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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(g) of
The Securities Exchange Act of 1934
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
---------------------------------------------
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
(301) 380-2070
Delaware 52-1638296
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(STATE OF ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
10400 Fernwood Road
Bethesda, Maryland 20817
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(Address of principal executive offices)
(301) 380-9000
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(Registrant's telephone number
including area code)
Securities to be registered pursuant to Section 12(b) of the Act: None
Securities to be registered pursuant to Section 12(g) of the Act:
LIMITED PARTNERSHIP INTERESTS
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(TITLE OF CLASS)
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Table of Contents
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<TABLE>
<CAPTION>
Page No.
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<S> <C> <C>
ITEM 1. Business....................................................... 3
ITEM 2. Financial Information.......................................... 8
ITEM 3. Properties..................................................... 11
ITEM 4. Security Ownership of Certain Beneficial Owners and Management. 12
ITEM 5. Directors and Executive Officer................................ 12
ITEM 6. Executive Compensation......................................... 13
ITEM 7. Certain Relationships and Related Transactions................. 13
ITEM 8. Legal Proceedings.............................................. 14
ITEM 9. Market for and Distributions on Limited Partnership Units and
Related Security Holder Matters................................ 14
ITEM 10. Recent Sales of Unregistered Securities........................ 15
ITEM 11. Description of Registrant's Securities to be Registered........ 15
ITEM 12. Indemnification of Directors and Officers...................... 19
ITEM 13. Financial Statements........................................... 20
ITEM 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... 34
ITEM 15. Financial Statements, Supplementary Schedules and Exhibits..... 34
</TABLE>
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ITEM 1. BUSINESS
Description of the Partnership
Fairfield Inn by Marriott Limited Partnership (the "Partnership"), a Delaware
limited partnership, was formed to acquire, own and operate 50 Fairfield Inn by
Marriott properties (the "Inns") located in sixteen states and the land on which
18 of the Inns are situated. The Partnership leases the land underlying 32 of
the Inns from Marriott International, Inc. (AMII@) and certain of its affiliates
(the "Land Leases"). Of the Partnership's 50 Inns, seven are located in each of
Georgia and North Carolina; six in Michigan; four in each of Florida, Illinois,
and Ohio; and three or less in each of the other ten states.
On October 8, 1993, Marriott Corporation's operations were divided into two
separate companies: Host Marriott Corporation ("Host Marriott"), which
continued Marriott Corporation's business of owning lodging properties and
concession operations at airports and tollroads, and Marriott International,
Inc. ("MII"), which continued Marriott Corporation's business of lodging and
senior living services management, timeshare resort development and operation,
food service and facilities management and other contract services businesses.
The sole general partner of the Partnership, with a 1% interest, is Marriott
FIBM One Corporation (the "General Partner"), a Delaware corporation and a
wholly-owned subsidiary of Host Marriott.
The Partnership is engaged solely in the business of owning and operating the
Inns and therefore is engaged in one industry segment. The principal offices of
the Partnership are located at 10400 Fernwood Road, Bethesda, Maryland 20817.
The Inns are managed by Fairfield FMC Corporation (the "Manager"), a wholly-
owned subsidiary of MII, as part of the Fairfield Inn by Marriott hotel system
under a long-term management agreement. The Inns have the right to use the
Fairfield Inn by Marriott name pursuant to the management agreement and, if this
agreement is terminated, the Partnership will lose that right for all purposes
(except as part of the Partnership's name). See Item 7 "Certain Relationships
and Related Transactions".
The Fairfield Inn by Marriott system is a leading brand in the rapidly growing
but increasingly competitive economy segment of the lodging industry. The Inns
provide business and pleasure travelers with quality lodging at an economical
price. The Partnership has no plans to acquire any new properties or sell any
of the existing properties. See "Competition".
Organization of the Partnership
The Partnership was formed on August 23, 1989, and operations commenced on July
31, 1990 (the "Closing Date"). Between November 17, 1989, and the Closing Date,
83,337 limited partnership interests (the "Units") were sold in a public
offering. The offering price per unit was $1,000. The General Partner
contributed $841,788 for its 1% general partnership interest and $1.1 million to
establish the initial working capital reserve of the Partnership at $1.5 million
(as required in the partnership agreement). In addition, the General Partner
has a 10% limited partnership interest through the purchase of Units on the
Closing Date.
On November 17, 1989, the Partnership executed a purchase agreement (the
"Purchase Agreement") with Host Marriott to acquire the Inns and the land on
which 18 Inns are situated for $235.5 million. The total purchase price was
paid from proceeds of the mortgage financing and sale of the Units.
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DEBT FINANCING
Mortgage Debt
- -------------
On July 31, 1990, the Partnership borrowed $164.9 million, bearing a fixed
interest rate of 9.67%, pursuant to the terms of a non-recourse mortgage loan
agreement (the "Mortgage Debt") to finance a portion of the purchase price of
the Inns. The Mortgage Debt required semi-annual interest payments with no
principal payments required through maturity. Although the Mortgage Debt
matured on December 31, 1996, the Partnership was unable to refinance the debt
until January 13, 1997. During the period of December 31, 1996 through January
13, 1997, the existing Mortgage Debt bore interest at a default rate of 12.67%.
On January 13, 1997 (the "Refinancing Date") the Mortgage Debt was successfully
refinanced with a new third party lender. The principal amount of the
Partnership's refinanced debt was increased from $164.8 million to $165.4
million. Proceeds from the new loan were used to repay the existing mortgage
debt and pay refinancing costs. The refinanced debt continues to be non-
recourse, bears interest at a fixed rate of 8.40% and requires monthly payments
of principal and interest based upon a 20-year amortization schedule for a 10-
year term expiring January 11, 2007. Thereafter, until the final maturity date
of January 11, 2017, interest is payable at an adjusted rate, as defined, and
all excess cash flow is applied toward principal amortization.
The refinanced mortgage debt is secured by first mortgages on all of the Inns,
the land on which they are located, or an assignment of the Partnership's
interest under the Land Leases, including ownership interest in all improvements
thereon, fixtures and personal property related thereto.
As part of the refinancing, the Partnership was required to establish various
reserves for capital expenditures, working capital, debt service and insurance
needs. On the Refinancing Date, the Partnership established reserves totaling
$3.9 million for certain capital expenditure items. The funds will be expended
during 1997 for various renewals and replacements, site improvements, Americans
with Disabilities Act of 1990 modifications and environmental studies undertaken
in conjunction with the refinancing. The Partnership was required to deposit
two months' debt service payments, or $2,850,000, into a debt service reserve
payable in 12 equal consecutive monthly installments commencing on March 11,
1997. As of December 5, 1997, 10 monthly installments have been funded totaling
$2,374,880. The Partnership was also required to deposit $161,000 into a ground
rent reserve payable in six equal monthly installments commencing on March 11,
1997. This reserve has been fully funded as of December 5, 1997. The
Partnership was also obligated to fund $300,000 into an earthquake restoration
reserve account, payable in 3 consecutive monthly installments commencing on
January 31, 1997. This also has been fully funded. Transfers from this fund
are to be made in conjunction with any damages (not covered by insurance)
suffered from earthquakes to the two Inns located in California.
The Partnership's loan agreement requires that if a single downgrade of MII's
debt occurs, the Partnership is required to establish an additional debt service
reserve of $1.4 million. In March 1997, MII acquired the Renaissance Hotel
Group N.V. The assumption of additional debt associated with this transaction
resulted in a single downgrade of MII's long-term senior unsecured debt
effective April 7, 1997. This reserve has been fully funded as of December 5,
1997. In addition, pursuant to the terms of the mortgage debt subsequent to a
downgrade of MII's debt, the Partnership is required to establish with the
lender a separate escrow account for payments of insurance premiums and real
estate taxes ("Tax and Insurance Escrow Reserve") for each mortgaged property.
As of December 5, 1997, the balance in the Tax and Insurance Escrow Reserve is
$1.7 million. As of December 5, 1997, reserves totaled $9.9 million.
In addition, the Partnership entered into a Working Capital Maintenance and
Supplemental Debt Service Agreement ("Agreement") with the Manager, effective
January 13, 1997. As part of this Agreement, the Partnership agreed to furnish
the Manager additional working capital to be deposited into a segregated
interest bearing account (the "Working Capital Reserve"). The Working Capital
Reserve is to be funded from Operating Profit, as defined, retained by or
distributed to the Partnership as such amounts become available, until the
Working Capital Reserve reaches $670,000. This Agreement also requires the
funding of another segregated account for debt service shortfalls
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(the "Supplemental Debt Service Reserve"). This reserve is also to be funded out
of Operating Profit retained or distributed to the Partnership as such amounts
become available, until the Supplemental Debt Service Reserve reaches
$1,425,000. These reserves have not been funded as of December 5, 1997.
MATERIAL CONTRACTS
Management Agreement
- --------------------
The Manager operates the Inns pursuant to a long-term management agreement (the
"Management Agreement"). In conjunction with the mortgage refinancing, the
initial term of the Management Agreement was extended ten years from December
31, 2009 to December 31, 2019. However, the renewal period was shortened. The
Manager may renew the Management Agreement, as to one or more of the Inns at its
option, for up to four additional 10-year terms plus one five-year term.
The Management Agreement provides the Manager with a base management fee equal
to 1% of gross sales from Inn operations for each fiscal year through 1994 and
2% of gross sales from Inn operations for each fiscal year thereafter. The
Management Agreement also provides for payment of a Fairfield Inn system fee
equal to 3% of gross sales from Inn operations. In addition, the Manager is
entitled to an incentive management fee equal to 15% of operating profit, as
defined, increasing to 20% after the Inns have achieved total operating profit
during any 12 month period equal to or greater than $33.9 million. This has not
been met as of December, 1997. For additional information see Item 7, "Certain
Relationships and Related Transactions."
Pursuant to the Management Agreement, the Inns are operated as part of the
Fairfield Inn by Marriott hotel system. At December 31, 1996, the Fairfield Inn
by Marriott hotel system included 284 Inns with a total of 27,300 guest rooms.
Fairfield Inns typically contain approximately 135 rooms. Room rates generally
range between $45 and $55 per night depending on location. Fairfield Inns have
limited public space and do not include restaurants; however they do offer a
complimentary continental breakfast.
Ground Leases
- -------------
The land on which 32 of the Inns are situated is leased by the Partnership from
MII or its affiliates. The Land Leases expire on November 30, 2088 and provide
that the Partnership will pay annual rents equal to the greater of a specified
minimum rent for each property or a percentage rent based on gross sales of the
Inn operated thereon. The minimum rentals are adjusted at various anniversary
dates through 1999, as defined in the agreements. The minimum rentals are
adjusted annually for the remaining life of the leases based on changes in the
Consumer Price Index. The percentage rent, which also varies from property to
property, is fixed at predetermined percentages of gross sales that increase
over time.
Under the leases, the Partnership pays all costs, expenses, taxes and
assessments relating to the Inns and the underlying land, including real estate
taxes. Each Land Lease provides that the Partnership has a first right of
refusal in the event the applicable ground lessor decides to sell the leased
premises. Upon expiration or termination of a Land Lease, title to the
applicable Inn and all improvements reverts to the ground lessor.
COMPETITION
The United States lodging industry generally is comprised of two broad segments:
full service hotels and limited service hotels. Full service hotels generally
offer restaurant and lounge facilities and meeting spaces, as well as a wide
range of services, typically including bell service and room service. Limited
service hotels generally offer accommodations with limited or no services and
amenities. As economy hotels, the Inns compete effectively with limited service
hotels in their respective markets by providing streamlined services and
amenities exceeding those
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provided by typical limited service hotels at prices that are significantly
lower than those available at full service hotels.
The lodging industry in general, and the limited service segment in particular,
is highly competitive, but the degree of competition varies from location to
location and over time. The Inns compete with several other major lodging
brands. Competition in the industry is based primarily on the level of service,
quality of accommodations, convenience of locations and room rates. The
following list presents key participants in the economy segment of the lodging
industry in which the Inns compete:
Segment Representative Participants
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Economy Fairfield Inn, Comfort Inn and Suites,
Best Western, Holiday Inn Express, Days
Inn, Hampton Inn and Suites
The Manager believes that by emphasizing management and personnel development
and maintaining a competitive price structure, the Partnership's share of the
market will be maintained or increased. The inclusion of the Inns within the
nationwide Fairfield Inn by Marriott 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
Because Host Marriott and its affiliates own and/or operate hotels other than
those owned by the Partnership, potential conflicts of interest exist. With
respect to these potential conflicts of interest, Host Marriott and its
affiliates retain a free right to compete with the Partnership's Inns, including
the right to develop competing hotels now and in the future, in addition to
those existing hotels which may compete directly or indirectly.
Under Delaware law, the General Partner has unlimited liability for obligations
of the Partnership unless those obligations are, by contract, without recourse
to the partners thereof. Since the General Partner is entitled to manage and
control the business and operations of the Partnership, and because certain
actions taken by the General Partner or the Partnership could expose the General
Partner or its parent, Host Marriott, to liability that is not shared by the
limited partners (for example, tort liability or environmental liability), this
control could lead to a conflict of interest. Under Delaware law, the General
Partner has a fiduciary duty to the Partnership and is required to exercise good
faith and loyalty in all its dealings with respect to Partnership affairs.
POLICIES WITH RESPECT TO CONFLICTS OF INTEREST
It is the policy of the General Partner that the Partnership's relationship with
the General Partner or any affiliate, or persons employed by the General Partner
are conducted on terms which are fair to the Partnership and which are
commercially reasonable. Agreements and relationships involving the General
Partner or its affiliate and the Partnership are on terms consistent with the
terms on which the General Partner or its affiliates have dealt with unrelated
partners.
The Partnership Agreement provides that agreements, contracts or arrangements
between the Partnership and the General Partner, 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 services, goods or materials must be reasonably necessary to the
operation of the business of the Partnership;
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(b) the General Partner or any affiliate must have the ability to render such
services or to sell or lease such goods;
(c) 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;
(d) 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;
(e) 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);
(f) any such agreement, contract or arrangement which relates to or secures
any funds advanced or loaned to the Partnership by the General Partner or any
affiliate must reflect commercially reasonable terms; and
(g) any such agreement, contract or arrangement which relates to the
performance of services or the sale or lease of goods or materials (other than
the Management Agreement) shall contain a clause allowing termination without
penalty on 60 days notice.
EMPLOYEES
The Partnership has no employees; however, employees of the General Partner are
available to perform administrative services for the Partnership. The
Partnership reimburses the General Partner for the cost of providing such
services. See Item 6, "Executive Compensation", for information regarding
payments made to the General Partner for the cost of providing administrative
services to the Partnership.
CONSOLIDATION
The General Partner has undertaken, on behalf of the Partnership, to pursue,
subject to further approval of the partners, a potential transaction (the
"Consolidation") in which (i) subsidiaries of CRF Lodging Company, L.P.
(the "Company"), a newly formed Delaware limited partnership, would merge
with and into the Partnership and up to five other limited partnerships,
with the Partnership and the other limited partnerships being the surviving
entities (each, a "Merger" and collectively, the "Mergers"), subject to the
satisfaction or waiver of certain conditions, (ii) CRF Lodging Trust
("CRFLT"), a Maryland real estate investment trust, the sole general
partner of the Company, would offer its common shares of beneficial
interest, par value $0.01 per share (the "Common Shares") to investors in
an underwritten public offering and would invest the proceeds of such
offering in the Company in exchange for units of limited partnership
interests in the Company ("Units") and (iii) the Partnership would enter
into a Lease for the operation of its Hotels pursuant to which a Lessee
would pay rent to the Partnership based upon the greater of a fixed dollar
amount of base rent or specified percentages of gross sales, as specified
in the Lease. If the partners approve the transaction and other conditions
are satisfied, the partners of the Partnership would receive Units in the
Merger in exchange for their interests in the Partnership.
A preliminary Prospectus/Consent Solicitation was filed as part of a
Registration Statement on Form S-4 with the Securities and Exchange Commission
and which describes the potential transaction in greater detail. Any offer of
Units in connection with the Consolidation will be made solely by a final
Prospectus/Consent Solicitation.
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ITEM 2. FINANCIAL INFORMATION
The following selected financial data presents historical operating information
for the Partnership for each of the five years ended December 31, 1996:
FAIRFIELD INN BY MARRIOTT
LIMITED PARTNERSHIP
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31
1996 1995 1994 1993 1992
-------- --------- --------- --------- ---------
(in thousands, except per unit amounts)
<S> <C> <C> <C> <C> <C>
Inn revenues (1)............................ $ 47,065 $ 45,262 $ 40,854 $ 37,641 $ 36,240
======== ======== ======== ======== ========
Net income (loss)........................... $ 1,420 $ (951) $ (4,174) $ (6,295) $ (3,410)
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Net income (loss) per limited partner unit.. $ 17 $ (11) $ (50) $ (76) $ (41)
======== ======== ======== ======== ========
Total assets................................ $184,992 $185,481 $191,939 $200,882 $211,112
======== ======== ======== ======== ========
Total liabilities........................... $183,226 $176,717 $173,805 $170,157 $165,780
======== ======== ======== ======== ========
Cash distributions per limited
partnership unit (2)...................... $ 85 $ 100 $ 100 $ 100 $ 95
======== ======== ======== ======== ========
</TABLE>
(1) Inn revenues represent house profit of the Partnership's Inns since the
Partnership has delegated substantially all of the operating decisions
related to the generation of house profit of the Inns to the Manager.
(2) Includes quarterly distributions made in May, July and October of each
fiscal year and in February of the subsequent fiscal year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
CAPITAL RESOURCES AND LIQUIDITY
The Partnership is required to maintain the Inns in good condition. Under the
Management Agreement, the Partnership is required to make annual contributions
to the property improvement fund which provides funding for capital expenditures
and replacement of furniture, fixtures and equipment. Contributions to the fund
equaled 6% of gross sales in 1996, 1995 and 1994. In 1997 and thereafter, the
Partnership is required to contribute 7% of gross sales to the fund.
For 1996, the Partnership paid a base management fee equal to 2% of gross sales
and a Fairfield Inn system fee equal to 3% of gross sales to the Manager. In
addition, the Partnership paid an incentive management fee of $2.4 million
payable from 50% of cash flow remaining after payment of ground rent, debt
service, partnership administrative expenses and an owner's priority return of
$8.4 million. The remaining $2.5 million of incentive management fees earned
were deferred.
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Cash provided by operations was $17.5 million in 1996, $16.4 million in 1995 and
$14.7 million in 1994. The increase in cash provided by operations can
primarily be attributed to improved lodging results.
Cash used in investing activities was $5.8 million, $5.7 million and $5.2
million in 1996, 1995 and 1994, respectively. The Partnership's cash investing
activities consists primarily of contributions to the property improvement fund
and capital expenditures for improvements to existing hotels.
Cash used in financing activities was $8.8 million in 1996 and $8.4 million in
each of 1995 and 1994. The Partnership's cash financing activities consisted
primarily of capital distributions to partners and payments of financing costs
discussed below.
On January 13, 1997, the Partnership successfully refinanced its non-recourse
mortgage debt with an investment banking firm. The principal amount of the
refinanced debt was increased from $164.8 million to $165.4 million. Proceeds
from the new loan were used to repay the existing mortgage debt and pay
refinancing costs. The refinanced debt continues to be non-recourse, bears
interest at a fixed rate of 8.40% and requires monthly payments of principal and
interest based upon a 20-year amortization schedule for a 10-year term expiring
January 11, 2007. Thereafter, until the final maturity date of January 11,
2017, interest is payable at an adjusted rate, as defined, and all excess cash
flow is applied toward principal amortization. The lender required that the
Partnership establish several reserves for debt service, capital expenditure and
working capital needs. The lender securitized this loan through the issuance
and sale of commercial-mortgage backed securities.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
Revenues. Revenues increased $1.8 million, or 4%, to $47.1 million in 1996 from
$45.3 million in 1995 as a result of strong growth in REVPAR, or revenue per
available room, of 4%. Inn sales increased $5.7 million, or 6%, to $97.4
million in 1996 also reflecting improvements in REVPAR for the year. The
increase in REVPAR was the result of an increase in average room rates of nearly
10%, while average occupancy decreased four percentage points. The decrease in
occupancy was primarily the result of efforts to maximize the average room rate
and ultimately increase REVPAR, but was also impacted by market conditions and
increased competition.
Operating Costs and Expenses. Operating costs and expenses decreased $.5
million to $29.7 million in 1996 from $30.3 million in 1995. As a percentage of
Inn revenues, Inn operating costs and expenses represented 63% of revenues for
1996 and 67% in 1995.
Operating Profit. As a result of the changes in revenues and operating costs
and expenses discussed above, operating profit increased $2.3 million to $17.3
million, or 37% of total revenues, in 1996 from $15 million, or 33% of revenues
in 1995.
Interest Expense. Interest expense remained at $16.6 million for 1996 and 1995.
Net Income. Net loss decreased to net income of $1.4 million in 1996, from a
net loss of $1 million in 1995 due to the items discussed above.
1995 COMPARED TO 1994
Revenues. Revenues increased $4.4 million, or 11%, to $45.3 million in 1995
from $40.9 million in 1994 as a result of strong growth in REVPAR of 8%. The
increase in REVPAR was primarily the result of a 9% increase in average room
rates and a one percentage point decrease in average occupancy.
Operating Costs and Expenses. Operating costs and expenses increased to $1.4
million to $30.3 million, or 67% of Inn revenues, in 1995 from $28.9 million, or
71% of Inn revenues, in 1994.
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Operating Profit. Operating profit increased $3 million to $15 million, or 33%
of Inn revenues, in 1995 from $12 million, or 29% of Inn revenues, in 1994 due
to the changes in Inn revenues and Inn operating costs discussed above.
Interest Expense. Interest expense increased $.1 million to $16.6 million in
1995.
Net Loss. Net loss decreased to $1 million in 1995, from a net loss of $4.2
million in 1994 due to the items discussed above.
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ITEM 3. PROPERTIES
The following table sets forth certain information relating to each of the
Partnership's Inns. All of the properties are operated under the Fairfield Inn
by Marriott Brand and managed by Marriott International. The Land on which the
Inns are located is owned, unless otherwise specified.
<TABLE>
<CAPTION>
Number of Date
Rooms Opened
--------- ------
<S> <C> <C>
Alabama
Birmingham - Homewood (1)......... 132 1988
Montgomery ....................... 133 1988
California
Los Angeles - Buena Park (1)...... 135 1990
Los Angeles - Placentia........... 135 1990
Florida
Gainesville (1)................... 135 1990
Miami - West (1).................. 135 1989
Orlando - International Drive (1) 135 1989
Orlando - South (1) 133 1988
Georgia
Atlanta - Airport (1)............. 132 1987
Atlanta - Gwinnett Mall........... 135 1988
Atlanta - Northlake (1)........... 133 1988
Atlanta - Northwest (1)........... 130 1987
Atlanta - Peachtree Corners....... 135 1989
Atlanta - Southlake............... 134 1989
Atlanta - Savannah (1)............ 135 1990
Iowa
Des Moines - West (1)............. 135 1990
Illinois
Bloomington - Normal (1).......... 132 1988
Chicago - Lansing (1)............. 135 1989
Peoria............................ 135 1989
Rockford.......................... 135 1989
Indiana
Indianapolis - Castleton (1)...... 132 1988
Indianapolis - College Park....... 132 1988
Kansas
Kansas City - Merriam............. 135 1989
Kansas City - Overland Park....... 134 1988
Michigan
Detroit - Airport (1)............. 133 1988
Detroit - Auburn Hills (1)........ 134 1989
Detroit - Madison Heights (1)..... 134 1989
Detroit - Warren (1).............. 131 1988
Detroit - West (Canton) (1)....... 133 1988
Kalamazoo (1)..................... 133 1988
Number of Date
Rooms Opened
--------- ------
Missouri
St. Louis - Hazelwood............. 135 1989
North Carolina
Charlotte - Airport (1)........... 135 1989
Charlotte - Northeast (1)......... 133 1988
Durham (1)........................ 135 1990
Fayetteville (1).................. 135 1989
Greensboro (1).................... 135 1989
Raleigh - Northeast (1)........... 132 1988
Wilmington........................ 134 1989
Ohio
Cleveland - Airport............... 135 1989
Columbus - North (1).............. 135 1989
Dayton - North (1)................ 135 1989
Toledo - Holland.................. 135 1989
South Carolina
Florence.......................... 135 1989
Greenville........................ 132 1989
Hilton Head (1)................... 120 1989
Tennessee
Johnson City (1).................. 132 1988
Virginia
Hampton........................... 134 1989
Virginia Beach (1)................ 134 1990
Wisconsin
Madison (1)....................... 135 1988
Milwaukee - Brookfield............ 135 1989
</TABLE>
(1) The land on which the Inn is built is leased by the Partnership under a
long-term lease agreement with Marriott International, Inc. or an affiliate.
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The following table shows selected combined operating statistics for the Inns:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Combined average occupancy........ 76.6% 80.6% 81.5%
Combined average daily room rate.. $49.57 $45.26 $41.51
REVPAR............................ $37.98 $36.47 $33.83
REVPAR percentage change.......... 4.1% 7.8%
</TABLE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of December 31, 1996, Nihon Building Project USA, Inc. owned 12% of the total
number of limited partnership units. No other person owned of record, or to the
Partnership's knowledge owned beneficially, more than 5% of the total number of
limited partnership Units other than the General Partner.
The General Partner owns 8,379 Units as of December 31, 1996, which represent
10% of the total Units. These Units were purchased by the General Partner on
the Closing Date of the public offering. See Item 11, "Description of
Registrants Securities to be Registered", regarding restrictions on the voting
rights of Units owned by the General Partner. There are 15 Units owned by the
executive officers and directors of the General Partner, as a group.
The Partnership is not aware of any arrangements which may, at a subsequent
date, result in a change in control of the Partnership, other than the
Consolidation described in Item 1.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
Marriott FIBM One Corporation, the General Partner, was incorporated in Delaware
in 1990 and is a wholly owned subsidiary of Host Marriott. The General Partner
was organized solely for the purpose of acting as general partner of Fairfield
Inn by Marriott Limited Partnership.
The Partnership has no directors, officers or employees. The business policy
making functions of the Partnership are carried out through the directors and
executive officers of the General Partner, who are listed below:
<TABLE>
<CAPTION>
Age at
Name Current Position in Marriott FIBM One Corporation December 31, 1996
- ------------------------- ------------------------------------------------- -----------------
<S> <C> <C>
Bruce F. Stemerman President and Director 41
Christopher G. Townsend Vice President and Director 49
Earla L. Stowe Vice President and Chief 35
Accounting Officer
Bruce D. Wardinski Treasurer 36
</TABLE>
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.
Christopher G. Townsend has been Vice President and Director of the General
Partner since May 1987. 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 January 1997, Mr. Townsend was named General Counsel of
Host Marriott. He also serves as a director and an officer of numerous Host
Marriott subsidiaries.
Earla L. Stowe was appointed to Vice President and Chief Accounting Officer of
the General Partner on October 8, 1996. Ms. Stowe joined Host Marriott
Corporation in 1982 and held various positions in the tax department until 1988.
She joined the Partnership Services department as an accountant in 1988 and in
1989 she became an Assistant Manager, Partnership Services. She was promoted to
Manager, Partnership Services in 1991 and to Director, Asset Management in 1996.
She also serves as an officer of numerous Host Marriott subsidiaries.
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<PAGE>
Bruce D. Wardinski was elected Treasurer of the General Partner in 1996. Mr.
Wardinski joined Host Marriott in 1987 as a Senior Financial Analyst of
Financial Planning & Analysis, and was named Manager in June 1988. He was
appointed Director, Financial Planning & Analysis in 1989, Director of Project
Finance in January 1990, Senior Director of Project Finance in June 1993, Vice
President, Project Finance in June 1994, and Senior Vice President of
International Development in October 1995. In June 1996, Mr. Wardinski was
named Senior Vice President and Treasurer of Host Marriott. He also serves as
an officer of numerous Host Marriott subsidiaries.
ITEM 6. EXECUTIVE COMPENSATION
The General Partner is required to devote to the Partnership such time as may be
necessary for the proper performance of its duties, but the officers and the
directors of the General Partner are not required to devote their full time to
Partnership matters. To the extent that any officer or director of the General
Partner or employee of Host Marriott does devote time to the Partnership, the
General Partner is entitled to reimbursement for the cost of providing such
services. Any such costs may include a charge for overhead, but without a
profit to the General Partner. For the fiscal years ended December 31, 1996,
1995 and 1994, administrative expenses reimbursed by the Partnership to the
General Partner totalled $102,000, $92,000 and $94,000, respectively.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As described below, the Partnership is a party to an ongoing agreement with MII
pursuant to which the Inns are managed by MII.
Prior to October 8, 1993, MII was a wholly-owned subsidiary of Host Marriott,
which was then named 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.
The Partnership entered into a management agreement (the "Management Agreement")
with MII to manage and operate the Inns. In conjunction with the mortgage
refinancing, the initial term of the Management Agreement was extended ten years
from December 31, 2009 to December 31, 2019. However, the renewal period was
shortened. The Manager has the option to renew the Management Agreement as to
one or more of the Inns at its option, for up to four additional 10-year terms
plus one five-year term. The Manager is paid a base management fee equal to 2%
of gross hotel sales. In addition, the Manager is entitled to an incentive
management fee equal to 15% of Operating Profit as defined, increasing to 20%
after the Inns have achieved total Operating Profit during any 12 month period
equal or greater than $33.9 million. The incentive management fee with respect
to each Hotel is payable only out of 50% of cash flow from operations remaining
after payment of ground rent, debt service, partnership administrative expenses
and the owner's priority return, as defined.
In accordance with the Management Agreement, incentive management fees through
1992 were waived by the Manager, as cash flow available for incentive management
fees, as defined, was insufficient to pay the fees. Incentive management fees
earned after 1992 accrue and are payable as outlined above or from Capital
Receipts, as defined in the Management Agreement. During 1996, 1995 and 1994,
the Manager deferred $2,470,000, $2,857,000 and $3,429,000 of incentive
management fees, respectively. Cumulative deferred incentive management fees at
December 31, 1996 and 1995 were $12,786,000 and $10,316,000, respectively.
The Manager is required to furnish certain services ("Chain Services") which are
furnished generally on a central or regional basis to all managed or owned Inns
in the Fairfield Inn by Marriott hotel system. The major cost components
included in Chain Services are computer, reservations, advertising, training and
sales costs. Costs and expenses incurred in providing such services are
allocated among all domestic Fairfield Inn by Marriott hotels managed, owned or
leased by MII or its subsidiaries with no profit to MII. The methods of
allocating the costs and expenses are based upon one or a combination of the
following: (i) percent of sales, (ii) total number of hotel rooms, (iii) total
number of reservations booked, and (iv) total number of management employees.
In addition, the Manager maintains a marketing fund to pay the costs associated
with certain system-wide advertising, marketing, sales, promotional and public
relations materials and programs. Each Inn within the system contributes 2.5%
of gross Inn sales to the marketing fund. The Manager has no ownership interest
in the marketing fund.
13
<PAGE>
The following table sets forth the amount paid to MII and affiliates for the
years ended December 31, 1996, 1995 and 1994 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
<S> <C> <C> <C>
Fairfield Inn system fee.................. $ 2,923 $ 2,751 $2,555
Ground rent............................... 2,845 2,788 2,253
Marketing fund contribution............... 2,436 2,292 2,129
Incentive management fee.................. 2,428 1,809 875
Base management fee....................... 1,949 1,834 851
Chain services allocation................. 1,267 1,192 1,004
------- ------- ------
$13,848 $12,666 $9,667
======= ======= ======
</TABLE>
Pursuant to the Management Agreement, the Partnership provided the Manager with
working capital and supplies to meet the operating needs of the Inns. This
advance bears no interest and remains the property of the Partnership throughout
the term of the Management Agreement. The Partnership is required to advance
upon request of the Manager any additional funds necessary to satisfy the needs
of the Inns as their operations may require from time to time. Upon termination
of the Management Agreement, the Manager will return to the Partnership any
unused working capital and supplies. At the inception of the Partnership,
$1,000,000 was advanced to the Manager for working capital and supplies.
The Management Agreement provides for the establishment of a property
improvement fund for the Inns to cover (a) the cost of certain non-routine
repairs and maintenance to the Inns which are normally capitalized; and (b) the
cost of replacements and renewals to the Inns' property and equipment.
Contributions to the property improvement fund are based on a percentage of
gross sales of each Inn. In 1996, 1995 and 1994 the Partnership contributed 6%
of gross sales to the fund. In 1997 and thereafter, the Management Agreement
requires the Partnership to contribute 7% of gross revenues to the fund.
The Management Agreement provides that the Partnership may terminate the
Management Agreement and remove the Manager if, after December 1995 specified
minimum operating results are not achieved. The Manager may, however, prevent
termination by paying to the Partnership such amount as is necessary to achieve
the above performance standard.
ITEM 8. LEGAL PROCEEDINGS.
None.
ITEM 9. MARKET FOR AND DISTRIBUTIONS ON LIMITED PARTNERSHIP UNITS AND RELATED
SECURITY HOLDER MATTERS
There is currently no public market for the Units. Transfers of Units are
limited to the first day of a fiscal quarter, and are subject to approval by the
General Partner and certain other restrictions described in Item 11,
"Description of Registrant's Securities to be Registered". As of December 31,
1996, there were 3,148 holders of record of the 83,337 limited partnership
Units.
The ability of the Partnership to make cash distributions to the limited
partners is subject to limitations contained in the Partnership Agreement that
are described in Item 11, "Description of Registrant's Securities to be
Registered -Distributions and Allocations". In addition, the Partnership is
making payments to reserves established by the lender, as described in Item 1,
"Business - Debt Financing - Mortgage Debt", that limit the funds available for
cash distributions.
The Partnership made quarterly cash distributions to its partners from 1996
operations in the amount of $7,155,198 as follows: $71,553 to the General
Partner and $7,083,641 to the limited partners ($85 per Unit).
The Partnership made quarterly cash distributions to its partners from 1995
operations in the amount of $8,417,880 as follows: $84,180 to the General
Partner and $8,333,700 to the limited partners ($100 per Unit).
The Partnership made quarterly cash distributions to its partners from 1994
operations in the amount of $8,417,880 as follows: $84,180 to the General
Partner and $8,333,700 to the limited partners ($100 per Unit).
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<PAGE>
Units held by non-affiliates of the Partnership for at least three years may be
sold without registration in accordance with the exemptions provided by Rule 144
under the Securities Act of 1933, as amended the (the "Act"). For a discussion
of the restrictions on assignment contained in the Partnership Agreement, see
Item 11, "Description of Registrant's Securities to be Registered".
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
There have been no sales of unregistered securities by the Partnership within
the past three years. On July 31, 1990, 83,337 limited partnership interests
(the "Units") were sold in a public offering. See Item 1, "Business -
Organization of the Partnership" for additional information regarding the
Partnership's sale of Units in 1990. As of December 31, 1996, there were 3,148
limited partners. Since the inception of the Partnership, there have been 416
sales by limited partners involving 6,997 Units.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
The 83,337 limited partnership interests to be registered, which include the
8,379 Units owned by the General Partner, represent 99% of the interests in the
Partnership. The General Partner holds the remaining 1% interest.
Distributions and Allocations
- -----------------------------
Partnership allocations and distributions are generally made as follows:
a. Cash available for distribution for each fiscal year will be distributed
quarterly as follows: (i) 99% to the limited partners and 1% to the
General Partner (collectively, the "Partners") until the Partners have
received, with respect to such fiscal year, an amount equal to the
Partners' Preferred Distribution (9% of the excess of original cash
contributions over cumulative distributions of net refinancing and sales
proceeds ("Capital Receipts") on an annualized basis in 1990, 9.5% in 1991
and 1992 and 10% for each year thereafter); (ii) remaining cash available
for distribution will be distributed as follows, depending on the amount of
Capital Receipts previously distributed:
1) 99% to the limited partners and 1% to the General Partner, if the
Partners have received aggregate cumulative distributions of Capital
Receipts of less than 50% of their original capital contributions; or
2) 90% to the limited partners and 10% to the General Partner, if the
Partners have received aggregate cumulative distributions of Capital
Receipts equal to or greater than 50% but less than 100% of their
original capital contributions; or
3) 80% to the limited partners and 20% to the General Partner, if the
Partners have received aggregate cumulative distributions of Capital
Receipts equal to 100% or more of their original capital
contributions.
b. Refinancing proceeds and sale proceeds from the sale or other disposition
of less than substantially all of the assets of the Partnership will be
distributed (i) 99% to the limited partners and 1% to the General Partner
until the Partners have received the then outstanding Partners' 12%
Preferred Distribution, as defined, and cumulative distributions of Capital
Receipts equal to 100% of their original capital contributions; and (ii)
thereafter, 80% to the limited partners and 20% to the General Partner.
c. Sale proceeds from the sale of substantially all of the assets of the
Partnership will be distributed to the Partners pro-rata in accordance with
their capital account balances as adjusted to take into account gain or
loss resulting from such sale.
d. Net profits for each fiscal year generally will be allocated in the same
manner in which cash available for distribution is distributed. Net losses
for each fiscal year generally will be allocated 99% to the limited
partners and 1% to the General Partner.
e. Gains recognized by the Partnership generally will be allocated in the
following order of priority: (i) to those Partners whose capital accounts
have negative balances until such negative balances are brought to zero;
(ii) to all Partners up to the amount necessary to bring the Partners'
capital account balances to an amount equal to their pro-rata share of the
15
<PAGE>
Partners' 12% Preferred Distribution, as defined, plus their Net Invested
Capital, as defined; and (iii) thereafter, 80% to the limited partners and
20% to the General Partner.
f. For financial reporting purposes, profits and losses are allocated among
the Partners based on their stated interests in cash available for
distribution.
Upon dissolution of the Partnership, the General Partner shall liquidate the
assets of the Partnership. The proceeds of such liquidation shall be applied
and distributed in the following order of priority: (i) to the payment of the
expenses of the liquidation (ii) to the payment of Partnership debt, and other
liabilities; (iii) to the payment of any loans or advances that may have been
made by any of the partners to the Partnership; and (iv) to the General Partner
and limited partners in proportion to the net balances in their respective
capital accounts.
Authority of the General Partner
- --------------------------------
Under the Partnership Agreement, the General Partner has broad management
discretion over the business of the Partnership and with regard to the operation
of the Inns. No limited partner may take any part in the conduct or control of
the Partnership's business. The authority of the General Partner is limited in
certain respects.
Without an amendment to the Partnership Agreement, which requires the unanimous
consent of all the limited partners, the General Partner does not have authority
to:
(i) do any act in contravention of the Partnership Agreement;
(ii) except as otherwise provided in the Partnership Agreement, do any
act which would make it impossible to carry on the ordinary business
of the Partnership;
(iii) confess a judgment in an amount in excess of $100,000 against the
Partnership;
(iv) convert property of the Partnership to its own use, or possess or
assign any rights in specific Partnership property for other than a
Partnership purpose;
(v) admit a person as either a General Partner or a limited partner
except as otherwise provided in the Partnership Agreement;
(vi) perform any act that would subject any limited partner to liability
as a General Partner in any jurisdiction or to any other liability
except as provided in the Delaware Revised Uniform Limited
Partnership Act (the "Delaware Act") or the Partnership Agreement;
or
(vii) list, recognize, or facilitate the trading of Units on any
established securities market, or create for the Units a secondary
market or the substantial equivalent thereof, or permit, recognize,
or facilitate trading of Units on any such market, or permit any of
its affiliates to take such action, if as a result thereof the
Partnership would be taxed for Federal income tax purposes as an
association taxable as a corporation.
Without an amendment to the Partnership Agreement, which requires the vote of
limited partners holding a majority of the Units, the General Partner does not
have authority on behalf of the Partnership to:
(i) have the Partnership acquire an interest in other hotel properties
or other partnerships;
(ii) sell or otherwise dispose of or consent to the sale or disposition
of any of the Inns;
(iii) effect any amendment to any agreement, contract or arrangement with
the General Partner or any affiliate thereof which would reduce the
responsibility or duties or would increase the compensation payable
to the General Partner or any of its affiliates or which would
otherwise adversely affect the rights of the limited partners;
(iv) incur debt of the Partnership except as set forth in the Partnership
Agreement;
16
<PAGE>
(v) agree to the addition of transient guest rooms at any Inn unless (a)
the Inn has had an average occupancy rate of at least 70% for a
consecutive period of at least 12 months immediately prior to
commencement of construction of the addition;
(vi) make any election to continue beyond its term, discontinue or
dissolve the Partnership;
(vii) voluntarily withdraw as a General Partner;
(viii) cause the Partnership to incur any debt in excess of $250,000;
(ix) cause the Partnership to merge or consolidate with any other entity;
(x) accept the substitution of more than five Inns under the Purchase
Agreement;
(xi) cause the Partnership to sell all or substantially all of the assets
of the Partnership, except upon dissolution and liquidation in
accordance with the Partnership Agreement; or
(xii) cause the Partnership to incur any debt that would result in
refinancing proceeds, unless such refinancing proceeds are
distributed to the partners in the same taxable year in which the
Partnership incurred such liability.
Restrictions on Assignments of Units
- ------------------------------------
A limited partner generally has the right to assign a Unit to another person or
entity, subject to certain conditions and restrictions. An assignment of a Unit
is subject to the following restrictions: (i) no assignment may be made other
than on the first day of a fiscal quarter of the Partnership; (ii) no assignment
may be made if, when added to all other prior assignments and transfers of
interests in the Partnership within the preceding 12 months, such assignment
would cause the Partnership, in the opinion of legal counsel, to be considered
to have terminated for Federal income tax purposes; (iii) the General Partner
may prohibit any assignment that, in the opinion of legal counsel, would require
the filing of a registration statement under the Securities Act of 1933 or
otherwise would violate any Federal or state securities laws or regulations
(including investor suitability standards) applicable to the Partnership or the
Units; (iv) no assignment may be made that would result in either the transfer
or the transferee owning a fraction of a Unit but less than five Units, except
for assignment by gift, inheritance, or family dissolution or assignments to
affiliates of the assignor; (v) no assignment may be made if, in the opinion of
legal counsel, it would result in the Partnership being treated as an
association taxable as a corporation for Federal income tax purposes; (vi) no
transfer may be made if such transfer is effectuated through an established
securities market or a secondary market (or the substantial equivalent thereof)
within the meaning of section 7704 of the Code; (vii) no assignment may be made
if, in the opinion of legal counsel, it would preclude the Partnership from
either obtaining or retaining a liquor beverage license for any of the Hotels;
(viii) no assignment may be made unless the transferee agrees in writing that it
will not, directly or indirectly, create for the Units a secondary market (or
the substantial equivalent thereof) within the meaning of section 7704 of the
Code or facilitate the trading of the Units on such a market; and (ix) no
assignment may be made to nonresident aliens, foreign entities, or tax-exempt
entities; (x) no assignment may be made to any person exempt from Federal income
tax; (xi) no transfer or assignment may be made unless the proposed assignee has
provided the General Partner the required information under the Partnership
Agreement; or (xii) no assignment may be made to any person or any person who is
related to any outside lender to the Partnership. The General Partner is also
authorized to impose any other restrictions on the transfer of Units to the
extent that it, in the exercise of its reasonable discretion and based upon the
advice of counsel to the Partnership, determines such further limitations are
necessary or advisable to protect the Partnership from being considered a
publicly traded partnership within the meaning of the 1987 Revenue Act.
The Partnership will not recognize for any purpose any assignment of any Units
unless (i) an instrument is executed making such assignment, signed by both the
assignor and the assignee, and a duly executed application for assignment and
admission as substituted limited partner is executed indicating the written
acceptance by the assignee of all the terms and provisions of the Partnership
Agreement, (ii) the General Partner has determined that such as assignment is
permitted under the Partnership Agreement. No assignee of a limited partner's
Units will be entitled to become a substituted limited partner unless: (i) the
General Partner gives consent, (ii) the transferring limited partner and the
assignee have executed instruments that the General Partner deems necessary to
effect such admission, (iii) the assignee has accepted, adopted, and approved in
writing all of the terms of the Partnership Agreement and executed a power of
attorney similar to the power of attorney granted in the Partnership Agreement,
17
<PAGE>
and (iv) the assignee pays all reasonable expenses incurred in connection with
his admission as a substituted limited partner. As assignee only becomes a
substituted limited partner when the General Partner has reflected the admission
of such person as a limited partner in the books and records of the Partnership.
Any person who is the assignee of any of the Units of a limited partner, but who
does not become a substituted limited partner is entitled to all the rights of
an assignee of a limited partner interest under the Act, including the right to
receive distributions from the Partnership and the share of net profits, net
losses, gain, loss and recapture income attributable to the Units assigned to
the person, but shall not be deemed to be a holder of Units for any other
purpose under the partnership agreement.
Amendments
- ----------
Amendments to the Partnership Agreement may be made by the General Partner with
the consent of the limited partners holding a majority of the outstanding Units
(excluding those Units held by the General Partner and certain of its
affiliates). No amendment to the Partnership Agreement may be made, however,
without the approval of all of the limited partners which would (i) convert a
limited partner's interest into a general partner's interest; (ii) adversely
affect the liability of a limited partner; (iii) alter the interest of a partner
in net profits, net losses, or gain or loss or distributions of cash available
for distribution or capital receipts or reduce the percentage of partners which
is required to consent to any action hereunder; (iv) limit in any manner the
liability of the General Partner; (v) permit the General Partner to take any
action otherwise prohibited by the Partnership Agreement; (vi) cause the
Partnership to be taxed for Federal income tax purposes as an association
taxable as a corporation; or (vii) reduce the percentage of Units required to
approve any amendment to the Partnership Agreement. The General Partner may make
an amendment to the Partnership Agreement, without the consent of the limited
partners, if such amendment is necessary solely to clarify the provisions of the
Partnership Agreement so long as such amendment does not adversely affect the
rights of the limited partners under the Partnership Agreement.
Meetings and Voting
- -------------------
The limited partners cannot participate in the management or control of the
Partnership or its business. The Partnership Agreement, however, extends to the
limited partners the right under certain conditions to vote on or approve
certain Partnership matters. Any action that is required or permitted to be
taken by the limited partners may be taken either at a meeting of the limited
partners or without a meeting if approvals in writing setting forth the action
so taken are signed by limited partners owning not less than the minimum number
of Units that would be necessary to authorize or take such action at a meeting
at which all of the limited partners were present and voted. Meetings of the
limited partners may be called by the General Partner and shall be called by the
General Partner upon receipt of a request in writing signed by holders of 10% or
more of the Units held by the limited partners. Limited partners may vote
either in person or by proxy at meetings. Limited partners holding more than
50% of the total number of all outstanding Units constitute a quorum at a
meeting of the limited partners. Matters submitted to the limited partners for
determination will be determined by the affirmative vote of the limited partners
holding a majority of the outstanding Units (excluding those Units held by the
General Partner and certain of its affiliates), except that a unanimous vote of
the limited partners will be required for certain action referred to above.
The Partnership Agreement does not provide for annual meetings of the limited
partners and none have been held, nor does the General Partner anticipate
calling such meetings.
Other Matters
- -------------
If at any time any agreement (including the Management Agreement) pursuant to
which operating management of any of the Inns is vested in the General Partner
or an affiliate of the General Partner provides that the Partnership has a right
to terminate such agreement as a result of the failure of the operation of such
Inn to attain economic objectives, as specifically defined, the limited
partners, without the consent of the General Partner, may, upon the affirmative
vote of the holders of a majority of the Units, take action to exercise the
right of the Partnership to terminate such agreements.
The limited partners may also, by a vote of the holders of a majority of the
Units, remove the General Partner (but only if a new general partner is elected)
if the General Partner has committed and not remedied any act of fraud, bad
faith, gross negligence or breach of fiduciary duties in carrying out its duties
as the General Partner. Notwithstanding the foregoing, however, such a removal
of the General Partner or the Manager, if exercised, would be an event of
default under the loan documentation evidencing the Mortgage Debt, and would
permit the lender or its assignee to accelerate the maturity of the loan. Thus,
the termination right could only be exercised with the consent of the lender or
its assignee.
18
<PAGE>
The Partnership Agreement provides that limited partners will not be personally
liable for the losses of the Partnership beyond the amount committed by them to
the capital of the Partnership. In the event that the Partnership is unable
otherwise to meet its obligations, the limited partners might, under applicable
law, be obligated under some circumstances to return distributions previously
received by them, with interest, to the extent such distributions constituted a
return of the capital contributions at the time when creditors had valid claims
outstanding against the Partnership.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Except as specifically provided in the Delaware Act, the General Partner is
liable for the obligations of the Partnership in the same manner as a partner
would be liable in a partnership without limited partners to persons other than
the Partnership and the other partners. Generally speaking, any such partner is
fully liable for any and all of the debts or other obligations of the
partnership as and to the extent the partnership is either unable or fails to
meet such obligations. Thus, the assets of the General Partner may be reached
by creditors of the Partnership to satisfy obligations or other liabilities of
the Partnership, other than nonrecourse liabilities, to the extent the assets of
the Partnership are insufficient to satisfy such obligations or liabilities.
The Delaware Act provides that: "Subject to such standards and restrictions, if
any, as set forth in its partnership agreement, a limited partnership may, and
shall have the power to, indemnify and hold harmless any partner or other person
from and against any and all claims and demands whatsoever." The Partnership
Agreement provides that the General Partner and its affiliates who perform
services for the Partnership on behalf of the General Partner (within the scope
of its authority as the General Partner of the Partnership) will not be liable
to the Partnership or the limited partners for liabilities, costs and expenses
incurred as a result of any act or omission of the General Partner or such
person provided (i) such acts or omissions were determined by the General
Partner or such person, in good faith, to be in the best interest of the
Partnership and such acts or omissions were within the General Partner's
authority; and (ii) the conduct of the General Partner or such person did not
constitute negligence, fraud, misconduct or breach of fiduciary duty to the
Partnership or any partner.
The Partnership Agreement also provides that the General Partner and such
persons will be indemnified out of Partnership assets against any loss,
liability or expense arising out of any act or omission determined by the
General Partner or such person, in good faith, to be in the best interest of the
Partnership and such act or omission within the General Partner's authority so
long as such conduct did not constitute negligence, misconduct, fraud or a
breach of a fiduciary duty. The Partnership, however, may indemnify the General
Partner or any other person for losses, costs and expenses incurred in
successfully defending or settling claims arising out of alleged securities laws
violations only if certain specific additional requirements are met. The
Partnership Agreement provides that any indemnification obligation shall be paid
solely out of the assets of the Partnership.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to partners and controlling persons of the registrant
pursuant to the foregoing provisions or otherwise, the registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act, and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid in the successful defense or any action, suit or proceeding) is asserted
against the registrant by such a person in connection with the securities
registered hereby, and if the Securities and Exchange Commission is still of the
same opinion, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
19
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ITEM 13. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
INDEX PAGE
- ----- ----
<S> <C>
Financial Statements of the Fairfield Inn By Marriott Limited
Partnership as of December 31, 1996 and 1995 and for the
years ended December 31, 1996, 1995 and 1994:
Report of Independent Public Accountants..................... 21
Statement of Operations...................................... 22
Balance Sheet................................................ 23
Statement of Changes in Partners' Capital.................... 24
Statement of Cash Flows...................................... 25
Notes to Financial Statements................................ 26
</TABLE>
20
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE PARTNERS OF FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
We have audited the accompanying balance sheet of Fairfield Inn by Marriott
Limited Partnership (a Delaware limited partnership) as of December 31, 1996 and
1995 (as restated - see Note 2), and the related statements of operations,
changes in partners' capital and cash flows for each of the three years in the
period ended December 31, 1996 (as restated - see Note 2). These financial
statements and the schedule referred to below are the responsibility of the
General Partner's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Fairfield Inn by Marriott
Limited Partnership as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basis
financial statements taken as a whole. The schedule listed in the index at Item
15(a) is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Washington, D.C.
February 28, 1997
21
<PAGE>
STATEMENT OF OPERATIONS
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT PER UNIT AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Inn (Note 3).............................................. $ 47,065 $ 45,262 $ 40,854
-------- -------- --------
OPERATING COSTS AND EXPENSES
Depreciation and amortization............................. 13,239 13,338 14,639
Incentive management fee.................................. 4,898 4,666 4,304
Property taxes............................................ 3,270 3,528 3,542
Fairfield Inn system fee.................................. 2,923 2,751 2,555
Ground rent............................................... 2,627 2,570 2,499
Base management fee....................................... 1,949 1,834 851
Insurance and other....................................... 843 1,560 487
-------- -------- --------
29,749 30,247 28,877
-------- -------- --------
OPERATING PROFIT........................................... 17,316 15,015 11,977
Interest expense........................................... (16,645) (16,585) (16,464)
Interest income............................................ 749 619 313
-------- -------- --------
NET INCOME/(LOSS).......................................... $ 1,420 $ (951) $ (4,174)
======== ======== ========
ALLOCATION OF NET INCOME/(LOSS)
General Partner........................................... $ 14 $ (10) $ (42)
Limited Partners.......................................... 1,406 (941) (4,132)
-------- -------- --------
$ 1,420 $ (951) $ (4,174)
======== ======== ========
NET INCOME/(LOSS) PER LIMITED PARTNER UNIT (83,337 UNITS).. $ 17 $ (11) $ (50)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
BALANCE SHEET
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
DECEMBER 31, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
Property and equipment, net................................................. $164,148 $172,099
Deferred financing and organization costs, net of accumulated amortization.. 4,622 644
Property improvement fund................................................... 3,115 2,641
Due from Marriott International, Inc. and affiliates........................ 3,079 3,057
Cash and cash equivalents................................................... 10,028 7,040
-------- --------
Total Assets............................................................... $184,992 $185,481
======== ========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Mortgage debt............................................................... $164,847 $164,850
Due to Marriott International, Inc. and affiliates.......................... 13,451 11,199
Accounts payable and accrued liabilities.................................... 4,928 668
-------- --------
Total Liabilities.......................................................... 183,226 176,717
-------- --------
PARTNERS' CAPITAL
General Partner
Capital contribution, net of offering costs of $1,109...................... 813 813
Capital distributions...................................................... (509) (425)
Cumulative net losses...................................................... (236) (250)
-------- --------
68 138
-------- --------
Limited Partners
Capital contributions, net of offering costs of $7,250..................... 75,479 75,479
Capital distributions...................................................... (50,436) (42,102)
Cumulative net losses...................................................... (23,345) (24,751)
-------- --------
1,698 8,626
-------- --------
Total Partners' Capital.................................................... 1,766 8,764
-------- --------
$184,992 $185,481
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<PAGE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
-------- --------- --------
<S> <C> <C> <C>
Balance, December 31, 1993............................................... $358 $30,367 $30,725
Capital distributions.................................................. (84) (8,334) (8,418)
Net loss............................................................... (42) (4,132) (4,174)
---- ------- -------
Balance, December 31, 1994............................................... 232 17,901 18,133
Capital distributions.................................................. (84) (8,334) (8,418)
Net loss............................................................... (10) (941) (951)
---- ------- -------
Balance, December 31, 1995............................................... 138 8,626 8,764
Capital distributions.................................................. (84) (8,334) (8,418)
Net income............................................................. 14 1,406 1,420
---- ------- -------
Balance, December 31, 1996............................................... $ 68 $ 1,698 $ 1,766
==== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
24
<PAGE>
STATEMENT OF CASH FLOWS
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............................................. $ 1,420 $ (951) $(4,174)
Noncash items:
Depreciation and amortization................................. 13,239 13,338 14,639
Deferred management fee....................................... 2,470 2,857 3,429
Amortization of deferred financing costs as interest expense.. 646 644 523
Loss on disposal of equipment................................. - 591 301
Straight-line ground rent adjustment.......................... - - 246
Changes in operating accounts:
Accounts payable and accrued liabilities...................... (27) 279 (16)
Due to/from Marriott International, Inc. and affiliates....... (240) (401) (278)
------- ------- -------
Cash provided by operations................................ 17,508 16,357 14,670
------- ------- -------
INVESTING ACTIVITIES
Additions to property and equipment, net....................... (5,288) (4,495) (5,552)
Change in property improvement fund............................ (474) (1,203) 389
------- ------- -------
Cash used in investing activities.......................... (5,762) (5,698) (5,163)
------- ------- -------
FINANCING ACTIVITIES
Capital distributions.......................................... (8,418) (8,418) (8,418)
Payment of financing costs..................................... (337) - -
Repayment of mortgage debt..................................... (3) - -
------- ------- -------
Cash used in financing activities.......................... (8,758) (8,418) (8,418)
------- ------- -------
INCREASE IN CASH AND CASH EQUIVALENTS........................... 2,988 2,241 1,089
CASH AND CASH EQUIVALENTS at beginning of year.................. 7,040 4,799 3,710
------- ------- -------
CASH AND CASH EQUIVALENTS at end of year........................ $10,028 $ 7,040 $ 4,799
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage interest................................ $15,941 $15,941 $15,941
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
DECEMBER 31, 1996 AND 1995
NOTE 1. THE PARTNERSHIP
Description of the Partnership
Fairfield Inn by Marriott Limited Partnership (the "Partnership"), a Delaware
limited partnership, was formed to acquire, own and operate 50 Fairfield Inn by
Marriott properties (the "Inns") located in sixteen states and the land on which
18 of the Inns are situated. The Partnership leases the land underlying 32 of
the Inns from Marriott International, Inc. ("MII") and certain of its affiliates
(the "Land Leases"). Of the Partnership's 50 Inns, seven are located in each of
Georgia and North Carolina; six in Michigan; four in each of Florida, Illinois,
and Ohio; and three or less in each of the other ten states. On December 29,
1995, Host Marriott Corporation's operations were divided into two separate
companies: Host Marriott Corporation ("Host Marriott") and Host Marriott
Services Corporation. The sole general partner of the Partnership, with a 1%
interest, is Marriott FIBM One Corporation (the "General Partner"), a Delaware
corporation and a wholly-owned subsidiary of Host Marriott. The Inns are
managed by Fairfield FMC Corporation (the "Manager"), a wholly-owned subsidiary
of MII, as part of the Fairfield Inn by Marriott hotel system.
The Partnership was formed on August 23, 1989, and operations commenced on July
31, 1990 (the "Closing Date"). Between November 17, 1989, and the Closing Date,
83,337 limited partnership interests (the "Units") were sold in a public
offering. The offering price per unit was $1,000. The General Partner
contributed $841,788 for its 1% general partnership interest and $1.1 million to
establish the initial working capital reserve of the Partnership at $1.5 million
(as required in the partnership agreement). In addition, the General Partner
has a 10% limited partnership interest through the purchase of Units on the
Closing Date.
On November 17, 1989, the Partnership executed a purchase agreement (the
"Purchase Agreement") with Host Marriott to acquire the Inns and the land on
which 18 Inns are situated for $235.5 million. The total purchase price was
paid from proceeds of the mortgage financing and sale of the Units.
Partnership Allocations and Distributions
Partnership allocations and distributions are generally made as follows:
a. Cash available for distribution for each fiscal year will be distributed
quarterly as follows: (i) 99% to the limited partners and 1% to the General
Partner (collectively, the "Partners") until the Partners have received, with
respect to such fiscal year, an amount equal to the Partners' Preferred
Distribution (9% of the excess of original cash contributions over cumulative
distributions of net refinancing and sales proceeds ("Capital Receipts") on
an annualized basis in 1990, 9.5% in 1991 and 1992 and 10% for each year
thereafter); (ii) remaining cash available for distribution will be
distributed as follows, depending on the amount of Capital Receipts
previously distributed:
1) 99% to the limited partners and 1% to the General Partner, if the Partners
have received aggregate cumulative distributions of Capital Receipts of
less than 50% of their original capital contributions; or
2) 90% to the limited partners and 10% to the General Partner, if the
Partners have received aggregate cumulative distributions of Capital
Receipts equal to or greater than 50% but less than 100% of their original
capital contributions; or
3) 80% to the limited partners and 20% to the General Partner, if the
Partners have received aggregate cumulative distributions of Capital
Receipts equal to 100% or more of their original capital contributions.
b. Refinancing proceeds and sale proceeds from the sale or other disposition of
less than substantially all of the assets of the Partnership will be
distributed (i) 99% to the limited partners and 1% to the General Partner
until the Partners have
26
<PAGE>
received the then outstanding Partners' 12% Preferred Distribution, as
defined, and cumulative distributions of Capital Receipts equal to 100% of
their original capital contributions; and (ii) thereafter, 80% to the limited
partners and 20% to the General Partner.
c. Sale proceeds from the sale of substantially all of the assets of the
Partnership will be distributed to the Partners pro-rata in accordance with
their capital account balances as adjusted to take into account gain or loss
resulting from such sale.
d. Net profits for each fiscal year generally will be allocated in the same
manner in which cash available for distribution is distributed. Net losses
for each fiscal year generally will be allocated 99% to the limited partners
and 1% to the General Partner.
e. Gains recognized by the Partnership generally will be allocated in the
following order of priority: (i) to those Partners whose capital accounts
have negative balances until such negative balances are brought to zero;
(ii) to all Partners up to the amount necessary to bring the Partners'
capital account balances to an amount equal to their pro-rata share of the
Partners' 12% Preferred Distribution, as defined, plus their Net Invested
Capital, as defined; and (iii) thereafter, 80% to the limited partners and
20% to the General Partner.
f. For financial reporting purposes, profits and losses are allocated among the
Partners based on their stated interests in cash available for distribution.
Fiscal Year
The Company's fiscal year ends on the Friday nearest to December 31. Fiscal
year 1996 included 53 weeks compared to 52 weeks for fiscal years 1995 and 1994.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Restatement
Subsequent to the issuance of its 1995 financial statements, the Partnership
discovered a computational error in the amount of incentive management fees
recorded in 1993, 1994 and 1995. The 1996 financial statements have been
restated to correct this error, the effect of which increased the previously
reported losses by $337,000, $338,000 and $418,000 to $6,295,000, $4,174,000 and
$951,000 in 1993, 1994 and 1995, respectively.
Reclassifications
Certain reclassifications were made to prior year financial statements to
conform to the 1996 presentation.
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.
Working Capital and Supplies
Pursuant to the terms of the Partnership's management agreement discussed in
Note 8, the Partnership is required to provide the Manager with working capital
and supplies to meet the operating needs of the Inns. The Manager converts cash
advanced by the Partnership into other forms of working capital consisting
primarily of operating cash, inventories, and trade receivables and payables
which are maintained and controlled by the Manager. Upon the termination of the
management agreement, the Manager is required to convert working capital and
supplies into cash and return it to the Partnership. As a result of these
27
<PAGE>
conditions, the individual components of working capital and supplies controlled
by the Manager are not reflected in the accompanying balance sheet.
Revenues and Expenses
Inn revenues represent house profit of the Partnership's Inns since the
Partnership has delegated substantially all of the operating decisions related
to the generation of house profit of the Inns to the Manager. House profit
reflects Inn operating results which flow to the Partnership as property owner
and represents gross Inn sales less property-level expenses, excluding
depreciation and amortization, Fairfield Inn system, base and incentive
management fees, real and personal property taxes, ground and equipment rent,
insurance and certain other costs, which are disclosed separately in the
statement of operations (see Note 3).
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets as follows:
Land improvements 30 years
Leasehold improvements 30 years
Building and improvements 30 years
Furniture and equipment 4 to 10 years
All property and equipment is pledged as security for the mortgage debt
described in Note 6.
The Partnership assesses impairment of its real estate properties based on
whether estimated future undiscounted cash flows from such properties on an
individual property basis will be less than their net book value. If a property
is impaired, its basis is adjusted to fair market value.
Deferred Financing and Organization Costs
Deferred financing costs represent the costs incurred in connection with
obtaining the mortgage debt (see Note 6) and are amortized over the term
thereof. Organization costs incurred in the formation of the Partnership were
amortized using the straight-line method over five years and were fully
amortized as of December 31, 1995. As of December 31, 1996, the Partnership
incurred approximately $4,622,000 of costs in connection with the proposed
refinancing (see Note 6). At December 31, 1996 and 1995, accumulated
amortization of deferred financing costs totaled $3,513,000 and $2,867,000,
respectively.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.
Ground Rent
The Land Leases with MII or affiliates (see Note 7) include scheduled increases
in minimum rents per property. These scheduled rent increases, which are
included in minimum lease payments, are being recognized by the Partnership on a
straight-line basis over the 99 year term of the leases. The adjustment
included in ground rent expense and Due to Marriott International, Inc. and
affiliates to reflect minimum lease payments on a straight-line basis was a
decrease of $218,000 for each of the years ended December 31, 1996 and 1995, and
was an increase of $246,000 for the year ended December 31, 1994. Deferred
ground rent as of December 31, 1996 and 1995 was $665,000 and $883,000,
respectively.
Income Taxes
Provision for Federal and state income taxes has not been made in the
accompanying financial statements since the Partnership does not pay income
taxes, but rather, allocates profits and losses to the individual Partners.
Significant differences exist between the net income (loss) for financial
reporting purposes and the net income (loss) as reported in the Partnership's
tax
28
<PAGE>
return. These differences are due primarily to the use for income tax
purposes of accelerated depreciation methods, shorter depreciable lives of the
assets and differences in the timing of recognition of certain fees and
straight-line rent adjustments. As a result of these differences, the excess of
the net assets reported in the accompanying financial statements over the
Partnership's tax basis in net assets is $2,013,000 and $9,588,000 as of
December 31, 1996 and 1995, respectively.
New Statement of Financial Accounting Standards
In the first quarter of 1996, the Partnership adopted Statement of Financial
Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of." Adoption of SFAS No.
121 did not have an effect on its financial statements.
NOTE 3. REVENUES
Partnership revenues consist of Inn operating results for the three years ended
December 31 (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
SALES................................... $ 97,441 $ 91,693 $ 85,153
-------- -------- --------
EXPENSES
Departmental Direct Costs
Rooms................................ 49,109 45,239 43,295
Chain Services....................... 1,267 1,192 1,004
-------- -------- --------
50,376 46,431 44,299
-------- -------- --------
REVENUES................................ $ 47,065 $ 45,262 $ 40,854
======== ======== ========
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Land and improvements................................. $ 37,134 $ 36,958
Leasehold improvements................................ 89,056 89,056
Building and improvements............................. 57,247 52,957
Furniture and equipment............................... 67,007 66,185
--------- ---------
250,444 245,156
Less accumulated depreciation and amortization........ (86,296) (73,057)
--------- ---------
$ 164,148 $ 172,099
========= =========
</TABLE>
NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments are shown below. The fair
values of financial instruments not included in this table are estimated to be
equal to their carrying amounts.
<TABLE>
<CAPTION>
As of December 31, 1996 As of December 31, 1995
----------------------- -----------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
---------- ----------- ---------- -----------
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Mortgage debt..................................... $164,847 $164,847 $164,850 $164,850
Management fees due to Fairfield FMC Corporation.. $ 12,786 $ 843 $ 10,316 $ 1,017
</TABLE>
29
<PAGE>
The estimated fair value of the mortgage debt is based on the expected future
debt service payments discounted at estimated market rates. Management fees due
to Fairfield FMC Corporation (included in Due to Marriott International, Inc.
and affiliates on the accompanying balance sheet) are valued based on the
expected future payments from operating cash flow discounted at risk adjusted
rates.
NOTE 6. DEBT
Mortgage Debt
On July 31, 1990, the Partnership borrowed $164.9 million, bearing a fixed
interest rate of 9.67%, pursuant to the terms of a non-recourse mortgage loan
agreement (the "Mortgage Debt") to finance a portion of the purchase price of
the Inns. The Mortgage Debt required semi-annual interest payments with no
principal payments required through maturity. Although the Mortgage Debt
matured on December 31, 1996, the Partnership was unable to refinance the debt
until January 13, 1997 (see Note 9). During the period of December 31, 1996
through January 13, 1997, the existing Mortgage Debt bore interest at a default
rate of 12.67%.
The Mortgage Debt was secured by a first mortgage on the Partnership's fee or
leasehold interest in each Inn, a security interest in all personal property
associated with the Inns and a security interest in the Partnership's rights
under the management agreement, the Purchase Agreement, and the Land Leases.
NOTE 7. LAND LEASES
The land on which 32 of the Inns are situated is leased by the Partnership from
MII or its affiliates. The Land Leases expire on November 30, 2088 and provide
that the Partnership will pay annual rents equal to the greater of a specified
minimum rent for each property or a percentage rent based on gross sales of the
Inn operated thereon. The minimum rentals are adjusted at various anniversary
dates through 1999, as defined in the agreements. The minimum rentals are
adjusted annually for the remaining life of the leases based on changes in the
Consumer Price Index. The percentage rent, which also varies from property to
property, is fixed at predetermined percentages of gross sales that increase
over time.
Minimum future rental payments during the term of the Land Leases are as follows
(in thousands):
<TABLE>
<CAPTION>
Lease Year Minimum Rental
------------ --------------
<S> <C>
1997 $ 2,659
1998 2,659
1999 2,659
2000 2,659
2001 2,659
Thereafter 231,333
--------
$244,628
========
</TABLE>
Total rental expense on the Land Leases was $2,627,000 for 1996, $2,570,000 for
1995 and $2,499,000 for 1994.
Under the terms of the Land Leases, during any fiscal year from 1993 through
1996, the payment of rental expense was subordinate to an $8.4 million annual
return to the Partnership. Any rent that was not paid currently as a result of
such subordination was payable out of Capital Receipts remaining after the
Partnership's payment or retention of certain priority returns and other
amounts. No rental expense was subordinated for 1993 through 1996.
Subsequent to year-end, the Land Leases were amended (see Note 9).
30
<PAGE>
NOTE 8. MANAGEMENT AGREEMENT
The Manager operates the Inns pursuant to a long-term management agreement (the
"Management Agreement") with an initial term expiring on December 31, 2009. The
Manager may renew the Management Agreement, as to one or more of the Inns at its
option, for up to five additional 10-year terms plus one five-year term. The
Partnership may terminate the Management Agreement after December 1995 if
specified minimum operating results are not achieved. However, the Manager may
prevent termination by paying the Partnership the amount by which the minimum
operating results were not achieved.
The Manager earns a base management fee equal to 1% of gross sales from Inn
operations for each fiscal year through 1994 and 2% of gross sales from Inn
operations for each fiscal year thereafter. For the years 1993 through 1996,
payment of the base management fee was subordinate to an $8.4 million annual
return to the Partnership subject to certain aggregate limitations when combined
with ground rent deferrals for the same period. The maximum amount of base
management fees and ground rent to be subordinated during this four-year period
was limited to $8,000,000. Any base management fees that were not paid
currently as a result of such subordination were payable out of Capital Receipts
subject to the Partnership payment or retention of certain priority returns and
other amounts. As of December 31, 1996, no base management fees or ground rent
were deferred. The Management Agreement also provides for payment of a
Fairfield Inn system fee equal to 3% of gross sales from Inn operations.
In addition, the Manager is entitled to an incentive management fee equal to 15%
of Operating Profit, as defined, increasing to 20% after the Inns have achieved
total Operating Profit during any 12 month period equal to or greater than $33.9
million. The incentive management fee is payable out of 50% of cash flow from
operations remaining after payment of ground rent, debt service, partnership
administrative expenses and the owner's priority return, as defined. In
accordance with the Management Agreement, incentive management fees through 1992
were waived by the Manager, as cash flow available for incentive management
fees, as defined, was insufficient to pay the fees. Incentive management fees
earned after 1992 accrue and are payable as outlined above or from Capital
Receipts. During 1996, 1995 and 1994, the Manager deferred $2,470,000,
$2,857,000 and $3,429,000 of incentive management fees, respectively.
Cumulative deferred incentive management fees at December 31, 1996 and 1995 were
$12,786,000 and $10,316,000, respectively.
The Manager is required to furnish certain services ("Chain Services") which are
furnished generally on a central or regional basis to all managed or owned Inns
in the Fairfield Inn by Marriott hotel system. The total amount of Chain
Services allocated to the Partnership for the years ended December 31, 1996,
1995 and 1994 was $1,267,000, $1,192,000 and $1,004,000, respectively. In
addition, the Manager maintains a marketing fund to pay the costs associated
with certain system-wide advertising, marketing, sales, promotional and public
relations materials and programs. Each Inn within the system contributes 2.5%
of gross Inn sales to the marketing fund. The Manager has no ownership interest
in the marketing fund. For the years ended December 31, 1996, 1995 and 1994,
the Partnership contributed $2,436,000, $2,292,000 and $2,129,000, respectively,
to the marketing fund.
The Partnership is required to provide the Manager with working capital to meet
the operating needs of the Inns. Upon termination of the Management Agreement,
the working capital will be returned to the Partnership. As of December 31,
1996 and 1995, $1,000,000 had been advanced to the Manager for working capital
and is included in Due from Fairfield FMC Corporation on the accompanying
balance sheet.
The Management Agreement provides for the establishment of a property
improvement fund for the Inns to cover (a) the cost of certain non-routine
repairs and maintenance to the Inns which are normally capitalized; and (b) the
cost of replacements and renewals to the Inns' property and improvements.
Contributions to the property improvement fund are based on a percentage of
gross sales of each Inn equal to 6% for 1996, 1995 and 1994. For the years
ended December 31, 1996, 1995 and 1994, the Partnership contributed $5,846,000,
$5,502,000 and $5,109,000, respectively, to the property improvement fund.
Subsequent to year-end, the Management Agreement was amended (see Note 9).
31
<PAGE>
NOTE 9. SUBSEQUENT EVENT
Mortgage Debt
On January 13, 1997 (the "Refinancing Date") the Mortgage Debt was successfully
refinanced with a new third party lender. The principal amount of the
Partnership's refinanced debt was increased from $164.8 million to $165.4
million. Proceeds from the new loan were used to repay the existing mortgage
debt and pay refinancing costs. The refinanced debt continues to be non-
recourse, bears interest at a fixed rate of 8.40% and requires monthly payments
of principal and interest based upon a 20-year amortization schedule for a 10-
year term expiring January 11, 2007. Thereafter, until the final maturity date
of January 11, 2017, interest is payable at an adjusted rate, as defined, and
all excess cash flow is applied toward principal amortization.
Debt maturities under the refinanced mortgage are as follows (in thousands):
<TABLE>
<S> <C>
1997 $ 3,002
1998 3,639
1999 3,912
2000 4,253
2001 4,625
Thereafter 145,969
--------
$165,400
========
</TABLE>
The refinanced mortgage debt is secured by first mortgages on all of the Inns,
the land on which they are located, or an assignment of the Partnership's
interest under the Land Leases, including ownership interest in all improvements
thereon, fixtures and personal property related thereto.
As part of the refinancing, the Partnership is required to establish various
reserves for capital expenditures, working capital, debt service and insurance
needs. On the Refinancing Date, the Partnership established reserves totalling
$3.9 million for certain capital expenditure items. The funds will be expended
during 1997 for various renewals and replacements, site improvements, Americans
with Disabilities Act of 1990 modifications and environmental studies undertaken
in conjunction with the refinancing. Additionally, the Partnership is required
to deposit two months' debt service payments, or $2,850,000, into a debt service
reserve payable in 12 equal consecutive monthly installments commencing on March
11, 1997. The Partnership is also required to deposit $161,000 into a ground
rent reserve payable in six equal monthly installments commencing on March 11,
1997. The Partnership is also obligated to fund $300,000 into an earthquake
restoration reserve account, payable in 3 consecutive monthly installments
commencing on January 31, 1997. Transfers from this fund are to be made in
conjunction with any damages (not covered by insurance) suffered from
earthquakes to the two Inns located in California.
In addition, the Partnership has entered into a Working Capital Maintenance and
Supplemental Debt Service Agreement ("Agreement") with the Manager, effective
January 13, 1997. As part of this Agreement, the Partnership has agreed to
furnish the Manager additional working capital to be deposited into a segregated
interest bearing account (the "Working Capital Reserve"). The Working Capital
Reserve is to be funded from Operating Profit, as defined, retained by or
distributed to the Partnership as such amounts become available, until the
Working Capital Reserve reaches $670,000. This Agreement also requires the
funding of another segregated account for debt service shortfalls (the
"Supplemental Debt Service Reserve"). This reserve is also to be funded out of
Operating Profit retained or distributed to the Partnership as such amounts
become available, until the Supplemental Debt Service Reserve reaches
$1,425,000.
The lender is currently working on the securitization of the mortgage debt
through the issuance and sale of commercial mortgage-backed securities. In
connection with the securitization, the Partnership may be required to establish
additional reserves.
32
<PAGE>
Management Agreement
The Management Agreement (see Note 8) has also been amended in conjunction with
the refinancing, effective January 13, 1997. Per the amendment, the initial
term of the Management Agreement has been extended ten years from December 31,
2009 to December 31, 2019. However, the renewal period has been shortened. The
Manager may renew the Management Agreement, as to one or more of the Inns at its
option, for up to four successive periods of ten years and one period of five
years. The amendment also reduces the owner's priority return, as defined, by
the amount of any outstanding advances by the Manager for working capital needs
or funding of shortfalls in the debt service reserve account. These loans bear
interest at 1% above the prime rate. Additionally, the amendment increases the
amount of the contribution to the property improvement fund by 1% of gross sales
of each Inn. Commencing in 1997 and for all fiscal years thereafter, the
Partnership will contribute 7% of gross sales of each Inn. However, if the
Manager determines 7% exceeds the amount needed for making capital expenditures,
then the Manager can adjust the incentive management fee calculation to exclude
as a deduction in calculating incentive fees up to 1 percentage point of
contributions to the property improvement fund.
Land Leases
Additionally, the Land Leases (see Note 7) have also been amended beginning in
1997. Until the refinanced mortgage debt is repaid, the payment of rental
expense exceeding 3% of gross sales from the 32 leased Inns in the aggregate
shall be deferred in any fiscal year that cash flow is less than regularly
scheduled principal and interest payments on the mortgage debt.
33
<PAGE>
ITEM 14. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) The financial statements filed as a part of this Form 10 are
listed in Item 13 on Page 20.
Supplementary Financial Statement Schedules - Page
----
Fairfield Inn By Marriott Limited Partnership
III. Real Estate and Accumulated Depreciation 35
Schedules I through V inclusive, other than those listed above, are omitted
because of the absence of conditions under which they are required or because
the required information is included in the financial statements or notes
thereto.
(b) Exhibits
2.a Amended and Restated Agreement of Limited Partnership of
Fairfield Inn by Marriott Limited Partnership by and among
Marriott FIBM One Corporation (General Partner), Christopher, G.
Townsend (Organizational Limited Partner), and those persons who
become Limited Partners (Limited Partners) dated July 31, 1990.
10.a Management Agreement by and between Fairfield Inn by Marriott
Limited Partnership (Owner) and Fairfield FMC Corporation
(Management Company) dated November 17, 1989.
10.b First Amendment to Management Agreement by and between Fairfield
Inn by Marriott Limited Partnership (Owner), Fairfield FMC
Corporation (Management Company) dated July 31, 1990.
10.c Second Amendment to Management Agreement by and between Fairfield
Inn by Marriott Limited Partnership (Owner) and Fairfield FMC
Corporation (Manager) dated January 13, 1997.
10.d Master Indenture of Mortgage, Deed of Trust, Deed to Secure Debt,
Assignment of Rents and Fixture Filing from Fairfield Inn by
Marriott Limited Partnership (Borrower) to Sumitomo Trust &
Banking Co., Ltd., New York Branch (Bank) dated July 31, 1990.
10.e Debt Service Guaranty Agreement by Marriott Corporation
(Guarantor) to Sumitomo Trust & Banking Co., Ltd., New York
Branch dated July 31, 1990.
10.f Modification of Credit Agreement and Guaranty of Management
Agreement between The Sumitomo Trust & Banking Co., Ltd. (Bank)
and Fairfield Inn by Marriott Limited Partnership (Borrower)
dated February 1, 1995.
10.g Loan Agreement between Fairfield Inn by Marriott Limited
Partnership and Nomura Asset Capital Corporation dated January
13, 1997.
10.h Secured Promissory Note made by Fairfield Inn by Marriott Limited
Partnership (the "Maker") to Nomura Asset Capital Corporation
(the "Payee") dated January 13, 1997.
27 Financial Data Schedule
34
<PAGE>
SCHEDULE III
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
Initial Costs Gross Amount at December 31, 1996
--------------------- ---------------------------------------------
Subsequent
Buildings & Costs Buildings & Accumulated
Description Encumbrances Land Improvements Capitalized Land Improvements Total Depreciation
- ------------------ ------------ ------- ------------ ----------- ------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
50 Fairfield Inn
By Marriott Inns
each less than
5% of total $ 164,847 $36,754 $ 137,734 $ 8,949 $37,134 $ 146,303 $183,437 $ 39,888
============ ======= ============ =========== ======= ============ ======== ============
</TABLE>
<TABLE>
<CAPTION>
Date of
Completion of Date Depreciation
Construction Acquired Life
------------- ---------- ------------
<S> <C> <C> <C>
50 Fairfield Inn by 1987 - 1990 1987- 1990 30 years
Marriott Inns
</TABLE>
<TABLE>
<CAPTION>
Notes:
- ------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
(a) Reconciliation of Real Estate:
Balance at beginning of year................. $175,331 $177,862 $178,971
Capital Expenditures......................... 2,531 1,109 4,466
Dispositions................................. -- -- --
-------- -------- --------
Balance at end of year....................... $177,862 $178,971 $183,437
======== ======== ========
(b) Reconciliation of Accumulated Depreciation:
Balance at beginning of year................. $ 20,044 $ 26,387 $ 32,988
Depreciation................................. 6,343 6,601 6,900
-------- -------- --------
Balance at end of year....................... $ 26,387 $ 32,988 $ 39,888
======== ======== ========
(c) The aggregate cost of land, buildings and
improvements for Federal income tax purposes
is approximately $180.6 million at December 31,
1996.
(d) The Debt balance is $164.8 million as of
December 31, 1996.
</TABLE>
35
<PAGE>
SIGNATURES
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 to be signed on its
behalf by the undersigned, thereunto duly authorized, on this 29 of January,
1998.
FAIRFIELD INN BY MARRIOTT
LIMITED PARTNERSHIP
By: FIBM ONE CORPORATION
General Partner
/s/ Bruce F. Stemerman
------------------------------------------
Bruce F. Stemerman
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
the capacities and on the date indicated above.
Signature Title
- --------- -----
(FIBM ONE CORPORATION)
/s/ Bruce F. Stemerman President and Director
- -------------------------------- (Principal Executive Officer)
Bruce F. Stemerman
/s/ Christopher G. Townsend Vice President, Secretary and Director
- --------------------------------
Christopher G. Townsend
/s/ Earla L. Stowe Vice President and Chief Accounting Officer
- --------------------------------
Earla L. Stowe
/s/ Bruce Wardinski Treasurer
- --------------------------------
Bruce Wardinski
36
<PAGE>
EXHIBIT 2.a
AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE ONE DEFINED TERMS...........................................................................1
ARTICLE TWO FORMATION, NAME, PLACE OF BUSINESS, PURPOSE AND TERM....................................8
2.01. Formation................................................................................8
2.02. Name and Offices.........................................................................8
2.03. Purposes.................................................................................8
2.04. Term.....................................................................................8
2.05. Registered Agent for Service of Process..................................................8
2.06. Certificate of Limited Partnership.......................................................8
ARTICLE THREE PARTNERS AND CAPITAL..................................................................9
3.01. General Partner..........................................................................9
3.02. Organizational Limited Partner...........................................................9
3.03. Limited Partners.........................................................................9
3.04. Capital Contribution by General Partner..................................................9
3.05. Capital Contributions by Limited Partners; Withholding Taxes.............................10
3.06. Additional Issuances of Units and Capital Contributions; Fractional Units................11
3.07. Capital Accounts.........................................................................11
3.08. Liability of the Limited Partners........................................................11
3.09. Liability of the General Partner.........................................................11
3.10. Unit Certificates........................................................................11
3.11. Initial Working Capital Reserve..........................................................12
ARTICLE FOUR ALLOCATIONS OF PROFITS AND LOSSES: DISTRIBUTIONS OF CASH AND CERTAIN PROCEEDS..........12
4.01. Allocation of Net Profits................................................................12
4.02. Allocation of Net Losses.................................................................13
4.03. Allocations of Gain and Loss.............................................................13
4.04. Allocation Among Limited Partners of Net Profits, Gains, Net Losses, and Losses..........13
4.05. Distribution of Cash Available for Distribution..........................................14
4.06. Distribution of Refinancing Proceeds.....................................................14
4.07. Distribution of Sale Proceeds............................................................15
4.08. Distribution Among Limited Partners of Cash Available for Distribution, Refinancing
Proceeds, and Sale Proceeds............................................................15
4.09. Section 754 Adjustments..................................................................15
4.10. Special Allocations......................................................................16
4.11. Operating Rules..........................................................................18
ARTICLE FIVE RIGHTS, POWERS, AND DUTIES OF THE GENERAL PARTNER......................................19
5.01. Authority of the General Partner to Manage the Partnership...............................19
5.02. Restrictions on Authority of the General Partner.........................................23
5.03. Duties and Obligations of the General Partner............................................26
5.04. Compensation of General Partner..........................................................28
5.05. Other Business of Partners...............................................................29
5.06. Limitation on Liability of General Partner; Indemnification..............................29
5.07. Designation of Tax Matters Partner and Designated Person for Purposes of Investor List...30
5.08. Other Limitations........................................................................32
ARTICLE SIX WITHDRAWAL AND REMOVAL OF GENERAL PARTNER...............................................34
6.01. Limitation on Voluntary Withdrawal.......................................................34
6.02. Bankruptcy or Dissolution of the General Partner.........................................34
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
6.03. Liability of Withdrawn General Partner...................................................35
6.04. Removal of General Partner...............................................................35
6.05. Continuation and Reconstitution..........................................................36
ARTICLE SEVEN ASSIGNABILITY OF UNITS................................................................37
7.01. Restrictions on Assignments..............................................................37
7.02. Assignees and Substituted Limited Partners...............................................39
ARTICLE EIGHT DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP........................................40
8.01. Events Causing Dissolution...............................................................40
8.02. Liquidation..............................................................................41
8.03. Constructive Termination.................................................................42
ARTICLE NINE BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS, ETC.............................42
9.01. Books and Records........................................................................42
9.02. Accounting and Fiscal Year...............................................................43
9.03. Bank Accounts and Investments............................................................43
9.04. Reports..................................................................................43
9.05. Tax Depreciation and Elections...........................................................45
9.06. Interim Closing of the Books.............................................................45
9.07. Information from Limited Partners........................................................45
ARTICLE TEN MEETING AND VOTING RIGHTS OF LIMITED PARTNERS...........................................45
10.01. Meetings................................................................................45
10.02. Special Voting Rights of Limited Partners...............................................46
ARTICLE ELEVEN MISCELLANEOUS PROVISIONS.............................................................48
11.01. Appointment of General Partner as Attorney-in-Fact......................................48
11.02. Amendments..............................................................................48
11.03. General Partner Representations and Warranties..........................................49
11.04. Binding Provisions......................................................................49
11.05. Applicable Law..........................................................................49
11.06. Counterparts............................................................................50
11.07. Separability of Provisions..............................................................50
11.08. Article and Section Titles..............................................................50
11.09. Short Form Filings......................................................................50
11.10. Submissions to State Securities Law Administrators......................................50
</TABLE>
-ii-
<PAGE>
Exhibit 2.a
FORM OF AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP OF
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
This Amended and Restated Agreement of Limited Partnership dated as of
July 31, 1990 and effective as of 12:01 a.m. on the date hereof is made and
entered into by and among Marriott FIBM One Corporation, a Delaware corporation,
as general partner (the "General Partner"), Christopher G. Townsend, as
organizational limited partner (the "Organizational Limited Partner"), and those
Persons who become limited partners of this limited partnership in accordance
with the provisions hereof and are identified as such in the books and records
of the Partnership (the "Limited Partner").
Fairfield Inn by Marriott Limited Partnership (the "Partnership") was
formed pursuant to a Certificate of Limited Partnership dated as of July 21,
1989 filed with the Secretary of State of the State of Delaware on August 23,
1989 and an Agreement of Limited Partnership dated as of July 21, 1989. The
General Partner (in its own capacity and as attorney-in-fact for the Limited
Partners) and Christopher G. Townsend, as organizational limited partner,
amended and restated the Agreement of Limited Partnership in its entirety as of
November 17, 1989 and April 17, 1990, and the parties desire to further amend
and restate such Amended and Restated Agreement of Limited Partnership in its
entirety as hereinafter set forth.
In consideration of the mutual agreements made herein, the parties
hereby agree to continue the Partnership as a limited partnership under the
Delaware Revised Uniform Limited Partnership Act (6 Del. C. (S)(S) 17-101, et
seq.), as amended from time to time (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 five weeks
when necessary to conform the accounting system to the calendar.
"Acquisition Expenses" means expenses related to the selection and
acquisition of properties, whether or not acquired, including, without
limitation, legal fees and expenses, travel and communications expenses, costs
of appraisals, costs of engineering and environmental reports with respect to
the Inns, non-refundable option payments on property not acquired, accounting
fees and expenses, Permanent Loan fees and expenses, title insurance, and
miscellaneous expenses related thereto.
"Acquisition Fee" means the total of all fees and commissions paid by
any party in connection with the purchase or development of property by the
Partnership, including, without limitation, any real estate commission,
selection fee, development fee (including the Development Fee), nonrecurring
management fee, or any fee of a similar nature, however designated; provided,
however, that no development fee paid to a Person that is not the General
Partner or an Affiliate in connection with the actual development of a project
after acquisition of the land by the Partnership shall be included.
<PAGE>
"Adjusted Capital Account Deficit" means, with respect to any Partner,
the deficit balance, if any, in such Partner's Capital Account as of the end of
the relevant Fiscal Year, after giving effect to the following adjustments:
(i) Credit to such Capital Account any amounts that such Partner is
obligated to restore pursuant to any provision of this Agreement, is otherwise
treated as being obligated to restore under Section 1.704-1(b)(2)(ii)(c) of the
Treasury Regulations, or is deemed to be obligated to restore pursuant to the
penultimate sentences of sections 1.704-1T(b)(4)(iv)(f) and 1.704-
1T(b)(4)(iv)(h)(5) of the Treasury Regulations (determined after taking into
account any changes during such year in Minimum Gain); and
(ii) Debit to such Capital Account the items described in sections
1.704-1(b)(2)(ii)(d)(4), (5), and (6) of the Treasury Regulations.
"Affiliate" or "Affiliated Persons" 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 or director of, general
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, director,
general partner or trustee, or with respect to which the specified Person serves
in a similar capacity, (iii) any Person for which an officer or director of,
general partner in or trustee of, or individual serving in a similar capacity
with respect to, the specified Person serves in any such capacity, (iv) any
Person that, directly or indirectly, is the beneficial owner of 10% or more of
any class of equity securities (whether voting or nonvoting) 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 (whether voting or nonvoting), and
(v) any relative or spouse of the specified Person who makes his or her home
with that of the specified Person.
"Agency Agreement" means the agency agreement, as amended to the date
hereof, among the Partnership, the General Partner, Marriott, and the Selling
Agent, providing for the offering of the Units by the Selling Agent on a best
efforts, all or none basis.
"Agreement" means this 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 the manner provided for in Section 3.07.
"Capital Contribution" or "Capital Contributions" means, with respect
to any Partner, the total amount of money contributed to the Partnership (prior
to the deduction of any selling commissions or expenses) by such Partner. For
purposes of determining Net Invested Capital and amounts described in Sections
4.06(ii) and 4.07A(ii) only, Capital Contributions shall be deemed to be equal
to $84,178,788 ($83,337,000 with respect to the Limited Partners and $841,788
with respect to the General Partner).
"Capital Priority Amount" means an amount equal to the sum of (i) the
Net Invested Capital of the Partners at the time of determination plus (ii) the
Partners 12% Preferred Distribution at the time of determination.
"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 (other than
Capital Receipts) during such fiscal period (including amounts received pursuant
to the Development Fee Adjustments and borrowings
-2-
<PAGE>
pursuant to the parenthetical contained in Section 5.01C(ii)(c)) plus such
reserves as may be determined by the General Partner, in its reasonable
discretion, as no longer necessary to provide for the foreseeable needs of the
Partnership, less (i) all cash expenditures of the Partnership during such
fiscal period, including, without limitation, operating expenses, ground rent,
debt service, repayment of advances made by the General Partner (or Marriott
under the Limited Debt Service Guarantee) as and when such repayments are
required, any fees for management services, and administrative expenses but
excluding expenditures incurred by the Partnership in connection with a capital
transaction, and (ii) such reserves as may be determined by the General Partner,
in its reasonable discretion, to be necessary to provide for the foreseeable
needs of the Partnership, including, without limitation, for the maintenance,
repair, or restoration of the Inns.
"Certificate of Limited Partnership" means the Certificate of Limited
Partnership, and any and all amendments thereto, filed on behalf of the
Partnership with the Secretary of State of the State of Delaware as required
under the Act.
"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, prior to the
taking of any action with respect to which such Consent is given, or (b) a prior
written approval required or permitted to be given pursuant to this Agreement or
the Act, as the context may require. Unless otherwise specified, "Consent of
the Limited Partners" shall mean Consent of Limited Partners holding, in their
capacity as Limited Partners and not as assignees, a majority of the outstanding
Units; provided, however, if the General Partner or any Affiliate of the General
Partner (other than an individual who acquires Units for his own account or a
trust or other similar entity that acquires Units for the direct benefit of an
individual) owns any Units, then in the case of each matter in which the General
Partner or an Affiliate thereof has an interest, such Units shall not be voted
on any such matter presented to the Limited Partners for a vote, except that in
connection with a decision to continue the business of the Partnership and to
appoint one or more general partners as provided in Section 6.05A, the General
Partner agrees that it will consent in writing to such action.
"Designated Person" means the General Partner.
"Development Fee" means the development fee payable to Marriott
pursuant to the Purchase Agreement in connection with Marriott's development of
the Inns, including concept development, site selection, feasibility studies,
design analysis, development and construction supervision and planning, market
research, and financing of the construction and development of the Inns.
"Development Fee Adjustments" means any reductions of the aggregate
Development Fee payable to Marriott with respect to the Inns pursuant to the
Purchase Agreement.
"Escrow Agreement" means the escrow deposit agreement, dated as of
November 17, 1989, among the Partnership, the General Partner, the Selling
Agent, and Bankers Trust Company, New York, New York, as escrow agent, providing
for the deposit of funds of subscribers in connection with the offering of
Units.
"FF&E" means (i) furniture, fixtures, furnishings, vehicles,
carpeting, and equipment and (ii) routine repairs and maintenance undertaken
subsequent to the opening date of an Inn or addition thereto, the cost of which
would not be expensed under generally accepted accounting principles.
-3-
<PAGE>
"Fiscal Quarter" means, for the respective fiscal periods in any
Fiscal 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 Partners' 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.
"Front-end Fees" means fees and expenses paid by any party for any
services rendered during the Partnership's organizational or acquisition phase,
including Organization and Offering Expenses, Acquisition Fees, Acquisition
Expenses, and any other similar fees, however designated.
"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 (plus any Section 267(d) Gain) (other than the routine sale
or disposition of used FF&E being replaced at an Inn), as reduced by the costs
of such sale or disposition.
"General Partner" means Marriott FIBM One 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 and any
Person admitted as a substitute general partner pursuant to Section 6.01 or
10.02B.
"Ground Leases" means the leases between the Partnership, as tenant,
and Marriott and certain of its affiliates, as landlords, by which the
Partnership will lease the land on which the Inns described in Schedule II to
this Agreement are situated.
"Host" means Host International, Inc., a Delaware corporation and
wholly owned subsidiary of Marriott.
"Inns" means the Fairfield Inn by Marriott hotel properties as
described in Schedule I to this Agreement (or, in lieu thereof, the Fairfield
Inn by Marriott properties substituted therefor in certain circumstances in
accordance with the Purchase Agreement) and the land on which the Inns are
located (or, in the case of the Inns described in Schedule II to this Agreement,
the tenant's interest in the Ground Leases).
"Initial Limited Partners" means each Person purchasing Units in the
Initial Public Offering.
"Initial Public Offering" means the initial public offering of the
Units, as more fully described in the Prospectus and the registration statement
in which the Prospectus is included.
"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
rights and benefits to which a Partner may be entitled as provided in this
Agreement, together with the obligations of such Partner to comply with all the
terms and provisions of this Agreement.
"Investment in Properties" means the amount of Capital Contributions
actually paid or allocated to the purchase, development, construction, or
improvement of properties acquired by the Partnership, including, without
limitation, the purchase of properties, working capital reserves allocable
thereto (except that working capital reserves in excess of 5% of Capital
Contributions shall not be included for this purpose), and other cash payments
such as interest and taxes but excluding Front-end Fees.
-4-
<PAGE>
"Investor List" means that list, required by section 6112 of the Code,
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, the name and tax shelter registration number of the
Partnership, and such other information as may be required by Treasury
Regulations to be included therein.
"IRS" means the Internal Revenue Service.
"Limited Debt Service Guarantee" means the guarantee by Marriott in an
amount not exceeding $16.5 million of interest and principal due and unpaid by
the Partnership under the Loan Agreement.
"Limited Partner" means the Organizational Limited Partner, the
Initial Limited Partners, or any Substituted Limited Partner.
"Loan Agreement" means the credit agreement to be entered into between
the Partnership, as borrower, and Sumitomo Trust & Banking Co., Ltd., New York
Branch, as lender, to provide financing for the Inns.
"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 or disposition of used FF&E
being replaced at an Inn) taking into account costs of such sale or disposition.
"Management Agreement" means that certain management agreement, dated
as of November 17, 1989, between the Partnership and the Manager pursuant to
which the Manager will manage the Inns for the Partnership, as the same may be
amended or supplemented from time to time.
"Manager" means Fairfield FMC Corporation, a Delaware corporation and
wholly owned subsidiary of Marriott, as manager of the Inns.
"Marriott" means Marriott Corporation, a Delaware corporation.
"Minimum Gain" means the amount determined by computing, with respect
to each Nonrecourse Debt, the amount of Gain, if any, that would be realized by
the Partnership if it disposed of (in a taxable transaction) the Partnership
property subject to such liability in full satisfaction thereof (and for no
other consideration), and by then aggregating the amounts so computed. It is
the intent that Minimum Gain be determined in accordance with the provisions of
sections 1.704-1T(b)(4)(iv)(c) of the Treasury Regulations.
"Net Invested Capital" means Capital Contributions reduced by
cumulative distributions of Capital Receipts to the Partners pursuant to
Sections 4.06(ii) and 4.07A(ii). For purposes of determining the average daily
outstanding Net Invested Capital under this Agreement, the Capital Contributions
of the Partners shall be deemed to have been made on July 22, 1990.
"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 or disposition of used FF&E not in connection with the sale of an
Inn and excluding Gains and Losses and items specially allocated under Section
4.10.
"Nonrecourse Debt" means any Partnership liability that is considered
nonrecourse for purposes of section 1.1001-2 of the Treasury Regulations
(without regard to whether such liability
-5-
<PAGE>
is a recourse liability under section 1.752-1T(d)(2) of the Treasury
Regulations) and any Partnership liability for which the creditor's right to
repayment is limited to one or more assets of the Partnership (within the
meaning of section 1.752-1T(d)(3)(ii)(B)(4)(ii) of the Treasury Regulations).
"Nonrecourse Liability" means any Nonrecourse Debt (or portion
thereof) for which no Partner bears (or is deemed to bear) the economic risk of
loss within the meaning of section 1.704-1T(b)(4)(iv)(k)(3) of the Treasury
Regulations.
"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.
"Organizational Limited Partner" means Christopher G. Townsend.
"Organization and Offering Expenses" means those expenses incurred by
the Partnership in connection with preparing the Partnership for registration
and subsequently offering and distributing the Units to the public, including,
without limitation, sales commission paid to broker-dealers in connection with
the distribution of the Units, the financial advisory fee payable pursuant to
the Agency Agreement, and all advertising expenses.
"Partner Nonrecourse Debt" means any Nonrecourse Debt (or portion
thereof) for which a Partner bears (or is deemed to bear) the economic risk of
loss within the meaning of section 1.704-1T(b)(4)(iv)(k)(1) of the Treasury
Regulations.
"Partners" means, collectively, the Limited Partners as constituted
from time to time and the General Partner.
"Partners' Preferred Distribution" means, with respect to each Fiscal
Year, an annual, non-cumulative amount equal to 9% of the average daily
outstanding Net Invested Capital during 1990 (for the period July 22, 1990
through December 31, 1990), 9.5% in 1991 and 1992, and 10% in each Fiscal Year
thereafter.
"Partners' 12% Preferred Distribution" means the excess of (a) the
product of (x) 12% per annum (applied using the simple interest method for the
period from July 22, 1990 through the date for which the determination is being
made on the basis of a 365/366-day year and the actual number of day elapsed)
multiplied by (y) the average daily outstanding Net Invested Capital over (b)
the sum of (i) all previous distributions made to the Partners pursuant to
Sections 4.05(A)(i), 4.05A(ii), 4.06(i), and 4.07A(i) and (ii) 101.01% of all
previous distributions made to the Limited Partners pursuant to Sections
4.05(A)(iii) and 4.05A(iv).
"Partnership" means the limited partnership formed under the Act and
continued by 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.
"Permanent Loan" means the $164,850,000 term loan maturing on or after
December 31, 1996 that the lender has agreed to provide pursuant to the terms of
the Loan Agreement.
"Person" means any individual, partnership, corporation, trust or
other legal entity.
"Prime Rate" means the prime rate announced from time to time by The
First National Bank of Chicago, Chicago, Illinois.
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"Prospectus" means the Partnership's prospectus included in the
registration statement on file with the United States Securities and Exchange
Commission pursuant to the Securities Act of 1933 for the registration of the
offering and sale of the Units in the Initial Public Offering at the time such
registration statement becomes effective, as supplemented.
"Purchase Agreement" means the purchase agreement, dated as of
November 17, 1989, between the Partnership, as purchaser, and Marriott and
certain of its affiliates, as sellers, providing for the purchase by the
Partnership of the Inns, and certain related materials and personal property,
including FF&E, as the same may be amended or supplemented to the date hereof.
"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 Partnership obligations, or borrowed for distributions to
the Partners (other than borrowings pursuant to the parenthetical contained in
Section 5.01C(ii)(c)), including the proceeds of a sale and leaseback on which
no taxable gain is recognized for Federal income tax purposes, after deducting
(i) any expenses incurred in connection therewith, (ii) any amounts applied by
the General Partner toward the payment of any indebtedness, other obligation, or
expense of the Partnership or the creation of any reserves deemed necessary by
the General Partner in its reasonable discretion, and (iii) all amounts then
payable therefrom pursuant to the Management Agreement.
"Safe Harbors" has the meaning set forth in Section 5.03J.
"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, after deducting (A) any expenses incurred in connection
therewith, (B) any amounts applied by the General Partner toward the payment of
any indebtedness, other obligation, or expense of the Partnership or the
creation of any reserves deemed necessary by the General Partner in its
reasonable discretion, (C) any amounts payable pursuant to exercise by the
Partnership of the Site Purchase Options (as defined in the Ground Leases) with
respect to one or more of the Inns subject to the Ground Leases, and (D) all
amounts payable therefrom pursuant to the Management Agreement. Sale Proceeds
shall not include the proceeds from the routine sale or disposition of used FF&E
not in connection with the sale of an Inn.
"Section 267(d) Gain" means gain realized by the Partnership but not
recognized solely by reason of section 267(d) of the Code.
"Selling Agent" means Merrill Lynch, Pierce, Fenner & Smith
Incorporated.
"Sponsor" means any Person directly or indirectly instrumental in
organizing, wholly or in part, the Partnership or any Person who will manage or
participate in the management of the Partnership, and any Affiliate of any such
Person, but does not mean (i) a Person whose only relation with the Partnership
is as that of an independent property manager, whose only compensation is as
such, or (ii) wholly independent third parties such as attorneys, accountants,
and underwriters, whose only compensation is for professional services rendered
in connection with the offering of Units.
"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 Matters Partner" means the General Partner.
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"Total Partnership Distributions" means the total amount of cash and
the fair market value of any property (net of any associated liabilities)
distributed to the Partners pursuant to Sections 4.05 through 4.08.
"Treasury Regulations" means the income tax regulations promulgated by
the Department of Treasury.
"Unit" means a unit of limited partnership interest represented by a
Capital Contribution of $1,000 (determined without reduction for purchase of a
Unit in circumstances where the Selling Agent foregoes all or a portion of the
fees and commissions payable to it) sold in the Initial Public Offering pursuant
to the Prospectus.
"Unit Certificate" means a non-negotiable certificate issued by the
Partnership, substantially in the form of Exhibit A hereto, evidencing the
ownership of one or more Units.
ARTICLE TWO
FORMATION, NAME, PLACE OF BUSINESS, PURPOSE AND TERM
Section 2.01. Formation. The parties have formed and do hereby
continue the Partnership formed as of August 23, 1989 pursuant to the provision
of the Act.
Section 2.02. Name and Offices. The name of the Partnership is and
shall be Fairfield Inn by Marriott Limited Partnership. The principal offices of
the Partnership shall be located at 10400 Fernwood Road, Bethesda, Maryland
20058 or at such other place or places as the General Partner may from time to
time determine, provided that the General Partner shall give the Limited
Partners written notice thereof not later than 60 days after the effective date
of such change of address and shall, if required, amend the Certificate of
Limited Partnership in accordance with the requirements of the Act. The address
of the registered office of the Partnership in the State of Delaware is at 229
South State Street, Dover, County of Kent, Delaware 19901.
Section 2.03. Purposes. The purposes of the Partnership are to invest
in, acquire, own, use, operate or manage the Inns, either as part of the
Fairfield Inn by Marriott system or otherwise, sell, lease, sublease, exchange,
or otherwise dispose of the Inns, and to engage in any other activities related
or incidental thereto.
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, 2088, or until dissolution and
termination prior thereto pursuant to the provisions of Article Eight.
Section 2.05. Registered Agent for Service of Process. The name and
address of the registered agent for service of process on the Partnership in the
State of Delaware is The Prentice Hall Corporation System, Inc., 229 South State
Street, Dover, County of Kent, Delaware 19901.
Section 2.06. Certificate of Limited Partnership. On August 23, 1989,
the General Partner, in accordance with the Act, filed with the Secretary of
State of the State of Delaware a Certificate of Limited Partnership for the
Partnership. If the laws of any jurisdiction in which the Partnership transacts
business so require, the General Partner also shall file with the appropriate
office in that jurisdiction a copy of the Certificate of Limited Partnership and
any other documents necessary for the Partnership to qualify to transact
business in such jurisdiction and shall use its best efforts to file with the
appropriate office in that jurisdiction a copy of other documents necessary to
establish and maintain the Limited Partners' limited liability in such
jurisdiction. The Partners further agree and obligate themselves to execute,
acknowledge, and cause to be filed, in the place or
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places and in the manner prescribed by law, any amendments to the Certificate of
Limited Partnership as may be required, either by the Act, by the laws of a
jurisdiction in which the partnership transacts business, or by this Agreement,
to reflect changes in the information contained therein or otherwise to comply
with the requirements of law for the continuation, preservation, and operation
of the Partnership as a limited partnership under the Act.
ARTICLE THREE
PARTNERS AND CAPITAL
Section 3.01. General Partner. The General Partner of the Partnership
is Marriott FIBM One Corporation, a Delaware corporation and wholly owned
subsidiary of Host, having its principal executive offices at 10400 Fernwood
Road, Bethesda, Maryland 20058, and any Person admitted as a substitute general
partner in accordance with Sections 6.01 or 10.02B.
Section 3.02. Organizational Limited Partner. The Organizational
Limited Partner who is hereby admitted as the organizational limited partner of
the Partnership is Christopher G. Townsend, 10 Paramus Court, North Potomac,
Maryland 20878. Upon admission to the Partnership of the Initial Limited
Partners, the Organizational Limited Partner will withdraw from the Partnership
and receive a return of his Capital Contribution.
Section 3.03. Limited Partners. The names and addresses of the
Limited Partners, the amount of their Capital Contributions, and the number of
Units held by them are set forth in the books and records of the Partnership. A
Person (other than a Person described in Section 7.01(I) or (J)) may be admitted
as an Initial Limited Partner, and shall become bound by this Agreement, if such
Person (or a representative authorized by such Person orally, in writing, or by
other action such as payment for an Interest) executes this Agreement or any
other writing evidencing the intent of such Person to become an Initial Limited
Partner. A Person (including a Person described above) 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, and the books and records reflect such
Person as admitted to the Partnership as a Limited Partner.
Section 3.04. Capital Contribution by General Partner.
A. The General Partner has made a Capital Contribution in the amount
of $1 in cash. Immediately prior to the contributions of the Initial Limited
Partners pursuant to Section 3.05B, the General Partner shall make an additional
Capital Contribution in the amount of $841,788 in cash.
B. In the event that the Partnership makes any tax payment on behalf
of or with respect to the General Partner, except to the extent (i) the
Partnership withholds such payment from a distribution which would otherwise be
made to the General Partner or (ii) the General Partner determines, in its
reasonable discretion, that such payment may be satisfied out of the available
funds of the partnership which would, but for such payment, be distributed to
the General Partner, the General Partner shall contribute to the Partnership an
amount equal to such tax payment within five days of the date such payment is
made.
Section 3.05. Capital Contributions by Limited Partners; Withholding
Taxes.
A. The Organizational Limited Partner heretofore has made a Capital
Contribution in the amount of $99 in cash, which Capital Contribution shall be
returned to the Organizational Limited Partner upon the admission of the Initial
Limited Partners, and the
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Organizational Limited Partner, as such, thereafter shall have no further
rights, claims, or interest as a partner in and to the Partnership.
B. The Partnership intends to make the Initial Public Offering of
83,337 Units for cash and will admit as Initial Limited Partners the Persons
whose subscriptions for such Units are accepted by the General Partner (who may
refuse to accept the subscription of any Person or Persons for any reason
whatsoever). Each such Person shall become a Limited Partner in the Partnership
when (a) such Person has contributed to the capital of the Partnership $1,000 in
cash for each Unit (less any amounts attributable to selling commissions which
the Selling Agent has agreed to forego), each Initial Limited Partner being
required to make an initial purchase of at least five Units ($5,000) (less any
amounts attributable to selling commissions which the Selling Agent has agreed
to forego); (b) such Person or his authorized representative has executed and
filed with the Partnership the subscription documents specified in the
Prospectus, together with such other documents and instruments as the General
Partner may deem necessary or desirable to effect such admission; and (c) the
General Partner has accepted such Person's subscription for Units.
C. Each Limited Partner hereby authorizes the Partnership to withhold
from or pay on behalf of or with respect to such Limited Partner any amount of
Federal, state, local, or foreign taxes that the General Partner determines that
the Partnership is required to withhold or pay with respect to any amount
distributable or allocable to such Limited Partner pursuant to this Agreement,
including, without limitation, any taxes required to be withheld or paid by the
Partnership pursuant to sections 1441, 1442, 1445, or 1446 of the Code. Any
amount paid on behalf of or with respect to a Limited Partner shall constitute a
loan by the Partnership to such Limited Partner, which loan shall be repaid by
such Limited Partner within 45 days after notice from the General Partner that
such payment must be made unless (i) the Partnership withholds such payment from
a distribution which would otherwise be made to the Limited Partner or (ii) the
General Partner determines, in its reasonable discretion, that such payment may
be satisfied out of the available funds of the Partnership which would, but for
such payment, be distributed to the Limited Partner. Any amounts withheld
pursuant to the foregoing clauses (i) or (ii) shall be treated as having been
distributed to such Limited Partner. Each Limited Partner who is a nonresident
alien, foreign partnership, foreign corporation, or foreign trust or estate (a
"Foreign Investor") hereby unconditionally and irrevocably grants to the
Partnership a security interest in such Foreign Investor's Interest to secure
such Foreign Investor's obligation to pay to the Partnership any amounts
required to be paid pursuant to this Section 3.05C. In the event that a Foreign
Investor fails to pay any amounts owed to the Partnership pursuant to this
Section 3.05C when due, the General Partner shall make the payment to the
Partnership on behalf of such defaulting Foreign Investor, shall be deemed to
have loaned such amount to such defaulting Foreign Investor, and shall succeed
to all rights and remedies of the Partnership as against such defaulting Foreign
Investor. Any amounts payable by a Foreign Investor hereunder shall bear
interest at the Prime Rate plus four percentage points (but not higher than the
maximum lawful rate) from the date such amount is due (i.e., 45 days after
demand) until such amount is paid in full. Each Foreign Investor shall take
such actions as the Partnership or the General Partner shall request in order to
perfect or enforce the security interest created hereunder.
Section 3.06. Additional Issuances of Units and Capital
Contributions; Fractional Units.
A. No Units except those Units issued by the Partnership pursuant to
the Initial Public Offering shall be offered for sale or issued by the
Partnership without the written consent of the General partner and the Consent
of the Limited Partners.
B. No Partner shall be required or allowed to make any Capital
Contribution, except as specifically set forth in Sections 3.04, 3.05, 3.11, and
8.02E or in connection with an issuance of additional Units permitted under
Section 3.06A. All Capital Contributions provided for
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in Section 3.05B shall be paid upon the admission of the Initial Limited
Partners to the Partnership and shall not be deferred for any reason.
C. No fractional Units shall be issued by the partnership.
Section 3.07. Capital Accounts.
A. The Capital Contribution of each Limited Partner and the General
Partner shall be credited to each such Partner's Capital Account. 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,
deductions or other items allocated to such Partner. Capital Accounts shall be
maintained and adjusted in accordance with the provisions of section 1.704-
1(b)(2)(iv) of the Treasury Regulations.
B. No Partner shall be entitled to receive any interest on his
outstanding Capital Account balance. Except upon the dissolution and
termination of the Partnership or as otherwise specifically provided in this
Agreement, no Partner shall have the right to demand or to receive the return of
all or any part of the Capital Account of Such Partner.
Section 3.08. Liability of the Limited Partners. Except as
otherwise described in the Act, no Limited Partner shall be liable for any
debts, liabilities, contracts, or any other obligations of the Partnership.
Except as otherwise described in 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 pay to the Partnership,
any Partner, or any creditor of the Partnership any portion or all of any
negative balance of his Capital Account.
Section 3.09. 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.
Section 3.10. Unit Certificates.
A. As soon as practicable after the issuance of the Units in
connection with the Initial Public Offering, the General Partner shall cause the
Partnership to issue one or more Unit Certificates in the name of each of the
Initial Limited Partners. Each such Unit Certificate shall be denominated in
terms of the number of Units evidenced by such Certificate. Upon the transfer
of a Unit permitted by Article Seven hereof, the General Partner shall cause the
Partnership to issue replacement Unit Certificates in accordance with such
procedures as the General Partner, in its sole and absolute discretion, may
establish. No Unit Certificate shall be issued representing a fraction of a
Unit.
B. The Partnership shall issue a new Unit Certificate in place of any
Unit Certificate previously issued if the owner of the Units represented by such
Unit Certificate, as reflected on the books and records of the Partnership:
(i) makes proof by affidavit, in form and substance satisfactory
to the General Partner, that such previously issued Unit Certificate
has been lost, destroyed, or stolen;
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(ii) requests the issuance of a new Unit Certificate before the
Partnership has notice that such previously issued Unit Certificate
has been acquired by a purchaser for value in good faith and without
notice of an adverse claim;
(iii) if requested by the General Partner, delivers to the
Partnership a bond, in form and substance satisfactory to the General
Partner, with such surety or sureties and with fixed or open penalty,
as the General Partner may direct, to indemnify the Partnership
against any claim that may be made on account of the alleged loss,
destruction, or theft of such previously issued Unit Certificate; and
(iv) satisfies any other reasonable requirements imposed by the
General Partner.
When a previously issued Unit Certificate has been lost, destroyed, or
stolen, and the Partner fails to notify the Partnership within a reasonable time
after he has notice of such event, and a transfer of Units represented by the
Unit Certificate is registered on the books and records of the Partnership
before the Partnership receives such notification, the Partner shall be
precluded from making any claim against the Partnership with respect to such
transfer or for a new Unit Certificate.
Section 3.11. Initial Working Capital Reserve. In the event that
the initial working capital reserve of the Partnership following the admission
of the Initial Limited Partners, determined after the payment of all
Organization and Offering Expenses, Acquisition Fees, and Acquisition Expenses
(the "Initial Working Capital Reserve"), is less than $1,500,000, the General
Partner shall make a capital contribution in the amount of such difference to
the Partnership in cash. Contributions pursuant to this Section 3.11 shall be
reflected in the Capital Account of the General Partner.
ARTICLE FOUR
ALLOCATIONS OF PROFITS AND LOSSES:
DISTRIBUTIONS OF CASH AND CERTAIN PROCEEDS
Section 4.01. Allocation of Net Profits. Subject to the provisions
of Section 4.10, Net Profits with respect to each Fiscal Year will be allocated
among the Partners, pro rata, in proportion to the distributions of Cash
Available for Distribution to the Partners with respect to such Fiscal Year
(including distributions of Cash Available for Distribution made in a subsequent
Fiscal Year with respect to the immediately preceding Fiscal Year for which Net
Profits are being allocated); provided, however, that if Net Profits with
respect to a Fiscal Year exceed distributions of Cash Available for Distribution
with respect to such Fiscal Year, Net Profits with respect to such Fiscal Year
shall be allocated in accordance with the ratio in which Cash Available for
Distribution would have been distributed had an amount of cash equal to such Net
Profits been available for distribution.
Section 4.02. Allocation of Net Losses. Subject to the provisions
of Section 4.10, Net Losses for each Fiscal Year shall be allocated 1% to the
General Partner and 99% to the Limited Partners.
Section 4.03. Allocations of Gain and Loss.
A. Subject to the provisions of Section 4.10, 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 4.07B) with respect to any Fiscal Year in the following
order of priority:
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(i) first, to all Partners whose Capital Accounts have
negative balances, in the ratio of such negative balances until such
negative balances are brought to zero;
(ii) second, to the Limited Partners in the amount necessary to
bring the aggregate of their Capital Account balances to an amount
equal to 99% of the Capital Priority Amount and to the General Partner
in the amount necessary to bring its Capital Account balance to an
amount equal to 1% of the Capital Priority Amount; provided, however,
that if there is insufficient Gain to bring such balances to such
levels, then (a) Gain first shall be allocated so as to cause the
ratio of the aggregate balance in the Capital Account of the Limited
Partners to the General Partner's Capital Account balance to be 99 to
1 and (b) any remaining Gain allocable pursuant to this subsection
(ii) shall be allocated 99% to the Limited Partners and 1% to the
General Partner; and
(iii) thereafter, any remaining Gain shall be allocated among
the Partners so that, to the extent possible, the ratio of (A) the
aggregate balance in the Capital Accounts of the Limited Partners in
excess of 99% of the Capital Priority Amount to (B) the balance in the
General Partner's Capital Account in excess of 1% of the Capital
Priority Amount, is 80 to 20.
B. Subject to the provisions of Section 4.10, Losses 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 4.07B) with respect to any Fiscal Year in the
following order of priority;
(i) first, Losses shall be allocated to the Partners with
positive Capital Account balances until all positive balances in the
Partners' Capital Accounts shall have been eliminated, with such
allocation being made in proportion to the outstanding positive
Capital Account balances; and
(ii) second, all remaining Losses shall be allocated 100% to
the General Partner.
Section 4.04. Allocation Among Limited Partners of Net Profits,
Gains, Net Losses, and Losses. Subject to the provisions of Section 4.10, any
Net Profits, Gains, Net Losses, or 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, (a) 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, and (b) 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
Fiscal Quarter 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 purported to be assigned by a Limited
Partner other than on the first day of a Fiscal Quarter (in contravention of
this Agreement), then the Partnership shall not recognize such assignment for
the purposes of allocating Net Profits, Gains, Net Losses, or Losses or for any
other purpose unless the assignment is permitted by Section 7.01 hereof and then
only as of the first day of the next Fiscal Quarter commencing after the
expiration of 15 days from the receipt by the Partnership of an application for
such assignment.
Section 4.05. Distribution of Cash Available for Distribution.
A. Cash Available for Distribution with respect to each Fiscal Year
shall be distributed quarterly as follows:
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(i) first, until the Partners shall have received with respect
to such Fiscal Year an amount equal to the Partners' Preferred
Distribution, 1% to the General Partner and 99% to the Limited
Partners;
(ii) second, through and including the end of the Accounting
Period during which the Partners have received cumulative
distributions of Capital Receipts pursuant to Sections 4.06(ii) and
4.07A(ii) equal to $42,089,394, 1% to the General Partner and 99% to
the Limited Partners;
(iii) third, through and including the end of the Accounting
Period during which the Partners have received cumulative
distributions of Capital Receipts pursuant to Sections 4.06(ii) and
4.07A(ii) equal to $84,178,788, 10% to the General Partner and 90% to
the Limited Partners; and
(iv) thereafter, 20% to the General Partner and 80% to the
Limited Partners.
B. Cash Available for Distribution shall be distributed to the
Partners within 45 days after the end of each Fiscal Quarter. For purposes of
Section 4.05A(i) above, distributions made in a subsequent Fiscal Year with
respect to the last Fiscal Quarter of the immediately prior Fiscal Year shall be
considered made with respect to such prior Fiscal Year.
C. The partners' Preferred Distribution for 1990 will be prorated,
based upon the number of days in each Fiscal Quarter (assuming for purposes
hereof that the third Fiscal Quarter commenced on July 22, 1990).
Section 4.06. Distribution of Refinancing Proceeds. Refinancing
Proceeds from a refinancing or borrowing shall, unless the General Partner, in
its reasonable discretion, shall determine to retain any such amounts in the
Partnership in accordance with Section 5.08, be distributed, as soon as is
reasonably practicable after the transaction occurs, as follows:
(i) first, until the Partners shall have received
distributions pursuant to this Section 4.06(i) of Refinancing Proceeds
from such refinancing or borrowing equal to the then outstanding
Partners' 12% Preferred Distribution, 1% to the General Partner and
99% to the Limited Partners;
(ii) second, until the Partners shall have received cumulative
distributions of Capital Receipts pursuant to this Section 4.06(ii)
and Section 4.07A(ii) equal to the Partners' Capital Contributions, 1%
to the General Partner and 99% to the Limited Partners; and
(iii) thereafter, 20% to the General Partner and 80% to the
Limited Partners.
Section 4.07. Distribution of Sale Proceeds.
A. Sale Proceeds from the sale or other disposition of less than
substantially all of the assets of the Partnership shall, unless the General
Partner, in its reasonable discretion, shall determine to retain any such
amounts in the Partnership in accordance with Section 5.08, be distributed, as
soon as is reasonably practicable after the transaction occurs, as follows:
(i) first, until the Partners shall have received
distributions pursuant to this Section 4.07A(i) of Sale Proceeds from
such sale or other disposition equal to the then outstanding Partners'
12% Preferred Distribution, 1% to the General Partner and 99% to the
Limited Partners;
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(ii) second, until the Partners shall have received cumulative
distributions of Capital Receipts pursuant to this Section 4.07A(ii)
and Section 4.06(ii) equal to the Partners' Capital Contributions, 1%
to the General Partner and 99% to the Limited Partners; and
(iii) thereafter, 20% to the General Partner and 80% to the
Limited Partners.
B. As provided in Section 8.02, Sale Proceeds from the sale of all or
substantially all of the assets of the Partnership, or from a related series of
Inn sales that, taken together, result in the sale of substantially all of the
assets of the Partnership, will be distributed to the Partners in accordance
with their Capital Account balances, as adjusted to take into account Gain or
Loss resulting from such sale or sales.
Section 4.08. Distribution Among Limited Partners of Cash Available
for Distribution, Refinancing Proceeds, and Sale Proceeds. Cash Available for
Distribution distributable with respect to any Fiscal Quarter to the Limited
Partners pursuant to Section 4.05 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 Fiscal Quarter. Capital Receipts distributable to the Limited Partners
pursuant to Section 4.06 or Section 4.07A 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 Fiscal Quarter in which the transaction
giving rise to such proceeds was completed. If a Unit is purported to be
assigned by a Limited Partner other than on the first day of a Fiscal Quarter
(in contravention of this Agreement), then the Partnership shall not recognize
such assignment for the purpose of distributing amounts pursuant to Sections
4.05, 4.06, and 4.07 or for any other purpose unless the assignment is permitted
by Section 7.01 hereof, and then only as of the first day of the next Fiscal
Quarter commencing after the expiration of 15 days from the receipt by the
Partnership of an application for such assignment.
Section 4.09. Section 754 Adjustments. For income tax purposes (but
not for purposes of adjusting the Capital Accounts of the Partnership, except as
otherwise provided in section 1.704-1(b)(2)(iv) of the Treasury Regulations),
appropriate adjustments shall be made in the information furnished to affected
Limited Partners with respect to allocations 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 if the General Partner, in its sole
discretion, makes such election. If such an election is made, the Partnership
shall 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 and provide 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 shall
attempt to supply such Limited Partner with reasonably available information
that will permit such Limited Partner to make the required basis adjustment
calculation.
Section 4.10. Special Allocations. The following provisions shall
apply notwithstanding the provisions of Sections 4.01, 4.02, 4.03, and 4.04. In
the event that there is a conflict between any of the following provisions, the
earlier listed provision shall govern.
A. If there is a net decrease in the Minimum Gain attributable to
Nonrecourse Liabilities during any Fiscal Year, each Partner shall be specially
allocated items of Partnership income and gain for such year (and, if necessary,
for subsequent years) in proportion to, and to the extent of, an amount equal to
the greater of the following:
(i) the portion of such Partner's share of the net decrease in
such Minimum Gain during such year (as such share is determined
pursuant to section 1.704-1T(b)(4)(iv)(f) of the Treasury Regulations)
that is allocable to the disposition of
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Partnership property subject to one or more Nonrecourse Liabilities
(as such allocable portion is determined pursuant to section 1.704-
1T(b)(4)(iv)(e)(2) of the Treasury Regulations); or
(ii) such Partner's Adjusted Capital Account Deficit at the end
of such year (determined, for this purpose, before any allocation for
such year of any items of income, gain, loss, or deduction or items
described in section 705(a)(2)(B) of the Code).
It is intended that items to be so allocated shall be determined and
the allocations made in accordance with the minimum gain chargeback requirement
of section 1.704-1T(b)(4)(iv)(e) of the Treasury Regulations, and this Section
4.10A shall be interpreted consistently therewith.
B. If there is a net decrease in the Minimum Gain attributable to
Partner Nonrecourse Debts during any Fiscal Year, each Partner who has a share
of the Minimum Gain attributable to such Partner Nonrecourse Debts shall be
specially allocated items of Partnership income and gain for such year (and, if
necessary, for subsequent years) to the extent of an amount equal to the greater
of the following:
(i) the portion of such Partner's share of the net decrease in
such Minimum Gain during such year that is allocable to the
disposition of Partnership property subject to one or more Partner
Nonrecourse Debts (as such allocable portion is determined pursuant to
section 1.704-1T(b)(4)(iv)(h) of the Treasury Regulations); or
(ii) such Partner's Adjusted Capital Account Deficit at the end
of such year (determined, for this purpose, before any allocation for
such year of any items of income, gain, loss or deduction or items
described in section 705(a)(2)(B) of the Code).
It is intended that items to be so allocated shall be determined and
the allocations made in accordance with the minimum gain chargeback requirement
of section 1.704-1T(b)(4)(iv)(h) of the Treasury Regulations, and this Section
4.10B shall be interpreted consistently therewith.
C. In the event a Partner unexpectedly receives in any taxable year
any adjustments, allocations, or distributions described in section 1.704-
1(b)(2)(ii)(d)(4), (5), or (6) of the Treasury Regulations that cause or
increase an Adjusted Capital Account Deficit of such Partner, items of
Partnership income and gain shall be specially allocated to such Partner in such
taxable year (and, if necessary, in subsequent taxable years) in an amount and
manner sufficient to eliminate, to the extent required by the Treasury
Regulations, the Adjusted Capital Account Deficit of such Partner as quickly as
possible. It is intended that items to be so allocated shall be determined and
the allocations made in accordance with the "qualified income offset"
requirement of section 1.704-1(b)(ii)(d) and this Section 4.10C shall be
interpreted consistently therewith.
D. No Net Losses, Losses, or Partnership deductions for any Fiscal
Year shall be allocated to any Limited partner to the extent such allocation
would cause or increase an Adjusted Capital Account Deficit with respect to such
Partner, and such Net Losses, Losses, or Partnership deductions shall be instead
be allocated to the General Partner.
E. If in any Fiscal Year there is a net increase during such year in
the amount of Minimum Gain attributable to a Partner Nonrecourse Debt, any
Partner bearing the economic risk of loss with respect to such debt (within the
meaning of section 1.752-1T(d)(3) of the Treasury Regulations) shall be
specially allocated items of Partnership loss or deduction in an amount equal to
the excess of (i) such Partner's share of the amount of such net increase, over
(ii) the aggregate amount of any distributions during such year to such Partner
of the proceeds of such debt that are allocable to such increase in Minimum
Gain. It is intended that items to be so allocated shall be
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determined and the allocations made in accordance with the required allocations
of "partner nonrecourse deductions" pursuant to section 1.704-1T(b)(4)(iv)(h) of
the Treasury Regulations and this Section 4.10E shall be interpreted
consistently therewith.
F. Selling commissions and similar fees that are "syndication
expenses," as described in the Treasury Regulations under section 709 of the
Code, paid or incurred by the Partnership in any Fiscal Quarter 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 Fiscal Quarter. Any other such
syndication expenses shall be allocated and charged to the Capital Accounts of
the Partners in the following manner: first, to the General Partner to the
extent of Capital Contributions made by it pursuant to Section 3.11A and
thereafter, 99% to the Limited Partners and 1% to the General Partner.
G. "Recapture income," if any, realized by the Partnership pursuant
to section 1245 or section 1250 of the Code allocated to the Partners under
Sections 4.01, 4.02, or 4.03 shall be allocated, to the extent possible, to the
Partners to whom (or to whose predecessors in interest) 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.
H. In the event that any fees, interest, or other amounts paid to a
Partner or an Affiliate of a Partner pursuant to this Agreement, the Ground
Leases, the Management Agreement, or any other agreement between the Partnership
and such Partner or Affiliate providing for the payment of such amounts, and
deducted by the Partnership, whether in reliance upon section 162, 163, 707(a),
or 707(c) of the Code or otherwise, are disallowed as deductions to the
Partnership on its federal income tax return for the Fiscal Year in or with
respect to which such amounts are paid and are treated instead as Partnership
distributions, then:
(i) the Net Profits or Net Losses, as the case may be, for
the Fiscal Year in or with respect to which such fees, interest, or
other amounts were paid shall be increased or decreased, as the case
may be, by the amount of such fees, interest, or other amounts that
are disallowed and treated as Partnership distributions; and
(ii) there shall be allocated to the Partner who received (or
whose Affiliate received) such payments an amount of gross income for
the Fiscal Year in or with respect to which such fees, interest or
other amounts were paid equal to the amount of such fees, interest or
other amounts that are so disallowed and treated as Partnership
distributions.
I. If the Partnership acquires property by purchase or exchange from
a transferor who, on the transaction, sustained a loss not allowable in whole or
in part as a deduction by reason of section 267(a)(1) of the Code, and the
Partnership subsequently realizes an amount of gain on the sale or other
disposition of the property which is not recognized by reason of section 267(d),
then
(i) the amount of Gain allocated under Section 4.03A to the
Partner or Partners related to such transfer shall be deemed to
consist of the Section 267(d) Gain to the extent of the lesser of the
amount of the Section 267(d) Gain or the amount of Gain allocated to
such Partner(s) pursuant to Section 4.03A; and
(ii) if the amount of the Section 267(d) Gain exceeds the
amount of Gain allocated to the Partner or Partners related to such
transferor pursuant to Section 4.03A, the amounts of Gain allocated to
the other Partners under Section 4.03A shall be deemed to consist pro
rata of such excess Section 267(d) Gain.
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J. If the closing with respect to the Initial Public Offering occurs
in 1989, any Net Losses and Net Profits for the Fiscal Year of the Partnership
ending on December 31, 1989 will be allocated to the General Partner.
Section 4.11. Operating Rules.
A. Solely for purposes of determining a Partner's proportionate share
of the "excess nonrecourse liabilities" of the Partnership within the meaning of
Section 1.752-1T(e)(3)(ii) of the Treasury Regulations, the General Partner's
interest in Partnership profits shall equal 1% and the Limited Partners'
aggregate interest in Partnership profits shall equal 99%. Each Limited
Partner's share of Partnership profits shall be the product of 99% times a
fraction, the numerator of which is the total number of Units owned by such
Limited Partner as of the time as of which the determination of such Limited
Partner's share is being made and the denominator of which is the total number
of Units as of such time.
B. Except as otherwise specifically provided in this Agreement, the
distributive share of a Partner of each specific deduction and item of income,
loss, and credit of the Partnership for Federal income tax purposes shall be the
same as such Partner's share of Net Profits, Gains, Net Losses, or Losses, as
the case may be, for such Fiscal Year.
C. For purposes of this Agreement, any amount of taxes required to be
withheld by the Partnership with respect to any Partner or required to be paid
by the Partnership in respect of any Partner's tax obligation shall be deemed to
be a distribution or payment to such Partner and shall reduce the amount
otherwise distributable to such Partner pursuant to this Agreement.
D. In the event of a sale or other disposition of less than
substantially all of the assets of the Partnership, (i) for purposes of
determining the balances in the Capital Accounts of the Partners in order to
allocate Gain or Loss recognized from such sale or disposition pursuant to
Section 4.03, each Partner's Capital Account balance shall be deemed to include
any amount that such Partner is deemed to be obligated to restore pursuant to
the penultimate sentences of sections 1.704-1T(b)(4)(iv)(f) and 1.704-
1T(b)(4)(iv)(h)(5) of the Treasury Regulations (determined after taking into
account any changes during such year in Minimum Gain, including changes in
Minimum Gain resulting from such sale or other disposition); and (ii) for
purposes of determining the Capital Accounts order to allocate loss recognized
from such sale or disposition pursuant to Section 4.03B, each Partner's Capital
Account shall be reduced by the items described in sections 1.704-
1(b)(2)(ii)(d)(4), (5), and (6).
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 in accordance with the
provisions of this Agreement and applicable law, 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 to conduct
the business of the Partnership shall be exercised only by the General Partner.
Subject to Section 5.01E, the General Partner may appoint, contract, or
otherwise deal with any Person, including employees of its Affiliates, to
perform any acts or services for the Partnership necessary or appropriate for
the conduct of the business and affairs of the Partnership.
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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; provided, however, that any action of the Limited
Partners which for purposes of the Act would not constitute such participation
or control shall not be deemed such for purposes of this Agreement. The Limited
Partners hereby unanimously Consent to the exercise by the General Partner of
the powers conferred on it by this Agreement, subject to the restrictions and
limitations set forth in this Agreement or this Act.
C. Except to the extent otherwise provided herein, the General
Partner is hereby authorized, without the Consent of the Limited Partners, to:
(i) execute any and all agreements (including the Purchase
Agreement, the Ground Leases, the Management Agreement, the Loan
Agreement, and the Limited Debt Service Guarantee, which agreements
shall be deemed to satisfy all requirements of this Agreement),
contracts, documents, certifications and instruments necessary or
convenient in connection with the acquisition, development, financing,
management, maintenance, operation, sale, or other disposition of the
Partnership's properties and assets except as otherwise limited by
this Agreement;
(ii) borrow money from itself or others (including Affiliates of
any general partner of the Partnership) and issue evidences of
indebtedness necessary, convenient, or incidental to the
accomplishment of the purposes of the Partnership and to secure the
same by mortgage, pledge, or other lien on the assets of the
Partnership, such borrowing and security to be only with respect to
the following: (a) any amounts advanced by the General Partner or an
Affiliate of the General Partner (including, without limitation,
advances by Marriott under the Limited Debt Service Guarantee), 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, (b) the debt under the Loan Agreement,
(c) amounts incurred for the purpose of making distributions to the
Partners (which, in the case of a borrowing to make a distribution to
the Partners with respect to any unpaid Partners' Preferred
Distribution, shall be borrowed from the General Partner, shall not
exceed an amount equal to the Cash Available for Distribution (other
than prior borrowings pursuant to this parenthetical included therein)
with respect to the 13 Accounting Periods ending on the last day of
the Fiscal Quarter for which such distribution is to be made, and
shall be based on funds of the Partnership reasonably expected to be
received within the following 12 months), (d) any indebtedness the
incurrence of which has been specifically Consented to by the Limited
Partners under Section 5.02B, (e) any indebtedness incurred to
refinance (and thereafter further refinance as often as shall be
necessary) the unamortized portion of any of the foregoing (including
the costs of such refinancing) from time to time (including, without
limitation, indebtedness from third parties to finance the payment of
amounts payable under the Management Agreement), or (f) any
indebtedness that the General Partner otherwise has determined, in
accordance with its fiduciary duties as a general partner, is in the
best interests of the Partnership and the Limited Partners; provided,
however, that 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 mortgage debt
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affecting or encumbering any of the Partnership's property and in
connection therewith to 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;
(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 in each state where the
Partnership has been qualified to do business; and
(vi) take such actions (including, but not limited to, amending
this Agreement) as the General Partner determines are advisable or
necessary, based upon advice of counsel to the Partnership, and will
not result in any material adverse effect on the economic position of
holders of a majority of the Units, (a) to preserve the tax status of
the Partnership as a partnership for Federal income tax purposes, (b)
to conform this Agreement to (i) the Act for the purpose of preserving
the tax status of the Partnership as a partnership for Federal income
tax purposes, or (ii) provisions of the Code or the Treasury
Regulations relating to taxation of partners and partnerships,
including, without limitation, any changes thereto, or (c) in the
event that any provision of the Code or the Treasury Regulations
causes the terms of this Agreement to differ to the detriment of the
Limited Partners from the terms as contemplated by the Partners (as
reflected in the Prospectus), to modify this Agreement in a manner
designed to ameliorate such difference.
D. Any Person dealing with the Partnership or the General Partner may
rely upon a certificate signed by the Secretary or any Assistant Secretary 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. Except as otherwise specifically set forth herein (including,
without limitation Section 5.04) or in the Prospectus and except for (a) legal
and financial services (other than in connection with administrative services
described in Section 5.04) and procurement services rendered by employees of the
General Partner and Affiliates of the General Partner (which services shall be
reasonably necessary to the prudent operation of the business and shall be
rendered upon
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commercially reasonable terms, for compensation that is less than or equal to
90% of the compensation that would be charged by an unaffiliated third party,
and upon terms and conditions that are, in the reasonable judgment of the
General Partner (and in making such judgment the General Partner must not be
negligent or guilty of misconduct), as favorable to the Partnership as the terms
and conditions that the Partnership could obtain from unaffiliated third
parties, for the same purpose in the geographic location where the General
Partner has its place of business), (b) architectural and engineering services
(which must satisfy the conditions of Section 5.01E(viii) below), and (c)
services rendered pursuant to the Management Agreement, neither the General
Partner nor any Affiliate of the General Partner shall perform any service for
which compensation is to be paid by the Partnership, or sell or lease any goods
or materials to the Partnership or advance or lend any funds to the Partnership,
unless the agreements, contracts, and arrangements between the Partnership and
the General Partner or such Affiliate of the General Partner relating to such
services are performed in extraordinary circumstances and satisfy all of the
following conditions, those relating to good or materials satisfy all the
following conditions, and those relating to advances or loans to the Partnership
satisfy the conditions of Section 5.01E(vi) and Section 5.08(xvi) below:
(i) such services, goods, or materials must be reasonably
necessary to the prudent operation of the business of the Partnership;
(ii) the General Partner or any such Affiliate must have the
ability to render the services or to sell or lease the goods or
materials covered thereby and must have been previously engaged in the
business or rendering such services or selling or leasing such goods
or materials, independently of the Partnership and as an ordinary and
ongoing business;
(iii) such agreements, contracts, or arrangements must be fair to
the Partnership and reflect commercially reasonable terms and
conditions that, in the reasonable judgment of the General Partner
(and in making such judgment the General Partner must not be negligent
or guilty of misconduct), are as favorable to the Partnership as the
terms and conditions that the Partnership could obtain from
unaffiliated third parties for the same purpose, shall provide for
compensation to the General Partner or any such Affiliate at the
lesser of the actual cost or 90% of the competitive price that would
be charged for such services, goods, or materials by unaffiliated
third parties, and shall be embodied in a written contract which
precisely describes the subject matter thereof and all compensation to
be paid therefor, and the compensation and other terms thereof shall
be fully disclosed in the reports furnished to Limited Partners
pursuant to Sections 9.04B and 9.04C;
(iv) neither the General Partner nor any such Affiliate may
participate in any reciprocal business arrangements which would have
the effect of circumventing any of the provisions of this Agreement;
(v) no such agreement, contract, or arrangement as to which the
Limited Partners had previously given Consent may be amended in such
manner as to increase the fees or other compensation payable to the
General Partner or any such Affiliate or to decrease the
responsibilities or duties of the General Partner or any such
Affiliate in the absence of the Consent contemplated by Section
5.02B(iii);
(vi) 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 such Affiliate must reflect commercially
reasonable terms, such loan or advance must be on terms and conditions
that, in the reasonable judgment of the General Partner (and in making
such judgment the General Partner must not be negligent or guilty of
misconduct), are as favorable to the Partnership as the terms and
conditions that the
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Partnership could obtain from unaffiliated third parties or banks for
the same purpose in the geographic location where the property
securing such loan is located (in the case of loans made in connection
with a single property or several properties in a single geographic
location) or, in all other cases, where the General Partner has its
principal place of business (without reference to the financial
abilities or guarantees of the General Partner or any Affiliate of the
General Partner), and no prepayment charge or penalty shall be
required on any such loan or advance; provided, however, that any
advances by Marriott under the Limited Debt Service Guarantee shall be
deemed to satisfy the provisions of this Section 5.01E(vi);
(vii) any such agreement, contract, or arrangement which relates
to the performance of services or to the sale or lease of goods or
materials (other than the Management Agreement) shall contain a clause
allowing termination without penalty on sixty days' notice;
(viii) with respect to architectural and engineering services for
the Inns, the Person rendering such services shall satisfy the
requirements of Section 5.01E(ii) (including the rendering of such
services to other properties owned or managed by the General Partner
or any of its Affiliates) and the compensation to and other
arrangements with such Person in connection therewith shall satisfy
the requirements of Sections 5.01E(iii) and (ix) (with actual cost
including the cost of any appraisal if required hereunder); provided,
however, that the cost of such services shall not exceed 90% of the
amount the Partnership would have been required to pay an unrelated
third party; and provided, further, that if the total cost of any
single improvement to any Inn shall exceed $250,000 and the General
Partner or any of its Affiliates shall have rendered architectural or
engineering services in connection with such improvement, the
Partnership shall obtain, at the General Partner's expense, an
appraisal of the fair market value of such improvement from an
independent appraiser and, if the cost of such improvement to the
Partnership (including the cost of such appraisal) exceeds its fair
market value, then the Person rendering such services shall not be
entitled to reimbursement of its costs of performing such services to
the extent of such excess; and
(ix) the General Partner and its Affiliates shall not be entitled
to compensation for the cost of (a) depreciation, utilities, capital
equipment, and other overhead and related administrative items related
to services performed hereunder (except that the General Partner and
its Affiliates may be reimbursed for computer time); and (b) salaries,
fringe benefits, travel expenses, and other administrative items
related to services performed hereunder incurred by or allocated to
any "controlling persons" of the General Partner or its Affiliates
(except that the General Partner and its Affiliates may be reimbursed
for travel expenses incurred in extraordinary circumstances and
directly attributable to the rendering of such services); for purposes
of this Section 5.01E(ix), "controlling persons" means "the chairman
or any member of the board of directors of the General Partner,
Marriott, Host, or other Affiliates of the General Partner; executive
management, including the president, vice-presidents, the secretary,
and the treasurer of the General Partner, Marriott, Host, and other
Affiliates of the General Partner; and any Person (including Host and
Marriott in their corporate capacities but not including employees
thereof unless otherwise included in "controlling persons") holding
five percent or more of the voting securities of the General Partner,
Marriott, Host, or such other Affiliates"; and the Partnership shall
not compensate the General Partner or its Affiliates for the actual
cost of services for which the General Partner or any of its
Affiliates is entitled to compensation by way of a separate fee, if
any.
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F. In addition to any specific contracts or agreements described
herein, the Partnership may enter into any other contracts or agreements
specifically described in the Prospectus (including the Agency Agreement and the
Escrow Agreement, entered into in connection with the sale of the Units, which
agreements shall be deemed to satisfy all requirements of this Agreement)
without any further act, approval, or vote of the Limited Partners that are not
inconsistent with this Agreement.
Section 5.02. Restrictions on Authority of the General Partner.
A. Without the Consent of all of the Limited Partners, the General
Partner shall not have authority on behalf of the Partnership to:
(i) do any act in contravention of this Agreement;
(ii) except as otherwise provided in this Agreement, do any act
which would make it impossible to carry on the ordinary business of
the Partnership;
(iii) confess a judgment in excess of $100,000 against the
Partnership;
(iv) convert property of the Partnership to its own use, or
possess 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 or as a General Partner,
except as provided in this Agreement;
(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;
(vii) list, recognize, or facilitate the trading of the Interests
(or any interest therein) on any "established securities market"
within the meaning of section 7704 of the Code, or permit any of its
Affiliates (or to the extent the General Partner has rights with
respect thereto, the Selling Agent or any of its Affiliates) to take
such actions, if as a result thereof the Partnership would be taxed
for Federal income tax purposes as an association taxable as a
corporation; or
(viii) create for the Interests (or any interest therein) a
"secondary market (or the substantial equivalent thereof)" within the
meaning of Section 7704 of the Code or otherwise permit, recognize, or
facilitate the trading of the Interests (or any interest therein) on
any such market, or permit any of its Affiliates (or to the extent the
General Partner has rights with respect thereto, the Selling Agent or
any of its Affiliates) to take such actions, if as a result thereof
the Partnership would be taxed for Federal income tax purposes as an
association taxable as a corporation.
B. Without the Consent of the Limited Partners, 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 Inns, or in other assets not reasonably
related to the conduct of the Partnership's business as set forth in
Section 2.03;
(ii) sell any Inn to the General Partner or an Affiliate of the
General Partner unless the aforesaid Consent of the Limited Partners
has been obtained and the
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following procedures have been followed: (a) the General Partner shall
give not less than 30 days' notice of the proposed sale to the Limited
Partners, which notice shall set forth the price and other material
terms and conditions on which the proposed transaction is to be
effected; (b) the Partnership shall obtain three appraisals of the
fair market sales value of the Inn to be sold, such appraisals to be
prepared by independent, nationally recognized appraisers experienced
in the valuation of hotel properties selected by the General Partner
(the cost of all such appraisals to be borne by the General Partner or
Affiliate); (c) such appraiser shall not have, directly or indirectly,
any material interest in or material business or professional
relationship with the General Partner or any of its Affiliates and the
compensation of each such appraiser shall be determined and embodied
in a written contract before such appraisal is prepared; (d) the price
at which the sale is effected shall not be less than the average of
the three amounts determined by the three appraisers, disregarding
entirely any appraisal that differs by more than 20% from the amount
determined by the appraiser whose determination is between the highest
and lowest of the amounts determined by the three appraisers (in the
case of a purchase pursuant to the right of first refusal granted to
the Manager, the price shall not be less than the higher of such
average or the price offered to the Partnership by a third party); (e)
the purchase price must be payable in cash; (f) no real estate
commission may be paid by the Partnership in connection with such
sale; and (g) the General Partner shall include copies of such
appraisals with the aforesaid notice to the Limited Partners;
(iii) effect any amendment to any agreement, contract, or
arrangement with the General Partner or any of its Affiliates which
adversely effects the rights of or benefits to the Limited Partners
or, in the case of the Purchase Agreement, the Ground Leases, the
Limited Debt Service Guarantee, and the Management Agreement, which
reduces the responsibilities or duties of the General Partner as a
general partner of the Partnership or any of its Affiliates under this
Agreement or any such other agreement, or which increases the
compensation payable to the General Partner or any of its Affiliates
hereunder or thereunder; provided, however, the foregoing shall not be
deemed to require the Consent of the Limited Partners for the General
Partner to cause the Partnership to enter into a new management
agreement with respect to the Inns, on terms substantially the same as
those in the Management Agreement as contemplated therein, in the
event of the refinancing of fewer than all of the Inns;
(iv) incur debt of the Partnership except as set forth in Section
5.01C(ii);
(v) agree to the addition of transient guest rooms at an Inn
unless the Inn has had an average occupancy rate of at least 70% for a
consecutive period of at least 13 Accounting Periods immediately prior
to commencement of construction of the addition;
(vi) make any election to continue beyond its term, discontinue,
or dissolve the Partnership;
(vii) voluntarily withdraw as a General Partner;
(viii) permit or cause the Partnership to incur any debt in
excess of $250,000 (except the debt pursuant to the Loan Agreement and
liabilities to Marriott and its Affiliates with respect to the Limited
Debt Service Guarantee) otherwise permitted to be incurred pursuant to
the terms of this Agreement if such debt would not constitute in its
entirety "qualified nonrecourse financing" within the meaning of
section 465(b)(6)(B) of the Code and the applicable Treasury
Regulations and a
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Nonrecourse Liability, unless (a) the General Partner, in accordance
with its fiduciary duties as a general partner and taking into
consideration both the reasonably foreseeable tax consequences to the
Limited Partners as a group and the alternatives that the General
Partner believes are reasonably available to the Partnership,
determines that such action is not detrimental to the best interests
of the Limited Partners (and in making such determination, the General
Partner may rely upon an opinion of independent counsel as to the tax
consequences to the Limited Partners as a group), or (b) the General
Partner shall have obtained the Consent of the Limited Partners to
such action;
(ix) cause the Partnership to merge or consolidate with any other
entity;
(x) accept the substitution of more than five (5) Inns under the
Purchase Agreement; sell, lease, or otherwise dispose (or consent to
the sale, lease, or other disposition), directly or indirectly, in one
transaction or a series of related transactions, of the greater of (1)
15 of the Inns or any interest therein, or (2) a number of the Inns or
any interest therein for which the aggregate original purchase price
and Development Fee, as allocated in the Purchase Agreement, exceeds
30% of the total purchase price and Development Fee paid by the
Partnership for the Inns; or sell, lease, or otherwise dispose (or
consent to the sale, lease, or other disposition), directly or
indirectly, in one transaction or a series of related transactions, of
any of the Inns or any interest therein if the purchaser, lessee, or
other transferee is the General Partner or any Affiliate thereof,
except in accordance with Section 5.02B(ii);
(xi) cause the Partnership to sell all or substantially all of
the assets of the Partnership in one transaction or a series of
related transactions, except upon dissolution and liquidation in
accordance with Article Eight; or
(xii) cause the Partnership to incur any debt that would result
in Refinancing Proceeds being distributed to the Partners unless such
Refinancing Proceeds are distributed to the Partners in the same
taxable year in which the Partnership incurred such liability.
C. Any transaction between the Partnership and the General Partner or
an Affiliate that is effected with the requisite Consent of the Partners in
accordance with this Section 5.02 after disclosure to the Limited Partners of
all the material terms thereof shall be deemed to satisfy the requirements of
Section 5.01E.
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 acquisition, 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 General Partner shall be permitted to
cause the partnership to contract with other Persons for the direct performance
of day-to-day management or operational services for the Inns and other
properties of the Partnership (and to pay fees therefor in such amounts as the
General Partner determines to be fair and equitable) and that the General
Partner shall have no obligation to perform such services itself, the General
Partner's obligation with respect thereto being limited to using its best
efforts to cause the Partnership to locate and employ a manager or operator to
perform such services). The General Partner shall have fiduciary responsibility
for the safekeeping and use of the funds and assets of the Partnership, whether
or not in the possession and control of the General Partner, and the General
Partner shall not employ or permit any other Person to employ such funds or
assets except in accordance with the terms of this Agreement. Notwithstanding
the foregoing, however, the General
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Partner shall have no liability for any loss sustained by the Partnership as a
result of the bankruptcy, receivership, insolvency, or other economic failure of
any bank, savings and loan institution, other depositary of funds or entity to
or with which funds of the Partnership have been deposited or invested pursuant
to Section 9.03, so long as the General Partner would not have liability under
Section 5.06 in the selection of such depositary or the maintenance of
Partnership funds thereat.
B. The General Partner shall not (i) directly or through a subsidiary
engage in any business other than that of acting as general partner of the
Partnership, (ii) pay dividends or make other distributions or payments on its
stock or incur any obligations if, as a result, its net worth would be reduced
below the requirement of Section 5.03D, (iii) merge or consolidate with another
entity except Marriott or a wholly owned direct or indirect subsidiary of
Marriott, (iv) voluntarily 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. Host and the General Partner agree 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 Marriott and Marriott and the General Partner
agree that so long as the General Partner is the general partner of the
Partnership, Marriott will not sell the stock of Host unless the stock of the
General Partner is thereafter owned by Marriott or a wholly owned, direct or
indirect, subsidiary of Marriott. Marriott also shall pay to the Partnership,
upon demand, the amount of any losses incurred by the Partnership as a result of
the attachment by any creditor of Marriott or any of its Affiliates of any
Partnership funds held by or on behalf of the Manager pursuant to the Management
Agreement (including, without limitation, Inn working capital and net revenues
from Inn operations). In addition, in the event the General Partner fails to
make a required payment to the Partnership pursuant to Section 3.05C with
respect to a Foreign Investor who purchased Units in the Initial Public Offering
or any permitted transferee pursuant to Section 7.01I, Marriott shall pay to the
Partnership the amount required to be paid to the Partnership by the General
Partner thereunder and shall succeed to all rights and remedies of the General
Partner thereunder.
C. 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.
D. The General Partner shall have at the time of the admission of the
Initial Limited Partners, and shall use its reasonable best efforts to maintain
at all times thereafter, a net worth at an amount equal to at least $8,417,878
in excess of its investment in the Partnership.
E. 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.
F. Except as otherwise permitted in Section 5.02B(viii), the General
Partner shall at all times conduct its affairs and the affairs of the
Partnership and all of its Affiliates in such a manner that neither the
Partnership nor any Partner nor any Affiliate of any Partner will have any
personal liability on any Partnership Debt. 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 personally 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 the Partnership or to any Limited
Partner for any failure to
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give such notice to such suppliers or other Persons or to have any such
agreement fail to contain such statement.
G. 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 and all taxes payable by the
Partnership whether by way of withholding from distributions to the Partners or
otherwise.
H. 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. Nothing contained in this Agreement is intended or shall be construed to
contract away the fiduciary duty of the General Partner to the Limited Partners.
I. The General Partner shall use its best efforts to assure that the
Partnership shall not be deemed an investment company as such term is defined in
the Investment Company Act of 1940.
J. The General Partner shall monitor the transfers of Interests to
determine (i) if such Interests are being traded on an "established securities
market" or a "secondary market (or the substantial equivalent thereof)" within
the meaning of section 7704 of the Code, and (ii) whether additional transfers
of Interests would result in the Partnership being unable to qualify for at
least one of the "safe harbors" set forth in IRS Notice 88-75 (or such other
guidance subsequently published by the IRS setting forth safe harbors under
which Interests will not be treated as "readily tradable on a secondary market
(or the substantial equivalent thereof)" within the meaning of section 7704 of
the Code) (the "Safe Harbors"). The General Partner shall take (and cause its
Affiliates to take) all steps reasonably necessary or appropriate to prevent any
trading of Interests or any recognition by the Partnership of transfers made on
such markets and, except as otherwise provided herein, to ensure that at least
one of the Safe Harbors is met.
K. The General Partner shall maintain or cause to be maintained for
five (5) years after the closing of the Initial Public Offering a record of the
information obtained to indicate that the Initial Limited Partners met the
suitability standards employed in connection with the Initial Public Offering
and shall obtain a commitment from the Selling Agent to maintain the same record
of information required of the General Partner.
L. From time to time, the General Partner shall consider whether or
not, in the reasonable judgment of the General Partner, it would be in the best
interests of the Partnership to effectuate a sale or refinancing of all or a
portion of the Inns, with all or part of the Capital Receipts from any such sale
or refinancing to be distributed to the Partners in accordance with Article
Four. If the General Partner, in its reasonable judgment, determines that such
a sale or refinancing would be in the best interests of the Partnership, then
the General Partner shall, subject to Section 5.02B(x) in the case of a sale,
use its reasonable best efforts to cause the Partnership to effectuate such a
sale or refinancing. In the event that not all of the Inns have been sold or
otherwise disposed of prior to the year 2001, then, subject to Section 5.02B(x)
and to the Management Agreement and the Loan Agreement, the General Partner
shall use its reasonable best efforts to sell the remaining Inns, in one or more
transactions, as it determines appropriate in its reasonable judgment.
Section 5.04. Compensation of General Partner. The General Partner as
general partner of the Partnership shall not in such capacity receive any
salary, fees, profits, or distributions except the General Partner shall receive
such allocations and distributions to which it may be entitled under Article
Four or Article Eight. Notwithstanding the foregoing, however, the
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Partnership shall reimburse the General Partner and its Affiliates for the
actual cost of goods and materials used for or by the Partnership and obtained
from unrelated third parties and for the actual cost of providing any
accounting, tax, and other administrative services required or contemplated by
this Agreement (excluding services required to be performed under the Management
Agreement) to the extent that such goods, materials, and services are reasonably
necessary to the prudent operation of the business of the Partnership and the
cost thereof is comparable to or less than the amount the Partnership would have
been required to pay to an unrelated third party. Notwithstanding the foregoing,
the General Partner and its Affiliates shall not be entitled to reimbursement
for (i) depreciation, utilities, capital equipment, and other overhead and
related administrative items (except that the General Partner and its Affiliates
may be reimbursed for computer time and other expenses to the extent incurred in
connection with the administration of the Partnership); and (ii) salaries,
fringe benefits, travel expenses, and other administrative items incurred by or
allocated to any "controlling persons" of the General Partner or its Affiliates
(except that the General Partner and its Affiliates may be reimbursed for travel
expenses incurred in extraordinary circumstances and directly attributable to
the rendering of reimbursable administrative services). For purposes of this
Section 5.04, "controlling persons" means "the chairman or any member of the
board of directors of the General Partner, Marriott, Host, or other Affiliates
of the General Partner; executive management, including the president, vice-
presidents, the secretary, and the treasurer of the General Partner, Marriott,
Host, and other Affiliates of the General Partner; and any Person (including
Host and Marriott in their corporate capacities but not including employees
thereof unless otherwise included in "controlling persons") holding five percent
or more of the voting securities of the General Partner, Marriott, Host, or such
other Affiliate." Notwithstanding the foregoing provisions of this Section 5.04,
the Partnership shall not reimburse the General Partner for expenses related to
services for which the General Partner or any of its Affiliates is entitled to
compensation by way of a separate fee, if any. All expenses of the Partnership
shall be billed directly to and paid by the Partnership, and, except as
expressly permitted by this Section 5.04, no reimbursement shall be made
therefor to the General Partner or any of its Affiliates. The General Partner
and its Affiliates may perform other services for the Partnership in accordance
with Section 5.01E.
Section 5.05. Other Business of Partners. Any Limited Partner may
engage independently or with others in other business ventures of every nature
and description. Nothing in this Agreement shall be deemed to prohibit any
Affiliate of the General Partner from dealing, or otherwise engaging in business
with Persons transacting business with the Partnership or from providing
services relating to the purchase, sale, financing, management, development, or
operation of hotels, motels, restaurants, or other food and lodging facilities
and receiving compensation therefor, even if competitive with the business of
the Partnership. Neither the Partnership nor any Partner shall have any right by
virtue of the relationship created hereby in or to such other ventures or
activities or to the income or proceeds derived therefrom, even if competitive
with the business of the Partnership. Neither the General Partner nor any
Affiliate of the General Partner shall be obligated to present any particular
opportunity (other than an opportunity that is within the scope of the purpose
of the Partnership specified in Section 2.03) 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. Subject to this Section 5.06, the General Partner shall not be
liable for the return of the Capital Contributions of the Limited Partners or
for any portion thereof, it being expressly understood that any return of
capital shall be made solely from the assets of the Partnership; nor shall the
General Partner be required to pay 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.
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B. The General Partner shall have no liability, responsibility, or
accountability in damages or otherwise to any other Partner or to the
Partnership for, and the Partnership agrees to indemnify, pay, protect, and hold
harmless the General Partner (on the demand of and to the satisfaction of the
General Partner and to the extent permitted by law) from and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
proceedings, costs, expenses, and disbursements of any kind or nature whatsoever
(including, without limitation, all costs and expenses of defense, appeal, and
settlement of any and all suits, actions, or proceedings threatened or
instituted against the General Partner or the Partnership and all costs of
investigations in connection therewith) which may be imposed on, incurred by, or
asserted against the General Partner or the Partnership in any way relating to
or arising out of, or alleged to relate to or arise out of, any action or
inaction on the part of the Partnership, or on the part of the General Partner
as the general partner of the Partnership, including any action or inaction in
connection with the General Partner acting as Tax Matters Partner or Designated
Person under Section 5.07, if, but only if, (i) the action or inaction of the
General Partner giving rise thereto was determined by the General Partner, in
good faith, to be in the best interests of the Partnership; (ii) such action or
inaction shall have been on behalf of the Partnership and within the scope of
the authority granted to the General Partner by this Agreement or by law or by
the Limited Partners in accordance with this Agreement; and (iii) the General
Partner and its Affiliates were not guilty of negligence, fraud, misconduct, or
breach of fiduciary duty to the Partnership or any Partner. The satisfaction of
the obligations of the Partnership under this Section 5.06 shall be from and
limited to the assets of the Partnership and no Limited Partner shall have any
personal liability on account thereof. The provisions of this indemnification
shall also extend to any Person performing services for the Partnership on
behalf of the General Partner, within the scope of its authority as the General
Partner of the Partnership, who is an Affiliate of the General Partner, so long
as such Person satisfied the requirements of clauses (i), (ii), and (iii) above.
Notwithstanding any other provision of this Agreement, the Partnership shall not
incur any cost in excess of the cost of insuring the Partnership itself in
respect of any liability insurance that insures the General Partner or any other
Person for any liability with respect to which indemnity would be prohibited
under this Section 5.06B.
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 Sections 3.04, 3.11A, and 8.02E and except as
may otherwise be provided as a matter of law or under the Loan Agreement.
However, except for advances made pursuant to the Limited Debt Service Guarantee
(which advances will be repaid in accordance with such guarantee), to the extent
the General Partner advances any funds to meet any liabilities or obligations of
the Partnership, any such advances shall be deemed loans to the Partnership by
the General Partner and, subject to Section 5.01E(vi), shall accrue interest per
annum at one percentage point in excess of the Prime Rate (or the highest lawful
rate under the laws of the State of Delaware, whichever is less) 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
governed by this Section 5.06C shall be paid prior to distributions to Partners
out of any Cash Available for Distribution to the Partners (except for
distributions with respect to the Partners' Preferred Distribution), upon the
liquidation or dissolution of the Partnership, or the distribution to the
Partners of any Capital Receipts from the sale of an Inn.
D. Notwithstanding the foregoing, neither the General Partner nor
any other Persons specified in Section 5.06B nor any Person acting as an
underwriter or broker-dealer on behalf of the Partnership shall be indemnified
by the Partnership for liabilities arising under Federal or state securities
laws unless (i) there has been a successful adjudication in favor of the
indemnitee on the merits of each count involving alleged securities law
violations, or such claims against the indemnitee have been dismissed with
prejudice on the merits by a court of competent jurisdiction, and, in either
case, indemnification of litigation costs is approved by a court of competent
jurisdiction, or (ii) a court of competent jurisdiction approves a settlement of
the claims against a
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particular indemnitee and finds that indemnification of the settlement and
related costs should be made. In any claim for indemnification for Federal or
state securities law violations, the party seeking indemnification shall place
before the court the published positions of the Securities and Exchange
Commission, the Massachusetts Securities Division, the Missouri Securities
Division, the Pennsylvania Securities Commission, and any other state securities
commissions of states in which Units were offered or sold with respect to the
issue of indemnification for securities law violations. Notwithstanding any
other provision of this Agreement, the Partnership shall not incur the cost of
any liability insurance that insures the General Partner or any other Person for
any liability with respect to which indemnity would be prohibited under this
Section 5.06D.
E. The Partnership may not advance expenses or other costs incurred
by the General Partner (or any other Person described in Section 5.06B) in
defending any threatened or pending action, suit, or proceeding subject to this
Section 5.06.
F. In discharging its obligations under this Agreement, the General
Partner may obtain an opinion, appraisal, or examination by independent counsel,
appraiser, accountant, or other expert, if appropriate, and shall be entitled to
rely, to the extent reasonable, upon such opinion, appraisal, or examination for
matters within the expertise of the person or entity providing or rendering the
same.
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 Treasury 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 Treasury Regulations thereunder, the Tax Matters Partner shall
furnish the name, address, profits interests, and taxpayer identification number
of each Partner (or assignee) to the IRS.
C. To the extent and in the manner provided by applicable Code
sections and Treasury Regulations thereunder, the Tax Matters Partner shall
inform each Partner of administrative or judicial proceedings for the adjustment
of Partnership items required to be taken into account by a Partner for income
tax purposes (such administrative proceedings being referred to as a "tax audit"
and such judicial proceedings being referred to as "judicial review").
D. The Tax Matters Partner is authorized, but not required:
(i) 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 (i) who (within the time prescribed pursuant to the Code and
Treasury 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 or (ii)
who is a "notice partner" (as defined in section 6231 of the Code) or
a member of a "notice group" (as defined in section 6223(b)(2));
(ii) 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
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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;
(iii) to intervene in any action brought by any other Partner
for judicial review of a final adjustment;
(iv) 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;
(v) 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
(vi) 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 (but
subject to Sections 5.04, 5.06B, and 5.06D of this Agreement), the Partnership
shall indemnify and reimburse, to the full extent provided by law, the Tax
Maters 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 expenses to be made
before the distribution of Cash Available for Distribution to the Partners.
Neither the General Partner nor any of its Affiliates nor other Person shall be
obligated to provide funds for such purpose.
F. 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.
5.08. Other Limitations. The following additional limitations shall
apply to the operation and management of the Partnership:
(i) no Cash Available for Distribution shall be reinvested in
the Inns or other Partnership assets;
(ii) except for such reserves as may be determined by the
General Partner, in its reasonable discretion, to be necessary to
provide for the foreseeable cash needs of the Partnership or for the
maintenance, repair, expansion, or restoration of the Inns, no Capital
Receipts shall be reinvested in the Inns or other Partnership assets
unless sufficient cash will be distributed to the Partners pursuant to
Article Four to pay any Federal or state income tax (assuming Partners
are in a combined Federal and state marginal income tax bracket of
35%) resulting from the transaction giving rise to such Capital
Receipts;
(iii) the General Partner shall not receive for its account any
kickbacks or rebates with respect to expenditures made by or on behalf
of the Partnership in the General Partner's role as the general
partner of the Partnership; nor shall the
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General Partner enter into any reciprocal arrangement that has the
effect of circumventing this Section 5.08(iii);
(iv) no commission or other fee shall be payable to the General
Partner or any Affiliate, directly or indirectly, in connection with
the distribution or reinvestment of any Cash Available for
Distribution or Capital Receipts;
(v) the General Partner shall not directly or indirectly, pay
or award any commissions or other compensation to any Person for
encouraging or inducing any other Person to purchase Units; provided,
however, that nothing herein shall prohibit the payment of normal
sales commissions and fees to the underwriters or broker-dealers
(including, without limitation, the Selling Agent) in connection with
an offering of Interests in the Partnership;
(vi) any sale, purchase, or lease of any real property or any
interest therein by the Partnership, including, without limitation,
the Partnership's purchase of the Inns and exercise of any Site
Purchase Option, shall be supported by an appraisal report of an
independent, nationally recognized appraiser of hotel properties
selected by the General Partner and the sum of the purchase price paid
for such real property and Acquisition Fees payable by the Partnership
in connection with such purchase shall not exceed the appraised value
of such real property set forth in such appraisal report;
(vii) the total commissions payable to a Person in connection
with the sale of one or more of the Inns or other real estate owned by
the Partnership (solely for the sale of such real estate) shall be
limited to a competitive real estate commission not to exceed six
percent (6%);
(viii) neither the General Partner (other than in discharge of
its responsibilities under this Agreement, for which it shall receive
no fee or other compensation) nor any Affiliate shall be granted an
exclusive right to sell or exclusive employment to sell any Inn or
other real estate owned by the Partnership, and neither the General
Partner nor any Affiliate shall be paid any commission or other fee
for services in connection with the sale or other disposition of any
Inn or other real estate owned by the Partnership, provided that
nothing in this Section 5.08 shall be construed to limit the General
Partner's right to the allocations and distributions described in
Article IV;
(ix) neither the General Partner nor any Affiliate shall
provide insurance brokerage services in connection with obtaining
insurance on the Partnership's property;
(x) the Partnership shall commit at least 79.0% of the Capital
Contributions of the Limited Partners to Investment in Properties, as
described under "Use of Proceeds" in the Prospectus;
(xi) the Partnership shall cause the requirements of section
1707.09(J) of the Ohio Revised Code to be complied with in connection
with the Initial Public Offering if the Units are registered to be
offered and sold in Ohio, and in any event the General Partner shall
pay Organization and Offering Expenses to the extent the same exceeds
15% of the Capital Contributions of the Limited Partners;
(xii) the Partnership shall not purchase or lease any property
(other than goods or materials purchased in connection with the
operation of the Inns in
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accordance with Section 5.01E or in connection with administration of
the Partnership in accordance with Section 5.04) in which the General
Partner or any Affiliate has an interest or cause the Partnership to
acquire any property from any partnership or joint venture in which
the General Partner or any Affiliate has an interest unless such
purchase or lease is pursuant to the Purchase Agreement or the Ground
Leases;
(xiii) the Partnership shall not incur mortgage indebtedness in
excess of 85% of the purchase price of the Inns (or such lesser amount
as may be permitted under the Loan Agreement) prior to a refinancing
of the debt incurred pursuant to the Loan Agreement or thereafter
incur mortgage indebtedness, except to the extent necessary to repay
the debt incurred pursuant to the Loan Agreement, in excess of 85% of
the aggregate fair market value of all refinanced Inns, as determined
by the lender as of the date of the refinancing;
(xiv) the Partnership shall not make any loans or otherwise
extend credit to the General Partner or any of its Affiliates;
(xv) the Partnership shall not lease any property to the
General Partner or any of its Affiliates;
(xvi) the Partnership shall not borrow any money from the
General Partner or any of its Affiliates, the principal amount of
which is scheduled to be paid over a period of 48 months or longer
and/or not less than 50% of the principal amount of which is scheduled
to be paid during the first 24 months, other than pursuant to Section
5.06C or the Limited Debt Service Guarantee;
(xvii) the Partnership shall not borrow any funds from the
General Partner or any Affiliate of the General Partner unless such
borrowing is in accordance with Section 5.01(E)(vi) and Section 5.06C;
(xviii) the Partnership shall not acquire any property in
exchange for Interests in the Partnership; and
(xix) the Partnership shall not invest in limited partnership
interests, general partnership interests, or joint ventures.
ARTICLE SIX
WITHDRAWAL AND REMOVAL OF GENERAL PARTNER
Section 6.01. Limitation on Voluntary Withdrawal. Except as provided
in Section 5.02B(vii), the General Partner shall not have the right (but shall
have the power) to retire or withdraw voluntarily from the Partnership, and any
withdrawal in violation hereof shall constitute a breach of this Agreement and
shall be subject to the provisions of Section 6.03. Prior to any voluntary
withdrawal, the General Partner shall give the Limited Partners notice of its
intention to withdraw at least 90 days in advance of such withdrawal and the
Limited Partners may, by Consent of the Limited Partners, elect a substitute
General Partner. If a substitute General Partner is elected, it shall be
admitted immediately prior to the withdrawal of the General Partner and shall
continue the business of the Partnership without dissolution. The General
Partner shall not sell, transfer, or assign its entire general partner Interest
or any portion thereof other than as provided below. The General Partner shall
be permitted to assign its Interest in the Net Profits, Net Losses,
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Losses, Gains, Cash Available for Distribution, Capital Receipts, and other
allocations and distributions only to a wholly owned Affiliate, subject to the
following conditions:
(i) 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 material adverse tax consequences
to the Partnership or the Limited Partners or cause a default on any
Partnership debt obligation;
(ii) notwithstanding such assignment by the General Partner of
its Interest in the Net Profits, Net Losses, Gains, Cash Available for
Distribution, or Capital Receipts as provided above, upon any such
assignment (A) 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 (B) 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 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; and
(iii) following any such assignment, the Interest of the General
Partner in the Net Profits, Net Losses, Gains, Losses, Cash Available
for Distribution, Capital Receipts, and other allocations and
distributions shall be not less than 1% thereof.
Section 6.02. Bankruptcy or Dissolution of the General Partner. In
the event of the bankruptcy of the General Partner or other event that causes
the General Partner to cease to be a general partner under Sections 17-402(6),
(7), (8), (9), or (10) of the Act, the General Partner shall cease to be the
General Partner and its Interest shall terminate; provided, however, that such
termination shall not effect 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 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. Any withdrawal by the General Partner except in accordance
with Sections 5.02B(vii) and 6.01 shall constitute a breach of this Agreement.
If the General Partner withdraws in violation of this Agreement, (a) the
Partnership shall be entitled to recover from the withdrawn General Partner
damages for breach of this Agreement and offset such damages against the amount,
if any, otherwise distributable to it in addition to any remedies otherwise
available under applicable law, and (b) the General Partner's Interest as
General Partner in the Partnership shall be treated as the Interest of a removed
General Partner under Section 6.04 and shall be reduced by 50% (which reduction
of the General Partner's interest is not a penalty). In addition, if the General
Partner withdraws from the Partnership (whether with Consent of the Limited
Partners or in violation of this Agreement), the General Partner's Interest
shall be subject to purchase in the same manner as the interest of a removed
General Partner; provided, however, that the purchase price payable in
connection with any such purchase shall be paid by a non-interest bearing
promissory note with principal payable, if at all, from distributions the
General Partner otherwise would have received from this Agreement had the
General Partner not withdrawn.
Section 6.04. Removal of General Partner. In the event of the removal
of the General Partner pursuant to Section 10.02B, the removed General Partner's
Interest as General Partner in the Partnership shall become a limited partner
interest but without any voting or consensual rights which other Limited
Partners may have (except the right to continue the business of the Partnership
and to appoint one or more general partners as provided in Section 6.05A, with
respect to which the General Partner agrees that it will consent in writing to
such action); provided,
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however, that if the General Partner is removed pursuant to Section 10.02B and
if the notice of the meeting or solicitation of Consent for such removal
contained a statement (which shall have been true) that the General Partner
breached any of its obligations under Section 5.03, breached any of the
restrictions under Section 5.02, committed an act of fraud, committed any act of
misconduct, bad faith, gross negligence, or breach of fiduciary duty of loyalty
in carrying out its duties as the general partner which was not remedied within
30 days, or breached any other provision of this Agreement which was not
remedied within 30 days after notification thereof, then its Interest will be
reduced by fifty percent (50%). Such reduction of the General Partner's interest
is not a penalty. In the event of the removal of the General partner pursuant to
Section 10.02B, then the Partnership shall have the right (but not the
obligation) to purchase the removed General Partner's interest in the
Partnership (determined after giving effect to the preceding sentence) within 60
days of such removal (or if later, upon the determination of the "present fair
market value" of such interest as set forth below) at the "present fair market
value" of such interest. For purposes of the preceding sentence, the "present
fair market value" of the removed General Partner's Interest in the Partnership
shall be the amount agreed to between the Partnership and the removed General
Partner or, in the absence of such an agreement, the amount determined by
arbitration in accordance with the then current rules of the American
Arbitration Association. Payment of the purchase price for the removed General
Partner's Interest may be made, at the election of the Partnership, in cash or
by a promissory note bearing interest at the Prime Rate (but not higher than the
maximum lawful rate) and providing for payment of principal in five equal annual
installments. The expense of all arbitrations pursuant to this Section 6.04
shall be borne equally by the Partnership and the removed General Partner.
Section 6.05. Continuation and Reconstitution.
A. Upon the occurrence of an event described in Section 8.01A(ii),
(iii), or (iv), any remaining General Partner and any substitute General Partner
shall be obligated to continue the business of the General Partner without
dissolution. In the event that, upon the occurrence of such an event, there is
no remaining General Partner or substitute General Partner or there is no
remaining or substitute General Partner who agrees to continue the business of
the Partnership, in breach of the obligation set forth in the preceding
sentence, then the Partnership shall be dissolved and its affairs shall be wound
up unless, within 90 days after the occurrence of such event, all Partners agree
in writing to continue the business of the Partnership and to the appointment,
effective as of the date of such event, of one or more additional general
partners.
B. If, upon the occurrence of an event described in Section
8.01A(ii), (iii), or (iv) at a time when there is no remaining or substitute
General Partner or there is no remaining or substitute General Partner who
agrees to continue the business of the Partnership, in breach of the obligation
set forth in the first sentence of Section 6.05A, the Partnership is not
continued in accordance with Section 6.05A, then, within an additional 90 days
after the period referred to above, the Limited Partners, by Consent of the
Limited Partners, may elect to reconstitute the Partnership and continue its
business on the same terms and conditions set forth in this Agreement by forming
a new limited partnership on terms identical to those set forth in this
Agreement (except to the extent that such terms are amended by Consent of the
Limited Partners in order to reflect the interests, allocations, fees, benefits,
rights, duties, and obligations of the successor general partner) and having as
a general partner a Person approved by a Consent of the Limited Partners.
Except as amended by Consent of the Limited Partners as aforesaid, the successor
general partner shall have all of the rights, duties, and obligations of the
former General Partner and shall have a 1% interest in the Net Profits, Net
Losses, Gains, Losses, Cash Available for Distribution, Capital Receipts, and
other allocations and distributions. Upon any such Consent of the Limited
Partners, all Partners shall be bound thereby and shall be deemed to have
approved thereof. Unless such an election is made within 180 days after the
occurrence of an event described in such Section, the Partnership shall continue
only activities necessary to wind up its affairs. If such an election is so
made within 180 days after the occurrence of such an event, then:
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(i) the reconstituted Partnership shall continue until the end
of the term set forth in Section 2.04 unless earlier dissolved in
accordance with terms of this Agreement;
(ii) if the successor general partner is not the former General
Partner, then, subject to Section 6.04, the interest of the former
General Partner shall be treated thenceforth as a limited partner
interest; and
(iii) all necessary steps shall be taken to cancel this Agreement
and the Certificate of Limited Partnership and to enter into a new
partnership agreement and certificate of limited partnership, and the
successor general partner may for this purpose exercise the powers of
attorney granted the General Partner pursuant to this Agreement;
provided that the action of the Limited Partners, by Consent of the
Limited Partners, to approve a successor general partner and to
reconstitute and to continue the business of the Partnership, as
provided in this Section 6.05B (which actions shall not be taken and
such reconstitution shall not be effective until 15 days following
such vote), shall be void ab initio if prior to or within 15 days
after such vote either: (A) the Partnership shall have received an
opinion of counsel, satisfactory to the Limited Partners as provided
in Section 10.02C, that such action may not be effected without
adversely affecting the liability of the Limited Partners under the
Act or a court having jurisdiction over the matter shall have entered
a judgment subject to no further appeal to such effect; or (B) the
Partnership shall have received an opinion of counsel, satisfactory to
the Limited Partners as provided in Section 10.02C, that such action
may not be effected without changing the Partnership's status as a
partnership for federal income tax purposes, or a court having
jurisdiction over the matter shall have entered a judgment subject to
no further appeal to such effect, or the IRS shall have issued a
ruling to such effect.
ARTICLE SEVEN
ASSIGNABILITY OF UNITS
Section 7.01. Restrictions on Assignments. After the admission to
the Partnership of the Initial Limited Partners, a Limited Partner shall have
the right to assign any Interest (which for purposes of this Agreement shall
include any form of assignment, transfer, alienation or hypothecation of any
Interest), subject to the following limitations:
A. No assignment of any Interest, either wholly or in part and
whether absolute or for collateral purposes, may be made other than on the first
day of a Fiscal Quarter (commencing on or after the first day of the first full
Fiscal Quarter of the Partnership).
B. No assignment of any Interest may be made if the assignment is
pursuant to a transaction constituting a "sale or exchange" (within the meaning
of section 708(b)(1)(B) of the Code) 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 suspended 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.
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C. The General Partner may prohibit any assignment of an Interest in
the Partnership if, in the opinion of legal counsel to the Partnership, such
assignment would require filing of a registration statement under the Securities
Act of 1933 or would otherwise violate any Federal or state securities or Blue
Sky laws (including any investment suitability standards) or regulations
applicable to the Partnership or the Units.
D. No purported assignment by a Limited Partner of any Unit after
which the assignor or the assignee would hold at least a fraction of a Unit but
less than five Units, will be permitted or recognized (except for assignments by
gift, inheritance or family dissolution or assignments to Affiliates of the
assignor).
E. No transfer, assignment, or negotiation on any date of an
Interest may be made to any Person if (i) in the opinion of legal counsel for
the Partnership, it would result in the Partnership being treated as an
association taxable as a corporation, or (ii) such transfer is effectuated
through an "established securities market" or a "secondary market (or the
substantial equivalent thereof)" within the meaning of section 7704 of the Code.
F. No purported transfer or assignment of any Interest, or any
beneficial interest therein, may be made, and any such purported transfer will
be void ab initio, if, as a result of such transfer, the Partnership would be
unable to satisfy at least one of the Safe Harbors. Notwithstanding the
foregoing, if the Partnership shall have received a favorable IRS ruling or
opinion of counsel satisfactory to the General Partner to the effect that such
transfer will not result in the Partnership being classified as a "publicly
traded partnership" within the meaning of section 7704 of the Code, this Section
7.01F shall not apply to such transfer.
G. No assignment of any Interest may be made to any Person unless
such Person agrees in writing that such Person will not, directly or indirectly,
create for the Units, or facilitate the trading of Units on, a "secondary market
(or the substantial equivalent thereof)," within the meaning of section 7704 of
the Code.
H. 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 an Inn.
I. No assignment of any Interest may be made to any Person who is
not a "United States person" within the meaning of section 7701(a)(30) of the
Code, except that this limitation shall not apply to a Limited Partner who is
(i) a Foreign Investor (as defined in Section 3.05(C), or an Affiliate of a
Foreign Investor, who purchases Units in the Initial Public Offering, or (ii) a
Foreign Investor, or an Affiliate of a Foreign Investor, who acquires the
Interest from a Person qualifying under clause (i) above; it being intended that
Units sold to a Foreign Investor or an Affiliate of a Foreign Investor in the
Initial Public Offering shall not be subject to this limitation unless and until
such Units are acquired by a "United States person" who is not an Affiliate of a
Foreign Investor.
J. No assignment of any Interest may be made to any Person generally
exempt from Federal income tax under section 501 of the Code or otherwise.
K. No transfer or assignment of any Interest may be made unless the
proposed assignee has provided the General Partner with (i) a fully completed
and executed Application and Assignment and Admission as Substituted Limited
Partner in the form set forth on the reverse side of the Unit Certificate and
(ii) such other information as the General Partner may reasonably request.
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L. The General Partner may prohibit transfers of Units for the
remainder of a taxable year, notwithstanding that any such transfer would not in
itself violate any restrictions on transfers contained in this Section 7.01, if
the General Partner, in good faith and based upon the advice of counsel to the
Partnership, determines that such action is necessary or advisable in order to
protect the Partnership from possible failure to meet at least one of the Safe
Harbors. No purported transfer or assignment shall be of any effect unless all
of the foregoing conditions have been satisfied. The General Partner is
authorized to impose any other limitations or restrictions on the assignment of
Interests to the extent that it, in the exercise of its reasonable discretion
and based upon the advice of counsel to the Partnership, determines such further
limitations or restrictions are necessary or advisable to protect the
Partnership from being considered a "publicly traded partnership," within the
meaning of section 7704 of the Code. The General Partner shall, from time to
time, review the limitations and restrictions on the assignment of Interests
then in effect and the Federal income tax law, regulations, and rulings
applicable thereto, and shall eliminate or modify any such limitation or
restriction to make it less restrictive on assignment of Interests if the
Partnership shall have received an opinion of counsel that such elimination or
modification may be made without causing the Partnership to fail to meet at
least one of the Safe Harbors or be considered an association taxable as a
corporation under the applicable federal income tax laws.
M. No assignment of any Interest may be made to any Person who is
related (within the meaning of section 1.752-1T(h) of the Treasury Regulations)
to Sumitomo Trust & Banking Co., Ltd., New York Branch or any subsequent lender
to the Partnership (other than Marriott, the General Partner or an Affiliate
thereof) whose loan is Nonrecourse Debt.
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, incompetent, or bankrupt Limited Partner 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 will not recognize for any purpose any assignment
of any Interest unless (i) there shall have been filed with the Partnership not
less than 15 days prior to the first day of the next Fiscal Quarter commencing
following such filing, a duly executed and acknowledged counterpart of the
instrument making such assignment (in the form set forth on the reverse side of
the Unit Certificate) signed by both the assignor and the assignee and a duly
executed Application and Admission as Substituted Limited Partner, which
instrument evidences, inter alia, the written acceptance by the assignee of all
of the terms and provisions of this Agreement, and (ii) the General Partner has
determined that such an assignment is permitted under Article Seven and
evidenced such determination by executing the Application for Assignment and
Admission as Substituted Limited Partner. Irrespective of whether or not any
successor to a Limited Partner or a purported assignee of a Limited Partner's
Interest hereunder provides the aforesaid instruments, any such Person shall be
bound by the terms and provisions of this Agreement.
C. Subject to the provisions of this subparagraph 7.02C, no assignee
of a Limited Partner's Interest shall be entitled to become a Substituted
Limited Partner unless:
(i) the General Partner shall have given its written consent
thereto, which consent may be withheld in its absolute discretion;
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(ii) the transferring Limited Partner and the assignee shall
have executed and acknowledged such other instrument or instruments as
the General Partner may deem necessary or desirable to effect such
admission;
(iii) the assignee shall have accepted, adopted, and approved in
writing all of the terms and provisions of this Agreement, as the same
may have been amended, and executed a power of attorney similar to
the power of attorney granted in this Agreement; and
(iv) the assignee shall pay or obligate itself to pay, as the
General Partner may require, all reasonable expenses incurred in
connection with his admission as a Substituted Limited Partner (except
that the cost of any opinions of counsel referred to in this Article
Seven shall be borne by the Partnership). An assignee of a Limited
Partner's Interest shall become a Substituted Limited Partner only
when the General Partner has reflected the admission of such Person as
a Limited Partner in the books and records of the Partnership. The
General Partner shall take action once each Fiscal Quarter to reflect
in the books and records all Persons, if any, approved for admission
to the Partnership as Substituted Limited Partners since the last such
action.
D. Limited Partners who shall have assigned all their interest in
any Interests in accordance with the provisions of this Article Seven shall
cease to be Limited Partners of the Partnership with respect to such Interests
as of the date that such assignment is given effect the Partnership in
accordance with the terms of this Article Seven. A purported assignment of an
Interest not in accordance with the provisions of this Article Seven shall not
be given effect for any purpose.
E. Any Person who is the assignee of any of the Interest of a
Limited Partner in accordance with the terms of this Article Seven, but who does
not become a Substituted Limited Partner shall be entitled to all the rights of
an assignee of a limited partner interest under the Act, including the right to
receive distributions from the Partnership and the share of Net Profits, Gain,
Net Losses, Loss and recapture income attributable to the Interests assigned to
such Person, but shall not be deemed to be a holder of Units for any other
purpose under this Agreement. In the event any such Person desires to make a
further assignment of any such Interests, such Person 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. In the
event that Units are assigned in accordance with this Article Seven and such
assignment is recognized by the General Partner in accordance with this
Agreement but the assignee thereof is not admitted as a Substituted Limited
Partner, such Units shall be voted in any matter presented to the Limited
Partners for a vote in the same proportion as all Units held by Limited Partners
are voted.
F. There shall be no restrictions on the assignments of Interests
except as provided in Article Six or this Article Seven. The Partnership shall
not impose any fee on the assignment of Interests in excess of the lesser of the
actual costs incurred by the Partnership in connection with such assignment or
$150.
ARTICLE EIGHT
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
Section 8.01. Events Causing Dissolution.
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A. The Partnership shall be dissolved and its affairs wound up on
the first to occur of the following events:
(i) the bankruptcy of the Partnership; or
(ii) the withdrawal (whether or nor in accordance with this
Agreement) or removal of the General Partner, unless there is, at the
time of the occurrence of such event, a remaining or substitute
General Partner that continues the business of the Partnership
pursuant to its obligations under Section 6.05A or the Partnership is
continued pursuant to Section 6.05A; or
(iii) the bankruptcy of the General Partner, unless there is, at
the time of the occurrence of such event, a remaining or substitute
General Partner that continues the business of the Partnership
pursuant to its obligation under Section 6.05A or the Partnership is
continued pursuant to Section 6.05A; or
(iv) the occurrence of any event listed in Section 17-402(6),
(7), (8), (9), or (10) of the Act where the General Partner shall
cease to be a general partner unless there is, at the time of the
occurrence of such event, a remaining or substitute General Partner
that continues the business of the Partnership pursuant to its
obligation under Section 6.05A or the Partnership is continued
pursuant to Section 6.05A;
(v) the sale or other disposition of all or substantially all
of the property of the Partnership; or
(vi) action of the Limited Partners pursuant to Section
10.02B(ii); or
(vii) 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 and all proceeds therefrom have been collected. 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, the 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.
A. Upon dissolution of the Partnership and the failure to
reconstitute the Partnership as provided in Section 6.05B, the General Partner
(or if the dissolution is caused by the occurrence of an event described in
Section 8.01A(ii), (iii), or (iv), then a Person that may be designated as
"liquidating trustee" by the Consent of the Limited Partners, which "liquidating
trustee" shall have all of the powers of the General Partner under this
Agreement for purposes of liquidating and winding up the affairs of the
Partnership) (the term "General Partner" as used in this Section 8.02 shall be
deemed to mean the "liquidating trustee" where appropriate) 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;
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(ii) in satisfaction of Partnership Debt and all other
liabilities of the Partnership (whether by payment or making
reasonable provision for payment thereof) owing to creditors of the
Partnership other than Partners who are creditors;
(iii) in satisfaction of any liabilities of the Partnership
(whether by payment or making reasonable provision for payment
thereof) owing to Partners who are creditors of the Partnership; and
(iv) to the General Partner and to the Limited Partners, in
proportion to the net balances in their respective Capital Accounts
(after the adjustments required pursuant to Article Four of this
Agreement in respect of Net Profits, Net Losses, Gains, and Losses
have been reflected therein), 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, 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, may 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, provided that the liquidation shall be
carried out in conformity with the timing requirements of section 1.704-
1(b)(2)(ii)(b) of the Treasury Regulations.
C. No assets of the Partnership shall be distributed in kind.
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 the dissolution and termination of the Partnership or a
liquidation of the Interest of the General Partner, if, after giving effect to
Sections 8.02A through 8.02D hereof for the Fiscal Year in which such
dissolution or liquidation 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 Partners possessing positive
balances in their respective Capital Accounts. Such contribution by the General
Partner is to be made to the Partnership not later than the later of the close
of the taxable year in which the dissolution or liquidation (as defined in
section 1.704-1(b)(2)(ii)(g) of the Treasury Regulations) occurs or 90 days
after the date of such dissolution of liquidation.
Section 8.03. Constructive Termination. In the event that the
Partnership terminate by reason of section 708(b)(1)(B) of the Code, but no
event of dissolution has occurred under Section 8.01 of this Agreement, the
assets of the Partnership shall, for Federal income tax purposes only, be deemed
to have been distributed in kind to the Partners in the same manner as if the
Partnership were liquidated under Section 8.02 of this Agreement, and to have
been immediately contributed to a successor partnership (for Federal income tax
purposes) subject to this Agreement. The Capital Accounts of the Partners
thereupon shall be restated in accordance with section 1.704-1(b) of the
Treasury Regulations, and allocations of items of Partnership income, gain, loss
and deduction for book as well as tax purposes shall thereafter be made in
accordance with the terms of this Agreement, section 1.704-1(b) of the Treasury
Regulations, and section 704(c) of the Code, applicable.
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ARTICLE NINE
BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS, ETC.
Section 9.01. Books and Records.
A. 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. All appraisal reports obtained by the Partnership, whether in
connection with the acquisition of the Inns or otherwise, shall be retained by
the Partnership for at least five years from the date thereof and shall be
available for inspection and duplication by Limited Partners and their
designated representatives.
B. Each Limited Partner, and each such Limited Partner's duly
authorized representative, shall have the right, at reasonable times and at such
Limited Partner's own expense, upon prior written notice to the General Partner
(which notice shall be given a reasonable length of time in advance in light of
the scope of such request, and in no event less than five business days in
advance), (i) to have true and full information regarding the status of the
business and financial condition of the Partnership as is possessed by the
General Partner; (ii) to inspect and copy the books of the Partnership and other
reasonably available records and information as is possessed by the General
Partner concerning the operation of the Partnership, including copies of any
appraisal reports described in subparagraph A above and copies of the Federal,
state, and local income tax returns of the Partnership; (iii) to have a current
list of the name and last known business, residence, or mailing address of each
Partner mailed to such Limited Partner or representatives; (iv) to have true and
full information regarding the amount of cash and a description and statement of
the value of any property services contributed to the Partnership and the date
upon which each Partner became a Partner; and (v) to have a copy of this
Agreement, the Certificate of Limited Partnership and all amendments or
certificates of amendment, as the case may be, thereto, together with copies of
any powers of attorney pursuant to which any such amendment or certificate of
amendment has been executed.
Section 9.02. Accounting and Fiscal Year. The books of the
Partnership will be kept on the accrual basis. The Partnership will report is
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 (which institutions shall not be the General Partner or
any of its Affiliates), 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 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. Except as expressly permitted pursuant to the Management Agreement, the
funds of the Partnership shall not commingled with the funds of any other Person
(including the General Partner or any Affiliate of the General Partner).
Section 9.04. Reports. The General Partner shall deliver to each
holder of Units 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 (90 days after the end of the
initial Fiscal Year of the Partnership if
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the closing of the Initial Public Offering occurs in 1989), such information as
shall be necessary for the preparation by such holder of a Federal income tax
return, and state income or other tax returns with regard to the jurisdictions
in which the Inns are located. Such information shall include computation of the
distributions to such holder and the allocation to such holder of the Net
Profits or Net Losses, as the case may be, and any Gain or Loss, as the case may
be, recognized by the Partnership during such Fiscal Year; and
B. Within 120 days after the end of each Fiscal Year of the
Partnership, a report prepared by the General Partner which report shall set
forth the following:
(i) a statement of assets, liabilities, and Partners' capital, a
statement of income and expenses on an accrual basis, a statement of
cash flow, and a statement of changes in Partner's capital, prepared
by the General Partner on the accrual basis of accounting, in
accordance with generally accepted accounting principles, which
statements are to be audited and reported on by a firm of independent
public accountants selected by the General Partner, setting forth its
opinion as to the items in this clause (i);
(ii) the balances in the Capital Accounts of the Limited Partners
in the aggregate and of the General Partner and the identity and
amount of all sources of cash distributed or to be distributed to the
Partners in respect of such Fiscal Year;
(iii) a report (which need not be audited, but verification of
the reimbursed expenses covered by such report shall be within the
scope of the statement provided pursuant to Section 9.04B(i) of this
Agreement) 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 for the Partnership in connection
therewith;
(iv) a report of the activities of the Partnership for such
Fiscal Year.
(v) a budget (which need not be audited) setting forth the
expected Net Profits and Net Losses per Unit for the current Fiscal
Year; and
(vi) with respect to each covered by the financial forecast
included in the Prospectus, a table comparing the forecasts included
in the Prospectus with the actual results during the period covered by
the report. The report of the firm of the independent public
accountants certifying the items in clause (i) above shall include:
(a) a statement that an audit of such financial statements
has been made in accordance with generally accepted accounting
standards and that such financial statements are in conformity
with generally accepted accounting principles;
(b) a statement of the opinion of the firm of independent
public accountants with respect to the financial statements and
the accounting principles and practices reflected therein and in
regard to the consistency of the application of such accounting
principles; and
(c) an identification of any matters reflected in such
financial statements to which such firm takes exception.
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<PAGE>
C. Within 60 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 holder of Units at any time during the Fiscal Quarter
then ended (i) a balance sheet (which need not be audited); (ii) a profit and
loss statement (which need not be audited); (iii) a statement of cash flow for
such Fiscal Quarter (which need not be audited) (all of the foregoing statements
to be prepared in accordance with generally accepted accounting principles);
(iv) a statement setting forth any transactions between the Partnership and the
General Partner or any Affiliate thereof, the amount of any fees received by
either the General Partner or any Affiliated thereof for services rendered to
the Partnership, and a description of such services; and (v) any other pertinent
information regarding the Partnership and its activities during the period
covered by the report.
D. Concurrent with the report sent pursuant to Section 9.04C for the
third Fiscal Quarter of each Fiscal Year, the Partners will be furnished an
estimate of Net Profits or Net Losses per Unit for such Fiscal Year.
E. The General Partner may prepare and deliver to the holders of the
Units from time to time in its sole discretion during each Fiscal Year, in
connection with cash distributions or otherwise, 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 may, in its sole and absolute discretion, make
an election under section 754 of the Code and shall make such other tax
elections under Federal, state, or local law as it may from time to time deem
necessary or appropriate.
Section 9.06. Interim Closing of the Books. There shall be an
interim closing of the books of account of the Partnership (i) at the date of
the admission to the Partnership of the Initial 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.
Section 9.07. Information from Limited Partners. The holders of
Units shall, within 30 days of a written request by the General Partner, furnish
to the General Partner such information or execute such forms or certificates as
the General Partner shall reasonably require for the purpose of complying with
Federal, state or other tax requirements. Without further request, each Foreign
Investor shall furnish to the General Partner each year not later than February
15 of such year two properly completed copies of IRS Form 4224 ("Exemption from
Withholding of Tax on Income Effectively Connected with the Conduct of a Trade
or Business in the United States") or such other forms as may be required to
claim exemptions from withholding.
ARTICLE TEN
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MEETING 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 holders of 10% or more of the Units held by Limited
Partners. Such request and any notification from the General Partner shall
state the purpose of the proposed meeting and the matters proposed to be acted
upon thereat. If the meeting is called pursuant to such a request, notification
of such meeting shall be sent to the Limited Partners by certified mail within
ten business days after receipt of such a request and any such meeting shall be
held on a date not less than 15 no more than 60 days after receipt of such
request. Any meeting may be held at the principal office of the Partnership or
at such other location which is reasonably convenient to the Partners and which
is 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 holders of 10% or more of the Units held by Limited
Partners, the General Partner shall, submit any matter (upon which the Limited
Partners are entitled to act by Consent of the Limited Partners) to the Limited
Partners for a vote without a meeting.
B. Notification of any meeting (other than a meeting called pursuant
to Section 10.01A) 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. Any Notification of a meeting pursuant to Section 10.01A or
this Section 10.01B 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. The hour of the
meeting shall be during normal business hours. 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 outstanding Units 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 disapproving at the beginning of
the meeting 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, the General
Partner 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 or the
Limited Partner's attorney-in-fact executing it.
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<PAGE>
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.
Section 10.02. Special Voting Rights of Limited Partners.
A. If at any time any agreement (including the Management Agreement)
pursuant to which operating management of any property of the Partnership is
vested in the General Partner or an Affiliate of the General Partner provides
that 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 or as
result of a default of the General Partner or such Affiliate thereunder, the
Limited Partners, without the Consent of the General Partner, may, by Consent of
the Limited Partners, take action to exercise the right of the Partnership to
terminate such agreement.
B. To the extent not inconsistent with the Act or other applicable
law, the Limited Partners, may, by Consent of the Limited Partners without the
Consent of the General Partners, vote to:
(i) amend this Agreement; provided, however, that (a) 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, and (b) the provisions of Section 2.03 may not be altered
without the consent of the General Partner;
(ii) dissolve the Partnership;
(iii) remove the General Partner, such removal to be effective
upon the date set forth in the resolution adopted by such Consent of
the Limited Partners, provided that any such action for removal must
also provide for the appointment of a substitute General Partner by
Consent of the Limited Partners (such substitute General Partner to be
admitted as a general partner immediately prior to the effective date
of removal of the General Partner to be removed and such substitute,
together with any then remaining general partners, shall continue the
business of the Partnership without dissolution); provided further,
however, that if prior to or within 15 days after such vote either:
(A) the Partnership shall have received an opinion of counsel,
satisfactory to the Limited Partners as provided in Section 10.02C,
that such action may not be effected without adversely affecting the
liability of the Limited Partners under the Act or a court having
jurisdiction over the matter shall have entered a judgment subject to
further appeal to such effect; or (B) the Partnership shall have
received an opinion of counsel, satisfactory to the Limited Partners
as provided in Section 10.02C, that such action may not be effected
without changing the Partnership's status as a partnership for federal
income tax purposes, or a court having jurisdiction over the matter
shall have entered a judgment subject to no further appeal to such
effect, or the IRS shall have issued a ruling to such effect, then
such vote shall be void ab initio; provided further, that following
such vote, no other actions shall be taken and the removal and
appointment shall not be effective until the expiration of the 15-day
period described above;
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<PAGE>
(iv) elect a substitute General Partner to the extent provided in
Section 6.01 or reconstitute and continue the Partnership as provided
in Section 6.05B; or
(v) cause the Partnership to sell all or substantially all of the
assets of the Partnership.
C. For the purposes of Sections 6.05B and 10.02B(iii), counsel shall
be deemed to be satisfactory to the Limited Partners if (i) such counsel is not
counsel for the General Partner or any Affiliate of the General Partner and (ii)
either (a) such counsel shall have been proposed by the General Partner and
affirmatively approved within 45 days by Consent of the Limited Partners, (b)
such counsel shall have been proposed for such proposes by the holders of 10% or
more of the Units held by Limited Partners and affirmatively approved within 45
days by Consent of the Limited Partners, or (c) consent of the Limited Partners
to any action pursuant to Sections 6.05B or 10.02B shall have been obtained
without the proposal or selection of any counsel. The existence of an opinion
of counsel, court judgment, or IRS ruling to the effect described in Section
6.05B or 10.02B with respect to a particular contemplated action shall not
affect the rights of Limited Partners to vote on other future actions or the
existence of such rights.
ARTICLE ELEVEN
MISCELLANEOUS PROVISIONS
Section 11.01. Appointment of General Partner as Attorney-in-Fact.
A. Each Limited Partner irrevocably constitutes and appoints the
General Partner and the President, any Vice President, Secretary, Treasurer,
Assistant Secretary, and Assistant Treasurer of any corporate General Partner as
his true and lawful attorney-in-fact with full power and authority in such
Limited Partner's name, place, and stead to execute, acknowledge, deliver, swear
to, file, and record at the appropriate public offices such documents as may be
necessary or appropriate to carry out the provisions of this Agreement,
including but not limited to:
(i) all counterparts of this Agreement, and any amendment or
restatement thereof, including all certificates and instruments, which
the General Partner deems appropriate to form, qualify, or continue
the Partnership as a limited partnership (or a partnership in which
the Limited Partners will have limited liability comparable to that
provided by the Act) in the jurisdictions in which the Partnership may
conduct business or in which such formation, qualification, or
continuation is, in the opinion of the General Partner, necessary or
desirable to protect the limited liability of the Limited Partners;
(ii) all amendments to this Agreement adopted in accordance with
the terms hereof and all instruments which the General Partner deems
appropriate to reflect a change or modification of the Agreement in
accordance with the terms hereof;
(iii) all documents or instruments which the General Partner
deems appropriate to reflect the admission of a Limited Partner
(including any Substituted Limited Partner), in accordance with this
Agreement, the dissolution of the Partnership (including a certificate
of cancellation), sales or transfers of Partnership property, sales or
transfers of Partnership Interests, or the initial amount or increase
or reduction in amount of any Partner's Capital Contribution or
reduction in any Partner's Capital Account in accordance with the
terms of this Agreement; and
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<PAGE>
(iv) any instrument, certificate, or document to implement the
provisions of Section 5.01C(vi) or Section 3.05C.
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 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. Subject to the provisions of Section 7.02, each Initial Limited
Partner, Substituted Limited Power, and any successor General Partner, whether
or not such Person becomes a signatory hereof shall be deemed, solely by reason
of having become a Partner, to have adopted, and to have agreed to be bound by
all the provisions of this Agreement. Without limiting the foregoing, each
Initial Limited Partner, Substituted Limited Partner, and any successor General
Partner shall take any action requested by the General Partner (including,
without limitation, executing this Agreement or such other instrument or
instruments as the General Partner shall determine) to reflect such Person's
adoption of, and agreement to be bound by all the provisions of, this Agreement.
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 Limited Partners; 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) adversely affect the liability of a Limited Partner; (iii) alter the
Interest of a Partner in Net Profits, Net Losses, Gain, Loss, or distributions
of Cash Available for Distribution, Sale Proceeds, or Refinancing Proceeds, or
reduce the percentage of Partners which is required to Consent to any action
hereunder; (iv) limit in any manner the liability of the General Partner as
provided in Section 3.09; (v) permit the General Partner to take any action
prohibited by Section 5.02A; (vi) cause the Partnership to be taxed for Federal
income tax purposes as an association taxable as a corporation; or (vii) effect
any amendment or modification to this Section 11.02B.
C. If this Agreement shall be amended to reflect the withdrawal,
removal, bankruptcy or any event described in Section 17-402(6), (7), (8), (9),
or (10) of the Act where the General Partner shall cease to be a 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 agrees
to do so) 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 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 substitution of a Limited Partner, than once each
calendar quarter.
E. The General Partner may, without the Consent of the Limited
Partners, make any amendment to this Agreement (i) as is necessary solely to
clarify provisions thereof so long
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as such amendment does not adversely affect the rights of the Limited Partners
under this Agreement, or (ii) is expressly permitted by Section 5.01C(vi).
Section 11.03. General Partner Representations and Warranties. The
General Partner represents that, except to the extent expressly permitted by
Section 5.06B, 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 here 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. Notwithstanding the place where
this Agreement may be executed by any of the parties hereto, this Agreement, the
rights and obligations of the parties hereto, and any claims and disputes
relating thereto shall be subject to and governed by the Act and the other laws
of the State of Delaware as applied to agreements among Delaware residents to be
entered into and performed entirely within the State of Delaware, and such laws
shall govern all aspects of this Agreement, including, without limitation, the
limited partnership aspects of this Agreement.
Section 11.06. Counterparts. This Agreement may be executed in
several counterparts, all of which together shall constitute one agreement
binding on all parties hereto, notwithstanding that all the parties have not
signed the same counterpart.
Section 11.07. Separability of Provisions. Each provision of this
Agreement shall be considered separable and if for any reason any provision or
provisions hereof are determined to be invalid and contrary to any existing or
future law, such invalidity shall not impair the operation of or affect those
portions of this Agreement which are valid.
Section 11.08. Article and Section Titles. Article and section
titles are for descriptive purposes only and shall not control or alter the
meaning of this Agreement as set forth in the text.
Section 11.09. Short Form Filings. The General Partner shall have
authority to sign any short-form Certificate of Limited Partnership or restated
or amended Certificate of Limited Partnership meeting the requirement of
applicable law which reflects this Agreement, as same may be amended.
Section 11.10. Submissions to State Securities Law Administrators.
Pursuant to registration applications, the Partnership shall submit to state
securities administrators of states in which the Units were offered or sold,
upon request, any report or statement required by this Agreement to be
distributed to the Limited Partners.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
GENERAL PARTNER:
MARRIOTT FIBM ONE CORPORATION
By: /s/
-----------------------------------------
Its: President
----------------------------------------
ORGANIZATIONAL LIMITED PARTNER:
CHRISTOPHER G. TOWNSEND
/s/ Christopher G. Townsend
----------------------------------------
LIMITED PARTNERS:
All Limited Partners now and hereafter
admitted to the Partnership as limited
partners of the Partnership, pursuant to
powers of attorney and authorizations now
and hereafter executed in favor of and
granted and delivered to the General Partner
Marriott FIBM One Corporation, as attorney-
in-fact for all Limited Partners
By: /s/
-----------------------------------------
Its: President
----------------------------------------
Solely for purposes of the obligations contained in Section 5.03B, the
undersigned have executed this Agreement as of the date first above written.
Marriott Corporation
By: /s/
-----------------------------------------
Its: Vice President & Assistant Treasurer
----------------------------------------
Host International, Inc.
By: /s/
-----------------------------------------
Its: Vice President & Assistant Treasurer
----------------------------------------
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<PAGE>
EXHIBIT 10.a
MANAGEMENT AGREEMENT
--------------------
by and between
FAIRFIELD FMC CORPORATION
-------------------------
as "MANAGEMENT COMPANY"
and
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
---------------------------------------------
as "OWNER"
Dated as of November 17, 1989
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Article I - Definition of Term
- ------------------------------
1.01 Definition of Terms...............................................
Article II - Appointment of Management Company
- ----------------------------------------------
2.01 Appointment.......................................................
2.02 Delegation of Authority...........................................
2.03 Licenses and Permits..............................................
2.04 Non-Discrimination................................................
Article III - Ownership of the Hotels
- -------------------------------------
3.01 Ownership of Inns.................................................
3.02 Compliance with Ground Lease......................................
Article IV - Term
- -----------------
4.01 Term..............................................................
4.02 Performance Termination...........................................
4.03 Actions to be Taken on Termination................................
4.04 Pre-Closing Termination...........................................
Article V - Compensation of Management Company
- ----------------------------------------------
5.01 Management Fees and System Fee....................................
5.02 Incentive Management Fees.........................................
5.03 Application of Capital Proceeds...................................
5.04 Debt Service Payment..............................................
5.05 Accounting and Interim Payment....................................
Article VI - Pre-Opening
- ------------------------
6.01 Pre-Opening Services..............................................
6.02 Responsibility for Pre-Opening Services...........................
Article VII - Working Capital and Fixed Asset Supplies
- ------------------------------------------------------
7.01 Working Capital and Inventories...................................
7.02 Fixed Asset Supplies..............................................
Article VIII - Repairs, Maintenance and Replacements
- ----------------------------------------------------
8.01 Routine Repairs and Maintenance...................................
8.02 FF&E Reserve......................................................
8.03 Building Alterations, Improvements, Renewals and Replacements.....
8.04 Liens.............................................................
8.05 Ownership of Replacements.........................................
Article IX - Bookkeeping and Bank Accounts
- ------------------------------------------
9.01 Books and Records.................................................
9.02 Accounts, Expenditures............................................
9.03 Annual Operating Projection.......................................
9.04 Operating Losses; Credit..........................................
i
<PAGE>
Article X - Trademarks, Trade Names and Service Marks
- -----------------------------------------------------
10.01 Trademark, Trade Names and Service Marks..........................
10.02 Purchase of Inventories and Fixed Asset Supplies..................
10.03 Breach of Covenant................................................
Article XI - Possession and Use of The Inns
- -------------------------------------------
11.01 Ground Leases.....................................................
11.02 Management of the Inns............................................
11.03 Chain Services....................................................
11.04 Marketing Fund....................................................
11.05 Owner's Right to Inspect..........................................
11.06 Reservations System...............................................
Article XII - Insurance
- -----------------------
12.01 Property and Operational Insurance................................
12.02 General Insurance Provisions......................................
12.03 Cost and Expense..................................................
12.04 Owner Provided Coverage...........................................
12.05 Loan Agreement Insurance Provisions...............................
Article XIII - Taxes
- --------------------
13.01 Real Estate and Personal Property Taxes...........................
Article XIV - Inn Employees
- ---------------------------
14.01 Employees.........................................................
Article XV - Damage, Condemnation and Force Majeure
- ---------------------------------------------------
15.01 Damage and Repair.................................................
15.02 Condemnation......................................................
15.03 Force Majeure.....................................................
Article XVI - Defaults
- ----------------------
16.01 Events of Default.................................................
16.02 Remedies..........................................................
Article XVII - Waiver and Partial Invalidity
- --------------------------------------------
17.01 Waiver............................................................
17.02 Partial Invalidity................................................
17.03 Estoppel Certificates.............................................
Article XVIII - Assignment
- --------------------------
18.01 Assignment........................................................
18.02 Mortgages and Collateral Assignments..............................
Article XIX - Sale of an Inn or Inns
- ------------------------------------
19.01 Right of First Refusal............................................
19.02 Effect of Sale or Refinancing of an Inn...........................
Article XX - Miscellaneous
- --------------------------
20.01 Right to Make Agreement...........................................
20.02 Consents..........................................................
20.03 Agency............................................................
20.04 Applicable Law....................................................
ii
<PAGE>
20.05 Recordation.......................................................
20.06 Headings..........................................................
20.07 Notices...........................................................
20.08 Limited Liability.................................................
20.09 Entire Agreement..................................................
20.10 Binding Effect....................................................
20.11 Compliance with Loan Documents....................................
iii
<PAGE>
MANAGEMENT AGREEMENT
--------------------
This Management Agreement ("Agreement") is executed as of the
day of November, 1989 ("Execution Date"), by FAIRFIELD INN BY MARRIOTT LIMITED
PARTNERSHIP ("Owner"), a Delaware limited partnership with a mailing address at
10400 Fernwood Road, Bethesda, Maryland 20058, and FAIRFIELD FMC CORPORATION
("Management Company"), a Delaware corporation, with a mailing address at 10400
Fernwood Road, Bethesda, Maryland 20058.
R E C I T A L S :
A. Owner has entered into an agreement (the "Purchase Agreement")
to acquire up to fifty Fairfield Inn properties (collectively, the "Inns" or
individually, an "Inn," as more particularly described in Section 1.01 hereof)
which are being operated or are under construction to be operated under the
trade name "Fairfield Inn." Pursuant to the Purchase Agreement, Owner will
acquire fee title to 18 parcels of real property and leasehold interests in 32
parcels of real property (collectively, the "Sites" or individually, a "Site")
described on Exhibit A attached to this Agreement and incorporated herein. Each
Site is or will be improved with a Fairfield Inn property. Each respective Site
and the Inn thereon are collectively referred to as an "Inn," as more
particularly described in Section 1.01 hereof.
B. Owner desires to have Management Company manage and operate the
Inns and Management Company is willing to perform such services for the account
of Owner on the terms and conditions set forth herein.
C. Management Company has represented that it possesses the
resources necessary to fulfill its obligations under this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and other good and valuable consideration, the
receipt of which is hereby acknowledged, 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 the four (4) week accounting periods
-----------------
having the same beginning and ending dates as Management Company's four (4) week
accounting periods, the first of which during any full Fiscal Year shall begin
on the first Saturday of such Fiscal Year and shall end
<PAGE>
on the fourth following Friday. There shall be thirteen (13) consecutive four-
week Accounting Periods in each full Fiscal Year, except that the last
Accounting Period in a Fiscal Year may occasionally contain five (5) weeks when
necessary to conform the accounting system to the calendar.
"Additional Inn Investments" shall mean any amounts expended by Owner,
--------------------------
after the purchase of the Inns by Owner pursuant to the Purchase Agreement, for
the following purposes:
a) to fund the cost of any expansion or improvements, previously
consented to by Management Company, of any Inn;
b) to fund the cost of any repairs or replacements under
Section 15.01, with respect to any Inn, which are not covered by
insurance proceeds under Section 12.01A;
c) to fund under Section 8.03 A2 the cost of any building
alterations and related expenses requested by Management Company; and,
d) to fund any reasonable business needs (not including amounts
funded under Section 8.02 E) of Owner relating to the operation of one
or more of the Inns, as requested by or otherwise approved by
Management Company (which approval shall not be unreasonably
withheld).
"Additional Inn Investment Loan" shall mean (i) any indebtedness
------------------------------
incurred by Owner to fund an Additional Inn Investment or any refinancing
thereof, provided that the terms of any such loan are commercially reasonable,
plus (ii) expenses of up to two (2) percentage points of the principal amount of
any refinancing thereof.
"Administrative Expense" shall mean, with respect to any Fiscal Year,
----------------------
an annual amount equal to the lesser of (i) the aggregate amount of payments
for, or reserves created for payment for, administrative expenses of Owner with
respect to such Fiscal Year; or (ii) an amount equal to $375,000 for 1989 or,
for any Fiscal Year after 1989, an amount equal to $375,000 increased by the
CPI.
"Agreement" shall have the meaning ascribed to it in the Preamble.
---------
"Annual Operating Projection" shall have the meaning ascribed to it in
---------------------------
Section 9.03.
"Base Management Fee" shall mean an annual amount equal, during any
-------------------
given Fiscal Year (or portion thereof), to one percent (1%) of Gross Revenues
for each Fiscal Year through 1994 and two percent (2%) of Gross Revenues for
each Fiscal Year thereafter.
"Building Estimate" shall have the meaning ascribed to it in
-----------------
Section 8.03 A.
"Capital Proceeds" shall mean Net Refinancing Proceeds and/or Net
----------------
Sales Proceeds.
"Cash Flow Available for Incentive Management Fee" shall have the
------------------------------------------------
meaning ascribed to it in Section 5.02 F.
"Chain Services" shall have the meaning ascribed to it in
--------------
Section 11.03.
-2-
<PAGE>
"Consumer Price Index Adjustment" shall mean an increase by 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 published) (the "CPI") for January of the Fiscal Year in
question exceeds the CPI for January 1989.
"Contingent Incentive Management Fees" shall mean those portions of
------------------------------------
any Incentive Management Fees for each Fiscal Year (or portion thereof) which
are not paid to Management Company in such Fiscal Year (or portion thereof)
owing to the limitations set forth in Section 5.02 hereof. Notwithstanding
anything herein to the contrary, any portion of the Incentive Management Fee
from the Effective Date through the Accounting Period ending December 31, 1992
that would have been paid for such year but for the aforesaid limitations of
Section 5.02 shall not be included in Contingent Incentive Management Fees and
Management Company shall never be entitled to payment thereof.
"Deductions" shall have the meaning ascribed to it in the definition
----------
of Operating Profit.
"Development Inn" or "Development Inns" shall mean those Inns
--------------- ----------------
currently under development by Marriott to be acquired by the Owner from
Marriott or Marriott affiliates on or subsequent to the Effective Date.
"Effective Date" shall mean the date on which Owner first acquires fee
--------------
(or leasehold) title to one or more of the Inns purchased pursuant to the
Purchase Agreement.
"Execution Date" shall have the meaning ascribed to it in the
--------------
Preamble.
"FF&E" shall mean furniture, furnishings, fixtures, vehicles,
----
carpeting and equipment (including communication and computer systems), but
shall not include Fixed Asset Supplies.
"FF&E Replacement Estimate" shall have the meaning ascribed to it in
-------------------------
Section 8.02 D.
"FF&E Reserve" shall have the meaning ascribed to it in
------------
Section 8.02 A.
"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. A
partial Fiscal Year between the end of the last full Fiscal Year and the
Termination of this Agreement shall, for purposes of this Agreement, 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 applications of
Operating Profit or other payments due hereunder.
-3-
<PAGE>
"Fixed Asset Supplies" shall mean supply items included within
--------------------
"Property and Equipment" under the Uniform System of Accounts, including, but
not limited to, linen, uniforms, and similar items, whether used in connection
with public space or rooms.
"Force Majeure" shall have the meaning ascribed to it in
-------------
Section 15.03.
"Gross Revenues" shall mean, for all Accounting Periods to date in
--------------
each Fiscal Year, all revenues and receipts of every kind derived from operating
the Inns and all departments and parts thereof, including, but not limited to:
income (from both cash and credit transactions), before commissions and
discounts for prompt or cash payments, from rental of rooms, meeting rooms and
space of every kind; license, lease and concession fees and rentals (not
including gross receipts of any licensees, lessees and concessionaires); income
from vending, facsimile and copy machines; wholesale and retail sales of
merchandise (except as otherwise provided in Section 8.02C hereof with respect
to the sale of FF&E and except for wholesale sales of merchandise not generally
related to the business of the Inns), service charges, and proceeds, if any,
from business interruption or other loss of income insurance, all determined in
accordance with generally accepted accounting principles; provided, however,
that Gross Revenues shall not include (i) gratuities to Inn employees;
(ii) federal, state or municipal excise, sales or use taxes or similar
assessments or Impositions collected directly from patrons or guests or included
as part of the sales price of any goods or services; (iii) Net Refinancing
Proceeds or Net Sales Proceeds; (iv) proceeds from the sale of FF&E;
(v) interest received or accrued with respect to the funds in the FF&E Reserve
or the other operating accounts of the Inns; or (vi) any refunds, rebates,
discounts and credits of a similar nature, given, paid or returned in the course
of obtaining Gross Revenues or components thereof (including, without
limitation, commissions and discounts for prompt or cash payments).
"Ground Leases" shall have the meaning ascribed to them in the
-------------
definition of Ground Rent.
"Ground Rent" shall mean, for all Accounting Periods to date in each
-----------
Fiscal Year, the total rent and other amounts paid or accrued to the landlord by
Owner pursuant to those certain ground leases entered into between the Owner and
Marriott and certain affiliates of Marriott ("Ground Leases") for leasing of the
land on which 32 of the Inns are or will be located, as amended, renewed or
replaced from time to time.
"Impositions" shall have the meaning ascribed to it in Section 13.01.
-----------
"Incentive Management Fee" shall mean an annual amount which equals
------------------------
fifteen percent (15%) of Operating Profit in any Fiscal Year increasing to
twenty percent (20%) of Operating Profit for all Fiscal Years (and portions
thereof) after the end of the first period of thirteen (13) consecutive
Accounting Periods during which Operating Profit has equaled or exceeded the
Operating Profit Objective. Payment of the Incentive Management Fee to
Management Company shall be subject to the provisions of Article V hereof.
-4-
<PAGE>
"Initial Term" shall have the meaning ascribed to it in section 4.01.
------------
"Inn" or "Inns" shall refer individually or collectively to the
--- ----
Fairfield Inn properties listed in Exhibit A hereto or any Fairfield Inn
property substituted therefor under the Purchase Agreement. The terms "Inn" or
"Inns" incorporate not only the Site or Sites but also all easement or other
appurtenant rights thereto, together with the buildings and all other
improvements now or hereafter constructed thereon, and all FF&E and Fixed Asset
Supplies installed or located therein. Each Inn shall become subject to this
Agreement when acquired by the Owner pursuant to the Purchase Agreement.
"Inn Retention" shall mean the amount of any loss or reserve under
-------------
Management Company's, Marriott's or a Marriott Affiliate's blanket insurance or
self-insurance programs which is allocated to an Inn, not to exceed the higher
of (a) the maximum per occurrence limit reasonably established for similar inns
or hotels participating in such programs, or (b) if applicable, 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). If the Inn is not a participant under Management Company's,
Marriott's or a Marriott Affiliate's blanket insurance or self-insurance
programs, "Inn Retention" shall mean the amount of any loss or reserve allocated
to the Inn, not to exceed the insurance policy deductible.
"Inn Term" shall have the meaning ascribed to it in Section 4.01.
--------
"Inventories" shall mean "Inventories" as defined in the Uniform
-----------
System of Accounts, such as, but not limited to, provisions in storerooms; other
merchandise intended for sale; fuel; mechanical supplies; stationery; and other
expensed supplies and similar items.
"Lender" shall mean Sumitomo Trust & Banking Co. (U.S.A.).
------
"Limited Debt Service Guarantee" shall mean the agreements between
------------------------------
Marriott, the Lender and/or Owner whereby Marriott will lend Owner an amount not
to exceed Sixteen Million Five Hundred Thousand Dollars ($16,500,000) to the
extent necessary for payment of (i) interest on the Permanent Loan and renewals
and replacements thereof, and (ii) the principal amount of the Permanent Loan
and renewals and replacements thereof.
"Limited Debt Service Guarantee Advance" shall mean payments advanced
--------------------------------------
by Marriott under the Limited Debt Service Guarantee.
"Loan Agreement" shall mean that certain agreement entered into
--------------
between Owner and Lender regarding the Permanent Loan.
"Management Company" shall have the meaning ascribed to it in the
------------------
Preamble.
"Marketing Fund" shall mean that certain fund (or any successor fund)
--------------
maintained by Management Company, in its capacity as operator or franchisor of
the Fairfield Inn system, to provide for developing, producing and administering
certain system-wide programs/materials for
-5-
<PAGE>
advertising, marketing, direct sales, promotions and public relations. The
Management Company will have no ownership interest in the Marketing Fund.
"Marriott" shall mean Marriott Corporation, the corporate parent of
--------
Management Company.
"Marriott Affiliate" shall mean Marriott and any corporation of which
------------------
Marriott, either directly or indirectly through one or more intermediary
corporations, owns over fifty percent (50%) of the voting stock or any
partnership wherein Marriott, either directly or indirectly, through one or more
intermediary corporations or other entities, owns or controls the general
partnership interests and over fifty percent (50%) of the voting and economic
partnership interests of such partnership.
"Net Refinancing Proceeds" shall mean the cumulative full amount
------------------------
disbursed (in one or more advances) under any loan or loans obtained by Owner
(other than Additional Hotel Investment Loans), from time to time, to the extent
and in the amount such disbursement or disbursements are not used for the
following purposes: (i) the simultaneous repayment of other indebtedness of
Owner, (ii) commercially reasonable transaction costs, and (iii) the payment of,
or creation of reserves in the reasonable discretion of Owner for, reasonable
and necessary expenditures of Owner, including (but not limited to)
Administrative Expenses, FF&E Reserves, Ground Rent and Working Capital needs
related to the Inns.
"Net Sales Proceeds" shall mean the cumulative net proceeds received
------------------
by Owner, from time to time, from any one or more of the following: (i) any Sale
of an Inn; (ii) the condemnation, eminent domain taking, casualty or other
disposition of any of (or any portion of) the Inns or the Sites; or (iii) the
liquidation of Owner's property interest in the Inns in connection with a
dissolution of Owner. The phrase "net proceeds," as used in the foregoing
sentence, shall mean the gross proceeds received from any of the foregoing to
the extent and in the amount such gross proceeds are not used for the following
purposes: (i) simultaneous repayment of any indebtedness secured by the Inn or
Inns being sold (or the pro rata portion (according to allocation of the loan
amount to such Inn) of indebtedness secured by all the Inns) and all other
indebtedness required to be repaid therefrom; (ii) commercially reasonable
transaction costs and, in the case of a condemnation, eminent domain taking or
casualty, all costs of repairing, restoring, replacing, and reconstructing an
Inn or any portion thereof; (iii) in the case where Owner exercises the site
purchase option under a Ground Lease, the purchase price of the land covered
thereby; and (iv) the payment of, or creation of reserves in the reasonable
discretion of Owner for, Administrative Expenses, FF&E Reserves, Ground Rent
and Working Capital needs related to the remaining Inns. The term "Net Sales
Proceeds" shall not include proceeds from disposition of FF&E described in
Section 8.02C hereof.
-6-
<PAGE>
"Operating Loss" shall mean, for all Accounting Periods to date in
--------------
each Fiscal Year, the excess, if any, of Deductions over Gross Revenues.
"Operating Profit" shall mean, for all Accounting Periods to date in
----------------
each Fiscal Year, the excess of Gross Revenues over the following deductions
("Deductions") incurred by Management Company in operating the Inns:
1. The cost of sales including salaries, wages (including
accruals for periodic bonuses to Inn employees), fringe benefits, payroll taxes
and other costs related to Inn employees (the foregoing costs shall not include
salaries and other employee costs of executive personnel of Management Company
who do not work at one of the Inns on a regular basis);
2. Departmental expenses, administrative and general expenses
and the cost of Inn advertising, central reservations, local marketing and
business promotion, heat, light and power, and routine repairs, maintenance and
minor alterations treated as Deductions under Section 8.01;
3. Credit card and travel agent commissions;
4. The cost of Inventories and Fixed Asset Supplies consumed
in the operation of each Inn;
5. Reasonable bad debt expense (or a reasonable reserve) for
uncollectable accounts receivable as determined by Management Company;
6. All costs and fees of independent accountants or other
third parties retained by Management Company who perform services required or
permitted hereunder;
-7-
<PAGE>
7. The cost and expense of technical consultants and
operational experts retained by Management Company (or retained by Owner and
approved by Management Company) for specialized services in connection with non-
routine Inn work or other specialized services not covered by the Base
Management Fee or the System Fee;
8. The Base Management Fee payable after giving effect to
Section 5.01D hereof;
9. The System Fee;
10. The Inn's pro rata share of costs and expenses incurred by
Management Company in providing Chain Services and the national reservations
system;
11. Insurance costs and expenses (including Inn Retention or
other deductibles) as provided in Article XII;
12. Taxes, if any, payable by or assessed against Management
Company related to this Agreement or to Management Company's operation of the
Inns (exclusive of Management Company's income taxes) and all Impositions;
13. The contributions to the FF&E Reserve which are required
pursuant to Section 8.02;
14. Contributions to the Marketing Fund;
15. Amortization of the amounts described in Section 8.02E3;
16. Rent payable under any equipment leases not funded out of
the FF&E Reserve; and
17. Such other costs and expenses as are specifically provided
for elsewhere in this Agreement or are otherwise
[Page missing]
-8-
<PAGE>
"Owner's Net Contributed Capital" shall mean the excess of (a) Owner's
-------------------------------
Contributed Capital over (b) cumulative distributions of Net Refinancing
Proceeds and Net Sales Proceeds to the Partners of the Owner pursuant to
Sections 4.06 and 4.07 of the Partnership Agreement (excluding distributions to
the Partners to satisfy the "Partners' 12% Preferred Distribution" (as defined
therein)).
"Owner's Priority Return" shall mean, for all Accounting Periods to
-----------------------
date in each Fiscal Year, an amount equal to an annual non-cumulative amount
retained by Owner out of Operating Profit, as set forth in Section 5.02B hereof,
equal to nine percent (9%) of Owner's Contributed Capital in 1989 and 1990 (such
amount to be adjusted to reflect the actual number of days between the Effective
Date and the end of each such Fiscal Year), nine and one-half percent (9.5%) of
Owner's Contributed Capital in 1991 and 1992 and ten percent (10%) of Owner's
Contributed Capital in each Fiscal Year thereafter, subject to reduction upon
any Termination.
"Owner's 12% Priority and Capital Return" shall mean, for all
---------------------------------------
Accounting Periods to date in each Fiscal Year, an amount equal to (a) the
portion not yet retained by Owner from Operating Profit, Net Refinancing
Proceeds or Net Sales Proceeds of a twelve percent (12%) per annum cumulative
non-compounded return on the average daily balance outstanding of Owner's Net
Contributed Capital plus (b) the portion not yet retained by Owner from Net
Refinancing Proceeds or Net Sales Proceeds of one hundred percent (100%) of
Owner's Net Contributed Capital.
"Partner" or "Partners" shall mean a partner or partners in Owner.
---------------------
"Partnership Agreement" shall mean the Amended and Restated Agreement
---------------------
of Limited Partnership of Owner of even date herewith.
"Permanent Loan" shall mean the loan in the principal amount of One
--------------
Hundred Sixty Four Million Eight Hundred Fifty Thousand Dollars ($164,850,000)
provided or to be provided to Owner by Lender to finance a portion of the
purchase price of the Inns pursuant to the Purchase Agreement and certain other
amounts pursuant to the Loan Agreement, such as development fees, Lender's fees,
title insurance, and mortgage and transfer taxes.
"Prime Rate" shall mean the prime rate of interest announced from time
----------
to time by The First National Bank of Chicago.
"Purchase Agreement" shall have the meaning ascribed to it in the
------------------
Recitals.
"Qualified Debt" shall mean the sum of, without duplication, (i) the
--------------
Permanent Loan, (ii) indebtedness incurred to pay the Incentive Management Fees,
any remaining unpaid Base Management Fees under Section 5.01D hereof, any
remaining unpaid Ground Rent under Section 4.02(d) of the Ground Leases, or any
Contingent Incentive Management Fees, (iii) Additional Inn Investment Loans,
(iv) indebtedness incurred to pay any outstanding Limited Debt Service Guarantee
Advances and accrued interest thereon, and (v) Replacement Debt with respect to
the Inns.
-9-
<PAGE>
"Qualifying Debt Service" shall mean, for all Accounting Periods to
-----------------------
date in each Fiscal Year, (i) the Stipulated Debt Service, (ii) interest and
principal actually paid or accrued on all Qualified Debt (other than the
Permanent Loan and all refinancings thereof in an amount up to the original
principal amount thereof), plus (iii) all fees related thereto and all penalties
attributable to acts or omissions of Management Company. In no event, however,
shall "Qualifying Debt Service" include, with respect to any indebtedness:
(i) any balloon payments; or (ii) voluntary prepayments on the Permanent Loan;
or (iii) any repayments of the portion of the principal and interest of any
indebtedness which is incurred for the purpose of distributing the same to the
Partners of Owner. The term "balloon payments," as used in this Agreement, shall
mean any repayments or prepayments (whether voluntary or involuntary) of
principal in any given Fiscal Year (regardless of whether the borrower is
permitted or obligated to make the same) to the extent that any such repayments
or prepayments exceed the principal amount, if any, that would have been payable
during such Fiscal Year pursuant to the terms of such indebtedness.
"Renewal Term(s)" shall have the meaning ascribed to it in
---------------
Section 4.01.
"Replacement Debt" shall mean that portion of any indebtedness Owner
----------------
incurs on commercially reasonable terms (i) to refinance part or all of the
original principal amount of the Permanent Loan or part or all of the then
outstanding balance of other Qualified Debt, plus (ii) to finance the reasonable
costs of any refinancings in clause (i) above but not in excess of 2% of the
principal amount of such refinancing.
"Sale of an Inn" or "Sale of the Inns" shall mean any sale,
-------------- ----------------
assignment, transfer or other disposition, for value or otherwise, voluntary or
involuntary, of the fee simple title (or leasehold interest, as the case may be)
to one or more of the Inns.
"Seller" shall mean Marriott and each other "Seller" under the
------
Purchase Agreement.
"Site" or "Sites" shall refer individually or collectively to the
---- -----
parcels of land whose addresses are set forth on Exhibit A attached hereto and
incorporated herein.
"Stipulated Debt Service" shall mean $15,940,995.
-----------------------
"System Fee" shall mean an annual amount payable to Management
----------
Company, to pay for a portion of the Inns' share of certain costs and expenses
benefitting all Fairfield Inn properties incurred by Management Company,
Marriott or Marriott Affiliates as described in Section 5.01B. Such amount
shall be equal, during any given Fiscal Year (or portion thereof), to three
percent (3%) of Gross Revenues for each Fiscal Year (or portion thereof). The
System Fee shall be paid as provided in Article V.
"Termination" shall mean the expiration or sooner cessation of this
-----------
Agreement with respect to a specific Inn or all the Inns.
"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.
-10-
<PAGE>
"Working Capital" shall mean funds which are reasonably necessary for
---------------
the day-to-day operation of the Inns' business, including, without limitation,
amounts sufficient for the maintenance of change and petty cash funds, operating
bank accounts, receivables, payrolls, prepaid expenses and funds required to
maintain Inventories, less accounts payable and accrued current liabilities.
END OF ARTICLE I
-11-
<PAGE>
ARTICLE II
APPOINTMENT OF MANAGEMENT COMPANY
---------------------------------
2.01 Appointment
-----------
Owner hereby appoints and employs Management Company as Owner's
exclusive agent to supervise, direct and control the management and operation of
the Inns for the term provided in Article IV. Management Company accepts said
appointment and agrees to manage the Inns as Fairfield Inns during their
respective Inn Terms and 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. Management Company may not delegate its
duties hereunder except to a Marriott Affiliate which satisfies the requirements
of Section 18.01 A 1 hereof. Management Company represents and warrants that it
possesses the resources necessary to fulfill its obligations under this
Agreement. Marriott covenants that it and/or Marriott Affiliates will make
available to Management Company any and all resources possessed by Marriott
and/or Marriott Affiliates, but not otherwise possessed by Management Company,
necessary for Management Company to fulfill its obligations hereunder.
2.02 Delegation of Authority
-----------------------
The operations of the Inns shall be under the exclusive supervision
and control of Management Company which, except as otherwise specifically
provided in this Agreement, shall be
[Page 22 missing]
withdrawal or revocation have been exhausted; (iii) Management Company has made
every reasonable effort to obtain a substitute license or permit that would
allow for the continued operation of such Inn as a Fairfield Inn; and (iv) such
revocation is not common with other economy hotels in the same market area.
2.04 Non-Discrimination
------------------
The parties recognize that Management Company, Marriott and Marriott
Affiliates either own or manage other hotels and inns. Certain of these hotels
and inns, now or in the future, may be located within the general geographical
area of one or more of the Inns. Management Company, Marriott and Marriott
Affiliates shall institute reasonable internal controls and procedures to ensure
that no favoritism shall be accorded to such other hotels or inns owned or
managed by Management Company, Marriott, or a Marriott Affiliate on the basis of
the ownership or management thereof and that, at all times during the term of
this Agreement, Management Company, Marriott and Marriott Affiliates will
operate the various hotels or inns under its management, including the Inns, in
a non-discriminatory manner.
END OF ARTICLE II
-12-
<PAGE>
ARTICLE III
OWNERSHIP OF THE INNS
---------------------
3.01 Ownership of Inns
-----------------
A. Owner hereby covenants that, upon the acquisition of each of the
Inns pursuant to the Purchase Agreement, it will, have, keep and maintain good
and marketable title to the respective fee or leasehold interests in each Inn,
free and clear of any and all liens, encumbrances or other charges, except as
follows:
1. Easements or other encumbrances (other than those
described in subsections 2, 3 and 4 hereof) which do not adversely affect the
operation of any Inn by Management Company, including, without limitation, any
encumbrances or other defects of title subject to which title was conveyed to
Owner under the terms of the Purchase Agreement;
2. Mortgages, deeds of trust or similar security instruments
which contain a provision reasonably acceptable to Management Company's counsel
that this Agreement will not be subject to forfeiture or Termination other than
in accordance with the terms hereof, notwithstanding a default under such
mortgage, deed of trust or security instrument; and which either (i) secure one
of the following: (x) any indebtedness on which all or a portion of the payments
constitute Qualifying Debt Service, or (y) debt incurred for distribution to the
Partners of Owner, or (ii) secure any amount due under the Loan Agreement.
3. Liens for taxes, assessments, levies or other public
charges not yet due or which are being contested in good faith;
4. Liens, encumbrances, or other charges resulting from
Management Company's acts; and
5. The terms and conditions of the Ground Leases.
B. Provided Management Company is not in monetary 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 upon any
mortgage, deed of trust or like instrument described in this Section (including,
without limitation, any amounts owed under the Loan Agreement) and shall
indemnify Management Company from and against all claims, litigation and damages
arising from the failure to make such payments as and when required.
Notwithstanding the foregoing, Owner shall not be required to indemnify
Management Company for lost profits if the reason for failure to pay and
discharge amounts due under any instrument described in this section is due to
insufficient Operating Profits to make such payments.
3.02 Compliance with Ground Leases
-----------------------------
So long as Management Company is not wrongfully withholding any money
from Owner and no other monetary "event of default" by Management Company has
occurred and is
-13-
<PAGE>
continuing, Owner agrees to pay all rental due under the Ground Leases. Owner
and Management Company shall abide by all the terms and conditions of the Ground
Leases and shall not take any or fail to take any action which would result in a
default of the tenant under the Ground Leases provided Management Company shall
have no obligation to pay rent or other monetary obligations of tenant under the
Ground Leases.
END OF ARTICLE III
-14-
<PAGE>
ARTICLE IV
TERM
----
4.01 Term
----
A. The term of this Agreement shall be from the Effective Date to
the expiration of the Inn Term (as defined in subsection B below) for the last
Inn to which this Agreement applies.
B. With respect to each Inn, the "Inn Term" shall consist of an
"Initial Term" and the "Renewal Term(s)". The "Initial Term" shall begin on the
Effective Date (or, as to a Development Inn, on the purchase date of such
Development Inn), and shall continue until December 31, 2009. Each Inn Term
will automatically be extended and renewed (on the same terms and conditions
contained herein, except as set forth in the final sentence of this Section
4.01B) for each of five (5) successive periods of ten (10) Fiscal Years each
("Renewal Terms") and one period of five (5) Fiscal Years, provided that an
"event of default" by Management Company has not occurred under Section 16.01
hereof (or, if such an "event of default" has occurred, that it is being cured
in accordance with the provisions of Section 16.01 or 16.02 hereof) unless
Management Company, at its option, elects to terminate this Agreement as to any
or all of the Inns as set forth below. If Management Company elects to exercise
such option to terminate this Agreement, as to one or more of the Inns, on the
expiration of the then current Inn Term with respect to such Inn or Inns,
Management Company shall give Owner written notice to that effect at least
eighteen (18) months prior to the expiration of the then current Inn Term with
respect to such Inn or Inns. Management Company shall continue to manage such
Inn or Inns during the final eighteen (18) months of their respective Inn Terms,
unless, during such eighteen (18) month period, Owner effects a sale of such Inn
or Inns or secures a new manager therefor, in which case the respective Inn
Terms of such affected Inns shall be prematurely terminated, as of the date of
such sale or the effective date of such new management contract. In the event
Management Company elects to terminate as to one or more, but not all, of the
Inns, the adjustments described in subsections B through F of Section 19.02
shall be made to this Agreement.
4.02 Performance Termination
-----------------------
A. Subject to the provisions of Section 4.02 B below, Owner shall
have the option to terminate this Agreement with respect to all of the Inns if
the sum of the Operating Profit for all of the Inns during any three (3)
consecutive Fiscal Years during the term of this Agreement (not including any
period of time before the expiration of the 1992 Fiscal Year) does not equal or
exceed eight percent (8%) of the sum total for the same three (3) Fiscal Years
of (i) the original total cost ($239,127,000) of the Inns, as adjusted for any
Termination, added once for each of such three (3) Fiscal Years, plus (ii) the
weighted average outstanding balance of Additional Inn Investments with
respect to the Inns, added once for each of such three (3) Fiscal Years. Such
option to terminate shall
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be exercised by serving written notice thereof on Management Company no later
than sixty (60) days after the receipt by Owner of the annual accounting under
Section 9.01 hereof for such third consecutive Fiscal Year. Such notice shall
state the basis on which Owner asserts the right of termination and shall show
all mathematical calculations constituting the basis therefor. If Management
Company does not elect to avoid termination pursuant to Section 4.02 B below,
this Agreement shall terminate as of the end of the second full Accounting
Period following the date on which Management Company receives Owner's written
notice of its intent to terminate this Agreement. Owner's failure to exercise
its right to terminate this Agreement pursuant to this Section 4.02 A during any
given Fiscal Year shall not be deemed an estoppel or waiver of Owner's right to
terminate this Agreement as to subsequent Fiscal Years to which this Section may
apply.
B. Upon receipt of Owner's written notice of termination under
Section 4.02 A, Management Company shall have the option, to be exercised within
sixty (60) days after receipt of said notice, to avoid such termination by
advancing to Owner the amount of any deficiency described in Section 4.02 A, and
upon paying such deficiency, Management Company shall be deemed to have
satisfied the test described in Section 4.02 A for such three (3) year period.
If Management Company exercises such option, then the foregoing Owner's election
to terminate this Agreement under Section 4.02 A shall be cancelled and be of no
force or effect, and this Agreement shall not terminate. All advances of up to
$10 million of any deficiencies to Owner pursuant to this Section 4.02 B shall
become "Contingent Incentive Management Fees." Such cancellation, however,
shall not affect the right of Owner, as to subsequent Fiscal Years to which
Section 4.02 A applies, to again elect to terminate this Agreement pursuant to
the provisions of Section 4.02 A (which subsequent election shall again be
subject to Management Company's rights under this Section 4.02 B). If
Management Company does not exercise its option to make the advance permitted by
this Section 4.02 B, then this Agreement shall be terminated as of the date set
forth in Section 4.02 A.
4.03 Actions to be Taken on Termination
----------------------------------
Upon a Termination of this Agreement with respect to any one or more
of the Inns, the following shall be applicable:
A. Management Company shall prepare a final accounting statement
with respect to such Inn or Inns, as more particularly described in Section 9.01
hereof, dated as of the date of Termination. Within thirty (30) days of 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 a default by either party, in which case
the defaulting party shall pay such cost.
B. Management Company shall release and transfer to Owner any of
Owner's funds which are held or controlled by Management Company with respect to
such Inn or Inns.
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C. Management Company shall make available to Owner such books,
records and other documents respecting such Inn or Inns (including those from
prior years, subject to Management Company's reasonable records retention
policies) as will be needed by Owner to prepare the accounting statements, in
accordance with the Uniform System of Accounts, for such Inn or Inns for the
year in which the Termination occurs and for any subsequent year.
D. Management Company shall (to the extent permitted by law) assign
to Owner or to the new manager all operating licenses and permits for such Inn
or Inns 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 or permits, Owner shall reimburse Management Company therefor
if it has not done so already.
E. Appropriate adjustments shall be made regarding the application
of this Agreement to any remaining Inns, such as, but not limited to, those
adjustments described in Section 19.02. In the event of Termination for any
reason other than a sale of such Inn or Inns or as a result of an "event of
default" by Owner hereunder, the adjustments described in Section 19.02 shall be
made with respect to the remaining Inns, and Owner shall be released from all
further obligations hereunder with respect to the terminated Inn or Inns.
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, 12.03 and 14.01 C.
G. Management Company shall peacefully vacate and surrender such
Inn or Inns to Owner and cooperate with Owner and the new manager after the
Termination.
4.04 Pre-Closing Termination.
------------------------
A. Owner may terminate this Agreement if it elects, pursuant to
Section 2.06 of the Purchase Agreement, to terminate the transactions
contemplated therein. Should Owner elect to terminate the transactions
contemplated in such Purchase Agreement only with respect to certain Inns, Owner
may terminate this Agreement with respect to such Inns. In such case, the
adjustments and actions described in this Agreement for the termination of this
Agreement with respect to one Inn or the sale of one Inn shall be made (with
such adjustments being made as of the date of the distribution to the Partners
of Owner of the amounts received by Owner in connection therewith).
B. On the Effective Date (or, as to a Development Inn, on the
purchase date of such Development Inn), Manager shall deliver to Owner a
certificate stating, if true, that there are no covenants or restrictions which
would prohibit or materially limit Management Company from operating any Inn as
a Fairfield Inn, including material facilities customarily a part of or related
to a Fairfield Inn (or, if not true, stating the extent to which it is not
true). If on the Effective Date (or, as to a Development Inn, on the purchase
date of such Development Inn) there are any covenants or restrictions which
would prohibit or materially limit Management Company from operating any Inn as
a Fairfield Inn, including material facilities customarily a part of or related
to a Fairfield Inn,
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either party may terminate this Agreement as to such Inn. In such case, the
adjustments and actions described in this Agreement for the termination of this
Agreement with respect to one Inn or the sale of one Inn shall be made.
END OF ARTICLE IV
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ARTICLE V
COMPENSATION OF MANAGEMENT COMPANY
----------------------------------
5.01 Management Fees and System Fee
------------------------------
A. In consideration of services to be performed during the term of
this Agreement, Management Company shall, subject to the provisions of this
Article V, be paid the Base Management Fee and the Incentive Management Fee to
cover services which benefit all Fairfield Inn properties operated by Management
Company, are performed by personnel not normally located at the Inn and are not
Chain Services (whether or not such services are obtained from Management
Company's employees or through third party contractors). Such services include
but are not limited to corporate and divisional executive management, divisional
financial services (excluding certain accounting services included as "Chain
Services"), corporate accounting services, manpower planning, recruiting and
hiring for all Fairfield Inn management positions, management training for
Management Company operated inns, regional management and administrative
services, services of Management Company's technical and operational experts
making periodic inspection and consultation visits to the Inns (excluding visits
for personnel of the Architectural and Construction division of the Management
Company or its affiliates).
[Page missing]
Base Management Fee for such Fiscal Year (or all Accounting Periods to
date in such Fiscal Year) that is required to be paid currently shall be reduced
by the amount of the shortfall in Owner's Net Cash Flow (and such reduction
shall be made before any reduction of Ground Rent as a result of the operation
of Section 4.02(d) of the Ground Leases); provided, however, that such reduction
in the Base Management Fee shall not exceed an amount equal to (a) the maximum
available amount remaining under the Development Fee Adjustment mechanism at the
time of its expiration pursuant to Section 2.10 of the Purchase Agreement (but
in no event greater than $8,000,000), minus (b) the total amount of Base
Management Fees and Ground Rent that is not paid currently during such four (4)
Fiscal Year period as a result of the operation of this Section 5.01D and
Section 4.02(d) of the Ground Leases, respectively. Within forty (40) days
after the end of each Fiscal Year, Owner and Management Company shall make any
necessary adjustments in the amount of Base Management Fee reductions required
hereunder based upon the entire Fiscal Year. Any Base Management Fees which are
not paid currently as a result of the operation of this Section 5.01D shall be
payable, without adjustment for interest, as provided in Section 5.03 hereof.
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5.02 Incentive Management Fees
-------------------------
Any Incentive Management Fee and Contingent Incentive Management Fee
the payment of which is based on Operating Profit shall, in each Fiscal Year
(and with respect to each Accounting Period within each such Fiscal Year, as
more particularly described in Section 5.05 hereof), be payable in accordance
with the following sequence of computations, and no Incentive Management Fee
shall be paid until sufficient Operating Profit is available for actual payment
thereof:
A. First, Owner shall retain any Operating Profit (to the extent of
Operating Profit in that Fiscal Year) in amounts sufficient to pay the Ground
Rent payable after giving effect to Section 4.02(d) of the Ground Leases, the
Qualifying Debt Service and Administrative Expenses for such Fiscal Year (which
shall be prorated among the Accounting Periods within any given Fiscal Year).
B. Second, Owner shall retain any remaining Operating Profit until
Owner has retained an amount equal to Owner's Priority Return (which shall be
prorated among the Accounting Periods within any given Fiscal Year).
C. Third, Owner shall retain any remaining Operating Profit in
amounts necessary to repay any outstanding Limited Debt Service Guarantee
Advances and accrued interest thereon.
D. Fourth, Owner shall retain any and all such additional amounts
as Owner is required pursuant to the terms of the Permanent Loan to pay prior to
payment of Incentive Management Fees and Contingent Incentive Management Fees
hereunder.
E. Fifth, Owner shall retain fifty percent (50%) of any remaining
Operating Profit for such Fiscal Year (which shall be prorated among the
Accounting Periods within any given Fiscal Year).
F. Sixth, Owner shall apply the remaining fifty percent (50%) of
Operating Profit for such Fiscal Year (or portion thereof) ("Cash Flow Available
for Incentive Management Fee") to pay Management Company the Incentive
Management Fee for the current Fiscal Year. Notwithstanding anything herein to
the contrary, in the event Cash Flow Available for Incentive Management Fee is
insufficient to pay the full Incentive Management Fee for any Fiscal Year (or
portion thereof) ending before or nearest December 31, 1992, such unpaid
Incentive Management Fee shall never be paid. In the event Cash Flow Available
for Incentive Management Fee is insufficient to pay the full Incentive
Management Fee for any Fiscal Year beginning thereafter, such unpaid Incentive
Management Fee shall be payable subsequently, without adjustment for interest,
as a "Contingent Incentive Management Fee" pursuant to this Article V.
Following application pursuant to the above to pay the Incentive Management Fee
for the current year, Owner shall apply any remaining balance of Cash Flow
Available for Incentive Management Fee to pay Management
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Company any Contingent Incentive Management Fees then owed to Management
Company. Upon termination of this Agreement with respect to an Inn or Inns due
to a default of Management Company or if Management Company fails to renew the
Term with respect to such Inn or Inns, Management Company shall not be entitled
to receive payment of any Contingent Incentive Management Fee with respect
thereto.
G. Seventh, following application pursuant to paragraph F above,
Owner shall retain any remaining balance of Cash Flow Available for Incentive
Management Fee.
5.03 Application of Capital Proceeds
-------------------------------
In the event that Owner, from time to time during the term of this
Agreement, realizes Capital Proceeds, then Owner shall apply such Capital
Proceeds (to the extent thereof) in the following order and amounts:
(1) First, to pay transaction costs of the sale or refinancing and
other amounts excluded from gross proceeds in determining Capital Proceeds.
(2) Second, Owner shall retain any remaining balance of Capital
Proceeds until Owner has retained an amount equal to any unamortized payments
(and return thereon) under Section 8.02E3 hereof;
(3) Third, Owner shall retain any remaining balance of such Capital
Proceeds until Owner has retained from appropriate sources an amount equal to
Owner's 12% Priority and Capital Return.
(4) Fourth, Owner shall retain any remaining balance of Capital
Proceeds until Owner has retained an amount equal to any outstanding Limited
Debt Service Guarantee Advances (and accrued interest thereon).
(5) Fifth, Owner shall retain any remaining balance of Capital
Proceeds until Owner has retained an amount equal to any Ground Rent remaining
unpaid as a result of the operation of Section 4.02(d) of the Ground Leases.
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(6) Sixth, Owner shall apply any remaining balance of Capital
Proceeds to pay to Management Company an amount equal to any Base Management
Fees remaining unpaid as a result of the operation of Section 5.01D hereof.
(7) Seventh, Owner shall apply the remaining balance of Capital
Proceeds to pay to Management Company any Incentive Management Fees or
Contingent Incentive Management Fees then owed to Management Company.
(8) Eighth, Owner shall retain any remaining balance of Capital
Proceeds.
5.04 Debt Service Payment
--------------------
In the event (i) Owner's actual scheduled debt service on the
principal amount of Owner's indebtedness secured by one or more of the Inns is
in excess of Qualifying Debt Service for any Fiscal Year (or portion thereof)
during the Inn Term, (ii) but for the provisions of this Section 5.04,
Management Company is entitled to receive pursuant to Section 5.02 all or a
portion of the Incentive Management Fee for such Fiscal Year (or portion
thereof), and (iii) the total amount retained by Owner pursuant to Sections
5.02A and 5.02B for such Fiscal Year (or portion thereof) is less than the sum
of the actual debt service described in clause (i) above, plus the Owner's
Administrative Expenses and plus the Ground Rent, then Management Company shall
not be entitled to current payment of such portion of its Incentive Management
Fee for such Fiscal Year (or portion thereof) up to an amount equal to the
excess of said sum over the total amount retained by Owner pursuant to Sections
5.02A and 5.02B for such Fiscal Year (or portion thereof). Owner shall use such
amount otherwise allocated to Incentive Management Fee to pay said actual debt
service. Such portion of the Incentive Management Fee shall become a Contingent
Incentive Management Fee.
5.05 Accounting and Interim Payment
------------------------------
A. Within twenty (20) days after the close of each Accounting
Period, Management Company shall submit an interim accounting to Owner showing,
in reasonable detail, the amount (and calculation where appropriate) of Gross
Revenues, Deductions, FF&E Reserve contributions and expenditures, Operating
Profit, Ground Rent, Cash Flow Available for Incentive Management Fee and (with
respect to 1993 through 1996) Owner's Net Cash Flow, and all retentions,
distributions and other applications thereof with respect to the Inns.
Management Company shall transfer with each accounting any interim amounts due
Owner and shall retain any interim management fees due Management Company (as
described in this Article V). Each accounting will be prepared on a consolidated
basis rather than on an individual Inn basis. Management Company shall also
prepare an accounting showing Gross Revenues, Deductions and Operating Profit on
an individual Inn basis.
B. Calculations and payments of the Base Management Fee, System
Fee, the Incentive Management Fee, the Contingent Incentive Management Fee, and
applications of
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Operating Profit made with respect to each Accounting Period within a Fiscal
Year shall be accounted for cumulatively. Within sixty (60) days after the end
of each Fiscal Year, Management Company shall submit an accounting, as more
fully described in Section 9.01, for such Fiscal Year to Owner, which accounting
shall be controlling over the interim accountings. Any adjustments required by
the Fiscal Year accounting shall be made by cash payments within five (5)
business days of the receipt by Owner of such final accounting. No adjustment
shall be made for any Operating Loss in a preceding or subsequent Fiscal Year.
C. Within twenty (20) days after the closing of a refinancing or a
sale of one or more of the Inns, Owner will provide Management Company an
accounting showing Owner's Priority Return and Owner's 12% Priority and Capital
Return, Net Sales Proceeds, and Net Refinancing Proceeds (as the case may be).
D. Within twenty (20) days after the close of each Accounting
Period, Owner will provide Management Company an accounting showing Owner's
Priority Return, the balance of any principal and interest of Debt Service
Guarantee Advances, and Net Contributed Capital.
END OF ARTICLE V
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ARTICLE VI
PRE-OPENING
-----------
6.01 Pre-Opening Services
--------------------
It is recognized that certain activities must be undertaken so that
the Development Inns can function properly at their Opening Dates as defined in
the Purchase Agreement. Accordingly, Management Company shall on behalf of
Owner:
A. Recruit, train and employ the staff required for the Development
Inn;
B. Undertake pre-opening promotion and advertising, including
opening celebrations;
C. Provide, for a period to end not later than sixty (60) days from
the Opening Date, a task force of experts and personnel to supervise and assist
with certain pre-opening and opening operations;
D. Obtain and maintain the initial licenses and permits required
for the operation of the Development Inns as contemplated by this Agreement;
E. In general, render such other miscellaneous services incidental
to the preparation and organization of the Development Inns' operations as may
be required for the Development Inns to be adequately staffed and capable of
operating at the Opening Dates. The expenses relating to such activities shall
include, but not be limited to, salaries and wages (including those of personnel
of Management Company and Marriott Affiliates), professional fees, telephone
expenses, staff hiring and training costs, travel and moving expenses, costs of
opening celebrations, the cost of heat, light and power not chargeable to the
cost of constructing or operating the Development Inns, advertising and
promotion expense, and miscellaneous expenses.
6.02 Responsibility for Pre-Opening Expenses
---------------------------------------
The expenses for the activities outlined in Section 6.01 shall be
borne by Seller in accordance with the Purchase Agreement and in accordance with
the above, or as otherwise requested by Management Company. Pre-opening
expenses incurred or paid by Management Company promptly shall be reimbursed by
Seller upon receipt of a statement of account for such Pre-opening expenses.
END OF ARTICLE VI
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ARTICLE VII
WORKING CAPITAL AND FIXED ASSET SUPPLIES
----------------------------------------
7.01 Working Capital and Inventories
-------------------------------
The parties recognize that Seller shall sell to Owner, who shall in
turn provide to Management Company, as agent, the initial Working Capital and
Inventories for the Inns. Management Company believes that the level of initial
Working Capital so provided should be reasonably sufficient for each Inn to
operate as a fully functioning Fairfield Inn as of the Effective Date (or in the
case of the Development Inns, as of the their purchase dates) and for a period
of at least six (6) months thereafter. Owner shall from time to time thereafter
promptly advance, upon request of Management Company, any additional funds
necessary to maintain Working Capital and Inventories at levels reasonably
determined by Management Company to be necessary to satisfy the needs of each
Inn as its operation may from time to time require. Funds so advanced for
Working Capital shall be utilized by Management Company on behalf of Owner for
the purposes of this Agreement pursuant to cash-management policies established
for the Fairfield Inn system, but Owner shall be the beneficial owner of all
such funds throughout the term of this Agreement. Upon Termination with respect
to any Inn or Inns, Management Company shall return to Owner any unused Working
Capital (including Inventories), except for Inventories purchased by Management
Company pursuant to Section 10.02.
7.02 Fixed Asset Supplies
--------------------
The parties recognize that Seller shall sell to Owner, who shall in
turn provide to Management Company, as agent, the initial Fixed Asset Supplies
for the Inns. Management Company believes that the level of initial Fixed Asset
Supplies so provided should be reasonably sufficient for each Inn to operate as
a fully functioning Fairfield Inn hotel as of the Effective Date (or in the case
of the Development Inns, as of their purchase dates) and for a period of at
least six (6) months thereafter. Owner shall from time to time thereafter
promptly advance, upon request of Management Company, any additional funds
necessary to maintain Fixed Asset Supplies at levels reasonably determined by
Management Company to be necessary to satisfy the needs of each Inn as its
operation may from time to time require. Fixed Asset Supplies shall remain the
property of Owner throughout the term of this Agreement except for Fixed Asset
Supplies purchased by Management Company pursuant to Section 10.02.
END OF ARTICLE VII
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ARTICLE VIII
REPAIRS, MAINTENANCE AND REPLACEMENTS
-------------------------------------
8.01 Routine Repairs and Maintenance
-------------------------------
Management Company shall maintain the Inns in good repair and
condition and in conformity with applicable laws and regulations and shall make
or cause to be made such routine maintenance, repairs and minor alterations, the
cost of which can be expensed under generally accepted accounting principles, as
it, from time to time, deems reasonably necessary for such purposes. The cost
of such maintenance, repairs and alterations shall be paid from Gross Revenues
and shall be treated as a Deduction in determining Operating Profit. The cost
of non-routine repairs and maintenance, either to an Inn building or its FF&E,
shall be paid for in the manner described in Sections 8.02 and 8.03.
8.02 FF&E Reserve
------------
A. Management Company shall establish an escrow reserve account for
the Inns ("FF&E Reserve") in a bank designated by Owner and approved by
Management Company to cover the cost of:
1. Replacements and renewals related solely to the Inns' FF&E; and
2. Certain routine repairs and maintenance to the Inns' buildings
which are normally capitalized under generally accepted accounting principles,
such as exterior and interior repainting, resurfacing building walls, floors,
roofs and parking areas, and buying or leasing replacement vehicles, but which
are not major repairs, alterations, improvements, renewals or replacements to
such building's structure or to its mechanical, electrical, heating,
ventilating, air conditioning, plumbing or vertical transportation systems, the
cost of which are paid by Owner under Section 8.03 rather than from the FF&E
Reserve.
B. During the period of time from the Effective Date up to the end
of the 1989 Fiscal Year, Management Company shall transfer into the FF&E Reserve
an amount equal to one percent (1%) of Gross Revenues from the Inns for such
period of time; during the 1990 Fiscal Year, Management Company shall transfer
into the FF&E Reserve an amount equal to two percent (2%) of Gross Revenues from
the Inns for such Fiscal Year; during Fiscal Year 1991, Management Company shall
transfer into the FF&E Reserve an amount equal to three percent (3%) of Gross
Revenues from the Inns for such Fiscal Year; during the 1992 Fiscal Year,
Management Company shall transfer into the FF&E Reserve an amount equal to four
percent (4%) of Gross Revenues from the Inns for such Fiscal Year; during the
Fiscal Year 1993, Management Company shall transfer into the FF&E Reserve an
amount equal to five percent (5%) of Gross Revenues from the Inns for such
Fiscal Year; and commencing with the Fiscal Year 1994, and for all Fiscal Years
thereafter, subject to the provisions of subsection E, below, Management Company
shall transfer into the FF&E Reserve an
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amount equal to six percent (6%) of Gross Revenues from the Inns for each of
such Fiscal Years. Transfers into the FF&E Reserve shall be made at the time of
each interim accounting described in Section 5.06 A. Any amounts held in the
FF&E Reserve may be applied, as between the Inns, without regard for the source
of such amounts, provided that such application satisfies the requirements of
this Article VIII. All amounts transferred into the FF&E Reserve shall be
deducted from Gross Revenues in determining Operating Profit and deposited in
the special FF&E Reserve account described in Section 8.02 A hereof.
C. Management Company shall from time to time make such (1)
replacements and renewals to each Inn's FF&E, and (2) repairs to such Inn's
buildings of the nature described in Section 8.02 A 2, as it deems reasonably
necessary, up to the balance in the FF&E Reserve. No expenditures will be made
in excess of said balance without the prior approval of Owner. At the end of
each Fiscal Year, any amounts remaining in the FF&E Reserve shall be carried
forward to the next Fiscal Year. Proceeds from the sale of FF&E no longer
necessary to the operation of an Inn shall be deposited in the FF&E Reserve. The
FF&E Reserve will be kept in an interest-bearing account, and any interest which
accrues thereon shall be retained in the FF&E Reserve. Neither (i) proceeds
from the disposition of FF&E, nor (ii) interest which accrues on amounts held in
the FF&E Reserve, shall (a) result in any reduction in the required
contributions to the FF&E Reserve set forth in subsection B above, nor (b) be
included in Gross Revenues.
D. Management Company shall prepare an estimate ("FF&E Replacement
Estimate") of the expenditures (and time schedule) necessary for (1)
replacements and renewals to each Inn's FF&E, and (2) repairs to each Inn
building of the nature described in Section 8.02 A 2, during the ensuing Fiscal
Year and shall submit such Repairs and Equipment Estimate to Owner at the same
time it submits the Annual Operating Projection described in Section 9.03.
Management Company will consider in good faith suggestions made by Owner with
respect to the Repairs and Equipment Estimate and make appropriate modifications
thereto.
E. The percentage contributions for the FF&E Reserve described in
Section 8.02 B are estimates based upon Management Company's and Marriott
Affiliates' prior experience. As each Inn ages, these percentages either (i)
may not be sufficient to keep the FF&E Reserve at the levels necessary to make
the replacements and renewals to the FF&E of the Inns, or to make the repairs to
the Inns buildings of the nature described in Section 8.02 A 2, which are
required to maintain such Inns as Fairfield Inn properties or (ii) may be in
excess of those amounts necessary to maintain such Inns as Fairfield Inn
properties. If Management Company reasonably determines that the percentages
contained in Section 8.02 B are in excess of the amounts sufficient to maintain
the Inns as Fairfield Inn properties, then Management Company may reduce the
percentages. Management Company shall provide to Owner upon request from time
to time a report, in
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reasonable detail, supporting the amount in the FF&E Reserve with respect to the
Inns and/or the percentages contained in Section 8.02B.
If the Repairs and Equipment Estimate reasonably prepared in good
faith by Management Company exceeds the available funds in the FF&E Reserve or
if Management Company reasonably determines that the percentages contained in
Section 8.02B are insufficient to maintain the Inns as Fairfield Inn properties
and Management Company requests Owner to increase the percentages, Owner will:
1. Agree to increase the annual percentage in Section 8.02 B to
provide the appropriate funds required, or
2. Arrange to obtain outside financing for the additional funds
required, in which event the principal and interest payments on such financing
shall constitute Deductions in determining Operating Profit, or
3. Provide the additional funds required, in which case such
amounts (plus interest at the Prime Rate plus one percent (1%) per annum), to
the extent not retained pursuant to Section 5.03(2), shall be retained by Owner
from Gross Revenues as if it were a repayment on an interest bearing loan in
equal installments over the period of the next sixty-five (65) Accounting
Periods. Such periodic amounts shall be treated as Deductions.
A failure or refusal by Owner to agree to either 1, 2 or 3 above
within a sixty (60) day period after Management Company's request therefor shall
entitle Management Company, within sixty (60) days after such failure or
refusal, to notify Owner that it will terminate this Agreement, as to those Inns
as to which agreement was not reached, as of a date nine (9) months after the
date of Management Company's notice of termination. If Owner subsequently does
either 1, 2 or 3 above within nine (9) months after Management Company notifies
Owner of its intention to terminate this Agreement, this Agreement shall not be
terminated and Management Company shall continue to manage the Inns in question.
If Management Company does not so notify Owner, it shall continue to manage the
Inns in question, as provided under this Agreement, without the aforesaid
increase in the percentage contribution to the FF&E Reserve.
F. Upon Termination of this Agreement with respect to any one or
more of the Inns, whether pursuant to 8.02 E above or pursuant to other
provisions of this Agreement, a portion of the FF&E Reserve shall be released
from the FF&E Reserve and paid to Owner; such portion shall be computed by
multiplying the amount then in the FF&E Reserve by a fraction, the numerator of
which shall be the Gross Revenues attributable to the Inn or Inns which are the
subject of Termination for the most recently concluded Fiscal Year and the
denominator of which shall be all Gross Revenues for the same Fiscal Year.
G. With the exception of any furniture or equipment leases which
are in effect on the Effective Date and with the exception for telephone
equipment, if Management Company
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elects to lease rather than purchase any FF&E which is customarily purchased in
the Fairfield Inn system with monies from the FF&E Reserve, the lease payments
for such FF&E shall be made from the FF&E Reserve.
8.03 Building Alterations, Improvements, Renewals, and Replacements
--------------------------------------------------------------
A. Management Company shall prepare an annual estimate of the
expenses for necessary major repairs, alterations, improvements, renewals and
replacements (which repairs, alterations, improvements, renewals and
replacements are not among those referred to in Section 8.02 A 2 and are not
expansions) to the structural, mechanical, electrical, heating, ventilating, air
conditioning, plumbing or vertical transportation elements of each Inn building
("Building Estimate") and shall submit such Building Estimate to Owner for its
approval at the same time the Annual Operating Projection is submitted. The
Building Estimate shall be prepared on a consolidated basis showing proposed
expenditures as to each Inn. Management Company shall not make any expenditures
for such purposes until the Building Estimate is approved by Owner; provided
that if major repairs, alterations, improvements, renewals or replacements to
any Inn are required by reason of any law, ordinance, regulation or order of a
competent government authority (after exhausting any appeals), or are otherwise
reasonably required for the continued safe and orderly operation of such Inn,
Management Company shall immediately give Owner notice thereof and shall be
authorized (but not obligated) to take appropriate remedial action without such
approval if Owner does not act; provided further that Management Company shall
in no event act without obtaining Owner's prior consent if the cost of such
remedial action exceeds, for any given Inn: (i) during the first partial and
full Fiscal Years of this Agreement, One Hundred Thousand Dollars ($100,000); or
(ii) during all subsequent Fiscal Years, four percent (4%) of the Inn's annual
Gross Revenues. Owner shall bear the cost of all such alterations,
improvements, renewals or replacements by either:
1. Providing financing for the additional funds required, in which
event the principal and interest payments on such financing shall constitute
Additional Inn Investment Loans and be included in Qualifying Debt Service, or
2. Providing the additional funds required, which amounts shall be
treated as Additional Inn Investments hereunder.
B. If Owner does not approve the Building Estimate as to one or
more or all of the Inns within sixty (60) days after it has been submitted,
Management Company may, within sixty (60) days after the end of said sixty-day
period, notify Owner that it will terminate this Agreement as to those Inns as
to which agreement was not reached as of a date nine (9) months after the date
of Management Company's notice of termination. If Owner subsequently approves
the Building Estimate within nine (9) months after Management Company notifies
Owner of its intention to terminate this Agreement, this Agreement shall not be
terminated and Management Company shall
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continue to manage the Inns in question. If Management Company does not so
notify Owner, it shall continue to manage the Inns in question, as provided
under this Agreement, without making any expenditures in the Building Estimate
that were not approved. The provisions of this subsection 8.03B shall not apply
to requests from Management Company to expand any Inn.
8.04 Liens
-----
Management Company and Owner shall use their reasonable best efforts
to prevent any liens from being filed against any Inn which arise from any
maintenance, repairs, alterations, improvements, renewals or replacements in or
to such Inn. They shall cooperate fully in obtaining the release of any such
liens, and the cost thereof, if the lien was not occasioned by the fault of
either party, shall be treated the same as the cost of the matter to which it
relates. If the lien arises as a result of the fault of either party, then the
party at fault shall bear the cost of obtaining the lien release.
8.05 Ownership of Replacements
-------------------------
All repairs, alterations, improvements, renewals or replacements made
pursuant to Article VIII, and all amounts kept in the FF&E Reserve, shall be the
property of Owner.
END OF ARTICLE VIII
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ARTICLE IX
BOOKKEEPING AND BANK ACCOUNTS
-----------------------------
9.01 Books and Records
-----------------
Books of control and account shall be kept on the accrual basis and in
all material respects in accordance with the Uniform System of Accounts, with
the exceptions provided in this Agreement. Owner may at reasonable intervals
during Management Company's normal business hours examine such records. Within
sixty (60) days after the end of each Fiscal Year, Management Company shall
furnish Owner a statement in reasonable detail summarizing the operations of the
Inns for such Fiscal Year and a certificate of Management Company's chief
accounting officer certifying that such year-end statement is true and correct.
The parties shall, within ten (10) business days after the receipt of such
statement, make any adjustments, by cash payment, in the amounts paid or
retained for such Fiscal Year as are needed because of the final figures set
forth in such statement or send a notice of dispute setting forth the
calculation in reasonable detail. If Owner desires, at its own expense, to
audit such statement and supporting records, Owner shall begin such audit within
ninety (90) days following its receipt of such statement and shall complete such
audit within ninety (90) days thereafter. The cost of such audit shall not be
treated as a Deduction. If Owner does not make an audit, then such statement
shall be deemed to be conclusively accepted by Owner as being correct, and Owner
shall have no right thereafter, except in the event of fraud by Management
Company or as provided in Section 9.01B, to question or examine the same. If
any audit by Owner discloses an understatement of any amounts due Owner,
Management Company shall promptly pay Owner such amounts found to be due, plus
interest thereon (at the Prime Rate plus one percentage point (1%) per annum)
from the date such amounts should originally have been paid. If, however, the
audit discloses that Management Company has not received any amounts due it,
Owner shall pay Management Company such amounts, plus interest thereon (at the
Prime Rate plus one percentage point (1%) per annum) from the date such amounts
should originally have been paid. If Owner disputes the accuracy of such audit,
Owner shall give written notice of such dispute to Management Company setting
forth the dispute in reasonable detail. Any further dispute concerning the
correctness of an audit not settled by Owner and Management Company shall be
settled by arbitration, in accordance with the then current rules of the
American Arbitration Association.
B. If Owner's audit discloses an error in the total payment of
amounts due Owner for any Fiscal Year so audited that is in excess of five
percent (5%), Management Company shall pay for the cost of Owner's audit. In
addition, in such event, Owner may audit the statements of Inn operations and
supporting records at Management Company's expense for the three (3)
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preceding Fiscal Years. The costs of such audits shall not be treated as a
Deduction. Any error or dispute with respect thereto shall be handled as set
forth in Section 9.01A.
C. All statements shall be prepared on a consolidated basis rather
than on an individual Inn basis; however to the extent Management Company
prepares them for its own internal purposes, Management Company shall, on
Owner's written request, furnish Owner with copies of unaudited statements
prepared for each Inn separately.
9.02 Accounts, Expenditures
----------------------
A. All funds derived from operation of the Inns shall be deposited
by Management Company, in accordance with Management Company's cash management
procedures, in bank account(s) in a financial institution(s) designated by
Management Company. Withdrawals from said account(s) shall be made by
representatives of Management Company whose signatures have been authorized.
Reasonable petty cash funds shall be maintained at each Inn.
B. All payments made by Management Company hereunder shall be made
from authorized bank accounts, petty cash funds, or from Working Capital
provided 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 Inns
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
for that purpose from the operation of the Inns.
9.03 Annual Operating Projection
---------------------------
Management Company shall submit to Owner for its review thirty (30)
days after the beginning of each Fiscal Year after the Effective Date an "Annual
Operating Projection." Such projection shall project, on a consolidated and
consolidating basis, the estimated average daily room rates, average occupancy,
Gross Revenues, departmental profits, Deductions, and Operating Profit for the
forthcoming Fiscal Year for the Inns, taking into account each Inn's market
area. Management Company shall use its reasonable best efforts to adhere to the
Annual Operating Projection. It is understood, however, that the Annual
Operating Projection is an estimate only and that unforeseen circumstances such
as, but not limited to, the costs of labor, material, services and supplies,
casualty, operation of law, or economic and market conditions may make adherence
to the Annual Operating Projection impracticable, and Management Company shall
be entitled to depart therefrom due to causes of the foregoing nature.
9.04 Operating Losses; Credit
A. To the extent there is an Operating Loss for any Accounting
Period, additional funds in the amount of any such deficiency shall be provided
by Owner within twenty (20)
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days after Management Company has given written notice to Owner of such
Operating Loss. If Management Company elects not to so notify Owner or if Owner
does not so fund such deficiency on Management Company's request (but, in such
latter case, without affecting Management Company's other remedies under this
Agreement), Management Company shall have the right to withhold an amount equal
to such deficiency from future disbursements of funds otherwise due to Owner.
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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ARTICLE X
TRADEMARKS, TRADE NAMES AND SERVICE MARKS
-----------------------------------------
10.01 Trademarks, Trade Names and Service Marks
-----------------------------------------
A. During the term of this Agreement, each Inn shall be known as a
Fairfield Inn, with such additional identification as may be necessary to
provide local identification, and the Marriott name may be used in conjunction
therewith. Notwithstanding anything herein to the contrary, if the name of the
Fairfield Inn system is changed, Management Company shall change the name of the
Inns to conform thereto. The costs for such change shall be treated as either a
Deduction or taken from monies in the FF&E Reserve, depending on the nature of
the cost. The name "Marriott," or "Fairfield Inn" when used alone or in
connection with another word or words and the Marriott trademarks, service
marks, trade names, symbols, logos and designs shall in all events remain the
exclusive property of Marriott, and nothing contained herein shall confer on
Owner the right to use the Marriott or Fairfield Inn name, trademarks, service
marks, trade names, symbols, logos or designs otherwise than in strict
accordance with the terms of this Agreement. Except as provided in Section
10.02, upon Termination with respect to an Inn, any use of or right to use the
Marriott or the Fairfield Inn name, trademarks, service marks, trade names,
symbols, logos or designs by Owner shall cease forthwith with respect to such
Inn and Owner shall as soon as practicable remove from the Inn any signs or
similar items which contain the Marriott or the Fairfield Inn name, trademarks,
service marks, trade names, symbols, logos or designs. If Owner has not removed
such signs or similar items promptly upon Termination, Management Company shall
have the right to remain at the Inn as long as is necessary for it to do so.
B. Included under the terms of this Section are all trademarks,
service marks, trade names, symbols, logos or designs used in conjunction with
the Inns, whether or not the marks contain the "Marriott" or the "Fairfield Inn"
name. The right to use such trademarks, service marks, trade names, symbols,
logos or designs belongs exclusively to Marriott Affiliates or Management
Company, and the use thereof inures to the benefit of Marriott and/or Management
Company whether or not the same are registered and regardless of the source of
the same.
C. Upon Termination of this Agreement with respect to an Inn, if
there are any trademarks, service marks, trade names, symbols, logos or designs
which are unique to such Inn, Management Company shall, to the extent it is
capable, transfer such name(s) to Owner, without charge other than any out-of-
pocket expenses.
10.02 Purchase of Inventories and Fixed Asset Supplies
------------------------------------------------
A. Upon Termination of this Agreement, either in its entirety or
with respect to a given Inn, Management Company shall have the option, to be
exercised within thirty (30) days after Termination, to purchase, at their then
book value, (and remove from the Inn at its expense
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within a reasonable time thereafter) any items of such Inn's Inventories and
Fixed Asset Supplies as may be marked with the Marriott or Fairfield Inn name or
any Marriott or Fairfield Inn trademark, trade name, symbol, logo or design. 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 Inn
until they are consumed.
B. During the term of this Agreement, for so long as Owner is
known as Fairfield Inn by Marriott Limited Partnership (or any other name
containing the words "Marriott" or "Fairfield Inn"), Owner may use such name to
the extent necessary on its legal and business documents. Upon Termination of
this Agreement as to all of the Inns, Owner shall promptly take all necessary
steps so that its name no longer contains the words "Marriott" or "Fairfield
Inn."
10.03 Breach of Covenant
------------------
Management Company and/or its affiliated companies 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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ARTICLE XI
POSSESSION AND USE OF THE INNS
------------------------------
11.01 Ground Leases
-------------
So long as Management Company is not wrongfully withholding any money
from Owner and so long as no other monetary event of default has occurred and is
continuing, Owner agrees to promptly pay and discharge (i) any and all rental
due and owing pursuant to the Ground Leases and (ii) any payments and charges
required to be paid thereunder and, at its expense, to prosecute all appropriate
actions, judicial or otherwise, necessary to assure Management Company's
operation of those Inns subject to Ground Leases as provided herein.
11.02 Management of the Inns
----------------------
A. Management Company shall manage each Inn under standards
comparable to those prevailing in other inns in the "Fairfield Inn" system,
including all activities in connection therewith which are customary and usual
to such an operation.
B. Unless specifically approved in writing by Owner in its sole
and absolute discretion, no gaming or gambling shall be permitted in the Inns
other than occasional use thereof for such purposes on a not-for-profit basis
and in compliance with all applicable laws.
11.03 Chain Services
--------------
Management Company will, during the term of this Agreement, cause to
be furnished to each Inn certain services ("Chain Services") which are furnished
generally on a central or regional basis to all Fairfield Inn properties in the
Fairfield Inn chain which are managed by Management Company or any Marriott
Affiliate and which benefit each such Fairfield Inn property as a participant in
the Fairfield Inn system. Chain Services shall include: (i) development and
operation of computer systems; (ii) computer payroll services; (iii) accounting
services supporting Fairfield Inn properties managed or operated by Management
Company or any Marriott Affiliate; (iv) regional engineering support; and (v)
such additional central or regional services as may from time to time be
furnished for the benefit of inns in the Fairfield Inn system or in substitution
for services now performed at individual inns which may be more efficiently
performed on a group basis. Costs and expenses incurred in the provision of such
services shall be allocated on the basis of relative Gross Revenues for the most
recently concluded Fiscal Year for all Fairfield Inn properties owned, leased or
managed by Management Company or a Marriott Affiliate in the United States
receiving the same.
11.04 Marketing Fund
--------------
Management Company will, during the term of this Agreement, maintain,
manage and administer the Marketing Fund for the benefit of all hotels in the
Fairfield Inn system. Owner will contribute to the Marketing Fund an annual
amount determined by Management Company,
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such amount to be contributed on an Accounting Period basis within thirty days
after the end of each Accounting Period; provided, however, that if any
Fairfield Inn property in the system at any time shall not be required to
contribute to the Marketing Fund or is required to contribute on a basis that is
more favorable to the owner thereof than the foregoing, then the contribution to
the Marketing Fund hereunder shall be calculated and paid on the same basis as
for such other Fairfield Inn property. Funds in the Marketing Fund shall be
expended only for the purposes of the Marketing Fund. Management Company shall
furnish to Owner, upon request, an annual report setting forth the amount of
contributions to the Marketing Fund and the general breakdown of expenditures
therefrom during the preceding Fiscal Year.
11.05 Owner's Right to Inspect
------------------------
Owner or its agents shall have access to any Inn at any and all
reasonable times for the purpose of protecting the same against fire or other
casualty, prevention of damage to the Inns, inspection, making repairs, or
showing such Inns to prospective purchasers, tenants or mortgagees.
11.06 Reservations System
-------------------
Management Company will, during the term of this Agreement, maintain,
manage and administer, or cause to be maintained, managed and administered by a
Marriott Affiliate, a national reservations system for the benefit of all hotels
in the Fairfield Inn system. Such reservations system shall be comparable to
the current national reservations service and shall be accessible from the
Marriott full-service hotel reservations system. Costs and expenses incurred in
the provision of such reservations system (net of all amounts paid with respect
to the reservations system by other owners of Fairfield Inns such as
franchisees, on a basis other than relative number of reservations) shall be
allocated on the basis of relative number of reservations among all Fairfield
Inn properties in the Fairfield Inn system.
END OF ARTICLE XI
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ARTICLE XII
INSURANCE
---------
12.01 Property and Operational Insurance
----------------------------------
Management Company shall, commencing with the Effective Date and
thereafter during the term of this Agreement, procure and maintain, using funds
deducted from Gross Revenues in determining Operating Profit, either with
insurance companies of recognized responsibility or by legally qualifying itself
as a self insurer in the state where the respective Inn is located, a minimum of
the insurance identified below.
A. Property insurance on each Inn building(s) and contents against
loss or damage by all perils covered by "all risk" (as such term is commonly
used in the insurance industry, excluding earthquake and flood) coverage in an
amount not less than one hundred percent (100%) of the replacement cost thereof
except that if such 100% replacement cost coverage is not available on
reasonable terms and rates, then such insurance shall be in an amount not less
than ninety percent (90%) of the replacement cost of the Inn;
B. Should an Inn be located in a zone identified by the Federal
Emergency Management Agency as a flood hazard area, flood insurance shall be
maintained in an amount not less than the maximum limit available under the
National Flood Insurance Program if required by the Owner's lender holding a
first mortgage on said Inn.
C. Insurance against loss or damage from explosion of boilers,
pressure vessels, pressure pipes and sprinklers, to the extent applicable to
each Inn;
D. 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 12.01 A through C for Management
Company's established period (but not less than one (1) year after the
occurrence) of a type and in amounts as are generally established by Management
Company at other similar inns it or Marriott Affiliates own, lease or manage
under the Fairfield Inn name in the United States;
E. General liability insurance against claims for personal injury,
death or property damage occurring on, in, or about any Inn, and automobile
liability insurance on vehicles operated in conjunction with any Inn, with a
combined single limit for each occurrence of not less than Twenty Million
Dollars ($20,000,000);
F. Workers' compensation and employer's liability insurance as may
be required under applicable laws covering all of Management Company's employees
at the Inn;
G. Fidelity bonds, with reasonable limits to be determined by
Management Company, covering its employees in job classifications normally
bonded in other similar inns it, or its Affiliates, own, lease or manage under
the Fairfield Inn name in the United States or as otherwise
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required by law, and comprehensive crime insurance to the extent Management
Company and Owner mutually agree it is necessary for any Inn; and
H. Such other insurance in amounts as Management Company in its
reasonable judgment deems advisable for protection against claims, liabilities
and losses arising out of or connected with the operation of any Inn or as
reasonably required by Owner's lender(s) holding a first mortgage on any Inn,
subject to Management Company's reasonable approval.
12.02 General Insurance Provisions
----------------------------
A. All insurance described in Section 12.01 may be obtained by
Management Company by endorsement or equivalent means under its, Marriott's, or
a Marriott Affiliate's blanket insurance policies, provided that such blanket
policies substantially fulfill the requirements specified herein.
B. Management Company may self insure or otherwise retain such
risks or portions thereof as it does with respect to other similar inns it or
Marriott Affiliates own, lease or manage under the Fairfield Inn name in the
United States.
C. All policies of insurance required under Section 12.01 shall be
carried in the name of Management Company. The policies required under Sections
12.01 A, B, C, D and E shall include Owner as an additional insured. Upon
notice by the Owner, Management Company shall also have the policies required
under Sections 12.01 A, B, C and D include any mortgagee or lender on the Inns
as additional insureds. Subject to the rights of any such Lender, any property
losses thereunder shall be payable to the insured parties as and to the extent
their respective interests may appear. Any mortgage on any Inn shall contain
provisions to the effect that, in the absence of a default thereunder, proceeds
of the insurance policies required to be carried under Section 12.01 A, B and C
shall be available for repair and restoration of the Inn.
D. All policies and 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 the policy holder and all certificate holders.
E. Management Company shall deliver to Owner certificates of
insurance with respect to all policies so procured, including existing,
additional and renewed policies, and, in the case of insurance policies about to
expire, shall deliver certificates with respect to the renewal thereof prior to
the respective dates of expiration.
12.03 Cost and Expense
----------------
Insurance premiums and any costs or expenses with respect to the
insurance or self-insurance required under this Article XII, including any Inn
Retention, shall be treated as Deductions. Such premiums and costs shall be
allocated on an equitable basis to the inns participating under Management
Company's, Marriott's or a Marriott Affiliate's blanket insurance or self-
insurance programs. Any reserves, losses, costs or expenses which are uninsured
shall be
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treated as a cost of insurance and shall be Deductions. Premiums on policies for
more than one year shall be charged pro rata against Gross Revenues as a
Deduction over the period of the policies. Upon Termination, either of this
entire Agreement or with respect to a given Inn, an escrow fund in an amount
reasonably acceptable to Management Company and Owner shall be established from
Gross Revenues (or, if Gross Revenues are not sufficient, with funds provided by
Owner) to cover the amount of any Inn Retention and all other costs which will
eventually have to be paid by Management Company with respect to pending or
contingent claims, including those which arise after Termination for causes
arising during the term of this Agreement.
12.04 Owner Provided Coverage
-----------------------
Notwithstanding anything to the contrary contained in this Article
XII, Owner may, at its option, with sixty (60) days advance written notice to
Management Company, procure the insurance coverages required under subsections
A, B, C, D and E of Section 12.02 hereof, the premiums for which are to be
treated as a Deduction. However, if the cost of such insurance procured by
Owner exceeds the cost of Management Company's insurance by ten percent (10%)
for comparable coverages, all excess costs over such 10% threshold shall be the
sole responsibility of Owner and not be a Deduction in computing Operating
Profit. Should Owner exercise its option to provide such insurance, Owner
hereby waives its rights of recovery from Management Company, its affiliates,
directors and employees for loss or damage to the Hotel, and any resultant
interruption of business, to the extent covered by the insurance provided
herein.
12.05 Loan Agreement Insurance Provisions
-----------------------------------
To the extent that the provisions of this Article XII shall conflict
with the insurance provisions of the Loan Agreement and related documents at the
time such Loan Agreement and related documents are executed and, to the extent
that the provisions of the Loan Agreement and such related documents provide for
more extensive coverage than this Article XII, the insurance provisions of such
Loan Agreement and related documents shall control. Any revisions of the
insurance provisions contained in such Loan Agreement and related documents
occurring subsequent to the date of execution of such Loan Agreement and related
documents shall be with the consent of Management Company for the provision
contained in the first sentence of this Section to apply.
END OF ARTICLE XII
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ARTICLE XIII
TAXES
-----
13.01 Real Estate and Personal Property Taxes
---------------------------------------
All real estate and personal property taxes, levies, assessments and
similar charges on or relating to each Inn ("Impositions") during each Inn Term
shall be paid by Management Company on behalf of Owner from Gross Revenues
before any fine, penalty, or interest is added thereto or lien placed upon the
Inn or this Agreement, unless payment thereof is in good faith being contested
and enforcement thereof is stayed. Accruals of any such payments shall be a
Deduction in determining Operating Profit. Owner shall, within five (5) days of
receipt, furnish Management Company with copies of official tax bills and
assessments which it may receive with respect to any of the Inns. Either Owner
or Management Company, with Owner's consent, not to be unreasonably withheld,
(in which case Owner agrees to sign the required applications and otherwise
cooperate with Management Company in expediting the matter) may initiate
proceedings to contest any Imposition, and all reasonable costs of any such
contest shall be paid from Gross Revenues and shall be a Deduction in
determining Operating Profit.
END OF ARTICLE XIII
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ARTICLE XIV
INN EMPLOYEES
-------------
14.01 Employees
---------
A. All personnel employed at each Inn shall at all times be the
employees of Management Company, Marriott, or a Marriott Affiliate. Management
Company shall have absolute discretion to hire, promote, supervise, direct, move
and train all employees at the Inns, to fix their compensation and, generally,
establish and maintain all policies relating to employment.
B. Management Company shall be permitted to provide free
accommodations and amenities to its employees and representatives visiting each
Inn in connection with its management or operation. No person shall otherwise
be given gratuitous accommodations or services without prior joint approval of
Owner and Management Company except in accordance with usual practices of the
hotel and travel industry.
C. At Termination with respect to a given Inn, other than a
Termination (i) by reason of a default of Management Company hereunder, or
(ii) at Management Company's option (except as a result of a default by Owner),
provided that the expiration of a given Inn Term under Section 4.01 shall not be
deemed "at Management Company's option" for purposes of this Section 14.01, an
escrow fund shall be established from Operating Profit to reimburse Management
Company for all costs and expenses incurred by Management Company in terminating
its employees at the Inn in accordance with its standard policies, such as
severance pay, unemployment compensation and other employee liability costs
arising out of the termination of employment of Management Company's employees
at such Inn. Transfer costs shall not be included.
D. Neither Owner nor Management Company shall effect a Termination
of this Agreement without allowing sufficient time for Management Company to
comply with notice requirements of federal and state laws and regulations
regarding the closing of a business or termination of employees. Management
Company shall comply with notice requirements of federal and state laws and
regulations regarding the closing of a business or termination of employees.
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, any Inn is damaged or destroyed by
fire, casualty or other cause, Owner shall, at its cost and expense and with all
reasonable diligence, repair or replace the damaged or destroyed portion of such
Inn to the same condition as existed previously. To the extent available,
proceeds from the insurance described in Section 12.01 shall be applied to such
repairs or replacements. However, Owner shall not be obligated to so repair or
replace the damaged or destroyed portion of such Inn if one or more of the
following is true: (i) the Inn is so badly damaged or destroyed that it cannot
reasonably be repaired or replaced within one (1) year of the date of the
casualty; (ii) the proceeds of insurance available for such repair or
replacement are less than ninety percent (90%) of the estimated repair and
replacement costs; or (iii) the remainder of the Inn Term with respect to such
Inn is less than ten (10) years, and Management Company fails to agree to extend
such Inn Term to a date which is at least ten (10) years after the estimated
date of the completion of such repair and/or replacement. If Owner elects not
to repair or replace said damaged portion of such Inn for one or more of the
foregoing reasons, it shall so notify Management Company by written notice
within ninety (90) days after the date of the casualty. If Owner does not so
notify Management Company, Owner shall promptly commence and complete the
repairing, rebuilding or replacement of the same so that the Inn shall be
substantially the same as it was prior to such damage or destruction.
B. In the event damage or destruction to any Inn from any cause
materially and adversely affects the operation of such Inn and Owner notifies
Management Company pursuant to the provisions of Section 15.01A above that Owner
will not repair or replace such damage for one or more of the reasons set forth
in Section 15.01A, Management Company may, at its option, terminate this
Agreement with respect to such Inn within sixty (60) days after such notice.
C. Subject to the provisions of Section 15.01B, if (i) damage to
any Inn is in excess of the amount of insurance proceeds plus amounts made
available by Management Company or Marriott Affiliates, or (ii) the conditions
of Section 15.01A(i) or (iii) are met, Owner may terminate this Agreement with
respect to such Inn upon sixty (60) days' written notice.
15.02 Condemnation
------------
A. In the event all or substantially all of any Inn shall be taken
in any eminent domain, condemnation, compulsory acquisition, or similar
proceeding by any competent authority for any public or quasi-public use or
purpose, or in the event a portion of the Inn shall be so taken, but the result
is that it is unreasonable to continue to operate such Inn, this Agreement shall
terminate with respect to such Inn. Owner and Management Company shall each have
the right to initiate
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such proceedings as they deem advisable to recover any damages to which they may
be entitled. Management Company's rights to recover any damages subject to this
subsection shall be subject and subordinate to the prior rights of the Lender or
its successors and assigns to recover damages related to its interest in the Inn
being taken.
B. In the event a portion of any Inn shall be taken by the events
described in Section 15.02 A, or the entire Inn is affected but on a temporary
basis, and the result is not to make it unreasonable to continue to operate such
Inn, this Agreement shall not terminate. However, so much of any award for any
such partial taking or condemnation as shall be necessary to render such Inn
equivalent to its condition prior to such event shall be used for such purpose.
Any balance of the condemnation award, to the extent resulting in Net Sales
Proceeds, shall be retained and applied pursuant to Section 5.03.
15.03 Force Majeure
-------------
A. If acts of God, acts of war, civil disturbance, governmental
action, strikes or other organized labor disputes, vendor delays or fires
(collectively herein referred to as "Force Majeure") shall make it impractical
for either Owner or Management Company to perform any of its respective
obligations hereunder, such obligation shall be suspended until it is again
possible for the affected party to perform it. In addition, if such an event,
in Management Company's or Owner's reasonable judgment, makes continued
operation of an Inn impractical for more than a reasonably temporary period,
then Management Company or Owner may terminate this Agreement as to such Inn on
sixty (60) days written notice to the other.
B. The provisions of Section 15.03 A shall not apply to the
specific provisions of this Agreement regarding (i) damage or destruction,
(ii) condemnation, and (iii) withdrawal or revocation of licenses or permits.
END OF ARTICLE XV
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ARTICLE XV
DEFAULTS
--------
16.01 Events of Default
-----------------
The following shall constitute "events of default" to the extent
permitted by applicable law:
A. The failure of either party to make any payment required to be
made in accordance with the terms hereof within ten (10) days after written
notice that such payment has not been made; or
B. Unless Section 16.01 A is applicable, the breach by either
party of any material representation, warranty or covenant contained in this
Agreement, or the default by either party in the performance of any covenants,
undertakings, obligations or conditions set forth in this Agreement, which
breach or default shall not have been cured within thirty (30) days after notice
of such breach or default; provided that an "event of default" shall not exist
with regard thereto if such breach or default (i) is not attributable to a
failure to pay any sums due under this Agreement and (ii) such breach or default
is curable (but not within such thirty (30) day period) and the defaulting party
commences the cure of said breach or default within said thirty (30) day period
and thereafter proceeds diligently and in good faith to complete such cure; or
C. If a court of competent jurisdiction has entered a final, non-
appealable judgment finding Management Company liable for fraud, gross
negligence or willful or wanton misconduct in its dealings with Owner hereunder;
or
D. If Management Company or Owner shall apply for or consent to
the appointment of a receiver, trustee or liquidator of all or a substantial
part of its assets or make a general assignment for the benefit of its
creditors, or file a voluntary-petition in bankruptcy or a petition seeking
reorganization, composition, arrangement with creditors, liquidation or similar
relief under any present or future statute, law or regulation, or file any
answer admitting the material allegations of a petition filed against it in any
such proceeding, or be adjudicated a bankrupt or insolvent, or take any action
looking toward dissolution; or
E. If any final order, judgment or decree (that is, an order,
judgment or decree affirmed on appeal to a court of last resort or after the
expiration of any period to appeal) shall be entered without the application,
approval or consent of Management Company or Owner by any court of competent
jurisdiction, approving a petition seeking reorganization, composition,
arrangement with creditors, liquidation or similar relief under any present or
future statute, law or regulation with respect to Management Company or Owner,
or appointing a receiver, trustee or liquidator of all or a substantial part of
Management Company's or Owner's assets and such order,
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<PAGE>
judgment or decree shall continue unstayed and in effect for an aggregate of
sixty (60) days (whether or not consecutive).
16.02 Remedies
--------
A. If, at any time during the term of this Agreement, an "event of
default" (as defined in Section 16.01) shall occur, then the non-defaulting
party may, at its option, terminate this Agreement by giving notice to the other
party, specifying a date, not earlier than thirty (30) days after the receipt of
such notice, for Termination of this Agreement. If the default has not been
cured on or before the date specified in the aforesaid notice, this Agreement
shall terminate on such date.
B. The rights set forth in Section 16.02 A shall not be in
substitution for, but shall be in addition to, any and all rights and remedies
available to the non-defaulting party by reason of applicable law.
END OF ARTICLE XVI
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<PAGE>
ARTICLE XVII
WAIVER, PARTIAL INVALIDITY AND OTHER MATTERS
--------------------------------------------
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.
17.03 Estoppel Certificates
---------------------
Promptly after written request therefor from the other party (and in
any event within fifteen (15) days thereafter), each party shall deliver to the
other (and to all actual or potential lenders or transferees thereof as
requested by the other party) a certificate identifying this Agreement and all
amendments hereto, stating that this Agreement as so amended is in full force
and effect, stating the date to which all payments hereunder have been made and
the amount (if ascertainable) of all future payments required hereunder,
identifying any known defaults of the other hereunder, and covering such
additional matters as may be reasonably requested.
END OF ARTICLE XVII
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ARTICLE XVIII
ASSIGNMENT
----------
18.01 Assignment
----------
A. Neither party shall assign or transfer or permit the assignment
or transfer of this Agreement without the prior written consent of the other;
provided, however, that Management Company shall have the right, without such
consent, to (1) assign its interest in this Agreement to any Marriott Affiliate
(other than one which is a partner of Owner) which (i) has adequate experience
in managing hotels and has adequate capital and resources to conduct its
business as Management Company under this Agreement and (ii) agrees in writing
to be bound by and comply with the terms of this Agreement (such written
agreement to be delivered to Owner), and (2) lease shops or grant concessions at
the Inns so long as the terms of any such leases or concessions do not exceed
the term of this Agreement. Nothing contained herein shall prevent (i) the
conditional assignment of this Agreement as security for any mortgage on the
Inns pursuant to Section 18.02; (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 Marriott; or (iii) an assignment of this Agreement in
connection with a permitted sale of one or more of the Inns pursuant to
Section 19.01.
B. In the event either party consents to an assignment of this
Agreement by the other, no further assignment shall be made without the express
consent in writing of such party, unless such assignment may otherwise be made
without such consent pursuant to the terms of this Agreement. An assignment by
either Owner or Management Company of its interest in this Agreement shall not
relieve Owner or Management Company, as the case may be, from their respective
obligations under this Agreement, and shall inure to the benefit of, and be
binding upon, their respective successors, heirs, legal representatives, or
assigns.
18.02 Mortgages and Collateral Assignments
------------------------------------
Owner may from time to time (i) grant mortgages, deeds of trust or
similar security instruments encumbering the Inns, and (ii) collaterally assign
its interest under this Agreement as additional security, provided that all such
mortgages, deeds of trust, other security instruments and collateral
assignments: (a) are granted or entered into in connection with indebtedness
that is described in Section 3.01 A 2 hereof, and (b) each contain a non-
disturbance provision in the form described in Section 3.01 A 2 hereof.
Provided that all of the provisions of Section 3.01 A 2 are complied with,
Management Company agrees that (in connection with Owner obtaining such secured
loans) it will: (v) comply with any reasonable reporting requirements of the
lender; (w) provide the lender with notice of any default by Owner hereunder and
thereafter permit the lender to effect a cure thereof within a reasonable
period; (x) deliver to the lender, upon Owner's written request therefor, a
statement that this Agreement is in full force and effect and that there are no
outstanding
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defaults hereunder, or, if there are outstanding defaults, describing what they
are; (y) subordinate Management Company's interest in this Agreement to the
rights of the lender upon foreclosure of any such mortgage, deed of trust,
security agreement or like instrument, or upon the granting of a deed in lieu of
foreclosure (provided that such lender simultaneously agrees to a non-
disturbance provision in the form described in Section 3.01 A 2 hereof); and (z)
attorn to and recognize such lender or its assignee as being the "Owner" under
this Agreement upon a conveyance of title to an Inn to such lender or its
assignee, whether such conveyance is the result of a foreclosure of said
mortgage, deed of trust, security agreement or like instrument, or is the result
of a deed in lieu of foreclosure.
END OF ARTICLE XVIII
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<PAGE>
ARTICLE XIX
SALE OF AN INN OR INNS
----------------------
19.01 Right of First Refusal
----------------------
A. If Owner receives an unsolicited bona fide written offer to
purchase or lease any one or more of the Inns and desires to accept such offer,
Owner shall promptly give written notice thereof to Management Company stating
the name of the prospective purchaser or tenant, as the case may be, the price
or rental and the terms and conditions of such proposed sale or lease, together
with all other information reasonably requested by Management Company and
reasonably available to Owner. Within thirty (30) days after the date of receipt
of Owner's written notice, Management Company shall elect, by written notice to
Owner, one of the following alternatives:
1. To purchase or lease such Inn or Inns at the same price
or rental and upon the same terms and conditions as those set forth in the
written notice from Owner to Management Company or upon other terms acceptable
to Owner, in which event Owner and Management Company shall promptly enter into
a purchase agreement for such sale or lease and shall consummate the same within
one hundred fifty (150) days.
2. To enter into a new Management Agreement, with respect to
such Inn or Inns, with such purchaser or tenant, which new Management Agreement
will be on all of the terms and conditions of this Agreement except that in
preparing such new Management Agreement, the provisions of Sections 5.01D and
5.03(5) and (6) hereof shall be deleted from such new Management Agreement and
appropriate adjustments (which in the case of a sale pursuant to a site purchase
option under a Ground Lease shall provide that, from and after the date on which
an Inn is sold pursuant to the exercise of such site purchase option, the amount
of Ground Rent hereunder shall be deemed to be the total rent and other amounts
that would have been paid or accrued to the former landlord by Owner if such
Ground Lease were still in effect) shall be made to all terms and provisions of
this Agreement which have been agreed to and/or computed on the assumption that
this Agreement will apply to all fifty (50) Inns (and reciprocal adjustments
shall likewise be made to this Agreement itself, which will be applicable to the
Inns not being sold under this Section 19.01, as set forth in Section 19.02
hereof); provided, however, that if Management Company in good faith reasonably
believes (and so states in writing to Owner) that any one or more of the
following is true: (i) that the proposed purchaser is a competitor in the
lodging business, of Management Company, Marriott or any Marriott Affiliate
(unless the proposed purchaser is a financial institution that is solely a
passive owner of competitive properties in the lodging business); (ii) the
proposed purchaser is known in the community as being of bad moral character; or
(iii) that the financial condition and prospects of the proposed purchaser are
not adequate to discharge the obligations of Owner under this Agreement,
Management Company shall have the right to terminate this Agreement, by written
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notice to Owner, with respect to such Inn or Inns, and Management Company shall
not be required to enter into such new management agreement with respect
thereto. The effective date of such Termination shall coincide with the date of
the consummation of the proposed sale or lease. Such Termination shall not be
effective if such sale or lease is not consummated.
B. If Management Company shall fail to elect any of the
alternatives of subsection A above within said thirty (30) day period, such
failure shall be conclusively deemed to constitute election under subsection
19.01A2 above to enter into a new management agreement with respect to such Inn
or Inns, with such purchaser or tenant, and the provisions thereof shall prevail
as if Management Company had so elected. Any proposed sale or lease of which
notice has been given by Owner to Management Company hereunder must be
consummated on substantially the same terms within one hundred eighty (180) days
following the giving of such notice, unless Management Company has exercised its
option under subsection 19.01A1 above to purchase or lease the Inns. Failing
such consummation, such notice, and any response thereto given by Management
Company, shall be null and void and all of the provisions of Section 19.01A1
must again be complied with before Owner shall have the right to consummate a
sale or lease of the Inn upon the terms contained in said notice, or otherwise.
C. Any sale, assignment, transfer, or other disposition, for value
or otherwise, voluntary or involuntary, of the controlling interest in Owner
(i.e., the possession directly or indirectly of the power to direct or cause the
direction of the management and policies of Owner, whether through the ownership
of voting securities, or by contract or otherwise) in a single transaction or
series of related transactions (and, if Owner is a limited partnership, which is
combined with a transfer of the general partnership interest(s) in connection
therewith) shall be deemed a sale or lease of the Inns under Section 19.01 and
shall be subject to the provisions thereof.
D. If Owner intends to sell or refinance any one or more of the
Inns, Management Company agrees to cooperate in providing information to
facilitate such sale or refinancing.
19.02 Effect of Sale or Refinancing of an Inn
---------------------------------------
Upon the consummation of the Sale of an Inn or a refinancing of the
Permanent Loan (or any Replacement Debt with respect thereto) as to fewer than
all of the Inns then subject to this Agreement, subject to the provisions of
Section 19.01, then:
A. This Agreement shall terminate with respect to the Inns sold or
released from the mortgage securing the Permanent Loan (or any Replacement Debt
with respect thereto) in connection with such refinancing, but not with respect
to the remaining Inns; as to each such Inn, the actions described in
Section 4.03 shall be taken (except that, if Management Company is entering into
a new management agreement with the purchaser or tenant, as the case may be, of
such Inn, then the action described in subsection G of Section 4.03 shall not be
necessary);
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<PAGE>
B. Any sale or lease of all of the Inns shall be conditioned on
the purchaser or tenant assuming the obligations of Owner under this Agreement
with respect to the Inns being sold or leased, subject to the rights of
Management Company under the provisions of Section 19.01B2, by appropriate
instrument in form reasonably satisfactory to Management Company; and any sale
or lease of, or any refinancing of the Permanent Loan (or any Replacement Debt
with respect thereto) as to, fewer than all of the Inns then subject to this
Agreement shall be conditioned on the purchaser or tenant (or Owner in the case
of any such refinancing) entering into a new Management Agreement with respect
to such Inn or Inns in the form described in Section 19.01A2 (except that, in
the case of a refinancing, the provisions of Sections 5.03(5) and (6) hereof
shall not be included in such new Management Agreement). Upon such sale or
lease, an executed copy of such Assumption Agreement or new Management Agreement
shall be delivered to Management Company and Owner hereunder shall be released
from all further obligations hereunder with respect to the Inns being sold or
leased;
C. A portion of the FF&E Reserve maintained pursuant to
Section 8.02 hereof for the Inns being so sold, leased or refinanced shall be
transferred to the purchaser of such Inn (or, at the direction of the Owner,
released to the Owner); such portion shall be computed by multiplying the FF&E
Reserve by a fraction, the numerator of which shall be the Gross Revenues
attributable to such Inn being so sold, leased or refinanced for the most
recently concluded Fiscal Year and the denominator of which shall be the Gross
Revenues attributable to all the Inns for such Fiscal Year;
D. Owner's Priority Return, Owner's Contributed Capital, Owner's
12% Priority and Capital Return, Owner's Net Contributed Capital (and the 12%
return component of Owner's 12% Priority and Capital Return), the Operating
Profit Objective, Owner's Net Cash Flow and the amounts set forth in
Section 5.01D, and the amount set forth in Section 4.02A(i) shall be reduced by
an amount equal to the percentage calculated by dividing the amount of the
Operating Profit for the prior twenty-six (26) Accounting Periods for the Inn
being so sold, leased or refinanced by the total Operating Profit for the prior
twenty-six (26) Accounting Periods for all of the Inns;
E. To the extent Contingent Incentive Management Fees are not
eliminated by the sale of one or more Inns or by previous or current
refinancings, a portion of the remaining Contingent Incentive Management Fee
will be allocated to the Inn being so sold, leased or refinanced. The portion
of the Contingent Incentive Management Fee allocated to the Inn being so sold,
leased or refinanced shall be calculated by multiplying (a) the remaining unpaid
Contingent Incentive Management Fee by (b) the percentage the Operating Profit
generated by the Inn being sold for the prior twenty six (26) Accounting Periods
represents to the total Operating Profit for all the Inns for such prior twenty
six (26) Accounting Period. The purchaser or tenant of such Inn(s) shall assume
the obligation to pay the Contingent Incentive Management Fee allocated to such
Inn(s) pursuant to the terms of the Management Agreement;
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F. Appropriate adjustments shall be made to those other terms and
provisions of this Agreement (e.g., Working Capital, insurance) which have been
agreed on, computed or established on the assumption that this Agreement will
apply to all fifty (50) of the Inns. Such adjustments shall be calculated by
multiplying (a) the total amount of such other term or provision by (b) the
percentage the Operating Profit generated by the Inn being so sold, leased or
refinanced for the prior twenty-six (26) Accounting Periods represents to the
total Operating Profit for all the Inns for the prior twenty-six (26) Accounting
Periods;
G. Unless Management Company has elected not to enter into a new
management agreement with the purchaser or tenant, as the case may be, of such
Inn, for one or more of the reasons set forth in subsections (i), (ii) and
(iii) of Section 19.01A2 hereof, Management Company and such purchaser or tenant
shall execute the new management agreement described in Section 19.01A 2.
H. In the case of any adjustments pursuant to this Section 19.02
which are based on the prior twenty-six (26) Accounting Periods, such
adjustments shall be made based on the actual number of full Accounting Periods
the Inns have been subject to this Agreement if the Inns have been subject to
this Agreement for less than twenty-six full Accounting Periods.
END OF ARTICLE XIX
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ARTICLE XX
MISCELLANEOUS
-------------
20.01 Right to Make Agreement
-----------------------
Each party warrants, with respect to itself, that neither the
execution of this Agreement nor the finalization of the transactions
contemplated hereby shall violate any provision of law or judgment, writ,
injunction, order or decree of any court or governmental authority having
jurisdiction over it; result in or constitute a breach or default under any
indenture, contract, other commitment or restriction to which it is a party or
by which it is bound; or require any consent, vote or approval which has not
been taken, or at the time of the transaction involved shall not have been given
or taken. Each party covenants that it has and will continue to have throughout
the term of this Agreement and any extensions thereof, the full right to enter
into this Agreement and perform its obligations hereunder.
20.02 Consents
--------
Wherever in this Agreement the consent or approval of Owner or
Management Company is required, such consent or approval shall 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 (except as otherwise provided in this
Agreement).
20.03 Agency
------
The relationship of Owner and Management Company shall be that of
principal and agent, and nothing contained in this Agreement shall be construed
to create a partnership or joint venture between them or their successors in
interest. Management Company's agency established by this Agreement is coupled
with an interest and may not be terminated by Owner until the expiration of the
term of this Agreement, except as provided in Section 4.02, Articles XV or XVI.
Notwithstanding the agency relationship created by this Agreement, nothing
contained herein shall prohibit, limit, or restrict (except as specifically set
forth in Sections 2.04 hereof), Management Company or any of its Affiliates and
subsidiaries from developing, owning, operating, leasing, managing or
franchising competing hotels or restaurants or food services facilities in the
market area where any one or more of the Inns are located.
20.04 Applicable Law
--------------
This Agreement shall be construed under and shall be governed by the
laws of the State of Maryland.
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20.05 Recordation
-----------
The terms and provisions of this Agreement shall run with the land
designated as the Sites, 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 sufficient copies of an appropriate memorandum of this
Agreement in recordable form and cause the same to be recorded in the
jurisdiction where the Inns are located. For so long as the Lender is the
lender under the Permanent Loan, the consent of Lender (such consent not to be
unreasonably withheld or delayed) is required for the recordation of this
Agreement in any jurisdiction in which an Inn, subject to the Permanent Loan at
the time of recordation, is located.
20.06 Headings
--------
Headings of Articles and Sections are inserted only for convenience
and are in no way to be construed as a limitation on the scope of the particular
Articles or Sections to which they refer.
20.07 Notices
-------
Notices, statements and other communications to be given under the
terms of this Agreement shall be in writing and delivered by hand against
receipt or sent by certified or registered mail, postage prepaid, return receipt
requested:
To Owner:
--------
Fairfield Inn by Marriott Limited Partnership
c/o Marriott FIBM One Corporation
10400 Fernwood Road
Bethesda, Maryland 20058
Attn: Assistant General Counsel
(Corporate Finance)
To Management Company:
---------------------
Fairfield Management Corporation
10400 Fernwood Road
Bethesda, Maryland 20058
Attn: Law Department/Inn Operation
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 shall be deemed
to have been served as of five (5) days after said posting for purposes of
establishing that the sending party complied with the applicable time
limitations set forth herein, but shall not be binding on the addressee until
actually received.
20.08 Limited Liability
-----------------
Management Company agrees that no general or limited partner of Owner
shall have any personal liability hereunder in excess of such partner's
contribution to the capital of Owner.
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20.09 Entire Agreement
----------------
This Agreement, together with other writings signed by the parties
expressly stated to be supplemental hereto and together with any instruments to
be executed and delivered pursuant to this Agreement, constitutes the entire
agreement between the parties and supersedes all prior understandings and
writings, and may be changed only by a writing signed by the parties hereto.
20.10 Binding Effect
--------------
This Agreement shall bind and inure to the benefit of all the
respective heirs, personal representatives, successors and permitted assigns of
the parties hereto.
20.11 Compliance with Loan Documents
------------------------------
Unless the contrary is otherwise permitted in this Agreement,
Management Company shall take such actions and refrain from taking such actions,
as shall be necessary for Owner to comply with its obligations under the Loan
Agreement and other loan documents executed by Owner in connection with the
Permanent Loan to the extent such loan documents have been furnished to
Management Company and to the extent such loan documents require Owner,
explicitly or implicitly, to cause or limit the performance of Management
Company. Notwithstanding the above, Management Company shall have no obligation
to make any monetary payments under such loan documents.
END OF ARTICLE XXI
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
Attest: OWNER
-----
FAIRFIELD INN BY MARRIOTT LIMITED
PARTNERSHIP,
a Delaware limited partnership ("Owner")
By: MARRIOTT FIBM ONE
CORPORATION, a Delaware Corporation,
General Partner
By
- ------------------------------- ------------------------------------
Secretary President
MANAGEMENT COMPANY
------------------
Attest FAIRFIELD FMC CORPORATION, a Delaware
Corporation
("Management Company")
By
- ------------------------------- ------------------------------------
Assistant Secretary Vice President
MARRIOTT
--------
Attest: MARRIOTT CORPORATION
(for purposes of Sections 2.01, 2.04, 6.02,
10.01 and 10.02 only)
By
- ------------------------------- ------------------------------------
Assistant Secretary Vice President
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Exhibit A
THE INNS
<TABLE>
<CAPTION>
<S> <C>
Birmingham-Homewood, Alabama Atlanta-Northwest, Georgia
155 Vulcan Road 2191 Northwest Parkway
Homewood, Alabama 35209 Marietta, Georgia 30067
Montgomery, Alabama Atlanta-Peachtree Corners, Georgia
5601 Carmichael Road 6650 Bay Circle Drive
Montgomery, Alabama 36117 Norcross, Georgia 30071
Buena Park, California Atlanta-Southlake, Georgia
I-5 at Beach Boulevard 1599 Adamson Parkway
Buena Park, California 90602 Morrow, Georgia 30260
Placentia, California Savannah, Georgia
SR-57 and Orangethorpe Avenue Lee Boulevard
Placentia, California 92670 Savannah, Georgia
Gainesville, Florida Bloomington/Normal, Illinois
6901 NW 4th Boulevard 202 Landmark Drive
Gainesville, Florida 32608 Normal, Illinois 61761
Miami-West, Florida Chicago-Lansing, Illinois
Palmetto Expressway at NW 36th Street 17301 Oak Avenue
Miami, Florida 33166 Lansing, Illinois 60438
Orlando-International Drive, Florida Peoria, Illinois
8342 Jamaican Court 4203 North War Memorial Drive
Orlando, Florida 32819 Peoria, Illinois 61614
Orlando-South, Florida Rockford, Illinois
1850 Landstreet Road 7712 Potawatomi Trail
Orlando, Florida 32809 Rockford, Illinois 61108
Atlanta-Airport, Georgia Indianapolis-Castleton, Indiana
2451 Old National Highway 8325 Bash Road
College Park, Georgia 30349 Indianapolis, Indiana 46250
Atlanta-Gwinnett Mall, Georgia Indianapolis, College Park, Indiana
3500 Venture Highway 9251 Wesleyan Road
Duluth, Georgia 30136 Indianapolis, Indiana 46268
Atlanta-Northlake, Georgia Des Moines, Iowa
2155 Ranchwood Drive 114th Street
Atlanta, Georgia 30345 Clive, Iowa 50322
Kansas City/Overland Park, Kansas Durham I-85, North Carolina
4401 West 107th Street 3710 Hillsborough Road
Overland Park, Kansas 66211 Durham, North Carolina
</TABLE>
<PAGE>
Exhibit A -- Continued
<TABLE>
<CAPTION>
<S> <C>
Kansas City-West, Kansas Fayetteville, North Carolina
6601 Frontage Road 562 Cross Creek Mall
Merriam, Kansas 66202 Fayetteville, North Carolina 28303
Auburn Hills, Michigan Greensboro, North Carolina
1294 Opdyke Road 2003 Athena Court
Auburn Hills, Michigan 48057 Greensboro, North Carolina 27407
Detroit-Airport, Michigan Raleigh-Northeast, North Carolina
31119 Flynn Drive 2641 Appliance Court
Romulus, Michigan 48174 Raleigh, North Carolina 27604
Detroit-Madison Heights, Michigan Willmington, North Carolina
32800 Stephenson Highway Route 132 at New Center Drive
Madison Heights, Michigan 48071 Wilmington, North Carolina 28403
Detroit-Warren, Michigan Cleveland/Brook Park, Ohio
7454 Convention Boulevard 16644 Snow Road
Warren, Michigan 48093 Brook Park, Ohio 44142
Detroit-West (Canton), Michigan Columbus-North, Ohio
5700 Haggerty Road 887 Morse Road
Canton, Michigan 48187 Columbus, Ohio 43229
Kalamazoo, Michigan Dayton-North, Ohio
3800 Cork Street 6960 Miller Lane
Kalamazoo, Michigan 49001 Dayton, Ohio 45414
St. Louis-Hazelwood, Missouri Toledo-Airport, Ohio
9079 Dunn Road 1401 East Mall Drive
Hazelwood, Missouri 60342 Holland, Ohio 43528
Charlotte-Airport, North Carolina Florence, South Carolina
3400 I-85 Service Road 140 Dunbarton Drive
Charlotte, North Carolina 28208 Florence, South Carolina 29501
Charlotte-Northeast, North Carolina Greenville, South Carolina
5415 North I-85 Service Road 60 Roper Mountain Road
Charlotte, North Carolina 28213 Greenville, South Carolina 29607
Hilton Head, South Carolina Virginia Beach, Virginia
9 Marina Side Drive Beach Road (S.R. 44) and Independence Boulevard
Hilton Head Island, South Carolina 29928 Virginia Beach, Virginia 23462
Johnson City, Tennessee Madison, Wisconsin
207 East Mountcastle Drive 4765 Hayes Road
Johnson City, Tennessee 37601 Madison, Wisconsin 53704
Hampton, Virginia Milwaukee, Wisconsin
1905 Coliseum Drive 20150 West Blue Mound Road
Hampton, Virginia 23669 Waukesha, Wisconsin 53186
</TABLE>
<PAGE>
EXHIBIT 10.b
FIRST AMENDMENT
TO
MANAGEMENT AGREEMENT
THIS FIRST AMENDMENT TO MANAGEMENT AGREEMENT, dated as of July 31,
1990, by and among FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP, a Delaware
limited partnership ("Owner"), a Delaware limited partnership with a mailing
address at 10400 Fernwood Road, Bethesda, Maryland 20058, and FAIRFIELD FMC
CORPORATION ("Management Company"), a Delaware corporation, with a mailing
address at 10400 Fernwood Road, Bethesda, Maryland 20058.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto have heretofore entered into a Management
Agreement dated as of November 17, 1989 (the "Agreement");
WHEREAS, the parties hereto desire to make certain amendments to the
Agreement as hereinafter set forth; and
WHEREAS, unless otherwise defined herein, each capitalized term used
herein shall have the meaning set forth in the Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements hereinafter set forth, the parties hereto hereby agree
as follows:
1. The definition of the term "Lender" contained in Section 1.01 of
the Agreement (Definition of Terms, page 10) is hereby amended in its entirety
to read as follows:
"`Lender' shall mean Sumitomo Trust & Banking Co., Ltd., New York
Branch;"
2. The definition of the term "Owner's Net Contributed Capital"
-------------------------------
contained in Section 1.01 of the Agreement (Definition of Terms, page 16) is
hereby amended in its entirety to read as follows:
"`Owner's Net Contributed Capital' shall mean the excess of (a)
-------------------------------
Owner's Contributed Capital over (b) cumulative distributions of Net
Refinancing Proceeds and Net Sales Proceeds to the Partners of the
Owner pursuant to Sections 4.06 and 4.07 of the Partnership Agreement
(excluding distributions to the Partners to satisfy the 'Partners' 12%
Preferred Distribution' (as defined therein)). For purposes of
determining the average daily balance outstanding of Owner's Net
Contributed Capital under this Agreement, the Owner's Contributed
Capital shall be deemed to have been contributed on July 22, 1990.
3. The definition of the term "Owner's Priority Return" contained in
-----------------------
Section 1.01 of the Agreement (Definition of Terms, page 16) shall be amended in
its entirety to read as follows:
"`Owner's Priority Return' shall mean, for all Accounting Periods
-----------------------
to date in each Fiscal Year, an amount equal to an annual non-
cumulative amount retained by Owner out of Operating Profit, as set
forth in Section 5.02B hereof, equal to nine percent (9%) of Owner's
Contributed Capital in 1990 (such amount to be adjusted to reflect the
actual number of days
<PAGE>
between July 22, 1990 and the end of such Fiscal Year), nine and one-
half percent (9.5%) of Owner's Contributed Capital in 1991 and 1992
and ten percent (10%) of Owner's Contributed Capital in each Fiscal
Year thereafter, subject to reduction upon any Termination."
4. The definition of the term "Partnership Agreement" contained in
Section 1.01 of the Agreement (Definition of Terms, page 17) shall be amended in
its entirety to read as follows:
"`Partnership Agreement' shall mean the Amended and Restated
---------------------
Agreement of Limited Partnership of Owner dated as of July 31, 1990."
5. Except as expressly amended in this First Amendment to Management
Agreement, the Agreement shall remain and continue in full force and effect,
shall be binding upon the parties hereto and is in all respects ratified and
confirmed hereby.
6. This First Amendment to Management Agreement, the rights and
obligations of the parties hereto, and any claims or disputes relating thereto
shall be governed by and construed in accordance with the laws of Maryland.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this First
Amendment to Management Agreement, caused this First Amendment to Management
Agreement to executed on their behalf, as of the day and year first above
written.
Attest: OWNER
-----
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
a Delaware limited partnership
("Owner")
By: MARRIOTT FIBM ONE
CORPORATION, a Delaware
Corporation,
General Partner
By:
- ------------------------ ---------------------------
Secretary President
Attest: MANAGEMENT COMPANY
------------------
FAIRFIELD FMC CORPORATION, a
Delaware corporation
("Management Company")
By:
- ------------------------ --------------------------
Assistant Secretary Vice President
Attest: MARRIOTT
--------
MARRIOTT CORPORATION
for purposes of Sections 2.01
2.04, 6.02, 10.01 and 10.02 only
By:
- ------------------------ --------------------------
Assistant Secretary Vice President
3
<PAGE>
EXHIBIT 10.c
Execution Version
SECOND AMENDMENT
TO
MANAGEMENT AGREEMENT
This Amendment ("Amendment") is effective as of the 13th day of
January, 1997 ("Amendment Date") by FAIRFIELD INN BY MARRIOTT LIMITED
PARTNERSHIP ("Owner"), a Delaware limited partnership, with a mailing address at
10400 Fernwood Road, Bethesda, Maryland 20817 and FAIRFIELD FMC CORPORATION
("Manager") a Delaware corporation, with a mailing address at 10400 Fernwood
Road, Bethesda, Maryland 20817.
WHEREAS, Owner and Manager have entered into that certain Management
Agreement dated as of November 17, 1989, as amended by the First Amendment to
Management Agreement dated July 31, 1990 (as amended, the "Management
Agreement") for the operation and management of the Inns;
WHEREAS, Owner has entered into a Loan Agreement of even date herewith
with Nomura Asset Capital Corporation ("NACC") to refinance the Permanent Loan;
and
WHEREAS, the parties desire to modify the Management Agreement in
connection with such refinancing.
NOW, THEREFORE, the parties agree to amend the Management Agreement as
follows:
1. Section 1.01, "Definition of Terms," is amended as follows:
a. The following definitions are added:
"Cash Management Procedures" shall mean the procedures set forth
--------------------------
in the exhibit entitled "Cash Management Procedures", which is an
exhibit to that certain Modification, Subordination and Non-
Disturbance Agreement, Estoppel, Assignment and Consent Among
Manager, Owner, and NACC dated as of the Amendment Date.
"Computer Lease" shall mean a lease or other agreement under
--------------
which computer equipment located in one or more Inns is leased to
Owner or to Manager, as agent for Owner (including the license,
if any, of operating software therefor).
"Debt Service Reserve Account" shall have the meaning ascribed to
----------------------------
it in the Cash Management Procedures.
"Equipment Leases" shall mean all or any FF&E Leases, Telephone
----------------
Leases, Computer Leases, TV System Leases and leases of motor
vehicles used primarily for transporting Inn guests.
"FF&E Lease" shall mean a lease of any FF&E located in one or
----------
more Inns other than a TV System Lease, a Telephone Lease, a
Computer Lease, or a lease of a motor vehicle used primarily for
transporting Inn guests.
"FF&E Replacements" shall mean the items described in Sections
-----------------
8.02 A 1 and 2."
<PAGE>
"Manager" shall mean Management Company.
--------
"Manager Loans" shall have the meaning ascribed to it in Section
-------------
5.06 (which is added to this Management Agreement by this
Amendment.)
"Servicer" shall have the meaning ascribed to it in the Cash
--------
Management Procedures.
"Telephone Lease" means any lease of the telephones and/or other
---------------
telecommunication systems and equipment located in an Inn.
"TV System Lease" means a lease or other agreement under which
---------------
equipment (excluding television sets) for the transmission into
Inn rooms or televised programming is leased or otherwise
provided, regardless of whether such lease or other agreement
contains a right or option to purchase such equipment.
b. The definition of "Development Inns" is amended in its entirety to read
as follows:
"Development Inns" shall mean those Inns that were under
----------------
development by Marriott as of the Effective Date of the
Management Agreement and which have been subsequently acquired by
Owner. As of the Amendment Date, there are no Inns that are under
development to be acquired by Owner as part of the Management
Agreement.
c. The definition of "Lender" is amended in its entirety to read as
follows:
"Lender" shall mean Nomura Asset Capital Corporation, its
------
successors and assigns.
d. The definitions of "Limited Debt Service Guarantee" and "Limited Debt
Service Guarantee Advance" are deleted, and any references to those
terms shall be of no force or effect.
e. The definition of "Marriott" is amended in its entirety to read as
follows:
"Marriott" shall mean Marriott International, Inc., a Delaware
--------
corporation, the corporate parent of Manager.
f. The definition of "Permanent Loan," is amended in its entirety to read
as follows:
"Permanent Loan" shall mean the first mortgage indebtedness
--------------
secured by the Inns to be provided to Owner by Lender pursuant to
a Loan Agreement dated as of the Amendment Date, secured by
mortgages dated as of the Amendment Date in an initial amount not
to exceed the principal amount of One Hundred Sixty Five Million
Four Hundred Thousand Dollars ($165,400,000).
g. The definition of "Qualified Debt" is amended to delete the following
phrase in clause (ii): "any remaining unpaid Ground Rent under Section
4.02(d) of the Ground Leases."
h. The definition of "Qualifying Debt Service" is amended by inserting
the following at the end thereof:
2
<PAGE>
Upon the Termination of this Agreement with respect to a given
Inn or Inns (whether in connection with a Sale of the Inn or
Inns, or pursuant to other applicable provisions of this
Agreement), Qualifying Debt Service shall be reduced by interest
and principal on any (or any portion of any) Additional Inn
Investment Loans attributable to such Inn or Inns.
i. The definition of "Stipulated Debt Service" is amended in its entirety
to read as follows:
"Stipulated Debt Service" shall mean Seventeen Million Ninety
-----------------------
Nine Thousand One Hundred Forty One Dollars and Twenty Eight
Cents ($17,099,141.28).
2. Section 4.01, "Term," is amended as follows:
a. In the first sentence, "December 31, 2009" is replaced with "December
31, 2019."
b. In the third sentence, "for each of five (5) successive periods" is
replaced with "for each of four (4) successive periods".
3. Section 5.02, "Incentive Management Fees," is amended as follows:
a. Paragraph B is amended to add the following at the end thereof:
less the amount of any outstanding Manager Loans, which amount
shall be paid to Manager for repayment of such loans out of the
amount otherwise being retained by Owner pursuant to this
paragraph B.
b. Paragraph D is amended to add the following at the end thereof:
, provided that such additional amounts shall not include an
adjustment relating to the number of days in the Fiscal Year.
4. Section 5.03, "Application of Capital Proceeds," is amended by
inserting the following at the end of the first sentence:
; provided, however, that any such amounts retained by Owner
pursuant to this Section 5.03 shall be less the amount of any
outstanding Manager Loans, which amount shall be paid by Owner to
Manager out of the amount otherwise being retained by Owner
pursuant to this Section.
5. Section 5.05, "Accounting and Interim Payment," Paragraph B, is
amended as follows:
a. The following is inserted at the end of the first sentence: ", taking
into account the provisions of Section 8.02 B regarding any `Excess
Amounts'(as that term is defined therein)."
b. The following is inserted at the end of the second sentence: "and
which shall include an accounting with respect to any `Excess Amounts'
under Section 8.02 B (as that term is defined therein)."
3
<PAGE>
6. A new Section 5.06 is added as follows:
5.06 Manager Loans.
-------------
Manager shall have the right, but not the obligation, at any time
and from time to time, to advance funds reasonably needed for
additional Working Capital and to fund any shortfalls in the Debt
Service Reserve Account in an amount which when added to the
outstanding balance of previous such advances shall not exceed
the average amount of the Deductions for each Accounting Period
during the preceding full thirteen (13) Accounting Periods. Any
such advances shall be deemed a loan by Manager to Owner in such
amount (each, a "Manager Loan"), shall bear interest at one
percent (1%) above the Prime Rate, and shall be repayable by
Owner out of Operating Profit in the priority set forth in
Section 5.02, and Capital Proceeds in the priority set forth in
Section 5.03, and as required by Section 19.02 I, or out of other
funds available to Owner. Owner shall evidence any such loan by
executing a promissory note payable to Manager in the principal
amount of each such loan and bearing interest as aforesaid. Each
such note shall be payable upon the earlier of (i) ten (10) years
from the date of such advance, or (ii) the sale of substantially
all of the Inns; and, during the term of this Agreement, shall be
payable out of Operating Profit, Capital Proceeds, and as
required by Section 19.02 I.
7. Section 7.01, "Working Capital and Inventories" is amended by deleting the
third sentence through the end of the provision, and replacing it with the
following:
Owner shall from time to time after the Amendment Date advance
within fifteen (15) days after receipt of Manager's written
request any additional funds necessary to maintain Working
Capital and Inventories at levels reasonably determined by
Manager to be necessary to satisfy the needs of each Inn as its
operations may from time to time require. In the event Owner
fails to advance additional Working Capital within said fifteen
(15) day period, Manager may, in addition to any other rights or
remedies available to it at law or in equity: (i) retain or be
paid the required amounts from any portion of Operating Profit
otherwise to be retained by or be paid to Owner (consistent with
the Cash Management Procedures, if applicable), (ii) make a
Manager Loan to Owner in accordance with Section 5.06, or (iii)
terminate this Agreement upon not less than thirty (30) days
written notice to Owner. With the exception of the outstanding
balance of all Working Capital advances made as Manager Loans,
funds for Working Capital and Inventories advanced by Owner shall
remain the property of Owner throughout the term of this
Agreement. Upon Termination, Manager shall return to Owner any
unused Working Capital and Inventories except for Inventories
purchased by Manager pursuant to Section 10.02, and except for
the outstanding balance of all Working Capital advances by
Manager made as Manager Loans.
8. Section 8.02, "FF&E Reserve," is amended as follows:
a. Paragraph B is amended by replacing "Section 5.06A" with "Section
5.05A" in the fourth line on page 49.
b. Paragraph B is further amended by deleting the clause following the
last semicolon in the first sentence (which clause begins with the
words "and commencing with the
4
<PAGE>
Fiscal Year 1994" on the third-to-the-last line of page 48), and
replacing it with the following:
during Fiscal Years 1994, 1995 and 1996, Management Company shall
transfer into the FF&E Reserve an amount equal to six percent
(6%) of Gross Revenues from the Inns for such Fiscal Year.
Commencing with the Fiscal Year 1997, and for all Fiscal Years
thereafter, Management Company shall transfer into the FF&E
Reserve an amount equal to seven percent (7%) of Gross Revenues
from the Inns for each of such Fiscal Years, subject to the
following:
(i) if Management Company determines that seven percent (7%) of
Gross Revenues exceeds the amounts necessary for making
FF&E Replacements under Section 8.02 for the then-current
Fiscal Year or subsequent Fiscal Years, and the amounts
transferred into the FF&E Reserve are not adjusted under
Section 8.02 E, then such excess amount, up to a maximum of
one percent (1%) of Gross Revenues, shall be deemed the
"Excess Amount", and Management Company shall so notify
Owner as part of the FF&E Replacement Estimate described in
Section 8.02 D;
(ii) Excess Amounts shall not be a Deduction for purposes of
calculating or paying Incentive Management Fees under
Article V, and shall be available for the purpose of
funding Owner-approved expenditures under Section 8.03; and
(iii) if Excess Amounts (including any Excess Amounts from prior
Fiscal Years that were not used for Owner-approved
expenditures under Section 8.03) are actually used for FF&E
Replacements under Section 8.02, then such Excess Amounts
shall be deemed a Deduction for purposes of calculating and
paying Incentive Management Fees under Article V, and any
necessary adjustments shall be made promptly thereafter
(but in any event not later than the annual accounting
described in Section 5.05 B).
c. Paragraph C is amended by inserting the following at the end thereof:
Manager, in its reasonable discretion, and subject to the
exceptions stated below, shall decide whether to purchase or
lease any FF&E Replacements or motor vehicles used in
transporting Inn guests. If Manager enters into any lease of FF&E
Replacements or motor vehicles used in transporting Inn guests,
it shall do so on Owner's behalf and as Owner's agent; or, upon
Manager's recommendation and request, Owner shall directly enter
into such leases. Notwithstanding the foregoing, Manager shall
not and shall not require Owner to enter into any lease other
than: (i) Telephone Leases, (ii) Computer Leases, (iii) TV System
Leases, (iv) FF&E Leases, and (v) leases of motor vehicles used
in transporting Inn guests. With respect to FF&E Leases only,
Manager shall be required to obtain Owner's prior written
approval before entering into or requesting that Owner enter into
any FF&E Lease, if (a) the fair market value of the FF&E with
respect to all FF&E Leases relating to each Inn (including those
being entered into) would exceed at any time Fifty Thousand
Dollars ($50,000) (as increased each Fiscal Year after Fiscal
Year 1997 by the CPI Percentage) in respect of such Inn, (b) the
FF&E to be covered by such FF&E Lease is FF&E that is not
customarily leased in
5
<PAGE>
the hotel industry in the United States, or (c) such FF&E Lease
is on payment terms (including the amounts and schedule of
payments) that would be materially more favorable to the lessor
thereof than payment terms customary in the hotel industry in the
United States for similar leases. With respect to TV System
Leases only, Manager shall be required to obtain Owner's prior
written approval before entering into or requesting the Owner
enter into any TV System Lease, if (a) the equipment to be
covered by such TV System Lease is not customarily leased in the
hotel industry in the United States or (b) such TV System Lease
is on payment terms (including the amounts and schedule of
payments) that would be materially more favorable to the lessor
thereof than payment terms customary in the hotel industry in the
United States for similar leases. In cases described in the
preceding two sentences, Owner's approval shall not be
unreasonably withheld; provided, however, that the failure of any
Lender to approve such leasing proposal shall justify Owner in
withholding its approval. Payments under the leases described in
this paragraph shall be made from the FF&E Reserve to the extent
so provided in paragraph G of this Section 8.02.
d. Paragraph E is amended by inserting the following at the end thereof:
If Owner agrees to obtain outside financing or provide additional
funding as described in Subsection 2 or 3 above but fails to
deposit such funds into the FF&E Reserve within sixty (60) days
after such agreement, then, in addition to any other remedies to
which it is entitled, Manager shall be entitled to (i) notify
Owner that it will terminate this Agreement as to those Inns for
which funds were not deposited as of a date three (3) months
after the date of Manager's notice, or (ii) continue to manage
the Inn or Inns without making such alterations, improvements,
renewals, or replacements.
e. Paragraph F is amended in its entirety to read as follows:
F. Upon Termination of this Agreement with respect to any one or
more of the Inns, whether pursuant to Section 8.02 E above or
pursuant to other provisions of this Agreement, that portion of the
FF&E Reserve properly allocable to said Inn or Inns shall be
released from the FF&E Reserve and paid to Owner unless Manager will
continue operating some or all of the Inns being terminated from
this Management Agreement, in which case Manager shall transfer all
amounts held in the Reserve properly allocable to the Inns that
Manager will continue operating to one or more new accounts for the
benefit of the new owner or owners of such Inns.
9. Section 8.03, "Building Alterations, Improvements, Renewals, and
Replacements," is amended as follows:
a. Paragraph B is amended by inserting the following before the last
sentence:
If Owner approves the Building Estimate but fails to deliver
funds required by such Building Estimate on the later of sixty
(60) days after (A) such approval or (B) such later date Owner's
receipt of a request by Manager for the delivery of funds, then
Manager may, at its option and in addition to any other remedies
available to it, (i) notify Owner that it will terminate this
Agreement as to those Inns for which funds were not deposited as
of a date three (3) months after the date of Manager's notice,
(ii) use funds from the FF&E Reserve to pay for the expenditures
in the approved Building
6
<PAGE>
Estimate, or (iii) continue to manage the Inn or Inns without
making such alterations, improvements, renewals or replacements.
b. A new Paragraph C is added as follows:
C. From time to time Manager may, at Owner's request and with
Manager's prior consent (which may be withheld in Manager's sole
discretion), use funds in the FF&E Reserve for the purpose of
funding Owner-approved expenditures under this Section 8.03, it
being understood and agreed that, except for Excess Amounts under
Section 8.02 B (ii), such funds shall be repaid into the FF&E
Reserve out of Owner's funds (and not as a Deduction) at such time
as Manager shall request.
10. Section 12.05, "Loan Agreement Insurance Provisions," is amended by
inserting "A." at the beginning thereof, and adding a new paragraph B as
follows:
B. "Manager's Insurance Program" shall mean Manager's insurance
program in effect with respect to other similar inns that Manager or
Marriott Affiliates own, lease or manage under the Fairfield Inn
name in the United States. Section 12.05 A was agreed to in the
context of the loan agreement entered into by Owner and Sumitomo
Trust & Banking Co., Ltd., New York Branch, that was in effect prior
to the Amendment Effective Date. The Loan Agreement entered into by
Owner and Lender as of the Amendment Date contains insurance
provisions that in some instances require more extensive insurance
coverage than that which Manager's Insurance Program was required to
have in effect as of the Amendment Effective Date. Manager has not
provided its consent under Section 12.05 A to the extent the Loan
Agreement would require changes in Manager's Insurance Program
relating to: (i) earthquake insurance coverage; (ii) the
qualifications or eligibility of the insurers that are normally part
of Manager's Insurance Program; or (iii) the use of insurers at a
cost higher than that which Manager would normally have incurred
under Manager's Insurance Program. Accordingly, the parties
understand and agree that, notwithstanding the definition of "Loan
Agreement" in Section 1.01, as amended by the Second Amendment to
Management Agreement, the provision contained in the first sentence
of Section 12.05 A shall not apply with respect to any such
provisions in the Loan Agreement with Lender.
11. Section 19.02, "Effect of Sale or Refinancing of an Inn," is amended
as follows:
a. Paragraph C is amended in its entirety to read as follows:
That portion of the FF&E Reserve maintained pursuant to Section
8.02 hereof that is properly allocable to the Inns being so sold,
leased or refinanced shall be transferred to a new account for
the benefit of the purchaser of such Inn.
b. Paragraph D is amended in its entirety to read as follows:
Qualifying Debt Service, Owner's Priority Return, Owner's
Contributed Capital, Owner's 12% Priority and Capital Return,
Owner's Net Contributed Capital (and the 12% return component of
Owner's 12% Priority and Capital Return), the Operating Profit
Objective, Owner' s Net Cash Flow and the amounts set forth in
Section 5.01 D, and the amount set forth in Section 4.02
7
<PAGE>
A (i) shall be reduced by the percentage thereof allocable to
such IM set forth in Exhibit "B".
c. A new Paragraph I is added as follows:
I. Owner shall pay Manager an amount equal to a portion of the
outstanding balance of all Manager Loans determined by multiplying
the total outstanding balance of all Manager Loans by a fraction,
the numerator of which is the amount of Operating Profit
attributable to the Inn being sold for the immediately preceding
full Fiscal Year, and the denominator of which is the amount of
Operating Profit from all Inns for the immediately preceding full
Fiscal Year.
12. A new Section 20.12, "Confidentiality," is added as follows:
20.12 Confidentiality
---------------
The parties agree that matters set forth in and all information,
budgets and reports generated as a result of this Agreement are
strictly confidential and each party will make every effort to
ensure that the information is not disclosed to any outside person
or entities (including the press), other than such parties' lenders,
equity holders, bona fide prospective investors or purchasers, and
their respective accountants, counsel and other consultants or
advisors, and other than the holders of any securities to be issued
by Owner or by any lender pursuant to a securitization of the notes
evidencing the obligation of Owner (so long as all such information
sent to such holders is marked with a confidentiality notice that
refers to the provisions of this Section 20.11 and directs such
holders to comply with the provisions hereof reasonably acceptable
to Manager), without the written consent of the other party except
as may be reasonably necessary (i) to obtain licenses, permits and
other public approvals necessary for the refurbishment or operation
of any Inn (ii) in connection with Owner's financing of any Inn or
any sale of any Inn (subject to the limitations above with respect
to a securitization), (iii) in connection with a sale of a
controlling interest in Owner, Manager, or Marriott, (iv) in
connection with an audit or other investigation conducted pursuant
to this Agreement or the Owner's or Manager's interest in any Inn,
(v) in connection with a foreclosure sale on Owner's interest in any
Inn, or (vi) as required by any law, rule, regulation or judicial
process, or by any regulatory or supervisory authority having
jurisdiction over the parties or their Affiliates.
13. A new Section 20.13 is added as follows:
20.13 Offerings
---------
No reference to Manager, Marriott, or to any Marriott Affiliate
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 or lenders, which is designed to interest
potential investors (debt or equity) in one or more or all of the
Inns, or securities secured by the Inns, unless Manager has
previously received a copy of all such references. However,
regardless of whether Manager does or does not so receive a copy of
all such references, neither Manager, Marriott, nor any Marriott
Affiliate will be deemed an issuer or obligor or guarantor in
respect of any securities described in the Prospectus, nor will it
have any responsibility for the Prospectus, and Owner will not issue
or approve any
8
<PAGE>
Prospectus that does not so state. Unless Manager agrees in advance,
the Prospectus will not include: (i) any proprietary marks of
Manager, Marriott, or any Marriott Affiliate; 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. With respect to any offering not
registered under any federal or state securities law, 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 Manager, Marriott, and all Marriott
Affiliates (and their respective directors, officers, shareholders,
employees and agents) harmless from and against all loss, costs,
liability and damage (including reasonable attorneys' fees and
expenses, and the cost of litigation related thereto) arising out of
any Prospectus or the offering described therein for which Owner or
any of its affiliates is an issuer or sponsor. Owner shall, prior to
distribution of any Prospectus by any of its lenders, use
commercially reasonable best efforts to obtain such an
indemnification for the benefit of Manager, Marriott, and all
Marriott Affiliates from such lender.
14. A new Exhibit "B", attached hereto and incorporated by reference herein,
is added to the Management Agreement.
15. All other terms of the Management Agreement shall remain in full force
and effect.
16. Any term capitalized in this Amendment and not defined herein shall have
the meaning given to it in the Management Agreement.
[Remainder of Page Intentionally Left Blank]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the date and year first written above.
WITNESS: OWNER:
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
("Owner")
By: MARRIOTT FIBM ONE
CORPORATION, a Delaware
Corporation,
General Partner
/s/ David E. Reichmann By:
- ---------------------- -----------------------------------
Vice President
Name: David E. Reichmann
WITNESS: MANAGER:
FAIRFIELD FMC CORPORATION
("Manager")
/s/ Alex Joel
- --------------------------
Name: Alex Joel By: /s/ Raymond G. Murphy
------------------------------
Raymond G. Murphy
Vice President
10
<PAGE>
Exhibit 10.d
MASTER INDENTURE OF MORTGAGE, DEED OF TRUST,
DEED TO SECURE DEBT, ASSIGNMENT OF RENTS AND FIXTURE FILING
KNOW ALL MEN BY THESE PRESENTS:
THIS MASTER INDENTURE OF MORTGAGE, DEED OF TRUST, DEED TO SECURE DEBT,
ASSIGNMENT OF RENTS AND FIXTURE FILING (this "Indenture") dated as of the 31st
day of July 1990, from FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP, (the
"Borrower") a Delaware limited partnership having an address at 10400 Fernwood
Road, Bethesda, Maryland 20817, in favor of (i) SUMITOMO TRUST & BANKING CO.,
LTD., NEW YORK BRANCH, the New York branch of a Japanese chartered bank
(together with its successors and assigns, the "Bank"), having an office at
----
527 Madison Avenue, New York, New York 10022, with respect to that portion of
the Trust Estate located in the States of Alabama, Florida, Georgia, Illinois,
Indiana, Iowa, Kansas, Michigan, Ohio, South Carolina and Wisconsin, and (ii) to
(A) Stewart Title of California ("Stewart of California"), a California
---------------------
corporation having an address at 2010 Main Street, Suite 250, Irvine, California
92714, with respect to that portion of the Trust Estate located in the State of
California, (B) Lawrence J. Gordon ("LJG"), an individual having an address at
---
11 North Brentwood, Clayton, Missouri 63105, with respect to that portion of the
Trust Estate located in the State of Missouri, (C) the Fidelity Company
("Fidelity"), a North Carolina corporation having an address at c/o Leslie E.
--------
Browder, Suite 2400, Wachovia Building, 301 North Main Street, Winston-Salem,
North Carolina 27102, with respect to that portion of the Trust Estate located
in the State of North Carolina, (D) Samuel B. Miller II, Esq. ("SBM"), an
---
individual having an address at 2101 North Roan Street, Johnson City, Tennessee
37601, with respect to that portion of the Trust Estate located in the State of
Tennessee, and (E) Stewart Title and Settlement Services, Inc. ("Stewart
-------
Settlement"), a Virginia corporation having an address at 2697 Dean Drive,
- ----------
Suite 203, Virginia Beach, Virginia 23542, with respect to that portion of the
Trust Estate located in the State of Virginia (Stewart of California, LJG,
Fidelity, SBM and Stewart Settlement, together with their respective successors
and assigns, collectively referred to herein as the "Trustee"), for the benefit
-------
of the Bank.
RECITALS:
--------
A. The Borrower has entered into a Credit Agreement dated as of the
date hereof (as at any time amended, supplemented or otherwise modified, the
("Credit Agreement") with the Bank, providing inter alia, for the Bank to make
---------------- ----- ----
certain Loans to the Borrower to be evidenced by and repayable with interest
thereon in accordance with the Note (as such terms are defined in the Credit
Agreement of even date herewith.
B. The Bank has made a Loan (as defined in the Credit Agreement) to
the Borrower in the amount of $164,850,000 as evidenced by the Note in the face
amount of $164,850,000 made by the Borrower to the Bank.
C. The Note is secured in part by THIS INDENTURE AND THE
IMPLEMENTING INSTRUMENTS (hereinafter defined) UP TO THE MAXIMUM PRINCIPAL
AMOUNT OF $164,850,000.
D. Simultaneously with the execution and delivery of this
Indenture, the Borrower is executing and delivering, and from time to time
hereafter as Loans are advanced, the Borrower will execute and deliver, short-
form Indentures of Mortgage, Assignments of Rents and Fixture Filings and short-
form Indenture of Deeds to Secure Debt, Assignments of Rents and Fixture Filings
(each, an "Implementing Mortgage", and collectively, the "Implementing
--------------------- ------------
Mortgages"), and short-form Indenture of Deeds of Trust, Assignment of Rents and
- ---------
Fixture Filings (each, an "Implementing Deed of Trust", and collectively, the
--------------------------
"Implementing Deeds of Trust") each
---------------------------
<PAGE>
of which Implementing Mortgages and Implementing Deeds of Trust (collectively,
the "Implementing Instruments") covers or will cover a specified portion of the
------------------------
Trust Estate (as hereinafter defined) owned or hereafter acquired by the
Borrower and which Implementing Mortgages and Implementing Deeds of Trust are to
be recorded in those jurisdictions in which the respective portion of the Trust
Estate is located.
E. Each of such Implementing Instruments refers to, incorporates by
reference, and supplements the provisions of, this Indenture, it being the
intent of the parties that the provisions of this Indenture shall be applicable
generally to, and be incorporated by reference in, and supplemented by, each of
the Implementing Instruments.
F. It is a condition of the obligation of the Bank to extend credit
to the Borrower pursuant to the Loan Documents (as hereinafter defined) that the
Borrower execute and deliver this Indenture, and the Implementing Instruments.
GRANTING CLAUSE
NOW, THEREFORE in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and in order to secure the following (collectively, the
"Obligations"):
-----------
(a) The payment of principal of and premium (if any) and interest on
the Loan evidenced by the Note (which shall mature on December 31, 1996, in the
maximum aggregate principal amount of $164,850,000, including without
limitation, any other Loans and future advances thereunder and all other
obligations which may from time to time be owing to the Bank in connection with
Loans or under the Credit Agreement, the Note or any other Loan Document, and
all modifications, extensions, substitutions, exchanges and renewals thereof,
and
(b) the performance and payment of the obligations, covenants and
agreements contained in this Indenture, the Implementing Instruments and each of
the other Loan Documents, and all the monies now or hereafter secured hereby,
including, without limitation, any and all sums expended by the Bank pursuant to
Sections 1.08(d), 1.12 and 1.13(b) of this Indenture, together with interest
- ---------------- ---- -------
thereon,
the Borrower does hereby, and by the Implementing Instruments does irrevocably
grant, bargain, sell, release, convey, warrant, assign, transfer, mortgage,
pledge, set over and confirm unto the Bank with mortgage covenants, or in trust
to the Trustee for the benefit and security of the Bank, as the case may be, and
(to the extent available under applicable law) with power of sale and right of
entry and possession, under and subject to the terms and conditions hereinafter
set forth, all of the following described property:
(i) all of the Borrower's right, title and interest in and to the
respective lands and premises owned by the Borrower as more particularly
described in Schedule I hereto (collectively, the "Fee Properties"); and
---------- --------------
(ii) all of the Borrower's right, title and interest in and to the
respective leases and lease agreements to which it is a party, and all renewals
and extensions thereof, permitted modifications or new leases entered into
pursuant to the terms hereof and all rights and options thereunder
(individually, a "Ground Lease"; and collectively, the "Ground Leases") more
------------ -------------
particularly described in Schedule II hereto affecting the respective lands and
-----------
premises (collectively, the "Leasehold Properties" and, together with the Fee
--------------------
Properties, collectively the "Properties");
----------
<PAGE>
TOGETHER WITH all interests, estates or other claims, both in law and
in equity, that the Borrower now has or may hereafter acquire in (a) the
respective Properties, (b) all easements, rights-of-way and rights used in
connection therewith or as a means of access thereto and (c) all tenements,
hereditament and appurtenances in any manner belonging, relating or appertaining
thereto (collectively, the "Easements and Rights of Way"); and
---------------------------
TOGETHER WITH all estate, right, title and interest of the Borrower,
now owned or hereafter acquired, in and to any land lying within the right-of-
way of any streets, open or proposed adjoining the respective Properties, and
any and all sidewalks, alleys and strips and gores of land adjacent to or used
in connection therewith (collectively, the "Adjacent Rights"); and
---------------
TOGETHER WITH all estate, right, title and interest of the Borrower,
now owned or hereafter acquired, in and to any and all buildings and other
improvements now or hereafter located on the Properties and all building
materials, building equipment and fixtures of every kind and nature located on
the respective Properties or, attached to, contained in or used in any such
buildings and other improvements, and all appurtenances and additions thereto
and betterments, substitutions and replacements ;thereof (collectively, the
"Improvements"); and
------------
TOGETHER WITH all estate, right, title and interest of the Borrower,
now owned or hereafter acquired, in and to all fixtures, equipment and machinery
and all renewals, substitutions and replacements thereof including, but not
limited to, all appliances, apparatus and fittings of every kind (and including
also all of the interest of the Borrower in any of such items, at any time
acquired under any security agreement, conditional sale contract, chattel
mortgage or other security instrument should the purchase of any such items
pursuant to such arrangements be permitted under the Credit Agreement) located
in or used in the operation of the rooms, halls, dining rooms, lounges, offices,
lobbies and all other public spaces, lavatories, basements, cellars, vaults
another portions of the Improvements (other than those owned by hotel guests),
and now or hereafter located on or at or attached to the Properties to the
extent that an interest in such tangible property arises under applicable real
estate law, and any and all products and accessions to any such property which
may exist at any time, with the complete and comfortable use, enjoyment
occupancy or operation thereof, together with any proceeds realized from the
sale, transfer or conversion of any of the above (collectively, the "Fixtures");
--------
and
TOGETHER WITH all estate, right, title and interest of the Borrower,
now owned or hereafter acquired, in and to all rights, royalties and profits in
connection with all minerals, oil and gas and other hydrocarbon substances on or
in the Properties, water, water rights (whether riparian, appropriative, or
otherwise and whether or not appurtenant) and water stock (collectively, the
"Mineral and Related Rights"); and
--------------------------
TOGETHER WITH all estate, right, title and interest of the Borrower,
now owned or hereafter acquired in and to all leases, subleases, lettings,
licenses and other occupancy agreements, and guarantees thereof, and all
renewals, modifications, or extensions thereof, all rights and options under
such leases or licenses for the Properties or any part thereof now or hereafter
entered into (collectively, the "Space Leases" and all right, title and interest
------------
of the Borrower thereunder, including, without limitation, all rents, revenues,
issues, income and profits payable thereunder, (subject, however, to the right
of the Borrower so long as no Default (as hereinafter defined) shall have
occurred and be continuing to collect and use such rents, revenues, issues,
income and profits) including all replacements and substitutions for, or
additions to, all products and proceeds of, and all books, records and files
relating to, any of the foregoing (collectively, the "Rents and Royalties"); and
-------------------
TOGETHER WITH all estate, right, title and interest and other claim or
demand that the Borrower now has or may hereafter acquire with respect to any
damage to the Properties,
<PAGE>
the Improvements or Fixtures and any and all proceeds of insurance in effect
with respect to the Improvements or Fixtures owned by the Borrower and any
unearned premiums accrued, accruing or to accrue under any and all insurance
policies now or hereafter obtained by the Borrower and any and all awards made
for the taking by eminent domain, or by any proceeding or purchase in lieu
thereof, of the Properties, the Improvements or the Fixtures, including without
limitation any awards resulting from a change of grade of streets are as the
result of any other damage to the Properties, the Improvements or the Fixtures
for which compensation shall be given by any governmental authority all of which
are hereby assigned to the Bank who is hereby authorized to collect and receive
the proceeds thereof and to give proper receipts and acquittances therefor
(collectively, the "Damage Rights)"; and
-------------
TOGETHER WITH all the estate, right, title and interest of the
Borrower, now owned or hereafter acquired, with respect to any parking
facilities located other than on the Properties and used or intended to be used
in connection with the operation, ownership or use of the Properties, any and
all replacements and substitutions for the same, and any other parking rights,
easements, covenants and other interests in parking facilities acquired by the
Borrower for the use of tenants or occupants of the Improvements (collectively,
the "Parking Rights"); and
--------------
TOGETHER WITH all estate, right, title and interest of the Borrower,
now owned or hereafter acquired, in respect of any and all air rights,
development rights, zoning rights or other similar rights or interests which
benefit or are appurtenant to the Properties or the Improvements (collectively,
"Air and Development Rights"); and
--------------------------
All of the foregoing Easements and Rights-of-Way, Adjacent Rights,
Improvements, Fixtures, Minerals and Related Rights, Rents and Royalties, Space
Leases, Damage Rights, Parking Rights, and Air and Development Rights being
sometimes hereinafter referred to collectively as the "Ancillary Rights and
--------------------
Properties" and the Properties, and Ancillary Rights and Properties collectively
- ----------
referred to herein as the "Trust Estate".
------------
TO HAVE AND TO HOLD the Trust Estate with all privileges and
appurtenances thereunto belonging, to the Bank or the Trustee (for the benefit
of the Bank), as the case may be, and their respective successors and assigns,
forever, upon the trust, terms and conditions and for the uses hereinafter set
forth.
IT BEING THE INTENT OF THE PARTIES HERETO that, except to the extent
required by applicable law, this Indenture not be recorded in the respective
jurisdictions where the various Properties are located but that this Indenture
be implemented by recording in each jurisdiction an applicable Implementing
Instrument, describing the portion of the Trust Estate located in such
jurisdiction, each of the Implementing Instruments to secure all of the
obligations.
PROVIDED ALWAYS, that if the Obligations shall be paid in full, and if
each and every covenant and condition contained herein and in the Loan Documents
shall be complied with, then this Indenture and the lien and estate, as the case
may be, granted hereby and by the Implementing Instruments shall cease,
determine and be void.
This Indenture, the Implementing Instruments, the Credit Agreement,
the Note, the "Security Agreement", the "Purchase Agreement Assignment", the
"Management Agreement Assignment", the "Subordination and Attornment of
Management Agreement", the "Debt Service Guaranty" (each as defined in the
Credit Agreement), and any other instrument given to evidence or further secure
the payment and performance of any Obligation are sometimes hereinafter
collectively referred to as the "Loan Documents".
--------------
<PAGE>
TO PROTECT THE SECURITY OF THIS INDENTURE, THE BORROWER HEREBY
COVENANTS AND AGREES AS FOLLOWS:
ARTICLE I
Particular Covenants and Agreements of the Borrower
---------------------------------------------------
Section 1.01. Payment of Obligations; Representations and Warranties;
-------------------------------------------------------
etc.
- ----
(a) The Borrower shall pay when due the principal of, and interest
on, the indebtedness outstanding under, and all other Obligations according to
the terms of the Note, this Indenture, the Credit Agreement and all other Loan
Documents, and shall abide and comply with each and every covenant and agreement
set forth in the Note, this Indenture, the Credit Agreement and all other Loan
Documents. The Borrower acknowledges that as of the date hereof, it has no
offsets, defenses or counterclaims with respect to the Obligations.
(b) The Borrower represents and warrants:
(i) that it has the full power and lawful authority to
grant, bargain, sell, release, convey, warrant, assign transfer,
mortgage, pledge, set over and confirm unto the Bank, or the Trustee for
the benefit and security of the Bank, the case may be, the Trust Estate
and that it will forever defend the title to the Trust Estate and the
validity and priority of the lien or estate hereof and of each
Implementing Instrument against the claims and demands of all persons
whomsoever;
(ii) that upon the execution of this Indenture and based on
filings made or to be made pursuant to Section 1.0 of this Indenture, the
-----------
Bank will have a valid and enforceable first mortgage lien on and/or be a
beneficiary under a valid enforceable first deed of trust in the Trust
Estate; and
(iii) that the Borrower has not performed any act which might
prevent the Bank from enforcing any of the terms and conditions of the
Credit Agreement, this Indenture, the Implementing Instruments or the
liens, security interests and estate created pursuant to this Indenture
or the Implementing Instruments or which would limit the ability of the
Bank to enforce any of the same.
Section 1.02. Further Assurances; Filing; Re-Filing; etc.
------------------------------------------
(a) The Borrower shall execute, acknowledge and deliver, from time
to time, such further instruments as the Bank or the Trustee may reasonably
require to accomplish the purposes of this Indenture and the Implementing
Instruments.
(b) The Borrower, immediately upon the execution and delivery of
this Indenture, and thereafter from time to time, shall cause this Indenture,
the Implementing Instruments and any security agreement, mortgage, deed to
secure debt or deed of trust supplemental hereto and each instrument of further
assurance to be filed, registered or recorded and refiled, re-registered or re-
recorded in such manner and in such places as may be required by any present or
future law in order to publish notice of and perfect the lien or estate of this
Indenture and the Implementing Instruments upon the Trust Estate.
(c) The Borrower shall pay all filing, registration and recording
fees, and all expenses incident to the execution, filing, recording,
registration and acknowledgment of this Indenture, the Implementing Instruments
and any security agreement, mortgage, deed to secure
<PAGE>
debt or deed of trust supplemental hereto and any instrument of further
assurance, and all federal, State, county and municipal stamp taxes and other
taxes, duties, imposts, assessments and charges arising out of or in connection
with the execution, delivery, filing, registration and recording of any of
the Note, this Indenture, the Implementing Instruments and any security
agreement, mortgage, deed to secure debt or deed of trust supplemental hereto or
any instruments of further assurance.
(d) The Borrower will, at its sole cost and expense, do, execute,
acknowledge and deliver all and every such acts, information reports, returns
and withholding of monies as shall be necessary or appropriate to comply fully,
or to cause full compliance, with all applicable information reporting and back-
up withholding requirements of the Internal Revenue Code of 1986, as amended
including all regulations promulgated thereunder) in respect of the Trust Estate
and all transactions related thereto, and will at all times provide the Bank,
upon request, with satisfactory evidence of such compliance and notify the Bank
of the information reported in connection with such compliance.
Section 1.03. Title. The Borrower shall forever warrant, maintain,
-----
preserve and defend title to the Trust Estate, the lien of and security interest
created by this Indenture and the Bank's first lien on and first security
interest in the Trust Estate against the claims and demands of all Persons
whomsoever.
Section 1.04. Insurance. The Borrower will obtain and maintain with
---------
respect to the Trust Estate the insurance policies required by Section 8.04 of
the Credit Agreement in accordance with the terms thereof.
Section 1.05. Impositions.
-----------
(a) Subject to Section 8.03(c) of the Credit Agreement the Borrower
shall pay or cause to be paid, before any fine, interest, penalty or other cost
for non-payment attaches thereto, all taxes, assessments, water and sewer rates,
utility charges and all other governmental or nongovernmental charges and/or
levies now or hereafter assessed or levied against the Trust Estate or any
portion thereof) or upon the lien or estate of the Bank or the Trustee therein
(collectively, "Impositions"), which, if unpaid, might by law become a Lien on
-----------
the Trust Estate.
(b) If a Default (as hereinafter defined) shall occur and be
continuing, the Borrower, at the election of the Bank, shall deposit, or cause
to be deposited, with the Bank monthly in advance of the first day of each month
an amount equal to one-twelfth of the annual amount of Impositions to be paid
pursuant this Section 1.05 and of the premiums on insurance which the Borrower
------------
is required to maintain pursuant to Section 8.04 of the Credit Agreement. The
determination of the amount so payable and of the fractional part thereof to be
deposited with the Bank so that the aggregate of such deposit shall be
sufficient for each such purpose, shall be made by the Bank. If one month prior
to the due date of any Imposition and/or of any insurance premium, the amounts
then on deposit therefor shall be insufficient for the payment thereof in full,
the Borrower, within 10 days after demand, shall deposit the amount of the
deficiency with the Bank. All amounts deposited shall be held by the Bank
without interest and shall be applied to the payment of the obligations with
respect to which such amounts were deposited on or before the dates upon which
the same would become delinquent in such order or priority as the Bank shall
determine; provided, however, that the amounts so deposited may be applied by
the Bank, in its sole discretion, to the payment of the charges for which they
have been deposited or to the payment of the Obligations.
(c) The amount deposited pursuant to paragraph (b) above shall not
constitute trust funds and may be commingled with the general funds of the Bank.
Upon an assignment of this Indenture, the Bank shall pay over the balance of
such deposits in its possession to the assignee
<PAGE>
and the Bank thereupon shall be completely released from all liability with
respect thereto and the Borrower or owner of the Properties shall, upon the
making of such payment, look solely to the assignee or transferee in reference
thereto. This provision shall apply to every transfer of such deposits to a new
assignee. Upon full payment of the Obligations, the Bank shall promptly pay over
any balance of the deposits in its possession to the Borrower.
Section 1.06. Disposition of the Trust Estate; Maintenance of the
---------------------------------------------------
Improvements and Fixtures.
- -------------------------
(a) Except as otherwise permitted in Section 8.17 of the Credit
Agreement, the Borrower shall not voluntarily or involuntarily (other than as a
result of condemnation), by operation of law or otherwise, sell, lease, transfer
or dispose of, or suffer any third party to sell, transfer or dispose of, all or
any part of the Trust Estate or any interest therein or any stock in the general
partner of the Borrower. A transfer or disposition of the Trust Estate or any
part thereof or interest therein shall include, without limitation, (a)
execution of any lease (or sublease, in the case of a Leasehold Property) for
(i) the Trust Estate (or any portion thereof) and/or (ii) Space Leases in the
Improvements covering space in excess of 2,000 rentable (as to any particular
Hotel) square feet (excluding room rentals made in the ordinary course of the
Borrower's business), (b) any direct sale, assignment, conveyance, transfer
(including a transfer or other alienation of all or any part of the Trust Estate
or any interest therein, which shall include, without limitation/ the creation
of a Lien (as defined in the Credit Agreement) or other encumbrance on the Trust
Estate (other than the Permitted Liens, (as defined in the Credit Agreement))
and (c) any assignment, pledge, grant of security interest in, conditional sales
or the execution of a title retention agreement with regard to the Fixtures.
(b) Except as expressly permitted by Section 8.17 of the Credit
Agreement, the Borrower shall not permit the Improvements or Fixtures to be
removed, demolished or materially altered without the written consent of the
Bank; shall not commit, permit or suffer any material waste or deterioration of
the Trust Estate; shall maintain the Trust Estate in good repair, working order
and condition, except for reasonable wear and use; and shall restore and repair
all Damaged Property (as defined in the Credit Agreement) (whether or not
insured against or insurable and without regard to the sufficiency of any
insurance proceeds) or any part of the Trust Estate affected by any Taking (as
defined in the Credit Agreement) (without regard to the sufficiency of the
Taking Proceeds (as defined in the Credit Agreement)) so that when restored or
repaired the same shall be of at least equal quality, value and usefulness in
connection with the operation and maintenance of the Properties, Improvements
and Fixtures that existed immediately prior to such casualty or Taking.
Section 1.07. Compliance with Covenants. The Borrower shall comply
-------------------------
with all recorded covenants, conditions and restrictions, which are now, or at
any time in the future may be, applicable to or affecting the Trust Estate (or
any portion thereof).
Section 1.08. Compliance With Laws; Indemnification.
-------------------------------------
(a) The Borrower shall notify the Bank promptly of any notice or
order which the Borrower receives from any Governmental Authority (as defined in
the Credit Agreement) with respect to the Borrower's compliance with material
Legal Requirements (as defined in the Credit Agreement), promptly take any and
all actions necessary to bring its operations into compliance with such Legal
Requirements and shall fully comply with the Legal Requirements which at any
time are applicable to its operations at any of its Properties.
(b) The Borrower shall indemnify and hold the Bank, and the
Trustee, harmless from and against any and all loss, cost liability, damage and
expense, including attorneys' fees and
<PAGE>
disbursements (except to the extent resulting from the Bank's or the Trustee's
own gross negligence or willful misconduct) imposed upon the Bank and/or the
Trustee (whether as a holder of this Indenture or as a successor in interest to
the Borrower as owner of the Trust Estate), in any manner arising out of or
related to (i) any violation of or failure of the Borrower or the Trust Estate
to comply with any Legal Requirement, or (ii) any Default, including, without
limitation, the filing of a lien against the Properties in favor of any
Governmental Authority (each, a "Claim"). In case any such Claim is brought
-----
against the Trustee or the Bank, the Borrower shall, upon notice from the Bank
or the Trustee defend any such Claim any counsel reasonably satisfactory to the
Bank.
(c) [Intentionally Omitted]
(d) The Bank, at its election and in its sole discretion may (but
shall not be obligated to) cure any failure on the part of the Borrower to
comply with any Legal Requirement, which could result in (i) a lien on any
portion of the Trust Estate, (ii) costs, fines or penalties against the Trust
Estate (or any part thereof) or the Borrower, or (iii) a Claim, and in such
event, without limitation, may take any of the following actions:
(i) arrange for the prevention of any disposal, release or threat
of release of Hazardous Materials or spill at the Properties, and pay any
costs associated with such prevention;
(ii) arrange for the removal or remediation of Hazardous Materials
which may be disposed of or released or result from a Spill at the
Properties, and pay any costs associated with such removal and/or
remediation;
(iii) pay on behalf of the Borrower, any costs, fines or penalties
imposed on the Borrower by any Governmental Authority or any representative
thereof in connection with such release or threat of release of hazardous
materials or as a result of a spill; or
(iv) make any other payment or perform any other act which will
prevent a Lien in favor of any Governmental Authority from attaching to the
Trust Estate (or any portions thereof).
Any partial exercise by the Bank of the remedies set forth herein, or any
partial undertaking on the part of the Bank to cure the Borrower's failure to
comply with any Legal Requirement, shall not obligate the Bank to complete the
actions taken or require the Bank to expend further sums to cure the Borrower's
noncompliance; nor shall the exercise of any such remedies operate to place upon
the Bank any responsibility for the operation, control, care, management or
repair of the Properties or make the Bank the "operator" of the Properties
within the meaning or any such Legal Requirement. Any amount paid or costs
incurred by the Bank as a result of the exercise by the Bank of any of the
rights hereinabove set forth, together with interest thereon at the Post-Default
Rate (as defined in the Credit Agreement), shall be immediately due and payable
by the Borrower to the Bank and until paid shall be added to and become a part
of the Obligations secured hereby; and the Bank, by making any such payment or
incurring any such costs, shall be subrogated to any rights of the Borrower to
seek reimbursement from any third parties, including, without limitation, a
predecessor-in-interest to the Borrower's title who may be a "responsible party"
or otherwise liable under the aforementioned Legal Requirements in connection
with any such release or threat of release of Hazardous Materials.
(e) If, after the occurrence and during the continuance of any
Default under Sections 1.08(b) or (c), the Bank desires that an environmental
-----------------------
survey and risk assessment with respect to any of the Properties be prepared,
the Borrower shall supply such a survey and risk assessment by an independent
engineering firm selected by the Borrower and satisfactory to the
<PAGE>
Bank, in form and detail satisfactory to the Bank (including test borings of the
ground and chemical analyses of air, water and waste discharges), estimating
current liabilities and assessing potential sources of future liabilities of the
Borrower or any other owner or operator of Properties under Environmental Laws
(as defined in the Credit Agreement).
(f) The provisions of this Section 1.08 shall survive the
------------
expiration or satisfaction of this Indenture.
Section 1.09. Limitations of Use. The Borrower shall not, without
------------------
the Bank's consent, initiate, join in or consent to any change in any private
restrictive covenant, zoning ordinance or other public or private restrictions
limiting or defining the uses that may be made of any of the Properties and/or
the Improvements or any part thereof that would have a material adverse effect
on the value of any of the Properties and/or the Improvements (or any part
thereof). The Borrower shall comply with the provisions of all leases,
licenses, agreements and private covenants, conditions and restrictions that at
any time are applicable to the Trust Estate.
Section 1.10. Inspection of the Properties. The Borrower shall keep
----------------------------
adequate records and books of account in accordance with generally accepted
accounting principles consistently applied and shall permit the Bank and its
authorized representatives to enter and inspect the Properties and the
Improvements and to examine the records and books of the Borrower with respect
thereto and make copies or extracts thereof all at such reasonable times upon
reasonable notice as may be requested by the Bank or the Trustee.
Section 1.11. Estoppel Certificates. At any time and from time to
---------------------
time, the Borrower, within 5 Business Days (as defined in the Credit Agreement)
upon request, shall furnish the Trustee and the Bank a written statement, duly
acknowledged, of the amount of the Obligations then secured by this Indenture
and whether any offsets or defenses exist against such Obligations.
Section 1.12. Actions to Protect Trust Estate. If the Borrower shall
-------------------------------
fail to (a) perform and observe any of the terms, covenants or conditions
required to be performed or observed by it under any of the Ground Leases,
(b) effect the insurance required by Section 8.04 of the Credit Agreement,
(c) make the payments required by Section 1.05, or (d) perform or observe any of
------------
its other covenants or agreements hereunder or under the other Loan Documents,
the Bank may, without obligation to do so, and upon notice to the Borrower
(except in an emergency) effect or pay the same. All sums, including reasonable
attorneys' fees and disbursements, so expended or expended to sustain the lien
or estate of this Indenture or its priority, or to protect or enforce any of the
rights hereunder, or to recover any of the Obligations, shall be a lien on the
Trust Estate, shall be deemed to be added to the Obligations secured hereby, and
shall be paid by the Borrower within 10 days after demand therefor, together
with interest thereon at the Post-Default Rate. In any action or proceeding to
foreclose this Indenture as a deed of trust or to recover or collect the
Obligations secured hereby, the provisions of law respecting the recovery of
costs, disbursements and allowances shall prevail unaffected by this covenant.
Section 1.13. Leasehold Interests.
-------------------
(a) The Borrower shall (i) promptly perform and observe all of the
terms, covenants and conditions required to be performed and observed by the
Borrower under the Ground Leases and do all things necessary to preserve and to
keep unimpaired its rights thereunder, (ii) promptly notify the Bank of any
default by the Borrower under any such Ground Lease in the performance of any of
the terms, covenants or conditions on its part to be performed or observed
thereunder or of the giving of any notice by the lessor to the Borrower of any
default under any Ground Lease or of such lessor's intention to exercise any
remedy reserved to the lessor thereunder
<PAGE>
and (iii) promptly cause a copy of each such notice given by the lessor under
any Ground Lease to the Borrower to be delivered to the Bank.
(b) If the Borrower shall fail promptly to perform or observe any
of the terms, covenants or conditions required to be performed by it under any
Ground Lease, including, without limitation, payment of all rent and other
charges due thereunder, the Bank may, without obligation to do so, take such
action as is appropriate to cause such terms, covenants or conditions to be
promptly performed or observed on behalf of the Borrower but no such action by
the Bank shall release the Borrower from any of its obligations under this
Indenture. Upon receipt by the Bank from the lessor under any Ground Lease of
any notice of default by the Borrower thereunder, the Bank may rely thereon and
take any action as aforesaid to cure such default even though the existence of
such default or the nature thereof be questioned or denied by the Borrower or by
any party on behalf of the Borrower; provided, however, that except to the
-------- -------
extent that immediate action is warranted under the circumstances, the Bank
shall not exercise its right to cure a default of the Borrower hereunder until
the Borrower's cure period as set forth in the Ground Lease shall have expired.
Any amount paid or costs incurred by the Bank as a result of the exercise by the
Bank of any of the rights hereinabove set forth, together with interest thereon
at the Post-Default Rate (as defined in the Credit Agreement), shall be
immediately due and payable by the Borrower to the Bank, and until paid shall be
added to and become a part of the Obligations secured hereby.
(c) The Borrower shall not surrender its leasehold estate and
interests under any Ground Lease, nor terminate or cancel any Ground Lease, nor
modify, change, supplement, alter or amend any Ground Lease orally or in
writing, and the Borrower does hereby expressly release, relinquish and
surrender unto the right, power and authority, if any, to modify, change, alter
or amend any Ground Lease to which it is a party in any way, and any attempt on
the part of the Borrower to exercise any such right without the consent of the
Bank shall be null and void.
(d) No release or forbearance of any of the Borrower's obligations
under any Ground Lease, pursuant to the terms thereof or otherwise shall release
the Borrower from any of its obligations under this Indenture.
(e) To the extent permitted by applicable law, neither the fee
title to the property demised by any Ground Lease nor the leasehold estate
created by any Ground Lease shall merge, but shall always remain separate and
distinct, notwithstanding the union the aforesaid estates either in the lessor
or the Borrower under any Ground Lease or in a third party by purchase or
otherwise, unless the Bank shall, at its option, execute and record a document
evidencing its intent to merge the estates. If the Borrower acquires the fee
title or any other estate, title or interest in any Leasehold Property covered
by any Ground Lease, this Indenture shall attach to, be a lien upon and spread
to the fee title or such other estate so acquired, and such fee title or other
estate shall, without further assignment, mortgage or conveyance, become and be
subject to the lien of this Indenture. The Borrower shall notify the Trustee and
the Bank of any such acquisition by the Borrower and, on written request by the
Bank, shall cause to be executed and recorded all such other and further
assurances or other instruments in writing as may in the opinion of the Bank be
required to carry out the intent and meaning hereof.
(f) The Borrower shall enforce all of the obligations of to lessor
under the Ground Leases to which it is a party to the end that the Borrower may
enjoy all of the rights granted to it under the Ground Leases, and shall
promptly notify the Bank and the Trustee of any default by the lessor under any
Ground Lease in the performance or observance of any of the terms, covenants and
conditions on the part of such lessor to be performed or observed under any
Ground Lease.
<PAGE>
(g) The Borrower shall obtain from the lessor under each Ground
Lease to which it is a party and deliver to the Bank, within 2 days after demand
from the Bank, a statement in writing certifying that such Ground Lease is
unmodified and in full force and effect and the dates to which the rent and
other charges, if any, have been paid, and stating whether or not, to the best
knowledge of the signer of such certificate, the Borrower is in default in the
performance of any covenant, agreement or condition contained in such Ground
Lease, and, if to, specifying each such default of which the signer has
knowledge.
(h) [Intentionally Omitted]
(i) In the event that any proceeds of insurance on any part of the
Trust Estate, or any Taking Proceeds, shall be deposited with any person
pursuant to the requirements of any Ground Lease, the Borrower shall promptly
notify the Bank and the Trustee of the name and address of the person with whom
such proceeds have been deposited and of the amount so deposited.
(j) The Borrower shall not exercise any right to purchase any of
the Leasehold Properties, pursuant to an option or right of first refusal set
forth in any Ground Lease, without giving prior written notice thereof to the
Bank. The Borrower agrees prior to consummating the purchase of the Landlord's
Interest (as defined in the applicable Ground Lease) to deliver to the Bank a
Mortgage and Implementing Instrument encumbering the interest purchased and
reasonably satisfactory to the Bank. If a Default shall occur and be continuing,
the Bank shall have, and is hereby granted, the irrevocable right to exercise
any such option or right of first refusal, either in its own name and behalf, or
in the name and behalf of the Borrower, as the Bank shall in its sole discretion
determine.
(k) The Bank shall have the right to participate in any arbitration
or appraisal proceeding under any Ground Lease and the Borrower shall cooperate
with the Bank in all respects.
ARTICLE II
Assignment of Rents, Issues and Profits
---------------------------------------
Section 2.01. Assignment of Rents, Issues and Profits. The Borrower
---------------------------------------
hereby assigns and transfers to the Bank, as further security for the payment of
the Obligations, the rents, revenues, issues, profits, royalties, income and
benefits derived from its Properties the Improvements and Fixtures
(collectively, the "Rents"), and hereby gives to and confers upon the Bank the
-----
right, power and authority to collect the tame. The Borrower irrevocably
appoints the Bank its true and lawful attorney-in-fact, at its option at any
time and from time to time following the occurrence and during the continuance
of a Default, to demand, receive and enforce payment, to give receipts, releases
and satisfactions, and to sue, in the name of the Borrower or otherwise, for the
Rents and apply the same to the Obligations as provided in Section 4.03(a)
---------------
hereof; provided, however, that the Borrower shall have the right to collect the
Rents at any time prior to the occurrence of a Default (but not more than one
month in advance, except in the case of security deposits). The foregoing
assignment of Rents is intended to be an absolute present assignment from the
Borrower to the Bank and not merely the creation of a security interest, subject
only to the terms of this Indenture.
Section 2.02. Collection Upon Default. To the extent permitted by
-----------------------
law, if a Default (as hereinafter defined) shall have occurred and be
continuing, the Bank may, at any time without notice, either in person, by agent
or by a receiver appointed by a court, and without regard to the
<PAGE>
adequacy of any security for the Obligations or the solvency of the Borrower,
enter upon and take possession of the Properties, the Improvements and the
Fixtures or any part thereof, in its own name, sue for or otherwise collect the
Rents including those past due and unpaid, and apply the same, less costs and
expenses of operation and collection, including attorneys' fees, to the payment
of the Obligations and in such order as the Bank may determine. The collection
of the Rents or the entering upon and taking possession of the Properties, the
Improvements or the Fixtures or any part thereof, or the application thereof as
aforesaid, shall not cure or waive any Default or notice thereof or invalidate
any act done in response to such Default or pursuant to notice thereof.
ARTICLE III
Security Agreement
------------------
Section 3.01. Creation of Security Interest. The Borrower hereby
-----------------------------
grants to the Bank a security interest in the Fixtures for the purpose of
securing the Obligations. The Bank shall have, in addition to all rights and
remedies provided herein and in the other Loan Documents, all the rights and
remedies of a secured party under the Uniform Commercial Code of the State in
which the applicable portion of the Fixtures is located.
Section 3.02. Warranties, Representations and Covenants. The
-----------------------------------------
Borrower hereby warrants, represents and :covenants that: (a) the Fixtures will
be kept on or at the related Properties and the Borrower will not remove any
Fixtures from the related Properties, except such portions or items of the
Fixtures which are consumed or worn out in ordinary usage, all of which shall be
promptly replaced by the Borrower, except as otherwise expressly provided in
Section B.17(a) of the Credit Agreement, (b) all covenants and obligations of
the Borrower contained herein relating to the Trust Estate shall be deemed to
apply to the Fixtures whether or not expressly referred to herein and (c) this
Indenture constitutes a security agreement and "fixture filing" as those terms
are used in the applicable Uniform Commercial Code. Information relative to the
security interest created hereby may be obtained by application to the Bank at
the jailing address set forth on Page 1 hereof. The mailing addresses of the
Borrower is set forth on Page 1 hereof.
ARTICLE IV
Defaults; Remedies
------------------
Section 4.01. Defaults. If
--------
(a) an Event of Default under and as defined in the Credit
Agreement shall occur and be continuing;
(b) default shall be made in the performance or observance of any
covenant or agreement of the Borrower contained in Section 1.0(a) hereof and
such default shall not have been remedied within 3 Business Days after notice
thereof shall have been given to the Borrower by the Bank or Trustee; or
(c) the Borrower shall default in the performance or observance of
any other covenant or agreement of the Borrower hereunder or under the
Implementing Mortgages or the Implementing Deeds of Trust and such default shall
not have been remedied ((i) within 30 days after notice thereof shall have been
given to the Borrower by the Bank or the Trustee or (ii) if such default cannot
be cured within said period of 30 days with the exercise of all due diligence
provided such cure is commenced before the expiration of said 30 days and
thereafter shall prosecute the curing of such default with diligence and
continuity, within such period of time as may be necessary to complete the
curing of same; provided that if such default shall be a material default, such
<PAGE>
default must be cured within 180 days after notice thereof; (any such default,
Event of Default or failure by the Borrower to perform or observe of any other
covenant or agreement as set forth herein being hereinafter called a "Default");
then, as more particularly provided in the Credit Agreement, the principal of
and accrued interest on the Note outstanding under the Credit Agreement and all
other Obligations may be declared, or may become, due and payable, without
presentment, demand, protest or other formalities of any kind, all of which have
been waived pursuant to the Credit Agreement, except as otherwise provided
herein.
Section 4.02. Default Remedies.
----------------
(a) If a Default shall have occurred and be continuing, this
Indenture and the Implementing Mortgages and the Implementing Deeds of Trust
may, to the maximum extent permitted by law, be enforced either as a deed of
trust, deed to secure debt or as a mortgage, at the option of the Bank, and the
Trustee or the Bank, as the case may be, may exercise any right, power or
remedy permitted to it hereunder, under any of the other Loan Documents or by
law, and, without limiting the generality of the foregoing, the Trustee or the
Bank, as the case may be, may, personally or by their respective agents, to the
maximum extent permitted by law:
(i) enter and take possession of the Trust Estate or any part
thereof, exclude the Borrower and all persons claiming under the Borrower
whose claims are junior to this Indenture and any Implementing Instrument,
wholly or partly therefrom, and use, operate, manage and control the same
either in the name of the Borrower or otherwise as the Trustee or the Bank,
as the case may be, shall deem best, and upon such entry, from time to time
at the expense of the Borrower and the Trust Estate, make all such repairs,
replacements, alterations, additions or improvements to the Trust Estate or
any part thereof as the Trustee or the Bank, as the case may be, may deem
proper and, whether or not the Trustee or the Bank has so entered and taken
possession of the Trust Estate or any part thereof, collect and receive all
the rents and profits and apply the same, to the maximum extent permitted
by law, to the payment of all expenses which the Trustee or the Bank may be
authorized to make under this Indenture, the Implementing Mortgages or the
Implementing Deeds of Trust, the remainder to be applied to the payment of
the Obligations until the same shall have been repaid in full; if the
Trustee or the Bank, as the case may be, demands or attempts to take
possession of the Trust Estate or any portion thereof in the exercise of
any rights hereunder, the Borrower shall promptly turn over and deliver
complete possession thereof to the Trustee or the Bank; and
(ii) personally or by agents, with or without entry, if the Trustee
or the Bank, as the case may be, shall deem it advisable:
(x) sell the Trust Estate or any part thereof at a
sale or sales held at such place or places and time or times and upon
such notice and otherwise in such manner as may be required by law,
or, in the absence of any such requirement, as the Trustee or the Bank
may deem appropriate, and from time to time adjourn any such sale by
announcement at the time and place specified for such sale or for such
adjourned sale without further notice, except such as may be required
by law;
(y) proceed to protect and enforce its rights under
this Indenture, the Implementing Mortgages and Implementing Deeds of
Trust, by suit for specific performance of any covenant contained
herein or in the Loan Documents or in aid of the execution of any
power granted herein or in the Loan Documents, or for the foreclosure
of this Indenture and the respective Implementing Mortgage and/or the
Implementing Deed of Trust (as a mortgage, deed to secure debt or deed
of trust, as the case may be, or otherwise) and the sale of the Trust
Estate or any
<PAGE>
part thereof under the judgment or decree of a court of competent
jurisdiction, or for the enforcement of any other right as the Trustee
or the Bank shall deem most effectual for such purpose, provided, that
in the event of a sale, by foreclosure or otherwise, of less than all
of the Trust Estate, this Indenture and the respective Implementing
Mortgage and/or the Implementing Deed of Trust shall continue as a
lien on, and security interest in, the remaining portion of the Trust
Estate; or
(z) exercise any or all of the remedies available to
a secured party under the applicable Uniform Commercial Code,
including, without limitation:
(1) either personally or by means of a court appointed receiver,
take possession of all or any of the Fixtures and exclude
therefrom the Borrower and all persons claiming under the
Borrower, and thereafter hold, store, use, operate, manage,
maintain and control, make repairs, replacements, alterations,
additions and improvements to and exercise all rights and
powers of the Borrower in respect of the Fixtures or any part
thereof; if the Trustee or the Bank, as the case may be,
demands or attempts to take possession of the Fixtures in the
exercise of any rights hereunder, the Borrower shall promptly
turn over and deliver complete possession thereof to the Bank;
(2) without notice to or demand upon the Borrower, make such
payments and do such acts as the Trustee or the Bank, as the
case may be, may deem necessary to protect its security
interest in the Fixtures, including, without limitation,
paying, purchasing, contesting or compromising any encumbrance
which is prior to or superior to the security interest granted
hereunder, and in exercising any such powers or authority
paying all expenses incurred in connection therewith;
(3) require the Borrower to assemble the Fixtures or any portion
thereof, at a place designated by the Bank or the Trustee and
reasonably convenient to both parties, and promptly to deliver
such Fixtures to the Trustee or the Bank, as the case may be,
or an agent or representative designated by it; the Trustee or
the Bank, as the case may be, and their agents and
representatives, shall have the right to enter upon the
premises and property of the Borrower to exercise the Trustee's
or the Bank's rights hereunder;
(4) sell, lease or otherwise dispose of the Fixtures or any portion
thereof, with or without having the Fixtures at the place of
sale, and upon such terms and in such manner as the Trustee or
the Bank, as the case may be, may determine (and the Trustee or
the Bank may be a purchaser at any such sale); and
(5) unless the Fixtures are perishable or threaten to decline
speedily in value or are of a type customarily sold on a
recognized market, the Trustee or the Bank, as the case may be,
shall give the Borrower at least 10 days' prior notice of the
time and place of any sale of the Fixtures or Other intended
disposition thereof.
(b) If a Default shall have occurred and be continuing, the Trustee
or the Bank, as the case may be, to the maximum extent permitted by law, shall
be entitled, as a matter of right, to the appointment of a receiver of the Trust
Estate or any part thereof, without notice or demand, and without regard to the
adequacy of the security for the Obligations or the solvency of the
<PAGE>
Borrower. The Borrower hereby irrevocably consents to such appointment and
waives notice of any application therefor. Any such receiver or receivers shall
have all the usual powers and duties of receivers in like or similar cases and
all the powers and duties of the Bank and the Trustee, as the case may be, in
case of entry and shall continue as such and exercise all such powers until the
date of confirmation of sale of the Trust Estate or any part thereof, unless
such receivership is sooner terminated.
(c) If a Default shall have occurred and be continuing, the
Borrower shall, to the maximum extent permitted by law, pay monthly in advance
to the Trustee or the Bank, as the case may be, or to any receiver appointed at
the request of the Trustee or the Bank, as the case may be, to collect rents,
the fair and reasonable rental value for the use and occupancy of the
Properties, the Improvements and the Fixtures or of such part thereof as may be
in the possession of the Borrower and used by the Borrower for its for its
personal use. Upon default in the payment thereof, the Borrower shall vacate and
surrender possession of the Properties, the Improvements and the Fixtures to the
Trustee or the Bank or such receiver, and upon a failure so to do may be evicted
by summary proceedings.
(d) In any sale under any provision of this Indenture or pursuant
to any judgment or decree of court, the Trust Estate, to the maximum extent
permitted by law, may be sold in one or more parcels or as an entirety and in
such order as the Trustee or the Bank may elect, without regard to the right of
the Borrower or any person claiming under the Borrower to the marshallinq of
assets. The purchaser at any such sale shall take title to the Trust Estate or
the part thereof so sold free and discharged of the estate of the Borrower
therein, the purchaser being hereby discharged from all liability to see to the
application of the purchase money. Any person, including the Trustee or the
Bank, as the case may be, may purchase at any such sale. Upon the completion of
any such sale by virtue of this Section 4.02, the Trustee or the Bank, as the
------------
case may be, shall execute and deliver to the purchaser an appropriate
instrument which shall effectively transfer all of the Borrower's and the
Trustee's estate, right, title, interest, property, claim and demand in and to
the Trust Estate or portion thereof so sold, but without any covenant or
warranty, express or implied. The Trustee and the Bank are each hereby
irrevocably appointed the attorney-in-fact of the Borrower in its name and stead
to make all appropriate transfers and deliveries of the Trust Estate or any
portions thereof so sold and, for that purpose, the Trustee and/or the Bank may
execute all appropriate instruments of transfer, and may substitute one or more
persons with like power, the Borrower hereby ratifying and confirming all that
said attorneys or such substitute or substitutes shall lawfully do by virtue
hereof. Nevertheless, the Borrower shall ratify and confirm, or cause to be
ratified and confirmed, any such sale or sales by executing and delivering, or
by causing to be executed and delivered, to the Trustee or the Bank, as the case
may be, or to such purchaser or purchasers all such instruments as may be
advisable, in the judgment of the Trustee or the Bank for such purpose, and as
may be designated in such request. Any sale or sales made under or by virtue of
this Indenture or any of the Implementing Instruments, to the extent not
prohibited by law, shall operate to divest all the estate, right, title,
interest, property, claim and demand whatsoever, whether at law or in equity, of
the Borrower in, to and under the Trust Estate, or any portions thereof so sold,
and shall be a perpetual bar both at law and in equity against the Borrower and
against any and all persons claiming or who may claim the same, or any part
thereof, by, through or under the Borrower. The powers and agency herein granted
are coupled with an interest and are irrevocable.
(e) To the maximum extent permitted by applicable law, all rights
of action under the Loan Documents and this Indenture may be enforced by the
Trustee or the Bank, as the case may be, without the possession of the Loan
Documents and without the production thereof at any trial or other proceeding
relative thereto. Any such suit or proceeding instituted by the Trustee shall be
brought in its name and as trustee of an express trust, and any recovery of
judgment shall, subject to the rights of the Trustee be for the benefit of the
Bank.
<PAGE>
Section 4.03. Application of Proceeds. The proceeds of any sale
-----------------------
made either under the power of sale (to the extent available under applicable
law) hereby given or under a judgment, order or decree made in any action to
foreclose or to enforce this Indenture or any of the Implementing Instruments,
or of any monies held by the Trustee or the Bank, as the case may be, hereunder
shall, to the maximum extent permitted by law, be applied:
(i) first to the payment of all costs and expenses of such sale,
including the Trustee's and/or the Bank's attorneys' fees;
(ii) then to the payment of all charges, expenses and advances
incurred or made by the Trustee and/or the Bank in order to protect the lien and
estate of this Indenture or any Implementing Instrument or the security afforded
hereby;
(iii) then to the payment in full of all Obligations (in such order
and priority as the Bank may elect);
and any surplus remaining shall be paid to the Borrower or to whomsoever may be
lawfully entitled to receive the same.
Section 4.04. Right to Sue. The Trustee and the Bank or either of
------------
them shall have the right from time to time to sue for any sums required to be
paid by the Borrower under the terms of this Indenture as the same become due,
without regard to whether or not the Obligations shall be, or shall have become,
due and without prejudice to the right of the Trustee or the Bank thereafter to
bring any action or proceeding of foreclosure or any other action upon the
occurrence and continuance of any Default existing at the time such earlier
action was commenced.
Section 4.05. Powers of the Trustee and the Bank. The Trustee and
----------------------------------
the Bank may at any time or from time to time renew or extend this Indenture,
the Implementing Instruments or with the agreement of the Borrower) alter or
modify the same in any way, or waive any of the terms, covenants or conditions
hereof or thereof in whole or in part, and may release or reconvene any portion
of the Trust Estate or any other security, and grant such extensions and
indulgences in relation to the Obligations, or release any person liable
therefor as the Trustee or the Bank, as the case may be, may determine without
the consent of any junior lienor or encumbrancer, without any obligation to give
notice of any kind thereto (except as may be required by applicable law),
without in any manner affecting the priority of the lien and estate of this
Indenture, the Implementing Mortgages and the Implementing Deeds of Trust on or
in any part of the Trust Estate and without affecting the liability of any other
person liable for any of the Obligations.
Section 4.06. Remedies Cumulative.
-------------------
(a) No right or remedy herein conferred upon or reserve to the
Trustee or the Bank, as the case may be, is intended to be exclusive of any
other right or remedy, and each and every right and remedy shall be cumulative
and in addition to any other sight or remedy under this Indenture, the
Implementing Mortgages, the Implementing Deeds of Trust or under applicable law,
whether now or hereafter existing; the failure of the Trustee or the Bank, as
the case may be, to insist at any time upon the strict observance or performance
of any of the provisions of this Indenture and the Implementing Mortgages and/or
Implementing Deeds of Trust, or to exercise any right or remedy provided for
herein or therein or under applicable law, shall not impair any such right or
remedy nor be construed as a waiver or relinquishment thereof.
(b) The Trustee and the Bank, and each of them, shall be entitled
to enforce payment and performance of any of the obligations of the Borrower and
to exercise all rights and powers under this Indenture, the Implementing
Instruments or under any Loan Document or any
<PAGE>
laws now or hereafter in force, notwithstanding that some or all of the
Obligations may now or hereafter be otherwise secured, whether by mortgage, deed
to secure debt, deed of trust,, pledge, lien, assignment or otherwise; neither
the acceptance of this Indenture, the Implementing Mortgages and the
Implementing Deeds of Trust nor the enforcement hereof or thereof, whether by
court action or pursuant to the power of sale or other powers herein contained,
shall prejudice or in any manner affect the Trustee's or the Bank's right to
realize upon or enforce any other security now or hereafter held by the Trustee
and/or the Bank, as the case may be, it being stipulated that the Trustee and
the Bank, and each of them, shall be entitled to enforce this Indenture, the
Implementing Instruments and any other security now or hereafter held by the
Trustee or the Bank in such order and manner as the Trustee or the Bank in its
sole discretion, may determine; every power or remedy given by the Loan
Documents to the Trustee or the Bank or to which the Bank is otherwise entitled,
may be exercised, concurrently or independently, from time to time and as often
as may be deemed expedient by the Trustee or the Bank, and either of them may
pursue inconsistent remedies.
Section 4.07. Waiver of Stay, Extension, Moratorium Laws, Equity of
-----------------------------------------------------
Redemption. To the maximum extent permitted by law, the Borrower shall not at
- ----------
any time insist upon, or plead, or in any manner whatever claim or take any
benefit or advantage of any applicable present or future stay, extension or
moratorium law, which may affect observance or performance of the provisions o~
this Indenture or any Implementing Mortgage or Implementing Deed of Trust; nor
claim, take or insist upon any benefit or advantage of any present or future law
providing for the valuation or appraisal of the Trust Estate or any portion
thereof prior to any sale or sales thereof which may be made under or by virtue
of Section 4.02 hereof; and the Borrower, to the extent that it lawfully may,
------------
hereby waives all benefit or advantage of any such law or laws. The Borrower
for itself and all who may claim under it, hereby waives, to the maximum extent
permitted by applicable law, any and all rights and equities of redemption from
sale under the power of sale (to the extent available under applicable law
created hereunder or from sale under any order or decree of foreclosure of this
Indenture, any Implementing Mortgage or Implementing Deed of Trust and (if a
Default shall have occurred) all notice or notices of seizure, and all right to
have the Trust Estate marshalled upon any foreclosure hereof. Neither the
Trustee nor the Bank shall be obligated to pursue or exhaust its rights or
remedies as against any other part of the Trust Estate and the Borrower hereby
waives any right or claim of right to have the Trustee or the Bank proceed in
any particular order.
Section 4.08. No Waiver. No failure to exercise, nor any delay in
---------
exercising or any course of dealing in respect of any right, power or remedy
hereunder by the Trustee or the Bank shall operate as a waiver thereof, nor
shall any single or partial exercise by the Trustee or the Bank of any right
hereunder preclude any other or further exercise thereof or the exercise of any
other right. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law.
ARTICLE V
The Trustee
-----------
Section 5.01. Acceptance by Trustee. The Trustee accepts this trust
---------------------
with respect applicable portion of the Trust Estate when this Indenture shall
have been duly executed and acknowledged and the Implementing Deeds of Trust
with respect to the respective portion of the Trust Estate are made a public
record as provided by law.
Section 5.02. Compensation. The Trustee waives any statutory fee and
------------
shall accept reasonable compensation from the Bank in lieu thereof (which shall
in no event be greater
<PAGE>
than the maximum amount permitted under applicable law) for any services
rendered by it in accordance with the terms hereof.
Section 5.03. Action in Accordance With Instructions. Upon receipt by
--------------------------------------
the Trustee of instructions from the Bank at any time or from time to time, the
Trustee shall (a) give any notice or direction or exercise any right, remedy or
power hereunder or in respect of any part or all of the Trust Estate as shall be
specified in such instructions and (b) approve as satisfactory all matters
required by the terms hereof to be satisfactory to the Trustee or to the Bank.
The Trustee may, but need not, take any of such actions in the absence of such
instructions. In addition, at any time or from time to time, upon request of
the sank and presentation of this Indenture and the Implementing Deeds of Trust
for endorsement, and without affecting the liability of any person for payment
of the Obligations, the Trustee may, upon such request, reconvey all or any part
of the Trust Estate, consent to the making of any map or plat thereof, join in
granting any easement thereon, or join in any extension agreement or any
agreement subordinating the lien and estate hereof.
Section 5.04. Resignation. The Trustee may resign at any time upon
-----------
giving not less than 60 days prior notice to the Bank, but shall continue to act
as trustee until its successor shall have been qualified and appointed pursuant
to Section 5.05 hereof.
------------
Section 5.05. Successor Trustee. In the event of the death removal,
-----------------
resignation or refusal or inability of the Trustee to act, for any reason, at
any time, the Bank shall have the irrevocable power, with or without cause,
without notice of any kind, and without applying to any court, to select and
appoint a successor trustee. Each such appointment and substitution shall be
made by notice to the Borrower, the Trustee 2nd successor trustee and by
recording notice of such in each office in this Indenture or any Implementing
Deed of Trust is recorded. Such notice shall be executed and acknowledged by
the sank and shall contain reference to this Indenture and the Implementing
Deeds of Trust and when so recorded shall be conclusive proof of proper
appointment of the successor trustee. Such successor shall not be required to
give bond for the faithful performance of its duties unless required by the
Bank.
<PAGE>
ARTICLE VI
Miscellaneous
-------------
Section 6.01. Reconveyance by Trustee. The Bank shall promptly
-----------------------
notify the Trustee of the payment in full of the Obligations or the Borrower's
compliance with the release provisions of Section 8.17(b) of the Credit
Agreement and shall surrender this Indenture and/or the Implementing Deeds of
Trust (or those the subject of the relevant release) to the Trustee for
cancellation and retention. Upon receipt of such notification, and upon payment
by the Borrower of the Trustee's and/or the Bank's expenses, the Trustee or the
Bank, as the case may be, shall release the lien of this Indenture and/or the
Implementing Mortgages or reconvey the Implementing Deeds of Trust, as the case
may be, without warranty or covenant, any portion of the Trust Estate then held
hereunder (or those the subject of the relevant release) to the Borrower or upon
the request of the Borrower and at the Borrower's expense assign this Indenture,
the Implementing Mortgages and the Implementing Deeds of Trust (or those the
subject of the relevant release) without recourse, to the Borrower's designee,
or to the person or persons legally entitled thereto, by an instrument duly
acknowledged in form for recording.
Section 6.02. Notices. All notices and other communications provided
-------
for herein (including, without limitation, any modifications of, or waivers or
consents under, this Agreement) shall be deemed to have been properly given or
served by personal delivery or by depositing in the United States Mail, post-
paid and registered or certified, return receipt requested, and addressed to the
recipient at the "Address for Notices" specified below its name on the signature
pages hereof; or r attorney party, at such other address as shall be designated
by such party upon 30 days prior written notice to each other party. All such
communications and requests shall be deemed given upon personal delivery or
three (3) Business Days after being deposited in the United States Mail with
rejection or other refusal to accept or the inability to delivery because of
changed addresses of which no notice was given constituting delivery for this
purpose.
Section 6.03. Amendments; Waivers; etc. This Indenture cannot be
-------------------------
modified, changed or discharged except by an agreement in writing, duly
acknowledged in form for recording, signed by the party against whom enforcement
of such modification, change or discharge is sought.
Section 6.04. Successors and Assigns. This Indenture applies to,
----------------------
inures to the benefit of and binds each of the parties hereto and their
respective successors and assigns and shall run with the Properties.
Section 6.05. Captions. The captions or headings at the beginning of
--------
each Section hereof are for the convenience of the parties hereto and are not a
part of this Indenture.
Section 6.06. Invalidity of Certain Provisions. If the lien or
--------------------------------
estate of this Indenture is invalid or unenforceable as to any part of the Trust
Estate, the unsecured or partially secured portion of the Obligations shall be
completely paid prior to the payment of the remaining and secured or partially
secured portion thereof, and all payments made on such Obligations, whether
voluntary or under foreclosure or other enforcement action or procedure, shall
be considered to have been first paid on and applied to the full payment of that
portion thereof that is not secured or fully secured by the lien or estate of
this Indenture.
Section 6.07. Severability. If any term or provision of this
------------
Indenture or the application thereof to any person or circumstance shall to any
extent be invalid or unenforceable, or be inapplicable, invalid or unenforceable
with respect to an Implementing Mortgage or an Implementing Deed of Trust, as
the case may be, the remainder of this Indenture, or the application of such
term or provision to persons or circumstances or the Implementing Instrument
other than
<PAGE>
those as to which it is invalid or unenforceable, shall not be affected thereby,
and each term and provision of this Indenture shall be valid and enforceable to
the maximum extent permitted by law.
Section 6.08. One of a Number of Indentures. This Indenture is given
-----------------------------
as security together with the Implementing Instruments which collectively secure
the Obligations. A copy of all such Implementing Instruments (including this
Indenture) are on file with the Borrower and with the Bank and are available for
inspection during normal business hours upon reasonable advance request
therefor. A Default with respect to (i) this Indenture, (ii) any Implementing
Mortgage (including this Indenture) or (iii) any Implementing Deed of Trust
(including this Indenture) shall constitute a Default under all such
instruments.
Section 6.09. Trust is Irrevocable. The trust created hereby is
--------------------
irrevocable by the Borrower.
Section 6.10. Governing Law. The laws of the State of New York shall
-------------
govern the validity, interpretation, construction and the Borrower's performance
and observance of this Indenture, except that the laws of each State in which a
portion of the Trust Estate is located shall govern the validity and enforcement
of the security interest of the Bank in and to the portion of the Trust Estate
located in such State.
Section 6.11. Limitation on Liability. Notwithstanding anything to
-----------------------
the contrary in this Indenture or in any of the other Related Agreements (as
defined in the Credit Agreement), in the event of the maturity of the
Obligations, or any part thereof, by acceleration or passage of time, or upon a
default under this Indenture or a Default or Event of Default under any of the
other Related Agreements, or a breach of any covenant or agreement contained in
this Indenture or in any of the other Related Agreements: (a) the Bank shall
not seek any judgment for a deficiency or money judgment against the Borrower or
any partner thereof in connection with any action brought under this Indenture
or any of the other Related Agreements; and (b) the Bank shall not seek any
judgment on this Indenture except as a part of judicial proceedings to foreclose
on this Indenture or any of the other Related Agreements, and in the event any
suit is brought on this Indenture or concerning the Obligations as a part of
judicial proceedings to foreclose on this Indenture or any of the other Related
Agreements, any judgment obtained in such suit shall by its terms constitute a
Lien on, and will be enforced only against, the Trust Estate and/or any other
property conveyed or secured by any of the Related Agreements (together with the
income therefrom, any funds held by the Bank pursuant to this Indenture or any
of the other Related Agreements,, insurance proceeds and Taking Proceeds (as
defined in the Credit Agreement)) and escrow and security deposits and not
against any other assets or property of the Borrower or any partner thereof;
provided, that the Borrower (but not the Limited Partners (as limited partners)
except to the extent liability may be imposed under the Act (as defined in the
Partnership Agreement)) shall be fully and personally liable for (i) any fraud
or material misrepresentation of any of the representations made in Section 7 of
the Credit Agreement, or (ii) willful misconduct of the Borrower, its employees
or agents, or willful misapplication of Cash Flow Available for Loans (as
defined in the Credit Agreement), any insurance proceeds, Taking Proceeds or
tenant security deposits. FF&E Reserves (as defined in the Credit Agreement) or
of any rental or other income which was required by any of the Related
Agreements to be paid or applied in a specified manner. Nothing contained in
this Section 6.11 hereof shall be deemed to constitute a release or impairment
of the Obligations, or the Lien of this Indenture on the Trust Estate, or the
Lien of any of the other Related Agreements on any property covered thereby, or
shall preclude the Bank from foreclosing this Indenture or any of the other
Related Agreements in case of an Event of Default, from enforcing any of the
other rights of the Bank hereunder or under any of the other Related Agreements,
or from enforcing any of the rights of the Bank against any other Person at any
time liable under any guaranty, bond, policy of insurance or otherwise
including, but not limited to, the Debt Service Guaranty, the Management
Guaranty and the Indemnity Agreement (each as defined in the Credit Agreement)
for the payment
<PAGE>
of the Obligations or for the performance of any of the covenants and agreements
contained in this Indenture or any of the other Related Agreements.
IN WITNESS WHEREOF, this Indenture has been duly executed under seal
By the duly authorized representatives of the Borrower and the Trustee as of the
day and year first above written.
<PAGE>
ATTEST (witnessed by):
FAIRFIELD INN BY MARRIOTT
LIMITED PARTNERSHIP
By: Marriott FIBM One Corporation,
its general partner
By:
---------------------------------------
David N. Chichester
Its: President
Address for Notices:
-------------------
One Marriott Drive
Washington, D. C. 20058
Attention: Law Department
---------
STEWART TITLE OF CALIFORNIA,
as Trustee with respect to that
portion of the Trust Estate located
in the State of California:
By:
---------------------------------------
Dale Rincon
Its: President
Address for Notices:
-------------------
2010 Main Street, Suite 250
Irvine, California 92714
Attention: Advisory Title Officer
---------
------------------------------------------
Lawrence J. Gordon, Esq.
as Trustee with respect to that
portion of the Trust Estate
located in the State of Missouri
Address for Notices:
-------------------
11 North Brentwood
Clayton, Missouri 63105
Attention:
---------
<PAGE>
THE FIDELITY COMPANY,
as Trustee with respect to that
portion of the Trust Estate located
in the State of North Carolina:
By:
---------------------------------------
Leslie E. Browder
Its:
Address for Notices:
-------------------
Suite 2400
Wachovia Building
301 North Main Street
Winston-Salem, North Carolina 27102
Attention:
---------
------------------------------------------
Samuel B. Miller II, Esq.
as Trustee with respect to that
portion of the Trust Estate
located in the State of Tennessee
Address for Notices:
-------------------
2101 North Roan Street
Johnson City, Tennessee 37601
STEWART TITLE AND SETTLEMENT SERVICES,
INC.,
as Trustee with respect to that
portion of the Trust Estate located
in the State of Virginia
By:
---------------------------------------
[type name]
Its: [title]
Address for Notices:
-------------------
2697 Dean Drive
Suite 203
Virginia Beach, Virginia 23452
Attention:
---------
<PAGE>
STATE OF CALIFORNIA )
) SS
COUNTY OF ORANGE )
On this 27th day of July, in the year 1990, before me, the undersigned, a Notary
Public in and for said County and State, personally appeared Dale Rincon
personally known to me (or proven to me on the basis of satisfactory evidence)
to be the President of Stewart Title of California, the corporation that
executed the within Instrument on behalf of said corporation, and acknowledged
to me that such corporation executed the within instrument pursuant to its by-
laws or a resolution of its board of directors.
WITNESS my hand and official seal.
signature
--------------------------
Name: Mary Lynne Tryon
<PAGE>
STATE OF NEW YORK )
) ss: PROBATE
COUNTY OF NEW YORK )
BEFORE ME PERSONALLY APPEARED
-------------------------------------
who states on oath that s/he saw the within named FAIRFIELD INN BY MARRIOTT
LIMITED PARTNERSHIP, by MARRIOTT FIBM ONE CORPORATION, its General Partner, by
David N. Chichester, its President, as its act and deed, sign, seal and deliver
the within and foregoing instrument, and that s/he with
---------------------
witnessed the execution
- -------------------------------------------------
thereof.
- ------------------------------
SWORN to before me this 31st
day of July, 1990
(L.S.)
- ------------------------------
Notary Public
My Commission Expires:
<PAGE>
STATE OF MISSOURI )
) ss
COUNTY OF ST. LOUIS )
On this 27th day of July, 1990, before me appeared Lawrence J. Gordon, to me
known to be the person who executed the foregoing instrument; and being first
duly sworn on oath acknowledged that he executed the same as his free act and
deed for the purposes and uses therein stated.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my seal in the
County and State aforesaid, the day and year above written.
--------------------------------------
NOTARY PUBLIC
My Term Expires:
- --------------------------------
<PAGE>
STATE OF NORTH CAROLINA )
)
COUNTY OF FORSYTH )
I, Ann W. Foster, a Notary Public of Forsyth County, State of North
Carolina, certify that Sue T. Ashby personally came before me this day and
acknowledged that she is Assistant Secretary of THE FIDELITY COMPANY, a North
Carolina corporation, as Trustee with respect to that portion of the Trust
Estate located in the State of North Carolina, and that by authority duly given
and as the act of the corporation, the foregoing instrument was signed in its
name by its President, sealed with its corporate seal and attested by herself as
its Assistant Secretary.
WITNESS my hand and official seal or stamp, this 27th day of July,
1990.
-----------------------------------------
NOTARY PUBLIC
My Commission Expires:
August 5, 1991
<PAGE>
STATE OF TENNESSEE
COUNTY OF WASHINGTON
Personally appeared before me, the undersigned Notary Public, in and
for the State and County aforesaid, Samuel B. Miller, II, Trustee, the within
named bargainor, with whom I am personally acquainted, or proved to me on the
basis of satisfactory evidence, and who acknowledged that he executed the within
instrument for the purposes therein contained.
WITNESS my hand and seal at office in the State and County aforesaid
this 31st day of July, 1990
-----------------------------------------
NOTARY PUBLIC
My Commission Expires:
1-13-93
<PAGE>
STATE OF VIRGINIA
CITY OF VIRGINIA BEACH, to-wit;
I, MARY S. LONG, a Notary Public in and for the City and State
aforesaid, do hereby certify that BRIAN M. CLEMENTS, Vice-President of Stewart
Title and Settlement Services, Inc., whose name is signed to the foregoing
Instrument bearing date on this 27th day of July, 1990, has acknowledged the
same before me in my City and State aforesaid.
GIVEN under my hand and seal this 27th day of July, 1990.
-----------------------------------------
NOTARY PUBLIC
<PAGE>
STATE OF NEW YORK:
COUNTY OF NEW YORK:
I, __________________________________________, a Notary Public in and
for said County in said State, hereby certify that David N. Chichester, whose
name as President of Marriott FIBM One Corporation, a Delaware corporation, as
General Partner of Fairfield Inn by Marriott Limited Partnership, a Delaware
limited partnership, is signed to the foregoing instrument and who is known to
me, acknowledged before me on this day that, being informed of the contends of
said instrument, he, as such officer, and with full authority, executed the same
voluntarily for and as the act of said corporation, acting in its capacity as
General Partner as aforesaid.
Given under my hand this 31st day of July, 1990.
___________________________________________(SEAL)
NOTARY PUBLIC, STATE OF NEW YORK
My Commission Expires:
<PAGE>
STATE OF NEW YORK )
) ss
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me on this 31st day
of July, 1990, by David N. Chichester and Christopher G. Townsend, President and
Secretary, respectively, of Marriott FIBM One Corporation, a Delaware
corporation, the general partner of Fairfield Inn by Marriott Limited
Partnership, the partnership described in and which executed the foregoing
instrument.
WITNESS my hand and seal hereto affixed the day and year first above
written.
-------------------------------------------
NOTARY PUBLIC in and for
the State of New York
My Commission expires:
<PAGE>
STATE OF NEW YORK )
) ss
COUNTY OF NEW YORK )
On July 31, 1990 before me, the undersigned, a Notary Public in and
for the aforesaid State, personally appeared David N. Chichester, personally
known to me or proved to me on the basis of satisfactory evidence to be the
person who executed the within instrument as the President of MARRIOTT FIBM ONE
CORPORATION, a Delaware corporation, and Christopher G. Townsend, personally
known to me or proved to me on the basis of satisfactory evidence to be the
person who attested the within instrument as the Secretary of said corporation,
said corporation being the general partner of FAIRFIELD INN BY MARRIOTT LIMITED
PARTNERSHIP, a Delaware limited partnership, the Borrower named in the above
document, and that as such President and Secretary, being authorized so to do,
executed the foregoing instrument on behalf of said corporation and said limited
partnership before me and in my presence as an official witness for the purposes
therein stated, and they delivered the same as such.
WITNESS my hand and official seal this 31st day of July, 1990.
[Notarial Seal]
-------------------------------------------
NOTARY PUBLIC
Name:
--------------------------------------
My Commission Expires:
- ----------------------------
<PAGE>
STATE OF NEW YORK )
) ss
COUNTY OF NEW YORK )
On this 31st day of July, 1990, before me the undersigned, appeared
David N. Chichester, to me personally known, who being by me duly sworn, did say
that he is the President of Marriott FIBM One Corporation, a corporation that is
a general partner in the Delaware limited partnership known as Fairfield Inn by
Marriott Limited Partnership, and that said instrument was signed in behalf of
said corporation by authority of its Board of Directors, and said President
acknowledged said instrument to be the free act and deed of said corporation and
that said corporation was duly authorized to sign said instrument for and on
behalf of said partnership and that said instrument is the free act and deed of
said partnership.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
notarial seal at my office in the County of New York, State of New York, the day
and year last above written.
-------------------------------------------
NOTARY PUBLIC
-------------------------------------------
(Type or print name of Notary)
My commission expires:
- ----------------------------
<PAGE>
STATE OF NEW YORK
COUNTY OF NEW YORK. to wit:
I, the undersigned, a Notary Public in and for the State and County
aforesaid, whose commission as such expires on the 20th day of April, 1991, do
hereby certify that David N. Chichester as President of Marriott FIBM One
Corporation the general partner of FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
whose name is signed to the foregoing document bearing date on the 31st day of
July, 1990, has signed and acknowledged the same before me in my County and
State aforesaid.
-------------------------------------------
NOTARY PUBLIC
<PAGE>
STATE OF NEW YORK
COUNTY OF NEW YORK
Before me, the undersigned, a Notary Public, within and for said
County and State, duly commissioned and qualified, personally appeared David N.
Chichester, the President of Marriott FIBM One Corporation, a Delaware
corporation, which said corporation is a general partner of Fairfield Inn by
Marriott Limited Partnership, a Delaware Limited Partnership, with whom I am
personally acquainted, and who acknowledged himself to be the President of
Marriott FIBM One Corporation, a Delaware Corporation, the within named general
partner of Fairfield Inn by Marriott Limited Partnership, the within named
bargainor, and he as such President of Marriott FIBM One Corporation, being
authorized so to do, executed the foregoing instrument for the purposes therein
contained by signing the name of the said Limited Partnership by the Corporation
by himself as President, thereby executing the instrument on behalf of the
Limited Partnership. The said President, still upon oath, acknowledged that
Marriott FIBM One Corporation, is a general partner of Fairfield Inn by Marriott
Limited Partnership, a Delaware Limited Partnership, and that the said Marriott
FIBM One Corporation, as such general partner, being duly authorized so to do,
executed the foregoing instrument for the purpose therein contained by causing
its said general partner to sign the name of the said Fairfield Inn by Marriott
Limited Partnership, a Delaware Limited Partnership, by such general partner.
WITNESS my hand and official seal at office this 31st day of July,
1990.
--------------------------------------------
NOTARY PUBLIC
My commission expires:
- -----------------------------
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this 31st day of July, 1990, personally came before me David N.
Chichester, who, being by me duly sworn, says that he is the President of
MARRIOTT FIBM ONE CORPORATION, a Delaware corporation, and that the seal affixed
to the foregoing instrument in writing was signed and sealed by him on behalf of
the corporation by its authority duly given as the General Partner of FAIRFIELD
INN BY MARRIOTT LIMITED PARTNERSHIP, a Delaware limited partnership. And the
said President acknowledged the said writing to be the act and deed of said
corporation as the General Partner of FAIRFIELD INN BY MARRIOTT LIMITED
PARTNERSHIP.
WITNESS, my hand and notarial seal this 31st day of July, 1990.
-------------------------------------------
NOTARY PUBLIC
My commission expires:
- ------------------------------
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this 31st day of July, 1990, before me, the undersigned, a Notary
Public in and for the State of New York, duly commissioned and sworn, personally
appeared David N. Chichester, to me known who, being by me duly sworn, did
depose and say that he resides at 7604 River Falls Drive, Potomac, Maryland
20854; that he is the President of FAIRFIELD INN BY MARRIOTT LIMITED
PARTNERSHIP, the corporation described in and which executed the foregoing
instrument before me as witness hereto; and that he knows the seal of said
corporation; that the seal affixed to said instrument is such corporate seal;
that it was so affixed by order of the board of directors of said corporation
and that he signed his name thereto by like order and that he signed his name
thereto under authority of the board of directors of said corporation.
WITNESS my hand and seal hereto affixed the day and year first above
written.
-------------------------------------------
NOTARY PUBLIC in and for
the State of New York.
My Commission expires:
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On this 31st day of July, in the year 1990, before me,
____________________________, a Notary Public in and for said county and state,
personally appeared David N. Chichester, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the President and Christopher G.
Townsend, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the Secretary of Marriott FIBM One Corporation, the corporation
that executed the within instrument and personally known to me (or proved to me
on the basis of satisfactory evidence) to be the persons who executed the within
instrument on behalf of said corporation, said corporation being personally
known to me to be one of the partners of Fairfield Inn by Marriott Limited
Partnership, the partnership that executed the within instrument, and
acknowledged to me that such corporation executed the same as such partner and
that such partnership executed the same.
WITNESS my hand and official seal this 31st day of July, 1990.
[NOTARIAL SEAL]
-------------------------------------------
NOTARY PUBLIC
Name:
--------------------------------------
My Commission Expires:
<PAGE>
Schedule I
----------
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
LIST OF FEE PROPERTIES
The following properties more specifically described on Exhibits A-1
------------
through A-16 attached hereto:
----
<TABLE>
<S> <C> <C>
State: Alabama (Montgomery County) Exhibit A-1
Name of Property: Montgomery
Address: 5601 Carmichael Road
Montgomery, AL 36117
State: California (Orange County) Exhibit A-2
Name of Property: Placentia
Address: SR-57 and Orangethorpe Avenue
Placentia, Ca 92670
State: Georgia (Gwinnet County) Exhibit A-3
Name of Property: Atlanta-Gwinnett
Address: 3500 Venture Highway
Duluth, GA 30136
State: Georgia (Gwinnet County) Exhibit A-3
Name of Property: Atlanta-Peachtree Corners
Address: 6650 Bay Circle Drive
Norcross, GA 30071
State: Georgia (Clayton County) Exhibit A-4
Name of Property: Atlanta Southlake
Address: 1599 Adamson Pkwy.
Morrow, GA 30260
State: Illinois (Peoria County) Exhibit A-5
Name of Property: Peoria
Address: 4203 N. War Memorial Drive
Peoria, IL 61614
State: Illinois (Winnebago County) Exhibit A-6
Name of Property: Rockford
Address: 7712 Potawatomi Trail
Rockford, IL 61108
State: Indiana (Marion County) Exhibit A-7
Name of Property: Indianapolis/College Park
Address: 9251 Wesleyan Road
Indianapolis, IN 46268
State: Kansas (Johnson County) Exhibit A-8
Name of Property: Kansas City-West
Address: 6601 Frontage Road
Merriam, KS 66202
</TABLE>
<PAGE>
Schedule II
-----------
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
LIST OF LEASED PROPERTIES
The following properties more specifically described on Exhibits B-1
------------
through B-28 attached hereto:
----
<TABLE>
<S> <C> <C>
State: Alabama (Jefferson County) Exhibit B-1
Name of Property: Birmingham-Homewood
Address: 155 Vulcan Road
Homewood, AL 35209
State: California (Orange County) Exhibit B-2
Name of Property: Buena Park
Address: I-5 at Beach Boulevard
Buena Park, CA 90602
State: Florida (Alachua County) Exhibit B-3
Name of Property: Gainesville
Address: 6901 NW 4th Boulevard
Gainesville, FL 32608
State: Florida (Dade County) Exhibit B-4
Name of Property: Miami West
Address: Palmetto Expressway at NW 36th Street
Miami, FL 33166
State: Florida (Orange County) Exhibit B-5
Name of Property: Orlando/International Drive
Address: 8342 Jamaican Court
Orlando, FL 32819
State: Florida (Orange County) Exhibit B-5
Name of Property: Orlando South
Address: 1850 Landstreet Road
Orlando, FL 32809
State: Georgia (Fulton County) Exhibit B-6
Name of Property: Atlanta Airport
Address: 2451 Old National Pkwy.
College Park, GA 30349
State: Georgia (Dekalb County) Exhibit B-7
Name of Property: Atlanta Northlake
Address: 2155 Ranchwood Drive
Atlanta, GA 30345
State: Georgia (Cobb County) Exhibit B-8
Name of Property: Atlanta Northwest
Address: 2191 Northwest Pkwy.
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Marietta, GA 30067
State: Georgia (Chatham County) Exhibit B-9
Name of Property: Savannah
Address: Lee Boulevard
Savannah, GA
State: Illinois (McLean County) Exhibit B-10
Name of Property: Bloomington-Normal
Address: 202 Landmark Drive
Normal, IL 61761
State: Illinois (Cook County) Exhibit B-11
Name of Property: Chicago-Lansing
Address: 17301 Oak Avenue
Lansing, IL 60438
State: Indiana (Marion County) Exhibit B-12
Name of Property: Indianapolis-Castleton
Address: 8325 Bash Road
Indianapolis, IN 46250
State: Iowa (Polk County) Exhibit B-13
Name of Property: Des Moines
Address: 1600 N.W. 114th Street
Clive, IA 50322
State: Michigan (Wayne County) Exhibit B-14
Name of Property: Detroit Airport
Address: 31119 Flynn Drive
Romulus, MI 48174
State: Michigan (Wayne County) Exhibit B-14
Name of Property: Detroit West
Address: 5700 Haggerty Road
Canton, MI 48187
State: Michigan (Oakland County) Exhibit B-15
Name of Property: Detroit-Auburn Hills
Address: 1294 Opdyke Rd.
Auburn Hills, MI 48057
State: Michigan (Oakland County) Exhibit B-15
Name of Property: Madison Heights
Address: 32800 Stephenson Hwy.
Madison Heights, MI 48071
State: Michigan (Macomb County) Exhibit B-16
Name of Property: Detroit Warren
Address: 7454 Convention Blvd.
Warren, MI 48093
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
State: Michigan (Kalamazoo County) Exhibit B-17
Name of Property: Kalamazoo
Address: 3800 East Cork Street
Kalamazoo, MI 49001
State: North Carolina Exhibit B-18
Name of Property: (Mecklenburg County)
Address: Charlotte Airport
3400 S. I-85 Service Road
Charlotte, NC 28208
State: North Carolina Exhibit B-18
Name of Property: (Mecklenburg County)
Address: Charlotte
5415 N. I-85 Service Road
Charlotte, NC 28213
State: North Carolina (Durham City) Exhibit B-19
Name of Property: Durham
Address: 3710 Hillsborough Road
Durham, NC 27705
State: North Carolina Exhibit B-20
Name of Property: (Cumberland County)
Address: Fayetteville
562 Cross Creek Mall
Fayetteville, NC 28303
State: North Carolina (Guilford City) Exhibit B-21
Name of Property: Greensboro
Address: 2003 Athena Court
Greensboro, NC 27407
State: North Carolina (Wake County) Exhibit B-22
Name of Property: Raleigh Northeast
Address: 2641 Appliance Court
Raleigh, NC 27604
State: Ohio (Franklin County) Exhibit B-23
Name of Property: Columbus North
Address: 887 Morse Road
Columbus, OH 43229
State: Ohio (Montgomery County) Exhibit B-24
Name of Property: Dayton North
Address: 6960 Miller Lane
Dayton, OH 45414
State: South Carolina (Beauford City) Exhibit B-25
Name of Property: Hilton Head
Address: 9 Marina Side Drive
Hilton Head, SC 29928
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
State: Tennessee (Washington City) Exhibit B-26
Name of Property: Johnson City
Address: 207 E. Mountcastle Drive
Johnson City, TN 37601
State: Virginia (Virginia Beach City) Exhibit B-27
Name of Property: Virginia Beach
Address: Beach Road (SR 44)
and Independence Boulevard
Virginia Beach, VA 23462
State: Wisconsin (Dane County) Exhibit B-28
Name of Property: Madison
Address: 4765 Hayes Road
Madison, WI 53704
</TABLE>
<PAGE>
EXHIBIT 10.e
DEBT SERVICE GUARANTY AGREEMENT
DEBT SERVICE GUARANTY AGREEMENT dated as of July 31, 1990 made by
MARRIOTT CORPORATION, a corporation duly organized and validly existing under
the laws of the State of Delaware (the "Guarantor"), to SUMITOMO TRUST & BANKING
---------
CO., LTD., NEW YORK BRANCH, the New York branch of a Japanese chartered bank
(the "Bank").
Fairfield Inn by Marriott Limited Partnership, a Delaware limited
partnership (the "Borrower"), and the Bank are parties to a Credit Agreement
--------
dated as of the date hereof (as modified and supplemented and in effect from
time to time, the "Credit Agreement"), providing, subject to the terms and
----------------
conditions thereof, for loans to be made by the Bank to the Borrower in an
aggregate principal amount not exceeding $164,850,000.
To induce the Bank to make loans under the Credit Agreement and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Guarantor has agreed (to the extent hereinafter
provided) to guarantee the Guaranteed Obligations (as hereinafter defined).
Accordingly, the parties hereto agree as follows:
Section 1. Defined Terms and Accounting Determinations.
-------------------------------------------
1.01 Definitions. Unless otherwise defined herein, terms defined in
-----------
the Credit Agreement are used herein as defined therein. In addition, as used
herein:
"Consolidated Subsidiary" shall mean, as to any Person, each
-----------------------
Subsidiary of such Person (whether now existing or hereafter created or
acquired) the financial statements of which shall be (or should have been)
consolidated with the financial statements of such Person in accordance with
generally accepted accounting principles.
"Guaranteed Amount" shall mean, at any time, an amount equal to 10% of
-----------------
the aggregate principal amount of the Loans made by the Bank at such time
(without giving effect to any payment or prepayment thereof but after giving
effect to Sections 2.08 and 2.09 hereof) but in any event not exceeding
$16,500,000.
"Marriott Agreement" shall mean each Related Agreement to which the
------------------
Guarantor is or is contemplated by the Credit Agreement to become a party.
"Material Consolidated Subsidiary" shall mean any Consolidated
--------------------------------
Subsidiary of the Guarantor which takes any of the actions specified in Sections
5(e) or (f) hereof, or with respect to which any of the events specified in
Sections 5(f), (g) or (h) hereof shall occur, if such actions or events could
have a material adverse effect on the financial condition of the Guarantor.
"Total Capital" shall have the meaning ascribed thereto in the
-------------
Citibank Credit Agreement, the Revolving Credit Agreement or the Other Agreement
(each as hereinafter defined), as the case may be, as applicable under the
provisions of Section 4.07 hereof.
1.02 Accounting Terms and Determinations.
-----------------------------------
(a) Except as otherwise expressly provided herein, all accounting
terms used herein shall be interpreted, and all financial statements and
certificates and reports as to financial matters required to be delivered to the
Bank hereunder shall (unless otherwise disclosed to the Bank in writing at the
time of delivery thereof in the manner described in subsection (b) below) be
<PAGE>
prepared, in accordance with generally accepted accounting principles applied on
a basis consistent with those used in the preparation of the latest financial
statements furnished to the Bank hereunder after the date hereof. All
calculations made for the purposes of determining compliance with the terms of
the provisions incorporated by reference in Section 4.07 hereof shall (except as
otherwise expressly provided herein) be made by application of generally
accepted accounting principles applied on a basis consistent with those used in
the preparation of the annual or quarterly financial statements furnished to the
Bank pursuant to Section 4.01 hereof unless (i) the Guarantor shall have
objected to determining such compliance on such basis at the time of delivery of
such financial statements or (ii) the Bank shall so object in writing within 30
days after delivery of such financial statements, in either of which events such
calculations shall be made on a basis consistent with those used in the
preparation of the latest financial statements as to which such objection shall
not have been made (which, if objection is made in respect of the first
financial statements delivered under Section 4.01 hereof, shall mean the
financial statements referred to in Section 3.02 hereof).
(b) The Guarantor shall deliver to the Bank at the same time as the
delivery of any annual or quarterly financial statement under Section 4.01
hereof a description in reasonable detail of any material variation between the
application of accounting principles employed in the preparation of such
statement and the application of accounting principles employed in the
preparation of the next preceding annual or quarterly financial statements as to
which no objection has been made in accordance with the last sentence of
subsection (a) above, and reasonable estimates of the difference between such
statements arising as a consequences thereof.
Section 2. The Guarantee.
-------------
2.01 Guarantee. Subject to the limitations set forth in Sections
---------
2.07, 2.08, 2.09 and 2.10 hereof, the Guarantor hereby guarantees to the Bank
and its successors and assigns the prompt payment in full when due (whether at
stated maturity, by acceleration or otherwise) of the principal of and interest
on the Loans made by the Bank to, and the Note held by the Bank of, the
Borrower, in each case strictly in accordance with the terms thereof (such
obligations being herein collectively called the "Guaranteed Obligations"). The
----------------------
Guarantor hereby further agrees that if the Borrower shall fail to pay in full
when due (whether at stated maturity, by acceleration or otherwise) any of the
Guaranteed Obligations, the Guarantor will promptly pay the same, without any
demand or notice whatsoever, and that, in the case of any extension of time of
payment or renewal of any of the Guaranteed Obligations, the same will be
promptly paid in full when due (whether at extended maturity, by acceleration or
otherwise) in accordance with the terms of such extension or renewal.
2.02 Obligations Unconditional. Subject to the limitation set forth
-------------------------
in Section 2.07 hereof, the obligations of the Guarantor under Section 2.01
hereof are absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability of the Credit Agreement, the Note or any
other agreement or instrument referred to herein or therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 2.02 that the obligations of the
Guarantor hereunder shall be absolute and unconditional under any and all
circumstances. Without limiting the generality of the foregoing, it is agreed
that the occurrence of any one or more of the following shall not affect the
liability of the Guarantor hereunder:
(i) at any time or from time to time, without notice to the Guarantor,
the time for any performance of or compliance with any of the Guaranteed
Obligations shall be extended, or such performance or compliance shall be
waived;
2
<PAGE>
(ii) any of the acts mentioned in any of the provisions of the Credit
Agreement or the Note or any other agreement or instrument referred to herein or
therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under the Credit Agreement
or the Note or any other agreement or instrument referred to herein or therein
shall be waived or any other guarantee of any of the Guaranteed Obligations or
any security therefor shall be released or exchanged in whole or in part or
otherwise dealt with; or
(iv) any Lien granted to, or in favor of, the Bank as security for
any of the Guaranteed Obligations shall fail to be perfected.
The Guarantor hereby expressly waives diligence, presentment, demand of payment,
protest and all notices whatsoever, and any requirement that the Bank exhaust
any right, power or remedy or proceed against the Borrower under the Credit
Agreement or the Note or any other agreement or instrument referred to herein or
therein, or against any other Person under any other guarantee of, or security
for, any of the Guaranteed Obligations.
2.03 Reinstatement. The obligations of the Guarantor under this
-------------
Section 2 shall be automatically reinstated if and to the extent that for any
reason any payment by or on behalf of the Borrower in respect of the Guaranteed
Obligations is rescinded or must be otherwise restored by any holder of any of
the Guaranteed Obligations, whether as a result of any proceedings in bankruptcy
or reorganization or otherwise and the Guarantor agrees that it will indemnify
the Bank on demand for all reasonable costs and expenses (including, without
limitation, fees of counsel) incurred by the Bank in connection with such
rescission or restoration.
2.04 Subrogation. The Guarantor hereby agrees that it shall not
-----------
exercise any right or remedy arising by reason of any performance by it of its
guarantee as provided in Section 2.01 hereof, whether by subrogation or
otherwise, against the Borrower or any other guarantor of any of the Guaranteed
Obligations of any security for any of the Guaranteed Obligations, except as
contemplated by Section 2.08 hereof.
2.05 Remedies. The Guarantor agrees that, as between the Guarantor
--------
and the Bank, the obligations of the Borrower under the Credit Agreement and the
Note may be declared to be forthwith due and payable as provided in Section 9 of
the Credit Agreement (and shall be deemed to have become automatically due and
payable in the circumstances provided in paragraphs (g) and (h) of said Section
9) for purposes of Section 2.01 hereof notwithstanding any stay, injunction or
other prohibition preventing such declaration (or such obligations from becoming
automatically due and payable) as against the Borrower and that, in the event of
such declaration (or such obligations being deemed to have become automatically
due and payable), such obligations (whether or not due and payable by the
Borrower) shall forthwith become due and payable by the Guarantor for purposes
of said Section 2.01.
2.06 Continuing Guarantee. The guarantee in this Section 2 is a
--------------------
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
2.07 Limitation on Guarantee. Notwithstanding the foregoing
-----------------------
provisions of this Agreement, the aggregate amount which the Guarantor may be
required at any time to pay under this Agreement (other than the amounts payable
under Section 6.04 hereof) shall not exceed the Guaranteed Amount after giving
effect to Sections 2.08 and 2.09 hereof, it being understood that all payments
and prepayments of the Guaranteed Obligations by the other Person (other than by
the Guarantor pursuant to a demand by the Bank hereunder) shall, for purposes of
this Section 2.07, be deemed to be applied first to the portion of the
Guaranteed Obligations which exceeds the
3
<PAGE>
Guaranteed Amount and last to the portion of the Guaranteed Obligations which
does not exceed the Guaranteed Amount.
2.08 Advances to Borrower. Each payment of the Guaranteed
--------------------
Obligations or any portion thereof by the Guarantor hereunder shall reduce the
aggregate amount which the Guarantor may be obligated to pay hereunder by an
amount equal to the amount of such payment. Each such payment shall, to the
extent permitted by law, be deemed to be an advance (each an "Advance" and,
-------
collectively, the "Advances") by the Guarantor to the Borrower as of the date of
--------
and in an amount equal to such payment (provided that any inability of the
Guarantor to make an advance to the Borrower, by reason of the Borrower's being
the subject of a bankruptcy case or otherwise, shall not affect the obligations
of the Guarantor under Section 2.01 hereof). The Borrower shall pay interest on
each Advance from and including the date of such Advance to but excluding the
date such Advance is repaid in full at a rate equal to the Prime Rate (each
change in the rate of interest on an Advance to take effect as of the time of a
change in the Prime Rate). The Borrower shall repay each Advance in full,
together with all accrued and unpaid interest thereon, on the tenth anniversary
date of such Advance. The Borrower may not prepay, purchase or redeem any
principal of or interest on any Advance before the date on which such Advance is
due as provided in the preceding sentence; provided, however, that subject to
-------- -------
the last sentence of this Section 2.08, the Borrower may prepay the principal of
and (if the principal of all of the Advances has been paid in full) interest on
any Advance pursuant to Section 8.12 of the Credit Agreement not later than the
45th day after the end of any Accounting Quarter, provided, further, that
-------- -------
nothing herein contained shall prevent the prepayment of any principal of or
interest on any Advance from Sales Proceeds or Refinance Proceeds (each as
defined in the Partnership Agreement). All payments required to be made by the
Borrower to the Guarantor in respect of the principal of and interest on the
Advances shall be subordinate to the payment of the obligations of the Borrower
under the Credit Agreement and the Note in accordance with the terms of, and
each of the Guarantor and the Borrower hereby agrees to be bound by, the
provisions contained in Annex I hereto, which provisions are hereby incorporated
herein by reference.
2.09 Adjustments of Amount Guaranteed. The aggregate amount which
--------------------------------
the Guarantor may be required to pay hereunder in respect of the Guaranteed
Obligations shall be reinstated and increased by an amount equal to the amount
of such payment or prepayment of principal of the Advances made under Section
2.08 hereof.
2.10 Termination. Except as provided in Section 6.04 hereof, the
-----------
obligations of the Guarantor under this Agreement shall terminate and be of no
further force or effect on the first date on which no Default shall exist (and
as to which the Guarantor shall have certified to the Bank) on or after the
later of (a) July 31, 1993 or (b) the date on which the Debt Service Coverage
for the Subject Hotels (other than the Subject Hotels released pursuant to
Section 8.17(b) of the Credit Agreement) shall have exceeded 1.30 to 1 for each
Accounting Quarter during the period of eight consecutive Accounting Quarters
ending on or most recently prior to such date (and as to which an Authorized
Accounting Officer of the General Partner shall have so certified to the Bank in
reasonable detail).
Section 3. Representations and Warranties. The Guarantor represents
------------------------------
and warrants to the Bank that:
3.01 Corporate Existence. Each of the Guarantor and its Material
-------------------
Consolidated Subsidiaries: (a) is a corporation duly organized and validly
existing under the laws of the jurisdiction of its incorporation; (b) has all
requisite corporate power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and carry on
its business as now being or as proposed to be conducted; and (c) is qualified
to do business in all jurisdictions in which the nature of the business
conducted by it makes such qualification necessary and where failure so to
qualify would have a material adverse effect on its financial condition,
operations, business or prospects.
4
<PAGE>
3.02 Financial Condition. The consolidated balance sheets of the
-------------------
Guarantor and its Consolidated Subsidiaries as at December 29, 1989 and the
related consolidated statements of income and retained earnings of the Guarantor
and its Consolidated Subsidiaries for the fiscal year ended on said date with
the opinion thereon (in the case of said consolidated balance sheet and
statements) of Arthur Andersen & Co., and the unaudited consolidated balance
sheets of the Guarantor and its Consolidated Subsidiaries as at June 15, 1990
and the related consolidated statements of income and retained earnings of the
Guarantor and its Consolidated Subsidiaries for the Accounting Quarter ended on
such date, heretofore furnished to the Bank, are complete and correct and fairly
present the consolidated financial condition of the Guarantor and its
Consolidated Subsidiaries as at said dates and the consolidated results of their
operations for the fiscal year and Accounting Quarter ended on said dates
(subject, in the case of such financial statements as at June 15, 1990, to
normal year-end audit adjustments), all in accordance with generally accepted
accounting principles and practices applied on a consistent basis. Neither the
Guarantor nor any of its Subsidiaries had on said dates any material contingent
liabilities, liabilities for taxes, unusual forward or long-term commitments or
unrealized or anticipated losses from any unfavorable commitments, except as
referred to or reflected or provided for in said balance sheets as at said
dates. Since June 15, 1990, there has been no material adverse change in the
consolidated financial condition, operations, business or prospects taken as a
whole of the Guarantor and its Consolidated Subsidiaries from that set forth in
said financial statements as at said date.
3.03 Litigation. Except as disclosed to the Bank in writing prior to
----------
the date of this Agreement, there are no legal or arbitral proceedings or any
proceedings by or before any governmental or regulatory authority or agency, now
pending or (to the knowledge of the Guarantor) threatened against the Guarantor
or any of its Subsidiaries which, if adversely determined, could have a material
adverse effect on the financial condition, operations, business or prospects
taken as a whole of the Guarantor or any of its Consolidated Subsidiaries.
3.04 No Breach. The execution and delivery of any Marriott
---------
Agreement, the consummation of the transactions therein contemplated or
compliance with the terms and provisions thereof will not conflict with or
result in a breach of, or require any consent under, the charter or by-laws of
the Guarantor, or any applicable law or regulation, or any order, writ,
injunction or decree of any court or governmental authority or agency, or any
agreement or instrument to which the Guarantor or any of its Subsidiaries is a
party or by which any of them is bound or to which any of them is subject, or
constitute a default under any such agreement or instrument, or result in the
creation or imposition of any Lien upon any of the revenues or assets of the
Guarantor or any of its Subsidiaries pursuant to the terms of any such agreement
or instrument.
3.05 Corporate Action. The Guarantor has all necessary corporate
----------------
power and authority to execute, deliver and perform its obligations hereunder
and under each of the other Marriott Agreements; the execution, delivery and
performance by the Guarantor of this Agreement and the other Marriott Agreements
have been duly authorized by all necessary corporate action on its part; and
this Agreement and the other Marriott Agreements have been duly and validly
executed and delivered by the Guarantor and constitutes its legal, valid and
binding obligation, enforceable in accordance with their respective terms.
3.06 Approvals. No authorizations, approvals and consents of, and no
---------
filings and registrations with, any governmental or regulatory authority or
agency are necessary for the execution, delivery or performance by the Guarantor
of this Agreement or any other Marriott Agreement or for the validity or
enforceability hereof or thereof.
3.07 ERISA. Each Plan, and, to the best knowledge of the Guarantor,
-----
each Multiemployer Plan, is in compliance in all material respects with, and has
been administered in all material respects in compliance with, the applicable
provisions of ERISA, the Code and any other applicable federal or state law, and
no event or condition is occurring or exists concerning which the
5
<PAGE>
Guarantor would be under an obligation to furnish a report to the Bank in
accordance with Section 4.01(f) hereof. As of the most recent valuation date of
each Plan either (i) each Plan was "fully funded", which for purposes of this
Section 3.07 shall mean that the fair market value of the assets of the Plan is
not less than the greater of (A) the Projected Benefit Obligation, as that term
is defined in Financial Account Standards Board Statement Number 87 ("FASB 87"),
under the Plan, or (B) the Accumulated Benefit Obligation, as that term is
defined in FASB 87, under the Plan, computed assuming no participant turnover
(except on account of death or disablement) and using an interest rate and
mortality basis that satisfies the conditions set forth in 29 C.F.R. Part 2619
of the regulations relating to ERISA, or (ii) each Plan that is not "fully
funded," determined pursuant to (i) above, is not "underfunded" in an amount,
determined pursuant to (i) above, that, when aggregated with the amount of any
such underfunding with respect to any other Plan or Plans, is in excess of
$10,000,000. To the best knowledge of Guarantor, no Plan has ceased to satisfy
the requirements of either (i) or (ii) of the immediately preceding sentence of
this Agreement as of the date these representations are made with respect to any
loan under this Agreement.
3.08 Taxes. United States Federal income tax returns of the
-----
Guarantor and its Subsidiaries have been examined and closed through the fiscal
year of the Guarantor ended July 26, 1974. The Guarantor and its Subsidiaries
have filed all United States Federal income tax returns and all other material
tax returns which are required to be filed by them and have paid, or have made
adequate provisions for the payment of, all taxes due pursuant to such returns
or pursuant to any assessment received by the Guarantor or any of its
Subsidiaries. The charges, accruals and reserves on the books of the Guarantor
and its Subsidiaries in respect of taxes and other governmental charges are, in
the opinion of the Guarantor, adequate.
3.09 Investment Company Act. The Guarantor is not an "investment
----------------------
company", or a company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended.
3.10 Public Utility Holding Company Act. The Guarantor is not a
----------------------------------
"holding company", or an "affiliate" of a "holding company" or a "Subsidiary
company" of a "holding company", within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
3.11 Relation to Guarantor. Each of the Manager and the General
---------------------
Partner is a direct or indirect Wholly-Owned Subsidiary of the Guarantor.
Section 4. Covenants. The Guarantor agrees that, until the earlier
---------
to occur of (i) the payment and satisfaction in full of the Guaranteed
Obligations and the expiration or termination of the Commitment of the Bank
under the Credit Agreement and (ii) the termination of the Guarantor's
obligations hereunder in accordance with the provisions of Section 2.10 hereof:
4.01 Financial Statements. The Guarantor shall deliver to the Bank:
--------------------
(a) as soon as practicable and in any event within 60 days after the
end of each of the first three fiscal quarterly periods of each fiscal year of
the Guarantor and its Consolidated Subsidiaries, unaudited consolidated
statements of income and retained earnings of the Guarantor and its Consolidated
Subsidiaries for such period and for the period from the beginning of the
respective fiscal year to the end of such period, and the related consolidated
balance sheets as at the end of such period, setting forth in each case in
comparative form the corresponding consolidated figures for the corresponding
period in the preceding fiscal year, all in reasonable detail and certified by
the Authorized Accounting Officer of the Guarantor but subject to year-end audit
and adjustments (the Guarantor may, provided that the foregoing requirements are
in all respects satisfied thereby, comply with this Section 4.01(a) by
delivering to the Bank its Form 10-Q as filed with the Securities and Exchange
Commission (the "SEC");
---
6
<PAGE>
(b) as soon as practicable and in any event within 90 days after the
end of each fiscal year of the Guarantor and its Consolidated Subsidiaries,
consolidated statements of income and retained earnings of the Guarantor and its
Consolidated Subsidiaries for such year and the related consolidated balance
sheets as at the end of such year, setting forth in each case in comparative
form the corresponding consolidated figures for the preceding fiscal year, all
in reasonable detail and certified by Arthur Andersen & Co., or other
independent certified public accountants of recognized national standing (the
Guarantor may, provided that the foregoing requirements are in all respects
satisfied thereby, comply with this Section 4.01(b) by delivering to the Bank
its Form 10-K as filed with the SEC);
(c) as soon as practicable and in any event within 60 days after the
end of each Accounting Quarter, a certificate of the Authorized Accounting
Officer of the Guarantor (or of the Borrower if so directed by the Guarantor
with the consent of the Bank) certifying as to the maximum aggregate amount that
the Guarantor may be called upon to pay in respect of the Guaranteed Obligations
hereunder, as at the end of such Accounting Quarter, setting forth in reasonable
detail computations necessary to determine such amount (including, without
limitation, the amount of prepayment of any Advance deemed made during such
Accounting Quarter pursuant to Section 2.08 hereof);
(d) upon request, copies of all registration statements and regular
periodic reports, if any, which the Guarantor shall have filed with the
Securities and Exchange Commission (or any governmental agency substituted
therefor) or any national securities exchange;
(e) promptly upon the mailing thereof to the shareholders of the
Guarantor generally, copies of all financial statements, reports and proxy
statements so mailed;
(f) as soon as practicable, and in any event within 20 days after the
Guarantor knows or has reason to know that any of the events or conditions
enumerated below with respect to any Plan or Multiemployer Plan have occurred or
exist, a statement signed by the Authorized Accounting Officer of the Guarantor
setting forth details respecting such event or condition and the action, if any,
which the Guarantor or its ERISA Affiliate proposes to take with respect
thereto; provided, however, that if such event or condition is required to be
reported or noticed to the Pension Benefit Guaranty Corporation (the "PBGC"),
such statement, together with a copy of the relevant report or notice to the
PBGC, shall be furnished to the Bank within ten (10) days after it is reported
or noticed to the PBGC, or if such event or condition is a request for a waiver
under Section 412(d) of the Code, as described in paragraph (i), below, filed
with the Internal Revenue Service (the "IRS"), such request for a waiver,
together with a copy of all relevant documents, shall be furnished to the Bank
within ten (10) days after it is filed with the IRS:
(i) any reportable event, as defined in Section 4043(b) of ERISA and
the regulations issued under such Section, with respect to a Plan, as to which
the PBGC has not by regulation waived the requirement of Section 4043(a) of
ERISA that it be notified within 30 days of the occurrence of such event (except
that a failure to make a quarterly contribution to a trust established under a
Plan ("Delinquent or Late Quarterly Contributions"), as required by Section
412(m) of the Code or Section 302(e) of ERISA, shall be a reportable event
regardless of the application for or the issuance of any waivers in accordance
with Section 412(d) of the Code, provided the amount of any such Delinquent or
Late Quarterly Contribution, when combined with all other Delinquent or Late
Quarterly Contributions occurring during a calendar year, exceeds $2,500,000)
and any request for a waiver under Section 412(d) of the Code for any Plan;
(ii) the distribution under Section 4041 of ERISA of a notice of
intent to terminate any Plan or, if earlier, any board of directors or similar
action taken by the Guarantor or an ERISA Affiliate to terminate any Plan;
7
<PAGE>
(iii) the institution by PBGC of proceedings under Section 4042 of
ERISA for the termination of, or the appointment of a trustee to administer, any
Plan, or the receipt by the Guarantor or any ERISA Affiliate of a notice from a
Multiemployer Plan that such action has been taken by PBGC with respect to such
Multiemployer Plan;
(iv) the occurrence of circumstances that may reasonably be deemed
to result in the complete or partial withdrawal from a Multiemployer Plan by the
Guarantor or any ERISA Affiliate that may give rise to a liability in excess of
$10,000,000 under Section 4201 or 4204 of ERISA (including the obligation to
satisfy secondary liability as a result of a purchaser default) or the receipt
of the Guarantor or any ERISA Affiliate of notice from a Multiemployer Plan that
it is in reorganization or insolvency pursuant to Section 4241 or 4245 of ERISA
or that it intends to terminate or has terminated under Section 4041A of ERISA;
(v) the institution of a proceeding by a fiduciary of any
Multiemployer Plan against the Guarantor or any ERISA Affiliate to enforce
Section 515 of ERISA, which proceeding is not dismissed within 30 days;
(vi) the adoption of an amendment to any Plan that pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA would result in the loss
of tax-exempt status of the trust of which such Plan is a part, if the Guarantor
or an ERISA Affiliate fails to timely provide security to the Plan in accordance
with the provisions of said Sections;
(vii) any event or circumstance exists which may reasonably be
expected to constitute grounds for the Guarantor or any ERISA Affiliate to incur
liability under Sections 4062, 4063, 4064 or 4069 of ERISA, or otherwise, with
respect to any of the Plans, which liability together with any such liability
with respect to any other Plan or Plans, is in an amount in excess of
$10,000,000.
(g) promptly after the Guarantor knows that any Default has
occurred, a notice of such Default describing the same in reasonable detail and,
together with such notice or as soon thereafter as possible, a description of
the action that the Guarantor has taken and proposes to take with respect
thereto; and
(h) from time to time and with reasonable promptness such other
information which is reasonably available regarding the business, affairs or
financial condition of the Guarantor or any of its Subsidiaries (including,
without limitation, any Plan or Multiemployer Plan and any reports or other
information required to be filed under ERISA) as the Bank may reasonably
request.
The Guarantor will furnish to the Bank, at the time it furnishes each set of
financial statements pursuant to paragraph (a) or (b) above, a certificate of
the Authorized Accounting Officer of the Guarantor (i) to the effect that no
Default has occurred and is continuing (or, if any Default has occurred and is
continuing) and no condition, event or act which, with the giving of notice or
lapse of time or both would constitute such a Default, describing the same in
reasonable detail and describing the action that the Guarantor has taken and
proposes to take with respect thereto, and (ii) setting forth in reasonable
detail the computations necessary to determine whether the Guarantor is in
compliance with Sections 4.05, 4.06 and 4.07 hereof as of the end of the
respective fiscal quarter or fiscal year.
4.02 Litigation. The Guarantor will promptly give to the Bank notice
----------
of all legal or arbitral proceedings, and of all proceedings by or before any
governmental or regulatory authority or agency, affecting the Guarantor or any
of its Subsidiaries, except proceedings which, if adversely determined, would
not have a material adverse effect on the consolidated financial condition,
operations, business or prospects taken as a whole of the Guarantor and its
Consolidated Subsidiaries.
8
<PAGE>
4.03 Compliance with Laws; Maintenance of Assets; Etc. The Guarantor
------------------------------------------------
will comply with the requirements of all applicable laws, rules, regulations and
orders of governmental or regulatory authorities if failure to comply with such
requirements would materially and adversely affect the consolidated financial
condition, operations, business or prospects taken as a whole of the Guarantor
and its Consolidated Subsidiaries except to the extent such laws, rules and
regulations shall currently be contested in good faith by appropriate
proceedings diligently contested and against which adequate reserves are being
maintained; pay and discharge all taxes, assessments and governmental charges or
levies imposed on it or on its income or profits or on any of its property prior
to the date on which penalties attach thereto, except for any such tax,
assessment, charge or levy the payment of which is being contested in good faith
and by proper proceedings and against which adequate reserves are being
maintained; maintain its principal operating properties in good repair and
working order and condition, and from time to time make all necessary repairs,
replacements, additions, betterments and improvements thereto so that at all
times the efficiency thereof shall be fully preserved and maintained; maintain a
corporate existence under the law of one of the States of the United States;
permit access by the Bank to the books and records of the Guarantor, as the same
relate to the preparation of the financial statements referred to in Section
4.01 hereof, during normal business hours and upon reasonable notice (any
information furnished to the Bank hereunder (other than information publicly
available) shall be kept confidential except to the extent disclosure is
required by applicable law or legal process or to professional advisors or to
Governmental Authorities having jurisdiction over the Bank or in connection with
the enforcement of the Bank's rights hereunder); and keep insured by financially
sound and reputable insurers all property of a character usually insured by
corporations engaged in the same or similar business similarly situated against
loss or damage of the kinds and in the amounts customarily insured against by
such corporations and carry such other insurance as is usually carried by such
corporations.
4.04 Consolidation, Merger and Sale of Assets. The Guarantor will
----------------------------------------
not wind up, liquidate or dissolve its affairs or enter into any transaction of
merger or consolidation, or convey, sell or otherwise dispose of all or
substantially all of its property or assets, except that the Guarantor may merge
or consolidate with any other corporation if subsequent to such merger or
consolidation, the Guarantor (i) shall be the continuing or surviving
corporation and (ii) shall be in compliance with all of the provisions of this
Agreement.
4.05 Notice of Transactions. The Guarantor will promptly notify the
----------------------
Bank in writing of any proposed purchase, sale, merger or other transaction
(other than in the ordinary course of business) of which the Guarantor is a
party, involving property or assets having a purchase price (in cash, stock or
otherwise) in one transaction or in a series of related transactions in excess
of 10% of Total Capital; provided that any such information furnished to the
Bank shall be kept confidential by the Bank and not disclosed to other Persons,
except (a) that such information may be disclosed (i) to auditors and counsel
for the Bank, (ii) to any Governmental Authority to the extent such disclosure
is required by law or regulation, (iii) in connection with the enforcement of
the Bank's rights under the Related Agreements, (iv) if required by subpoena,
court or regulatory order or otherwise by law or regulation, and (v) to any
actual or prospective assignee of or participant in all or any part of the
Bank's interest in the Loans (provided such assignee or participant first agrees
to comply herewith), and (b) that the restrictions set forth herein shall not
apply to any information that (i) is known to the Bank at any time it is
furnished to the Bank hereunder or (ii) is publicly available.
4.06 Ownership of General Partner and Manager. Marriott shall at all
----------------------------------------
times own directly or indirectly all of the capital stock of the Manager, and
the General Partner. The provisions of this Section 4.05 shall survive the
termination of this Agreement until payment in full of the principal of and
interest on the Loans and all other amounts payable by the borrower under the
Principal Related Agreements.
9
<PAGE>
4.07 Incorporation by Reference. Each of the Guarantor's covenants,
--------------------------
agreements and obligations contained in paragraphs (b) through (d), inclusive,
of Section 8 of that certain Revolving Credit Agreement dated as of October 15,
1987, as amended on February 27, 1989, between the Guarantor and Citibank, N.A.,
(as modified, supplemented and in effect from time to time the "Citibank Credit
---------------
Agreement"), or if, the Citibank Credit Agreement shall no longer be in effect,
- ---------
the corresponding provisions of the next largest revolving credit facility of
the Guarantor in effect from time to time having a commitment of not less than
$10,000,000 utilizing substantially the same form of revolving credit agreement
as the Citibank Credit Agreement and containing covenants similar to those
contained in Section 8(b) through (d) of the Citibank Credit Agreement (as such
revolving credit agreement shall be modified, supplemented and in effect from
time to time the "Revolving Credit Agreement") are hereby incorporated by
--------------------------
reference as hereinafter more specifically described. In the event at any time
there shall be no Revolving Credit Agreement then, the Guarantor shall perform,
comply with and be bound by, for the benefit of the Bank under this Agreement,
as the Bank may elect, (i) each of such provisions of the last Revolving Credit
Agreement as in effect prior to the termination of such Revolving Credit
Agreement with the same effect as if such Revolving Credit Agreement had not
been terminated or (ii) each of the corresponding provisions as set forth in any
other revolving credit facilities (the "Other Agreement") simultaneously or
---------------
subsequently entered into by the Guarantor. Without limiting the generality of
the foregoing, the above-mentioned provisions of the Citibank Credit Agreement,
the Revolving Credit Agreement or the Other Agreement, as the case may be,
together with related definitions, are hereby incorporated herein by reference,
as if set forth herein in full, mutatis mutandis; provided, however, that as
------- -------- -------- -------
incorporated herein, each reference therein to "this Agreement" or "Loans" shall
be deemed to be a reference to the Citibank Credit Agreement, the Revolving
Credit Agreement or the Other Agreement, as the case may be, or the Loans
thereunder, as the case may be, and references to any covenants regarding the
delivery of financial statements (which, in the case of the Citibank Credit
Agreement, such reference is to "Section 8(a)") shall be deemed to be a
reference to Section 4.01 hereof, except that, in the event the Revolving Credit
Agreement is terminated and the Bank makes the election referred to in clause
(i) of the preceding sentence, the term "Agreement" shall refer to this
Agreement and the term "Loans" shall refer to any Indebtedness of the Guarantor.
Section 4.08 Notice of Termination; Copies of Amendments. (a) The
-------------------------------------------
Guarantor shall within 60 days of the close of each of its first three Fiscal
Quarters and within 90 days of the close of each of its Fiscal Years, provide
the Bank with copies of all calculations, certifications or other information as
required by the foregoing provisions incorporated by reference into this Section
4.07, as the same may be amended from time to time or any successor or
replacement provisions, together with (i) notification of any termination of any
revolving credit agreement incorporated pursuant to the provisions of the first
sentence of Section 4.07 or clause (ii) of the second sentence of Section 4.07
hereof, and (ii) copies of the covenants of any Revolving Credit Agreement or
Other Agreement to be incorporated upon such termination and/or any amendments,
modifications, supplements or waivers of such covenants, or (iii) a statement
from an Authorized Accounting Officer of the Guarantor that there have been no
terminations, amendments, modifications, supplements or waivers thereof.
(b) The Guarantor shall promptly notify the Bank in writing of any
default, and provide copies of any notice of default, under the covenants
incorporated by reference pursuant to the provisions of the first sentence of
Section 4.07 or clause (ii) of the second sentence of Section 4.07 hereof.
Section 5. Events of Default. One or more of the following events
-----------------
shall constitute a "Default" under this Agreement:
-------
(a) the Guarantor shall fail to pay any amount payable under this
Agreement within 3 days after such payment shall be due: or
10
<PAGE>
(b) any representation, warranty or certification made by the
Guarantor pursuant to this Agreement or any other Marriott Agreement, or any
representation or warranty made or deemed made by the Guarantor in any
certificate, document, financial or other statement furnished to the Bank at any
time under or pursuant to the terms of this Agreement or any other Marriott
Agreement, shall prove to be untrue when made or deemed made and the event or
condition misrepresented affects the validity, binding effect or enforceability
of this Agreement or any other Marriott Agreement or the Guarantor's obligations
hereunder or thereunder or materially and adversely affects the Guarantor's
ability to perform its obligations under this Agreement or any other Marriott
Agreement; or
(c) the Guarantor shall fail to perform or observe any term, covenant,
or agreement contained in (i) Sections 1.02, 4.01 or 4.08(a) hereof and such
failure shall continue unremedied for a period of 30 days after notice thereof
to the Guarantor by the Bank, (ii) Section 4.08(b) hereof and such failure shall
continue unremedied for a period of 10 days after notice thereof to the
Guarantor by the Bank, (iii) Section 4 of this Agreement (other than Section
4.01, 4.03, 4.07 or 4.08 hereof), (iv) Section 4.07 upon the termination of the
last Revolving Credit Agreement and the election by the Bank to incorporate by
reference the covenants described by the provisions of clause (i) of Section
4.07, or (v) Section 4.03 and such failure shall continue unremedied for 30 days
after notice thereof to the Guarantor by the Bank, provided that in the case of
any such default under Section 4.03 which cannot be cured by the payment of
money and cannot reasonably be cured within such 30 day period, if the Guarantor
shall have commenced such cure within such 30 day period and thereafter shall
prosecute the curing of such default with diligence and continuity, then the
time within which such default may be cured shall be extended for such period as
shall be necessary to complete the curing of same; provided, further, however,
-------- ------- -------
that if such default shall be a material default, notwithstanding the foregoing
proviso, such 30 day period shall not be extended for longer than 180 days after
notice of such default to the Guarantor; or
(d) an event of default shall have occurred and be continuing under
the provisions of Section 8(b) through (d) of the Citibank Credit Agreement (or
the corresponding provision of any Revolving Credit Agreement or the Other
Agreement) and the lender or lenders thereto, or any trustee or agent on behalf
of such lender or lenders, shall have declared the Indebtedness of Guarantor
issued thereunder to become due and payable prior to its stated maturity; or
(e) The Guarantor or any of its Material Consolidated Subsidiaries
shall admit in writing its inability to, or be generally unable to, pay its
debts as such debts become due; or
(f) The Guarantor or any Material Consolidated Subsidiary shall (i)
apply for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) make a general assignment for the benefit of its
creditors, (iii) commence a voluntary case under the Bankruptcy Code (as now or
hereafter in effect), (iv) file a petition seeking to take advantage of any
other law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or readjustment of debts, (v) fail to controvert in a timely and
appropriate manner, or acquiesce in writing to, any petition filed against it in
any involuntary case under the Bankruptcy Code, or (vi) take any organizational
action for the purpose of effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the application
or consent of the Guarantor or any Material Consolidated Subsidiary, in any
court of competent jurisdiction, seeking (i) its liquidation, reorganization,
dissolution or winding-up, or the composition or readjustment of its debts, (ii)
the appointment of a trustee, receiver, custodian, liquidator or the like of the
Guarantor or a Material Consolidated Subsidiary, as the case may be, or of all
or any substantial part of its assets, or (iii) similar relief in respect of the
Guarantor or such Material Consolidated Subsidiary, as the case may be, under
any law relating to bankruptcy, insolvency,
11
<PAGE>
reorganization, winding-up or composition or adjustment of debts, and such
proceeding or case shall continue undismissed, or an order, judgment or decree
approving or ordering any of the foregoing shall be entered and continue
unstayed and in effect, for a period of 60 or more days; or an order for relief
against the Guarantor or such Material Consolidated Subsidiary shall be entered
in an involuntary case under the Bankruptcy Code; or
(h) A final judgment or judgments for the payment of money in excess
of $10,000,000 in the aggregate shall be rendered by a court or courts of
competent jurisdiction against the Guarantor or any Material Consolidated
Subsidiaries and the same shall not be discharged (or provision shall not be
made for such discharge), or a stay of execution thereof shall not be procured,
within 30 days, or such longer period during which execution of the same shall
have been stayed, appeal therefrom and cause the execution thereof to be stayed
during such appeal; or
(i) An event or condition specified in Section 4.01(f) hereof shall
occur or exist with respect to any Plan or Multiemployer Plan and, as a result
of such event or condition, together with all other such events or conditions,
the Guarantor or any ERISA Affiliate shall incur or in the opinion of the Bank
shall be reasonably likely to incur a liability to a Plan, a Multiemployer Plan
or the PBGC (or any combination of the foregoing) which is, in the determination
of the Bank, material in relation to the consolidated financial condition,
business operations or prospects taken as a whole of the Borrower; or
(j) The Guarantor shall have ceased to exist.
Section 6. Miscellaneous.
-------------
6.01 No Waiver. No failure on the part of the Bank or any of its
---------
agents to exercise, and no course of dealing with respect to, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise by the Bank or any of its
agents of any right, power or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies herein are cumulative and are not exclusive of any remedies provided by
law.
6.02 Governing Law; Submission to Jurisdiction; Waiver of Jury Trial.
---------------------------------------------------------------
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF
THE STATE OF NEW YORK. THE GUARANTOR HEREBY SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF
NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW YORK CITY FOR THE
PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY. THE GUARANTOR IRREVOCABLY WAIVES, TO
THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH COURT AND
ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN
AN INCONVENIENT FORUM. EACH OF THE GUARANTOR AND THE BANK HEREBY IRREVOCABLY
WAIVES, THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
6.03 Notices. All notices, requests, consents and demands hereunder
-------
shall be in writing and shall be given in the manner specified in Section 10.02
of the Credit Agreement to the intended recipient at its address specified
beneath its signature hereto or, at such other telecopy number or address as
shall be designated by either party upon 30 days' notice to the other party.
12
<PAGE>
6.04 Expenses. The Guarantor agrees to reimburse the Bank on demand
--------
for any and all out-of-pocket costs and expenses in connection with the
enforcement or collection of this Agreement. The provisions of this Section
6.04 shall survive the termination of this Agreement.
6.05 Waivers, etc. The terms of this Agreement may be waived,
------------
altered or amended only by an instrument in writing duly executed by the
Guarantor and the Bank. Any such amendment or waiver shall be binding upon the
Bank, each holder of any of the Guaranteed Obligations and the Guarantor.
6.06 Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of the respective successors and assigns of the
Guarantor, the Bank and each holder of any of the Guaranteed Obligations
(provided, however, that the Guarantor shall not assign or transfer its rights
or obligations hereunder without the prior written consent of the Bank).
6.07 Severability. If any provision hereof is invalid and
------------
unenforceable in any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and effect in such
jurisdiction and shall be liberally construed in favor of the Bank in order to
carry out the intentions of the parties hereto as nearly as may be possible and
(ii) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
MARRIOTT CORPORATION
By /s/ David N. Chichester
--------------------------
David N. Chichester
Title: Vice President
Address for Notices:
Marriott Corporation
One Marriott Drive
Washington, D.C. 20058
Attention: Law Department
The Borrower hereby agrees to be
bound by the provisions of Section 2.08
hereof (and Annex I as incorporated
therein) as of the day and year first
above written:
FAIRFIELD INN BY MARRIOTT
LIMITED PARTNERSHIP
By Marriott FIBM One Corporation
(Sole General Partner)
By: /s/ David N. Chichester
--------------------------
David N. Chichester
Title: President
14
<PAGE>
ANNEX I
Terms of Subordination
(S)1. Definitions. Capitalized terms used herein and not defined
-----------
herein shall have the meanings assigned thereto in the Debt Service Guaranty
Agreement dated as of July _, 1990 (as from time to time amended, the "Debt
----
Service Guaranty") between Marriott Corporation (the "Guarantor") and Sumitomo
- ---------------- ---------
Trust & Banking Co., Ltd., New York Branch (together with its successors and
assigns, the "Bank") or the Credit Agreement referred to therein.
----
(S)2. Terms of Subordination.
----------------------
A. Until payment in full by or for account of the Borrower of all of
the Guaranteed Obligations, the Guarantor will not request, demand, sue for, or
take, accept or receive from the Borrower, by set-off or in any other manner,
and the Borrowed will not make, any payment of any moneys, principal or interest
including, without limitation, post-petition interest), now or hereafter owing
by Borrower to the Guarantor in respect of any Advance, or any security
therefor, except, if no Default shall have occurred and be continuing, as
provided in Section 2.08 of the Debt Service Guaranty and Section 8.12 of the
Credit Agreement.
B. In the event of any distribution, division or application, partial
or complete, voluntary or involuntary, by operation of law or otherwise, of all
or any part of the assets of the Borrower or the proceeds thereof, to creditors
of the Borrower, or upon any indebtedness of the Borrower, by reason of the
liquidation, dissolution or other winding up of the Borrower, or the Borrower's
business, or any sale, receivership, insolvency or bankruptcy proceeding, or
assignment for the benefit of creditors, or any proceeding by or against the
Borrower for any relief under any bankruptcy or insolvency law or laws relating
to the relief of debtors, readjustment of indebtedness, reorganizations,
compositions or extensions, then and in any such event, any payment or
distribution of any kind or character, either in cash, securities or other
property, which shall be payable or deliverable upon or with respect to any or
all indebtedness or obligations of the Borrower to the Guarantor in respect of
any Advance (including, without limitation, post-petition interest) shall be
paid or delivered directly to the Bank for application to the Guaranteed
Obligations (including, without limitation, post-petition interest), due or not
due, until the Guaranteed Obligations (including, without limitation, post-
petition interest) shall have first been fully paid in cash. The Guarantor
irrevocably authorizes and empowers the Bank to demand, sue for, collect and
receive every such payment or distribution and give acquittance therefor and to
file claims and take part in such other proceedings, in the Bank's own name or
in the name of the Guarantor or otherwise, as the Bank may deem necessary or
advisable for the enforcement of the terms and conditions hereof; and the
Guarantor will execute and deliver to the Bank such powers of attorney,
assignments or other instruments as may be requested by the Bank in order to
enable the Bank to enforce any and all claims upon or with respect to any
Advances, and to collect and receive any and all payments or distributions which
may be payable or deliverable at any time upon or with respect to any such
indebtedness or obligations of the Borrower.
C. Should any payment or distribution or security or proceeds thereof
be received by the Guarantor upon or with respect to any Advance contrary to the
foregoing provisions, the Guarantor will forthwith deliver the same to the Bank
in precisely the form received (except for the endorsement or assignment of the
Guarantor where necessary) for application to the Guaranteed Obligations
(including, without limitation, post-petition interest) and, until so delivered,
the same shall be held in trust by the Guarantor as property of the Bank. In
the event of the failure of the Guarantor to make any such endorsement or
assignment, the Bank, or any of its officers or employees, is hereby irrevocably
authorized to make the same.
<PAGE>
D. The Guarantor will not assign or transfer to others any claim
which it has or may hereafter have against the Borrower in respect of any
Advance while any of the Obligations (including, without limitation, post-
petition interest) remain unpaid, unless such assignment or transfer is made
expressly subject to the Terms and Conditions in an instrument in form and
substance satisfactory to the Bank. Any purported assignment in violation of
this paragraph D shall be void.
E. The Bank at any time and from time to time may enter into such
agreement or agreements with the Borrower as the Bank may deem proper extending
the time of payment of or renewing or otherwise altering the terms of all or any
of the Obligations without notice to the Guarantor and without in any way
impairing or affecting the obligations of the Guarantor under the terms and
conditions hereof.
F. The Bank shall not be prejudiced in its right to enforce the terms
and conditions hereof in respect of any Advance owing to the Guarantor by any
act or failure to act on the part of the Borrower or anyone in custody of the
Borrower's assets or property.
(S)3. Governing Law.
The terms and conditions hereof shall be governed and construed by, in
accordance with, the law of the State of New York
[END OF ANNEX I]
2
<PAGE>
EXHIBIT 10.f
MODIFICATION OF CREDIT AGREEMENT
AND GUARANTY
OF MANAGEMENT AGREEMENT
This MODIFICATION OF CREDIT AGREEMENT AND GUARANTY OF MANAGEMENT
AGREEMENT (the "Modification") dated as of February 1, 1995, between THE
SUMITOMO TRUST & BANKING CO., LTD. (the "Bank"), a banking corporation organized
under the laws of Japan, acting through its New York Branch and having an
address at 527 Madison Avenue, New York, New York 10022 (the "Bank") and
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP, a limited partnership existing
under the laws of the State of Delaware (the "Borrower").
WITNESSETH:
WHEREAS, the Bank and the Borrower entered into that certain Credit
Agreement dated as of July 31, 1990, as amended (the "Credit Agreement" --
capitalized terms not otherwise defined herein shall have the respective
meanings assigned in the Credit Agreement);
WHEREAS, the Borrower executed that certain Master Indenture of
Mortgage, Deed of Trust, Deed to Secure Debt, Assignment of Rents and Fixture
Filing dated as of July 31, 1990 in favor of the Bank (as the same may be
amended, supplemented or modified from time to time, the "Master Mortgage") and
executed the Implementing Indentures of Mortgage, Deed of Trust, Deed to Secure
Debt, Assignment of Rents and Fixture Filing as short forms of the Master
Mortgage (collectively, the "Implementing Mortgages"; the Master Mortgage and
the Implementing Mortgages, collectively, the "Mortgage");
WHEREAS, the Borrower executed that certain Promissory Note dated July
13, 1990 in favor of the Bank (the "Note");
WHEREAS, the Borrower and the Bank entered into that certain Security
Agreement dated as of July 31, 1990 (the "Security Agreement");
WHEREAS, Marriott executed that certain Guaranty of Management
Agreement dated as of July 31, 1990 in favor of the Bank (the "Management
Guaranty");
WHEREAS, Marriott transferred the stock of the Manager to Marriott
International, Inc., a Delaware corporation ("MI") (such transfer being
hereinafter referred to as the "Manager Transfer");
WHEREAS, Marriott transferred the stock and/or fee interests of all
Ground Lessors to a subsidiary of MI or to MI (the "Ground Lessor Transfer");
WHEREAS, MI would assume, and Marriott would be released from, all
obligations of the Guarantor (as defined in the Management Guaranty) under the
Management Guaranty (the "Management Guaranty Transfer"; the Manager Transfer,
the Ground Lessor Transfer and the Management Guaranty Transfer, collectively,
the "Transfers");
WHEREAS, Marriott has requested that the Bank grant its consent to the
Transfers;
WHEREAS, the Borrower and the Bank are executing modifications of the
Mortgage dated as of the date hereof (collectively, the "Mortgage
Modifications"); and
<PAGE>
WHEREAS, the Bank and the Borrower wish to modify certain provisions
of the Credit Agreement in order to provide as set forth herein.
NOW, THEREFORE, to modify certain provisions of the Credit Agreement
and the Management Guaranty, and in consideration of the premises and of the
mutual covenants contained herein, and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto
covenant and agree, effective as of the date hereof, as follows:
1. Marriott has changed its name to "Host Marriott Corporation"
(hereinafter "Marriott").
2. The following definition shall be added to Section 1 of the Credit
Agreement:
"Marriott International" shall mean Marriott International, Inc., a
----------------------
Delaware corporation, its successors and assigns.
3. Section 3 of the Credit Agreement shall be deleted in its entirety
and the following shall be substituted in its place:
Section 3. Payments of Principal and Interest.
----------------------------------
3.01 Repayment of Loans. The Borrower will pay to the Bank the
------------------
principal of the Loans, and each Loan shall mature, on December 31, 1996 (the
"Maturity Date").
-------------
3.02 Interest. The Borrower will pay to the Bank interest on the
--------
unpaid principal amount of each Loan for the period from and including the date
of such Loan to but excluding the Maturity Date at the rate of 9.67% per annum.
Notwithstanding the foregoing, the Borrower will pay to the Bank interest at the
Post-Default Rate on any principal of and interest on any Loan and on any other
amount payable by the Borrower hereunder or under the Note, which shall not be
paid in full when due (whether at stated maturity, by acceleration, on a
Prepayment Date or otherwise), for the period from and including the due date
thereof to but excluding the date the same is paid in full. Accrued interest on
each Loan shall be payable semiannually on the Semi-Annual Dates, or upon the
payment or prepayment thereof (but accrued only on the principal amount so paid
or prepaid); provided, further, that interest payable at the Post-Default Rate
shall be payable from time to time on demand.
4. Section 7.23 of the Credit Agreement shall be deleted in its
entirety and the following substituted in its place:
7.23. Relation to Marriott and Marriott International: The Manager
-----------------------------------------------
is a direct or indirect Wholly-Owned Subsidiary of Marriott International. The
General Partner is a direct or indirect Wholly-Owned Subsidiary of Marriott. At
all times, (a) the General Partner shall be the only general partner of the
Borrower, and (b) the General Partner will remain a direct or indirect Wholly-
Owned Subsidiary of Marriott. At all times hereafter, Marriott International or
a subsidiary of Marriott International will be the lessor under each Ground
Lease. At all times hereafter, the Manager will remain a direct or indirect
Wholly-Owned Subsidiary of Marriott International.
5. Clause (1) of Section 9 of the Credit Agreement shall be deleted
in its entirety and the following substituted in its place:
The General Partner shall at any time cease to be the sole general
partner of the Borrower; the General Partner shall at any time cease
to be a direct or indirect Wholly-Owned Subsidiary of Marriott; the
Manager shall at any time cease to be a direct or indirect
-2-
<PAGE>
Wholly-Owned Subsidiary of Marriott International; or Marriott
International or a subsidiary of Marriott International shall at any
time cease to be the lessor under the Ground Leases.
6. Simultaneously herewith Marriott International and Marriott are
executing an Assignment and Assumption Agreement dated the date hereof
substantially in the form of Exhibit A (the "Management Guaranty Assignment")
and upon such execution Marriott Corporation shall be released from all
obligations of the Guarantor (as defined in the Management Guaranty) under the
Management Agreement incurred after the date hereof.
7. The parties hereto confirm that the Mortgage, as modified and
supplemented by the Mortgage Modifications, and the Security Agreement as well
as any other Related Agreement given to secure the obligations of the Borrower
shall secure the Credit Agreement as amended and modified hereby as well as any
obligations of the Borrower under any other Related Agreements as amended
hereby.
8. Representations and Warranties: The Borrower further represents
------------------------------
and warrants to the Bank:
a. The Borrower is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of
Delaware. The Borrower is duly qualified to transact business in
the States of Alabama, California, Florida, Georgia, Illinois,
Indiana, Iowa, Kansas, Maryland, Michigan, Missouri, North
Carolina, Ohio, South Carolina, Tennessee, Virginia and Wisconsin
and in such other jurisdictions where failure so to qualify would
have a material adverse effect on the financial condition,
operations, business or prospects of the Borrower.
b. The General Partner is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Delaware. The General Partner is duly qualified to transact
business in the States of Alabama, California, Florida, Georgia,
Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Missouri,
North Carolina, Ohio, South Carolina, Tennessee, Virginia, and
Wisconsin and in such other jurisdictions where failure so to
qualify would have a material adverse effect on the financial
condition, operations, business or prospects of the General
Partner.
c. Each of the Borrower and the General Partner has all requisite
legal right, power and authority to execute, deliver and perform
the Modification, the Mortgage Modifications and Management
Guaranty Assignment and to consummate the transaction
contemplated hereby and thereby. The execution, delivery and
performance by the Borrower and the General Partner of the
Modification, the Mortgage Modifications and the Management
Guaranty Assignment have been duly authorized by all necessary
action on the part of the Borrower and the General Partner, as
the case may be. All consents of any other Person (including
partners or creditors of the Borrower) and all consents or
authorizations of, or other acts by or in respect of any
Governmental Authority, required to be obtained by the Borrower
in connection with the execution, delivery and performance by the
Borrower and the General Partner, and the validity, binding
effect and enforceability of each such party's obligations under
the Modification, the Mortgage Modifications and the Management
Guaranty Assignment have been obtained and are in full force and
effect.
-3-
<PAGE>
d. The Modification, the Mortgage Modifications and the Management
Guaranty Assignment when executed and delivered will constitute
legal, valid and binding obligations of the Borrower and the
General Partner, enforceable in accordance with its respective
terms, except as such enforceability may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium or other
similar laws of general applicability effecting the enforcement
of creditors' rights and (ii) the application of general
principles of equity (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
e. The execution, delivery and performance by Borrower and the
General Partner of the Modification, the Mortgage Modifications
and the Management Guaranty Assignment to which either is a party
and the consummation of the transactions contemplated thereby
will not (i) conflict with or constitute a breach of or default
under any agreement, indenture, lease or other instrument to
which either is a party or by which it is or its revenues,
properties, assets or operations are bound or subject, or violate
any Legal Requirements; (ii) result in the creation or imposition
of any Lien upon either of such party's revenues, properties or
assets, other than as specifically contemplated by the
Modification, the Mortgage Modifications and the Management
Guaranty Assignment; (iii) result in the acceleration of any
Indebtedness of such party; or (iv) result in a material adverse
change in any agreement material to the operation of any Hotel.
f. Except as set forth in Exhibit B hereto, no litigation,
investigation or other proceeding is pending or, to the best of
Borrower's knowledge, threatened before or by any Governmental
Authority in any way restraining or enjoining, or threatening or
seeking to restrain or enjoin, or in any way questioning or
affecting the validity, binding effect or enforceability, as
against the Borrower and the General Partner of, any provisions
of the Modification, the Mortgage Modifications and the
Management Guaranty Assignment or the legal existence of the
Borrower and the General Partner, the status of its partners as
partners, or its ability to conduct its operations, to perform
its obligations under the Modification, the Mortgage
Modifications and the Management Guaranty Assignment or to
consummate any of the transactions contemplated thereby or
affecting the Hotels or the Trust Estate.
g. Neither the Borrower nor the General Partner is in default under
any existing judgment, order, award or decree of any Governmental
Authority or any other Legal Requirement, binding upon or
affecting it.
h. The Borrower is not an "investment company" or a company
"affiliated" with or "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as
amended, and the Borrower will not become such by reason of its
execution and delivery of, or performance of its obligations
under, the Modification, the Mortgage Modifications and/or the
Management Guaranty Assignment.
i. All of the representations and warranties set forth in the Credit
Agreement, the Mortgage and the Management Guaranty, as modified
hereby are true and correct as of the date hereof.
j. As of the date hereof, there are no counterclaims, offsets or
defenses with respect to the obligations of the Borrower and the
General Partner under the
-4-
<PAGE>
Credit Agreement, the Management Guaranty and/or any other
Related Agreements as modified hereby.
k. As of the date hereof, all the recitals in this Modification are
true and correct.
9. Except as modified hereby, the Credit Agreement and the other
Related Agreements shall remain unmodified and in full force and effect.
10. This Modification may be executed in two counterparts, each of
which shall constitute an original, but both of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Modification
to be duly executed as of the day and year first above written.
FAIRFIELD INN BY MARRIOTT
LIMITED PARTNERSHIP
By Marriott FIBM One Corporation,
its general partner
By: /s/ Pamela J. Murch
-----------------------------
Vice President
THE SUMITOMO TRUST & BANKING CO., LTD.,
NEW YORK BRANCH
By: /s/ Suraj P. Bhatia
-----------------------------
SURAJ P. BHATIA
SENIOR VICE PRESIDENT
MANAGER, PROJECT FINANCE DEPT.
-5-
<PAGE>
EXHIBIT A
---------
ASSIGNMENT AND ASSUMPTION OF MANAGEMENT GUARANTY
This Assignment and Assumption of Guaranty of Management Agreement
dated as of February 1, 1995 (the "Assignment and Assumption") between Host
Marriott Corporation (as a result of a name change from Marriott Corporation), a
corporation organized under the laws of the State of Delaware ("Marriott"), and
Marriott International, Inc. ("International"), a corporation organized under
the laws of the State of Delaware.
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, Marriott is the guarantor under that certain Guaranty of
Management Agreement dated as of July 31, 1990 in favor of The Sumitomo Trust &
Banking Co., Ltd. (the "Bank") (the "Management Guaranty");
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
covenant and agree as follows:
1. Marriott hereby sells, transfers, assigns and sets over to
International all of its obligations, covenants and duties as guarantor under
the Management Guaranty after the date hereof.
2. International hereby accepts such assignment and assumes and
agrees to perform and comply with all the covenants, duties and obligations of
Marriott as guarantor under the Management Guaranty after the date hereof and
consents to Collateral Assignment of Management Agreement from Fairfield Inn by
Marriott Limited Partnership ("Fairfield") to the Bank and the Subordination and
Attornment of Management Agreement among Fairfield, the Bank and Fairfield FMC
Corporation (the "Subordination") and agrees to the provisions of Section 9 of
the Subordination.
This Assignment and Assumption shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Modification
to be duly executed as of the day and year first above written.
HOST MARRIOTT CORPORATION
By:
----------------------------------
Title: Vice President
MARRIOTT INTERNATIONAL, INC.
By:
----------------------------------
Title: Vice President
<PAGE>
EXHIBIT B
---------
LITIGATION
----------
NONE
----
<PAGE>
Final Executed Version
LOAN AGREEMENT
between
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
and
NOMURA ASSET CAPITAL CORPORATION
Dated as of January 13, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS.............................................................. 1
Section 1.1 Definitions........................................ 1
ARTICLE II
PROVISIONS CONCERNING THE ACCOUNTS AND PLEDGED PROPERTY.................. 18
Section 2.1 Cash Management Procedures.................... 18
Section 2.2 Right to Contest.............................. 18
Section 2.3 Defeasance.................................... 19
Section 2.4 Sale of all the Properties.................... 23
Section 2.5 Change of Control............................. 24
Section 2.6 Partial Release after the Optional
Prepayment Date............................. 24
ARTICLE III
PAYMENTS................................................................ 25
Section 3.1 Payments on the Note......................... 25
Section 3.2 Interest..................................... 25
Section 3.3 Payments without Deduction, etc.............. 26
Section 3.4 Periodic Payments............................ 26
ARTICLE IV
DEFAULT; REMEDIES; ENFORCEMENT.......................................... 27
Section 4.1A Events of Default............................. 27
Section 4.1B Event of Default Cure......................... 30
Section 4.2 Remedies...................................... 30
Section 4.3 Remedies Cumulative; Delay or Omission
Not a Waiver................................ 31
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS............................... 32
Section 5.1 Representations and Warranties of the
Borrower.................................... 32
Section 5.2 Affirmative Covenants......................... 39
Section 5.3 Negative Covenants............................ 45
Section 5.3A General Partner Covenant...................... 47
Section 5.4 Further Assurances............................ 48
Section 5.5 Representations, Warranties and Covenants
of NACC..................................... 48
Section 5.6 Other......................................... 49
i
<PAGE>
ARTICLE VI
SECURITIZATION.......................................................... 49
Section 6.1 Securitizazion................................ 49
ARTICLE VII
PAYMENT OF FEES AND EXPENSES; INDEMNIFICATION........................... 51
Section 7.1 Fees and Expenses............................. 52
Section 7.2 Indemnification............................... 53
ARTICLE V
IMMUNITY ............................................................... 55
Section 8.1 Partners, Employees and Agents of the
Borrower Immune from Liability............. 55
ARTICLE IX
MISCELLANEOUS PROVISIONS................................................ 55
Section 9.1 Notices....................................... 55
Section 9.2 Benefit of Agreement.......................... 56
Section 9.3 Governing Law................................. 56
Section 9.4 Counterparts.................................. 56
Section 9.5 Index, Descriptive Headings................... 57
Section 9.6 Amendment or Waiver; Integration.............. 57
Section 9.7 Survival of Representations and
Warranties; Reliance........................ 57
Section 9.8 Returned Payments............................. 57
Section 9.9 Jurisdiction and Service; Waiver of Jury
Trial....................................... 58
Section 9.10 Enforceability................................ 58
Section 9.11 Conflicting Terms............................. 58
Section 9.12 Relationship of Parties....................... 59
Exhibit A - ADA Compliance Work and Deferred Maintenance Work
Exhibit B - Cash Management Procedures
Exhibit C - Environmental Remediation Work
Exhibit D - Permitted Investments
Exhibit E - Properties and Addresses
Exhibit F - Release Price
Exhibit G - Organizational Structure of the Borrower
Exhibit H - Operating Budget
Exhibit I - Capital Budget
Exhibit J - Financial Statements
Exhibit K - General Partner Agreement
Schedule 1 - Disclosure Report
Schedule 2 - Ground Leases
ii
<PAGE>
Exhibit 10.g
LOAN AGREEMENT, dated as of January 13, 1997, between Fairfield Inn by
Marriott Limited Partnership, a Delaware limited partnership (the "Borrower"),
--------
and Nomura Asset Capital Corporation ("NACC") (together with its assigns and
successors, the "Lender").
------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Borrower wishes to obtain a loan from the Lender in the
principal amount of One Hundred Sixty Five Million Four Hundred Thousand Dollars
($165,400,000) to, among other things, (i) satisfy all existing debt secured by
the Properties (as hereinafter defined) and, (ii) to the extent of any remaining
proceeds, (a) provide initial funding for reserves for deferred maintenance,
environmental remediation, compliance with the Americans With Disabilities Act
of 1990, replacement of furniture, fixtures and equipment and capital
improvements, (b) pay the costs of completing the transactions contemplated
hereby, (c) provide working capital to the Borrower and (d) for such other
purposes as the Borrower shall deem necessary or desirable, and the Lender is
willing to make such loan to the Borrower on the terms and conditions
hereinafter set forth; and
WHEREAS, such loan is to be evidenced by the Note (as hereinafter defined)
and secured by, inter alia, the Mortgages (as hereinafter defined),
----- ----
NOW, THEREFORE, in consideration of the above-mentioned premises and the
agreements, representations and warranties hereafter set forth, the Borrower and
the Lender agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Definitions. For all purposes of this Agreement, except as
-----------
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Section have the meanings assigned to them in
this Section, and include the plural as well as the singular;
(b) the words "herein," "hereof," "hereto" and "hereunder" and other words
of similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision;
(c) all references to any agreement or instrument shall be to that
agreement or instrument as in effect from time to time,
<PAGE>
including any amendments, consolidations, replacements, restatements,
modifications and supplements thereto;
(d) all terms defined in this Section with reference to the Cash Management
Procedures shall continue in effect after the termination of such Cash
Management Procedures in accordance with the terms thereof;
(e) all references to "Section(s)" and "Exhibit(s)" shall mean the
Section(s) of and Exhibit(s) annexed to this Agreement unless expressly stated
to be Section(s) or Exhibit(s) of the Cash Management Procedures; and
(f) certain terms defined in this Section appear only in this Agreement and
not in the Cash Management Procedures and vice versa.
"Accounting Period" means, initially, each accounting period of four
-----------------
consecutive weeks having the same 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 Properties are 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" means, 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
Properties are 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).
"Action" means any action, suit, claim, arbitration, governmental
------
investigation or other proceeding.
"ADA Compliance Work" means the repairs, improvements and replacements to
-------------------
the Properties to be made to comply with the Americans with Disabilities Act of
1990, as amended from time to time, in the amounts more particularly described
on Exhibit A annexed hereto.
---------
"Additional Capital Expenditures" has the meaning set forth in Section 8.3
-------------------------------
of the Cash Management Procedures.
"Adjusted Rate" means the rate determined on the Optional Prepayment Date
-------------
and on each anniversary thereof as the greater of (xx) the Base Rate plus 2% per
annum and (yy) the yield, calculated by linear interpolation (rounded to three
decimal places), of the
2
<PAGE>
yields of United States Treasury Constant Maturities with the terms (one longer
and one shorter) most nearly approximating those of U.S. Obligations having
maturities as close as possible to the tenth anniversary of the Optional
Prepayment Date, as determined by the Lender on the basis of Federal Reserve
Statistical Release H.15-Selected Interest Rates under the heading U.S.
Governmental Security/Treasury Constant Maturities, or other recognized source
of financial market information selected by the Lender in each case on the last
Business Day of the week immediately prior to the Optional Prepayment Date and
each subsequent anniversary thereof, as the case may be, plus 3.775% per annum.
"Affiliate" means, with respect to any Person, any individual, corporation,
---------
partnership, limited liability company, trust or other entity of whatever nature
which controls, is controlled by or is under common control with, such Person,
including, without limitation, (a) any officer or director of any of the
foregoing and (b) any partner, member or shareholder that controls any of the
foregoing, and "control" shall mean ownership of more than twenty-five percent
(25%) of all of the voting stock of a corporation or more than twenty-five
percent (25%) of all of the legal and beneficial interests in any other entity
or the possession of the power, directly or indirectly, to direct or cause the
direction of the management and policy of a corporation or other entity, whether
through the ownership of voting securities, common directors or officers, the
contractual right to manage the business affairs of such entity, or otherwise.
"Agreement" means this Loan Agreement.
---------
"Annual Plan" has the meaning set forth in Section 5.2(d)(vi).
-----------
"Bankruptcy Custodian" has the meaning set forth in Section 4.1A(g)(A)(2).
--------------------
"Base Rate" means 8.40% per annum.
---------
"Base Rate Interest" means interest on the Note at the Base Rate or the
------------------
Default Rate, as applicable, then due and payable for the applicable Debt
Service Period.
"Best Knowledge" means with respect to any provision, knowledge of
--------------
information obtained by the Borrower or any officer or director of the General
Partner.
"Borrower" means Fairfield Inn by Marriott Limited Partnership.
--------
"Business Day" means a day on which banks and foreign exchange markets are
------------
open for business in New York, New York.
"Capital Budget" has the meaning set forth in Section 5.2(d)(vi).
--------------
3
<PAGE>
"Capital Expenditure and FF&E Reserve Account" means the account
--------------------------------------------
established pursuant to Section 8.1 of the Cash Management Procedures.
"Capital and FF&E Expenditures" means the expenditures of amounts for the
-----------------------------
purpose of the Repairs and Equipment Reserve, as such term in defined in the
Management Agreement.
"Cash Collateral Account" means the account established and held by the
-----------------------
Servicer pursuant to Section 4.1 of the Cash Management Procedures.
"Cash Management Procedures" means the provisions of Exhibit B.
-------------------------- ---------
"Change of Control" means any transfer of (i) an equity interest in the
-----------------
General Partner, (ii) the General Partner's interest in the Borrower or (iii)
any interest of a limited partner in the Borrower such that as a result of such
transfer and any other transfers of limited partnership interests prior to the
date of determination, any person other than Host Marriott, directly or
indirectly, holds more than 49% of the limited partnership interests in the
Borrower.
"Closing Date" means the date of execution and delivery of this Agreement.
------------
"Condemnation Proceeds" has the meaning set forth in the applicable
---------------------
Mortgage.
"CPI Percentage" means, for any fiscal year, 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
published) (the "CPI") for November of the preceding Fiscal Year exceeds the CPI
for November 1996.
"DCR" means Duff & Phelps Credit Rating Co.
---
"Debt" means the obligations of the Borrower under the Transaction
----
Documents, together with all interest thereon, and all other sums, including,
without limitation, fees, expenses, commissions, premiums and indemnities, which
may or shall become due under any of the Transaction Documents, including the
costs and expenses of enforcing any provision of the Transaction Documents that
may be reimbursable thereunder.
"Debt Service Coverage Ratio" means, as of any given date, the ratio of (i)
---------------------------
Net Operating Income for the 13 full Accounting Periods for which financial
statements are required to be furnished to the Lender pursuant to Section
5.2(d)(ii) immediately preceding the date of calculation for the Property or
Properties regarding which the calculation is being made (or 12 Accounting
Periods in
4
<PAGE>
the case of a calendar year or 365 day Fiscal Year) to (ii) Debt Service Expense
in respect of the 13 full Accounting Periods next succeeding such date (or 12
Accounting Periods in the case of a calendar year or 365 day Fiscal Year).
"Debt Service Expense" means, in respect of any fiscal period, the
--------------------
aggregate amount of scheduled interest and principal payable on (i) the Note,
(ii) Subordinate Debt and (iii) Indebtedness covered by Purchase Money Security
Interests for such period. For the purpose of the calculation of Debt Service
Expense for any period subsequent to the Optional Prepayment Date, the amount
set forth in clause (i) above shall be computed based on the Monthly Debt
Service Payment.
"Debt Service Payment Date" means the 11th day of each calendar month or
-------------------------
the next Business Day immediately thereafter.
"Debt Service Period" means the period from and including the eleventh
-------------------
(11th) day of the calendar month immediately preceding each Debt Service Payment
Date to the tenth (10th) day of the calendar month in which such Debt Service
Payment Date occurs.
"Debt Service Reserve Account" has the meaning set forth in Section 5.1 of
----------------------------
the Cash Management Procedures.
"Default Rate" means a rate per annum equal to the lesser of (aa) two
------------
percent (2%) above the Base Rate or Adjusted Rate, as applicable, and (bb) the
maximum rate allowed by law.
"Defeasance Collateral" has the meaning set forth in Section 2.3(a)(iv)(A).
---------------------
"Defeasance Debt Service Coverage Ratio" has the meaning set forth in
--------------------------------------
Section 2.3(f).
"Defeasance Deposit" has the meaning set forth in Section 2.3(f).
------------------
"Defeasance Security Agreement" has the meaning set forth in Section
-----------------------------
2.3(a)(iv)(A).
"Deferred Maintenance Work" means the repairs, improvements and
-------------------------
replacements to the Properties in the amounts more particularly described on
Exhibit A hereto.
- ---------
"Direct Manager Funds" has the meaning set forth in Section 12.5 of the
--------------------
Cash Management Procedures.
"Disclosure Report" means the schedule annexed hereto as Schedule 1.
----------------- ----------
"Earthquake Restoration Cost" has the meaning set forth in Section 8.6 of
---------------------------
the Cash Management Procedures.
5
<PAGE>
"Earthquake Restoration Reserve Account" has the meaning set forth in
--------------------------------------
Section 8.6 of the Cash Management Procedures.
"Earthquake Restoration Work" has the meaning set forth in Section 8.6 of
---------------------------
the Cash Management Procedures.
"Eligible Account" means either (i) an account maintained with a federal or
----------------
state chartered depository institution or trust company, (a) if the funds
therein are to be retained for more than 30 days, the long-term unsecured debt
obligations of which (or, in the case of a depository institution or trust
company that is the principal subsidiary of a holding company, the long-term
unsecured debt obligations of the holding company of which) are rated by each
Rating Agency in one of its two highest rating categories (or such other ratings
as will not result in the rating of any of the Securities being reduced below
their respective ratings on the date determination is to be made and as to which
the Rating Agencies may otherwise agree) at the time of the deposit therein, or
(b) if the funds therein are to be retained for less than 30 days, the short-
term unsecured debt obligations of such depository institution or trust company
(or, in the case of a depository institution or trust company that is the
principal subsidiary of a holding company, the short-term unsecured debt
obligations of the holding company of which), as the case may be, are rated not
lower than A-1+ by S&P or the equivalent rating of the other Rating Agencies, or
(ii) a segregated trust account maintained with the trust department of a
federal or state chartered depository institution or trust company acting in its
fiduciary capacity, provided that such account is subject to fiduciary funds on
deposit regulations (or internal guidelines) substantially similar to 12 C.F.R.
(S)9.10(b), or (iii) after the Securitization, an account in any other insured
depository institution reasonably acceptable to the Servicer and the Trustee, so
long as prior to the establishment of an account in any such other depository
institution each of the Rating Agencies shall have delivered a Rating Comfort
Letter with respect thereto.
"Emergency Expenditures" means expenditures arising in the event of an
----------------------
emergency arising out of a fire or other casualty at an Inn, or other events,
circumstances or conditions which give rise to safety or life threatening
situations, to the extent such expenditures are necessary to protect the safety
or welfare of guests and employees or to protect against further property damage
to the Inn.
"Entities" has the meaning set forth in Section 6.1(b).
--------
"Environmental Indemnity Agreement" means the environmental indemnity
---------------------------------
agreement, dated the Closing Date, from the Borrower to NACC.
"Environmental Laws" has the meaning set forth in the Environmental
------------------
Indemnity Agreement.
6
<PAGE>
"Environmental Remediation Work" means the actions taken with respect to
------------------------------
the Properties set forth on Exhibit C.
---------
"Equipment Leases" means, with respect to each Property, the leases of
----------------
furniture, fixtures and equipment used in connection with the Properties.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means all members of a controlled group of corporations
---------------
and all trades and businesses (whether or not incorporated) under common
control and all other entities which, together with the Borrower, are treated as
a single employer under any or all of Sections 414(b), (c), (m) or (o) of the
IRC.
"Event of Default" has the meaning set forth in Section 4.1A.
----------------
"Excess Cash Flow" means, for the period of determination, the difference
----------------
between (i) Net Operating Income and (ii) the sum of (A) the Monthly Debt
Service Payments, (B) other Debt then due and payable to the Lender (other than
payments required under Section 3.4(d)), (C) withdrawals from the Cash
Collateral Account applied for the purposes set forth in clauses (A), (C), (D),
(E), (F), (G), (H) and (I) of Section 4.4 of the Cash Management Procedures or,
if Section 7.10 of the Cash Management Procedures is applicable, clauses (B),
(C), (D) and (E) thereof and (D) an amount for each Fiscal Year equal to the
lesser of (i) the aggregate amount of payments for, or reserves created for
payment for, administrative expenses of the Borrower with respect to such Fiscal
Year; or (ii) $450,000 for Fiscal Year 1997, which amount shall be increased by
the CPI Percentage for each Fiscal Year thereafter.
"Expense Deposit" has the meaning set forth in Section 7.1(c).
---------------
"Fiscal Year" means January 1 of each year through and including December
-----------
31 of such year except that, for purposes of calculating the Debt Service
Coverage Ratio or any other calculation requiring reference to Gross Revenues,
Net Operating Income or other amounts calculated with reference to the
Accounting Periods, "Fiscal Year" shall mean the fiscal year of the Manager, as
defined in the Management Agreement.
"GAAP" means generally accepted accounting principles in the United States
----
of America (as such principles may change from time to time) applied on a
consistent basis (except for changes in application in which the Borrower's
independent certified public accountants concur), both as to classification of
items and amounts.
"General Partner" means Marriott FIBM One Corporation, a Delaware
---------------
corporation.
7
<PAGE>
"Governmental Authority" means any court, agency, authority, board
----------------------
(including, without limitation, environmental protection, planning and zoning),
bureau, commission, department, office or instrumentality of any nature
whatsoever of any governmental or quasi-governmental unit of the United States
or the state, county or city where each Property is located or any political
subdivision of any of the foregoing, whether now or hereafter in existence, or
any officer or official thereof, having jurisdiction over the Borrower or the
General Partner or any of the Properties or any portion thereof.
"Grant" means to issue, grant, sell, remise, convey, assign, and/or
-----
transfer.
"Gross Revenues" means, with regard to the Properties, for any period, all
--------------
revenues and receipts of every kind derived from or otherwise relating to the
Properties 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,
meeting rooms and space of every kind; license, lease and concession fees and
rentals (not including gross receipts of licensees, lessees and
concessionaires); income from vending, facsimile and copy machines; wholesale
and retail sales of merchandise (except as otherwise provided in the Management
Agreement), service charges, and proceeds, if any, from business interruption or
other loss of income insurance, all determined in accordance with generally
accepted accounting principles; excluding, however, (i) gratuities to employees
of the Inns, (ii) federal, state or municipal excise, sales or use taxes or
similar assessments or Impositions collected directly from patrons or guests or
included as part of the sales price of any goods or services, (iii) Net
Refinancing Proceeds or Net Sales Proceeds, (iv) proceeds from the sale of FF&E,
(v) interest received or accrued with respect to the funds in the FF&E Reserve
or the other operating accounts of the Inns, or (vi) any refunds, rebates,
discounts and credits of a similar nature, given, paid or returned in the course
of obtaining Gross Revenues or components thereof (including, without
limitation, commissions and discounts for prompt or cash payments).
"Ground Leases" means the leases described in Schedule 2 hereto relating to
------------- ----------
the Properties as the same may be amended, modified, supplemented or replaced
from time to time in compliance with the Transaction Documents.
"Ground Leases Subordination Agreement" means the Subordination, Estoppel,
-------------------------------------
Consent and Amendment of Ground Leases, dated the Closing Date, between the
Borrower, MII, Big Boy Properties, Inc. and Essex House Condominium Corporation.
"Ground Rent" means the rental payments payable under the Ground Leases.
-----------
8
<PAGE>
"Ground Rent Reserve Account" has the meaning set forth in Section 5.2 of
---------------------------
the Cash Management Procedures.
"Host Marriott" means Host Marriott Corporation, a Delaware corporation.
-------------
"Impositions" has the meaning set forth in the applicable Mortgage.
-----------
"Indebtedness" means for any Person (a) obligations for borrowed money
------------
(including, without limitation, in the case of the Borrower, the Debt), (b)
obligations under letters of credit, (c) obligations relating to Purchase Money
Security Interests, (d) obligations, whether or not assumed, secured by Liens or
payable out of the proceeds or production from property now owned by such
Person, (e) obligations for trade credit or acceptances incurred in the ordinary
course of business which are 60 days past due, and (f) obligations of another
Person of the type set forth in clauses (a) through (e) above which such Person
has guaranteed or in respect of which such Person is liable, contingently or
otherwise, including, without limitation, by way of agreement to purchase
property or services, to provide funds to or otherwise invest in such other
Person, or otherwise to assure a creditor of such other Person against loss.
"Indemnified Parties" shall have the meaning set forth in Section 7.2(a).
-------------------
"Independent Director" means a person who is not, and has not within the
--------------------
past five years been, (i) an officer, director, employee, partner, stockholder
or beneficial-interest holder of the General Partner or the Borrower; (ii) an
officer, director, employee, partner, member, beneficial-interest holder or
stockholder of any Affiliate (as defined below) of the General Partner or the
Borrower; (iii) a customer or supplier of the Borrower or any Affiliate thereof
(other than a hotel guest or a customer or supplier that does not derive more
than 10% of its revenues from its activities with the Borrower or any Affiliate
thereof); or (iv) a spouse, parent, sibling, or child of any person described in
(i), (ii), or (iii); provided, however, that a person shall not be deemed to be
-------- -------
a director of an Affiliate solely by reason of such person being a director of a
single-purpose entity which would otherwise be deemed an Affiliate. For the
purpose of this definition alone, "Affiliate" means any person or entity (i)
which owns beneficially, directly or indirectly, more than 10 percent of the
outstanding shares of the common stock of the General Partner or which is
otherwise in control of the General Partner, (ii) of which more than 10% of the
outstanding voting securities are owned beneficially, directly or indirectly, by
any person or entity described in clause (i) above, or (iii) which is controlled
by, or under common control with, any person or entity described in clause (i)
above; the terms "control" and "controlled
9
<PAGE>
by" shall have the meanings assigned to them in Rule 405 under the Securities
Act of 1933.
"Individual Material Adverse Effect" means a material adverse effect on the
----------------------------------
condition (financial or otherwise), business, prospects, assets, liabilities,
management, financial position or results of operations of any Property.
"Initial Debt Service Coverage Ratio" means 1.6:1.
-----------------------------------
"Inns" means the Fairfield Inn by Marriott hotels and the hotel operations
----
located at the Properties.
"Insolvency Law" has the meaning set forth in Section 4.1A(g)(A)(1).
--------------
"Insurance Proceeds" has the meaning set forth in the applicable Mortgage.
------------------
"Insurance Requirements" means all terms of any insurance policy required
----------------------
by the applicable Mortgage covering or applicable to a particular Property or
any part thereof and all requirements of the insurance carrier, all as more
fully described in such Mortgage.
"IRC" means the Internal Revenue Code of 1986, as amended from time to
---
time, and the rules and regulations promulgated thereunder, or any successor
statute(s).
"Leases" means the respective written or unwritten agreements pursuant to
------
which lessees, tenants or other third parties are occupying any portion of the
Properties excluding, however, the letting of rooms and other facilities to
hotel guests in the ordinary course of business.
"Legal Requirements" has the meaning set forth in the applicable Mortgage.
------------------
"Lien" means any security interest, mortgage, pledge, lien, restriction on
----
transferability, claim, charge, encumbrance, title retention agreement or
analogous instrument, in, of or on the Properties or any of them.
"Lender" means Nomura Asset Capital Corporation and its assigns and
------
successors.
"Loan" means the loan evidenced by the Note.
----
"Local Account" has the meaning set forth in Section 3 of the Cash
-------------
Management Procedures.
"Lockbox Account" has the meaning set forth in Section 7.1.2 of the Cash
---------------
Management Procedures.
10
<PAGE>
"Lockbox Event" has the meaning set forth in Section 7 of the Cash
-------------
Management Procedures.
"Lockbox Period" has the meaning set forth in Section 7 of the Cash
--------------
Management Procedures.
"Management Agreement" means the Management Agreement dated as of November
--------------------
17, 1989, by the Borrower and the Manager, as amended by the First Amendment to
Management Agreement, dated July 31, 1990, by the Borrower and the Manager, as
further amended by the Second Amendment to Management Agreement dated as of the
date hereof by and between the Borrower and the Manager, and as amended by that
certain Modification, Subordination and Non-Disturbance Agreement, Estoppel and
Consent, dated as of the date hereof, among the Manager, the Borrower and the
Lender, and any other management agreement entered into by the Borrower as
required or permitted herein.
"Management Expenses" means, for any Inn, (a) the cost of sales including
-------------------
salaries, wages (including accruals for periodic bonuses to Inn employees),
fringe benefits, payroll taxes and other costs related to Inn employees (the
foregoing costs shall not include salaries and other employee costs of executive
personnel of the Manager who do not work at one of the Inns on a regular basis);
(b) departmental expenses, administrative and general expenses and the cost of
Inn advertising, central reservations, local marketing, and business promotion,
heat, light and power, and routine repairs, maintenance and minor alterations
treated as Deductions under Section 8.01 of the Management Agreement; (c) credit
card and travel agent commissions; (d) the cost of Inventories and Fixed Asset
Supplies consumed in the operation of each Inn (as such terms are defined in the
Management Agreement); (e) reasonable bad debt expense (or a reasonable reserve)
for uncollectible accounts receivable as determined by the Manager; (f) all
costs and fees of independent accountants or other third parties retained by the
Manager who perform services required or permitted hereunder; (g) the cost and
expense of technical consultants and operational experts retained by the Manager
(or retained by the Borrower and approved by the Manager) for specialized
services in connection with non-routine Inn work or other specialized services
not covered by the Base Management Fee or the System Fee (as such terms are
defined in the Management Agreement); (h) the Base Management Fee payable after
giving effect to Section 5.01D of the Management Agreement; (i) the System Fee;
(j) the Inn's pro rata share of costs and expenses incurred by the Manager in
providing Chain Services and the national reservations system (as defined in the
Management Agreement); (k) insurance costs and expenses (including Inn Retention
or other deductibles) as provided in Article XII of the Management Agreement;
(l) taxes, if any, payable by or assessed against the Manager related to the
Management Agreement or to the Manager's operation of the Inns (exclusive of the
Manager's income taxes) and all Impositions; (m) contributions to the FF&E
Reserve which are required pursuant to Section 8.02 of the Management
11
<PAGE>
Agreement; (n) contributions to the Marketing Fund (as such term is used in the
Management Agreement); (o) amortization of the amounts described in Section 8.02
of the Management Agreement; (p) rent payable under any equipment leases not
funded out of the FF&E Reserve; (q) such other costs and expenses as are
specifically provided for elsewhere in the Management Agreement or as otherwise
reasonably necessary for the proper and efficient operation of the Inns.
"Manager" means Fairfield FMC Corporation, a Delaware corporation, or any
-------
entity that is an Affiliate of MII and any property manager appointed as
permitted herein.
"Manager's Account" has the meaning set forth in Section 1.2 of the Cash
-----------------
Management Procedures.
"Master Account" has the meaning set forth in Section 1.2 of the Cash
--------------
Management Procedures.
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
Borrower's ability to enter into or fulfill its material obligations under the
Transaction Documents or to effect the transactions contemplated thereby or (b)
a material adverse effect on the condition (financial or otherwise), business,
prospects, assets, liabilities, management, financial position or results of
operations of the Borrower or the Properties.
"Maturity Date" shall mean the earliest to occur of (1) January 11, 2017 or
-------------
(2) such date to which the maturity of the Debt may be accelerated upon an Event
of Default or as otherwise provided in any Transaction Document.
"MII" means Marriott International, Inc., a Delaware corporation.
---
"MII Cash Management Conditions" means the following conditions: (i) the
------------------------------
Properties are managed by the Manager under the Management Agreement and (ii)
the Manager is MII or a wholly owned, direct or indirect, subsidiary of MII.
"MII Debt" has the meaning set forth in Section 6 of the Cash Management
--------
Procedures.
"Monthly Debt Service Payment" has the meaning set forth in Section 4.3(B)
----------------------------
of the Cash Management Procedures, as modified by Section 12.6 of the Cash
Management Procedures.
"Mortgage" means, with regard to each Property, the mortgage, deed of trust
--------
or other security instrument creating a first mortgage lien on such Property,
dated as of the Closing Date, from the Borrower to or for the benefit of the
Lender.
"NACC" means Nomura Asset Capital Corporation.
----
12
<PAGE>
"Net Operating Income" means, in respect of any fiscal period, Gross
--------------------
Revenues less the sum of, without duplication, (A) Management Expenses and (B)
any Ground Rent, Impositions or insurance premiums paid or reserved for payment
with respect to the Properties.
"Non-Recourse" means, with respect to the Debt, that the Debt is limited in
------------
recourse solely to the Pledged Property and is not guaranteed directly or
indirectly by any Partner or the Manager and no Partner or the Manager or any
shareholder, member, director, officer, employee or agent of any Partner or the
Manager, either directly or indirectly, shall be personally liable in any
respect (except to the extent of their respective interests in the Pledged
Property) for (i) the payment of any Debt, (ii) the performance of any covenant
or obligation under any Transaction Document or (iii) monetary damages for the
breach of performance of any covenant or obligation contained in any Transaction
Document; provided, however, that in the event of any fraud, material
-------- -------
misrepresentation or misappropriation of funds under any Transaction Document or
under the Management Agreement, nothing herein or in such other documents shall
estop the Lender from prosecuting an Action against the party or parties
committing such fraud, misappropriation or material misrepresentation, or
misappropriating such funds, or the recipient or beneficiary of such fraud,
material misrepresentation or misappropriation, whether or not such party,
recipient or beneficiary is the Borrower or a Partner or the Manager, to the
extent of losses relating to or arising from such fraud, material
misrepresentation or misappropriation of funds under any Transaction Document;
provided, further, that the Borrower's obligations in respect of the
- -------- -------
Environmental Indemnity Agreement and the covenants, indemnities,
representations and warranties relating to environmental matters contained in
any Transaction Document shall not be Non-Recourse to the Borrower (but shall be
Non-Recourse to its Partners other than the General Partner). The foregoing
provisions shall not (a) prevent recourse to the Pledged Property or constitute
a waiver, release or discharge of any Debt, and the same shall continue until
paid or discharged, (b) limit the right of any Person, if required by applicable
law, to name the Borrower or any successor or assign of the Borrower as a party
defendant in any Action in the exercise of any remedy under any Transaction
Document, so long as no judgment seeking the performance of any act requiring
the expenditure of money shall be sought against the Borrower or any such
successor or assign and so long as any monetary judgment seeking the expenditure
of money is payable only from the Pledged Property or (c) impair any right of
the Lender to obtain a deficiency judgment against the Borrower or any such
successor or assign in any Action where necessary as a matter of law to preserve
the rights and remedies of the Lender against the Pledged Property, provided
that such deficiency judgment may only be enforced against the Pledged Property.
Notwithstanding the foregoing, under no circumstances shall the Debt be recourse
to any limited partner of the Partnership in its capacity as such.
13
<PAGE>
"Note" means that certain Secured Promissory Note, dated the Closing Date,
----
from the Borrower to the Lender in the principal sum of $165,400,000.
"Officer's Certificate" means a certificate signed by any officer of the
---------------------
General Partner who is authorized to act hereunder on behalf of the Borrower.
"Operating Account" has the meaning set forth in Section 7.7 of the Cash
-----------------
Management Procedures.
"Operating Budget" has the meaning set forth in Section 5.2(d)(vi).
----------------
"Operating Profit" has the meaning set forth in the Management Agreement.
----------------
"Operating Profit Payment Date" means the last Business Day of the third
-----------------------------
week in each Accounting Period.
"Operational Agreements" means the Management Agreement, the Property
----------------------
Agreements, the Equipment Leases, the Ground Leases, the Leases, if any, and any
assignment and assumption agreements or other agreements related thereto.
"Optional Prepayment Date" means January 11, 2007.
------------------------
"Paid-in-Full" means at such time as the Debt is not outstanding.
------------
"Partners" means the limited partners of the Borrower as constituted from
--------
time to time and the General Partner, in their capacities as such.
"Permits" means all permits, licenses, certificates, approvals,
-------
authorizations and other documents necessary for the construction, use,
operation or maintenance of the Inns and the Properties.
"Permitted Exceptions" has the meaning set forth in the Mortgages.
--------------------
"Permitted Investments" has the meaning set forth in Exhibit D hereto.
--------------------- ---------
"Person" means any individual, corporation, partnership, joint venture,
------
association, limited liability company, joint stock company, estate, trust,
unincorporated organization or other business entity or Governmental Authority.
"Phase-In Period" has the meaning set forth in Section 1.2 of the Cash
---------------
Management Procedures.
14
<PAGE>
"Plan(s)" means an employee benefit or other plan established or maintained
-------
by the Borrower or any ERISA Affiliate or to which the Borrower or any ERISA
Affiliate makes or is obligated to make contributions and which is covered by
Title IV of ERISA or Section 302 of ERISA or Section 412 of the IRC.
"Pledged Property" means the Properties and the other collateral in which a
----------------
security interest is being granted pursuant to the Security Documents.
"Potential Event of Default" means an event which, with the giving of any
--------------------------
applicable notice and/or lapse of any applicable time period, would become an
Event of Default.
"Principal Payment" means the difference between a Monthly Debt Service
-----------------
Payment and the Base Rate Interest paid for the applicable Debt Service Period.
"Property" or "Properties" means any or all of those 50 Fairfield Inn by
-------- ----------
Marriott hotels at the locations set forth in Exhibit E hereto, or, as the
---------
context may require, the fee or leasehold estate owned by the Borrower therein,
including the Borrower's ownership interest in all improvements thereon,
fixtures thereto, direct interests therein, and personal property related
thereto or included therein; provided, however, that "Property" or "Properties"
-------- -------
shall not include (i) any property owned by tenants, guests, licensees or
concessionaires of or to such Property or Properties, or (ii) any Property or
Properties released from the Lien of the Security Documents pursuant to the
provisions of Section 2.3 or 2.6 of this Agreement or any Security Document.
"Property Agreements" means all material agreements, contracts and other
-------------------
documents not specifically referred to herein relating to the operation of the
Inns other than agreements for services performed by third parties which
services are generally available from other third parties and which agreements
can be terminated on not more than 30 days' prior notice without payment of any
damages or penalty.
"Purchase Money Security Interest" means purchase money mortgages or
--------------------------------
security interests, conditional sale arrangements and other similar security
interests on furniture, fixtures or equipment acquired by the Borrower in the
ordinary course of business (and not inconsistent with customary industry
practices), with the proceeds of the indebtedness secured thereby; provided,
--------
however, that (i) any Purchase Money Security Interest shall attach only to the
- -------
furniture, fixtures or equipment acquired in such transaction (and any proceeds,
as defined in the Uniform Commercial Code, thereof), and (ii) such indebtedness
shall not exceed the cost of such furniture, fixtures or equipment.
15
<PAGE>
"Rating Agencies" means one or more of S&P, Fitch Investors Services Inc.,
---------------
DCR and Moody's Investors Service, Inc. that are, at the time of determination,
selected by NACC to rate the Securities.
"Rating Comfort Letter" a letter from each Rating Agency pursuant to which
---------------------
it confirms that the taking of the action referred to therein will not result in
a withdrawal, qualification or reduction of the then existing ratings of the
Securities.
"Release Date" has the meaning set forth in Section 2.3(a)(i).
------------
"Release Price" means the amount of the proceeds of the Loan allocated to
-------------
each Property as set forth in Exhibit F annexed hereto. Release Prices for the
---------
Properties will be adjusted as follows: If the principal amount of the Note is
prepaid as a result of (i) the release of a property pursuant to Section 2.6,
(ii) the application of U.S. Obligations pursuant to Section 2.3(g), or (iii)
optional prepayment pursuant to the last sentence of Section 3.1, the Release
Price for each Property that will be subject to the lien of any Mortgage
immediately after such repayment shall equal the product of (x) a fraction the
numerator of which is the Release Price of such Property immediately before such
adjustment and the denominator of which is the aggregate Release Prices for all
Properties, the lien of which is not being released, immediately before such
adjustment, times (y) the outstanding principal amount of the Note immediately
after such adjustment.
"REMIC" has the meaning set forth in Section 2.3(a).
-----
"Required Amount" has the meaning set forth in Section 8.6 of the Cash
---------------
Management Procedures.
"S&P" means Standard & Poor's Rating Services.
---
"Securities" has the meaning set forth in Section 6.1.
----------
"Securities Act" means the Securities Act of 1933, as amended from time to
--------------
time, and the rules and regulations of the Securities and Exchange Commission
promulgated thereunder.
"Securitization" has the meaning set forth in Section 6.1.
--------------
"Security Documents" means (a) the Mortgages, (b) the collateral assignment
------------------
of documents and property rights, dated as of the Closing Date, by the Borrower
to the Lender, (c) the assignments of leases, rents and profits, dated as of the
Closing Date, by the Borrower to the Lender, (d) the collateral account
agreement, dated as of the Closing Date, among the Servicer, the Borrower and
the Lender, (e) the Environmental Indemnity Agreement, (f) all Uniform
Commercial Code financing statements relating to the Debt and (g) any other
documents securing the Debt.
16
<PAGE>
"Servicer" means any nationally recognized servicer of commercial mortgage
--------
loans selected by the Lender, its assigns and successors.
"Servicing Expenses" has the meaning set forth in Section 4.3B of the Cash
------------------
Management Procedures.
"SNDA" means the Modification, Subordination and Non-Disturbance
----
Agreements, Estoppels, Assignments and Consents, dated as of the Closing Date,
among the Manager, the Borrower and the Lender.
"Subordinate Debt" means Indebtedness incurred by the Borrower after
----------------
January 11, 1999 that is expressly subordinate in right of payment to the Debt
pursuant to the provisions of the Mortgages and with respect to which evidence
is provided satisfactory to the Lender that the pro forma Debt Service Coverage
--- -----
Ratio on its date of issuance is at least 2.25:1 and as to which the Rating
Agencies deliver a Rating Comfort Letter. For the purpose of calculating such
Debt Service Coverage Ratio, Debt Service Expense shall be the difference
between (i) the aggregate amount of scheduled interest and principal payable on
the proposed subordinate indebtedness and any other Indebtedness secured by any
assets of the Borrower and (ii) the payments received from or with respect to
U.S. Obligations purchased by the Lender with the Defeasance Deposits paid to it
by the Borrower pursuant to Section 2.3 and then held as security for the Note.
"Substantive Consolidation Opinion" has the meaning set forth in Section
---------------------------------
6.1(b).
"Successor Entity" has the meaning set forth in Section 2.3(e).
----------------
"Third Party Payors" has the meaning set forth in Section 1.2 of the Cash
------------------
Management Procedures.
"Transaction Documents" means this Agreement, the Security Documents, the
---------------------
Note and all other documents executed and delivered by the Borrower in favor of
the Lender in connection with the Loan, including, without limitation, all
agreements, instruments and documents pursuant to which the Pledged Property is
assigned, collaterally assigned and/or pledged to the Lender hereunder.
"Transition Period" has the meaning set forth in Section 7.1.2 of the Cash
-----------------
Management Procedures.
"Trustee" means the trustee to which NACC assigns its interest in the
-------
Transaction Documents in connection with a Securitization.
"Uncontrollable Circumstances" means circumstances causing delay due to
----------------------------
acts of God, governmental restrictions (other than arising from the Borrower's
failure to comply with applicable law),
17
<PAGE>
enemy acts, civil commotion or other causes beyond the reasonable control of the
Borrower.
"United States" means the United States of America (including the States
-------------
and the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction.
"U.S. Obligations" has the meaning set forth in Section 2.3(f).
----------------
"USAH" means the Uniform System of Accounts for Hotels, Eighth Edition, or
----
any other subsequent edition as may be determined by the accountants for the
Borrower to be applicable to the operations of the Borrower, or if USAH is no
longer published, GAAP.
"Welfare Plan" means an employee welfare benefit plan, as defined in
------------
Section 3(1) of ERISA.
"Work" has the meaning set forth in Section 8.1 of the Cash Management
----
Procedures.
"Yield Maintenance Premium" shall mean an amount in cash that would be
-------------------------
necessary to purchase U.S. Obligations in an amount that would be sufficient,
together with U.S. Obligations that could be purchased with the unpaid principal
of and accrued interest on the Note paid to the Lender upon an acceleration of
the Note pursuant to Section 4.2, to provide the payments due on or prior to,
but as close as possible to, all successive Debt Service Payment Dates after the
receipt of such amount in respect of (i) the remaining Monthly Debt Service
Payments that would be required under the Note through and including January 11,
2007 and (ii) a balloon payment of the outstanding principal balance of the Note
and accrued and unpaid interest as of such date as if such balloon payment were
then due and payable.
ARTICLE II
PROVISIONS CONCERNING THE ACCOUNTS AND PLEDGED PROPERTY
Section 2.1 Cash Management Procedures.
--------------------------
The provisions of Exhibit B are incorporated herein by reference.
---------
Section 2.2 Right to Contest. To the extent consistent with the
----------------
Mortgages, the Borrower at its expense may contest, by appropriate Action
conducted in good faith and with due diligence, the amount or validity or
application, in whole or in part, of any Imposition or Lien therefor or any
Legal Requirement or Insurance Requirement or the application of any instrument
of record affecting the Pledged Property or any part thereof or any claims or
18
<PAGE>
judgments of mechanics, materialmen, suppliers or vendors or Liens therefor, and
may direct the Manager or the Servicer, as the case may be, to withhold payment
of the same pending such Action if permitted by law; provided, however, that (a)
-------- -------
in the case of any Impositions or Liens therefor or any claims or judgments of
mechanics, materialmen, suppliers or vendors or Liens therefor, such Action
shall suspend the enforcement thereof and the accrual of penalties thereon
payable by the Borrower, the Manager and the Servicer and otherwise with respect
to the Pledged Property, (b) neither the Pledged Property nor any part thereof
or interest therein could be in any danger of being sold, forfeited or lost if
the Borrower pays the amount or satisfies the condition being contested, and the
Borrower would have the opportunity to so pay or satisfy if the Borrower fails
to prevail in the contest and (c) in the case of an Insurance Requirement, the
failure of the Borrower to comply therewith shall not impair the validity of any
insurance required to be maintained by the Borrower under the applicable
Mortgage or the right to full payment of any claims thereunder.
Section 2.3 Defeasance.
----------
(a) At any time after the date which is the earlier of (i) two years after
the "startup day," within the meaning of Section 860G(a)(9) of the IRC, of a
"real estate mortgage investment conduit," within the meaning of Section 860D of
the IRC (a "REMIC"), that holds the Note (if the Note has been transferred to a
-----
REMIC prior to January 11, 1999) and (ii) January 11, 2001, but prior in either
case to the Optional Prepayment Date, and provided no Event of Default has
occurred and is continuing (other than an Event of Default that will be cured by
the release of a Property or Properties from the Lien of the Security Documents
pursuant to the provisions of clause (e) of Section 4.1A), the Borrower may
defease such Lien to cause the release of one or more Properties from such Lien
by providing the Lender with funds in an amount equal to the Defeasance Deposit
for that portion of the Note which the Borrower wishes to defease, upon the
satisfaction of the following conditions:
(i) not less than 30 days' notice to the Lender specifying a Debt
Service Payment Date (the "Release Date") on which the Defeasance Deposit is to
------------
be made;
(ii) the payment to the Lender of interest accrued and unpaid on the
principal balance of the Note and all other Debt due through and including the
Release Date;
(iii) the payment to the Lender of the Defeasance Deposit; and
(iv) the delivery to the Lender of:
19
<PAGE>
(A) a security agreement (the "Defeasance Security Agreement"),
-----------------------------
in form and substance satisfactory to the Lender, creating a
first priority perfected security interest in favor of the
Lender in the Defeasance Deposit and the U.S. Obligations
purchased with the Defeasance Deposit in accordance with
this subsection (a) (together, the "Defeasance Collateral");
---------- ----------
(B) form(s) of release of the Property(ies) to be released from
the Lien of the Security Documents (for execution by the
Lender) appropriate for the jurisdiction(s) in which such
Property(ies) are located;
(C) an Officer's Certificate certifying that the requirements
set forth in subsections (a) (ii)-(iv) have been satisfied;
(D) an opinion of counsel for the Borrower (which may be a
"reasoned" opinion), in form and substance satisfactory to
the Lender, that (i) the transfer of the Defeasance
Collateral in exchange for release(s) of the Property(ies)
to be released 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 the Borrower,
(ii) the Defeasance Collateral has been duly and validly
transferred and assigned to the Trustee for the benefit of
the holders of the Securities, (iii) the Trustee holds a
first priority perfected security interest in the Defeasance
Collateral for the benefit of such holders, (iv) such
transfer will not result in a deemed exchange of the
Securities pursuant to Section 1001 of the IRC, (v) such
transfer will not, by itself, adversely affect the status of
the Securities as indebtedness for federal income tax
purposes and (vi) such transfer will not adversely affect
the status of the entity holding the Debt as a REMIC
(assuming for such purposes that such entity otherwise
qualifies as a REMIC and that the Note was transferred to
such REMIC not later than two years prior to the Release
Date);
(E) a certificate of a certified public accountant acceptable to
the Lender that the Defeasance
20
<PAGE>
Collateral complies with the requirements set forth in
subsection (b) below;
(F) such other certificates, documents or instruments as the
Lender may reasonably request;
(G) evidence satisfactory to the Lender that the Defeasance Debt
Service Coverage Ratio will be maintained for the twelve
full months commencing immediately after the Release Date at
the greater of (x) the Initial Debt Service Coverage Ratio
and (y) the ratio of the Net Operating Income for the
thirteen (13) full Accounting Periods next preceding the
Release Date divided by the difference between (i) Debt
Service Expense for such period and (ii) the payments
received for such period from or with respect to U.S.
Obligations purchased by the Lender with the Defeasance
Deposits paid to it by the Borrower pursuant to this Section
2.3(a) and then held as security for the Note for such
period; and
(H) If the defeasance is made after the Securitization, the
Rating Agencies deliver a Rating Comfort Letter.
(b) If, following the release of the subject Property(ies), less than all
of the Properties shall have been released, the Lender shall use the Defeasance
Deposit to purchase U.S. Obligations that provide payments on or prior to, but
as close as possible to, all successive Debt Service Payment Dates after the
Release Date that would be required with respect to an assumed promissory note
in a principal amount equal to 125% of the Release Price(s) of the Property(ies)
to be released from the Lien of the Security Documents on such Release Date.
Such assumed promissory note shall be in the same form (including with respect
to term and interest rate) as the Note but shall provide for a mandatory
prepayment thereof in full on the Optional Prepayment Date, including through
the application by the Servicer of U.S. Obligations pursuant to the provisions
of subsection (g) of this Section 2.3. In order to secure the release, in
addition to the U.S. Obligations referred to in the preceding sentence, the
Borrower may, at its election, purchase U.S. Obligations for delivery to the
Servicer that provide additional payments of the type referred to herein in
order to satisfy the Defeasance Debt Service Coverage Ratio requirement in
Section 2.3(a)(iv)(G). If any Property is released pursuant to this Section 2.3
as a result of a condemnation or casualty, the payments provided for in this
subsection (b) shall be equal to the greater of (A) the Release Price and (B)
the lesser of (x) 125% of the Release Price and (y) the net Condemnation
Proceeds or the net Insurance Proceeds
21
<PAGE>
received on account of such Property. The Lender shall deliver such U.S.
Obligations to the Servicer for application pursuant to Sections 4.3(B) and
7.9(A) of the Cash Management Procedures.
(c) If, as a result of the release of the subject Property(ies), all of
the Properties shall have been released, the Lender shall use the Defeasance
Deposit to purchase U.S. Obligations that provide, together with any U.S.
Obligations purchased in connection with any prior releases of Properties,
payments on or prior to, but as close as possible to, all successive Debt
Service Payment Dates after the Release Date that would be required with respect
to an assumed promissory note in a principal amount equal to the aggregate
outstanding principal balance of the Note and accrued and unpaid interest
thereon on the Release Date. Such assumed promissory note shall be in the same
form (including with respect to term and interest rate) as the Note but shall
provide for a mandatory prepayment thereof in full on the Optional Prepayment
Date, including through the application by the Servicer of U.S. Obligations
pursuant to the provisions of subsection (g) of this Section 2.3. The Lender
shall deliver such U.S. Obligations to the Servicer for application pursuant to
Sections 4.3(B) and 7.9(A) of the Cash Management Procedures.
(d) Upon compliance with the requirements of this Section 2.3, each
Property to be released shall be released from the Lien of the Security
Documents and shall not be deemed a Property hereunder, and the U.S. Obligations
shall constitute substitute collateral, which, together with the Security
Documents applicable to the remaining Properties, shall secure the Debt.
(e) If all the Properties have been released, the Borrower may assign its
obligations under the Note together with the U.S. Obligations to a successor
entity (the "Successor Entity") designated by the Lender and thereupon be
----------------
released fully from all obligations relating to the Debt. In such event the
opinion of counsel provided for in clause (a)(iv)(D) of this Section 2.3 shall
provide that upon such assignment the Defeasance Collateral will not be part of
the estate of the Borrower under Section 541 of the United States Bankruptcy
Code. The Lender shall retain its obligation to designate a Successor Entity
notwithstanding the transfer of the Note unless such obligation is specifically
assumed by the transferee. In consideration for the payment of $1,000 by the
Borrower, such Successor Entity shall assume the Borrower's obligations under
the Note and the Defeasance Security Agreement, the Borrower shall be relieved
of its obligations thereunder and the Debt of the Borrower shall not be deemed
outstanding for any purpose of this Agreement. If required by the applicable
Rating Agencies, the Borrower shall also deliver or cause to be delivered a
Substantive Consolidation Opinion with respect to the Successor Entity in form
and substance satisfactory to the Lender and the applicable Rating Agencies.
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(f) For purposes of this Section 2.3, "Defeasance Deposit" shall mean an
------------------
amount in cash necessary to purchase U.S. Obligations whose cash flows are in an
amount sufficient (i) to make the payments required under subsections (b) or
(c), as the case may be, plus any costs and expenses incurred or to be incurred
in making such purchase and (ii) to make the additional monthly payments
necessary to cause the Defeasance Debt Service Coverage Ratio requirement in
Section 2.3(a)(iv)(G) to be satisfied; "U.S. Obligations" shall mean obligations
----------------
or securities not subject to prepayment, call or early redemption which are
direct obligations of, or obligations fully guaranteed as to timely payment by,
the United States of America or any agency or instrumentality of the United
States of America, the obligations of which are backed by the full faith and
credit of the United States of America; and "Defeasance Debt Service Coverage
--------------------------------
Ratio" shall mean, in respect of any fiscal period, the ratio of (i) Net
- -----
Operating Income for such period of the Properties remaining after a defeasance
pursuant to this Section 2.3 to (ii) the difference between (x) Debt Service
Expense for such period and (y) the payments to be received from or with respect
to U.S. Obligations then held as security for the Note for such period,
including, without limitation, U.S. Obligations purchased by the Borrower
pursuant to the third sentence of subsection (b) above.
(g) If the payment of accrued and unpaid interest and principal of the
Note and any other Debt has not been made in full by the Optional Prepayment
Date, payments from or with respect to U.S. Obligations then held by the Lender
and such payments received by the Lender thereafter shall be applied on the date
such payment is received (i) first, to payment of accrued and unpaid interest on
the Note and (ii) second, to prepayment of the Principal Payments in inverse
order of maturity.
(h) Notwithstanding the provisions of subsection (a) of this Section 2.3
setting forth the time period during which a Property may be defeased, the
Borrower may defease the Lien of the Security Documents to cause the release of
a Property for the purpose set forth in clause (e) of Section 4.1A prior to the
date set forth in such subsection (a) if it provides to the Lender an opinion in
form and substance, and from a firm, acceptable to the Lender in the exercise of
its sole discretion, that such release will not adversely affect the status of
the entity holding the Debt as a REMIC (assuming for such purpose that such
entity otherwise qualifies as a REMIC).
Section 2.4 Sale of all the Properties. Provided that no Event of
--------------------------
Default has occurred and is continuing, upon at least 60 days' notice to the
Lender, the Borrower has the right to sell all the Properties, subject to the
Debt, to any Person so long as (a) such Person is approved by the Lender, and,
after the Securitization, by NACC, such approval not to be unreasonably
withheld, and (b) the Rating Agencies deliver a Rating Comfort
23
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Letter. It is understood that the Rating Agencies may require, as a condition
to such delivery, matters equivalent to those contained in clauses (i) and (ii)
of Section 2.5. Upon such approval and delivery, the Lender shall deliver to
the Borrower for execution and delivery such instruments as may be reasonably
required to effect an assignment and assumption of the Debt and a release of the
obligations of the Borrower under the Transaction Documents, including, without
limitation, a new Note as to which the purchaser of the Properties shall be the
obligor, in a principal amount equal to the then outstanding principal amount of
the Note.
Section 2.5 Change of Control. There shall be no Change of Control;
-----------------
provided, however, that if no Event of Default has occurred and is continuing
- -------- -------
there can be a Change of Control if (i) the Borrower submits to the Lender an
opinion in form and substance and from a firm satisfactory to the Lender, with
respect to the requested Change of Control, to the same effect as the
Substantive Consolidation Opinion, (ii) the organizational documents of the
Person involved in the requested Change of Control are approved by the Lender
and (iii) after the Securitization, the Rating Agencies deliver a Rating Comfort
Letter.
Section 2.6 Partial Release after the Optional Prepayment Date. On the
--------------------------------------------------
Optional Prepayment date and each Debt Service Payment Date thereafter, upon the
sale of any Property to any Person, the Borrower may cause the release of such
Property from the Lien of the Security Documents upon the satisfaction of the
following conditions:
(a) not less than 30 days' notice to the Lender specifying a Debt Service
Payment Date on which the amount set forth in clause (c) below is to be provided
to the Servicer, which notice shall be accompanied by an Officer's Certificate
to the effect that no Potential Event of Default or Event of Default has
occurred and is continuing (or, in the case of a Potential Event of Default or
Event of Default that shall be cured or avoided by the release of the affected
Property, describing the nature of such Potential Event of Default or Event of
Default, and certifying that such Potential Event of Default or Event of Default
shall be cured by such release) and that such Release will comply with all
applicable requirements of this Section 2.6;
(b) the payment to the Lender of interest accrued and unpaid on the
principal balance of the Note and all other sums due under the Transaction
Documents, through and including such Debt Service Payment Date;
(c) the payment to the Lender, to be applied to prepayment of the
Principal Payments in inverse order of maturity, of an amount equal to 125% of
the Release Price of such Property; provided, however, that if a Property is
-------- -------
released pursuant to this Section
24
<PAGE>
2.6 as a result of a condemnation or casualty (and the Borrower in accordance
with the applicable Mortgage determines in good faith that such Property cannot
be restored to substantially the condition that existed prior to the
condemnation or casualty), such payment shall be an amount equal to the greater
of (a) and (b), in which (a) is the Release Price for such Property and (b) is
the lesser of (x) 125% of such Release Price and (y) the net Condemnation
Proceeds or net Insurance Proceeds received on account of such Property;
(d) delivery to the Lender for execution of forms of release of such
Property from the Lien of the Security Documents appropriate for the
jurisdiction in which such Property is located; and
(e) delivery to the Lender of evidence satisfactory to the Lender that the
ratio of (i) Net Operating Income for the thirteen full Accounting Periods
immediately succeeding the release date to (ii) the difference between (y) the
Debt Service Expense for such Accounting Periods and (z) the payments to be
received for such Accounting Periods from or with respect to U.S. Obligations
then held as security for the Note will be maintained at the greater of (x) the
Initial Debt Service Coverage Ratio and (y) the ratio of (i) the Net Operating
Income for the thirteen full Accounting Periods next preceding the release date
to (ii) the difference between (y) the Debt Service Expense for such Accounting
Periods and (z) the payments received for such Accounting Periods from or with
respect to U.S. Obligations then held as security for the Note.
ARTICLE III
PAYMENTS
Section 3.1 Payments on the Note. All payments made on the Note shall
--------------------
be made in the manner, and subject to the conditions, provided in this Agreement
and the Note. The Note shall not be prepayable except as expressly provided for
in this Section 3.1, Section 2.3 hereof, Section 2.6 hereof and Sections 4.4 and
7.10 of the Cash Management Procedures. In addition, on the Optional Prepayment
Date and each Debt Service Payment Date thereafter, the Note may be prepaid, at
the option of the Borrower, in full or in part, without penalty or premium.
Section 3.2 Interest.
--------
(a) Except as set forth in Sections 3.4(b) and 3.4(d), the Debt shall
bear interest for each Debt Service Period at the Base Rate.
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<PAGE>
(b) Calculations of interest shall be made on the basis of a 360-day
year and actual days elapsed during each Debt Service Period.
Section 3.3 Payments without Deduction, etc. All payments of the Debt
--------------------------------
to the Lender shall be absolute and unconditional, shall be paid strictly in
accordance with the terms of the Transaction Documents without being subject to
any claim, set-off, defense or other right which the Borrower may have against
the Lender or any other Person, whether in connection with this Agreement, the
transactions contemplated herein or any other circumstance or happening
whatsoever. The Borrower shall pay such payments to the Lender free and clear
of, and without deduction for, any and all present or future taxes, levies,
imposts, deductions, charges, penalties or withholdings, and any liabilities
with respect thereto, by whomever imposed, other than present or future taxes on
the income of the Lender or franchise taxes imposed on the Lender as a result of
its conducting business in specific jurisdictions. The Borrower shall pay and
indemnify and hold the Lender harmless from and against, any present or future
claim for liability for United States, state or local taxes or assessments on
the ownership by the Lender of the debt obligations of the Borrower evidenced by
the Note, the Mortgages or on the principal, interest, fees or other amounts
payable under any Transaction Document or otherwise in respect of the Debt
(other than income or franchise taxes imposed on the Lender or its Affiliates by
any jurisdiction). The obligations of the Borrower hereunder shall survive
repayment of the Debt and termination of the Transaction Documents.
Section 3.4 Periodic Payments.
-----------------
(a) On February 11, 1997, the Borrower shall pay to the Lender (i)
interest on the Note at the Base Rate for the period beginning on January 13,
1997 and ending on February 10, 1997, in an amount equal to $1,119,206.67, and
(ii) a principal payment in an amount equal to $228,535.11.
(b) On each Debt Service Payment Date occurring after February 11,
1997, the Borrower shall pay $1,424,928.44 to the Lender. Such amount shall be
applied (i) first, to the payment of the Base Rate Interest on the Note then due
and payable for the applicable Debt Service Period, and (ii) next, to the
Principal Payment. Following the Maturity Date and while an Event of Default
has occurred and is continuing, the Monthly Debt Service Payment shall be
increased to reflect payment of interest at the Default Rate; provided, however,
that for the purposes of this sentence, an Event of Default shall be considered
to have occurred and be continuing until such Event of Default has been cured,
including, without limitation, pursuant to the provisions of Section 4.1B.
26
<PAGE>
(c) If any Principal Payment or a portion thereof is prepaid on any
Debt Service Payment Date by the application by the Servicer of payments
received (i) from or with respect to U.S. Obligations held by the Servicer on
the Optional Prepayment Date as a result of a release of any Property from the
Lien of the Security Documents pursuant to Section 2.3, (ii) from the release of
a Property from the Lien of the Security Documents pursuant to Section 2.6, or
(iii) on and after the Optional Prepayment Date, pursuant to the last sentence
of Section 3.1 hereof, the Monthly Debt Service Payment payable on each Debt
Service Payment Date thereafter shall be reduced in an amount equal to the
percentage reduction in the principal amount payable under the Note effected by
such prepayment.
(d) Subsequent to the Optional Prepayment Date and in accordance with
the Cash Management Procedures, the Borrower shall pay to the Lender on each
Debt Service Payment Date (without duplication) any Excess Cash Flow for all
Accounting Periods for which the Operating Profit Payment Date occurred during
the Debt Service Period immediately preceding such Debt Service Payment Date,
which payments shall be applied (A) first, to prepayment of each Principal
Payment required to be made on each Debt Service Payment Date, in inverse order
of maturity until the principal of the Note has been paid in full, and (B) next,
to payment of the difference, if any, between (y) the sum of (i) interest
accrued and unpaid on the Note calculated at the Adjusted Rate and (ii) interest
on such accrued and unpaid amount at the Adjusted Rate and (z) the Base Rate
Interest paid on each Debt Service Payment Date.
ARTICLE IV
DEFAULT; REMEDIES; ENFORCEMENT
Section 4.1A Events of Default. Any of the following shall constitute a
-----------------
default under this Agreement (an "Event of Default"):
----------------
(a) failure by the Borrower to pay on the due date any interest or
principal due and payable on the Note as set forth therein; or
(b) failure by the Borrower to make any other payment due under any
Transaction Document within ten (10) days after demand therefor shall have been
made; or
(c) any representation or warranty of the Borrower contained in any
Transaction Document (other than the representations and warranties contained in
Sections 5.1(l) and 5.1(t) shall have been untrue or incorrect when made in any
respect that may have a Material Adverse Effect or a representation or warranty
contained in Sections 5.1(l) and 5.1(t) shall have been untrue or incorrect when
made; provided, however, that for the purpose of this clause (c) the words "To
-------- -------
the Best Knowledge of the Borrower" shall be
27
<PAGE>
deleted, where used, from the provisions of each representation and warranty
contained in Section 5.1 (other than Sections 5.1(e), 5.1(f), 5.1(aa) and
5.1(an); or
(d) failure by the Borrower to perform its covenants in Section 5.2(d),
and such failure continues unremedied for ten days after notice thereof by the
Lender to the Borrower requiring the same to be remedied; or
(e) failure by the Borrower to perform or observe (i) any other of its
covenants under any Transaction Document (other than the covenants contained in
Sections 5.2(g)(i) and (ii), 5.3(f), 5.3(j), 5.3(l) and 5.3(n)) that has a
Material Adverse Effect, or (ii) its covenants contained in Sections 5.2(g)(i)
and (ii), 5.3(f) 5.3(j), 5.3(l) and 5.3(n), and in each case such failure
continues unremedied for 30 days after notice thereof by the Lender to the
Borrower requiring the same to be remedied or such shorter period as shall be
provided in such Transaction Document; provided, however, that it shall not be
-------- -------
an Event of Default if (a) such failure is curable but is not reasonably capable
of being cured within such 30-day or shorter period and the Borrower shall have
commenced to cure such failure within such 30-day or shorter period and
thereafter shall diligently pursue such cure to completion, but in no event
later than 180 days after the date on which the Borrower received such notice
from the Lender or (b) such failure affects one or more but not all of the
Properties and the Borrower, within thirty (30) days after its receipt of such
notice from the Lender, gives notice to the Lender of its intent to release such
Property(ies) from the Lien of the Security Documents pursuant to the provisions
of Section 2.3 or 2.6 and, thereafter diligently pursues efforts to take such
action and, within 180 days after the date on which it received such notice from
the Lender, effects such release pursuant to the provisions of Section 2.3 or
2.6, as the case may be; or
(f) an order (that has not been vacated or stayed within 60 days from the
entry thereof) is made for, or the Partners take any action with regard to, the
winding up of the Borrower or the General Partner except a winding up for the
purpose of a merger, restructuring or contribution, the terms of which have
previously been consented to by the Lender; or
(g) (A) the Borrower or the General Partner shall commence any Action (1)
under any existing or future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, reorganization or relief of debtors
(collectively, "Insolvency Law") 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 (2)
seeking appointment of a receiver, trustee, custodian or other similar official
(each a "Bankruptcy Custodian") for it or for all or substantially all of its
--------------------
assets,
28
<PAGE>
or the Borrower or the General Partner shall make a general assignment for the
benefit of its creditors; or (B) there shall be commenced against the Borrower
or the General Partner any Action of a nature referred to in clause (A) above
which (1) results in the entry of any order for relief or any such adjudication
or appointment and (2) remains undismissed, undischarged or unbonded for a
period of 60 days; or (C) there shall be commenced against the Borrower or the
General Partner any Action 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 Borrower or the General Partner shall
generally not, or shall be unable to, or shall admit in writing its inability
to, pay its debts as they become due; or
(h) Unless (a) the Borrower causes all of the Properties to come under
management by another nationally recognized hotel operator acceptable to the
Lender, in the exercise of its reasonable discretion, (b) such Properties are
operated as part of a comparable nationally recognized hotel system acceptable
to the Lender and (c) each of the Rating Agencies delivers to the Lender a
Rating Comfort Letter with respect thereto: (A) the Manager shall commence any
Action (1) under any Insolvency Law 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 (2)
seeking appointment of a Bankruptcy Custodian for it or for all or substantially
all of its assets, or the Manager shall make a general assignment for the
benefit of its creditors; or (B) there shall be commenced against the Manager
any Action of a nature referred to in clause (A) above which (1) results in the
entry of any order for relief or any such adjudication or appointment and (2)
remains undismissed, undischarged or unbonded for a period of 60 days; or (C)
there shall be commenced against the Manager any Action 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; or
(i) one or more judgments or decrees, not covered by insurance, in an
aggregate amount exceeding $2,000,000 in the case of the Borrower and $1,000,000
in the case of the General Partner shall be entered against the Borrower or the
General Partner, and such judgments or decrees shall not have been vacated,
discharged, stayed, satisfied or bonded pending appeal within 60 days from the
entry thereof; or
29
<PAGE>
(j) there is a Change of Control, unless permitted under Section 2.5; or
(k) any statement, representation or warranty set forth in the Officer's
Certificate (as such term is defined in the opinion (the "Opinion") of Hogan &
Hartson L.L.P., dated this date, with respect to issues of "substantive
consolidation" under the Bankruptcy Code) shall have been untrue, incorrect or
misleading in any material respect on the date hereof, or if the General Partner
breaches in any material respect the agreement attached hereto as Exhibit K, and
---------
the Borrower fails (a) to cause the entity responsible for such untrue,
incorrect, or misleading statement, representation or warranty (the "Offending
Party"); the Offending Party may be the Borrower or the General Partner) to take
such action as may be required within 30-days after notice (each a "Notice") of
the untruth, inaccuracy or misleading nature thereof by the Lender to the
Borrower to "cure" such failure such that such statement, representation or
warranty would not have been untrue, incorrect or misleading in any material
respect if such "cure" had been in effect on the date hereof or (b) to cause
such breach to be cured within 30 days after Notice; provided, however, that it
shall not be an "Event of Default" if such "cure" is not reasonably capable of
being implemented within such 30-day period and the Offending Party shall have
commenced such "cure" within such 30-day period and thereafter shall diligently
pursue such cure to completion, but in no event later than 180 days after the
date on which the Borrower received Notice.
Section 4.1B Event of Default Cure. None of the foregoing shall
---------------------
constitute an Event of Default if after the occurrence thereof, the Borrower
tenders a cure for such Event of Default or a plan to cure such Event of Default
and the Lender accepts such tender, such acceptance to contain such conditions
as the Lender, in the exercise of its sole discretion, may require. If the
Borrower tenders to the Lender all sums, the non-payment of which constituted an
Event of Default under clauses (a) or (b) of Section 4.1A, and the Lender
accepts such sums, such non-payment shall not constitute an Event of Default.
If the Lender does not accept any such payment or tender, the Event of Default
shall be continuing. The Lender shall be deemed to have accepted a tender of
cash if the Lender does not return such cash to the Borrower within 10 Business
Days of its receipt thereof. Except as contemplated by the preceding sentence,
if the Lender fails to respond to the Borrower within 30 days of its receipt of
such tender, it shall be deemed to be rejected.
Section 4.2 Remedies. If an Event of Default shall have occurred and be
--------
continuing, the Lender shall have the right, in its sole discretion, by notice
to the Borrower (with a copy to the Manager) (except upon the occurrence of an
Event of Default under clauses (f) or (g) of Section 4.1A, in which case all
principal and accrued interest thereon will be immediately due and payable on
the
30
<PAGE>
Note without any declaration or other act on the part of the Lender) to take one
or more of the following actions:
(a) To declare the principal of and all amounts accrued but unpaid under
the Note and the Transaction Documents, together with the Yield Maintenance
Premium, if the Event of Default occurs and is continuing prior to the Optional
Prepayment Date, 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
this Section 4.2, all of which are hereby expressly waived by Borrower;
(b) Pursue such rights and remedies against the Borrower, or otherwise, as
are provided under and pursuant to the Mortgages or any of the other Transaction
Documents and as may be available to the Lender at law or in equity, including,
without limitation, during such time as the Lender may be considering a tender
of a cure or a plan pursuant to Section 4.1B; provided, however, that the Lender
-------- -------
shall not initiate foreclosure proceedings unless five (5) Business Days' prior
notice of such intention is given to Borrower and the tender of a cure or a plan
therefor shall not have been accepted by the Lender pursuant to the provisions
of Section 4.1B before the end of such 5 Business Day period; and
(c) If the Event of Default involves the Borrower's failure to pay any
Imposition or to comply with the Insurance Requirements, or to perform or
observe any other covenant, condition or term in any Transaction Document or in
the Management Agreement, the Lender may, at its option, without waiving or
affecting any of its rights or remedies hereunder, pay,perform or observe the
same, and, in connection therewith, the Lender shall be entitled to rely on any
representations and statements of the Manager under the Management Agreement in
regard to alleged breaches or violations thereof, and all payments made or costs
or expenses incurred by the Lender in connection therewith shall be repaid by
Borrower to the Lender within fifteen (15) days after demand therefor, and shall
be added to and become a part of the Debt. The Lender is hereby empowered to
enter and to authorize others to enter upon any Property for the purpose of
performing or observing any such defaulted covenant, condition or term, without
thereby becoming liable to Borrower or any Person in possession holding under
Borrower.
Section 4.3 Remedies Cumulative; Delay or Omission Not a Waiver. To the
---------------------------------------------------
extent permitted by law, every remedy given hereunder or in any other
Transaction Document to the Lender shall not be exclusive of any other remedy or
remedies, and every such remedy shall be cumulative and in addition to every
remedy provided by statute, law, equity or otherwise. The Lender may exercise
all or any of the powers, rights or remedies given to it hereunder or which may
be now or hereafter given by statute, law, equity or otherwise, in its absolute
discretion. No course of dealing
31
<PAGE>
between the Borrower and the Lender or any delay or omission of the Lender to
exercise any power, right or remedy accruing upon any Event of Default shall
impair any power, right or remedy or shall be construed to be a waiver of any
such Event of Default or acquiescence therein, and every power, right and remedy
given by each Transaction Document to the Lender may, to the extent permitted by
law, be exercised from time to time and as often as may be deemed expedient by
the Lender.
ARTICLE V
REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 5.1 Representations and Warranties of the Borrower.
----------------------------------------------
The Borrower represents and warrants to, and covenants with the Lender,
that, as of the Closing Date, except as set forth on the Disclosure Report:
(a) Exhibit G hereto sets forth the organizational structure of the
---------
Borrower, and the equity interests and holders therein. The Borrower is a
limited partnership validly existing and in good standing under the laws of the
State of Delaware and is qualified to do business in each jurisdiction where the
nature of its business or location of the Properties requires it to be so
qualified. The General Partner is a corporation validly existing and in good
standing under the laws of the State of Delaware and is qualified to do business
in each jurisdiction where the nature of its business or location of the
Properties requires it to be so qualified. Neither the General Partner nor the
Borrower has engaged in any business unrelated to the ownership of the
Properties. Neither the General Partner nor the Borrower has assets other than
those related to the Properties;
(b) The Borrower has, and at relevant times has had, the requisite power
and authority to own its assets and conduct its business, to execute and deliver
each of the Transaction Documents and all Operational Agreements to which the
Borrower is a party and to carry out the transactions contemplated thereby;
(c) The execution, delivery and performance by the Borrower of (i) each of
the Transaction Documents and (ii) the Operational Agreements to which the
Borrower is a party have been duly and validly authorized by all necessary
actions and proceedings on the part of the General Partner and the Borrower, and
no further approvals or filings of any kind, including, without limitation, any
approval of or filing with any Governmental Authority, are required as a
condition thereof;
(d) Neither the execution and delivery of each of the Transaction Documents
and the Operational Agreements, nor the fulfillment of or compliance with the
terms and conditions thereof:
32
<PAGE>
(i) will conflict with or result in any breach or violation of any
law, rule or regulation issued by any Governmental Authority, or
any judgment or order applicable to the Borrower or the General
Partner, or to which the Borrower or the General Partner or any
of the Properties are subject;
(ii) will conflict with or result in any breach or violation of, or
constitute a default under, any of the provisions of the Amended
and Restated Agreement of Limited Partnership of the Borrower,
the Restated Certificate of Incorporation of the General Partner,
or any agreement or instrument to which the Borrower or the
General Partner is a party or to which the Borrower or the
General Partner or any of the Properties is subject; or
(iii) will result in or require the creation of any Lien on any of the
Properties except Permitted Exceptions and Liens in favor of the
Lender;
(e) Each of (i) the Transaction Documents and (ii) the Operational
Agreements to which the Borrower is a party, and, to the Best Knowledge of the
Borrower, each of the Operational Agreements, if any, to which the Borrower is
not a party, has been duly executed and delivered by the Borrower and to the
Best Knowledge of the Borrower, the other parties thereto and constitutes the
legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms subject to the effects of bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and general equitable principles (whether
considered in a proceeding in equity or at law) To the Borrower's Best
Knowledge, each of the Operational Agreements to which it is not a party has
been duly executed and delivered by the parties thereto;
(f) There is no Action pending to which the Borrower or the General Partner
is a party or to which any Property is subject, directly or indirectly, and, to
the Best Knowledge of the Borrower and, based on a certification to the Borrower
by the Manager, of the Manager, no such Action is threatened or contemplated by
any Person, in each case, other than an Action that does not involve an amount
in controversy in excess of $25,000;
(g) The Borrower has not received notice of, and does not have any
knowledge of, any violations of any Legal Requirements affecting any Property or
the construction, development, use, operation, maintenance or management
thereof, except as set forth in the Exhibits and Schedules to this Agreement;
(h) Neither the Borrower nor the General Partner has any subsidiaries;
33
<PAGE>
(i) Except for the Debt, since its inception, the Borrower has not incurred
Indebtedness other than Purchase Money Security Interests and the debt to the
Sumitomo Trust Bank Co., Ltd., New York Branch, described in the Disclosure
Report, which has been paid in full;
(j) The Borrower does not have any employees;
(k) A true and complete copy of each Ground Lease (including all
amendments, agreements, side letters and documents relating thereto) has been
delivered to the Lender. Each Ground Lease is unmodified and in full force and
effect and there is no material default by the Borrower thereunder nor, to the
Borrower's Best Knowledge, by the lessor thereunder, and, to the Borrower's Best
Knowledge, no event has occurred and is continuing which, with the passage of
time and/or the giving of notice, would constitute a default or event of default
under any Ground Lease;
(l) True and complete copies of the Operational Agreements (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 an Individual Material Adverse
Effect) have been made available to the Lender; each such agreement is
unmodified and in full force and effect; to the Best Knowledge of the Borrower,
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 event of default by the Borrower thereunder in such
circumstances that such default or event of default might have an Individual
Material Adverse Effect. All necessary consents to the transactions described
in the Transaction Documents required by such agreements have been obtained.
Since its inception, neither the Borrower nor the General Partner has entered
into any agreements or obligations other than the Transaction Documents, the
Operational Agreements and other agreements relating to the Properties entered
into in the ordinary course of business;
(m) All necessary governmental consents, if any, to the transactions
described in the Transaction Documents have been obtained;
(n) The Operating Budget annexed hereto as Exhibit H contains all
---------
anticipated operating expenses for the Properties for the year ending December
31, 1997. The Capital Budget annexed hereto as Exhibit I contains all
---------
anticipated Capital and FF&E Expenditures for the Properties for the year ending
December 31, 1997;
(o) All Permits material to the operations of each Property have been
obtained and are in full force and effect and are in the Borrower's name or
available for its use;
34
<PAGE>
(p) Each Property has available to it adequate parking to comply with all
Legal Requirements and to permit the operation of the Property as a hotel
conforming to at least the standards applicable to Fairfield Inn by Marriott
hotels and is in compliance with the Management Agreement;
(q) The Borrower is not subject to any United States or state income,
unincorporated business, capital, franchise or similar gross income or income
based taxes;
(r) (i) Neither the Borrower, nor any ERISA Affiliate of the Borrower,
maintains, sponsors, contributes to or is obligated to contribute
to, or during the five (5) years ending on the date of the
execution and delivery of this Agreement, has maintained,
sponsored, contributed to or was obligated to contribute to, any
Plan;
(ii) The Borrower does not, and is not obligated to, maintain,
sponsor or contribute to any Welfare Plan;
(iii) The assets of the Borrower are not nor are they deemed "plan
assets", whether by operation of law or under regulations
promulgated under ERISA;
(s) The Borrower (1) has not entered into any Transaction Document with the
actual intent to hinder, delay, or defraud any creditor and (2) has received
reasonably equivalent value in exchange for its obligations under the
Transaction Documents. The fair saleable value of the Borrower's assets is and
immediately after the execution and delivery of the Transaction Documents will
be greater than the Borrower's probable liabilities, including the maximum
amount of its contingent liabilities or its debts as such debts become absolute
and matured. The Borrower's assets do not and immediately after the execution
and delivery of the Transaction Documents will not constitute unreasonably small
capital to carry out its business as conducted or as proposed to be conducted.
The Borrower does not intend to, and does not believe that it will, incur debts
and liabilities (including, without limitation, 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 obligations of
the Borrower);
(t) The Borrower has not sustained any loss or interference with its
business from fire, explosion, flood or other calamity, or from any labor
dispute or governmental action, order or decree, nor has there been any material
adverse change, nor any other development or event that, in each case, may have
an Individual Material Adverse Effect;
35
<PAGE>
(u) The Security Documents, when duly executed and delivered, and (to the
extent required or contemplated) filed or recorded, will create a valid and
enforceable first priority perfected security interest in the Borrower's right,
title and interest in and to the rights and properties described therein, as to
which perfection may be effected by such filing or recording, for the benefit of
the Lender, subject only to Permitted Exceptions;
(v) The Borrower is not (1) an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended, (2) 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, nor (3) subject to any other federal or state
law or regulation which purports to restrict or regulate its ability to borrow
money;
(w) There exists no Event of Default or Potential Event of Default;
(x) To the Best Knowledge of the Borrower, no representation or warranty by
the Borrower made in any Transaction Document, and no schedule, exhibit,
certificate, written statement, list, document or other material furnished or to
be furnished to the Lender pursuant to or in connection with any Transaction
Document or any of the transactions contemplated thereby contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading;
(y) There is no offset, defense, counterclaim or right to rescission with
respect to the Note or the other Transaction Documents;
(z) All taxes and governmental assessments currently due and owing in
respect of, and affecting, the Properties, have been paid, or an escrow of funds
in an amount sufficient to cover such assessments has been established with the
Servicer or title insurance company;
(aa) There is no Action pending, or, to the Best Knowledge of the Borrower,
for the total or partial condemnation of any Property, and except for ADA
Compliance Work, Deferred Maintenance Work and Environmental Remediation Work,
each Property is in good repair and free and clear of any damage that could
affect materially and adversely the value of such Property as security for the
Note or the use for which such Property is intended;
(ab) Insurance required to be maintained pursuant to the Mortgages is in
effect; and the Properties and the use and operation thereof constitute a legal
use under applicable zoning
36
<PAGE>
regulations and comply in all respects with all applicable Legal Requirements;
(ac) To the Best Knowledge of the Borrower, the amounts deposited in the
Capital Expenditure and FF&E Reserve Account for ADA Compliance Work, Deferred
Maintenance Work and Environmental Remediation Work are sufficient for their
intended purposes;
(ad) None of the Properties is listed in or, to the Best Knowledge of the
Borrower and, based on a certification to the Borrower by the Manager, of the
Manager, proposed for listing in the United States Environmental Protection
Agency's National Priorities List of sites or any other comparable list of sites
maintained by any state or local governmental agency;
(ae) None of the Properties is subject to any Lien or claim for Lien in
favor of any Governmental Authority or any other Person as a result of any
Hazardous Substance (as such term is defined in the Environmental Indemnity
Agreement) on, in or affecting the Property;
(af) None of the Properties is subject to any collective bargaining or
other union contracts;
(ag) Except as indicated in the last two sentences of this subsection, each
of the Borrower and the General Partner has (a) not sought or consented to any
dissolution, winding up, liquidation, consolidation, merger or sale of all or
substantially all of its assets, (b) not failed to correct any known
misunderstanding regarding its separate identity, (c) maintained its accounts,
books and records separate from those of any other Person (except that, for
accounting and reporting purposes, the Borrower or the General Partner may be
included in the consolidated financial statements of Host Marriott in accordance
with generally accepted accounting principles), (d) maintained its books,
records, resolutions and agreements as official records, (e) not commingled its
funds or other assets with those of any other Person (except as specifically
contemplated by the Cash Management Procedures) and has held its assets in its
own name, (f) conducted its business in its name (except that all the Properties
are operated under the name "Fairfield Inn by Marriott"), (g) maintained its
financial statements, accounting records and other corporate or partnership
documents separate from those of any other Person (except that, for accounting
and reporting purposes, the Borrower or the General Partner may be included in
the consolidated financial statements of Host Marriott in accordance with
generally accepted accounting principles), (h) observed all partnership and
corporate formalities, as the case may be, (i) not assumed or guaranteed or
become obligated for the debts of any other Person or held out its credit as
being available to satisfy the obligations of any other Person (other than as
permitted by the Transaction Documents), (j) not acquired obligations or
securities of its partners or shareholders, as the case may be (other than, with
respect to the
37
<PAGE>
General Partner, a note of its corporate parent, Host Marriott), (k)
participated in the fair and reasonable allocation of any overhead expenses and
other common expenses for facilities, goods or services provided to multiple
entities and used its own stationery, invoices and checks (except when acting in
a representative capacity), (l) not pledged any of its assets for the benefit of
any other Person other than the Lender (except for Purchase Money Security
Interests or as otherwise permitted by the Transaction Documents), (m) held and
identified itself as a separate and distinct entity under its own name and not
as a division or part of any other Person (i.e., an integral component of such
----
other Person, as distinguished from a separate entity) (except for inclusion of
the Borrower and the General Partner in consolidated financial statements of
Host Marriott), (n) not made any loans to any other Person, (o) not identified
its partners or shareholders, as the case may be, or any of its Affiliates as a
division or part of it (i.e., an integral component of such entity, as
----
distinguished from a separate entity), (p) not entered into or become a party to
any transaction with its partners or shareholders, as the case may be, or any of
its Affiliates except in the ordinary course of its business and on terms which
are fair and are no less favorable to it than would be obtained in a comparable
arms' length transaction with an unrelated third party, (q) not filed a
bankruptcy or insolvency petition or otherwise instituted insolvency proceedings
with respect to itself or to any other entity in which it has a direct or
indirect legal or beneficial ownership interest, (r) maintained adequate capital
in light of its contemplated business operations, (s) not engaged in any
business activity other than as stated in Section 2.03 of the Amended and
Restated Agreement of Limited Partnership of the Borrower and Article THIRD of
the Restated Certificate of Incorporation of the General Partner, as the case
may be, (t) maintained an arms' length relationship with partners, affiliates
and any other party furnishing services to it, (u) paid its own liabilities out
of its own funds and other assets, and (v) held its assets in its own name.
Separate financial statements for the General Partner have not previously been
produced on a regular basis, but the financial records of the General Partner
have been and will remain adequate to permit production of such separate
financial statements (including a balance sheet and statements of income and
cash flows) for past periods if it hereafter becomes necessary to produce such
financial statements, and separate financial statements for the General Partner
will hereafter be prepared on an annual basis and separate deposit accounts in
the name of the General Partner shall be established and maintained, consistent
with the covenants contained in Sections 5.1(ag) and 5.2(z) herein. Certain
transaction and overhead costs incurred by Host Marriott, the Borrower and the
General Partner heretofore have not been fully allocated among Host Marriott,
the Borrower and the General Partner but such costs hereafter will be allocated
in the manner described in clause (k) above.
38
<PAGE>
(ah) The Permitted Exceptions do not materially and adversely affect (1)
the ability of the Borrower to pay in full the principal and interest on the
Note in a timely manner or (2) the use of any Property for the use currently
being made thereof, the operation of any Property as currently being operated or
the value of any Property;
(ai) [Intentionally omitted]
(aj) To the Best Knowledge of the Borrower, the Borrower has no material
contingent liabilities;
(ak) The Borrower has no material financial obligation under any indenture,
mortgage, deed of trust, loan agreement or other agreement or instrument to
which the Borrower is a party or by which the Borrower or any Property is bound,
other than obligations incurred in the ordinary course of the operation of the
Properties and under the Transaction Documents;
(al) The Borrower has not borrowed or received debt financing that has not
been heretofore or contemporaneously herewith repaid in full, other than
Purchase Money Security Interests permitted by the provisions of this Loan
Agreement;
(am) To the Borrower's Best Knowledge, none of its principals, or the
General Partner, or officer authorized to execute and deliver an Officer's
Certificate, has ever been indicted and/or convicted of a felony under any
federal, state or foreign laws;
(an) There are no pending or, to the Best Knowledge of the Borrower,
proposed, special or other assessments for public improvements or otherwise
affecting any of the Properties, nor, to the Best Knowledge of the Borrower and,
based on a certification to the Borrower by the Manager, to the Best Knowledge
of the Manager, are there any contemplated improvements to any of the Properties
or that may result in such special or other assessment;
(ao) All of the rooms at each of the Inns are in service, except for rooms
that are temporarily out of service for routine maintenance and repair;
(ap) The Borrower has or anticipates that it will have sufficient funds
available to it for implementing the reasonably anticipated Capital and FF&E
Expenditures.
Section 5.2 Affirmative Covenants. So long as any of the Debt remains
---------------------
outstanding as an obligation of the Borrower, the Borrower shall:
(a) do all things necessary to keep in full force and effect its valid
existence as a limited partnership and to qualify to do business in each
jurisdiction in which such qualification is
39
<PAGE>
necessary to the conduct of its business or to protect the validity and
enforceability of the Transaction Documents;
(b) do all things necessary to enable it to comply with all applicable
legal, fiscal and accounting rules and regulations;
(c) keep proper books of account and records in which full, true and
correct entries in accordance with GAAP shall be made of all transactions in
relation to its business and activities; allow the Lender access to such books
of account and records at all reasonable times during normal business hours upon
reasonable notice; and permit the Lender to discuss the affairs, finances and
accounts of the Borrower with any of the management employees of the General
Partner or the Manager;
(d) furnish to the Lender:
(i) not later than 120 days after the end of each Fiscal Year,
audited financial statements (including balance sheet, income
statement and statement of cash flows of the Borrower),
prepared in accordance with GAAP consistently applied, audited
by a "Big Six" accounting firm;
(ii) not later than 27 days after the end of each Accounting Period
(i) unaudited financial statements substantially in the form of
Exhibit J(1) attached hereto, covering such Accounting Period
------------
and the annual amount for the period to date showing in detail,
for each Inn separately, sales, house profit, average room and
average occupancy rates, each of the foregoing with a
comparison to the prior year, and (ii) an unaudited profit and
loss statement and escrow analysis on a consolidated basis in
the form of Exhibit J(2) attached hereto;
------------
(iii) not later than 60 days after the end of each Accounting
Quarter, quarterly and year-to-date unaudited financial
statements (including, without limitation, the Borrower's
balance sheets, income statements, statements of cash flows and
such other quarterly financial information as is provided to
the limited partners of the Borrower);
(iv) such other reports and other documents as shall be replacements
of the foregoing, which reports and other documents shall not
contain less detail than that provided for in clauses (i), (ii)
and (iii) above;
(v) together with the financial statements provided for in clauses
(ii) and (iii) above, an Officer's
40
<PAGE>
Certificate of a senior executive of the General Partner
stating that such financial statements fairly present the
financial position and results of operations of the Borrower
and stating whether or not the signer thereof knows of any
Event of Default;
(vi) on or before February 15 of each year commencing on February
15, 1997, an annual plan (the "Annual Plan") for such year for
-----------
each Property which Annual Plan shall include a detailed
operating budget (an "Operating Budget") and a detailed capital
----------------
expenditure budget (a "Capital Budget"), reflecting the
--------------
Manager's best good faith estimate of the anticipated results
of operations of the Properties, including revenues from all
sources, house profit, average room rate and average occupancy
and Capital and FF&E Expenditures. The Annual Plan shall also
contain a Consolidated Operating Budget for the Borrower with
provisions for deposit into the Capital Expenditure and FF&E
Reserve Account of an aggregate amount equal to at least 7% of
projected Gross Revenues for each year;
(vii) copies of all rent letters, rent letter detail, Format 90s and
other monthly reports prepared by the manager relating to the
Properties promptly upon receipt thereof; and
(viii) such other information and reports as shall be reasonably
requested by the Lender or the Rating Agencies;
(e) (i) if the Borrower has the right under the Management Agreement to
approve any aspect of each Annual Operating Projection or the
Repairs and Equipment Estimate (as such terms are defined in
the Management Agreement) or any other budget, submit each of
the foregoing to the Lender for its approval;
(ii) submit to the Lender for its approval the Building Estimate
(as such term is defined in the Management Agreement); and
(iii) the Lender's review and approval of each of the foregoing
shall not be unreasonably withheld or delayed;
(f) take all reasonable actions necessary so that the Borrower is not
required to register as an investment company under the Investment Company Act
of 1940, as amended;
41
<PAGE>
(g) promptly inform the Lender in writing of the following:
(i) the Borrower becoming aware of the commencement of any rule
making or disciplinary proceeding or the promulgation of any
proposed or final rule affecting the Borrower or any Property
(other than a rule or proceeding which has general
applicability to Persons including the Borrower and is not
likely to have a Material Adverse Effect);
(ii) the Borrower becoming aware of the commencement of any Action
by or against the Borrower or with respect to any Property
before any Governmental Authority or arbitration board, or the
written threat of any such Action, in each case which would
have an Individual Material Adverse Effect;
(iii) the receipt of written notice from any Governmental Authority
that (1) the Borrower is being placed under regulatory
supervision, (2) any Permit material to the conduct of the
Borrower's business is to be suspended or revoked or (3) the
Borrower is to cease and desist any practice, procedure or
policy employed by the Borrower in the conduct of its business;
(iv) the receipt of written notice from the Manager that the
Borrower has not complied with any of its obligations under the
Management Agreement or altering in any material respect the
rules, standards and requirements of the Manager thereunder;
and
(v) the Borrower becoming aware of any facts or circumstances which
with the giving of notice or the lapse of time or both would
give rise to a default under any Ground Lease and all written
notices from any ground lessor with respect to a default,
potential default or event of default under any Ground Lease;
(h) generally pay its debts as they become due;
(i) do or cause to be done all things necessary to establish, perfect,
maintain and continue the perfection and first priority (subject to Permitted
Exceptions) of the security interest of the Lender in the Pledged Property and
pay the costs and expenses of all filings and recordings and all searches
necessary to establish and determine the validity and the priority of such
security interest;
(j) subject to Section 2.2, pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, all
42
<PAGE>
taxes, assessments and governmental charges levied or imposed upon the Borrower
or upon the income, profits or property of the Borrower (including the
Properties);
(k) subject to Section 2.2, pay or cause to be paid all operating expenses
and all other costs and expenses associated with the operation and maintenance
of the Properties in accordance with the Annual Operating Projection, Repairs
and Equipment Estimate, and Building Estimate in accordance with the provisions
of the Management Agreement;
(l) complete all items of deferred maintenance work, ADA compliance work
and Capital and FF&E Expenditures as set forth in the Capital Budget for the
year ended December 31, 1997, attached hereto as Exhibit I, from funds deposited
in the Capital Expenditure and FF&E Reserve Account prior to March 31, 1998 and,
to the extent necessary for such completion, from Excess Cash Flow;
(m) pay over to the Servicer for application pursuant to the applicable
Mortgage, Insurance Proceeds and Condemnation Proceeds;
(n) complete as promptly as possible all Deferred Maintenance Work, ADA
Compliance Work and Environmental Remediation Work (under the supervision of a
licensed architect or engineer, if the item of Work requires the expenditure of
at least $50,000 or if such supervision is required by Legal Requirements), and
in a good and workmanlike manner, using materials comparable in quality to the
original installation and all items of Capital and FF&E Expenditures as set
forth in the Capital Budget for the year ending December 31, 1997 attached
hereto as Exhibit I and the then effective Building Estimate, or Repairs and
Equipment Estimate (as such terms are defined in the Management Agreement) under
the supervision of a licensed architect or engineer or comparable professional,
as appropriate, and in all events, complete all such work as required under the
Management Agreement and this Agreement and any additional work that shall be
necessary to maintain standards at least as high as those standards apply
generally to inns in the "Fairfield Inn by Marriott" system. Any work to be
completed in accordance with this provision shall be completed despite the
insufficiency, if any, of funds in the Capital Expenditure and FF&E Reserve
Account to complete such work;
(o) promptly on request, furnish to the Lender copies of all material
contracts, bills of sale, statements, receipted vouchers and agreements in its
possession or control under which the Borrower claims title to any materials,
fixtures or articles of personal property used in construction at or operation
of the Properties;
(p) cause the Manager to operate the Properties as hotels open for business
under the Management Agreement;
43
<PAGE>
(q) promptly on request, from time to time, deliver to the Lender a
statement setting forth all of the accounts maintained by the Borrower or the
Manager with respect to the Inns and the Properties, the purposes of such
accounts and the balances thereof;
(r) maintain or cause to be maintained each of the Transaction Documents
and Operational Agreements relating to each of the Properties to which it is a
party in full force and effect, and observe and perform or cause to be observed
or performed all of its obligations thereunder;
(s) [Intentionally omitted];
(t) comply with and cause each Property to be in compliance with all Legal
Requirements and all Insurance Requirements;
(u) give the Lender prompt notice upon the discovery, to the Best Knowledge
of the Borrower, of the occurrence of any Potential Event of Default or Event of
Default;
(v) give the Lender prompt notice of any event that would constitute a
Change of Control;
(w) ensure that the Manager pays all trade indebtedness within 60 days of
the date incurred except for such trade indebtedness that is subject to a bona
----
fide dispute;
- ----
(x) ensure that the General Partner shall have an Independent Director
acceptable to the Lender at all times, or if the Independent Director has
resigned, shall not take any action which may not be taken pursuant to the
organizational documents of the General Partner without the consent of the
Independent Director;
(y) provide to the Lender not less than (10) days prior to the execution
thereof, a true and complete copy of any proposed amendment to the Amended and
Restated Partnership Agreement of the Borrower (other than amendments of a
ministerial nature that will not have any adverse impact on the Lender, the
value of the Pledged Property, the validity or priority of the Lender's security
interest therein, or any of the Lender's rights or remedies under the
Transaction Documents);
(z) ensure that the representations and warranties contained in Section
5.1(a) and 5.1(ag) remain true and accurate at all times with respect to itself;
(aa) operate each of the Properties in accordance with the then effective
Annual Plan; provided, however, that the Borrower may make Emergency
Expenditures not reflected in the then effective Annual Plan if it gives the
Lender notice of any such Emergency Expenditures promptly after they are made;
and
44
<PAGE>
(ab) comply with the terms and provisions of each of the Ground Leases.
Section 5.3 Negative Covenants. So long as any portion of the Debt
------------------
shall remain outstanding as an obligation of the Borrower, except as expressly
permitted in this Agreement, the Borrower shall not, without the prior consent
of the Lender:
(a) purchase any real properties other than the Properties, have any assets
or liabilities other than assets or liabilities derived from or related to the
Properties, or engage in any business or undertake any activity other than as
permitted herein, including, without limitation, the operation, as a lessee or
otherwise, of any property other than the Properties;
(b) have any subsidiaries;
(c) amend, supplement or otherwise modify its Second Amended and Restated
Partnership Agreement (the "Partnership Agreement") in any way that would cause
a breach of the covenants in this Agreement;
(d) Grant any of the Pledged Property other than as permitted in the
Transaction Documents and pursuant to the Permitted Exceptions; provided,
--------
however, that the Borrower may sell or otherwise dispose of personalty or
- -------
fixtures from time to time constituting portions of any Property so long as such
personalty or fixtures are replaced by personalty or fixtures of equal or better
quality to those sold or otherwise disposed of and except for immaterial amounts
of personalty disposed of in the ordinary course of business and items that need
not be replaced to continue the then existing level of quality of operation;
(e) dissolve, liquidate, merge or consolidate with any Person (and the
Borrower agrees that upon any dissolution, liquidation, merger or consolidation
in breach of this clause (e), the Pledged Property shall continue to be held
under and otherwise subject to the Lien of the Security Documents until the Debt
is paid in full);
(f) permit the validity or effectiveness of any of the Transaction
Documents or, unless replaced with other necessary agreements that do not have
an Individual Material Adverse Effect, any of the Operational Agreements to be
impaired or permit the Lien of the Security Documents to be amended,
hypothecated, subordinated, terminated or discharged or permit any Liens to be
created on or extend to or otherwise arise upon or burden the Pledged Property
or any part thereof or any interest therein or the proceeds thereof (other than
any Permitted Exceptions);
(g) take any action if such action is likely to interfere with the
enforcement of any rights of the Lender under the agreements or instruments
relating to any of the Pledged Property;
45
<PAGE>
(h) incur any Indebtedness other than (a) the Note, (b) Subordinate Debt,
or (c) unsecured Indebtedness incurred (i) in connection with capitalized
equipment leases as expressly permitted by Section 8.02(C) of the Management
Agreement or (ii) to provide (a) working capital (such as for trade payables and
including loans for such purpose that may be made by the Manager and/or the
General Partner), in an aggregate amount, which when added to the outstanding
balance of previous indebtedness incurred and outstanding for such purpose,
shall not exceed the average amount of the Management Expenses for each
Accounting Period during the preceding full 13 Accounting Periods and (b) funds
(including loans for such purpose that may be made by the Manager and/or the
General Partner) to the Servicer where required to pay the Monthly Debt Service
Payment and other amounts permitted under the Cash Management Procedures;
provided, however, that in the case of indebtedness incurred pursuant to clause
- -------- -------
(ii) the payee of such indebtedness shall agree not to assert any remedies with
respect to the non-payment thereof so long as the Debt is outstanding or (d)
Indebtedness covered by Purchase Money Security Interests, in an aggregate
amount not to exceed $3,000,000, in the aggregate for all Properties and
$100,000 for each Property, in each case outstanding at any time; provided,
---------
however, that if any Property is released from the Lien of the Security
- -------
Documents pursuant to Section 2.3 or 2.6, such aggregate amount shall be reduced
by an amount equal to the percentage reduction in the aggregate Release Prices
effected by such release;
(i) enter into any Equipment Lease other than solely with the supplier of
the furnishings, fixtures or equipment subject to such lease or sell any such
furnishings, fixtures, or equipment to any third party under a "Sale Leaseback"
arrangement;
(j) terminate, amend or modify any Operational Agreements if the same would
have an Individual Material Adverse Effect;
(k) (a) maintain, sponsor, contribute to or become obligated to contribute
to, or suffer or permit any ERISA Affiliate of the Borrower to, maintain,
sponsor, contribute to or become obligated to contribute to, any Plan or any
Welfare Plan or (b) permit the assets of the Borrower to become "plan assets,"
whether by operation of law or under regulations promulgated under ERISA;
(l) engage in any transactions with its Affiliates except, on terms at
least as favorable to the Borrower as those obtainable from unrelated third
parties acting in their own best interests and without duress and which, taken
singly or in the aggregate, would not reasonably be expected to have an
Individual Material Adverse Effect;
(m) (A) cancel, release, terminate or surrender the Management Agreement or
permit any cancellation, release, termination or surrender thereof or (B) amend,
modify or alter the terms of the Management Agreement in any material respect;
46
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provided, however, that the 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 any Inn, (i) the Borrower causes such Inn to come under
management by a nationally recognized hotel operator acceptable to the Lender,
in the exercise of its reasonable discretion, (ii) such Inn continues to be part
of a comparable nationally recognized hotel system acceptable to the Lender, and
(iii) each of the Rating Agencies delivers to the Lender a Rating Comfort
Letter;
(n) Modify, amend or waive any terms or provisions of any of the Ground
Leases other than to cure any ambiguity or to effect any other ministerial
change therein; provided, however, that such action shall not adversely affect
the interests of the Lender;
(o) permit the ground lessor under any of the Ground Leases to make
payments on the Debt;
(p) permit the General Partner to amend its Restated Certificate of
Incorporation (other than amendments of a ministerial nature that will not have
an adverse impact on the Lender, the value of any of the Properties or its
obligations under this Agreement or the other Transaction Documents);
(q) make any distributions of cash to its partners, except as expressly
contemplated by the Cash Management Procedures, if in the reasonable judgment of
the General Partner such funds will be necessary for expenses to be borne by the
Borrower pursuant to Section 8.03 of the Management Agreement or for expenses
contemplated by Section 8.02 of the Management Agreement for which funds are not
available in the Capital Expenditure and FF&E Reserve Account;
(r) take any action in furtherance of, or stating its consent to, approval
of, or acquiescence in, any of the acts set forth above; or
(s) engage (either as transferor or transferee) in any material transaction
with any Affiliate other than for fair value and on terms similar to those
obtainable in arms' length transactions with unaffiliated Persons or engage in
any transaction with any Affiliate involving any intent to hinder, delay or
defraud any entity.
Section 5.3A General Partner Covenant. So long as any portion of the
------------------------
Debt shall remain outstanding, the General Partner shall not (a) incur any
Indebtedness except in its capacity as the general partner of the Borrower or
(b) withdraw as a general partner of the Borrower unless the remaining or
substitute general partner satisfies the single purpose entity criteria of the
Rating Agencies and the Rating Agencies have delivered a Rating Comfort Letter.
47
<PAGE>
Section 5.4 Further Assurances. The Borrower shall execute and deliver or
------------------
cause to be executed and delivered, all such additional instruments, and do, or
cause to be done, all such additional acts as (i) may be necessary or proper, to
carry out the purposes of this Agreement and to make subject to the Lien of the
Security Documents any property intended so to be subject, including, without
limitation, the delivery of such instruments and documents, including
confirmatory and corrective Mortgages, financing statements and continuation
statements under the Uniform Commercial Code of each applicable jurisdiction,
and the delivery of such updated mortgagee's title insurance policies or
endorsements (or commitments therefor) in favor of the Lender as may be
reasonably required to confirm and/or secure continued coverage under the title
policies issued to the Lender in respect of the Properties or the Mortgages,
including payment of all fees and title insurance premiums required to maintain
such continuity of title insurance coverage, (ii) may be necessary or proper to
transfer to any assignee of the Lender the estate, powers, instruments and funds
held in trust hereunder and to confirm the Security Documents (including,
without limitation, any documents necessary to sever and modify the Transaction
Documents in the event of an assignment of any of the Mortgages as provided in
Paragraph 53 of each of the Mortgages), or (iii) the Lender may reasonably
request in connection with the Loan; provided, however, that such instruments
-------- -------
shall contain express unconditional exculpations of the Partners and the
Borrower's officers, employees or agents and any of their successors or assigns
exculpating such Persons from any liability arising under or by reason of their
obligations, covenants, representations, warranties and agreements contained in
such instruments, subject to the exceptions set forth in the definition of Non-
Recourse. If, in connection with the Securitization, the Borrower is required
to furnish newly issued title policies with respect to the Properties, the
Lender shall bear the cost thereof.
Section 5.5 Representations, Warranties and Covenants of NACC. NACC
-------------------------------------------------
represents and warrants to, and agrees with the Borrower, that, as of the
Closing Date: (i) it has the power and authority to perform its obligations
under this Agreement and the other Transaction Documents, (ii) this Agreement
and the other Transaction Documents have been duly authorized, executed and
delivered by NACC, and constitute valid and legally binding instruments
enforceable against NACC in accordance with their respective terms, subject to
the effects of bankruptcy, insolvency, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally and general
equitable principles (whether considered in a proceeding in equity or at law),
and (iii) it has such knowledge, sophistication and experience in financial and
business matters as to be capable of evaluating the merits and risks of an
investment in the Note, is able to bear the economic risk of an investment in
the Note and is an "accredited investor" within the meaning of Section 2(15) of
the
48
<PAGE>
Securities Act and (iv) no part of the Loan shall be deemed "plan assets" within
the meaning of ERISA.
Section 5.6 Other.
-----
(a) Neither the Borrower nor any Person acting on behalf of the Borrower
has dealt with any broker or any other Person entitled to a fee or commission in
connection with the Loan and the Borrower agrees to indemnify and hold NACC and
its Affiliates harmless from and against any claims or commissions, finder's fee
and other payments, no matter how described, and against any and all costs and
expenses including, without limitation, attorneys' fees relating to any such
claim.
(b) The provisions of Section 14 of the SNDA are hereby incorporated by
reference.
ARTICLE VI
SECURITIZATION
Section 6.1 Securitization. The Borrower and the General Partner shall
--------------
use commercially reasonable best efforts to cooperate with NACC in its
activities in connection with the sale of the Loan as a whole loan or any
securitization of the Loan (the "Securitization"), including obtaining ratings
--------------
by the Rating Agencies. The Securitization will involve the issuance of rated
single- or multi-class securities secured by or evidencing ownership interests
in the Transaction Documents (the "Securities"). Such cooperation shall
----------
include, without limitation, the obligation to:
(a) maintain the ownership of the Properties in an entity that permits the
Borrower to comply with its obligations under clauses (x) and (z) of Section
5.2;
(b) to the extent permitted under its existing partnership agreement
without the consent of its limited partners, structure and maintain the
organizational, operational and financial affairs of the Borrower and the
General Partner, (collectively, the "Entities") to enable its counsel to render
--------
a reasoned opinion if requested by the Rating Agencies in form and substance
customary or required for rating the Securities (the "Substantive Consolidation
-------------------------
Opinion") that upon a petition for bankruptcy by or against Host Marriott (or
- -------
the General Partner) under the United States Bankruptcy Code, neither Host
Marriott as a debtor in possession nor its bankruptcy trustees nor creditors nor
any other party in interest would have sufficient basis to cause a court to
order the substantive consolidation of the assets and liabilities of the General
Partner or the Borrower in the case of a Host Marriott bankruptcy, or of the
Borrower, in the case of a General Partner
49
<PAGE>
bankruptcy, with those of the debtor in bankruptcy, which counsel and which
opinion shall be satisfactory to NACC and the Rating Agencies;
(c) provide such financial and other information with respect to each
Property, the Borrower, and, if such information is reasonably available to the
Borrower, the Manager, as may be requested by the Rating Agencies or as may be
reasonably requested by NACC, including, without limitation, audits or agreed-
upon procedures of operating cash flow and Net Operating Income on an individual
and aggregate Property basis, occupancy statistics, and average rents and
quarterly and annual financial statements for each Property (reviewed and in the
case of annual financial statements audited) by a firm of certified public
accountants acceptable to NACC and the Rating Agencies to the extent customarily
given in similar transactions;
(d) prepare and deliver such agreements and instruments relating to the
Note, the Securities, the Properties and the Entities, including (A) agreements
to indemnify the Rating Agencies, NACC and any servicer or trustee, to the
extent customarily given in commercial mortgage-backed securities transactions,
and (B) amendments of any of the Transaction Documents that are necessary to
effect the Securitization, in form and scope satisfactory to the Rating Agencies
and reasonably satisfactory to NACC;
(e) perform or permit to be performed such appraisals, surveys, site
inspections, market studies, current environmental reviews and reports (Phase
I's, including, without limitation, testing for asbestos, lead paint or radon
gas and Phase II's and other environmental investigations recommended by
environmental consultants), structural engineering reports (which shall include
an analysis of requirements for deferred maintenance and ongoing capital
expenditure and furniture, fixtures and equipment reserve requirements), reviews
of property, casualty, business interruption, earthquake, flood, liability and
title insurance and other due diligence items customarily requested by
nationally recognized underwriters in connection with the origination and
securitization of comparably sized commercial real estate loans or by the Rating
Agencies in connection with rating the Loan or the Securities; provided,
--------
however, NACC shall use its best efforts to limit the circumstances under which
- -------
the Borrower or the General Partner will be required to duplicate its efforts or
third party costs in complying with its obligations under this clause (e);
(f) provide business plans and budgets relating to the Properties as may be
requested by the Rating Agencies;
(g) cause counsel to render opinions (which may be reasoned opinions) with
respect to the Properties, the Entities, and the Transaction Documents as to
bankruptcy remoteness and other matters customary in securitization
transactions, which may be requested by
50
<PAGE>
the Rating Agencies in form and substance customary or required for Rating the
Securities which counsel and which opinion shall be satisfactory to the Rating
Agencies and reasonably satisfactory to NACC; provided, however, that if the
-------- -------
Rating Agencies request opinions subsequent to the Closing Date in connection
with the Securitization that are materially different from the opinions
delivered on the Closing Date, the Lender shall bear the fees and expenses
incurred by counsel in rendering such opinions;
(h) make such representations and warranties with respect to the
Properties, the Entities, and the Transaction Documents as are customary in
securitization transactions and as may be requested by the Rating Agencies and
reasonably requested by NACC and consistent with the facts covered by such
representations and warranties as they exist on the date thereof, including the
representations and warranties made in the Transaction Documents;
(i) cooperate with the Lender in providing to the Rating Agencies such
information as is customarily provided in connection with annual reviews
conducted in commercial mortgage backed securities transactions similar to the
Securitization;
(j) cooperate with NACC in the preparation, at NACC's cost, of a private
placement memorandum, prospectus, prospectus supplement or other disclosure
document to be used by NSI or any of its Affiliates to privately place or
publicly distribute the Loan as a whole loan or the Securities in a manner and
to the extent that the same satisfy the requirements of the Securities Act and
applicable state securities laws; and
(k) subject to the provisions of Section 5.6(B), permit NACC to provide to
the Rating Agencies, potential investors in the Securities and others as may be
required to effect the Securitization or the sale of the Loan as a whole loan,
the information provided to NACC by the Borrower and the Manager and their
respective Affiliates in connection with the transactions contemplated by this
Agreement.
Any and all due diligence materials (including without limitation
appraisals, engineering reports and environmental reports) shall be addressed to
and shall run to the benefit of NACC and its successors and assigns, the Rating
Agencies and the Borrower, and shall, upon delivery, become the property of
NACC, its successors and assigns and the Borrower.
51
<PAGE>
ARTICLE VII
PAYMENT OF FEES AND EXPENSES; INDEMNIFICATION
Section 7.1 Fees and Expenses.
-----------------
(a) The Borrower shall pay or reimburse NACC and after the Securitization,
NACC and the Lender (in each case, without duplication), on demand, without set-
off, withholding or deduction, for the payment of all of the reasonable fees,
costs and expenses incurred by NACC in connection with the underwriting,
negotiation, documentation and closing of the Loan, including, without limita
tion, the finder's fee due to NACC as provided for in that certain Commitment
Letter and Summary of Terms of Transaction, dated January 9, 1997, between the
Borrower and NACC, and the fees, costs and expenses of the following:
(i) title insurance, transfer taxes (if any), mortgage taxes and
recording fees;
(ii) counsel and local counsel to the Borrower;
(iii) counsel and local counsel to NACC, which shall be
reasonable;
(iv) due diligence activities of NACC including, without
limitation, auditors, lien searches, surveys, appraisals,
environmental reports, engineering reports, insurance reviews
and site inspections;
(v) bank charges relating to the operation of the Ground Rent
Reserve Account, Debt Service Reserve Account, Lockbox
Account, Capital Expenditure and FF&E Reserve Account, Tax
and Insurance Account, the Cash Collateral Account and
Operating Account;
(vi) initial and ongoing activity of any special servicer incurred
as a result of an Event of Default; and
(vii) the Rating Agencies (for the annual ratings reviews);
(b) The Lender shall pay the initial and regular ongoing fees of the
Servicer and the Trustee;
(c) The Borrower has provided $400,000 to NACC for deposit in an
interest bearing account(the "Expense Deposit") for the payment of the fees,
---------------
costs and expenses payable pursuant to Section 7.1(a) of this Agreement. If any
portion of the Expense Deposit remains after payment of such fees, costs and
expenses, NACC shall pay such portion to the Borrower within 30 days after the
closing of the Loan. The establishment of the Expense Deposit shall not limit
the
52
<PAGE>
Borrower's obligations to pay the fees, costs and expenses described in Section
7.1(a).
Section 7.2 Indemnification.
---------------
(a) The Borrower, for itself and all those claiming under or through the
Borrower, to the fullest extent permitted by law, hereby releases and shall
defend, hold harmless and indemnify NACC and after the Securitization, NACC and
the Lender, and its respective directors, officers, agents and employees,
(together, the "Indemnified Parties") from and against any and all liabilities,
-------------------
claims, charges, losses, expenses or damages of any kind or nature, including
reasonable attorneys' fees and disbursements, which may arise in connection with
(i) the performance or non-performance by the Borrower of any of the Transaction
Documents, or the operation of the Properties by the Borrower and (ii) any
breach or failure by the Borrower to comply with any representation, warranty or
covenant made by the Borrower herein or in any other document furnished by the
Borrower in connection with the transactions contemplated by the Transaction
Documents, except to the extent caused by the willful acts or omissions,the
gross negligence or bad faith of any Indemnified Party. It is understood that
if the Borrower performs its obligations set forth in the Transaction Documents
strictly in accordance with the terms and provisions thereof, the provisions of
clause (i) of the foregoing sentence in so far as they relate to the
"performance ... by the Borrower of any of the Transaction Documents," shall not
be applicable. The Borrower shall appear in and defend any Action that might in
any way in the good faith judgment of the Lender affect the value of the
Properties, the title to the Properties, the priority of the Mortgages or the
rights and powers of the Lender. Any sums due under this Section 7.2 shall be
payable by the Borrower within 10 days of demand therefor with evidence of the
amount due and, if not paid within such 10-day period, shall bear interest from
the date of demand to the date of payment at the Default Rate (as defined in the
Note). The Borrower shall pay the cost of suit, cost of evidence of title and
reasonable attorneys' fees and disbursements in any Action brought by the Lender
to foreclose any Mortgage, including trial and any appeal with respect to any
such Action;
(b) The Borrower hereby indemnifies and holds NACC and its controlling
persons and Affiliates, including, without limitation, Nomura Securities
International, Inc., harmless against all costs, expenses and damages incurred
by NACC and its controlling persons and Affiliates (including, without
limitation, all liabilities under all applicable federal and state securities
laws) as a direct result of any untrue statement of a material fact contained in
the offering documents used in connection with the Securitization based on
information provided by the Borrower or the Manager, which describes the
Borrower or the Manager, the Properties (and the management thereof) or any
aspect of the Loan or the parties
53
<PAGE>
directly involved therein, or as a result of any untrue statement of a material
fact in any of the financial statements of the Borrower or the Manager
incorporated into such offering documents or the failure to include in such
financial statements or in such offering documents any material fact relating to
the Borrower or the Manager, the Properties (and the management thereof) and any
aspect of the Loan necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading; provided,
---------
however, that the Borrower shall have had an opportunity to review, comment on
- -------
and approve the relevant portions of such offering documents. The Borrower
shall act reasonably and promptly in connection with its approval of the
relevant portions of the offering documents. The Borrower shall not indemnify
NACC for any cost, expense or damage incurred as a result of the inclusion of
any erroneous or misleading information in such offering documents, or the
omission of material information from the offering documents, provided that the
Borrower or its counsel shall have previously indicated to NACC or its counsel
the erroneous or misleading nature of such information or the omission of
material information, as the case may be. At the time of the use of such
offering documents, NACC shall execute and deliver to the Borrower an instrument
(in form and substance reasonably satisfactory to the Borrower) indemnifying and
holding each of the Borrower, the General Partner (and the officers and
directors thereof), and its agents and employees harmless against all costs,
expenses and damages (other than costs and expenses specifically agreed by the
Borrower to be borne by it) incurred by them (including, without limitation, all
liabilities under all applicable federal and state securities laws) caused by
and directly relating to the offering described in such Offering Documents;
provided, however, that such indemnification shall not apply if any such costs,
expenses or damages arise out of or are based upon an untrue statement of a
material fact or an omission to state a material fact in such offering documents
or in the Borrower's financial statements for which the Borrower is providing
indemnification as provided above;
(c) The obligations of the Borrower under this Section 7.2 shall survive
termination of this Agreement;
(d) The provisions of the sixth and seventh paragraphs of that certain
Commitment Letter, dated January 9, 1997 are incorporated herein by reference to
the extent such provisions impose indemnification obligations on the Borrower
and NACC that are more burdensome than those contained in this Section 7.2.
54
<PAGE>
ARTICLE VIII
IMMUNITY
Section 8.1 Partners, Employees and Agents of
the Borrower Immune from Liability
----------------------------------
Notwithstanding anything to the contrary herein, including, without
limitation, Article Seven, the obligations under each Transaction Document shall
be Non-Recourse.
ARTICLE IX
MISCELLANEOUS PROVISIONS
Section 9.1 Notices. All notices, requests, demands, consents, reports
-------
or other communications, including, without limitation, a tender of a cure
pursuant to Section 4.1B, to or upon the respective parties hereto shall be in
writing and be deemed to have been duly given or made when received, addressed
to the party to which such notice, request, demand, consent, report or other
communication is being given at its address set forth below, or at such other
address as any of the parties hereto may hereafter notify the others by notice
given hereunder:
If to NACC:
Nomura Asset Capital Corporation
2 World Financial Center, Building B
New York, New York 10281
Attention: Daniel S. Abrams, Director
Telecopier: (212) 667-1022
With a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Attention: Robert I. Fisher, Esq.
Telecopier: (212) 940-8776
and:
Nomura Asset Capital Corporation
2 World Financial Center, Building B
New York, New York 10281
Attention: Sheryl McAfee
Telecopier: (212) 667-1206
55
<PAGE>
If to the Borrower:
Fairfield Inn by Marriott Limited Partnership
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Law Department 923/Deputy General Counsel, Asset
Management
Telecopier: (301) 380-6332
With a copy to:
Fairfield Inn by Marriott Limited Partnership
c/o Host Marriott Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Asset Management Department 908
Telecopier: (301) 380-8260
Evidence of such receipt shall include personal delivery, electronic
confirmation (hard copy to be sent by regular mail) and the failure to accept a
communication sent by registered or certified U.S. mail, postage prepaid.
Section 9.2 Benefit of Agreement. This Agreement shall be binding upon,
--------------------
inure to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided, however, that the Borrower may not
assign or transfer any of its rights or obligations hereunder without the
consent of the Lender which may be withheld in the sole discretion of the
Lender. Except as expressly provided otherwise in the Agreement, any such
assignment or transfer shall not release the Borrower from any obligations or
liabilities hereunder. The Lender's interests under the Transaction Documents
shall be freely assignable and transferrable. No party other than the parties
hereto and their permitted assigns shall be deemed to have any benefits or
obligations under this Agreement.
Section 9.3 Governing Law. This Agreement and the rights and
-------------
obligations of the parties under the Transaction Documents (except for the
Mortgages and the assignments of leases, rents and profits, dated the Closing
Date, from the Borrower to the Lender which shall be governed by the
jurisdiction in which the Property covered thereby is located) shall be governed
by the internal laws of the State of New York.
Section 9.4 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument.
56
<PAGE>
Section 9.5 Index, Descriptive Headings. The Index to this Agreement
---------------------------
and the descriptive headings of the several Sections and Articles of this
Agreement are inserted for convenience only and shall not in any way affect the
meaning or construction of any provision of this Agreement. In the preparation
of the Transaction Documents indistinguishable contributions were made by
representatives of both NACC and the Borrower, and each of the Lender and the
Borrower waives any and all rights, either at law or in equity, to have the
provisions of any Transaction Document interpreted in favor of one over the
other based on a claim that representatives of one or the other were the
principal draftsmen thereof.
Section 9.6 Amendment or Waiver; Integration. No provision of this
--------------------------------
Agreement may be amended, changed, waived, discharged or terminated orally, but
only by an instrument in writing signed by the party against whom enforcement of
the amendment, change, waiver, discharge or termination is sought. This
Agreement and the other Transaction Documents set forth the entire agreement and
understanding of the parties with respect to the subject matter hereof and
thereof, and supersede any and all prior agreements and understandings of the
parties hereto with respect to the subject matter hereof and thereof including,
without limitation, that certain Commitment Letter, dated January 9, 1997 and is
between the Borrower and NACC, which prior agreements and understandings are
terminated in all respects.
Section 9.7 Survival of Representations and Warranties; Reliance. All
----------------------------------------------------
representations and warranties contained in this Agreement and the
indemnification provisions hereof shall survive the execution and delivery of
this Agreement and the making of the Loan and shall be considered to have been
relied upon by the Lender regardless of any investigation made by or on behalf
of it.
Section 9.8 Returned Payments. If after receipt of any payment of all
-----------------
or any part of the Debt, the Lender is for any reason compelled to surrender
such payment to any Person because such payment is determined to be void or
voidable as a preference, an impermissible set-off, a diversion of trust funds
or for any other reason, this Agreement shall continue in full force, and the
Borrower shall be liable to, and shall indemnify and hold the Lender harmless
for, the amount of such payment surrendered until the Lender shall have been
finally and irrevocably paid in full. The provisions of the foregoing sentence
shall be and remain effective notwithstanding any contrary action which may have
been taken by the Lender in reliance upon such payment, and any such contrary
action so taken shall be without prejudice to the Lender's rights under this
Agreement and shall be deemed to have been conditioned upon such payment having
become final and irrevocable.
57
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SECTION 9.9 JURISDICTION AND SERVICE; WAIVER OF JURY TRIAL. EACH OF THE
----------------------------------------------
GENERAL PARTNER AND THE BORROWER HEREBY (I) IRREVOCABLY CONSENTS AND SUBMITS
ITSELF AND ACKNOWLEDGES AND RECOGNIZES THE JURISDICTION OF THE COURTS OF THE
STATE OF NEW YORK LOCATED IN NEW YORK COUNTY AND THE UNITED STATES DISTRICT
COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR PURPOSES OF ANY ACTION ARISING
OUT OF, UNDER, OR IN CONNECTION WITH, RELATING TO, OR BASED UPON ANY TRANSACTION
DOCUMENT OR THE SUBJECT MATTER THEREOF, (II) AGREES THAT SUCH COURTS SHALL BE
THE SOLE AND EXCLUSIVE COURTS AND FORUMS FOR THE PURPOSE OF ANY SUCH ACTION AND
(III) WAIVES AND AGREES NOT TO ASSERT, AS A DEFENSE OR OTHERWISE, IN ANY SUCH
ACTION, ANY CLAIM THAT SUCH COURTS DO NOT HAVE JURISDICTION OVER IT OR THAT SUCH
ACTION IS BROUGHT IN AN INCONVENIENT FORUM; PROVIDED, HOWEVER, THAT NOTHING
CONTAINED HEREIN SHALL LIMIT, IN ANY MANNER, THE RIGHT OF THE LENDER TO
INSTITUTE OR TAKE ANY ACTION IN ANY COURT IN ANY JURISDICTION FOR THE PURPOSE OF
PROTECTING, PRESERVING OR REALIZING UPON ANY COLLATERAL, IF ANY, SECURING THE
DEBT OR ENFORCING ANY JUDGMENT OBTAINED BY IT IN CONNECTION WITH ANY TRANSACTION
DOCUMENT OR THE SUBJECT MATTER THEREOF. EACH OF THE GENERAL PARTNER, THE
BORROWER AND THE LENDER HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION
ARISING OUT OF, UNDER, OR IN CONNECTION WITH, RELATING TO, OR BASED UPON ANY
TRANSACTION DOCUMENT OR THE SUBJECT MATTER THEREOF, AND AGREES THAT PROCESS IN
ANY SUCH ACTION, IN ADDITION TO ANY OTHER METHOD PERMITTED BY LAW, MAY BE SERVED
UPON IT BY REGISTERED OR CERTIFIED MAIL, RETURN RECEIPT REQUESTED, ADDRESSED TO
THE GENERAL PARTNER OR THE BORROWER OR THE LENDER AT THE ADDRESS SET FORTH IN
SECTION 9.1 OR AT SUCH OTHER ADDRESS AS THE GENERAL PARTNER OR THE BORROWER OR
THE LENDER MAY DESIGNATE BY NOTICE, AND SUCH SERVICE SHALL BE DEEMED EFFECTIVE
AS IF PERSONAL SERVICE HAD BEEN MADE UPON IT WITHIN NEW YORK COUNTY.
Section 9.10 Enforceability. Any provision of this Agreement which is
--------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the Borrower hereby waives any provision of law which renders
any provision hereof prohibited or unenforceable in any respect.
Section 9.11 Conflicting Terms. In the event of any direct conflict
-----------------
between any provision of this Agreement and any provision of any other
Transaction Document, this Agreement shall govern; provided, however, that (a)
notwithstanding the foregoing, the remedies contained in the Mortgages and any
other Transaction Document shall govern in the event of any direct conflict with
any remedy contained in this Agreement, and (b) the parties intend that the
terms and provisions of each of the Transaction Documents be
58
<PAGE>
given full effect, and, accordingly, the provisions of the other Transaction
Documents, to the fullest extent possible, shall be construed to be additional
and supplementary to, and not in conflict with or in derogation of, the
provisions of this Agreement.
Section 9.12 Relationship of Parties. The relationship of the Borrower
-----------------------
to the Lender is strictly and solely that of borrower and lender and mortgagor
and mortgagee and nothing contained in any Transaction Document is intended to
create, or shall in any event or under any circumstance be construed as
creating, a partnership, joint venture, tenancy-in-common, joint tenancy or
other relationship of any nature whatsoever between the Borrower and the Lender
other than as borrower and lender and mortgagor and mortgagee. The Borrower
acknowledges that (a) NACC engages in the business of real estate financings and
other real estate transactions and investments which may be viewed as adverse to
or competitive with the business of the Borrower or its Affiliates, (b) it is
represented by competent counsel and has consulted counsel before executing this
Agreement and (c) it shall rely solely on its own judgement and advisors in
entering into the transactions contemplated hereby without relying in any manner
on any statements, representations or recommendations of NACC or any Affiliate
of NACC except as set forth in Section 5.6.
(Signature page follows)
59
<PAGE>
IN WITNESS WHEREOF, each of the Borrower and NACC has caused this Agreement
to be signed and delivered, all as of the day and year first above written.
NOMURA ASSET CAPITAL CORPORATION
By:----------------------------------
Daniel S. Abrams
Director
FAIRFIELD INN BY MARRIOTT LIMITED
PARTNERSHIP
By: Marriott FIBM One Corporation,
General Partner
By:----------------------------------
Bruce D. Wardinski
Vice President
60
<PAGE>
EXHIBIT 10.h
================================================================================
================================================================================
SECURED PROMISSORY NOTE
made by
FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
(the "Maker")
-----
to
NOMURA ASSET CAPITAL CORPORATION
(the "Payee")
-----
Dated: As of January 13, 1997
================================================================================
================================================================================
<PAGE>
SECURED PROMISSORY NOTE
$165,400,000 New York, New York
January 13, 1997
FOR VALUE RECEIVED, FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP, a
Delaware limited partnership (the "Maker"), promises to pay to NOMURA ASSET
-----
CAPITAL CORPORATION, a Delaware corporation (together with its successors and
assigns, the "Payee"), or order, the principal amount of ONE HUNDRED SIXTY-FIVE
-----
MILLION FOUR HUNDRED THOUSAND DOLLARS ($165,400,000) (the "Loan"), in the manner
----
set forth herein; together with interest on the unpaid principal amount of this
Note at the Base Rate (as adjusted pursuant to Paragraph 4(e) hereof) or Default
Rate, as applicable; together with payments with respect to amortization of
principal as described in Paragraph 4 hereof; together with the Yield
Maintenance Premium, if any, due and payable under the Loan Agreement; and
together with all other amounts due (including, without limitation, all items of
Debt) hereunder or under any of the other Transaction Documents.
1. Definitions. For the purposes of this Note, each of the
-----------
following terms shall have the meaning specified with respect thereto
(a) "Accounting Period" has the meaning set forth in the Loan
-----------------
Agreement.
(b) "Adjusted Rate" means the Base Rate adjusted in accordance
-------------
with Paragraph 4(e) of this Note.
(c) "Base Rate" means 8.40% per annum.
---------
(d) "Business Day" means a day on which banks and foreign
------------
exchange markets are open for business in New York, New York.
(e) "Debt" has the meaning set forth in the Loan Agreement.
----
(f) "Debt Service Payment Date" means the 11th day of each
-------------------------
month.
(g) "Debt Service Period" means the period from and including
-------------------
the eleventh (11th) day of the calendar month immediately preceding each Debt
Service Payment Date to and including the tenth (10th) day of the calendar month
in which such Debt Service Payment Date occurs.
(h) "Default Rate" means a rate per annum equal to the lesser of
------------
(aa) two percent (2%) above the Base Rate or Adjusted Rate, as applicable, and
(bb) the maximum rate allowed by law.
(i) "Event of Default" has the meaning set forth in the Loan
----------------
Agreement.
(j) "Excess Cash Flow" has the meaning set forth in the Loan
----------------
Agreement.
<PAGE>
(k) "Loan Agreement" means that certain Loan Agreement, dated as
--------------
of the date hereof, between the Maker and the Payee.
(l) "Maturity Date" shall mean the earliest to occur of:
-------------
(1) January 11, 2017; or
(2) such date to which the maturity of the Debt may be
accelerated upon an Event of Default or as otherwise provided in any Transaction
Document.
(m) "Monthly Debt Service Payment" means the constant monthly
----------------------------
payment set forth in Paragraph 4(b) hereof, as such payment may be adjusted as
set forth in Paragraph 4(c) hereof.
(n) "Non-Recourse" has the meaning set forth in the Loan
------------
Agreement.
(o) "Optional Prepayment Date" means January 11, 2007.
------------------------
(p) "Transaction Documents" has the meaning set forth in the
---------------------
Loan Agreement.
(q) "Yield Maintenance Premium" has the meaning set forth in the
-------------------------
Loan Agreement.
Certain additional terms are defined in the less particular provisions
of this Note to which they pertain or in which they are initially used.
2. Payment of Debt.
---------------
The Maker shall punctually pay the Debt at the time and in the
manner provided for its payment in this Note and the other Transaction
Documents. It is expressly agreed that the entire Debt may, at the Payee's
election (or automatically upon the occurrence of the events described in
clauses (f) and (g) of Section 4.1A of the Loan Agreement) become immediately
due and payable upon the occurrence of an Event of Default, as set forth in the
Loan Agreement.
3. Interest Rate.
-------------
(a) Except as set forth below, including Paragraph 4(b) hereof,
the Debt shall bear interest, for each Debt Service Period, at the Base Rate.
(b) Following the Maturity Date and for each Debt Service Period
or portion thereof occurring from the date of the occurrence of an Event of
Default and while it is continuing or, if later, the date the Lender has given
notice to the Maker pursuant to Section 4.2(a) of the Loan Agreement, if such
notice is required, the Debt shall bear interest at the Default Rate.
(c) Calculations of interest shall be made on the basis of a
360-day year and actual days elapsed during each Debt Service Period.
4. Periodic Payments.
-----------------
(a) On February 11, 1997 the Maker shall pay to the Payee (i)
interest on the Note at the Base Rate for the period beginning on January 13,
1997 and ending on February 10, 1997, in an amount equal to $1,119,206.67, and
(ii) a principal payment in an amount equal to $228,535.11.
2
<PAGE>
(b) On each Debt Service Payment Date occurring after February 11,
1997, the Maker shall pay to the Payee an amount equal to $1,424,928.44, being
the constant monthly payment applicable to this Note up to the Maturity Date.
Such amount shall be applied (i) first, to the payment of interest (the "Base
----
Rate Interest") on this Note at the Base Rate or the Default Rate, as
- -------------
applicable, then due and payable for the applicable Debt Service Period, and
(ii) next, to the payment of principal on this Note in reduction of such
principal in the amount of the difference between the Monthly Debt Service
Payment and the Base Rate Interest paid pursuant to subclause (i) above
(each, a "Principal Payment"). Following the Maturity Date and while an Event of
-----------------
Default has occurred and is continuing, the constant monthly payment set forth
in the first sentence of this Paragraph 4(b) shall be increased to reflect
payment of interest at the Default Rate.
(c) If any Principal Payment or a portion thereof is prepaid on any
Debt Service Payment Date by the application by the Payee of payments received
(i) from or with respect to U.S. Obligations held by the Payee on the Optional
Prepayment Date as a result of a release of any Property by the Maker pursuant
to Section 2.3(g) of the Loan Agreement, (ii) from the release of a Property by
the Maker from the Lien of the Security Documents (as such terms are defined in
the Loan Agreement) pursuant to Section 2.6(c) of the Loan Agreement, or (iii)
on and after the Optional Prepayment Date, pursuant to the last sentence of
Section 3.1 of the Loan Agreement, the Monthly Debt Service Payment payable on
each Debt Service Payment Date thereafter shall be reduced in an amount equal to
the percentage reduction in the principal amount payable under this Note
effected by such prepayment.
(d) On the Maturity Date, the Maker shall pay to the Payee an amount
equal to the then outstanding principal balance of the Loan, plus interest
accrued and unpaid thereon and any other Debt then due and payable.
(e) (i) On the Optional Prepayment Date and on each anniversary
thereof, the interest rate applicable to the Debt shall be set at the greater of
(xx) the Base Rate plus 2% per annum and (yy) the yield, calculated by linear
interpolation (rounded to three decimal places), of the yields of United States
Treasury Constant Maturities with the terms (one longer and one shorter) most
nearly approximating those of noncallable United States Treasury obligations
having maturities as close as possible to the tenth anniversary of the Optional
Prepayment Date, as determined by the Payee on the basis of Federal Reserve
Statistical Release H.15 - Selected Interest Rates under the heading U.S.
Governmental Security/Treasury Constant Maturities, or other recognized source
of financial market information selected by the Payee in each case on the last
Business Day of the week immediately prior to the Optional Prepayment Date and
each anniversary thereof, as the case may be, plus 3.755% per annum (any such
increased rate being hereinafter referred to as the "Adjusted Rate"). The Maker
shall thereafter pay to the Payee the Monthly Debt Service Payment on each Debt
Service Payment Date in the manner and at the place established pursuant to this
Note. Such Monthly Debt Service Payment shall be applied (i) first, to the
payment of interest on this Note at the Base Rate then due and payable for the
applicable Debt Service Period and (ii) next, to the payment of the Principal
Payment then due and payable.
(ii) Additionally, on each Debt Service Payment Date subsequent
to the Optional Prepayment Date, the Maker shall pay to the Payee any Excess
Cash Flow for all of the Accounting Periods the Operating Profit Payment Dates
(as defined in the Loan Agreement) for which occurred during the Debt Service
Period immediately preceding such Debt Service Payment Date, which Excess Cash
Flow payments shall be applied (A) first, to prepayment of each Principal
Payment required to be made on each Debt Service Payment Date in inverse order
of maturity until the principal of this Note has been paid in full, and (B)
next, to payment of the difference, if any, between (y) the sum of (i) interest
accrued and unpaid on this Note calculated at the Adjusted Rate and (ii)
interest on such accrued and unpaid amount at the Adjusted Rate and (z) the Base
Rate interest paid on each Debt Service Payment Date.
3
<PAGE>
(f) A11 payments (including prepayments) to be made by the Maker on
account of principal, interest and all other amounts payable with respect to the
Debt, shall be made by wire transfer to the Payee without set-off or
counterclaim, in lawful money of the United States of America and in immediately
available funds, not later than 2 p.m. (New York time) on the dates such
payments are due, by payment to:
Mellon Bank, Pittsburgh
ABA #043000261
NACC (P&I Remittances)
Account #109-2525
Reference: Fairfield Inn by Marriott
Limited Partnership
(P&I Remittances)
or at such other place as the Payee may, from time to time, designate in
writing.
(g) If any payment hereunder becomes due and payable on a day other
than a Business Day, the due date thereof shall be extended to the next
succeeding Business Day and, with respect to such payments, interest (at the
applicable rate hereunder) thereon shall be payable during such extension. Any
payments received after 2 p.m. (New York time) shall be deemed received on the
following Business Day.
5. Prepayments.
-----------
(a) The Maker shall have the right to prepay the unpaid
principal amount of this Note on a Debt Service Payment Date to the extent set
forth in the last sentence of Section 3.1 of the Loan Agreement.
(b) If the Maturity Date occurs as a result of an Event of
Default and the Maker tenders payment of the Debt or any part thereof to the
Payee, such tender shall require the payment by the Maker of all sums required
pursuant to Section 4.2 of the Loan Agreement, including, without limitation,
the Yield Maintenance Premium.
6. Cost of Collection. The Maker shall pay all costs of collection
------------------
when incurred, including, without limitation, the reasonable attorneys' fees and
disbursements of the Payee's counsel and court costs, which costs may be added
to the indebtedness evidenced hereby and must be paid within fifteen (15) days
after written demand. Such costs shall bear interest at the Base Rate from the
date of incurrence and interest at the Default Rate from and after delivery of
written demand.
7. Usury. It is the intent of the Payee and the Maker to comply at
-----
all times with applicable usury laws. If at any time such laws would render
usurious any amounts called for under this Note, then it is the Maker's and the
Payee's express intention that such excess amount be immediately credited on the
principal balance of this Note (or, if this Note has been fully paid, refunded
by the Payee to the Maker, and the Maker shall accept such refund), and the
provisions hereof be immediately deemed to be reformed and the amounts
thereafter collectible hereunder reduced to comply with the then applicable
laws, without the necessity of the execution of any further documents, but so as
to permit the recovery of the fullest amount otherwise called for hereunder. To
the extent permitted by law, any such crediting or refund shall not cure or
waive any default by the Maker under this Note. If at any time following any
such reduction in the interest rate payable by the Maker, there remains unpaid
any principal amounts under this Note and the maximum interest rate permitted by
applicable law is increased or eliminated, then the interest rate payable
hereunder shall be readjusted, to the extent permitted by applicable law, so
that the total dollar amount of interest payable hereunder shall be equal to the
dollar amount of interest which would have been paid by the Maker without giving
4
<PAGE>
effect to the reduction in interest resulting from compliance with the
applicable usury laws theretofore in effect. The Maker agrees, however, that in
determining whether or not any interest payable under this Note exceeds the
highest rate permitted by law, any non-principal payment (except payments
specifically stated in this Note to be "interest"), including, without
limitation, prepayment fees and late charges, shall be deemed to the extent
permitted by law, to be an expense, fee or premium rather than interest.
8. Applicable Law. This Note has been negotiated, executed, made
--------------
and delivered in the Borough of Manhattan, City, County and State of New York.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE INTERNAL
LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.
9. Waivers; Security.
-----------------
(a) The Maker and any endorsers, sureties and guarantors hereof
or hereon, and all parties now or hereafter liable with respect to this Note,
hereby jointly and severally waive presentment for payment, demand, protest,
notice of non-payment or dishonor and of protest, and agree to remain bound
until the Debt is paid in full notwithstanding any extensions of time for
payment which may be granted even though the period of extension be indefinite,
and notwithstanding any inaction by, or failure to assert any legal right
available to, the Payee.
(b) The Maker and any endorsers, sureties and guarantors hereof
or hereon, and all parties now or hereafter liable with respect to this Note,
further expressly agree that any waiver by the Payee, other than a waiver in
writing signed by the Payee, of any term or provision hereof or of any of the
other Transaction Documents or of any right, remedy or option under this Note or
any of the other Transaction Documents shall not be controlling, nor shall it
prevent or estop the Payee from thereafter enforcing such term, provision,
right, remedy or option, and the failure or refusal of the Payee to insist in
any one or more instances upon the strict performance of any of the terms or
provisions of this Note or any of the other Transaction Documents shall not be
construed as a waiver or relinquishment for the future of any such term or
provision, but the same shall continue in full force and effect, it being
understood and agreed that the Payee's rights, remedies and options under this
Note and the other Transaction Documents are and shall be cumulative and are in
addition to all other rights, remedies and options of the Payee in law or in
equity or under any other agreement.
(c) The Maker and the Payee hereby irrevocably waive all rights
to trial by jury in any action or other proceeding arising out of or relating to
this Note, and the Maker also waives the right in such action or other
proceeding to interpose any counterclaims (except to the extent such
counterclaims are compulsory and may not be brought in a separate action) or
set-offs of any kind or description.
(d) This Note is secured by, among other things, the Mortgages
(as defined in the Loan Agreement) made by the Maker in favor of the Payee
encumbering the Properties (as defined in the Loan Agreement).
10. Non-Recourse. The obligations of the Maker under this Note shall
------------
be Non-Recourse (as defined in the Loan Agreement).
11. Miscellaneous.
-------------
(a) This Note may not be changed, waived, modified, discharged or
terminated orally, but only by an agreement in writing, signed by the party
against whom enforcement of any such change, waiver, modification, discharge or
termination is sought.
5
<PAGE>
(b) The term "Payee" shall mean the then holder of this Note, from
time to time, and its successors and assigns.
(c) If any provision of this Note or the application thereof to the
Maker or any circumstance in any jurisdiction governing this Note shall, to any
extent, be invalid or unenforceable under any applicable statute, regulation or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform to such
statute, regulation or rule of law, and the remainder of this Note and the
application of any such invalid or unenforceable provision to parties,
jurisdictions or circumstances other than to whom or to which it is held invalid
or unenforceable shall not be affected thereby, nor shall the same affect the
validity or enforceability of any other provision of this Note.
(d) Time is of the essence as to all dates set forth in this Note,
subject to any applicable notice or grace period provided herein or in any other
Transaction Document.
(e) The Maker hereby agrees to perform and comply with each of the
terms, covenants and provisions contained in this Note and in any instrument
evidencing or securing the indebtedness evidenced by this Note on the part of
the Maker to be observed and/or performed hereunder and thereunder. No release
of any security for the principal amount due under this Note, or of any portion
thereof, and no alteration, amendment or waiver of any provision of this Note or
of any such instrument (including the Transaction Documents) made by agreement
between the Payee and any other person shall release, discharge, modify, change
or affect the liability of the Maker under this Note or under such instrument.
(f) No act of commission or omission of any kind or at any time upon
the part of the Payee in respect of any matter whatsoever shall in any way
impair the rights of the Payee to enforce any right, power or benefit under this
Note, and no set-off, counterclaim, reduction or diminution of any obligation or
any defense of any kind or nature which the Maker has against the Payee shall be
available hereunder to the Maker.
(g) All notices and other communications given hereunder shall not be
deemed to have been duly given or made unless given or made in the manner
provided for in the Loan Agreement.
(h) The captions preceding the text of the various Paragraphs
contained in this Note are provided for convenience only and shall not be deemed
to in any way affect or limit the meaning or construction of any of the
provisions hereof.
6
<PAGE>
IN WITNESS WHEREOF, the Maker has caused this Note to executed as
of the day and year first above written.
FAIRFIELD INN BY MARRIOTT LIMITED
PARTNERSHIP, a Delaware limited partnership
By: Marriott FIBM One Corporation, General
Partner
By: /s/ Bruce D. Wardinski
-------------------------------
Bruce D. Wardinski
Vice President
7
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FORM 10 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<CIK> 0000855103
<NAME> MARRIOTT FAIRFIELD INN BY MARRIOTT LIMITED PARTNERSHIP
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1.00
<CASH> 10,028
<SECURITIES> 0
<RECEIVABLES> 3,079
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,737
<PP&E> 250,444
<DEPRECIATION> (86,296)
<TOTAL-ASSETS> 184,992
<CURRENT-LIABILITIES> 18,379
<BONDS> 164,847
0
0
<COMMON> 0
<OTHER-SE> 1,766
<TOTAL-LIABILITY-AND-EQUITY> 184,992
<SALES> 0
<TOTAL-REVENUES> 47,065
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 29,749
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,896
<INCOME-PRETAX> 1,420
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,420
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</TABLE>
