Agent to Borrower and (iii) Borrower
shall have the right to have its representative accompany such inspecting party.
Section 5.4 Compliance with Law. Borrower will comply, and will not
-------------------
consent to or seek, and will not fail to exercise any of its rights as an equity
holder, if any, to prevent, any action which would cause the Property Owner not
to comply, in all
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<PAGE>
material respects with all applicable laws, rules, regulations and orders of,
and all applicable restrictions imposed by all applicable governmental bodies,
foreign or domestic, or authorities and agencies thereof (including quasi
governmental authorities and agencies), in respect of the conduct of its
businesses and the ownership of its respective properties (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls).
Section 5.5 Insurance. Borrower will at all times maintain in full
---------
force and effect insurance (including worker's compensation insurance, liability
insurance, casualty insurance and business interruption insurance) in such
amounts, covering such risks and liabilities and with such deductibles or self-
insurance retentions as are in accordance with normal industry practice and will
not consent to or seek, and will not fail to exercise any of its rights as an
equity holder, if any, to prevent, any action which would cause the Property
Owner not to at all times maintain insurance in such amounts and as otherwise
required by the terms of the Mortgage Loan Agreement. Borrower shall deliver to
Agent (i) concurrently with any material change in any insurance coverage
required to be maintained by Borrower or the Property Owner (A) notification of
such change and (B) certificates of insurance evidencing compliance of such
change with the insurance requirements set forth in this Section 5.5, and (ii)
from time to time upon reasonable request by Agent, certificates of insurance
evidencing compliance with the insurance requirements set forth in this Section
5.5.
Section 5.6 Ownership of Borrower; Permitted Reorganization.
------------------------------------------------
(a) Except as may be permitted under Section 5.6(c), as of the date
hereof, and until the Loan shall have been repaid in full and all obligations of
Borrower fulfilled and satisfied hereunder:
(i) Borrower named herein shall at all times own 100 percent of
the membership interests in the Property Owner;
(ii) 100 percent of the membership interests in Borrower shall
be owned by DSMLP; and
(iii) the Property Owner shall at all times own the Mortgaged
Property, subject only to Permitted Liens.
(b) Except as may be permitted under Section 5.6(c), Borrower shall
not consent to or seek, and will not fail to exercise any of its rights as an
equity holder, if any, to prevent, any action which would cause or permit the
transfer of the Mortgaged Property, except for a transfer where the Mortgaged
Property is released from the lien of the Mortgage Loan upon the defeasance or
prepayment of all of the principal amount of
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<PAGE>
the Mortgage Loan, with all accrued interest thereon, together with the
applicable Prepayment Premium.
(c) The Mortgage Loan Agreement sets forth certain reorganizing
transactions permitted thereunder in respect of the Property Owner and its
owners and defined therein as "Permitted Reorganizations." In the event that a
Permitted Reorganization is proposed, then, not less than thirty (30) days prior
to its implementation, Borrower shall deliver or caused to be delivered to Agent
on behalf of the Lenders a certificate of Borrower describing in reasonable
detail the proposed transaction and stating that such transaction is permitted
by this Credit Agreement and the other Loan Documents, together with any
documents upon which such certificate is based. Such Permitted Reorganization
shall be subject to the satisfaction of the following conditions and Borrower
hereby agrees with Lender as follows:
(i) Property Owner's ultimate transferee pursuant to the
Permitted Reorganization shall directly own the Mortgaged Property (the
"New Property Owner");
-------------------
(ii) any successor owner or owners of the New Property Owner
shall become the new Borrower hereunder (the "New Borrower") and shall
------------
pledge, as the new Pledged Collateral, to Agent on behalf of the Lenders
all of such New Borrower's interests in the New Property Owner;
(iii) the New Borrower shall be a Special Purpose Entity which
(a) abides by and is otherwise in compliance with the representations and
covenants contained in this Credit Agreement (including Section 4.1(t)
hereof) and the other Loan Documents and (b) assumes in writing (subject to
the limitations on recourse set forth in the Credit Agreement) and agrees
to comply with all the terms, covenants and conditions set forth in this
Credit Agreement and the other Loan Documents pursuant to an assumption
agreement in form and substance reasonably satisfactory to Agent on behalf
of the Lenders and shall have delivered to Agent on behalf of the Lenders
such other documents, instruments and deliveries as Agent on behalf of the
Lenders may require in its reasonable discretion to confirm its security
interests pursuant to the Loan Documents; and to effectuate the provisions
of this Section 5.6(c), including a substitute Pledge, UCC-1 Financing
Statements, stock certificate and stock powers (if any) and other evidence
of ownership, as applicable, granting to Agent on behalf of the Lenders
perfected security interests in the resulting New Borrower, such that Agent
on behalf of the Lenders shall have first priority perfected security
interests in the ownership interests in the New Borrower;
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<PAGE>
(iv) Borrower shall pay all reasonable out-of-pocket expenses
(including reasonable attorneys' fees and disbursements) incurred by Agent
on behalf of the Lenders, or any Lender, in connection with transactions
contemplated by this Section 5.6(c), regardless whether the same are
effected;
(v) Borrower shall deliver to Agent on behalf of the Lenders
legal opinions of counsel to Borrower or the New Borrower selected by
Borrower (unless reasonably disapproved by Agent on behalf of the Lenders),
the substance of which is similar to the opinions delivered on the Closing
Date (modified (but not in a manner adverse to Lenders) to reflect the
consummation of the Permitted Reorganization), as well as such other
opinions as the Agent on behalf of the Lenders may reasonably require,
which may be based on customary and reasonable assumptions and
representations and warranties of Borrowers or the New Borrower, in form
and substance reasonably acceptable to Agent on behalf of the Lenders,
confirming, among other things, that the New Borrower's assets will not be
substantively consolidated with the assets of certain owners or controlling
Persons (as Agent may designate) of the New Borrower in a bankruptcy or
similar proceeding;
(vi) there shall be no Material Adverse Effect as a result of
the transactions contemplated by this Section 5.6(c); and
(vii) no Event of Default shall have occurred and be continuing
or will occur as a result of transactions contemplated by this Section
5.6(c).
Section 5.7 Plan Assets, Etc. Borrower will do, or cause to be done,
-----------------
all things necessary to ensure that it will not be deemed to hold Plan Assets at
any time, and Borrower will not consent to or seek, and will not fail to
exercise any of its rights as an equity holder, if any, to prevent, any action
which would cause the Property Owner to be deemed to hold Plan Assets at any
time.
Section 5.8 Further Assurances. Borrower shall at its sole cost and
------------------
expense:
(i) execute and deliver to Agent on behalf of Lenders such
documents, instruments, certificates, assignments and other writings, and
do such other acts necessary or desirable, to evidence, preserve and/or
protect the Lien of Agent on behalf of Lenders and the first priority
perfection thereof at any time securing or intended to secure the
obligations of Borrower under the Loan Documents, as Agent on behalf of the
Lenders may reasonably require; and
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<PAGE>
(ii) do and execute all and such further lawful and reasonable
acts, conveyances and assurances for the better and more effective carrying
out of the intents and purposes of this Credit Agreement and the other Loan
Documents, as Agent on behalf of the Lenders shall reasonably require from
time to time.
Section 5.9 Annual Plan and Budget. Borrower shall furnish or cause
----------------------
to be furnished to the Agent the annual "Operating Budget" and any other items
to be submitted to the Mortgage Lender under Section 5.1(q) of the Mortgage Loan
Agreement (which budget and plan shall also address, in a manner mindful of the
Special Purpose requirements imposed on Borrower and the Property Owner,
Borrower's administrative expenses), at the times provided for therein. The
Agent shall have hereunder the same approval rights with respect to such plan
and budgets as are provided to the Mortgage Lender under the Mortgage Loan
Agreement, and Borrower shall implement through the Property Owner any
disapprovals by the Agent.
In addition to the foregoing, Borrower shall submit to Agent, for
Agent's approval (which approval shall not be unreasonably withheld or delayed),
a proposed annual budget of administrative expenses (which may include
reasonable allocations of internal costs of Borrower's affiliates) of Borrower
and DSMLP. Such budget shall be approved or disapproved by Lender within ten
(10) Business Days after Borrower's submission thereof. Upon approval of such
budget, provided no Event of Default shall exist and be continuing, the
disbursements to be made on each Payment Date under the Cash Management
Procedures in respect of such administrative expenses for each of Borrower and
DSMLP shall equal one-twelfth (1/12th) of the approved amount for each such
Person; if an Event of Default shall have occurred and be continuing, then the
amount that would otherwise be payable to Borrower hereunder may be applied to
any amounts due and payable hereunder or in respect of the Loan or held as
additional security for Borrower's obligations.
Section 5.10 Reserved.
--------
Section 5.11 Covenants of Borrower Regarding the Mortgage Loan.
-------------------------------------------------
Borrower shall not amend or modify the Mortgage Loan or consent to or seek, and
Borrower will not fail to exercise any of its rights as an equity holder, if
any, to prevent, any action which would permit (by agreement on the part of the
Property Owner or any other Person, by operation of law or otherwise), the
amendment or modification of the Mortgage Loan, in any manner that would have a
Material Adverse Effect (but subject to the obligations of the Property Owner
under the Mortgage Loan Cooperation Agreement (and the Agent shall consent to
any matter the Property Owner is required to consent to thereunder), and any
such amendment or modification shall be ineffective as against the Agent and the
Lenders, and shall constitute an Event of Default hereunder unless Agent
consents thereto in its sole discretion (and in interpreting this Credit
Agreement, no
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<PAGE>
amendment, modification or termination of the Mortgage Loan Documents r any
portion thereof not consented to by Lender shall be disregarded). In the event
the Mortgage Loan shall at any time be repaid, or the lien securing the Mortgage
Loan at any time be released, then unless and until the Loan shall have been
repaid in full and all obligations of Borrower to the Agent and the Lenders
satisfied hereunder and under the other Loan Documents, then Borrower shall
nevertheless comply or cause the Property Owner to comply with each of the terms
and provisions of the Mortgage Loan Documents (other than the payment of
principal, interest and premium) and the Mortgage Loan Documents shall
nevertheless be deemed to remain in full force and effect as between Borrower
and the Agent on behalf of the Lenders. Borrower shall deliver to Agent on
behalf of the Lenders copies of any and all modifications to the Mortgage Loan
within five (5) Business Days after execution thereof. Without limiting the
generality of the foregoing, but subject to the obligations of the Property
Owner under the Mortgage Loan Cooperation Agreement (and the Agent shall consent
to any matter the Property Owner is required to consent to thereunder) any
increase in the principal amount, interest rate, monthly debt service payments,
fees or other amounts payable, or to be reserved or escrowed, under or with
respect to the Mortgage Loan Documents, any change in the maturity date of the
Mortgage Loan, cash management procedures, or the provisions permitting a
release of the Mortgaged Property, in whole or in part, shall be prohibited
pursuant to this paragraph.
Section 5.12 Costs of Enforcement. In the event (i) that this Credit
--------------------
Agreement is put into the hands of any attorney for collection, suit or action
as against Borrower, (ii) of the bankruptcy, insolvency, rehabilitation or other
similar proceeding in respect of Borrower or any of its Subsidiaries or an
assignment by Borrower or any of its Subsidiaries for the benefit of its
creditors, or (iii) Agent on behalf of the Lenders shall attempt to remedy any
Event of Default hereunder or incur any expense with respect to any Event of
Default (whether or not involving collection efforts), Borrower, its successors
or assigns, shall be chargeable with and agrees to pay all reasonable costs
incurred by Agent or the Lenders as a result thereof, including costs of
collection and defense, including reasonable attorney's fees (and experts',
consultants' and witnesses' fees) in connection therewith and in connection with
any appellate proceeding or post-judgment action involved therein, which shall
be due and payable together with all required service or use taxes.
Section 5.13 Estoppel Statement. After written request by Agent,
------------------
Borrower shall within fifteen (15) days furnish Agent on behalf of the Lenders
with a statement, duly acknowledged and certified, setting forth (i) the
original principal amount of the Note, (ii) the unpaid principal amount of the
Note, (iii) the date installments of interest and/or principal were last paid,
(iv) any offsets or defenses known to Borrower to the payment of the Debt, (v)
that the Note, this Credit Agreement, the Pledge and the other Loan Documents
have not been modified or if modified, giving particulars of such
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modification, (vi) each of the above matters with respect to the Mortgage Loan
and the Mortgage Loan Documents, and (vii) such other matters as Agent may
reasonably request. At Agent's request, Borrower shall cause the Property Owner
to obtain an estoppel certificate from the Mortgage Lender, addressed to Agent
on behalf of the Lenders, pursuant to the provisions of the Mortgage Loan
Agreement, requesting confirmation of the matters described in Section 13.17
thereof, as well as such other matters as Agent may reasonably request in
respect of the Mortgage Loan and the Mortgage Loan Documents.
ARTICLE VI
NEGATIVE COVENANTS
------------------
Borrower hereby covenants and agrees for itself that, without prior
written consent of the Required Lenders:
Section 6.1 Indebtedness. Borrower will not, and will not consent to
------------
or seek, and will not fail to exercise any of its rights as an equity holder, if
any, to prevent, any action which would cause the Property Owner to, contract,
create, incur, assume or permit to exist any Indebtedness or Liens, except
Indebtedness and Permitted Liens expressly permitted under the Mortgage Loan
Documents.
Section 6.2 Liens. Borrower shall not, and, subject to the
-----
provisions of the Mortgage Loan Agreement, will not consent to or seek, and
Borrower will not fail to exercise any of its rights as an equity holder, if
any, to prevent, any action which would cause the Property Owner to, (i)
contract, create, incur, assume or permit to exist any Lien (other than
Permitted Liens) with respect to any of their respective properties or assets of
any kind (whether real or personal, tangible or intangible), whether now owned
or hereafter acquired, (ii) except as permitted in Section 6.1(j)(vi) of the
Mortgage Loan Agreement relating to obsolete personalty, sell any of their
respective properties or assets subject to an understanding or agreement,
contingent or otherwise, to repurchase such property or assets (including sales
of accounts receivable or notes with recourse to it) or (iii) assign any right
to receive income.
Section 6.3 Nature of Business. Borrower will not, and will not
------------------
consent to or seek, and will not fail to exercise any of its rights as an equity
holder, if any, to prevent, any action which would cause the Property Owner to,
alter the character or conduct of their respective businesses from that
conducted as of the Closing Date which is and shall be, in the case of Borrower,
limited to the ownership and management of the Property Owner and, in the case
of the Property Owner, shall be limited to the ownership and management of the
Mortgaged Property.
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Section 6.4 Consolidation, Merger, Sale or Purchase of Assets, Etc.
------------------------------------------------------
Except as may be permitted under Section 5.6(c), (a) Borrower will not, and
will not consent to or seek, and will not fail to exercise any of its rights as
an equity holder, if any, to prevent, any action that would cause the Property
Owner to, dissolve, liquidate, or wind up its affairs, and (b) Borrower shall
not, and will not consent to or seek, and Borrower will not fail to exercise any
of its rights as an equity holder, if any, to prevent, any action which would
cause the Property Owner to, enter into any transaction of merger or
consolidation, or sell or otherwise dispose (except for distributions not
prohibited by this Credit Agreement or applicable law or the Mortgage Loan
Agreement) of all or any part of Borrower's or the Property Owner's respective
properties or assets or purchase, lease or otherwise acquire (in a single
transaction or a series of related transactions) all or any part of the property
or assets of any Person.
Section 6.5 Advances, Investments and Loans. Borrower shall not, and
-------------------------------
Borrower will not consent to or seek, and will not fail to exercise any of its
rights as an equity holder, if any, to prevent, any action which would cause the
Property Owner to, lend money or make advances to any Person, or purchase or
acquire any stock, obligations or securities of, or any other interest in, or
make any capital contribution to any Person, except that Borrower shall be
permitted to invest capital in the Property Owner.
Section 6.6 Transactions with Affiliates. Borrower shall not, and
----------------------------
will not consent to or seek, and Borrower will not fail to exercise any of its
rights as an equity holder, if any, to prevent, any action which would cause the
Property Owner to, enter into any transaction or series of transactions with any
partner, owner, employee or Affiliate other than on terms and conditions
substantially as favorable to Borrower or the Property Owner, as the case may
be, as would be obtainable by such party in a comparable arm's-length
transaction with a Person other than an Affiliate.
Section 6.7 Operating Lease Obligations. Borrower shall not, and
---------------------------
will not consent to or seek, and Borrower will not fail to exercise any of its
rights as an equity holder, if any, to prevent, any action which would cause the
Property Owner to, enter into, assume or permit to exist, any obligations for
the payment of rent for any property (real, personal or mixed, tangible or
intangible) under leases, subleases or similar arrangements as lessee other than
such leases as constitute Permitted Liens and operating leases entered into in
the ordinary course of business for assets incidental to the management and
operation of the Mortgaged Property.
Section 6.8 Sale and Leaseback. Except as may be permitted under
------------------
Section 5.6(c),Borrower shall not, and will not consent to or seek, and Borrower
will not fail to exercise any of its rights as an equity holder, if any, to
prevent, any action which would cause the Property Owner to, enter into any
arrangement pursuant to which it will
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lease back, as lessee, any property (real, personal or mixed, tangible or
intangible) previously owned by either of them and sold or otherwise transferred
or disposed of, directly or indirectly, to the owner-lessor of such property.
Section 6.9 Governing Documents. Borrower shall not, and will not
-------------------
consent to or seek, and Borrower will not fail to exercise any of its rights as
an equity holder, if any, to prevent, any action which would cause the Property
Owner to, cause or permit any amendment, modification, supplement, waiver,
revocation or termination of any provisions of its respective organizational
instruments, or other governing document in a manner that would impair or limit
such Person's status as a Special Purpose Entity or Borrower's ability to
satisfy its obligations hereunder and under the other Loan Documents, including,
specifically but without limitation, the obligations referred to in Section 6.3.
Section 6.10 ERISA. Borrower shall not, and will not consent to or
-----
seek, and Borrower will not fail to exercise any of its rights as an equity
holder, if any, to prevent, any action which would cause the Property Owner to,
establish any Plan.
Section 6.11 Distributions. Borrower shall not declare or make any
-------------
distribution of any property, cash or rights, or purchase, redeem or otherwise
acquire for value any of its trust or other ownership interests now or hereafter
outstanding, or advance funds to the holders of any of its trust or other
ownership interests now or hereafter outstanding at any time after the
occurrence and continuance of an Event of Default.
ARTICLE VII
DEFAULTS
--------
Section 7.1 Events of Default. An Event of Default shall exist upon
-----------------
the occurrence of any of the following specified events (each an "Event of
--------
Default"):
- -------
(a) if Borrower shall default in the payment when due of any
principal or interest owing hereunder or under the Note (including any
prepayment required hereunder);
(b) if any representation or warranty made by Borrower herein or
in any other Loan Document shall be false or misleading in a manner that has a
Material Adverse Effect on or as of the date the representation or warranty was
made for thirty (30) days after notice from the Agent; provided if such breach
of representation or warranty is susceptible of cure but cannot reasonably be
cured with such 30-day period and provided further that Borrower shall have
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commenced to cure such default within such 30-day period and thereafter
diligently and expeditiously proceeds to cure the same, such 30-day period shall
be extended for an additional period of time as is reasonably necessary for
Borrower in the exercise of due diligence to cure such breach, but the aggregate
cure period under this subsection (c) shall not exceed one hundred and twenty
(120) days;
(c) if Borrower or the Property Owner, or any general partner in
Borrower or the Property Owner, shall make an assignment for the benefit of
creditors, or if Borrower or the Property Owner shall generally not be paying
its debts as they become due;
(d) if a receiver, liquidator or trustee shall be appointed for
Borrower or the Property Owner, or any general partner in Borrower or the
Property Owner, or if Borrower or any general partner in Borrower or the
Property Owner, shall be adjudicated a bankrupt or insolvent, or if any petition
for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy
law, or any similar federal or state law, shall be filed by or against,
consented to, or acquiesced by, Borrower or the Property Owner, or any general
partner in Borrower or the Property Owner, or if any proceeding for the
dissolution or liquidation of Borrower or the Property Owner, or any general
partner in Borrower or the Property Owner shall be instituted; provided,
--------
however, if such appointment, adjudication, petition or proceeding was
- -------
involuntary and not consented to by Borrower or the Property Owner (or any such
general partner), as applicable, upon the same not being discharged, stayed or
dismissed within sixty (90) days;
(e) if Borrower breaches any of its covenants contained in Section 5.6
or Section 5.7 hereof; or if Borrower takes any action that breaches in any
material and adverse respect any of its negative covenants contained in Article
VI hereof or any covenant contained in Section 4.1(t) hereof and, if the same is
susceptible of cure, the same is not cured within thirty (30) days after written
notice thereof from Lender; provided, that no such cure of a breach of any
covenant contained in Section 4.1(t) hereof shall be effective unless Borrower
causes to be delivered to an opinion as to non-consolidation in form and
substance and from counsel satisfactory to Lender, which opinion takes into
account such breach;
(f) if an "Event of Default" as defined or described in any of the
other Loan Documents occurs;
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(g) if Borrower's obligations under this Agreement or any other Loan
Document, or any of the liens and rights in favor of Agent or Lender purported
to be granted or created hereunder or under any of the Loan Documents, shall
fail to be in full force and effect;
(h) if Borrower shall continue to be in default under any of the other
terms, covenants or conditions of this Credit Agreement or any other Loan
Document not specified in any other subsection of this Section 7.1 for ten (10)
days after notice to Borrower from the Agent, in the case of any Default which
can be cured by the payment of a sum of money, or for thirty (30) days after
notice to Borrower from the Agent in the case of any other Default; provided,
however, that if such nonmonetary Default is susceptible of cure but cannot
reasonably be cured within such 30-day period and provided further that Borrower
shall have commenced to cure such default within such 30-day period and
thereafter diligently and expeditiously proceeds to cure the same, such 30-day
period shall be extended for an additional period of time as is reasonably
necessary for Borrower in the exercise of due diligence to cure such Default,
such additional period not to exceed one hundred and twenty (120) days;
(i) (i) if Borrower or the Property Owner shall (x) default in any
payment (beyond the applicable grace period with respect thereto, if any) with
respect to any other Indebtedness of $1,000,000 or more in the aggregate, or (y)
default in the observance or performance of any agreement or condition relating
to any such Indebtedness in excess of $1,000,000 or contained in any instrument
or agreement evidencing, securing or relating thereto, or any other event or
condition shall occur or condition exist, the effect of which default, in the
case of either (x) or (y), or other event or condition would permit the holder
or holders of such Indebtedness (or trustee or agent on behalf of such holders)
to cause any such Indebtedness to become due prior to its stated maturity; or
(ii) if any Indebtedness in excess of $1,000,000 of Borrower or the Property
Owner shall not be paid upon its scheduled maturity, shall be declared (or shall
become) due and payable prior to the stated maturity thereof or shall be
required to be prepaid other than by a regularly scheduled required prepayment
prior to the stated maturity thereof;
(j) if one or more final judgments or decrees shall be entered against
Borrower or the Property Owner involving a liability for which the creditor has
recourse against Borrower or the Property Owner of $250,000 or more in any
instance, or $500,000 or more in the aggregate for all such judgments and
decrees collectively (not paid or fully covered by insurance provided by a
carrier who has acknowledged coverage) and any such judgments or decrees shall
not have been vacated, discharged, paid or stayed or bonded pending appeal
within the time permitted to appeal therefrom;
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(k) if there shall occur an "Event of Default" (as such term is
defined in the Mortgage Loan Agreement) under the Mortgage Loan Agreement or any
other Mortgage Loan Document;
(l) if there shall be an attempt on the part of Borrower or any owner
of any direct or indirect interest in Borrower to modify the terms of the
payment direction letter provided for in Section 11.1 hereof, which attempt
shall not have been cured within three (3) Business Days after notice thereof
from Agent to Borrower; or
(m) there shall occur a default on the part of Junior Lender under the
Intercreditor Agreement, dated as of the date hereof, between Lender and the
Junior Lender (the "Intercreditor Agreement"), and such default shall have not
-----------------------
been cured within ten (10) Business days after notice thereof from Lender, with
a copy to Borrower.
Section 7.2 Remedies. Upon the occurrence of an Event of Default, the
--------
Agent shall, upon the request and direction of the Required Lenders, by written
notice to Borrower, take any of the following actions without prejudice to the
rights of the Agent to enforce its claims against Borrower, except as may
otherwise be specifically provided for herein:
(a) Acceleration of the Loan. Declare the unpaid principal of and any
------------------------
accrued interest in respect of the Loan and the Note to be due whereupon the
same shall be immediately due and payable without presentment, demand, protest
or other notice of any kind, all of which are hereby waived by Borrower;
provided, however, that, notwithstanding the foregoing, if an Event of Default
- -------- -------
specified in Section 7.1(d) or (e) shall occur, then the Note and the Loan shall
immediately become due and payable without the giving of any notice or other
action by Agent or any Lender;
(b) Enforcement of Rights. Enforce any and all Liens and security
---------------------
interests in favor of the Agent on behalf of the Lenders in respect of the Note
and the Loan and any other amounts due, including, without limitation, all
rights and interests created and existing under the Loan Documents and all
rights of set-off;
(c) Remedies with Respect to the Pledged Collateral. Exercise any of
-----------------------------------------------
the following rights with respect to the Pledged Collateral:
(i) foreclose upon all or any portion of the Pledged Collateral
or otherwise enforce the security interest in favor of the Agent on behalf
of the Lenders in any manner permitted by law or provided for in this
Credit Agreement or in the Pledge;
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<PAGE>
(ii) recover from Borrower all costs and expenses, including,
without limitation, reasonable attorneys' fees, incurred or paid by the
Agent on behalf of the Lenders in exercising any right, power or remedy
provided by this Credit Agreement, the Pledge or by law; and
(iii) apply the proceeds of any exercise of remedies by Agent
with respect to any Pledged Collateral pursuant to the foregoing provisions
to payment of the following obligations, and Agent may account for the
purchase price of any sale by crediting the sales price against: (A) first,
the expenses of the liquidation, sale or collection, the costs of any
action and any other costs or expenses for which Borrower is obligated; and
(B) then, all other obligations of Borrower, including, without limitation,
all amounts then due, owing and unpaid for, principal, interest and other
amounts under this Credit Agreement in such order and proportions as the
Lenders in their discretion may choose.
(d) Other Remedies. Exercise any other right or remedy available to
--------------
the Agent on behalf of the Lenders hereunder, under applicable law or in equity.
ARTICLE VII
RESERVED
--------
ARTICLE IX
AGENCY DECISIONS
----------------
As between Agent and the Lenders, the following provisions of this Article IX is
agreed and acknowledged:
Section 9.1 Appointment and Authorization. Each Lender hereby
-----------------------------
irrevocably appoints, designates and authorizes the Agent to take such action on
its behalf under the provisions of this Credit Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Credit Agreement or any other Loan
Document, together with such powers as are reasonably incidental thereto;
provided that, subject to the terms of Sections 9.10 and 9.11, it shall at all
times remain within the authority of the Lenders and the Agent to agree as among
themselves to modify this Credit Agreement so as to expand or restrict the
powers, authority and duties of the Agent from those set forth herein.
Notwithstanding any provision to the contrary contained elsewhere in this Credit
Agreement or in any other Loan Document, Agent shall not have any duties or
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<PAGE>
responsibilities except those expressly set forth herein, nor shall Agent have
or be deemed to have any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Credit Agreement or any other Loan Document or otherwise exist
on the part of Agent.
Section 9.2 Delegation of Duties. Agent may execute any of its
--------------------
duties under this Credit Agreement or any other Loan Document by or through
agents, employees or attorneys-in-fact and shall be entitled to advice of
counsel concerning all matters pertaining to such duties. Agent shall not be
responsible to the Lenders for the negligence or misconduct of any agent or
attorney-in-fact that it selects with reasonable care, but the foregoing shall
not waive any claims Borrower may have in respect thereof.
Section 9.3 Liability of Agent. Agent, its respective Affiliates, or
------------------
their respective officers, directors, employees, agents, or attorneys-in-fact
(all of the foregoing being collectively referred to as the "Agent-Related
-------------
Persons") shall not (a) be liable for any action taken or omitted to be taken by
- -------
any of them under or in connection with this Credit Agreement or any other Loan
Document (except for its own gross negligence or willful misconduct), or (b) be
responsible in any manner to any of the Lenders for any recital, statement,
representation or warranty made by Borrower or any Subsidiary or any Affiliate
of any such Person, or any officer thereof, contained in this Credit Agreement
or in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by Agent under or in
connection with, this Credit Agreement or any other Loan Document, or for the
validity, effectiveness, genuineness, enforceability or sufficiency of this
Credit Agreement, any other Loan Document, or for any failure of Borrower or any
other party to any Loan Document to perform its obligations hereunder or
thereunder. No Agent-Related Person shall be under any obligation to any Lender
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Credit Agreement or any other
Loan Document, or to inspect the properties, books or records of Borrower or any
Subsidiary or Affiliates thereof. The Agent agrees to promptly furnish to each
Lender copies of all financial statements and other certificates, reports,
papers, documents or notices received by it hereunder in its capacity as Agent.
Section 9.4 Reliance by Agent.
-----------------
(a) Generally. Agent shall be entitled to rely, and shall be fully
---------
protected in relying, upon any writing, resolution, notice, consent,
certificate, affidavit, letter, telegram, telecopy, telex or telephone message,
statement or other document or conversation believed by it to be genuine and
correct and to have been signed, sent or made by the proper Person or Persons,
and upon advice and statements of legal counsel (including counsel to Borrower),
independent accountants and other experts selected by the Agent. The Agent
shall be fully justified in failing or refusing to take any action
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<PAGE>
under this Credit Agreement or any other Loan Document unless it shall first
receive such advice or concurrence of the Required Lenders as it deems
appropriate and, if it so requests, it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Agent shall in all cases be fully protected in acting, or in refraining from
acting, under this Credit Agreement or any other Loan Document in accordance
with a request or consent of the Required Lenders, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all of the
Lenders.
(b) Conditions Precedent. No Person that is not a Lender as of the
--------------------
Closing Date shall have any right to rely on Agent's determination as to
satisfaction of the conditions specified in Section 3.1 as a condition to the
Closing of the Loan. As to any Person that is a Lender as of the Closing Date,
for purposes of determining compliance with the conditions specified in Section
3.1, each such Lender shall be deemed to have consented to, approved or accepted
or to be satisfied with each document or other matter required thereunder to be
consented to or approved by or acceptable or satisfactory to such Lender, unless
an officer of the Agent responsible for the transactions contemplated by the
Loan Documents shall have received notice from such Lender prior to the initial
borrowing specifying its objection thereto and either such objection shall not
have been withdrawn by notice to the Agent to that effect or such Lender shall
not have made available to the Agent the Lender's ratable portion of such
borrowing.
Section 9.5 Notice of Default. The Agent shall not be deemed to have
-----------------
knowledge or notice of the occurrence of any Default or Event of Default, except
with respect to defaults in the payment of principal, interest and fees required
to be paid to the Agent for the account of the Lenders, unless the Agent shall
have received written notice from a Lender or Borrower referring to this Credit
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default." In the event that the Agent receives such a
notice, the Agent shall give notice thereof to the Lenders. The Agent shall
take such action with respect to such Default or Event of Default as shall be
requested by the Required Lenders in accordance with Article VII and Section
10.24, provided, however, unless and until the Agent shall have received any
such request, it may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Lenders.
Section 9.6 Credit Decision. Each Lender expressly acknowledges that
---------------
none of the Agent-Related Persons has made any representation or warranty to
such Lender and that no act by the Agent hereinafter taken, including any review
of the affairs of Borrower, any asset manager, or any Subsidiary or Affiliate
thereof, shall be deemed to constitute any representation or warranty by the
Agent to any Lender. Each Lender represents to the Agent that such Lender has,
independently and without reliance upon the Agent and based on such documents
and information as such Lender has deemed appropriate, made its own appraisal of
and investigation into the business, prospects, operations, properties,
financial and other condition and creditworthiness of Borrower and all
applicable bank regulatory laws relating to the transactions contemplated
thereby, and made its own decision to enter into this Credit Agreement and
extend credit to Borrower hereunder. Each Lender also represents that it will,
independently and without reliance upon the
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Agent and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit analysis, appraisals and decisions
in taking or not taking action under this Credit Agreement and the other Loan
Documents, and to make such investigations as it deems necessary to inform
itself as to the business, prospects, operations, properties, financial and
other condition and creditworthiness of Borrower. Except for notices, reports
and other documents expressly herein required to be furnished to the Lenders by
the Agent, Agent shall have no duty or responsibility to provide any Lender with
any credit or other information concerning the business, prospects, operations,
properties, financial and other condition or creditworthiness of Borrower, any
asset manager or any Subsidiary or Affiliate thereof which may come into the
possession of any of the Agent-Related Persons.
Section 9.7 Indemnification. The Lenders shall indemnify the Agent-
---------------
Related Persons (to the extent not reimbursed by or on behalf of Borrower and
without limiting the obligation of Borrower to do so) ratably from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expense and disbursements of any kind whatsoever which
may at any time (including at any time following the repayment of the Loan) be
imposed on, incurred by or asserted against any such Person in any way relating
to or arising out of this Credit Agreement, any other Loan Document or any
document contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by any such Person
under or in connection with any of the foregoing; provided, however, no Lender
shall be liable for the payment to the Agent-Related Persons of any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting solely from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Lender shall reimburse the Agent upon demand (to the extent the Agent is
not reimbursed by Borrower) for its ratable share of any costs or out-of-pocket
expenses (including attorneys' fees and expenses, including the allocated fees
of in-house counsel) incurred by the Agent in connection with the preparation,
execution, delivery, administration, modification, amendment or enforcement
(whether through negotiations, legal proceedings or otherwise) of, or legal
advice in respect of rights or responsibilities under, this Credit Agreement,
any other Loan Document, or any document contemplated by or referred to herein
to the extent that the Agent is not reimbursed for such expenses by or on behalf
of Borrower. Without limiting the generality of the foregoing, if the Internal
Revenue Service or any authority of the United States or other jurisdiction
asserts a claim that the Agent did not properly
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withhold tax from amounts paid to or for the account of any Lender (because the
appropriate form was not delivered or was not properly executed, or because such
Lender failed to notify the Agent of a change in circumstances which rendered
the exemption from, or reduction of, withholding tax ineffective, or for any
other reason), such Lender shall indemnify the Agent fully for all amounts paid,
directly or indirectly, by the Agent as tax or otherwise, including penalties
and interest, and including any taxes imposed by any jurisdiction on the amounts
payable to the Agent under this Section, together with all costs, expenses and
attorneys' fees (including allocated costs for in-house legal services). The
obligation of the Lenders in this Section shall survive the payment and
satisfaction of all of Borrower' obligations hereunder and under the Loan
Documents.
Section 9.8 Agent in Individual Capacity. GSMC (and any other Lender
----------------------------
that may hereafter serve as Agent) and each of their respective Affiliates may
make loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in and generally engage in any kind of banking, trust,
financial advisory or other business with, Borrower, any asset manager and their
respective Subsidiaries and Affiliates as though GSMC (or any other such Lender)
were not the agent hereunder and without notice to or consent of the Lenders.
The Lenders acknowledge that pursuant to such activities, GSMC or its Affiliates
may receive information regarding Borrower and their respective Subsidiaries and
Affiliates (including information that may be subject to confidentiality
obligations in favor of Borrower and such Subsidiaries and Affiliates), and that
GSMC may be deemed to be an Affiliate of Borrower and their respective
Subsidiaries and Affiliates, and acknowledge that GSMC and its Affiliates shall
be under no obligation to provide such information to the Lenders. With respect
to its interest in the Loan, GSMC (and any other Lender that may hereafter serve
as Agent) shall have the same rights and powers under this Credit Agreement as
any other Lender and may exercise the same as though each of them were not an
agent, and the terms "Lender" and "Lenders" shall include GSMC (and any other
Lender that may hereafter serve as Agent), in its individual capacity.
Section 9.9 Successor Agents. The Agent may resign as Agent at any
----------------
time during the Term. If the Agent shall resign under this Credit Agreement, the
Required Lenders shall appoint from among the Lenders a successor Agent. If no
successor Agent is appointed prior to the effective date of the resignation of
the retiring Agent, the retiring Agent shall appoint, after consulting with the
Lenders, a successor Agent, provided such successor is a Lender hereunder or is
--------
a commercial bank and has a combined capital and surplus of at least
$500,000,000. Upon the acceptance of its appointment as successor Agent
hereunder, such successor Agent shall succeed to all the rights, powers and
duties of the retiring Agent, and the term "Agent" shall mean such successor
Agent, and the retiring Agent's rights, powers and duties as Agent shall be
terminated. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article IX and the last sentence of Section 10.24 shall inure
to its benefit as to any actions taken or omitted to be
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taken by it while it was an Agent under this Credit Agreement. If no successor
Agent has accepted appointment as Agent by the effective date of a retiring
Agent's resignation, the retiring Agent's resignation shall nevertheless be
effective and the Lender holding the greatest principal amount of Notes shall
perform all of the duties of the Agent hereunder until such time, if any, as the
Required Lenders appoint a successor Agent as provided for above.
Section 9.10 One Agent. Notwithstanding anything herein that may be
---------
construed to the contrary, unless otherwise agreed to by Borrower, in its
discretion, there shall only be one Agent at any time.
Section 9.11 Required Lenders. Notwithstanding anything herein that
----------------
may be construed to the contrary, unless otherwise agreed to by Borrower, in its
discretion, the "50%" figure set forth in the definition of "Required Lenders"
shall not be increased.
Section 9.12 One Voice. Notwithstanding anything herein that may be
---------
construed to the contrary, in the enforcement of this Agreement, the Lenders
shall act only through the Agent.
Section 9.13 Certain Agreements with Respect to Transfers. The Agent
--------------------------------------------
and Lender have entered into an agreement of even date herewith with the
Property Owner and the Senior Lender regarding permitted transferees of
interests in the Loan and permitted successor Agents, which agreement shall be
binding in accordance with its terms on Agent and Lenders, provided that in no
event shall Agent or Lender be required to obtain the agreement of Borrower for
any termination, cancellation, modification or amendment of such agreement, or
any waiver thereof, in whole or in part.
ARTICLE X
MISCELLANEOUS
-------------
Section 10.1 Survival. This Credit Agreement and all covenants,
--------
agreements, indemnities, representations and warranties made herein and in the
certificates delivered pursuant hereto shall survive the making by the Lenders
of the Loan and the execution and delivery to the Lenders of the Note, and shall
continue in full force and effect so long as all or any of the Debt is
outstanding and unpaid. Whenever in this Credit Agreement any Person is
referred to, such reference shall be deemed to include the legal
representatives, successors and assigns of such Person (provided that the
foregoing shall not be deemed to permit any transfer of any ownership interest
that is otherwise prohibited hereunder). All covenants, promises and agreements
in this Credit Agreement
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contained, by or on behalf of Borrower, shall inure to the benefit of the
successors and assigns of Agent and the Lenders.
Section 10.2 Governing Law; Consent to Jurisdiction.
--------------------------------------
(a) THIS CREDIT AGREEMENT WAS NEGOTIATED IN THE STATE OF NEW YORK, AND
MADE BY THE AGENT AND THE LENDERS AND ACCEPTED BY BORROWER IN THE STATE OF NEW
YORK, AND THE PROCEEDS OF THE NOTE DELIVERED PURSUANT HERETO WERE DIS BURSED
FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL
RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY,
AND IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION, VALIDITY AND
PERFORMANCE, THIS CREDIT AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER OR
UNDER ANY OTHER LOAN DOCUMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND
PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA.
TO THE FULLEST EXTENT PERMITTED BY LAW, BORROWER AND AGENT HEREBY
UNCONDITIONALLY AND IRREVOCABLY WAIVE ANY CLAIM TO ASSERT THAT THE LAW OF ANY
OTHER JURISDICTION GOVERNS THIS CREDIT AGREEMENT, THE NOTE AND ANY OTHER LOAN
DOCUMENT AND THIS CREDIT AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO (S) 5-1401 OF THE
NEW YORK GENERAL OBLIGATIONS LAW.
(b) ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST AGENT OR ANY LENDER,
OR BORROWER ARISING OUT OF OR RELATING TO THIS CREDIT AGREEMENT SHALL BE
INSTITUTED IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, PURSUANT TO (S)
5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AND BORROWER AND LENDER EACH
WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE
OF ANY SUCH SUIT, ACTION OR PROCEEDING AND HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES
HEREBY DESIGNATE AND APPOINT CORPORATION SERVICE COMPANY, WITH OFFICES AT 80
STATE STREET, ALBANY, NEW YORK 12207-2543, OR AT SUCH OTHER OFFICE IN NEW YORK,
NEW YORK, AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF
SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT
SERVICE OF PROCESS UPON SAID AGENT AT
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SAID ADDRESS AND WRITTEN NOTICE OF SAID SERVICE OF BORROWER, MAILED OR DELIVERED
TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT
EFFECTIVE SERVICE OF PROCESS UPON BORROWER IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN THE STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO
THE AGENT ON BEHALF OF THE LENDERS OF ANY CHANGED ADDRESS OF ITS AUTHORIZED
AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A
SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH OFFICE
SHALL BE DESIGNATED AS THE ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL
PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN
OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.
(c) Borrower and the Lenders each hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any of
the aforesaid actions or proceedings arising out of or in connection with this
Credit Agreement or any other Loan Document brought in the courts referred to in
subsection (b) hereof and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum.
Section 10.3 Modification, Waiver in Writing. No modification,
-------------------------------
amendment, extension, discharge, termination or waiver of any provision of this
Credit Agreement, the Note or any other Loan Document, nor consent to any
departure 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. Except as otherwise expressly
provided herein, no notice to, or demand on Borrower shall entitle Borrower to
any other or future notice or demand in the same, similar or other
circumstances.
Section 10.4 Delay Not a Waiver. Neither any failure nor any delay on
------------------
the part of Agent or any Lender in insisting upon strict performance of any
term, condition, covenant or agreement, or exercising any right, power, remedy
or privilege hereunder, or under the Note or under any other Loan Document, or
any other instrument given as security therefor, shall operate as or constitute
a waiver thereof, nor shall a single or partial exercise thereof preclude any
other future exercise, or the exercise of any other right, power, remedy or
privilege. In particular, and not by way of limitation, by accepting payment
after the due date of any amount payable under this Credit Agreement, the Note
or any other Loan Document, Agent shall not be deemed to have waived any right
either to require prompt payment when due of all other amounts due under this
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Credit Agreement, the Note or the other Loan Documents, or to declare a default
for failure to effect prompt payment of any such other amount.
Section 10.5 Notices. All notices, consents, approvals and requests
-------
required or permitted hereunder or under any other Loan Document shall be given
in writing and shall be effective for all purposes if hand delivered or sent by
(a) certified or registered United States mail, postage prepaid, (b) expedited
prepaid delivery service, either commercial or United States Postal Service,
with proof of attempted delivery, or (c) by facsimile (with telephonic
confirmation) addressed as follows (or at such other address and person as shall
be designated from time to time by any party hereto, as the case may be, in a
written notice to the other parties hereto in the manner provided for in this
Section):
If to Agent:
Goldman Sachs Mortgage Company
85 Broad Street
New York, New York 10004
Attention: Peter Briger, Jr.
Fax: (212) 902-9900
With a copy to:
Goldman Sachs Mortgage Company
85 Broad Street
New York, New York 10004
Attention: Legal Department
Fax: (212) 902-9900
and a copy to:
Main Street Mortgage
100 Second Avenue South
Suite 200 North
St. Petersburg, Florida 33701
Attention: Debora Brown
Fax: (813) 825-3821
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and a copy to:
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Attention: Arthur S. Adler
Fax: (212) 558-3588
If to Borrower:
c/o Host Marriott Corporation
10400 Fernwood Road, Dept. 923
Bethesda, Maryland 20817-1109
Attention: Assistant General Counsel, Asset Management
Fax: (301) 380-6332
and:
c/o Host Marriott Corporation
10400 Fernwood Road, Dept. 908
Bethesda, Maryland 20817-1109
Attention: Director, Asset Management Department
Fax: (301) 380-8260
A notice shall be deemed to have been given: in the case of hand
delivery, at the time of delivery; in the case of registered or certified mail,
when delivered or the first attempted delivery on a Business Day; or in the case
of expedited prepaid delivery, upon the first attempted delivery on a Business
Day; or in the case of facsimile, upon receipt with telephonic confirmation
thereof.
Section 10. Trial by Jury. EACH PARTY HERETO HEREBY AGREES NOT TO
-------------
ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY
RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR
HEREAFTER EXIST WITH REGARD TO THE LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR
OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY
JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH PARTY HERETO, AND IS INTENDED TO
ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A
TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH PARTY HERETO IS HEREBY AUTHORIZED TO
FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS
WAIVER BY EACH PARTY HERETO.
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Section 10.7 Headings. The Article and/or Section headings and the
--------
Table of Contents in this Credit Agreement are included herein for convenience
of reference only and shall not constitute a part of this Credit Agreement for
any other purpose.
Section 10.8 Severability. Wherever possible, each provision of this
------------
Credit Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Credit Agreement shall
be prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Credit Agreement.
Section 10.9 Preferences. Except as explicitly provided in the Cash
-----------
Management Procedures or herein, the Lenders 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. To the extent Borrower
makes a payment or payments to the Agent on behalf of the Lenders, which payment
or proceeds or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required to be repaid to a trustee,
receiver or any other party under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or proceeds
received, the obligations hereunder or part thereof intended to be satisfied
shall be revived and continue in full force and effect, as if such payment or
proceeds had not been received by the Agent on behalf of the Lenders.
Section 10.10 Waiver of Notice. Borrower shall not be entitled to any
----------------
notices of any nature whatsoever from Agent or any Lender except with respect to
matters for which this Credit Agreement or the other Loan Documents specifically
and expressly provide for the giving of notice by Agent or any Lender to
Borrower and except with respect to matters for which Borrower are not, pursuant
to applicable law, permitted to waive the giving of notice.
Section 10.11 Remedies of Borrower. In the event that a claim or
--------------------
adjudication is made that the Agent or any Lender have acted unreasonably or
unreason ably delayed acting in any case where by law or under this Credit
Agreement or the other Loan Documents, Agent or such Lender, as the case may be,
has an obligation to act reasonably or promptly, Borrower agrees that neither
Agent nor any Lender, nor their respective agents, shall be liable for any
monetary damages, and Borrower's sole remedies shall be limited to commencing an
action seeking injunctive relief or declaratory judgment, except in any case
where it is determined that Agent has acted with willful misconduct or in bad
faith. The parties hereto agree that any action or proceeding to determine
whether Borrower has acted reasonably shall be determined by an action seeking
declaratory judgment.
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Section 10.12 Expenses; Indemnity.
-------------------
(a) Borrower covenants and agrees to reimburse Agent upon receipt of
written notice from Agent for all (i) Loan Expenses; (ii) any and all present
and future stamp and other similar taxes, and any and all liabilities with
respect to or resulting from any delay or omission (other than to the extent
attributable to the Agent or the Lenders) to pay such taxes; and (iii) costs and
expenses (including reasonable attorneys' fees and disbursements) incurred by or
on behalf of the Agent and/or the Lenders in connection with (A) Borrower's
ongoing performance of and compliance with Borrower's agreements and covenants
contained in this Credit Agreement and the other Loan Documents on its part to
be performed or complied with after the Closing Date; (B) the negotiation,
preparation, execution, delivery and administration of any consents, amendments,
waivers or other modifications to this Credit Agreement and the other Loan
Documents and any other documents or matters requested by the Agent on behalf of
the Lenders; (C) filing and recording fees and expenses and reasonable fees and
expenses of counsel for providing to the Agent on behalf of the Lenders all
required legal opinions, and other similar expenses incurred in creating and
perfecting the liens in favor of Agent on behalf of the Lenders pursuant to the
Pledge, this Credit Agreement and the other Loan Documents; (D) enforcing or
preserving any rights, in response to third party claims or the prosecuting or
defending of any action or proceeding or other litigation, in each case against,
under or affecting Borrower, the Pledged Collateral, the Property Owner, this
Credit Agreement, the other Loan Documents, the Mortgaged Property, or any other
security given for the Loan; and (E) enforcing any obligations of or collecting
any payments due from Borrower under this Credit Agreement, the other Loan
Documents or with respect to the Mortgaged Property or in connection with any
refinancing or restructuring of the credit arrangements provided under this
Credit Agreement in the nature of a "work-out" or of any insolvency or
bankruptcy proceedings, provided Borrower shall not be liable for the payment of
the foregoing to the extent the same arise by reason of the gross negligence,
illegal acts, fraud or willful misconduct of Lender.
(b) Borrower shall indemnify and hold harmless Agent and each Lender,
and their respective owners, partners, directors, employees, representatives and
agents, from and against any and all other liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, expenses and
disbursements of any kind or nature whatsoever (including the reasonable fees
and disbursements of counsel for Agent or such Lender in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not Agent or any Lender shall be designated a party thereto), that
may be imposed on, incurred by, or asserted against Agent or any Lender in any
manner relating to or arising out of the Loan, this Credit Agreement or the
other Loan Documents, including any of the same arising out of, or in any way
related to, or by reason of, any investigation, litigation or proceeding
(whether or not the Agent or any Lender is a party thereto) related to the
entering into and/or performance of any Loan
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Document, including the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding, provided
Borrower shall not be liable for the payment of the foregoing to the extent the
same arise by reason of the gross negligence, illegal acts, fraud or willful
misconduct of Lender.
Section 10.13 Exhibits and Schedules Incorporated. The Exhibits and
-----------------------------------
Schedules annexed hereto are hereby incorporated herein as a part of this Credit
Agreement with the same effect as if set forth in the body hereof.
Section 10.14 Offsets, Counterclaims and Defenses. Any assignee of a
-----------------------------------
Lender's interest in and to this Credit Agreement, the Note and the other Loan
Documents shall take the same free and clear of all offsets, counterclaims or
defenses which are unrelated to such documents which Borrower may otherwise have
against any assignor of such documents, and no such unrelated counterclaim or
defense shall be interposed or asserted by Borrower in any action or proceeding
brought by any such assignee upon such documents and any such right to interpose
or assert any such unrelated offset, counterclaim or defense in any such action
or proceeding is hereby expressly waived by Borrower.
Section 10.15 No Joint Venture or Partnership. The parties hereto
-------------------------------
intend that the relationships created hereunder and under the other Loan
Documents be solely that of borrower and lender. Nothing herein or therein is
intended to create a joint venture, partnership, tenancy-in-common, or joint
tenancy relationship between or among the parties hereto nor to grant Agent or
any Lender any interest other than that of lender secured pursuant to the terms
of the Loan Documents.
Section 10.16 Waiver of Marshaling of Assets. To the fullest extent
------------------------------
Borrower may legally do so, Borrower waives all rights to a marshaling of the
assets of such Person, its partners, if any, and others with interests in such
Person, or to a sale in inverse order of alienation in the event of foreclosure
of the interests hereby created, and agrees not to assert any right under any
laws pertaining to the marshaling of assets, the sale in inverse order of
alienation, homestead exemption, the administration of estates of decedents, or
any other matters whatsoever to defeat, reduce or affect the right of Lenders or
the Agent on behalf of the Lenders under the Loan Documents to a sale of the
Pledged Collateral for the collection of the Debt without any prior or different
resort for collection, of the right of Lenders to the payment of the Debt out of
the net proceeds of the Pledged Collateral or any interest therein in preference
to every other claimant whatsoever. In addition, Borrower for itself and its
successors and assigns, waives in the event of foreclosure of any or all of the
Liens, any equitable right otherwise available to Borrower which would require
the separate sale of the Pledged Collateral or require Agent or the Lenders to
exhaust its remedies against any part of the Pledged Collateral before
proceeding against any other part or parts thereof; and further in the event of
such
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foreclosure Borrower does hereby expressly consent to and authorize, at the
option of the Agent on behalf of the Lenders, the foreclosure and sale either
separately or together of any or all of the Pledged Collateral.
Section 10.17 Waiver of Counterclaim. Borrower hereby waives the right
----------------------
to assert a counterclaim, other than a compulsory counterclaim, in any action or
proceeding brought against it by Agent or any Lender, or their respective
agents.
Section 10.18 Construction of Documents. The parties hereto
-------------------------
acknowledge that they were represented by counsel in connection with the
negotiation and drafting of this Credit Agreement and the Loan Documents and
that the same shall not be subject to the principle of construing their meaning
against the party which drafted same.
Section 10.19 Brokers and Financial Advisors. (a) Borrower hereby
------------------------------
represents that it has dealt with no financial advisors, brokers, underwriters,
placement agents, agents or finders in connection with the transactions
contemplated by this Credit Agreement. Borrower hereby indemnifies Agent and
each Lender and each of their Subsidiaries and Affiliates and holds them
harmless from and against any and all claims, liabilities, costs and expenses of
any kind in any way relating to or arising from a claim by any Person that such
Person acted on behalf of Borrower in connection with the transactions
contemplated herein. The provisions of this Section shall survive the
expiration and termination of this Credit Agreement and the repayment of the
Debt.
(b) GSMC hereby represents that it has dealt with no financial
advisors, brokers, underwriters, placement agents, agents or finders in
connection with the transactions contemplated by this Credit Agreement other
than Goldman, Sachs & Co. GSMC hereby indemnifies Borrower and their respective
Subsidiaries and Affiliates and holds them harmless from and against any and all
claims, liabilities, costs and expenses of any kind in any way relating to or
arising from a claim by any Person (including without limitation Goldman, Sachs
& Co.) that such Person acted on behalf of GSMC in connection with the
transactions contemplated herein. The provisions of this Section shall survive
the expiration and termination of this Credit Agreement and the repayment of the
Debt.
Section 10.20 No Third Party Beneficiaries. This Credit Agreement and
----------------------------
the other Loan Documents are solely for the benefit of the Agent, Lenders and
Borrower, and nothing contained in this Credit Agreement or the other Loan
Documents shall be deemed to confer upon anyone other than such Persons any
right to insist upon or to enforce the performance or observance of any of the
obligations contained herein or therein. All conditions to the obligations of
the Lenders to make the Loan hereunder are imposed solely and exclusively for
the benefit of the Lenders, and no other Person shall
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have standing to require satisfaction of such conditions in accordance with
their terms or be entitled to assume that the holder of the Loan will refuse to
make the Loan in the absence of strict compliance with any or all thereof and no
other Person shall under any circumstances be deemed to be a beneficiary of such
conditions, any or all of which may be freely waived in whole or in part by
Agent or any Lender if, in Agent's sole discretion, Agent deems it advisable or
desirable to do so. The preceding sentence is subject, as between the Agent and
the Lenders, to the further limitations expressed in Section 9.4(b).
Section 10.21 Prior Agreements. This Credit Agreement 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 the Lenders, in each case with respect to the subject matter
hereof, are superseded by the terms of this Credit Agreement and the other Loan
Documents.
Section 10.22 Counterparts. This Credit Agreement may be executed in
------------
any number of counterparts, each of which where so executed and delivered shall
be an original, but all of which shall constitute one and the same instrument.
It shall not be necessary in making proof of this Credit Agreement to produce or
account for more than one such counterpart.
Section 10.23 Right of Set-Off. In addition to any rights now or
----------------
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence and during the continuance of
an Event of Default, the Lenders are authorized at any time and from time to
time, without presentment, demand, protest or other notice of any kind (all of
which rights being hereby expressly waived), to set-off and to appropriate and
apply any and all deposits (general or special) and any other indebtedness at
any time held or owing by a Lender (including, without limitation, branches,
agencies or Affiliates of a Lender wherever located) to or for the credit or the
account of Borrower (to the extent such credit or account is for the benefit of
Borrower), against the obligations and liabilities of Borrower to the Lenders
hereunder, under the Note, the other Loan Documents or otherwise, and any such
set-off shall be deemed to have been made immediately upon the occurrence of an
Event of Default even though such charge is made or entered on the books of such
Lender subsequent thereto.
Section 10.24 Amendments, Waivers and Consents. Neither this Credit
--------------------------------
Agreement nor any other Loan Document nor any of the terms hereof or thereof may
be materially amended, changed, waived, discharged or terminated, nor shall any
consent or approval be deemed granted hereunder, unless such amendment, change,
waiver, discharge, termination, consent or approval is in writing signed by the
Required Lenders and the Agent; provided, that no such amendment, change,
--------
waiver, discharge, termination, consent or approval shall, without the consent
of each Lender, (i) extend the
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scheduled maturity (including the final maturity) of the Loan, reduce the rate
or extend the time of payment of interest (other than as a result of waiving the
applicability of any post-default increase in interest rates) thereon or fees
hereunder or reduce the principal amount thereof, or increase the Total
Commitment of the Lenders over the amount thereof in effect, (ii) amend or
modify any provision of this Section or Section 2.6, 2.7, 7.1 or 10.25, (iii)
reduce any percentage specified in, or otherwise modify, the definition of
Required Lenders, subject also to Borrower's rights under Section 9.11, or (iv)
subject to Section 5.6(c), consent to the assignment or transfer by Borrower of
any of their rights and obligations under (or in respect of) this Credit
Agreement (except to the extent permitted hereunder). No provision of Article IX
may be amended without the consent of the Agent.
Section 10.25 Benefit of Agreement.
--------------------
(a) Generally. This Credit Agreement shall be binding upon and inure
---------
to the benefit of and be enforceable by the respective successors and assigns of
the parties hereto; provided that except as permitted under Section 5.6(b)
hereof, Borrower may not assign and transfer any of its interests without prior
written consent of the Agent on behalf of the Lenders (which consent may be
withheld in the Agent's and/or Lenders' sole discretion).
(b) Assignments. Subject to obtaining the prior consent of the
-----------
Agent, not to be unreasonably withheld, each Lender may assign all or a portion
of its rights and obligations hereunder. Borrower agrees that upon effectiveness
of any such assignment and surrender of the Note of which it has received
written notice it will promptly provide to the assigning Lender and to the
assignee separate promissory notes in the amount of their respective interests
substantially in the form of the Note (but, if applicable, with notation thereon
that it is given in substitution for and replacement of the original Note or any
replacement notes thereof). A Lender assigning an interest in the Loan shall
give Borrower reasonably prompt notice thereof following such assignment.
(c) Participations. Subject to obtaining the prior consent of the
--------------
Agent, not to be unreasonably withheld, each Lender may sell, transfer, agent or
assign participations in all or any part of such Lender's interests and
obligations hereunder; provided that such selling Lender shall remain a "Lender"
for all purposes under this Credit Agreement and the participant shall not
constitute a Lender hereunder. In the case of any such participation, the
participant shall not have any rights under this Credit Agreement or the other
Loan Documents (the participant having rights against the selling Lender in
respect of such participation to be those set forth in the participation
agreement with such Lender creating such participation) and all amounts payable
by Borrower hereunder shall be determined as if such Lender had not sold such
participation. A
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Lender conveying a participation interest in the Loan shall give Borrower
reasonably prompt notice thereof following such conveyance.
Section 10.26 Ability to Disclose. Notwithstanding anything to the
-------------------
contrary in the Management Agreement, the Agent may disclose information
regarding such agreement and the operation of the Hotel, and provide copies of
such agreement and any financial statements or reports delivered by the Manager
or Borrower pursuant to such agreement, to the Lenders, and any counsel to or
agents, officers, employees and representatives of any such holder, and may
disclose and describe the terms hereof and thereof in any offering memorandum,
prospectus, or registration statement or other filing required under applicable
law.
Section 10.27 Exculpation. Subject to the qualifications below,
-----------
neither Agent on behalf of the Lenders nor the Lenders directly shall enforce
the liability and obligation of Borrower to perform and observe the obligations
contained in the Note, this Credit Agreement or the other Loan Documents by any
action or proceeding wherein a money judgment shall be sought against Borrower
(or any member, shareholder, partner or other owner of Borrower, or any separate
account contract holder, beneficial owner, advisor, consultant, manager,
fiduciary, director, officer or employee of any of the foregoing), unless,
except as expressly reserved in clause (e) below, the judgment in any such
action or proceeding shall be enforceable against Borrower only to the extent of
Borrower's interest in the collateral given to Agent on behalf of the Lenders,
and Agent on behalf of the Lenders, by accepting the Note, this Credit Agreement
and the other Loan Documents, agrees that it shall not sue for, seek or demand
any deficiency judgment against Borrower in any such action or proceeding under
or by reason of or under or in connection with the Note, this Credit Agreement
or the other Loan Documents except for any deficiency judgment that shall be
enforced solely against or collected solely from the collateral given to Agent
on behalf of the Lenders. The provisions of this Section shall not, however,
(a) constitute a waiver, release or impairment of any obligation evidenced or
secured by any of the Loan Documents; (b) impair the right of Agent on behalf of
the Lenders to name Borrower as a party defendant in any action or suit for
foreclosure and sale under the Pledge; (c) affect the validity or enforceability
of or any guaranty or indemnity made in connection with the Loan or any of the
rights and remedies of Agent on behalf of the Lenders thereunder; (d) impair the
right of Agent on behalf of the Lenders to obtain the appointment of a receiver;
or (e) constitute a waiver of the right of Agent or any of the Lenders to
enforce the liability and obligation of Borrower, by money judgment or
otherwise, to the extent of any loss, damage, cost, expense, liability, claim or
other obligation incurred by Agent or any of the Lenders (including attorneys'
fees and costs reasonably incurred) arising out of or in connection with (but
only to the extent of) the following:
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(i) waste committed by or on behalf of Borrower with respect to the
Mortgaged Property or the Pledged Collateral;
(ii) fraud, misrepresentation or willful misconduct by Borrower in
connection with the Loan;
(iii) the removal or disposal by Borrower of any portion of the Mortgaged
Property after an Event of Default; and
(v) the misappropriation by Borrower of any revenues or distributions
and/or dividends from the Property Owner.
Notwithstanding anything to the contrary in this Credit Agreement or any of the
Loan Documents, neither Agent nor any of the Lenders shall be deemed to have
waived any right which Agent or any of the Lenders may have under Section
506(a), 506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to
file a claim for the full amount of the Debt or to require that all collateral
shall continue to secure all of the Debt owing to Agent and the Lenders in
accordance with the Loan Documents.
Section 10.28 Subordination. Agent on behalf of the Lenders
-------------
acknowledges and agrees that (i) that the Loan is, and is intended by Agent on
behalf of the Lenders to be, structurally subordinated to the Mortgage Loan and
all other creditors of the Property Owner, (ii) prior to the repayment in full
of the Mortgage Loan, the assets of the Property Owner are not, and are intended
by Agent on behalf of the Lenders not to be, available to pay any of the amounts
payable with respect to the Loan except as, and then only to the extent,
permitted by the Mortgage Loan, and (iii) in the event of a consolidation where
Borrower and the Property Owner are considered as one borrower in a bankruptcy,
Agent on behalf of the Lenders acknowledges that the Loan is contractually
subordinated to the Mortgage Loan. The Mortgage Lender is an express third
party beneficiary of this Section.
ARTICLE XI
MEZZANINE DEPOSIT ACCOUNT
-------------------------
Section 11.1 Mezzanine Deposit Account. (a) On or prior to the date
-------------------------
hereof, Borrower shall execute and deliver to Agent, a payment direction letter
(which payment direction letter shall expressly state that it is irrevocable
without the written agreement of Agent), pursuant to which Borrower shall direct
Mortgage Lender, that until further written notice (countersigned by Agent) is
received by Mortgage Lender from Borrower, any and all amounts that would
otherwise be payable to Borrower in
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accordance with the Cash Management Procedures shall be paid in immediately
available funds (or by wire transfer) on each date each such payment would
otherwise be payable to Borrower, directly by Mortgage Lender into an Eligible
Account designated by Agent on behalf of the Lenders (the "Mezzanine Deposit
----------------
Account") for disbursement pursuant to Section 11.2 hereof. The Mezzanine
- -------
Deposit Account shall be in the name of and under the sole control of Agent on
behalf of the Lenders, and Borrower shall not have the authority or power to
make withdrawals from said account. Borrower shall be responsible for the costs
of establishing and maintaining the Mezzanine Deposit Account. The same shall
not be a "Sub-account" under the Cash Collateral Procedures.
(b) To the extent the Property Owner or Borrower is required to
request of the Mortgage Lender (or its agents) under the Mortgage Loan Agreement
or any other Mortgage Loan Document to obtain the release to the Property Owner
or Borrower of monies, then Borrower agrees that it shall, in all cases
sufficiently prior to the intended release date so as to constitute an effective
request under the Mortgage Loan Agreement, send or cause the Property Owner to
send written notice to the Mortgage Lender requesting the Mortgage Lender to
transfer (or authorize the transfer) of such monies to the Mezzanine Deposit
Account.
Section 11.2 Disbursements from the Mezzanine Deposit Account;
-------------------------------------------------
Borrower's Obligation to Fund Deposit Account.
- ---------------------------------------------
11.2.1 Disbursements. On each Payment Date during the Term, provided
-------------
no Default or Event of Default has occurred and is continuing, and subject to
Section 11.2.2, Agent on behalf of the Lenders shall transfer from the Mezzanine
Deposit Account (or authorize such transfer), to the extent available therein,
the following payments in the following order of priority:
(a) to Agent on behalf of the Lenders, the monthly debt service
payment amount for the Loan, which amount shall immediately be available and
payable to Agent on behalf of the Lenders;
(b) to Agent on behalf of the Lenders, any and all other fees, costs
and expenses payable under the Loan;
(c) to the extent payable following an Event of Default hereunder, to
Agent on behalf of the Lenders, an amount equal to the interest accrued and
unpaid under the Note at the excess of the Default Rate over the Interest Rate;
and
(d) if no Event of Default has occurred, to Junior Lender as provided
for in the Cash Management Procedures; provided that in Agent's sole discretion,
Agent
-56-
<PAGE>
may permit a distribution under this clause (d) notwithstanding the occurrence
of such Event of Default.
11.2.2 Obligation to Fund; Deemed Payment. In the event that on any
----------------------------------
Payment Date the amount in the Mezzanine Deposit Account, together with
available amounts in the Mezzanine Debt Service Reserve Account, shall be
insufficient to make all of the transfers described in Sections 11.2.1(a)
through (c) above, Borrower shall deposit into the Mezzanine Deposit Account on
such Payment Date the amount of such deficiency, and if Borrower shall fail to
make such deposit, the same shall be an Event of Default and, in addition to all
other rights and remedies provided for hereunder, Agent on behalf of the Lenders
may disburse and apply the amounts in the Mezzanine Deposit Account in such
order as Agent on behalf of the Lenders may determine. If on any Payment Date
the amount in the Mezzanine Deposit Account, together with available amounts in
the Mezzanine Debt Service Reserve Account, shall be sufficient to make all of
the transfers described in Sections 11.2.1 (a) through (c), Borrower shall be
deemed to have paid the monthly debt service payment amount unless Agent on
behalf of the Lenders is legally constrained from transferring such amount in
accordance with Sections 11.2.1(a) through (c), including by reason of any
bankruptcy or insolvency related to Borrower (but excluding legal constraints
related to Agent and Lender).
Section 11.3 No Release if Event of Default Exists. Notwithstanding
-------------------------------------
the terms hereof, in no event shall Agent or any of the Lenders have any
obligation to disburse funds from the Mezzanine Deposit Account for so long as
an Event of Default shall have occurred and be continuing.
Section 11.4 Grant of Security Interest; Rights upon Default.
-----------------------------------------------
(a) Borrower hereby pledges, assigns and grants a first priority security
interest to Agent on behalf of the Lenders, 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 Credit Agreement and any other Loan Document on Borrower'
part to be paid and performed, all of Borrower's right, title and interest in
and to the Mezzanine Deposit Account, together with the deposits therein,
including all interest earned thereon. Borrower shall not, without obtaining
the prior written consent of Agent, further pledge, assign or grant any security
interest in the Mezzanine Deposit Account, or permit any Lien or encumbrance to
attach thereto, or any levy to be made thereon, or any UCC-1 financing
statements, except those naming Agent on behalf of the Lenders as the secured
party, to be filed with respect thereto.
(b) Upon the occurrence, and during the continuance of an Event of
Default, Agent on behalf of the Lenders may apply amounts in the Mezzanine
Deposit Account, for any of the following purposes relating to the Loan or
Borrower's obligations hereunder or under any other Loan Document, and in any
order, as Agent on behalf of the
-57-
<PAGE>
Lenders shall elect in its sole discretion: (i) with respect to the Mortgaged
Property, capital contributions on behalf of Borrower to the Property Owner for
the purpose of paying Taxes and Other Charges and Insurance Premiums (as such
terms are defined in the Mortgage Loan Agreement); (ii) interest on the unpaid
principal balance of the Note; (iii) amortization of the unpaid principal
balance of the Note; (iv) Default Interest; (v) reimbursement of Agent and the
Lenders for all losses and expenses (including reasonable legal fees) suffered
or incurred by Agent or the Lenders as a result of such Event of Default; (vi)
capital contributions on behalf of Borrower to the Property Owner for the
purpose of paying the cost of any repair or replacement to the Mortgaged
Property; (vii) payment of any amount expended in exercising rights and remedies
available to Agent and the Lenders at law or in equity or under this Credit
Agreement or under any of the other Loan Documents; or (viii) any other portion
of the Debt, including the Prepayment Premiums applicable to any full or partial
prepayment; provided Prepayment Premiums and Default Interest will not be
applied to repayment of the Debt prior to payment in full of all principal and
accrued interest (other than Default Interest).
Section 11.5 Agents and the Lenders Not Responsible. Nothing in this
--------------------------------------
Article XI or elsewhere in the Loan Documents shall make Agent or the Lenders
responsible for making or completing any work in respect of the Mortgaged
Property, or obligate Agent or the Lenders to demand from Borrower additional
sums to make or complete any work.
[SIGNATURES APPEAR ON FOLLOWING PAGE(S).]
-58-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Credit
Agreement to be duly executed by their duly authorized representatives, all as
of the day and year first above written.
MARRIOTT DSM LLC, a Delaware limited liability company
By: /s/ P. K. Brady
-------------------------------------------------
Name: Patricia K. Brady
Title: Vice President
GOLDMAN SACHS MORTGAGE COMPANY, a New York limited
partnership, as Agent and Lender
By: Goldman Sachs Real Estate Funding Corp., its
General Partner
By: /s/
--------------------------------------------
Name:
Title:
<PAGE>
SCHEDULE A
(Commitment Percentage)
1. GSMC -- 100%
<PAGE>
SCHEDULE B
(Amortization Schedule)
<PAGE>
AMORTIZATION SCHEDULE: $20,000,000 MEZZANINE
<TABLE>
<S> <C>
Interpolated 12-yr UST 5.865%
Spread 4.500%
Coupon (Actual/360) 10.385%
Amortization 12.50
Anticipated Maturity 12.50
Constant 14.40%
<CAPTION>
Closing Date: 11/26/97
Mezz Place
Payment Date Month Beginning Balance Interest Principal Payment End Balance
<S> <C> <C> <C> <C> <C> <C> <C>
12/12/97 16 1 20,000,000.00 82,133.33 - 82,133.33 20,000,000.00
1/12/98 31 2 20,000,000.00 178,508.33 61,549.47 240,057.81 19,938,450.53
2/12/98 31 3 19,938,450.53 177,958.98 62,098.83 240,057.81 19,876,351.70
3/12/98 28 4 19,876,351.70 160,238.52 79,821.28 240,057.81 19,796,530.42
4/12/98 31 5 19,796,530.42 176,692.28 63,365.52 240,057.81 19,733,164.89
5/12/98 30 6 19,733,164.89 170,445.21 69,612.59 240,057.81 19,663,552.30
6/12/98 31 7 19,663,552.30 175,505.40 64,552.41 240,057.81 19,598,999.89
7/12/98 30 8 19,598,999.89 169,286.36 70,771.44 240,057.81 18,528,228.45
8/12/98 31 9 18,528,228.45 174,297.58 85,760.23 240,057.81 19,482,488.22
9/12/98 31 10 19,482,488.22 173,710.64 66,347.17 240,057.81 19,396,121.05
10/12/98 30 11 19,396,121.05 167,534.00 72,523.81 240,057.81 19,323,597.24
11/12/98 31 12 19,323,597.24 172,471.16 87,586.65 240,057.81 19,256,010.59
12/12/98 30 13 19,256,010.59 166,323.79 73,734.01 240,057.81 19,182,276.58
1/12/99 31 14 19,182,276.58 171,209.81 68,847.99 240,057.81 19,113,428.58
2/12/99 31 15 19,113,428.58 170,595.31 69,462.49 240,057.81 19,043,966.09
3/12/99 28 16 19,043,966.09 153,528.11 86,531.70 240,057.81 18,857,434.39
4/12/99 31 17 18,857,434.39 169,203.00 70,864.80 240,057.81 18,886,578.59
5/12/99 30 18 18,886,578.59 163,132.83 76,924.97 240,057.81 18,509,654.61
6/12/99 31 19 18,509,654.61 167,884.00 72,173.60 240,057.81 18,737,480.81
7/12/99 30 20 18,737,480.81 161,644.99 78,212.82 240,057.81 18,659,268.00
8/12/99 31 21 18,659,268.00 166,541.74 73,516.08 240,057.81 18,585,751.83
9/12/99 31 22 18,585,751.83 165,885.56 74,172.23 240,057.81 18,511,579.71
10/12/99 30 23 18,511,579.71 159,893.77 80,164.04 240,057.81 18,431,415.67
11/12/99 31 24 18,431,415.67 164,508.08 75,549.74 240,057.81 18,355,865.93
12/12/99 30 25 18,355,865.93 158,548.79 81,509.01 240,057.81 18,274,356.92
1/12/00 31 26 18,274,356.92 163,106.25 76,951.56 240,057.81 18,197,405.38
2/12/00 31 27 18,197,405.38 162,419.43 77,636.38 240,057.81 18,119,766.98
3/12/00 29 28 18,119,766.98 151,292.50 88,765.30 240,057.81 18,031,001.68
4/12/00 31 29 18,031,001.68 160,934.20 79,123.60 240,057.81 17,951,878.08
5/12/00 30 30 17,951,878.08 155,059.35 84,998.46 240,057.81 17,866,879.62
6/12/00 31 31 17,866,879.62 159,489.35 80,588.46 240,057.81 17,766,291.16
7/12/00 30 32 17,766,291.16 153,629.09 86,428.72 240,057.81 17,699,882.44
8/12/00 31 33 17,699,882.44 157,976.65 82,079.16 240,057.81 17,617,783.29
9/12/00 31 34 17,617,783.29 157,246.06 82,611.75 240,057.81 17,534,971.54
10/12/00 30 35 17,534,971.54 151,458.32 88,699.49 240,057.81 17,446,372.05
11/12/00 31 36 17,446,372.05 155,716.14 64,341.67 240,057.81 17,382,030.58
12/12/00 30 37 17,382,030.58 149,964.54 90,093.27 240,057.81 17,271,937.11
1/12/01 31 38 17,271,937.11 154,159.24 85,898.57 240,057.81 17,186,038.54
2/12/01 31 39 17,186,038.54 153,392.55 86,605.25 240,057.81 17,099,373.29
3/12/01 28 40 17,099,373.29 137,849.45 102,208.38 240,057.81 16,997,164.83
4/12/01 31 41 16,997,164.83 151,706.78 86,351.03 240,057.81 16,908,813.91
5/12/01 30 42 16,908,813.91 146,049.88 94,007.93 240,057.81 16,814,805.98
6/12/01 31 43 16,814,805.98 150,079.15 59,876,68 240,057.81 16,724,827.33
7/12/01 30 44 16,724,827.33 144,460.70 95,597.11 240,057.81 16,629,230.22
8/12/01 31 45 16,629,230.22 146,442.81 91,635.00 240,057.81 16,537,585.22
9/12/01 31 46 16,537,585.22 147,604.83 92,452.68 240,057.81 16,445,142.34
10/12/01 30 47 16,445,142.34 142,044.82 96,012.89 240,057.81 16,347,129.45
11/12/01 31 48 16,347,129.45 145,904.94 94,152.86 240,057.81 16,252,976.59
12/12/01 30 49 16,252,976.59 140,385.09 99,672.72 240,057.81 16,153,303.67
1/12/02 31 50 16,153,303.67 144,174.97 95,882.64 240,057.81 16,057,421.03
2/12/02 31 51 16,057,421.03 143,319.17 96,738.63 240,057.81 15,980,682.40
3/12/02 28 52 15,980,682.40 128,669.70 111,368.10 240,057.81 15,649,294.29
4/12/02 31 53 15,649,294.29 141,461.56 98,596.25 240,057.81 15,750,698.04
5/12/02 30 54 15,750,698.04 136,046.85 104,011.15 240,057.81 15,648,686.89
6/12/02 31 55 15,648,686.89 139,653.20 100,404.61 240,057.81 15,548,282.29
7/12/02 30 56 15,548,282.29 134,281.01 105,776.79 240,057.81 15,440,505.50
8/12/02 31 57 15,440,505.50 137,812.95 102,244.86 240,057.81 15,338,280.64
9/12/02 31 58 15,338,280.64 136,800.37 103,157.44 240,057.81 15,235,103.20
10/12/02 30 59 15,235,103.20 131,693.20 108,484.60 240,057.81 15,128,638.59
11/12/02 31 60 15,128,638.59 135,011.55 105,046.25 240,057.81 15,021,592.34
12/12/02 30 61 15,021,592.34 129,749.00 110,308.80 240,057.81 14,911,283.54
1/12/03 31 62 14,911,283.54 133,089.42 106,968.39 240,057.81 14,804,315.15
2/12/03 31 63 14,804,315.15 132,134.68 107,823.12 240,057.81 14,696,382.03
3/12/03 28 64 14,696,382.03 118,477.41 121,580.39 240,057.81 14,574,811.64
4/12/03 31 65 14,574,811.64 130,088.27 109,971.54 240,057.81 14,464,840.10
</TABLE>
<PAGE>
AMORTIZATION SCHEDULE: $20,000,000 MEZZANINE
<TABLE>
<S> <C>
Interpolated 12-yr UST 5.865%
Spread 4.500%
Coupon (Actual/360) 10.385%
Amortization 12.50
Anticipated Maturity 12.50
Constant 14.40%
<CAPTION>
Closing Date: 11/26/97
Mezz Place
Payment Date Month Beginning Balance Interest Principal Payment End Balance
<S> <C> <C> <C> <C> <C> <C> <C>
5/12/03 30 66 14,464,840.10 124,940.08 115,117.75 240,057.81 14,349,722.35
6/12/03 31 67 14,349,722.35 128,077.25 111,980.55 240,057.81 14,237,741.78
7/12/03 30 68 14,237,741.78 122,978.49 117,079.31 240,057.81 14,120,662.49
8/12/03 31 69 14,120,662.49 128,032.80 114,025.01 240,057.81 14,008,637.47
9/12/03 31 70 14,008,637.47 125,015.06 115,042.73 240,057.81 13,891,594.74
10/12/03 30 71 13,891,594.74 119,988.65 120,069.16 240,057.81 13,771,525.59
11/12/03 31 72 13,771,525.69 122,916.60 117,141.20 240,057.81 13,654,384.39
12/12/03 30 73 13,654,384.39 117,939.75 122,118.06 240,057.81 13,532,266.33
1/12/04 31 74 13,532,266.33 120,781.12 119,276.69 240,057.81 13,412,969.64
2/12/04 31 75 13,412,969.64 119,716.52 120,341.28 240,057.81 13,292,648.35
3/12/04 29 76 13,292,648.35 110,968.08 129,069.73 240,057.81 13,163,578.62
4/12/04 31 77 13,163,578.62 117,490.42 122,567.38 240,057.81 13,041,011.24
5/12/04 30 78 13,041,011.24 112,841.73 127,416.07 240,057.81 12,913,595.17
6/12/04 31 79 12,913,595.17 115,259.22 124,798.59 240,057.81 12,788,796.58
7/12/04 30 80 12,788,796.58 110,463.23 129,594.58 240,057.81 12,659,202.01
8/12/04 31 81 12,659,202.01 112,968.65 127,089.15 240,057.81 12,532,132.85
9/12/04 31 82 12,532,132.85 111,854.51 128,203.30 240,057.81 12,403,829.55
10/12/04 30 83 12,403,829.55 107,138.84 132,916.88 240,057.81 12,271,010.69
11/12/04 31 84 12,271,010.69 109,523.88 130,533.92 240,057.81 12,140,476.77
12/12/04 30 85 12,140,476.77 104,883.37 135,194.44 240,057.81 12,005,282.33
1/12/05 31 86 12,005,282.33 107,152.15 132,905.66 240,057.81 11,672,376.67
2/12/05 31 87 11,672,376.67 105,965.91 134,091.90 240,057.81 11,738,284.77
3/12/05 29 88 11,738,284.77 94,630.14 145,427.67 240,057.81 11,592,857.11
4/12/05 31 89 11,692,857.11 103,471.08 136,586.73 240,057.81 11,456,270.38
5/12/05 30 90 11,456,270.38 98,953.54 141,104.27 240,057.81 11,315,166.11
6/12/05 31 91 11,315,166.11 100,992.57 139,085.23 240,057.81 11,176,100.88
7/12/05 30 92 11,176,100.88 96,533.57 143,524.23 240,057.81 11,032,576.64
8/12/05 31 93 11,032,576.64 98,470.34 141,587.46 240,057.81 10,880,969.18
9/12/05 31 94 10,880,969.18 97,206.62 142,851.19 240,057.81 10,748,137.99
10/12/05 30 95 10,748,137.99 92,837.04 147,220.78 240,057.81 10,600,817.23
11/12/05 31 96 10,600,817.23 94,617.60 145,440.20 240,057.81 10,455,477.03
12/12/05 30 97 10,455,477.03 90,309.18 149,748.62 240,057.81 10,305,728.40
1/12/06 31 98 10,305,728.40 91,982.92 148,074.89 240,057.81 10,157,653.52
2/12/06 31 99 10,157,653.52 90,681.29 149,396.52 240,057.81 10,008,257.00
3/12/06 29 100 10,008,257.00 80,683.23 159,374.57 240,057.81 9,848,882.43
4/12/06 31 101 9,848,882.43 87,905.38 152,152.43 240,057.81 9,696,730.00
5/12/06 30 102 9,696,730.00 83,755.51 156,302.30 240,057.81 9,540,427.70
6/12/06 31 103 9,540,427.70 85,152.29 154,905.51 240,057.81 9,385,522.19
7/12/06 30 104 9,385,522.19 81,067.45 158,990.36 240,057.81 9,226,531.83
8/12/06 31 105 9,226,531.83 82,350.64 157,707.16 240,057.81 9,068,624.67
9/12/06 31 106 9,068,624.67 80,943.04 159,114.77 240,057.81 8,909,709.90
10/12/06 30 107 8,909,709.90 78,957.62 163,100.18 240,057.81 8,746,609.72
11/12/06 31 108 8,746,609.72 78,067.14 161,890.67 240,057.81 8,584,619.05
12/12/06 30 109 8,584,619.05 74,149.65 165,908.16 240,057.81 8,418,710.89
1/12/07 31 110 8,418,710.89 74,140.50 164,917.30 240,057.81 8,253,793.58
2/12/07 31 111 8,253,793.58 73,668.55 166,389.26 240,057.81 8,067,404.33
3/12/07 29 112 8,067,404.33 65,197.96 174,859.85 240,057.81 7,912,544.46
4/12/07 31 113 7,912,544.46 70,622.76 169,435.05 240,057.81 7,743,108.43
5/12/07 30 114 7,743,108.43 66,881.11 173,176.70 240,057.81 7,569,932.73
6/12/07 31 115 7,569,932.73 67,564.80 172,493.00 240,057.81 7,397,439.73
7/12/07 30 116 7,397,439.73 63,895.39 176,162.42 240,057.81 7,221,277.31
8/12/07 31 117 7,221,277.31 64,452.91 175,604.90 240,057.81 7,045,572.41
9/12/07 31 118 7,045,572.41 62,886.56 177,172.24 240,057.81 6,868,500.17
10/12/07 30 119 6,868,500.17 59,326.67 180,731.14 240,057.81 6,687,769.03
11/12/07 31 120 6,687,769.03 59,691.13 180,366.68 240,057.81 6,507,402.35
12/12/07 30 121 6,507,402.35 58,207.69 183,850.12 240,057.81 6,323,552.23
1/12/08 31 122 6,323,552.23 56,440.34 183,617.47 240,057.81 6,139,934.77
2/12/08 31 123 6,139,934.77 54,801.48 185,258.33 240,057.81 5,954,878.44
3/12/08 29 124 5,954,878.44 49,719.08 190,338.72 240,057.81 5,764,339.72
4/12/08 31 125 5,764,339.72 61,449.13 186,606.67 240,057.81 5,575,731.04
5/12/08 30 126 5,575,731.04 48,160.38 191,897.43 240,057.81 5,383,833.62
6/12/08 31 127 5,383,833.62 48,052.96 192,004.85 240,057.81 5,191,828.77
7/12/08 30 128 5,191,828.77 44,844.42 195,213.38 240,057.81 4,996,615.36
8/12/08 31 129 4,996,615.36 44,596.67 195,460.93 240,057.81 4,801,154.45
9/12/08 31 130 4,801,154.45 42,852.30 197,205.50 240,057.81 4,803,948.95
</TABLE>
<PAGE>
AMORTIZATION SCHEDULE: $20,000,000 MEZZANINE
<TABLE>
<S> <C>
Interpolated 12-yr UST 5.865%
Spread 4.500%
Coupon (Actual/360) 10.385%
Amortization 12.50
Anticipated Maturity 12.50
Constant 14.40%
<CAPTION>
Closing Date: 11/26/97
Mezz Place
Payment Date Month Beginning Balance Interest Principal Payment End Balance
<S> <C> <C> <C> <C> <C> <C> <C>
10/12/08 30 131 4,803,948.95 39,766.61 200,291.20 240,057.81 4,403,657.75
11/12/08 31 132 4,403,657.75 39,304.48 200,753.33 240,057.81 4,202,904.43
12/12/08 30 133 4,202,904.43 36,302.59 203,765.22 240,057.81 3,899,149.21
1/12/09 31 134 3,899,149.21 35,694.07 204,363.73 240,057.81 3,794,785.48
2/12/09 31 135 3,794,785.48 33,870.04 208,187.76 240,057.81 3,588,597.71
3/12/09 28 136 3,588,597.71 28,930.08 211,127.73 240,057.81 3,377,469.99
4/12/09 31 137 3,377,469.99 30,145.33 209,912.46 240,057.81 3,167,557.61
5/12/09 30 138 3,167,557.61 27,359.78 212,698.03 240,057.81 2,954,859.48
6/12/09 31 139 2,954,859.48 26,373.35 213,684.45 240,057.81 2,741,175.03
7/12/09 30 140 2,741,175.03 23,676.80 216,380.91 240,057.81 2,524,794.12
8/12/09 31 141 2,524,794.12 22,534.64 217,522.97 240,057.81 2,307,271.16
9/12/09 31 142 2,307,271.16 20,593.36 219,464.45 240,057.81 2,087,806.71
10/12/09 30 143 2,087,806.71 18,033.43 222,024.38 240,057.81 1,865,782.33
11/12/09 31 144 1,865,782.33 16,652.88 223,404.92 240,057.81 1,642,377.41
12/12/09 30 145 1,642,377.41 14,186.03 226,871.77 240,057.81 1,416,505.64
1/12/10 31 146 1,416,505.64 12,642.80 227,414.90 240,057.81 1,189,090.74
2/12/10 31 147 1,189,090.74 10,613.13 229,444.68 240,057.81 959,646.06
3/12/10 28 148 959,646.06 7,738.35 232,321.46 240,057.81 727,324.60
4/12/10 31 149 727,324.60 6,491.68 233,566.13 240,057.81 483,758.47
5/12/10 30 150 483,758.47 4,264.64 235,792.97 240,057.81 257,965.51
6/12/10 31 151 257,965.51 2,302.45 267,965.51 280,267.95
</TABLE>
<PAGE>
EXHIBIT A
(Form of Promissory Note)
<PAGE>
Promissory Note
$20,000,000.00 November 25, 1997
FOR VALUE RECEIVED, the undersigned, MARRIOTT DSM LLC, a Delaware limited
liability company ("MAKER"), promises to pay to the order of GOLDMAN SACHS
MORTGAGE COMPANY, a limited partnership organized and existing under the laws
of the State of New York, its successors and assigns ("HOLDER"), on or before
the Specified Maturity Date at such place as Holder may from time to time
designate in writing, the principal sum of Twenty Million Dollars
($20,000,000.00) in lawful money of the United States of America, together with
interest thereon, to be computed and paid as specified in the Credit Agreement
(as such terms are defined below).
Except as otherwise defined or limited herein, capitalized terms used
herein shall have the meanings ascribed to them in that certain Credit Agreement
(the "CREDIT AGREEMENT"), dated as of the date hereof, by and among Maker, and
Holder, as Agent and as a Lender. This is the Note referred to in the Credit
Agreement and is entitled to the security therefor granted pursuant to the Loan
Documents, including, without limitation, the Pledge. The terms of this Note
are hereby supplemented in full by the terms of the Credit Agreement and the
other Loan Documents.
The entire Debt or any portion thereof, shall without notice, except such
notice as is required under the terms of any Loan Document, become immediately
due and payable at the option of Holder, unless otherwise specified under the
applicable Loan Document, if an Event of Default shall have occurred and be
continuing. In the event that Holder retains counsel to collect all or any part
of the Debt, or to protect, or foreclose the security provided in connection
herewith, Maker agrees to pay reasonable costs of collection incurred by Holder,
including reasonable attorneys' fees.
Maker does hereby agree that, if an Event of Default shall have occurred
and is continuing, Maker shall pay interest at the Default Rate on the
outstanding amount of the Loan due and but unpaid interest thereon, upon demand
from time to time, to the extent permitted by applicable law.
Maker represents that it has full power, authority and legal right to
execute and deliver this Note and to perform its obligations hereunder, and that
this Note constitutes the valid and binding obligation of Maker, enforceable
against Maker in accordance with its terms, except as enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the enforcement of
<PAGE>
creditors' rights generally and (ii) general principles of equity, regardless of
whether considered in proceedings at law or in equity.
All notices or other communications required or permitted to be given
pursuant hereto shall be given in the manner specified in the Credit Agreement
directed to the parties at their respective addresses as provided therein.
THIS NOTE WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY MAKER AND
ACCEPTED BY HOLDER IN THE STATE OF NEW YORK, AND THE PROCEEDS DELIVERED PURSUANT
HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE
HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION
EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE. THIS NOTE AND THE OBLIGATIONS ARISING HEREUNDER SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO NOTES MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW
OF THE UNITED STATES OF AMERICA. IT IS UNDERSTOOD THAT THE LAW OF THE STATE OF
NEW YORK SHALL GOVERN THE VALIDITY AND THE ENFORCEABILITY OF THIS NOTE AND ALL
OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER OR UNDER ANY OTHER LOAN
DOCUMENT (EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANOTHER LOAN DOCUMENT). TO
THE FULLEST EXTENT PERMITTED BY LAW, MAKER HEREBY UNCONDITIONALLY AND
IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION
GOVERNS THIS NOTE, AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST MAKER OR HOLDER ARISING OUT OF
OR RELATING TO THIS NOTE SHALL BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN
NEW YORK, NEW YORK, AND MAKER WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND MAKER
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT,
ACTION OR PROCEEDING, AND MAKER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. MAKER DOES HEREBY
DESIGNATE AND APPOINT CORPORATION SERVICE COMPANY, 80 STATE STREET, ALBANY, NEW
YORK 12207-2543, OR AT SUCH OTHER OFFICE IN NEW YORK, AS ITS AUTHORIZED AGENT TO
ACCEPT AND ACKNOWLEDGED ON ITS BEHALF
-2-
<PAGE>
SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT
SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID
SERVICE MAILED OR DELIVERED TO MAKER IN THE MANNER PROVIDED HEREIN SHALL BE
DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON MAKER, IN ANY SUCH
SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. MAKER (I) SHALL GIVE PROMPT
NOTICE TO HOLDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II)
MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT
WITH AN OFFICE IN NEW YORK (WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR
SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS
AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK OR IS DISSOLVED WITHOUT
LEAVING A SUCCESSOR.
No release of any security for the Debt or any Person liable for payment of
the Debt, no extension of time for payment of this Note or any installment
hereof, and no alteration, amendment or waiver of any provision of the Loan
Documents made by agreement between Holder and any other Person or party shall
release, modify, amend, waive, extend, change, discharge, terminate or affect
the liability of Maker or any other Person or party who might be or become
liable for the payment of all or any part of the Debt, under the Loan Documents,
except as otherwise expressly provided herein.
Maker and all others who may become liable for the payment of all or any
part of the Debt do hereby severally waive presentment and demand for payment,
notice of dishonor, protest, notice of protest, notice of non-payment, and
notice of intent to accelerate the maturity hereof and (except as may be
expressly provided for in the Loan Documents) of acceleration.
This Note may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Maker or Holder, but only by an agreement in writing signed by the party against
whom enforcement or any modification, amendment, waiver, extension, change,
discharge or termination is sought.
Subject to the qualifications below, neither Agent on behalf of the
Lenders nor the Lenders directly shall enforce the liability and obligation of
Maker to perform and observe the obligations contained in this Note, the Credit
Agreement or other Loan Documents by any action or proceeding wherein a money
judgment shall be sought against Maker (or any member, shareholder, partner or
other owner of Borrower, or any separate account contract holder, beneficial
owner, advisor, consultant, manager, fiduciary director, officer or employee of
any of the foregoing), unless, except as
-3-
<PAGE>
expressly reserved in clause (e) below, the judgment in any such action or
proceeding shall be enforceable against Maker only to the extent of Maker's
interest in the collateral given to Agent on behalf of the Lenders, and Agent on
behalf of the Lenders, by accepting this Note, the Credit Agreement and the
other Loan Documents, agrees that it shall not sue for, seek or demand any
deficiency judgment against Maker in any such action or proceeding under or by
reason of or under or in connection with this Note, the Credit Agreement or the
other Loan Documents except for any deficiency judgment that shall be enforced
solely against or collected solely from the collateral given to Agent on behalf
of the Lenders. The provisions of this Section shall not, however, (a)
constitute a waiver, release or impairment of any obligation evidenced or
secured by any of the Loan Documents; (b) impair the right of Agent on behalf of
the Lenders to name Maker as a party defendant in any action or suit for
foreclosure and sale under the Pledge; (c) affect the validity or enforceability
of or any guaranty or indemnity made in connection with the Loan or any of the
rights and remedies of Agent on behalf of the Lenders thereunder; (d) impair the
right of Agent on behalf of Agent on behalf of the Lenders to obtain the
appointment of a receiver; or (e) constitute a waiver of the right of Agent or
any of the Lenders to enforce the liability and obligation of Maker, by money
judgment or otherwise, to the extent of any loss, damage, cost, expense,
liability, claim or other obligation incurred by Agent or any of the Lenders
(including attorneys' fees and costs reasonably incurred) arising out of or in
connection with (but only to the extent of) the following:
(i) waste committed by or on behalf of Borrower with respect to the
Mortgaged Property or the Pledged Collateral;
(ii) fraud, misrepresentation or willful misconduct by Borrower in
connection with the Loan;
(iii) the removal or disposal by Borrower of any portion of the
Mortgaged Property after an Event of Default; and
(iv) the misappropriation by Borrower of any revenues or
distributions and/or dividends from the Property Owner.
Notwithstanding anything to the contrary in this Note or any of the Loan
Documents, neither Agent nor any of the Lenders shall be deemed to have waived
any right which Agent or any of the Lenders may have under Section 506(a),
506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a
claim for the full amount of the Debt or to require that all collateral shall
continue to secure all of the Debt owing to Agent and the Lenders in accordance
with the Loan Documents.
-4-
<PAGE>
Notwithstanding anything to the contrary in this Note and to the extent
permitted by applicable law, if the aggregate amount of interest payable in
respect of this Note and all other consideration which would constitute interest
for any Interest Period under applicable law results in an effective rate of
interest for any Interest Period on this Note in excess of the maximum rate
permitted by law applicable to this Note (after giving effect to any adjustment
permitted by law to the interest rate paid or payable in any Interest Periods
other than such Interest Period), the effective rate of interest for such
Interest Period for this Note shall be limited to a rate of interest which would
not cause the effective rate to exceed the maximum legal rate, and the effective
rate for all other Notes shall be increased in a manner such that (i) the
aggregate payment of additional interest due on all Notes after such adjustments
shall be equal to the aggregate interest payment due on all Notes had no
adjustments been necessary, and (ii) the amount of additional interest accrued
on all such other Notes is increased pro rata based upon the outstanding
--- ----
principal balances thereof, but shall not be increased to a rate in excess of
the maximum legal rate applicable to such other Notes.
Whenever used, the singular number shall include the plural the singular,
and the words "Holder" and "Maker" shall include their respective successors,
assigns, heirs, executors and administrators as permitted under the Loan
Documents.
IN WITNESS WHEREOF, Maker has caused its duly authorized officers to
execute this Note on its behalf, as of the day and year first above written.
MARRIOTT DSM LLC,
a Delaware limited liability company
By:
_________________________________
Name: Patricia K. Brady
Title: Vice President
-5-
<PAGE>
Exhibit 10.14
Promissory Note
$20,000,000.00 November 25, 1997
FOR VALUE RECEIVED, the undersigned, MARRIOTT DSM LLC, a Delaware limited
liability company ("MAKER"), promises to pay to the order of GOLDMAN SACHS
MORTGAGE COMPANY, a limited partnership organized and existing under the laws
of the State of New York, its successors and assigns ("HOLDER"), on or before
the Specified Maturity Date at such place as Holder may from time to time
designate in writing, the principal sum of Twenty Million Dollars
($20,000,000.00) in lawful money of the United States of America, together with
interest thereon, to be computed and paid as specified in the Credit Agreement
(as such terms are defined below).
Except as otherwise defined or limited herein, capitalized terms used
herein shall have the meanings ascribed to them in that certain Credit Agreement
(the "CREDIT AGREEMENT"), dated as of the date hereof, by and among Maker, and
Holder, as Agent and as a Lender. This is the Note referred to in the Credit
Agreement and is entitled to the security therefor granted pursuant to the Loan
Documents, including, without limitation, the Pledge. The terms of this Note
are hereby supplemented in full by the terms of the Credit Agreement and the
other Loan Documents.
The entire Debt or any portion thereof, shall without notice, except such
notice as is required under the terms of any Loan Document, become immediately
due and payable at the option of Holder, unless otherwise specified under the
applicable Loan Document, if an Event of Default shall have occurred and be
continuing. In the event that Holder retains counsel to collect all or any part
of the Debt, or to protect, or foreclose the security provided in connection
herewith, Maker agrees to pay reasonable costs of collection incurred by Holder,
including reasonable attorneys' fees.
Maker does hereby agree that, if an Event of Default shall have occurred
and is continuing, Maker shall pay interest at the Default Rate on the
outstanding amount of the Loan due and but unpaid interest thereon, upon demand
from time to time, to the extent permitted by applicable law.
Maker represents that it has full power, authority and legal right to
execute and deliver this Note and to perform its obligations hereunder, and that
this Note constitutes the valid and binding obligation of Maker, enforceable
against Maker in accordance with its terms, except as enforceability may be
limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the enforcement of
<PAGE>
creditors' rights generally and (ii) general principles of equity, regardless of
whether considered in proceedings at law or in equity.
All notices or other communications required or permitted to be given
pursuant hereto shall be given in the manner specified in the Credit Agreement
directed to the parties at their respective addresses as provided therein.
THIS NOTE WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY MAKER AND
ACCEPTED BY HOLDER IN THE STATE OF NEW YORK, AND THE PROCEEDS DELIVERED PURSUANT
HERETO WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE
HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION
EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE. THIS NOTE AND THE OBLIGATIONS ARISING HEREUNDER SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO NOTES MADE AND PERFORMED IN SUCH STATE AND ANY APPLICABLE LAW
OF THE UNITED STATES OF AMERICA. IT IS UNDERSTOOD THAT THE LAW OF THE STATE OF
NEW YORK SHALL GOVERN THE VALIDITY AND THE ENFORCEABILITY OF THIS NOTE AND ALL
OF THE INDEBTEDNESS OR OBLIGATIONS ARISING HEREUNDER OR UNDER ANY OTHER LOAN
DOCUMENT (EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANOTHER LOAN DOCUMENT). TO
THE FULLEST EXTENT PERMITTED BY LAW, MAKER HEREBY UNCONDITIONALLY AND
IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION
GOVERNS THIS NOTE, AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST MAKER OR HOLDER ARISING OUT OF
OR RELATING TO THIS NOTE SHALL BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN
NEW YORK, NEW YORK, AND MAKER WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND MAKER
HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT,
ACTION OR PROCEEDING, AND MAKER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. MAKER DOES HEREBY
DESIGNATE AND APPOINT CORPORATION SERVICE COMPANY, 80 STATE STREET, ALBANY, NEW
YORK 12207-2543, OR AT SUCH OTHER OFFICE IN NEW YORK, AS ITS AUTHORIZED AGENT TO
ACCEPT AND ACKNOWLEDGED ON ITS BEHALF
-2-
<PAGE>
SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR
PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT
SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID
SERVICE MAILED OR DELIVERED TO MAKER IN THE MANNER PROVIDED HEREIN SHALL BE
DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON MAKER, IN ANY SUCH
SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. MAKER (I) SHALL GIVE PROMPT
NOTICE TO HOLDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II)
MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT
WITH AN OFFICE IN NEW YORK (WHICH OFFICE SHALL BE DESIGNATED AS THE ADDRESS FOR
SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS
AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK OR IS DISSOLVED WITHOUT
LEAVING A SUCCESSOR.
No release of any security for the Debt or any Person liable for payment of
the Debt, no extension of time for payment of this Note or any installment
hereof, and no alteration, amendment or waiver of any provision of the Loan
Documents made by agreement between Holder and any other Person or party shall
release, modify, amend, waive, extend, change, discharge, terminate or affect
the liability of Maker or any other Person or party who might be or become
liable for the payment of all or any part of the Debt, under the Loan Documents,
except as otherwise expressly provided herein.
Maker and all others who may become liable for the payment of all or any
part of the Debt do hereby severally waive presentment and demand for payment,
notice of dishonor, protest, notice of protest, notice of non-payment, and
notice of intent to accelerate the maturity hereof and (except as may be
expressly provided for in the Loan Documents) of acceleration.
This Note may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Maker or Holder, but only by an agreement in writing signed by the party against
whom enforcement or any modification, amendment, waiver, extension, change,
discharge or termination is sought.
Subject to the qualifications below, neither Agent on behalf of the
Lenders nor the Lenders directly shall enforce the liability and obligation of
Maker to perform and observe the obligations contained in this Note, the Credit
Agreement or other Loan Documents by any action or proceeding wherein a money
judgment shall be sought against Maker (or any member, shareholder, partner or
other owner of Borrower, or any separate account contract holder, beneficial
owner, advisor, consultant, manager, fiduciary director, officer or employee of
any of the foregoing), unless, except as
-3-
<PAGE>
expressly reserved in clause (e) below, the judgment in any such action or
proceeding shall be enforceable against Maker only to the extent of Maker's
interest in the collateral given to Agent on behalf of the Lenders, and Agent on
behalf of the Lenders, by accepting this Note, the Credit Agreement and the
other Loan Documents, agrees that it shall not sue for, seek or demand any
deficiency judgment against Maker in any such action or proceeding under or by
reason of or under or in connection with this Note, the Credit Agreement or the
other Loan Documents except for any deficiency judgment that shall be enforced
solely against or collected solely from the collateral given to Agent on behalf
of the Lenders. The provisions of this Section shall not, however, (a)
constitute a waiver, release or impairment of any obligation evidenced or
secured by any of the Loan Documents; (b) impair the right of Agent on behalf of
the Lenders to name Maker as a party defendant in any action or suit for
foreclosure and sale under the Pledge; (c) affect the validity or enforceability
of or any guaranty or indemnity made in connection with the Loan or any of the
rights and remedies of Agent on behalf of the Lenders thereunder; (d) impair the
right of Agent on behalf of Agent on behalf of the Lenders to obtain the
appointment of a receiver; or (e) constitute a waiver of the right of Agent or
any of the Lenders to enforce the liability and obligation of Maker, by money
judgment or otherwise, to the extent of any loss, damage, cost, expense,
liability, claim or other obligation incurred by Agent or any of the Lenders
(including attorneys' fees and costs reasonably incurred) arising out of or in
connection with (but only to the extent of) the following:
(i) waste committed by or on behalf of Borrower with respect to the
Mortgaged Property or the Pledged Collateral;
(ii) fraud, misrepresentation or willful misconduct by Borrower in
connection with the Loan;
(iii) the removal or disposal by Borrower of any portion of the
Mortgaged Property after an Event of Default; and
(iv) the misappropriation by Borrower of any revenues or
distributions and/or dividends from the Property Owner.
Notwithstanding anything to the contrary in this Note or any of the Loan
Documents, neither Agent nor any of the Lenders shall be deemed to have waived
any right which Agent or any of the Lenders may have under Section 506(a),
506(b), 1111(b) or any other provisions of the U.S. Bankruptcy Code to file a
claim for the full amount of the Debt or to require that all collateral shall
continue to secure all of the Debt owing to Agent and the Lenders in accordance
with the Loan Documents.
-4-
<PAGE>
Notwithstanding anything to the contrary in this Note and to the extent
permitted by applicable law, if the aggregate amount of interest payable in
respect of this Note and all other consideration which would constitute interest
for any Interest Period under applicable law results in an effective rate of
interest for any Interest Period on this Note in excess of the maximum rate
permitted by law applicable to this Note (after giving effect to any adjustment
permitted by law to the interest rate paid or payable in any Interest Periods
other than such Interest Period), the effective rate of interest for such
Interest Period for this Note shall be limited to a rate of interest which would
not cause the effective rate to exceed the maximum legal rate, and the effective
rate for all other Notes shall be increased in a manner such that (i) the
aggregate payment of additional interest due on all Notes after such adjustments
shall be equal to the aggregate interest payment due on all Notes had no
adjustments been necessary, and (ii) the amount of additional interest accrued
on all such other Notes is increased pro rata based upon the outstanding
--- ----
principal balances thereof, but shall not be increased to a rate in excess of
the maximum legal rate applicable to such other Notes.
Whenever used, the singular number shall include the plural the singular,
and the words "Holder" and "Maker" shall include their respective successors,
assigns, heirs, executors and administrators as permitted under the Loan
Documents.
IN WITNESS WHEREOF, Maker has caused its duly authorized officers to
execute this Note on its behalf, as of the day and year first above written.
MARRIOTT DSM LLC,
a Delaware limited liability company
By:
_________________________________
Name: Patricia K. Brady
Title: Vice President
-5-
<PAGE>
AMORTIZATION SCHEDULE: $20,000,000 MEZZANINE
<TABLE>
<S> <C>
Interpolated 12-yr UST 5.865%
Spread 4.500%
Coupon (Actual/360) 10.365%
Amortization 12.50
Anticipated Maturity 12.50
Constant 14.40%
<CAPTION>
CLOSING DATE: 11/26/97
MEZZ. PLACE
PAYMENT DATE MONTH BEGINNING BALANCE INTEREST PRINCIPAL PAYMENT END BALANCE
<S> <C> <C> <C> <C> <C> <C> <C>
12/12/97 16 1 20,000,000.00 92,133.33 - 92,133.33 20,000,000.00
1/12/98 31 2 20,000,000.00 178,508.33 61,549.47 240,057.81 19,938,450.53
2/12/98 31 3 19,938,450.53 177,958.98 62,098.83 240,057.81 19,876,351.70
3/12/98 28 4 19,876,351.70 160,236.52 79,821.28 240,057.81 19,796,530.42
4/12/98 31 5 19,795,530.42 176,692.28 63,365.62 240,057.81 19,733,164.89
5/12/98 30 6 19,733,164.69 170,445.21 69,612.59 240,057.81 19,683,552.30
6/12/98 31 7 19,663,552.30 175,505.40 64,552.41 240,057.81 19,598,999.89
7/12/98 30 8 19,598,999.69 169,286.36 70,771.44 240,057.81 19,528,228.45
8/12/98 31 9 19,528,228.45 174,297.58 65,760.23 240,057.81 19,462,468.22
9/12/98 31 10 19,462,468.22 173,710.64 66,347.17 240,057.81 19,396,121.05
10/12/98 30 11 19,396,121.05 167,534.00 72,523.61 240,057.81 19,323,597.24
11/12/98 31 12 19,323,597.24 172,471.16 67,586.65 240,057.81 19,256,010.59
12/12/98 30 13 19,256,010.59 166,323.79 73,734.01 240,057.81 19,182,276.56
1/12/99 31 14 19,182,276.58 171,209.61 68,947.99 240,057.81 19,113,428.58
2/12/99 31 15 19,113,428,58 170,595.31 69,462.49 240,057.81 19,043,966.09
3/12/99 28 16 19,043,966.09 153,526.11 66,531.70 240,057.81 18,957,434.39
4/12/99 31 17 18,957,434.39 169,203.00 70,584.80 240,057.81 18,886,579.59
5/12/99 30 18 18,886,579.59 163,132.83 76,924.97 240,057.81 18,809,854.61
6/12/99 31 19 18,809,854.61 167,884.00 72,173.80 240,057.81 18,737,480.81
7/12/99 30 20 18,737,480.81 161,644.99 78,212.82 240,057.81 18,659,268.00
8/12/99 31 21 18,659,268.00 166,541.74 73,516.06 240,057.81 18,585,751.93
9/12/99 31 22 18,585,751.93 165,885.58 74,172.23 240,057.81 18,511,579.71
10/12/99 30 23 18,511,579.71 159,893.77 80,164.04 240,057.81 18,431,415.67
11/12/99 31 24 18,431,415.67 164,508.06 75,549.74 240,057.81 18,355,885.93
12/12/99 30 25 18,355,865.93 158,548.79 81,509.01 240,057.81 18,274,356.92
1/12/00 31 26 18,274,356.92 163,106.25 76,951.56 240,057.81 18,197,405.36
2/12/00 31 27 18,197,405.36 162,419.43 77,638,38 240,057.81 18,119,766.98
3/12/00 29 28 18,119,766.96 151,292.50 88,765.30 240,057.81 18,031,001.68
4/12/00 31 29 18,031,001.68 160,934.20 79,123.60 240,057.81 17,951,878.08
5/12/00 30 30 17,951,878.08 155,059.35 84,998.46 240,057.81 17,866,879.62
6/12/00 31 31 17,866,879.62 159,469.35 80,588.46 240,057.81 17,786,291.16
7/12/00 30 32 17,786,291.16 153,629.09 86,428.72 240,057.81 17,699,862.44
8/12/00 31 33 17,699,862.44 157,976.65 82,079.16 240,057.81 17,617,783.29
9/12/00 31 34 17,617,783.29 157,246.06 82,811.75 240,057.81 17,534,971.54
10/12/00 30 35 17,534,971.54 151,458.32 88,599.49 240,057.81 17,446,372.05
11/12/00 31 36 17,446,372.05 155,716.14 84,341.67 240,057.81 17,362,030.38
12/12/00 30 37 17,362,030.38 149,964.54 90,093.27 240,057.81 17,271,937.11
1/12/01 31 38 17,271,937.11 154,159.24 85,696.57 240,057.81 17,186,038.54
2/12/01 31 39 17,186,038.54 153,392.55 86,665.25 240,057.81 17,099,373.29
3/12/01 28 40 17,099,373.29 137,649.45 102,208.36 240,057.81 16,997,164.93
4/12/01 31 41 16,997,164.93 151,706.78 88,351.03 240,057.81 16,908,813.91
5/12/01 30 42 16,908,813.91 146,049.88 94,007.93 240,057.81 16,814,805.98
6/12/01 31 43 16,814,805.98 150,079.15 89,978.66 240,057.81 16,724,827.33
7/12/01 30 44 16,724,827.33 144,460.70 95,597,11 240,057.81 16,629,230.22
8/12/01 31 45 16,629,230.22 148,422.81 91,635.00 240,057.81 16,537,595.22
9/12/01 31 46 16,537,595.22 147,604.93 92,452.88 240,057.81 16,445,142.34
10/12/01 30 47 16,445,142.34 142,044.92 98,012.89 240,057.81 16,347,129.45
11/12/01 31 48 16,347,129.45 145,904.94 94,152.86 240,057.81 16,252,976.59
12/12/01 30 49 16,252,976.59 140,385.09 99,672.72 240,057.81 16,153,303.87
1/12/02 31 50 16,153,303.87 144,174.97 95,882.84 240,057.81 16,057,421.03
2/12/02 31 51 16,057,421.03 143,319.17 96,738.63 240,057.81 15,960,682.40
3/12/02 28 52 15,960,682.40 128,669.70 111,388.10 240,057.81 15,849,294.29
4/12/02 31 53 15,849,294.29 141,461.56 98,596.25 240,057.81 15,750,698.04
5/12/02 30 54 15,750,698.04 136,046.65 104,011.15 240,057.81 15,646,686.69
6/12/02 31 55 15,646,686.89 139,653.20 100,404.61 240,057.81 15,546,282.29
7/12/02 30 56 15,546,282.29 134,281.01 105,776.79 240,057.81 15,440,505.50
8/12/02 31 57 15,440,505.50 137,812.95 102,244.86 240,057.81 15,338,280.64
9/12/02 31 58 15,338,260.64 136,900.37 103,157.44 240,057.81 15,235,103.20
10/12/02 30 59 15,235,103.20 131,593.20 108,464.60 240,057.81 15,126,638.59
11/12/02 31 60 15,126,638.59 135,011.55 105,046.25 240,057.81 15,021,592.34
12/12/02 30 61 15,021,592.34 129,749.00 110,308.80 240,057.81 14,911,283.54
1/12/03 31 62 14,911,283.54 133,089.42 106,968.39 240,057.81 14,804,315.15
2/12/03 31 63 14,804,315.15 132,134.68 107,923.12 240,057.81 14,696,392.03
3/12/03 28 64 14,696,392.03 118,477.41 121,580.39 240,057.81 14,574,611.64
4/12/03 31 65 14,574,911.64 130,086.27 109,971.54 240,057.81 14,464,840.10
</TABLE>
<PAGE>
AMORTIZATION SCHEDULE: $20,000,000 MEZZANINE
<TABLE>
<S> <C>
Interpolated 12-yr UST 5.865%
Spread 4.500%
Coupon (Actual/360) 10.365%
Amortization 12.50
Anticipated Maturity 12.50
Constant 14.40%
<CAPTION>
CLOSING DATE: 11/26/97
MEZZ. PLACE
PAYMENT DATE MONTH BEGINNING BALANCE INTEREST PRINCIPAL PAYMENT END BALANCE
<S> <C> <C> <C> <C> <C> <C> <C>
5/12/03 30 66 14,464,840.10 124,940.08 115,117.75 240,057.81 14,349,722.35
6/12/03 31 67 14,349,722.35 128,077.25 111,980,55 240,057.81 14,237,741.79
7/12/03 30 68 14,237,741.79 122,978.49 117,079.31 240,057.81 14,120,662.48
8/12/03 31 69 14,120,662.48 126,032.80 114,025.01 240,057.81 14,006,637.47
9/12/03 31 70 14,006,637.47 125,015.08 115,042.73 240,057.81 13,891,594.74
10/12/03 30 71 13,891,594.74 119,988.65 120,069.16 240,057.81 13,771,525.59
11/12/03 31 72 13,771,525.59 122,916.60 117,141.20 240,057.81 13,654,384.39
12/12/03 30 73 13,654,384.39 117,939.75 122,118.06 240,057.81 13,532,266.33
1/12/04 31 74 13,532,266.33 120,781.12 118,276.69 240,057.81 13,412,989.64
2/12/04 31 75 13,412,989.64 119,716.52 120,341.28 240,057.81 13,292,648.35
3/12/04 29 76 13,292,648.35 110,988.08 129,089.73 240,057.81 13,163,578.62
4/12/04 31 77 13,163,578.62 117,490.42 122,587.38 240,057.81 13,041,011.24
5/12/04 30 78 13,041,011.24 112,641.73 127,416.07 240,057.81 12,913,595.17
6/12/04 31 79 12,913,595.17 115,259.22 124,798.59 240,057.81 12,788,798.58
7/12/04 30 80 12,788,796.58 110,483.23 129,594.58 240,057.81 12,659,202.01
8/12/04 31 81 12,659,202.01 112,988.65 127,069.15 240,057.81 12,532,132.85
9/12/04 31 82 12,532,132.85 111,954.51 128,203.30 240,057.81 12,403,929.55
10/12/04 30 83 12,403,929.55 107,136.94 132,918.86 240,057.81 12,271,010.69
11/12/04 31 84 12,271,010.69 109,523.89 130,533.92 240,057.81 12,140,478.77
12/12/04 30 85 12,140,476.77 104,863.37 135,194.44 240,057.81 12,005,282.33
1/12/05 31 86 12,005,282.33 107,152.15 132,905.66 240,057.81 11,872,376.67
2/12/05 31 87 11,872,376.67 105,965.91 134,091.90 240,057.81 11,738,284.77
3/12/05 28 88 11,738,284.77 94,630.14 145,427.67 240,057.81 11,592,857.11
4/12/05 31 89 11,592,857.11 103,471.08 136,586.73 240,057.81 11,456,270.38
5/12/05 30 90 11,456,270.38 98,953.54 141,104.27 240,057.81 11,315,166.11
6/12/05 31 91 11,315,166.11 100,992.57 139,065.23 240,057.81 11,176,100.88
7/12/05 30 92 11,176,100.88 96,533.57 143,524.23 240,057.81 11,032,576.64
8/12/05 31 93 11,032,576.64 98,470.34 141,587.46 240,057.81 10,890,989.18
9/12/05 31 94 10,890,989.18 97,206.62 142,851.19 240,057.81 10,748,137.99
10/12/05 30 95 10,748,137.99 92,837.04 147,220.76 240,057.81 10,600,917.23
11/12/05 31 96 10,600,917.23 94,617.60 145,440.20 240,057.81 10,455,477.03
12/12/05 30 97 10,455,477.03 90,309.18 149,748.62 240,057.81 10,305,726.40
1/12/06 31 98 10,305,728.40 91,982.92 148,074.89 240,057.81 10,157,653.52
2/12/06 31 99 10,157,653.52 90,661.29 149,396.52 240,057.81 10,008,257.00
3/12/06 28 100 10,008,257.00 80,683.23 159,374.57 240,057.81 9,849,882.43
4/12/06 31 101 9,849,882.43 87,905.38 152,152.43 240,057.81 9,696,730.00
5/12/06 30 102 9,696,730.00 83,755.51 156,302.30 240,057.81 9,540,427.70
6/12/06 31 103 9,540,427.70 85,152.29 154,905.51 240,057.81 9,385,522.19
7/12/06 30 104 9,385,522.19 81,067.45 159,990.36 240,057.81 9,228,531.83
8/12/06 31 105 9,228,531.83 82,350.54 157,707.16 240,057.81 9,068,824.67
9/12/06 31 106 9,068,824.67 80,943.04 159,114.77 240,057.81 8,909,709.90
10/12/06 30 107 8,909,709.90 76,957.62 163,100.19 240,057.81 8,746,609.72
11/12/06 31 108 8,746,609.72 78,067.14 161,990.67 240,057.81 8,584,619.05
12/12/06 30 109 8,584,619.05 74,149.65 165,908.16 240,057.81 8,418,710.89
1/12/07 31 110 8,418,710.89 75,140.50 164,917.30 240,057.81 8,253,793.58
2/12/07 31 111 8,253,793.58 73,668.55 166,389.26 240,057.81 8,087,404.33
3/12/07 28 112 8,087,404.33 65,197.96 174,859.85 240,057.81 7,912,544.48
4/12/07 31 113 7,912,544.48 70,622.76 169,435.05 240,057.81 7,743,109.43
5/12/07 30 114 7,743,109.43 66,881.11 173,176.70 240,057.81 7,569,932.73
6/12/07 31 115 7,569,932.73 67,564.80 172,493.00 240,057.81 7,397,439.73
7/12/07 30 116 7,397,439.73 63,895.39 176,162.42 240,057.81 7,221.277.31
8/12/07 31 117 7,221.277.31 64,452.91 175,604.90 240,057.81 7,045,672.41
9/12/07 31 118 7,045,672.41 62,885.56 177,172.24 240,057.81 6,868,500.17
10/12/07 30 119 6,868,500.17 59,326.67 180,731.14 240,057.81 6,687,769.03
11/12/07 31 120 6,687,769.03 59,691.13 180,366.68 240,057.81 6,507,402.35
12/12/07 30 121 6,507,402.35 56,207.69 183,850.12 240,057.81 6,323,552.23
1/12/08 31 122 6,323,552.23 56,440.34 183,617.47 240,057.81 6,139,934.77
2/12/08 31 123 6,139,934.77 54,801.48 185,256.33 240,057.81 5,954,678.44
3/12/08 29 124 5,954,678.44 49,719.08 190,338.72 240,057.81 5,764,339.72
4/12/08 31 125 5,764,339.72 51,449.13 188,608.67 240,057.81 5,575.731.04
5/12/08 30 126 5,575.731.04 46,160.38 191,897.43 240,057.81 5,383,833.62
6/12/08 31 127 5,383,833.62 48,052.96 192,004.85 240,057.81 5,191,828.77
7/12/08 30 128 5,191,828.77 44,844.42 195,213.38 240,057.81 4,996,615.38
8/12/08 31 129 4,996,615.38 44,596.87 195,460.93 240,057.81 4,801,154.45
9/12/08 31 130 4,801,154.45 42,852.30 197,205.50 240,057.81 4,603,948.95
</TABLE>
<PAGE>
<TABLE>
AMORTIZATION SCHEDULE: $20,000,000 MEZZANINE
<S> <C>
Interpolated 12-yr UST 5.865%
Spread 4.500%
Coupon (Actual/360) 10.365%
Amortization 12.50
Anticipated Maturity 12.50
Constant 14.40%
<CAPTION>
CLOSING DATE: 11/26/97
MEZZ. PLACE
PAYMENT DATE MONTH BEGINNING BALANCE INTEREST PRINCIPAL PAYMENT END BALANCE
<S> <C> <C> <C> <C> <C> <C> <C>
10/12/08 30 131 4,603,948.95 39,766.61 200,291.20 240,057.81 4,403,657.75
11/12/08 31 132 4,403,657.75 39,304.48 200,753.33 240,057.81 4,202,904.43
12/12/08 30 133 4,202,904.43 36,302.59 203,755.22 240,057.81 3,999,149.21
1/12/09 31 134 3,999,149.21 35,694.07 204,363.73 240,057.81 3,794,785.48
2/12/09 31 135 3,794,785.48 33,870.04 206,187.76 240,057.81 3,588,597.71
3/12/09 28 136 3,588,597.71 28,930.08 211,127.73 240,057.81 3,377,469.99
4/12/09 31 137 3,377,469.99 30,145.33 209,912.48 240,057.81 3,167,557.51
5/12/09 30 138 3,167,557.51 27,359.78 212,698.03 240,057.81 2,954,859.49
6/12/09 31 139 2,954,859.48 26,373.35 213,684.45 240,057.81 2,741,175.03
7/12/09 30 140 2,741,175.03 23,676.90 216,380.91 240,057.81 2,524,794.12
8/12/09 31 141 2,524,794.12 22,534.84 217,522.97 240,057.81 2,307,271.16
9/12/09 31 142 2,307,271.16 20,593.36 219,464.45 240,057.81 2,087,808.71
10/12/09 30 143 2,087,806.71 18,033.43 222,024.38 240,057.81 1,885,782.33
11/12/09 31 144 1,865,782.33 16,652.88 223,404.92 240,057.81 1,642,377.41
12/12/09 30 145 1,642,377.41 14,186.03 225,871.77 240,057.81 1,416,505.64
1/12/10 31 146 1,416,505.64 12,642.90 227,414,90 240,057.81 1,189,090.74
2/12/10 31 147 1,189,090.74 10,613.13 229,444.68 240,057.81 959,646.06
3/12/10 28 148 959,646.06 7,736.35 232,321.46 240,057.81 727,324.60
4/12/10 31 149 727,324.60 6,491.68 233,566.13 240,057.81 493,758.47
5/12/10 30 150 493,758.47 4,264.84 235,792.97 240,057.81 257,965.51
6/12/10 31 151 257,965.51 2,302.45 257,965.51 260,267.95 -
</TABLE>
<PAGE>
Exhibit 10.15
THE RIGHTS OF THE LENDER HEREUNDER ARE SUBJECT, IN CERTAIN RESPECTS, TO THE
PROVISIONS OF THAT CERTAIN INTERCREDITOR AGREEMENT DATED AS OF EVEN DATE
HEREWITH BETWEEN THE LENDER AND GMAC COMMERCIAL MORTGAGE CORPORATION AND THAT
CERTAIN INTERCREDITOR AGREEMENT DATED AS OF EVEN DATE HEREWITH BETWEEN THE
LENDER AND GOLDMAN SACHS MORTGAGE COMPANY
LOAN AGREEMENT
THIS LOAN AGREEMENT (THIS "AGREEMENT") is entered into as of November
25, 1997, by and between DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP, a Delaware
limited partnership having its principal offices at 10400 Fernwood Road,
Bethesda, Maryland 20817-1109 (THE "BORROWER"), and MDSM FINANCE LLC, a
Delaware limited liability company having its principal offices at 10400
Fernwood Road, Bethesda, Maryland 20817-1109 (THE "LENDER").
WHEREAS, the Borrower has requested the Lender to make a loan (THE
"LOAN") to the Borrower, and the Lender has agreed to make the Loan to the
Borrower, for the purposes and on the terms and conditions described herein;
WHEREAS, the Loan is evidenced by that certain Promissory Note dated
as of the date hereof by the Borrower to the order of the Lender and its
successors and assigns in the principal amount of Fifty-Nine Million Seven
Hundred Twenty-Seven Thousand Two Hundred Seventy-Two and No/100 Dollars
($59,727,272.00), which is to be secured by a pledge of, and security interest
in: the Borrower's one hundred percent (100%) membership interest in Marriott
DSM LLC, a Delaware limited liability company (THE "MEZZANINE BORROWER"), which
owns the one hundred percent (100%) membership interest DS Hotel LLC, a Delaware
limited liability company (THE "HOTEL OWNER"), which owns Marriott's Desert
Springs Resort and Spa in Palm Desert, California (THE "HOTEL"); and
WHEREAS, the parties hereto desire to set forth their agreement
regarding the making of the Loan and the terms and conditions upon which the
Loan shall be made and repaid.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used herein
shall have the respective meanings specified in this SECTION 1 (such definitions
to be equally applicable to both the singular and plural forms of the terms
defined).
"AFFILIATE" means a Person or Persons, directly or indirectly, through
one or more intermediaries, controlling, controlled by, or under common control
with the Person or Persons in question. The term "control" means with respect
to a Person that is a corporation, the right to exercise, directly or
indirectly, more than 10% of the voting rights attributable to the shares of the
controlled corporation, and with respect to a Person that is not a corporation,
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of the controlled Person.
<PAGE>
Notwithstanding the foregoing, Marriott International, Inc. (as it may be
constituted or reconstituted, from time to time) and its Affiliates shall not be
deemed to be Affiliates of the Lender or the Borrower.
"AGENT" means Goldman Sachs Mortgage Company, a New York limited
partnership, in its capacity as agent of the "Lenders" under that certain Credit
Agreement, dates as of even date herewith, by and among Mezzanine Borrower,
Agent and Mezzanine Lender.
"AGREEMENT" means this Loan Agreement, as it may be amended,
supplemented or modified from time to time.
"BANKRUPTCY LAW" means Title 11, United States Code, or any similar
federal, state or foreign law for the relief of creditors.
"BASE RATE" means an interest rate computed at thirteen percent (13%)
per annum.
"BORROWER" means Desert Springs Marriott Limited Partnership, a
Delaware limited partnership.
"BUSINESS DAY" means a day other than a Saturday, Sunday or a day on
which federally insured depository institutions in Maryland are required or
authorized by law, governmental decree or executive order to be closed.
"CLOSING" means the advance of the proceeds of the Loan.
"CLOSING DATE" means the date hereof.
"COLLATERAL" means the Borrower's one hundred percent (100%)
membership interest in the Mezzanine Borrower, and any other collateral pledged
to the Lender pursuant to the Pledge Agreement and any substitutions, additions
or modifications thereto.
"DEBT" means the obligations of the Borrower under the Loan Documents
to repay the principal amount of the Loan, together with all interest thereon
and all other sums which may or shall become due under any of the Loan
Documents, including, without limitation, the costs and expenses of enforcing
any provision of the Loan Documents and any other costs that may be reimbursable
hereunder or thereunder.
"DEBT SERVICE RESERVE ACCOUNT" has the meaning ascribed to it in the
Senior Loan Documents.
"DEFAULT" has the meaning ascribed to it in SECTION 7.1 hereof.
"DEFAULT INTEREST RATE" means fifteen percent (15%) per annum.
"DUE DATE" has the meaning ascribed to it in the Promissory Note.
"ENCUMBRANCE" has the meaning ascribed to it in Section 3.2 hereof.
"EVENT OF DEFAULT" has the meaning ascribed to it in SECTION 7.1
hereof.
2
<PAGE>
"GENERAL PARTNER" means Marriott Desert Springs Corporation, a
Delaware corporation, the sole general partner of the Borrower.
"GOLF COURSE B GROUND LEASE" means that certain Golf Course Lease
dated as of April 24, 1987 between Marriott's Desert Springs Development
Corporation, as lessor, and the Borrower, as lessee, as the same may have been
amended and as assigned by the Borrower to the Mezzanine Borrower and by the
Mezzanine Borrower to the Hotel Owner.
"GOVERNMENTAL AUTHORITY" means any nation, government, state or
political subdivision of any thereof, including any court or any other entity
exercising executive, legislative, regulatory, judicial or administrative
functions of, or pertaining to, government.
"GROSS REVENUES" has the meaning ascribed to it in the Management
Agreement.
"HOTEL" has the meaning ascribed to it in the Recitals hereto.
"HOTEL OWNER" has the meaning ascribed to it in the Recitals hereto.
"INTERCREDITOR AGREEMENTS" means collectively the Mezzanine
Intercreditor Agreement and the Senior Intercreditor Agreement.
"INTEREST" has the meaning ascribed to it in the Promissory Note.
"LIMITED PARTNERS" means the limited partners of the Borrower.
"LOAN" means the loan in the original principal amount of
$59,727,272.00 made by the Lender to the Borrower pursuant to SECTION 2 hereof.
"LOAN DOCUMENTS" means this Agreement, the Promissory Note, the Pledge
Agreement and any and all other documents, agreements, certificates, notes or
other instruments now or hereafter delivered by the Borrower pursuant to, or in
connection with, the Loan.
"LOWER-TIER LOANS" means collectively the Senior Loan and the
Mezzanine Loan, and shall include any refinancing thereof (to the extent not in
excess of the sum of the then outstanding principal balances thereof, accrued
and unpaid interest thereon and any enforcement costs incurred by Senior Lender
or Mezzanine Lender, respectively, in connection therewith).
"MANAGEMENT AGREEMENT" means that certain Management Agreement dated
of even date herewith between the Hotel Owner and the Manager, with respect to
the management of the Hotel, together with any amendments or modifications
thereto.
"MANAGEMENT INCENTIVE RESERVE ACCOUNT" has the meaning ascribed to it
in the Senior Loan Documents.
"MANAGER" means Marriott Hotel Services, Inc., or any successor
thereto, or any other Person who becomes the manager of the Hotel under the
Management Agreement.
"MATURITY DATE" has the meaning ascribed to it in the Promissory Note.
3
<PAGE>
"MEZZANINE BORROWER" means Marriott DSM LLC, a Delaware limited
liability company.
"MEZZANINE DEBT SERVICE RESERVE ACCOUNT" has the meaning ascribed to
it in the Mezzanine Loan Documents.
"MEZZANINE INTERCREDITOR AGREEMENT" means that certain Intercreditor
Agreement dated of even date herewith between the Mezzanine Lender, Agent and
the Lender.
"MEZZANINE LENDER" means the holder of the Mezzanine Loan from time to
time, which currently is Goldman Sachs Mortgage Company, a New York limited
partnership.
"MEZZANINE LOAN" means that certain loan in the original principal
amount of Twenty Million Dollars ($20,000,000) made on the date hereof by the
Mezzanine Lender to the Mezzanine Borrower.
"MEZZANINE LOAN DOCUMENTS" means the documents governing, evidencing
or relating to the making, securing and repayment of the Mezzanine Loan.
"PERSON" means an individual, a partnership, a corporation, a trust,
an unincorporated organization, a joint venture or other business entity, a
limited liability company, or a government or any department, agency or
political subdivision thereof.
"PLEDGE AGREEMENT" means that certain Pledge and Security Agreement
dated of even date herewith from the Borrower in favor of the Lender and any
replacement, amendment or modification thereof.
"PROMISSORY NOTE" means the promissory note described in SECTION 2.2
hereof.
"SENIOR INTERCREDITOR AGREEMENT" means that certain Intercreditor
Agreement dated of even date herewith between the Senior Lender and the Lender.
"SENIOR LENDER" means GMAC Commercial Mortgage Corporation, a
California corporation, and its successors and assigns as the lender under the
Senior Loan Documents.
"SENIOR LOAN" means the loan in the original principal amount of One
Hundred Three Million Dollars ($103,000,000) made on the date hereof by the
Senior Lender to the Hotel Owner.
"SENIOR LOAN DOCUMENTS" means the documents governing, evidencing or
relating to the making, securing and repayment of the Senior Loan.
2. THE LOAN
2.1. MAKING THE LOAN
Subject to the terms and conditions set forth herein, the Lender
agrees to make the Loan to the Borrower. On the Closing Date, the Lender shall
advance the full proceeds of the Loan to the Borrower. No further advances of
the Loan shall be made.
4
<PAGE>
2.2. PROMISSORY NOTE
The obligation of the Borrower to repay the full amount of the Loan,
together with interest thereon, and other charges and expenses, if any, related
thereto, shall be evidenced by that certain Promissory Note made by the Borrower
to the order of the Lender dated as of the Closing Date (THE "PROMISSORY NOTE"),
substantially in the form of EXHIBIT A attached hereto and incorporated herein,
---------
in the face amount of Fifty-Nine Million Seven Hundred Twenty-Seven Thousand Two
Hundred Seventy-Two and No/100 Dollars ($59,727,272.00).
2.3. USE OF LOAN PROCEEDS
The Borrower agrees that the proceeds of the Loan advanced on the
Closing Date shall be contributed to the Mezzanine Borrower, which, in turn,
shall contribute such amount to the Hotel Owner, to be used to repay, in part,
the existing mortgage indebtedness of the Hotel Owner, and to certain costs and
expenses incurred in connection with the closing of the Loan and the Lower-Tier
Loans.
2.4. PAYMENT OF PRINCIPAL AND INTEREST
All payments made on the Promissory Note shall be made in the manner,
and subject to the conditions, provided in this Agreement and in the Promissory
Note. Subject to the provisions of Sections 5 and 6 of the Promissory Note, the
full principal balance due under the Promissory Note may be prepaid at any time
without penalty or premium. To the extent not previously paid, the entire Debt
shall be due and payable in full on the Maturity Date. The Debt shall bear
interest as provided in the Promissory Note and the other Loan Documents. Any
payments of interest which are due but not paid pursuant to Section 4(a) of the
Promissory Note by reason of an insufficiency of Gross Revenues during the
period in question or as a result of any restrictions agreed to by the Lender
under the Intercreditor Agreements shall bear interest as described in Section
4(a) of the Promissory Note, provided that a failure to pay any amounts
hereunder which are not paid when due for any other reason shall bear interest
at the Default Interest Rate beginning on the date such payment becomes past
due.
3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER
To induce the Lender to enter into this Agreement and the other Loan
Documents and to make the Loan to the Borrower, the Borrower makes the following
representations and warranties:
3.1. CORPORATE AUTHORITY
The Borrower (a) is a limited partnership duly organized, validly
existing, and in good standing under the laws of the State of Delaware, (b) is
qualified to do business as a foreign limited partnership and is in good
standing in all jurisdictions where its activities or ownership of property
require such qualification, and (c) has the full and unrestricted power and
authority, partnership and otherwise, to own, operate and lease its properties,
to carry on its business as currently conducted, to execute and deliver and
perform this Agreement and the other Loan Documents, to incur the obligations
provided for herein and therein, and to perform the transactions contemplated
hereby and thereby (including, without limitation, the creation of a lien on,
and security interest in favor of the Lender in, the Collateral, all of which
have been duly and validly authorized by all proper and necessary actions, which
actions are in full force and effect).
5
<PAGE>
3.2 BINDING EFFECT; NO VIOLATIONS
This Agreement and each of the Loan Documents, upon their execution
and delivery, will constitute a legal, valid and binding obligation of the
Borrower, enforceable against the Borrower in accordance with their respective
terms, subject to applicable bankruptcy, insolvency and similar laws affecting
rights of creditors generally and general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law). The
execution, delivery and performance of this Agreement and the other Loan
Documents will not (a) violate, conflict with, or constitute a default under,
any applicable law, regulation, order or any other requirement of any
Governmental Authority, any terms of the partnership agreement of the Borrower,
or any contract, agreement or other arrangement binding upon or affecting the
Borrower or any of its property or (b) result in the creation, imposition or
acceleration of any indebtedness or any mortgage, pledge, lien, charge,
reservation, covenant, restriction, security interest or other encumbrance
(individually an "ENCUMBRANCE" and collectively the "ENCUMBRANCES") of any
nature upon, or with respect to, the Borrower, the Hotel or the Collateral,
except Encumbrances provided for under this Agreement or the other Loan
Documents.
3.3. LITIGATION
To the best of the Borrower's knowledge, there is no claim,
litigation, proceeding or investigation pending, threatened or reasonably
anticipated against or affecting the Borrower, the Mezzanine Borrower or the
Hotel Owner or their respective properties or business, an adverse determination
of which might reasonably be expected to materially and adversely affect (a) the
Hotel or the business, operations, prospects, assets, properties or condition
(financial or otherwise) of the Borrower, the Mezzanine Borrower or the Hotel
Owner, (b) the validity or perfection of the liens securing the Loan or (c) the
Borrower's ability to repay the Loan.
3.4. TITLE TO ASSETS
To the best of the Borrower's knowledge, as of the date hereof, (a)
the Borrower has good, valid and marketable title to all of its properties and
assets (whether real or personal), and there exist no Encumbrances on any of the
Borrower's properties or assets, including, without limitation, the Collateral,
(b) the Mezzanine Borrower has good, valid and marketable title to all of its
properties and assets (whether real or personal), and there exist no
Encumbrances on any of the Mezzanine Borrower's properties or assets other than
those created by, or permitted under, the Mezzanine Loan Documents and (c) the
Hotel Owner has good, valid and marketable title to all of its properties and
assets (whether real or personal), and there exist no Encumbrances on any of the
Hotel Owner's properties or assets other than those created by, or permitted
under, the Senior Loan Documents.
3.5. NO DEFAULTS
To the best of the Borrower's knowledge, (a) no Default or Event of
Default exists hereunder or under the other Loan Documents and (b) no default
exists under the Senior Loan Documents or the Mezzanine Loan Documents.
3.6. COMPLIANCE WITH LAWS
The Borrower, the Mezzanine Borrower, the Hotel Owner and the Hotel
are in compliance with all applicable laws, regulations, orders and other
requirements of any Governmental Authority or arbitrator, except for such non-
compliance as would not reasonably be expected, singly or in the aggregate, to
materially and adversely affect the Hotel or the business, operations,
prospects, assets,
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properties or condition (financial or otherwise) of the Borrower, the Mezzanine
Borrower or the Hotel Owner.
3.7. PERMITS AND LICENSES
No proceedings are pending or, to the best of the Borrower's
knowledge, threatened seeking the revocation or suspension of any permits,
licenses or approvals issued with respect to the Hotel, the revocation of which
might reasonably be expected to result in any material adverse change in the
business, operations, prospects, properties, assets or condition (financial or
otherwise) of the Borrower, the Mezzanine Borrower, the Hotel Owner or the
Hotel.
4. CONDITIONS PRECEDENT
The obligation of the Lender to proceed with the Closing is subject to
the satisfaction of each and all of the following conditions (and the occurrence
of the Closing shall be conclusive evidence that all such conditions have been
satisfied in full or knowingly waived as of such Closing):
4.1. REPRESENTATIONS, WARRANTIES AND COVENANTS
The representations and warranties of the Borrower made in this
Agreement and in any other Loan Document shall have been true and correct in all
material respects when made, and shall be true and correct in all material
respects on the date hereof. As of the date hereof, the Borrower shall have
performed and complied in all material respects with all covenants and
agreements required by this Agreement or by any other Loan Document to be
performed or complied with by the Borrower as of such date, and no Default or
Event of Default shall have occurred and be continuing.
4.2. BORROWER'S ACTIONS
The Borrower shall have taken all actions under the laws of any state
having jurisdiction over the Borrower necessary to effectuate the transactions
contemplated by this Agreement and by the other Loan Documents.
4.3. DELIVERY OF DOCUMENTS
The Borrower shall have delivered to the Lender the following
documents, fully executed by the Borrower, each of which shall be in form and
substance reasonably satisfactory to the Lender:
(a) This Agreement;
(b) The Promissory Note;
(c) The Pledge Agreement;
(d) UCC financing statements sufficient for filing in all
jurisdictions where filing is necessary to protect the
Lender's security interest in the Collateral.
4.4. CLOSING OF LOWER-TIER LOANS
The Hotel Owner and the Mezzanine Borrower, respectively, shall have
satisfied all conditions under the Senior Loan Documents and the Mezzanine Loan
Documents so that closing on the Lower-Tier Loans shall occur simultaneously
with the Closing.
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5. AFFIRMATIVE COVENANTS OF THE BORROWER
Until all obligations of the Borrower under this Agreement and the
other Loan Documents are paid and performed in full, the Borrower hereby
covenants and agrees that it shall, unless the Lender otherwise consents in
advance in writing:
5.1. PROCEEDS OF THE LOAN
Apply the proceeds of the Loan solely for the purposes set forth in
SECTION 2.3 hereof.
5.2. MANAGEMENT AGREEMENT
Cause the Hotel Owner to duly and punctually pay and perform all of
its obligations and enforce all of its rights under the Management Agreement to
the extent failure to perform or enforce its rights thereunder might materially
and adversely affect the business, operations, prospects, assets, properties or
condition (financial or otherwise) of the Borrower, the Mezzanine Borrower, the
Hotel Owner or the Hotel.
5.3. FINANCIAL AND OTHER INFORMATION
Furnish to the Lender (a) as soon as available and in any event within
eighty-five (85) days after the end of each fiscal year of the Borrower, the
financial statements (audited by Arthur Andersen L.L.P. or another nationally
recognized accounting firm reasonably satisfactory to the Lender) of the
Borrower and the Hotel Owner and unaudited financial statements of the Mezzanine
Borrower, as of the end of such fiscal year and the related statements of
revenues and expenses, statements of assets, liabilities and partners' capital
(deficit), changes in partners' capital and statement of cash flows of the
Borrower, the Mezzanine Borrower (to the extent available) and the Hotel Owner
for such fiscal year, all prepared in reasonable detail and on an accrual basis
of accounting consistently applied; (b) as soon as available, and in any event
within forty-five (45) days after the end of each fiscal quarter of each fiscal
year, the statement of assets, liabilities and partners' capital (deficit) and
related statements of revenues and expenses, changes in partners' capital, and
statement of cash flows of the Borrower, the Mezzanine Borrower (to the extent
available) and the Hotel Owner, as of the end of such quarter, certified by the
Borrower's chief accounting officer as having been prepared on an accrual basis
of accounting consistently applied; and (c) such additional information, reports
or statements as the Lender may from time to time reasonably request.
5.4. MAINTENANCE OF EXISTENCE, ETC.
At all times (a) maintain its principal place of business, principal
office and office where it keeps its records and other documents and
instruments, relating to the Borrower, the Mezzanine Borrower, the Hotel or the
Hotel Owner (except for certain records, documents and instruments kept at the
Hotel) at its address set forth in the preamble to this Agreement or such other
address of which the Lender may be given written notice not less than thirty
(30) days prior to the date on which a change of location is to occur; (b) cause
the Hotel Owner to maintain in full force and effect all permits, filings,
authorizations, consents, approvals and licenses material to the operation of
the Hotel; (c) maintain its legal existence in effect and in good standing; and
(d) comply with all requirements of applicable law material to the conduct of
its business and the performance of its obligations under the Loan Documents.
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5.5. BOOKS AND RECORDS; INSPECTION OF PROPERTY AND BOOKS
Keep and maintain, or cause to be kept and maintained, adequate and
proper records and books of account, in which complete entries are made on an
accrual basis of accounting consistently applied and in accordance with all laws
and regulations, and permit authorized representatives of the Lender to discuss
the business, operations, prospects, assets, properties and condition (financial
or otherwise) of the Borrower, the Mezzanine Borrower and the Hotel Owner with
their officers and employees and, at reasonable times and on reasonable notice,
to examine its books of account and other records and make copies thereof or
extracts therefrom, all at such reasonable times as the Lender may request for
any purpose reasonably related to the Lender's interest hereunder.
5.6. MAINTENANCE OF PROPERTY
Cause the Hotel Owner to keep the Hotel in good repair, working order
and condition, and from time to time make all necessary or desirable repairs,
renewals and replacements thereof. To the extent the Borrower is entitled to
approve any capital expenditures with respect to the Hotel, prior to granting
any such approval, the Borrower shall secure the Lender's consent thereto, which
may be withheld in the Lender's discretion.
5.7 GOLF COURSE B LEASE
Cause the Hotel Owner to duly and punctually pay and perform all of
its obligations and enforce all of its rights under the Golf Course B Lease to
the extent failure to perform or enforce its rights thereunder might materially
and adversely affect the business, operations, prospects, assets, properties or
condition (financial or otherwise) of the Borrower, the Mezzanine Borrower, the
Hotel Owner or the Hotel.
5.8 SENIOR LOAN DOCUMENTS
Cause the Hotel Owner to duly and punctually pay and perform all of
its obligations and enforce all of its rights under the Senior Loan Documents.
5.9 MEZZANINE LOAN DOCUMENTS
Cause the Mezzanine Borrower to duly and punctually pay and perform
all of its obligations and enforce all of its rights under the Mezzanine Loan
Documents.
6. ENCUMBRANCES
Until all obligations of the Borrower under the Loan Documents are
paid and performed in full, the Borrower hereby covenants and agrees that it
shall not, unless the Lender otherwise consents in advance in writing, create,
assume or suffer to exist, any Encumbrance of any kind, upon any of its
properties, assets or Collateral, whether now owned or hereafter acquired.
7. EVENTS OF DEFAULT AND REMEDIES
7.1. DEFAULT; AN EVENT OF DEFAULT
The occurrence of any of the following events beyond any applicable
notice and cure period set forth in this SECTION 7.1 shall be an "EVENT OF
DEFAULT" hereunder (and the occurrence of any
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of the following which, with the giving of notice or the passage of time, or
both, would become an Event of Default shall, prior to the giving of such notice
or the passage of such time, be a "DEFAULT" hereunder).
7.1.1.
The Borrower shall fail to pay any amount of principal, interest
or other amounts due under this Agreement, the Promissory Note or any of the
other Loan Documents within five (5) days after receipt of written notice that
such payment is past due; provided, however, that a failure to make Interest or
principal payments on the Promissory Note which are due but not paid pursuant to
Section 4(a) of the Promissory Note by reason of an insufficiency of Gross
Revenues during the period in question or as a result of any restrictions agreed
to by the Lender under the Intercreditor Agreements, shall not be a Default or
Event of Default so long as such unpaid amounts together with interest thereon
at the Base Rate, are repaid to the extent of subsequently available Gross
Revenues.
7.1.2.
The Borrower shall fail to perform or observe any of the
covenants and agreements of the Borrower set forth in this Agreement, or any
representation and warranty made by the Borrower in this Agreement or in any of
the other Loan Documents shall fail to have been true in any material and
adverse respect when made and, in either case, such failure shall continue
uncured, following the Borrower's receipt of written notice thereof from the
Lender, for a period of more than thirty (30) days; provided that, it shall not
be an Event of Default hereunder if such failure is curable but is not
reasonably capable of being cured within such 30-day cure period and Borrower
shall have promptly commenced to cure such failure and thereafter shall
diligently pursue such cure to completion.
7.1.3.
An event of default occurs and continues beyond applicable grace
and/or cure periods under the Senior Loan Documents or the Mezzanine Loan
Documents, as applicable.
7.1.4.
Either of the following shall occur with respect to the Borrower
or the General Partner:
(a) a decree, judgment or order by a court of competent
jurisdiction shall have been entered adjudicating the Borrower or the
General Partner bankrupt or insolvent, or approving as properly filed
a petition seeking reorganization of the Borrower or the General
Partner under any Bankruptcy Law, and such decree or order shall have
continued undischarged and unstayed for a period of sixty (60)
consecutive days; or a decree, judgment or order of a court of
competent jurisdiction appointing a receiver, liquidator, trustee, or
assignee in bankruptcy or insolvency for the Borrower or the General
Partner, or any substantial part of the property of the Borrower or
the General Partner, or for the winding up or liquidation of the
affairs of the Borrower or the General Partner, shall have been
entered, and such decree, judgment or order shall have remained in
force undischarged and unstayed for a period of sixty (60) days; or
(b) the Borrower or the General Partner shall institute
proceedings to be adjudicated a voluntary bankrupt, or shall consent
to the filing of a bankruptcy
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proceeding against it, or shall file a petition or answer or consent
seeking reorganization under any Bankruptcy Law, or shall consent to
the filing of any such petition, or shall consent to the appointment
of a custodian, receiver, liquidator, trustee or assignee in
bankruptcy or insolvency of it or any substantial part of its assets
or property, or shall make a general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts
generally as they become due, or shall, within the meaning of any
Bankruptcy Law, become insolvent, fail generally to pay its debts as
they become due, or shall, within the meaning of any Bankruptcy Law,
become insolvent, fail generally to pay its debts as they become due,
or take any corporate action in furtherance of or to facilitate,
conditionally or otherwise, any of the foregoing.
7.1.5.
An Event of Default shall occur under any other Loan Document.
7.2. REMEDIES
If an Event of Default shall have occurred and be continuing, the
Lender shall have the right, in its sole discretion, by written notice to the
Borrower (except upon the occurrence of an Event of Default under SECTION 7.1.4
affecting the Borrower, in which case all principal and accrued Interest thereon
will be immediately due and payable on the Promissory Note without any
declaration or other act on the part of the Lender) to take one or more of the
following actions:
7.2.1.
To declare the principal of and all amounts accrued but unpaid
under the Promissory Note, this Agreement and the other Loan Documents to be
immediately due and payable, and such amounts shall thereupon become immediately
due and payable, without presentment, demand, protest or notice of any kind,
other than any notice specifically required by SECTION 7.1 or the first
paragraph of this SECTION 7.2, all of which are hereby expressly waived by
Borrower.
7.2.2.
Pursue such rights and remedies against the Borrower, or
otherwise, as are provided under and pursuant to this Agreement, the Pledge
Agreement or any of the other Loan Documents and as may be available to the
Lender at law or in equity.
7.2.3.
If the Event of Default involves the Borrower's failure to pay
any tax, assessment, Encumbrance or other imposition binding on the Borrower or
any of the Collateral or to perform or observe any other covenant, condition or
term in any Loan Document, the Lender may, at its option, without waiving or
affecting any of its other rights or remedies hereunder, and without any
obligation to do so, pay, perform or observe the same, and all payments made or
costs or expenses incurred by the Lender in connection therewith shall be repaid
by the Borrower to the Lender within fifteen (15) days after demand therefor,
together with interest thereon at the Default Interest Rate, and shall be added
to and become a part of the indebtedness secured by the Pledge Agreement.
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7.2.4.
Appoint as a matter of right, without notice, to the fullest
extent permitted under applicable law, a receiver for the Borrower or for all or
any part of the Collateral, whether such receivership be incidental to a
proposed sale of the Collateral or otherwise. All disbursements made by the
receiver and the expenses of receivership, shall be added to and be a part of
the principal amount of the obligations evidenced by the Promissory Note and
secured by the Pledge Agreement, and, whether or not said principal sum,
including such disbursements and expenses, exceeds the indebtedness originally
intended to be evidenced or secured thereby, the entire amount of said sum,
including such disbursements and expenses, shall bear interest at the Default
Interest Rate, shall be secured by the Pledge Agreement and shall be due and
payable within fifteen (15) days after demand therefor.
7.3. REMEDIES CUMULATIVE
Each of the rights, powers and remedies provided herein and in the
other Loan Documents are intended and are hereby deemed to be cumulative,
concurrent and in addition to, and not in limitation of, those rights, powers
and remedies provided elsewhere herein or in any other Loan Document or now or
hereafter existing at law or in equity or by statute or otherwise. No waiver of
any Default or Event of Default in one instance shall constitute a waiver of any
other or any succeeding Default or Event of Default, except to the extent
provided in such waiver.
7.4. DEFAULT INTEREST
In addition to the provisions of SECTION 2 and SECTION 7.2 hereof, if
the Borrower shall fail for any reason (other that as described in the proviso
in SECTION 7.1.1 hereof) to make payment when and as due of any amounts due
hereunder (whether at the stated date for payment, or earlier upon an
acceleration hereunder), the Borrower shall pay, to the fullest extent permitted
by applicable law, interest to the Lender on such past due amounts beginning on
the date such payment becomes past due at a per annum rate of interest equal to
the Default Interest Rate.
7.5. DEFAULT INDEMNITY
The Borrower hereby agrees to, and shall, indemnify and hold harmless
the Lender against the reasonable out-of-pocket costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) which the Lender
may sustain or incur as a consequence of any Default or Event of Default
hereunder and in the enforcement of the Lender's rights and remedies in
connection therewith. Lender shall provide to the Borrower a satisfactory
statement, signed by an officer of Lender and supported, where applicable, by
documentary evidence, explaining the amount of all such costs or expenses. Any
amounts that the Borrower must pay to Lender under this SECTION 7.5 shall be due
and payable fifteen (15) days after demand therefor accompanied by documentation
sufficient to establish the amount of the Borrower's liability, and shall bear
interest at the Default Interest Rate and shall be added to and become a part of
the indebtedness secured by the Pledge Agreement.
8. INTERCREDITOR AGREEMENTS
As more fully described in the Intercreditor Agreements, the rights of
the Lender as described in this Agreement and the other Loan Documents are
subject and subordinate to those of the Senior Lender and the Mezzanine Lender,
respectively, under the Senior Loan Documents and the Mezzanine Loan Documents.
Among other things, the Intercreditor Agreements contain restrictions upon: (a)
prepayment of the Loan while the Mezzanine Loan is outstanding; (b) the right of
the Lender
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to receive payments on the Loan during the continuance of an event of default
under either the Senior Loan Documents or the Mezzanine Loan Documents; (c) so
long as either the Senior Loan or the Mezzanine Loan is outstanding, the
Lender's ability to exercise remedies upon a Default or an Event of Default
hereunder or under the other Loan Documents; and (d) so long as either the
Senior Loan or the Mezzanine Loan is outstanding, the Lender's ability to assign
its rights and interests in the Loan. To the extent there is any conflict
between the terms of the Intercreditor Agreements and this Agreement or the
other Loan Documents, the terms of the Intercreditor Agreements shall control.
9. MISCELLANEOUS PROVISIONS
9.1. EXPENSES
The Borrower shall reimburse the Lender for all expenses incurred by
the Lender in connection with this Agreement or any of the other Loan Documents,
including, without limitation, expenses incurred in the preparation,
consummation, negotiation, administration or enforcement of, or the preservation
or exercise of any rights hereunder or thereunder (including, without
limitation, the right to collect and dispose of the Collateral) and all
reasonable fees and expenses of the Lender's counsel arising in connection with
the Loan.
9.2. LIMITATION ON LIABILITY
Notwithstanding any contrary provision in any of the Loan Documents,
it is hereby expressly agreed that, except as otherwise provided in this SECTION
9.2 or in any section of any Loan Document that is substantially similar to this
SECTION 9.2, there shall be no recourse to the assets of Borrower or any of its
partners (other than against the Collateral) for (i) the payment of principal,
Interest or other charges or amounts that are or may become due and owing to the
Lender by the Borrower under this Agreement or any other Loan Documents or (ii)
the performance or discharge of any covenant or undertaking hereunder or under
the other Loan Documents, and in the event of any Event of Default hereunder or
thereunder, the Lender agrees to proceed solely against the Collateral, and the
Lender shall not seek or claim recourse against the Borrower or any of its
partners (other than against the Collateral) for any deficiency or for any
personal judgment after a foreclosure of the lien of the Pledge Agreement or for
the performance or discharge of any covenants or undertakings of Borrower
hereunder or under any of the other Loan Documents (except that Borrower may be
made a party to a proceeding to the extent legally necessary for the conduct of
a foreclosure or the exercise of other similar remedies under the Pledge
Agreement). Notwithstanding the foregoing, nothing contained in this SECTION
9.2 shall relieve the Borrower or the General Partner of any personal liability
for any loss, cost, expense, damage or liability arising or resulting from (A)
any breach of any representation or warranty made in this Agreement that was
materially incorrect when made and that was made with fraudulent intent, (B) any
amount paid or distributed to the General Partner, the Limited Partners or any
Affiliate of any of them in violation of the provisions of the Loan Documents,
(C) fraud or breach of trust, including misapplication of Loan proceeds or other
sums that are part of the Collateral that may come into the possession or
control of the Borrower or the General Partner or any Affiliate of any of them,
or (D) liability of such Person with respect to environmental matters affecting
the Hotel. It is hereby expressly agreed that neither the General Partner nor
any director, officer, shareholder, partner or employee of the Borrower or the
General Partner, nor the legal or personal representative, successor or assign
of any of the foregoing, nor any other principal of the Borrower or the General
Partner, whether disclosed or undisclosed, shall have any personal liability
under this Agreement or any of the other Loan Documents, except as personal
liability may be specifically imposed upon the General Partner in accordance
with clauses (A), (B), (C) and (D) of this SECTION 9.2, and in no event shall
any Limited Partners have any liability whatsoever with respect to the Loan or
any monetary obligations with respect thereto, or any of the matters described
in
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clause (A), (B) (C) or (D) above. It is the intention of the parties hereto
that this SECTION 9.2 shall govern every other provision of the Loan Documents
and that the absence of explicit reference to this SECTION 9.2 in any provision
of the Loan Documents or the absence of any Section similar to this SECTION 9.2
in any Loan Document shall not be construed to deny the application of this
SECTION 9.2 to such provision, notwithstanding the presence of explicit
reference to this SECTION 9.2 in other provisions of the Loan Documents.
9.3. NOTICES
All notices, requests and demands to or upon the respective parties
hereto shall be in writing (except as is otherwise specifically provided in this
Agreement) and shall be deemed to have been duly given or made when received (or
when delivery thereof is refused by the intended recipient) if mailed by first-
class registered or certified mail, return receipt requested, postage prepaid,
or sent by facsimile transmission, with confirmation of receipt or delivery, or
sent by nationally recognized overnight courier, delivery charges prepaid, or
delivered by hand, in each case addressed or directed as follows (or to such
other address or facsimile transmission number as may be hereafter designated in
writing by the respective parties hereto):
(a) If to Borrower:
Desert Springs Marriott Limited Partnership
10400 Fernwood Road, Dept. 923
Bethesda, Maryland 20817-1109
Attention: Assistant General Counsel, Asset Management
Fax No.: (301) 380-6332
with a copy (which shall not be necessary to constitute notice)
to:
Desert Springs Marriott Limited Partnership
10400 Fernwood Road, Dept. 908
Bethesda, Maryland 20817-1109
Attention: Director, Asset Management
Fax No.: (301) 380-8260
(b) If to the Lender:
c/o Host Marriott Corporation
10400 Fernwood Road, Dept. 923
Bethesda, Maryland 20817-1109
Attention: General Counsel
Fax No.: (301) 380-6332
with a copy (which shall not be necessary to constitute notice)
to:
c/o Host Marriott Corporation
10400 Fernwood Road, Dept. 902
Bethesda, Maryland 20817-1109
Attention: Senior Vice President, Partnerships
Fax No.: (301) 380-6338
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9.4. SEVERABILITY
If fulfillment of any provision of this Agreement or any other Loan
Documents or performance of any transaction related thereto, at the time such
fulfillment or performance shall be due, shall involve transcending the limit of
validity prescribed by law, then the obligation to be fulfilled or performed
shall be reduced to the limit of such validity; and if any clause or provision
contained in this Agreement or any other Loan Document operates or would operate
prospectively to invalidate any Loan Document, in whole or in part, then such
clause or provision only shall be held ineffective, as though not herein or
therein contained, and the remainder of the Loan Documents shall remain
operative and in full force and effect.
9.5. SURVIVAL
It is the express intention and agreement of the parties hereto that
all covenants, agreements, statements, representations, warranties and
indemnities made by Borrower in the Loan Documents shall survive the execution
and delivery of the Loan Documents and the making of all advances and extensions
of credit thereunder.
9.6. WAIVERS
No waiver by the Lender of, or consent by the Lender to, a variation
from the requirements of any provision of the Loan Documents shall be effective
unless made in a written instrument duly executed on behalf of the Lender by its
duly authorized officer, and any such waiver shall be limited solely to those
rights or conditions expressly waived.
9.7. RIGHTS CUMULATIVE
The rights and remedies of the Lender described in any of the Loan
Documents are cumulative and not exclusive of any other rights or remedies which
the Lender otherwise would have at law or in equity or otherwise. No notice to
or demand on the Borrower in any case shall entitle the Borrower to any other
notice or demand in similar or other circumstances.
9.8. ENTIRE AGREEMENT
This Agreement, the exhibits hereto and the other Loan Documents
constitute the entire agreement of the parties hereto with respect to the
matters contemplated herein, supersede all prior oral and written agreements
with respect to the matters contemplated herein and may not be modified, deleted
or amended except by written instrument executed by the parties. All terms of
this Agreement and of the other Loan Documents shall be binding upon, and shall
inure to the benefit of and be enforceable by, the parties hereto and their
respective successors and assigns; provided, however, that the Borrower may not
assign or transfer any of its rights or obligations hereunder without the prior
written consent of the Lender.
9.9. TERMINATION
This Agreement shall terminate upon payment in full of all amounts
payable and performance of all other obligations owed by the Borrower to the
Lender under this Agreement and under the other Loan Documents.
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9.10. CONSTRUCTION
This Agreement and the other Loan Documents, the rights and
obligations of the parties hereto, and any claims or disputes relating thereto
shall be governed by and construed in accordance with the laws of the State of
Maryland (excluding the choice of law rules thereof). Each party hereto hereby
acknowledges that all parties hereto participated equally in the negotiation and
drafting of this Agreement and that, accordingly, no court construing this
Agreement shall construe it more stringently against one party than against the
other.
9.11. PRONOUNS
All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, neuter, singular or plural, as the identity of the
person or entity may require.
9.12. HEADINGS
Section and subsection headings contained in this Agreement are
inserted for convenience of reference only, shall not be deemed to be a part of
this Agreement for any purpose, and shall not in any way define or affect the
meaning, construction or scope of any of the provisions hereof.
9.13. BUSINESS DAYS
If any payment or performance of any of the obligations under this
Agreement or any of the other Loan Documents becomes due on a day other than a
Business Day, the due date shall be extended to the next succeeding Business
Day, and interest thereon (if applicable) shall be payable at the then
applicable rate during such extension.
9.14. EXECUTION
To facilitate execution, this Agreement and any of the other Loan
Documents may be executed in as many counterparts as may be required; and it
shall not be necessary that the signatures of, or on behalf of, each party, or
the signatures of all persons required to bind any party, appear on each
counterpart; but it shall be sufficient that the signature of, or on behalf of,
each party, or the signatures of the persons required to bind any party, appear
on one or more of the counterparts. All counterparts shall collectively
constitute a single agreement. It shall not be necessary in making proof of
this Agreement or any other Loan Document to produce or account for any
particular number of counterparts; but rather any number of counterparts shall
be sufficient so long as those counterparts contain the respective signatures
of, or on behalf of, all of the parties hereto.
[SIGNATURES APPEAR ON FOLLOWING PAGE]
16
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement,
or have caused this Agreement to be duly executed on their behalf, as of the day
and year first hereinabove set forth.
BORROWER:
---------
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
By: Marriott Desert Springs Corporation
Its: General Partner
ATTEST:
By: /s/ Illegible Signature By: /s/ P. K. Brady
-------------------------- -----------------------------------
Its: Patricia K. Brady,
Vice President
LENDER:
-------
ATTEST: MDSM FINANCE LLC
By: /s/ Illegible Signature By: /s/ W. Edward Walter
-------------------------- ----------------------------------------
Its: W. Edward Walter, Vice President
17
<PAGE>
EXHIBIT A
FORM OF PROMISSORY NOTE
18
<PAGE>
THE RIGHTS OF THE LENDER HEREUNDER ARE SUBJECT, IN CERTAIN RESPECTS, TO THE
PROVISIONS OF THAT CERTAIN INTERCREDITOR AGREEMENT DATED AS OF EVEN DATE
HEREWITH BETWEEN THE LENDER AND GMAC COMMERCIAL MORTGAGE CORPORATION AND THAT
CERTAIN INTERCREDITOR AGREEMENT DATED AS OF EVEN DATE HEREWITH BETWEEN THE
LENDER AND GOLDMAN SACHS MORTGAGE COMPANY
PROMISSORY NOTE
$59,727,272.00 November 25, 1997
FOR VALUE RECEIVED, the undersigned, DESERT SPRINGS MARRIOTT LIMITED
PARTNERSHIP, a Delaware limited partnership (THE "MAKER"), promises to pay to
the order of MDSM FINANCE LLC, a Delaware limited liability company, or its
assigns (THE "HOLDER"), at 10400 Fernwood Road, Bethesda, Maryland 20817-1109
or at such other place as the Holder of this Promissory Note may from time to
time designate, the principal amount of Fifty-Nine Million Seven Hundred Twenty-
Seven Thousand Two Hundred Seventy-Two and No/100 Dollars ($59,727,272.00), or
so much thereof as may remain outstanding from time to time pursuant to that
certain Loan Agreement dated as of the date hereof by and between the Maker and
the Holder (THE "LOAN AGREEMENT").
1. Defined Terms. Unless otherwise indicated, all capitalized terms
-------------
used herein and not otherwise defined shall have the meanings set forth in the
Loan Agreement.
2. Interest. The principal balance of this Promissory Note shall
--------
bear interest (THE "BASIC INTEREST") from the date hereof until all sums due
hereunder are paid in full at a rate of thirteen percent (13%) per annum (THE
"BASE RATE"), computed on the basis of a three hundred sixty (360) day year
composed of twelve (12) months of thirty (30) days each. In addition,
"ADDITIONAL INTEREST", comprised of Cashflow Contingent Interest and Residual
Contingent Interest (as each such term is defined below), shall be payable
hereunder as described below. Additional Interest and Basic Interest are
sometimes collectively referred to herein as "INTEREST."
3. Payments. From the date hereof until June 11, 2010, all amounts
--------
outstanding hereunder shall be payable in equal monthly installments of Basic
Interest only. Commencing June 12, 2010 and continuing until the Maturity Date
(defined below), all amounts outstanding hereunder from time to time shall be
repaid in equal monthly installments of principal and Basic Interest each in an
amount sufficient to cause the entire principal balance hereof, and all amounts
of accrued and unpaid Basic Interest, to be repaid in full over an amortization
period that commences on June 12, 2010 and expires on the Maturity Date.
Scheduled payments of Basic Interest and/or principal and Basic Interest
provided for herein shall be payable on the twelfth day of each month,
commencing on December 12, 1997 and continuing on the twelfth day of each
succeeding month thereafter (each a "DUE DATE") until November 30, 2027 (subject
to
<PAGE>
acceleration as hereinafter provided, the "MATURITY DATE"), and the entire
unpaid balance of this Promissory Note, together with accrued and unpaid
Interest and all other amounts that may be owed by the Maker to the Holder under
the Loan Documents shall be due and payable in full on the Maturity Date. All
payments hereunder shall be made in lawful money of the United States of
America, without offset, deduction or counterclaim.
4. Application of Gross Revenues; Payment of Cashflow Contingent
-------------------------------------------------------------
Interest. (a) Notwithstanding the provisions hereof that require monthly
- --------
payments to be made on a Due Date, so long as either of the Lower-Tier Loans
remain outstanding, such payments may be deferred each month, as shown below,
and credited to a memorandum account known as the "BASIC INTEREST ACCOUNT." All
amounts in the Basic Interest Account shall be paid in accordance with the
following provisions, which shall govern the application of Gross Revenues (as
defined in the Management Agreement) from the Hotel during the period when the
Lower-Tier Loans are outstanding:
(i) From the date hereof until June 11, 2010, during any period in
which a lockbox is not required under the Lower-Tier Loans, Gross
Revenues from the Hotel shall be applied as follows:
(A) Deductions from Gross Revenues as permitted in
calculating "Operating Profit" under the
Management Agreement, including tax and insurance
escrows and a reserve for furniture, fixtures and
equipment, if applicable;
(B) Monthly scheduled debt service and servicing
expenses (if applicable) on the Senior Loan;
(C) Capital expenditures necessary to ensure the safe
and continuous operation of the Hotel, as approved
by the Senior Lender, the Mezzanine Lender and the
Holder;
(D) Deposits into the Debt Service Reserve Account in
the amounts required under the terms of the Senior
Loan Documents;
(E) Capital expenditures not covered in clause (C)
above, as approved by the Senior Lender, the
Mezzanine Lender and the Holder;
(F) Monthly scheduled debt service on the Mezzanine
Loan;
(G) Administrative expenses of the Hotel Owner, the
Maker and the Mezzanine Borrower, as approved by
the Senior Lender, the Mezzanine Lender and the
Holder;
(H) Deposits into the Mezzanine Debt Service Reserve
Account in the amounts required under the terms of
the Mezzanine Loan Documents;
2
<PAGE>
(I) Additional deposits into the Debt Service Reserve
Account and the Mezzanine Debt Service Reserve
Account as required under the terms of the Senior
Loan Documents and the Mezzanine Loan Documents,
respectively; and
(J) Depostis into the Chiller Work Reserve (as defined
in the Senior Loan Documents), until the aggregate
amounts deposited therein from the Gross Revenues
from the Hotel equal $500,000.
All amounts remaining after the application of Gross Revenues as
described in clauses (A)-(J) above shall be held in an escrow account
maintained on behalf of the Senior Lender throughout the Hotel Owner's
fiscal year, and after the annual audit determining Operating Profit
for such fiscal year under the Management Agreement, shall be paid as
follows:
(w) First, to the Manager for the Incentive Management
Fee (as defined the Management Agreement),
provided that, if the Management Agreement has
been terminated, this clause (w) shall not apply;
(x) Second, to the Holder in the amount of the Basic
Interest Account (including any amounts of accrued
interest due thereon);
(y) Third, thirty percent (30%) of any remaining
amounts shall be paid to the Holder as "CASHFLOW
CONTINGENT INTEREST"; and
(z) The balance shall be retained by the Maker or its
designee.
All such amounts paid to the Lender under the foregoing
clause (x) shall be applied in reverse order, and to the
extent that Gross Revenues in any fiscal year are
insufficient to pay the amount of the Basic Interest Account
in full (or if payment thereof is not permitted under the
terms of the Intercreditor Agreement), such amounts shall
remain due in the Basic Interest Account and retroactively
shall accrue interest at the Base Rate, compounded monthly,
beginning on the Due Date of each unpaid installment until
the date paid.
(ii) Commencing June 12, 2010 and continuing thereafter until the
Maturity Date (or if sooner, until the Lower-Tier Loans are repaid),
during any period in which a lockbox is not required under the Lower-
Tier Loans, Gross Revenues from the Hotel shall be applied as follows:
(A) Deductions from Gross Revenues as permitted in
calculating "Operating Profit" under the
Management Agreement, including tax and insurance
escrows and a reserve for furniture, fixtures and
equipment, if applicable;
3
<PAGE>
(B) Monthly scheduled debt service and servicing
expenses (if applicable) on the Senior Loan;
(C) Capital expenditures necessary to ensure the safe
and continuous operation of the Hotel, as approved
by the Senior Lender, the Mezzanine Lender (if the
Mezzanine Loan has not be repaid) and the Holder;
(D) Deposits into the Debt Service Reserve Account in
the amounts required under the terms of the Senior
Loan Documents;
(E) Capital expenditures not covered in clause (C)
above, as approved by the Senior Lender, the
Mezzanine Lender (if the Mezzanine Loan has not
been repaid) and the Holder;
(F) Administrative expenses of the Hotel Owner, the
Mezzanine Borrower (if the Mezzanine Loan has not
been repaid) and the Maker, as approved by the
Senior Lender, the Mezzanine Lender (if the
Mezzanine Loan has not been repaid) and the
Holder;
(G) Additional deposits into the Debt Service Reserve
Account as required under the terms of the Senior
Loan Documents;
(H) After Operating Profit shall have exceeded Owner's
Priority (as defined in the Management Agreement)
deposits into the Management Incentive Reserve
Account, provided that if the Management Agreement
has been terminated for any reason, this clause
(H) shall not apply;
(I) To the amortization of all remaining principal on
the Senior Loan;
(J) Accrued additional interest payable under the
Senior Loan;
(K) If the Mezzanine Loan has not been repaid, monthly
scheduled debt service on the Mezzanine Loan;
(L) If the Mezzanine Loan has not been repaid,
deposits into the Mezzanine Debt Service Reserve
Account in the maximum amount required under the
terms of the Mezzanine Loan Documents;
(M) All amounts in the Basic Interest Account
(including any amounts of accrued interest due
thereon);
(N) Thirty percent (30%) of any remaining amounts
shall be paid to the Holder as "CASHFLOW
CONTINGENT INTEREST"; and
(O) The balance shall be retained by the Maker or its
designee.
4
<PAGE>
All such amounts paid to the Lender under the foregoing
clause (M) shall be applied in the order of the earliest Due
Date thereof to the last Due Date thereof and to the extent
that Gross Revenues in any fiscal year are insufficient to
pay the amount of the Basic Interest Account in full (or if
payment thereof is not permitted under the terms of the
Intercreditor Agreement), such amounts shall remain due in
the Basic Interest Account and retroactively beginning on
the Due Date of each unpaid installment until the date paid.
In addition, to the extent that Gross Revenues in any fiscal
year are insufficient to pay the amount of Cashflow
Contingent Interest pursuant to clause (N) above because of
the amortization of principal on the Senior Loan pursuant to
clause (I) above (or if payment thereof is not permitted
under the terms of the Intercreditor Agreements), such
amounts shall bear interest beginning on the first day
following the end of such fiscal year until the date paid.
(iii) In any circumstance in which the Senior Lender or the Mezzanine
Lender requires the establishment of a lockbox account pursuant to the
documents governing the Lower-Tier Loans, the application of Gross
Revenues described above shall be modified to provide that deposits
into the tax and insurance escrows and the FF&E Reserve (as defined in
the Management Agreement) required under the Lower-Tier Loans shall be
made prior to the payment of other deductions from Gross Revenues used
in calculating Operating Profit as described above.
(b) If the Lower-Tier Loans are repaid, monthly installments of Basic
Interest and/or principal and Basic Interest shall be required to be paid on
each Due Date, as described above. In such event, Gross Revenues shall be
applied monthly as follows:
(i) Deductions from Gross Revenues as permitted in calculating
"Operating Profit" under the Management Agreement, including
tax and insurance escrows, if applicable;
(ii) Monthly scheduled debt service due under this Promissory
Note;
(iii) The Incentive Management Fee due under the Management
Agreement, provided that, if the Management Agreement has
been terminated, this clause (iii) shall not apply;
(iv) Capital expenditures, as approved by the Holder;
(v) Administrative expenses of the Hotel Owner, the Mezzanine
Borrower and the Maker, as approved by the Holder;
(vi) Thirty percent (30%) of any remaining amounts shall be paid
to the Holder as "CASHFLOW CONTINGENT INTEREST"; and
(vii) The balance shall be retained by the Maker or its designee.
5
<PAGE>
5. Residual Contingent Interest. (a) In addition to Basic Interest
----------------------------
and Cashflow Contingent Interest, the Maker also shall pay to the Holder as
"RESIDUAL CONTINGENT INTEREST" thirty percent (30%) of any Net Capital Proceeds
(defined below). As used herein, "NET CAPITAL PROCEEDS", means (i) at the time
of a sale of the Property or the sale of the interests in the Hotel Owner (each,
a "SALE EVENT"), the amount remaining after (A) payment of Sales Expenses
(defined below), and (B) repayment of all mortgage indebtedness or other
indebtedness of the Maker, the Mezzanine Borrower and the Hotel Owner and other
amounts required to be paid pursuant to the Hotel Owner's operating agreement
(collectively, the "OUTSTANDING OBLIGATIONS"), or (ii) at the time of a
prepayment of the amounts due under this Promissory Note (including, without
limitation, a prepayment in conjunction with a refinancing) or upon the Maturity
Date (each an "APPRAISAL EVENT"), the excess of the Appraised Value (defined
below) over the then current Outstanding Obligations.
(b) "SALES EXPENSES" means the aggregate amount of funds actually
expended by the Hotel Owner (or the Maker) in connection with a Sale Event for
(i) transfer or recording taxes and fees, (ii) reasonable attorneys' fees, (iii)
brokerage commissions paid to unaffiliated third parties, and (iv) other
reasonably customary expenses required to be paid by the Hotel Owner (or the
Maker).
(c) Upon receipt of a Prepayment Notice or forty-five (45) days prior
to the Maturity Date, as the case may be, (or in the event of an acceleration of
the Maturity Date, as soon thereafter as is practicable, in the judgment of the
Holder) "APPRAISED VALUE" shall be determined as follows: (i) the Holder shall
select an M.A.I. appraiser with at least five (5) years of experience in the
hospitality industry (THE "INITIAL APPRAISER"); and (ii) within ten (10) days
after such appointment, the Initial Appraiser shall select two (2) additional
M.A.I. appraisers, each with at least five (5) years of experience in the
hospitality industry (together with the Initial Appraiser, the "APPRAISERS").
Within thirty (30) days after the selection of the last Appraiser (THE
"APPRAISAL PERIOD"), the Appraisers each shall conduct an appraisal of the Hotel
to determine its "FAIR MARKET VALUE", which shall equal the expected sales price
therefor: (x) assuming a willing buyer and willing seller, buying and selling
without duress, reduced by (y) a reasonable estimate by each Appraiser of
expected Sales Expenses. If any Appraiser fails to render its appraisal within
the Appraisal Period, it shall be disregarded. The Appraised Value shall be the
average of the Fair Market Value determined by each Appraiser which completed an
appraisal during the Appraisal Period. The fees charged by the Appraisers shall
be paid by the Maker.
6. Prepayment. The unpaid principal amount of this Promissory Note
----------
may be prepaid in whole, but not in part, at any time following written notice
(THE "PREPAYMENT NOTICE") given at least forty-five (45) but no more than
seventy-five (75) days prior to the date of prepayment (THE "PREPAYMENT DATE"),
without premium or penalty. The amount of a prepayment shall be applied first
to the payment of all Interest due hereunder, next to other amounts due under
the Loan Documents on the date of any such prepayment, and the balance of any
such prepayment shall be applied to the principal payable hereunder. No
prepayment shall entitle any person to be subrogated to the rights of the Holder
unless and until this Promissory
6
<PAGE>
Note has been paid in full. Any accrued but unpaid Interest may be repaid, in
whole or in part, at any time without notice.
7. Unconditional Obligation. This Promissory Note is the Promissory
------------------------
Note referred to in the Loan Agreement and evidences the Loan advanced by the
Lender to or for the benefit of the Maker, as the "Borrower" under the Loan
Agreement. Neither the reference to the Loan Agreement (or any other document)
nor any provision thereof shall affect or impair the absolute and unconditional
obligation of the Maker to pay the principal amount hereof, or so much thereof
as may be advanced and remain outstanding hereunder, together with Interest
payable hereunder, when due.
8. Security. This Promissory Note is secured by the Pledge Agreement
--------
which encumbers certain Collateral. The Holder is entitled to the benefits of
the Pledge Agreement and reference is made thereto for a description of the
Collateral and the rights and remedies of the Holder thereunder. Neither the
reference to the Pledge Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Maker to pay the
principal amount hereof, together with interest accrued thereon, when due.
9. Events of Default. The occurrence of an Event of Default under
-----------------
the Loan Agreement shall constitute an event of default ("EVENT OF DEFAULT")
hereunder. Upon the occurrence of any such Event of Default hereunder, the
Maturity Date shall be accelerated and the entire principal amount hereof, and
all accrued and unpaid Basic Interest and Additional Interest, and any other
amounts due hereunder or under the Loan Agreement shall be immediately due and
payable, at the option of the Holder (or, in the case of an Event of Default of
the kind referred to in Sections 7.1.4(a) or 7.1.4(b) of the Loan Agreement,
shall automatically be immediately due and payable), without demand or notice,
and in addition thereto, and not in substitution therefor, the Holder shall be
entitled to exercise any one or more of the rights and remedies provided by
applicable law, or as provided in the Loan Agreement or the other Loan
Documents. Failure to exercise said option or to pursue such other remedies
shall not constitute a waiver of such option or such other remedies or of the
right to exercise any of the same in the event of any subsequent Event of
Default.
The Holder may, upon the occurrence and during the continuation of any
such Event of Default, have resort to the Collateral, whether real or personal
or tangible or intangible property, given as security for this Promissory Note
in any order, and may sell and dispose of such Collateral in whole or in part,
at any time or from time to time, with no requirement on the part of the Holder
of this Promissory Note to marshal assets. The Holder shall not be required to
preserve any rights in such Collateral as against prior parties. In the event
that the Holder is required to give notice of any intended disposition of any of
the Collateral held as security for this Promissory Note, ten (10) days' notice
given by mail or telegraph to the last known address of Maker shall be deemed to
be reasonable notice.
10. Default Interest. Upon an Event of Default, any amounts not paid
----------------
when due and payable hereunder shall bear interest at the Default Interest Rate.
Such charge shall be in addition to, and not in lieu of, any other right or
remedy the Holder may have, including the right to reimbursement of costs and
expenses. Such charge if not previously paid shall, at the option
7
<PAGE>
of the Holder, be added to and become a part of the next succeeding payment to
be made hereunder.
11. Costs and Expenses. The Maker promises to pay all costs and
------------------
expenses (including, without limitation, reasonable attorneys' fees and
disbursements) incurred in connection with the collection hereof or in the
protection or realization of any Collateral now or hereafter given as security
for the repayment hereof, and to perform each and every covenant or agreement to
be performed by Maker under this Promissory Note, under the Loan Agreement, and
under any other Loan Document.
12. Time for Performance. Any payment on this Promissory Note coming
--------------------
due on a Saturday, a Sunday, or a day which is a legal holiday in the place at
which a payment is to be made hereunder shall be made on the next succeeding day
which is a Business Day.
13. Waivers. Each Obligor (which term shall include the Maker and
-------
all sureties, guarantors, endorsers, and other persons assuming obligations
pursuant to this Promissory Note) under this Promissory Note hereby waives
presentment, protest, demand, notice of dishonor and all other notices, and all
defenses and pleas on the grounds of any extension or extensions of the time of
payments or the due dates of this Promissory Note, in whole or in part, before
or after maturity, with or without notice. No renewal or extension of this
Promissory Note, no release or surrender of any collateral given as security for
this Promissory Note, no release of any Obligor, and no delay in enforcement of
this Promissory Note or in exercising any right or power hereunder, shall affect
the liability of any Obligor. The pleading of any statute of limitations as a
defense to any demand against any Obligor is expressly waived.
14. Remedies Cumulative. No single or partial exercise by the Holder
-------------------
of any right hereunder, under the Loan Agreement or under any other Loan
Document or other agreement given as security for this Promissory Note or
pertaining hereto, shall preclude any other or further exercise thereof or the
exercise of any other rights. No delay or omission on the part of the Holder in
exercising any right hereunder or thereunder shall operate as a waiver of such
right or of any other right under this Promissory Note or any such other Loan
Document or other agreement.
15. Assignment. Whenever used herein, the words "MAKER" and "HOLDER"
----------
and "OBLIGOR" shall be deemed to include their respective successors and
assigns. The Holder may, at its sole option, assign any or all of its rights
hereunder, including, without limitation, the right to receive payment of
Additional Interest, and in such event, the Maker agrees to execute such
instruments (including, without limitation, one or more replacement or
additional promissory notes) as may be reasonably necessary to effectuate such
assignment, so long as the Maker's obligations with respect to the Loan are not
enlarged.
16. Governing Law. This Promissory Note shall be governed by and
-------------
construed under and in accordance with the laws of the State of Maryland (but
not including the choice of law rules thereof).
8
<PAGE>
17. Limitation on Liability. The provisions of Section 9.2 of the
-----------------------
Loan Agreement are incorporated herein by this reference.
18. Intercreditor Agreements. As more fully described in the
------------------------
Intercreditor Agreements, the rights of the Holder as described in this
Promissory Note and the other Loan Documents are subject and subordinate to
those of the Senior Lender and the Mezzanine Lender, respectively, under the
Senior Loan Documents and the Mezzanine Loan Documents. Among other things, the
Intercreditor Agreements contain restrictions upon: (a) prepayment of the Loan
while the Mezzanine Loan is outstanding; (b) the Holder's right to receive
payments on the Loan during the continuance of an event of default under either
the Senior Loan Documents or the Mezzanine Loan Documents; (c) so long as either
the Senior Loan or the Mezzanine Loan is outstanding, the Holder's ability to
exercise remedies upon a Default or an Event of Default hereunder or under the
other Loan Documents; and (d) so long as either the Senior Loan or the Mezzanine
Loan is outstanding, the Holder's ability to assign its rights and interests in
the Loan. To the extent there is any conflict between the terms of the
Intercreditor Agreements and this Promissory Note or the other Loan Documents,
the terms of the Intercreditor Agreements shall control.
[SIGNATURE APPEARS ON FOLLOWING PAGE]
9
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Promissory Note to
be duly executed on its behalf, as of the day and year first hereinabove set
forth.
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
By: Marriott Desert Springs Corporation
Its: General Partner
ATTEST:
By: /s/ By: /s/ Patricia K. Brady
-------------------------- ----------------------------
Its: Assistant Secretary Patricia K. Brady,
Vice President
10
<PAGE>
Exhibit 10.16
THE RIGHTS OF THE LENDER HEREUNDER ARE SUBJECT, IN CERTAIN RESPECTS, TO THE
PROVISIONS OF THAT CERTAIN INTERCREDITOR AGREEMENT DATED AS OF EVEN DATE
HEREWITH BETWEEN THE LENDER AND GMAC COMMERCIAL MORTGAGE CORPORATION AND THAT
CERTAIN INTERCREDITOR AGREEMENT DATED AS OF EVEN DATE HEREWITH BETWEEN THE
LENDER AND GOLDMAN SACHS MORTGAGE COMPANY
PROMISSORY NOTE
$59,727,272.00 November 25, 1997
FOR VALUE RECEIVED, the undersigned, DESERT SPRINGS MARRIOTT LIMITED
PARTNERSHIP, a Delaware limited partnership (THE "MAKER"), promises to pay to
the order of MDSM FINANCE LLC, a Delaware limited liability company, or its
assigns (THE "HOLDER"), at 10400 Fernwood Road, Bethesda, Maryland 20817-1109
or at such other place as the Holder of this Promissory Note may from time to
time designate, the principal amount of Fifty-Nine Million Seven Hundred Twenty-
Seven Thousand Two Hundred Seventy-Two and No/100 Dollars ($59,727,272.00), or
so much thereof as may remain outstanding from time to time pursuant to that
certain Loan Agreement dated as of the date hereof by and between the Maker and
the Holder (THE "LOAN AGREEMENT").
1. Defined Terms. Unless otherwise indicated, all capitalized terms
-------------
used herein and not otherwise defined shall have the meanings set forth in the
Loan Agreement.
2. Interest. The principal balance of this Promissory Note shall
--------
bear interest (THE "BASIC INTEREST") from the date hereof until all sums due
hereunder are paid in full at a rate of thirteen percent (13%) per annum (THE
"BASE RATE"), computed on the basis of a three hundred sixty (360) day year
composed of twelve (12) months of thirty (30) days each. In addition,
"ADDITIONAL INTEREST", comprised of Cashflow Contingent Interest and Residual
Contingent Interest (as each such term is defined below), shall be payable
hereunder as described below. Additional Interest and Basic Interest are
sometimes collectively referred to herein as "INTEREST."
3. Payments. From the date hereof until June 11, 2010, all amounts
--------
outstanding hereunder shall be payable in equal monthly installments of Basic
Interest only. Commencing June 12, 2010 and continuing until the Maturity Date
(defined below), all amounts outstanding hereunder from time to time shall be
repaid in equal monthly installments of principal and Basic Interest each in an
amount sufficient to cause the entire principal balance hereof, and all amounts
of accrued and unpaid Basic Interest, to be repaid in full over an amortization
period that commences on June 12, 2010 and expires on the Maturity Date.
Scheduled payments of Basic Interest and/or principal and Basic Interest
provided for herein shall be payable on the twelfth day of each month,
commencing on December 12, 1997 and continuing on the twelfth day of each
succeeding month thereafter (each a "DUE DATE") until November 30, 2027 (subject
to
1
<PAGE>
acceleration as hereinafter provided, the "MATURITY DATE"), and the entire
unpaid balance of this Promissory Note, together with accrued and unpaid
Interest and all other amounts that may be owed by the Maker to the Holder under
the Loan Documents shall be due and payable in full on the Maturity Date. All
payments hereunder shall be made in lawful money of the United States of
America, without offset, deduction or counterclaim.
4. Application of Gross Revenues; Payment of Cashflow Contingent
-------------------------------------------------------------
Interest. (a) Notwithstanding the provisions hereof that require monthly
- --------
payments to be made on a Due Date, so long as either of the Lower-Tier Loans
remain outstanding, such payments may be deferred each month, as shown below,
and credited to a memorandum account known as the "BASIC INTEREST ACCOUNT." All
amounts in the Basic Interest Account shall be paid in accordance with the
following provisions, which shall govern the application of Gross Revenues (as
defined in the Management Agreement) from the Hotel during the period when the
Lower-Tier Loans are outstanding:
(i) From the date hereof until June 11, 2010, during any period in
which a lockbox is not required under the Lower-Tier Loans, Gross
Revenues from the Hotel shall be applied as follows:
(A) Deductions from Gross Revenues as permitted in
calculating "Operating Profit" under the
Management Agreement, including tax and insurance
escrows and a reserve for furniture, fixtures and
equipment, if applicable;
(B) Monthly scheduled debt service and servicing
expenses (if applicable) on the Senior Loan;
(C) Capital expenditures necessary to ensure the safe
and continuous operation of the Hotel, as approved
by the Senior Lender, the Mezzanine Lender and the
Holder;
(D) Deposits into the Debt Service Reserve Account in
the amounts required under the terms of the Senior
Loan Documents;
(E) Capital expenditures not covered in clause (C)
above, as approved by the Senior Lender, the
Mezzanine Lender and the Holder;
(F) Monthly scheduled debt service on the Mezzanine
Loan;
(G) Administrative expenses of the Hotel Owner, the
Maker and the Mezzanine Borrower, as approved by
the Senior Lender, the Mezzanine Lender and the
Holder;
(H) Deposits into the Mezzanine Debt Service Reserve
Account in the amounts required under the terms of
the Mezzanine Loan Documents;
2
<PAGE>
(I) Additional deposits into the Debt Service Reserve
Account and the Mezzanine Debt Service Reserve
Account as required under the terms of the Senior
Loan Documents and the Mezzanine Loan Documents,
respectively; and
(J) Deposits into the Chiller Work Reserve (as defined
in the Senior Loan Documents), until the aggregate
amounts deposited therein from the Gross Revenues
from the Hotel equal $500,000.
All amounts remaining after the application of Gross Revenues as
described in clauses (A)-(J) above shall be held in an escrow account
maintained on behalf of the Senior Lender throughout the Hotel Owner's
fiscal year, and after the annual audit determining Operating Profit
for such fiscal year under the Management Agreement, shall be paid as
follows:
(w) First, to the Manager for the Incentive Management
Fee (as defined the Management Agreement),
provided that, if the Management Agreement has
been terminated, this clause (w) shall not apply;
(x) Second, to the Holder in the amount of the Basic
Interest Account (including any amounts of accrued
interest due thereon);
(y) Third, thirty percent (30%) of any remaining
amounts shall be paid to the Holder as "CASHFLOW
CONTINGENT INTEREST"; and
(z) The balance shall be retained by the Maker or its
designee.
All such amounts paid to the Lender under the foregoing
clause (x) shall be applied in reverse order, and to the
extent that Gross Revenues in any fiscal year are
insufficient to pay the amount of the Basic Interest Account
in full (or if payment thereof is not permitted under the
terms of the Intercreditor Agreement), such amounts shall
remain due in the Basic Interest Account and retroactively
shall accrue interest at the Base Rate, compounded monthly,
beginning on the Due Date of each unpaid installment until
the date paid.
(ii) Commencing June 12, 2010 and continuing thereafter until the
Maturity Date (or if sooner, until the Lower-Tier Loans are repaid),
during any period in which a lockbox is not required under the Lower-
Tier Loans, Gross Revenues from the Hotel shall be applied as follows:
(A) Deductions from Gross Revenues as permitted in
calculating "Operating Profit" under the
Management Agreement, including tax and insurance
escrows and reserve for furnitue, fixtures and
equipment, if applicable;
3
<PAGE>
(B) Monthly scheduled debt service and servicing
expenses (if applicable) on the Senior Loan;
(C) Capital expenditures necessary to ensure the safe
and continuous operation of the Hotel, as approved
by the Senior Lender, the Mezzanine Lender (if the
Mezzanine Loan has not be repaid) and the Holder;
(D) Deposits into the Debt Service Reserve Account in
the amounts required under the terms of the Senior
Loan Documents;
(E) Capital expenditures not covered in clause (C)
above, as approved by the Senior Lender, the
Mezzanine Lender (if the Mezzanine Loan has not
been repaid) and the Holder;
(F) Administrative expenses of the Hotel Owner, the
Mezzanine Borrower (if the Mezzanine Loan has not
been repaid) and the Maker, as approved by the
Senior Lender, the Mezzanine Lender (if the
Mezzanine Loan has not been repaid) and the
Holder;
(G) Additional deposits into the Debt Service Reserve
Account as required under the terms of the Senior
Loan Documents;
(H) After Operating Profit shall have exceeded Owner's
Priority (as defined in the Management Agreement)
deposits into the Management Incentive Reserve
Account, provided that if the Management Agreement
has been terminated for any reason, this clause
(H) shall not apply;
(I) To the amortization of all remaining principal on
the Senior Loan;
(J) Accrued additional interest payable under the
Senior Loan;
(K) If the Mezzanine Loan has not been repaid, monthly
scheduled debt service on the Mezzanine Loan;
(L) If the Mezzanine Loan has not been repaid,
deposits into the Mezzanine Debt Service Reserve
Account in the maximum amount required under the
terms of the Mezzanine Loan Documents;
(M) All amounts in the Basic Interest Account
(including any amounts of accrued interest due
thereon);
(N) Thirty percent (30%) of any remaining amounts
shall be paid to the Holder as "CASHFLOW
CONTINGENT INTEREST"; and
(O) The balance shall be retained by the Maker or its
designee.
4
<PAGE>
All such amounts paid to the Lender under the foregoing
clause (M) shall be applied in the order of the earliest Due
Date thereof to the last Due Date thereof and to the extent
that Gross Revenues in any fiscal year are insufficient to
pay the amount of the Basic Interest Account in full (or if
payment thereof is not permitted under the terms of the
Intercreditor Agreement), such amounts shall remain due in
the Basic Interest Account and retroactively beginning on
the Due Date of each unpaid installment until the date paid.
In addition, to the extent that Gross Revenues in any fiscal
year are insufficient to pay the amount of Cashflow
Contingent Interest pursuant to clause (N) above because of
the amortization of principal on the Senior Loan pursuant to
clause (I) above (or if payment thereof is not permitted
under the terms of the Intercreditor Agreements), such
amounts shall bear interest beginning on the first day
following the end of such fiscal year until the date paid.
(iii) In any circumstance in which the Senior Lender or the Mezzanine
Lender requires the establishment of a lockbox account pursuant to the
documents governing the Lower-Tier Loans, the application of Gross
Revenues described above shall be modified to provide that deposits
into the tax and insurance escrows and the FF&E Reserve (as defined in
the Management Agreement) required under the Lower-Tier Loans shall be
made prior to the payment of other deductions from Gross Revenues used
in calculating Operating Profit as described above.
(b) If the Lower-Tier Loans are repaid, monthly installments of Basic
Interest and/or principal and Basic Interest shall be required to be paid on
each Due Date, as described above. In such event, Gross Revenues shall be
applied monthly as follows:
(i) Deductions from Gross Revenues as permitted in calculating
"Operating Profit" under the Management Agreement, including
tax and insurance escrows, if applicable;
(ii) Monthly scheduled debt service due under this Promissory
Note;
(iii) The Incentive Management Fee due under the Management
Agreement, provided that, if the Management Agreement has
been terminated, this clause (iii) shall not apply;
(iv) Capital expenditures, as approved by the Holder;
(v) Administrative expenses of the Hotel Owner, the Mezzanine
Borrower and the Maker, as approved by the Holder;
(vi) Thirty percent (30%) of any remaining amounts shall be paid
to the Holder as "CASHFLOW CONTINGENT INTEREST"; and
(vii) The balance shall be retained by the Maker or its designee.
5
<PAGE>
5. Residual Contingent Interest. (a) In addition to Basic Interest
----------------------------
and Cashflow Contingent Interest, the Maker also shall pay to the Holder as
"RESIDUAL CONTINGENT INTEREST" thirty percent (30%) of any Net Capital Proceeds
(defined below). As used herein, "NET CAPITAL PROCEEDS", means (i) at the time
of a sale of the Property or the sale of the interests in the Hotel Owner (each,
a "SALE EVENT"), the amount remaining after (A) payment of Sales Expenses
(defined below), and (B) repayment of all mortgage indebtedness or other
indebtedness of the Maker, the Mezzanine Borrower and the Hotel Owner and other
amounts required to be paid pursuant to the Hotel Owner's operating agreement
(collectively, the "OUTSTANDING OBLIGATIONS"), or (ii) at the time of a
prepayment of the amounts due under this Promissory Note (including, without
limitation, a prepayment in conjunction with a refinancing) or upon the Maturity
Date (each an "APPRAISAL EVENT"), the excess of the Appraised Value (defined
below) over the then current Outstanding Obligations.
(b) "SALES EXPENSES" means the aggregate amount of funds actually
expended by the Hotel Owner (or the Maker) in connection with a Sale Event for
(i) transfer or recording taxes and fees, (ii) reasonable attorneys' fees, (iii)
brokerage commissions paid to unaffiliated third parties, and (iv) other
reasonably customary expenses required to be paid by the Hotel Owner (or the
Maker).
(c) Upon receipt of a Prepayment Notice or forty-five (45) days prior
to the Maturity Date, as the case may be, (or in the event of an acceleration of
the Maturity Date, as soon thereafter as is practicable, in the judgment of the
Holder) "APPRAISED VALUE" shall be determined as follows: (i) the Holder shall
select an M.A.I. appraiser with at least five (5) years of experience in the
hospitality industry (THE "INITIAL APPRAISER"); and (ii) within ten (10) days
after such appointment, the Initial Appraiser shall select two (2) additional
M.A.I. appraisers, each with at least five (5) years of experience in the
hospitality industry (together with the Initial Appraiser, the "APPRAISERS").
Within thirty (30) days after the selection of the last Appraiser (THE
"APPRAISAL PERIOD"), the Appraisers each shall conduct an appraisal of the Hotel
to determine its "FAIR MARKET VALUE", which shall equal the expected sales price
therefor: (x) assuming a willing buyer and willing seller, buying and selling
without duress, reduced by (y) a reasonable estimate by each Appraiser of
expected Sales Expenses. If any Appraiser fails to render its appraisal within
the Appraisal Period, it shall be disregarded. The Appraised Value shall be the
average of the Fair Market Value determined by each Appraiser which completed an
appraisal during the Appraisal Period. The fees charged by the Appraisers shall
be paid by the Maker.
6. Prepayment. The unpaid principal amount of this Promissory Note
----------
may be prepaid in whole, but not in part, at any time following written notice
(THE "PREPAYMENT NOTICE") given at least forty-five (45) but no more than
seventy-five (75) days prior to the date of prepayment (THE "PREPAYMENT DATE"),
without premium or penalty. The amount of a prepayment shall be applied first
to the payment of all Interest due hereunder, next to other amounts due under
the Loan Documents on the date of any such prepayment, and the balance of any
such prepayment shall be applied to the principal payable hereunder. No
prepayment shall entitle any person to be subrogated to the rights of the Holder
unless and until this Promissory
6
<PAGE>
Note has been paid in full. Any accrued but unpaid Interest may be repaid, in
whole or in part, at any time without notice.
7. Unconditional Obligation. This Promissory Note is the Promissory
------------------------
Note referred to in the Loan Agreement and evidences the Loan advanced by the
Lender to or for the benefit of the Maker, as the "Borrower" under the Loan
Agreement. Neither the reference to the Loan Agreement (or any other document)
nor any provision thereof shall affect or impair the absolute and unconditional
obligation of the Maker to pay the principal amount hereof, or so much thereof
as may be advanced and remain outstanding hereunder, together with Interest
payable hereunder, when due.
8. Security. This Promissory Note is secured by the Pledge Agreement
--------
which encumbers certain Collateral. The Holder is entitled to the benefits of
the Pledge Agreement and reference is made thereto for a description of the
Collateral and the rights and remedies of the Holder thereunder. Neither the
reference to the Pledge Agreement nor any provision thereof shall affect or
impair the absolute and unconditional obligation of the Maker to pay the
principal amount hereof, together with interest accrued thereon, when due.
9. Events of Default. The occurrence of an Event of Default under
-----------------
the Loan Agreement shall constitute an event of default ("EVENT OF DEFAULT")
hereunder. Upon the occurrence of any such Event of Default hereunder, the
Maturity Date shall be accelerated and the entire principal amount hereof, and
all accrued and unpaid Basic Interest and Additional Interest, and any other
amounts due hereunder or under the Loan Agreement shall be immediately due and
payable, at the option of the Holder (or, in the case of an Event of Default of
the kind referred to in Sections 7.1.4(a) or 7.1.4(b) of the Loan Agreement,
shall automatically be immediately due and payable), without demand or notice,
and in addition thereto, and not in substitution therefor, the Holder shall be
entitled to exercise any one or more of the rights and remedies provided by
applicable law, or as provided in the Loan Agreement or the other Loan
Documents. Failure to exercise said option or to pursue such other remedies
shall not constitute a waiver of such option or such other remedies or of the
right to exercise any of the same in the event of any subsequent Event of
Default.
The Holder may, upon the occurrence and during the continuation of any
such Event of Default, have resort to the Collateral, whether real or personal
or tangible or intangible property, given as security for this Promissory Note
in any order, and may sell and dispose of such Collateral in whole or in part,
at any time or from time to time, with no requirement on the part of the Holder
of this Promissory Note to marshal assets. The Holder shall not be required to
preserve any rights in such Collateral as against prior parties. In the event
that the Holder is required to give notice of any intended disposition of any of
the Collateral held as security for this Promissory Note, ten (10) days' notice
given by mail or telegraph to the last known address of Maker shall be deemed to
be reasonable notice.
10. Default Interest. Upon an Event of Default, any amounts not paid
----------------
when due and payable hereunder shall bear interest at the Default Interest Rate.
Such charge shall be in addition to, and not in lieu of, any other right or
remedy the Holder may have, including the right to reimbursement of costs and
expenses. Such charge if not previously paid shall, at the option
7
<PAGE>
of the Holder, be added to and become a part of the next succeeding payment to
be made hereunder.
11. Costs and Expenses. The Maker promises to pay all costs and
------------------
expenses (including, without limitation, reasonable attorneys' fees and
disbursements) incurred in connection with the collection hereof or in the
protection or realization of any Collateral now or hereafter given as security
for the repayment hereof, and to perform each and every covenant or agreement to
be performed by Maker under this Promissory Note, under the Loan Agreement, and
under any other Loan Document.
12. Time for Performance. Any payment on this Promissory Note coming
--------------------
due on a Saturday, a Sunday, or a day which is a legal holiday in the place at
which a payment is to be made hereunder shall be made on the next succeeding day
which is a Business Day.
13. Waivers. Each Obligor (which term shall include the Maker and
-------
all sureties, guarantors, endorsers, and other persons assuming obligations
pursuant to this Promissory Note) under this Promissory Note hereby waives
presentment, protest, demand, notice of dishonor and all other notices, and all
defenses and pleas on the grounds of any extension or extensions of the time of
payments or the due dates of this Promissory Note, in whole or in part, before
or after maturity, with or without notice. No renewal or extension of this
Promissory Note, no release or surrender of any collateral given as security for
this Promissory Note, no release of any Obligor, and no delay in enforcement of
this Promissory Note or in exercising any right or power hereunder, shall affect
the liability of any Obligor. The pleading of any statute of limitations as a
defense to any demand against any Obligor is expressly waived.
14. Remedies Cumulative. No single or partial exercise by the Holder
-------------------
of any right hereunder, under the Loan Agreement or under any other Loan
Document or other agreement given as security for this Promissory Note or
pertaining hereto, shall preclude any other or further exercise thereof or the
exercise of any other rights. No delay or omission on the part of the Holder in
exercising any right hereunder or thereunder shall operate as a waiver of such
right or of any other right under this Promissory Note or any such other Loan
Document or other agreement.
15. Assignment. Whenever used herein, the words "MAKER" and "HOLDER"
----------
and "OBLIGOR" shall be deemed to include their respective successors and
assigns. The Holder may, at its sole option, assign any or all of its rights
hereunder, including, without limitation, the right to receive payment of
Additional Interest, and in such event, the Maker agrees to execute such
instruments (including, without limitation, one or more replacement or
additional promissory notes) as may be reasonably necessary to effectuate such
assignment, so long as the Maker's obligations with respect to the Loan are not
enlarged.
16. Governing Law. This Promissory Note shall be governed by and
-------------
construed under and in accordance with the laws of the State of Maryland (but
not including the choice of law rules thereof).
8
<PAGE>
17. Limitation on Liability. The provisions of Section 9.2 of the
-----------------------
Loan Agreement are incorporated herein by this reference.
18. Intercreditor Agreements. As more fully described in the
------------------------
Intercreditor Agreements, the rights of the Holder as described in this
Promissory Note and the other Loan Documents are subject and subordinate to
those of the Senior Lender and the Mezzanine Lender, respectively, under the
Senior Loan Documents and the Mezzanine Loan Documents. Among other things, the
Intercreditor Agreements contain restrictions upon: (a) prepayment of the Loan
while the Mezzanine Loan is outstanding; (b) the Holder's right to receive
payments on the Loan during the continuance of an event of default under either
the Senior Loan Documents or the Mezzanine Loan Documents; (c) so long as either
the Senior Loan or the Mezzanine Loan is outstanding, the Holder's ability to
exercise remedies upon a Default or an Event of Default hereunder or under the
other Loan Documents; and (d) so long as either the Senior Loan or the Mezzanine
Loan is outstanding, the Holder's ability to assign its rights and interests in
the Loan. To the extent there is any conflict between the terms of the
Intercreditor Agreements and this Promissory Note or the other Loan Documents,
the terms of the Intercreditor Agreements shall control.
[SIGNATURE APPEARS ON FOLLOWING PAGE]
9
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Promissory Note to
be duly executed on its behalf, as of the day and year first hereinabove set
forth.
DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
By: Marriott Desert Springs Corporation
Its: General Partner
ATTEST:
By: /s/ By: /s/ Patricia K. Brady
-------------------------- ----------------------------
Its: Assistant Secretary Patricia K. Brady,
Vice President
10
<PAGE>
Exhibit 10.17
MARRIOTT'S DESERT SPRINGS RESORT & SPA
PALM DESERT, CALIFORNIA
================================================================================
November 25, 1997
MANAGEMENT AGREEMENT
between
DS Hotel LLC
("Owner")
and
MARRIOTT HOTEL SERVICES, INC.
("Management Company")
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I - DEFINITION OF TERMS
- -------------------------------
1.01 Definition of Terms............................................. 1
ARTICLE II - APPOINTMENT OF MANAGEMENT COMPANY
- ----------------------------------------------
2.01 Appointment..................................................... 20
2.02 Delegation of Authority......................................... 20
2.03 Operational Standards........................................... 20
2.04 Limitations on Authority........................................ 23
2.05 Covenants, Conditions or Restrictions........................... 24
2.06 Licenses and Permits............................................ 25
ARTICLE III - HOTEL
- -------------------
3.01 Ownership of Interest in Site, Hotel, and
Golf Course B................................................... 26
ARTICLE IV - TERM
- -----------------
4.01 Term............................................................ 28
4.02 Actions to be Taken Upon Termination............................ 29
4.03 Performance Termination......................................... 30
ARTICLE V - COMPENSATION OF MANAGEMENT COMPANY; DISTRIBUTIONS
- -------------------------------------------------------------
5.01 Management Fees................................................. 32
5.02 Accounting and Interim Payments................................. 32
ARTICLE VI - FINANCING OF THE HOTEL
- -----------------------------------
6.01 Amendments of Management Agreement.............................. 34
6.02 Notice and Opportunity to Cure.................................. 35
6.03 Assignment of Management Agreement.............................. 36
6.04 Subordination of Management Agreement........................... 36
6.05 Non-Disturbance Agreement....................................... 37
6.06 Attornment...................................................... 38
6.07 No Modification or Termination of Agreement..................... 39
6.08 Owner's Right to Finance the Hotel.............................. 39
6.09 Sale/Leaseback Transactions..................................... 39
ARTICLE VII - WORKING CAPITAL AND FIXED ASSET SUPPLIES
- ------------------------------------------------------
7.01 Working Capital and Inventories................................. 41
7.02 Fixed Asset Supplies............................................ 41
- i -
<PAGE>
ARTICLE VIII - REPAIRS, MAINTENANCE AND REPLACEMENTS
- ----------------------------------------------------
8.01 Repairs and Maintenance......................................... 42
8.02 FF&E Reserve.................................................... 42
8.03 Building Alterations, Improvements, Renewals,
and Replacements.............................................. 46
8.04 Liens........................................................... 48
8.05 Ownership of Replacements, Etc.................................. 48
ARTICLE IX - BOOKKEEPING AND BANK ACCOUNTS
- ------------------------------------------
9.01 Books and Records............................................... 49
9.02 Hotel Accounts, Expenditures.................................... 50
9.03 Annual Operating Budget......................................... 50
9.04 Operating Losses; Credit........................................ 51
ARTICLE X - PROPRIETARY MARKS; INTELLECTUAL PROPERTY
- ----------------------------------------------------
10.01 Proprietary Marks.............................................. 53
10.02 Purchase of Inventories and Fixed Asset Supplies............... 53
10.03 Computer Software and Equipment................................ 54
10.04 Intellectual Property.......................................... 54
10.05 Breach of Covenant............................................. 54
ARTICLE XI - POSSESSION AND USE OF HOTEL
- ----------------------------------------
11.01 Quiet Enjoyment................................................ 55
11.02 Use............................................................ 55
11.03 Chain Services................................................. 56
11.04 Owner's Right to Inspect....................................... 57
11.05 Indemnity...................................................... 57
ARTICLE XII - INSURANCE
- -----------------------
12.01 Interim Insurance.............................................. 59
12.02 Property and Operational Insurance............................. 59
12.03 General Insurance Provisions................................... 60
12.04 Cost and Expense............................................... 61
ARTICLE XIII - TAXES
- --------------------
13.01 Real Estate and Personal Property Taxes........................ 63
ARTICLE XIV - HOTEL EMPLOYEES
- -----------------------------
14.01 Employees...................................................... 65
- ii -
<PAGE>
ARTICLE XV - DAMAGE, CONDEMNATION AND FORCE MAJEURE
- ---------------------------------------------------
15.01 Damage and Repair.............................................. 68
15.02 Condemnation................................................... 68
15.03 Force Majeure.................................................. 69
ARTICLE XVI - DEFAULTS
- ----------------------
16.01 Definition of "Default"........................................ 71
16.02 Definition of "Event of Default"............................... 71
16.03 Remedies Upon an Event of Default.............................. 72
16.04 Owner's Estate................................................. 73
ARTICLE XVII - WAIVER AND PARTIAL INVALIDITY
- --------------------------------------------
17.01 Waiver......................................................... 74
17.02 Partial Invalidity............................................. 74
ARTICLE XVIII - ASSIGNMENT
- --------------------------
18.01 Assignment..................................................... 75
ARTICLE XIX - SALE OF THE HOTEL
- -------------------------------
19.01 Sale of the Hotel.............................................. 77
ARTICLE XX - MISCELLANEOUS
- --------------------------
20.01 Right to Make Agreement........................................ 81
20.02 Consents....................................................... 81
20.03 Relationship................................................... 81
20.04 Confidentiality................................................ 82
20.05 Equity and Debt Offerings...................................... 82
20.06 Applicable Law................................................. 83
20.07 Recordation.................................................... 83
20.08 Headings....................................................... 83
20.09 Notices........................................................ 83
20.10 Environmental Matters.......................................... 84
20.11 Estoppel Certificates.......................................... 85
20.12 [Intentionally omitted]........................................ 85
20.13 Arbitration.................................................... 85
20.14 Affiliates..................................................... 87
20.15 Entire Agreement............................................... 87
20.16 Rental of Golf Course B........................................ 87
20.17 Recitals....................................................... 88
- iii -
<PAGE>
Exhibit "A" - Legal Description of the Site and
Golf Course B Tract
Exhibit "A-1" - [Intentionally omitted]
Exhibit "B" - Form of Accounting Statement
Exhibit "C" - [Intentionally omitted]
Exhibit "D" - [Intentionally omitted]
Exhibit "D-1" - [Intentionally omitted]
Exhibit "E" - Existing Ground Lease (if applicable); Existing
Mortgage (if any); Existing Non-Mortgage Loans
Exhibit "F" - Proprietary Marks owned by Owner (if any)
Exhibit "G" - Title Insurance Policy
- iv -
<PAGE>
MANAGEMENT AGREEMENT
--------------------
This Management Agreement ("Agreement") is executed on this 25th day of
November, 1997, by DS HOTEL LLC ("Owner"), a Delaware limited partnership, with
a mailing address at c/o Host Marriott Corporation, 10400 Fernwood Road,
Bethesda, Maryland 20817 and MARRIOTT HOTEL SERVICES, INC. ("Management
Company"), a Delaware corporation, with a mailing address at 10400 Fernwood
Road, Bethesda, Maryland 20817.
R E C I T A L S:
A. Owner is the owner of the Hotel (as defined and more fully described in
Section 1.01), which is located as set forth on Exhibit "A" hereto; and
B. Owner (as successor in interest to Desert Springs Marriott Limited
Partnership) and Management Company (as successor in interest to Desert Springs
Hotel Services) are parties to that certain Lease Agreement ("Prior Operating
Lease") for Marriott's Desert Springs Resort and Spa, dated as of April 23, 1987
regarding the leasing and operation of the Hotel; and
C. The Prior Operating Lease is or has been terminated as of this same
date and Owner and Management Company now wish to enter into this Agreement,
which shall completely supersede the Prior Operating Lease as of the Effective
Date of this Agreement and change the arrangement between Owner and Management
Company from one of landlord and tenant to one of owner and manager;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
ARTICLE I
DEFINITION OF TERMS
-------------------
1.01 Definition of Terms
-------------------
The following terms when used in this Agreement shall have the meanings
indicated:
"Accounting Period" shall mean each of the four (4) week accounting periods
-----------------
which are used in Management Company's accounting system, except that an
Accounting Period may occasionally contain five (5) weeks when necessary to
conform Management Company's accounting system to the calendar.
<PAGE>
"Accounting Period Statement" shall have the meaning set forth in Section
---------------------------
5.02.
"Additional Invested Capital" shall mean the cumulative total, as of any
---------------------------
given point in time during the Term, of the following: (i) any expenditures
made by Owner pursuant to Section 8.03, excepting expenditures made pursuant to
Section 20.10 C; (ii) any contributions by Owner to the FF&E Reserve (beyond the
funding described in Section 8.02 B), other than those contributions that are
reimbursed to Owner under Section 8.02 E; and (iii) any payments by Owner with
regard to special assessments or impact fees pursuant to Section 13.01 B(2) or
(3).
"Additional Invested Capital Amount" shall mean a dollar amount equal to
----------------------------------
ten and seventy-five hundredths percent (10.75%) of any Additional Invested
Capital expended by Owner, with each expenditure of Additional Invested Capital
to be added into the calculation of such dollar amount (with respect to the
Fiscal Year or Fiscal Years during which such expenditure(s) occurred) on a pro
rata basis, beginning with the first full Accounting Period after such
expenditures occurred, and thereafter over the remainder of the then-current
Fiscal Year.
"Affiliate" shall mean any individual or entity directly or indirectly
---------
through one or more intermediaries, controlling, controlled by or under common
control with a party. The term "control," as used in the immediately preceding
sentence, means, with respect to a corporation, the right to exercise, directly
or indirectly, fifty percent (50%) or more of the voting rights attributable to
the shares of the controlled corporation, and, with respect to an entity that is
not a corporation, the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of the controlled
entity.
"Agreement" shall have the meaning set forth in the Preamble.
---------
"Annual Operating Budget" shall have the meaning set forth in Section 9.03.
-----------------------
"Annual Operating Statement" shall have the meaning set forth in Section
--------------------------
9.01.
"Available Cash Flow" shall mean an amount, with respect to each Fiscal
-------------------
Year or portion thereof, equal to the excess (if any) of the Operating Profit
for such Fiscal Year over the applicable Owner's Priority.
- 2 -
<PAGE>
"Base Management Fee" shall mean an amount equal to three percent (3%) of
-------------------
Gross Revenues, which shall be paid to Management Company as compensation (in
addition to the Incentive Management Fee) for the services performed pursuant to
this Agreement.
"Building Estimate" shall have the meaning set forth in Section 8.03 A.
-----------------
"Capital Expenditures" shall have the meaning set forth in Section 8.03 A.
--------------------
"Capitalization Multiple" shall mean the number ten (10).
-----------------------
"Case Goods" shall mean furniture and furnishings used in the Hotel,
----------
including, without limitation: chairs, beds, chests, headboards, desks, lamps,
tables, television sets, mirrors, pictures, wall decorations and similar items.
"CC&R's" shall have the meaning set forth in Section 2.05.
------
"Central Office Services" shall mean certain services which are provided to
-----------------------
the Hotel by personnel who are employees of Management Company or one of its
Affiliates and who are not normally located at the Hotel, including the
following: executive supervision; planning and policy making; corporate finance;
corporate personnel and employee relations; in-house legal services; trademark
protection relating to Proprietary Marks which are used generally by the
Marriott chain; certain product research and development; and the services of
Management Company's technical and operational experts making routine periodic
inspection and consultation visits to the Hotel (but not the services of the
personnel of the Architecture and Construction Division of Management Company
(or any of its Affiliates) providing architectural, technical or procurement
services for the Hotel, the costs and expenses of which shall be paid pursuant
to paragraph 6 of the definition of Operating Profit). Any service which is
defined as being included within the term "Chain Services" shall not also be
included within "Central Office Services". The Central Office Services which
are provided to the Hotel shall be generally consistent with those Central
Office Services which are provided to other comparable full-service hotels
within the Marriott Hotel System.
"Chain Services" shall have the meaning set forth in Section 11.03.
--------------
"Coverage Ratio" shall mean the number one and three-tenths (1.3).
--------------
"Cure Notice" shall have the meaning set forth in Section 4.03 B.
-----------
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<PAGE>
"Cure Period" shall have the meaning set forth in Section 4.03 B.
-----------
"Deductions" shall have the meaning set forth in the definition of
----------
Operating Profit.
"Default" shall have the meaning set forth in Section 16.01.
-------
"Effective Date" shall mean November 25, 1997.
--------------
"Employee Claims" shall mean any and all claims (including all fines,
---------------
judgments, penalties, costs, Litigation and/or arbitration expenses, attorneys'
fees and expenses, and costs of settlement with respect to any such claim) by
any employee or employees of Management Company against Owner or Management
Company with respect to the employment at the Hotel of such employee or
employees. "Employee Claims" shall include, without limitation, the following:
(i) claims which are eventually resolved by arbitration, by Litigation or by
settlement; (ii) claims which also involve allegations that any applicable
employment-related contracts affecting the employees at the Hotel have been
breached; and (iii) claims which involve allegations that one or more of the
Employment Laws has been violated; provided, however, that "Employee Claims"
shall not include claims for worker compensation benefits (which shall be
governed by Article XII hereof) or for unemployment benefits.
"Employment Laws" shall mean any federal, state or local law (including the
---------------
common law), statute, ordinance, rule, regulation, order or directive with
respect to employment, conditions of employment, benefits, compensation, or
termination of employment that currently exists or may exist at any time during
the Term of this Agreement, including, but not limited to, Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act, the Workers
Adjustment and Retraining Act, the Occupational Safety and Health Act, the
Immigration Reform and Control Act of 1986, the Polygraph Protection Act of 1988
and the Americans With Disabilities Act of 1990.
"Environmental Laws" shall mean any federal, state or local law, rule or
------------------
regulation (both present and future) dealing with the use, generation,
treatment, storage, disposal or abatement of Hazardous Materials, including, but
not limited to, (i) the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., as amended, and (ii) the
-- ---
regulations promulgated thereunder, from time to time.
"Event of Default" shall have the meaning set forth in Section 16.02.
----------------
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<PAGE>
"Existing CC&R's" shall have the meaning set forth in Section 2.05 A.
---------------
"Existing Ground Lease" shall mean the ground lease listed on Exhibit "E",
---------------------
but, for purposes of this Agreement, shall not include any amendments or
modifications thereof after the Effective Date, unless Management Company
consents to any such amendment or modification (which consent shall not be
unreasonably withheld, provided that (i) the proposed amendment or modification
would not materially affect the rights and/or obligations of Management Company
in a manner adverse to Management Company, and (ii) in any event, such amendment
or modification would have no adverse impact on the amount of the Management
Fees).
"Existing Mortgage" shall mean the Mortgage that is listed on Exhibit "E",
-----------------
but, for purposes of this Agreement, shall not include any amendments or
modifications thereof after the Effective Date.
"Existing Non-Mortgage Loans" shall mean the loans that are listed on
---------------------------
Exhibit "E" that are not Mortgages, only in the amounts stated as qualifying as
"Existing Non-Mortgage Loans." For purposes of this Agreement, "Existing Non-
Mortgage Loans" shall not include any amendments or modifications thereof after
the Effective Date.
"FF&E" shall mean furniture, furnishings, fixtures, Soft Goods, Case Goods,
----
signage and equipment at the Hotel (including, without limitation, facsimile
machines, communication systems, audio-visual equipment, and all computer and
other equipment needed for the reservation system and the property management
system, and all other electronic systems needed for the Hotel, from time to
time, as well as similar systems based on other technologies which may be
developed in the future.
"FF&E Estimate" shall have the meaning set forth in Section 8.02 D.
-------------
"FF&E Reserve" shall have the meaning set forth in Section 8.02 A.
------------
"First Notice" shall have the meaning set forth in Section 6.02.
------------
"Fiscal Year" shall mean Management Company's Fiscal Year which now ends at
-----------
midnight on the Friday closest to December 31 in each calendar year; the new
Fiscal Year begins on the Saturday immediately following said Friday. Any
partial Fiscal Year between the Effective Date and the commencement of the first
full Fiscal Year, and any partial Fiscal Year between the end of the
- 5 -
<PAGE>
last full Fiscal Year and the Termination of this Agreement, shall constitute a
separate Fiscal Year. If Management Company's Fiscal Year is changed in the
future, appropriate adjustment to this Agreement's reporting and accounting
procedures shall be made; provided, however, that no such change or adjustment
shall alter the Term of this Agreement, or in any way reduce the distributions
of Operating Profit or other payments due to Owner hereunder, or otherwise
significantly and adversely affect Owner's rights or obligations under this
Agreement.
"Fixed Asset Supplies" shall mean supply items included within "Property
--------------------
and Equipment" under the Uniform System of Accounts, including linen, china,
glassware, silver, uniforms, and similar items.
"Force Majeure" shall mean acts of God, acts of war, civil disturbance,
-------------
governmental action (including the revocation or refusal to grant licenses or
permits, where such revocation or refusal is not due to the fault of the party
whose performance is to be excused for reasons of Force Majeure), strikes, fire,
unavoidable casualties or any other causes beyond the reasonable control of
either party (excluding, however, (i) lack of financing, or (ii) general
economic and/or market factors).
"Foreclosure" shall mean any exercise of the remedies available to a
-----------
Holder, upon a default under the Secured Loan held by such Holder, which results
in a transfer of title to or possession of the Hotel. The term "Foreclosure"
shall include, without limitation, any one or more of the following events, if
they occur in connection with a default under a Secured Loan: (i) a transfer by
judicial foreclosure; (ii) a transfer by deed in lieu of foreclosure; (iii) the
appointment by a court of a receiver to assume possession of the Hotel; (iv) a
transfer of either ownership or control of the Owner, by exercise of a stock
pledge or otherwise; (v) [intentionally omitted]; or (vi) any similar judicial
or non-judicial exercise of the remedies held by the Holder.
"Foreclosure Date" shall mean the date on which title to or possession of
----------------
the Hotel is transferred by means of a Foreclosure.
"Future CC&R's" shall have the meaning set forth in Section 2.05 B.
-------------
"GDP Deflator" shall mean the "Gross Domestic Product Implicit Price
------------
Deflator" issued from time to time by the United States Bureau of Economic
Analysis of the Department of Commerce, or if the aforesaid GDP Deflator is not
at such time so prepared and published, any comparable index selected by Owner
and reasonably satisfactory to Management Company (a "Substitute Index") then
prepared and published by an agency of the
- 6 -
<PAGE>
Government of the United States, appropriately adjusted for changes in the
manner in which such index is prepared and/or year upon which such index is
based. Any dispute regarding the selection of the Substitute Index or the
adjustments to be made thereto shall be settled by arbitration in accordance
with Section 20.13. Except as otherwise expressly stated herein, whenever a
number or amount is required to be "adjusted by the GDP Deflator", or similar
terminology, such adjustment shall be equal to the percentage increase or
decrease (except that, for purposes of this Agreement, the GDP Deflator shall
not be decreased below its level as of the Effective Date) in the GDP Deflator
which is issued for the month in which such adjustment is to be made (or, if the
GDP Deflator for such month is not yet publicly available, the GDP Deflator for
the most recent month for which the GDP Deflator is publicly available) as
compared to the GDP Deflator which was issued for the month in which the
Effective Date occurred.
"Golf Course A" shall mean an eighteen (l8) hole golf course owned by Owner
-------------
and located on the Site.
"Golf Course B" shall mean an eighteen (l8) hole golf course adjacent to
-------------
the Site and leased under the Existing Ground Lease.
"Golf Courses" shall mean Golf Course A and Golf Course B.
------------
"Gross Revenues" shall mean all revenues and receipts of every kind derived
--------------
from operating the Hotel and parts thereof, including, but not limited to:
income (from both cash and credit transactions), before commissions and
discounts for prompt or cash payments, from rental of rooms, stores, offices,
meeting, exhibit or sales space of every kind; license, lease and concession
fees and rentals (not including gross receipts of licensees, lessees and
concessionaires); golf course membership and green fees and all other revenues
from the operation of the Golf Courses and related facilities, income from
vending machines; health club membership fees; food and beverage sales; sales of
merchandise (other than proceeds from the sale of FF&E no longer necessary to
the operation of the Hotel, which shall be deposited in the FF&E Reserve as set
forth in Section 8.02 C hereof); service charges, to the extent not distributed
to the employees at the Hotel as, or in lieu of, gratuities; and proceeds, if
any, from business interruption or other loss of income insurance; provided,
however, that all refunds, rebates, discounts, and credits of a similar nature,
given, paid, or returned by Owner or Management Company in the course of
obtaining all such revenue and income shall be excluded; and provided further,
that Gross Revenues shall not include the following: gratuities to Hotel
employees; federal, state or municipal excise, sales, use or similar taxes
collected directly from patrons or guests or included as part of the sales price
of
- 7 -
<PAGE>
any goods or services; insurance proceeds (other than proceeds from business
interruption or other loss of income insurance); condemnation proceeds (other
than for a temporary taking); any proceeds from any Sale of the Hotel or from
the refinancing of any debt encumbering the Hotel; proceeds from the disposition
of FF&E no longer necessary for the operation of the Hotel; interest which
accrues on amounts deposited in either the FF&E Reserve or any escrow accounts
which are established in accordance with Section 13.01 C; or Cure Payments.
"Ground Lease Rental" shall mean the annual rental, as of the Effective
-------------------
Date, under the Existing Ground Lease.
"Ground Lessor" shall mean the landlord under the Existing Ground Lease.
-------------
"Hazardous Materials" shall mean any substance or material containing one
-------------------
or more of any of the following: "hazardous material", "hazardous waste",
"hazardous substance", "regulated substance", "petroleum", "pollutant",
"contaminant", or "asbestos", as such terms are defined in any applicable
Environmental Law, in such concentration(s) or amount(s) as may impose clean-up,
removal, monitoring or other responsibility under any applicable Environmental
Law, or which may present a significant risk of harm to guests, invitees or
employees of the Hotel.
"Holder" shall mean any holder, from time to time, of any Secured Loan.
------
"Hotel" shall mean that certain hotel property currently known as
-----
Marriott's Desert Springs Resort and Spa, located in Palm Desert, California,
which Owner owns at the location specified in Exhibit "A," and shall include, as
appropriate to the context, (i) the Site, (ii) Existing Ground Lease, and (iii)
all improvements built, and all FF&E, Fixed Asset Supplies, and Inventories
installed, now or hereafter, on the Site and Golf Course B.
"Hotel Retention" shall have the meaning set forth in Section 12.03 hereof.
---------------
"Impositions" shall mean all real estate and personal property taxes,
-----------
levies, assessments and similar charges (other than those which are specifically
excluded pursuant to Section 13.01 B) including, without limitation, the
following: all water, sewer or similar fees, rates, charges, excises or levies;
license fees; permit fees; inspection fees and other authorization fees and
other governmental charges of any kind or nature whatsoever, whether general or
special, ordinary or extraordinary, foreseen or unforeseen, or hereinafter
levied or
- 8 -
<PAGE>
assessed of every character (including all interest and penalties thereon),
which at any time during or in respect of the Term of this Agreement may be
assessed, levied, confirmed or imposed on Owner with respect to the Hotel or
Golf Course B, or otherwise in respect of or be a lien upon the Hotel or Golf
Course B. Impositions shall not include any income or franchise taxes payable by
Owner or Management Company. Impositions shall include any taxes, levies,
assessments and similar charges which may be enacted by the applicable
governmental authority in lieu of, or in complete or partial substitution for,
Impositions.
"Incentive Management Fee" shall mean the payments which shall be made to
------------------------
Management Company, as compensation (in addition to the Base Management Fee) to
Management Company for its services under this Agreement, in an amount equal to:
(i) With respect to Fiscal Year 1997, the lesser of (a) two million
dollars ($2,000,000.00) or (b) one hundred percent (100%) of the
Operating Profit (as defined in accordance with the Prior Operating
Lease) for the period from the beginning of the Fiscal Year until the
Effective Date of this Agreement, plus one hundred percent (100%) of
the amount of Operating Profit (as defined in accordance with this
Agreement) for the period from the Effective Date of this Agreement
through the end of Fiscal Year 1997, less Owner's Priority for Fiscal
Year 1997 (as defined in this Agreement); and
(ii) With respect to each Fiscal Year (or portion thereof) thereafter, (a)
one hundred percent(100%) of the first one million, eight hundred
thousand dollars ($1,800,000.00) of Available Cash Flow in such Fiscal
Year (or portion thereof); plus, (b) one hundred percent (100%) of the
----
remaining Available Cash Flow up to an amount equal to any Incentive
Management Fees earned in prior Fiscal Years but not paid; plus, (c)
----
(1) twenty-five percent (25%) of the Available Cash Flow in such
Fiscal Year (or portion thereof) remaining after the payments required
in subsection (a), above; plus, (2) if any payments have been made by
----
Management Company pursuant to Section 4.03 B of this Agreement, an
additional eighteen and seventy-five hundredths percent (18.75%) of
Available Cash Flow in such Fiscal Year (or portion thereof) remaining
after the payment required in subsection (a), above, until the Section
4.03 B payments have been fully recovered.
"Initial Term" shall have the meaning set forth in Section 4.01.
------------
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<PAGE>
"Intellectual Property" shall mean: (i) all Software; and (ii) all
---------------------
manuals, brochures and directives issued by Management Company to its employees
at the Hotel regarding the procedures and techniques to be used in operating the
Hotel.
"Interest Rate" shall mean an annual rate of interest equal to the Prime
-------------
Rate (as adjusted from time to time) plus three hundred (300) basis points;
provided, however, that in no event shall the Interest Rate exceed the maximum
rate which is permitted under applicable Legal Requirements.
"Inventories" shall mean "Inventories" as defined in the Uniform System of
-----------
Accounts, such as provisions in storerooms, refrigerators, pantries and
kitchens; beverages in wine cellars and bars; other merchandise intended for
sale; fuel; mechanical supplies; stationery; and other expensed supplies and
similar items.
"Legal Requirement" shall mean any federal, state or local law, code, rule,
-----------------
ordinance, regulation or order of any governmental authority or agency having
jurisdiction over the business or operation of the Hotel or the matters which
are the subject of this Agreement, including, without limitation, the following:
(i) any building, zoning or use laws, ordinances, regulations or orders; and
(ii) Environmental Laws.
"License" shall mean any license, permit, decree, act, order, authorization
-------
or other approval or instrument which is necessary in order to operate the Hotel
in accordance with Legal Requirements and pursuant to the Marriott Standards and
otherwise in accordance with this Agreement.
"Management Analysis Report" shall mean a narrative report on the state of
--------------------------
business and affairs of the Hotel, prepared on an annual basis by Management
Company and delivered to Owner at the time of the delivery of the Annual
Operating Statement, which shall include a narrative description regarding the
preceding Fiscal Year, of: (i) the Hotel's operating performance, including
significant variations from the Annual Operating Budget; (ii) an analysis of any
significant variation of the actual average daily rate and occupancy from what
was set forth in the Annual Operating Budget; (iii) a review of the competitive
hotel market; (iv) a description of any significant promotional or other
marketing programs in which the Hotel participated, which were not included as
part of the Annual Operating Budget for the preceding Fiscal Year; and (v) such
other supplementary information as Owner or Management Company shall reasonably
deem necessary to an understanding of the operation of the Hotel.
"Litigation" shall mean: (i) any cause of action commenced in a federal,
----------
state or local court; or (ii) any claim brought
- 10 -
<PAGE>
before an administrative agency or body (for example, without limitation,
employment discrimination claims).
"Management Company" shall have the meaning set forth in the Preamble.
------------------
"Management Fees" shall mean the Base Management Fee plus the Incentive
---------------
Management Fee.
"Marriott" shall mean Marriott International, Inc., a Delaware corporation
--------
having an address at 10400 Fernwood Road, Bethesda, Maryland 20817.
"Marriott Hotel System" shall mean the full-service hotel system managed by
---------------------
Marriott (or one or more of its Affiliates) which is, as of the Effective Date,
operated under the trade name "Marriott Hotels, Resorts and Suites".
"Marriott Standards" shall mean both the operational standards (for
------------------
example, staffing, amenities offered to guests, advertising, etc.) and the
physical standards (for example, the quality, condition, utility and age of the
FF&E, etc.) of comparable full-service hotels in the Marriott Hotel System, as
such operational and physical standards may fluctuate from time to time
(provided, however, that the Marriott Standards shall in no event be lower than
the operational and physical standards, as of the date in question, of
comparable "quality segment" (as such term was being used as of the Effective
Date) full-service hotels in other full-service hotel systems).
"Mortgage" shall mean any security instrument which encumbers the Site
--------
and/or the Hotel, including, without limitation, mortgages, deeds of trust,
security deeds and similar instruments.
"Non-Disturbance Agreement" shall mean an agreement, in recordable form in
-------------------------
the jurisdiction in which the Hotel is located, executed and delivered by a
Holder (which agreement shall by its terms be binding upon all assignees of such
Holder and upon all Subsequent Owners), for the benefit of Management Company,
pursuant to which, in the event such Holder (or its assignee) or any Subsequent
Owner comes into possession of or acquires title to the Hotel either at or
following a Foreclosure, such Holder (and its assignees) and all Subsequent
Owners shall (x) recognize Management Company's rights under this Agreement, and
(y) shall not name Management Company as a party in any Foreclosure action or
proceeding, and (z) shall not disturb Management Company in its right to
continue to manage the Hotel pursuant to this Agreement; provided, however, that
at such time, (i) this Agreement has not expired or otherwise been earlier
terminated in accordance with its terms, and (ii) there are no
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<PAGE>
outstanding Events of Default by Management Company, and (iii) no material event
has occurred and no material condition exists which, after notice or the passage
of time or both, would entitle Owner to terminate this Agreement (excluding
events which would constitute an Event of Default, which are to be governed
exclusively by clause (ii) hereof).
"Opening Date" shall mean February 2, 1987.
------------
"Operating Accounts" shall have the meaning set forth in Section 9.02.
------------------
"Operating Loss" shall mean a negative Operating Profit.
--------------
"Operating Profit" shall mean the excess of Gross Revenues over the
----------------
following deductions ("Deductions") incurred by Management Company in operating
the Hotel:
1. The cost of sales including salaries, wages, employee benefits,
Employee Claims (except to the extent specifically set forth to the contrary in
Section 14.01 C or D), payroll taxes and other costs related to Hotel employees;
2. Departmental expenses; administrative and general expenses;
relocation expenses not otherwise paid as part of Chain Services; the cost of
Hotel advertising and business promotion; the cost of heat, light, power, water,
and all other utility costs; and the cost of routine repairs, maintenance and
minor alterations which are treated as Deductions under Section 8.01;
3. The cost of Inventories and Fixed Asset Supplies consumed in the
operation of the Hotel;
4. A reasonable reserve for uncollectible accounts receivable as
determined by Management Company;
5. All reasonable costs and fees of independent professionals or
other third parties who are retained by Management Company to perform services
required or permitted hereunder; provided that Management Company will notify
Owner at least thirty (30) days in advance of any proposed expenditure under
this paragraph 5 which is in excess of Fifty Thousand Dollars ($50,000) (to be
adjusted by the GDP Deflator) and which was not specifically identified in the
Annual Operating Budget, and Management Company shall consider in good faith any
comments which Owner may have with respect to such proposed expenditure; and
provided, further, that if such expenditure involves immediately-needed repair
work to the Hotel or if immediate action is otherwise required, the above-
described requirement regarding thirty (30) days' prior notice shall be modified
to
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<PAGE>
require whatever notice period is reasonable under the circumstances;
6. The reasonable cost and expense of technical consultants and
operational experts who are employees of Management Company or one of its
Affiliates, and who perform specialized services in connection with non-routine
Hotel work; provided, however, that the costs and expenses so incurred shall
only be Deductions to the extent such costs and expenses are reasonable and
competitively priced, as compared to similar work done by outside consultants or
experts; and provided, further, that Management Company will notify Owner at
least thirty (30) days in advance of any proposed expenditure under this
paragraph 6 which is in excess of Fifty Thousand Dollars ($50,000) (to be
adjusted by the GDP Deflator) and which was not specifically identified in the
Annual Operating Budget, and Management Company shall consider in good faith any
comments which Owner may have with respect to such proposed expenditure; and
provided, further, that if such expenditure involves immediately-needed repair
work to the Hotel or if immediate action is otherwise required, the above-
described requirement regarding thirty (30) days' prior notice shall be modified
to require whatever notice period is reasonable under the circumstances;
7. The Base Management Fee;
8. The Hotel's pro rata share of costs and expenses incurred by
Management Company (or its Affiliates) in providing Chain Services;
9. The Hotel's pro rata share of costs and expenses incurred in
connection with sales, advertising and/or promotional programs developed for or
within the Marriott Hotel System, such as (without limitation) the Marriott
Rewards Program, where such costs and expenses are not deducted as either
departmental expenses under paragraph 2 above or as Chain Services under
paragraph 8 above;
10. Insurance costs and expenses as provided in Section 12.04 B;
11. License fees and taxes, if any, payable by or assessed against
Management Company related to the Hotel, this Agreement, or to Management
Company's operation of the Hotel (exclusive of Management Company's income taxes
or franchise taxes) and all Impositions assessed against the Hotel;
12. Amounts which are transferred into the FF&E Reserve in accordance
with the provisions of Section 8.02;
- 13 -
<PAGE>
13. Lease payments pursuant to leases of Telephones and Miscellaneous
Equipment;
14. [Intentionally omitted]
15. All maintenance and operational costs related to the Golf
Courses;
16. Rental payments made by or on behalf of Owner pursuant to the
Existing Ground Lease; and
17. Such other costs and expenses incurred by Management Company or
its Affiliates (not including the costs and expenses of providing the Central
Office Services) as are specifically provided for elsewhere in this Agreement or
are otherwise reasonably necessary for the proper and efficient operation of the
Hotel (including, without limitation, the costs and expenses of all functions
described in Section 2.03, to the extent such costs and expenses are not already
treated as Deductions elsewhere in this definition of Operating Profit, unless,
and to the extent that, any such costs and expenses are specifically stated not
to be Deductions under any provision of this Agreement).
The term "Deductions" shall not include debt service payments pursuant to
any Secured Loan or Existing Non-Mortgage Loan, which shall be paid by Owner
from its own funds, and not from Gross Revenues nor from the FF&E Reserve. In
no event shall the costs or expenses of providing the Central Office Services be
treated as Deductions, or otherwise be reimbursed out of Gross Revenues; it
being the intent of the parties that all such costs and expenses are to be paid
by Management Company (or its Affiliates) from its own funds.
"Owner" shall have the meaning set forth in the Preamble. Subject to
-----
compliance with Articles XVIII and XIX of this Agreement, the term "Owner" shall
include all successors and assigns of the entity identified as the "Owner" in
the Preamble.
"Owner's Distribution" shall mean, with respect to each Fiscal Year or
--------------------
portion thereof during the Term, Operating Profit less any Incentive Management
Fee due to Management Company.
"Owner's Implied Initial Cost" shall mean Two Hundred Fifteen Million
----------------------------
Dollars ($215,000,000.00).
"Owner's Investment" shall mean the sum total, as of any given point in
------------------
time during the Term, of: (i) the Owner's Implied Initial Cost; plus (ii) any
Additional Invested Capital expended by Owner; provided that each expenditure of
Additional Invested Capital shall be added to the Owner's Investment (with
respect to
- 14 -
<PAGE>
the Fiscal Year or Fiscal Years during which such expenditure(s) occurred) on a
pro rata basis, beginning with the first full Accounting Period after such
expenditures occurred, and thereafter over the remainder of the current Fiscal
Year.
"Owner's Priority" shall mean (i) with respect to Fiscal Year 1997, the
----------------
Additional Invested Capital Amount plus the greater of (x) twenty million, five
hundred thousand dollars ($20,500,000.00), and (y) the annual scheduled debt
service (excluding balloon payments, cash sweeps, and payments into debt service
liquidity reserves, if any) on the Existing Mortgage, the Existing Non-Mortgage
Loans, and any prior mortgages in effect during said Fiscal Year; and (ii) with
respect to each other Fiscal Year (prorated for any partial Fiscal Years) during
the Term, the Additional Invested Capital Amount plus the greater of (x) twenty-
one million, five hundred thousand dollars ($21,500,000.00), and (y) the annual
scheduled debt service (excluding balloon payments, cash sweeps, and payments
into debt service liquidity reserves, if any) on the Existing Mortgage and the
Existing Non-Mortgage Loans.
"Post-Foreclosure Decision Date" shall have the meaning set forth in
------------------------------
Section 6.06.
"Prime Rate" shall mean the "prime rate" as published in the "Money Rates"
----------
section of The Wall Street Journal; however, if such rate is, at any time during
--- ---- ------ -------
the Term, no longer so published, the term "Prime Rate" shall mean the average
of the prime interest rates which are announced, from time to time, by the three
(3) largest banks (by assets) headquartered in the United States which publish a
"prime rate."
"Proprietary Marks" shall mean all trademarks, trade names, symbols, logos,
-----------------
slogans, designs, insignia, emblems, devices, service marks and distinctive
designs of buildings and signs, or combinations thereof, which are used to
identify hotels in the Marriott Hotel System. The term "Proprietary Marks"
shall also include all trade names, trademarks, symbols, logos, designs, etc.
which are used in connection with the operation of the Hotel during the Term
(such as, without limitation, the names of the restaurants and lounges). The
term "Proprietary Marks" shall include all present and future Proprietary Marks,
whether they are now or hereafter owned by Management Company or one of its
Affiliates, and whether or not they are registered under the laws of the United
States or any other country. The names "Marriott", "Marriott Hotels" and
"Marriott Resorts", and any of the foregoing used in conjunction with other
words or names, are examples of Proprietary Marks. Notwithstanding the
foregoing, those trade names, trademarks, symbols, logos, designs, etc., which
are specifically set forth on Exhibit "F" hereto shall be deemed to be
"Proprietary Marks" only for so long as this
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<PAGE>
Agreement is in effect, and such Proprietary Marks shall revert to the exclusive
control of Owner as of the date of Termination.
"Proprietary Signage" shall mean any signage used in connection with the
-------------------
Hotel (including both interior and exterior signage, and including billboards
and other signage not located on the Site) which contains one or more
Proprietary Marks; any signage which contains the word "Marriott" shall
automatically be deemed to be Proprietary Signage.
"Prospectus" shall have the meaning set forth in Section 20.05.
----------
"Qualified Lender" shall mean any Holder, from time to time, of any
----------------
Qualified Loan with respect to which Management Company has received a written
notice (pursuant to Section 20.09 of this Agreement) stating: (i) the name and
address of such Holder; and (ii) that such Holder is a "Qualified Lender"
pursuant to the terms of this Agreement.
"Qualified Loan" shall mean any Secured Loan in which the initial principal
--------------
amount, as of the date such Secured Loan is incurred, when added to the current
principal balance of all existing Secured Loans and any then-remaining Existing
Non-Mortgage Loans as of that date, is less than or equal to the greater of the
following:
(i) Seventy percent (70%) of Owner's Investment; or
(ii) the result obtained by (a) dividing the Operating Profit for the
thirteen (13) most recent full Accounting Periods by the Coverage
Ratio; then, (b) multiplying the result of clause (a) by the
Capitalization Multiple; or
(iii) the existing balance of any Secured Loans encumbering the Hotel plus
the existing balance of any then-remaining Existing Non-Mortgage Loans
immediately prior to the date of the incurrence of such Qualified Loan,
plus commercially reasonable Transaction Costs associated with such
refinancing up to an amount equal to four percent (4%) of the principal
amount of such Qualified Loan.
In addition, regardless of whether or not the above test set forth in clauses
(i), (ii) and (iii) is satisfied, (a) the existing (as of the Effective Date)
balance of any Secured Loan which is secured by an Existing Mortgage shall be
deemed to be a "Qualified Loan"; and (b) any Secured Loan which is secured by a
Mortgage and with respect to which Management Company, in it sole discretion,
shall have given its written approval shall be deemed
- 16 -
<PAGE>
to be a "Qualified Loan" (provided that an approval by Management Company that a
given Secured Loan shall be deemed to be a Qualified Loan hereunder shall only
apply to the specific hotel or hotels which are described in such approval, and
shall not be deemed to be an approval with respect to other hotels, regardless
of whether such Secured Loan by its terms permits the substitution or addition
of such other hotels as security for such Secured Loan).
"Renewal Term" shall have the meaning set forth in Section 4.01 A.
------------
"Required Capital Expenditures" shall have the meaning set forth in Section
-----------------------------
8.03 A.
"ROI Capital Expenditures" shall mean such Capital Expenditures as are
------------------------
required, in Management Company's reasonable judgment, to keep the Hotel in a
competitive, efficient and economical operating condition (which Management
Company shall substantiate by demonstrating a reasonable return on the proposed
investment to be made by Owner), in accordance with the Marriott Standards;
provided that the term "ROI Capital Expenditures" shall in no event include
expenditures which are within the definition of Required Capital Expenditures.
"Sale/leaseback Transaction" shall have the meaning set forth in Section
--------------------------
6.09.
"Sale of the Hotel" shall mean any sale, assignment, transfer or other
-----------------
disposition, for value or otherwise, voluntary or involuntary, of Owner's title
to the Hotel or the Site (either fee or leasehold title, as the case may be),
but shall not include a collateral assignment intended to provide security for a
loan. For purposes of this Agreement, a "Sale of the Hotel" shall also include
a lease (or sublease) of the entire Hotel or Site. The phrase "Sale of the
Hotel" shall also include any sale, transfer, or other disposition, for value or
otherwise, in a single transaction or a series of related transactions, of the
controlling interest in Owner. If Owner is a corporation, the phrase
"controlling interest" shall mean the right to exercise, directly or indirectly,
fifty percent (50%) or more of the voting rights attributable to the shares of
Owner (through ownership of such shares or by contract). If Owner is not a
corporation, the phrase "controlling interest" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of Owner. Notwithstanding the foregoing, the term "Sale
of the Hotel" shall not include any sale, assignment, transfer or other
disposition of the Hotel or the Site by Owner to an Affiliate of Owner.
- 17 -
<PAGE>
"Second Notice" shall have the meaning set forth in Section 6.02.
-------------
"Secured Loan" shall mean and include (a) any indebtedness secured by a
------------
Mortgage encumbering the Hotel or all or any part of Owner's interest therein;
(b) all amendments, modifications, supplements and extensions of any such
Mortgage; and (c) the Existing Mortgage.
"Secured Loan Acceleration" shall mean the acceleration of the indebtedness
-------------------------
incurred pursuant to any Secured Loan, as a result of a default under the terms
and conditions of such Secured Loan.
"Seller" shall have the meaning set forth in Section 6.09.
------
"Settlement Threshold Amount" shall mean the greater of (i) One Hundred
---------------------------
Thousand Dollars ($100,000) (as adjusted by the GDP Deflator); or (ii) a dollar
amount (to be re-determined whenever reasonably necessary) equal to the highest
amount paid in a representative sampling of Employee Claims which have been
settled within the preceding twelve (12) months, where each of such settlements
can be reasonably characterized as being (i) within the normal course of
business at the Hotel, and (ii) within the range of similar settlements at other
hotels comparable to the Hotel. Any dispute between the parties as to the
appropriate amount under clause (ii) of the preceding sentence shall be
submitted to arbitration under Section 20.13.
"Site" shall mean the parcel or parcels of land described in Exhibit "A"
----
attached hereto.
"Soft Goods" shall mean all fabric, textile and flexible plastic products
----------
(not including items which are classified as "Fixed Asset Supplies" under the
Uniform System of Accounts) which are used in furnishing the Hotel, including,
without limitation: carpeting, drapes, bedspreads, wall and floor coverings,
mats, shower curtains and similar items.
"Software" shall mean all computer software and accompanying documentation
--------
(including all future upgrades, enhancements, additions, substitutions and
modifications thereof), other than computer software which is commercially
available, which are used by Management Company in connection with the property
management system, the reservation system and all future electronic systems
developed by Management Company for use in the Hotel.
"Subsequent Owner" shall mean any individual or entity which acquires title
----------------
to or possession of the Hotel at or through a Foreclosure.
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<PAGE>
"Telephones and Miscellaneous Equipment" shall mean the following equipment
--------------------------------------
used in the Hotel and all ancillary equipment: (i) telephones; (ii)
miscellaneous office equipment such as copiers, postage meters, etc.; (iii)
television sets; and (iv) audio-visual equipment.
"Term" shall mean the Initial Term plus all Renewal Terms.
----
"Termination" shall mean the expiration or sooner cessation of this
-----------
Agreement.
"Transaction Costs" shall mean, with respect to the incurring of any
-----------------
Secured Loan, all normal transaction costs (to the extent actually incurred)
including, without limitation, the following: state and local transfer taxes;
escrow fees; recording costs; Mortgage recording taxes; costs of any survey;
reasonable fees of the Holder's outside attorneys and accountants; appraisal
fees; title insurance premiums; financing costs (including "points"); reasonable
attorneys' fees of Owner in connection with such Secured Loan; environmental
inspection, testing and reporting fees; and brokerage commissions (provided that
no such brokerage commissions shall be recognized as "Transaction Costs"
hereunder if they are made to a person or entity affiliated with Owner, to the
extent (if any) that such payments exceed the normal customary amounts).
"Uniform System of Accounts" shall mean the Uniform System of Accounts for
--------------------------
Hotels, Eighth Revised Edition, 1986, as published by the Hotel Association of
New York City, Inc.
"Working Capital" shall mean assets which are used in the day-to-day
---------------
operation of the Hotel's business, including, without limitation, amounts kept
in petty cash funds, amounts deposited in operating bank accounts, receivables,
prepaid expenses and funds expended to purchase Inventories, less accounts
payable and accrued current liabilities.
END OF ARTICLE I
- 19 -
<PAGE>
ARTICLE II
APPOINTMENT OF MANAGEMENT COMPANY
---------------------------------
2.01 Appointment
-----------
Owner and Management Company intend to, and hereby do, terminate the Prior
Operating Lease, waive all obligations therein relating to termination thereof,
and enter into this Agreement in complete replacement thereof, all effective
immediately upon the Effective Date of this Agreement.
Owner hereby appoints and employs Management Company as Owner's exclusive
independent contractor to supervise, direct and control the management and
operation of the Hotel for the Term provided in Article IV. Management Company
accepts said appointment and agrees to manage the Hotel during the Term of this
Agreement in accordance with the terms and conditions hereinafter set forth.
The performance of all activities by Management Company hereunder shall be for
the account of Owner.
2.02 Delegation of Authority
-----------------------
Except as otherwise specifically set forth in this Agreement, Hotel
operations shall be under the exclusive supervision and control of Management
Company which, except as otherwise specifically provided in this Agreement,
shall be responsible for the proper and efficient operation of the Hotel.
Management Company shall have discretion and control, free from interference,
interruption or disturbance, but in all respects subject to the provisions of
this Agreement, in all matters relating to management and operation of the
Hotel, including, without limitation, the following: charges for rooms and
commercial space; credit policies; food and beverage services; employment
policies; granting of leases, licenses and concessions for shops and agencies
within the Hotel (provided that the term of any such lease, license or
concession shall not exceed the Term of this Agreement; and provided further
that Owner's consent shall be required prior to the execution by Management
Company of any such lease, license or concession which (i) has a term of more
than five (5) years, or (ii) involves more than one thousand (1,000) square feet
of space within the Hotel); receipt, holding and disbursement of funds;
maintenance of bank accounts; procurement of Inventories, supplies and services;
promotion and publicity; and, generally, all activities necessary for operation
of the Hotel.
2.03 Operational Standards
---------------------
In accordance with the Marriott Standards and the other terms of this
Agreement, Management Company shall, in connection with the Hotel, perform each
of the following functions (provided
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<PAGE>
that in all cases, except as otherwise specifically set forth in this Agreement,
the costs and expenses of performing such functions shall be Deductions):
A. Obtain and keep in full force and effect, either in its own name on
behalf of Owner or in Owner's name, as may be required by the Legal
Requirements, any and all Licenses necessary for the operation of the Hotel, to
the extent the same is within the control of Management Company (or, if same is
not within the control of Management Company, Management Company shall use all
due diligence and reasonable efforts to obtain and keep same in full force and
effect).
B. Recruit, employ, supervise, direct and (when appropriate) discharge all
of the employees at the Hotel.
C. Establish and revise, as necessary, administrative policies and
procedures, including policies and procedures for the control of revenue and
expenditures, for the purchasing of supplies and services, for the control of
credit, and for the scheduling of maintenance, and verify that the foregoing
procedures are operating in a sound manner.
D. Plan, execute, and supervise repairs and maintenance at the Hotel.
E. Procure (on behalf of Owner) all Fixed Asset Supplies and Inventories.
F. Maintain the Operating Accounts.
G. Prepare and deliver Accounting Period Statements, Annual Operating
Statements, Annual Operating Budgets, Building Estimates, FF&E Estimates, and
such other budgets and reports as are required by this Agreement.
H. Establish prices, rates and charges for services provided in the Hotel,
including room rates.
I. On behalf of Owner, negotiate and enter into leases, concessions and
licenses for shops and other facilities within the Hotel; provided, however,
that notwithstanding any provision in this Agreement to the contrary, Management
Company shall not enter into any leases, licenses or concessions for shops or
other facilities or agencies at the Hotel for any "non-hotel use" (which shall
be defined as any use which is not ultimately for the benefit of the hotel
guest; permitting third parties to install cellular telephone and/or other
telecommunications antennas at the Hotel (other than to service Hotel equipment)
or entering into any lease, license or concession relating to conducting time-
share activities are examples of "non-hotel
- 21 -
<PAGE>
uses") without the prior written consent of Owner, which consent may be withheld
in Owner's sole discretion.
J. Administer the leases, concessions and licenses for shops and other
facilities within the Hotel (whether entered into pursuant to subsection I,
above, or otherwise).
K. Provide the Central Office Services and the Chain Services.
L. Provide, or cause to be provided, risk management services relating to
the types of insurance required to be obtained or provided by Management Company
under this Agreement, provided that the costs and expenses of providing such
services are to be paid as described in Section 12.04 B.
M. Reasonably cooperate with Owner concerning (i) disputes with any Holder
regarding the Hotel, (ii) contests of Impositions and Legal Requirements, and
(iii) adjustments of insurance claims and condemnation awards involving the
Hotel.
N. Reasonably cooperate (provided that Management Company shall not,
except as otherwise specifically set forth in Section 6.01, be obligated to
enter into any amendments of this Agreement) with Owner in any attempt(s) by
Owner to effectuate a Sale of the Hotel (provided that nothing herein shall
affect the provisions of Section 20.05) or a renewal, extension, amendment, or
refinancing of the Existing Mortgage or the Existing Non-Mortgage Loans, or to
obtain any Secured Loan. Such cooperation shall include, without limitation:
(i) answering any reasonable questions by prospective purchasers and Holders;
(ii) preparing lists and schedules of leases, concessions, FF&E, Fixed Asset
Supplies, Inventories, and similar items; and (iii) making such certifications
and representations to Owner, to such purchasers and to such Holders, regarding
the Hotel and the operation thereof, as Owner may reasonably request (taking
into account the extent of Management Company's control and responsibility
provided for hereunder). Owner shall promptly reimburse Management Company,
from its own funds and not as a Deduction, for the reasonable costs and expenses
incurred by Management Company in connection with any actions necessary to
comply with the requirements of this Section 2.03 N, provided that such actions
are not otherwise required under other provisions of this Agreement.
O. Arrange for and supervise public relations and advertising, and prepare
annual marketing plans.
P. Endeavor to manage the timing of expenditures to replenish Inventories,
Fixed Asset Supplies, payments on accounts payable and collections of accounts
receivable, so as to avoid or
- 22 -
<PAGE>
minimize any cash deficits with respect to Hotel operations, which deficits
would otherwise require additional funding of Working Capital by Owner.
Q. Comply with all provisions in the Existing Ground Lease and in the
Existing Mortgage which are by their terms applicable to the operation of the
Hotel; provided, however, that all practices and procedures used by Management
Company in the operation of the Hotel as of the Effective Date shall be deemed
to be in compliance with the Existing Ground Lease and all Existing Mortgage;
but provided further, that if either the Ground Lessor or any Holder under an
Existing Mortgage shall, from time to time, notify Management Company that it
has determined that certain practices and procedures which are used by
Management Company in the operation of the Hotel are not in compliance with the
provisions of the Existing Ground Lease or such Existing Mortgage (as the case
may be), Management Company shall promptly alter such practices and procedures
to ensure such compliance; and provided further, that if such compliance would
require work by Management Company which is beyond the normal course of Hotel
operations, or would impose additional financial burdens on the Hotel which are
beyond the normal course of Hotel operations, Owner (from its own funds, not as
a Deduction) shall compensate Management Company for such work and such
additional burdens.
2.04 Limitations on Authority
------------------------
Notwithstanding anything in Section 2.02 or elsewhere in this Agreement to
the contrary (unless otherwise stated in this Section 2.04), and in addition to
the various other provisions of this Agreement which prohibit Management Company
from taking certain actions or which allow certain actions only if Owner's
consent thereto has been obtained, Management Company shall not, without the
prior written approval of Owner, which approval Owner may withhold in its sole
discretion, perform any of the following actions in connection with the Hotel
and on behalf of or burdening Owner:
1. Acquiring any land or interest therein;
2. Acquiring any capital assets or interest therein except (i) items
in the approved Building Estimate, and (ii) FF&E, Fixed Asset Supplies and
Inventories (to the extent the same constitute capital assets) in the ordinary
course of business as expressly provided for in this Agreement;
3. Financing, refinancing or mortgaging of any portion of the Hotel
or the revenue due to Owner therefrom;
- 23 -
<PAGE>
4. Selling (other than dispositions of FF&E, Fixed Asset Supplies and
Inventories in the ordinary course of business as expressly provided for in this
Agreement), leasing (other than as expressly provided for in this Agreement), or
other transferring of, or the pledging or placing of any lien or encumbrance on,
any part of the Hotel;
5. In the event of a total or partial condemnation, consenting to any
award or participating in any condemnation proceeding, except as expressly
provided for in this Agreement;
6. Entering into, modifying or terminating any lease, concession or
license, except to the extent permitted under Section 2.02;
7. Adjusting any claim or settling any Litigation which (a) is not
covered by any of the insurance policies described in Article XII and is not an
Employee Claim, and which would result in a Deduction or payment in excess of
Five Hundred Thousand Dollars ($500,000) in any Fiscal Year, as adjusted by the
GDP Deflator, or (b) would impose on Owner any material liability or obligation
other than the payment of money, or would require Owner to make any material
admission; or
8. Adjusting any claim, under the applicable property insurance
policies, regarding injury or damage to the Hotel or its contents, where the
estimated cost of restoration is in excess of One Million Dollars ($1,000,000),
as adjusted by the GDP Deflator.
2.05 Covenants, Conditions or Restrictions
-------------------------------------
A. As of the Effective Date, there are existing covenants, conditions,
restrictions and/or agreements, including reciprocal easements or cost-sharing
arrangements (all of the foregoing types of encumbrances on the Hotel, or
agreements relating to the Hotel, whether existing as of the Effective Date or
not, shall be collectively referred to as "CC&R's"; those CC&R's which are in
existence as of the Effective Date, and which are referenced in the title
insurance policy, a copy of which is attached hereto as Exhibit "G", shall be
referred to in this Agreement as "Existing CC&R's"). Management Company hereby
gives its consent to all Existing CC&R's. All costs, expenses and charges which
are imposed on the Hotel under the Existing CC&R's shall be paid from Gross
Revenues as Deductions; provided, however, that any such costs, expenses or
changes which are treated under generally-accepted accounting principles as
"capital expenditures" (for example, building a common roadway) shall be treated
as expenditures under Section 8.03 for purposes of this Agreement.
- 24 -
<PAGE>
B. CC&R's which are entered into, or become encumbrances on the Hotel
and/or the Site, after the Effective Date shall be referred to in this Agreement
as "Future CC&R's." Owner agrees that it will give Management Company written
notice of its intention to execute any Future CC&R's, such notice to be
reasonably in advance of the execution thereof. Owner covenants that, during
the Term of this Agreement, there will not be (unless Management Company has
given its prior written consent thereto) any Future CC&R's affecting the Site or
the Hotel: (i) which purport to impose any material financial obligations on
the Hotel; (ii) which would prohibit or limit Management Company from operating
the Hotel, including cocktail lounges, restaurants and other facilities
customarily a part of or related to a first-class hotel, in accordance with the
Marriott Standards; or (iii) which would allow Hotel facilities (for example,
parking spaces) to be used by persons other than guests, invitees or employees
of the Hotel.
C. All financial obligations imposed on Owner or on Management Company or
on the Hotel pursuant to any Future CC&R's shall be paid by Owner from its own
funds, and not from Gross Revenues or from the FF&E Reserve, unless Management
Company has given its prior written consent to such Future CC&R's. Management
Company agrees that it will not unreasonably withhold its consent to any such
Future CC&R's; provided, however, that Management Company shall be entitled to
withhold its consent in its discretion if a proposed Future CC&R would have a
material impact on the operation of the Hotel, as described in clauses (i), (ii)
or (iii) of Section 2.05 B.
2.06 Licenses and Permits
--------------------
Owner agrees that, upon request by Management Company, it will sign
promptly and without charge applications for Licenses necessary for operation of
the Hotel.
END OF ARTICLE II
- 25 -
<PAGE>
ARTICLE III
HOTEL
-----
3.01 Ownership Interest in Site, Hotel, and Golf Course B
----------------------------------------------------
A. Owner hereby represents that: (i) it has no reason to believe that
title to the Site and the Hotel is other than as set forth in the title policy,
a copy of which is attached as Exhibit "G" hereto; and (ii) that it has
purchased title insurance with regard to such title, as described in said
Exhibit "G". Owner hereby covenants that, throughout the Term of this
Agreement, it will not change the status of title to the Site from that which is
in existence as of the Effective Date (as described on Exhibit "G" hereto),
except that Owner shall have the right either (i) to effectuate a Sale of the
Hotel in accordance with Article XIX, or (ii) to encumber the Site and the Hotel
with the following:
1. Mortgages which are given to secure any one or more Qualified
Loans;
2. Liens for Impositions or other public charges not yet due or which
are being contested in good faith; and
3. Easements or other encumbrances (not including those described in
subsection 1 or 2 above) which do not adversely affect the operation of the
Hotel by Management Company and which are not prohibited pursuant to Section
2.05 B of this Agreement. (Management Company acknowledges that the Hotel is
subject to an agreement with homeowners owning lots adjoining the Golf Courses
giving them rights to use certain Hotel facilities.)
Notwithstanding the foregoing, Owner specifically covenants that it will
keep and maintain title free and clear of any and all mortgages, deeds of trust,
or similar security instruments unless such documentation contains a provision
reasonably acceptable to Management Company's counsel that this Agreement will
not be subject to forfeiture or Termination other than in accordance with the
terms hereof, notwithstanding a default under such mortgage, deed of trust, or
security instrument.
B. Provided Management Company is not in default under this Agreement,
Owner shall pay and discharge, on or before the due date, any and all
installments of principal and interest due and payable on any Secured Loan, and
all payments on other loans secured by the Hotel, including debt owed Management
Company or its Affiliates. Owner shall indemnify Management Company from and
against all claims, litigation, and damages arising from the
- 26 -
<PAGE>
failure to make such payments as and when required, except for claims,
litigation, or damages resulting from Management Company's default under this
Agreement.
END OF ARTICLE III
- 27 -
<PAGE>
ARTICLE IV
TERM
----
4.01 Term
----
A. The initial term ("Initial Term") of this Agreement shall commence with
the Effective Date and, unless sooner terminated as herein provided, shall
continue through the end of Fiscal Year 2022. The term thereafter shall be
renewed by Management Company automatically (on the same terms and conditions
contained herein) for each of four (4) successive periods of ten (10) Fiscal
Years (the "Renewal Terms"), unless Management Company exercises its option to
terminate this Agreement by giving Owner, in accordance with Section 20.09,
written notice to that effect not less than twenty-four (24) months before the
expiration of the then-current term. Notwithstanding the foregoing, if
Management Company provides such notice during such twenty-four (24) month
period (and before the expiration of the then-current term), the termination
shall be effective on a date that is twenty-four (24) months after the giving of
such notice. Management Company's renewal shall be effective only if at the
time of commencement of such Renewal Term Management Company is not in default
under this Agreement or, if Management Company is in default, such default is
being cured as provided in Section 16.02.
B. If Owner has the right, under the provisions of the Existing Ground
Lease, to elect to renew or extend the term of the Existing Ground Lease, Owner
shall so notify Management Company at least one hundred eighty (180) days (but
no more than one (1) year) prior to the expiration of the period within which
Owner is obligated to notify the Ground Lessor of its election to renew or
extend the term of the Existing Ground Lease. Such notice from Owner shall
contain all of the relevant facts about the impending election to renew or
extend, including the length of the period of renewal or extension. Unless
Management Company notifies Owner, within a period of ninety (90) days after
receipt of the foregoing notice from Owner, that Management Company disapproves
the renewal or extension of the term of the Existing Ground Lease, Owner will,
by proper notice to the Ground Lessor, within the applicable time period under
the Existing Ground Lease, elect to renew or extend the term of the Existing
Ground Lease.
C. If, after proper notice from Owner in accordance with Section 4.01 B,
Management Company fails to disapprove the renewal or extension of the term of
the Existing Ground Lease, the Term of this Agreement shall be deemed to be
automatically extended to the later of: (i) the expiration of the term of the
Existing Ground Lease, as renewed or extended in accordance with Section 4.01 B;
or (ii) the date on which the Term of this
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<PAGE>
Agreement would otherwise have expired absent this sentence. If, in order to
comply with the preceding sentence, it is necessary for Management Company to
waive its option not to renew with respect to one or more Renewal Terms, such
waiver shall be deemed to have been given; however, Management Company shall
retain the right not to renew (as more particularly described in Section 4.01 A)
as to any portion of such Renewal Term which would occur after the expiration of
the term of the Existing Ground Lease, as renewed or extended in accordance with
Section 4.01 B.
4.02 Actions to be Taken Upon Termination
------------------------------------
Upon a Termination of this Agreement, the following shall be applicable:
A. Management Company shall, within sixty (60) days after Termination of
this Agreement, prepare and deliver to Owner a final accounting statement with
respect to the Hotel, as more particularly described in Section 9.01 hereof,
along with a statement of any sums due from Owner to Management Company pursuant
hereto, dated as of the date of Termination. Within thirty (30) days after the
receipt by Owner of such final accounting statement, the parties will make
whatever cash adjustments are necessary pursuant to such final statement. The
cost of preparing such final accounting statement shall be a Deduction, unless
the Termination occurs as a result of an Event of Default by either party, in
which case the defaulting party shall pay such cost. Management Company and
Owner acknowledge that there may be certain adjustments for which the necessary
information will not be available at the time of such final accounting, and the
parties agree to readjust such amounts and make the necessary cash adjustments
when such information becomes available; provided, however, that (unless there
are ongoing disputes of which each party has received notice) all accounts shall
be deemed final as of one hundred eighty (180) days after such Termination.
B. As of the date of the final accounting referred to in subsection A
above, Management Company shall release and transfer to Owner any of Owner's
funds which are held or controlled by Management Company with respect to the
Hotel, with the exception of funds to be held in escrow pursuant to Section
12.04 and Section 14.01 F. During the period between the date of Termination
and the date of such final accounting, Management Company shall pay (or reserve
against) all Deductions which accrued (but were not paid) prior to the date of
Termination, using for such purpose any Gross Revenues which accrued prior to
the date of Termination.
C. Management Company shall make available to Owner such books and
records respecting the Hotel (including those from
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<PAGE>
prior years, subject to Management Company's reasonable records retention
policies) as will be needed by Owner to prepare the accounting statements, in
accordance with the Uniform System of Accounts, for the Hotel for the year in
which the Termination occurs and for any subsequent year. Such books and records
shall not include: (i) employee records which must remain confidential either
under Legal Requirements or under reasonable chain-wide corporate policies of
Management Company; or (ii) any Intellectual Property.
D. Management Company shall (to the extent permitted by Legal
Requirements) assign to Owner, or to any other manager employed by Owner to
operate and manage the Hotel, all operating Licenses for the Hotel which have
been issued in Management Company's name; provided that if Management Company
has expended any of its own funds in the acquisition of any of such Licenses,
Owner shall reimburse Management Company therefor if it has not done so already.
E. All Proprietary Signage shall be removed by Management Company from
the Hotel and from the Site (and from any locations other than the Site). The
cost of such removal shall be a Deduction, unless the Termination occurs either:
(i) as a result of an Event of Default by either party, in which case the
defaulting party shall pay the cost of such removal from its own funds, and not
as a Deduction; or (ii) as a result of Management Company's election not to
renew the Term, as of the expiration of either the Initial Term or any Renewal
Term (as the case may be), in which case Management Company shall pay the cost
of such removal from its own funds, and not as a Deduction.
F. Various other actions shall be taken, as described in this Agreement,
including, but not limited to, the actions described in Sections 7.01, 10.02,
10.03, 10.04, 12.04 B, and 14.01 F.
G. Management Company shall cooperate with the new operator of the Hotel
as to effect a smooth transition and shall peacefully vacate and surrender the
Hotel to Owner.
The provisions of this Section 4.02 shall survive any Termination.
4.03 Performance Termination
-----------------------
A. Owner may terminate this Lease if, in any two (2) of three (3)
consecutive Fiscal Years, Operating Profit is less than fifteen million dollars
($15,000,000). If Owner exercises such option to terminate, it shall do so by
written notice served on Management Company in accordance with Section 20.09
within sixty (60) days following receipt of the annual statement described in
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<PAGE>
Section 9.01 for the second consecutive Fiscal Year in which there is an
Operating Profit of less than $15,000,000.
B. Management Company may avoid Termination under subsection A by paying
Owner, within sixty (60) days after receipt of notice of Owner's exercise of its
option to terminate, an amount equal to the difference between $15,000,000 and
Operating Profit for each of such two Fiscal Years. The maximum amount
Management Company shall be required to pay Owner under this subsection shall
equal $15,000,000 per Fiscal Year. Upon making such payment, the exercise of
Owner's option under subsection A shall be deemed null and void for the
applicable period to which such option related, and this Agreement shall
continue in full force and effect. Any amounts so paid by Management Company
under this Section shall be recovered in the manner set forth in the definition
of "Incentive Management Fee" or as set forth in Section 19.01 C, as
appropriate.
C. If Owner exercises its right to terminate this Agreement under
subsection A, and Management Company does not prevent Termination as provided in
subsection B, this Agreement shall terminate in accordance with Section 4.02 as
of the date one hundred and fifty (150) days after Management Company receives
Owner's notice of its exercise of its option to terminate, provided that such
period of time shall be extended as required by applicable Legal Requirements
pertaining to the termination of the employment of the employees at the Hotel.
END OF ARTICLE IV
- 31 -
<PAGE>
ARTICLE V
COMPENSATION OF MANAGEMENT COMPANY; DISTRIBUTIONS
-------------------------------------------------
5.01 Management Fees
---------------
In consideration of services to be performed during the Term of this
Agreement, Management Company shall retain the Management Fees. All monies to
which Management Company was entitled pursuant to Article 4 of the Prior
Operating Lease that was accrued or deferred, but not paid, prior to the
Effective Date shall be waived by Management Company.
5.02 Accounting and Interim Payments
-------------------------------
A. On or before the twentieth (20th) day after the close of each
Accounting Period, Management Company shall deliver to Owner a reasonably
detailed accounting statement (the "Accounting Period Statement") in
substantially the form set forth in Exhibit "B" hereto. Upon Owner's written
request therefor, Management Company shall forward copies of any such Accounting
Period Statement to any Qualified Lenders or Ground Lessors, at the addresses
specified by Owner. Such Accounting Period Statement shall set forth the
results of the operations (by department) of the Hotel for the preceding
Accounting Period and for the Fiscal Year-to-date, all in accordance with
generally accepted accounting principles applied on a consistent basis. Each
Accounting Period Statement shall be accompanied by a statement, by either the
controller of the Hotel or Management Company's regional controller, that, to
the best of his or her knowledge and belief, and subject to routine year-end
audit and adjustment, such Accounting Period Statement is true and correct in
all material respects. Each Accounting Period Statement shall include: (i)
calculations of Gross Revenues, Deductions, Operating Profit, the Management
Fees; and (ii) comparisons with the applicable Annual Operating Budget. With
each such Accounting Period Statement, Management Company shall transfer any
interim Owner's Distribution due to Owner, and shall retain any interim
Management Fees due to Management Company.
B. Calculations and payments of the Management Fees and the Owner's
Distribution with respect to each Accounting Period within a Fiscal Year shall
be accounted for cumulatively. Within seventy-five (75) days after the close of
each Fiscal Year, Management Company shall submit an Annual Operating Statement,
as more fully described in Section 9.01, for such Fiscal Year to Owner, which
Annual Operating Statement shall be controlling over the interim Accounting
Period Statements. Any adjustments or payments required by any such Annual
Operating Statement shall be made promptly by the parties. Operating Losses
shall not be carried forward or backward to subsequent or prior Fiscal Years.
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C. [Intentionally omitted]
D. [Intentionally omitted]
END OF ARTICLE V
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ARTICLE VI
FINANCING OF THE HOTEL
----------------------
6.01 Amendments of Management Agreement
----------------------------------
A. If requested by any Qualified Lender or prospective Qualified Lender,
Management Company agrees to execute and deliver any amendment of this Agreement
which is reasonably required by such Qualified Lender or prospective Qualified
Lender, provided that Management Company shall be under no obligation to amend
this Agreement if the result of such amendment would be: (i) to reduce, defer
or delay the amount of any payment to be made to Management Company hereunder;
(ii) to materially increase Management Company's obligations under this
Agreement; (iii) to change the Term of this Agreement; (iv) to cause the Hotel
to be operated other than pursuant to the Marriott Standards; (v) to amend
materially either Section 8.02 or Section 14.01; or (vi) to otherwise materially
affect Management Company's rights under this Agreement. Any such amendment
shall take effect as of the funding of such Qualified Loan.
B. In addition to the provisions of Section 6.01 A, if a Qualified Lender
or prospective Qualified Lender requests that Management Company enter into an
amendment of this Agreement, and if such amendment would impose additional
duties (for example, an increase in the reporting requirements or in the record-
keeping requirements, or adding the obligation to prepare parallel accounting
statements using a different fiscal year) on Management Company or would
otherwise adversely affect Management Company's rights under this Agreement, but
not to the degree described in clauses (i) through (vi) of Section 6.01 A,
Management Company hereby agrees that it will execute and deliver such requested
amendment of this Agreement, provided that Owner compensates Management Company
for the additional burden imposed by such amendment. It is understood that the
word "burden", as used in the preceding sentence, shall encompass not only
additional work to be performed by Management Company, but also the adverse
effect on the Incentive Management Fee which would be caused by requiring
increased services by third parties. Any dispute as to whether Management
Company is entitled to any compensation pursuant to this Section 6.01 B, or as
to the amount of such compensation, shall be resolved by arbitration pursuant to
Section 20.13.
C. Proposed amendments to this Agreement which are requested by any
Qualified Lender or prospective Qualified Lender, and which would affect the
insurance provisions set forth in Article XII, shall be governed exclusively by
Article XII.
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<PAGE>
6.02 Notice and Opportunity to Cure
------------------------------
A. In the event of (i) a Default by Owner in the performance or observance
of any of the terms and conditions of this Agreement, or (ii) any other
occurrence which entitles Management Company to terminate this Agreement, and in
the event that Management Company gives written notice thereof to Owner pursuant
to Article XVI of this Agreement, Management Company shall also give a duplicate
copy (herein referred to as the "First Notice") of such notice to each Qualified
Lender, at the address(es) previously provided to Management Company. Any such
notice will be sent in the manner described in Section 20.09 hereof. In
addition, in the event that such Default is not cured within the applicable cure
period under Article XVI of this Agreement, and Management Company intends to
exercise its remedy of terminating this Agreement, Management Company shall send
a second notice (the "Second Notice") to each Qualified Lender, to the same
address(es) and in the same manner applicable to the First Notice, stating
Management Company's intention to terminate this Agreement. Management Company
shall forbear from taking any action to terminate this Agreement for a period of
thirty (30) days after the service of the First Notice, and for an additional
period of thirty (30) days after the service of the Second Notice (if such
Second Notice is required, as set forth above).
B. In the event of a Default by Owner under the provisions of this
Agreement, Management Company agrees to accept performance by any Qualified
Lender with the same force and effect as if same were performed by Owner, in
accordance with the provisions and within the cure periods prescribed in this
Agreement (except that each Qualified Lender shall have such additional cure
periods, not available to Owner, as are set forth in this Section 6.02).
C. No notice given by Management Company to Owner shall be effective as a
notice under Article XVI of this Agreement unless the applicable duplicate
notice to each Qualified Lender which is required under Section 6.02 A (either
the First Notice or the Second Notice, as the case may be) has been given. It
is understood that any failure by Management Company to give such a duplicate
notice (either the First Notice or the Second Notice, as the case may be) to any
Qualified Lender shall not itself be a Default by Management Company under this
Agreement, but rather shall operate only to void the effectiveness of any such
notice by Management Company to Owner under Article XVI of this Agreement.
D. Except as specifically limited by this Section 6.02, nothing herein
shall preclude Management Company from exercising any of its rights or remedies
against Owner with respect to any Default by Owner under this Agreement.
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<PAGE>
6.03 Assignment of Management Agreement
----------------------------------
Owner shall have the right to collaterally assign to any Qualified Lender,
as additional security for the indebtedness evidenced by a Qualified Loan, all
of Owner's right, title and interest in and to this Agreement, including the
right to distributions payable to Owner pursuant to Article V thereof. If,
pursuant to any such assignment (or subsequent loan documentation entered into
between Owner and a Qualified Lender with a similar purpose), and provided that
Management Company has previously received a copy of such assignment and such
subsequent documentation, Management Company may receive (from time to time) a
notice or notices from such Qualified Lender directing Management Company to pay
to such Qualified Lender subsequent distributions under Article V of this
Agreement which would otherwise be payable to Owner, Management Company shall
comply with any such notice. Management Company shall continue to make payments
in compliance with any such notice from such Qualified Lender until Management
Company receives written instructions to the contrary from such Qualified
Lender. Owner hereby gives its consent to any such payments by Management
Company to such Qualified Lender which are in compliance with any such notice.
The foregoing consent by Owner shall be deemed to be irrevocable until the
entire Qualified Loan has been discharged, as evidenced either by the
recordation of a satisfaction or release executed by such Qualified Lender, or
by the delivery of a written statement to that effect from such Qualified Lender
to Management Company. Management Company shall comply with the direction set
forth in any such notice without any necessity to investigate why such Qualified
Lender sent such notice, or to confirm whether or not Owner is in fact in
default under the terms of such Qualified Loan. If Management Company receives
such notices from more than one Qualified Lender, Management Company shall (at
its option) either (i) comply with the provisions of the notice sent by the
Qualified Lender whose Qualified Loan has the senior lien priority, or (ii)
institute Litigation for a declaratory judgment to determine to whom payments
under this Agreement shall be made (in which case, the costs and expenses of
such Litigation, including attorneys' fees, shall be Deductions).
6.04 Subordination of Management Agreement
-------------------------------------
A. This Agreement, and Management Company's right to continue to manage
and operate the Hotel pursuant to this Agreement, are and shall be subject and
subordinate to the lien of any Qualified Loan (i.e., upon a Foreclosure of any
such Qualified Loan, such Qualified Lender, at its option, unless it has
otherwise agreed to the contrary in a Non-Disturbance Agreement, shall have the
right to terminate this Agreement). Notwithstanding the foregoing, during the
Term of this Agreement,
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<PAGE>
all debt service (including increased or accelerated payments after a default)
payable with respect to any Qualified Loan shall be paid exclusively from
Owner's Distribution.
B. Section 6.04 A is intended to be, and is, fully effective and binding,
as between Management Company and any such Qualified Lender; however, Management
Company agrees to execute such confirmatory documentation (in recordable form in
the jurisdiction in which the Hotel is located) as such Qualified Lender shall
reasonably request.
C. Notwithstanding the possible termination of this Agreement which is set
forth in the foregoing provisions of this Section 6.04, it is understood that,
until such time as this Agreement is validly terminated either (i) pursuant to
the applicable provision of this Agreement, or (ii) pursuant to a court order in
connection with the Foreclosure of a Qualified Loan (assuming that such
termination does not breach any binding Non-Disturbance Agreement), the Holder
of each Qualified Loan will honor and recognize the right of Management Company
to operate the Hotel in accordance with this Agreement (including the right of
Management Company to collect all Gross Revenues and to make expenditures in
accordance with this Agreement).
6.05 Non-Disturbance Agreement
-------------------------
A. Owner agrees that, in connection with the obtaining by Owner of any
Secured Loan or Secured Loans, from time to time, Owner will use good faith
reasonable efforts to obtain a Non-Disturbance Agreement from each Holder or
Holders. The phrase "good faith reasonable efforts" shall be determined by
reference to the following: (i) normal loan underwriting procedures and
practices (including those practices relating to non-disturbance agreements)
which are generally being implemented by entities which are making loans similar
to such Secured Loan, as of that point in time; and (ii) the concessions which
Management Company is, as of that point in time, reasonably prepared to make in
order to satisfy the objectives of lenders in connection with the lender-manager
relationship after a Foreclosure. In no event, however, shall the failure of
Owner to obtain such a Non-Disturbance Agreement affect or modify any of the
responsibilities of Management Company toward Qualified Lenders which are
contained elsewhere in this Article VI.
B. Notwithstanding Section 6.05 A, Owner agrees that, prior to obtaining
any Qualified Loan, it will obtain from each prospective Holder or Holders
thereof a Non-Disturbance Agreement pursuant to which Management Company's
rights under this Agreement will not be disturbed as a result of a loan default
stemming from non-monetary factors which (i) relate to Owner and do not relate
solely to the Hotel, and (ii) are not Defaults by
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<PAGE>
Management Company under Article XVI of this Agreement. If Owner desires to
obtain a Qualified Loan, Management Company, on written request from Owner,
shall promptly identify those provisions in the proposed loan documents which
fall within the categories described in clauses (i) and (ii) above, and
Management Company shall otherwise assist in expediting the preparation of an
agreement between the prospective Holder and Management Company which will
implement the provisions of this Section 6.05 B.
6.06 Attornment
----------
A. Management Company agrees that, subject to the provisions of Section
6.06 B, upon a Foreclosure of any Qualified Loan, provided that this Agreement
has not expired or otherwise been earlier terminated in accordance with its
terms, Management Company shall attorn to any Subsequent Owner and shall remain
bound by all of the terms, covenants and conditions of this Agreement for the
balance of the remaining Term (including any Renewal Terms) with the same force
and effect as if such Subsequent Owner were the "Owner" under this Agreement;
provided, however, that Management Company shall be under no such obligation to
so attorn, and, to the contrary, shall thereupon have the right to terminate
this Agreement on thirty (30) days' prior written notice to both Owner and such
Subsequent Owner: (i) if such Subsequent Owner would not qualify as a permitted
transferee under Section 19.01 A of this Agreement; or (ii) unless such
Subsequent Owner, within twenty (20) days after the Foreclosure Date (or, in the
event such Subsequent Owner acquires title to the Hotel after the Foreclosure
Date, within twenty (20) days after the date of such acquisition of title to the
Hotel), assumes all of the obligations of the "Owner" under this Agreement which
arise from and after the Foreclosure Date (or such later date of acquisition of
title to the Hotel), pursuant to a written assumption agreement which shall be
delivered to Management Company. Upon the written request of any Qualified
Lender, Management Company shall periodically execute and deliver a statement,
in a form reasonably satisfactory to such Qualified Lender, reaffirming
Management Company's obligation to attorn as set forth in this Section 6.06 A.
B. It is understood by the parties that, in view of the fact that a
Qualified Lender will have the right to terminate this Agreement on a
Foreclosure under the provisions of Section 6.04, Management Company has an
interest in being informed, within a reasonable period of time after a Secured
Loan Acceleration, of whether or not such Qualified Lender intends to exercise
such right of termination. Accordingly, if, by no later than that date (the
"Post-Foreclosure Decision Date") which is ninety (90) days after the date of
any Secured Loan Acceleration, Management Company has not received a Non-
Disturbance Agreement
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<PAGE>
executed by the Holder of such Secured Loan, Management Company shall, as of the
Post-Foreclosure Decision Date and thereafter, no longer be under any obligation
to attorn (pursuant to the provisions of Section 6.06 A) with respect to any
Foreclosure of that Secured Loan, and Management Company shall have the option
to terminate this Agreement, by written notice to both Owner and the Holder of
each existing Qualified Loan, at any time within the sixty (60) day period
immediately following the Post-Foreclosure Decision Date.
6.07 No Modification or Termination of Agreement
-------------------------------------------
If the documents evidencing and securing a Qualified Loan require the
consent of the Qualified Lender to any amendment or modification of this
Agreement which materially affects such Qualified Lender, no such amendment or
modification of this Agreement shall be binding or effective unless such
Qualified Lender shall have consented in writing thereto.
6.08 Owner's Right to Finance the Hotel
----------------------------------
Owner shall have the right, from time to time, without Management Company's
prior consent or approval, to obtain Qualified Loans, and to encumber the Hotel
with Mortgages securing such Qualified Loans. Owner shall not, without the
prior consent of Management Company, have the right to obtain Secured Loans
which are not Qualified Loans.
6.09 Sale/Leaseback Transactions
---------------------------
Any single transaction or related series of transactions in which (i)
Owner's interest in the Hotel is sold or transferred by the then-Owner
("Seller") to a buyer ("Buyer"), and (ii) the Buyer (as "landlord") leases the
Hotel to the Seller (as "tenant"), is hereby defined as a "Sale/leaseback
Transaction". With respect to each Sale/leaseback Transaction during the Term
of this Agreement, the following provisions will apply: (a) the sale or
transfer of the Hotel will be considered a Sale of the Hotel; however, the
Seller (as tenant under the aforesaid lease), not the Buyer, shall thereafter be
treated as the "Owner" for purposes of this Agreement; (b) the purchase price
will not be a Secured Loan, but any mortgage financing placed (either at the
time of the transaction or later) on the Buyer's interest in the Hotel will be
treated as a Secured Loan, and the proceeds of each such Secured Loan will be
aggregated with all outstanding Secured Loans, which encumber either the Buyer's
interest in the Hotel or the Seller's leasehold interest in the Hotel, for
purposes of determining whether a given Secured Loan qualifies as a Qualified
Loan; (c) payments pursuant to such lease shall not be treated as Deductions,
except for Impositions and similar items which would have been treated as
Deductions in the absence of such
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<PAGE>
Sale/leaseback Transaction; and (d) all subsequent sales, transfers or
assignments of either Buyer's interest in the Hotel or Seller's interest in the
Hotel will be treated as Sales of the Hotel. Owner will not enter into any
Sale/leaseback Transaction unless Management Company and the proposed Buyer have
previously executed a mutually satisfactory attornment agreement pursuant to
which, as of the date of the termination of Seller's leasehold interest, the
provisions of this Agreement will (unless there has been an Event of Default or
other event entitling either party to terminate this Agreement) be binding both
on Management Company and on Buyer (as the successor "Owner"); such attornment
agreement will also contain an immediately-effective provision which will
incorporate the terms of Section 6.08 of this Agreement, binding both on
Management Company and on Buyer.
END OF ARTICLE VI
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<PAGE>
ARTICLE VII
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
7.01 Working Capital and Inventories
-------------------------------
A. As of the Effective Date, Management Company has provided the initial
Working Capital for the Hotel.
B. Management Company shall at all times provide the funds to supply the
Hotel with the amount of Working Capital and Inventories that Management Company
determines, in its reasonable business judgment, to be needed for the operation
of the Hotel. The Working Capital and Inventories of the Hotel shall be the
property of Management Company during the term of this Agreement and upon
Termination.
7.02 Fixed Asset Supplies
--------------------
As of the Effective Date, Management Company has provided the Hotel with
the Fixed Asset Supplies that are necessary to operate the Hotel in accordance
with the Marriott Standards. The cost of Fixed Asset Supplies expended during
the Hotel's operation shall be the responsibility of Management Company and
constitute a Deduction from Gross Revenues in determining Operating Profit. All
replacements of Fixed Asset Supplies shall be the property of Owner. Upon
Termination, Management Company shall be obligated to deliver to Owner such
Fixed Asset Supplies as are equal in quantity and comparable in quality to those
initially provided by Owner, subject to the provisions of Section 10.02.
END OF ARTICLE VII
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<PAGE>
ARTICLE VIII
REPAIRS, MAINTENANCE AND REPLACEMENTS
-------------------------------------
8.01 Repairs and Maintenance
-----------------------
A. Management Company shall maintain the Hotel as a first-class hotel, in
good repair and condition and in conformity with applicable laws and regulations
and the Marriott Standards, and shall make or cause to be made such maintenance
and routine repairs, replacements, and minor alterations as shall be necessary
for such purposes. The cost of such routine repairs, minor alterations, and
similar items that are expensed under generally accepted accounting practices,
other than those to be paid from the FF&E Reserve, shall be paid from Gross
Revenues and treated as a Deduction in computing Operating Profit.
B. Management Company shall (pursuant to a schedule) arrange for and
coordinate routine and other appropriate inspections of the structure and
exterior facade of the Hotel, and of the mechanical, electrical, heating,
ventilating, air conditioning, plumbing, and vertical transportation elements of
the Hotel. The costs of such inspections shall be treated as Deductions.
C. Management Company shall submit to Owner (at the same time as the
submission of the Annual Operating Budget) a signed copy of an annual report
summarizing all preventative maintenance activities (including repairs,
alterations and inspections conducted at the Hotel) on all building components
of the Hotel during the previous twelve (12) calendar months.
8.02 FF&E Reserve
------------
A. Management Company shall, on behalf of Owner, establish an escrow
account (the "FF&E Reserve") in a bank selected by Management Company, subject
to Owner's approval, which shall be funded as set forth in Section 8.02 B, to
cover the cost of (1) replacements and renewals to the FF&E of the Hotel; and
(2) certain repairs and maintenance to the Hotel building the cost of which is
normally capitalized under generally accepted accounting principles, such as
exterior and interior repainting, resurfacing building walls, floors, roofs, and
parking areas, and replacing folding walls and the like, but which are not major
repairs, alterations, improvements, renewals, or replacements to the Hotel
building's structure or to its mechanical, electrical, heating, ventilating, air
conditioning, plumbing, or vertical transportation systems, the cost of which
are Owner's sole responsibility under Section 8.03.
Management Company agrees that it will, from time to time, execute such
reasonable documentation as may be requested by any
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<PAGE>
Qualified Lender to assist such Qualified Lender in establishing or perfecting
its security interest in the funds which are in the FF&E Reserve; provided,
however, that no such documentation shall contain any amendment or modification
of any of the provisions of this Agreement, including this Section 8.02.
B. Subject to the provisions of Section 8.02 E, for Fiscal Year 1997
Management Company shall, on behalf of Owner, deposit in the FF&E Reserve an
amount equal to four and one-half percent (4-1/2%) of Gross Revenues for such
Fiscal Year; and commencing with Fiscal Year 1998 and for all Fiscal Years
thereafter, Management Company shall so transfer to the Reserve an amount equal
to five and one-half percent (5-1/2%) of Gross Revenues for such Fiscal Years.
All such transfers shall take place for each Accounting Period, and shall be
accounted for cumulatively and adjusted at the close of each Fiscal Year. Any
amount remaining in the FF&E Reserve upon Termination shall be paid to Owner.
C. Each year, at the same time as Management Company submits the Annual
Operating Budget described in Section 9.03, Management Company shall prepare an
estimate (the "FF&E Estimate") of the expenditures necessary for (i)
replacements and renewals to the Hotel's FF&E, and (ii) repairs to the Hotel
building of the nature described in Section 8.02 A 2, during the ensuing Fiscal
Year, and shall submit such FF&E Estimate to Owner for its review. Management
Company shall also, if Owner so elects, prepare tentative forecasts of such
expenditures with regard to the four (4) subsequent Fiscal Years. Management
Company will at all times give good faith consideration to Owner's suggestions
regarding any FF&E Estimate. In the event that Owner requests forecasts covering
the aforesaid subsequent Fiscal Years, and such forecasts project a deficit in
the FF&E Reserve at some point during the current Fiscal Year or during such
four (4) subsequent Fiscal Years, Owner and Management Company will work
together in good faith to prepare alternative forecasts for such Fiscal Years
which will reduce or eliminate such deficit, but also take into account the
needs of the Hotel during such periods of time. All expenditures from the FF&E
Reserve will be (as to both the amount of each such expenditure and the timing
thereof) both reasonable and necessary, given the objective that the Hotel will
be maintained and operated in accordance with the Marriott Standards.
D. Management Company shall from time to time make such (1) replacements
and renewals to the Hotel's FF&E, and (2) repairs to the Hotel building of the
nature described in Section 8.02 A 2, as it deems necessary, provided that
Management Company shall not expend more than the balance in the FF&E Reserve
without the prior approval of Owner. Management Company will endeavor to follow
the applicable FF&E Estimate, but shall be entitled to depart therefrom, in its
reasonable discretion, provided that:
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<PAGE>
(A) such departures from the applicable FF&E Estimate result from circumstances
which could not reasonably have been foreseen at the time of the submission of
such FF&E Estimate; and (B) such departures from the applicable FF&E Estimate
result from circumstances which require prompt repair and/or replacement; and
(C) Management Company has submitted to Owner a revised FF&E Estimate setting
forth and explaining such departures. At the end of each Fiscal Year, any
amounts remaining in the FF&E Reserve shall be retained in the FF&E Reserve, and
shall be carried forward to the next Fiscal Year. Upon a Sale of the Hotel,
funds in the FF&E Reserve will not be affected (or, if withdrawn, will be
replaced as set forth in Section 19.01 E), and all dispositions of such funds
(both before and after such Sale of the Hotel) will continue to be made
exclusively pursuant to the provisions of this Agreement. Proceeds from the sale
of FF&E no longer necessary to the operation of the Hotel shall be deposited in
the FF&E Reserve, as shall any interest which accrues on amounts placed in the
FF&E Reserve. Neither (i) proceeds from the disposition of FF&E, nor (ii)
interest which accrues on amounts held in the FF&E Reserve, shall either (x)
result in any reduction in the required contributions to the FF&E Reserve set
forth in Section 8.02 B above, or (y) be included in Gross Revenues. The only
items of FF&E which Management Company is authorized to lease (rather than
purchase) shall be (a) Telephones and Miscellaneous Equipment; (b) shuttle vans;
and (c) the "Next Generation System" computer system ("NGS"). If Management
Company enters into a lease described in the preceding sentence, Management
Company shall give Owner notice of such lease either prior to or promptly after
entering into such lease. Lease payments with respect to Telephones and
Miscellaneous Equipment shall be Deductions, as set forth in paragraph 13 of the
definition of "Operating Profit" in Section 1.01; lease payments with respect to
shuttle vans and NGS shall be paid from the FF&E Reserve. If Management Company
proposes that items of FF&E other than Telephones and Miscellaneous Equipment,
shuttle vans, or NGS should be leased rather than purchased, Management Company
shall submit such proposal (which proposal shall include, without limitation, an
indication as to whether the rental which is owed under such lease will be
treated as a Deduction or paid from the FF&E Reserve) to Owner for Owner's
approval (not to be unreasonably withheld). In connection with the foregoing, it
is understood that the failure of a Qualified Lender to approve such leasing
proposal shall justify Owner in withholding its approval thereof, regardless of
whether withholding such approval would otherwise be deemed to be unreasonable.
E. The percentage contribution for the FF&E Reserve which is described in
Section 8.02 B is an estimate based upon Management Company's prior experience
with other comparable hotels. As the Hotel ages, this percentage may not be
sufficient to keep the FF&E Reserve at the levels necessary to make the
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<PAGE>
replacements and renewals to the Hotel's FF&E, or to make the repairs to the
Hotel building of the nature described in Section 8.02 A 2, which are required
to maintain the Hotel in accordance with the Marriott Standards. If any FF&E
Estimate which is prepared in accordance with Section 8.02 C would require
funding in excess of the applicable percentage of Gross Revenues which is set
forth on Exhibit A-1, Owner may:
1. Agree to increase the percentages of Gross Revenues set forth in
Section 8.02 B up to the level set forth in such FF&E Estimate, in order to
provide the additional funds required, such increases to be treated as
Deductions under paragraph 12 of the definition of "Operating Profit"; or
2. Make a lump-sum contribution to the FF&E Reserve in the necessary
amount (in which case such lump-sum contribution plus interest (at the Prime
Rate plus one percentage point (1%) per annum), shall be reimbursed to Owner
from Gross Revenues in equal installments over the period of the next five (5)
calendar years beginning as of the date of such contribution, and such
installment repayments shall be Deductions); or
3. Obtain financing for the additional funds required, in which
event, the principal and interest payments (which shall be on a commercially
reasonable amortization basis) for such financing shall be paid by Management
Company out of Gross Revenues and shall be treated as Deductions in computing
Operating Profit.
If Owner elects not to agree to any of options 1, 2, or 3 above (or Owner
does not respond with respect to any such option) within thirty (30) days after
the submission of such FF&E Estimate (or, if Owner has elected option 2, if
Owner fails to fund the required amount within a sixty (60) day period after the
date of such election), Management Company shall be entitled, at its option, to
terminate this Agreement upon ninety (90) days' written notice to Owner (with a
copy to each Qualified Lender); however, such failure by Owner shall not be
deemed a Default by Owner under Article XVI, and Management Company shall not be
entitled to any remedies with respect to such failure other than such
termination of this Agreement. If Management Company so elects to terminate
this Agreement, it shall notify Owner of such election within the sixty (60) day
period following either: (x) the date of receipt of Owner's election not to
agree to any of options 1, 2, or 3 above, or the expiration of the aforesaid
thirty (30) day period without Owner making an election with respect to either
option; or (y) if Owner has elected option 2, the date of the expiration of the
aforesaid sixty (60) day period without Owner funding the required amount.
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8.03 Building Alterations, Improvements, Renewals, and Replacements
--------------------------------------------------------------
A. Management Company shall prepare an annual estimate (the "Building
Estimate") of the expenditures necessary for major repairs, alterations,
improvements, renewals and replacements to the structure or exterior facade of
the Hotel, or to the mechanical, electrical, heating, ventilating, air
conditioning, plumbing, or vertical transportation elements of the Hotel
building (the foregoing expenditures, together with all other repair and
maintenance expenditures which are classified as capital expenditures under
generally-accepted accounting principles, shall be collectively referred to as
"Capital Expenditures"). Management Company shall submit each such Building
Estimate to Owner for its approval at the same time the Annual Operating Budget
is submitted. Except with respect to the items described in Section 8.02 A (2),
Management Company shall not make any Capital Expenditures without the prior
written consent of Owner. Owner shall not unreasonably withhold its consent with
respect to Capital Expenditures which are required by reason of any Legal
Requirement, or required under Management Company's current life-safety
standards (provided that, in order for any such life-safety standards to be
"required" within the meaning of this Section 8.03 A, such standards must be
both required and in the process of being implemented at a majority of the
hotels within the Marriott Hotel System which are comparable to the Hotel), or
otherwise required for the continued safety of guests or prevention of material
damage to property, including the removal of Hazardous Materials in compliance
with all Environmental Laws pursuant to Section 20.10. All Capital Expenditures
which are described in the preceding sentence shall be referred to in this
Agreement as "Required Capital Expenditures" .
B. In the event of (x) an emergency threatening the Hotel, its guests,
invitees or employees, or (y) the receipt by Management Company of a
governmental order or other Legal Requirement regarding any Required Capital
Expenditures, Management Company shall give Owner notice thereof within five (5)
business days thereafter or sooner if circumstances reasonably warrant.
Management Company shall then be authorized (but not obligated) to take
appropriate remedial action without receiving Owner's prior consent as follows:
(i) in an emergency threatening the Hotel, its guests, invitees or employees; or
(ii) if the continuation of the given condition could (in Management Company's
reasonable judgment) subject Management Company and/or Owner to either criminal
or more than de minimis civil liability, and Owner has either failed to remedy
-- -------
the situation or has failed to take appropriate legal action to stay the
effectiveness of any applicable Legal Requirement. Management Company shall
cooperate with Owner in the pursuit of
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<PAGE>
any such action and shall have the right to participate therein. Owner shall
reimburse Management Company for any costs incurred by Management Company in
connection with any such remedial action within thirty (30) days after Owner's
receipt of notice from Management Company of the amount of such costs.
C. The cost of all Capital Expenditures (including the expenses incurred
by either Owner or Management Company in connection with any civil or criminal
proceeding described above, but not including costs of those Capital
Expenditures which are described in Section 8.02 A(2) hereof) shall be borne
solely by Owner, and shall not be paid from Gross Revenues or from the FF&E
Reserve.
D. The failure of Owner to either (i) approve and provide funding for any
proposed Required Capital Expenditure, within seventy-five (75) days after
Management Company's request therefor, or (ii) in the case of any Legal
Requirement which is described in Section 8.03 B, to either comply therewith or
to stay the effectiveness of such Legal Requirement during the period of any
contesting thereof, shall be a Default by Owner. In such event, Management
Company shall be entitled (without affecting its other remedies under Article
XVI) to terminate this Agreement upon ninety (90) days' written notice to Owner
(with a copy to each Qualified Lender); provided, however, that Management
Company shall have the right to stipulate such shorter period of time as may be
appropriate, given the time periods which are mandated by Legal Requirements, as
described in Section 8.03 A or B, or given Management Company's good faith
concerns about its own civil and/or criminal liability.
E. Management Company shall have the right, from time to time, to set
forth in any Building Estimate the recommendations of Management Company
regarding proposed ROI Capital Expenditures. Notwithstanding the provisions of
Section 8.03 C to the contrary, the cost of all ROI Capital Expenditures shall
be paid, to the extent reasonably possible (given the requirement, set forth in
Section 8.02, that the balance in the FF&E Reserve be maintained in accordance
with the Marriott Standards) from the FF&E Reserve, and Owner shall pay such
costs from its own funds only to the extent there are not adequate funds for
such purpose in the FF&E Reserve. Expenditures which are, pursuant to the
preceding sentence, made from the FF&E Reserve shall not be treated as
Additional Invested Capital. Any failure of Owner to approve and provide
funding for any ROI Capital Expenditures, or any other Capital Expenditures (not
including those Capital Expenditures which are described in Section 8.02 A(2)
hereof) which are not Required Capital Expenditures, within sixty (60) days
after Management Company's request therefor, shall not be a Default by Owner but
shall entitle Management Company to terminate this Agreement. Such
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<PAGE>
Termination shall be evidenced by a written notice to Owner (with a copy to each
Qualified Lender), which notice shall be delivered to Owner no later than ninety
(90) days after the expiration of the sixty (60) day period described in the
preceding sentence. The effective date of such Termination shall be the date
stated by Management Company in such notice, provided that such effective date
shall be no less than one hundred eighty (180) days, and no more than three
hundred sixty (360) days, after the date of such notice.
F. It is understood that "alterations" and "improvements" which either
(a) increase or decrease the number of guestrooms in the Hotel, or (b) involve
changing the architectural footprint of the Hotel or involve other significant
changes in the structural design of the Hotel, in any case by more than a de
--
minimis amount, are beyond the scope of this Article VIII, and would require an
- -------
amendment of this Agreement prior to implementation by either party.
8.04 Liens
-----
Management Company and Owner shall use their best efforts to prevent any
liens from being filed against the Hotel which arise from any maintenance,
repairs, alterations, improvements, renewals or replacements in or to the Hotel.
They shall cooperate fully in obtaining the release of any such liens, and the
cost thereof, if the lien was not occasioned by the fault of either party, shall
be treated the same as the cost of the matter to which it relates. If the lien
arises as a result of the fault of either party, then the party at fault shall
bear the cost of obtaining the lien release.
8.05 Ownership of Replacements, Etc.
-------------------------------
All repairs, alterations, improvements, renewals or replacements of the
Hotel which are made pursuant to Article VIII or otherwise shall be the property
of Owner. Subject to the provisions of Section 8.02, the funds in the FF&E
Reserve shall be the property of Owner.
END OF ARTICLE VIII
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<PAGE>
ARTICLE IX
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
9.01 Books and Records
-----------------
A. Books of control and account shall be kept on the accrual basis and in
material respects in accordance with the Uniform System of Accounts, with the
exceptions provided in this Agreement. Owner may at reasonable intervals during
Management Company's normal business hours examine such records. Within
seventy-five (75) days following the close of each Fiscal Year, Management
Company shall furnish Owner a statement (the "Annual Operating Statement") in
reasonable detail summarizing the Hotel operations for such Fiscal Year and a
certificate of Management Company's chief accounting officer (or its controller
or any vice-president), certifying that such year-end Annual Operating Statement
is true and correct. Owner shall have ninety (90) days after receipt to examine
or review (at Owner's sole expense, and not as a Deduction) said Annual
Operating Statement. If Owner raises no objections within said ninety (90) day
period, the Annual Operating Statement shall be deemed to have been accepted by
Owner as true and correct, and Owner shall have no further right to question its
accuracy. If Owner does raise such an objection, by notice to Management
Company, Owner shall arrange for an independent audit to be commenced within
sixty (60) days after the date of such objection, and shall diligently cause
such audit to be completed within a reasonable period of time. Owner shall pay
all costs and expenses of such audit at its sole expense (and not as a
Deduction); however, if such audit establishes that Management Company has
understated the Operating Profit for that Fiscal Year by five percent (5%) or
more, the reasonable costs and expenses of such audit shall be paid as a
Deduction.
B. Management Company shall, on an annual basis, at the time of the
delivery of the Annual Operating Statement, prepare and deliver to Owner the
Management Analysis Report. In addition, Management Company shall, in
connection with an impending Sale of the Hotel or commitment by a Qualified
Lender to make a Qualified Loan, within thirty (30) days after written request
therefor from Owner, prepare and deliver to Owner an updated Management Analysis
Report describing significant changes since the effective date of the most
recent Management Analysis Report. The costs and expenses of preparing the
Management Analysis Report shall be paid as Deductions.
C. Owner shall have the right to require that any given Annual Operating
Statement will include a reasonably detailed report setting forth the components
of Chain Services, the amounts billed for each such component during the Fiscal
Year in question and the method of allocation for each such component;
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provided, however, that Owner must request Management Company to prepare such
report by no later than thirty (30) days prior to the date on which such Annual
Operating Statement is to be delivered to Owner.
9.02 Hotel Accounts, Expenditures
----------------------------
A. All funds derived from operation of the Hotel shall be deposited by
Management Company in Hotel bank accounts (the "Operating Accounts") in a bank
or banks designated by Management Company and approved by Owner, which approval
shall not be unreasonably withheld. Withdrawals from said accounts shall be
made only by representatives of Management Company whose signatures have been
authorized. Reasonable petty cash funds shall be maintained at the Hotel.
B. All payments made by Management Company hereunder shall be made from
authorized bank accounts, petty cash funds, or from Working Capital provided by
Management Company pursuant to Section 7.01. Management Company shall not be
required to make any advance or payment to or for the account of Owner except
out of such funds, and Management Company shall not be obligated to incur any
liability or obligation for Owner's account without assurances that necessary
funds for the discharge thereof will be provided by Owner. Debts and
liabilities incurred by Management Company as a result of its operation and
management of the Hotel pursuant to the terms hereof, whether asserted before or
after the Termination of this Agreement, will be paid by Owner to the extent
funds are not available to Management Company for that purpose from Gross
Revenues.
9.03 Annual Operating Budget
-----------------------
A. Management Company shall submit to Owner for its review at least thirty
(30) days prior to the beginning of each Fiscal Year after the Effective Date a
preliminary draft of the budget (the "Annual Operating Budget") of the estimated
financial results of the operation of the Hotel during the next Fiscal Year.
Such Annual Operating Budget shall project the estimated Gross Revenues,
departmental profits, Deductions, and Operating Profit for the forthcoming
Fiscal Year for the Hotel. In preparing the Annual Operating Budget for each
Fiscal Year, Management Company's goal will be the maximization of the long-term
Operating Profit of the Hotel, in keeping with the Marriott Standards and the
general standards of the hotel industry for similar properties. If there are
material items in any given Annual Operating Budget which have been budgeted at
significantly different amounts from the amounts actually experienced (or
projected) for the same items in the preceding Fiscal Year, Management Company
agrees to take reasonable steps to ensure that, at Owner's request, qualified
personnel from Management
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<PAGE>
Company's staff are available to explain these differences to Owner. A meeting
(or meetings) for such purpose shall be held, at Owner's request, within a
reasonable period of time after the submission to Owner of the preliminary draft
of the Annual Operating Budget. Management Company will at all times give good
faith consideration to Owner's suggestions regarding any Annual Operating
Budget. Management Company shall thereafter submit to Owner, by no later than
thirty (30) days after the beginning of such Fiscal Year, the final Annual
Operating Budget.
B. [Intentionally omitted]
C. Each Annual Operating Budget will constitute a standard to which
Management Company shall use its reasonable best efforts to adhere. It is
understood, however, that the Annual Operating Budget is an estimate only and
that unforeseen circumstances such as, but not limited to, the costs of labor,
materials, services and supplies, casualty, operation of law, or economic and
market conditions may make adherence to the Annual Operating Budget
impracticable, and Management Company shall be entitled to depart therefrom for
such reasons; provided, however, that nothing herein shall be deemed to
authorize Management Company to take any action prohibited by this Agreement nor
to reduce Management Company's other rights or obligations hereunder.
D. Management Company shall notify Owner of any significant variations
from the Annual Operating Budget promptly after Management Company learns of the
same, but in no event later than the date on which Management Company is
required to give Owner the Accounting Period Statement covering the period in
which such variation occurs. Any such notice shall set forth in reasonable
detail the nature, extent and, if known by Management Company, the cause of such
variation, and recommendations of appropriate actions, either to correct the
variation or to prevent or minimize its occurrence or effect. Owner and
Management Company shall, at Owner's request, meet to review such variations and
to take appropriate action with respect thereto.
9.04 Operating Losses; Credit
------------------------
A. To the extent there is an Operating Loss in an Accounting Period,
additional funds in the amount of any such Operating Loss shall be provided by
Management Company within thirty (30) days after the Accounting Period during
which such Operating Loss occurs; provided, that Management Company may recoup,
during the next Accounting Period(s) within the same Fiscal Year for which there
exists an Operating Profit, as much of such Operating Loss as can be recovered
without causing an Operating Loss during such subsequent Accounting Period(s).
To the extent there is an Operating Loss for an entire Fiscal Year, additional
funds in the amount of any such Operating Loss shall
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<PAGE>
be provided by Management Company within thirty (30) days after the Accounting
Period during which such Operating Loss occurs.
B. In no event shall either party borrow money in the name of or pledge
the credit of the other.
END OF ARTICLE IX
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<PAGE>
ARTICLE X
PROPRIETARY MARKS; INTELLECTUAL PROPERTY
----------------------------------------
10.01 Proprietary Marks
-----------------
A. During the Term of this Agreement, the Hotel shall be known as a
Marriott Hotel, with such additional identification as may be agreed to by Owner
and Management Company to provide local identification. If the name of the
Marriott Hotel System is changed, Management Company shall have the right to
change the name of the Hotel to conform thereto.
B. The name "Marriott," whether used alone or in connection with another
word or words, and all other Proprietary Marks shall in all events remain the
exclusive property of Management Company and its Affiliates. Owner shall have
no right to use the Marriott name or any other Proprietary Mark; provided,
however, that Owner shall have the right, during the Term of this Agreement, to
have Proprietary Signage installed (in strict conformance with the
specifications provided by Management Company prior to the Effective Date, or
subsequent specifications provided by Management Company from time to time
during the Term) in the Hotel and on the Site.
C. Except as provided in Section 10.02, upon Termination, any use of or
right to use the Marriott name or any other Proprietary Mark by Owner under this
Agreement shall immediately cease. As of the date of Termination, Management
Company shall remove all Proprietary Signage from the Hotel and from the Site
(and from any locations other than the Site). The cost of such removal shall be
paid as set forth in Section 4.02 E.
D. Notwithstanding the foregoing, those trademarks, trade names, symbols,
logos and designs which are specifically listed on Exhibit "F" shall be deemed
"Proprietary Marks" only during the Term of this Agreement; upon a Termination,
the exclusive control of such Proprietary Marks shall revert to Owner.
10.02 Purchase of Inventories and Fixed Asset Supplies
------------------------------------------------
Upon Termination, Management Company shall have the option, to be exercised
by no later than thirty (30) days prior to Termination, to purchase, at their
then book value, any items of the Hotel's Fixed Asset Supplies as may be marked
with the Marriott name or any other Proprietary Mark. In the event Management
Company does not exercise such option, Owner agrees that it will use any such
items not so purchased exclusively in connection with the Hotel until they are
consumed.
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<PAGE>
10.03 Computer Software and Equipment
-------------------------------
A. All Software is and shall remain the exclusive property of Management
Company or one of its Affiliates (or the licensor of such Software, as the case
may be), and Owner shall have no right to use, or to copy, any Software.
B. Upon Termination, Management Company shall have the right to remove
from the Hotel, without compensation to Owner, all Software. Furthermore, upon
Termination, Management Company shall be entitled to remove from the Hotel any
computer equipment which is utilized as part of a centralized reservation or
property management system or is otherwise considered proprietary by Management
Company. If any of such removed computer equipment is owned by Owner,
Management Company shall reimburse Owner for all previous expenditures made by
Owner for the purchase of such equipment, subject to a reasonable allowance for
depreciation.
10.04 Intellectual Property
---------------------
All Intellectual Property shall at all times be proprietary to Management
Company or its Affiliates, and shall be the exclusive property of Management
Company or its Affiliates. During the Term of this Agreement, Management Company
shall be entitled to take all reasonable steps to ensure that the Intellectual
Property remains confidential and is not disclosed to anyone other than
Management Company's employees at the Hotel. Upon Termination, all Intellectual
Property shall be removed from the Hotel by Management Company, without
compensation to Owner.
10.05 Breach of Covenant
------------------
Management Company and/or its Affiliates shall be entitled, in case of any
breach of the covenants of Article X by Owner or others claiming through it, to
injunctive relief and to any other right or remedy available at law. Article X
shall survive Termination.
END OF ARTICLE X
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<PAGE>
ARTICLE XI
POSSESSION AND USE OF HOTEL
---------------------------
11.01 Quiet Enjoyment
---------------
Owner covenants that, so long as (i) an Event of Default by Management
Company has not occurred under Article XVI of this Agreement, and (ii) Owner
does not have the right to terminate this Agreement under any other Section of
this Agreement, Management Company shall quietly hold, occupy and enjoy the
Hotel throughout the Term hereof free from hindrance or ejection by Owner or
other party claiming under, through or by right of Owner (except as may be
otherwise set forth in Section 6.04). Owner agrees to pay and discharge any
payments and charges and, at its expense, to prosecute all appropriate actions,
judicial or otherwise, necessary to assure such free and quiet occupation.
Nothing set forth in the preceding sentence, however, shall be deemed to create
a recourse obligation by Owner to pay any payment or charge pursuant to a
contract which is non-recourse to Owner.
11.02 Use
---
A. Management Company shall use the Hotel solely for the operation of a
hotel pursuant to the Marriott Standards, and for all activities in connection
therewith which are customary and usual to such an operation.
B. Management Company shall comply with and abide by all Legal
Requirements pertaining to the operation of the Hotel, provided that: (i) all
costs and expenses (other than those which are specifically described in clauses
(ii) or (iii) of this Section 11.02 B) of such compliance shall be paid from
Gross Revenues as Deductions in the computation of Operating Profit; (ii) all
costs and expenses of compliance with Environmental Laws shall be paid as set
forth in Section 20.10; (iii) all costs and expenses of compliance with the
Legal Requirements which are described in Section 8.03 A shall be paid as set
forth in Section 8.03; and (iv) Management Company shall have the right, but not
the obligation, in its reasonable discretion, to contest or oppose, by
appropriate proceedings, any such Legal Requirements (provided that the consent
of Owner, not to be unreasonably withheld, shall be obtained prior to initiating
any such proceedings which involve Owner's ownership interest in the Hotel in a
material manner). The reasonable expenses of any such contest shall be paid
from Gross Revenues as Deductions.
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<PAGE>
11.03 Chain Services
--------------
A. Management Company shall, beginning with the Effective Date and
thereafter during the Term of this Agreement, cause to be furnished to the Hotel
certain services ("Chain Services") which are furnished generally on a central
or regional basis to other full service hotels in the Marriott chain. Chain
Services shall include: (i) national sales office services; central training
services; career development and relocation of management personnel; central
advertising and promotion (including direct and image media and advertising
administration); the Marriott national reservations system and the Marriott
computer payroll and accounting services; and (ii) such additional central or
regional services as are or may be, from time to time, furnished for the benefit
of hotels in the Marriott chain or in substitution for services now performed at
individual hotels which may be more efficiently performed on a group basis;
provided, however, that services shall only be added to "Chain Services"
pursuant to clause (ii) above if, and to the extent that, such services: (a)
are not Central Office Services; (b) are not services relating to non-routine
work (it being understood that the cost and expense of such non-routine services
shall be Deductions as set forth in paragraph 6 of the definition of Operating
Profit); and (c) are either (x) new services (i.e., not previously performed at
or for the Hotel) or (y) services which theretofore had been performed at the
Hotel, but which can be performed more efficiently and economically on a
centralized or regional basis.
B. Costs and expenses incurred in the providing of Chain Services shall be
allocated on a fair and equitable basis among all Marriott hotels owned, leased
or managed by Management Company in the United States. Such allocation shall be
made without regard to any "caps" or other limitations on the amount which
Management Company or its Affiliates may charge to a given hotel, pursuant to
agreements which Management Company (or its Affiliates) may have with the owner
of such hotel. Any excess of that portion of such costs and expenses which is
fairly allocated to a given hotel over the "cap" which may be in effect with
regard to that hotel shall be paid by Management Company from its own funds.
Management Company shall make no profit from Chain Services. Upon Owner's
written request, an explanation of the current Chain Services will be given to
Owner, and the basis for the allocation of the charge for each Chain Service
will be explained to Owner, in reasonable detail, at the time of the submission
of the Annual Operating Statement (as more particularly set forth in Section
9.01).
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<PAGE>
11.04 Owner's Right to Inspect
------------------------
Owner or its agents shall have access to the Hotel at any and all
reasonable times for the purpose of inspection or showing the Hotel to
prospective purchasers, tenants or Holders.
11.05 Indemnity
---------
A. Management Company shall indemnify and hold harmless Owner (and any
officer, director, employee, advisor, partner or shareholder of Owner) in
respect of, and, at Owner's request, shall defend any action, cause of action,
suit, debt, cost, expense (including, without limitation, reasonable attorneys'
fees), claim or demand whatsoever brought or asserted by any third person
whomsoever, at law or in equity, arising by reason of: (i) liabilities stemming
from general corporate matters of Management Company or its Affiliates, to the
extent the same are not directly and primarily related to the Hotel; (ii)
infringement and other claims relating to the Proprietary Marks; (iii) if
Management Company fails to maintain insurance coverage that it is required to
maintain pursuant to this Agreement, the excess of the amount of any liability
or loss that would have been covered over the amount of any applicable
deductible; and (iv) the bad faith or willful misconduct of Management Company
or its Affiliates, or any of their employees, servants or agents or other
persons for whom they are responsible, resulting in a claim for bodily injury,
death or property damage occurring on, in or in conjunction with the business of
the Hotel, to the extent that such claim exceeds the insurance proceeds
(including Hotel Retentions) which are available to pay such claim.
B. If any claim, action or proceeding is made or brought against Owner,
against which claim, action or proceeding Management Company shall be obligated
to indemnify pursuant to the terms of this Agreement, then, upon demand by
Owner, Management Company, at its sole cost and expense, shall resist or defend
such claim, action or proceeding (in Owner's name, if necessary), using such
attorneys as Owner shall approve, which approval shall not be unreasonably
withheld. If, in Owner's reasonable opinion, (i) there exists a conflict of
interest which would make it inadvisable to be represented by counsel for
Management Company, or (ii) there are legal defenses available to Management
Company that are different from or inconsistent with those available to Owner,
or (iii) there are claims at issue which are not covered by Management Company's
insurance, Owner shall be entitled to retain its own attorneys, and Management
Company shall pay the reasonable fees and disbursements of such attorneys.
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<PAGE>
C. Matters with respect to which Management Company has specifically
agreed to indemnify Owner under other provisions of this Agreement (for example,
Section 14.01 regarding "Employee Claims", and Section 20.11 regarding
environmental matters) are to be treated exclusively under such other provisions
and not under this Section 11.05.
END OF ARTICLE XI
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<PAGE>
ARTICLE XII
INSURANCE
---------
12.01 Interim Insurance
-----------------
[Intentionally omitted]
12.02 Property and Operational Insurance
----------------------------------
Management Company shall, commencing with the Effective Date and thereafter
during the Term of this Agreement, procure and maintain, either with insurance
companies of recognized responsibility or by legally qualifying itself as a self
insurer, a minimum of the following insurance:
A. Property insurance on the Hotel building(s) and contents against loss
or damage by fire, lightning and all other risks covered by the usual extended
coverage endorsement, all in an amount not less than one hundred percent (100%)
of the replacement cost thereof (excluding the cost of foundations and
excavations);
B. Boiler and machinery insurance against loss or damage from explosion of
boilers or pressure vessels to the extent applicable to the Hotel;
C. Business interruption insurance covering loss of profits and necessary
continuing expenses for interruptions caused by any occurrence covered by the
insurance referred to in Section 12.02 A and B, which shall be of a type and in
such amounts (but such coverage shall in no event be for less than one (1) year)
as are generally established by Management Company at similar hotels it owns,
leases or manages under the Marriott name in the United States;
D. General liability insurance against claims for bodily injury, death or
property damage occurring on, in, or in conjunction with the business of the
Hotel, and automobile liability insurance on vehicles operated in conjunction
with the Hotel, with a combined single limit for each occurrence of not less
than One Hundred Million Dollars ($100,000,000); representatives of Management
Company and Owner shall meet, at Owner's request, at intervals of approximately
once every five (5) years, to review the adequacy of such limit;
E. Workers' compensation and employer's liability insurance as may be
required under applicable laws covering all of Management Company's employees at
the Hotel;
F. Fidelity bonds, with reasonable limits to be determined by Management
Company, covering its employees in job
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<PAGE>
classifications normally bonded in other similar hotels it leases or manages
under the Marriott name in the United States or as otherwise required by law,
and comprehensive crime insurance to the extent Management Company and Owner
mutually agree it is necessary for the Hotel;
G. Such other insurance in amounts as Management Company and Owner, in
their reasonable judgment, mutually deem advisable for protection against
claims, liabilities and losses arising out of or connected with the operation of
the Hotel; and
H. Such earthquake insurance as Management Company can obtain in its
reasonable discretion, if available at rates and on terms that are reasonable.
12.03 General Insurance Provisions
----------------------------
A. All insurance described in Section 12.02 may be obtained by Management
Company by endorsement or equivalent means under its blanket insurance policies,
provided that such blanket policies substantially fulfill the requirements
specified herein. Upon the request of either Owner or any Qualified Lender,
representatives of the requesting party shall be entitled to examine, at
Management Company's corporate headquarters, all insurance policies maintained
by Management Company regarding the Hotel.
B. Management Company may self insure or otherwise retain such risks or
portions thereof as it does with respect to other similar hotels it owns, leases
or manages under the Marriott name in the United States.
C. All policies of insurance required under Section 12.02 shall be carried
in the name of Management Company. The policies required under Sections 12.02
A, B, C and D shall include the Owner and the Ground Lessor as additional
insureds. Upon notice by the Owner, Management Company shall also have the
policies required under Sections 12.02 A, B, C and D include any Qualified
Lender and any lender of an Existing Non-Mortgage Loan as additional insured(s).
All such mortgagees shall be named under the standard mortgagee clause
applicable in California. Any property losses thereunder shall be payable to
the respective parties as their interests may appear. Any Mortgage on the Hotel
shall contain provisions to the effect that proceeds of the insurance policies
required to be carried under Section 12.02 A and B shall, with respect to any
casualty involving less than twenty-five percent (25%) of the replacement cost
of the Hotel, be available for repair and restoration of the Hotel.
D. Management Company shall deliver to the Owner certificates of insurance
with respect to all policies so
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<PAGE>
procured and, in the case of insurance policies about to expire, shall deliver
certificates with respect to the renewal thereof.
E. All certificates of insurance provided for under Article XII shall, to
the extent obtainable, state that the insurance shall not be cancelled or
materially changed without at least thirty (30) days' prior written notice to
Owner.
F. The term "Hotel Retention" shall mean the amount of any loss or reserve
under Management Company's blanket insurance or self-insurance programs which is
allocated to the Hotel, not to exceed the higher of (a) the maximum per
occurrence limit established for similar hotels participating in such programs,
or (b) the insurance policy deductible on any loss which may fall within high
hazard classifications as mandated by the insurer (e.g., earthquake, flood,
windstorm on coastal properties, etc.). If the Hotel is not a participant under
Management Company's blanket insurance or self-insurance programs, "Hotel
Retention" shall mean the amount of any loss or reserve allocated to the Hotel,
not to exceed the insurance policy deductible.
12.04 Cost and Expense
----------------
A. Notwithstanding any other provision of this Article, insurance
requirements contained in the Existing Mortgage (for so long as they remain in
place) shall take precedence over this Article.
B. Insurance premiums and any other costs or expenses with respect to the
insurance or self-insurance required under Sections 12.02 and 12.04 A, including
any Hotel Retention, shall be paid from Gross Revenues as Deductions. To the
extent that such costs or expenses include reimbursement by Management Company
of its own costs or expenses, or those of one of its Affiliates, such costs or
expenses shall be generally competitive (as calculated over the Term of this
Agreement) with costs and expenses of non-affiliated entities providing similar
services. Such premiums and costs shall be allocated on an equitable basis to
the hotels participating under Management Company's blanket insurance or self-
insurance programs, provided, that incremental premiums and costs incurred
pursuant to Section 12.04 A shall be borne solely by the Hotel rather than being
allocated to other hotels. Any reserves, losses, costs or expenses which are
uninsured shall be treated as a cost of insurance and shall be Deductions. Upon
Termination, an escrow fund in an amount reasonably acceptable to Management
Company shall be established from Gross Revenues (or, if Gross Revenues are not
sufficient, with funds provided by Owner) to cover the amount of any Hotel
Retention and all other costs which will eventually have to be paid by either
Owner or Management Company with respect to pending or contingent claims,
including those which arise after
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<PAGE>
Termination for causes arising during the Term of this Agreement. Upon the final
disposition of all such pending or contingent claims, any unexpended funds
remaining in such escrow shall be paid to Owner.
END OF ARTICLE XII
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ARTICLE XIII
TAXES
-----
13.01 Real Estate and Personal Property Taxes
---------------------------------------
A. Except as specifically set forth in subsection B below, all Impositions
which accrue during the Term of this Agreement (or are properly allocable to
such Term under generally accepted accounting principles) shall be paid by
Management Company from Gross Revenues, as a Deduction, before any fine,
penalty, or interest is added thereto or lien placed upon the Hotel or the
Agreement, unless payment thereof is stayed. Owner shall within five (5)
business days after the receipt of any invoice, bill, assessment, notice or
other correspondence relating to any Imposition, furnish Management Company with
a copy thereof. Management Company shall, within the earlier of thirty (30) days
of payment or five (5) business days following written demand by Owner, furnish
Owner with copies of official tax bills and assessments which Management Company
has received, and evidence of payment or contest thereof. Either Owner or
Management Company (in which case each party agrees to sign the required
applications and otherwise cooperate with the other party in expediting the
matter) may initiate proceedings to contest any Imposition, and all reasonable
costs of any negotiations or proceedings with respect to any such contest shall
be paid from Gross Revenues and shall be a Deduction in determining Operating
Profit; provided, however, that neither party shall have the right to expend in
excess of Five Thousand Dollars ($5,000) (to be adjusted by the GDP Deflator)
with respect to any such negotiations or proceedings without the consent of the
other party.
B. The word "Impositions", as used in this Agreement, shall not include
the following, all of which shall be paid solely by Owner, not from Gross
Revenues nor from the FF&E Reserve:
1. Any franchise, corporate, estate, inheritance, succession, capital
levy or transfer tax imposed on Owner, or any income tax imposed on any income
of Owner (including distributions to Owner pursuant to Article V hereof);
2. Special assessments (regardless of when due or whether they are
paid as a lump sum or in installments over time) imposed because of facilities
which are constructed by or on behalf of the assessing jurisdiction (for
example, roads, sidewalks, sewers, culverts, etc.) which directly benefit the
Hotel (regardless of whether or not they also benefit other buildings), which
assessments shall not be treated as Deductions, but rather shall be added to the
Additional Invested Capital as of each payment by Owner with respect thereto;
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3. "Impact fees" (regardless of when due or whether they are paid as
a lump sum or in installments over time) which are required of Owner as a
condition to the issuance of site plan approval, zoning variances or building
permits, which impact fees shall not be treated as Deductions, but rather shall
be added to the Additional Invested Capital as of each payment by Owner with
respect thereto; and
4. "Tax-increment financing" or similar financing whereby the
municipality or other taxing authority has assisted in financing the
construction of the Hotel by temporarily reducing or abating normal Impositions
in return for substantially higher levels of Impositions at later dates.
C. Owner shall have the right to require Management Company to establish
an escrow account (with either any Qualified Lender or another entity reasonably
acceptable to both Owner and Management Company) from which Impositions will be
paid. Payments into such escrow account will be Deductions. Any interest which
accrues on amounts deposited in such escrow account shall be added to the
balance in such escrow account and used to pay Impositions.
END OF ARTICLE XIII
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ARTICLE XIV
HOTEL EMPLOYEES
---------------
14.01 Employees
---------
A. All personnel employed at the Hotel shall be the employees of
Management Company. Subject to the provisions of this Agreement, Management
Company shall have absolute discretion to hire, promote, supervise, direct,
train and discharge all employees at the Hotel, to fix their compensation and,
generally, establish and maintain all policies relating to employment; provided,
however, that (i) all of the foregoing shall be in accordance with the Marriott
Standards, and (ii) Management Company shall not enter into any written
employment agreements with any person which purport to bind the Owner and/or
purport to be effective regardless of a Termination, without obtaining Owner's
prior consent which may be withheld in Owner's sole discretion. Management
Company and Owner shall each comply with all Legal Requirements regarding labor
relations; if either Management Company or Owner shall be required, pursuant to
any such Legal Requirement, to recognize a labor union or to enter into
collective bargaining with a labor union, the party so required shall promptly
notify the other party pursuant to Section 20.09.
B. Management Company shall decide which, if any, of the Hotel's employees
shall reside at the Hotel (provided that Owner's prior approval shall be
obtained if more than two (2) such employees and their immediate families reside
at the Hotel), and shall be permitted to provide free accommodations and
amenities to its employees and representatives living at or visiting the Hotel
in connection with its management or operation. No person shall otherwise be
given gratuitous accommodations or services without prior joint approval of
Owner and Management Company except in accordance with usual practices of the
hotel and travel industry.
C. Any proposed settlement of any Employee Claim where the amount proposed
to be offered to the employee by Management Company is in excess of the
Settlement Threshold Amount shall be jointly approved by Management Company and
Owner. In addition, Management Company shall give Owner a written notice
(pursuant to Section 20.09) of any settlement of any Employee Claim where the
settlement amount is below the Settlement Threshold Amount, but is in excess of
Fifty Thousand Dollars ($50,000) (said dollar amount to be adjusted by the GDP
Deflator). Any dispute between Owner and Management Company as to whether
Management Company's settlement recommendation is reasonable, where such
proposed settlement is in excess of the Settlement Threshold Amount, shall be
resolved by arbitration under Section 20.13 hereof; provided that Management
Company shall have the right to settle any
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Employee Claim (prior to the arbitration on the reasonableness of the
settlement, as described in this sentence) based on Management Company's
recommendation, which shall be Management Company's reasonable estimate, in good
faith, by using: (i) funds from Gross Revenues (as a Deduction) up to the amount
of Owner's settlement recommendation, which shall be Owner's reasonable
estimate, in good faith, and (ii) Management Company's own funds to the extent
Management Company's recommendation exceeds the amount described in subparagraph
(i) above. Following the settlement of such Employee Claim, the parties will
arbitrate under Section 20.13 the issue of whether Management Company's
settlement recommendation was reasonable under the circumstances. If the
arbitrators decide that Management Company's recommendation was reasonable,
Management Company shall be entitled to reimburse itself from Gross Revenues (as
a Deduction) in the amount of the funds advanced under subparagraph (ii) above,
together with accrued interest thereon at the Prime Rate. If the arbitrators
decide that Management Company's settlement recommendation was not reasonable,
then Management Company shall not be entitled to any reimbursement of the
amounts advanced by it under subparagraph (ii) above, nor to accrued interest
thereon.
D. Management Company shall pay from its own funds, and not from Gross
Revenues, any Employee Claim where the basis of such Employee Claim is conduct
by Management Company which: (i) is a substantial violation of the standards of
responsible labor relations as generally practiced by prudent owners or
operators of similar hotel properties in the general geographic area of the
Hotel; and (ii) is not the isolated act of individual employees, but rather is a
direct result of corporate policies of Management Company which either encourage
or fail to discourage such conduct. In addition, Management Company shall
indemnify, defend and hold harmless Owner from and against any fines or
judgments arising out of such conduct, and all Litigation expenses (including
reasonable attorneys' fees and expenses) incurred in connection therewith. Any
dispute between Owner and Management Company as to whether or not certain
conduct by Management Company is not in accordance with the aforesaid standards
shall be resolved by arbitration under Section 20.13 hereof. The arbitration
proceedings described in the preceding sentence shall be conducted independently
of any arbitration proceedings with respect to such Employee Claim pursuant to
the applicable employment-related contract and/or pursuant to Section 14.01 C of
this Agreement.
E. With respect to all Litigation or arbitration involving Employee Claims
in which both Management Company and Owner are involved as actual or potential
defendants, Management Company shall have exclusive and complete responsibility
(subject to the rights of Owner to approve certain settlements, as set forth in
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Section 14.01 C) for the resolution of such Employee Claims. In the event that
any Employee Claim is made against Owner, but not against Management Company,
Owner shall give notice to Management Company of the Employee Claim in a timely
manner so as to avoid any prejudice to the defense of the Employee Claim,
provided that Management Company shall in all events be so notified within
twenty (20) days after the date such Employee Claim is made against Owner.
Management Company will thereafter assume exclusive and complete responsibility
for the resolution of such Employee Claim.
F. At Termination, other than by reason of an Event of Default of
Management Company hereunder, an escrow fund shall be established from Gross
Revenues (or, if Gross Revenues are not sufficient, with funds provided by
Owner) to reimburse Management Company for all costs and expenses incurred by
Management Company which arise out of either the transfer or the termination of
employment of Management Company's employees at the Hotel, such as reasonable
transfer costs, severance pay, unemployment compensation and other employee
liability costs.
G. [Intentionally omitted]
H. [Intentionally omitted]
END OF ARTICLE XIV
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ARTICLE XV
DAMAGE, CONDEMNATION AND FORCE MAJEURE
--------------------------------------
15.01 Damage and Repair
-----------------
A. If, during the Term hereof, the Hotel is damaged or destroyed by fire,
casualty or other cause, Owner shall, with all reasonable diligence, to the
extent that proceeds from the insurance described in Section 12.02 are available
(subject to the provisions of any Mortgage encumbering the Hotel, but with the
limitations described in Section 12.03 C) for such purpose, repair or replace
the damaged or destroyed portion of the Hotel to the same condition as existed
previously.
B. In the event damage or destruction to the Hotel from any cause
materially and adversely affects the operation of the Hotel and Owner fails to
timely (subject to Force Majeure, and subject to unreasonable delays caused by
Management Company, including unreasonable delays in adjusting the insurance
claim with the carriers which participate in Management Company's blanket
insurance program) commence and complete the repairing, rebuilding or
replacement of the same so that the Hotel shall be substantially the same as it
was prior to such damage or destruction, Management Company may, at its option,
elect to terminate this Agreement upon one hundred twenty (120) days' written
notice.
15.02 Condemnation
------------
A. In the event all or substantially all of the Hotel shall be taken in
any eminent domain, condemnation, compulsory acquisition, or similar proceeding
by any competent authority for any public or quasi-public use or purpose, or in
the event a portion of the Hotel shall be so taken, but the result is that it is
unreasonable to continue to operate the Hotel, this Agreement shall terminate.
B. In the event a portion of the Hotel shall be taken by the events
described in Section 15.02 A, or the entire Hotel is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate the
Hotel, this Agreement shall not terminate. However, so much of any award for
any such partial taking or condemnation as shall be necessary to render the
Hotel equivalent to its condition prior to such event shall be used for such
purpose; the balance of such award, if any, shall be fairly and equitably
apportioned between Owner and Management Company in accordance with their
respective interests. The Owner's Investment shall be reduced by that portion of
the total amount (if any) received by Owner pursuant to this Section 15.02 B
which is not used to restore the Hotel.
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C. In the event of any proceeding described in Section 15.02 A or B, Owner
and Management Company shall each have the right to initiate such proceedings as
they deem advisable to recover any damages to which they may be entitled;
provided, however, that Management Company shall be entitled to retain the award
or compensation it may obtain through proceedings which are conducted separately
from those of Owner only if such award or compensation does not reduce the award
or compensation otherwise available to Owner. For this purpose, any award or
compensation received by any Holder shall be deemed to be an award or
compensation received by Owner).
15.03 Force Majeure
-------------
A. The withdrawal or revocation of any License which is material to the
operation of the Hotel in accordance with the Marriott Standards, where such
withdrawal or revocation (i) is not due to the fault of either Management
Company or Owner, and (ii) is not otherwise within the reasonable control of
either Management Company or Owner, shall not be an Event of Default under
Article XVI of this Agreement. Management Company and Owner shall each, in good
faith, use all commercially reasonable efforts (including the diligent pursuit
of all available appeals), during the period of one hundred twenty (120) days
after the date of such withdrawal or revocation, to have such License
reinstated. If, notwithstanding such efforts, such License is not reinstated
prior to the expiration of the aforesaid period of one hundred twenty (120)
days, either Owner or Management Company shall have the right, at its option, to
terminate this Agreement upon no less than sixty (60) days' notice to the other
party; provided, however, that the terminating party must deliver such notice of
Termination to the other party by no later than ninety (90) days after the
expiration of such one hundred twenty (120) day period; and provided further,
that no such Termination shall be effective if, prior to the effective date of
such Termination, such License is reinstated or such withdrawal or revocation of
such License is stayed.
B. If an order, judgment or directive by a court or administrative body is
issued, in connection with any Litigation involving Owner, which restricts or
prevents Management Company, in a material adverse manner, from operating the
Hotel in accordance with the Marriott Standards, and which, in Management
Company's reasonable opinion, will have a significant adverse effect upon
operations of the Hotel, Management Company shall be entitled, at its option, to
terminate this Agreement upon sixty (60) days' written notice; provided,
however, that Management Company shall (if it so elects) deliver such notice of
Termination to Owner by no later than ninety (90) days after the issuance of
such order,
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judgment or directive (or, if such order, judgment or directive is appealed,
within ninety (90) days after the final disposition of such appeal).
END OF ARTICLE XV
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ARTICLE XVI
DEFAULTS
--------
16.01 Definition of "Default"
-----------------------
Any one or more of the following shall constitute a "Default," to the
extent permitted by applicable law:
A. The filing of a voluntary petition in bankruptcy or insolvency or a
petition for reorganization under any bankruptcy law by either party, or the
admission by either party that it is unable to pay its debts as they become due;
B. The consent to an involuntary petition in bankruptcy or the failure to
vacate, within ninety (90) days from the date of entry thereof, any order
approving an involuntary petition by either party;
C. The entering of an order, judgment or decree by any court of competent
jurisdiction, on the application of a creditor, adjudicating either party as
bankrupt or insolvent or approving a petition seeking reorganization or
appointing a receiver, trustee, or liquidator of all or a substantial part of
such party's assets, and such order, judgment or decree's continuing unstayed
and in effect for any period of ninety (90) days;
D. The failure of either party to make any payment required to be made in
accordance with the terms of this Agreement, as of the due date which is
specified in this Agreement;
E. The failure of either party to perform, keep or fulfill any of the
other covenants, undertakings, obligations or conditions set forth in this
Agreement.
16.02 Definition of "Event of Default"
--------------------------------
A. Upon the occurrence of any Default by either party hereto (hereinafter
referred to as the "defaulting party") under Section 16.01 A, B or C, such
Default shall immediately and automatically, without the necessity of any notice
to the defaulting party, constitute an "Event of Default" under this Agreement.
B. Upon the occurrence of any Default by a defaulting party under Section
16.01 D, such Default shall constitute an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within ten (10)
days after written notice from the non-defaulting party specifying such Default
and demanding such cure.
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C. Upon the occurrence of any Default by either party hereto under Section
16.01 E, such Default shall constitute an "Event of Default" under this
Agreement if the defaulting party fails to cure such Default within thirty (30)
days after written notice from the non-defaulting party specifying such Default
and demanding such cure, or, if the Default is such that it cannot reasonably be
cured within said thirty (30) day period of time, if the defaulting party fails
to commence the cure of such Default within said thirty (30) day period of time
or thereafter fails to diligently pursue such efforts to completion.
16.03 Remedies Upon an Event of Default
---------------------------------
A. Upon the occurrence of an Event of Default under the provisions of
Section 16.02, the non-defaulting party shall have the right to pursue any one
or more of the following courses of action: (i) in the event of a material
breach by the defaulting party of its obligations under this Agreement, to
terminate this Agreement by written notice to the defaulting party, which
termination shall be effective as of the effective date which is set forth in
said notice, provided that said effective date shall be at least thirty (30)
days after the date of said notice; and provided further that, if the defaulting
party is the employer of all or a substantial portion of the employees at the
Hotel, the foregoing period of thirty (30) days shall be extended to seventy-
five (75) days (or such longer period of time as may be necessary under
applicable Legal Requirements pertaining to termination of employment); (ii) to
institute forthwith any and all proceedings permitted by law or equity,
including, without limitation, actions for specific performance and/or damages;
and (iii) to avail itself of any one or more of the other remedies described in
this Section 16.03.
B. Upon the occurrence of a Default by either party under the provisions
of Section 16.01 D, the amount owed to the non-defaulting party shall accrue
interest, at the Interest Rate, from and after the date on which such payment
was originally due to the non-defaulting party.
C. The rights granted hereunder are intended to be cumulative, and shall
not be in substitution for, but shall be in addition to, any and all rights and
remedies available to the non-defaulting party (including, without limitation,
injunctive relief and damages; provided that the satisfaction of damage awards
against Owner shall be limited by the provisions of Section 16.04) by reason of
applicable provisions of law or equity.
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16.04 Owner's Estate
--------------
Notwithstanding any other provision of this Agreement, in the event of any
Event of Default by Owner pursuant to the terms of this Agreement, Management
Company shall look only to Owner's estate and interest in the Site and the Hotel
(which shall, for this purpose, include (i) amounts deposited in the Operating
Accounts and in the FF&E Reserve, and (ii) accounts receivable) for the
satisfaction of a money judgment against Owner resulting from such Event of
Default, and no other property or assets of Owner, or of its partners, officers,
directors, shareholders or principals, shall be subject to levy, execution or
other enforcement procedure for the satisfaction of such judgment. Management
Company's right to look to Owner's estate and interest in the Site and the Hotel
for satisfaction of such a money judgment against Owner shall survive
Termination and shall not be affected by any one or more Sales of the Hotel.
Nothing contained in this Section 16.04 shall be deemed to affect or diminish
Management Company's remedies under this Article XVI other than money damages
against Owner (including, without limitation, Termination of this Agreement).
END OF ARTICLE XVI
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ARTICLE XVII
WAIVER AND PARTIAL INVALIDITY
-----------------------------
17.01 Waiver
------
The failure of either party to insist upon a strict performance of any of
the terms or provisions of this Agreement, or to exercise any option, right or
remedy herein contained, shall not be construed as a waiver or as a
relinquishment for the future of such term, provision, option, right or remedy,
but the same shall continue and remain in full force and effect. No waiver by
either party of any term or provision hereof shall be deemed to have been made
unless expressed in writing and signed by such party.
17.02 Partial Invalidity
------------------
If any portion of this Agreement shall be declared invalid by order, decree
or judgment of a court, this Agreement shall be construed as if such portion had
not been inserted herein except when such construction would operate as an undue
hardship on Management Company or Owner, or constitute a substantial deviation
from the general intent and purpose of said parties as reflected in this
Agreement.
END OF ARTICLE XVII
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ARTICLE XVIII
ASSIGNMENT
----------
18.01 Assignment
----------
A. Management Company shall not assign or transfer its management
responsibilities under this Agreement without the prior written consent of
Owner; provided, however, that Management Company shall have the right, without
such consent, to (1) assign its interest in this Agreement to any of its
Affiliates, and any such Affiliate shall be deemed to be the Management Company
for the purposes of this Agreement, and (2) sublease shops or grant licenses or
concessions at the Hotel so long as the terms of any such subleases, licenses or
concessions are consistent with the provisions of Section 2.02. In the event of
such an assignment by Management Company of its interest in this Agreement to an
Affiliate, the Management Company which is named in the Preamble to this
Agreement: (i) shall automatically be deemed to guarantee the performance of
such Affiliate under this Agreement; (ii) shall, at the request of Owner,
execute a guaranty, in form and substance reasonably satisfactory to both
parties, of the performance of such Affiliate under this Agreement (provided
that the failure of Owner to obtain an executed guaranty pursuant to this clause
(ii) shall not affect the validity or enforceability of the guaranty which is
automatically created pursuant to clause (i); and provided further, that, when
Owner does so receive an executed guaranty pursuant to this clause (ii), such
executed guaranty shall be deemed to have superseded the guaranty described in
clause (i) above); and (iii) shall make available to such Affiliate, in
connection with the performance by such Affiliate under this Agreement,
Management Company's skill, personnel, facilities and resources.
B. Owner shall not assign or transfer its interest in this Agreement nor
its interest in the Golf Course B Lease other than (i) in connection with a Sale
of the Hotel which complies with the provisions of Article XIX hereof, or (ii)
as set forth in Section 18.01 C.
C. Nothing contained herein shall prevent (i) the collateral assignment of
this Agreement and Owner's interest in the Golf Course B Lease by Owner as
security for any Mortgage which complies with the provisions of Section 3.01; or
(ii) the transfer of this Agreement in connection with a merger or consolidation
or a sale of all or substantially all of the assets of either party, provided
that (x) if such transfer is by Owner, the provisions of Article XIX hereof
shall be complied with, and (y) if such transfer is by Management Company, such
transfer is being done as a part of a merger or consolidation or a sale of
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all or substantially all of the business which consists of managing the Marriott
Hotel System.
D. In the event either party consents to an assignment of this Agreement
by the other, no further assignment shall be made without the express consent in
writing of such party, unless such assignment may otherwise be made without such
consent pursuant to the terms of this Agreement.
E. An assignment (either voluntarily or by operation of law) by Owner of
its interest in this Agreement (in compliance with Article XVIII) shall not
relieve Owner from its obligations under this Agreement which accrued prior to
the date of such assignment, but shall relieve Owner of such obligations
accruing after such date, if the assignment complies with Section 18.01 B and if
Management Company has received an assumption agreement executed by the assignee
(in form and substance reasonably satisfactory to Management Company). An
assignment (either voluntarily or by operation of law) by Management Company of
its interest in this Agreement shall not relieve Management Company from its
obligations under this Agreement, unless Owner so agrees in writing.
F. Subject to the provisions of this Article XVIII, the terms and
conditions of this Agreement shall inure to the benefit of, and be binding upon,
the respective successors, heirs, legal representatives, or assigns of each of
the parties hereto.
END OF ARTICLE XVIII
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ARTICLE XIX
SALE OF THE HOTEL
-----------------
19.01 Sale of the Hotel
-----------------
A. If Owner receives a bona fide written offer to purchase the Hotel and
desires to accept such offer, Owner shall give written notice thereof to
Management Company stating the name of the prospective purchaser, the price and
the terms and conditions of such proposed sale, together with all other
information requested by Management Company and reasonably available to Owner.
Within sixty (60) days after the date of receipt of Owner's written notice and
such other information, Management Company shall elect, by written notice to
Owner, one of the following alternatives:
1. To purchase the Hotel at the same price and on the same terms and
conditions as those set forth in the written notice from Owner to Management
Company or on other terms acceptable to Owner, in which event Owner and
Management Company shall promptly enter into an agreement for such sale and
shall finalize the sale within the time period allowed in such other offer.
2. To consent to such sale and to the assignment of this Agreement to
such purchaser, provided that concurrently with the finalization thereof the
purchaser shall, by appropriate instrument in form reasonably satisfactory to
Management Company, assume all of Owner's obligations hereunder and provided
that such sale must be finalized within the lesser of two hundred and seventy
(270) days following the receipt of Management Company's written response to
Owner's notice given under the first paragraph above or such period of time
specified in the proposal. Consent by Management Company shall not relieve Owner
from its obligations under this Agreement for any acts or omissions of Owner
before such approved sale and assignment. An executed copy of such assumption
agreement shall be delivered to Management Company.
3. To terminate this Agreement by written notice to Owner, which
notice will set an effective date for such Termination not earlier than thirty
(30) days, nor more than ninety (90) days, following the date of the giving of
such notice. Owner or Management Company shall have the right to change such
effective date of Termination to coincide with the date of the finalization of
the proposed sale. Said notice of Termination shall not be effective if such
sale is not finalized. Notwithstanding the foregoing, Management Company agrees
that if the proposed purchaser, in the reasonable opinion of Management Company,
(i) is financially responsible and has sufficient assets to fulfill the
obligations of Owner hereunder, (ii) is not a
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party that has itself been connected with, or is either controlled by persons
known to be engaged in, criminal activities, or known as an associate or agent
of criminals, and (iii) does not directly or indirectly operate or manage
hotels, restaurants, food service operations, or other similar businesses in
competition with Management Company or its Affiliates, Management Company shall
not exercise its right to terminate this Agreement under this paragraph and
shall be deemed to have consented to the proposed sale or assignment under
paragraph 2.
B. If Management Company shall fail to elect any of the above alternatives
within said sixty (60) day period as set forth in the first paragraph of
subsection A, the same shall be conclusively deemed to constitute an election
and consent under paragraph A 2, and the provisions thereof shall prevail as if
Management Company had consented in writing thereto. Any proposed sale of which
notice has been given by Owner to Management Company hereunder must be finalized
within the lesser of two hundred and seventy (270) days following the end of
said sixty (60) day period or such period specified in the proposal, unless
Management Company has exercised its option under paragraph A 1 to purchase the
Hotel. Failing such finalization, such notice, and any response thereto given
by Management Company, shall be null and void and all of the provisions of
subsection A must again be complied with before Owner shall have the right to
finalize a sale of the Hotel on the terms contained in said notice, or
otherwise.
C. If Owner or an assignee of Owner disposes of the Hotel, Owner or its
assignee shall pay Management Company from the proceeds of such sale any amounts
paid by Management Company pursuant to Section 4.03 B of this Agreement and not
recovered pursuant to the mechanism recited in the definition of the term
"Incentive Management Fee"; provided that the amount of such payment shall not
exceed the amount of the gross selling price of the Hotel reduced by (i) all
reasonable expenses of the sale, (ii) all amounts owed under any loans made by
Marriott, its Affiliates, or any other party for the Hotel, and (iii) if DS
Hotel LLC is Owner hereunder, an amount equal to the cumulative paid-in capital
of the partners of Desert Springs Marriott Limited Partnership less cumulative
distributions to such partners of sale and refinancing proceeds of Owner
("Invested Capital"), plus an amount equal to an annual twelve percent (12%)
cumulative noncompounded return to the limited partners of Owner on their
Invested Capital to the extent not previously received from cash available for
distribution of Owner, but not from sale or refinancing proceeds.
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D. In connection with the possibility of a Sale of the Hotel achieved by
means of a transfer of the controlling interest in Owner, Owner, upon written
request of Management Company, shall (unless Owner is a publicly-traded
corporation which is registered under Section 12 or Section 15 of the Securities
Act of 1934) furnish Management Company with a list of the names and addresses
of the owners of the capital stock (but only those owners which hold an
ownership interest of thirty percent (30%) or more), or the partnership
interests (both (i) general partner, and (ii) any limited partner holding an
ownership interest of thirty percent (30%) or more), or other ownership
interests in Owner. In addition, Owner shall notify Management Company of any
transaction or series of transactions in which Owner reduces its ownership
interest in the Hotel below fifty percent (50%) or in which the former
controlling interest in Owner is reduced below fifty percent (50%). Management
Company agrees that it will treat all such lists confidential in accordance with
the provisions of Section 20.04.
E. It is understood that no Sale of the Hotel (which is otherwise in
compliance with the provisions of this Article XIX) shall reduce or otherwise
affect: (i) the current level of Working Capital; (ii) the current amount
deposited in the FF&E Reserve; or (iii) any of the Operating Accounts maintained
by Management Company pursuant to this Agreement. If, in connection with any
Sale of the Hotel, the selling Owner intends to withdraw, for its own use, any
of the cash deposits described in the preceding sentence, the selling Owner must
obtain the contractual obligation of the buying Owner to replenish those
deposits (in the identical amounts) simultaneously with such withdrawal. The
selling Owner is hereby contractually obligated to Management Company to ensure
that such replenishment in fact occurs. The obligations described in this
Section 19.01 E shall survive such Sale of the Hotel and shall survive
Termination.
F. Management Company shall have the right to terminate this Agreement, on
thirty (30) days' written notice, if title to or possession of the Hotel is
transferred by judicial or administrative process (including, without
limitation, a Foreclosure, or a sale pursuant to an order of a bankruptcy court,
or a sale by a court-appointed receiver) to an individual or entity which would
not qualify as a permitted transferee under clause (i), (ii) or (iii) of Section
19.01 A, regardless of whether or not such transfer is the voluntary action of
the transferring Owner, or whether (under applicable law) the Owner is in fact
the transferor; provided, however, that Management Company shall not have the
right to so terminate this Agreement
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<PAGE>
based on the assertion that a Qualified Lender fails to so qualify as a
permitted transferee under said clauses (i), (ii) or (iii) of Section 19.01 A.
END OF ARTICLE XIX
- 80 -
<PAGE>
ARTICLE XX
MISCELLANEOUS
-------------
20.01 Right to Make Agreement
-----------------------
A. Each party warrants, with respect to itself, that neither the execution
of this Agreement nor the finalization of the transactions contemplated hereby
shall: (i) violate any provision of law or any judgment, writ, injunction,
order or decree of any court or governmental authority having jurisdiction over
it; (ii) result in or constitute a breach or default under any indenture,
contract, other commitment or restriction to which it is a party or by which it
is bound, to the extent that the remedies for such breach or default would have
a material adverse effect on such party's ability to perform under this
Agreement; or (iii) require any consent, vote or approval which has not been
taken, or at the time of the transaction involved shall not have been given or
taken. Each party covenants that it has and will continue to have throughout
the Term of this Agreement and any extensions thereof, the full right to enter
into this Agreement and perform its obligations hereunder.
B. Each party agrees that it will, as of the Effective Date, provide the
other party with: (i) certified copies of the applicable resolutions of its
board of directors (if it is a corporation), or written authorization by all
general partners (if it is a partnership) or other appropriate documentation
establishing its authority to execute this Agreement; and (ii) such opinions of
counsel as the other party shall reasonably request regarding the matters
described in this Section 20.01.
20.02 Consents
--------
Wherever in this Agreement the consent or approval of Owner or Management
Company is required, such consent or approval shall (except to the extent that
such consent or approval is specifically designated as being "within the
discretion" of a party, or words to that effect, in the applicable provision)
not be unreasonably withheld, shall be in writing and shall be executed by a
duly authorized officer or agent of the party granting such consent or approval.
If either Owner or Management Company fails to respond within thirty (30) days
to a request by the other party for a consent or approval, such consent or
approval shall be deemed to have been given.
20.03 Relationship
------------
A. The relationship of Owner and Management Company shall be one of an
independent contractor, and nothing contained in this Agreement shall be
construed to create a partnership, joint venture, or agency relationship between
them or their successors
- 81 -
<PAGE>
in interest. Nothing contained herein shall prohibit, limit or restrict
Management Company or any of its Affiliates from developing, owning, operating,
leasing, managing or franchising hotels in the market area where the Hotel is
located, and Management Company and its Affiliates hereby specifically reserve
the right to do any of the foregoing.
20.04 Confidentiality
---------------
The parties hereto agree that the matters set forth in this Agreement are
strictly confidential and each party will make every effort to ensure that such
matters are not disclosed to any outside person or entities (including the
press) without the written consent of the other party; provided, however, that
such consent will not be required with respect to: (i) legally required filings
and other disclosures mandated by Legal Requirements; and (ii) in the case of
Owner, disclosure to any Qualified Lender or prospective Qualified Lender, or to
prospective purchasers of the Hotel (subject to the provisions of Section 20.05,
if applicable).
20.05 Equity and Debt Offerings
-------------------------
No reference to Management Company or to any of its Affiliates will be made
in any prospectus, private placement memorandum, offering circular or offering
documentation related thereto (herein collectively referred to as the
"Prospectus"), issued by Owner or one of its Affiliates, which is designed to
interest potential investors or lenders in the Hotel, unless Management Company
has previously received a copy of all such references. However, regardless of
whether Management Company does or does not so receive a copy of all such
references, neither Management Company nor any of its Affiliates will be deemed
a sponsor of the offering described in the Prospectus, nor will it have any
responsibility for the Prospectus, and the Prospectus will so state. Unless
Management Company agrees in advance, the Prospectus will not include: (i) any
Proprietary Mark; or (ii) except as required by applicable securities laws, the
text of this Agreement. Owner shall be entitled, however, to include in the
Prospectus an accurate summary of this Agreement. If there are no Legal
Requirements pursuant to which such information must be publicly disclosed,
appropriate measures shall be taken to ensure that entities or individuals
receiving such Prospectus shall acknowledge the confidentiality of such
information. Owner shall indemnify, defend and hold Management Company and its
Affiliates (and their respective directors, officers, shareholders, employees
and agents) harmless from and against all loss, costs, liability and damage
(including attorneys' fees and expenses, and the cost of Litigation) arising out
of any Prospectus or the offering described therein.
- 82 -
<PAGE>
20.06 Applicable Law
--------------
This Agreement shall be construed under and shall be governed by the laws
of the State of California.
20.07 Recordation
-----------
The terms and provisions of this Agreement shall run with the land
designated as the Site, and with Owner's interest therein, and shall be binding
upon all successors to such interest. At the request of either party, the
parties shall execute an appropriate memorandum of this Agreement in recordable
form and cause the same to be recorded in the jurisdiction where the Hotel is
located. Any cost of such recordation shall be borne by Management Company.
20.08 Headings
--------
Headings of Articles and Sections are inserted only for convenience and are
in no way to be construed as a limitation on the scope of the particular
Articles or Sections to which they refer.
20.09 Notices
-------
Notices, statements and other communications to be given under the terms of
this Agreement shall be in writing, and shall be either (i) delivered by hand
against receipt, or (ii) sent by certified or registered mail, postage prepaid,
return receipt requested or (iii) sent by either Federal Express or by "fax"
machine (provided that, in either case, a confirmatory copy is thereafter sent
by certified or registered mail):
To Owner:
--------
DS Hotel LLC
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department
with a copy to:
--------------
DS Hotel LLC
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Asset Management Department 908
- 83 -
<PAGE>
To Management Company:
---------------------
Marriott Hotel Services, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Law Department/Lodging Operations
52/923
with a copy to:
--------------
Marriott Hotel Services, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Attn: Senior Vice President-Finance
Marriott Hotels, Resorts & Suites
or at such other address as is from time to time designated by the party
receiving the notice. Any such notice which is properly mailed, as described
above, shall be deemed to have been served as of three (3) business days after
said posting.
20.10 Environmental Matters
---------------------
A. Management Company shall indemnify, defend and hold Owner and its
Affiliates (and their respective directors, officers, shareholders, employees
and agents) harmless from and against all loss, cost, liability and damage
(including, without limitation, engineers' and attorneys' fees and expenses, and
the cost of Litigation) arising from the placing, discharge, leakage, use or
storage of Hazardous Materials, in violation of applicable Environmental Laws,
on the Site or in the Hotel by Management Company's employees, representatives
or agents during the Term of this Agreement. Regardless of whether or not a
given Hazardous Material is permitted on the Site under applicable Environmental
Law, Management Company shall only bring on the Site such Hazardous Materials as
are needed in the normal course of business of the Hotel.
B. In the event of the discovery of Hazardous Materials on any portion of
the Site or in the Hotel during the Term of this Agreement, Owner shall (except
to the extent such removal is Management Company's responsibility pursuant to
Section 20.10 A) promptly remove (if required by applicable Environmental Law)
such Hazardous Materials, together with all contaminated soil and containers,
and shall otherwise remedy the problem in accordance with all Environmental
Laws. Owner shall (except to the extent that the removal of such Hazardous
Materials is Management Company's responsibility pursuant to Section 20.10 A)
indemnify, defend and hold Management Company and its Affiliates (and their
respective directors, officers, shareholders, employees and agents) harmless
from and against all loss, cost, liability and
- 84 -
<PAGE>
damage (including, without limitation, engineers' and attorneys' fees and
expenses, and the cost of Litigation) arising from the presence of Hazardous
Materials on the Site or in the Hotel.
C. All costs and expenses of the removal of Hazardous Materials from the
Site or the Hotel pursuant to Section 20.10 B, and of the aforesaid compliance
with all Environmental Laws, and any amounts paid to Management Company pursuant
to the indemnity set forth in the last sentence of Section 20.10 B, shall be
paid by Owner from its own funds, not as a Deduction nor from the FF&E Reserve,
and shall be treated as an expenditure by Owner pursuant to Section 8.03, except
that such costs, expenses, and amounts shall not constitute Additional Invested
Capital.
20.11 Estoppel Certificates
---------------------
Each party to this Agreement shall at any time and from time to time, upon
not less than thirty (30) days' prior notice from the other party, execute,
acknowledge and deliver to such other party, or to any third party specified by
such other party, a statement in writing: (a) certifying that this Agreement is
unmodified and in full force and effect (or if there have been modifications,
that the same, as modified, is in full force and effect and stating the
modifications); (b) stating whether or not to the best knowledge of the
certifying party (i) there is a continuing default by the non-certifying party
in the performance or observance of any covenant, agreement or condition
contained in this Agreement, or (ii) there shall have occurred any event which,
with the giving of notice or passage of time or both, would become such a
default, and, if so, specifying each such default or occurrence of which the
certifying party may have knowledge; and (c) stating such other information as
the non-certifying party may reasonably request. Such statement shall be
binding upon the certifying party and may be relied upon by the non-certifying
party and/or such third party specified by the non-certifying party as
aforesaid. The obligations set forth in this Section 21.11 shall survive
Termination (that is, each party shall, on request, within the time period
described above, execute and deliver to the non-certifying party and to any such
third party a statement certifying that this Agreement has been terminated).
20.12 [Intentionally omitted]
20.13 Arbitration
-----------
A. In the event of a dispute between Owner and Management Company with
respect to any issue of fact specifically mentioned herein as a matter to be
decided by arbitration, such dispute shall be determined by arbitration as
provided in this Section 20.13.
- 85 -
<PAGE>
B. Disputes shall be resolved in accordance with the Commercial
Arbitration Rules of the American Arbitration Association then pertaining. The
decision of the arbitrators shall be binding, final and conclusive on the
parties.
C. Owner and Management Company shall each appoint and pay all fees of a
fit and impartial person as arbitrator who shall have had at least ten (10)
years' recent professional experience in the general subject matter of the
dispute. Notice of such appointment shall be sent in writing by each party to
the other, and the arbitrators so appointed, in the event of their failure to
agree within thirty (30) days after the appointment of the second arbitrator
upon the matter so submitted, shall appoint a third arbitrator. If either Owner
or Management Company shall fail to appoint an arbitrator, as aforesaid, for a
period of twenty (20) days after written notice from the other party to make
such appointment, then the arbitrator appointed by the party having made such
appointment shall appoint a second arbitrator and the two so appointed shall, in
the event of their failure to agree upon any decision within thirty (30) days
thereafter, appoint a third arbitrator. If such arbitrators fail to agree upon
a third arbitrator within forty-five (45) days after the appointment of the
second arbitrator, then such third arbitrator shall be appointed by the American
Arbitration Association from its qualified panel of arbitrators, and shall be a
person having at least ten (10) years' recent professional experience as to the
subject matter in question. The fees of the third arbitrator and the expenses
incident to the proceedings shall be borne equally between Owner and Management
Company, unless the arbitrators decide otherwise. The fees of respective
counsel engaged by the parties, and the fees of expert witnesses and other
witnesses called for the parties, shall be paid by the respective party engaging
such counsel or calling or engaging such witnesses.
D. The decision of the arbitrators shall be rendered within thirty (30)
days after appointment of the third arbitrator. Such decision shall be in
writing and in duplicate, one counterpart thereof to be delivered to Owner and
one to Management Company. A judgment of a court of competent jurisdiction may
be entered upon the award of the arbitrators in accordance with the rules and
statutes applicable thereto then obtaining.
- 86 -
<PAGE>
20.14 Affiliates
----------
Except as otherwise specifically set forth in this Agreement, Management
Company shall be entitled to contract with one or more of its Affiliates to
provide goods and/or services to the Hotel only if the prices and/or fees paid
to any such Affiliate are competitive with the prices and/or fees currently
being paid to reputable and qualified parties which are not Affiliates of
Management Company. In determining, pursuant to the foregoing sentence, whether
such prices and/or fees are competitive, the goods and/or services which are
being purchased shall be grouped in reasonable categories, rather than being
compared item by item.
20.15 Entire Agreement
----------------
This Agreement, together with other writings signed by the parties which
are expressly stated to be supplemental hereto and together with any instruments
to be executed and delivered pursuant to this Agreement, constitutes the entire
agreement between the parties, and supersedes all prior written and oral
understandings. This Agreement may be amended only by a writing signed by both
parties hereto.
20.16 Rental of Golf Course B
-----------------------
A. This Agreement is subject and subordinate to the Existing Ground Lease.
Except as may be inconsistent with the terms hereof, all of the terms, covenants
and conditions of the Existing Ground Lease are hereby made part hereof with the
same force and effect as if fully set forth at length herein.
B. Management Company agrees, on behalf of Owner as part of Management
Company's management obligations under this Agreement, to perform all of the
terms, covenants, and conditions of the Existing Ground Lease to be performed by
the tenant therein named.
C. If the Existing Ground Lease is terminated for any reason whatsoever,
whether by operation of law or otherwise, except through the fault or action of
Owner, Owner shall not be responsible for such termination. This Agreement
shall terminate as to Golf Course B in the event of any such termination of the
Existing Ground Lease, but it shall remain in effect for the remainder of the
Hotel.
D. Management Company shall neither do nor permit anything to be done that
would cause the Existing Ground Lease to be terminated or forfeited by reason of
any right of termination or forfeiture reserved or vested in the Ground Lessor
under the Existing Ground Lease.
- 87 -
<PAGE>
20.17 Recitals
--------
The Recitals set forth at the beginning of this Agreement are hereby
incorporated as a material part of this Agreement with the same force and effect
as if restated in full herein.
END OF ARTICLE XX
- 88 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
Attest: DS HOTEL LLC ("Owner")
/s/ Tracy Colden By /s/ P K Brady
- ------------------------- ----------------------------
Assistant Secretary Vice President
Attest: MARRIOTT HOTEL SERVICES, INC.
("Management Company")
/s/ Carol Bruff By /s/ Kevin M. Kimball
- ------------------------- ----------------------------
Assistant Secretary Vice President
-89-
<PAGE>
EXHIBIT "A" TO MANAGEMENT AGREEMENT
Legal Description of the Site
-----------------------------
and Golf Course B Tract
-----------------------
The Site:
--------
Parcel A:
--------
Lots 1 and 4 through 7, inclusive, of Tract 19619, in the City of Palm
Desert, County of Riverside, State of California, as per Map recorded in Book
159, pages 30 through 37, inclusive, of maps, in the office of the County
Recorder of said County.
Except all oil, gas, and other petroleum and mineral substances in and
under all of said foregoing lands with the right to mine, excavate, drill for,
remove, and sell the same, all of which rights are limited to that portion of
the lands lying below a depth of 500.00 feet measured from the surface of said
lands, without the right to go upon or use the surface of said lands, as
reserved by Plaza Investment Company, a California General Partnership and
William Bone, a married man, as his sole and separate property in deed recorded
August 4, 1983 as Instrument No. 157881, Official Records.
Parcel A1:
---------
An appurtenant and perpetual easement over that portion of Lot 3 of Tract
19619 designated as 25.00 foot golf course access easements, as dedicated on the
map of Tract 19619, as per map recorded in Book 159, pages 30 through 37,
inclusive, of maps, in the office of the County Recorder of said County, and the
rear 25.00 feet of Lots 1 through 34 of Tract 21698, as per map recorded in Book
166, pages 64 through 66, inclusive, of maps, in the office of the County
Recorder of such County, as further evidenced by that certain Grant of Easement
made by Marriott's Desert Springs Development Corporation in favor of Desert
Springs Marriott Limited Partnership, dated April 23, 1987 and recorded April
24, 1987 as Instrument No. 114105, Official Records.
Parcel A2:
---------
An appurtenant and perpetual easement for an underground tunnel and
underground golf cart path over a portion of Lot A of Tract 21698, as per map
recorded in Book 166, pages 64 through 66, inclusive, of maps, in the office of
the County Recorder of said County, subject to the terms, conditions and
provisions contained in a document recorded October 25, 1994 as Instrument No.
408533, Official Records.
Parcel A3:
---------
An appurtenant and perpetual easement established by Parcel Map 27563, as
per map recorded in Book 183, pages 3 through 10,
<PAGE>
inclusive, of maps, in the office of the County Recorder of said County, over
(a) that portion of Parcel Map 27563 designated as 25.00 foot wide easement for
golf course purposes and (b) that portion of Parcel 4 of Parcel Map 27563
designated as 15.00 foot wide and 20.00 foot wide easements for golf course
purposes.
Parcel B:
--------
Parcels 1 and 3 of Parcel Map 27563, in the City of Palm Desert, County of
Riverside, State of California, as per map recorded in Book 183, pages 3 through
10 inclusive, of Parcel Maps, in the office of the County Recorder of said
County.
Except from Parcel 1, that portion conveyed to Marriott Ownership Resorts,
Inc., a Delaware Corporation, in Deed recorded December 20, 1996 as Instrument
No. 480352, Official Records, described as follows:
Beginning at the Northwest corner of Lot 5 of Tract 27570-3, in the City of
Palm Desert, County of Riverside, State of California, as per map recorded in
Book 251, pages 32 and 33 of Maps, in the office of the County Recorder of said
County; thence South 00 15' 23" East, 104.43 feet; thence North 54 40' 48" West,
88.79 feet; thence North 00 15' 23" West, 52.77 feet; thence North 89 44' 37"
East, 72.22 feet to the Point of Beginning.
Said description is also shown on Parcel Map Waiver P.M.W. 96-11, recorded
December 20, 1996 as Instrument No. 480351, Official Records.
<PAGE>
EXHIBIT "A-1" TO MANAGEMENT AGREEMENT
[Intentionally omitted]
<PAGE>
EXHIBIT B
FORM OF ACCOUNTING PERIOD STATEMENT
-----------------------------------
<TABLE>
<CAPTION>
PERIOD YEAR TO DATE
--------------------------------------------- ---------------------------------------------
$ ACTUAL % $ BUDGET % $ LAST YEAR % $ ACTUAL % $ BUDGET % $ LAST YEAR %
---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rooms
Telephone
Gift Shop
Garage
Restaurant
Lounge
Banquet
Specialty Rest
Room Services
Total F&B
Recreation Center
Business Center
Other Inc. Rents
Tradeout
Total Sales
Rooms
Laundry
Valet
Telephone
Gift Shop
Garage
Restaurants
Lounge
Banquet
Specialty Rest
Room Service
Total F&B
Recreation Center
Cafeteria
Business Center
Other Inc. Rents
Tradeout
Total Dept Profit
Local G&A
Cr Card Dis Exp
Heat, Light, Power
Repairs & Maint
Cntr Train and Relo
Accidents
Sales Promotion
Local Adv & Broch
National Adv Alloc
National Sls Alloc
Housekeeping Exp
Total Deduct
House Profit
Occupancy
Average Rate
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000832345
<NAME> DESERT SPRINGS MARRIOTT LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,789
<SECURITIES> 4,598<F1>
<RECEIVABLES> 1,368
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,755
<PP&E> 213,277
<DEPRECIATION> (61,876)
<TOTAL-ASSETS> 172,156
<CURRENT-LIABILITIES> 1,972
<BONDS> 184,849
0
0
<COMMON> 0
<OTHER-SE> (14,665)
<TOTAL-LIABILITY-AND-EQUITY> 172,156
<SALES> 0
<TOTAL-REVENUES> 27,233
<CGS> 0
<TOTAL-COSTS> 10,245
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,827
<INCOME-PRETAX> 2,161
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,161
<DISCONTINUED> 0
<EXTRAORDINARY> 27,538
<CHANGES> 0
<NET-INCOME> 29,699
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>THIS IS OTHER ASSETS.
</FN>
</TABLE>
