2008
Franchise
Disclosure Document
FRANCHISE DISCLOSURE DOCUMENT
MARRIOTT INTERNATIONAL, INC.
a Delaware corporation
10400 Fernwood Road
Bethesda, MD 20817
(301) 380-3000
www.marriott.com
The franchisee will establish and operate a full-service hotel under the name “Marriott Hotel,”
“Marriott Resort,” “Marriott Suites Hotel,” “JW Marriott Hotel,” or “Marriott Hotel & Conference
Center.”
The total investment necessary to begin operation of a newly-constructed 300-room Marriott
Hotel other than a JW Marriott Hotel ranges from $46,449,805 to $75,641,225 and from $57,141,805 to
$93,428,225 for a JW Marriott Hotel. This includes initial fees which must be paid to the franchisor or
an affiliate: a franchise application fee equal to the greater of $82,500 or $300 per guest room; preopening training fees and services ranging from $78,750 to $99,225 for a 300-room hotel; hardware and
software costs and related training ranging from $471,755 to $539,655 and, while you are not required to
do so, if you choose to utilize our services or those of our affiliates for purchasing, design and
construction, in 2008 we expect our mark-up and charges for these services to be (i) the greater of
$10,000 or approximately 4.5% to 5.0% of the cost for hotel opening and operating supplies and (ii) the
greater of $10,000 or approximately 4.5% to 5.0% of the cost for furniture fixtures and equipment. The
estimate of total investment does not include the cost of land or amenities found at resort properties such
as tennis courts, spas or golf courses or conference facilities and will vary based on the number of rooms,
construction costs and other factors.
Marriott 366119v6 (03/31/2008)
This disclosure document summarizes certain provisions of your franchise agreement and other
information in plain English. Read this disclosure document and all accompanying agreements carefully.
You must receive this disclosure document at least 14 calendar days before you sign a binding
agreement with, or make any payment to, the franchisor or an affiliate in connection with the proposed
franchise sale. Note, however, that no governmental agency has verified the information contained
in this document.
You may wish to receive your disclosure document in another format that is more convenient for
you. To discuss the availability of disclosures in different formats, contact Andrea Johnson at Marriott
International, Inc., Franchise Development (Dept. 30/921.05), 10400 Fernwood Road, Bethesda,
Maryland 20817, or the Development Department at (301) 380-3000.
The terms of your contract will govern your franchise relationship. Don’t rely on the disclosure
document alone to understand your contract. Read all of your contract carefully. Show your contract
and this disclosure document to an advisor, like a lawyer or an accountant.
Buying a franchise is a complex investment. The information in this disclosure document can
help you make up your mind. More information on franchising such as “A Consumer’s Guide to Buying
a Franchise,” which can help you understand how to use this disclosure document, is available from the
Federal Trade Commission. You can contact the FTC at 1-877-FTC-HELP or by writing to the FTC at
600 Pennsylvania Avenue, NW, Washington, D.C. 20580. You can also visit the FTC’s home page at
www.ftc.gov for additional information. Call your state agency or visit your public library for other
sources of information on franchising.
There may also be laws on franchising in your state. Ask your state agencies about them.
Date of Issuance: March 31, 2008
FDD
Marriott 366119v6 (03/31/2008)
STATE COVER PAGE
Your state may have a franchise law that requires a franchisor to register or file with the state
franchise administrator before offering or selling in your state. REGISTRATION OF A FRANCHISE BY A
STATE DOES NOT MEAN THAT THE STATE RECOMMENDS THE FRANCHISE OR HAS VERIFIED
THE INFORMATION IN THIS DISCLOSURE DOCUMENT.
Call the state franchise administrator listed in Exhibit G for information about the franchisor or about
franchising in your state.
MANY FRANCHISE AGREEMENTS DO NOT ALLOW YOU TO RENEW
UNCONDITIONALLY AFTER THE INITIAL TERM EXPIRES. YOU MAY HAVE TO SIGN A NEW
AGREEMENT WITH DIFFERENT TERMS AND CONDITIONS IN ORDER TO CONTINUE TO
OPERATE YOUR BUSINESS. BEFORE YOU BUY, CONSIDER WHAT RIGHTS YOU HAVE TO
RENEW YOUR FRANCHISE, IF ANY, AND WHAT TERMS YOU MIGHT HAVE TO ACCEPT IN
ORDER TO RENEW.
PLEASE CONSIDER THE FOLLOWING RISK FACTORS BEFORE YOU BUY THIS
FRANCHISE:
1.
THE FRANCHISE AGREEMENT REQUIRES YOU TO RESOLVE DISPUTES
WITH US BY LITIGATION IN MARYLAND. OUT OF STATE LITIGATION MAY FORCE YOU
TO ACCEPT A LESS FAVORABLE SETTLEMENT FOR DISPUTES. IT MAY ALSO COST YOU
MORE TO LITIGATE WITH US IN MARYLAND THAN IN YOUR OWN STATE.
2.
THE FRANCHISE AGREEMENT STATES THAT MARYLAND LAW GOVERNS
THE AGREEMENT, AND THIS LAW MAY NOT PROVIDE THE SAME PROTECTIONS AND
BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS.
3.
THE FRANCHISE AGREEMENT REQUIRES BOTH YOU AND US TO WAIVE
TRIAL BY JURY. IF THE HOTEL WILL BE LOCATED IN CALIFORNIA OR YOUR PRINCIPAL
PLACE OF BUSINESS IS LOCATED IN CALIFORNIA, YOUR FRANCHISE AGREEMENT WILL
REQUIRE THAT ALL DISPUTES BE SETTLED BY ARBITRATION IN MARYLAND. OUT OF
STATE ARBITRATION MAY FORCE YOU TO ACCEPT A LESS FAVORABLE SETTLEMENT
FOR DISPUTES. IT MAY ALSO COST YOU MORE TO ARBITRATE WITH US IN MARYLAND
THAN IN YOUR HOME STATE.
4.
THERE MAY BE OTHER RISKS CONCERNING THIS FRANCHISE.
Marriott 366119v6 (03/31/2008)
This disclosure document has been registered in the following states effective:
Hawaii
April 18, 2008
Minnesota
April 14, 2008
South Dakota
March 28, 2008
Wisconsin
March 28, 2008
The following states have laws applicable to the sale of franchises in which this disclosure document
is exempt or excluded from registration, or a filing but no registration is required: California, Florida, Illinois,
Indiana, Kentucky, Maryland, Michigan, Nebraska, New York, North Dakota, Oregon, Rhode Island, Texas,
Utah, Virginia and Washington.
Marriott 366119v6 (03/31/2008)
MARRIOTT INTERNATIONAL, INC.
FRANCHISE DISCLOSURE DOCUMENT
TABLE OF CONTENTS
HEADING
ITEM
PAGE
1
THE FRANCHISOR AND ANY PARENTS, PREDECESSORS AND AFFILIATES ............ 1
2
BUSINESS EXPERIENCE............................................................................................................. 8
3
LITIGATION................................................................................................................................. 21
4
BANKRUPTCY ............................................................................................................................. 24
5
INITIAL FEES .............................................................................................................................. 25
6
OTHER FEES................................................................................................................................ 30
7
ESTIMATED INITIAL INVESTMENT..................................................................................... 42
8
RESTRICTIONS ON SOURCES OF PRODUCTS AND SERVICES .................................... 46
9
FRANCHISEE’S OBLIGATIONS .............................................................................................. 52
10
FINANCING .................................................................................................................................. 54
11
FRANCHISOR’S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS, AND
TRAINING..................................................................................................................................... 55
12
TERRITORY ................................................................................................................................. 71
13
TRADEMARKS ............................................................................................................................ 73
14
PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION.................................... 75
15
OBLIGATION TO PARTICIPATE IN THE ACTUAL OPERATION OF THE
FRANCHISE BUSINESS ............................................................................................................. 77
16
RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL ............................................ 78
17
RENEWAL, TERMINATION, TRANSFER, AND DISPUTE RESOLUTION ..................... 80
18
PUBLIC FIGURES ....................................................................................................................... 84
19
FINANCIAL PERFORMANCE REPRESENTATIONS .......................................................... 85
20
OUTLETS AND FRANCHISEE INFORMATION ................................................................... 87
21
FINANCIAL STATEMENTS .................................................................................................... 103
Marriott 366119v6 (03/31/2008)
22
CONTRACTS .............................................................................................................................. 104
23
RECEIPTS ................................................................................................................................... 105
EXHIBITS
A
Application
B
Franchise Agreement
C
Owner Agreement
D
State Amendments to Disclosure Document
E
State Amendments to Franchise Agreement
F
Agents for Service of Process
G
State Regulatory Authorities
H
System Agreements
I
Lodging Laws and Regulations
J
Audited Financial Statements for the Three Fiscal Years in the Period Ended
December 28, 2007
K
Operating Manuals Table of Contents
L
Service Agreements
M
List of Outlets
N
Comfort Letter
Marriott 366119v6 (03/31/2008)
ii
ITEM 1
THE FRANCHISOR AND ANY PARENTS, PREDECESSORS, AND AFFILIATES
The franchisor is Marriott International, Inc. (“Marriott”), a corporation established on September 19,
1997, under the laws of the State of Delaware. We will refer to the franchisor as “we” or “Marriott”
throughout this disclosure document. The terms “we” or “Marriott” do not include corporate officers,
employees, directors, or stockholders of Marriott, but may include Marriott’s subsidiaries, affiliates and
predecessors when referring to activities undertaken and performed by Marriott or such related entities
generally. We will refer to the person or entity that is considering the purchase of the franchise as “you.” If
you are a corporation, partnership, or limited liability company, some provisions of the franchise agreement
also will apply to certain shareholders, general partners, and members.
We are a publicly-traded corporation listed with the New York Stock Exchange. Our principal
business address, and the principal business address of our predecessor and our affiliates, is 10400 Fernwood
Road, Bethesda, MD 20817.
Our immediate predecessor is Marriott International, Inc. (“Old Marriott”). Old Marriott is a
Delaware corporation, incorporated on July 2, 1971, as Marriott Hotel Productions, Inc., a wholly-owned
subsidiary of Marriott Corporation. On March 3, 1975, its name was changed from Marriott Hotel
Productions, Inc. to Marriott Hotels, Inc., and on February 25, 1993, the name became Marriott International,
Inc. On October 8, 1993, all of the stock of Old Marriott was transferred from Marriott Corporation to the
stockholders of Marriott Corporation and Marriott Corporation changed its name to Host Marriott
Corporation. This stock transaction, in effect, divided Marriott Corporation into two separate companies,
with Old Marriott having all the operating divisions that formerly comprised Marriott Corporation except for
two non-hotel operating divisions, and Host Marriott Corporation having the real estate, most of the
indebtedness, and two non-hotel operating divisions.
On March 27, 1998, Old Marriott divided its then-current operations into two companies. Old
Marriott retained the food service and facilities management division, and all of Old Marriott’s Lodging,
Senior Living, and Distribution Services businesses were transferred to New Marriott MI, Inc. New Marriott
MI, Inc. was spun off on a tax-free basis to the shareholders of Old Marriott. New Marriott MI, Inc. adopted
the name Marriott International, Inc. immediately after the spin-off. Old Marriott then immediately entered
into a business combination with Sodexho Alliance’s North American operations, after which Old Marriott
was renamed “Sodexho Marriott Services, Inc.” Sodexho Alliance completed its acquisition of remaining
Sodexho Marriott Services, Inc. shares in 2001, changing the name of the company to “Sodexho, Inc.”
We and our affiliates currently do business as Marriott® Hotels, Marriott® Resorts, Marriott® Hotels
and Resorts, Marriott Suites® Hotels, Marriott Marquis® Hotels, JW Marriott Hotel®, JW Marriott Hotels
and ResortsSM, Marriott® Hotels and Conference Centers, Marriott® Conference Centers, Courtyard by
Marriott® Hotels, Residence Inn® by Marriott Hotels, Fairfield Inn® by Marriott Hotels, Fairfield Inn &
Suites® by Marriott Hotels, SpringHill Suites® by Marriott Hotels, TownePlace Suites® by Marriott Hotels,
Marriott Executive Apartments®, Marriott ExecuStay®, Renaissance® Hotels, Renaissance Hotels and
Resorts®, Renaissance® ClubSport® Hotels, New World® Hotels, Bvlgari® Hotels and Resorts,
Nickelodeon® Resorts by Marriott®, EditionSM Hotels, The Ritz-Carlton®, Ritz-Carlton® Hotels and
Resorts, Ritz-Carlton® Reserve, The Residences at The Ritz-Carlton® and JW Marriott ResidencesSM
(collectively, “Company Brands”). We or our affiliates may develop or acquire other lodging brands or
businesses in the future. Neither we nor our affiliates currently offer franchises for businesses other than
lodging.
Marriott 366119v6 (03/31/2008)
In addition to operating and franchising hotels, we and our affiliates are engaged in a variety of
businesses, including golf facilities management, vacation timesharing, fractional ownership sales, and resort
management. Our domestic and overseas vacation timesharing and fractional ownership operations do
business under the brand names Marriott Vacation Club InternationalSM, Horizons by Marriott Vacation
Club®, and The Ritz-Carlton Club®.
We and our affiliates also are engaged in the branding of residential real estate. We and our affiliates
grant licenses to real estate developers to market and sell residential units under our trademarks, and we or our
affiliates typically provide certain technical assistance, design review and quality assurance services to
confirm compliance with our standards. We or our affiliates typically manage the day-to-day operations of
the residential units on behalf of the owners’ associations. We and our affiliates have only licensed our
trademarks in connection with Ritz-Carlton and JW Marriott luxury residences, but we are considering
licensing residential sales of Marriott, Renaissance and Edition branded units.
One of our former subsidiaries and the procurement and purchasing units of Hyatt Corporation were
merged on January 27, 2001, into a newly-formed entity called Avendra, L.L.C. (“Avendra”). Effective
March 31, 2001, the procurement and purchasing functions of Six Continents, Inc. (now known as
InterContinental Hotels Group PLC), Fairmont Hotels, Inc. and ClubCorp, Inc. joined Avendra. Avendra
does not act as agent for, nor does it sell directly to, you. Avendra provides centralized procurement services
and supply chain access by negotiating and entering into supply agreements with manufacturers, suppliers,
and distributors of food, hotel and restaurant supplies, engineering supplies, business services, and other
products and services related to the operation of hotels and other hospitality businesses. If you wish to
become an Avendra customer, you will purchase goods and services directly from suppliers at Avendra’s
negotiated prices. An affiliate of Avendra, Avendra Replenishment, L.L.C., purchases and resells
replenishment goods to its customers in order to simplify the ordering and payment process relating to
replenishment transactions. Except as noted in the previous sentence, the relationship between you and
suppliers is that of buyer and seller. Avendra is not a supplier. You are not required to purchase from
Avendra’s suppliers and you are free to purchase goods and services from any supplier so long as the supplier
fully complies with Marriott’s specifications and standards, as described in Item 8. Effective January 1, 2007,
Marriott renewed the agreement with Avendra for centralized procurement services through December 31,
2010. Although we no longer have the right to control Avendra, we do have a significant equity interest in
Avendra and have an agreement with Avendra that we will not offer or provide the centralized procurement
and supply chain access services that are being offered by Avendra in North and Central America and the
Caribbean until after December 31, 2010. We or our affiliates may enter into similar arrangements in the
future.
You and other franchisees may voluntarily purchase under the arrangements that will be negotiated
between yourself and Avendra. Under certain of those arrangements, you may purchase through us and our
affiliates described below; for other products and services, you may purchase directly from the manufacturers,
suppliers, and distributors with whom Avendra has negotiated its agreements. General information about
Avendra is available on the internet at www.avendra.com.
Our subsidiary, Marriott International Design & Construction Services, Inc. (“Marriott Design &
Construction”), provides a variety of hotel construction and interior design services, and purchasing services
for certain hotel furniture, fixtures, equipment and hotel operating supplies. The products and services
purchased through Marriott Design & Construction may be obtained through contracts negotiated by Avendra
or under arrangements negotiated by Marriott Design & Construction directly with third-party manufacturers
or suppliers. Also, an internal group we refer to as “Marriott Lodging Products and Services” may negotiate
arrangements with suppliers and/or develop products and services to be offered to franchisees and other third
parties that are not covered by our agreement with Avendra.
As described in greater detail in Items 5 and 8 of this disclosure document, you, at your option, may
take advantage of some of these arrangements.
Marriott 366119v6 (03/31/2008)
2
You have the opportunity to operate, as designated by us, a Marriott Hotel, Marriott Resort, Marriott
Suites Hotel, JW Marriott Hotel, Marriott Marquis Hotel, or Marriott Hotel and Conference Center when you
purchase a franchise from us. (Except where expressly stated otherwise in this disclosure document, the terms
“Marriott Hotels and Resorts” and “Marriott hotels” shall include Marriott Suites Hotels, JW Marriott Hotels,
Marriott Marquis Hotel and Marriott Hotels and Conference Centers.) Marriott hotels are full-service hotels
that offer upscale-tier lodging. They range in size from approximately 100 to 2,000 guestrooms with a fulltime hotel staff ranging from 100 to 3,000 associates. The hotels offer a variety of food and beverage options,
including one or more restaurants and lounges, room service, catering, and banquet services. The hotels will
have meeting rooms and ballrooms for meetings and social events. Business centers provide faxing, copying,
printing, and overnight delivery services. There are dedicated fitness centers offering a swimming pool,
whirlpool, and a separate exercise/equipment area. The hotels also offer express check-in and check-out,
guestrooms with specially designed work amenities, valet service, and a retail shop. Resort recreational
offerings may include a spa, tennis courts, championship golf course, and indoor and outdoor pools. Room
amenities at Marriott hotels include a large desk with an ergonomic chair, a separate bath and dressing area, a
king-size bed or two double beds, a comfortable chair, reading lamps, remote controlled television with free
cable stations and in-room movies, two 2-line telephones with data ports, high speed internet access
(“HSIA”), a security system, and an alarm clock. A Marriott Hotel and Conference Center offers similar
standards and amenities to a Marriott Hotel but includes meeting space and other facilities that meet or exceed
the current standards for conference centers established by the International Association of Conference
Centers. We currently do not offer franchises for Marriott Conference Centers, but may do so in the future.
On occasion, we may allow a Marriott Hotel to be identified and marketed as a “Marriott Hotel and
Conference Center” if we determine that such identification is appropriate and that the hotel meets the
standards for conference centers established by the International Association of Conference Centers. Such
hotels are separate and distinct, however, from our brand “Marriott Conference Centers.” A JW Marriott
Hotel is a distinctively upscale hotel operated under the “JW Marriott” trade name with amenities and services
generally greater than those offered by other Marriott hotels. This typically includes larger guestrooms with
luxurious appointments and amenities, marble/stone guest bathrooms, three telephones, high-speed internet
access and mini-bar refrigerator. All Marriott hotels in the United States and Canada became smoke-free on
October 16, 2006.
We have received proposals from franchisees to structure Marriott hotels as a condominium in which
all or a portion of the guestrooms are sold as separate units. These units are subject to Marriott hotel
standards. To the extent that the units are not occupied by the owners, they may be included in a rental
program and made available as part of the hotel’s rooms inventory. We do not participate in the development
or sales process of the units. In connection with the offer and sale of any such units, however, we may
negotiate a license to permit you to sell the units under our trademarks. That license will remain in effect only
as long as the franchise agreement is in effect. If your hotel will have a condominium component, the
appropriate sections of the franchise agreement will be modified and supplemented by provisions dealing
specifically with the condominium documents that must be approved by us and that will be used by you or
others for condominium unit sales, operation, maintenance and governance. The modifications and
supplements to such documents will vary substantially depending on the location and physical layout of the
project, the final structure for the project and applicable condominium and related laws. Based upon the
particular circumstances, we will insist on certain confirmations and prohibitions. For example, we will
require you to confirm that the sale of units does not constitute the sale of an unregistered security.
Additionally, we will generally require that components necessary for the management of the hotel are
retained by the owner/developer of the hotel and operated by you or your approved management company (if
different from the owner/developer). We typically also require that all units be furnished with standard
Marriott hotel furnishings and equipment (even those units not initially participating in the rental program),
and we will impose limits on the number of units that may be purchased by one person.
Marriott 366119v6 (03/31/2008)
3
The market for full-service hotels is developed and competitive in most areas in the United States and
Canada. Marriott hotels compete in the market upscale full-service hotels. They cater to businesspersons,
groups, families, and vacationers, depending on location and market orientation. Your hotel will compete
with individual hotels and hotel chains, such as Hilton, Hyatt, Sheraton, and Westin. We do not intend to
permit a franchisee to transfer the hotel or the franchise to a competitor, or to become a competitor of ours, as
described in Item 17 of this disclosure document and Section 17.4. of the franchise agreement. Your hotel
also may compete with other hotels under the Company Brands, as described above, that may be situated
close to your hotel, and we and our affiliates may own, operate, or franchise other lodging products in the
future. This may reduce the availability of hotel managers and employees in the market, as well as the
revenues of your hotel. Your ability to compete in the marketplace is dependent upon your hotel’s location,
accessibility, level of service, operating efficiency, appearance, marketing and advertising programs, associate
satisfaction and general economic conditions.
As of December 31, 2007, we and our affiliates operated 162 Marriott hotels in the United States and
Canada.
The first Marriott hotel, the Twin Bridges Marriott Hotel in Washington, D.C., opened in 1957 and
was in operation for 31 years until December 18, 1988. The first franchise agreement for a Marriott hotel was
signed for the Milwaukee, Wisconsin Marriott Hotel in 1968; it ceased operation as a Marriott hotel on
January 31, 1998. We and our predecessors have offered franchises for Marriott hotels continuously since
1968. The first JW Marriott Hotel, located at 1331 Pennsylvania Avenue, N.W., Washington, D.C., opened in
1984 and is still in operation. As of January 1, 2008, we have five franchised JW Marriott Hotels in the
United States, the first of which – the JW Marriott Hotel in Miami, Florida – opened for business on
September 8, 2000.
Fairfield FMC LLC (“FMC”), our wholly-owned subsidiary, has operated Fairfield Inn hotels since
October 1987. On March 30, 1995, Old Marriott acquired from FMC the exclusive right to license or
franchise the Fairfield Inn system in the United States and was assigned all of FMC’s interest in all existing
Fairfield Inn franchise agreements. FMC retained the right to manage hotels under the Fairfield Inn
trademark, but will not franchise any hotels as Fairfield Inn. We and our predecessors have offered franchises
for Fairfield Inn hotels continuously since October 1989. In January 2000, we also began offering franchises
for Fairfield Inn & Suites hotels.
The original concept for SpringHill Suites by Marriott was introduced under the trade name Fairfield
Suites in December 1995. Between December 1995 and July 1998, the Fairfield Suites brand was jointly held
with the Fairfield Inn brand. In 1998, a decision was made to convert the Fairfield Suites brand to SpringHill
Suites. SpringHill SMC, LLC, our wholly-owned subsidiary, has managed SpringHill Suites hotels since
August 1998. We began offering franchises under the SpringHill Suites trade name in September 1998. In
1999, we converted hotels operating under the Fairfield Suites brand to the SpringHill Suites brand.
Courtyard Management Corporation, our wholly-owned subsidiary, has operated Courtyard hotels
since 1986. On March 30, 1995, Old Marriott acquired the exclusive right to license or franchise the
Courtyard system in the United States and was assigned all of Courtyard Management Corporation’s interest
in all existing Courtyard franchise agreements. Courtyard Management Corporation retained the right to
operate hotels under the Courtyard trademark. We and our predecessors have offered franchises for
Courtyard hotels continuously since October 1990.
Residence Inn by Marriott, LLC, our wholly-owned subsidiary, has operated Residence Inn hotels
since July 1987. From July 1987 until March 30, 1995, Residence Inn by Marriott, LLC was the franchisor of
the Residence Inn hotel system. On March 30, 1995, our immediate predecessor, Old Marriott, acquired the
exclusive right to license or franchise Residence Inn hotels in the United States and was assigned all existing
Residence Inn franchise agreements.
Marriott 366119v6 (03/31/2008)
4
TownePlace Management LLC, our wholly-owned subsidiary, has operated TownePlace Suites hotels
since February 1997. We and our immediate predecessor, Old Marriott, have offered franchises for
TownePlace Suites hotels continuously since April 1996. Our first franchised TownePlace Suites hotel
opened in Alpharetta, Georgia, in October, 1997.
Our wholly-owned subsidiary, Marriott Worldwide Corporation (“MWC”), has offered franchises
outside of the United States for Marriott Hotels, Resorts and Suites since 1991, Courtyard hotels since 1991,
Residence Inn hotels since 1995, and SpringHill Suites by Marriott hotels, TownePlace Suites by Marriott
hotels, and Fairfield Inn by Marriott hotels since 1999 (and Fairfield Inn & Suites by Marriott hotels since
2000). As of March 31, 2008, MWC may offer franchises for hotels to be located outside of the United States
(“International Franchises”) for Marriott Hotels and Resorts, Courtyard hotels, Residence Inn hotels, Fairfield
Inn and Fairfield Inn & Suites hotels, TownePlace Suites hotels, and SpringHill Suites hotels in most
countries in Central and South America, and the Caribbean Basin. Effective January 1, 2005, the nonexclusive rights to grant International Franchises for the brands referred to in the preceding sentence in
Argentina, Aruba, the Cayman Islands, Chile, Ecuador, Guatemala, Jamaica, Mexico, Peru, and the U.S.
Virgin Islands (the “Designated Countries”) were licensed to Marriott. At the same time, the existing
franchise agreements for the hotels located in the Designated Countries were assigned to Marriott and MWC
ceased offering International Franchises in the Designated Countries. In the future, additional countries in
Central and South America and the Caribbean Basin may be added to the set of Designated Countries, and
MWC will license to Marriott the non-exclusive rights to grant International Franchises for the brands
referred to above in such countries.
Prior to January 1, 2004, MWC was authorized to offer International Franchises in Canada for
Marriott Hotels and Resorts, Courtyard hotels, Residence Inn hotels, Fairfield Inn and Fairfield Inn & Suites
hotels, TownePlace Suites hotels and SpringHill Suites hotels. As of January 1, 2004, MWC ceased offering
International Franchises in Canada. Generally, hotels located in Canada will be operated in conjunction with
hotels of the same brand in the United States, as a single U.S. and Canadian system.
Effective January 1, 1999, the non-exclusive rights to grant International Franchises for most hotel
brands directly or indirectly owned or licensed by us for the rest of the world, other than Mexico, Central and
South America, and the Caribbean Basin (“Latin America”), the United States and Canada, were licensed to
International Hotel Licensing Company (“IHLC”), a Luxembourg limited liability company formed on
October 29, 1998. Effective January 1, 2004, IHLC also acquired the non-exclusive rights to grant
International Franchises for most Company Brands in Canada. The existing franchise agreements for the
hotels located outside of the United States and Latin America have been assigned to IHLC. IHLC is also an
indirect, wholly-owned subsidiary of ours. On May 23, 2008, IHLC created a new subsidiary, Global
Hospitality Licensing S.à r.l., a Luxembourg limited liability company (“GHL”), and by September 1,
2008, GHL will receive the non-exclusive rights to grant International Franchises that had previously been
held by IHLC. The existing franchise agreements for hotels located outside the United States and Latin
America will be assigned from IHLC to GHL. GHL is also an indirect, wholly-owned subsidiary of ours.
On April 7, 1997, one of MWC’s affiliates acquired The Renaissance Hotel Group N.V., a
Netherlands limited liability company, which had operated and franchised hotels under the brand names
Renaissance Hotels, New World Hotels, and Ramada International Hotels and Resorts. Following this
acquisition, Old Marriott acquired from Renaissance Hotel Holdings, Inc. (“RHHI”) the right to license
Renaissance Hotels in the United States. RHHI, a Delaware corporation formed on April 17, 1989, and a
wholly-owned subsidiary of The Renaissance Hotel Group N.V., retained the rights to grant International
Franchises. As of March 31, 2008, RHHI may offer International Franchises for Renaissance Hotels in most
countries in Latin America. Effective January 1, 2005, the non-exclusive rights to grant International
Franchises for Renaissance Hotels in the Designated Countries were licensed to Marriott. At the same time,
the existing franchise agreements for the hotels located in the Designated Countries were assigned to Marriott
and RHHI ceased offering International Franchises in the Designated Countries. In the future, additional
countries in Central and South America and the Caribbean Basin may be added to the set of Designated
Marriott 366119v6 (03/31/2008)
5
Countries, and RHHI will license to Marriott the non-exclusive rights to grant International Franchises for
Renaissance Hotels in such countries.
Effective January 1, 1999, the rights to grant International Franchises for Renaissance Hotels outside
of the United States, Canada and Latin America were licensed to IHLC. Effective January 1, 2004, IHLC also
acquired the non-exclusive rights to grant International Franchises for Renaissance Hotels in Canada. The
existing franchise agreements for those hotels located outside of the United States and Latin America have
been assigned to IHLC. By September 1, 2008, GHL will also acquire the non-exclusive rights to grant
International Franchises for Renaissance Hotels outside of the United States and Latin America and the
existing franchise agreements for Renaissance Hotels located outside of the United States and Latin America
will be assigned from IHLC to GHL.
Ramada Franchise Systems, Inc. (“RFS”), a subsidiary of Cendant Corporation (“Cendant”), offered
franchises for Ramada Hotels and Resorts under master license agreements (“Ramada U.S. Master License
Agreements”) originally with an indirect subsidiary of Marriott. On April 1, 2004, Cendant exercised its
option to acquire all of Marriott’s interest in the Ramada U.S. Master License Agreements. On December 20,
2002, RFS assumed all obligations of the master license agreement with RHHI to offer franchises for Ramada
Hotels and Resorts in Canada and, on December 10, 2004, RFS acquired all rights to the Ramada
International Hotels and Resorts brand, and Marriott (including its affiliates RHHI and IHLC) ceased offering
franchises for Ramada International Hotels and Resorts.
In September 2005, Marriott CS Holdings, LLC (“Marriott CS”), our wholly-owned subsidiary,
acquired intellectual property rights and other assets used in the management and operation of athletic, health
and fitness clubs under the name “ClubSport”. Marriott CS subsequently assigned the ClubSport name and
intellectual property to RHHI and RHHI has granted Marriott the right to license Renaissance ClubSports.
We do not operate any stand-alone ClubSport athletic clubs. In September 2005, we granted a license
to the founder of the ClubSport system to continue to operate five stand-alone ClubSport athletic clubs that
were in existence before the acquisition of the ClubSport intellectual property rights. We may grant the
founder franchises in the future. We granted a franchise to an affiliate of the founder to continue to operate
the existing Renaissance ClubSport in Walnut Creek, California. We have offered franchises for Renaissance
ClubSports since October 1, 2005.
Marriott and our wholly-owned subsidiaries had the following numbers of franchised hotels operating
in the United States and Canada as of December 31, 2007:
Number of Franchised Hotels
Trade names
Marriott Hotels, Resorts and Suites
Fairfield Inn by Marriott/
Fairfield Inn & Suites by Marriott
SpringHill Suites by Marriott
Courtyard by Marriott
Renaissance Hotels and Resorts
Residence Inn by Marriott
TownePlace Suites by Marriott
178
534
153
437
37
407
107
Marriott and our wholly-owned subsidiaries had the following numbers of international franchised
hotels operating as of December 31, 2007:
Number of Franchised Hotels
Trade names
Marriott Hotels, Resorts and Suites
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29
6
Fairfield Inn by Marriott
Courtyard by Marriott
Residence Inn by Marriott
Renaissance Hotels and Resorts
1
23
1
14
On April 24, 1995, we acquired a 49% ownership interest in The Ritz-Carlton Hotel Company LLC,
which manages Ritz-Carlton Hotels and Resorts worldwide and owns the licenses for the Ritz-Carlton
trademarks and trade name. On March 19, 1998, we increased our ownership interest in The Ritz-Carlton
Hotel Company LLC to approximately 99%, and subsequently acquired the remaining one percent. We do
not currently intend to offer franchises for Ritz-Carlton Hotels and Resorts.
On February 6, 1997, we introduced a lodging product originally known as Marriott Executive
Residences, which is now known as Marriott Executive Apartments. It offers upscale, elegantly furnished,
residential-style apartments having the quality of a five-star hotel. The product is designed to meet the needs
of global business travelers whose assignments take them out of their home country for 30 days or more. The
first property opened in Budapest, Hungary, on December 2, 1997, and the first franchised location opened in
Tokyo, Japan, on January 13, 2002. As of December 31, 2007, there were 15 Marriott Executive Apartments,
of which 14 are operated/leased by Marriott or its affiliates and 1 is franchised. We do not currently intend to
offer franchises for Marriott Executive Apartments within the United States, but we may grant additional
franchises for locations outside of the United States.
On March 29, 1999, we acquired ExecuStay Corporation, which became ExecuStay, LLC after a
corporate reorganization in 2006. This brand, originally known as ExecuStay by Marriott, is now known as
Marriott ExecuStay and offers high quality apartments to corporate clients to meet their relocation or other
temporary housing needs. The first franchise opened in Columbus, Ohio, on November 1, 2002. As of
December 31, 2007, there were 34 franchises and Marriott ExecuStay is one of the leading providers of
corporate apartments in the United States.
On February 13, 2001, we announced that Marriott had entered into a joint venture with Bvlgari SpA,
a world-renowned designer of jewelry and luxury goods, to launch a new luxury hotel brand: Bvlgari Hotels
and Resorts. Both the Bvlgari Hotels and Resorts brand and Marriott’s existing luxury brand, The RitzCarlton Hotels and Resorts, are operated through a “Luxury Group.” Bvlgari Hotels and Resorts are designed
to provide exceptional hospitality experiences in intimate environments with strong elements of sleek,
contemporary Italian design and the finest Italian cuisine. We do not currently intend to offer franchises for
Bvlgari Hotels and Resorts. The first Bvlgari Hotel and Resort opened in Milan, Italy, in May 2004.
On May 31, 2007, Marriott entered into a tri-party agreement with Miller Global Properties and
Nickelodeon to co-develop the Nickelodeon Resorts by Marriott brand. An upscale, self-contained
Nickelodeon-themed destination resort, Nickelodeon Resorts by Marriott is being designed to provide
amenities and activities for both families and business travelers, with innovative meeting space to attract the
group market. The first Nickelodeon Resorts by Marriott is scheduled for a 2010 opening in San Diego,
California. We do not currently intend to offer franchises for Nickelodeon Resorts by Marriott.
On June 7, 2007, Marriott entered into an agreement with Ian Schrager to develop and operate a new
brand of luxury boutique hotels, under the brand name “Edition”. These hotels will combine the personal,
intimate, individualized and unique lodging experience that Mr. Schrager has created and developed with
Marriott’s operational expertise on a global scale. We do not currently intend to offer franchises for Edition
hotels. The first Edition hotel is projected to open in 2010.
Our agents for service of process are listed at Exhibit F to this disclosure document.
A summary of regulations specific to the lodging industry is listed at Exhibit I to this disclosure
document.
Marriott 366119v6 (03/31/2008)
7
ITEM 2
BUSINESS EXPERIENCE
A list of our directors, principal officers, and other executives who have management responsibility
for the franchise offered by this offering circular follows. We do not employ the services of any franchise
broker in the United States. The location of employment for each person is Bethesda, Maryland, unless we
name another location.
Directors
The following persons are directors of franchisor:
Chairman and Chief Executive Officer: J.W. Marriott, Jr.
Mr. Marriott is Chairman of the Board of Directors and our Chief Executive Officer. He joined
Marriott Corporation in 1956, became President and a director in 1964, Chief Executive Officer in 1972 and
Chairman of the Board in 1985. Mr. Marriott also is a director of the United States Naval Academy
Foundation and Chairman of the President’s Export Council. He serves on the board of trustees of the
National Geographic Society and The J. Willard & Alice S. Marriott Foundation, the executive committee of
the World Travel & Tourism Council, and is a member of the National Business Council. Mr. Marriott has
served as our Chairman and Chief Executive Officer since the Company’s inception in 1997, and served as
Chairman and Chief Executive Officer of the Company’s predecessors from 1985. He is the father of John W.
Marriott III. Mr. Marriott has been a director of the Company or its predecessors since 1964.
Director: John W. Marriott III
Mr. Marriott is Chief Executive Officer of JWM Family Enterprises, L.P., a private partnership which
develops and owns hotels. He was appointed Vice Chairman of the Company’s Board of Directors in October
2005. Until December 30, 2005, Mr. Marriott was the Company’s Executive Vice President-Lodging and
President of North American Lodging. Over the past 30 years, Mr. Marriott also served in a number of other
positions with the Company and its predecessors, including Executive Vice President of Sales & Marketing,
Brand Management, and Operations Planning and Support, Senior Vice President for Marriott’s Mid-Atlantic
Region, Vice President of Development, Director of Finance, General Manager, Director of Food &
Beverage, restaurant manager and cook. In April 2002, Mr. Marriott was named by the U.S. Department of
Commerce and the Japanese government to co-chair a special taskforce to promote travel between the United
States and Japan. In January 2004, he was named one of the most influential executives by Business Travel
News. Mr. Marriott serves as a Director on the Boards of the National Zoo and the Washington Airports Task
Force. He is the son of J.W. Marriott, Jr. Mr. Marriott has been a director of the Company since 2002.
Director: Lawrence W. Kellner
Mr. Kellner is Chairman of the Board and Chief Executive Officer of Continental Airlines, Inc. He
served as President and Chief Operating Officer of Continental Airlines from March 2003 to December 30,
2004, as President from May 2001 to March 2003 and a member of Continental Airlines’ board of directors
since 2001. He joined the airline in 1995 as Senior Vice President and Chief Financial Officer. Mr. Kellner
is also a director of the Air Transport Association. On the civic front, he is a member of the board of directors
for the Greater Houston Partnership, Houston Minority Partnership, Central Houston, Inc., the Methodist
Hospital, the Spring Branch Education Foundation and the YMCA of the Greater Houston Area, and is a
member of the Boy Scouts of America National Executive Board. Kellner also serves on the advisory board of
the March of Dimes. Mr. Kellner has been a director of the Company since 2002.
Marriott 366119v6 (03/31/2008)
8
Director: Debra L. Lee
Ms. Lee is Chairman and Chief Executive Officer of BET Networks, a media and entertainment
subsidiary of Viacom, Inc. that owns and operates Black Entertainment Television and several other ventures.
She joined BET in 1986 and served in a number of executive posts before ascending to her present position in
January 2006, including President and Chief Executive Officer from June 2005, President and Chief
Operating Officer from 1995 to May 2005, Executive Vice President and General Counsel, and Vice
President and General Counsel. Prior to joining BET, Ms. Lee was an attorney with Washington, D.C.-based
law firm Steptoe & Johnson. She serves on the boards of directors of the following publicly traded
companies: Eastman Kodak Company, WGL Holdings, Inc., and Revlon, Inc. She is also a director of the
following professional and civic organizations: the National Cable & Telecommunications Association,
Center for Communication, Girls, Inc., the Kennedy Center’s Community & Friends, the National Symphony
Orchestra, and the Alvin Ailey Dance Theater. She is a Trustee Emeritus at Brown University. Ms. Lee has
been a director of the Company since 2004.
Director: George Muñoz
Mr. Muñoz is a principal in the Washington, D.C.-based firm Muñoz Investment Banking Group,
LLC. He is also a partner in the Chicago-based law firm Tobin, Petkus & Muñoz LLC. He served as President
and Chief Executive Officer of Overseas Private Investment Corporation from 1997 to January 2001. Mr.
Muñoz was Chief Financial Officer and Assistant Secretary of the U.S. Treasury Department from 1993 until
1997. Mr. Muñoz is a certified public accountant and an attorney. He is a director of the following publicly
traded companies: Altria Group, Inc., Anixter International, Inc., and Esmark, Inc. He also serves on the
board of trustees of the National Geographic Society. Mr. Muñoz has been a director of the Company since
2002.
Director: Harry J. Pearce
Mr. Pearce is Chairman of Nortel Networks Corporation and Chairman of MDU Resources Group,
Inc. He was Chairman of Hughes Electronics Corporation, a subsidiary of General Motors Corporation, from
May 2001 until the sale by General Motors of its interest in Hughes in December 2003. He had served on the
Hughes Board since November 1992. Mr. Pearce is a member of the board of directors of The New York
Bone Marrow Foundation, The Leukemia & Lymphoma Society Research Foundation, The Marrow
Foundation, Lauri Strauss Leukemia Foundation, Stewart Franke Leukemia Foundation and the National
Bone Marrow Transplant Link. He also serves on the board of trustees of Northwestern University and the
advisory board of the University of Michigan Cancer Center. Mr. Pearce has been a director of the Company
or its predecessors since 1995.
Director: Steven S Reinemund
Mr. Reinemund retired from PepsiCo in 2007. He served as Chairman and CEO from 2001 until
2006 and Chairman until May 2007. He joined PepsiCo in 1984 and held the positions of President and CEO
Pizza Hut, Chairman and CEO Frito-Lay and President and COO PepsiCo. He was a director of PepsiCo
from 1996 until May 2007. He is a director of American Express, Exxon and Johnson & Johnson. He is also
a member of the board of directors of the United States Naval Academy Foundation, and the Cooper Institute.
Mr. Reinemund has been a director of the Company since 2007.
President and Chief Operating Officer: William J. Shaw
Mr. Shaw has served as President and Chief Operating Officer of the Company or its predecessors
since 1997. He joined Marriott Corporation in 1974, was elected Corporate Controller in 1979 and a Vice
Marriott 366119v6 (03/31/2008)
9
President in 1982. In 1986, Mr. Shaw was elected Senior Vice President-Finance and Treasurer of Marriott
Corporation. He was elected Chief Financial Officer and Executive Vice President of Marriott Corporation in
April 1988. In 1992 he was elected President of the Marriott Service Group. Mr. Shaw serves on the board of
trustees of the University of Notre Dame. He also serves on the NCAA Leadership Advisory Board. Mr. Shaw
has been a director of the Company or its predecessors since 1997.
Director: Lawrence M. Small
Mr. Small is the former Secretary of the Smithsonian Institution, a position he held from January
2000 to March 2007. Mr. Small previously had been President and Chief Operating Officer of Fannie Mae, a
shareholder-owned New York Stock Exchange listed company and the nation¹s largest source of financing for
home mortgages, from 1991 to 2000. Before joining Fannie Mae, he served as Vice Chairman and Chairman
of the executive committee of the boards of directors of Citicorp and Citibank, N.A. He currently also serves
on the board of directors of The Chubb Corporation, the American Folklife Center at the Library of Congress,
the Committee for the Preservation of the White House, the John F. Kennedy Center for the Performing Arts,
the National Gallery of Art, the National Building Museum, Newseum, the President’s Committee on the
Arts and Humanities, New York City’s Spanish Repertory Theater and the Woodrow Wilson International
Center for Scholars. Mr. Small has served as a director of the Company or its predecessors since 1995.
Director: Dr. Floretta Dukes McKenzie
Dr. McKenzie is Senior Advisor to the American Institute for Research. She was the Chairman of The
McKenzie Group, Inc. (an educational consulting firm) from 1997 until 2004. From 1981 to 1988, she served
as Superintendent of the District of Columbia Public Schools and Chief State School Officer. Dr. McKenzie is
a former director of Pepco Holdings, Inc. She is also a director or trustee of UNIFI Mutual Holding Company
(Ameritas Life Insurance Corp., Acacia Life Insurance Company, The Union Central Life Insurance Company
and affiliated companies), the National Geographic Society, CareFirst (Blue Cross/Blue Shield), Howard
University, the White House Historical Association, the Marriott Foundation for People with Disabilities, the
American Institute for Research, and Harvard Graduate School of Education Urban Superintendents Program.
Dr. McKenzie has served as a director of the Company or its predecessors since 1992 and will be retiring
from the Board at the expiration of her term at the 2008 annual meeting of shareholders.
Corporate Officers
The following persons are corporate officers of franchisor:
President, North American Lodging Operations and Global Brand Management: Robert J. McCarthy
Mr. McCarthy has been a corporate officer of franchisor since February 2000. He was named
President, North American Lodging Operations and Global Brand Management in January 2007. Mr.
McCarthy served as Executive Vice President, North American Lodging Operations from January 2003 until
December 2006. He served as Executive Vice President, Operations Planning & Support for Marriott
Lodging from March 2000 until January 2003 when that position was merged into his position as Executive
Vice President, North American Lodging Operations.
President and Managing Director, Marriott Lodging International: Edwin D. Fuller
Mr. Fuller has been a senior corporate officer of franchisor and President and Managing Director of
Marriott Lodging International since May 1997. He served as Executive Vice President and Managing
Director of Marriott Lodging International from 1994 until May 1997 and as Senior Vice President and
Managing Director between 1991 and 1994.
Marriott 366119v6 (03/31/2008)
10
Executive Vice President and General Counsel: Edward Ryan
Mr. Ryan has been Executive Vice President and General Counsel for franchisor since November
2006. He joined Marriott in 1996 as Assistant General Counsel, and was promoted to Senior Vice President
and Associate General Counsel in 1999, a position in which he had responsibility for all new management
agreements and real estate development worldwide for full service, select service and extended stay hotels.
Prior to joining Marriott, Mr. Ryan was in private practice in Washington, D.C., first with the law firm of
Crowell & Moring, LLP from 1979 to 1984, and then with Hogan & Hartson LLP from 1984 to 1996, where
he was made partner in 1989.
Executive Vice President, Chief Financial Officer and President, Continental European Lodging: Arne
M. Sorenson
Mr. Sorenson has been Executive Vice President and Chief Financial Officer of franchisor since
October 1998 and assumed the additional title of President, Continental European Lodging in January 2003.
From March 1996 until October 1998, Mr. Sorenson was Senior Vice President, Business Development for
franchisor. Prior to joining franchisor in March 1996, Mr. Sorenson had been a partner in the law firm of
Latham & Watkins LLP in Washington, D.C.
Executive Vice President, Lodging Development, Marriott Lodging: James M. Sullivan
Mr. Sullivan has been Executive Vice President, Lodging Development, Marriott Lodging since
December 1995. From October 1993 to December 1995, he was Senior Vice President, Development, for the
Marriott Lodging Division and from October 1989 to October 1993, he held the same position for Marriott
Corporation. Between January 1987 and October 1989, Mr. Sullivan was Senior Vice President of Mergers
and Acquisitions for Marriott Corporation.
Executive Vice President, Owner and Franchise Services, Marriott Lodging: Joel M. Eisemann
Mr. Eisemann has been a corporate officer of franchisor since August 1996. He has been Executive
Vice President, Owner and Franchise Services, Marriott Lodging since October 2004. Prior to that, Mr.
Eisemann was Executive Vice President, Global Asset Management, focusing on Ritz-Carlton Hotels,
Marriott Hotels and Resorts, and Renaissance Hotels and Resorts, from April 2001 through September 2004.
Before that, Mr. Eisemann was Senior Vice President, Lodging Development-Asia/Pacific from June 1990
through March 2001, focusing on Ritz-Carlton Hotels, Marriott Hotels and Resorts, Renaissance Hotels and
Resorts, and Courtyard by Marriott. From April 1988 through May 1990, he was Vice President, Hotel
Development, Residence Inn by Marriott. From November 1986 through March 1988, Mr. Eisemann was
Vice President, Development Planning and Feasibility, focusing on all of franchisor’s lodging brands. From
August 1984 through October 1986, he was Vice President, Hotel Development, focusing on Marriott Hotels,
Resorts and Suites. From January 1983 though July 1984, Mr. Eisemann was Director, Feasibility.
Executive Vice President, Finance, Marriott Lodging: Kevin M. Kimball
Mr. Kimball has been a corporate officer of franchisor since 1993. He has been Executive Vice
President, Finance for the Marriott Lodging Division since December 1995. Mr. Kimball was a Senior Vice
President, Finance for the Marriott Lodging Division from September 1994 to December 1995. From October
1993 to September 1994, he was Senior Vice President, Finance and Corporate Controller for franchisor. Mr.
Kimball was Vice President, Finance for the Residence Inn Division of Marriott Corporation from 1989 to
October 1993.
Marriott 366119v6 (03/31/2008)
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Executive Vice President, Finance and Treasurer, Marriott Lodging: Carolyn B. Handlon
Ms. Handlon has been a corporate officer of franchisor since September 1997. She has been
Executive Vice President, Finance and Treasurer since February 2003 after serving as Senior Vice President
and Treasurer between July 1999 and February 2003. Ms. Handlon was Vice President and Assistant
Treasurer from October 1993 until July 1999. She was a Vice President for Marriott Corporation from
December 1992 until October 1993.
Executive Vice President, Mergers, Acquisitions & Business Development: Richard S. Hoffman
Mr. Hoffman has been a corporate officer of franchisor since February 2003. He has been Executive
Vice President, Mergers, Acquisitions & Business Development since August 2004. Prior to his current
position, Mr. Hoffman served as Executive Vice President, Finance, eCommerce from February 2003 to
August 2004. Prior to that, he served as Senior Vice President, Finance, eCommerce from January 2001 to
February 2003. Before joining franchisor as Senior Vice President, Special Projects in March 2000, Mr.
Hoffman had been a partner in the law firm of Williams & Connolly LLP in Washington, D.C. since 1989.
Executive Vice President, Lodging Development, Select Service and Extended Stay Brands: Daryl A. Nickel
Mr. Nickel has been a corporate officer of franchisor since March 1998. He has been Executive Vice
President, Lodging Development, Select Service and Extended Stay Brands since February 2001. Previously,
Mr. Nickel held the positions of Senior Vice President, Lodging Development, for Courtyard, Fairfield Inn,
Residence Inn, SpringHill Suites and TownePlace Suites from April 1996 until February 2001, and Senior
Vice President, Lodging Development for Courtyard, Fairfield Inn and Residence Inn between October 1993
and March 1996. He joined the Marriott Corporation Lodging Development Division in June 1990 as Senior
Vice President of Franchising.
Executive Vice President and General Manager, Global Brand Strategy and Innovation: Michael E. Jannini
Mr. Jannini has been a corporate officer of franchisor since April 2000. He has been Executive Vice
President and General Manager, Global Brand Strategy and Innovation for franchisor since March 2000.
Before that, Mr. Jannini was Senior Vice President, Brand Management for Full Service Lodging, which
includes Marriott Hotels and Resorts, Marriott Conference Centers, and Renaissance Hotels, Resorts and
Suites, between March 1999 and March 2000. Prior to that, he was Brand Vice President for the Marriott
Hotels and Resorts Brand between August 1994 and March 1999, and in January 1997, he assumed
responsibility for Marriott Conference Centers. Mr. Jannini had been Vice President of Operations for the
Courtyard and Fairfield Inn divisions of Marriott from March 1992 to October 1993.
Executive Vice President, Architecture and Construction: A. Bradford Bryan, Jr.
Mr. Bryan has been a corporate officer of franchisor since September 1997. He has been Executive
Vice President, Architecture and Construction since June 1996. Before that, Mr. Bryan held various positions
with franchisor, including that of Executive Vice President and Group President for Courtyard, Fairfield Inn
and Residence Inn from January 1990 until June 1996. He joined Marriott Corporation in January 1980 and
served as Resident Manager and General Manager at several Marriott hotels, Regional Vice President for the
Mid-Atlantic Region of Marriott Lodging and Executive Vice President, Courtyard Division.
Executive Vice President, Global Sales and Marketing: Amy McPherson
Ms. McPherson has been a corporate officer of franchisor since February 2005. She has been
Executive Vice President, Global Sales and Marketing since November 2004. Prior to that, Ms. McPherson
Marriott 366119v6 (03/31/2008)
12
served as Senior Vice President, Global Revenue Management and Reservation Sales from July 2003 to
November 2004. From February 2001 to July 2003 she was Senior Vice President, Global Revenue
Management. She joined franchisor in November 1986 and held various positions with franchisor prior to
February 2001, including Senior Vice President, Business Transformation and Integration and Vice President,
Finance and Business Development.
Executive Vice President, Lodging Operations, Marriott Lodging: Dave Grissen
Mr. Grissen has been a corporate officer of franchisor since February 2000. He has been Executive
Vice President for the Eastern Region of Lodging Operations since April 2005. Mr. Grissen was Senior Vice
President, Lodging Operations for the Mid-Atlantic Region of Marriott Lodging from April 2000 to April
2005. Before that, he was Senior Vice President of Finance, Accounting and Business Development for
North American Lodging Operations from September 1998 until April 2000. Prior to that, Mr. Grissen was
Senior Vice President, Finance and Business Development for Marriott Lodging from May 1997 until
September 1998, and Vice President, Financial Analysis for Marriott Lodging from December 1994 until May
1997.
Senior Vice President, Lodging Development: Norman Jenkins
Mr. Jenkins has been a corporate officer of franchisor since February 2005. He has been Senior Vice
President, Lodging Development since September 2004. Prior to that, Mr. Jenkins was Vice President,
Owner and Franchise Services between February 2002 and September 2004. From September 2000 to
February 2002 he was Vice President, Global Operations and Chief Financial Officer, Ramada International.
Before assuming that position, Mr. Jenkins was Vice President, Finance – Ramada International from
September 1998 to September 2000. He joined franchisor in 1992 and held various positions with franchisor
prior to September 1998, including Senior Manager, Corporate Internal Audit Group; Director, Lodging Sales
and Property Tax; and Director, Lodging Finance and Business Development.
Senior Vice President, Owner and Franchise Services: James C. Fisher
Mr. Fisher has been a corporate officer of franchisor since February 2005. He has been Senior Vice
President, Owner and Franchise Services since March 2001. Prior to that, Mr. Fisher held the positions of
Senior Vice President, Lodging Development from July 1999 until March 2001, and Senior Vice President,
International Lodging Development for Europe, Middle East and Africa from September 1994 until July
1999.
Senior Vice President and Associate General Counsel: Steven M. Goldman
Mr. Goldman has been a corporate officer of franchisor since February 2004. He has been Senior
Vice President and Associate General Counsel of the Brand and Franchise Transactions group of franchisor
since January 2002 and for the Intellectual Property group since March 2007. Prior to that, Mr. Goldman was
Vice President and Assistant General Counsel between June 2000 and January 2002. He joined franchisor in
September 1997 as Assistant General Counsel. Before joining franchisor, Mr. Goldman served as General
Counsel of the Franchise Division and Vice President of Franchise Administration of ITT Sheraton
Corporation in Atlanta, Georgia, from December 1995 until September 1997.
Vice President, Senior Counsel and Corporate Secretary: Bancroft S. Gordon
Mr. Gordon has been Vice President, Senior Counsel and Corporate Secretary of franchisor since July
2007. Before joining franchisor, Mr. Gordon served as General Counsel of the Freddie Mac Foundation from
1996 to June 2007 and as Assistant General Counsel, Securities of Freddie Mac from 1991 to June 2007.
Marriott 366119v6 (03/31/2008)
13
Lodging Development Officers
The following persons are lodging development officers and other key personnel of franchisor:
Executive Vice President Lodging Development, North America Full Service Brands: Anthony Capuano
Mr. Capuano has been Executive Vice President for North America Lodging Development, Full
Service Brands since April 2005. Mr. Capuano was Senior Vice President, Lodging Development for the
Western Region from November 2003 until April 2005. From February 2001 until November 2003, he was
Regional Vice President, Lodging Development for the same region. From October 1997 until February
2001, Mr. Capuano held the position of Vice President, Lodging Development.
Senior Vice President, Lodging Development: Timothy A. Marvin
Mr. Marvin has been Senior Vice President, Lodging Development for the Southeastern, South
Central, and Midwestern Regions since November 2003. From February 2001 until November 2003, he was
Regional Vice President, Lodging Development for the same regions. Before that, Mr. Marvin was Vice
President, Lodging Development between October 1993 and February 2001.
Senior Vice President, Lodging Development: Christopher G. Rose
Mr. Rose has been Senior Vice President, Lodging Development for the Western Region since July
2005 and is located in Newport Beach, California. He was Vice President, Lodging Development for the
Southwest Region between August 1997 and July 2005. Prior to that, Mr. Rose was Area Vice President,
Lodging Development for the Southwest Region between April 1994 and August 1997.
Senior Vice President, Lodging Development: Thomas D. Papelian
Mr. Papelian has been Senior Vice President, Lodging Development for the Central Region since
September 2005 and is located in Marietta, Georgia. Prior to his current position, he was Vice President,
Hotel Brokerage for Thompson Calhoun Fair from March 2003 to August 2005. Before that, Mr. Papelian
was Vice President, Hotel Brokerage of Hodges Ward Elliott from November 2000 to March 2003.
Senior Vice President, Lodging Development: Stephen E. Kallaher
Mr. Kallaher has been Senior Vice President, Lodging Development for the Eastern Region since
November 2007 and is located in Bethesda, MD. Before that, he was Senior Vice President, Lodging
Development, Central Region, from August 2005 to November 2007 and was located in Atlanta, GA. Prior to
that, he was Area Vice President, Lodging Development, Southeast Region, from July 1999 to August 2005.
Senior Vice President, Urban Development: Stephen G. Stoycos
Mr. Stoycos has been Senior Vice President, Urban Development since April 2007. Prior to his
current position, Mr. Stoycos was Senior Vice President, Lodging Development from December 2006 to April
2007. Prior to joining Lodging Development, Mr. Stoycos was Senior Vice President – Mortgage Banking
from October 1999 to December 2006.
Senior Vice President, Lodging and Program Management Office: Cecilia Lewis
Ms. Lewis has been Senior Vice President, Lodging and Program Management Office since June
2007. Prior to that, she was Vice President, Marketing and Communications, Lodging Development and
Marriott 366119v6 (03/31/2008)
14
Owner and Franchise Services from June 2005 to June 2007. She previously held the position of Vice
President, IR Business Consultancy from 2000 to June 2005. Ms. Lewis joined franchisor in 1993 as a Senior
Financial Analyst. Prior to joining franchisor, she served as a consultant for the Polish Business Advisory
Service.
Vice President, Lodging Development: Alison Cumberland
Ms. Cumberland has been Vice President, Lodging Development for the Western Region since
September 2005 and is located in Newport Beach, California. Prior to her current position, she was Vice
President, Lodging Development for Canada from November 2004 to September 2005. Ms. Cumberland was
Director, Lodging Development for Canada from November 2002 to October 2004. She joined franchisor in
May 2002 as a Business Consultant to Canadian Development. Before pursuing graduate studies at the
University of Calgary, between September 2000 and April 2002, Ms. Cumberland was the Acquisitions
Analyst for Fairmont Hotels and Resorts from March 1998 to August 2000.
Vice President, Lodging Development: Robin Kennedy
Ms. Kennedy has been Vice President, Lodging Development, Eastern Region, since June 2007.
Prior to that, she was in Lodging Finance and Business Development, from October 2003 to June 2007.
Vice President, Lodging Development: Paul B. Loehr
Mr. Loehr has been Vice President, Lodging Development for the Central Region since December
2007. Prior to his current position, he was Vice President, Resort Development for Marriott Vacation Club
International from September 2005 to December 2007. Before that, Mr. Loehr was Senior Director,
Development for Marriott Golf from January 1999 to September 2005.
Vice President, Lodging Development: Julie Purnell
Ms. Purnell has been Vice President, Lodging Development for the Western Region since December
2005 and is located in San Francisco, California. Prior to joining franchisor in December 2005, she was Vice
President, Hotel Development for Loews Hotels from 1998 to 2005. Before that, Ms. Purnell was Vice
President of Development for House of Blues Hospitality from 1997 to 1998. From 1991 to 1997, she was
Vice President, Strategic Planning and Development for the Kimpton Hotel and Restaurant Group.
Director, Development Marketing and Owner and Franchise Services: Matthew Carroll
Mr. Carroll has been Director, Development Marketing and Owner and Franchise Services since
December 2006. Prior to his current position, he held various positions in franchisor’s Corporate Public
Relations Department, including Director, North American Communications and Manager, Media Relations.
Prior to joining franchisor, Mr. Carroll worked as a Strategic Planner for Arnold Worldwide and in Public
Affairs for the Embassy of Australia.
Director, Project Administration, Lodging Development: Andrea Johnson
Ms. Johnson has been Director, Project Administration, Lodging Development since April 2004. She
was Director, Revenue Management from June 2000 until March 2004. Before that, Ms. Johnson was
Manager, Sales Systems from December 1997 to June 2000.
Marriott 366119v6 (03/31/2008)
15
Manager, Project Administration, Lodging Development: Doris Morris
Ms. Morris has been Manager, Project Administration, Lodging Development since January 2006.
Prior to that, she was Senior Administrative Assistant from January 2004 to January 2006 in Owner &
Franchise Services. From November 2000 to January 2004, Ms. Morris was an Information Specialist in
Owner & Franchise Services.
Lodging Operations Officers
The following persons are lodging operations officers of Marriott:
Executive Vice President Full Services Brands, Marriott North American Lodging Operations: Don Semmler
Mr. Semmler has been Executive Vice President Full Service Brands, North American Lodging
Operations since February 2008. He is located at Marriott International Headquarters in Washington, D.C.
Prior to that, he was Executive Vice President for the Central Region of Marriott Lodging from April 2005 to
February 2008. Mr. Semmler was Senior Vice President for the Southeast Region of Marriott Lodging from
April 2000 to April 2005. Before assuming his current position, Mr. Semmler was Senior Vice President,
Central Region, Marriott Lodging from April 2000 to April 2005.
Executive Vice President, Marriott Lodging: Jim Kauffman
Mr. Kauffman has been Executive Vice President for the Western Region of Marriott Lodging since
April 2005. He is located in Newport Beach, California. Mr. Kauffman was Vice President for the Western
Region of Marriott Lodging from January 1999 until April 2005. He was Vice President, Market
Management located in San Francisco, California from January 1997 until December 1998. Before that, Mr.
Kauffman held the position of Area General Manager at the Philadelphia Marriott Hotel in Philadelphia,
Pennsylvania between June 1994 and December 1996 and that of Vice President, Franchise Operations
between March 1993 and May 1994.
Executive Vice President, Marriott Lodging: Rob Steigerwald
Mr. Steigerwald has been Executive Vice President, Central Region, Marriott Lodging since January
2007. Before that he was Senior Vice President and Chief Operations Officers for the Central Region from
May 2005 to January 2007. Prior to that, Mr. Steigerwald was Market Vice President for the Chicago Market
from May 2000 to May 2005. Before that, he was General Manager at various properties from 1992 to 2000.
Senior Vice President, Operations: Robin Uler
Ms. Uler has been Senior Vice President, Operations since January 2007. Before that, she was Senior
Vice President, Food and Beverage/Retail from July 2003 to January 2007. Prior to that, Ms. Uler was Senior
Vice President, Food and Beverage from January 2001 to July 2003.
Senior Vice President, Lodging Quality Assurance and Rooms Operations: Steve Lampa
Mr. Lampa has been Senior Vice President of Lodging Quality Assurance since August 1999. In
October 2002, he also assumed responsibility for Lodging Rooms Operations and Related Services. He was
Brand Team Operations Vice President for Marriott Hotels, Resorts and Suites from June 1996 to August
1999. Prior to that, he served as Vice President of Total Quality Management with Host Marriott Services
from June 1992 until June 1996.
Marriott 366119v6 (03/31/2008)
16
Senior Vice President, Owner and Franchise Services: John H. Moore, Jr.
Mr. Moore has been Senior Vice President, Owner and Franchise Services with responsibility for Full
Service Franchise Operations since January 2004. From July 2002 to January 2004, he was Vice President,
Owner and Franchise Services. Prior to that, Mr. Moore was General Manager at the World Trade Center and
Financial Center Marriott hotels in Manhattan, New York from May 2000 until July 2002 and General
Manager at the World Trade Center Marriott from December 1999 to May 2000.
Senior Vice President, Global Marketing: Susan E. Thronson
Ms. Thronson has been Senior Vice President of Global Marketing since June 2005. She was Senior
Vice President-International Brands and Operations Marketing of the International Lodging Division of
franchisor from November 1998 to June 2005. Ms. Thronson was Vice President, International Brands and
Operations Marketing from April 1997 to November 1998, and Director International Field Marketing from
September 1991 to April 1997.
Senior Vice President, Design and Project Management: John M. Leary
Mr. Leary has been Senior Vice President, Design and Project Management for full-service hotels in
the United States and Canada since July 1991. Prior to that, he was the Product Executive for the Capex
Program and has served in a variety of management positions with franchisor, or its predecessors, since
March 1978.
Vice President, Brand Strategy & Innovation: Neil Cantor
Mr. Cantor has been Vice President since January 2007, with responsibilities for the MHR, RHR and
JW brands. Before joining franchisor, Mr. Cantor was founder and chief operating officer for Design that
Matters in Cambridge, Massachusetts, from January 2002 to August 2006. Prior to that, Mr. Cantor worked
as an analyst with venture capital from Navigator Technology Venture and participated in several startups in
the telecom and media sectors.
Vice President, Owner and Franchise Services: Samuel M. Veneziano
Mr. Veneziano has been Vice President, Owner and Franchise Services, Internal Services with
responsibility for full-service hotels, select-service hotels and extended stay hotels since January 2001.
Before that, he was Vice President, Owner Services for Courtyard, Fairfield Inn, Fairfield Inn & Suites,
Residence Inn, SpringHill Suites and TownePlace Suites Franchising from April 1998 until January 2001.
Prior to that, Mr. Veneziano was Director, Franchising for the Courtyard division between October 1993 and
April 1998. He was Director, Operations Support, Franchising for the Courtyard division from October 1991
until October 1993 for Marriott Corporation.
Vice President, Owner and Franchise Services: Richard Farrar
Mr. Farrar has been Vice President, Owner and Franchise Services with responsibility for Openings,
Marketing and Communications since January 2001. He was Vice President, Franchising-Marketing and
Communications between August 1998 and February 2001. Prior to that, he was Regional Director of Sales
and Marketing for the Marriott Hotels, Resorts and Suites Franchise Division of franchisor between October
1993 and August 1998. From January 1990 until October 1993, he held the same position for Marriott
Corporation.
Marriott 366119v6 (03/31/2008)
17
Vice President, Owner and Franchise Services: Ted Coleman
Mr. Coleman has been Vice President, Owner and Franchise Services with responsibility for
Openings, Acquisitions and Divestitures since January 2001. He was Senior Director of Franchising between
January 2000 and January 2001, and Director of Franchising between July 1995 and January 2000. Before
that, he was Director of Food and Beverage Training between October 1993 and July 1995.
Vice President, Owner and Franchise Services: Guy R. Reinbold
Mr. Reinbold has been Vice President, Food and Beverage, Owner and Franchise Services since
August 2005. He was Director, Food and Beverage for the Baltimore Marriott Waterfront Hotel from January
2003 through July 2005. Before that, Mr. Reinbold was Vice President of Culinary for franchisor from April
2000 to January 2003.
Vice President, Owner and Franchise Services: Michael Lusick
Mr. Lusick has been Vice President, Owner and Franchise Services with responsibility for Full
Service Rooms Operations since March 2004. From February 2003 to March 2004, he was Director, Owner
and Franchise Services for Full Service Rooms Operations. Prior to that, he was Director, Owner and
Franchise Services for all lodging brands between January 2001 and February 2003 and Director of Full
Service Franchising from January 2000 until January 2001.
Vice President, Owner and Franchise Services: Amish Naik
Mr. Naik has been Vice President, Owner and Franchise Services, Relicensing and Growth
Administration since March 2007. Between October 2005 and March 2007, he was Senior Director of the
same department. Prior to joining Owner and Franchise Services, he worked in Marriott’s Development
Planning & Feasibility Group from May 2001 until October 2005. Prior to joining franchisor, Mr. Naik spent
10 years working within the hospitality industry in a variety of roles, including operations, consulting, and
market planning.
Regional Vice President, Franchise Operations: Robert S. Jones
Mr. Jones has been Regional Vice President, Franchise Operations since September 2005. Prior to
that, Mr. Jones was Area General Manager, Philadelphia Airport Marriott from August 1995 to September
2005.
Regional Vice President, Franchise Operations: John Reiss
Mr. Reiss has been Regional Vice President, Franchise Operations since July 2005. Prior to that, Mr.
Reiss was Regional Vice President, Franchise Operations for the Midwest and Canada from July 2004 to July
2005. From February 2003 to July 2004, Mr. Reiss was Regional Vice President of Operations for the
Marriott Hotels Midwest Region and Market Vice President responsible for Minneapolis, Missouri and
Kansas. Prior to that, Mr. Reiss was Regional Vice President of Operations for the Midwest Region from
May 1999 to February 2003. He has been with Franchisor since its acquisition of the Renaissance Brand in
1997.
Marriott 366119v6 (03/31/2008)
18
Regional Vice President, Franchise Operations – Western Region: Todd Walther
Mr. Walther has been Regional Vice President, Franchise Operations since May 2006. Prior to his
current position, Mr. Walther was General Manager, Dallas Marriott Quorum from June 2001 to May 2006.
Before that, he was General Manager, Renaissance Dallas Hotel from December 1999 to June 2001.
Senior Director, Franchise Operations – Western Region: Nour Laasri
Mr. Laasri has been Senior Director, Franchise Operations since September 2006. Prior to his current
position, he was Director of Operations at the Renaissance Austin Hotel from June 2005 to September 2006.
Before that, Mr. Laasri was Director of Operations at the Renaissance Cleveland Hotel from April 2004 to
June 2005. Prior to that, he was Director of Food and Beverage at the Renaissance Waverly Hotel from
February 1999 to April 2004.
Senior Director, Franchise Operations – Central Region: Sam Crooke
Mr. Crooke has been Senior Director, Franchise Operations since October 2006. Prior to his current
position, he was Director of Operations at the JW Marriott New Orleans from April 2003 to October 2006.
Before that, Mr. Crooke was Director of Operations at the Overland Park Marriott from August 1999 to April
2003.
Senior Director, Owner and Franchise Services, Contract and Growth Administration: Patrick G. Willenborg
Mr. Willenborg has been Senior Director, Owner and Franchise Services, Contract and Growth
Administration since October 2007. He was Director, Owner and Franchise Services with responsibilities for
Openings, Acquisitions and Divestitures from March 2003 to October 2007. He was Manager, Owner and
Franchise Services, from January 2001 until March 2003. Prior to that, Mr. Willenborg was Lead General
Manager at the Charlottesville, Virginia Courtyard Hotel from August 1998 to January 2001.
Senior Director, Owner and Franchise Services: Ann Marie Padron
Ms. Padron has been Senior Director, Owner and Franchise Services, Contract Administration since
March 2007. Prior to that, she was Director, Owner and Franchise Services, Contract Administration from
January 2004 to March 2007. From October 2000 to January 2004, she was Manager, Owner and Franchise
Services. Prior to joining franchisor, she was Director, Contract Administration from March 1998 until
October 2000 with Choice Hotels International in Silver Spring, Maryland.
Senior Director, Owner and Franchise Services: Dana Pimentel
Ms. Pimentel has been Senior Director, Owner and Franchise Services since December 2007. Prior to
that, she was Director, Owner and Franchise Services from June 2006 to December 2007. Before that, she
was Manager, Owner and Franchise Services from June 2004 to May 2006. Prior to that, she Opening
General Manager of two SpringHill Suites Hotels from February 2000 to May 2004.
Senior Director, Owner and Franchise Services: Ronald K. Stewart
Mr. Stewart has been Senior Director, Owner and Franchise Services since January 2008. Prior to
that, he was Senior Director, CFRST Managed-Western Region from January 2003 to December 2007. From
October 1999 to December 2003, he was Director, Owner and Franchise Services and also served as Regional
Director of Quality Assurance from July 1994 to September 1999.
Marriott 366119v6 (03/31/2008)
19
Senior Opening Operations Manager, Owner and Franchise Services: Lisa Hausknecht
Ms. Hausknecht has been Senior Opening Operations Manager since August 1999. She provides
operational support and direction for hotel openings, acquisitions and divestitures for all brands in North
America.
Manager, Owner and Franchise Services: Miriam Avrunin
Ms. Avrunin has been Manager, Owner and Franchise Services, Contract Administration since
February 2006. From February 2004 to February 2006, she was Contracts Coordinator in the same
department. Prior to that, she was a Project Specialist for franchisor’s Temporary Staffing assigned to
projects for Retail Sales, Human Resources and Marketing.
Manager, Owner and Franchise Services: Naomi Paulraj
Ms. Paulraj has been Manager, Owner and Franchise Services, Contract Administration since April
2008. From August 2003 to April 2008 she was a Program Specialist for the Residence Inn and TownePlace
Suites Brands. From November 2000 to August 2003 Ms. Paulraj was a Research Associate for Brand
Management. Prior to joining Marriott International, Ms. Paulraj was an Analyst for PKF Consulting.
Marriott 366119v6 (03/31/2008)
20
ITEM 3
LITIGATION
1.
Current Proceedings
None
2.
Concluded Proceedings
(Miami Beach Hotel Investors, LLC v. Marriott International, Inc.; U.S. District Court Southern
District of Florida (Miami), Civil Action No. 1:06-cv-22174-UU). Miami Beach Hotel Investors (“MBHI”)
filed a lawsuit against us alleging that MBHI purchased a hotel in Miami Beach in reliance on assurances
from us that the hotel would be operated under a Courtyard by Marriott franchise and on a later statement that
its franchise application had been approved. MBHI further alleged that we withdrew our approval and that
such withdrawal caused MBHI to file for bankruptcy. MBHI alleged breach of contract, breach of implied
covenant of good faith and fair dealing, fraud in the inducement, violation of various sections of the Florida
Franchise Act, breach of fiduciary duty, and equitable and promissory estoppel. The case was removed to
federal court in Florida. The lawsuit was dismissed with prejudice on June 25, 2007, as part of a settlement
whereby we made a payment to MBHI in the amount of $975,000.
(Whitey Ford, et al. v. Host Marriott Corporation, et al.; 285th Judicial District Court of Bexar
County, Texas, Case No. 96-CI-08327). On June 7, 1996, a group of partners in Courtyard by Marriott II
Limited Partnership (“CBM II”) filed a lawsuit against us, Host Marriott Corporation (“Host Marriott”), and
others, alleging breach of fiduciary duty, breach of contract, fraud, negligent misrepresentation, tortious
interference, violation of the Texas Free Enterprise and Antitrust Act of 1983, and conspiracy in connection
with the formation, operation, and management of CBM II and its hotels. The plaintiffs sought unspecified
damages. On January 29, 1998, two other limited partners, A.R. Milkes and D.R. Burklew, filed a petition in
intervention seeking to convert the lawsuit into a class action, and a class was certified. In March 1999, Palm
Investors, LLC, the assignee of a number of limited partnership units acquired through various tender offers,
and Equity Resource, an assignee, through various of its funds, of a number of limited partnership units, filed
pleas in intervention, which among other things added additional claims relating to the 1993 split of Marriott
Corporation and to the 1995 refinancing of CBM II’s indebtedness. On August 17, 1999, the general partner
of CBM II appointed an independent special litigation committee to investigate the derivative claims
described above and to recommend to the general partner whether it was in the best interests of CBM II for
the derivative litigation to proceed. The general partner agreed to adopt the recommendation of the
committee. Following certain adjustments to the underlying complaints, including the assertion as derivative
claims of some of the claims previously filed as individual claims, a final amended class action complaint was
filed on January 6, 2000. The lawsuit was dismissed as part of the settlement described below.
On February 23, 2000, we entered into an agreement, which subsequently was embodied in a
definitive agreement executed on March 9, 2000, to resolve this lawsuit as well as the Haas litigation
described below. The agreement was reached with lead counsel to the plaintiffs in both this lawsuit and the
Haas case and with the special litigation committee appointed by the general partner of CBM II and by
Courtyard by Marriott Limited Partnership (“CBM I”), a defendant in the Haas matter. The agreement was
amended on September 23, 2000, to increase the amount that CBM I settlement class members were to
receive after deduction of court-awarded attorneys’ fees and expenses and to provide that the defendants,
including Marriott, would pay a portion of the attorneys’ fees and expenses of the CBM I settlement class.
Under the agreement, our affiliates acquired, through an unconsolidated joint venture with affiliates
of Host Marriott, substantially all of the limited partners’ interests in CBM I and CBM II. These partnerships
own 120 Courtyard by Marriott hotels. One of our affiliates continues to manage the 120 hotels under longMarriott 366119v6 (03/31/2008)
21
term agreements. The joint venture was financed with equity contributed in equal shares by us and an affiliate
of Host Marriott and approximately $200 million in mezzanine debt provided by us. Our total investment in
the joint venture, including the mezzanine debt, is approximately $300 million. Final court approval of the
CBM I and CBM II settlements was granted October 24, 2000, and became effective on December 8, 2000.
The settlement also provided for the resolution of litigation with respect to four other limited
partnerships. On September 28, 2000, the court entered a final order with respect to those partnerships and on
that same date, we and Host Marriott each paid into escrow approximately $31 million to the plaintiffs in the
Haas lawsuit described below in exchange for dismissal of the complaints and full releases.
(Robert M. Haas, Sr. and Irwin Randolph Joint Tenants, et al. v. Marriott International, Inc., et al.;
57th Judicial District Court of Bexar County, Texas, Case No. 98-CI-04092). On March 16, 1998, limited
partners in several limited partnerships sponsored by Host Marriott or its subsidiaries filed a lawsuit alleging
that the defendants conspired to sell hotels to the partnerships for inflated prices and that they charged the
partners excessive management fees to operate the partnerships’ hotels. The plaintiffs further alleged that the
defendants committed fraud, breached fiduciary duties, and violated the provisions of various contracts. A
Marriott subsidiary manages each of the hotels involved and, as to some of the properties, Marriott is the
ground lessor and collects rent. Marriott, several of our subsidiaries, and J.W. Marriott, Jr. were among the
several named defendants. This lawsuit was dismissed as part of the settlement described above.
(Mark Aston v. Marriott International, Inc.; Superior Court of Los Angeles County, California, Case
No. BC250226). On May 10, 2001, the plaintiff filed a class action against Marriott alleging that certain
energy charges imposed on guests at Marriott hotels were unfair and deceptive. The putative class included
all persons who paid an energy charge at any Marriott hotel in the United States. The complaint alleged
breach of contract, violations of the California consumer protection statutes, and fraud. In January 2002, the
parties participated in a mediation session, which culminated in an agreement in principle on a settlement
plan. In July 2002, the court granted initial approval of a settlement whereby all persons who paid an energy
fee at a Marriott-managed property would receive a discount certificate worth $10 off a one-night stay at any
Marriott-brand hotel located in the United States. In addition, Marriott would pay plaintiffs’ counsel
$100,000 to reimburse counsel’s attorneys fees and costs. Final approval of the settlement was obtained on
November 12, 2002. The redemption period ended on December 14, 2003, and $118,900.00 in certificates
were redeemed. The matter is now closed.
(Ireland, Kiezes, and Stelter, et al. v. Strategic Hotel Capital (Orange County Superior Court,
California, Case No. 01-CC-10246); Barry Phillips v. Marriott International, Inc. and The Ritz Carlton Hotel
Company, L.L.C. (Orange County Superior Court, California, Case No. 01-CC-00379); Shapiro & Perez v.
Marriott International, Inc., (D.C. Super. Ct., Civ. Div., Case No. 02 CA 001850). Class action lawsuits were
filed against various owners, Marriott, and our affiliate, the Ritz-Carlton Hotel Company, L.L.C. alleging,
among other things, unfair and deceptive trade practices, unjust enrichment, breach of contract, and fraud
relating to the imposition of certain resort fees. The Court granted final approval of the settlement agreement
on August 14, 2003. Class members were able to redeem the certificates they received under the terms of the
settlement agreement until April 1, 2005. The time period for people to appeal the final approval expired on
October 13, 2003, and there were no appeals. We have made final payments to plaintiffs’ attorneys for their
fees. The redemption period for the certificates issued as part of the settlement expired on April 1, 2005, and
the matter is now closed.
(State of Missouri v. Marriott International, Inc.; Circuit Court of St. Louis County, MO, Case No.
04CC-003674). Marriott, without admitting any wrongdoing, entered into an Assurance of Voluntary
Compliance with the State of Missouri on August 20, 2004 agreeing not to charge customers additional fees
for energy costs at Marriott managed hotels in Missouri without providing prior notice to the customers. In
addition, Marriott paid $50,000 to the Missouri Merchandising Practices Fund and agreed not to violate the
Marriott 366119v6 (03/31/2008)
22
Missouri Merchandising Practices Act in the future. On September 2, 2004, the Circuit Court of St. Louis
County issued an Order Approving Assurance of Voluntary Compliance.
(CTF Hotel Holdings, Inc. v. Marriott International, Inc., Renaissance Hotel Operating Company, and
Avendra, LLC; U.S. District Court, District of Delaware, Civil Action No. 02-271). On April 8, 2002,
Marriott and its subsidiary Renaissance Hotel Operating Company (“RHOC”), initiated an arbitration
proceeding against CTF Hotel Holdings, Inc. (“CTF”) and CTF’s affiliate, Hotel Property Investments
(B.V.I.) Ltd. (“HPI”), in connection with a dispute over procurement issues for certain Renaissance hotels that
Marriott entities managed for CTF and HPI. On April 12, 2002, CTF initiated a lawsuit against Marriott,
RHOC, and Avendra LLC styled CTF Hotel Holdings, Inc. v. Marriott International, Inc., Renaissance Hotel
Operating Company and Avendra, LLC, in the United States District Court for the District of Delaware,
alleging that, in connection with procurement at 20 of those hotels, defendants engaged in improper acts of
self-dealing, and claiming breach of fiduciary, contractual and other duties; fraud; misrepresentation; and
violations of the Racketeer Influenced and Corrupt Organizations Act and the Robinson-Patman Act.
Defendants denied all these allegations.
On April 27, 2005, Marriott entered into a purchase and sale agreement with CTF wherein Marriott
entities agreed to purchase 32 hotels and certain joint venture interests. The agreement permitted Marriott to
designate purchasers at closing. During 2005, we closed on 15 hotels and other designated purchasers closed
on an additional 15 hotels, 13 of which are managed by Marriott and two of which are operated under shortterm franchise agreements. Marriott continues to operate two of the hotels for CTF due to a lack of necessary
third-party consents. Marriott and CTF exchanged legal releases effective as of the closing date, and the
litigation between the parties has been dismissed with prejudice.
Other than these seven matters, no litigation must be disclosed in this disclosure document.
Marriott 366119v6 (03/31/2008)
23
ITEM 4
BANKRUPTCY
No bankruptcy information must be disclosed in this disclosure document.
Marriott 366119v6 (03/31/2008)
24
ITEM 5
INITIAL FEES
1.
Initial Fee
The initial fee is the greater of $82,500 or $300 per guestroom.1 Generally, you must pay $10,000 of
your initial fee at the time you submit your franchise application to us, and it is not refundable. Generally, the
balance of the initial fee is due the earlier of (a) the date of the franchise agreement or (b) 6 months after we
give you conditional approval of your franchise application. If you are submitting an application to acquire
an existing Marriott hotel and will be executing a new franchise agreement for that Marriott hotel, the initial
fee is generally payable in full at the time you submit your franchise application. We will refund the balance
of the initial fee (over the initial $10,000 of the fee) less our costs, if we do not approve your application;
otherwise, the initial fee is not refundable. For conversions, you may also be required to pay separate
property improvement plans fees, which are described below. If you are acquiring an existing Marriott hotel,
we may require you to pay our outside counsel costs.
2.
Pre-Opening Fees
One-time fees and reimbursements required for opening your hotel as a Marriott hotel range from
$550,505 to $638,880 for a 300-room hotel (excluding certain travel and related expenses). These costs are
for required systems, hardware and software, hotel management and staff training, and pre-opening services.
They are payable on demand. If you are acquiring an existing Marriott hotel, your pre-opening fees and costs
will vary depending upon, among other things, the systems in place and experience of personnel that are
retained at the time of acquisition. We do not refund pre-opening fees.
A.
Property Management System (“PMS”) and Reservation System (“MARSHA”)
You must purchase from us or our designee the PMS, including Marriott’s proprietary PMS software.
The total cost of PMS generally ranges from $154,200 to $160,700 for a 300-room hotel and includes the
cost of hardware, software, installation, PMS and MARSHA training, transportation and meals but does not
include the cost of lodging for the training team, which you must pay. 2
Self-service kiosks (“Kiosks”) have been designed to provide guests with another means of executing
tasks associated with arriving at and departing from their hotel. The Kiosks are fully integrated with the
PMS, and include activities that otherwise would have been performed by front desk personnel such as checkin, check-out, and airline check-in.
The one-time cost to design and implement the Kiosks ranges from $5,130 to $9,800, depending upon
the size of the hotel and includes approximately $600 for the cost of a third party project manager. The
monthly cost to maintain and service the Kiosks ranges from $130 to $255, depending upon the number of
Kiosks installed at the hotel. The total one-time cost for hardware and software for the Kiosks depend on the
number of Kiosks installed at the hotel. The recommended number of Kiosks for a hotel (which is based upon
the number of hotel rooms) and the approximate costs for hardware and software for such Kiosks are set forth
in the table below:
Number of Rooms
Recommended
# of Kiosks
Hardware
Software
Total
Marriott 366119v6 (03/31/2008)
1200 or
more
6001199
200599
199 or less
4
3
2
1
27,309
962
28,271
13,654
481
14,135
$54,617
$1,925
$56,542
25
40,963
1,444
42,407
B.
Other Computer Hardware and Software Systems
You must obtain sales, catering, and food and beverage systems. To participate fully in our automated
sales environment, you have the option as described in Items 8 and 11 to install our proprietary NGS (Next
Generation System) Sales and Catering system or to use the approved alternative, the DELPHI Sales and
Catering System (“DELPHI”) (offered by Newmarket International, Inc.). The NGS Sales and Catering
system communicates with our PMS system and automates the group room inventory and function space
inventory. These systems also interface with our Event Booking Centers (described in Items 6 and 11) if you
elect to participate in these centers. Depending upon which system you select, training and installation costs
start at approximately $64,300 (includes transportation and meals) plus the cost of lodging for the training
team. The costs to create the hotel’s NGS Sales and Catering system database with all function space and
catering menu items start at approximately $16,200. Also, depending on the types and quantities of PCs,
terminals, and printers in the sales and catering office, there could be additional equipment purchases
required. The total cost for a typical 300-room hotel generally ranges from $106,300 to $144,200 for NGS
Sales and Catering system or DELPHI, plus the cost of lodging for the trainers.2
We have begun development of the Consolidated Inventory program (“CI”), which will consolidate
the system functionality of NGS and the Sales Force Automation program (“SFA”) (see Item 11). We do not
have the system or maintenance costs yet for CI. Once available, we expect that all new Marriott hotels will
be required to install CI prior to opening of the hotel and there will be a conversion period for existing
Marriott hotels. We expect that there will be an as yet undetermined one-time charge for the use of an
automated data conversion program for Marriott hotels to migrate to CI. We expect that hotels that install
NGS or DELPHI prior to the roll-out of CI will likely not be able to use any of the NGS or DELPHI software
or retain any benefit from the NGS or DELPHI installation and training costs expended, though we expect the
hardware will still be usable for other required systems.
You must install the Marriott Learning Journey multimedia training system (see Item 11). The
Marriott Learning Journey software is licensed from Marriott at a cost ranging from $2,800 to $20,500,
depending on the size of your hotel. Also, we require you to have from 1 to 4 dedicated PCs that meet the
system’s minimum requirements. The purchase price for a new PC to meet the requirements would be
approximately $1,300 per PC. You also will be charged a one-time installation fee of $600 per PC that the
courseware is installed on.
You must also install the Guestware Rapid Response version 3 application from Diversified
Computer Corporation. The software license for a typical 300-room hotel allows access for up to 3 users and
costs approximately $5,955. The cost for training on, and installation of, the application (and associated
travel) is approximately $6,500. The Guestware database must reside on a dedicated server connected to
Marriott’s PMS system, meeting the minimum PC server requirements. You must also purchase the software
and hardware for the Marriott Standard Desktop described in Item 11.
You must use a point-of-sale system at your Marriott hotel that integrates with PMS. There are
several point-of-sale systems from different vendors that interface with PMS. We recommend that you
purchase or lease the Micros point-of-sale (“POS”) system for your food and beverage outlets, which costs
approximately $113,000 for a typical 300-room hotel.
You must use the Global Card Services (“GCS”) RealtimeMerchant application to process credit card
authorizations and settlements in order to comply with Payment Card Industry (“PCI”) security regulations.
If your hotel desires to use Marriott created recipes, you must use ChefTec recipe management
software provided by Culinary Software Services, Inc. The ChefTec software license costs $400.
Marriott 366119v6 (03/31/2008)
26
You must also use Marriott’s web-based yield management system for rooms inventory (“One
Yield”). One Yield provides demand forecasting tools and makes inventory recommendations to help capture
market demand.
The cost of this hardware and software is subject to change and is included in Items 7 and 11. We do
not refund these charges under any circumstances.
C.
Pre-Opening Training and Services
In general, other than costs incurred when purchasing an existing Marriott hotel (see below), all other
costs of training and pre-opening services (excluding transportation, lodging, and meals) are included in the
estimated $78,750 to $99,225 range of training costs identified in Item 7. These amounts generally cover the
cost of management and executive training, pre-opening on-site task force training, and the opening
authorization process, including all associate staff orientation manuals and other materials. We have not
included lodging costs because you should provide free lodging for our trainers. We will charge you the cost
of lodging if you do not provide it. We estimate that meals will cost from $35 to $50 per day per person, but
you may reduce this cost if you provide free meals at the hotel for our trainers. The cost of transportation
varies greatly, and we are not able to give you a meaningful estimate. The cost of training and pre-opening
services is subject to change. We do not refund training and pre-opening services fees. See Item 11 for a
detailed description of Marriott’s mandatory pre-opening training and related costs.
3.
Pre-Conversion or Relicensing Property Review Fees
When converting a hotel to a Marriott hotel or transferring an existing Marriott hotel, as set forth in
Item 6, you will be required to pay a property improvement plan review fee ($10,000 as of March 31, 2008)
for us to review the hotel to determine the renovations necessary to bring the hotel into good repair and to
conform the hotel to Marriott’s then-current standards. Payment is due when the review is scheduled. If your
franchise application for the hotel is approved, you will also be required to pay a fee for a pre-conversion food
and beverage audit. The cost of the audit is $1,500 as of March 31, 2008. The audit is conducted by a third
party retained by Marriott, and the cost of the audit may change if the fee charged to Marriott by the auditors
changes. Payment is due to Marriott upon your receipt of the invoice for the audit. With respect to
conversions, the amount of the review fee and the audit fee paid by you is non-refundable but will be credited
to the application fee described above if your application is approved within six months after the property
improvement plan (“PIP”). With respect to relicensings, if we enter into a new relicensing franchise
agreement within six (6) months after the property improvement plan, and a full transfer fee has been paid to
us in connection with such transaction, the property improvement plan review fee paid to us will be refunded
or credited against other amounts due to us at closing from either you or the franchisee under the new
relicensing franchise agreement (depending on who paid the property improvement plan review fee). We may
waive these fees under certain circumstances. If a site visit(s) is required after we issue the PIP, for any
reason, including to enforce, review or modify the requirements of the PIP, we may charge the costs of such a
site visit (approximately $2,500 to $3,000 per visit as of March 31, 2008).
4.
Relicensing Training and Services
When purchasing an existing Marriott hotel, we may send a representative from our Owner and
Franchise Services group to assess the hotel and provide training services. In addition, we may require certain
franchisee personnel to attend (a) Executive Orientation at our corporate headquarters, (b) other prescribed
classes (at the hotel) and (c) sales and marketing meetings (at the hotel) to analyze or assist in sales efforts.
As of March 31, 2008, we do not charge tuition fees for attending any of these on-site or off-site meetings or
classes, but you will be required to pay all travel and living expenses of your personnel who attend Executive
Orientation. We may send a representative from our Owner and Franchise Services group to the hotel to
assist in the relicensing process, for which we will charge a $5,000 fee. We estimate that the costs for on-site
classes, training services and relicensing assistance (including reimbursement for Marriott personnel’s meals,
Marriott 366119v6 (03/31/2008)
27
transportation and other expenses) will range from $5,000 to $15,000 based on the experience level and prior
training of your associates and the size of the hotel.
5.
Fees for Other Services
A.
Optional Purchasing and Supply Arrangements
As described in Items 1 and 8, you and other franchisees may voluntarily purchase various products
and services under the arrangements negotiated by us, our subsidiaries and Avendra. Marriott Design &
Construction charges for its procurement services. In 2008, we expect that the fees charged (i) for furniture,
fixtures and equipment to be the greater of $10,000 or approximately 4.5% to 5% of the purchase order and
(ii) for hotel opening operating supplies to be the greater of $10,000 or approximately 4.5% to 5% of the
purchase order. In 2008, we expect that the fees imposed, if any, plus any rebates or allowances received
from suppliers by Avendra will generally range from approximately 1% to 25% of the amount of the invoice
price to you of the products and services you purchase from suppliers under Avendra’s negotiated
arrangements. The fees charged to a franchisee may vary depending on the degree to which the franchisee is
participating in the purchasing programs offered, the size of deliveries, the products purchased, the terms of
the arrangements negotiated with suppliers, competition, the duration of any supply chain access agreement
executed with Avendra and a variety of other factors (see Item 8). Those arrangements negotiated by Marriott
Lodging Products and Services could involve the payment of a fee or rebate to us, which we expect may
generally range from 1% to 5% of the amount of the invoice price to you of the products or services you
purchase.
We, our subsidiaries and Avendra generally will retain the amount of any fees or rebates received
based on franchisee purchases. The specific fee or rebate on an individual product may exceed the ranges
described above. These amounts are not refundable.
B.
Design and Construction
You may use the design and construction services of personnel of Marriott Design & Construction,
our affiliate. Your use of these services is voluntary. The cost of these services varies with the services you
request. The cost of these services is included in Item 7. We do not refund these fees.
C.
Condominium Charges
We have received proposals from franchisees to allow the franchisee to structure a hotel as a
condominium in which guestrooms would be sold by the franchisee (or a related party) as separate units under
the Marriott or JW Marriott brands. There are certain fees associated with structuring the hotel as a
condominium or if the hotel contains residential units that you will have to pay in addition to the other fees
stated in this disclosure document. We charge a development license fee generally of 3-4% of gross sales
proceeds of the units under the Marriott brand, and generally of 4-5% of the gross sales proceeds of the units
under the JW Marriott brand. If you are permitted under local law to take a portion of the gross sales proceeds
into income before the unit is complete, we would expect to receive our allocable share. These proposed
structures present us with substantial additional costs and risks not associated with other capitalization or
financing structures. In order to accommodate such proposals, we may require the franchisee to pay for our
additional costs, such as feasibility work, attorneys fees, architectural and design review, a license fee on
resale (generally 1% of gross sales proceeds), etc. The design review fees could range from $100,000 to
$500,000, and will be paid prior to opening (in tranches throughout the design and development process as
architectural and design review services are provided by us or our affiliates). These fees will vary depending
on the complexity, size, risk and value associated with the project.
_________________
Marriott 366119v6 (03/31/2008)
28
NOTES:
1
We will consider exceptions to our standard initial fee in certain limited circumstances. Factors that we will
consider in changing the initial fee include: (1) market penetration opportunities and our desire to be in the
market area, (2) the location in the market, (3) the size of the hotel, (4) the economic and financial environment,
(5) the cost to the franchisee to complete the conversion, if it is a conversion, of an existing hotel, (6) whether
our reducing a portion of the fees would aid in the successful development or conversion of the hotel, (7)
whether the franchisee is willing to commit to playing an active role in growing the system, and (8) any other
relevant factors. Marriott has received proposals from franchisees to allow the franchisee to structure a hotel as
a condominium in which guestrooms would be sold by the franchisee (or a related party) as separate units under
the Marriott or JW Marriott brands. There are certain fees associated with structuring the hotel as a
condominium or if the hotel contains residential units that you will have to pay in addition to the other fees
stated in this disclosure document.
2
You should provide free lodging for our trainers. If you do not, we will charge you for the cost of lodging.
Marriott 366119v6 (03/31/2008)
29
ITEM 6
OTHER FEES
TYPE OF FEE
Franchise Royalty
Marketing Fund Fee
Reservation System
Group Lead Charge
AMOUNT
DUE DATE
6% of gross room sales and
3% of gross food & beverage
sales.1,2
1% of gross room sales.1
Payable by the 20th day
after the end of each
Accounting Period.3
Payable by the 20th day
after the end of each
Accounting Period.3
A fixed charge of $2.85 per
room per Accounting Period; a
variable charge of $4.20 per
gross reservation for nonresort hotels and $4.52 per
gross reservation for resort
hotels; a transaction charge of
$0.32 for each transaction.
There is a MARSHA
communication support fee of
$115 per Accounting Period.3
$3.25 per room night booked.
On demand.
REMARKS
This fee is subject to
change. See Item 11 for
more information
regarding the Marketing
Fund.
These fees are subject to
change.4
On demand.
This fee applies to tollfree telephone
reservations booked by us
for groups of ten or more
rooms in a single night.
Catering Lead Charge
$105.00 per catering
opportunity booked.
On demand.
This fee applies to tollfree telephone
reservations booked by us
for catering events.
Extended Stay Lead
Charge
$3.25 per room night booked.
On demand.
This fee applies to room
nights booked through
our extended stay
department.
Additional
Communication
Support Fee21
Market Sales Group
Booking Fee27
Marriott 366119v6 (03/31/2008)
$200 - $1,805 per Accounting
Period.3
On demand.
6% of gross group room
revenue based on the number
of committed rooms (reduced
by 5%) and the average room
rate in the group sales
contract. This fee will not
exceed $30,000 per booking.
On demand.
30
These fees are subject to
change. These are
voluntary programs and
you pay only if the
business opportunity
books at your hotel.
Optional. This fee is
subject to change.
This fee is subject to
change. This is a
voluntary program and
you pay only if you
accept the referral.
TYPE OF FEE
Territory Sales Group
Booking Fee23
Global Sales Group
Booking Fee 29
One Yield
One Yield Training
Property Management
System (“PMS”)
English (U.S.) NGS
Sales and Catering
system, and Marriott
Networked PCs
Guestware
AMOUNT
DUE DATE
On demand.
This fee is subject to
change. This is a
voluntary program and
you pay only if you
accept the referral.
On demand.
This fee is subject to
change. This is a
voluntary program and
you pay only if you
accept the referral.
On demand.
On-line training is available at
no cost. Printed copies of the
on-line training materials may
be purchased for $60 per
copy.4
Varies from $520 - $2,080 per
Accounting Period for PMS
maintenance, development and
hardware monitoring;.3,5,20,24
$665 per property per
Accounting Period for NGS
Sales and Catering system
maintenance; $242.75 per
property per Accounting
Period for NGS Sales and
Catering system support.3
$1,488 - $2,463 per year.
On demand.
This fee is subject to
change.4
Training can be accessed
for no charge in the
system.
On demand.
These fees are subject to
change.4
On demand.
These fees are subject to
change. 4
These fees are subject to
change.4
Quality Assurance
Red Zone Meeting6
Food Safety
Re-Inspection Fee7
Critical Item ReInspection Fee
$2,500 per meeting.
Pro-rated in the year of
installation. Following
years are charged out in
Accounting Period 2.
On demand.
$1,000.
On demand.
$1,000.
On demand.
Marriott Reservations
Data Warehouse
(“MRDW”) Training
Training
$60 for training manuals or
free via Marriott Reservations
Data Warehouse.
Varies.
We may require you to
participate in these
programs.
On demand.
Marriott 366119v6 (03/31/2008)
REMARKS
7% of gross group room
revenue based on the number
of committed rooms (reduced
by 5%) and the average room
rate in the group sales
contract. This fee will not
exceed $30,000 per booking.
6% of gross group room
revenue based on the number
of committed rooms (reduced
by 5%) and the average room
rate in the group sales
contract. This fee will not
exceed $30,000 per booking.
$0.0852 per transaction.
31
This fee is subject to
change.
This fee is subject to
change.
This fee is for reinspection of the hotel
triggered by failure to self
report the resolution of
Critical Items under the
Quality Assurance
Program. This fee is
subject to change.
These fees are subject to
change.
These fees are subject to
change. See Item 11.
TYPE OF FEE
AMOUNT
Property Improvement
Plan (“PIP”) Fee
Then-current PIP Fee ($10,000
as of March 31, 2008).
At time of request.
Cooperative
Advertising and
Marketing Initiatives
Varies.8
On demand.
Field Sales
x Event Booking
Center
x Market Sales
Team
Varies.9
On demand.
Sales Force One
x Sales Office
x Area Sales
Varies.30
On demand.
Marriott Rewards
Varies.10
On demand.
Interest
Lesser of 18% per year or
maximum interest rate
permitted by law.
Cost of audit.
On demand.
As agreed.
On demand
Accounting
Design/Construction
Assistance
Marriott 366119v6 (03/31/2008)
DUE DATE
On demand.
32
REMARKS
This fee is charged if you
are converting an existing
hotel to a Marriott hotel
or if you are transferring
a Marriott hotel. This fee
is subject to change. See
Item 5.
We may require you to
participate in these
programs. These fees are
subject to change. See
Item 11.
Participation in these
programs is encouraged
and may be required in
certain circumstances.
These programs and the
fees associated with these
programs are subject to
change. You must
execute a service
agreement to participate
in either of these
programs.
Participation in Sales
Force One is encouraged.
This program and the
fees associated with it are
subject to change. You
must execute a service
agreement to participate
in this program.
Participation must include
participation in both Sales
Office and Area Sales.
You must participate in
our Marriott Rewards
program and other special
marketing or frequent
traveler programs that we
establish. These
programs and the fees
associated with these
programs are subject to
change.
Interest accrues from 10
days after due date.
Payable only if audit
reveals understatement of
5% or more.
Our design and
construction personnel
will be available to assist
you if you request our
help.
TYPE OF FEE
AMOUNT
DUE DATE
Advisory Services
As agreed.11
On demand.
Cluster Revenue
Management
Varies.12
On demand.
Purchasing and
Supply Arrangements
Varies.13
On demand.
Additional Rooms
Varies.14
With request for
approval.
Intermediary
Payments (Travel
Agency, Travel
Management
Company, Group
Intermediary) and
CTAC Usage.
Human Resource
Initiatives
Liquidated Damages
Varies.15
On demand.
Varies.16
On demand.
Varies.17
On demand.
E-mail
$10.25 per e-mail ID per
Accounting Period for the
franchise e-mail solution.3
On demand.
The Marriott Global
Source19
$45 - $70 per Accounting
Period depending on size of
property.3
$0.06 per transaction.
On demand.
Area Reservation
Sales Offices
(“ARSOs”)
Varies.22
On demand.
eFolio
$0.64 per transaction.
On demand.
Oscar (Marsha Guest
History)
Marriott 366119v6 (03/31/2008)
On demand.
33
REMARKS
We will send qualified
personnel to your hotel to
assist you if you request
our help.
Participation in this
program is encouraged
and may be required in
certain circumstances.
Except for certain
computer software, you
are currently not required
to purchase any items
from us. (See Item 8).
This fee less a processing
charge is refundable if the
application is
disapproved. The fee is
non-refundable if the
application is approved.
This fee is subject to
change.
This fee is subject to
change.
Payable only if
termination was due to
your default.
This service is optional.
This fee is for support
and maintenance. These
fees are subject to
change.18
These fees are subject to
change.
This system is optional.
These fees are subject to
change.
Participation in this
program is encouraged
and may be required in
certain circumstances.
Fees associated with this
program are subject to
change.
These fees are subject to
change.
TYPE OF FEE
AMOUNT
DUE DATE
Event Technology
Services Fee 25
1.6% of first $1,000,000 of
total event technology
revenue, 1.0% of the next
$1,000,000 of total event
technology revenue, and 0.5%
of event technology revenue in
excess of $2,000,000.
On demand.
System Removal Fee
$10,000.
On demand.
Annual Fire
Inspection Fee
$3400-$8500 depending on the
size of the hotel (current range
is based on hotels with 300
rooms or less to hotels with
1500 rooms or more).
Varies by transaction
volume.
On demand.
$200 per year.
On demand.
$2,250 for each screen, $250
for each additional person.
On demand.
Revenue Management
Training Services Fee
Varies. 28
On demand.
Property Improvement
Plan Additional Site
Visit Fee
The costs of such site visit
(approximately $2,500 $3,000 per visit as of March
31, 2008)
On demand.
Condominium Hotel
and Residences
Licensing Fees
Varies.26
On demand.
Credit Card
Processing
Fees
Credit Card System
License Fee
Post – Approval
Owner Screen Fee
Marriott 366119v6 (03/31/2008)
34
REMARKS
This fee will be charged
only if you participate in
the optional Marriott
Visual Presentation
(“MVP”) program. Fees
associated with this
service are subject to
change.
This fee is charged to
hotels leaving the
Marriott hotel system as a
result of early
termination.
Optional. This fee is
subject to change.
On demand.
This fee is subject to
change.
This fee will be charged
to cover our processing
costs incurred for owner
background checks we
must do after approval of
your application because
you added an owner.
This service is optional.
Fees associated with this
service are subject to
change.
This fee is payable if a
site visit(s) is required
after a PIP is issued, for
any reason, including, to
enforce, review or modify
the requirements of the
PIP. This fee is subject to
change. See Item 5.
These fees are subject to
change.
TYPE OF FEE
MarriottGolf.com31
AMOUNT
$5,000 annual fee for the
Marriott Resort to be included
in the Golf Course directory
listing, linking directly to the
approved golf web module.
DUE DATE
REMARKS
On demand.
This service is optional.
On demand.
This fee is subject to
change. This is a
voluntary program,
although we anticipate
that it will become
mandatory in the near
future.
You may be required to
pay our outside counsel
costs in connection with
the negotiation and
processing of any lender
comfort letter related to
your hotel.
This fee is refundable,
less $10,000, if we do not
approve the application.
$2,500 quarterly fee to be a
featured resort on the home
page.
Quick Group Booking
Fee32
$2,500 quarterly fee to be
listed in the special offers
section on the home page.
$150 one-time registration fee
and 6% of gross group room
revenue based on the number
of committed rooms and the
average room rate in the group
sales contract.
Lender Comfort Letter
Varies.
On demand.
Transfer
The then-current initial
application fee.33
Upon submission of
application.
UNLESS OTHERWISE NOTED, ALL FEES ARE NON-REFUNDABLE AND ARE UNIFORMLY
IMPOSED BY AND PAYABLE TO US.
NOTES:
1
(a)
“Gross room sales” means: (i) all sales and receipts of every kind that accrue from the rental of
guestrooms (including credit charges, charge backs, service charges, and uncollectible amounts, whether or not
collected) but does not include any sales tax, value added tax, or similar taxes collected from patrons or guests;
(ii) guaranteed no-show revenue or other attrition or slippage payments for business associated with the Hotel
related to cancellations or non-performance that are collected; and (iii) the amount of all lost revenues and
receipts due to the non-availability of guest rooms, upon which proceeds of business interruption, loss of
income, or other similar insurance are calculated. “Gross room sales” also includes any “resort fee” or similar
fee or surcharge that you charge at your hotel (although receipt of franchise fees by us does not constitute
approval by us of such charges, which may be limited or prohibited by us). “Gross food and beverage sales”
means: (a) all sales and receipts of every kind from the “food and beverage operations” (including credit
charges, charge backs, service charges, and uncollectible amounts, whether or not collected), but does not
include any sales, hotel, entertainment tax, or similar taxes collected from patrons or guests; (b) guaranteed noshow revenue or other attrition or slippage payments for business associated with the hotel related to
cancellations or non-performance that are collected; and (c) the amount of all lost revenues and receipts due to
the non-availability of food and beverage operations, upon which business interruption, loss of income, or other
similar insurance proceeds are calculated. Food and beverage operations means: means all hotel food and
beverage services, whether performed inside or outside the hotel, including: (x) all restaurant, dining, bar,
lounge, spa, and retail food and beverage services; (y) all banquet, meeting, convention, event, catering, exhibit,
sales space, and room services, and rentals or charges related to audio visual and other equipment or services
provided in connection with banquets, meetings, conventions or events; and (z) any other food, beverage, or
Marriott 366119v6 (03/31/2008)
35
other related services provided by, at, in connection with, or related to the hotel or any banquets, meetings,
conventions or events associated with the hotel Except to the extent inconsistent with the definitions of such
terms provided above, you will account for gross room sales and gross food and beverage sales on an accrual
basis in accordance with the Uniform System of Accounting for the Lodging Industry, Tenth Revised Edition,
2006, as published by the Educational Institute of the American Hotel & Lodging Association, or any later
edition or revision that we approve or designate.
You determine the price and rate charged by the hotel for rooms, meeting space and services. Any
recommendations or suggestions that we may make concerning the price or rate you charge for goods or
services are advisory and not mandatory, except that we (i) prohibit certain types of surcharges, resort fees, and
other similar fees, as well as price-gouging at the hotel and (ii) require you to participate in our associate rate
discount program. In addition, as discussed in Item 16, you must distribute your inventory in a manner
consistent with our “Marriott’s Look No Further® Best Rate Guarantee” policy.
(b)
If you are converting a hotel, either one that you currently own or one you are acquiring from a thirdparty, to a Marriott franchise and that hotel is currently managed by us or one of our affiliates, then we may
require payment of additional fees in connection with such conversion based on amounts that would have
otherwise been payable to us or one of our affiliates under the management agreement that is being terminated,
including any incentive management fees or termination fees. In addition to these fees, you may be required to
assume ancillary agreements related to the hotel, including those related to shared services, that are in effect at
the time of the conversion.
2
We will consider exceptions to our standard monthly franchise fees within a range of 4% to 6% of gross room
sales and a range of 2% to 3% of gross food and beverage sales in certain limited circumstances, with the
discount typically applying only in the first few years of the franchise agreement. If the monthly franchise fees
are less than the standard amounts, we may reduce the length of the term or the part of the standard term (20
years) in which the reduced monthly franchise fees will apply. In limited situations, we have agreed to unique
exceptions that may result, in some years, in fees of less than 2% of gross food and beverage sales. When we
consider changes to our standard monthly franchise fees, we will consider, among other factors: (1) market
penetration opportunities and our desire to be in the market area; (2) the location in the market; (3) the size of
the hotel; (4) the economic and financial environment; (5) the cost to the franchisee to complete the conversion,
if it is a conversion, of an existing hotel; (6) whether our reducing a portion of the fees would aid in the
successful development or conversion of the hotel; (7) whether the franchisee is willing to commit to playing an
active role in growing the Marriott hotel system; and (8) any other relevant factors.
In 2003, we instituted a program under which you may qualify for a reduction in the franchise royalty, on an
annual basis, from 6% of gross room sales to 5.5% of gross room sales for each qualifying hotel. To qualify for
this program, you must satisfy certain criteria for number of hotels, number of rooms, and revenues, and satisfy
certain Quality Assurance criteria. The specific eligibility qualifications and other details regarding the royalty
reduction will be provided in connection with the application process if we believe you may be eligible. This
program applies only to newly constructed hotels and to existing hotels converted to the Marriott hotel system.
It does not apply to existing Marriott hotels on a retroactive basis, and it does not apply to relicensings of
existing Marriott hotels. Also, existing hotels that are in default, and hotels that are not under construction
within the program’s prescribed timeframe, do not count toward the number of hotels necessary to qualify for
the program. You may not qualify for this program with respect to hotels that are only managed by you but in
which you do not have an equity interest.
3
“Accounting Period” means any one of the twelve (12) months in a calendar year or any other fiscal accounting
and reporting period used by your and approved by us in writing.
4
Fees are subject to change at any time. We may modify our systems, such as MARSHA, PMS, and One Yield,
and add to or subtract from training and other programs. You must fully participate in these changed or new
programs, and you must pay the charges and fees for these changed or new programs. If we provide the capital
for new systems related to the operation of the hotel, we will be entitled to recovery of capital invested as well
as a return commensurate with the risk associated with the project. We are currently developing and testing CI
and “Total Yield”, a One Yield system upgrade that will provide inventory and pricing optimization for
guestrooms and meeting space for transient, group and catering business. Total Yield will be implemented and
Marriott 366119v6 (03/31/2008)
36
will roll out in concert with CI. We do not have the system, maintenance, installation or training costs for Total
Yield or CI.
5
The amount of the maintenance and PMS development fees varies in accordance with the number of guestrooms
in your hotel as follows:
Number of Guestrooms
Amount of Fee
Maintenance and Development
0 – 99
$ 520
100 – 199
$ 1040
200 – 599
$ 1299
600 – 1199
$ 1690
1200 +
$ 2080
6
Each time the hotel is in the Red Zone under our Quality Assurance Program, you must create an action plan on
the Lodging Quality Assurance website (“LQA website”) and thereafter Marriott will meet with you to discuss
such action plan.
7
A $1,000 fee per re-inspection is charged to hotels that score below the minimum acceptable score on the Food
Quality and Safety Standards Category of the Quality Assurance Operations Review. The hotel will be reinspected (unannounced) within 30 to 60 days of the last failed inspection until it meets or exceeds the
minimum acceptable score.
8
You must participate in national, local or regional advertising cooperatives and national, local or regional
marketing initiatives that we direct. We allocate the costs of these programs among participating hotels. The
costs for national, local or regional advertising cooperatives and market initiatives vary, depending on the
services performed, the size of the campaign(s), the development costs of the programs and the number of
hotels participating. Cost allocations may be based on criteria such as the number and size of hotels
participating, the hotel’s revenue, room count, and the revenue produced by the campaign. Cost allocations
may also be based on a flat percentage charge to each hotel participating in certain initiatives, such as “bonus
bucks” or stay certificates. In some cases, such as with travel cards (prepaid cards that are sold through
distribution channels or to companies for motivational programs), hotels pay a commission, which is paid to the
distribution channel when the travel card is redeemed. We reserve the right to change our cost allocation
methodologies at any time. Past charges for individual national, local, or regional cooperative programs, and
marketing initiatives have ranged from $500 to $60,000 per hotel.
We believe that this range will be consistent for JW Marriott Hotels as well. We may require you to participate
in any of these programs.
If you meet the requirements to, and elect to, join our resort and convention hotels network, the costs of
participation are generally based on budgeted room revenue attributable to group sales at participating hotels.
Our resort and convention hotels network engages in various marketing initiatives targeted at potential group
customers staying at participating hotels. In calendar year 2008, the costs for a hotel to participate in the
network should range from $3,000 to $100,000.
9
Field Sales is described in detail in Item 11. Currently, the two key components of Field Sales that require
execution of a service agreement in order to participate are: (i) Event Booking Centers (“EBCs”) and (ii) Market
Sales Teams (“MSTs”). The costs to establish and operate an EBC are allocated among hotels participating in
that particular EBC and may vary significantly depending on a number of relevant factors, including, primarily,
the amount of group revenue booked through the EBC. We estimate the current costs to participate in an EBC
for a Marriott hotel to range from $13,000 to $389,000 per year. The costs to establish and operate an MST are
allocated across all of those hotels participating in the MST and may vary significantly depending on the size
and brand of the hotel, type of the hotel, amount of meeting space and guestroom availability, customer mix,
Marriott 366119v6 (03/31/2008)
37
target accounts located in the market, and other primary sources of business for participating hotels in the
market. We estimate that the current costs to participate in an MST for a Marriott hotel will range from $2,000
to $316,000 per year. The cost of Field Sales may be offset to some degree if you reduce personnel that would
otherwise be performing the services performed by the EBC or MST. You must execute an Event Booking
Center Service Agreement to participate in an EBC and a Market Sales Service Agreement to participate in an
MST (see Exhibit L).
We are currently in the process of reorganizing our Field Sales organization with the launch of Sales Force One,
an initiative currently underway to sell to large transient, group, catering and extended stay customers in a more
focused way. This initiative is being implemented in a phased manner, and you will be required to execute a
new service agreement in order to participate in Sales Force One when available in your market. The costs
associated with participation in Sales Force One may differ from the costs associated with participation in Field
Sales (see footnote 30). Sales Force One is described in detail in Item 11.
10
Marriott Rewards is our guest recognition program that is affiliated with certain Marriott lodging brands.
Certain costs of the Marriott Rewards program are billed to you as follows: (i) 4.3% of the total guest folio,
including an average room tax component, generated by guests earning Marriott Rewards points or miles,
charged to your hotel; and (ii) for a group event (involving at least ten (10) guestrooms) and/or a catering event
arranged by a meeting planner or other individual earning Marriott Rewards points or miles for such event,
0.95% of the gross revenues generated by each such group and/or catering event, up to a maximum amount of
$500 per event, is charged to your hotel. Guests who redeem Marriott Rewards points at your hotel trigger a
limited reimbursement to you from the Marriott Rewards program. We reserve the right to change terms of the
program, the costs and redemption reimbursement amounts and calculation factors at any time. We may also
require you to participate in other special marketing programs or frequent traveler programs (e.g., airline
frequent traveler programs).
11
You must pay the expenses of personnel we send to your hotel if you request help, including the cost of
transportation, meals, lodging, and salary or other compensation of these personnel. If the person is a member
of our regional team or corporate headquarters staff, you will not be required to repay us for any cost (but you
must provide free lodging and if you do not we will charge you for the cost of lodging.).
12
Cluster Revenue Managers provide analysis and advice concerning pricing and market position of the hotel.
These services are advisory in nature, and all decisions concerning the price or rate charged by the hotel for
rooms, meeting space and other services are determined by you (see Item 11). The costs of Cluster Revenue
Management are shared by the hotels choosing to participate in the Cluster and are based on total room sales.
The Cluster in which you participate for Cluster Revenue Management may be a different geographic area and
made up of different hotels than the Cluster established for an MST. A Cluster for Revenue Management may
not be available for your particular hotel. You must execute a Total Hotel Revenue Management Consulting
Agreement to participate (see Exhibit L).
13
Our mark-ups and fees are described in Items 5 and 8.
14
You must pay a fee equal to the per-room charge used in calculating the initial application fee as specified in
our standard Marriott Hotel Franchise Agreement in effect at the time of your request for approval for the
additional guestrooms multiplied by the number of additional guestrooms or as otherwise provided in your
franchise agreement. The future application fees that we may charge are not reasonably susceptible to a
meaningful estimate, and we reserve the right to change them at any time.
15
We offer an optional program called Centralized Travel Agent Commission (“CTAC”) processing program.
Through CTAC Marriott (i) pays a commission on your behalf to intermediaries (travel agencies, Travel
Management Companies, Group Intermediaries, e-Channels, and other similar entities) that book travel; and (ii)
conducts certain training and incentive programs, such as the Hotel Excellence! program for travel agents,
related to the promotion of all Company Brand hotels. CTAC charges $0.10 per transient transaction plus a
centralized support charge for travel agent inquiries. Hotels participating in CTAC that have contracted for
centralized inquiry management pay $3.75 per inquiry. Hotels participating in CTAC that choose to manage
their inquiries at a property level will pay $6.50 per inquiry/response if our Intermediary Partner Care team is
contacted by a travel agent. CTAC also charges participating hotels a processing fee of 2% of the total annual
commissions paid by us on your behalf. Hotels not participating in CTAC will incur a fee of $18.00 per
Marriott 366119v6 (03/31/2008)
38
inquiry that is handled by our Intermediary Partner Care team. Hotels participating in CTAC are required to (i)
process commissions promptly in order to not be liable for Marriott’s Double Commission Guarantee penalties
(double the commission owed on valid claims); and (ii) comply with our requirements to pay intermediary
commissions and other related charges on bookings for your hotel. We describe below three programs for
CTAC participants:
a) Marriott’s Preferred Travel Agency program: The current standard travel agent commission is 10%, which
we collect from your hotel as part of the CTAC program. We pay agents that have qualified as Preferred Travel
Agents, in connection with our Hotel Excellence! program, a commission of 10%. We pay those agents that
have not qualified as Preferred Travel Agents a commission of 8% and use the remaining 2% for (i) certain
travel agent training and incentive programs; (ii) other initiatives to promote Company Brand hotels, including
certain payments to Travel Management Companies (“TMC”) and consortia (other than the “Preference
Payments” described below); and (iii) other related programs and systems (the costs of which would be
otherwise borne by participating hotels). We generally intend to spend all of the money in the year in which we
collect it. However, in years in which we do not, any amount not used in that year is carried over to and spent
in subsequent years). Most travel agencies and other similar entities with which we do business have qualified
under this program.
b) Group Intermediary Commissions: All hotels utilizing CTAC are required to pay North American group
intermediary commissions through CTAC at a maximum of 10%. We will not pay commissions to North
American group intermediaries: (i) on ancillary items (Food & Beverage, Audio Visual rental, etc.); (ii) to
group intermediaries that do not have industry accreditation (i.e., IATA, IATAN TSI, TIDS, ARC); and (iii) to
end-user accounts. In addition to a CTAC transaction charge of $0.10, you must pay a centralized support fee
on all group transactions (currently $0.50 per transaction).
c) TMC program: If you elect to participate in Marriott’s TMC program, you will be required to pay a
“Preference Payment” ranging from 0.1% to 5.0% of booked rooms revenues for every room night generated by
the participating TMC/consortia.
Marriott periodically reviews and reserves the right to modify its requirements with respect to the payment of
travel agency and group intermediary commissions and other related charges for CTAC participants. We
reserve the right to change any of the above programs and their fees at any time.
16
You must perform an annual survey of the associates employed at your Marriott hotel at your cost and expense.
In order to satisfy this requirement, you may use our Associate Opinion Survey program with Hewitt
Associates at a cost of approximately $7 per associate. Alternatively, you may select a vendor of your choice to
conduct the survey, but the vendor must use the questions outlined in our Associate Opinion Survey program.
In the future, we may change this program and/or implement new programs and we may require you to
participate in such revised and/or new programs at your cost and expense.
17
See Section 19.3 of the franchise agreement. We reserve the right, at the time we enter into a franchise
agreement with you, to adjust the calculation of liquidated damages payable by you to Marriott if your franchise
agreement terminates prior to the expiration of its term. The adjustment may be based on category or market,
depending on the particular category of your hotel (e.g., resort or urban location) or whether your hotel is
located in a high-demand market.
18
You may choose the franchise e-mail solution, with full Microsoft Outlook functionality and a 100 MB
mailbox, that adds the hotel’s e-mail address to the Marriott global address book and sends e-mails to the
franchisee’s corporate e-mail system for $10.25 per Accounting Period per e-mail address. Alternatively, you
may select the eMail Lite Service that provides you with a mailbox hosted on Marriott infrastructure with
limited web-enabled features for a one-time registration fee of $21.50 per e-mail address and an ongoing fee of
$4.50 per Accounting Period per e-mail address, or the Email Forwarding-Only Option that forwards e-mail
from the hotel-based e-mail address to the franchise management company’s non-consumer-based e-mail
address.
19
The Marriott Global Source intranet website is available through the Admin PC that is connected to the Marriott
network or via the internet with a Marriott enterprise (Internet) ID and password. The Marriott Global Source
contains information such as system standards, Marriott communications, and quality assurance information.
Marriott 366119v6 (03/31/2008)
39
20
The hardware charge will vary based on the exact equipment and the master agreement we have with a vendor.
21
We use an Internet-based Virtual Private Network (“VPN”) solution. The VPN solution builds a connection to
Marriott applications and services on a secure, private network tunnel using either AT&T’s managed internet
service (MIS) or your existing HSIA connection. We require that hotels that use at least 128k of bandwidth
utilize the MIS. We recommend that hotels that use less than 128k bandwidth utilize HSIA from a Marriottcertified vendor.
22
Area Reservation Sales Offices (“ARSOs”) consolidate hotel reservation offices for geographical areas. We
have established ARSOs, that as of December 31, 2007, ranged in size from approximately 60 to over 300
hotels. For hotels located in the United States, the costs associated with participating in an ARSO are
determined by aggregating the costs to establish and operate all ARSOs located in the United States and Canada
(to the extent allocable by us to hotels located in the United States based on the number of reservations booked
on behalf of such hotels), and allocating such costs amongst such hotels based on the number of reservations
booked for each hotel and a brand-specific per-reservation charge. These costs may vary significantly based on
the volume of reservations handled by ARSOs. We reserve the right to change the allocation methodology at
any time, so long as it remains fair and equitable as determined in our reasonable discretion. In order to
participate, you must execute an ARSO Service Agreement (see Exhibit L).
23
Territory Sales is part of Field Sales and focuses on developing new accounts and expanding our relationships
with existing accounts that are not covered by other Marriott sales resources. Territory Sales associates operate
from individual home offices and work in designated geographic markets to generate business across all
segments and for all Company Brands. Territory Sales associates perform a variety of functions, including lead
generation, research, account development, and coordination and presentation of proposals for customers. The
Territory Sales Group Booking Fee is not a commission, but instead a reimbursement for costs associated with a
lead generated by a Territory Sales associate that results in a booking for a hotel (although a portion of the fee is
in some circumstances passed on to sales associates). An annual true-up to actual costs of the program will
occur, which may result in participating hotels being charged additional amounts if there is a deficit or receiving
refunds if there is a surplus. This fee is assessed and becomes payable in full when the hotel has accepted the
group booking and entered into a group sales contract. The 5% reduction is to account for potential slippage
and there will be no adjustment to the fee in the event actual slippage is greater than or less than 5%. The fee
will be refunded in the event of a cancellation.
24
If you desire a secure method to access your on-property PMS from a remote location, you may, at your option,
utilize BPA Connector for an ongoing fee of $55 per user per Accounting Period.
25
This fee is for the training of hotel personnel so they may provide technological support for meetings and
events that take place at the hotel, and for ongoing quality assurance of the training implemented.
26
As described in Items 1 and 5, we have received proposals from franchisees to allow the franchisee to structure
a hotel as a condominium in which guestrooms would be sold by the franchisee (or a related party) as separate
units under the Marriott or JW Marriott brands. There are certain fees associated with structuring the hotel as a
condominium or if the hotel contains residential units that you will have to pay in addition to the other fees
stated in this disclosure document. We charge a development license fee generally of 3-4% of gross sales
proceeds of the units under the Marriott brand, and generally of 4-5% of the gross sales proceeds of the units
under the JW Marriott brand. These proposed structures present us with substantial additional costs and risks
not associated with other capitalization or financing structures. In order to accommodate such proposals, we
may require you to pay for Marriott’s additional costs, such as feasibility work, attorneys fees, architectural and
design review, a license fee on resale (generally 1% of gross sales proceeds), etc. The design review fees could
range from $100,000 to $500,000. These fees will vary depending on the complexity, size, risk and value
associated with the project. If the condominium units will be included in a rental program, the gross room sales
of such units will be included for purposes of all Franchise Royalty Fees and Marketing Fund Fees. Likewise,
all food and beverage sales related to the condominium units, whether or not included in a rental program, will
be included for purposes of all Franchise Royalty Fees and Marketing Fund Fees.
Marriott 366119v6 (03/31/2008)
40
27
This fee is not a commission, but instead a reimbursement for costs associated with a lead generated by a
Market Sales Team that results in a booking for a hotel that does not participate in the Market Sales Team’s
cluster pursuant to a Market Sales Service Agreement. This fee is assessed and becomes payable in full when
the hotel has accepted the group booking and entered into a group sales contract. The 5% reduction is to
account for potential slippage and there will be no adjustment to the fee in the event actual slippage is greater
than or less than 5%. The fee will be refunded in the event of a cancellation.
28
This fee is for providing revenue management training to hotel personnel. The amount of the fee will vary and
will be based on the number of days of training requested by you. You will also be responsible for the
reimbursement of all reasonable travel expenses and lodging incurred by our associates who provide the
training.
29
This fee is not a commission, but instead a reimbursement for costs associated with a lead generated by an Area
Sales Team or Sales Office Team that results in a booking for a hotel that does not participate in the Sales Force
One market pursuant to a Sales Force One Service Agreement. This fee is assessed and becomes payable in full
when the hotel has accepted the group booking and entered into a group sales contract. The 5% reduction is to
account for potential slippage and there will be no adjustment to the fee in the event actual slippage is greater
than or less than 5%. The fee will be refunded in the event of a cancellation.
30
Sales Force One and Global Sales are described in detail in Item 11. Although we anticipate that the structure
and components of Sales Force One will continue to evolve based on business needs, currently participation in
Sales Force One requires participation by a hotel in two local market sub-groups of the Global Sales Team: (i)
Area Sales and (ii) Sales Office. The costs to establish and operate a Sales Office are allocated among hotels
participating in Sales Office in that particular market and may vary significantly depending on a number of
relevant factors, including the amount of revenue booked through the Sales Office. We estimate that the costs
to participate in a Sales Office for a hotel will range from $13,000 to $575,000 per year. The costs to establish
and operate an Area Sales team are allocated across all of those hotels participating in Area Sales in that
particular market and may vary significantly depending on the size and brand of the hotel, type of the hotel,
amount of meeting space and guestroom availability, customer mix, target accounts located in the market, and
other primary sources of business for participating hotels in the market. We estimate that the costs to
participate in Area Sales for a hotel will range from $2,000 to $650,000 per year. Our estimates of the costs to
participate in Area Sales and Sales Office are based on projections and our limited experience with Sales Force
One. The cost of Sales Force One may be offset to some degree if you reduce personnel that would otherwise
be performing the services performed by the Sales Office or Area Sales team. To participate in Sales Force One,
you must execute a Sales Force One Service Agreement (see Exhibit L).
31
MarriottGolf.com is an optional internet advertising program that provides a Marriott.com approved golf web
module for a Marriott resort’s golf club. Guidelines for the golf web module will be provided by Marriott Golf
and Marriott.com and all costs associated with this program will be paid for by the resort. This program is
available if the hotel has a golf course that is onsite or nearby, subject to consent by Marriott.
32
Quick Group is an optional program to allow customers online access to rate and availability information for
group blocks of up to 25 rooms, with a maximum stay of 7 nights. Customers search Marriott.com for a hotel
and rate, complete an online form, agree to the terms of an online contract, and submit an online reservation.
33
The amount of the transfer fee will be equal to the greater of the amount of the application fee then being
charged by us per room for Marriott hotel system franchises for new development multiplied by the number of
rooms in the hotel or the minimum amount per hotel then being charged by us for Marriott hotel system
franchises for new development. You also may be required to pay our outside counsel costs in connection with
any transfer, including in circumstances in which there is a transfer of less than a controlling interest and no
transfer fee is charged.
Marriott 366119v6 (03/31/2008)
41
ITEM 7
ESTIMATED INITIAL INVESTMENT
FOR 300-ROOM MARRIOTT OR JW MARRIOTT HOTEL
TYPE OF EXPENDITURE
AMOUNT
Initial Franchise Application
Fee1
$300 per guestroom or
$82,500, whichever is greater
Two installments
PMS and MARSHA Systems
and Training2
$154,200 - $160,700
Lump sum
Other Systems and Training3
$317,555 - $378,955
Lump sum
Other Pre-Opening Training
and Services4
Market Feasibility Study5
$78,750 - $99,225
Lump sum
$15,000 - $50,000
As arranged by you
Land6
Not determinable because of
variables
Not determinable because of
variables
Marriott Hotels:
$97,900 - $178,200 per
guestroom
JW Marriott Hotels: $121,900
- $221,900 per guestroom
(Non-Resort)
$3,400 - $4,200 per
guestroom
Marriott Hotels:
$3,400 - $4,200 per
guestroom
JW Marriott Hotels:
$3,600 - $4,400 per
guestroom (Non-Resort)
Marriott Hotels:
$4,700 - $5,800 per
guestroom
JW Marriott Hotels:
$4,800 - $5,800 per
guestroom (Non-Resort)
As arranged by you
Building Permit, Tap and
Impact Fees7,8
Building Construction7,8
Telephone and Security
Systems8,9
Kitchen and Laundry
Equipment8,10
Operating Supplies8,11
Marriott 366119v6 (03/31/2008)
METHOD OF PAYMENT
As arranged by you
As arranged by you
As arranged by you
As arranged by you
As arranged by you
42
WHEN DUE
TO WHOM
PAYMENT IS TO
BE MADE
$10,000 due
generally with
franchise
application;
balance due
generally at the
earlier of (i) date
of franchise
agreement, or (ii) 6
months after our
conditional
approval of your
franchise
application
Upon receipt of
invoice; as
arranged by you
Upon receipt of
invoice; as
arranged by you
Upon receipt of
invoice
As arranged by
you
As arranged by
you
As arranged by
you
As arranged by
you
Marriott
As arranged by
you
As arranged by
you
Suppliers
As arranged by
you
Marriott/Suppliers
Marriott/Suppliers
Marriott
Suppliers
Land seller or lessor
Local government
Contractors and
suppliers
Suppliers
Suppliers
TYPE OF EXPENDITURE
Furniture and Fixtures8, 12
Professional Design
Services8, 13
Hard Cost Contingency8
AMOUNT
METHOD OF PAYMENT
WHEN DUE
TO WHOM
PAYMENT IS TO
BE MADE
Marriott Hotels:
$16,300 - $19,900 per
guestroom
JW Marriott Hotels: $22,900
- $28,000 per guestroom
(Non-Resort)
Marriott Hotels:
$6,000 - $7,300 per
guestroom
JW Marriott Hotels:
$7,500 - $9,200 per
guestroom (Non-Resort)
10% of hard costs
As arranged by you
As arranged by
you
Suppliers
As arranged by you
As arranged by
you
Suppliers
As arranged by you
As arranged by
you
As arranged by
you
As arranged by
you
As arranged by
you
As arranged by
you - must be
effective before
start of
construction
As arranged by
you
Contractors and
suppliers
Contractors and
suppliers
Suppliers and
employees
Suppliers
Food Safety and Sanitation
Compliance14
Start-Up Costs15
$5,800
As arranged by you
$3,500-$4,000 per guestroom
As arranged by you
Opening Advertising16
$100,000-$150,000
As arranged by you
Insurance17
$135,000 - $225,000
As arranged by you
Additional Funds18 (first 3
months)
Total
$3,500-$4,000 per guestroom
As arranged by you
Insurance company
Suppliers/employees/
Marriott
Marriott Hotels:
$46,449,805 - $75,641,225
JW Marriott Hotels:
$57,141,805 - $93,428,225
NOTES:
1
The initial franchise fee is described in Item 5.
2
This estimate includes hardware, software, installation, and training for MARSHA, PMS, and One Yield, as
described in Items 5 and 11.
3
This estimate includes hardware, software, installation, and training for a Sales and Catering system (which is
currently NGS or DELPHI), Guestware, and Marriott’s Learning Journey, as described in Items 5 and 11. If
you choose to participate in Sales Force Automation there will be an additional charge (see Item 11). This
estimate does not include the cost of above-property management systems such as Engineering Systems, HR
Systems and Equipment, or Back Office Accounting Equipment which can be utilized in the management of
multiple properties.
4
This amount is the estimate for hourly, supervisory, and management training before and during opening or
conversion (except for computer system training costs described in footnotes 2 and 3) and the additional charges
associated with the opening authorization process, as described in Items 5 and 11.
5
Generally, we do not provide assistance in site selection, as described in Item 11. The cost is for a market
feasibility study by an independent, third-party consultant.
6
We do not estimate the cost of real estate or site work premiums because of wide variations among geographic
areas and sites. The size of the site for a typical 300-room Marriott hotel varies from 5 to 10 acres, depending
on the number of floors in your hotel. The building size can typically vary from in excess of 250,000 to
300,000 square feet for JW Marriott Hotels and from in excess of 205,000 to 270,000 square feet for other
Marriott 366119v6 (03/31/2008)
43
Marriott Hotels. Marriott Resorts and Marriott Suites Hotels will tend to have a larger floor area. These ranges
also do not include the additional space that may be required at resort properties for spa and other recreational
facilities or at a Marriott Hotel and Conference Center for additional conference facilities. The specific location
of your hotel and the facilities of your hotel should be based on market conditions. Marriott Hotels and Suites
are usually located in downtown or suburban locations in mid-to-large sized cities. JW Marriott Hotels are
usually located in downtown locations in major cities, and Marriott Resorts are usually located at vacation
destinations.
7
Building construction costs vary greatly from state to state and region to region, depending upon material, labor
costs, and other variables such as architectural design and façade treatments. We based our estimates for
Marriott hotels on a typical 300-room hotel located in a suburban area outside of the downtown area of a major
metropolitan area, with an average floor space ratio of 700 to 750 square feet per guestroom. We based our
estimates for JW Marriott Hotels on a typical 300-room JW Marriott Hotel in the downtown area of a major
metropolitan area (not a resort concept), with an average floor ratio of 825 to 900 square feet per guestroom.
Parking is assumed to be on-grade, and estimates for special foundations for earthquake requirements are not
included. These estimated costs do not include impact or tap fees that are charged by local government
authorities and will therefore vary. You should check with the local government authority having jurisdiction
over your hotel to determine if there are any impact or tap fees, and, if so, how those fees are calculated and the
amount to be charged to your hotel project. The cost of typical building signs (but not graphics) is included in
the estimates. The building construction costs for a Marriott or a JW Marriott hotel in the downtown area of a
major metropolitan area can be higher than indicated and should include the cost of an underground parking
structure. This estimate will increase if there are any unusual site conditions, labor shortages due to an active
construction market or organized labor groups. Upgrading to the current signage will be a condition to renewal
or acquisition of an existing Marriott hotel and you will be required to pay any costs related to removing the old
signage in addition to the cost of installing new signage. The cost of additional recreational and other facilities
found at resort properties and the cost of additional conference facilities such as those found at a Marriott Hotel
and Conference Center, are not included in this estimate. Included in the estimate are additional costs for our
new public space “Lobby Reinvented” concept. If the hotel will be structured as a condominium or contain
residential units, we anticipate that you may need to construct a sales office or use a model unit as a sales office.
This estimate does not include any costs associated with such sales office which will vary based on the location
and size of the sales office. Any sales office must comply with Marriott standards and be acceptable to us.
8
We recommend that you include a project contingency equal to at least 10% of the project “hard” costs. (See
footnotes 7 and 9 through 13).
9
This estimated cost range for the telephone and hotel security (CCTV) systems will vary depending upon
location (i.e., downtown/metropolitan or rural/suburban), hotel square footage and the degree to which parking
is isolated. The estimated cost range includes the estimated cost of purchasing and installing high speed internet
(HSIA) service, which is required for all Marriott hotels. For existing hotels that convert to HSIA the costs can
vary based on a number of factors, including the type of cable infrastructure currently in place at the hotel,
construction material used when the hotel was built, and the type of HSIA equipment that can and will be
employed. Costs for lobby-based WiFi internet access and a distributed antenna system for cellular phone
usage are also included. The telephone central switch is assumed to be a leased item. If it is purchased, add
approximately $200,000 to $400,000 to the project’s cost.
10
It is assumed laundry will be handled off-property. Additional laundry equipment for a full-service laundry
and/or valet is not included in this estimate. Ice machines for guestroom floors are included in this estimate.
11
This estimated cost range is for inventory items such as uniforms, china, flatware, towels, linens, guestroom
amenities, maintenance supplies, other supplies and paper goods.
12
This estimate includes new guestroom furniture including, but not limited to, carpeting, decorative light
fixtures, drapery, wall coverings, duvet insert, bed skirt, bed scarf, mattresses, box springs, 32” flat panel LCD
TVs for Marriott hotels, 37” flat panel LCD TVs for JW Marriott hotels, other furnishings and interior graphics.
(Carpet and vinyl wallcovering installation are included in Building Construction costs). This estimate also
includes tax, freight, interior design and procurement fees, warehousing and installation.
Marriott 366119v6 (03/31/2008)
44
13
This estimate is for fees and expenses relating to architectural, engineering and other consultant services for the
project, but excludes any building permit fees, impact fees, tap fees or locally imposed development fees. If the
hotel will be structured as a condominium or contain residential units, you will likely incur additional fees and
expenses for architectural, engineering and other consultant services. Such fees are not included in this
estimate.
14
This estimate covers the costs of meeting food safety and sanitation compliance criteria for kitchen operations,
including materials and training.
15
This estimate includes wages, other operating costs before opening, and prepaid expenses, including business
licenses and security and utility deposits.
16
You are responsible, at your own expense, for providing local advertising, marketing and promotional
communications for the hotel. In conjunction with the initial opening or conversion of your hotel, you must
conduct a marketing and advertising campaign as described in the system standards manuals or as we and you
agree. In urban markets, advertising costs will most likely extend beyond the estimate, depending on rates in
the overall media market. Also, if you participate in an Event Booking Center (“EBC”), a Market Sales Team
(“MST”), or Sales Force One as described in Item 6, you will incur costs to establish and to participate in these
programs (these program costs are not included in the estimate and are payable to us). If the hotel will be
structured as a condominium or contain residential units, you will be responsible for the development of sales
materials and sales programs for the condominium units. All such sales materials must be approved by us prior
to your using them and we may charge you a fee for expenses associated with our review of your sales materials
and sales programs. We do not provide sales or advertising materials for the sale of condominium or residential
units. This estimate does not include any costs associated with the advertising and marketing of condominium
units for sale.
17
These figures are an estimate of the annual premium cost for insurance, including property and comprehensive
or commercial general liability insurance, business automobile liability coverage, workers’ compensation,
employer’s liability, liquor liability, umbrella excess liability, and fidelity bond coverage, as required by the
franchise agreement. We also may require you to obtain property insurance covering risks of loss from certified
acts of terrorism as available under the Terrorism Risk Insurance Act (as the same may be amended or
replaced). Insurance costs for hotels where we require terrorism insurance or that are located in high risk
locations (such as locations with earthquake, flood or wind storm exposure) may be substantially higher. If the
hotel will be structured as a condominium or contain residential units, we will also require you to obtain both
construction defects insurance and completed operations insurance. The costs for these two coverages are not
included in this estimate and will vary substantially based on the size of the hotel and its location.
18
The figures provided are an estimate of the prepaid expenses and operating expenses you may incur during the
first three months of operation. It is not a breakeven number. The estimate does not include participation in
SFA, an EBC, an MST or Sales Force One (see Item 6). You will probably have additional expenses in starting
your business.
_________________
We based the cost estimate on a newly constructed Marriott hotel of 300 guestrooms. Costs for hotels
larger than 300 guestrooms will probably be greater. These estimates are based on our experience as an
operator and owner of Marriott hotels, and certain specific experiences with franchisees. These estimates do
not include costs of land, building permits, tap and impact fees, financing, property taxes or third party
management fees. You should review these estimates carefully with your business and legal advisors before
making any decision to purchase this franchise. The above information is for new development; the costs for
converting a hotel to a Marriott hotel or in connection with the acquisition of an existing Marriott hotel may
be significantly different based on the condition, location and configuration of the existing hotel, and the costs
of complying with the then-current Company Brand standards and a property improvement plan, and we are
not able to give you a meaningful estimate.
Except as described in Item 10, we generally do not finance any part of this initial investment.
Marriott 366119v6 (03/31/2008)
45
ITEM 8
RESTRICTIONS ON SOURCES OF
PRODUCTS AND SERVICES
Purchases in Accordance with Standards and Specifications
You must use only such furniture, fixtures and equipment (“FF&E”), supplies and other goods and
services at the hotel that conform to our standards. We may specify a particular model or brand of FF&E that
may be available from only one manufacturer or supplier. Additionally, we may specify that certain food
products, FF&E, communication systems (including HSIA, see Item 11), supplies and other goods and
services be purchased only from us or sources designated or approved by us. If you wish to obtain any FF&E,
supplies or other goods and services for which we have established a standard or specification from a source
that we have not previously approved as meeting our standards and specifications, you must submit a written
request to us and provide such other information and samples as are necessary for us to determine whether the
item and source meet our then-current criteria. Provided that you comply with our processes and procedures
regarding approval of alternate or additional manufacturers or suppliers, we will respond to such requests
within a reasonable period of time. You may not purchase any FF&E or other capital items for the hotel
unless such purchase is from a source designated as “approved” by us, or unless we have approved in writing
that the item proposed by you meets our standards and specifications. We may modify our standards and
specifications in our sole discretion. We reserve the right, at our option, to revoke our approval as to future
purchases if the source or the item fails to continue to meet our standards and specifications.
We provide and update our specifications and standards in our manuals or otherwise in writing, or
make them available to you in digital, electronic or computerized form. We also publish and update design
and construction standards on our prototypical drawings. Our employees, who are experienced in operating
Marriott hotels, design and modify these specifications and standards periodically. Modifications generally
are based on input from our hotel managers, franchisees, owners and guests. We will make the modifications
to the specifications, standards and drawings available to you.
You must purchase exterior building signs that meet our specifications from one of several approved
sign vendors. These approved vendors are not affiliated with us, and we do not currently receive any
compensation from these vendors for your purchases from them, although we reserve the right to do so in the
future. All property signage must be pre-approved by us.
Purchases through Marriott, Related Parties and Third Party Arrangements
Franchisees may choose to purchase products and services through Marriott, its subsidiaries, and
other related and unrelated parties through a number of different means and programs. As described in Items
1 and 5, we, our subsidiaries and Avendra have supply agreements with manufacturers, suppliers, and
distributors of a variety of products and services. There may be mark-ups, fees, discounts, credits and/or
rebates based on your purchases from those suppliers with whom supply agreements have been negotiated.
Generally, we, our subsidiaries and Avendra, as applicable, will retain any mark-up or rebates received due to
franchisee purchases. The specific fee or rebate on an individual product or service may exceed the range
described below. The arrangements and percentages described below may change based on alterations in
relationships with those suppliers. The amount of the rebates and other payments described below are
approximations based on information provided to Marriott from vendors and other sources as of the date of
this disclosure document. For some programs, we are able to track purchases and rebates by specific hotel
brand and franchised/managed hotel status. For others, only the total purchases by, or payments to, Marriott
is available. We will not withhold material benefits (such as renewal or the grant of additional franchises) if
you choose not to purchase through our voluntary supplier programs.
Marriott 366119v6 (03/31/2008)
46
1.
Purchases and Unrestricted Net Rebates through Avendra
As described above, we do not require our franchisees to purchase through Avendra. You and other
franchisees may voluntarily purchase under those arrangements. If you wish to take advantage of some of the
arrangements through Avendra you must contact Avendra directly and enter into either a “Supply Chain
Services Agreement” with Avendra or a “Replenishment Access Agreement” with Avendra Replenishment
L.L.C., an affiliate of Avendra. Details of these agreements (including the minimum amount of purchases
required to participate) will be provided by an Avendra representative at your request. Under the Supply
Chain Services Agreement, Avendra also will permit your non-Company Brand hotels and other hospitality
businesses to purchase under such arrangements (see Item 1 regarding relationship of Avendra to Marriott).
The prices paid by you for goods and services will frequently include allowances paid to Avendra by
suppliers based on your purchases and, in the case of purchases under a Replenishment Access Agreement, a
mark-up on the resale of replenishment goods. In addition, for certain goods that we require franchisees to
use, only a single manufacturer currently produces these goods to our specifications. Avendra may have a
contractual agreement with a supplier under which Avendra receives rebates or allowances based on your
purchases of these goods. Avendra has advised us that the total amount of any fees imposed, plus any rebates
or other allowances received from suppliers by Avendra, will generally range from approximately 1% to 25%
of the amount of the invoice price for the products and services purchased by you from suppliers participating
in Avendra programs.
For 2007, there will be approximately $30,156,000 in unrestricted net rebates that we will receive
from Avendra attributable to purchases by hotels that we manage. The total amount of those unrestricted net
rebates will be distributed to those hotels. We typically do not receive information from Avendra concerning
the purchases by and related unrestricted rebates attributable to our franchisees from suppliers under the
Avendra programs. Generally, for 2007, unrestricted rebates paid as a result of franchisee purchases through
Avendra relationships were retained by Avendra or returned to those franchisees in accordance with their
agreement with Avendra. We are not parties to those agreements.
2.
Purchases and Rebates through Us and Our Subsidiaries
Franchisees may choose to purchase FF&E and related design and construction services through
Marriott International Design & Construction Services, Inc. (“Marriott Design & Construction”). Marriott
Design & Construction charges a fee for providing procurement services that is the greater of approximately
4.5% to 5% of the purchase order of those items or $3,500, depending on the item and quantity purchased.
Marriott Design & Construction does not receive rebates related to other procurement services. Franchisees
may also purchase hotel opening operating supplies through Marriott Design & Construction. Marriott
Design & Construction charges a fee for providing procurement services for hotel opening operating supplies
to Marriott hotel franchisees equal to the greater of approximately $10,000 or 4.5% to 5% of the purchase
order amount for the supplies purchased. Marriott Design & Construction will retain any unrestricted rebates
that it receives related to its purchases of hotel opening operating supplies for franchisees. In 2007, those
unrestricted net rebates typically ranged from 0.5% (but may have reached as high as 11%) of the purchase
price of the item purchased. The cost and sales price of the goods described in this paragraph are treated as a
cost recovery pass-through of our costs to the purchaser, and the fees charged and unrestricted net rebates
retained are treated as income to Marriott Design & Construction.
In 2007, franchisees of all Company Brand franchised hotels located in the United States and Canada
(“Company Brand Franchised Hotels”) purchased approximately $100,111,000 of furniture, fixtures,
equipment and related design and construction services through Marriott Design & Construction. Of that
amount, approximately $19,558,000 was allocable to Marriott hotel franchisees’ purchases. In 2007, Marriott
Design & Construction did not receive any unrestricted net rebates based on those purchases. In addition, all
Company Brand Franchised Hotels purchased a total of approximately $8,924,000 of hotel opening operating
supplies through Marriott Design & Construction in 2007. Of that amount, approximately $1,162,000 was
Marriott 366119v6 (03/31/2008)
47
allocable to purchases by Marriott hotel franchisees. In 2007, Marriott Design & Construction did not receive
any unrestricted net rebates based on those purchases.
Pegasus Solutions, Inc. (“Pegasus”) makes payments to Marriott based on a percentage of the amount
of commissions paid by Company Brand hotels through the Marriott CTAC program (as described in Item 6
of this disclosure document) that flow through Pegasus to travel agents participating in the Pegasus Travel
Agent Commission Payment System. These payments are not treated as revenue by us, but are utilized by us
to offset the costs and reduce the charges associated with operating the Marriott CTAC program and Pegasus
interface. In 2007, we received approximately $1,356,081 in fees from Pegasus.
Marriott pays Sabre Travel Network (“Sabre”) a fee for each transaction that is delivered from travel
agencies through Sabre’s global distribution system (“GDS”). These fees are funded through the costs
charged to the hotels for each reservation (“Central Reservation Fees”) (see Item 6). In 2007, we entered into
a new agreement with Sabre pursuant to which Sabre will make a payment to Marriott based on the number of
reservations generated by Company Brand hotels through GDS in 2007. A payment of approximately
$160,000 is scheduled to be made to us in March 2008. This payment will not be treated as revenue by us,
but will be utilized to offset those Central Reservation Fees that would otherwise be charged to the hotels.
We do not anticipate any future payments to us by Sabre under this arrangement.
In December 2006, we entered into an agreement with The Hertz Corporation (“Hertz”) to promote
the rental of Hertz cars by meeting planners who book meetings at Company Brand hotels (the “Hertz
Meetings Program”). Under the terms of the arrangement, Hertz will make payments to Marriott based on the
amount of commissionable revenue generated from Hertz car rentals made in connection with the Hertz
Meetings Program. Hertz did not make any payments in 2007, as no commissionable revenue was earned, but
we anticipate that payments will be made to us in 2008. These payments will not be treated as revenue by us,
but will be utilized to offset sales and marketing costs which otherwise would have been charged to the
Marketing Fund (see Item 11).
Under a separate agreement, Hertz makes payments to Marriott based on the amount of
commissionable revenue generated from Hertz car rentals made as a result of transactions that originated with
phone calls to Marriott’s toll-free reservation number. These payments are not treated as revenue by us, but
are utilized to offset sales and marketing costs which otherwise would have been charged to the Marketing
Fund (see Item 11). In 2007, we received approximately $500,000 as a result of this arrangement.
We have arrangements with several merchants, including Hertz, Site59, and Travelport, under which
the merchants make commission or revenue share payments to Marriott based on the amount of purchases
made online as a result of transactions that originated on Marriott.com or referrals from Marriott.com. These
payments will not be treated as revenue by us, but will be utilized to offset sales and marketing costs which
otherwise would have been charged to the Marketing Fund (see Item 11). In 2007, we received
approximately $400,000 as a result of these arrangements.
Marriott has entered into an agreement with Hotels at Home to sell - by telephone and online at
Shopmarriott.com - bedding and related products used at our hotels. At the time of purchase, the buyer is
asked to identify the Company Brand hotel most recently visited. Hotels at Home retains a portion of the
profits from the sale; the remaining profit is shared evenly between Marriott and the identified hotel. If no
hotel is identified, Marriott receives the entire remaining portion. These amounts are first applied to offset
costs associated with negotiating and implementing marketing partnerships, acquiring and producing
photographs for catalogues and online marketing, and other services. Any remaining amounts are retained
and treated as revenue by us. In 2007, we received approximately $607,000 as a result of this arrangement, of
which approximately $325,000 was treated as revenue by us.
Marriott 366119v6 (03/31/2008)
48
In January 2007, we entered into an agreement with SkyMall Ventures, Inc. (“SkyMall”), publisher of
a catalogue distributed to airline passengers, to offer discounts on merchandise purchased by Marriott
Rewards members (the “SkyMall Merchandise Program”). In 2008, we anticipate that SkyMall will make a
payment to Marriott based on the amount of merchandise purchased in connection with the SkyMall
Merchandise Program. This payment will not be treated as revenue by us, but will be utilized by us to offset
costs associated with operating the Marriott Rewards program.
3.
Technology Related Purchasing
You must purchase through us the computer hardware and license software to use with PMS, One
Yield, and MARSHA. You also must obtain a sales and catering system, for which we offer the NGS Sales
and Catering system, with DELPHI as the only current approved alternative. We also require that you obtain
Guestware, the Marriott Learning Journey, and the Marriott Lodging Standard Desktop software. These
systems and their costs are described in detail in Items 5, 6, 7 and 11 of this disclosure document. The gross
amount that we received in 2007 for such activities by all Company Brand Franchised Hotels was
approximately $7,193,276. Of that amount, approximately $704,552 was attributable to Marriott hotel
franchisees. The cost and purchase price of the ancillary hardware and software purchases and licensing,
along with our installation charges are treated as a cost recovery and pass-through to the franchisees of our
costs (see Items 5, 6, and 11 regarding system purchases).
We have arrangements for discounts and credits with certain suppliers of telecommunication services
(the “Pro-Marriott Service Groups”). Most of the discounts and credits we receive as a result of purchases
through the Pro-Marriott Service Groups by participating hotels are passed through to franchisees or the
owners of the hotels; however, we retain certain credits on intrastate, interstate, and international “tiered
discount” calls. Those credits currently range from approximately 13% to 21% of the discounted rate for
domestic calls and up to 35% for international calls. The terms of these arrangements are reviewed every year
with the Pro-Marriott Service Groups and may be modified in accordance with the terms of the contract. If
you choose to participate in the Pro-Marriott program, you must enter into our then-current Pro-Marriott
Service Agreement, a sample of which is attached in Exhibit H.
Hotels that have a voice and/or data T1 line through our contract with AT&T will receive a credit of
$145 per month per line for this contract year, which will end in May 2008. We expect to receive these
credits from AT&T and distribute them back to the qualifying hotels twice during the contract year, at the end
of the second and fourth quarters. A procurement fee of $25 per T1 line per month will be charged to the
qualifying hotels when the credits are distributed. These procurement fees will not be treated as revenue by
us, but will be utilized to offset costs associated with managing this program. In 2007, a total of
approximately $530,000 in procurement fees was charged to Company Brand Franchised Hotels.
In 2007, we received a total of approximately $6,900,000 in credits and commissions for all Company
Brand hotels (including both franchised and managed) under the AT&T arrangements described above, of
which approximately $3,600,000 was returned to the Company Brand managed hotels and approximately
$3,100,000 was distributed to Company Brand Franchised Hotels. Approximately $200,000 in credits and
commissions related to Company Brand Franchised Hotels was retained by us under the AT&T programs
described above.
If your hotel uses ChefTec recipe management you must purchase a software license for
approximately $400 (see Item 5).
4.
Restricted Allowances
In 2007, a total of approximately $30,140,600 of restricted allowances were made available to us
from suppliers based on the participation in those suppliers’ programs by certain managed and franchised
hotels operated under the Company Brands. Restricted allowances are funds provided to Marriott that are
Marriott 366119v6 (03/31/2008)
49
required to be spent in accordance with the terms of the agreement with the provider of the funds. Those
allowances have been or will be utilized in various marketing and promotional activities, including,
principally, programs related to the promotion of the suppliers’ products, joint marketing programs between
Marriott and the supplier, Marriott Rewards, and an allocation to the marketing funds and programs for the
Company Brand hotels. A total of approximately $4,854,100 of the restricted allowances was utilized by the
marketing funds in which the Company Brand Franchised Hotels participate in the United States and Canada.
Of that amount, approximately $2,632,900 in restricted allowances was allocated to the Marketing Fund for
Marriott hotels located in the United States and Canada.
5.
Sponsorship Contributions
We also received certain amounts from vendors to sponsor meetings, dinners, golf tournaments and
other activities held at our general manager, franchisee and owner conferences, as well as other events. The
total amount received for all 2007 Company Brand corporate level sponsorships was less than $4,600,000.
These sponsorship funds generally are used to defray the cost of events that otherwise would be paid by the
participants. We have no ability to track the amount of any sponsorship activity that occurs at the hotel level.
6.
Other Related Party Transactions
We require the installation of HSIA in all of our hotels. We have selected iBahn (formerly known as
STSN) as an approved vendor of HSIA to our hotels, but we do not currently require franchisees to use iBahn.
As of March 31, 2008, we have approved five other companies as vendors of HSIA to our hotels. We
currently own a minority interest in iBahn. If franchisees select iBahn as a provider of HSIA, Marriott does
not receive any payment or other consideration from iBahn as a result of that selection.
All Marriott hotels must purchase and display a photographic portrait of JW Marriott, Sr. and JW
Marriot, Jr. Marriott owns the exclusive rights to this photograph and has licensed the rights to a third-party
to use as the exclusive vendor of the portrait. Under the terms of the license agreement, the vendor remits a
portion of the sales price of each portrait to Marriott. We did not receive any remittances in 2007. The
current price of the portrait (exclusive of taxes and shipping and handling charges) is approximately $783.
Eventcom is an extension of our customer sales program that provides meeting and event
management services, event marketing, designing and staging, and broadcast production management
services. Revenues from the Eventcom program are first applied to offset costs and expenses associated with
the program, and the excess profits are utilized to offset sales and marketing costs that would otherwise have
been charged to managed and franchised hotels operating under the Marriott and Renaissance brands. From
2004 through 2006, the Eventcom program distributed cumulative excess profits of approximately $2,500,000
in this manner. In 2007, the Eventcom program sustained a loss of approximately $1,000,000, of which
amount approximately $589,000 was charged to the Marriott Marketing Fund (see Item 11).
In addition to the products and services described above, Marriott Lodging Products and Services
may negotiate arrangements with suppliers and/or develop products and services to be offered to franchisees,
and other third parties that are not covered by our agreement with Avendra. Those arrangements could
involve the payment of a fee or rebate to us, which we expect may range from approximately 1% to 5% of the
amount of the invoice price to you of the products or services you purchase.
Our total gross revenue for 2007 was $12,990,000,000, as stated in our consolidated audited financial
statements (see Item 21). The total amount of revenue that we and our subsidiaries received in 2007 as a
result of franchisees’ required purchases as described above, including any unrestricted rebates that we
retained and did not distribute, and other fees or payments that we charged for providing procurement services
on behalf of franchisees, was approximately $35,632,700. That amount is less than 0.27% of our total gross
revenue of $12,990,000,000 for 2007. These figures do not include any amounts treated as pass-through or
cost recovery, or rebates or other payments that were distributed back to the franchisees.
Marriott 366119v6 (03/31/2008)
50
Cost of Required Purchases Relative to Cost to Open and Operate
We estimate that the cost of purchases and leases that you must make through us, our affiliates,
approved suppliers or subject to our standards and specifications will represent approximately: (A) 15% to
20% of the total cost of purchases and leases you will incur to establish a 300-room Marriott hotel1 and (B)
50% to 60% of the total cost of purchases and leases you will incur to operate an existing Marriott hotel2 on
an annual basis.
NOTES:
1
The total cost of purchases and leases you will incur to establish a Marriott hotel includes estimated costs for
pre-opening charges, property management and other systems, market studies, building construction, kitchen
and laundry, FF&E, telephone systems, opening supplies and professional design fees, but does not include the
initial application fee, the cost of land and building permits, insurance, start-up costs, and marketing and
advertising costs (see Item 7). Actual costs may vary depending on the size, condition and market area of your
hotel, and whether you are converting your hotel from another brand.
2
The total cost of purchases and leases you will incur to operate an existing Marriott hotel includes estimated
costs for linen, cleaning supplies, laundry, suite supplies, guest supplies, reservations, Marriott Rewards,
revenue management, travel agent commissions, food and beverage, MCN, uniforms, “free-to-guest” services,
FF&E and certain marketing and advertising costs, but does not include labor costs and related expenses,
franchise fees, utilities, repair and maintenance, sales and marketing costs, taxes, insurance, rent and lease
payments, and other payments related to the land for the hotel. Actual costs may vary depending on the size,
condition and market area of your hotel, and whether you are converting your hotel from another brand.
_________________
Except for a minor interest in a public or other large company, none of our officers has any interest in
a supplier.
Marriott 366119v6 (03/31/2008)
51
ITEM 9
FRANCHISEE’S OBLIGATIONS
This table lists your principal obligations under the franchise and other agreements. It will
help you find more detailed information about your obligations in these agreements and in other items
of this disclosure document.
OBLIGATION
(a) Site selection and acquisition/lease
(b) Pre-opening purchases/leases
(c) Site development and other preopening requirements
(d) Initial and ongoing training
(e) Opening
(f) Fees
(g) Compliance with standards and
policies/operating manual
(h) Trademarks and proprietary
information
(i) Restrictions on products/services
offered
(j) Warranty and customer service
requirements
(k) Territorial development and sales
quotas
(l) Ongoing product/service purchases
(m) Maintenance, appearance and
remodeling requirements
(n) Insurance
(o) Advertising
(p) Indemnification
(q) Owner’s participation/
management/staffing
(r) Records and reports
(s) Inspections and audits
(t) Transfer
(u) Renewal
Marriott 366119v6 (03/31/2008)
SECTION
IN AGREEMENT
ITEM IN
DISCLOSURE
DOCUMENT
Items 7 and 11
Sections 1 (“Approved Location”) and 2.1 of
Franchise Agreement
New Development Rider, Conversion Rider
or Change of Ownership Rider, Sections 5.3,
8 and 10 of Franchise Agreement
New Development Rider, Conversion Rider
or Change of Ownership Rider, Sections 5,
6.1, 6.2, 7.1, 7.2, 8, 9 and 10 of Franchise
Agreement
Sections 3.5, 3.6 and 10 of Franchise
Agreement
New Development Rider, Conversion Rider
or Change of Ownership Rider and Section
5.3 of Franchise Agreement
Sections 3, 7.4, 8, 10.1D, 10.2, 11.1, 11.2 and
19.3 of Franchise Agreement
Sections 2.1, 5.1, 5.3, 6, 7, 8, 9, 10, 11, 12,
13, 14, 15, 16.2, 18 and 20 of Franchise
Agreement; New Development Rider,
Conversion Rider or Change of Ownership
Rider
Sections 8.5, 13 and 14 of Franchise
Agreement
Sections 2, 6, 8, 9.1 and 9.2 of Franchise
Agreement
Section 9.1 of Franchise Agreement
Not Applicable
Not Applicable
Not Applicable
Sections 6, 8, 9.1, 9.4, 11.1 and 12.2 of
Franchise Agreement
Sections 6 and 11 of Franchise Agreement1
Items 8 and 11
Section 16.2 of Franchise Agreement
Sections 3.3, 7, 13.2, 13.3 and 13.4 of
Franchise Agreement
Section 16.1 of Franchise Agreement
Sections 9.3 and 9.4 of Franchise Agreement
Item 7
Item 11
Section 15 of Franchise Agreement
New Development Rider, Conversion Rider
or Change of Ownership Rider, Sections 5.3,
9.3B, 9.3C and 15.3 of Franchise Agreement
Sections 17 and 18 of Franchise Agreement
No renewal rights (see Section 4.2 of
Franchise Agreement)
Item 11
Items 5, 6, 8 and 11
52
Items 7 and 8
Items 7, 8 and 11
Items 6, 7 and 11
Items 7, 8, 11 and 15
Items 5, 6 and 7
Items 8, 11, and 16
Items 13 and 14
Item 16
Item 8
Not Applicable
Items 11 and 15
Item 17
Item 17
OBLIGATION
SECTION
IN AGREEMENT
(v) Post-termination obligations
Sections 16.1, 17.4A, 17.6, 20 and 24 of
Franchise Agreement
(w) Non-competition covenants
Sections 9.2, 17.2B, 17.4, 17.6, 20.1(c) and
21.2 of Franchise Agreement
Sections 17.4A, 17.4C and 22.3 of Franchise
Agreement
Preamble to the Franchise Agreement and
Exhibit B of Franchise Agreement
(x) Dispute resolution
(y) Guaranty
ITEM IN
DISCLOSURE
DOCUMENT
Item 17
Item 17
Item 17
Item 15
NOTE:
1
In addition to your obligation to repair and maintain the hotel on an on-going basis, you must accomplish a
significant renovation of guest rooms, guest room corridors and public facilities, including replacement of soft
goods FF&E, at least every five (5) to six (6) years after the date such soft goods FF&E were installed and
replacement of case goods FF&E at least every ten (10) to twelve (12) years after the date such case goods
FF&E were installed, although earlier or more frequent renovations or replacements may be required to
maintain the quality level of the hotel and to comply with our Quality Assurance Program. If the hotel is
subject to a transfer (see Item 17), the dates of these obligations may be adjusted at the time of transfer (see
Exhibit B to this disclosure document). You must submit your plans for such upgrading and remodeling to us
for our review and approval before you commence the upgrade or remodeling. Upon completion of the
upgrading or remodeling, you must provide to us a written opinion from your architect, licensed professional
engineer, or other third-party expert on the Americans with Disabilities Act (“ADA”) certifying that the hotel as
renovated complies with the ADA and with any other applicable laws, codes, ordinances, or regulations
governing accessibility to persons with disabilities.
Marriott 366119v6 (03/31/2008)
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ITEM 10
FINANCING
We generally do not offer direct or indirect financing for franchised Marriott hotels. We generally do
not guarantee any of your financing, loans or other obligations.
Marriott 366119v6 (03/31/2008)
54
ITEM 11
FRANCHISOR’S ASSISTANCE, ADVERTISING, COMPUTER SYSTEMS, AND TRAINING
Except as listed below, we are not required to provide you with any assistance.
Pre-Opening Obligations
Before you open for business as a Marriott hotel, we will:
(1)
Make available to you design and construction criteria for constructing or converting your
hotel and a list of specifications for all furniture, furnishings, equipment (including computer hardware and
software), and inventory supplies (Franchise Agreement – Sections 5.3 and 6). Please note that we do not
claim, represent, or warrant that the criteria comply with any applicable local, state, or federal laws, codes,
ordinances, or regulations. You must pay the entire cost of constructing or converting and equipping your
hotel. We provide the specifications and standards for all items that you must purchase. Currently, you may
purchase from any source, but we may designate sources in the future. The proprietary software is the only
item that we must install. (See Items 5, 7 and 8).
(2)
Review the preliminary and construction working drawings to assess compliance with the
standards and criteria of the Marriott hotel system (including, if applicable, those standards and criteria
specific to JW Marriott Hotels) (Franchise Agreement - Section 6 and Exhibit D). Please note that we do not
review your working drawings for compliance with any applicable local, state, or federal laws, codes,
ordinances, or regulations.
(3)
Visit your hotel periodically during construction or conversion to assess compliance with the
specifications and standards of the Marriott hotel system (including, if applicable, those specifications and
standards specific to JW Marriott Hotels) (Franchise Agreement - Exhibit D).
(4)
Offer our services or the services of our affiliates on a voluntary basis to assist you in
procuring operating supplies or furniture, fixtures, and equipment. (See Item 5).
(5)
Visit your hotel when you tell us construction or conversion is complete to ensure that you
have complied with the approved plans, specifications, and system standards and to determine if the hotel is
ready to open and operate under the Marriott hotel system (Franchise Agreement - Exhibit D).
(6)
Make available to you a copy of our compilation of operating rules, manuals, procedures and
standard operating and other procedures, systems, guides, programs requirements, directives, standards,
specifications design criteria, and such other information, initiatives and controls for hotels in the system (the
“standards”) (or make them available to you in digital, electronic, or computerized form although you must
pay any and all costs to retrieve, review, use, or access the standards) (Franchise Agreement – Section 12.1).
The standards are confidential and are our property. We may modify the standards periodically and provide
you with such changes or make them available to you. You are obligated to comply with the mandatory
elements of the standards and any modifications that we make to them (Franchise Agreement – Sections 1 and
9). We have included a copy of the tables of contents of certain training materials and standards for your
information at Exhibit K to this disclosure document.
(7)
If your hotel is structured as a condominium or contains residential units, we and our outside
counsel will review the condominium declaration and other operational, maintenance and governance
documents to assess compliance with our standards and criteria. We will also review all sales, advertising and
promotional materials to assess compliance with our standards and criteria. You must obtain our approval of
all such materials as well as our approval of the sales agents prior to commencement of any sales activities.
Marriott 366119v6 (03/31/2008)
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We will not, however, provide you with any advertising or marketing materials related to the sale of the
condominium or residential units. (See Items 5, 6, and 7).
Site Selection, Construction and Opening
Generally we do not participate in your selection of a site for your Marriott hotel or assist you in the
negotiation of a purchase or lease agreement with respect to the site. When you submit an application for a
franchise, you must identify the site you propose. We will review the site for its general location, size,
visibility, accessibility, relationship to customer generators, competitive environment and our desire to add a
Marriott hotel in the market. If we do not authorize the site you have selected, we will not approve your
application.
We will generally allow you 12 months from the date we approve your application for new
development to begin construction. We expect the hotel to be open for business between 12 and 18 months
from the date you begin construction (Franchise Agreement - Exhibit D). The total length of time is
dependent upon the size of the project, local building conditions and other construction variables, such as the
ability to obtain financing, requirements of local government authorities, weather conditions, shortages of
materials and delays in installation of equipment, and furnishings and signs.
Post-Opening Obligations
During the operation of the franchised business, we will:
(1)
Consult with and provide advice to you, as we deem necessary or as agreed to by you and us,
regarding the design, operation, and management of your hotel (Franchise Agreement - Section 10.2).
(2)
Make available for your use a reservation system (currently, MARSHA), a property
management system (currently, PMS), and a yield management system (currently, One Yield), or such
successor system or systems that we may designate. We may suspend your right to participate in the
reservation system during any period in which you are in breach of your franchise agreement obligations
(Franchise Agreement – Section 8).
(3)
Take all steps reasonably necessary to preserve and protect the ownership and validity of the
Proprietary Marks in the United States, and indemnify you against claims that your proper use of the
Proprietary Marks infringes upon the rights of any third party unrelated to you (Franchise Agreement –
Section 13).
(4)
Administer the Quality Assurance Program, which may include hotel inspections, to confirm
that you are complying with the franchise agreement and our system standards (Franchise Agreement –
Sections 9.1 and 12).
(5)
Offer certain training programs for the hotel’s or your management personnel. We may
charge tuition, fees, or reimbursements for some or all of these training programs (Franchise Agreement –
Sections 3.5, 3.6 and 10.1).
(6)
Provide for an association of system franchisees in good standing to serve as an advisory
council to us regarding common problems relating to the operation of franchised Marriott hotels and to make
recommendations to us regarding problems of operation and management and other matters of interest to
Marriott hotels. The governing rules of the association will be consistent with the terms and conditions of the
franchise agreement. Franchisees of Marriott hotels and Marriott will be eligible for membership in the
association. Currently, the association of franchisees for Marriott Hotels serves as an advisory council to us
in combination with the association for Renaissance Hotels (Franchise Agreement – Section 12.3).
Marriott 366119v6 (03/31/2008)
56
Marketing and Advertising
We administer a marketing fund (the “Marketing Fund”) for advertising, marketing, promotional
programs and research for Marriott hotels in the United States and Canada. We generally do not distinguish
JW Marriott Hotels from other Marriott hotels in our advertising or marketing programs, although we may do
so in the future.
We primarily use print (including magazines and newspapers), the Internet (including the on-line
listing of Marriott hotels), “out-of-home”/outdoor advertising and/or television to advertise and market
Marriott hotels. Other marketing channels that may be used include events, mobile marketing and social
networking activities. The sources of our advertising are national advertising agencies.
Within 20 days after the end of each Accounting Period, for the term of the franchise agreement,
franchised Marriott hotels must pay to us a Marketing Fund Fee in an amount equal to 1% of gross room sales
for the previous Accounting Period (or 0.8% if the franchise agreement was executed before 1994) (Franchise
Agreement – Section 3.3.A). All sums we receive under the Marketing Fund are deposited in an account
under our control and may be commingled with other funds. If we determine that the percentage amount to be
spent or contributed for the chain-wide programs should be increased, we have the right to increase the
Marketing Fund Fee by notification in writing to you, and you will be bound by any such increase (see Item
6) (Franchise Agreement – Section 3.3.A). Marriott hotels operated by us and our affiliates do not pay a
Marketing Fund Fee but do pay for advertising, marketing, promotional and sales activities with respect to the
Marketing Fund each Accounting Period, although on a different basis than franchisees. In many years the
Marketing Fund Fees have not been adequate to cover the activities of all franchised hotels, and we have
made substantial contributions to the Marketing Fund up to or in excess of such amount. In 2007, however,
after the payment for Marketing Fund activities from the Marketing Fund Fees collected from the franchised
hotels, excess funds remained in the Marketing Fund, and the funds were expended on additional Marketing
Fund activities. We anticipate that this will occur again in 2008.
While we currently operate the Marketing Fund for the United States and Canada together, we have
the right to modify the Marriott hotel system and the Marketing Fund. We have the right to operate separate
Marketing Funds for hotels located in the United States and Canada or to combine the Marketing Fund with
marketing funds operated on behalf of hotels located in other regions or countries or terminate the Marketing
Fund and establish methods of funding Marketing Fund activities other than payment of Marketing Fund Fees
(Franchise Agreement – Section 7.3.B). The Marketing Fund is not required to be audited, although it was for
2006. Upon your request, we will provide you an accounting of the uses of monies in the Marketing Fund in
any fiscal year if such request is made no earlier than ninety (90) days and no later than one hundred and
eighty (180) days after the end of such fiscal year (Franchise Agreement – Section 7.3.A). In 2007, including
both managed and franchised hotels, monies spent from the Marketing Fund were allocated as follows: 32%
to generate awareness, trial and loyalty (including: 5% for consumer marketing – development and execution
of the marketing plan and strategies through all marketing channels; and 27% for marketing programs –
advertising, public relations, collateral and promotions); 4% on strategic planning and product positioning
(including brand management, research and guest tracking); 59% to drive and capture demand through sales
and channels (including lodging sales offices, sales strategy and analysis, eCommerce, and field sales
management); and 4% on revenue management (pricing and mix management and revenue analysis). The
costs of administering the Marketing Fund totaled approximately 1% of the monies spent from the Marketing
Fund in 2007. In 2007, the Marketing Fund for Marriott hotels located in the United States and Canada,
including both managed and franchised hotels, was allocated approximately $2,632,900 in restricted
marketing allowances received from suppliers and charged approximately $589,000 due to losses associated
with Eventcom (which losses are included in the 59% of monies from the Marketing Fund allocated to drive
and capture demand through sales and channels above) (see Item 8).
Marriott 366119v6 (03/31/2008)
57
Marketing Fund monies may be used by us for brand communication for Marriott hotels including:
the creation, production, and administration of advertising, marketing, promotional, sales and public relations
concepts, press releases, materials, copy, concepts, plans, programs, brochures, or other information to be
released to the public; the purchase of advertising space in magazines, newspapers, and similar printed media
or on the Internet or other electronic medium; the purchase of advertising on radio, television, the Internet,
and other electronic media; advertising, marketing, promotional, public relations, revenue management and
sales campaigns, programs, seminars and other activities designed to increase sales or public awareness of
Marriott hotels, including publication and distribution of directories (whether off-line or on-line), pamphlets
and other forms of advertising media; market research and oversight and management of the guest satisfaction
program and frequent traveler programs; the retention or employment of personnel, advertising agencies,
marketing consultants, and other professionals or specialists to assist in the development and implementation
of any of the foregoing; and the advertising, marketing, promotional, sales, and reservations activities of us
and our affiliates throughout the world (Franchise Agreement – Section 1 – Definition of “Marketing Fund
Activities”). The actual advertising and marketing activities and content that are supported by the Marketing
Fund may change from time to time as determined by us. Marketing Fund monies may be used to pay costs
associated with collecting and accounting for the Marketing Fund and to pay costs associated with
developing, preparing, producing, directing, administering, researching, conducting, and disseminating
marketing and advertising, as well as the administrative costs and overhead incurred by us (including the cost
of salaries and overhead for personnel involved in such activities). We may make loans to the Marketing
Fund and use contributions to the Marketing Fund to repay such loans. We are entitled to receive interest at
then-current market rates on such loans. We may commingle monies in the Marketing Fund with other
monies and do not hold monies in the Marketing Fund Fees as a trustee or as a trust fund. We have no
fiduciary duty to you with regard to the administration, use, or expenditure of Marketing Fund monies
(Franchise Agreement – Section 7.3.C).
We or our designee will direct all advertising, promotional and public relations programs using our
discretion over the concepts, materials and media used in the programs and activities and the placement and
allocation. The advertising and marketing activities supported by the Marketing Fund are intended to
promote general public recognition and acceptance of the Marriott hotel brand and use of the Marriott hotel
system and we undertake no obligation to make expenditures that are equivalent or proportionate to your
contribution, or to ensure that any particular hotel benefits directly or pro rata from Marketing Fund
expenditures. Advertising and marketing activities supported by the Marketing Fund may not necessarily
include all of the Marriott hotels and may benefit other Company Brands in addition to Marriott hotels
(Franchise Agreement – Section 7.3.A).
We generally intend to spend all of the money in the Marketing Fund in the year in which we collect
it. However, in years in which we do not, any amount not used in that year is carried over to and spent in
subsequent years. In many years the franchised Marriott hotels’ allocable share of the amounts spent on
marketing Marriott hotels has exceeded franchisee contributions to the Marketing Fund. In 2002, however,
the franchised Marriott hotels’ contribution to the Marketing Fund exceeded their allocable share of the
amounts spent on marketing Marriott hotels, and that excess was expended on additional Marketing Fund
activities. This could occur again in the future. We present information to the Marketing Communications
Advisory Council each year on how the Marketing Fund has been spent and will be spent. We are not
required to spend any amount on advertising in the region where your hotel is located. We do not use any
funds from the Marketing Fund to solicit the sale of franchises.
You are responsible at your own expense for providing local advertising, marketing, promotional, and
public relations programs and activities for the hotel, none of which are paid for with monies from the
Marketing Fund. All advertising, marketing, promotional, and public relations programs and activities for the
hotel conducted or caused to be conducted by you in any medium must conform to such standards and
specifications as we may develop. You must prominently use and display in, upon and in connection with
Marriott 366119v6 (03/31/2008)
58
your hotel signs and other marketing materials and trade names, trademarks, logos, and designs only in the
combination, arrangement, and manner approved or required by us and in accordance with the standards and
applicable law. You must submit to us samples of marketing materials not provided by us and obtain prior
approval from us before any public use thereof. If we withdraw our approval, you must immediately cease
the use, distribution, and dissemination of such materials. Any advertising, marketing, promotional, or public
relations concepts, plans, programs, or materials proposed or developed by you may be used by other
Company Brands without compensation to you (Franchise Agreement – Section 7.1).
When collateral materials are produced, all hotels in the Marriott hotel system will receive a portion
of the materials in quantities determined by us. Should you require an additional amount of any collateral
material, we may require that you pay for the costs of such additional materials (Franchise Agreement –
Section 7.3.D).
For the initial opening of the hotel for business, you must conduct an advertising and marketing
campaign as required by us that complies with our standards and guidelines (Franchise Agreement – New
Development Rider or Conversion Rider).
You must pay your fair share of the cost of other system-wide programs, such as Marriott Rewards
and airline frequent travel programs and other market initiatives or other programs that we may develop
(Franchise Agreement – Section 7.4).
A marketing council for Renaissance and Marriott hotel franchisees, our brand managers, and market
representatives was established in March 2000 (a Renaissance-only council was established in 2004). The
role of this council is purely advisory and the franchisee council representatives are comprised of franchisee
representatives selected by us.
In addition to your obligation to participate in the Marketing Fund and conduct local advertising, we
may request that you participate in cooperative advertising, marketing, sales, customer satisfaction, travel
agency and other programs or activities among Marriott hotels. These programs may be local, regional, or
based on the market orientation of Marriott hotels, and they may include participation by other Company
Brands. You will participate in such programs and activities upon our request, and pay any fee for
participation in such programs, which fee will be computed on a fair and consistent basis among similarly
situated participants (Franchise Agreement – Section 3.3.C).
We also anticipate developing national, local or regional marketing programs and initiatives where
your participation is encouraged, but not required. If such a program or initiative is developed, franchisees
will be notified in the Franchise Weekly Update e-mail or by other means prior to the commencement date of
the program or initiative. Some of these programs or initiatives will require you to “opt out” of the program
or initiative if you do not wish to participate. The notice announcing the program or initiative will also
include instructions on how to opt out of participation in the program or initiative. If you do not comply with
the opt out procedures by the date set forth in the notification, you must participate in the program or initiative
and will be responsible for paying the costs and expenses associated with such program, which will be
reasonably allocated by us among participating hotels (Franchise Agreement – Section 7.4).
You are responsible for setting your own prices and rates for the goods and services, except that we:
(i) prohibit certain types of surcharges, resort fees, and other similar fees, as well as price-gouging at the
hotel; and (ii) require you to participate in our associate rate discount program. In addition, as discussed in
Item 16, you must distribute your inventory in a manner consistent with our “Marriott’s Look No Further®
Best Rate Guarantee” policy. We may, from time to time, recommend or suggest prices or rates for the
products and services you offer, including in circumstances involving your participation in various sales or
revenue management programs, account management programs, and/or other consulting services or
promotions offered by us and our affiliates. Our recommendations or suggestions concerning prices or rates
Marriott 366119v6 (03/31/2008)
59
are not mandatory, and you are ultimately responsible for determining the prices or rates at which you offer
your goods and services. If you participate in such programs and promotions you, however, must honor any
price to which you commit. Nothing contained in the franchise agreement or any other agreements required
for participation in any such programs should be considered a representation or warranty by us that the use of
such suggested or recommended prices or rates will produce, increase or optimize your profits (Franchise
Agreement – Section 7.3).
Field Sales
Field Sales seeks to focus on the needs of transient, group, catering and extended stay customers by
providing better access to a variety of Marriott hotel brands and services. We anticipate that the structure and
components of Field Sales will continue to evolve based on business needs. Currently, the two key
components of Field Sales that require execution of a service agreement in order to participate are: (i) Event
Booking Centers (“EBCs”) and (ii) Market Sales Teams (“MSTs”).
EBCs involve Marriott sales associates focusing on reactive sales for a number of hotels within a
defined geographic area (or among a specified group of hotels), and directly booking small group and catering
business for those hotels. EBCs operate from either a single office located in a hotel or from an off-site
location. EBCs are intended to consolidate reactive sales efforts, modify current event management processes
(separate sales from service functions) and implement revenue management processes for small meetings.
This sales channel enables sales associates to offer the customer alternative hotels when the originally
requested hotel is not available (for any and all dates attempted), potentially generating an increased level of
cross sell revenues. The number of associates and hotels participating in an EBC varies depending on the
market. Sales associates in an EBC concentrate on booking events for all Company Brand properties
participating in the EBC, rather than focusing solely on reactive sales and revenue management for one hotel.
As of December 31, 2007, there were approximately 19 EBCs in operation in the United States and Canada.
It is anticipated that the number of EBCs in operation will decrease as Sales Force One is implemented in
more markets.
MSTs involve proactive sales personnel representing a number of hotels within a defined market area
that participate in the program. MST personnel are deployed within a market to generate business primarily
through managing accounts and business segments that have the potential to produce a high volume of
business for the hotels represented in the market, rather than focusing solely on the proactive sales for one
hotel. MST personnel conduct lead generation, research, account development and account management
activities, and book business directly for participating hotels. MST personnel work primarily out of their
homes. As of December 31, 2007, there were approximately 102 MSTs in operation in the United States and
Canada. It is anticipated that the number of MSTs in operation will decrease as Sales Force One is
implemented in more markets.
Participation in EBCs and MSTs is encouraged, and may be required in certain instances. You must
execute an Event Booking Center Service Agreement to participate in an EBC and a Market Sales Service
Agreement to participate in an MST (see Exhibit L). We are currently in the process of reorganizing our
Field Sales organization with the launch of Sales Force One. As a result, new and/or different service
agreements may be required in order to participate in Sales Force One in place of an EBC or MST (or
successors to such programs) after the launch of Sales Force One in your area.
See Item 6 for a description of the costs associated with Field Sales, including aspects of Field Sales
that don’t require execution of a service agreement in order to participate, such as Territory Sales.
Sales Force One and Global Sales
Sales Force One is a sales deployment strategy focusing sales efforts on customer needs. We believe
that this strategy will reduce duplication of sales efforts and enable coverage for a larger number of accounts.
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To implement the Sales Force One strategy, we have begun to realign our sales organization (including
Global Sales Organization (“GSO”), EBCs, MSTs and Property Sales) to help provide a primary point of
contact for group, business transient, extended stay, and catering customers. The realigned sales organization
will be known as Global Sales, which will be made up of four teams. The Enterprise Sales Team sets the total
account management and segment strategy. The Area Sales Team, assigned to a designated geographical area,
proactively sells a cross-brand portfolio. The Property Sales Team books business for large convention hotels
and other large group business. The Sales Office Team evaluates and closes inbound leads, develops new
business and executes event planning. Sales Office associates partner with Area and Property Sales associates
to gain property-specific knowledge. In December 2007, we launched Sales Force One in the Washington,
D.C. metropolitan area, which became the first market to reorganize its sales organization as Global Sales. In
2008, we intend to implement our Sales Force One strategy in several markets, including the Mid-Atlantic
region (which includes, among other markets, Baltimore, Annapolis and much of North and South Carolina),
the Central Northwest region (which includes, among other markets, Chicago, Kansas City and Saint Louis)
and the Western Mountain Pacific region (which includes, among other markets, San Francisco, Sacramento,
Denver, Salt Lake City and Seattle).
Participation in Sales Force One - when and where available - is encouraged. You must execute a
Sales Force One Service Agreement to participate (see Exhibit L) and you must participate in both the Sales
Office and Area Sales Teams. Additionally, you must have certain revenue management capabilities in place
for your hotel.
See Item 6 for a description of the costs associated with the Global Sales Team, including aspects of
Sales Force One that do not require execution of a service agreement in order to participate.
Computer Hardware and Software
We require you to license from us or our affiliates proprietary software for the property management
system (“PMS”), the reservation system (“MARSHA”), and the web-based yield management system (“One
Yield”), which we designed and maintain for Marriott hotels. One Yield is mandatory for all Marriott Hotels.
As described in Items 5 and 7, you must obtain a sales and catering system, for which we offer the NGS Sales
and Catering system (we have also approved DELPHI as a comparable alternative). PMS and MARSHA
software assist you with reservations, check-in, charge posting, accounts receivable, night audit, check-out,
housekeeping and guest history. There is currently no initial cost for PMS and MARSHA licenses, but you
will pay your fair share of our cost to maintain and enhance this software. There is currently no initial cost
for the NGS Sales and Catering system software licenses, but you must pay your fair share of our cost to
maintain and enhance this software. The cost for Marriott Learning Journey software ranges from $2,800 to
$20,500, and the cost of the Guestware software license is approximately $5,955.
We charge you your pro-rata share of our maintenance and development costs. We do not currently
earn any profit from software maintenance and development, but we reserve the right to do so in the future.
Currently the costs for maintaining and developing the PMS software range from approximately $477 to
$1,908 per property per Accounting Period, $665 per property per Accounting Period for NGS Sales and
Catering system maintenance, $242.75 per Accounting Period for NGS Sales and Catering system help desk
support, and $200 per property per Accounting Period for Marriott Learning Journey. The costs for
maintaining the software for the reservation system is included in the per-transaction cost, which is currently
$.32 per transaction (Franchise Agreement - Section 3.4).
You are required to purchase through us the computer hardware and software listed below to use with
PMS, One Yield, MARSHA, and the Admin PCs connected to the Marriott network. You also are required to
use the hardware maintenance contracts that we have negotiated with the hardware vendors. The following
chart sets forth an estimate of the costs of PMS for a 300-room hotel:
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PROPERTY MANAGEMENT SYSTEM
COST ESTIMATE
Quantity
COST
Base Hardware
1
IBM Server Model 51A
$5,540
1
Server Warranty Coverage 7x24
$721
1
Powerware UPS 1500VA
$712
1
Console ADDS Terminal
$475
1
VIPER PMS Interface PC
$2,150
1
HP 2524 ProCurve Hub
$397
Sub Total Hardware
$9,995
Server/PMS Software
1
AIX Operating System
$842
1
TPS 3270 Emulation
$424
1
Tangram A1
$15
Sub Total Software
$1,281
Other Equipment
7
ADDS Terminals
$3,325
5
Magtek Credit Card Swipe Readers
6
Lenovo PC ThinkCenter M52 (with required software)
$7,878
$610
1
Franchise LAN Firewall
$3,480
1
Digi PortServer
7
HP 4250TN Laser Printers
40
Cabling – Category V Certified
$9,400
2
Data Equipment Racks
$1,466
1
Freight and Miscellaneous Supplies
$3,500
$910
$12,383
Sub Total Equipment
$42,952
Installation and Training
1
PMS Database Build
$5,152
1
PMS Installation (includes estimate for travel costs)
$39,975
1
PMS Training (includes estimate for travel costs)
$48,893
1
MARSHA Training (includes estimate for travel costs)
$10,800
Sub Total Installation and Training Costs
$104,285
$158,513
TOTAL
The point-of-sale system used at your hotel must integrate with PMS. There are several point-of-sale
systems from different vendors that interface with PMS. We recommend that you purchase or lease the
Micros point-of-sale (“POS”) system for your food and beverage outlets. The Micros POS is purchased
through an approved vendor. The Micros POS interfaces with PMS to post guestroom charges and also
functions as a cash register.
You must use the Global Card Services RealtimeMerchant application to process credit card
authorizations and settlements in order to comply with Payment Card Industry (“PCI”) security regulations.
We may support additional vendors in the future, at which time we will notify you of the costs.
Marriott 366119v6 (03/31/2008)
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You must install and use the upgrades of any hardware and software necessary to participate in the
reservation system required for Marriott hotels. You must also make changes that we request (Franchise
Agreement - Section 8.5). There is no contractual limitation on the frequency or cost of your obligation to
upgrade or update either PMS or MARSHA except as stated in this paragraph for PMS.
The hardware and software for MARSHA allow you to control your inventory of rooms for sale.
PMS works with MARSHA and provides the following automated support:
1.
Front Office
updates check-ins automatically; performs check-outs, reports, house counts and
the night audit final; conducts credit card authorization; charge routings; posting
of charges for phone calls, movie and other charges and management of group
bookings; all via on-line inquiries and nightly processing.
2.
Housekeeping
room assignments for housekeepers and updating of rooms status.
3.
PBX
on-line guest messages; interfacing with voicemail; accepting messages before
guest arrival and during their stay.
4.
Night Audit
one-button audit; posting of room, tax and other charges; posting batch charges;
and transmitting credit card settlements, automatic posting of room and tax
charges; posting batch charges; travel agent commissions and promotional data;
back-up entire system each night; and frequent traveler program(s) information.
5.
Interfaces
interfaces with reservation system, various call accounting, PBX, POS, and
movie/interactive systems, voice mail, and interfaces to Micros for food and
beverage outlets.
6.
may be accessed from any PMS terminal or “Host on Demand” connection. We
PMS &
MARSHA CBT recommend that this training be completed prior to the arrival of our installation
team.
All PCs that are connected to the Marriott network or use Marriott proprietary software must comply
with Marriott Lodging Standard Desktop (“LSDI”). The cost estimate for hardware, software and installation
that meets the current standard, which is subject to change by Marriott, is as follows.
HARDWARE AND SOFTWARE
COST ESTIMATE
COST
HARDWARE
Lenovo PC ThinkCenter M52 (w/3 year warranty) with 1 GB additional memory
$618
Lenovo 19” LCD Flat Panel Monitor
$210
Sub Total Hardware
$828
SOFTWARE
Marriott Image Configuration MS XP OS
$60
Microsoft Office XP Pro License
$314
Lodging Base Software Subscription
$111
Sub Total Software
$485
Installation
Desktop XP Topoff (complete PC installation)
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$174
63
HARDWARE AND SOFTWARE
COST ESTIMATE
Sub Total Installation
$174
TOTAL
$1,487
Sales Force Automation (“SFA”) is the technological component that enables the EBCs, MSTs,
revenue management teams, and participating hotels (including hotels participating in Sale Force One) to
share certain account, customer, and business opportunity information and to book business on behalf of the
hotels in real time. The tools enable sales, revenue management, and event management associates,
regardless of geographic location, to share certain information. SFA consists of five primary modules:
(1)
Account and Contact Management: Enables the capture of information related to accounts
and customers including account profile information, customer buying profiles, business profiles, hyper-links
to Web information, and the ability to attach data and information from external sources.
(2)
Opportunity Management: Enables the sharing of business opportunities (leads) for all
business segments (group, extended stay, transient, and catering) throughout the organization including the
ability for the hotel to respond with pricing and availability information.
(3)
Property Catalog: A database of all our products and brands enabling sales people to
effectively sell your hotel.
(4)
Proposal and Contract Generation: The ability to export data from SFA into Microsoft
products for the purpose of creating and managing contracts, proposals, reports, and presentations.
(5)
Activity Management: The ability to manage the activity associated with our accounts,
customers, and sales people.
The per user costs of SFA are as follows:
(i)
(ii)
Hardware:
Software:
(iii)
(iv)
Installation:
Operations, Support,
Training:
License Transfer
(v)
Our standard desktop and/or laptop required
Siebel and Oracle license required ($1,185), Microsoft
Office Professional required.
Ranges from $140 - $240 per seat
$2,730 per user per year
$50 - $100 per user per transfer
You must report to us every week, or as we otherwise specify, the revenues from the sale of your
guestrooms, the number of room nights sold, and revenues from all food and beverage sales. If requested by
us, you must report to us every Accounting Period, or as we otherwise specify, your hotel’s gross sales, the
sources and amounts of all revenues generated by your hotel, room occupancy and rates, reservations rate
segmentation data, information on guest frequency programs, profits and any other data that we may
reasonably require, through your use of PMS. At the end of each fiscal year, you will send to us an unaudited
profit and loss statement for your hotel (Franchise Agreement - Section 15.2).
We will have independent access to your system databases through our connections with PMS, One
Yield and MARSHA. Our right to access the information and data has no limitations in the franchise
agreement. We have no obligation to provide to you or help you to acquire the computer goods and services
in this item, except for providing the proprietary software for PMS, One Yield and MARSHA.
Marriott 366119v6 (03/31/2008)
64
In connection with your purchase of the Admin PCs and with respect to any other Microsoft software
products that you purchase through Marriott, you may be required to sign a Participation Agreement with
Microsoft. The form of such agreement is attached to this disclosure document at Exhibit H.
We have no obligation to upgrade or update any of the software you use, and there are no limitations
on the frequency with which we can require you to upgrade or update the software or the cost of doing so.
We may have independent access to the information and data you maintain utilizing such software, and there
are no limitations on our right to access this information and data.
Your estimated costs for computer goods and services are included in Item 7.
Training
We require executive committee level and department head level managers to participate in training
that focuses on customer service and satisfaction for 3 days at the hotel site with a facilitator before opening
and for an additional 3 to 5 days in a designated Marriott hotel before opening. (Franchise Agreement Section 11). We also require your general manager to train for at least one week at a Marriott hotel operated
by us as part of the “Marriott Acculturation Process” (“MAP”). During that time, your general manager will
accompany our general manager to learn our method of managing a full-service Marriott hotel. We will
charge you a fee for MAP training up to a maximum of $800 per person (to cover the cost of manuals and
other training materials), and you must pay, in addition to such fee, all the travel and living expenses of your
general manager and any other executives of yours that attend. (Franchise Agreement - Section 11). If your
employees stay at a Marriott hotel, the cost of lodging is based on the Marriott business rate and ranges from
$75.00 to $190.00 per day depending on the location of the hotel. The cost of meals is estimated at $35 to
$50 per day per person. Transportation costs vary greatly depending on the location of your hotel, and we are
not able to give you a meaningful estimate.
Four to five times a year, we offer a three-day orientation class at a location that we designate for
general managers and franchisee corporate executives who are new to the Marriott hotel system. This class
presents our views on accounting, finance, human resources, sales, marketing, revenue management, food and
beverage operations, rooms operations, and regional team responsibilities. New general managers must attend
this class within three months of starting. We encourage attendance by other personnel as well. We do not
currently charge a fee for this service, but you will pay all the travel and living expenses of your personnel
who attend (Franchise Agreement - Section 11).
Beginning in 2009, your General Manager will be required to attend an educational “General
Manager” conference every two years. You must pay all the costs of attendance by your personnel at these
conferences, including registration fee, materials, and travel and living expenses. Attendance at the 2007
General Manager conference was voluntary and cost $3,000 per attendee, excluding travel and living
expenses. Regardless of whether your General Manager attends, you will be charged a conference fee, which
will vary depending on length and location. In the near future, we may mandate training for supervisory staff
members in addition to your General Manager. The costs associated with this staff-member training are still
under development.
In addition to the above training and that done in connection with our PMS and MARSHA systems,
we offer orientation training to new franchisees in sales, marketing, and yield management at your location.
This training focuses on maximizing the Company Brand name and on Marriott marketing policies, including
market positioning, the use of the reservation system, and the demand forecast system to increase room
revenue by improving yield management.
We also offer to provide on-the-job training to your hourly and management employees, both before
and after your hotel opens, in the following departments: front office, housekeeping, bell-stand, concierge,
culinary, outlets, banquets, engineering, reservation systems, and rooms operations. The task force that
Marriott 366119v6 (03/31/2008)
65
provides this training is made up of a group of our trained employees or training personnel that we obtain
from third parties. The team will have from 12 to 20 members (depending on the size and experience of your
staff) and will last up to 4 weeks (depending upon the progress of your staff). You will be responsible for the
cost of each and every team member, including transportation, lodging, meals, salaries, and other
compensation. The cost of the task force (excluding transportation, lodging, and meals) is included in our
estimated $250 to $315 per guestroom training cost listed in Item 7. You should provide free lodging for our
task force trainers. If not, we will charge you the cost of lodging. Meals should be between $35 and $50 per
day per person. Transportation costs vary greatly depending on the location of your hotel, and we are not able
to give you a meaningful estimate.
We may provide other training to you at no charge, and not as a part of the task force, if we decide
that it is necessary. An example of the free help that we may give is an on-site visit by one of our corporate or
regional associates to help your employees with sales, marketing, or operating issues. Our regional team
members advise franchisees on recommended training programs after we review the needs of your employees.
We offer training programs regionally and locally in addition to the nationally sponsored programs listed
below. Costs range from zero to $2,000 per program. You must pay the travel and living expenses of your
employees in addition to the cost of the regional or local training program.
We train the salaried and hourly personnel at your hotel as part of our task force training in the
following subjects:
DEPARTMENT
All Front-line Managers
Front Office staff
General Manager and Executive Orientation
Kitchen
Restaurant and Room Service
Catering
Human Resources
Housekeeping
All Associates
Marriott 366119v6 (03/31/2008)
TYPE OF TRAINING
- Marriott Rewards
- Service Excellence
- Marriott Orientation
- Standard Operating Procedures
- PMS
- PMS CBT (Computer Based Training)
- MARSHA
- MARSHA CBT (Computer Based Training)
- Marriott Learning Journey:
- Front Desk Quest
- Front Desk Quest Loyalty Challenge
- Quest for Excellence
- Quest for Excellence Loyalty Challenge
- Service Excellence
- Standard Operating Procedures
- Marriott Rewards
Converting your hotel to or operating your hotel as a Marriott hotel
- Breakfast
- Food safety and sanitation
- Standard Operating
Procedures
- Service Standards
- Standard Operating Procedures
- Service Standards
- Food Safety and Sanitation
- Service Excellence
- Standard Operating Procedures
- Service Standards
- Service Excellence
- Job profiling, hiring, and training
- Service Excellence
- Standard Operating Procedures
- New Hire Orientation
- Spirit to Serve Basics Education
- New Hire Training and Certification (job specific)
66
See Items 5 and 7 for additional information on the costs of our training programs.
We conduct most training by classroom style in a Marriott hotel, either at your hotel or at a Marriott
hotel in your region, if available. We conduct most computer training at your hotel, but computer training
may take place at our headquarters in Bethesda, Maryland or at a national or regional reservations office.
Completing all pre-opening training before the opening (or conversion) date of your hotel is a
requirement. As a result of the many scheduling problems associated with the opening (or conversion) of a
hotel (for example, hiring of personnel, availability of hotel or trainees, etc.), it is essential that you factor the
required training into your opening (or conversion) plan.
Most training courses use a combination of training methods. Where appropriate, classes will utilize
two instructors (most classes will attempt to maintain a ratio of one instructor for every 15 students), training
manuals or modules, and interactive materials or activities (workshops, work groups, video tapings,
presentations, case studies, and role-playing). Some courses include self-paced classroom materials with
instructors who check for learning progress. A qualified instructor leads the computer-based automated
systems training, using terminal ports for each student. We choose instructors for training programs based on
their presentation and training skills, educational background, job experience, and technical aptitude. We
require training courses for our trainers.
The following tables list the training courses and programs that we offer. You will conduct all onthe-job training using materials that we provide. You determine the frequency. You may conduct any other
training that you deem advisable. Some programs are noted as required; otherwise they are all currently
voluntary, except for the general manager training (Marriott Acculturation Program – MAP).
Marriott 366119v6 (03/31/2008)
67
MARRIOTT HOTELS AND RESORTS
TRAINING PROGRAM
Corporate Training Courses for Marriott Franchise Associates
MANAGEMENT DEVELOPMENT
HOURS OF
CLASSROOM
TRAINING
HOURS OF
ON-THE-JOB
TRAINING
LOCATION
COST
At The Helm (Required)
32 hours
None
Offered Regionally*
$925
CareerPower
4 hours#
None
Offered Regionally*
$145
Certified New Hire Trainer
Program (Trainer
Certification Level I)
16 hours
Effective Daily Meetings
1-2 hours
SUBJECT
32 hours
None
None
None
FREQUENCY
PER YEAR
Based on Market
Demand
Based on Market
Demand
Property Based
Varies by Property
Property Based
Varies by Property
Offered Regionally*
$1,025
25-30
Foundations of Leadership
Based on Market
Demand
Based on Market
Demand
Varies by Property
Varies by Property
FSPMS 102 (Required)
24 hours
None
Offered Regionally
$995
Impact Leadership
24 hours†
None
Offered Regionally*
$950
Interviewing (OPTS)
Managing Conflict (OPTS)
Supervisor SPIRIT: Phase I
x
Your Transition
x
Marriott’s Global
Enterprise
x
As Others See Us
x
Managing Workplace
Stress
x
Managing Your Time
x
Hotel Essentials
Supervisor SPIRIT: Phase II
x
Professional Image and
Etiquette
x
Motivating and
Coaching
x
Training Others
x
Conflict Management
x
Effective
Communications
x
Marriott Business
Basics
Trainer Certification Series
(Level II)
Trainer Certification Series
(Level III)
World Class Customer
Service for the 21st Century
5.5 hours
3.5 hours
None
None
Property Based
Property Based
8-12 hours
None
Property Based
When Each New
Supervisor Begins
Work
13 hours
None
Property Based
Varies by Property
24 hours
16 hours
4 hours
None
None
None
Offered Regionally*
$825
Offered Regionally*
$695
Property Based
* Classes take place in different cities for maximum attendance and convenience
†
In addition to classroom training, this course requires 4 hours of pre-work
Marriott 366119v6 (03/31/2008)
68
Based on Market
Demand
Based on Market
Demand
Varies by Property
# In addition to classroom training, this course requires 3 hours of pre-work
FOOD AND BEVERAGE
SUBJECT
HOURS OF
CLASSROOM
TRAINING
HOURS OF
ON-THE-JOB
TRAINING
LOCATION
Varies
None
Offered Regionally
Varies
None
Offered Locally or
Regionally
As needed
N/A (webbased)
None
Self-Paced
As needed
5-6 hours
None
On Property
As needed
32 hours
N/A (webbased)
None
Offered Regionally
Varies
None
Self-Paced
As needed
American Culinary
Federation
Food Safety Training
(including Great Food, Safe
Food; Food Safety
Certification; Food Safety
Academy; Serv-Safe
Certification) (Required)
The Complete Guide to
Beverage
TIPS – Serving Alcohol
Responsibly Beverage
Training
Trainex
Wedding Certification
(Required)
COST
FREQUENCY
PER YEAR
$1,000
As needed
HOTEL COMPUTER SYSTEMS
HOURS OF
CLASSROOM
TRAINING
HOURS OF
ON-THE-JOB
TRAINING
PMS – Executive Overview
6-8
None
PMS – Front Desk Training
16
None
PMS – Night Audit Training
16
None
PMS – System Management
16
None
SUBJECT
LOCATION
On site for
openings/conversions,
also upon request
On site for
openings/conversions,
also upon request
On site for
openings/conversions,
also upon request
Washington, D.C. and
regionally upon
request
COST
FREQUENCY PER
YEAR
As needed
As needed
As needed
$750
As needed
COST
FREQUENCY
PER YEAR
ENGINEERING
SUBJECT
HOURS OF
CLASSROOM
TRAINING
HOURS OF
ON-THE-JOB
TRAINING
LOCATION
None
Varies
Your hotel
Engineering New-Hire
Training and Certification
Program
Marriott 366119v6 (03/31/2008)
69
Varies
SALES AND MARKETING
HOURS OF
CLASSROOM
TRAINING
HOURS OF
ON-THE-JOB
TRAINING
LOCATION*
COST
FREQUENCY
PER YEAR
Advanced E-Commerce
Skills
16
None
Rotates
$625
Varies
Advanced Prospecting
Strategies and Techniques
8
None
Rotates
$400
Varies
Business Travel
16
None
Rotates
$675
Varies
Business Engagement
Strategies and Tactics
(BEST)
16
None
Rotates
$950
Varies
Conflict Resolution
8
None
Rotates
$450
Varies
Designing Effective Event
Proposals
8
None
Rotates
$250
Varies
Dynamic Business
Communications
8
None
Rotates
$500
Varies
Dynamic Selling
16
None
Rotates
$700
Varies
eCommerce Fundamentals
8
None
Rotates
$325
Varies
Effective Presentations
8
None
Rotates
$375
Varies
Event Planning
Fundamentals
16
None
Rotates
$625
Varies
Group Sales Agreement
8
None
Rotates
$400
Varies
Group Strategy/Business
Evaluation
24
None
Rotates
$725
Varies
Management Development
Program for Property Sales
and Revenue Management
N/A
4 weeks
Property Based
Impact Leadership for Sales
Leaders
32
None
Bethesda, MD
$1,300
2
MARSHA Basics for
Revenue Management
24
None
Rotates
$850
Varies
Revenue Analysis
24
None
Rotates
$775
5
Revenue Analysis II
16
None
Rotates
$700
Varies
Revenue Management Skills
24
None
Rotates
$850
Varies
Revenue Maximization
16
None
Rotates
$720
Varies
Sales and Marketing
Resource School
40
None
Bethesda, MD
$1,000
2
Sales and Service
Foundations
32
None
Rotates
$1,350
Varies
Sales Negotiations
16
None
Rotates
$625
Varies
Selling to Senior Level
Executives
16
None
Rotates
$900
Varies
Selling and Upselling
Catering
20
None
Rotates
$850
5
SUBJECT
* Classes take place in different cities for maximum attendance and convenience.
Marriott 366119v6 (03/31/2008)
70
As needed
ITEM 12
TERRITORY
Your franchise will permit you to operate one hotel of a specific size at a specific site selected by you
and approved by us. You will not receive the right to acquire additional franchises at any location. We and
our affiliates have and retain the rights to, or license or franchise others to, develop, promote, own, operate,
lease, franchise and/or manage other hotels, lodging products or concepts or other business operations
(including Marriott hotels and other Company Brand hotels) at any location, including locations adjacent or
proximate to your hotel (see Item 1). These business operations may compete directly with, and adversely
financially impact the operation of, your hotel.
You will not receive an exclusive territory. You may face competition from other franchisees, from
hotels that we own or manage, or from other channels of distribution or Company Brands.
If you are granted a territory, it will be non-exclusive. Generally, the territory: (i) will apply to
Marriott hotels only; (ii) will apply for a limited duration less than the entire term of the franchise; (iii) will
not apply to any hotel which is existing or under development as of the date of the franchise agreement and is
located within the restricted territory (or, in the event such hotel should cease to operate under its specified
trademark, the territorial restriction will not apply to a replacement hotel); (iv) will not apply to any hotel or
hotels that are members of a chain of hotels or a group of hotels (provided that such chain or group has a
specific minimum number of hotels in operation) which is acquired by, or merged with, or franchised by or
joined through a marketing agreement with us or one of our affiliates, or the operation of which is transferred
to us or one of our affiliates; and (v) will not apply to any future lodging product developed by us or one of
our affiliates. If a territory is granted, specific terms for the grant of a territory (e.g., the size of the
geographic area and the duration of the term) would depend upon the market in which the site is located, and
it will not include, either expressly or by implication, any right of franchisee to develop additional hotels at
sites within the territory or to enlarge the hotel at the approved site.
The franchise agreement does not provide you with any options, rights of first refusal, or similar
rights to acquire additional franchises.
We will seek to resolve any conflict that arises between franchisees and us or between franchisees
concerning territory, customers or franchisor support, on a case-by-case basis. In doing so we will consider
the rights and obligations of the parties under applicable contracts.
We provide notice of new development projects as set forth in our Growth Administration Guidelines,
which are available on request. These guidelines currently provide notified owners and franchisees an
opportunity to respond in writing regarding any concerns they may have with respect to the proposed project,
as well as an opportunity to request an independent impact study, if certain conditions are met. These
guidelines are subject to change.
You may only solicit or accept reservations for Marriott hotels through the means we designate or
approve in writing. We currently have distribution agreements (all on similar terms) with Travelweb,
Travelocity, Expedia, Hotels.com, and Priceline.com. We do not currently prohibit franchisees from using
other on-line discount channels of distribution, so long as such use complies with our “Marriott’s Look No
Further® Best Rate Guarantee” policy, as described in Item 16, but we retain the right to do so.
Our and our affiliates’ reservations, sales and marketing personnel may market not only Marriott
hotels, but also any other Company Brand lodging products, Marriott Vacation Club International, Horizons
by Marriott Vacation Club, The Ritz-Carlton Club, and any other lodging products that become affiliated with
us. They may use our reservation system, national and regional sales offices and corporate headquarters
personnel and may use all types and channels of distribution. Our representatives may recommend to
Marriott 366119v6 (03/31/2008)
71
customers lodging products other than Marriott hotels based on the customer’s needs and desires for location,
availability of accommodations, level of services, amenities and price. Such recommendations are made
subject to policies established by Marriott for all Company Brand hotels.
Marriott 366119v6 (03/31/2008)
72
ITEM 13
TRADEMARKS
We will give you the right under the franchise agreement to develop and operate a hotel under the
name “Marriott Hotel,” “Marriott Resort,” “Marriott Suites,” “JW Marriott Hotel” or “Marriott Hotels and
Conference Centers” subject to compliance with our standards. You may also use our other current or future
trademarks designated by us for the operation of your hotel. By “trademark,” we mean trade names,
trademarks, service marks and logos used to identify your hotel, whether registered or unregistered. We have
registered the following principal trademarks on the Principal Register of the United States Patent and
Trademark Office:
MARK
REG. NO.
REG. DATE
RENEWALS DUE
Marriott Hotel
(I) 899,900
(I) 909,607
(I) 904,029
(I) 1,277,443
9/29/1970
3/09/1971
12/08/1970
5/08/1984
9/29/2010
3/09/2011
12/08/2010
05/08/2014
Marriott Hotels
(I) 1,277,442
5/08/1984
05/08/2014
M Logo
(I) 1,566,496
11/14/1989
11/14/2009
Marriott Suites
JW Marriott Hotel
Griffin Design
Marriott & M Logo
(I) 2,343,578
(I) 2,393,255
(I) 2,268,939
2,504,099
04/18/2000
10/10/2000
08/10/1999
11/06/2001
04/18/2010
10/10/2010
08/10/2009
11/06/2011
Marriott
(I) = Incontestable
We have filed all required affidavits.
We also have filed the following applications with the United States Patent and Trademark Office to
register the following principal Marriott trademarks:
MARK
JW Marriott
JW Marriott Hotels & Resorts
JW Marriott Hotels & Resorts & Design
Marriott Hotels & Resorts
Marriott Resorts
Marriott
Marriott (Script)
Marriott Residences
JW Marriott
JW Marriott Residences
Griffin Design
APPLICATION NO.
APPLICATION FILING DATE
78/277332
78/312649
78/312640
78/374630
78/614774
78/636093
78/636101
78/636096
78/636113
78/636124
78/636118
07/22/2003
10/13/2003
10/13/2003
02/26/2004
04/22/2005
05/24/2005
05/24/2005
05/24/2005
05/24/2005
05/24/2005
05/24/2005
We do not have a federal registration for some of our principal trademarks. Therefore, those
trademarks do not have as many legal benefits and rights as federally registered trademarks. If our right to
use a trademark is challenged, you may have to change to an alternative trademark, which may increase your
expenses.
We may develop additional trademarks for use in the operation of your hotel, or we may withdraw or
substitute trademarks. You must modify or discontinue the use of a trademark at your expense if we modify
or discontinue it.
Marriott 366119v6 (03/31/2008)
73
You may not use the words “Marriott,” “JW Marriott,” “JW” or any other trademark or confusingly
similar mark or name in your corporate, partnership or trade name.
There are currently no effective material decisions of the United States Patent and Trademark office,
the Trademark Trial and Appeal Board, the trademark administration of any state or any court, or any pending
infringement, opposition or cancellation proceeding, or any pending material litigation, involving the
trademarks. There are no agreements that materially limit our right to use or license the use of our trademarks
identified above.
You must notify us promptly in writing if you learn about an infringement of or challenge to your use
of our trademark. You must cooperate fully in defending or settling any litigation against you that involves
the trademarks. If you are in compliance with the franchise agreement, we will indemnify you against all
third-party claims that your use of the trademark under the terms of the franchise agreement infringes upon
the rights of others. We will reimburse you for your reasonable costs of defending against the claims.
The franchise agreement requires us to protect the validity of our trademarks. We may settle any
dispute in any manner that we think appropriate, which may or may not include filing suit against imitators or
infringers.
We do not know of any superior prior rights or any infringing use that could materially affect your
use of our trademarks.
Marriott 366119v6 (03/31/2008)
74
ITEM 14
PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION
We and/or our affiliates claim all rights and interests, including all copyright and patent rights, to the
information contained in the manuals, as well as in any training or other materials or systems made available
to you. You do not own the rights to any materials or systems made available to you, but you may use the
proprietary information in our manuals for the sole purpose of operating your Marriott hotel under our
franchise agreement. All information regarding the customers of the hotel, regardless of source, is proprietary
to us.
PMS, MARSHA, One Yield, NGS Sales and Catering, The Marriott Global Source, Marriott
Learning Journey, the on-line standards program, the guest satisfaction survey system and all other current or
future information systems and marketing and management programs made available for your use are
proprietary to us or our licensors. We and/or they claim all rights and interests, including all copyright and
patent rights, to these systems.
We claim proprietary rights in, and you will have certain obligations to maintain the confidentiality
of, the following information (collectively, “Confidential Information”): the manuals; any other manuals or
documents created for or approved for use in the Marriott system or in the operation of the hotel; the franchise
agreement; all software, including data and information processed or stored using the software, and
accompanying documentation; any customer lists or other customer information (including names, e-mail
addresses, postal addresses, phone numbers, credit card numbers, preferences, etc.) provided by us or any
affiliate; information in the Marriott frequent traveler programs; or any other confidential or proprietary
information, knowledge, or know-how concerning the Marriott system or the operation of the hotel that may
be communicated or provided to you or of which you may be apprised, by virtue of your ownership or
operation of the hotel under the franchise agreement. You must not during the term of the franchise
agreement or afterwards, without our prior consent, copy, record, or any way make available to anyone the
Confidential Information, or use it for any purpose other than operation of your hotel under our franchise
agreement. You may divulge Confidential Information only to those of your employees or agents as must
have access to it in order to operate the hotel. The Confidential Information has commercial value and is not
publicly available. We and our affiliates have taken measures to maintain its confidentiality; as such, the
Confidential Information is proprietary and a trade secret of ours and our affiliates. Your obligations to
maintain the confidentiality of Confidential Information will extend beyond the expiration or termination of
the franchise agreement.
Confidential Information may exist in any medium including documentation, computer files, compact
disks, voicemail, electronic mail and other digital media and oral information. “Personally Identifiable
Information” is a special category of Confidential Information that includes any information that can be
associated with or traced to an individual, such as the individual’s name, address, telephone number,
electronic mail address, credit card information, or other similar specific factual information.
You agree to implement reasonable security measures to protect all computer systems and
Confidential Information from loss, misuse and unauthorized access, disclosure, alteration and destruction,
including any and all security measures that are required by Marriott. In addition, you agree to comply with
all applicable data protection laws pertaining to Personally Identifiable Information, and rules and regulations
promulgated by the applicable credit card associations.
You must notify us promptly in writing if you learn about unauthorized use of any proprietary
systems or Confidential Information. You must cooperate fully in defending or settling any litigation against
us or you that involves our proprietary systems or Confidential Information. We or our licensors are not
obligated to indemnify you against claims that your use of the proprietary systems or information under the
terms of the franchise agreement infringes upon the patent or copyright rights of others unless such an
Marriott 366119v6 (03/31/2008)
75
indemnity is provided by the third party licensor of such system. We or our licensors have the right to control
any litigation and may settle any dispute in any manner that we think appropriate, which may or may not
include filing suit against unauthorized users of our proprietary systems or Confidential Information.
Marriott does not have any patents pertaining to its business processes at this time. Marriott has filed
the following patent applications which are currently pending:
1.
Application entitled "Method and Apparatus for Measuring Revenue Performance for a
Lodging Establishment." This patent application describes calculating an optimal revenue
total yield for both sleeping and function space in a hospitality establishment for a demand
that includes both group and transient needs. The application was filed February 29, 2004.
The serial number is 10/770,502.
2.
Application entitled "Method and System for Taking Remote Inventory in a Network." This
patent application describes a method for monitoring a network. Different hosts across the
network are scanned for information related to services and applications on each host. This
information is summarized and gathered in one place. The application was filed February
25, 2005. The serial number is 11/064,949.
3.
Application entitled "Method and System for Securing Information." This patent application
describes a method for securing information (e.g., credit card information) to be sent across a
network. The application was filed August 9, 2006. The serial number is 11/463,464 (based
on provisional application 60/706,440, filed August 9, 2005).
Marriott reserves the right to file additional patent applications and to obtain patents for its business
processes in the future. Business processes related to the Marriott hotels system are proprietary to us or our
affiliates. Therefore, you may not file a patent application for any of these processes.
Marriott 366119v6 (03/31/2008)
76
ITEM 15
OBLIGATION TO PARTICIPATE IN THE
ACTUAL OPERATION OF THE FRANCHISE BUSINESS
We require franchisees to operate the hotel or to hire a management company consented to by
Marriott in its sole discretion. A general manager who has successfully completed our training program must
directly supervise the business on the premises. Your employment of a general manager is subject to our
prior written consent. We require the general manager and department managers to devote full time and
attention to managing the operation of the hotel.
We may determine that you are not qualified to operate the hotel. If so, you will be required to hire a
management company to operate the hotel or we may reserve the right to require you to place one of our
employees (or an employee of one of our affiliates) at the hotel in an advisory capacity for a period of time
determined by us in our sole discretion. Even if we determine that you are qualified to operate the hotel, you
may desire nonetheless to hire a management company to operate the hotel.
You must get our written consent before you hire any proposed management company to operate the
hotel. We have the right to review any management agreement between you and a management company,
and the management agreement is subject to the terms and provisions of the franchise agreement.
We require you and any management company to sign a written agreement to, among other things,
operate the hotel in conformity with the franchise agreement and to keep the confidentiality of the
Confidential Information described in Item 14.
We do not require the on-premises management company or general manager to have an equity
interest in the franchised business.
If the franchisee is an entity and not an individual, we generally require the principals of the entity to
sign a guaranty of the franchisee’s obligations substantially in the form attached in Exhibit B to this
disclosure document or to provide to us alternative security in form and substance satisfactory to us.
If you do not own the hotel, we may require the owner of the hotel to enter into an Owner Agreement
substantially in the form attached as Exhibit C to this disclosure document.
If your hotel will be structured as a condominium or contain residential units, we will require that you
maintain ownership and control of all components of the hotel necessary for hotel management operations,
and may require you to maintain ownership and control of other facilities or common areas of the hotel that
are not required by law to be owned or controlled by the unit owners.
Marriott 366119v6 (03/31/2008)
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ITEM 16
RESTRICTIONS ON WHAT THE FRANCHISEE MAY SELL
You must offer all of the goods and services that we designate. Furthermore, you may offer only
those goods and services that we require or specifically allow. You are responsible for determining the price
at which you offer your goods and services.
We can change the operating requirements for Marriott hotels, including the types of goods and
services required to be offered. Such changes may not apply uniformly to all Marriott Hotels, Marriott
Resorts, Marriott Suites Hotels, JW Marriott Hotels or Marriott Hotels and Conference Centers if we judge
that the market area or the special physical characteristics of a hotel makes an exception appropriate.
You will not divert any business or customer of the franchised business to any hotel that is not part of
Marriott’s portfolio of lodging brands, even if such hotel is owned or managed by you, and you will not
market, advertise, or promote at the hotel any business that we have not approved. In all circumstances, you
must follow our sales policies and protocols whether in a public or private forum. Specifically, your hotel
must not be used to market or promote:
(i)
Any lodging business (including any other hotel operated by you or in which you or
one of your principals holds an interest) that is not operated under a trade name or trademark owned by us or
by our affiliates, including advertising or promotion of hotels, vacation or time-sharing facilities (or any
similar interval use lodging product), conference centers, or other lodging products; or
(ii)
Except as expressly permitted by us, any business or concession at the hotel.
You may set prices and room rates at your discretion. You must offer your inventory of rooms
through certain mandatory reservation channels that we designate, such as our central reservation system,
Marriott Worldwide Reservations (MARSHA/Merlin), marriott.com, GDS, travel agents, travel management
companies and consortia, and you may offer your inventory of rooms through approved, non-mandatory
channels, such as third-party providers and on-line distribution channels (see below).
You must comply with our policies regarding publishing of rates and transmission of rates to us and
other reservation channels. You must comply with our “Marriott’s Look No Further® Best Rate Guarantee”
policy. This policy provides, in essence, that a hotel’s published room rates across various reservation
channels must be consistent, and if a customer books a Marriott-brand hotel room through one of our
reservation channels (Marriott Worldwide Reservations, marriott.com, or directly with a hotel), and then finds
a lower publicly available rate within 24 hours for the same hotel, room type and dates, on an internet travel
site, or with a travel agency, travel management company, or the hotel, the hotel will match the lower rate and
will provide an additional 25% off the room rate. The details of this policy are provided in the manuals and
are subject to specific terms and conditions, and we may change these from time to time in our sole discretion.
We currently have distribution agreements (all on similar terms) with Travelweb, Travelocity,
Expedia, Hotels.com and Priceline.com. Access to the hotels’ inventory by Travelweb, Travelocity, Expedia,
Hotels.com and Priceline.com is facilitated through an interface with MARSHA. Franchisees may elect to
participate on the terms set forth in these distribution agreements, or may negotiate their own agreements with
these companies as long as they are consistent with “Marriott’s Look No Further® Best Rate Guarantee”
policy. If you elect to negotiate your own agreements with these or other companies, we reserve the right to
refuse facilitation of the resulting transactions through an interface with MARSHA. We do not currently
prohibit franchisees from using other on-line discount channels for distribution, so long as such use complies
with our “Marriott’s Look No Further® Best Rate Guarantee” policy, but we retain the right to do so.
Marriott 366119v6 (03/31/2008)
78
You may not use any Confidential Information for any purpose other than to operate your Marriott
hotel or as otherwise permitted by us. In addition, you may not sell, rent, trade or otherwise provide any
Confidential Information to any third party for the third party’s use (see Item 14).
If your hotel will be structured as a condominium or contain residential units, we will require that any
sale of units be subject to a number of requirements. These requirements may include, among other things,
compliance with applicable securities and real estate sales laws, your indemnification of us if you violate
those laws, mandatory furnishing of the units with Marriott brand furniture, fixtures and equipment,
mandatory agreements for general maintenance of the units subject to our standards, restrictions on the use of
our trademarks and Confidential Information, limitations on the number of units that may be sold to one
person, participation of a certain number of the units in the hotel’s inventory on a regular basis and mandatory
reserves for capital expenditures and renovations or replacements of required furniture, fixtures and
equipment.
Marriott 366119v6 (03/31/2008)
79
ITEM 17
RENEWAL, TERMINATION,
TRANSFER, AND DISPUTE RESOLUTION
THE FRANCHISE RELATIONSHIP
This table lists certain important provisions of the franchise and related agreements. You should read
these provisions in the agreements attached to this disclosure document.
Provision
Section in
Franchise or Other
Agreement
a.
Length of the franchise term
Section 4.1
b.
Renewal or extension of the term
Section 4.2
c.
Requirements for franchisee to renew
or extend
Termination by franchisee
Not Applicable
Not Applicable
f.
Termination by franchisor without
cause
Termination by franchisor with cause
g.
“Cause” defined-curable defaults
Section 19.2
d.
e.
Marriott 366119v6 (03/31/2008)
Summary1
Term typically ends on the 20th
anniversary after the Opening Date.
(However, depending on the particular
circumstances, we may require a term that
ends more or less than 20 years from the
Opening Date of the hotel.)
The franchise agreement is not renewable,
and you should not have any expectation
that you will be granted any additional
rights to operate the hotel under our brand
after the expiration of the term.2
Not Applicable
Sections 17.4 and 19
80
We can terminate if (i) you are in default
of the franchise agreement or (ii) you or an
affiliate of yours sell(s) or lease(s) the
hotel to, or become(s), a Competitor, or
you transfer your interests in the agreement
or any interest in you or your affiliates to a
Competitor.
You have fourteen (14) days to cure:
failure to timely begin or complete
construction/conversion or open the hotel;
failure to fund reserve; failure to indemnify
us; failure to comply with
condemnation/casualty provisions; failure
to pay amounts due; if a non-controlling
owner, officer, director, or employee is
convicted of a felony or other offense or
has engaged in acts or conduct that are
likely to adversely affect the hotel or the
system and related goodwill and such
person is not terminated from its
relationship with you; any breach of any
other agreement(s) entered into between us
and you; failure to comply with the
Standards (including our Quality
Assurance Program); or any other breach
of the franchise agreement that is not listed
in Section 19.1.
Provision
Section in
Franchise or Other
Agreement
h.
“Cause” defined-non-curable defaults
Sections 17.4.A.(3), 19.1 and
21.2
i.
Franchisee’s obligations on
termination/non-renewal
Sections 17.4, 17.6, 19.3 and 20
j.
Assignment of contract by franchisor
Section 17.10
k.
“Transfer” by franchisee-defined
Sections 1 and 17.1
l.
Franchisor approval of transfer by
franchisee
Section 17.1
Marriott 366119v6 (03/31/2008)
81
Summary1
Non-curable defaults:
insolvency; bankruptcy; foreclosure;
execution levied against hotel; danger to
public health or safety; cessation of
business; disclosure of Confidential
Information; under reporting three (3) or
more times in twenty-four (24) months; if
franchisee or any interest holder of a
controlling interest is convicted of a felony
or other crime; transfer of your interest in
the agreement, in the hotel, or a controlling
ownership interest in franchisee in
violation of the restrictions in Section 17;
your breach of the representations or
warranties in Sections 22.4, 22.5 or 27; and
becoming or being affiliated with a
Competitor.
Obligations include complete deidentification of hotel; pay all amounts due
(including liquidated damages if
termination was due to your default or if
you, or an affiliate of yours, sell or lease
the hotel to, or become, a Competitor or
transfer your interest in the agreement or
any interests in you or your affiliates to a
Competitor); and turn over to us all
originals and copies of System materials,
operating instructions, software and
accompanying documentation and other
materials provided by us related to
operating the hotel, including all customer
information. Under certain circumstances,
our right of first refusal to purchase or
lease the hotel will continue after
termination of the agreement.
No restriction on our right to assign if
transferee agrees to assume our obligations
to you under the franchise agreement and
is capable of performing those obligations.
Includes transfer of, or granting a security
interest in, the agreement or the hotel or a
transfer of any ownership interest in you or
a controlling interest in any entity that
controls you.3
Except in certain limited circumstances, we
have the right to approve all transfers.
Provision
Section in
Franchise or Other
Agreement
m.
Conditions for franchisor approval of
transfer
Section 17.2
n.
Franchisor’s right of first refusal to
acquire franchisee’s business
Section 17.4
o.
Franchisor’s option to purchase
franchisee’s business
p.
Death or disability of franchisee
Not Applicable (other than the
right of first refusal noted in n.
above)
Section 17.8
q.
Non-competition covenants during the
term of the franchise
Marriott 366119v6 (03/31/2008)
Sections 9.2 and 17.4
82
Summary1
The transferee (i) must be in our sole
judgment financially able to operate the
hotel in accordance with our Standards, (ii)
must be in our sole judgment operationally
capable of performing all of the obligations
of the franchisee, (iii) must not be a
Competitor, and (iv) must submit an
application, a copy of the purchase and
sale agreement, a transfer fee, and sign a
new franchise agreement that will contain
requirements for the upgrade of the hotel to
our current standards and the obligation to
comply with all applicable ADA
requirements.4 The duration of such
franchise agreement will be determined on
a case-by-case basis. The hotel must be in
good standing as to our quality assurance
program. You must pay all amounts owed
to us and sign a release.
We have the right of first refusal to
purchase or lease the hotel if you, or an
affiliate of yours, sell or lease the hotel to,
or become, a Competitor or transfer your
interest in the agreement or any interests in
you or your affiliates to a Competitor.
Subject to general transfer provisions, the
interest of any deceased or incompetent
person may be transferred if: (i) the
transfer is effected within 12 months, (ii)
your obligations are satisfied pending
transfer, and (iii) at all times, the hotel
must be operated by an acceptable
management company.
You will not use the hotel to promote a
different business. You will not own or
operate a full service hotel within the
market area of this hotel without our prior
consent, which will not be unreasonably
withheld. You, or your affiliates, will not
sell or lease the hotel to, or become, a
Competitor or transfer your interest in the
agreement or any interest in you or your
affiliates to a Competitor, without our prior
approval, subject to our right of first
refusal to purchase the hotel.
Provision
Section in
Franchise or Other
Agreement
r.
Non-competition covenants after the
franchise is terminated or expires
Sections 17.4, 17.6, 20.1(c) and
21.2
s.
Modification of the agreement
Sections 1 (see “Standards”),
3.3 and 12.2
t.
Integration/merger clause
Section 26.3
u.
Dispute resolution by arbitration or
mediation
Sections 17.4.A and 17.4.C
v.
Choice of forum
Sections 22.3 and 24.1.B
w.
Choice of law
Section 24.1.A
Summary1
If the hotel is damaged, resulting in closing
the hotel and terminating the franchise, you
will not operate a replacement hotel at the
site during the original term of the
franchise unless it is operated under a trade
name owned by a Marriott Company or
unless you have paid liquidated damages.
If the franchise is terminated due to your
default and you have not paid to us all
monies owed to us, you will not, for 24
months, operate the hotel as part of a first
class hotel brand. Under certain
termination circumstances, our right of first
refusal to purchase or lease the hotel will
continue after termination of the
agreement.
No modifications generally, but the
Marketing Fund Fee and the System,
including the Standards and manuals, are
subject to change, as well as all of the fees
listed herein, with the exception of royalty
fees.
Only the terms and conditions of the
franchise agreement are binding (subject to
state law). Any other statements or alleged
promises may not be enforceable.
If you, or your affiliates, sell or lease the
hotel to, or become, a Competitor or
transfer your interest in the agreement or
any interest in you or your affiliates to a
Competitor, and we elect to exercise our
right of first refusal, arbitration may be
required to determine the price of the hotel.
You consent to the non-exclusive
jurisdiction of the courts of Maryland. In
any litigation, you waive the right to trial
before a jury.5
Maryland law applies. 5
NOTES:
1
Capitalized terms used herein have the meanings as defined in the Franchise Agreement, which is attached as
Exhibit B to this disclosure document.
2
After the expiration of the term, we may in our sole discretion agree to enter into a new franchise agreement on
our then-current form with you. The terms of that agreement (including the duration) may be substantially
different than the agreement attached to this Disclosure Document.
3
We do not permit you to pledge or assign the franchise agreement as collateral for any financing. Instead, we
may provide a “Lender Comfort Letter” to a lender in substantially the same form attached as Exhibit N to this
disclosure document.
4
Differences between the franchise agreement for a new to system hotel and the franchise agreement for a
transferee of a Marriott hotel are described in Exhibit B to this disclosure document.
5
See Exhibit E, State Amendments to Franchise Agreement.
Marriott 366119v6 (03/31/2008)
83
ITEM 18
PUBLIC FIGURES
We do not use any public figure to promote our franchise.
Marriott 366119v6 (03/31/2008)
84
ITEM 19
FINANCIAL PERFORMANCE REPRESENTATIONS
The FTC’s Franchise Rule permits a franchisor to provide information about the actual or potential
financial performance of its franchised and/or franchisor-owned or franchisor-managed hotels, if there is a
reasonable basis for the information, and if the information is included in the disclosure document. Financial
performance information that differs from that included in this Item 19 may be given only if: (1) a franchisor
provides the actual records of an existing hotel you are considering buying; or (2) a franchisor supplements
the information provided in this Item 19, for example, by providing information about possible performance
at a particular location or under particular circumstances.
1.
Average Occupancy Rate, Average Daily Room Rate, and Average RevPAR
As of December 31, 2007, there were 340 domestic (U.S. and Canada) open and operating Marriott
hotels; of these, 178 were franchised. There were 151 franchised domestic hotels for which Smith Travel
Research, Inc. (Smith Travel) data was available and which were opened and operating for more than two full
years, and for the one-year period ending December 31, 2007, those hotels had an average occupancy rate of
68%, an average daily room rate of $141.79, and an average revenue per available room (RevPAR) of $96.42.
The occupancy rate ranged from a high of 86% to a low of 51.8%. Seventy-six of the franchised hotels
(50%) achieved an occupancy rate equal to or greater than 68%. The average daily room rate ranged from a
high of $292.20 to a low of $81.45. Fifty-three of the franchised hotels (35%) achieved an average daily
room rate equal to or greater than $141.79. The RevPAR ranged from a high of $240.48 to a low of $48.40.
Fifty-nine of the franchised hotels (39%) achieved or exceeded the average RevPAR of $96.42.
The “average occupancy rate” is the total occupied rooms reported divided by total available rooms
for entire period. The “average daily room rate” is the gross room sales divided by total occupied rooms. The
“average RevPAR” is the gross room sales divided by total available rooms.
Smith Travel, an independent research firm servicing the travel industry, compiles occupancy, rate,
RevPAR, yield index and other relevant information, concerning the lodging industry and is used by
substantially all of the major lodging companies for tracking this data. We are relying on the data compiled
and reported by Smith Travel in providing this information, and such information has not been audited or
otherwise confirmed by us.
2.
Yield Index
The 151 domestic franchised Marriott hotels that had been open for two years or more, based on
Smith Travel data, achieved an average yield index of 112.3% for the one-year period ending December 31,
2007. The yield index ranged from a high of 259.1% to a low of 71.4% for the hotels during that period.
Eighty-one domestic franchised hotels (54%) achieved a yield index greater or equal to 112.3%.
Yield index measures the fair share of the amount of available revenue a hotel (or hotel brand)
receives relative to its competitive set (as defined by each hotel or brand) within a given market.
3.
Reservations
During 2007, Marriott’s Worldwide Reservations Centers received 5,916,393 inquiries, which
resulted in 7,218,633 gross room nights for Marriott Hotels & Resorts (MHR) hotels. In addition, 21,289,785
gross room nights were generated through the Marriott reservation system electronic connection to the global
distribution system utilized by airlines and travel agents, Marriott.com, and TravelWeb. The average for all
Marriott 366119v6 (03/31/2008)
85
the 164 franchised MHR domestic hotels that had been open for more than two years was 54,793 gross room
nights per hotel. Gross room nights per hotel ranged from 12,327 for a small MHR hotel of approximately
150 rooms to 114,383 for a hotel of more than 900 rooms. Seventy-eight franchise MHR hotels (47.6%) had
more than 54,793 gross room nights. As a percentage of gross room nights per hotel, the average percentage
generated by the Marriott reservation system for such 164 franchised MHR hotels in 2007 was 51.4%. This
average ranged from 23.2% to 71.7%. Eighty-nine franchised MHR hotels (54.3%) had more than 51.4% of
their gross room nights generated by the Marriott reservation system.
4.
Marriott Rewards
Marriott Rewards has 28 million members worldwide, and over 2,900 hotels and resorts in 65
countries participate in Marriott Rewards. Marriott’s Consumer Marketing Department tracked the 164
domestic franchised Marriott hotels that had been open and operating for at least two years. For those hotels,
for the one-year period ending December 28, 2007, Marriott hotel guests who were members of Marriott
Rewards generated Marriott Rewards eligible revenue that is approximately 57% of the total room night
revenue with an average daily spend of $170. The total of all Marriott Rewards room nights for such 164
domestic franchised Marriott hotels was 5,876,000, generating approximately $998,229,000 in gross sales, not
including banquet and catering sales, taxes and tips. For such 164 hotels, Marriott Rewards members paid for
an average of 35,800 room nights. These Marriott Rewards hotel room nights ranged from 8,900 to 78,900
and 78 domestic franchised hotels (48%) achieved or exceeded the average of 35,800 paid Marriott Rewards
room nights.
YOU SHOULD UNDERSTAND THAT YOUR RESULTS ARE LIKELY TO DIFFER
SUBSTANTIALLY FROM THE AVERAGE DAILY ROOM RATE, AVERAGE OCCUPANCY
RATE, REVPAR, MARRIOTT REWARDS ROOM NIGHTS, YIELD INDEX AND RESERVATION
PRODUCTIVITY INDICATED ABOVE.
The figures above represent averages, and we do not claim or expect that you can or will expect to
achieve the same average occupancy rate, average daily room rate, RevPAR, reservations, Marriott Rewards
room nights or yield index. Occupancy rates, average daily room rates, RevPAR, reservations, Marriott
Rewards room nights and yield index will vary from hotel to hotel and will depend upon many variables and
factors, including size, location, seasonality, competition, general economic conditions, the length of time
your hotel has been open or affiliated with Marriott, the condition of the hotel, the quality of service at the
hotel, and the efficiency with which you operate your hotel. The average occupancy rates, average daily room
rates, RevPAR, reservations and yield index shown above were based on hotels with two years of operating
results. Hotels typically achieve lower results in their first year of operation. These statements relate to
historical performance and are not guarantees of future performance. Operating results are subject to
numerous risks and uncertainties, including the duration and severity of economic conditions, public reaction
to terrorist attacks, supply and demand changes for hotel rooms, competitive conditions in the hospitality
industry, relationships with customers and property owners, and the availability of capital.
We will provide you with substantiation of the data used in preparing this Item 19 upon your request.
The average occupancy rates, average daily room rates and RevPAR presented in these system averages for
franchisees are based on information we received from independent franchisees, and such information has not
been audited or otherwise verified by us. We are under no obligation to disclose specific information for a
particular hotel in the system.
Marriott 366119v6 (03/31/2008)
86
ITEM 20
OUTLETS AND FRANCHISEE INFORMATION
Table No. 1
SYSTEMWIDE OUTLET SUMMARY
FOR YEARS 2005 TO 2007
Column 1
Column 2
Column 3
Column 4
Column 5
Outlet Type
Year
Outlets at the
Start of the Year
Outlets at the
End of the Year
Net Change
Franchised
2005
2006
2007
149
166
177
166
177
178
17
11
1
Company-Owned,
2005
2006
2007
165
163
161
163
161
162
(2)
(2)
1
2005
2006
2007
314
329
338
329
338
340
15
9
2
Managed and Leased
Total Outlets
Marriott 366119v6 (03/31/2008)
87
Table No. 2
TRANSFERS OF OUTLETS FROM FRANCHISEES TO NEW OWNERS
(OTHER THAN THE FRANCHISOR)
FOR YEARS 2005 TO 2007
Column 1
Column 2
Column 3
State
Year
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
Number of Transfers
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Marriott 366119v6 (03/31/2008)
88
2
1
3
2
3
0
2
1
0
2
1
2
0
2
0
1
2
2
0
0
1
Column 1
Column 2
Column 3
State
Year
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
Number of Transfers
0
1
1
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Marriott 366119v6 (03/31/2008)
89
0
0
1
0
4
0
0
0
2
0
0
1
0
0
1
0
1
0
0
1
1
1
1
0
Column 1
Column 2
Column 3
State
Year
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
Number of Transfers
0
0
1
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
Canada
TOTAL
NOTES:
1.
All numbers are as of fiscal year-end for each year.
2.
Blank boxes in all Tables indicate no changes for each of the last three fiscal years.
Marriott 366119v6 (03/31/2008)
90
0
0
1
0
1
2
0
1
0
0
0
1
2
0
0
12
20
20
3.
a.
The hotels operated by the entities below were part of a multi-unit sale by entities controlled by
Commonwealth, Inc:
RiverCenter Landmark TRS, Inc.
Burr Ridge Hotel Partners, LLC
c/o Commonwealth, Inc.
100 East River Center Boulevard
Suite 480
Covington, KY 41011
b.
The hotels operated by the entities below were part of a multi-unit sale by entities controlled by Ocean
Properties:
W.W. Resort, L.L.C.
Sable Oaks Management Corp.
Hollywood Hotel LLC
c/o Ocean Properties, Ltd.
1000 Market Street
Building One
Suite 300
Portsmouth, NH 03801
c.
The hotels opened by the entities below were part of a merger in the upper tiers of ownership of
Highland Hospitality Corporation and subsequent sale to JER Partners:
HHC TRS Sugar Land LLC
HHC TRS OP LLC
Sugar Land Hotel Associates, LP
c/o Highland Hospitality Corporation
8405 Greensboro Drive
Suite 500
McLean, VA 22102
d.
The hotels operated by the entities below were re-licensed to other franchisees and the franchisee
remained in the Marriott System:
IProcPalmBeach, LLC
280 Park Avenue, 36th Floor
New York, NY 10021
PIL III, L.P.
1140 Reservoir Avenue
Cranston, RI 02920
PMO III, LLC
1140 Reservoir Avenue
Cranston Finance Branch, RI
02920
Buffalo Leasing LLC
45 W. Prospect Street
Cleveland, OH 44115
Iowa Lodging, LLC
c/o Concord Hospitality Enterprises
Company
5966 Heisley Road
Mentor, OH 44060
Oakland Renaissance Associates
388 9th Street, Suite 222
Oakland, CA 94607-4458
DHG Kansas City LLC
c/o Davidson Hotel Company
1755 Lynfield Road
Suite 142
Memphis, TN 38119
Marriott 366119v6 (03/31/2008)
CCMH Waterford LLC
c/o Crestline Corporation
8405 Greensboro Drive
McLean, VA 22102
91
Stormont Trice Management
Corporation
One Riverside
4401 Northside Parkway
Atlanta, GA 30327
PVA III, L.P.
1140 Reservoir Avenue
Cranston, RI 02920
PRISA Acquisition, LLC
c/o The Prudential Insurance
Company of America
Suite 1500
One Prudential Plaza
Chicago, IL 60601
MeriStar Sub ID, L.P.
c/o Meristar Acquisition Company,
LLC
1010 Wisconsin Avenue, NW
Washington, DC 20007
Marriott 366119v6 (03/31/2008)
92
Table No. 3
STATUS OF FRANCHISED OUTLETS
FOR YEARS 2005 TO 2007
Attached as Exhibit M is a list of franchised Marriott hotels in operation as of December 31, 2007.
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Column 7
Column 8
Column 9
State
Year
Outlets at
Start of
Year
Outlets
Opened
Terminations
NonRenewals
Reacquired
by
Franchisor
Ceased
Operations –
Other
Reasons
Outlets at
End of
the Year
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of
Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
Marriott 366119v6 (03/31/2008)
7
7
7
1
1
1
3
4
4
4
7
7
1
1
1
3
3
4
3
0
0
19
19
19
6
6
6
4
6
6
0
1
1
0
0
1
2*
0
0
15
17
17
4
5
7
2**
0
0
1
2
0
17
17
17
5
7
7
3
4
6
5
5
5
2
2
2
1**
2*
0
4
6
6
5
5
5
2
2
2
0
1
0
0
1
0
0
0
1
93
19
19
20
6
6
7
6
6
5
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Column 7
Column 8
Column 9
State
Year
Outlets at
Start of
Year
Outlets
Opened
Terminations
NonRenewals
Reacquired
by
Franchisor
Ceased
Operations –
Other
Reasons
Outlets at
End of
the Year
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
Marriott 366119v6 (03/31/2008)
1
1
1
3
4
4
1
1
1
1
1
1
2
2
2
1
1
1
4
4
4
1
1
2
1
1
1
2
2
2
1
0
0
0
0
1
5
5
6
2
3
3
1
1
1
3
3
3
0
1**
1
1
0
0
5
6
7
3
3
3
1
1
1
3
3
3
1
2
2
1
1
1
1
1
1
2
2
3
1
2
2
4
4
5
3
4
5
1
0
0
2
2
2
1
1
1
1
1
1
2
3
2
2
2
2
4
5
5
4
5
5
0
1
0
1**
0
0
0
1**
0
1
1**
0
0
0
1
94
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Column 7
Column 8
Column 9
State
Year
Outlets at
Start of
Year
Outlets
Opened
Terminations
NonRenewals
Reacquired
by
Franchisor
Ceased
Operations –
Other
Reasons
Outlets at
End of
the Year
1
0
0
0
1
1
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
Marriott 366119v6 (03/31/2008)
7
8
7
3
3
3
1
1
1
2
3
3
1
1
1
2
3
4
1
0
0
1
1**
1
8
7
5
3
3
3
1
1
1
3
3
3
1
1
1
3
4
5
5
5
5
12
12
12
5
5
5
5
5
5
12
12
12
5
5
5
4
4
6
0
0
1
4
6
6
0
2
0
3
3
3
3
3
3
95
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Column 7
Column 8
Column 9
State
Year
Outlets at
Start of
Year
Outlets
Opened
Terminations
NonRenewals
Reacquired
by
Franchisor
Ceased
Operations –
Other
Reasons
Outlets at
End of
the Year
2005
2006
2007
2005
2006
2007
6
6
6
149
166
177
Canada
TOTALS
0
1
2
17
13
5
0
0
*
One outlet converted from managed property to franchised property.
**
Converted from managed property to franchised property.
0
1
2
6
6
6
166
177
178
NOTES:
1.
In some instances, current and former franchisees sign provisions restricting their ability to speak openly about
their experience with the Marriott system. You may wish to speak with current and former franchisees, but be
aware that not all such franchisees will be able to communicate with you.
2.
If you buy this franchise, your contact information may be disclosed to other buyers when you leave the
Marriott system.
3.
During the most recently completed fiscal year, the following franchisees had an outlet terminated, cancelled,
not renewed, or otherwise voluntarily or involuntarily ceased to do business under the Marriott system or failed
to communicate with us within ten (10) weeks of the issuance date of this franchise offering:
Columbus Leasing LLC
45 Prospect Street, Suite 1500
Cleveland, OH 44115
(216) 430-1293
4.
EquiStar Somerset Company, L.L.C.
c/o MeriStar Hospitality Corp.
6430 Rockledge Drive
Bethesda, MD 20817
(301) 581-5900
The Marriott International National Association (“MINA”) is a franchisee organization associated with the
franchise system. It is endorsed by Marriott. The following is contact information:
Steven M. Goldman
Secretary of MINA
Marriott International, Inc.
Dept. 52/923.25
10400 Fernwood Road
Bethesda, MD 20817
Phone: (301) 380-3000
E-mail: Steven.Goldman@marriott.com
Marriott 366119v6 (03/31/2008)
96
Table No. 4
STATUS OF COMPANY-OWNED, MANAGED AND LEASED OUTLETS
FOR YEARS 2005 TO 2007
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Column 7
Column 8
State
Year
Outlets at
Start of
Year
Outlets
Opened
Outlets
Reacquired
from
Franchisee
Outlets
Closed
Outlets
Sold to
Franchisee
Outlets at End
of the Year
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
Marriott 366119v6 (03/31/2008)
4
5
5
1
0
0
23
23
24
4
4
4
2
1
1
1
2
0
0
1
0
1
2
0
1
0
0
0
0
1
4
4
4
14
13
12
7
7
7
5
5
5
8
8
7
1
1
1
5
5
5
0
1
0
1
0
0
97
1
0
0
1
1
0
23
24
24
4
4
4
1
1
2
4
4
4
13
12
12
7
7
7
5
5
5
8
7
7
1
1
1
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Column 7
Column 8
State
Year
Outlets at
Start of
Year
Outlets
Opened
Outlets
Reacquired
from
Franchisee
Outlets
Closed
Outlets
Sold to
Franchisee
Outlets at End
of the Year
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
Marriott 366119v6 (03/31/2008)
1
1
2
1
1
1
1
1
1
2
3
3
1
2
2
1
1
1
1
1
1
3
3
3
0
1
0
1
0
0
8
8
8
8
8
8
4
4
3
2
2
2
0
1
0
1
1
1
1
0
0
6
7
7
1
0
0
9
8
7
2
2
2
1
0
0
3
2
2
1
0
0
1
0
0
1
0
0
98
8
8
8
8
8
8
4
3
3
2
2
2
1
0
0
0
1
0
1
1
0
0
0
0
7
7
7
0
0
0
8
7
7
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Column 7
Column 8
State
Year
Outlets at
Start of
Year
Outlets
Opened
Outlets
Reacquired
from
Franchisee
Outlets
Closed
Outlets
Sold to
Franchisee
Outlets at End
of the Year
North Carolina
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
2005
2006
2007
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Washington
West Virginia
Wisconsin
Marriott 366119v6 (03/31/2008)
4
4
4
0
1
0
0
1
0
2
2
3
0
0
1
2
2
2
1
1
1
3
3
3
1
1
1
2
2
1
0
1
0
2
2
2
13
13
13
1
1
1
4
4
4
0
0
1
1
1
1
3
3
3
1
1
1
2
1
1
2
2
2
13
13
12
1
1
1
8
8
8
3
3
3
1
1
1
8
8
8
3
3
3
1
1
1
99
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Column 7
Column 8
State
Year
Outlets at
Start of
Year
Outlets
Opened
Outlets
Reacquired
from
Franchisee
Outlets
Closed
Outlets
Sold to
Franchisee
Outlets at End
of the Year
4
5
6
165
163
161
1
1
0
5
5
0
Wyoming
Canada
TOTALS
2005
2006
2007
2005
2006
2007
2005
2006
2007
Marriott 366119v6 (03/31/2008)
100
0
1
2
3
3
1
4
5
0
5
6
6
163
161
162
Table No. 5
PROJECTED OPENINGS
AS OF DECEMBER 31, 2007
Column 4
Column 1
Column 2
Column 3
State
Franchise Agreement
Signed But Outlet
Not Opened
Projected New
Franchised Outlets in
the Next Fiscal Year
3
1
2
Alabama
Alaska
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia
Florida
Georgia
Hawaii
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan
Minnesota
Mississippi
Missouri
Montana
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York
North Carolina
North Dakota
Ohio
Oklahoma
Oregon
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah
Vermont
Virginia
Marriott 366119v6 (03/31/2008)
1
1
2
1
1
1
2
1
1
101
Projected New CompanyOwned, Managed and Leased
Outlets in the
Next Fiscal Year
Column 4
Column 1
Column 2
Column 3
State
Franchise Agreement
Signed But Outlet
Not Opened
Projected New
Franchised Outlets in
the Next Fiscal Year
Projected New CompanyOwned, Managed and Leased
Outlets in the
Next Fiscal Year
13
4*
1
1*
Washington
West Virginia
Wisconsin
Wyoming
Canada
TOTALS
* This is an approximation. All locations have not yet been determined.
Marriott 366119v6 (03/31/2008)
102
ITEM 21
FINANCIAL STATEMENTS
Attached as Exhibit J are the audited consolidated balance sheets of Marriott International, Inc. as of
December 28, 2007 and December 29, 2006, and the related consolidated statements of income, cash flows,
comprehensive income and shareholders’ equity for each of the three fiscal years in the period ended
December 28, 2007.
Marriott 366119v6 (03/31/2008)
103
ITEM 22
CONTRACTS
The following documents are part of this disclosure document.
A-
Application
B-
Franchise Agreement
C-
Owner Agreement
D-
State Amendments to Disclosure Document
E-
State Amendments to Franchise Agreement
F-
Agents for Service of Process
G-
State Regulatory Authorities
H-
System Agreements
- Participation Agreement
- Pro-Marriott Service Agreement
I-
Lodging Laws and Regulations
J-
Audited Financial Statements for the Three Fiscal Years in the Period
Ended December 28, 2007
K-
Operating Manuals Table of Contents
L-
Service Agreements
- Revenue Management Consulting Agreements
- Revenue Management Training Service Agreement
- Market Sales Service Agreement
- Event Booking Center Service Agreement
- Area Reservation Sales Office Service Agreement
- Sales Force One Service Agreement
M - List of Outlets
N-
Comfort Letter
Marriott 366119v6 (03/31/2008)
104
ITEM 23
RECEIPTS
When you receive this Marriott disclosure document, please have all applicants sign and return Copy
1 of the Receipt page attached at the back of this disclosure document to Marriott International, Inc., Marriott
Hotels and Resorts, Franchise Development, (Dept. 30/921.09), Anthony Capuano, Executive Vice President,
Lodging Development, 10400 Fernwood Road, Bethesda, Maryland 20817, acknowledging receipt of the
disclosure document. Please keep Copy 2 for your records. The application cannot be presented to the
appropriate committee for consideration until we receive the properly signed receipt. Please contact the
Development Department, (301) 380-3000, if you need more information.
IMPORTANT INSTRUCTIONS:
CERTAIN STATES REQUIRE SPECIFIC INFORMATION TO BE INCLUDED IN THE
DISCLOSURE DOCUMENT. PLEASE REVIEW THE AMENDMENTS TO THIS DISCLOSURE
DOCUMENT AND TO THE FRANCHISE AGREEMENT CONTAINED IN EXHIBITS D AND E OF
THIS DISCLOSURE DOCUMENT.
Marriott 366119v6 (03/31/2008)
105
Date __________:
[Name]
[Title]
[Company]
[Address]
[City, State Zip Code]
RE:
APPLICATION FOR A [BRAND]“ FRANCHISE
Dear _________:
As you requested, enclosed is an application form for a [Brand] franchise. This application must be
completed in full, and all referenced documents must be included, unless otherwise indicated, before your
application will be considered by Marriott. If you have any questions regarding the forms or information
required for your application, please contact the Marriott representative with whom you are working or
call Project Administration, Full Service Development at (301) 380-3200.
A completed application must include all of the following:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Receipt of Disclosure Material. If not previously submitted, the applicable receipt(s) from the back
of the [Brand] Federal Disclosure Document must be signed and returned immediately.
Application Fee. An Application fee of the greater of [$200/$300/$350 per guestroom or
$60,000/$82,500/$70,000] (“the Application Fee”) is required; $10,000 of which is due with the
Application (the “Initial Fee”) and the balance of which is due 6 months after approval or on the
Effective Date of the franchise agreement, if earlier. Marriott cannot accept any form of payment
other than a check.
Application Letter. The application letter must be executed and returned with your application.
The term “Applicant” refers to the person or entity that is applying for the franchise (i.e., that will be
the franchisee on the franchise agreement). If the exact name and form of that entity has not been
determined, you may apply for the franchise in the name of a person or entity that will control the
proposed franchisee. PLEASE NOTE THAT YOU MUST NOT USE THE NAMES
“[BRAND]” OR “MARRIOTT” OR ANY VARIATION (INCLUDING THE INITIALS)
THEREOF IN THE NAME OF YOUR ENTITY.
Project Description. Please complete Section I describing the proposed project.
Land Control Document(s). You must provide a copy of the legal document(s) that indicate that
the Applicant has or will have legal control of the proposed site and improvements. We are unable
to process your application with only a Letter of Intent.
Plat, Site Plan, Floor Plan and Elevation. See Attachment A for a detailed description of site plan
submission requirements.
Map. Please provide a current map of the city or other relevant area pinpointing the exact location
of the project.
Aerial Site Photo(s). Please also provide a current aerial photo of the proposed site.
Proposed Development/Conversion Costs, Projections, Financing and Financial Information.
Please complete Section II describing the proposed project and provide the requested financial
information.
MHR/RHR 389896v2 (03/31/2008)
1
10. Ownership Structure. Please complete the chart in Section III describing the ownership structure
of the proposed franchisee. You will need to outline each level of ownership until you reach either
(1) an individual or (2) a publicly held entity. If the proposed franchisee is owned through several
layers of entities, please provide an organization chart as well.
11. Organizational Documents. Please provide current organizational documents for the proposed
franchisee and its controlling entities, corporate resolutions or other documents confirming the
authority of the person that will be signing the franchise agreement and related documents.
12. Hotel Management and Hotel Experience. Please complete Section IV.
13. Conversion Information. If the hotel is an existing hotel, please also complete all information
required in Section II and submit a copy of the existing franchise agreement and a copy of any notice
of termination of an existing contract for the hotel.
14. OFAC Compliance. Please provide a list of all significant related parties (i.e., consultants or
brokers, parent entities, officers, directors, family associations or significant corporate affiliations).
15. Prospective Franchisee Questionnaire. If this is your first application for a Marriott franchise,
please submit a completed Prospective Franchisee Questionnaire. The Questionnaire can be found
on the Marriott Lodging website at http://marriott.com/development/north-americadocuments/default.mi?WT_Ref=mi_left under “Other” (Prospective Franchisee Questionnaire).
PLEASE TYPE ALL APPLICATION FORMS AND RETURN THEM TO MARRIOTT
INTERNATIONAL, INC., [BRAND], FRANCHISE DEVELOPMENT, DEPARTMENT 30/921.05,
10400 FERNWOOD ROAD, BETHESDA, MD 20817, ATTENTION: PROJECT ADMINISTRATION,
FULL SERVICE DEVELOPMENT.
Sincerely,
Marriott International, Inc.
[Name], [Title]
MHR/RHR 389896v2 (03/31/2008)
2
APPLICATION LETTER
Date:
___________________________
Marriott International, Inc.
[Brand]
Franchise Development
Dept. 30/921.05
10400 Fernwood Road
Bethesda, MD 20817
RE:
Application for a Franchise for a [Brand] Hotel
Ladies/Gentlemen:
This application letter, along with our check in the amount of $_____________, is furnished to Marriott
International, Inc. (“Franchisor”) so that Franchisor will process the application of the undersigned for development
of a franchised [Brand] hotel at the following site:
_______________________________________________________________________________________
(street address and quadrant description)
_______________________________________________________________________________________
(city, state, zip code)
In connection with the processing of the application and Franchisor’s evaluation, Franchisor and its affiliates may
rely on each of the following representations, warranties, acknowledgments and agreements and all information
provided by us or on our behalf in connection with this application (collectively, the “Application”).
1. The undersigned, jointly and severally, represent and warrant that:
(a)
All information contained in the Application is true, correct, complete and not misleading through
omission of material information, as of the date hereof.
(b)
The undersigned has authority to submit the Application and enter into a franchise agreement with
Franchisor (“Franchise Agreement”). Neither the Application nor the execution of the Franchise
Agreement(s) will conflict with any obligations of the undersigned to other parties. Franchisor has not
induced the undersigned to terminate or breach any agreement with respect to the hotel specified
above.
(c)
The undersigned has legal control over the site, as set forth in the Application, through fee ownership,
leasehold, purchase contract, or management agreement.
(d)
The undersigned is familiar with the [Brand] System and its requirements as described in the Franchise
disclosure document. Franchisor has provided the Franchise disclosure document to the undersigned.
(e)
Neither the undersigned, nor any entity of which the undersigned has held the position of general
partner, managing member or beneficial owner, is or has been (i) a defendant in civil litigation alleging
fraud, deceit or similar claims; (ii) convicted of a criminal offense or the subject of a pending criminal
proceeding (other than minor traffic offenses); (iii) the subject of a petition for protection under any
bankruptcy or similar insolvency laws; (iv) a defaulting party in a foreclosure proceeding; or (v) the
subject of disciplinary action with respect to the suspension or revocation of a professional or gaming
license.
MHR/RHR 389896v2 (03/31/2008)
3
(f)
2.
Neither the undersigned nor any affiliate of the undersigned (i) has any claims against Franchisor or
any of Franchisor’s affiliates or (ii) is a Competitor or a Specially Designated National or Blocked
Person, as such terms are defined in the Franchise Agreement(s) (see Exhibit B to the applicable
Franchise disclosure document).
The undersigned acknowledges and agrees that:
(a)
Franchisor reserves the right to approve or deny this Application, in its sole discretion. The
undersigned will not acquire any rights by virtue of the submission of the Application whether or not
Franchisor approves the Application. Any expenses incurred by or on behalf of the undersigned in
connection with this Application or any approval of this Application (including without limitation any
costs of constructing, renovating or operating the hotel) are at the undersigned’s sole risk and are not
being made in reliance on any action of Franchisor.
(b)
Franchisor does not enter into oral agreements or understandings with respect to franchises or matters
pertaining to the grant of a franchise. Accordingly, there are no agreements or understandings
whatsoever between the undersigned and Franchisor with respect to any franchise.
(c)
An Initial Fee of ten thousand dollars ($10,000) has been paid to Franchisor with the Application. The
fee may be invested, commingled with other funds of Franchisor or otherwise used by Franchisor, as it
deems appropriate in its discretion. Franchisor will not process the Application until it receives full
payment of the Initial Fee. [The Application Fee required for a Marriott hotel is $300 multiplied by
the number of guestrooms in the hotel or $82,500, whichever is greater.] [The Application Fee
required for a Renaissance hotel is $200 multiplied by the number of guestrooms in the hotel or
$60,000, whichever is greater.] [The Application Fee required for a Renaissance ClubSport hotel is
$350 multiplied by the number of guestrooms in the hotel or $70,000, whichever is greater.] The full
Application Fee (less the $10,000 Initial Fee) must be paid on the earlier of (i) the date the undersigned
enters into the Franchise Agreement, or (ii) six (6) months after Franchisor has approved the
Application.
(d)
If the Application is approved, the Initial Fee will not be refunded. If the undersigned and Franchisor
have not executed a Franchise Agreement within six (6) months of the date of approval of the
Application, Franchisor shall have the right to withdraw its approval. If Franchisor disapproves the
Application, it shall have no liability to the undersigned and will retain the Ten Thousand Dollars
($10,000) Initial Fee to cover Franchisor’s cost of processing the Application.
(e)
If the Application is approved, such approval is conditioned on the undersigned retaining legal
control over the specific site described in the Application. If at any time prior to execution of the
Franchise Agreement, the undersigned loses legal control over such site, any approval of the
Application shall not be effective. In such event, Franchisor shall have no liability to the
undersigned and the Application Fee will not be refunded. If the undersigned subsequently regains
legal control over such site or over a different site, a new Application must be submitted.
(f)
Whether or not Franchisor approves the Application, the undersigned does not have any exclusive
territorial rights. Franchisor and its affiliates may operate or grant others the right to operate the same
brand of hotel or other lodging facilities and other businesses at any location including locations
proximate, adjacent or adjoining the site specified above. Franchisor may consider applications from
other applicants for any sites without liability to the undersigned.
(g)
If Franchisor approves the Application, the undersigned will not have any right to use any of
Franchisor’s trademarks, the [Brand] System or any other proprietary marks or systems of Franchisor
unless and until Franchisor and the undersigned execute a Franchise Agreement and Franchisor gives
written authorization to begin operating the hotel as a [Brand] hotel, as described in the Addendum to
the Franchise Agreement (see Exhibit B to the Franchise disclosure document).
MHR/RHR 389896v2 (03/31/2008)
4
(h)
Any financial information provided by the undersigned in connection with this Application (including
the proposed financing and debt structure) will be prepared by the undersigned or their advisors. We
acknowledge and agree that Franchisor (i) has not participated in the preparation of that information,
and (ii) is not ratifying or approving or making any representations as to the accuracy of that
information, or the attainability of any projections.
(i)
Franchisor has the right to conduct its own feasibility study and due diligence investigation with
respect to the proposed hotel or conversion, and the undersigned’s and its affiliates’ qualifications to
operate such hotel. Such study and due diligence will include, but not be limited to, contacting persons
at the hotel, or involved in the development of the hotel, operators of other hotels in the market,
employees of other hotels operated by the undersigned and its affiliates, and other franchisors of hotel
brands who have agreements with the undersigned and its affiliates. Franchisor shall have no liability
to the undersigned or its affiliates with regard to such study and investigation.
The undersigned, jointly and severally, hereby indemnifies and agrees to defend Franchisor and its affiliates and
Franchisor’s directors, officers, employees and agents and to hold them harmless from all losses, liabilities, costs,
damages and expenses consequently, directly or indirectly incurred (including legal and accounting fees and
expenses) and arising from, as a result of or in connection with the Application, including the breach of any
representation or warranty contained in the Application. Franchisor shall have the right to take any action it may
deem necessary in its sole discretion to protect and defend itself against any threatened action covered by this
indemnification without regard to the expense, forum or other parties that may be involved. Franchisor may, in its
sole discretion, have sole and exclusive control over the defense of any such action (including the right to be
represented by counsel of its choosing) and over the settlement, compromise or other disposition thereof.
The undersigned will immediately inform Franchisor of any material change in any information contained in the
Application or if the undersigned learns that any representation or warranty is untrue. If the undersigned is executing
this Application on behalf of a separate legal entity that has not yet been formed but will be controlled by the
undersigned, the undersigned commits to provide all information and documentation related to such separate entity
to Franchisor upon its formation and will immediately advise Franchisor of any changes in any information
provided in Section III of this Application. The terms of this application letter will survive approval or disapproval
of the Application.
This application letter will be governed by the law of the State of Maryland without reference to the conflict of laws
principles thereof.
This application letter may be executed in several counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
_______________________________________________________________________________________
Applicant (Printed name of the proposed franchisee)
By:
_________________________________________________
(Signature)
Name: _________________________________________________
Title:
_________________________________________________
If Applicant is a privately owned entity, all owners of that entity must sign below (e.g. each general partner if
Applicant is a partnership, each shareholder if Applicant is a corporation and each member if Applicant is a limited
liability company):
_______________________________________
_____________________________________
_______________________________________
_____________________________________
MHR/RHR 389896v2 (03/31/2008)
5
I.
PROJECT DESCRIPTION
Number of Rooms Planned:
Suites:
Standard Rooms:
___________
___________
___________
Number of Floors:
_________________
Other Facilities included in or adjacent to the Hotel (specify whether each will be managed by the franchisee or
another company, and any brand name that will be used to identify the facility):
Description:
Operator:
Brand:
Conference Facilities:
Restaurant Facilities:
Bar or Lounge:
Gift Shops:
Gaming Facilities (excluding government sponsored lotteries):
Other:
Description of Site:
Total Square Footage of Site: ___________
Acreage: _____________
Site is controlled by Applicant as follows:
( ) Owned by Applicant
( ) Purchase Contract
( ) Leased by Applicant
( ) Other: ___________________________
If the site is owned by an entity other than the Applicant, please provide the following information:
Fee Owner:
_____________________________________________________________
Street Address: _____________________________________________________________
(Street)
_____________________________________________________________
(City, State, Zip Code)
Phone Number: _____________________________________________________________
Relationship to Applicant, if any:
__________________________________________
MHR/RHR 389896v2 (03/31/2008)
6
Other information about the site:
*
Are there currently any existing moratoriums?
( ) Yes* ( ) No
Can billboard and directional signage be obtained?
( ) Yes
Are there any restrictions on the site that would necessitate special
local variances (e.g., parking, signage, liquor licenses, etc.)?
( ) Yes* ( ) No
( ) No*
Explain the situation(s) and your plans to resolve same (attach supplemental sheet if necessary)
_______________________________________________________________________________
_______________________________________________________________________________
Please submit with your application:
(1)
(2)
(3)
(4)
(5)
*
A copy of the deed, lease, purchase contract or other documents showing Applicant’s ownership or control
of the site,
A copy of the plat of the site and a site plan,*
An aerial photograph of the site, and any other photographs of site and surrounding land uses,
A floor plan and elevation (may be omitted if prototype [Brand] hotel or if only variation to prototype is the
addition of rooms), and
A map of the city or section of the city with the property clearly identified.
See Submission Requirements and Site Plan Criteria at Attachment A
Identify all hotels in your market area that are owned or under development by the proposed franchisee or any of its
principals or affiliates. Specifically include those within a two-mile radius of the hotel/site area.
1.
Hotels in Market Area:
Facility Name
Distance
Age
MHR/RHR 389896v2 (03/31/2008)
7
Size
Rate Range
II.
PROPOSED DEVELOPMENT/CONVERSION COSTS, PROJECTIONS, AND FINANCING
Hotel will be a: _____ New Development _____ Conversion/Adaptive Reuse
If a new development, please complete Section II A. and C. and the remainder of this application.
If a conversion or adaptive reuse, please complete Section II B. and C. and the remainder of this application.
A. NEW DEVELOPMENT
PROPOSED DEVELOPMENT COSTS:
Land Cost:
$__________________
Development Cost:
(Construction, Other)
$__________________
Total Cost:
$ __________________
Per Sq. Ft.: $_______________
Per Room: $______________
Please attach an itemized development budget for the proposed hotel. If you need a format, please call (301)
380-3200 for a copy of our suggested format.
Anticipated Construction Start:*
________________________
Estimated Opening Date:*
________________________
*
Please provide a reasonable estimate. These will become your deadlines if a franchise is offered.
OPERATING PROJECTIONS:
$________________ ADR for _______ (Year)
________________ % Occupancy for ______ (Year)
Please attach a copy of the operating projections for the proposed hotel from opening until stabilization
(usually 3-5 years). If you need a format, please call (301) 380-3200 for a copy of our suggested format.
B. CONVERSION/ADAPTIVE REUSE
CURRENT AFFILIATION/NAME OF HOTEL OR CURRENT USE:
Acquisition Cost:
$________________
Conversion Cost:
$________________
Total Cost:
$________________
Year Built:
_______________
Per Room: $________________
Please attach an itemized conversion budget.
Anticipated Renovation Start:*
________________________
Estimated Renovation Completion Date:*
________________________
*
Please provide a reasonable estimate. These will become your deadlines if a franchise is offered.
MHR/RHR 389896v2 (03/31/2008)
8
OPERATING PROJECTIONS:
$________________ ADR for _______ (Year)
________________ % Occupancy for ______ (Year)
Please attach a copy of the operating projections for the hotel from conversion until stabilization (usually 3-5
years). If you need a format, please call (301) 380-3200 for a copy of our suggested format.
HOTEL PERFORMANCE (Last 5 years, for conversions only): You may provide us with profit and loss
statements for the hotel but we must receive Occupancy and Average Rate information for the last five (5) years.
Year
Occupancy
Average Rate
Total Revenues
Total Expenses
Gross Operating Profit
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
__________
If the hotel is currently associated with another brand, Marriott will require that you provide evidence of proper
termination of the existing franchise agreement. If you have already given or received notice of termination, please
submit a copy.
C. PROPOSED FINANCING
Equity: Indicate proposed source of equity and the percentage of total development costs the equity represents:
_________________________________________________________________________________
_________________________________________________________________________________
Debt:
Indicate proposed sources of construction and permanent financing:
_________________________________________________________________________________
_________________________________________________________________________________
If secured by the hotel, please indicate:
Source: ______________________________________________________________________________
Mortgage Amount: $__________________________
Term: ______________________________________
Interest Rate: ________________________________
Annual Payment: $____________________________
If any additional financing (e.g., second lien mortgage, mezzanine financing, etc.), please indicate:
Source: _____________________________________________________________________________
Loan Amount: $________________________________
Security: ______________________________________
Term: ________________________________________
Interest Rate: __________________________________
Annual Payment: $______________________________
Please attach a copy of the financing commitment(s) for the proposed hotel.
MHR/RHR 389896v2 (03/31/2008)
9
III.
OWNERSHIP STRUCTURE AND DUE DILIGENCE
Please provide the information requested in this Section for the proposed franchisee and owner (if different) as soon
as possible.
If the exact structure of the proposed franchisee has not been determined, under Section XV.J of the [Brand]
franchise agreement, the parent company or other owner of the proposed franchisee may execute the franchise
agreement and has the right to transfer the franchise agreement to a wholly-owned or controlled entity on the terms
set forth in the franchise agreement. If you elect this option, you must submit the information required in this
Section III at the time of application, for the original franchisee, and prior to effecting the transfer, for the transferee
entity.
If the proposed franchisee is an individual, please provide that individual’s address, telephone numbers, fax number
and email address, and go to Section IV.
If the proposed franchisee is an entity, please provide all information requested in this Section III.
Franchise to be issued in the name of: _____________________________________________________
A/an ___________________
(state)
()
()
()
()
()
()
General Partnership
( ) Privately Held Corporation
Limited Partnership
( ) Individual
Public Corporation
( ) Joint Venture
Trust
( ) Estate
( ) Other
Syndicated Limited Partnership
Limited Liability Company
Street Address:
Phone Number: _____________________
E-mail Address:
Tax ID No.:
Fax Number:
AUTHORIZED SIGNER FOR ENTITY:
Name:
Title:
PRINCIPAL CORRESPONDENT:
Name:
Title:
Street Address:
Phone Number:
Fax Number:
E-mail Address:
MHR/RHR 389896v2 (03/31/2008)
10
DIRECT AND INDIRECT OWNERSHIP AND BENEFICIAL INTERESTS:
Please provide the following for each individual or entity that has a direct or indirect equity ownership or beneficial
interest in an Applicant at each level of ownership until you reach either (1) an individual or (2) a publicly held
entity. Attach additional sheets as necessary. If the Applicant is owned through several layers of entities, please
provide an organizational chart as well.
Full Name
Home and Business Street Addresses,
Phone Numbers, & Email Addresses
MHR/RHR 389896v2 (03/31/2008)
11
Description of Interest
% of
Ownership
DUE DILIGENCE:
Please provide the following information for each Applicant (i.e., franchisee and owner, if different) and, unless
otherwise noted, for each direct or indirect equity or beneficial owner of the Applicant, depending on the type of
entity. If an Applicant has not been formed, please submit the following information immediately upon its
formation. If the type of entity is not listed below, please provide information similar to that listed below for the
other entities:
CORPORATION:
(a)
(b)
(c)
(d)
(e)
Articles or Certificate of Incorporation, including all amendments
Bylaws, including all amendments (Applicant only)
Certificate of Good Standing dated within the last 6 months (Applicant only; not required if Applicant was
formed within the last 6 months)
A resolution authorizing the Applicant to execute the Franchise Agreement and related documents and
directing the authorized signatory to execute and deliver such documents (Applicant only)
Evidence that the entity is owned as indicated in the chart above (e.g. copies of stock certificates and stock
ledger)
LIMITED LIABILITY COMPANY:
(a)
(b)
(c)
(d)
(e)
Articles of Organization or Certificate of Formation, including all amendments
Operating Agreement or Limited Liability Company Agreement, including all amendments
Certificate of Good Standing dated within the last 6 months (Applicant only; not required if Applicant
was formed within the last 6 months)
A resolution authorizing the Applicant to execute the Franchise Agreement and related documents and
directing the authorized signatory to execute and deliver such documents. (Applicant only)
Evidence that the entity is owned as indicated in the chart above (e.g. membership certificates, if not set
forth in the Operating Agreement or Limited Liability Company Agreement)
PARTNERSHIP/JOINT VENTURE:
(a)
(b)
(c)
(d)
(e)
If a limited partnership, Certificate of Limited Partnership, including all amendments
Partnership Agreement, including all amendments
Certificate of Good Standing, or equivalent, dated within the last 6 months (Applicant only; not required if
Applicant was formed within the last 6 months)
A resolution authorizing the Applicant to execute the Franchise Agreement and related documents and
directing the authorized signatory to execute and deliver such documents (Applicant only)
Evidence that the entity is owned as indicated in the chart above (e.g. partnership units, if not set forth in the
Partnership Agreement)
TRUST:
(a)
(b)
(c)
An executed copy of the trust agreement, including all amendments
A resolution authorizing the Applicant to execute the Franchise Agreement and related documents and
directing the authorized signatory to execute and deliver such documents (Applicant only)
The complete names and addresses of all Trustees and Beneficiaries
ESTATE:
(a)
Letters testamentary or letters of administration (as applicable)
MHR/RHR 389896v2 (03/31/2008)
12
IV.
HOTEL MANAGEMENT AND HOTEL EXPERIENCE
HOTEL MANAGEMENT:
The hotel will be managed by:
___
Applicant
___
Management Company
ALL REQUESTED INFORMATION MUST BE PROVIDED IF THE HOTEL IS TO BE MANAGED BY A
MANAGEMENT COMPANY
MANAGEMENT COMPANY NAME: ________________________________________________
A/an ___________________
(state)
()
()
()
()
()
()
General Partnership
Limited Partnership
Public Corporation
Trust
( ) Estate
Syndicated Limited Partnership
Limited Liability Company
()
()
()
()
Privately Held Corporation
Individual
Joint Venture
Other
Contact:
Street Address:
Phone Number: _____________________
E-mail Address:
Tax ID No.:
AUTHORIZED SIGNER FOR ENTITY:
Fax Number:
Name: __________________________________
Title: __________________________________
If the management company has a brochure describing its history or operations, please attach a copy.
If there is common ownership between the franchisee and the Management Company for a hotel, please describe the
common ownership, including the level in the ownership structure at which there is common ownership, the
percentage ownership interest in the Management Company and the franchisee that is commonly owned, and
provide an ownership structure chart for the Management Company. If there is no common ownership, please
indicate “N/A” in the space below:
Please provide the following documentation for the Management Company, as applicable:
(a)
(b)
(c)
(d)
(e)
Articles or Certificate of Incorporation; or
Articles of Organization or Certificate of Formation; or
Certificate of Limited Partnership or Partnership Agreement; or
Certificate of Good Standing; and
Evidence that the Management Company is authorized to execute the Management Agreement, Manager
Acknowledgment, and related documents, and that the signatory on behalf of the Management Company is
authorized to execute and deliver such documents
MHR/RHR 389896v2 (03/31/2008)
13
HOTEL EXPERIENCE:
Does any Applicant, any direct or indirect equity or beneficial owner of the Applicant, or the Management
Company operate or have an ownership interest in any other Lodging Facility?
( ) Yes ( ) No If yes, please list below (attach supplemental sheets if needed):
Name of Entity
Hotel Name/Location
# of
Rooms
Description of
Interest, Including
Length of Time
% of
Ownership,
if any
If the Applicant, direct or indirect equity or beneficial owner of the Applicant, or Management Company is
currently operating other properties for Franchisor, you need only list the date of such entity’s last application
submitted to Franchisor, the name of the applicable property that was the subject of such application and any
updates to the information in this Section IV that have occurred since the date of such application.
GAMING LICENSES: If the Applicant, or any other person or entity listed in Section III or this Section IV has
ever applied for a gaming license, please provide the following information:
List each jurisdiction: _________________________________________________________
Which jurisdiction(s) granted a license and to which entity or person? __________________
___________________________________________________________________________
___________________________________________________________________________
MHR/RHR 389896v2 (03/31/2008)
14
V.
FINANCIAL INFORMATION
Please submit current financial statements, including the most recent audited financial statement and the most recent
quarterly financial statement for the proposed franchisee and its general partner(s), managing member(s) or
principal shareholder(s). If the franchisee has more than one level of ownership in its ownership structure, please
also provide the most recent quarterly financial statement for the ultimate owners of the general partner(s),
managing member(s) or principal shareholder(s) of franchisee.
We require the franchisee’s principals to guaranty the franchisee's obligations under the franchise agreement. In
some cases, we will accept the guaranty of an entity with substantial net worth in lieu of some or all of the
principals. The primary determining factors will be (i) the net worth of the franchisee and the net worth of the
proposed guarantor entity; (ii) the credit history of the franchisee and the proposed guarantor entity; and (iii) the
debt structure applicable to the hotel. If you wish to propose such a guarantor entity, you must submit financial
statements for that entity as well. If such entity is accepted, you will also need to provide the information requested
in Section III for such entity as an Applicant.
MHR/RHR 389896v2 (03/31/2008)
15
ATTACHMENT A:
MINIMUM SUBMISSION REQUIREMENTS AND SITE PLAN CRITERIA
MINIMUM SUBMISSION REQUIREMENTS:
1.
Property boundaries with metes and bounds, area of land parcel in acreage and/or square footage, scale of
plan and north arrow. A state/city map must also be provided that clearly defines the location of the subject
property.
2.
Existing conditions to be identified on the Site Plan:
a.
b.
c.
d.
e.
f.
g.
h.
3.
Proposed development - (Prototype project):
a.
b.
c.
d.
4.
The location of highways and streets serving the site, noting the center lines, widths of paving,
grades and median break points, and names of streets.
Adjacent land uses surrounding the site. Include zoning, if site is vacant.
Existing buildings and structures on the site.
The locations of proposed highways and serving the site indicating direction of the majority of
traffic to site.
The location of setbacks and/or building restriction lines as required by local jurisdiction and/or
easements, which affect development potential of site.
Topographic survey.
Photographs of the site.
Any natural or man-made features that might contribute positively or negatively to site. (For
example, desirable off site views, storm water management facilities, trees, flight path locations or
railroad station/tracks.)
The location of building footprint with height; number of keys/stories; and overall building
dimensions. The layout of parking and its distribution around the building must be shown. Outdoor
amenities, building/project signage and service areas must be indicated. Room count increases to a
prototype building will result in higher public space area requirements.
The location and dimensions of all roads, streets and driveways, parking facilities, points of access
to surrounding streets and pedestrian walks.
Perimeter landscape buffer and building/parking setbacks must be indicated.
Please refer to Design and Construction Criteria documents for other design requirements. All
variations to the design guidelines must comply with the intended design criteria, and be submitted
to Marriott Architecture and Construction for review prior to approval of the franchise application.
Coordination with the Design Manager for the applicable Brand will be required.
Additional information required for a non-prototype or custom project - (Non-prototype projects are all
projects which utilize a building footprint other than the prototype Marriott building footprint. These
projects require a more extensive review by Marriott Architecture and Construction.):
a.
b.
c.
d.
Facilities/Criteria Area Program - chart with square footage tabulations indicating how project
complies with the specific public space requirements for the applicable Brand and proposed room
mix.
Engineered Site plan.
Floor plans indicating public space facilities and guest room layouts.
Building elevations that are sufficiently developed to illustrate how project will convey Brand
image through use of building massing, materials and colors.
MHR/RHR 389896v2 (03/31/2008)
16
SITE PLAN CRITERIA:
1.
Establish a separate and distinct parcel, parking and drive aisles for all Marriott Products.
2.
Provide a dedicated primary means of ingress/egress to site from a public road and provide secondary
access as site allows. Access easements or shared entries with adjacent land uses are acceptable provided
there are no parking stalls on the roadway. Verify with the local Fire Marshall whether or not a fire access
loop will be required. This may require acquisition of additional land area to fulfill this requirement.
3.
Provide a minimum parking/unit ratio of 1:1. Accessible parking spaces shall be located near entrances and
shall not require crossing of vehicular drives when entering building. Accessible parking spaces must
comply with quantity and characteristics prescribed by ADA and/or local code.
4.
Provide vehicular and pedestrian circulation that is safe, adequate and efficient. Parking spaces shall be
evenly distributed around the building entries. Special consideration should be given to the most efficient
and direct route a guest would take from car to building entrance. Pedestrian circulation must have minimal
conflicts with vehicular traffic.
5.
Parking spaces shall be a minimum of nine feet by eighteen feet (9' x 18') with drive aisles that are a
minimum of twenty-four feet (24') wide.
6.
Provide a landscape buffer of at least five feet (5') from property line to edge of paving. This is required for
entire periphery of site. Provide a minimum of ten feet (10’) from face of building to roadway and/or
parking. At front of building, provide at least the minimum landscape area as shown in design guideline
documents.
7.
Maintain a minimum building setback for non windowed walls from property line to face of building of
fifteen feet (15’) or greater, as required by local planning and zoning codes. Minimum building setbacks
otherwise to be maintained at twenty-five feet (25’). Minimum setbacks from courtyard walls shall be five
feet (5’).
8.
Locate trash enclosures out of view of sight lines from within guest rooms and away from the main entrance
in front of the building.
9.
Installation of fencing and/or landscaping may be required to screen unsightly adjacent features, structures
or views, and to provide definition of property boundaries.
10.
Landscape islands are required within parking areas. Fifteen (15) cars in a row is the maximum allowed.
11.
The project must address any off-site noise concerns that may cause a nuisance to the hotel.
MHR/RHR 389896v2 (03/31/2008)
17
MARRIOTT HOTEL
FRANCHISE AGREEMENT
BETWEEN
MARRIOTT INTERNATIONAL, INC.
AND
«FRANCHISE_NAME»
Location: «address», «city», «state» «zip»
Dated as of:
Marriott 384175v3 (03/31/2008)
TABLE OF CONTENTS
Page
1.
DEFINITIONS ............................................................................................................................ 1
2.
LICENSE ..................................................................................................................................... 8
2.1
2.2
2.3
Limited Grant. ............................................................................................................................... 8
Franchisor’s Reserved Rights........................................................................................................ 9
Territory. ....................................................................................................................................... 9
3.
FEES........................................................................................................................................... 10
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
Initial Fee..................................................................................................................................... 10
Franchise Fees. ............................................................................................................................ 10
Marketing Fund Fees; Special Marketing Program Fees. ........................................................... 10
Electronic Systems Fees.............................................................................................................. 10
Other Charges.............................................................................................................................. 11
Travel Expenses and Reimbursement. ........................................................................................ 11
Marriott Agreement Payments. ................................................................................................... 11
Making of Payments and Performance of Services..................................................................... 11
Interest on Late Payments. .......................................................................................................... 11
Taxes. .......................................................................................................................................... 12
4.
TERM......................................................................................................................................... 12
4.1
4.2
Term. ........................................................................................................................................... 12
Not Renewable. ........................................................................................................................... 12
5.
DESIGN, FINANCING, CONSTRUCTION, AND RENOVATION.................................... 12
5.1
5.2
5.3
Size. ............................................................................................................................................. 12
Financing of the Hotel................................................................................................................. 13
Construction/Conversion/Renovation of the Hotel. .................................................................... 13
6.
SOURCING AND DESIGN APPROVALS............................................................................. 13
6.1
6.2
Furniture, Fixtures, Equipment, Supplies, and Signage. ............................................................. 13
Design Approval. ........................................................................................................................ 14
7.
LOCAL ADVERTISING AND MARKETING, PRICING, AND MARKETING FUND
ACTIVITIES ............................................................................................................................. 14
7.1
7.2
7.3
7.4
Franchisee’s Local Advertising and Marketing Programs and Press Releases. .......................... 14
Reservations, Pricing, and Rates. ................................................................................................ 15
Marketing Fund Activities. ......................................................................................................... 15
Special Marketing Programs. ...................................................................................................... 16
8.
PROPERTY SYSTEM, RESERVATION SYSTEM, AND OTHER ELECTRONIC
SYSTEMS .................................................................................................................................. 16
8.1
8.2
8.3
8.4
8.5
Systems Installation..................................................................................................................... 16
Reservation System. .................................................................................................................... 16
Optional System(s). ..................................................................................................................... 17
System Communication Costs..................................................................................................... 17
Electronic Systems Provided Under License. ............................................................................. 17
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9.
OPERATIONS .......................................................................................................................... 17
9.1
9.2
9.3
9.4
Operating the Hotel. .................................................................................................................... 17
System Promotion and Diversion to Other Businesses. .............................................................. 18
Employees. .................................................................................................................................. 18
Management and Operation of the Hotel. ................................................................................... 19
10.
TRAINING, COUNSELING, AND ADVISORY SERVICES............................................... 20
10.1
10.2
Training. ...................................................................................................................................... 20
Counseling and Advisory Services.............................................................................................. 20
11.
PHYSICAL FACILITIES, SUPPLIES, AND GOODS.......................................................... 20
11.1
11.2
Repairs and Maintenance. ........................................................................................................... 20
Funding and Reserve. .................................................................................................................. 21
12.
SYSTEM AND STANDARDS; FRANCHISEE ASSOCIATION......................................... 22
12.1
12.2
12.3
Compliance with System and Standards. .................................................................................... 22
Modification of the System and Standards.................................................................................. 22
Franchisee Association................................................................................................................ 22
13.
PROPRIETARY MARKS AND INTELLECTUAL PROPERTY ....................................... 23
13.1
13.2
13.3
13.4
Franchisor’s Representations and Responsibility Regarding the Proprietary Marks. ................. 23
Franchisee’s Use of System and Intellectual Property. ............................................................... 23
Franchisee’s Use of Other Marks................................................................................................ 25
Internet Website. ......................................................................................................................... 25
14.
CONFIDENTIAL INFORMATION; DATA PROTECTION LAWS.................................. 26
14.1
14.2
Confidential Information............................................................................................................. 26
Data Protection Laws. ................................................................................................................. 26
15.
ACCOUNTING AND REPORTS ............................................................................................ 26
15.1
15.2
15.3
Books, Records, and Accounts.................................................................................................... 26
Reports. ....................................................................................................................................... 27
Franchisor Examination and Audit of Hotel Records. ................................................................ 27
16.
INDEMNIFICATION AND INSURANCE............................................................................. 28
16.1
16.2
Indemnification. .......................................................................................................................... 28
Insurance. .................................................................................................................................... 28
17.
TRANSFERABILITY OF INTERESTS ................................................................................. 30
17.1
17.2
17.3
17.4
17.5
17.6
17.7
17.8
17.9
Transfers of Interests in the Hotel and Franchisee. ..................................................................... 30
Transfers of Controlling Ownership Interests. ............................................................................ 30
Transfers of Passive Investor Interests, Estate Planning, and Death or Mental Incompetency... 32
Proposed Transfer to Competitor and Right of First Refusal...................................................... 33
Interest in Real Estate and Injunctive Relief. .............................................................................. 35
Survival of Right of First Refusal. .............................................................................................. 35
Security Interests in the Hotel or Franchisee............................................................................... 35
Proposed Transfers to Specially Designated National or Blocked Person.................................. 36
Transfers by Franchisor............................................................................................................... 36
18.
PUBLIC AND PRIVATE OFFERINGS ................................................................................. 36
18.1
18.2
Franchisee’s Obligations. ............................................................................................................ 36
Limited Franchisor Consent. ....................................................................................................... 37
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19.
DEFAULT AND TERMINATION .......................................................................................... 37
19.1
19.2
19.3
Immediate Termination. .............................................................................................................. 37
Termination Upon Notice with Opportunity to Cure. ................................................................. 39
Termination by Franchisor and Liquidated Damages. ................................................................ 39
20.
POST-TERMINATION............................................................................................................ 42
20.1
20.2
Franchisee Obligations................................................................................................................ 42
Franchisor’s Rights Upon Termination or Expiration................................................................. 43
21.
CONDEMNATION AND CASUALTY .................................................................................. 44
21.1
21.2
Condemnation. ............................................................................................................................ 44
Casualty....................................................................................................................................... 44
22.
COMPLIANCE WITH LAWS; LEGAL ACTIONS ............................................................. 44
22.1
22.2
22.3
22.4
Compliance with Laws................................................................................................................ 44
Notice Regarding Legal Actions. ................................................................................................ 45
WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES. .................................................... 45
Specially Designated National or Blocked Person; Anti-Money Laundering............................. 45
23.
RELATIONSHIP OF PARTIES.............................................................................................. 45
23.1
23.2
Reasonable Business Judgment................................................................................................... 45
Independent Contractor. .............................................................................................................. 46
24.
GOVERNING LAW; INJUNCTIVE RELIEF; COSTS OF ENFORCEMENT ................. 46
24.1
24.2
24.3
Governing Law............................................................................................................................ 46
Injunctive Relief.......................................................................................................................... 46
Costs of Enforcement. ................................................................................................................. 47
25.
NOTICES................................................................................................................................... 47
25.1
Notices......................................................................................................................................... 47
26.
CONSTRUCTION AND SEVERABILITY; APPROVALS, CONSENTS AND WAIVERS;
ENTIRE AGREEMENT........................................................................................................... 47
26.1
26.2
26.3
Construction and Severability. .................................................................................................... 47
Approvals, Consents and Waivers............................................................................................... 48
Entire Agreement. ....................................................................................................................... 49
27.
REPRESENTATIONS, WARRANTIES AND COVENANTS ............................................. 49
27.1
27.2
27.3
27.4
Existence and Power; Authorization; Contravention. ................................................................. 49
Ownership of Franchisee............................................................................................................. 49
Ownership of the Hotel. .............................................................................................................. 49
Additional Franchisee Acknowledgments and Representations. ................................................ 50
28.
MISCELLANEOUS.................................................................................................................. 51
28.1
28.2
Negotiated Changes..................................................................................................................... 51
Multiple Counterparts. ................................................................................................................ 51
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EXHIBIT A APPROVED LOCATION, NUMBER OF GUEST ROOMS AND OWNERSHIP
INTERESTS IN FRANCHISEE .............................................................................................. 52
EXHIBIT B FORM OF GUARANTY.................................................................................................... 53
EXHIBIT C FORM OF MANAGEMENT COMPANY ACKNOWLEDGMENT ............................ 56
EXHIBIT D CONVERSION RIDER ..................................................................................................... 61
EXHIBIT D NEW DEVELOPMENT RIDER....................................................................................... 63
EXHIBIT 1 TO NEW DEVELOPMENT/CONVERSION RIDER ADA Certification............ 66
EXHIBIT 2 TO NEW DEVELOPMENT/CONVERSION RIDER Authority to Open Letter.. 67
EXHIBIT D CHANGE OF OWNERSHIP RIDER ............................................................................... 68
PROPERTY IMPROVEMENT PLAN ADDENDUM .......................................................................... 71
ATTACHMENT ONE TO PROPERTY IMPROVEMENT PLAN ADDENDUM.................. 74
ATTACHMENT TWO TO PROPERTY IMPROVEMENT PLAN ADDENDUM................. 75
EXHIBIT E FORM OF MEMORANDUM OF RIGHT OF FIRST REFUSAL................................. 76
EXHIBIT F FORM OF ELECTRONIC SYSTEMS LICENSE AGREEMENT................................ 80
EXHIBIT G RESTRICTED TERRITORY MAP ................................................................................. 83
Marriott 384175v3 (03/31/2008)
iv
FRANCHISE AGREEMENT
This Franchise Agreement is effective as of the ____ day of _______________, 2008 (“Effective
Date”) by Marriott International, Inc., a Delaware corporation and «Franchise_Name», a/an
«Fran_Domicili» «Fran_corp» (“Franchisee”).
RECITALS
[If Franchisee is not the owner of the Hotel, the Franchise Agreement should be revised to account for
the Owner Agreement]
A.
Franchisor owns the System for Marriott Hotels.
B.
Franchisee is the owner of the Hotel, and Franchisee desires to operate the Hotel as a
Marriott Hotel and wishes to obtain a license to use the System and the Proprietary Marks for that
purpose.
C.
It is the intention of the parties that the Hotel, together with other Marriott Hotels will be
part of a chain of hotels providing distinctive, high quality hotel services.
D.
It is important that the Hotel be operated in strict conformity with the System in order to
enhance public acceptance of, and demand for, all Marriott Hotels.
E.
In agreeing to grant the non-exclusive license under this Agreement to Franchisee,
Franchisor is relying upon the business skill, financial capacity, and character of Franchisee and its
principals and the guarantee by Guarantor under the Guaranty.
NOW, THEREFORE, in consideration of the premises and the mutual covenants contained in this
Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are
acknowledged, Franchisee and Franchisor agree as follows:
1.
DEFINITIONS
When used in this Agreement the following terms have the meanings indicated:
“AAA Rules” has the meaning stated in Section 17.4.
“Accounting Period” means any one of the twelve (12) months in a calendar year or any other
fiscal accounting and reporting period used by Franchisee and approved by Franchisor in writing.
“Affiliate” means, for any Person, a Person that is directly (or indirectly through one or more
intermediaries) Controlling, Controlled by, or under common Control with, such Person.
“Agreement” means this Franchise Agreement, including any exhibits, attachments, and addenda.
“Applicable Law” means all laws, regulations, ordinances, rules, orders, decrees, and
requirements of any governmental authority having jurisdiction over the Hotel, Franchisee, Guarantor or
any of the Marriott Agreements.
“Approved Location” means the site or parcel of land described under item 1 on Exhibit A.
“Arbitrator” has the meaning stated in Section 17.4.
Marriott 384175v2 (03/31/2008)
“Association” has the meaning stated in Section 12.3.
“Brand” has the meaning stated in the definition of “Competitor.”
“Case Goods” means furniture and fixtures used in the Hotel, its Guest Rooms, and its Public
Facilities, such as chests, armoires, chairs, beds, headboards, desks, tables, television sets, mirrors,
pictures, wall decorations, graphics and all other unspecified items of the same class.
“Category” means the classification(s) designated by Franchisor or its Affiliates, in their sole
discretion, for certain types of Marriott Hotels, such as a geographic classification (e.g., worldwide,
regional, state-specific, country-specific) or other classification (e.g., resorts, urban, suburban). A
Category may have specific physical and operating standards and policies or may be a descriptive
classification.
“Competitor” means any Person that owns or has an interest in a hotel brand, trade name,
trademark, system, or chain (a “Brand”) or any Person that has an Ownership Interest in, or is an Affiliate,
principal, director, officer, or other individual with management responsibility of, a Person that owns or
has an interest in a Brand that is comprised of at least (i) ten (10) luxury hotels, (ii) twenty (20) fullservice hotels, or (iii) fifty (50) limited-service hotels. For the purposes of defining “Competitor,”
“luxury hotels” are hotels that have a system average daily rate in excess of One Hundred Eighty Dollars
($180) and an average number of rooms per location in excess of 100; “full-service” hotels are hotels that
typically offer three (3) meals per day and have an average of three thousand (3,000) square feet or more
of meeting space per hotel; “limited-service” hotels are hotels that are neither “luxury hotels” nor “fullservice” hotels. No Person will be deemed to be a Competitor if such Person has an interest in a Brand
merely as a franchisee or as a mere passive investor that has no Control or influence over the business
decisions concerning the Brand at issue, such as limited partners in a partnership or as a mere nonControlling stockholder in a corporation.
“Competitor Liquidated Damages” has the meaning stated in Section 19.3.C.
“Confidential Information” means any or all of the following information: (i) any Standards,
documents, or trade secrets approved for use in the System or in the design, construction, renovation or
operation of the Hotel; (ii) any Electronic Systems and accompanying documentation developed for the
System or elements thereof; (iii) Guest Profile Data; or (iv) any other confidential information,
knowledge, trade secrets, business information or know-how obtained (a) through the use of any part of
the System or concerning the System or the operation of the Hotel or (b) under any Marriott Agreements.
“Control” (and any form thereof, such as “Controlling” or “Controlled”) means, for any Person,
the possession, directly or indirectly, of the power to direct or cause the direction of the management or
policies of such Person.
“Control Affiliate” means an Affiliate of Franchisee that directly or indirectly Controls
Franchisee.
“Data Protection Laws” means data protection and privacy laws and regulations in the United
States.
“Dispute” means any dispute, controversy, or claim arising out of or relating to this Agreement or
any other Marriott Agreement, or the making, breach, termination, or invalidity of this Agreement or any
other Marriott Agreement, or the relationship created by those agreements.
“Effective Date” has the meaning stated in the preamble to this Agreement.
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“Electronic Systems” means all Software, Hardware and all electronic access to Franchisor’s
systems and data, licensed or made available to Franchisee relating to the System, including the
Reservation System, Property System and Yield Management System.
“Electronic Systems License Agreement” means the electronic systems license agreement that
must be executed by Franchisee as a condition to using the Electronic Systems, the current form of which
is attached hereto as Exhibit F.
“FF&E” means Case Goods, Soft Goods, signage, and equipment (including telephone systems,
facsimile machines, copiers, vending machines, games, and electronic systems, such as equipment needed
for the Electronic Systems), but does not include any item included in Fixed Asset Supplies.
“Financed Pool” has the meaning stated in Section 5.2.
“Fixed Asset Supplies” means supply items included within “Property and Equipment” under the
Uniform System, including linen, china, glassware, silver, uniforms, and similar items.
“Food and Beverage Operations” means all Hotel food and beverage services, whether performed
inside or outside the Hotel, including: (i) all restaurant, dining, bar, lounge, spa, and retail food and
beverage services; (ii) all banquet, meeting, convention, event, catering, exhibit, sales space, and room
services, and rentals or charges related to audio visual and other equipment or services provided in
connection with banquets, meetings, conventions or events; and (iii) any other food, beverage, or other
related services provided by, at, in connection with, or related to the Hotel or any banquets, meetings,
conventions or events associated with the Hotel.
“Franchisee” has the meaning stated in the preamble to this Agreement.
“Franchise Fees” has the meaning stated in Section 3.2.
“Franchisor” means Marriott International, Inc., a Delaware corporation, and its successors and
assigns.
“Franchisor Lodging Facilities” means all hotels and other lodging facilities, chains, brands, or
hotel systems owned, leased, under development, or operated or franchised, now or in the future, by
Franchisor or any of its Affiliates, including: (i) Marriott Hotels, Resorts and Suites; Marriott Marquis
Hotels; JW Marriott Hotels and Resorts; Marriott Conference Centers; Marriott Executive Apartments;
Courtyard by Marriott Hotels; Fairfield Inn by Marriott Hotels; Fairfield Inn & Suites by Marriott Hotels;
Nickelodeon Resorts by Marriott; Renaissance Hotels and Resorts; Renaissance ClubSport; Residence
Inn by Marriott Hotels; Bvlgari Hotels and Resorts; Edition Hotels; Ritz-Carlton Hotels and Resorts;
SpringHill Suites by Marriott Hotels; and TownePlace Suites by Marriott Hotels; (ii) other lodging
products or concepts, including Marriott ExecuStay; JW Marriott Residences; Marriott Marquis
Residences; and The Residences at The Ritz-Carlton; (iii) vacation, timesharing, interval or fractional
ownership facilities, including Marriott Vacation Club International, The Ritz-Carlton Club, and Horizons
by Marriott Vacation Club; and (iv) any other lodging product or concept developed or utilized by
Franchisor or any of its Affiliates in the future.
“Frequent Traveler Program(s)” means the frequent traveler appreciation program(s) for Marriott
Hotels and such other Franchisor Lodging Facilities designated by Franchisor or its Affiliates designed to
increase the market share, length of stay and frequency of usage of such hotels, and/or any similar,
complementary, or successor program. As of the Effective Date, such programs include “Marriott
Rewards.”
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3
“Gross Food and Beverage Sales” means: (i) all sales and receipts of every kind from the Food
and Beverage Operations (including credit charges, charge backs, service charges, and uncollectible
amounts, whether or not collected), but does not include any sales, hotel, entertainment tax, or similar
taxes collected from patrons or guests; (ii) guaranteed no-show revenue or other attrition or slippage
payments for business associated with the Hotel related to cancellations or non-performance that are
collected; and (iii) the amount of all lost revenues and receipts due to the non-availability of Food and
Beverage Operations, upon which business interruption, loss of income, or other similar insurance
proceeds are calculated.
“Gross Revenues” means all revenues and receipts of every kind (including credit charges, charge
backs, service charges, and uncollectible amounts, whether or not collected), from all parts of and in
connection with the Hotel, including revenues from leases, rentals, memberships, concessions, service
charges, fees, sales, Gross Food and Beverage Sales and Gross Room Sales and revenues and receipts
from all other operations, but does not include: (a) tips, service charges, or gratuities to Hotel employees
to the extent actually received by the Hotel employees; (b) proceeds from the sale of the Hotel’s FF&E;
(c) proceeds from insurance policies, other than business interruption, loss of income or other similar
insurance for the Hotel; or (d) value added, room, head, excise, sales, and/or use taxes or similar charges
collected directly from patrons or guests or included as part of the sales price of any rooms, goods, or
services.
“Gross Room Sales” means: (i) all sales and receipts of every kind that accrue from the rental of
Guest Rooms (including credit charges, charge backs, service charges, and uncollectible amounts,
whether or not collected) but does not include any sales tax, value added tax, or similar taxes collected
from patrons or guests; (ii) guaranteed no-show revenue or other attrition or slippage payments for
business associated with the Hotel related to cancellations or non-performance that are collected; and (iii)
the amount of all lost revenues and receipts due to the non-availability of Guest Rooms, upon which
business interruption, loss of income, or other similar insurance proceeds are calculated.
“Guarantor” means individually and collectively the Person(s) who guarantee(s) the performance
of Franchisee’s obligations under this Agreement in accordance with the Guaranty.
“Guaranty” means the guaranty, substantially in the form of Exhibit B to this Agreement.
“Guest Profile Data” means personal guest profiles and information regarding guest preferences,
including any information derived from or contained in any Frequent Traveler Program.
“Guest Room” means each rentable unit in the Hotel consisting of a room, suite or suite of rooms
generally used for overnight guest accommodation, entrance to which is controlled by the same key;
provided that adjacent rooms with connecting doors that can be locked and rented as separate units are
considered separate Guest Rooms.
“Hardware” means all computer hardware and other equipment (including all future upgrades,
enhancements, additions, substitutions, and other modifications thereof) required for the operation of and
connection to the applicable system (e.g., Property System, Reservation System, Yield Management
System, accounting, back-office, etc.) by the Standards.
“Hotel” means the hotel and all land used in connection with the hotel located or to be located at
the Approved Location, including: (i) the freehold or long-term leasehold title to the Approved Location;
(ii) all improvements, structures, facilities, entry and exit rights, parking, pools, landscaping, and other
appurtenances (including the hotel building, Public Facilities, and all operating systems) located at the
Approved Location; and (iii) all FF&E, Fixed Asset Supplies, and Inventories installed or located in such
improvements at the Approved Location.
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“Initial Fee” means a non-refundable fee of $_______________ [Insert: Three Hundred
Dollars ($300) multiplied by the number of Guest Rooms in the Hotel or $82,500, whichever is
greater*] paid to Franchisor in consideration of Franchisor’s investigation, review and approval process
and other administrative functions and undertakings in connection with this Agreement.
“Intellectual Property” means all of the following items, regardless of the form or medium
involved (e.g., paper, electronic, tape, tangible or intangible): (i) all Software, including the data and
information processed or stored by such Software; (ii) all Proprietary Marks; (iii) all Confidential
Information; and (iv) all other information, materials, and copyrightable or patentable subject matter
developed, acquired, licensed, or used by Franchisor or any of its Affiliates in the operation of the Hotel
or in the System.
“Interest” means the lesser of eighteen percent (18%) per annum or the maximum interest rate
permitted by law.
“Interestholders” means, with respect to any Person, any Person that directly or indirectly holds
an Ownership Interest in that Person.
“Inventories” means “Inventories” as defined in the Uniform System, including: (i) provisions in
storerooms, refrigerators, pantries, and kitchens; (ii) beverages in wine cellars and bars; (iii) other
merchandise intended for sale; (iv) fuel; (v) mechanical supplies; (vi) stationery; and (vii) other expensed
supplies and similar items.
“Local Advertising Programs” means local advertising, marketing, promotional, sales and public
relations programs and activities for the Hotel, and Marketing Materials used in connection therewith.
“Management Company” has the meaning stated in Section 9.4.A.
“Management Company Acknowledgment” means an acknowledgment signed by the
Management Company, Franchisee and Franchisor, substantially in the form of Exhibit C to this
Agreement.
“Marketing Fund Activities” means: (i) the creation, production, and administration of Marketing
Materials; (ii) the purchase of advertising space in magazines, newspapers, and similar printed media or
on the Internet or other electronic medium; (iii) the purchase of advertising on radio, television, the
Internet, and other electronic media; (iv) advertising, marketing, promotional, public relations, revenue
management and sales campaigns, programs, seminars and other activities designed to increase sales or
public awareness of the System, including publication and distribution of directories (whether off-line or
on-line), pamphlets and other forms of advertising media; (v) market research and oversight and
management of the guest satisfaction program and Frequent Traveler Programs; (vi) the retention or
employment of personnel, advertising agencies, marketing consultants, and other professionals or
specialists to assist in the development and implementation of any of the foregoing; and (vii) the
advertising, marketing, promotional, sales, and reservations activities of Franchisor and its Affiliates
throughout the world.
“Marketing Fund Fee” has the meaning given in Section 3.3.A.
“Marketing Funds” means the monies in the Marketing Fund.
“Marketing Materials” means all advertising, marketing, promotional, sales and public relations
concepts, press releases, materials, copy, concepts, plans, programs, brochures, or other information to be
released to the public, whether in digital, electronic or computerized form, or in any form of media now
or hereafter developed.
Marriott 384175v3 (03/31/2008)
5
“Marriott Agreement(s)” means, collectively, this Agreement, any other agreements executed in
connection with this Agreement, and any other agreement related to the Hotel to which Franchisee,
Guarantor or any of their respective Affiliates is a party and to which Franchisor or its Affiliates is also a
party or beneficiary, as any may be amended, modified, supplemented, or restated.
“Marriott Criteria” means those Standards that comprise the design criteria and such other
information that is necessary for planning and construction or renovation and refurbishment of a Marriott
Hotel.
“Marriott Hotel” means a full-service hotel operated by Franchisor, an Affiliate of Franchisor, or
a franchisee or licensee of Franchisor or its Affiliates under the trade name Marriott Hotel, Marriott
Resort, or Marriott Suites Hotel, and does not include any other Franchisor Lodging Facility or other
business operation.
“Opening Date” means the date identified as the Hotel opening date in the letter agreement,
issued by Franchisor in accordance with Exhibit D, which grants Franchisee approval to open and operate
the Hotel as a Marriott Hotel.
“Other Mark(s)” means any trademark, trade name, symbol, slogan, design, insignia, emblem,
device, or service mark that is not a Proprietary Mark.
“Ownership Interest” means all forms of ownership of legal entities or property, both legal and
beneficial, voting and non-voting, including stock interests, partnership interests, limited liability company
membership or ownership interests, joint tenancy interests, leasehold interests, proprietorship interests, trust
beneficiary interests, proxy interests, power-of-attorney interests, and all options, warrants, and any other
forms of interest evidencing ownership or Control.
“Passive Investor Interests” has the meaning stated in Section 17.3.
“Person” means an individual, a partnership, a corporation, a limited liability company, a
government, or any department or agency thereof, a trustee, a trust, an unincorporated organization, or
any other entity of any kind.
“PIP” has the meaning stated in Section 17.2.A(1)(d).
“Property System” means all property systems (including all Software, Hardware and electronic
access related thereto) designated by Franchisor for use by Marriott Hotels in the front office, back-ofthe-house, or other operations of Marriott Hotels.
“Property System Fee” means the fee Franchisee must pay as required by Franchisor representing
the Hotel’s share of the costs and expenses of the Property System, including development and
incremental operating costs, ongoing maintenance, field support costs, and a reasonable return on capital.
“Proprietary Marks” means the word “Marriott” in any form, the “Marriott” logo, and all other
trademarks, trade names, trade dress, words, symbols, logos, slogans, designs, insignia, emblems, devices,
service marks, and indicia of origin (including restaurant names, lounge names, or other outlet names), or
combinations thereof, that are registered by Franchisor or any of its Affiliates, or are used to identify or
are otherwise associated by virtue of usage with Marriott Hotels, all as may be changed, deleted, added to
or otherwise modified by Franchisor or its Affiliates in their sole discretion. The term applies whether the
Proprietary Marks are owned currently by Franchisor or any of its Affiliates, or are later developed or
acquired, and whether or not they are registered in any state, foreign country or in the United States Patent
and Trademark Office.
Marriott 384175v3 (03/31/2008)
6
“Prospectus” means any registration statement, solicitation, prospectus (preliminary or
otherwise), memorandum, offering document, or similar documentation for the sale or transfer of an
Ownership Interest, including any related amendments.
“Public Facilities” means any meeting rooms, conference rooms, convention or banquet facilities,
restaurants, bars, lounges, and all other similar public facilities.
“Quality Assurance Program” means the quality assurance program which Franchisor uses to
monitor guest satisfaction and the operations, facilities and services at Marriott Hotels.
“Reasonable Business Judgment” has the meaning stated in Section 23.1.
“Reservation System” means any reservation system designated by Franchisor for Marriott Hotels
(including all Software, Hardware and electronic access related thereto).
“Reservation System Fee” means the fee Franchisee must pay to Franchisor representing the
Hotel’s share of the costs and expenses of the Reservation System, including development and
incremental operating costs, ongoing maintenance, field support costs, and a reasonable return on capital.
“Reservation Transaction” means a reservation, reservation change, cancellation, or other change
in the inventory maintained for a Marriott Hotel in the Reservation System.
“Reserve” means the reserve account established by Franchisee meeting the requirements of
Section 11.2.A.
[“Restricted Territory” has the meaning stated in Section 2.3.]
“Soft Goods” means textile, fabric and vinyl and similar products used in finishing and
decorating the Hotel, its Guest Rooms, corridors and Public Facilities, such as vinyl wall and floor
coverings, drapes, sheers, cornice coverings, carpeting, bedspreads, lamps, lamp shades, artwork, task
chairs, upholstery and all other unspecified items of the same class.
“Software” means all computer software and accompanying documentation (including all future
enhancements, upgrades, additions, substitutions, and other modifications) provided to Franchisee by or
through Franchisor and/or third parties designated by Franchisor or its Affiliates required for the
operation of and connection to the applicable Electronic System (e.g., Property System, Reservation
System, Yield Management System).
“Special Circumstances” has the meaning stated in Section 19.3.B.
“Special Circumstances Liquidated Damages” has the meaning stated in Section 19.3.B.
“Specially Designated National or Blocked Person” means: (i) a Person designated by the U.S.
Department of Treasury’s Office of Foreign Assets Control from time to time as a “specially designated
national or blocked person” or similar status; (ii) a Person described in Section 1 of U.S. Executive Order
13224, issued on September 23, 2001; or (iii) a Person otherwise identified by government or legal
authority as a Person with whom Franchisor, or any of its Affiliates, are prohibited from transacting
business. As of the Effective Date, a list of such designations and the text of the Executive Order are
published under the internet website address www.ustreas.gov/offices/enforcement/ofac.
“Special Marketing Programs” means advertising, marketing, promotional, public relations, and
sales programs and activities that are not designated by Franchisor as Marketing Fund Activities.
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“Standards” means Franchisor’s operating rules, manuals, standard operating and other
procedures, systems, guides, programs (including the Quality Assurance Program), requirements,
directives, standards, specifications, design criteria, and such other information, initiatives and controls
that are necessary for planning, designing, constructing, renovating, refurbishing, and operating Marriott
Hotels (including the “Marriott Criteria”), as such may be modified, amended or supplemented by
Franchisor or its Affiliates (and which may, with Franchisor’s prior approval, take into account specific
characteristics and conditions of the local market). The Standards may be in paper or in electronic form.
“System” means the Standards, Intellectual Property and other distinctive, distinguishing
elements or characteristics that Franchisor or its Affiliates have developed, designated or authorized for
the operation of Marriott Hotels in the United States of America and Canada, including: the Reservation
System, the Property System, the Yield Management System, the Electronic Systems, the Software, the
Frequent Traveler Program(s), the Marketing Fund Activities, Special Marketing Programs, Training
Programs, and other advertising programs and training.
“Taxes” means all taxes (including any sales, gross receipts, value-added or goods and services
taxes), levies, charges, impositions, stamp or other duties, fees, deductions, withholdings or other
payments levied or assessed by any competent governmental authority, including by any federal, national,
state, provincial, local, or other tax authority.
“Term” has the meaning stated in Section 4.1.
“Term Expiration Date” has the meaning stated in Section 21.2.
“Transfer” means any sale, conveyance, assignment, exchange, pledge, encumbrance, lease or
other transfer or disposition, directly or indirectly, voluntarily or involuntarily, absolutely or
conditionally, by operation of law or otherwise.
“Transfer Fee” has the meaning stated in Section 17.2.A(1)(c).
“Travel Expenses” means all travel, food and lodging, living, and other out-of-pocket costs and
expenses.
“Uniform System” means the Uniform System of Accounts for the Lodging Industry, Tenth
Revised Edition, 2006, as published by the Educational Institute of the American Hotel & Lodging
Association, or any later edition, revision or replacement that Franchisor approves or designates.
“Yield Management System” means any yield management system (including all Software,
Hardware and electronic access related thereto) designated or required by Franchisor for use by Marriott
Hotels. The Yield Management System may be part of the Property System.
“Yield Management System Fee” means the fee Franchisee must pay to Franchisor representing
the Hotel’s share of costs and expenses of the Yield Management System, including development and
incremental operating costs, ongoing maintenance, field support costs, and a reasonable return on capital.
2.
LICENSE
2.1
Limited Grant.
Upon the terms of this Agreement, Franchisor hereby grants to Franchisee a limited, nonexclusive license to use the Proprietary Marks and the System and the right to operate the Hotel as a
Marriott Hotel solely at the Approved Location. Franchisee agrees: (i) to operate the Hotel as a Marriott
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8
Hotel in accordance with the System and this Agreement only as and when authorized by Franchisor; and
(ii) to identify or name the Hotel only in accordance with the Standards.
2.2
Franchisor’s Reserved Rights.
A.
Franchisee agrees that [except as set forth below at Section 2.3]: (i) Franchisor
and its Affiliates retain the right to develop, promote, construct, own, lease, acquire and/or operate, or
authorize or otherwise license or franchise to other Persons the right to develop, promote, construct, own,
lease, acquire and/or operate: (a) Franchisor Lodging Facilities; (b) restaurants; and (c) other business
operations; (ii) Franchisor or its Affiliates may exercise such right without notice to Franchisee; and
(iii) Franchisee is not entitled to any protected territory, territorial rights or exclusivity. Franchisee
covenants that it will not do anything that may interfere with the exercise of such right by Franchisor or
any of its Affiliates.
B.
Nothing in this Agreement will prevent Franchisor from allowing other
Franchisor Lodging Facilities operated or franchised by Franchisor or its Affiliates to use various
components of the System, including the Reservation System. Franchisor and its Affiliates also have the
right to enter into affiliation agreements with other hotels to permit Frequent Traveler Program members
(or members of similar guest recognition programs) to redeem awards for stays at such hotels.
2.3
Territory.
Neither Franchisor nor its Affiliates will open to the public for business or authorize any
other Person to open to the public for business a Marriott Hotel for a period of _________ (___) years
after the Opening Date of the Hotel, but not to extend beyond ____________, within the following area:
__________ (“Restricted Territory”). Franchisee acknowledges that Franchisor and its Affiliates reserve
the right to develop, promote, construct, own, lease, acquire, open for business and/or operate, or
authorize or otherwise license or franchise others to develop, promote, construct, own, lease, acquire,
open for business and/or operate, JW Marriott Hotels and Resorts, JW Marriott Residences, Marriott
Marquis Hotels and Marriott Marquis Residences in the Restricted Territory. The Restricted Territory is
the highlighted bordered area as approximately set forth on the map attached hereto at Exhibit G. For
purposes of delineating the boundary of any of the roads, highways, rivers or lakes described above, such
boundary will be the centerline or approximate center thereof and will be determined as of the Effective
Date of this Agreement. Should a conflict exist between the map and the narrative description stated
above, the narrative will control. The restrictions set forth in this Section 2.3 will not apply to (i) any
Marriott Hotel existing or under development as of the Effective Date within the Restricted Territory;
(ii) any hotel or hotels that are members of a chain of hotels (provided that such chain has a minimum of
four (4) or more hotels in operation), all or substantially all (but in no event less than three (3) hotels) of
which is acquired by, or merged with, or franchised by or joined through marketing agreement with,
Franchisor or one of its Affiliates (or the operation of which is transferred to Franchisor or one of its
Affiliates); (iii) any hotel or hotels that are members of a group of hotels that is (in a single transaction, or
combination of related transactions, with a single seller or transferor) acquired by, or merged with, or
franchised by or joined through marketing agreement with, Franchisor or one of its Affiliates, or the
operation of which is transferred to Franchisor or one of its Affiliates, provided that such group of hotels
contains no fewer than three (3) hotels; (iv) any other Franchisor Lodging Facility that is not included
within the System; or (v) if any existing hotel described in (i) above ceases to operate as a Marriott Hotel,
then for each such hotel (if any), an additional hotel that may operate as a Marriott Hotel.
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3.
FEES
3.1
Initial Fee.
Before or contemporaneously with the execution of this Agreement, Franchisee has paid
to Franchisor the Initial Fee. The Initial Fee was earned by Franchisor upon Franchisor’s conditional
approval of Franchisee’s application and is non-refundable. [Confirm receipt of payment before
execution.]
3.2
Franchise Fees.
Franchisee must pay to Franchisor (i) an amount equal to six percent (6%) of Gross
Room Sales during each Accounting Period and (ii) an amount equal to three percent (3%) of Gross Food
and Beverage Sales during each Accounting Period (collectively, the “Franchise Fees”). Franchisee must
not discount or sacrifice Gross Room Sales or Gross Food and Beverage Sales (by methods including the
offering of complimentary or reduced-price rooms or food and beverage) in order to further any other
business at or outside of the Hotel. Gross Room Sales and Gross Food and Beverage Sales must be
accounted for on an accrual basis and, except to the extent inconsistent with the definitions of such terms
under this Agreement, in accordance with the Uniform System. Gross Room Sales also will include any
“resort fee” or similar fee or surcharge that Franchisee charges at the Hotel (although receipt of Franchise
Fees by Franchisor does not constitute approval by Franchisor of such charges, which may be limited or
prohibited by Franchisor).
3.3
Marketing Fund Fees; Special Marketing Program Fees.
A.
Franchisee must pay to Franchisor a fee (the “Marketing Fund Fee”) as the
Hotel’s contribution for Marketing Fund Activities. The Marketing Fund Fee is currently one percent
(1%) of Gross Room Sales for the preceding Accounting Period. All sums Franchisor receives under
Section 3.3.A will be used as described in Section 7.3. Franchisor may modify the Marketing Fund Fee
to reflect the following, as determined by Franchisor, in its sole discretion: (i) any increase or decrease in
the cost of providing, or the scope of, Marketing Fund Activities; (ii) any change in the method used to
allocate the cost of Marketing Fund Activities; or (iii) any change in the competitive needs of the System.
Franchisee agrees to be bound by any such increase or decrease.
B.
In addition to payment of the Marketing Fund Fee, Franchisee must pay to
Franchisor the Hotel’s share, as determined by Franchisor, of the cost of every Special Marketing
Program as described in Section 7.4.
C.
Additionally, Franchisor may request that Franchisee participate in cooperative
advertising, marketing, sales, customer satisfaction, travel agency and other programs or activities among
Marriott Hotels. These programs may be local, regional, or based on the market orientation of Marriott
Hotels, and they may include participation by Franchisor Lodging Facilities. Franchisee will participate
in such programs and activities upon Franchisor’s request, and Franchisee will pay for such programs on
the same basis as paid by other participating Marriott Hotels.
3.4
Electronic Systems Fees.
A.
Franchisee must pay to Franchisor the fees for any Electronic Systems provided
to Franchisee for use at the Hotel (including the Reservation System Fee, the Property System Fee and the
Yield Management System Fee) and any fee for any other system established under Section 8.3 or 12.2.
B.
Franchisor reserves the right to change the basis of the allocation of the fees for
any Electronic Systems (including the Reservation System Fee, the Property System Fee and the Yield
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10
Management System Fee), or any fee for any other system established under Section 8.3 or 12.2 to reflect
the following, as determined by Franchisor: (i) any increase or decrease in the costs and expenses of
providing the applicable system to the Hotel; or (ii) any change in the method Franchisor uses to
determine the applicable system payment, including the right to change the basis for charging for such
fee, so long as the charges for these fees are computed on a fair and consistent basis among similarly
situated Marriott Hotels receiving the services or utilizing the systems at the time such services and
systems are utilized.
3.5
Other Charges.
Franchisee must pay to Franchisor or its Affiliates an amount specified by Franchisor to
pay for (i) any training or orientation (including tuition, supplies, and Travel Expenses) conducted by
Franchisor, (ii) purchasing, staging, programming, installing and interfacing and upgrading of Hardware
and Software for any Electronic Systems, and (iii) any goods or services purchased, leased or licensed by
Franchisee from Franchisor or an Affiliate of Franchisor and any optional or mandatory programs of
Franchisor or its Affiliates in which Franchisee participates. Franchisee may acquire from a third
party(ies) some of the Hardware and Software, and to the extent Franchisee does so, the cost of such
acquisition will not be included in the amount payable to Franchisor.
3.6
Travel Expenses and Reimbursement.
Franchisee must pay to Franchisor all Travel Expenses for: (i) individuals designated by
Franchisor to provide services in accordance with Exhibit D or training or services pursuant to Section
3.5, 10.1.A or 10.1.D; and (ii) Franchisor’s and its Affiliates’ corporate and regional representatives
visiting the Hotel on specific Hotel business. In addition to such Travel Expenses, Franchisee must
reimburse Franchisor, or such other Person designated by Franchisor, for the salary and other
compensation of any individuals providing services to the Hotel, including training.
3.7
Marriott Agreement Payments.
Franchisee must pay any other amounts due to Franchisor or its Affiliates under any
Marriott Agreement or other agreement or debt instrument between Franchisee and Franchisor or its
Affiliates.
3.8
Making of Payments and Performance of Services.
All payments required by Sections 3.2 and 3.3 will be made for each Accounting Period
within twenty (20) days after the end of each Accounting Period. All other payments required by this
Agreement will be made within fifteen (15) days after receipt by Franchisee of each statement for such
payment. Payments due to Franchisor or its Affiliates will be paid by wire transfer of immediately
available funds or such other method as Franchisor approves to the accounts designated by Franchisor.
Franchisor has the right to have any service or obligation of Franchisor under this Agreement be
performed by an Affiliate of Franchisor and Franchisee agrees to accept performance by such Affiliate.
Franchisor also has the right to designate that payment be made to one of its Affiliates instead of
Franchisor, and Franchisee must make such payments as designated.
3.9
Interest on Late Payments.
If any payment by Franchisee to Franchisor under this Agreement is not received on or
before its due date, such payment will be deemed overdue, and Franchisee must pay to Franchisor, in
addition to the overdue amount, Interest on such overdue amount from the date it was due until paid.
Franchisor’s entitlement to Interest will be in addition to any other remedies Franchisor may have.
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3.10
Taxes.
A.
Franchisee must promptly pay when due all Taxes levied or assessed by any Tax
authority relating to the Hotel, Franchisee, this Agreement, any other Marriott Agreement or in
connection with operating the Hotel.
B.
Franchisee is responsible for payment of all Taxes, if any, levied on or deducted
from any amounts payable to Franchisor or its Affiliates under this Agreement or any of the other
Marriott Agreements. The amount of such Taxes must be paid by Franchisee to Franchisor or such
Affiliate together with the payment to which it relates or as otherwise required by Applicable Law so that
the amount actually received by Franchisor or such Affiliate in respect of such payment (after payment of
such Taxes) equals the full amount stated to be payable in respect of such payment. To the extent any
Applicable Law requires or allows any such deduction, payment or withholding to be paid by Franchisee
directly to a governmental authority Franchisee must account for and pay such amounts promptly and
provide to Franchisor receipts or other proof of such payment promptly upon receipt.
C.
If there is a bona fide Dispute by Franchisee as to liability for Taxes, Franchisee
may contest the validity of the amount of the Tax in accordance with the procedures of Applicable Law,
provided that Franchisee will not permit a Tax sale or seizure by levy of execution or similar writ or
warrant, or attachment by creditor, to occur against any part of the Hotel. If such Dispute involves
payments of Taxes that must be withheld, deducted and paid by Franchisee related to payments to
Franchisor as described in Sections 3.10.A and 3.10.B, Franchisee must pay such Taxes and submit to the
withholding authority for reimbursement in connection with such Dispute, and Franchisee will be
responsible for any interest or penalties assessed in connection with any delayed or non-payment.
4.
TERM
4.1
Term.
The term of this Agreement will be for a period beginning on the Effective Date and
ending on the twentieth (20th) anniversary of the Opening Date (the “Term”).
4.2
Not Renewable.
This Agreement and the rights granted by this Agreement are not renewable and
Franchisee has no expectation of any right to extend the Term.
5.
DESIGN, FINANCING, CONSTRUCTION, AND RENOVATION
5.1
Size.
A.
The Hotel will consist of the number of Guest Rooms stated in Exhibit A or such
other number approved by Franchisor in writing. Franchisee must not expand the Hotel or change the
number of Guest Rooms or the Public Facilities without the prior consent of Franchisor.
B.
Franchisee may construct additional Guest Rooms at the Hotel, but only with
Franchisor’s prior approval and in compliance with Section 6. If Franchisor approves the proposed
addition, Franchisee must pay Franchisor, within fifteen (15) days after receiving notice of approval, a fee
equal to the per-room charge used in calculating the application fee for newly developed Marriott Hotels,
as specified in the then-current Marriott Hotel Franchise Disclosure Document, multiplied by the number
of such additional Guest Rooms.
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5.2
Financing of the Hotel.
Franchisee and Interestholders in Franchisee must not incur or replace any indebtedness
that is secured by a lien on or mortgage of the Hotel or pledge of Ownership Interests in Franchisee
(whether such indebtedness is incurred (i) individually on behalf of the Hotel or (ii) on a pooled basis
with other hotels or legal entities (a “Financed Pool”)) unless the following conditions are met: (1) the
terms of such indebtedness are commercially reasonable; (2) the maximum loan amount is not more than
seventy-five percent (75%) of the appraised value of the Hotel (or hotels, including the Hotel, that are part
of the Financed Pool); (3) if such indebtedness is incurred or replaced on or after the third (3rd)
anniversary of the Opening Date, the debt coverage ratio is equal to or greater than 1.4; and (4) the lender
is not a Competitor or an Affiliate of a Competitor. The debt coverage ratio is the ratio of: (a) cash
available for the payment of any debt service payments (interest and principal) from Gross Revenues
(after deduction for any management fee and the Reserve) of the Hotel (or hotels, including the Hotel,
that are part of the Financed Pool) for the twelve (12) months immediately preceding the written
commitment for such indebtedness, to (b) the amount of such annual debt service payments. Franchisee
will give notice to Franchisor of the component hotels and legal entities in a Financed Pool before
incurring such indebtedness.
5.3
Construction/Conversion/Renovation of the Hotel.
Franchisee, at its expense, must start and complete in a timely fashion and to Franchisor’s
satisfaction the construction, conversion or renovation, as the case may be, of the Hotel in accordance
with (i) Exhibit D, and (ii) the Standards.
6.
SOURCING AND DESIGN APPROVALS
6.1
Furniture, Fixtures, Equipment, Supplies, and Signage.
A.
Franchisee must use only such signs, FF&E, Inventories and Fixed Asset
Supplies that conform to the Standards and are purchased from a supplier or manufacturer designated as
“approved” by Franchisor (or as approved in accordance with Section 6.1.B). Franchisor may designate
approved suppliers, including Franchisor or any of its Affiliates, as the only approved supplier for certain
items. Before seeking approval from Franchisor to purchase FF&E to be used in constructing or
renovating the Hotel guest rooms, Franchisee will prepare models of the basic types of rooms
(double/double, king and/or single), furnish the same with the proposed FF&E, and provide Franchisor an
opportunity to inspect the model rooms to determine whether such proposed FF&E satisfies the
Standards. Before seeking approval from Franchisor to purchase FF&E to be used in constructing or
renovating the Public Facilities, Franchisee will prepare detailed drawings of the layout of the Public
Facilities and “color boards” with samples and specifications for Public Facilities FF&E, and provide
Franchisor an opportunity to review and inspect the same to determine whether such proposed FF&E
satisfies the Standards.
B.
The requirements of this Section 6.1 are to insure that items used at Marriott
Hotels will be uniform and of high quality to maintain the identity, integrity and reputation of the System.
If Franchisee proposes to purchase or lease any signs, FF&E, Inventories, Fixed Asset Supplies or other
items not previously approved by Franchisor as meeting the Standards, or from a supplier or manufacturer
that Franchisor has not previously approved, Franchisee and such supplier or manufacturer will submit to
Franchisor, at no cost to Franchisor, sufficient specifications and other information and samples for
Franchisor to determine whether such items meet the Standards. Franchisor may require payment of an
amount not to exceed the cost of such inspection, and Franchisor will not be liable for damage to any
sample. Franchisor may require such supplier or manufacturer to demonstrate to Franchisor’s satisfaction
that such supplier and/or manufacturer: (i) can manufacture such products to specifications that meet the
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Standards; (ii) can deliver them in a timely manner and in sufficient quantities to meet the needs of the
Hotel; and (iii) has insurance protecting Franchisor and its Affiliates against any relevant claims. If the
proposed arrangement involves the supplying or manufacturing of products utilizing Franchisor’s
Intellectual Property, Franchisor may also require the supplier or manufacturer to: (a) enter into a written
agreement with Franchisor concerning the use of Franchisor’s Intellectual Property on terms acceptable to
Franchisor; and (b) demonstrate to Franchisor’s satisfaction that it can comply with the terms of such
agreement. Franchisor may revoke its approval as to future purchases if the supplier or manufacturer at
any time after such approval fails to meet the requirements of this Section 6.1 or the Standards.
6.2
Design Approval.
A.
If Franchisee elects or is required by this Agreement (including, under
Section 11.1) to perform construction work or significant renovations or refurbishment of the Hotel
affecting the design, character, or appearance of the Hotel, Franchisee will obtain the prior approval of
Franchisor that any such construction work or significant renovations or refurbishment complies with the
Standards and the requirements set forth in this Section 6. Before commencing such construction,
renovation, or refurbishment, Franchisee will engage a qualified designer and other qualified consultants
and cause them to prepare and submit to Franchisor for its approval complete design drawings and
specifications based on the Standards. If such drawings and specifications are not approved by
Franchisor, Franchisor will provide recommendations to Franchisee related to the Standards that
Franchisee must incorporate into such drawings and specifications. Once approved, no changes will be
made to any design drawings or specifications previously approved by Franchisor without Franchisee resubmitting such changes to Franchisor for its approval.
B.
Franchisee agrees that Franchisee, and not Franchisor or its Affiliates, is
responsible for: (i) ensuring that any design, working drawings, specifications, and any construction,
renovation, or refurbishment complies with any Applicable Law, including any requirements relating to
disabled persons; (ii) any errors or omissions; or (iii) discrepancies (of any nature) in any drawings or
specifications. Franchisor’s review and approval under this Section 6.2 is limited solely to confirming
Franchisee’s compliance with the Standards. Except for Franchisee’s own uses related to its construction
or operation of the Hotel, Franchisee will not reproduce, use or permit the use of any of the design
concepts, drawings, or Standards without the prior approval of Franchisor.
7.
LOCAL ADVERTISING AND MARKETING, PRICING, AND MARKETING FUND
ACTIVITIES
7.1
Franchisee’s Local Advertising and Marketing Programs and Press Releases.
A.
Franchisee will undertake Local Advertising Programs which will be (i) at
Franchisee’s expense, (ii) conducted to the extent that Franchisee deems necessary, and (iii) in accordance
with the Standards.
B.
Franchisee will prominently use and display in, upon and in connection with the
Hotel: (i) signs and other Marketing Materials and the Proprietary Marks only in the combination,
arrangement, and manner approved or required by Franchisor and in accordance with the Standards; and
(ii) such other trade names, trademarks, logos, and designs as may be provided, approved, or required by
Franchisor. All signs and Marketing Materials must comply with Applicable Law. Franchisee must not
display in or on the Hotel premises or elsewhere, any sign or Marketing Materials of any kind that does
not comply with the Standards or that Franchisor has not approved or to which Franchisor objects.
Franchisee must submit samples of Marketing Materials not provided by Franchisor or its Affiliates and
obtain prior approval from Franchisor before any public use of such Marketing Materials. If Franchisor,
subsequent to its approval of Marketing Materials or Local Advertising Programs, withdraws its approval,
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Franchisee must immediately cease the use, distribution, and dissemination thereof. Any Marketing
Materials developed by Franchisee may be used by other Franchisor Lodging Facilities without
compensation to Franchisee.
7.2
Reservations, Pricing, and Rates.
A.
Franchisee must provide its prices and rates for use in the Reservation System as
requested by Franchisor or in accordance with the Standards. Franchisee must: (i) honor any prices,
rates, or discounts that appear in the Reservation System, or any other publication, system, program, or
promotion (written or electronic); (ii) honor all reservations made through the Reservation System or that
are otherwise confirmed; and (iii) not charge any Hotel guest a rate higher than the rate specified at the
time that the Hotel guest’s reservation was made, according to the records of the Reservation System or,
if not made through the Reservation System, the record of the reservation. Franchisee will also honor all
other contracts or pricing and terms for meeting rooms or any other activity or service at or in connection
with the Hotel.
B.
Franchisee is responsible for setting its own prices and rates and determining any
prices or rates for the Hotel that appear in the Reservation System or any other publication or system
(written or electronic) that lists any prices or rates for the Hotel. Franchisor, however, may: (i) prohibit
certain types of charges or billing practices that Franchisor determines are misleading or otherwise
detrimental to the System, including price-gouging or incremental fees for services that guests would
normally expect to be included in the room charge; (ii) require that Franchisee price consistently in
various distribution channels; or (iii) impose other pricing requirements permitted or required by
Applicable Law.
C.
Franchisor may recommend or suggest prices or rates for the products and
services offered by Franchisee or require participation in various sales or revenue management programs
or promotions offered by Franchisor and its Affiliates. Franchisor’s recommendations or suggestions are
not a representation or warranty by Franchisor that the use of such suggested or recommended prices or
rates will produce, increase, or optimize Franchisee’s profits and Franchisor will not be liable for any
recommendations or suggestions. This provision expressly includes any prices or rates for any bookings
made by or for Franchisee in connection with any sales activity or program of Franchisor or its Affiliates
in which Franchisee participates.
7.3
Marketing Fund Activities.
A.
Franchisor and its Affiliates and any of their designees will direct the Marketing
Fund Activities using Marketing Funds, including the placement and allocation thereof. Upon the request
of Franchisee, Franchisor will provide to Franchisee an accounting of the uses of such Marketing Funds
in any fiscal year of Franchisor if such request is made no earlier than ninety (90) days and no later than
one hundred eighty (180) days after the end of such fiscal year. Marketing Fund Activities are intended
to promote general public recognition and acceptance of the Marriott Hotel brand and use of the System,
and Franchisor, its Affiliates and their designees are not obligated to make expenditures for the Hotel on a
basis equivalent or proportionate to the Hotel’s Marketing Fund Fees or to ensure that any particular
Marriott Hotel benefits directly or proportionately from Marketing Fund Activities or expenditures.
Marketing Fund Activities may not necessarily include all of the Marriott Hotels and some Marketing
Fund Activities may benefit other Franchisor Lodging Facilities in addition to Marriott Hotels.
B.
Franchisor reserves the right to: (i) modify or reconstitute the local, regional,
national or international scope of the Marketing Fund Activities; and (ii) terminate the Marketing Fund
Activities and establish methods of funding Marketing Fund Activities other than payment of the
Marketing Fund Fee.
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C.
Franchisor and its Affiliates do not hold Marketing Funds as a trustee or as a trust
fund, and Franchisor and its Affiliates have no fiduciary duty to Franchisee with regard to the
administration, use, or expenditure of Marketing Funds. Marketing Funds may be commingled with other
money of Franchisor and its Affiliates and used to pay: (i) all costs associated with developing, preparing,
producing, directing, administering, researching, conducting, and disseminating Marketing Fund
Activities, as well as the administrative costs and overhead incurred by Franchisor, or any of its Affiliates,
with respect to the foregoing (including the cost of salaries and overhead for Franchisor’s and its
Affiliates’ personnel involved in Marketing Fund Activities); and (ii) the cost of collecting and
accounting for the Marketing Funds. Franchisor or its Affiliates may (but shall not be obligated to) (i)
loan money to be used for Marketing Fund Activities and Franchisor reserves the right to charge interest
at then-current market rates with respect to such loans, and (ii) use Marketing Funds to repay any such
loan plus interest.
D.
When Marketing Materials are produced using Marketing Funds, all Marriott
Hotels will receive a portion of such materials in quantities determined by Franchisor. If Franchisee
requests any Marketing Materials in excess of such portion allocated to Franchisee, Franchisor may
require Franchisee to pay for the costs of such additional Marketing Materials.
7.4
Special Marketing Programs.
Franchisor and its Affiliates may establish, coordinate, affiliate with, and require
Franchisee’s participation in Special Marketing Programs. Special Marketing Programs may include and
may apply on a regional, national, or Category basis, or involve clusters or groups of Franchisor Lodging
Facilities utilizing services on a shared basis. Special Marketing Programs currently include, but are not
limited to, short term programs, events and Frequent Traveler Programs. Special Marketing Programs
have a cost to Franchisee that is in addition to the Marketing Fund Fees. If Franchisor designates a
Special Marketing Program as mandatory, or if Franchisee elects to participate in a Special Marketing
Program, Franchisee must pay a fee for participation required by Franchisor, which fee will be computed
on a fair and consistent basis among similarly situated participants.
8.
PROPERTY SYSTEM, RESERVATION SYSTEM, AND OTHER ELECTRONIC
SYSTEMS
8.1
Systems Installation.
Franchisee must, at its expense, purchase or lease, install, maintain, and use at the Hotel
all Electronic Systems necessary for the proper and efficient utilization and operation of such systems in
accordance with specifications provided by Franchisor.
8.2
Reservation System.
Franchisor will make the Reservation System available to the Hotel, provided if
Franchisee is in breach of this Agreement and if such breach is not cured within the time period required
for cure of such breach under this Agreement, Franchisor may, in addition to any other remedies it may
have, suspend the Hotel from using the Reservation System for so long as such breach remains uncured.
Franchisee waives all claims against Franchisor and its Affiliates arising from Franchisee’s suspension
from the Reservation System under this Section 8.2, other than claims that Franchisee is not in breach of
this Agreement. Franchisee will cause the Hotel to participate in the Reservation System, will use the
Reservation System only for the benefit of the Hotel, and will comply with all Standards related to
participation.
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8.3
Optional System(s).
Franchisor may provide to Franchisee the specifications for the Electronic Systems for
optional systems. If Franchisor makes available optional system(s) and Franchisee elects to use such
system(s), Franchisee must, at its expense, purchase or lease, install, maintain, and use at the Hotel all
Electronic Systems necessary for the proper and efficient utilization and operation of such system(s) and
pay any fees associated therewith pursuant to Section 3.4.
8.4
System Communication Costs.
As part of the Property System, Reservations System, Yield Management System and
other systems, Franchisee will: (i) at its cost and expense, use the communication system (such as
telephone or Internet systems) as specified or otherwise approved by Franchisor for Marriott Hotels; and
(ii) be responsible for and pay: (a) charges for any communication system (such as telephone or Internet
lines) that connects Franchisee’s equipment to the Property System, Reservation System, Yield
Management System or other systems; (b) the cost of supplies used in the operation of such equipment;
and (c) all other related expenses.
8.5
Electronic Systems Provided Under License.
The Electronic Systems will remain the sole property of Franchisor or any third party
vendors, as applicable. Franchisee will at all times treat the Electronic Systems as confidential. As a
condition to using the Electronic Systems, Franchisee must execute the Electronic Systems License
Agreement. Franchisee acknowledges that the Electronic Systems will be modified, enhanced, replaced,
or become obsolete, and that new Electronic Systems will be created to meet the needs of the System and
Marriott Hotels and the continual changes in technology and that any such new Electronic Systems will
be subject to the terms of the Electronic Systems License Agreement. If from time to time Franchisor
determines that it is advisable or necessary to amend or replace the Electronic Systems License
Agreement as a result of the creation, modification, enhancement, replacement or obsolescence of any
Electronic Systems, Franchisee, upon the request of Franchisor, will execute the then-current form of
Electronic Systems License Agreement or an amendment to the Electronic Systems License Agreement.
9.
OPERATIONS
9.1
Operating the Hotel.
Franchisee will operate the Hotel using the System, in compliance with the Standards,
and in such a manner as to provide courteous, uniform, respectable, and high quality lodging, food and
beverage, and other services and conveniences to the public. Franchisee will maintain a high moral and
ethical standard and atmosphere at the Hotel. Franchisee will:
A.
permit the duly authorized representatives of Franchisor to: (i) enter
Franchisee’s facilities and inspect same at all reasonable times to confirm that Franchisee is complying
with the terms of this Agreement and the Standards; and (ii) test any and all equipment, food products,
and supplies located at the Hotel. Franchisee may be required to pay any costs related to such inspections
and provide free lodging to any such inspector or inspectors on official duty for such time as may be
reasonably necessary;
B.
not knowingly permit gambling to take place at the Hotel (except for a
limited number of reputable charitable events permitted by law) or use the Hotel for any casino, lottery, or
other type of gaming activities;
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C.
not sell, display or use in the Hotel any vending machines, honor bars (in
Guest Rooms), entertainment devices, or similar products that have not been previously approved by
Franchisor;
D.
fully participate in all guest complaint resolution programs specified by
Franchisor; and
E.
except as otherwise set forth herein, make when due all payments in
accordance with the terms of all contracts, agreements, and invoices, except for payments that are
disputed by Franchisee in good faith.
9.2
System Promotion and Diversion to Other Businesses.
A.
Franchisee must use all reasonable means to encourage and promote the use of
Marriott Hotels everywhere. If Franchisee receives a request for reservations or hotel services or
accommodations or use of Public Facilities in any area where a Marriott Hotel or other suitable
Franchisor Lodging Facility is located, Franchisee must promptly refer such request to Franchisor or such
Franchisor Lodging Facility as set forth in the Standards. Franchisee will not, without obtaining
Franchisor’s prior consent, associate or affiliate with any other hotel business organization that requires
Franchisee to refer business to other members of that organization. Unless Franchisee obtains
Franchisor’s prior approval, which approval may be withheld in Franchisor’s sole discretion, Franchisee
will ensure that no part of the Hotel or the System is used for or to further or promote or divert business
to:
(1)
any lodging business (including any other hotel operated by Franchisee
or its Affiliates or in which Franchisee, its Affiliates or a principal of Franchisee or its Affiliates owns or
holds an Ownership Interest) not operated under a trade name or trademark owned by Franchisor or any
of its Affiliates, including advertising or promotion of hotels, vacation or time-sharing facilities (or any
similar product sold on a fractional or other basis with use rights on a weekly or other periodic basis),
conference centers, or other lodging products; or
(2)
except as expressly permitted by the Standards or by Franchisor, any
other business or concession, it being acknowledged that any such permitted business must comply with
Section 13.3 with respect to Other Marks.
B.
Franchisee will, and will cause its Affiliates and their respective Interestholders
to, promptly notify Franchisor if they intend to acquire, directly or indirectly, any Ownership Interest in,
or in any manner be connected or associated with, any full-service hotel located within five (5) miles of
the Hotel, and will not do so, without first obtaining the consent of Franchisor, which consent will not be
unreasonably withheld.
9.3
Employees.
A.
Franchisee must employ suitable individuals as a general manager and other
managers (e.g., reservations manager, sales manager, and other department managers or persons with
different titles but similar duties to the foregoing) and qualified personnel sufficient to staff all positions
at the Hotel as required by the Standards or Franchisor. Franchisee’s general manager and other
managers will devote their full time to the management and operation of the Hotel, and such Persons will
not be employed in any other capacity by Franchisee or its Affiliates without the consent of Franchisor.
Franchisee must use its best efforts to ensure that Franchisee’s employees at all times: (i) conduct
themselves in a competent and courteous manner in accordance with the image and reputation of
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Franchisor and the System; (ii) wear uniforms designated or approved by Franchisor; and (iii) maintain a
neat and clean appearance and render competent, sober and courteous service to all Persons.
B.
Franchisee will seek Franchisor’s input regarding candidates that are being
considered for manager positions at the Hotel. After considering Franchisor’s comments, all hiring
decisions at the Hotel, except for the selection of the general manager, will be made solely by Franchisee.
Franchisee’s selection of the general manager will be subject to the prior consent of Franchisor.
Franchisor does not exercise any direction or control over the employment policies or employment
decisions of Franchisee, except for its consent to the general manager. All employees of Franchisee are
solely employees of Franchisee, not Franchisor, and Franchisee is not Franchisor’s agent for any purpose
with regard to Franchisee’s employees.
C.
Franchisee agrees that Franchisor has the right to communicate directly with the
general manager and the other managers at the Hotel regarding day-to-day operations of the Hotel, and
such communications will be deemed made to Franchisee. Franchisee authorizes Franchisor to rely on
the statements of such managers as to matters relating to the operation of the Hotel.
9.4
Management and Operation of the Hotel.
A.
Franchisor may (i) in its sole discretion in connection with the grant of the
license in this Agreement require Franchisee to retain or (ii) during the Term consent to Franchisee
retaining, a management company to control the day-to-day operations of the Hotel (“Management
Company”). The specific Person to act as Management Company must be consented to by Franchisor in
accordance with Section 9.4.B. The Hotel will at all times be operated only by the Person (Franchisee or
Management Company) identified on Exhibit A. Franchisee will at all times be responsible for
complying with its obligations regarding the management and operation of the Hotel notwithstanding the
retention of Management Company.
B.
Any Management Company retained by Franchisee under Section 9.4.A must: (i)
be qualified and consented to by Franchisor before taking over operations of the Hotel; and (ii) together
with Franchisee, execute and deliver to Franchisor a Management Company Acknowledgment.
Franchisor’s consent to the Management Company will be evidenced by its counter-execution of the
Management Company Acknowledgment. Franchisor may withhold its consent to any proposed
Management Company that, in Franchisor’s sole discretion: (a) is not financially capable or responsible;
(b) is not sufficiently experienced or qualified in managerial skills or operational capacity or capability;
(c) is otherwise unable to adhere fully to the obligations and requirements of this Agreement; or (d) does
not provide Franchisor with all information that Franchisor reasonably requests. Franchisor will have the
right, at its option, to review any management agreement between Franchisee and its proposed
Management Company for the Hotel to confirm that such management agreement is consistent with the
terms of this Agreement and the Management Company Acknowledgment. Franchisee agrees that
Franchisor will be under no obligation to consent to any proposed Management Company that is (or is an
Affiliate of any Person that is) a franchisor or owner of, is under the common control of, is affiliated with,
or manages hotels exclusively for the franchisor or owner of, a hotel trade name that is competitive with
Franchisor, irrespective of the number of hotels operating under such a trade name. If there is a change in
Control of the Management Company or if the Management Company becomes a Competitor (or an
Affiliate of a Competitor), or if there is a material adverse change to the financial status or operational
capacity of the Management Company, Franchisee will promptly notify Franchisor of any such event and
such Management Company will again be subject to Franchisor’s consent process under this
Section 9.4.B. Franchisor will have at least thirty (30) days following Franchisor’s receipt of notice and
any information Franchisor requests to review and consent to or reject any Management Company.
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C.
Franchisee agrees that Franchisor will have the right to communicate directly
with Management Company and the managers at the Hotel on matters relating to the operation of the
Hotel, and Franchisee authorizes Franchisor to rely on the communications of such managers or
Management Company as being on behalf of Franchisee.
10.
TRAINING, COUNSELING, AND ADVISORY SERVICES
10.1
Training.
A.
The Hotel must be managed by an individual or individuals who have timely and
successfully completed the training program(s) required by Franchisor. Franchisor will have the right to
require that the Hotel’s or Franchisee’s management personnel attend specific training program(s),
including before the opening or conversion of the Hotel or in connection with a change in ownership of
the Hotel. Such training courses will be conducted at such time and place as Franchisor will designate.
Franchisee will advise Franchisor of all newly hired management personnel within thirty (30) days after
they commence employment, and such personnel will attend and successfully complete such training
program(s) within the time frame Franchisor specifies.
B.
Franchisee must conduct such training for Franchisee’s employees as is required
for them to properly operate, administer and manage the Hotel in accordance with the Standards.
C.
Franchisor may offer, and Franchisee may elect to participate in, optional
training courses for personnel engaged in operating or managing Marriott Hotels.
D.
Franchisor will have the right to charge tuition, fees or reimbursements described
in Section 3.5 for all educational, training and orientation programs that Franchisor offers, which must be
paid before attending; provided, however, the tuition charge for courses conducted by Franchisor will not
be greater than the tuition charged for employees attending from Marriott Hotels operated by Franchisor.
For all programs and activities under this Section 10, whether mandatory or optional, Franchisee will be
responsible for paying all Travel Expenses, and the salary and other compensation for individuals
attending such training. Franchisor reserves the right to require Franchisee to pay and/or reimburse
Travel Expenses of the providers of such training programs and services. Franchisor reserves the right to
require that Hotel employees execute confidentiality agreements in form and substance satisfactory to
Franchisor.
10.2
Counseling and Advisory Services.
Franchisor will make its representatives available at Franchisor’s designated offices at
reasonable hours or to meet in person to consult with and advise (but not provide legal counsel or advice
to) Franchisee regarding the design, operation, and management of the Hotel as a Marriott Hotel.
Franchisee must pay the expenses of such representative while at, going to, and coming from, the Hotel,
including Travel Expenses, and salary or other compensation, in accordance with Section 3.6, unless such
representative is a member of Franchisor’s “Headquarters Division” or a member of Franchisor’s regional
team supporting the Hotel, in which case, the salary will not be payable by Franchisee.
11.
PHYSICAL FACILITIES, SUPPLIES, AND GOODS
11.1
Repairs and Maintenance.
A.
Franchisee will maintain the Hotel in good repair and condition and in
conformity with Applicable Law, and will make or cause to be made such routine maintenance, repairs,
and alterations, as Franchisee or Franchisor deems necessary to ensure compliance with the Standards.
Franchisee will not make any major repairs, alterations, renewals, replacements, or additions to the Hotel
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or carry out any material alterations to the Hotel (including the design, character, or appearance
thereof) without first obtaining the prior consent of Franchisor, unless such repairs, alterations, renewals,
replacements, or additions are required by any Applicable Law or are otherwise required for the continued
safe and orderly operation of the Hotel.
B.
Franchisee must complete a significant renovation of guest rooms, guest room
corridors and Public Facilities, including (i) replacement of Soft Goods at least every five (5) to six (6)
years after the date such Soft Goods were installed and (ii) replacement of Case Goods at least every ten
(10) to twelve (12) years after the date such Case Goods were installed; provided, however Franchisee
acknowledges that earlier or more frequent renovations or replacements may be required to maintain the
quality level of the Hotel in compliance with the Standards and to comply with the Quality Assurance
Program. In connection with any replacement required in the immediately preceding sentence, the
replacement of all Soft Goods or all Case Goods, as the case may be, will be done at the same time rather
than being done in a piecemeal fashion or in phases. If the date of installation of Soft Goods or Case
Goods cannot be demonstrated by Franchisee, Franchisor will determine the date of installation for
purposes of the first sentence of this Section 11.1.B after consultation with Franchisee.
11.2
Funding and Reserve.
A.
Franchisee or its Affiliates must fund the cost of all repairs and alterations at the
Hotel. In order to provide funds to accomplish the renovations described in 11.1.B above, and other
necessary replacements and renewals of FF&E, Franchisee will establish the Reserve, at a bank selected
by Franchisee and acceptable to Franchisor. All interest earned on funds in the Reserve will be deposited
in and credited to the Reserve in addition to the other funds already in the Reserve. The Reserve will not
be used for repairs, alterations, improvements, renewals or replacements to the Hotel building’s structure
or to its mechanical, electrical, heating, ventilating, air conditioning, plumbing or vertical transportation
systems, which structure and operating systems will be maintained in good repair and condition from
other funds.
B.
If the Hotel was an open and operating hotel on the Effective Date (whether as a
Marriott Hotel or otherwise), commencing with the Opening Date and continuing throughout the Term,
Franchisee, within fifteen (15) days after the end of each month, will transfer into the Reserve an amount
equal to five percent (5%) of Gross Revenues for such month. If the Hotel is a newly developed and
constructed hotel, commencing with the Opening Date and continuing throughout the Term, Franchisee,
within fifteen (15) days after the end of each month, will transfer into the Reserve an amount equal to the
following percentages of Gross Revenues for such month:
Month
1-12
13-24
25-60
61-120
121st and thereafter for the Term
Percentage of Gross Revenues
1%
2%
3%
4%
5%
C.
At the end of each year, any amounts remaining in the Reserve will be carried
forward to the next year, and will not be credited against or decrease the amount otherwise required to be
deposited in the Reserve in the next year.
D.
No later than fifteen (15) days before the beginning of each year, Franchisee will
prepare and submit to Franchisor for its review and approval (i) an estimate of the expenditures necessary
each year to maintain the Hotel and the amounts necessary from the Reserve for the necessary
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replacements and renewals of FF&E and the significant renovations described in Section 11.1 to be made
during the upcoming year; and (ii) plans covering the next succeeding five (5) years that: (a) address
renovations, replacements, and renewals of FF&E required to comply with the Standards; and (b) identify
the availability of funding for same.
E.
Franchisee agrees that the contributions to the Reserve required by
Section 11.2.B may not be sufficient to keep the Reserve at the levels necessary to make all replacements
and renewals of FF&E necessary to maintain the Hotel as a high quality facility and in accordance with
the Standards. If the funds in the Reserve are insufficient for such purpose, Franchisee will promptly
provide the necessary funds in addition to the monthly contributions set forth in Section 11.2.B.
12.
SYSTEM AND STANDARDS; FRANCHISEE ASSOCIATION
12.1
Compliance with System and Standards.
A.
Franchisee agrees that conformity with all aspects of the System and the
Standards is essential in order to maintain the uniform quality and guest service of Marriott Hotels and to
enhance public acceptance of and demand for Marriott Hotels. Therefore, Franchisee agrees that it will
comply with the Standards in all matters involving the Hotel, and operate the Hotel in compliance with
the System, this Agreement, and the other Marriott Agreements.
B.
Franchisor will provide access to or make the Standards available to Franchisee
either in paper copy or in digital, electronic, or computerized form, or in some other form now existing or
hereafter developed. Franchisee must pay any and all costs to retrieve, review, use, or access the
Standards not in paper form. The Standards will at all times remain the sole property of Franchisor and
its Affiliates. Franchisee will at all times ensure that Franchisee’s copy of the Standards is kept up-todate, and if there is any dispute as to the contents of the Standards, the then-current Standards will
control.
12.2
Modification of the System and Standards.
A.
Franchisor and its Affiliates expressly reserve the right, in their Reasonable
Business Judgment, to modify the System and Standards or any part of either; provided, however, that
any modification of the Proprietary Marks under Section 13.2.B(3) may be made in Franchisor’s sole
discretion. Franchisee agrees that modifications to the System may be made for all Marriott Hotels or any
Category thereof. The System and Standards as so modified will for all purposes be deemed to be the
System and the Standards referred to in this Agreement and the other Marriott Agreements.
B.
Franchisee agrees that modifications to the System may require Franchisee to
contribute to the cost of such modifications on a fair and consistent basis with other participating Marriott
Hotels or other hotels, as determined by Franchisor. To the extent that such modification relates to an
ongoing program or system, such as the Reservation System, the Yield Management System, or Property
System, or to any new Electronic Systems or other program or system, ongoing payments related to such
modifications will be made in accordance with Section 3.
12.3
Franchisee Association.
Franchisee, Franchisor and other Marriott Hotel franchisees and licensees, will be eligible
for membership in an association organized to consider common problems relating to the operation of
franchised Marriott Hotels and to make recommendations to Franchisor regarding problems of operation
and management, and any and all other appropriate matters (the “Association”). The Association will
meet regularly and adopt such bylaws as are deemed appropriate. Such bylaws are subject to approval by
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Franchisor and will not be in conflict with this or other franchise, license or owner agreements to which
Franchisor or any of its Affiliates is the franchisor or licensor party. The Association may elect officers
including a President, Vice President, Secretary and Treasurer. Recommendations of the Association will
be transmitted to Franchisor and regarded by Franchisor as expressing the consensus of members of the
Association.
13.
PROPRIETARY MARKS AND INTELLECTUAL PROPERTY
13.1
Franchisor’s Representations and Responsibility Regarding the Proprietary Marks.
A.
Franchisor represents with respect to the Proprietary Marks that:
(1)
Franchisor and its Affiliates have the right to grant Franchisee the right
to use the Proprietary Marks in accordance with this Agreement; and
(2)
Franchisor will take or will cause to be taken all steps reasonably
necessary to preserve and protect the ownership and validity of the Proprietary Marks; provided
Franchisor will not be required to maintain any registration for the Proprietary Marks that Franchisor
determines, in its sole discretion, cannot or should not be maintained.
B.
Subject to Franchisee’s compliance with the terms of this Agreement, Franchisor
will indemnify and hold Franchisee harmless against claims that Franchisee’s use of the Proprietary
Marks infringes upon the rights of any third party unrelated to Franchisee, so long as Franchisee gives
immediate notice of any such claim to Franchisor, permits Franchisor to have sole control over the
defense and settlement of the claim, and cooperates fully with Franchisor in defending or settling the
claim.
13.2
Franchisee’s Use of System and Intellectual Property.
A.
With respect to Franchisee’s use of the System and Intellectual Property under
this Agreement:
(1)
Franchisee will use the System and Intellectual Property only for such
uses regarding the operation of the Hotel as are expressly authorized under this Agreement or otherwise
authorized by Franchisor and only in the form and manner authorized by Franchisor, and any use thereof
not so authorized will constitute an infringement of Franchisor’s rights as well as a material default of this
Agreement;
(2)
Franchisee will use the Proprietary Marks only in substantially the same
places, combination, arrangement, and manner as provided in the Standards or approved by Franchisor.
Franchisee will use the symbol “®,” “TM,” “SM” or such symbols or words as Franchisor may designate to
protect the Proprietary Marks;
(3)
Franchisee must identify itself as a franchisee or licensee of Franchisor
and the owner and/or operator of the Hotel only as allowed or required by Franchisor and only in a
manner and form designated by Franchisor. Franchisee will not use the Proprietary Marks in any manner
that would or could imply that Franchisee has an Ownership Interest in the Proprietary Marks, including,
on Franchisee’s corporate letterhead, business forms, contracts, or business cards, except as set forth in
the Standards;
(4)
Franchisee does not have any right to and will not Transfer, sublicense,
or allow any Person to use any of the Intellectual Property, except as expressly permitted in this
Agreement;
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(5)
Franchisee will not use the Intellectual Property to incur any obligation
or indebtedness on behalf of Franchisor or any of its Affiliates;
(6)
Franchisee will not use any Proprietary Mark or marks or names that are
similar, in Franchisor’s sole opinion, as part of Franchisee’s corporate or legal name or in connection with
any business activity or venture (other than the Hotel), or apply for trademark or service mark registration
of any Proprietary Mark, any variation thereof or any mark similar to any Proprietary Mark, in the United
States or any other jurisdiction, whether alone or in combination with other trademarks, trade names,
trade dress, symbols, logos, slogans, designs, insignia, emblems, devices, or service marks;
(7)
Franchisee must: (i) comply with Franchisor’s instructions in filing and
maintaining any required business, trade, fictitious, assumed, or similar name registrations; (ii) obtain
Franchisor’s prior approval of any name to be so registered; and (iii) indicate in the registration
documents that Franchisee has the right to use such name only subject to the terms of this Agreement.
Franchisee must also execute any documents and take such other action deemed necessary by Franchisor
or its counsel to protect the Proprietary Marks or maintain their validity and enforceability; and
(8)
if litigation involving the Intellectual Property is instituted or threatened
against Franchisee or any notice of such infringement is received by Franchisee, or if Franchisee becomes
aware of any infringement, Franchisee will promptly notify Franchisor in writing and will cooperate fully
with Franchisor in Franchisor’s defense or settlement of such litigation. Franchisee will not make any
demand or serve any notice, orally or in writing, or institute any legal action, or negotiate, litigate,
compromise or settle any controversy with respect to any such litigation, without first obtaining
Franchisor’s prior consent, which consent may be withheld in Franchisor’s sole discretion. Franchisor
will have the right to bring such action and to join Franchisee as a party to any action in which Franchisor
is or may be a party as to which Franchisee is or would be a necessary or proper party.
B.
Franchisee agrees that:
(1)
Franchisor and its Affiliates are, in the aggregate, the owners or licensees
of all right, title, and interest in and to the System (other than Electronic Systems provided by or licensed
by third parties) and the goodwill associated with and symbolized by the Proprietary Marks;
(2)
the Proprietary Marks are valid and serve to identify the System and
those who hold rights to operate hotels under the System;
(3)
the Proprietary Marks and other aspects of the System are subject to
replacement, addition, deletion, and other modification by Franchisor (or the Affiliate that owns the
Proprietary Marks) in its sole discretion. If any such action is taken by Franchisor (or the Affiliate that
owns the Proprietary Marks), Franchisee will promptly accept and use such replacement, addition,
deletion, and other modification, and, in the case of the System, display such changed Proprietary Marks
as if they were part of the System as of the Effective Date (and replace, add, remove or modify the
Proprietary Mark(s) that have been so changed), and Franchisee will bear the cost of conforming the
Hotel to any such replacement, modification, addition, deletion, or other change;
(4)
During the Term and thereafter, Franchisee will not directly or indirectly
(i) attack the ownership, title or rights of Franchisor or its Affiliates in and to any part of the System;
(ii) contest the validity of any part of the System or the right of Franchisor to grant to Franchisee the use
of any part of the System(other than Electronic Systems provided by or licensed by third parties) in
accordance with this Agreement; (iii) take any action or refrain from taking any action that could impair,
jeopardize, violate, or infringe any part of the System; (iv) claim adversely to Franchisor or its Affiliates
any right, title, or interest in and to the System; or (v) misuse or harm or bring into dispute the System;
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(5)
Franchisee has no Ownership Interest in the System. Franchisee’s use of
the Intellectual Property and other aspects of the System under this Agreement (including any addition or
other modification to the Intellectual Property or any other aspect of the System proposed by Franchisee
and adopted by Franchisor) will not give Franchisee any Ownership Interest or other interest in or to the
Intellectual Property or any other aspect of the System, except the nonexclusive license granted by this
Agreement;
(6)
all goodwill arising from Franchisee’s use of the System (other than
Electronic Systems provided by or licensed by third parties) and any other aspect of the System will inure
solely and exclusively to Franchisor’s benefit, and upon expiration or termination of this Agreement, no
monetary amount will be assigned as attributable to any goodwill associated with Franchisee’s use of any
aspect of the System; and
(7)
the rights in, and license of, the System granted hereunder to Franchisee
are nonexclusive, and thus Franchisor and its Affiliates may:
a.
use and may grant franchises and/or licenses to others to use the
System, and otherwise profit from the System; and
b.
establish, develop, franchise, and license other systems that use
the Intellectual Property and other aspects of the System, without offering or providing Franchisee any
rights in, to, or under such other systems.
C.
The provisions of this Section 13.2 will survive the expiration or termination of
this Agreement.
13.3
Franchisee’s Use of Other Marks.
A.
Franchisee will not use in any manner any of the System in connection with any
Other Mark(s), without Franchisor’s prior approval, which approval may be granted or withheld in
Franchisor’s sole discretion.
B.
Franchisee will not use any name or Other Mark in connection with any Public
Facilities that may infringe upon or tend to be confused with a third party’s trade name, trademark, or
other rights in intellectual property.
C.
Franchisee will not use or permit the use of any Other Mark in or at the Hotel or
in any Marketing Materials, advertising of, for, relating to or involving the Hotel or its operation without
Franchisor’s prior approval, which approval may be granted or withheld in Franchisor’s sole discretion.
13.4
Internet Website.
A.
With the exception of a website that describes Franchisee’s franchise relationship
with Franchisor and as stated in this Section 13.4 or the Standards, Franchisee will not display the
Proprietary Marks on or associate the System with (through a link or otherwise) any website, electronic
Marketing Materials, domain name, address, designation, or listing on the Internet or other
communication system without the express consent of Franchisor. If Franchisor permits Franchisee to
display or use the Proprietary Marks on Franchisee’s Internet site, the form, content and appearance of
Franchisee’s Internet site, and any modifications thereto, must comply with the Standards and be
approved by Franchisor before it is posted on the Internet so that Franchisor can maintain the common
identity of the Marriott Hotels and the Proprietary Marks. Franchisee must obtain independent legal
advice concerning the content of its Internet website and ensure that at all times it complies with
Applicable Law.
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B.
Franchisee acknowledges that the www.marriott.com domain name is the sole
property of Franchisor and its Affiliates. Franchisee will not, directly or indirectly, use, register, obtain or
maintain a registration for any Internet domain name, address, or other designation that contains any
Proprietary Mark or any mark that is in Franchisor’s sole opinion confusingly similar, including
misspellings and acronyms. Upon Franchisor’s request, Franchisee must, at Franchisor’s option,
promptly take all steps to cancel or transfer to Franchisor or its designee any such domain name, address,
or other designation under its control.
C.
Franchisee acknowledges that the Internet and e-commerce is a rapidly
developing field and agrees that the provisions of this Section 13.4 may need to be modified in the future
in the Standards, which will be legally binding on Franchisee to the fullest extent permitted by Applicable
Law.
14.
CONFIDENTIAL INFORMATION; DATA PROTECTION LAWS
14.1
Confidential Information.
Franchisee will not, during the Term or thereafter, without Franchisor’s prior consent,
which consent may be granted or withheld in Franchisor’s sole discretion, copy, duplicate, record,
reproduce, in whole or in part, or otherwise transmit or make available to any “unauthorized” Person (see
below) any Confidential Information. Franchisee may divulge such Confidential Information only to
such of Franchisee’s employees or agents as require access to it in order to operate the Hotel, provided
such employees or agents are apprised of the confidential nature of such information before it is divulged
to them and they are bound by confidentiality obligations substantially similar to those listed above. All
other Persons are “unauthorized” for purposes of this Agreement. Franchisee agrees that the Confidential
Information has commercial value and is not publicly available. Franchisee further agrees that Franchisor
and its Affiliates have taken measures to maintain its confidentiality, and, as such, the Confidential
Information is proprietary and a trade secret of Franchisor and its Affiliates. Franchisee will be liable to
Franchisor for any breaches of the confidentiality obligations in this Section 14.1 by its employees and
agents. Franchisee will maintain the Confidential Information in a safe and secure location and will
immediately report to Franchisor the theft or loss of all or any part of the Confidential Information.
14.2
Data Protection Laws.
Franchisee will: (i) comply with all applicable Data Protection Laws; (ii) comply with all
of Franchisor’s requirements regarding the Data Protection Laws contained in the Standards or otherwise;
(iii) refrain from any action or inaction that could cause Franchisor or its Affiliates to breach any of the
Data Protection Laws; (iv) do and execute, or arrange to be done and executed, each act, document and
thing necessary or desirable to keep Franchisor and its Affiliates in compliance with any of the Data
Protection Laws; and (v) permit Franchisor and its Affiliates to use any data or other information each of
them gathers concerning Franchisee and its Affiliates in connection with the establishment and operation
of Marriott Hotels by Franchisor and its Affiliates.
15.
ACCOUNTING AND REPORTS
15.1
Books, Records, and Accounts.
Franchisee at its expense must maintain and preserve for the Hotel for at least five (5)
years from the dates of their preparation, complete and accurate books, records, and accounts in
accordance with the Uniform System and United States generally accepted accounting principles,
consistently applied, Applicable Law and the Standards. Franchisee’s obligation to preserve such books,
records and accounts will survive the expiration or termination of this Agreement.
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15.2
Reports.
A.
Upon the request of Franchisor, Franchisee must, at its expense, submit to
Franchisor within twenty (20) days after the close of each Accounting Period, an operating statement
containing such information required by Franchisor, including the Gross Revenues, Gross Room Sales,
and Gross Food and Beverage Sales for such Accounting Period. In addition, within ninety (90) days
after the close of each calendar or fiscal year, whichever is used by Franchisee for income tax purposes,
Franchisee must furnish Franchisor a full and complete statement of income and expense from the
operation of the Hotel for such preceding year, which will be prepared in accordance with the Uniform
System and United States generally accepted accounting principles consistently applied, Applicable Law
and the Standards. The statement must be prepared in accordance with the Uniform System “Income
Statement” with standard line items for those specified by Franchisor, including House Profit and
contributions to the Reserve. Such statement also will include a reasonably detailed accounting (with
such supporting documentation as Franchisor may reasonably request) of the contributions to, and
expenditures from, the Reserve during such year, and such other information that Franchisor requires.
B.
Franchisee must, at its expense, submit to Franchisor such other miscellaneous
forms, periodic and other reports, records, financial statements, and other information relating to
Franchisee, the Hotel and the Hotel’s marketing, sales and guests as Franchisor may reasonably request,
in the form and at the times and places specified by Franchisor. Franchisor has the right to access
Franchisee’s Property System and Reservation System directly to obtain marketing, sales and guest
information, and Franchisee will take all actions reasonably necessary to provide such access.
15.3
Franchisor Examination and Audit of Hotel Records.
A.
Franchisor and its authorized representatives have the right, at any time, but upon
reasonable notice to Franchisee, to: (i) examine and copy, at Franchisee’s expense, all books, records,
accounts, and tax returns of Franchisee related to the operation of the Hotel; and (ii) have an independent
audit made of any of such books, records, accounts, and tax returns. Franchisee must provide lodging
without charge to Franchisor’s representatives or independent auditors while conducting and completing
such audits, and Franchisee must provide such other assistance as may be reasonably requested related to
the audit. If an examination or audit reveals that Franchisee has made underpayments to Franchisor or
any of its Affiliates, Franchisee must immediately pay to Franchisor or such Affiliate upon demand, the
amount underpaid plus Interest thereon from the date such amount was due until paid.
B.
If an examination or audit discloses an understatement of payments due to
Franchisor by Franchisee of five percent (5%) or more for the period being audited, or if the inspection
reveals that the accounting procedures are insufficient to determine the accuracy of the calculation of any
payments due, Franchisee must reimburse Franchisor for all costs and expenses connected with the
examination and audit (including reasonable accounting and attorneys’ fees). If the inspection establishes
a pattern of underreporting, Franchisor has the right to require that the annual financial reports due under
Section 15.2.A be audited by an independent accounting firm consented to by Franchisor. The foregoing
remedies are in addition to any other remedies that Franchisor may have under this Agreement, including
the right to terminate this Agreement in accordance with Section 19.
C.
If an examination or audit reveals that Franchisee has made overpayments to
Franchisor or any of its Affiliates, the amount of any such overpayment, without interest, will be
promptly credited against future payments due and payable by Franchisee to Franchisor or such Affiliate.
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16.
INDEMNIFICATION AND INSURANCE
16.1
Indemnification.
Franchisee will and hereby does indemnify, defend, and hold harmless Franchisor and its
Affiliates, their officers, directors, agents and employees, and their respective successors and assigns,
from and against all losses, costs, liabilities, damages, claims, and expenses of every kind and description,
including allegations of negligence by Franchisor and its Affiliates and their officers, employees, and
agents, to the fullest extent permitted by Applicable Law, and including reasonable attorneys’ fees,
arising out of or resulting from: (i) the unauthorized use of the Proprietary Marks; (ii) the violation of
Applicable Law; or (iii) the construction, renovation, upgrading, alteration, remodeling, repair, operation,
ownership or use of the Hotel or the Approved Location or of any other business conducted on, related to,
or in connection with the Hotel or the Approved Location. Franchisee must promptly give notice to
Franchisor of any action, suit, proceeding, claim, demand, inquiry, or investigation related to the
foregoing. Franchisor will in any event have the right, through counsel of its choice, at Franchisee’s
expense, to control the defense or response to any such action to the extent such action affects the
interests of Franchisor, and such undertaking by Franchisor will not, in any manner or form, diminish
Franchisee’s obligations to Franchisor hereunder. Under no circumstances will Franchisor or a Person
indemnified hereunder be required or obligated to seek recovery from third parties or otherwise mitigate
its losses in order to maintain a claim under this indemnification and against Franchisee, and the failure to
pursue such recovery or mitigate a loss will in no way reduce the amounts recoverable from Franchisee
by a Person indemnified hereunder. Franchisee’s obligations under this Section 16.1 will survive the
termination or expiration of this Agreement.
16.2
Insurance.
A.
During the Term, Franchisee, at its expense, will procure and maintain such
insurance as may be required by the terms of any lease or mortgage on the Hotel premises, and in any
event no less than the following:
(1)
Property Insurance
(a)
Property insurance (or builder’s risk insurance during any period
of construction) including boiler and machinery coverage on the Hotel building(s) and contents against
loss or damage by fire, lightning, windstorm, and all other risks covered by the usual all-risk policy form,
all in an amount not less than ninety percent (90%) of the full replacement cost thereof and a waiver of
co-insurance and agreed amount endorsement. Said policy will also include coverage for landscape
improvements and law and ordinance coverage in reasonable amounts.
(b)
Business interruption insurance covering at least eighteen (18)
months loss of profits, necessary continuing expenses (including Franchisee Fees) for interruptions
caused by any occurrence covered by the insurance referred to in Sections 16.2.A.(1)(a), (c) and (d).
(c)
If the Hotel is located in whole or in part within an area
identified by the federal government as having a special flood hazard, flood insurance in an amount not
less than the maximum coverage available under the National Flood Insurance Program and excess flood
coverage with reasonable limits but in no event less than ten percent (10%) of the full replacement cost of
the Hotel building and contents, including business interruption coverage in an amount not less than that
set forth in Section 16.2.A.(1)(b).
(d)
If the Hotel is located in an “earthquake prone zone” or
“windstorm prone zone” as determined by the U.S. Geological Survey or the insurance industry,
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earthquake insurance and windstorm insurance in an amount not less than the probable maximum loss
less any applicable deductibles, including business interruption coverage in an amount not less than that
set forth in Section 16.2.A.(1)(b), all as determined by a recognized earthquake or windstorm engineering
firm as applicable.
(2)
Workers’ compensation insurance in statutory amounts on all employees
of the Hotel and employer’s liability insurance in amounts not less than $1,000,000 per accident/disease.
(3)
Comprehensive or commercial general liability insurance for any losses
arising or pertaining to the Hotel or its operation, with combined single limits of $1,000,000 per each
occurrence for bodily injury and property damage. If the general liability coverages contain a general
aggregate limit, such limit will be not less than $2,000,000, and it will apply in total to this Hotel only.
Such insurance will be on an occurrence policy form and will include premises and operations,
independent contractors, blanket contractual, products and completed operations, advertising injury,
employees as additional insureds, broad form property damage, personal injury, incidental medical
malpractice, severability of interests, innkeeper’s and safe deposit box liability, and explosion, collapse
and underground coverage during any construction, renovation, upgrading and/or remodeling.
(4)
Liquor Liability (applicable when Franchisee distributes, sells, serves, or
furnishes alcoholic beverages) for combined single limits of bodily injury and property damage of not less
than $1,000,000 each occurrence.
(5)
Business Auto Liability including owned, non-owned and hired vehicles
for combined single limits of bodily injury and property damage of not less than $1,000,000 each
occurrence.
(6)
Umbrella Excess Liability on a following form in amounts not less than
$49,000,000 if the Hotel is fourteen (14) stories or less in height above ground or $99,000,000 if the
Hotel is fifteen (15) stories or higher in height in excess of the liability insurance required under
subsections A.(2) through (5) immediately above. Such coverage will apply in total to the Hotel only by
specific endorsement. Franchisor will have the right to require Franchisee to increase the amount of
coverage if, in Franchisor’s Reasonable Business Judgment, such an increase is warranted.
(7)
$500,000 per occurrence.
Fidelity insurance coverage or a fidelity bond in an amount not less than
(8)
Such other insurance as may be customarily carried by other hotel
operators on hotels similar to the Hotel.
B.
The following general insurance requirements will be satisfied by Franchisee.
(1)
All insurance under subsection A.(1)(b), and A.(3) through (8) of this
Section will by endorsement specifically name as unrestricted additional insureds Franchisor, any
Affiliate of Franchisor designated by Franchisor, and their employees and agents. All insurance required
hereunder will be specifically endorsed to provide that the coverages will be primary and that any
insurance carried by any additional insured will be excess and non-contributory.
(2)
Any deductibles or self-insured retentions maintained by Franchisee
(excluding deductibles for high hazard risks in high hazard geological zones, such as earthquake and
windstorm, which will be as required by the insurance carrier) will not exceed $25,000, or such higher
amount as may be approved in advance in writing by Franchisor.
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(3)
All insurance purchased in compliance herewith will be placed with
insurance companies reasonably acceptable to Franchisor and licensed to do business in the state where
the Hotel is located. Such licensing requirement will not apply to those insurers providing umbrella
excess liability above $5,000,000 under subsection A.(6) of this Section.
(4)
All insurance required hereunder will contain an endorsement whereby
the policies will not be canceled, non-renewed, or materially changed without at least thirty (30) days
prior notice to Franchisor. Franchisee will deliver to Franchisor a certificate of insurance (or certified
copy of such insurance policy if requested by Franchisor) evidencing the coverages required herein.
Renewal certificates of insurance (or certified copies of such insurance policy if requested by Franchisor)
will be delivered to Franchisor not less than ten (10) days prior to their respective inception dates.
(5)
All insurance required hereunder may be effected under policies of
blanket insurance that cover other properties of Franchisee and its Affiliates so long as such blanket
insurance fulfills the requirements herein.
(6)
Franchisee’s obligation to maintain the insurance hereunder will not
relieve Franchisee of its obligations under Section 16.1.
(7)
Should Franchisee for any reason fail to procure or maintain the
insurance required by this Agreement or as revised for substantially all franchisees or licensees in the
United States by the Standards or otherwise in writing, Franchisor will have the right and authority
(without however any obligation to do so) to immediately procure such insurance and to charge the cost
thereof to Franchisee, which charges, together with a reasonable fee for Franchisor’s expenses in so
acting, will be payable by Franchisee immediately upon notice.
17.
TRANSFERABILITY OF INTERESTS
17.1
Transfers of Interests in the Hotel and Franchisee.
Franchisee agrees that its rights and duties in this Agreement are personal to Franchisee,
and that Franchisor entered into this Agreement in reliance on the business skill, financial capacity, and
character of Franchisee and its principals and Affiliates. A Transfer of any Ownership Interest in
Franchisee, the Hotel or any Ownership Interest in the Hotel, any of Franchisee’s rights or obligations
under this Agreement, or a Transfer of, or change of Control in, a Control Affiliate is prohibited without
the prior written consent of Franchisor except as otherwise set forth in Sections 17 or 18. Upon
Franchisor’s request, Franchisee will furnish Franchisor with a list of the names and addresses of the
Interestholders in Franchisee and any Control Affiliate (other than holders of Ownership Interests that are
publicly-traded and were purchased on the open market).
17.2
Transfers of Controlling Ownership Interests.
A.
Except as set forth elsewhere in Sections 17 and 18, if Franchisee or any
Interestholder of Franchisee or a Control Affiliate wishes to Transfer the Hotel, its Ownership Interest in
the Hotel or a direct or indirect Controlling Ownership Interest in Franchisee, Franchisee will provide
notice of such proposed Transfer to Franchisor. The notice will state the full name and identity of all of
the parties to the proposed Transfer, including Interestholders of such parties and the terms of the
Transfer, together with all other related information that is reasonably requested by Franchisor. Prior
Transfers of Ownership Interests by or to the same Person or an Affiliate of such Person will be
considered in determining whether a Transfer of a Controlling Ownership Interest has occurred. Within
thirty (30) days after Franchisor receives such notice and required information, Franchisor will notify
Franchisee of Franchisor’s election of one of the following two alternatives:
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(1)
Franchisor’s consent to such Transfer, provided Franchisor generally
requires compliance with the following as conditions of its consent:
(a)
Franchisee will deliver to Franchisor all documents, information
and representations and warranties with respect to transferee’s corporate organization, authority, and
ownership requested by Franchisor, including a complete copy of the sale and purchase agreement or
similar document effecting the Transfer;
(b)
Franchisee will satisfy all of its accrued monetary obligations to
Franchisor and its Affiliates, including an amount equal to a reasonable estimate of the costs and fees not
yet accumulated and/or invoiced, and will execute, in a form prescribed by Franchisor, a general release
of any and all claims against Franchisor and its Affiliates, and their respective officers, directors, agents
and employees;
(c)
the proposed transferee will complete and submit to Franchisor a
new franchise application together with the then-current initial fee being charged Marriott Hotel
franchisees (“Transfer Fee”). If Franchisor does not consent to the Transfer application, Franchisor will
refund the Transfer Fee, less Ten Thousand Dollars ($10,000), which Franchisor will retain;
(d)
the transferee will enter into Franchisor’s then-current form
franchise agreement and any relevant ancillary agreements. The new franchise agreement will be for a
term that expires on or after the last day of the Term and provide for the upgrade of the Hotel to address
any needed renovations and to bring the Hotel into compliance with Franchisor’s then-current Standards.
If, prior to submitting the application, Franchisee desires Franchisor to review the Hotel to determine the
scope of Franchisor’s upgrading requirements, Franchisee will pay Franchisor’s then-current property
improvement plan (“PIP”) fee (currently, Ten Thousand Dollars ($10,000)) to cover Franchisor’s costs
associated with creating a PIP, which specifies Franchisor’s upgrading requirements. If, within six (6)
months after the PIP, Franchisor enters into a new franchise agreement with the transferee and Franchisor
is paid a full Transfer Fee, the PIP fee paid to Franchisor will be refunded or credited against other
amounts due from Franchisee to Franchisor at the time of the Transfer;
(e)
the transferee will retain a Management Company to control the
day-to-day operations of the Hotel if Franchisor determines that transferee is not qualified to operate the
Hotel;
(f)
the transferee will certify in writing that: (i) Franchisor did not
endorse, recommend, or otherwise concur with the terms of the Transfer, (ii) Franchisor did not comment
upon any financial projections submitted by Franchisee to transferee, and (iii) Franchisor did not
participate in the determination of the consideration to be paid; and
(g)
Franchisor will have the right to require that the transferee pay
Franchisor’s outside counsel costs in connection with any such Transfer.
(2)
Franchisor’s election not to consent to the Transfer, and Franchisee will
be in breach of this Agreement if Franchisee consummates such Transfer.
B.
Franchisor has the right, in its sole discretion, to elect not to consent to a Transfer
under Section 17.2.A(2) if: (i) Franchisor determines that such transferee is not capable of successfully
operating the Hotel under the franchise agreement or the Standards (and requiring transferee to retain a
Management Company consented to by Franchisor is not an acceptable alternative); (ii) Franchisor
determines that the Management Company proposed by transferee is not capable of successfully
operating the Hotel under the franchise agreement or the Standards or fails to meet Franchisor’s thenMarriott 384175v3 (03/31/2008)
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current criteria for Management Companies; (iii) Franchisor determines that the proposed transferee’s
debt service or overall financial status will not permit the Hotel to be operated pursuant to the Standards;
(iv) an uncured breach or default of a Marriott Agreement exists; (v) upon execution by transferee of a
new franchise agreement, the transferee would be in breach of such agreement; (vi) the Hotel is not in
good standing under the Quality Assurance Program; or (vii) the Transfer is subject to Section 17.4 or
violates Section 17.8.
C.
Subject to Section 17.4 and 17.8 and compliance with the conditions set forth in
Section 17.2.A(1)(a), (b), (e), (f) and (g), Franchisor will consent to a Transfer of the Hotel or
Franchisee’s Ownership Interests in the Hotel or the Ownership Interests in Franchisee or a Control
Affiliate to a Person in which (a) Franchisee has a Controlling Ownership Interest or (b) the Interestholder
that Controls Franchisee has a Controlling Ownership Interest, in either case provided that: (i) Franchisor
is provided at least 30 days advance written notice of such Transfer; (ii) such transferee provides to
Franchisor documentation acceptable to Franchisor evidencing the Transfer by which the transferee
expressly assumes the obligations of Franchisee hereunder and under any Marriott Agreement; (iii) such
transferee, Franchisee or another party acceptable to Franchisor has executed a guaranty substantially
identical to the form of Guaranty attached to this Agreement as Exhibit B and each and every Guarantor
acknowledges the Transfer and reaffirms and ratifies its obligations under the Guaranty; (iv) Franchisee is
not in breach or default under any of the Marriott Agreements; and (v) the Hotel is in good standing under
the Quality Assurance Program.
17.3
Transfers of Passive Investor Interests, Estate Planning, and Death or Mental
Incompetency.
A.
Subject to Section 17.4 and 17.8, Transfers of direct or indirect non-Controlling
Ownership Interests (“Passive Investor Interests”) are permitted without obtaining the prior consent of
Franchisor, unless the Ownership Interest is held by a Guarantor or is a Transfer of a majority of the
Passive Investor Interests, and only if the following conditions are met: (a) (1) such transferee is not a
Person who has been convicted of a felony or is otherwise known to have violated the law or to be of poor
business or moral reputation, and (2) such Transfer(s) of Passive Investor Interests, individually and in the
aggregate, will not effect a Transfer of or change in direct or indirect Control of Franchisee or the Hotel
(in which case, the provisions of Section 17.2 will apply); and (b) Franchisee provides notice to
Franchisor of such Transfer no later than ten (10) days after the consummation of such Transfer together
with reasonably detailed information concerning the identity and background of any such transferee and
its Interestholders and the structure of such Transfer, and Franchisee in such notice represents and
warrants that such information is true, correct and complete and that the requirements of this Section
17.3.A are met. If requested by Franchisor, Franchisee will execute an amendment to this Agreement that
updates the information on Exhibit A regarding the ownership of Franchisee to reflect the ownership after
the Transfer. Franchisor will have the right to require that Franchisee pay Franchisor’s outside counsel
costs in connection with any such Transfer.
B.
For estate planning, Transfers of an Ownership Interest in Franchisee to a
member of an Interestholder’s immediate family or to a trust for the benefit of such immediate family
member or to any Person in which the Interestholder has and, during the Term continues to have, the
Controlling Ownership Interest may be completed in accordance with the requirements set forth in
Section 17.3.A above, so long as such Transfers do not in the aggregate result in a change of Control of
Franchisee.
C.
Subject to Section 17.4 and 17.8, if any Interestholder holding a Controlling
Ownership Interest in Franchisee dies or becomes mentally incompetent, the interest of such person may
be Transferred in accordance with and subject to the terms of Section 17.2.A(1) provided that (i) any such
Transfer will be made within twelve (12) months of the date of death or mental incompetency, (ii) the
Marriott 384175v3 (03/31/2008)
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obligations of Franchisee under this Agreement are satisfied pending the Transfer, and (iii) the Hotel will
be continuously operated by Franchisee or a Management Company as required under Section 9.4. If
such death or mental incompetency results in the temporary appointment of an executor, custodian or
other representative for a period not to exceed twelve (12) months, such appointment will not be deemed
a breach of this Section 17 if the conditions above are satisfied, and (x) Franchisor is given notice of such
appointment within thirty (30) days of the date thereof; and (y) the appointee agrees to cause the Hotel to
be operated in compliance with this Agreement.
17.4
Proposed Transfer to Competitor and Right of First Refusal.
A.
If there is a proposed Transfer to a Competitor of (i) the Hotel, (ii) Franchisee’s
Ownership Interest in this Agreement, or (iii) an Ownership Interest in either Franchisee or a Control
Affiliate, Franchisee will give notice thereof to Franchisor, stating the full name and identity of the
prospective purchaser or tenant, as the case may be, including the names and addresses of the
Interestholders of such prospective purchaser or tenant, the price or rental and all other terms of such
proposed transaction, together with all other related information that is reasonably requested by
Franchisor. Within thirty (30) days after receipt by Franchisor of such notice and information from
Franchisee, Franchisor will notify Franchisee of Franchisor’s election, made in its sole discretion, of one
(1) of the immediately following four (4) alternatives:
(1)
If the proposed Transfer is a sale or lease of the Hotel for cash
consideration, Franchisor (or its designee) will have the right to purchase or lease the Hotel at the same
price or rental and upon the same terms (other than any terms relating to the Brand of the Hotel) as those
contained in such offer from (or to) a Competitor. In such event, Franchisee and Franchisor (or its
designee) will promptly enter into an agreement for sale or lease at the price or rental and on terms
consistent with such offer.
(2)
If the proposed Transfer is a purchase or lease of all or a portion of the
Ownership Interests or the assets (which includes the Hotel) of Franchisee or a Control Affiliate, or a
merger with or into Franchisee or a Control Affiliate, or the acquisition of Franchisee’s Ownership
Interest in the Hotel, or any sale or lease of the Hotel involving non-cash consideration, or other form of
Transfer, Franchisor (or its designee) will have the right to purchase or lease the Hotel at the purchase or
lease price under terms consistent with such offer as agreed to by the parties. If the parties are unable to
agree as to a purchase or lease price and terms within fourteen (14) days of Franchisor’s election, the
purchase or lease price of the Hotel will be determined as provided below.
(a)
Within thirty (30) days after the fourteen (14) day period in this
17.4.A(2) expires, Franchisor and Franchisee will each obtain, at its own expense, an appraisal of the fair
market value of the Hotel from a nationally recognized appraiser of Hotel properties comparable to the
Hotel. In determining the fair market value, the appraisers will assume that the Hotel is not subject to a
management agreement but is subject to this Agreement. If, after receiving such appraisals, the parties
agree on the fair market value of the Hotel, such agreed fair market value will constitute the purchase or
lease price.
(b)
If within fourteen (14) days after receiving the appraisals the
parties are not able to agree on such fair market value, the purchase or lease price will be determined by
“baseball arbitration” in Washington, D.C. in accordance with the Arbitration Rules for the Real Estate
Industry of the American Arbitration Association then in effect (“AAA Rules”) as modified by this
Agreement. The parties will jointly select a third party to act as the sole arbitrator (the “Arbitrator”) to
determine the fair market value of the Hotel, and such Arbitrator will be a person having at least ten (10)
years’ recent professional experience as to the subject matter in question and will be qualified to act as an
Arbitrator in accordance with the AAA Rules. If the parties do not agree on an Arbitrator with such
Marriott 384175v3 (03/31/2008)
33
qualifications within fifteen (15) days after the expiration of such fourteen (14) day period referred to
above, the Arbitrator will be appointed by the American Arbitration Association in Washington, D.C. in
accordance with the AAA Rules.
(c)
The Arbitrator will be instructed and obligated to decide, within
thirty (30) days after appointment, whether the appraisal submitted by Franchisor or the appraisal
submitted by Franchisee most accurately reflects the fair market value of the Hotel based upon the
appraisals submitted and such information as is normally relied upon by an appraiser of hotels and real
estate. Each party agrees to fully cooperate and provide all information requested by the Arbitrator related
to the Arbitrator’s determination of fair market value hereunder. The Arbitrator’s choice of appraisal will
be in writing, will constitute the purchase price hereunder, and will be final, conclusive and binding on
the parties as an “award” under the AAA Rules, and may be enforced by a court of competent
jurisdiction. The expenses of the arbitration will be borne equally by the parties to the arbitration.
Franchisor (or its designee) will have the right, at any time within thirty (30) days of being notified in
writing of the decision of the Arbitrator, to either (a) purchase the Hotel premises and related property at
the valuation determined by the Arbitrator, or (b) terminate this Agreement under Section 19.1.K. If
Franchisor elects to terminate this Agreement, upon receipt of Franchisor’s election, Franchisee will have
fourteen (14) days to either: (i) cancel the Transfer to a Competitor, or (ii) enter into a termination
agreement on terms acceptable to Franchisor providing for the orderly removal of the Hotel from the
System and Franchisee’s compliance with Sections 19.3 and 20 hereof.
(3)
Franchisor may place this Agreement in default and terminate this
Agreement and the Marriott Agreements in accordance with Section 19.1.K, in which event Franchisee
will be obligated to pay Franchisor the applicable liquidated damages as set forth in Section 19.3. If
Franchisor elects to terminate this Agreement, upon receipt of Franchisor’s election, Franchisee will have
fourteen (14) days to either: (i) cancel the Transfer to a Competitor, or (ii) enter into a termination
agreement on terms acceptable to Franchisor providing for the orderly removal of the Hotel from the
System and Franchisee’s compliance with Sections 19.3 and 20 hereof.
(4)
Franchisor may consent to such Transfer, which consent will be on such
terms as Franchisor may require, in its sole discretion.
This Section 17.4.A will survive termination of this Agreement for any reason if, before
such termination, any event specified in Section 17.4 occurs, as a result of which Franchisor has exercised
(or has the right to exercise) such right of first refusal, notwithstanding Section 17.6.
B.
If a Competitor proposes to acquire all of the Ownership Interests of an Affiliate
of Franchisee and the Affiliate does not directly or indirectly own, lease, or operate any hotels operating
under a trade name owned by Franchisor or any of its Affiliates, Franchisor will not have any right of first
refusal to purchase the Hotel or right to terminate this Agreement, as provided above in Section 17.4.A
with respect to such Transfer.
C.
If the Transfer to a Competitor is by foreclosure, judicial or legal process, or any
other means, Franchisor (or its designee) will have the right to purchase the Hotel upon notice to
Franchisee. If the parties are unable to agree as to a purchase price and terms within thirty (30) days of
Franchisor’s notice, the fair market value of the Hotel premises and related property will be determined
by arbitration in accordance with Section 17.4.A(2). This provision will survive the termination of this
Agreement under Section 19.1 in connection with the Competitor’s actions under this Section 17.4.C.
D.
If Franchisee or any of its Affiliates becomes a Competitor, Franchisee will
notify Franchisor in accordance with Section 17.4.A. and provide all information reasonably requested by
Franchisor related to becoming a Competitor and required thereby, or if Franchisor otherwise determines
Marriott 384175v3 (03/31/2008)
34
that Franchisee or any of its Affiliates has become a Competitor, Franchisor will so notify Franchisee and
Franchisor will have the rights provided in Section 17.4.A(2) as if the Hotel were subject to a non-cash
offer from a third party except that Franchisor will have thirty (30) days instead of fourteen (14) to agree
on purchase terms.
17.5
Interest in Real Estate and Injunctive Relief.
Franchisee acknowledges that Franchisor’s rights under Section 17.4 are real estate rights
with respect to the Hotel. Franchisor is entitled to file a record of such interest in and among the
appropriate real estate records of the jurisdiction in which the Hotel is located, and Franchisee will
cooperate as requested by Franchisor in such filing. Franchisee will execute a Memorandum of Right of
First Refusal in substantially the form attached as Exhibit E. Such Memorandum will indicate that
Franchisor’s rights in real estate under Section 17.4 will be subordinate only to the exercise of the rights
of bona fide lenders under a mortgage or security deed secured by the Hotel, only if and for so long as:
(i) the lender is not a Competitor or Affiliate of a Competitor; (ii) any such mortgage or security deed is
and remains validly recorded and in full force and effect; and (iii) the indebtedness underlying such
mortgage or security deed complies with the requirements of clauses (1) through (3) of Section 5.2.
Franchisee agrees that damages are not an adequate remedy if Franchisee breaches its obligations under
such Section 17.4 and that Franchisor will be entitled to injunctive relief to prevent or remedy such breach
without the necessity of proving the inadequacy of money damages as a remedy without the necessity of
posting a bond. If this Agreement is terminated and Franchisor’s rights under Section 17.4, 17.5 and 17.6
are no longer in effect, at the request of Franchisee or the transferee, Franchisor will deliver upon request
an instrument in recordable form to terminate such recording of interest in real estate.
17.6
Survival of Right of First Refusal.
Except for termination of this Agreement under Section 17.4.A.(3), Franchisee agrees
that Franchisor’s rights under Section 17.4 will survive early termination of this Agreement (as opposed
to expiration of this Agreement as provided in Section 4.1) and will bind Franchisee and its Affiliates, if
the events in either Sections 17.6.A or 17.6.B occur:
A.
before or within six (6) months after termination of this Agreement, a proposed
Transfer to a Competitor occurs with respect to the Hotel, Franchisee or an Affiliate, or an Ownership
Interest in either Franchisee or such Affiliate; and
(1)
this Agreement is terminated under (x) Sections 19.1.K or L, (y) Section
19.2.B or (z) Section 19.2.D based upon a violation of Section 13.2; or
(2)
this Agreement is terminated under Section 19.1.A, B, C, D or E and an
Affiliate, principal, or director of Franchisee obtains possession of the Hotel, or such Affiliate, principal,
or director is the party filing the suit or seeking the execution or foreclosure referenced in Section 19.1.
B.
there is a purported early termination of this Agreement (as opposed to expiration
of this Agreement as provided in Section 4.1) by Franchisee and before or within six (6) months after
such purported termination, a proposed Transfer to a Competitor occurs with respect to the Hotel, the
Franchisee or an Affiliate of Franchisee, or an Ownership Interest in either Franchisee or such Affiliate.
17.7
Security Interests in the Hotel or Franchisee.
In connection with any financing benefiting the Hotel, Franchisee may mortgage, grant a
security interest in, or otherwise pledge as collateral the Hotel, and may permit a mortgaging, granting of
a security interest in, or otherwise pledging as collateral of an Ownership Interest in Franchisee, or in a
Marriott 384175v3 (03/31/2008)
35
Person Controlling Franchisee to banks or other bona fide reputable lending institutions that are not
Competitors, provided that: (i) such financing meets the requirements of Section 5.2; (ii) this Agreement
will not be pledged, mortgaged, assigned as collateral for any financing, or the subject of a security
interest; and (iii) if such lender forecloses on, or otherwise exercises its rights against, the Hotel or such
Ownership Interests, Franchisor will have the rights under Section 19.1.
17.8
Proposed Transfers to Specially Designated National or Blocked Person.
No Transfer of any direct or indirect Ownership Interest in Franchisee, the Hotel or any
Marriott Agreement will be made to a Specially Designated National or Blocked Person or to a Person in
which a Specially Designated National or Blocked Person has an interest or provides funding. Any such
Transfer will be a material default under this Agreement.
17.9
Transfers by Franchisor.
Franchisor will have the right to Transfer this Agreement to any Person without prior
notice to, or consent of, Franchisee, provided the transferee assumes Franchisor’s obligations to
Franchisee under this Agreement, is an Affiliate of Franchisor or acquires substantially all of the Marriott
Hotels in the relevant Category, and is a Person reasonably capable of performing Franchisor’s
obligations under this Agreement. Franchisee agrees that any such Transfer will constitute a release and
novation of Franchisor with respect to this Agreement. This Agreement will be binding on and inure to
the benefit of Franchisor and the successors and assigns of Franchisor.
18.
PUBLIC AND PRIVATE OFFERINGS
18.1
Franchisee’s Obligations.
A.
Publicly-traded securities in Franchisee or in any Control Affiliate previously
issued under Applicable Law may be Transferred in compliance with Applicable Law without
Franchisor’s consent if the Transfer will not result in a Transfer of Control (as determined by Franchisor)
in Franchisee or a Control Affiliate. Any Transfer of publicly-traded securities in Franchisee or a Control
Affiliate that will result in a Transfer of Control of Franchisee or any Control Affiliate is prohibited and
the occurrence of any of the foregoing will be a breach of this Agreement.
B.
If securities in Franchisee or a Control Affiliate are publicly-traded as described
in Section 18.1.A, and Franchisee or such Control Affiliate wishes to make an additional offering of
securities, in accordance with Applicable Law, in connection with any such proposed offering of
securities that uses in any way the Proprietary Marks, identifies the Hotel, Franchisor or its Affiliates, or
discusses the relationship between Franchisor or its Affiliates and franchisee or its Affiliates, Franchisee
must:
(1)
obtain Franchisor’s consent to such use;
(2)
fully and unconditionally indemnify and hold harmless Franchisor and its
Affiliates in connection with the Prospectus and the offering; and
(3)
use any Proprietary Marks in the Prospectus and in any supporting or
related materials only as approved by Franchisor in writing.
C.
If the indemnification provided for in Section 18.1.B(2) above will for any reason
be unavailable or insufficient to hold Franchisor and its Affiliates harmless in respect of any claim, then
Franchisee will, in lieu of indemnifying Franchisor and its Affiliates, contribute to the amount paid or
payable by Franchisor and its Affiliates as a result of any such claim, action, loss liability, cost, and
Marriott 384175v3 (03/31/2008)
36
expense of any kind, including reasonable attorneys’ fees, in respect thereof, (i) in such proportion as will
be appropriate to reflect the relative benefits received by Franchisor and its Affiliates on the one hand and
Franchisee and its Affiliates on the other or (ii) if (but only if) the allocation provided by clause (i) above
is not permitted by Applicable Law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of Franchisor and its Affiliates on the one
hand and Franchisee and its Affiliates on the other with respect to any claim, or action in respect thereof,
as well as any other relevant equitable considerations. Franchisee and Franchisor agree that it would not
be just and equitable if contributions under this Section 18.1 were to be determined by pro rata allocation
or by any other method of allocation that does not take into account the equitable considerations referred
to herein. Franchisee’s obligations under this Section 18.1 will survive the termination or expiration of
this Agreement.
18.2
Limited Franchisor Consent.
Franchisor’s review of the Prospectus will be conducted solely for the benefit of
Franchisor to determine the accuracy and completeness of any description of Franchisor’s relationship
with Franchisee and compliance with the other requirements of Section 18.1 and not to benefit or protect
any other Person, and its consent will not constitute any kind of authorization, acceptance or agreement,
endorsement, or ratification of the offering or Prospectus, either express or implied.
19.
DEFAULT AND TERMINATION
Franchisor may terminate this Agreement for any breach of this Agreement by giving Franchisee
notice of default and termination as set forth in this Section 19. As set forth in Section 26.2, any notice of
default or any decision not to place Franchisee in default at any given time will not prejudice any rights of
Franchisor under this Agreement, and Franchisor may, in its sole discretion, determine when to exercise
its rights under this Section 19.
19.1
Immediate Termination.
Franchisor may terminate this Agreement and all rights granted to Franchisee under this
Agreement without affording Franchisee any opportunity to cure the default, effective immediately upon
notice to Franchisee (or upon such notice period or cure period given by Franchisor in its sole discretion
or required by Applicable Law), if:
A.
Franchisee or any Guarantor becomes insolvent, generally does not pay
its debts as they become due, admits that any of them is unable to pay its debts as they become due, or
makes a general assignment for the benefit of creditors; or proceedings for a compromise with creditors
are instituted by, against, or consented to by Franchisee or any Guarantor; or
B.
Franchisee or any Guarantor files a voluntary petition under any
bankruptcy, insolvency, or similar law, or consents to an involuntary petition under any bankruptcy,
insolvency, or similar law filed against it, or an order approving an involuntary petition in bankruptcy,
insolvency, or similar declaration filed against Franchisee or any Guarantor remains unvacated ninety
(90) days after the date of entry thereof; or
C.
a court of competent jurisdiction enters an order, judgment, or decree, on
the application of a creditor, adjudicating Franchisee or any Guarantor as bankrupt, insolvent, or similar
status or approving a petition seeking reorganization or appointing a receiver, trustee, or liquidator of all
or a substantial part of Franchisee’s or any Guarantor’s assets, and such order, judgment, or decree
remains unstayed and in effect for a period of ninety (90) days or will be consented to by Franchisee or
such Guarantor; or
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37
D.
execution is levied against the Hotel, Franchisee, or any material real or
personal property comprising the Hotel in connection with a final judgment for the payment of money; or
E.
a suit to foreclose any lien, mortgage, or security interest in the Hotel or
any material real or personal property that is a part of the Hotel, or any security interest in Franchisee is
initiated and not vacated within sixty (60) days; or
F.
a danger to public health or safety results from the construction,
renovation, repair, refurbishment, upgrading, remodeling, maintenance, or operation of the Hotel, and an
immediate closing of the Hotel (or any part thereof) is determined by Franchisor to be necessary to:
(i) avoid substantial liability; or (ii) adversely affecting the Hotel, other Marriott Hotels, the System, the
Proprietary Marks, or the goodwill associated therewith; provided, however, Franchisee may request that
Franchisor reinstate this Agreement if, within thirty (30) days after termination under this Section 19.1.F.,
the threat or danger to public health or safety is eliminated and Franchisor shall reinstate this Agreement
if it determines that reopening the Hotel would not cause substantial liability or loss of good will; or
G.
Franchisee or any principal, director, officer, shareholder, or agent of
Franchisee contrary to the provisions of this Agreement discloses or causes to be disclosed any
Confidential Information provided to Franchisee or fails to exercise reasonable care to prevent such
disclosure; or
H.
if (i) any of the representations and warranties by Franchisee under
Sections 22.4, 22.5, or 27 fails to be true and correct in any material respect when made, deemed made,
furnished or as of the date of this Agreement or (ii) any of the representations and warranties by
Franchisee under Sections 22.4 or 22.5 fails to be true and correct at any time during the Term; or
I.
an inspection of Franchisee’s books and records under Section 15.3.B
establishes a pattern of underreporting by Franchisee involving three (3) or more Accounting Periods
within any twenty-four (24) month period; or
J.
Franchisee or any Interestholder of a Controlling Ownership Interest in
Franchisee is or has been convicted of a felony or other similar crime or offense or has engaged in a
pattern or practice of acts or conduct that is likely in Franchisor’s judgment to, as a result of the adverse
publicity that has occurred in connection with such offense, acts, or conduct, adversely affect the Hotel,
other Marriott Hotels, the System, the Proprietary Marks, the goodwill associated therewith or
Franchisor’s interests therein, any Franchisor Lodging Facility or any other business conducted by
Franchisor or any of its Affiliates; or
K.
a Transfer occurs that does not comply with the provisions of Section 17
or 18; or
L.
Franchisee (i) dissolves or liquidates, (ii) loses its right to manage or
operate the Hotel, or (iii) loses ownership or the right to possession of the Hotel or the Approved
Location, except as otherwise provided in Section 21, or the Hotel ceases to operate as a Marriott Hotel;
or
M.
Franchisee fails to achieve the thresholds of performance established by
the Quality Assurance Program and such failure has not been cured within the applicable cure period for
such failure under the Quality Assurance Program.
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38
19.2
Termination Upon Notice with Opportunity to Cure.
Franchisor may terminate this Agreement and all rights granted to Franchisee hereunder
for the reasons set forth below if (i) Franchisor gives Franchisee notice of default that provides fourteen
(14) days for cure of the default (or such greater number of days given by Franchisor in its sole discretion
or required by Applicable Law) and identifies the breach or breaches of this Agreement, and (ii)
Franchisee fails to cure in the time and manner specified in the notice of default or as specifically
provided in this Section 19.2:
A.
Franchisee fails to do any of the following in a timely manner to
Franchisor’s satisfaction: (i) perform any of the requirements stated in Exhibit D by the dates required for
commencement or completion of such requirements; or (ii) begin or complete any renovation, repair,
refurbishment, upgrading or remodeling of the Hotel as required by Franchisor under Section 11.1 or any
Standards for the renovation, repair, refurbishment, upgrading or remodeling of the Hotel; or
B.
Franchisee and its Affiliates fail to pay any indebtedness to Franchisor or
any of its Affiliates when same becomes due and payable; or
C.
any Interestholder of a non-Controlling Ownership Interest in
Franchisee, or any officer, director, or employee of Franchisee is or has been convicted of a felony or
other crime or offense or has engaged in a pattern or practice of acts or conduct that is likely, as a result of
the adverse publicity that has occurred in connection with such offense, acts or conduct, in Franchisor’s
judgment, to adversely affect the Hotel, other Marriott Hotels, the System, the Proprietary Marks, the
goodwill associated therewith or Franchisor’s interests therein, any Franchisor Lodging Facility or any
other business conducted by Franchisor or any of its Affiliates, and such Person is not terminated from its
relationship with Franchisee; or
D.
Franchisee fails to fully comply with the Standards or there occurs any
other breach of this Agreement or any of the other Marriott Agreements.
19.3
Termination by Franchisor and Liquidated Damages.
A.
Franchisee has agreed to operate the Hotel as a Marriott Hotel in compliance
with this Agreement for the Term. If Franchisee should fail to do so, Franchisee acknowledges and
agrees that Franchisor would be damaged in several ways, including loss of future Franchise Fees and
Marketing Fund Fees and injury to the goodwill in the Proprietary Marks. Franchisee acknowledges and
agrees that it is difficult to estimate the revenues of the Hotel over a period of years and that elements of
Franchisor’s damages not directly calculated from the Hotel’s revenues are inherently difficult to
calculate and the proofs thereof would be burdensome and costly (although such damages are real and
meaningful to Franchisor and the System). Franchisor and Franchisee agree that liquidated damages
(calculated as set forth in this Section 19.3) are not a penalty and represent a reasonable estimate of just
and fair compensation of Franchisor for the damages that it would suffer if Franchisee should fail to
operate the Hotel as a Marriott Hotel in compliance with this Agreement for the Term. Upon termination
of this Agreement due to a default by Franchisee, Franchisee will promptly pay to Franchisor liquidated
damages in an amount equal to (i) the average monthly Franchise Fees and Marketing Fund Fees payable
to Franchisor during the previous two (2) years times (ii) the lesser of (x) sixty (60) or (y) one-half (1/2)
the number of months that would then otherwise remain in the Term. If the Hotel has not opened with the
approval of Franchisor or has not been operating as a Marriott Hotel pursuant to a franchise agreement for
at least two (2) years (whether pursuant to this Agreement or a franchise agreement between Franchisor
and a previous franchisee), the following will be used instead of clause (i) in the above calculation: the
greater of (a) the average monthly Franchise Fees and Marketing Fund Fees payable to Franchisor for the
previous two (2) years for all United States Marriott Hotels on a per room basis times the number of
Marriott 384175v3 (03/31/2008)
39
rooms at the Hotel or (b) the average monthly Franchise Fees and Marketing Fund Fees payable for the
Hotel for the period during which the Hotel was opened as a Marriott Hotel; provided that if either party
believes that such calculation would not be representative of the projected stabilized performance of the
Hotel, the party will notify the other in writing and clause (i) in the above calculation of liquidated
damages will be recalculated by multiplying the projected stabilized revenue for the Hotel submitted by
Franchisee in its franchise application by the highest percentage rates used to calculate Marketing Fund
Fees and any component of Franchise Fees in this Agreement.
B.
Franchisee further acknowledges and agrees that if this Agreement is terminated
with Special Circumstances (as defined below) Franchisor and the System will suffer greater and
fundamentally different damages due to the number or types of Franchisor Lodging Facilities exiting the
System, which practicably may not be replaceable or, if replaceable, may take longer to replace due to the
Special Circumstances. The consequences of Special Circumstances include significant loss of
distribution in the markets served by the hotels, confusion to customers and loss of customer confidence
due to unavailability of Franchisor Lodging Facilities in locations previously serviced by such Franchisor
Lodging Facilities, disadvantage to Franchisor in competing for national accounts and other bookings,
loss of foregone opportunities in markets where the Franchisor Lodging Facilities were located and
increased difficulty in quality System growth. Therefore, Franchisor and Franchisee agree that if this
Agreement is terminated with Special Circumstances a distinct liquidated damages calculation is
warranted, as described below. If a termination occurs with Special Circumstances, then Franchisee will
pay to Franchisor the amount of liquidated damages that is due under Section 19.3.A. times the applicable
percentage stated in the chart below (“Special Circumstances Liquidated Damages”). “Special
Circumstances” means that, in addition to this Agreement, one or more franchise, license or owner
agreements between Franchisor and Franchisee, or the respective Affiliates of either, are terminated
within a twelve-month period that includes the termination date of this Agreement and the termination of
any of such agreements together with the termination of this Agreement involve at least one set of
circumstances stated in the first column of the chart below:
5 or More Agreements
For Franchisor
Lodging Facilities Are
Terminated
3 or More Agreements
For Franchisor
Lodging Facilities In
Same State Are
Terminated
3 or More Agreements
For Franchisor
Lodging Facilities in
Top 20% of Room
Count, Franchise Fees
or GSS Score for
Relevant System Are
Terminated
2
Agreements
Terminated
3-4
Agreements
Terminated
5-8
Agreements
Terminated
9-15
Agreements
Terminated
16 –25
Agreements
Terminated
>26
Agreements
Terminated
N/A
N/A
125%
175%
200%
300%
N/A
125%
150%
200%
250%
300%
N/A
125%
150%
200%
250%
300%
Marriott 384175v3 (03/31/2008)
40
3 or More Agreements
For Franchisor
Lodging Facilities in
Same Metropolitan
Statistical Area Are
Terminated
2 or More Agreements
For Franchisor
Lodging Facilities
With Over 400 Guest
Rooms that are the
Major Group
Representation in a
Secondary or Tertiary
Market Are
Terminated
2 or More Agreements
For Franchisor
Lodging Facilities
Resorts or Hotels for
Which at Least 50%
of Guests are Leisure
Travelers Are
Terminated
2 or More Agreements
For JW Marriott
Hotels Are
Terminated
2
Agreements
Terminated
3-4
Agreements
Terminated
5-8
Agreements
Terminated
9-15
Agreements
Terminated
16 –25
Agreements
Terminated
>26
Agreements
Terminated
N/A
175%
250%
300%
300%
300%
150%
175%
250%
300%
300%
300%
150%
175%
250%
300%
300%
300%
150%
175%
250%
300%
300%
300%
For each agreement terminated, Special Circumstances Liquidated Damages will be calculated using the
largest applicable percentage multiplier in the chart. By way of example, if six agreements for Franchisor
Lodging Facilities are terminated, five of which are for hotels located in the same state (and the five
agreements do not have any other applicable Special Circumstances), and the remaining agreement is for
a hotel located in another state (and it does not have any other applicable Special Circumstances), the
percentage multiplier for each of the five agreements for hotels located in the same state will be 150% (in
the chart, see row entitled “3 or More Agreements For Franchisor Lodging Facilities In Same State Are
Terminated” and column entitled “5-8 Agreements Terminated”) and the percentage multiplier for the
remaining agreement will be 125% (in the chart, see row entitled “5 or More Agreements For Franchisor
Lodging Facilities Are Terminated” and column entitled “5-8 Agreements Terminated”).
C.
If, in connection with the termination of this Agreement, the Hotel is Transferred
to a Competitor, or any other event specified in Section 17.4 occurs, as a result of which Franchisor has
the rights provided therein, and either (x) Franchisee does not comply with Franchisor’s right of first
refusal or comply with its other obligations relating to such right of first refusal under Section 17.4 or (y)
Franchisor elects to terminate this Agreement or condition its consent to such Transfer on the payment of
liquidated damages, Franchisee will pay to Franchisor the amount of liquidated damages that is due under
Section 19.3.A. times one hundred fifty percent (150%) (“Competitor Liquidated Damages”). If the
Transfer to a Competitor also involves Special Circumstances for which the percentage multiplier is
greater than 150%, as determined under Section 19.3.B, Franchisee will promptly pay to Franchisor
Special Circumstances Liquidated Damages instead of Competitor Liquidated Damages.
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41
D.
In addition to liquidated damages, Franchisor will have the right to recover
reasonable attorneys’ fees and court costs incurred in collecting such sums plus Interest on all amounts
due under Section 19.3 from the date such liquidated damages are due until paid. Such legal remedies
will not preclude Franchisor from any equitable remedies to which it may be entitled under Applicable
Law. Franchisee’s obligation to pay Franchisor liquidated damages, if applicable, and other sums
pursuant to Section 19.3 will survive termination of this Agreement. Payment of liquidated damages to
Franchisor will not affect the obligations of Franchisee to take action or abstain from taking action after
the termination of this Agreement as required by Section 19.3 and Section 20 or Franchisor’s remedies in
the event that Franchisee does not comply with its obligations thereunder.
20.
POST-TERMINATION
20.1
Franchisee Obligations.
A.
Upon expiration or other termination of this Agreement, all rights granted under
this Agreement to Franchisee will immediately terminate and Franchisee, at its expense, will comply with
each of the following obligations:
(1)
Franchisee will immediately cease to operate the Hotel as a Marriott
Hotel and will not directly or indirectly represent or give the impression that it is a present or former
franchisee or licensee of Franchisor or that the Hotel was previously part of the System;
(2)
Franchisee will immediately and permanently cease to use and remove
from the Hotel and any other place of business any Intellectual Property and any other identifying
characteristics and marks of the System, including any Electronic Systems, signs, fixtures, furniture,
furnishings, equipment, advertising materials, stationery, supplies, forms, or other articles that display any
Proprietary Marks or any trade dress or other distinctive features or designs associated with Franchisor or
the System. Any signs containing any Proprietary Marks that Franchisee is unable to remove from the
Hotel despite its best efforts upon termination of this Agreement will be completely covered by
Franchisee from view and physically removed within twenty-four (24) hours after termination.
Franchisee also will immediately remove all content regarding Franchisor, the System, and the
Proprietary Marks from any Internet sites under its control and will take all necessary actions required by
Franchisor to disassociate itself from Franchisor on the Internet. Franchisee will, at Franchisor’s option,
cancel or assign to Franchisor or its designee, any domain name owned by or under the control of
Franchisee or its Affiliates that contains any Proprietary Mark, or any mark that is in Franchisor’s sole
opinion confusingly similar, including misspellings and acronyms;
(3)
Franchisee must take such action as may be necessary to cancel any
fictitious, trade, or assumed name or equivalent registration that contains the name “Marriott” or any
other Proprietary Mark or any variations thereof, and Franchisee must furnish Franchisor with evidence
satisfactory to Franchisor of compliance with this obligation within thirty (30) days after termination of
this Agreement;
(4)
Franchisee will immediately turn over to Franchisor the originals and all
copies of any Confidential Information, Intellectual Property, and all other System materials relating to
the operation of the Hotel and the System, or such other information generated by Franchisee through its
use of the System that is deemed confidential by Franchisor, all of which are acknowledged by Franchisee
to be Franchisor’s property. Franchisee will not retain a copy or record of any of the foregoing, except
for Franchisee’s copy of this Agreement, any correspondence between the parties, and any other
documents that Franchisee reasonably needs for compliance with any provisions of Applicable Law. If
Franchisor permits Franchisee to continue to use any Intellectual Property after the termination date (such
Marriott 384175v3 (03/31/2008)
42
permission to be explicit and specific), such use by Franchisee will be in accordance with the terms of this
Agreement;
(5)
Franchisee agrees that it will make no use of any of the Confidential
Information or System or disclose or reveal it or any portion thereof to anyone not employed by
Franchisor or its franchisees or licensees. Additionally, Franchisee will not assist anyone not franchised
or licensed to use the System in constructing or equipping any hotel premises incorporating the distinctive
features or equipment layout that Franchisor (or any of its Affiliates) owns, has originated, or developed
and which are identifying characteristics of businesses using the System; and
(6)
Franchisee will immediately make such alterations as may be necessary
to distinguish the Hotel clearly from its former appearance and other Marriott Hotels in order to prevent
any possibility of confusion by the public. Franchisee will make such specific additional changes as
Franchisor may reasonably request for this purpose. Until all alterations required by this Section 20.1.A
are completed, Franchisee must maintain a conspicuous sign at the registration desk in a form specified
by Franchisor, stating that the Hotel is no longer associated with Marriott Hotels. Franchisee will advise
all customers and prospective customers telephoning the Hotel that the Hotel is no longer associated with
Marriott Hotels. Franchisee agrees that its failure to comply with any of the requirements of this Section
20.1.A will cause irreparable injury to Franchisor.
B.
Upon expiration or other termination of this Agreement, Franchisee must
promptly pay: (i) all amounts owing to Franchisor and any of its Affiliates; (ii) any costs and expenses
incurred by Franchisor in connection with removing the Hotel from the System; and (iii) an amount equal
to a reasonable estimate of costs and fees not yet accumulated and/or invoiced, which will be due on the
date Franchisee is notified of such amount. Franchisor is entitled to receive Interest on any amount not
paid when due hereunder from the date such payment was due.
C.
If this Agreement is terminated based on a default by Franchisee, and Franchisee
fails to pay to Franchisor all amounts then due to Franchisor, including the applicable liquidated damages
under Section 19.3, then Franchisee will not, and will cause each of its Affiliates to not, for a period of
twenty-four (24) months following the date this Agreement is terminated, operate the Hotel as part of any
first-class hotel brand, including but not limited to Hilton, Sheraton, Hyatt, Radisson and Westin, or
utilize any reservation system of any such brand for the benefit of the Hotel. This provision will survive
termination of this Agreement and Franchisor will have the right to injunctive relief to enforce this
provision, in addition to such other relief to which it may be entitled in law and equity.
20.2
Franchisor’s Rights Upon Termination or Expiration.
A.
Upon or prior to the termination or expiration of this Agreement, Franchisor may
give notice of the pending expiration or termination of this Agreement to, and take such other action
relating to, customers, suppliers, travel agents, wholesalers, concessionaires, and other Persons that might
be affected by such expiration or termination.
B.
Upon termination or expiration of this Agreement, Franchisor will have the right,
but not the duty, to be exercised by notice of intent to do so within thirty (30) days after termination of
this Agreement, to purchase any signs, advertising materials, Fixed Asset Supplies, Inventories, or other
items bearing any Proprietary Marks. The purchase price to be paid by Franchisor for any such items will
be the fair market value for such items. With respect to any such purchase, Franchisor will have the right
to set off all amounts due from Franchisee under this Agreement or any other Marriott Agreement.
Marriott 384175v3 (03/31/2008)
43
21.
CONDEMNATION AND CASUALTY
21.1
Condemnation.
Franchisee will, at the earliest possible time, give Franchisor notice of any proposed
taking by eminent domain, condemnation, compulsory acquisition, or similar proceeding. If such taking
is substantial enough in Franchisor’s opinion to render impractical the continued operation of the Hotel in
accordance with the System and guest expectations, this Agreement will terminate upon notice by
Franchisor to Franchisee, and Franchisor and Franchisee will share equitably in the award; provided,
however, Franchisor’s portion will be limited to compensating Franchisor for Franchisor’s lost Franchise
Fees under this Agreement, which amount will not exceed the amount of the applicable liquidated
damages due under Section 19.3. Further, if such condemnation is the sole basis for termination of this
Agreement, the share of such award will be in lieu of payment of the applicable liquidated damages due
under Section 19.3. If such taking, in Franchisor’s opinion, will not render the continued operation of the
Hotel impractical, Franchisee must promptly make whatever repairs and restorations are necessary to
make the Hotel conform substantially to its condition, character, and appearance immediately before such
taking, according to plans and specifications approved by Franchisor. Franchisee will take all measures
necessary to ensure that the resumption of normal operation of the Hotel is not unreasonably delayed.
21.2
Casualty.
If the Hotel is damaged or destroyed by fire or other cause and such damage or
destruction is substantial and material, affecting over fifty percent (50%) of the Hotel, and necessitates the
closing of the Hotel for a period in excess of ninety (90) days, Franchisee will have the right to terminate
this Agreement if it elects not to repair or rebuild the Hotel upon notice to Franchisor given within ninety
(90) days of such closing of the Hotel without payment of the liquidated damages due under Section 19.3
if such casualty is the sole basis for termination of this Agreement; provided, however, if subsequent to
such notice and before the date on which the Term would otherwise have ended under Section 4 if such
notice of termination had not been given (the “Term Expiration Date”), Franchisee or any of its Affiliates
or any Interestholder in Franchisee with an Ownership Interest of twenty percent (20%) or greater
operates a hotel; vacation, timesharing, interval or fractional ownership facility; condominium; apartment;
or other lodging product at the Approved Location (the “Other Lodging Product”), which Other Lodging
Product is not operated under a license or franchise from Franchisor or one of its Affiliates, then in such
event, Franchisee will be obligated to promptly pay to Franchisor an amount equal to the applicable
liquidated damages set forth in Section 19.3, but clause (ii) in the calculation of liquidated damages in
Section 19.3 will be the lesser of (a) sixty (60) or (b) one-half (1/2) the number of months then remaining
between (x) the date upon which the Other Lodging Product is first operated, and (y) the Term Expiration
Date. Franchisee’s obligation set forth in this Section 21.2 will survive termination of this Agreement. If
the Hotel does not close for ninety (90) days or Franchisee does not elect to terminate this Agreement in
accordance with the provisions of this Section 21.2, the Hotel will be promptly renovated and reopened
within a reasonable time in accordance with the System and pursuant to plans and specifications approved
by Franchisor in accordance with Section 6.2.
22.
COMPLIANCE WITH LAWS; LEGAL ACTIONS
22.1
Compliance with Laws.
Franchisee will comply with all Applicable Law, and will obtain in a timely manner all
permits, certificates, and licenses necessary for the full and proper operation of the Hotel and compliance
with the Marriott Agreements. Franchisee will forward to Franchisor within seven (7) days of
Franchisee’s receipt copies of all inspection reports, warnings, certificates, and ratings issued by any
governmental entity related to the Hotel that indicate a material failure to meet or maintain governmental
Marriott 384175v3 (03/31/2008)
44
standards regarding health or life safety or any other material violation of Applicable Law that may
adversely affect the operation or financial condition of the Hotel or Franchisee.
22.2
Notice Regarding Legal Actions.
Franchisee will notify Franchisor within seven (7) days: (i) after the commencement of
any material action, suit, or other proceeding that involves the Hotel or Franchisee; or (ii) after the
commencement of any action, suit, or other proceeding that involves Franchisor or Franchisor’s
relationship with Franchisee or the Hotel, and within seven (7) days of the issuance of any judgment,
order, writ, injunction, award, or other decree of any court, agency, or other governmental instrumentality
that may adversely affect the operation or financial condition of the Hotel or Franchisee. Nothing in this
Section 22.2, however, will abrogate any notice requirement that Franchisee may have under any
insurance program or contract.
22.3
WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES.
FRANCHISEE AND FRANCHISOR EACH HEREBY ABSOLUTELY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY AND THE RIGHT TO
CLAIM OR RECEIVE PUNITIVE DAMAGES IN ANY LITIGATION, ACTION, CLAIM, SUIT
OR PROCEEDING, AT LAW OR IN EQUITY, ARISING OUT OF, PERTAINING TO OR IN
ANY
WAY
ASSOCIATED
WITH
THE
COVENANTS,
UNDERTAKINGS,
REPRESENTATIONS OR WARRANTIES SET FORTH HEREIN, THE RELATIONSHIPS OF
THE PARTIES HERETO, WHETHER AS “FRANCHISEE” OR “FRANCHISOR” OR
OTHERWISE, THIS AGREEMENT OR ANY OTHER MARRIOTT AGREEMENT, OR ANY
ACTIONS OR OMISSIONS IN CONNECTION WITH ANY OF THE FOREGOING. [FOR
DEALS WHERE THE HOTEL OR FRANCHISEE’S PRINCIPAL PLACE OF BUSINESS IS
LOCATED IN CALIFORNIA, ADD THE FOLLOWING SENTENCE AND ARBITRATION
PROVISION: “THE FOREGOING PROVISIONS OF THIS SECTION CONSTITUTE THE
WRITTEN CONSENT OF FRANCHISEE AND FRANCHISOR TO WAIVE THEIR RIGHT TO A
JURY TRIAL, AS CONTEMPLATED BY CCP 631(D)(5) AND EITHER PARTY MAY SUBMIT THE
PROVISIONS OF THIS SECTION TO THE APPLICABLE COURT OR JUDICIAL BODY TO
EVIDENCE SUCH CONSENT OF THE PARTIES.”]
22.4
Specially Designated National or Blocked Person; Anti-Money Laundering.
Franchisee represents and warrants to Franchisor that: (i) neither Franchisee (including
any and all of its directors and officers), nor any of its Affiliates or the funding sources for any of the
foregoing is a Specially Designated National or Blocked Person; (ii) neither Franchisee nor any of its
Affiliates is directly or indirectly owned or controlled by the government of any country that is subject to
an embargo by the United States government; and (iii) neither Franchisee nor any of its Affiliates is
acting on behalf of a government of any country that is subject to such an embargo. Franchisee further
represents and warrants that it is in compliance with any applicable anti-money laundering law, including
the USA Patriot Act. Franchisee agrees that it will notify Franchisor in writing immediately upon the
occurrence of any event that would render the foregoing representations and warranties of this Section
22.4 incorrect.
23.
RELATIONSHIP OF PARTIES
23.1
Reasonable Business Judgment.
Except where Franchisor has reserved “sole discretion” or as otherwise indicated in this
Agreement, Franchisor agrees to use “Reasonable Business Judgment” when discharging its obligations
Marriott 384175v3 (03/31/2008)
45
or exercising its rights or discretion under this Agreement, including with respect to any consents and
approvals and the administration of Franchisor’s relationship with Franchisee. “Reasonable Business
Judgment,” with respect to the System, means that Franchisor’s action or inaction has a business basis
that is intended to: (i) benefit the System or the profitability of the System, including Franchisor,
regardless of whether some individual hotels may be unfavorably affected; (ii) increase the value of the
Proprietary Marks; (iii) increase or enhance overall hotel guest or franchisee or owner satisfaction; or (iv)
minimize possible brand inconsistencies or customer confusion. If Franchisor’s action or exercise of
discretion is unrelated to the System, as described above, Reasonable Business Judgment means that
Franchisor has a business basis and has not acted in bad faith. Franchisee will have the burden of
establishing that Franchisor failed to exercise Reasonable Business Judgment, and neither the fact that
Franchisor benefited economically from an action nor the existence of other “reasonable” alternatives
will, by themselves, establish such failure. To the extent that any implied covenant, such as the implied
covenant of good faith and fair dealing, or civil law duty of good faith is applied to this Agreement,
Franchisor and Franchisee intend that Franchisor will not have violated such covenant or duty if
Franchisor has exercised Reasonable Business Judgment.
23.2
Independent Contractor.
A.
This Agreement does not create a fiduciary relationship between Franchisor and
Franchisee. Franchisee is an independent contractor, and nothing in this Agreement is intended to
constitute either party as an agent, legal representative, subsidiary, joint venturer, partner, employee, or
servant of the other for any purpose, except, that Franchisor will have the right to act on Franchisee’s
behalf as Franchisee’s agent for purposes of booking reservations at the Hotel.
B.
Nothing in this Agreement authorizes Franchisee to make any contract,
agreement, warranty, or representation on Franchisor’s behalf or to incur any debt or other obligation in
Franchisor’s name.
24.
GOVERNING LAW; INJUNCTIVE RELIEF; COSTS OF ENFORCEMENT
24.1
Governing Law.
A.
This Agreement is executed pursuant to, and will be construed under and
governed exclusively by, the laws of the State of Maryland, United States of America. Nothing in this
Section 24.1 is intended, or will be deemed, to make the Maryland Franchise Registration and Disclosure
Law apply to this Agreement, or the transactions, or relationships contemplated hereby, if such law would
not otherwise be applicable.
B.
Franchisee hereby expressly and irrevocably submits itself to the non-exclusive
jurisdiction of the courts of the State of Maryland, United States of America for the purpose of any
Dispute. So far as is permitted under Maryland law, this consent to personal jurisdiction will be selfoperative.
24.2
Injunctive Relief.
Franchisor will be entitled to injunctive or other equitable or judicial relief, without the
necessity of proving the inadequacy of money damages as a remedy, without the necessity of posting a
bond, and without waiving any other rights or remedies at law or in equity, for any actual or threatened
material breach or violation of this Agreement or the Standards.
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24.3
Costs of Enforcement.
If for any reason it becomes necessary for either party to initiate any legal or equitable
action to secure or protect its rights under this Agreement, the prevailing party will be entitled to recover
all costs incurred by it in successfully enforcing said rights, including reasonable attorneys’ fees.
25.
NOTICES
25.1
Notices.
A.
Subject to Section 25.1.B., all notices, requests, demands, statements, and other
communications required or permitted to be given under the terms of this Agreement will be in writing
and delivered by hand against receipt, sent by certified mail (postage prepaid and return receipt
requested), or carried by reputable overnight courier service, to the respective party at the following
addresses:
To Franchisor:
Marriott International, Inc.
10400 Fernwood Road
Bethesda, MD 20817
Attn: Law Department 52/923.25
With a copy to:
Marriott International, Inc.
10400 Fernwood Road
Bethesda, MD 20817
Attn: Vice President, Owner and Franchise Services
To Franchisee:
«FRANCHISE_NAME»
«fran_street»
«fran_city», «fran_state» «franZipCode»
Attn: «Fran_Attn»
Email: «Fran_email»
with copy to:
or at such other address as designated by notice from the respective party to the other party. Any such
notice or communication will be deemed to have been given at the date and time of: (A) receipt or first
refusal of delivery, if sent via certified mail or delivered by hand; or (B) one day after the posting thereof,
if sent via reputable overnight courier service.
B.
Franchisor may provide Franchisee with routine information, the Standards and
other System requirements and programs, such as the Quality Assurance Program, including any
modifications thereto, by regular mail or by e-mail, facsimile, or by making such information available to
Franchisee on the Internet, an extranet, or other electronic means.
26.
CONSTRUCTION AND SEVERABILITY; APPROVALS, CONSENTS AND WAIVERS;
ENTIRE AGREEMENT
26.1
Construction and Severability.
A.
Except as expressly provided to the contrary in this Agreement, each section,
part, term and/or provision of this Agreement, including Section 16.1, will be considered severable; and
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47
if, for any reason any section, part, term, or provision is determined to be invalid, unenforceable or
contrary to, or in conflict with, any existing or future Applicable Law or by a court or agency having valid
jurisdiction, such will not impair the operation of, or have any other effect upon, such other sections,
parts, terms, and provisions of this Agreement as may remain otherwise intelligible, and the latter will
continue to be given full force and effect and bind Franchisor and Franchisee; and said invalid or
unenforceable sections, parts, terms, or provisions will be deemed to be replaced with a provision that is
valid and enforceable and most nearly reflects the original intent of the invalid or unenforceable
provision.
B.
Nothing in this Agreement is intended, or will be deemed, to create any third
party beneficiary or confer any rights or remedies under or by reason of this Agreement upon any Person
other than Franchisor (and its Affiliates) or Franchisee, and their respective permitted successors and
assigns.
C.
When this Agreement provides that Franchisor may take or refrain from taking
any action or exercise discretion, such as rights of approval or consent, or to modify the System or any
part of it, or to make other determinations or modifications under this Agreement, Franchisor may do so
from time to time.
D.
Unless otherwise stated, references to Sections are to Sections of this Agreement.
E.
Unless otherwise stated, references to Exhibits, Attachments or Addenda are to
Exhibits, Attachments and Addenda to this Agreement, and all of such are incorporated by reference into
this Agreement.
F.
Words importing the singular include the plural and vice versa as the context
may imply. Words importing a gender include each gender as the context may imply.
G.
References to days, months, and years are to calendar days, calendar months, and
calendar years, respectively.
H.
The words “include,” “included” and “including” will be terms of enlargement or
example (meaning that, for instance, “including” will be read as “including but not limited to”) and will
not imply any restriction or limitation unless the context clearly requires otherwise.
I.
Captions and section headings are used for convenience only. They are not part
of this Agreement and will not be used in construing it.
26.2
Approvals, Consents and Waivers.
Except as specifically provided in Sections 9.3.C and 9.4.C, the Management Company
Acknowledgment, or in Exhibit D, approvals, designations, and consents required under this Agreement
will not be effective unless evidenced by a writing signed by the duly authorized officer or agent of the
party giving such approval or consent. No waiver, delay, omission, or forbearance on the part of
Franchisor or Franchisee to exercise any right, option or power arising from any default or breach by the
other party will affect or impair the rights of Franchisor or Franchisee, respectively, with respect to any
such default or breach or subsequent default or breach of the same or of a different kind. Any delay or
omission of either party to exercise any right arising from any such default or breach will not affect or
impair such party’s rights with respect to such default or breach or any future default or breach.
Franchisor will not be liable to Franchisee for providing (or denying) any waiver, approval, consent, or
suggestion to Franchisee in connection with this Agreement or by reason of any delay or denial of any
request.
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48
26.3
Entire Agreement.
This Agreement, including, all exhibits, attachments, and addenda, and the Marriott
Agreements contain the entire agreement between the parties as it relates to the Hotel and the Approved
Location as of the date of this Agreement. Nothing in this Agreement is intended to require Franchisee to
waive reliance on any representations contained in the Disclosure Document referred to in Section 27.4.C
below. This is a fully integrated agreement. No agreement of any kind relating to the matters covered by
this Agreement will be binding upon either party unless and until the same has been made in a written,
non-electronic instrument that has been duly executed by the non-electronic signature of all interested
parties. This Agreement may not be amended or modified by conduct manifesting assent, or by electronic
signature, and each party is hereby put on notice that any individual purporting to amend or modify this
Agreement by conduct manifesting assent or by electronic signature is not authorized to do so.
27.
REPRESENTATIONS, WARRANTIES AND COVENANTS
27.1
Existence and Power; Authorization; Contravention.
A.
Franchisee represents, warrants and covenants that: (i) it is a legal entity duly
formed, validly existing, and in good standing under the laws of the jurisdiction of its formation; (ii) it
and its Affiliates have and will continue to have the ability to perform its obligations under this
Agreement; and (iii) it has and will continue to have all necessary power and authority to execute and
deliver this Agreement.
B.
Franchisee represents, warrants and covenants that the execution and delivery of
this Agreement and the performance by Franchisee of its obligations hereunder: (i) have been duly
authorized by all necessary action; (ii) do not require the consent, vote, or approval of any third parties
(including lenders) except for such consents as have been properly obtained; and (iii) do not and will not
contravene, violate, result in a breach of, or constitute a default under (a) its certificate of formation,
operating agreement, articles of incorporation, by-laws, or other governing documents, (b) any Applicable
Law; or (c) any agreement, indenture, contract, commitment, restriction or other instrument to which it or
any of its Affiliates is a party or by which it or any of its Affiliates is bound.
C.
Franchisee represents and warrants that all of the representations and warranties
made in the application or any other information provided in connection with this Agreement are true,
correct and complete as of the time made and as of the date hereof, regardless of whether such
representations and warranties were provided by Franchisee, one of its Affiliates, or by a third party on
behalf of Franchisee, unless Franchisee has notified Franchisor of a change in the representations and
warranties or the information and Franchisor has approved the change.
27.2
Ownership of Franchisee.
Franchisee represents and warrants to Franchisor that Franchisee is owned directly and
indirectly as set forth on Exhibit A.
27.3
Ownership of the Hotel.
Franchisee hereby represents, warrants and covenants to Franchisor that (i) Franchisee is
the sole owner of the Hotel and (ii) Franchisee holds good and marketable fee title to the Approved
Location.
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27.4
Additional Franchisee Acknowledgments and Representations.
A.
IN ENTERING THIS AGREEMENT, FRANCHISEE REPRESENTS AND
WARRANTS THAT IT DID NOT RELY ON, AND FRANCHISOR AND FRANCHISOR’S
REPRESENTATIVES HAVE NOT MADE, ANY PROMISES, REPRESENTATIONS, WARRANTIES
OR AGREEMENTS RELATING TO FRANCHISING THE HOTEL OR THE APPROVED
LOCATION, EXCEPT AS EXPRESSLY CONTAINED IN THIS AGREEMENT AND IN THE
DISCLOSURE DOCUMENT REFERRED TO IN SECTION 27.4.C.
B.
FRANCHISEE
AGREES
THAT
THE
BUSINESS
VENTURE
CONTEMPLATED BY THIS AGREEMENT INVOLVES SUBSTANTIAL BUSINESS RISKS, IS A
VENTURE WITH WHICH FRANCHISEE IS FAMILIAR AND HAS RELEVANT EXPERIENCE
AND ITS SUCCESS WILL BE LARGELY DEPENDENT UPON THE ABILITY OF FRANCHISEE
AS AN INDEPENDENT BUSINESS. FRANCHISOR EXPRESSLY DISCLAIMS THE MAKING OF,
AND FRANCHISEE AGREES FRANCHISEE HAS NOT RECEIVED, ANY INFORMATION,
WARRANTY OR GUARANTEE, EXPRESS OR IMPLIED, AS TO THE POTENTIAL VOLUME,
PROFITS, OR SUCCESS OF THE BUSINESS VENTURE CONTEMPLATED BY THIS
AGREEMENT. IF FRANCHISOR FURNISHES ADVICE, CONSULTATION, TRAINING, OR
OTHER FORMS OF ASSISTANCE IN CONNECTION WITH THE HOTEL OR THE APPROVED
LOCATION WITH REGARD TO MATTERS SUCH AS FINANCING, DESIGN, CONSTRUCTION,
RENOVATION, MENU PLANNING, OPERATION AND MANAGEMENT OF THE HOTEL,
FRANCHISOR DOES NOT GUARANTEE OR ASSURE THE SUCCESS OR SATISFACTORY
RESULT OF SUCH MATTERS AND FRANCHISOR WILL NOT THEREBY INCUR ANY
LIABILITY OR BE RESPONSIBLE IN ANY WAY FOR ANY ERROR, OMISSION OR FAILURE OF
WHATEVER NATURE IN SUCH FINANCING, DESIGN, CONSTRUCTION, RENOVATION,
MENU PLANNING, OPERATION OR MANAGEMENT OF THE HOTEL OR THE APPROVED
LOCATION.
C.
FRANCHISEE ACKNOWLEDGES THAT FRANCHISEE RECEIVED A
COPY OF THIS AGREEMENT, THE EXHIBITS AND ATTACHMENTS HERETO, IF ANY, AND
AGREEMENTS RELATING THERETO, IF ANY, AT LEAST SEVEN (7) CALENDAR DAYS
BEFORE THE DATE ON WHICH THIS AGREEMENT WAS EXECUTED. FRANCHISEE
FURTHER ACKNOWLEDGES THAT FRANCHISEE HAS RECEIVED THE DISCLOSURE
DOCUMENT REQUIRED BY THE TRADE REGULATION RULE OF THE FEDERAL TRADE
COMMISSION
ENTITLED
“DISCLOSURE
REQUIREMENTS
AND
PROHIBITIONS
CONCERNING FRANCHISING,” AT THE EARLIER OF (i) AT LEAST FOURTEEN (14)
CALENDAR DAYS BEFORE THE DATE ON WHICH THIS AGREEMENT WAS EXECUTED, OR
(ii) THE DATE OF THE FIRST MEETING BETWEEN FRANCHISOR AND FRANCHISEE FOR
THE PURPOSE OF DISCUSSING A PROSPECTIVE FRANCHISE.
D.
FRANCHISEE ACKNOWLEDGES THAT IT HAS READ AND
UNDERSTOOD THE DISCLOSURE DOCUMENT REFERRED TO IN SECTION 27.4.C. PROVIDED
TO FRANCHISEE, THIS AGREEMENT, INCLUDING THE EXHIBITS AND ATTACHMENTS AND
ADDENDA HERETO, IF ANY, AND RELATED AGREEMENTS, IF ANY, AND FRANCHISEE HAS
HAD AMPLE TIME AND OPPORTUNITY TO CONSULT WITH ADVISORS AND LEGAL
COUNSEL OF FRANCHISEE’S OWN CHOOSING ABOUT THE POTENTIAL BENEFITS AND
RISKS OF ENTERING INTO THIS AGREEMENT. FRANCHISEE AGREES THAT FRANCHISEE
HAS HAD AN OPPORTUNITY TO NEGOTIATE THIS AGREEMENT.
E.
NOTWITHSTANDING
FRANCHISEE’S
ACKNOWLEDGMENT
IN
SECTION 27.4.C ABOVE, FRANCHISEE REPRESENTS THAT FRANCHISEE’S INITIAL
INVESMENT IN THE FRANCHISED BUSINESS IS IN EXCESS OF ONE MILLION DOLLARS
Marriott 384175v3 (03/31/2008)
50
($1,000,000), EXCLUDING THE COST OF UNIMPROVED LAND AND ANY FINANCING
RECEIVED FROM FRANCHISOR OR ITS AFFILIATES, AND THUS, IS EXEMPTED FROM THE
FEDERAL TRADE COMMISSION’S FRANCHISE RULE DISCLOSURE REQUIREMENTS,
PURSUANT TO 16 CFR 436.8(A)(5)(i).
28.
MISCELLANEOUS
28.1
Negotiated Changes.
Franchisee acknowledges and agrees that the terms of this Agreement and all exhibits,
attachments or addenda or other agreements ancillary to, or executed in connection with this agreement,
that have been negotiated (“negotiated terms”) from the standard form of agreements set forth in the
disclosure document referred to in Section 27.4.C are strictly confidential and Franchisee will not disclose
such negotiated terms to any Person without the prior written consent of Franchisor except (1) as required
by law, (2) as may be necessary to enforce this Agreement in any legal proceedings, or (3) to those of
Franchisee’s managers, members, officers, directors, employees, attorneys, accountants, agents or lenders
as is necessary for the operation or financing of the Hotel. It will be a material default hereunder if
Franchisee, its managers, members, officers, directors, employees, attorneys, accountants, agents or
lenders disclose the negotiated terms to any unauthorized Person without the prior consent of Franchisor.
28.2
Multiple Counterparts.
This Agreement may be executed in a number of identical counterparts, each of which
will be deemed an original for all purposes and all of which will constitute, collectively, one agreement.
Delivery of an executed signature page to this Agreement by facsimile transmission will be effective as
delivery of a manually signed counterpart of this Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Agreement,
under seal, as of the Effective Date.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.
______________________________
Assistant Secretary
By:
__________________________(SEAL)
Name:
Title:
FRANCHISEE:
ATTEST/WITNESS:
«FRANCHISE_NAME»
a/an «Fran_Domicili» «Fran_corp»
___________________________________
(Assistant) Secretary/Witness
By:
__________________________(SEAL)
Name:
Title:
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51
EXHIBIT A
APPROVED LOCATION, NUMBER OF GUEST ROOMS AND OWNERSHIP INTERESTS IN
FRANCHISEE
1.
Approved Location of the Hotel:
«address», «city», «state» «zip»
2.
Approved Number of Guest Rooms:
____________________________
3.
Name of entity that will operate the Hotel:
«manager_Name»
4.
Ownership Interest(s) in Franchisee:
Name of Owner
_________________________
_________________________
_________________________
_________________________
Address
_________________________
_________________________
_________________________
_________________________
Marriott 384175v3 (03/31/2008)
52
% Interest
_________________________
_________________________
_________________________
_________________________
EXHIBIT B
FORM OF GUARANTY
DRAFTING NOTE: IF THIS DOCUMENT IS BEING USED IN CONNECTION WITH A
FRANCHISE AGREEMENT OTHER THAN THE ONE TO WHICH IT IS ATTACHED AS AN
EXHIBIT, PLEASE BE SURE TO CHECK THAT THE CAPITALIZED TERMS NOT DEFINED
HEREIN ARE DEFINED IN THE UNDERLYING FRANCHISE AGREEMENT
This GUARANTY (“Guaranty”) is executed as of ___________________, 2008, by
_____________________, a ________________ organized and existing under the laws of
______________________ (“Guarantor”), in favor of and for the benefit of Marriott International, Inc., a
Delaware corporation (“Franchisor”). In consideration of and as an inducement to Franchisor to execute
the Franchise Agreement dated as of __________________, 2008 (as such agreement may be amended,
supplemented, restated or otherwise modified, the “Agreement”), by and between Franchisor and
_________________________ (“Franchisee”), Guarantor hereby agrees as follows:
1.
Guarantor hereby unconditionally warrants to Franchisor and its successors and assigns
that all of Franchisee’s representations and warranties in (i) any application submitted by Franchisee to
Franchisor in connection with the Agreement or any other Marriott Agreement and (ii) the Agreement are
true, accurate and complete as of the time made and as of the date hereof. Further, Guarantor
unconditionally guarantees that all of Franchisee’s obligations under the Agreement and any other
Marriott Agreement or agreement ancillary to the Agreement will be punctually paid and performed.
2.
Upon default by Franchisee and notice from Franchisor, Guarantor will immediately
make each payment and perform each obligation required by Franchisee under the Agreement.
Franchisor may extend, modify or release any indebtedness or obligation of Franchisee, or settle, adjust or
compromise any claims against Franchisee without notice to Guarantor and any such action will not affect
the obligations of Guarantor under this Guaranty. Guarantor hereby waives notice of any amendment,
supplement, restatement or other modification of Agreement and notice of demand for payment or
performance by Franchisee. Guarantor’s guarantee hereunder will extend to any extension or renewal of
the Agreement.
3.
Guarantor hereby agrees that the obligations of Guarantor under this Guaranty will not be
reduced, limited, terminated, discharged, impaired or otherwise affected by: (i) Franchisee’s failure to pay
a fee or provide other consideration to Guarantor in consideration for the issuance of this Guaranty; (ii)
the occurrence or continuance of a default under the Agreement; (iii) any assignment of the Agreement;
(iv) any modification or amendment of, or waiver or consent or other action taken with respect to, the
Agreement or any other agreement or document delivered in connection therewith, including any
indulgence in or extension of time for the payment of any amounts payable of Franchisee under or in
connection with the Agreement or for the performance of any other obligation of Franchisee under the
Agreement (any of which modifications, amendments, waivers or consents may be agreed to or granted
without the approval or consent of Guarantor); (v) the voluntary or involuntary liquidation, sale or other
disposition of all or any portion of Franchisee’s assets, or the receivership, insolvency, bankruptcy,
reorganization or similar proceedings affecting Franchisee or its assets or the release or discharge of
Franchisee from any of its obligations under the Agreement; or (vi) any change of circumstances, whether
or not foreseeable, and whether or not any such change does or might vary the risk of Guarantor
hereunder. No failure of Franchisor to exercise any power or right hereunder, or to insist upon
compliance by Guarantor with any term hereof will constitute a waiver of Franchisor’s right thereafter to
demand full compliance with any term herein.
Marriott 384175v3 (03/31/2008)
53
4.
This Guaranty constitutes a guaranty of payment and performance and not of collection,
and Guarantor specifically waives any obligation of Franchisor to proceed against Franchisee on any
money or property held by Franchisee or by any other Person as collateral security, by way of set-off or
otherwise or against any other guarantor. Guarantor further agrees that this Guaranty will continue to be
effective or be reinstated as the case may be, if at any time payment of any of the guaranteed obligations
is rescinded or must otherwise be restored or returned by Franchisor upon the insolvency, bankruptcy or
reorganization of Franchisee or Guarantor, all as though such payment has not been made.
5.
Except as otherwise expressly set forth herein, all notices, requests, demands, statements
and other communications required or permitted to be given hereunder will be in writing and will be
delivered by nationally recognized overnight courier service to Franchisor at the address set forth in the
Agreement and to Guarantor at the address set forth below or for either at such other address as may be
designated by Guarantor or by Franchisor, and such communication will be effective three days after the
day sent. This Guaranty may be amended only by a written instrument signed by a duly authorized
representative of each of Guarantor and Franchisor.
6.
Guarantor hereby unconditionally and irrevocably waives notice of acceptance of this
Guaranty, presentment, demand, diligence, protest and notice of dishonor or of any other kind to which
Guarantor otherwise might be entitled under applicable law.
7.
Guarantor agrees to pay Franchisor all expenses, including reasonable attorneys’ fees and
court costs, incurred by Franchisor, its subsidiaries, Affiliates, or any of their respective successors and
assigns, to remedy any defaults of or enforce any rights under this Guaranty or the Agreement, effect
termination of this Guaranty or the Agreement, or to collect any amounts due under this Guaranty or the
Agreement.
8.
If more than one Person has executed this Guaranty as a Guarantor hereunder, the
liability of each such Guarantor will be joint, several and primary. This Guaranty may be executed in any
number of counterparts, each of which will be deemed an original, but all of which, when taken together,
will constitute one and the same instrument. Delivery of an executed signature page to this Guaranty by
facsimile transmission will be effective as delivery of a manually signed counterpart of this Guaranty.
9.
Upon the death of any individual Guarantor, the estate of such Guarantor will be bound
by this Guaranty but only for defaults and obligations hereunder existing at the time of death, and the
obligations of any other Guarantors will continue in full force and effect.
10.
Guarantor represents and warrants to Franchisor that: (i) neither Guarantor (including
any and all of its directors and officers), nor any of its Affiliates or the funding sources for any of the
foregoing is a Specially Designated National or Blocked Person; (ii) neither Guarantor nor any of its
Affiliates is directly or indirectly owned or controlled by the government of any country that is subject to
an embargo by the United States government; and (iii) neither Guarantor nor any of its Affiliates is acting
on behalf of a government of any country that is subject to such an embargo. Guarantor further represents
and warrants that it is in compliance with any applicable anti-money laundering law, including the USA
Patriot Act. Guarantor agrees that it will notify Franchisor in writing immediately upon the occurrence of
any event that would render the foregoing representations and warranties of this Section 10 incorrect.
11.
This Guaranty is executed pursuant to, and will be construed under and governed by, the
laws of the State of Maryland, without regard to its conflict of laws provisions. Guarantor hereby submits
itself to the non-exclusive jurisdiction of the courts of the State of Maryland, United States of America, in
any suit, action, or proceeding arising, directly or indirectly, out of or relating to this Guaranty; and so far
as is permitted under applicable law, this consent to personal jurisdiction will be self-operative. Unless
Marriott 384175v3 (03/31/2008)
54
specifically defined herein, all capitalized terms used in this Guaranty will have the same meanings set
forth in the Agreement.
12.
GUARANTOR
HEREBY
ABSOLUTELY,
IRREVOCABLY
AND
UNCONDITIONALLY WAIVES TRIAL BY JURY AND THE RIGHT TO CLAIM OR
RECEIVE PUNITIVE DAMAGES IN ANY LITIGATION, ACTION, CLAIM, SUIT OR
PROCEEDING, AT LAW OR IN EQUITY, ARISING OUT OF, PERTAINING TO OR IN ANY
WAY ASSOCIATED WITH THE COVENANTS, UNDERTAKINGS, REPRESENTATIONS OR
WARRANTIES SET FORTH IN THIS GUARANTY, THE RELATIONSHIPS OF THE PARTIES
HERETO, WHETHER AS “GUARANTOR” OR OTHERWISE, THIS AGREEMENT OR ANY
OTHER MARRIOTT AGREEMENT, OR ANY ACTIONS OR OMISSIONS IN CONNECTION
WITH ANY OF THE FOREGOING. [FOR DEALS WHERE THE HOTEL, FRANCHISEE’S
PRINCIPAL PLACE OF BUSINESS OR GUARANTOR IS LOCATED IN CALIFORNIA, ADD
THE FOLLOWING SENTENCE AND ARBITRATION PROVISION: “THE FOREGOING
PROVISIONS OF THIS SECTION CONSTITUTE THE WRITTEN CONSENT OF
GUARANTOR TO WAIVE RIGHT TO A JURY TRIAL, AS CONTEMPLATED BY
CCP 631(D)(5) AND FRANCHISOR MAY SUBMIT THE PROVISIONS OF THIS SECTION TO
THE APPLICABLE COURT OR JUDICIAL BODY TO EVIDENCE SUCH CONSENT.”]
IN WITNESS WHEREOF, the undersigned has executed this Guaranty, under seal, as of the date
first above written.
GUARANTOR:
WITNESS:
[GUARANTOR]
________________________
Witness
By:
___________________________ (SEAL)
Name:
Title:
ADDRESS FOR NOTICES TO GUARANTOR:
______________________________________
______________________________________
______________________________________
Marriott 384175v3 (03/31/2008)
55
EXHIBIT C
FORM OF MANAGEMENT COMPANY ACKNOWLEDGMENT
DRAFTING NOTE: IF THIS DOCUMENT IS BEING USED IN CONNECTION WITH A
FRANCHISE AGREEMENT OTHER THAN THE ONE TO WHICH IT IS ATTACHED AS AN
EXHIBIT, PLEASE BE SURE TO CHECK THAT THE CAPITALIZED TERMS NOT DEFINED
HEREIN ARE DEFINED IN THE UNDERLYING FRANCHISE AGREEMENT
This Management Company Acknowledgment (“Management Company Acknowledgment”) is
executed as of ___________________, 2008, by and among __________________, a ______________
(“Management Company”), __________________, a ______________ (“Franchisee”), and Marriott
International, Inc., a Delaware corporation (“Franchisor”).
WHEREAS, Management Company has entered into an agreement (“Management Agreement”)
with Franchisee, pursuant to which Management Company will operate that certain _____________ hotel
located at _____________________ (the “Hotel”), in accordance with the terms of that certain
___________ Hotel Franchise Agreement dated _________________, 2008 (as such agreement may be
amended, supplemented, restated or otherwise modified, the “Franchise Agreement”) between Franchisor
and Franchisee; and
WHEREAS, Franchisee has requested that Franchisor consent to the operation of the Hotel by
Management Company in accordance with the Franchise Agreement.
NOW, THEREFORE, in consideration of the mutual undertakings and benefits to be derived
herefrom, the receipt and sufficiency of which are acknowledged by each of the parties hereto, it is hereby
agreed as follows:
1.
Franchisor’s Consent. Subject to and in accordance with the terms and conditions of this
Management Company Acknowledgment and the Franchise Agreement, Franchisor hereby consents to
the operation of the Hotel by Management Company and grants to Management Company the right to
operate the Hotel in accordance with the Standards and to use the System, at, and only at, the Approved
Location during the term of the Franchise Agreement on behalf of and subject to the control of
Franchisee. Franchisor’s grant in the immediately preceding sentence will terminate without notice to
Management Company contemporaneously with the occurrence of any of the following events: (a) any
termination of the Franchise Agreement, (b) the execution of another management company
acknowledgment among Franchisor, Franchisee and another management company or (c) the execution of
an amendment to the Franchise Agreement consenting to the operation of the Hotel by Franchisee;
provided that the duties and obligations of Management Company that by their nature or express language
survive such termination, including Sections 3.b. and c. below, will continue in full force and effect
notwithstanding the termination of Franchisor’s grant in the immediately preceding sentence.
2.
Management Company Representations and Covenants.
represents and warrants to Franchisor that:
Management Company
a.
Management Company is not in control of or controlled by Persons who have
been convicted of any felony or a crime involving moral turpitude, or been convicted of any other crime
or offense or committed any acts, or engaged in any conduct that is reasonably likely to have an adverse
effect on the System, the Proprietary Marks, the goodwill associated therewith, or Franchisor’s interests
therein;
Marriott 384175v3 (03/31/2008)
56
b.
neither Management Company nor any Affiliate of Management Company is a
Competitor;
c.
the Management Agreement is valid, binding and enforceable; contains no terms,
conditions, or provisions that are, or through any act or omission of Franchisee or Management Company,
may be or may cause a breach of or default under the Franchise Agreement; and is for a term of not less
than ten (10) years; and
d.
neither Management Company nor any Affiliate of Management Company is a
Person with whom United States persons are prohibited from transacting business.
3.
Management Company and Franchisee Acknowledgments. Management Company and
Franchisee covenant and agree to the following:
a.
Management Company will have the exclusive authority and responsibility for
the day-to-day management of the Hotel on behalf of, for the benefit of, and subject to the control of
Franchisee with respect to and in accordance with the terms of the Franchise Agreement. The general
manager of the Hotel will be an employee of Management Company and devote his or her full time and
attention to the management and operation of the Hotel and will have successfully completed Franchisor’s
management training program as required under the Franchise Agreement. The selection of the general
manager for the Hotel will be subject to the prior consent of Franchisor, and if Franchisor does not
consent, any such candidate will not be employed as the general manager of the Hotel. The general
manager and other department managers of the Hotel will be employees of the Management Company,
while other staff at the Hotel may be employed by Franchisee;
b.
The Hotel will be operated in strict compliance with the requirements of the
Franchise Agreement, and Management Company will observe fully and be bound by all terms,
conditions and restrictions regarding the management and operation of the Hotel set forth in the Franchise
Agreement, including those related to Confidential Information and the Proprietary Marks, as if and as
though Management Company had executed the Franchise Agreement as “Franchisee,” provided that
Management Company obtains no rights under the terms of the Franchise Agreement except as
specifically set forth herein and the rights granted hereunder do not constitute a franchise or sub-franchise
to Management Company. Management Company will comply with all Applicable Laws, and will obtain
in a timely manner all permits, certificates, and licenses necessary for the full and proper operation of the
Hotel;
c.
Franchisor may enforce directly against Management Company all terms in the
Franchise Agreement regarding Intellectual Property and the management and operation of the Hotel
during and subsequent to Management Company’s tenure as operator of the Hotel. Franchisor will have
the right to seek and obtain all available legal and equitable remedies from Management Company based
on Management Company’s failure to comply with the terms of this Management Company
Acknowledgment, in addition to any remedies Franchisor may obtain from Franchisee under the
Franchise Agreement;
d.
Any default under the terms of the Franchise Agreement caused wholly or
partially by Management Company will constitute a default under the terms of the Management
Agreement, for which Franchisee will have the right to terminate the Management Agreement;
e.
Franchisee and Management Company will not modify or amend the
Management Agreement in such a way as to create a conflict or other inconsistency with the terms of the
Franchise Agreement or this Management Company Acknowledgment;
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57
f.
Except in extraordinary circumstances, such as theft or fraud on the part of
Management Company or a default by Franchisee under the Franchise Agreement caused by Management
Company for which Franchisee needs to promptly remove Management Company from the Hotel, the
Management Agreement will not be terminated or permitted to expire without at least thirty (30) days’
prior notice to Franchisor; and
g.
Management Company will be in control of the day-to-day operations of the
Hotel. Franchisor has the right to communicate directly with Management Company and the managers at
the Hotel regarding day-to-day operations of the Hotel and such communications will be deemed made to
Franchisee because Management Company and the managers at the Hotel are acting on behalf of
Franchisee and Management Company as their authorized representatives. Franchisor has the right to
rely on instructions of Management Company and the managers at the Hotel as to matters relating to the
operation and promotion of the Hotel, and the agreements of such managers are binding on Management
Company and Franchisee.
4.
Existence and Power. Each of Management Company and Franchisee represents and
warrants with respect to itself that (i) it is a legal entity duly formed, validly existing, and in good
standing under the laws of the jurisdiction of its formation, (ii) it has the ability to perform its obligations
under this Management Company Acknowledgment and under the Management Agreement, and (iii) it
has all necessary power and authority to execute and deliver this Management Company
Acknowledgment.
5.
Authorization; Contravention.
a.
Management Company and Franchisee each represents and warrants with respect
to itself that the execution and delivery of this Management Company Acknowledgment and the
performance by Management Company and Franchisee of its respective obligations hereunder and under
the Management Agreement: (i) have been duly authorized by all necessary action; (ii) do not require the
consent of any third parties (including lenders) except for such consents as have been properly obtained;
and (iii) do not and will not contravene, violate, result in a breach of, or constitute a default under (a) its
certificate of formation, operating agreement, articles of incorporation, by-laws, or other governing
documents, (b) any regulation of any governmental body or any decision, ruling, order, or award by
which each may be bound or affected, or (c) any agreement, indenture or other instrument to which each
is a party; and
b.
Management Company represents and warrants to Franchisor that: (i) neither
Management Company (including any and all of its directors and officers), nor any of its Affiliates or the
funding sources for any of the foregoing is a Specially Designated National or Blocked Person (as defined
in the Franchise Agreement); (ii) neither Management Company nor any of its Affiliates is directly or
indirectly owned or controlled by the government of any country that is subject to an embargo by the
United States government; and (iii) neither Management Company nor any of its Affiliates is acting on
behalf of a government of any country that is subject to such an embargo. Management Company further
represents and warrants that it is in compliance with any applicable anti-money laundering law, including
the USA Patriot Act. Management Company agrees that it will notify Franchisor in writing immediately
upon the occurrence of any event which would render the foregoing representations and warranties of this
Section 5.b. incorrect.
6.
Controlling Agreement. If there are conflicts between any provision(s) of the Franchise
Agreement and this Management Company Acknowledgment on the one hand and the Management
Agreement on the other hand, the provision(s) of the Franchise Agreement and this Management
Company Acknowledgment will control.
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58
7.
No Release. This Management Company Acknowledgment will not release or discharge
Franchisee from any liability or obligation under the Franchise Agreement and Franchisee will remain
liable and responsible for the full performance and observance of all of the provisions, covenants, and
conditions set forth in the Franchise Agreement.
8.
Limited Consent. Franchisor’s consent to Management Company operating the Hotel
and Franchisor’s grant to Management Company of the right to operate the Hotel are personal to
Management Company, and this Management Company Acknowledgment is not assignable by
Franchisee or Management Company. If there is a change in control of Management Company or if
Management Company becomes, is acquired by, comes under the control of, or merges with or into a
Competitor, or if there is a material adverse change to the financial status or operational capacity of
Management Company, Franchisee will promptly notify Franchisor of any such change and Management
Company will be subject to the consent process under the Franchise Agreement as a new operator of the
Hotel.
9.
Defined Terms. Unless specifically defined herein, all capitalized terms used in this
Management Company Acknowledgment will have the same meanings set forth in the Franchise
Agreement.
10.
Counterparts. This Management Company Acknowledgment may be executed in any
number of counterparts, each of which will be deemed an original, but all of which, when taken together,
will constitute one and the same instrument. Delivery of an executed signature page to this Management
Company Acknowledgment by facsimile transmission will be effective as delivery of a manually signed
counterpart of this Management Company Acknowledgment.
11.
Governing Law. This Management Company Acknowledgment will be construed in
accordance with the laws of the State of Maryland without regard to the conflict of laws principles
thereof, and contains the entire agreement of the parties hereto. Management Company hereby submits
itself to the non-exclusive jurisdiction of the courts of the State of Maryland, United States of America, in
any suit, action, or proceeding arising, directly or indirectly, out of or relating to this Management
Company Acknowledgment; and so far as is permitted under applicable law, this consent to personal
jurisdiction will be self-operative.
12.
Management Company’s Address.
Management Company’s mailing address is
___________________________. Management Company agrees to provide notice to both Franchisee
and Franchisor if there is any change in Management Company’s mailing address.
13.
WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES. MANAGEMENT
COMPANY, FRANCHISEE AND FRANCHISOR EACH HEREBY ABSOLUTELY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY AND THE RIGHT TO
CLAIM OR RECEIVE PUNITIVE DAMAGES IN ANY LITIGATION, ACTION, CLAIM, SUIT
OR PROCEEDING, AT LAW OR IN EQUITY, ARISING OUT OF, PERTAINING TO OR IN
ANY
WAY
ASSOCIATED
WITH
THE
COVENANTS,
UNDERTAKINGS,
REPRESENTATIONS OR WARRANTIES SET FORTH HEREIN, THE RELATIONSHIPS OF
THE PARTIES HERETO, WHETHER AS “MANAGEMENT COMPANY,” “FRANCHISEE”
OR “FRANCHISOR” OR OTHERWISE, THIS AGREEMENT OR ANY OTHER MARRIOTT
AGREEMENT, OR ANY ACTIONS OR OMISSIONS IN CONNECTION WITH ANY OF THE
FOREGOING. [FOR DEALS WHERE THE HOTEL OR FRANCHISEE’S OR MANAGEMENT
COMPANY’S PRINCIPAL PLACE OF BUSINESS IS LOCATED IN CALIFORNIA, ADD THE
FOLLOWING SENTENCE AND ARBITRATION PROVISION:
“THE FOREGOING
PROVISIONS OF THIS SECTION CONSTITUTE THE WRITTEN CONSENT OF FRANCHISEE
AND FRANCHISOR TO WAIVE THEIR RIGHT TO A JURY TRIAL, AS CONTEMPLATED BY
Marriott 384175v3 (03/31/2008)
59
CCP 631(D)(5) AND EITHER PARTY MAY SUBMIT THE PROVISIONS OF THIS SECTION TO
THE APPLICABLE COURT OR JUDICIAL BODY TO EVIDENCE SUCH CONSENT OF THE
PARTIES.”]
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Management
Company Acknowledgment, under seal, as of the date first above written.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.
Assistant Secretary
By:
Name:
Title:
(SEAL)
FRANCHISEE:
ATTEST/WITNESS:
[FRANCHISEE]
(Assistant) Secretary/Witness
By:
Name:
Title:
(SEAL)
MANAGEMENT COMPANY:
ATTEST/WITNESS:
[MANAGEMENT COMPANY]
(Assistant) Secretary/Witness
By:
Name:
Title:
Marriott 384175v3 (03/31/2008)
60
(SEAL)
EXHIBIT D
CONVERSION RIDER
A.
Franchisor and Franchisee have inspected the Hotel and have agreed to the construction,
upgrading, and renovation requirements (the “Scope of Work”) for the Hotel to become a Marriott Hotel
and to use and be identified in the System. The Scope of Work is set forth in Attachment One to the
Property Improvement Plan Addendum attached hereto and will be completed in compliance with this
Agreement and the System requirements. Franchisee agrees that it will not use any portion of the Reserve
to pay for the Scope of Work. If Franchisee does not timely perform the Scope of Work to Franchisor’s
satisfaction, Franchisor will have the right to terminate this Agreement pursuant to Section 19 of this
Agreement. Franchisee agrees that it will complete the Scope of Work on or before ________________
[and it will complete the other non-conversion items in accordance with the dates set forth in such Scope
of Work for such items.]
B.
Franchisor requires that the Hotel comply with all state, local, and federal laws, codes
and regulations, including but not limited to the Americans with Disabilities Act and/or other similar state
laws, codes, and/or regulations governing public accommodations for persons with disabilities. Before the
opening of the hotel as a Marriott Hotel, Franchisee will provide to Franchisor a written certificate or
opinion from its architect, licensed professional engineer, or recognized expert consultant on the
Americans with Disabilities Act stating that the Hotel conforms to the requirements of the Americans
with Disabilities Act, the related federal regulations, and all other applicable state and local laws,
regulations and other requirements governing public accommodations for persons with disabilities. The
certificate or opinion will be in a form substantially identical to the form attached hereto as Exhibit 1.
C.
Franchisee understands and specifically agrees that it will not operate the Hotel as part of
the System as a Marriott Hotel and it will not, without Franchisor’s prior approval, advertise or otherwise
hold out the Hotel as being (or becoming) a Marriott Hotel until:
1.
The Scope of Work has been approved and completed in accordance with, and
the Hotel complies with, this Conversion Rider and the Agreement, as determined by Franchisor in its
sole discretion; Franchisee has submitted to Franchisor, if requested, an architect’s certification that the
Hotel has been constructed and completed in accordance with the Approved Plans; Franchisee provides to
Franchisor, if requested, a copy of the Certificate of Occupancy for the Hotel; and Franchisee delivers to
Franchisor the Certificate required by Section B. above;
2.
Franchisee has employed a General Manager, Department Managers and a
Reservation Manager, and they have successfully completed Franchisor’s management training program;
3.
Franchisee has paid all amounts due Franchisor and its Affiliates;
4.
Franchisee has complied with the insurance requirements of the Agreement;
5.
Franchisee has given Franchisor notice that the Scope of Work has been
completed and all requirements for opening the Hotel have been satisfied and the Hotel is ready to open
for business as a Marriott Hotel; and
6.
Franchisor has granted approval to open and operate the Hotel and established
the Opening Date. Such approval will be substantially similar to the form of letter agreement set forth at
Exhibit 2 to this Conversion Rider, which letter agreement will be signed on behalf of Franchisor by its
representative who inspects the Hotel to verify its being ready to open for business and on behalf of
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Franchisee by the General Manager of the Hotel or Franchisee’s Director of Operations (or a person with
a different title but similar duties) who accompanies Franchisor’s representative during such inspection.
If Franchisor establishes an Opening Date but the letter provides for additional construction, upgrading,
renovation, or training (the “Additional Work”), Franchisee is authorized to use the System and identify
the Hotel as a Marriott Hotel only for such time as Franchisee is diligently and actively completing the
Additional Work, and failure to timely complete such Additional Work will be a default under the
Franchise Agreement.
D.
Franchisor will use its commercially reasonable efforts to inspect the Hotel within twenty
(20) days after receipt of the notice specified in Section C.5. above in order to determine whether
Franchisee has satisfied all the requirements for opening the Hotel as set forth above in this Conversion
Rider; provided, however, Franchisor will not be liable for delays or loss occasioned by the inability of
Franchisor to complete an inspection within such time period.
E.
Franchisee must prepare a pre-opening budget that includes salaries and wages to be paid
to personnel at the Hotel or personnel otherwise involved in the pre-opening functions, cost of interim
office space, professional fees, telephone expenses, costs of opening celebrations, the cost of heat, light,
and power not chargeable to the cost of constructing the Hotel, advertising and promotion expenses, the
cost of the opening team provided under the following paragraph, the cost of the Fixed Asset Supplies,
and miscellaneous expenses as may be required for the Hotel to be adequately staffed and capable of
operating on the Opening Date and for a reasonable initial operating period. Franchisee will submit this
pre-opening budget to Franchisor for approval within a reasonable period before implementation of such
budget such that Franchisee can still implement any changes required by Franchisor. Franchisor has the
right to review and reject any budget if Franchisor determines that it is insufficient to allow for the Hotel
to be adequately staffed and capable of operating on the Opening Date for a reasonable initial operating
period as a Marriott Hotel.
F.
Franchisor or its designated Affiliates will provide Franchisee with an opening team to
assist in the opening of the Hotel as a Marriott Hotel and to train the Hotel employees. The team
members will be designated by Franchisor. The team members will remain at the Hotel for such time as
Franchisor deems appropriate to properly open or convert the Hotel. Franchisee will pay for the Travel
Expenses of the team members and other costs of Franchisor associated with providing such assistance.
G.
In connection with the opening of the Hotel as a Marriott Hotel Franchisee must conduct
an advertising and marketing campaign as required by Franchisor or as otherwise agreed by Franchisor
and Franchisee.
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EXHIBIT D
NEW DEVELOPMENT RIDER
Franchisee agrees to develop and construct on the Approved Location the Hotel in accordance with the
following terms and provisions:
1.
Drawings and Specifications for a Newly Developed Hotel.
A.
Upon execution of the Agreement, Franchisee will obtain and deliver to
Franchisor a topographical survey of the Approved Location. Within ten (10) days of the date of this
Agreement, Franchisee will obtain from Franchisor the Marriott Criteria. Upon receipt thereof,
Franchisee will engage a qualified registered architect, interior designer, and other qualified consultants
and cause them to prepare promptly and submit to Franchisor for review and approval, a fully developed
site plan and preliminary architectural and interior design drawings and material samples based on the
Marriott Criteria and the topographical survey. Franchisor will promptly review said site plan,
architectural and interior design documents and material samples and return same with its approval or
disapproval. If Franchisor disapproves, Franchisor will submit reasonable recommendations which
Franchisee will thereupon incorporate into such preliminary designs and drawings. Thereafter and as
soon as reasonably possible, Franchisee will cause its consultants to prepare and submit to Franchisor two
(2) sets of completed working drawings and specifications for the total Hotel facility, including site plan,
architectural, electrical, mechanical, interior design and landscaping, as well as a complete construction
cost estimate, all of which will comply with said preliminary design documents, the Marriott Criteria and
state, local and federal laws, regulations and ordinances.
B.
Franchisor will have the right to review and make recommendations in
connection with any of the foregoing drawings and specifications and all of same will be subject to
Franchisor’s final approval for compliance with the System. If any drawings or specifications are
disapproved, Franchisor will make and submit reasonable recommendations and Franchisee will cause
such recommendations to be incorporated in the completed working drawings and specifications. Each
party will act speedily and in good faith in the preparation, submission, approval and revision of all of
said plans, drawings and specifications.
C.
Franchisor requires that the Hotel comply with all state, local, and federal laws,
codes and regulations, including but not limited to the Americans with Disabilities Act and/or other
similar state laws, codes, and/or regulations governing public accommodations for persons with
disabilities. Before the opening of the hotel as a Marriott Hotel, Franchisee will provide to Franchisor a
written certificate or opinion from its architect, licensed professional engineer, or recognized expert
consultant on the Americans with Disabilities Act stating that the hotel conforms to the requirements of
the Americans with Disabilities Act, the related federal regulations, and all other applicable state and
local laws, regulations and other requirements governing public accommodations for persons with
disabilities. The certificate or opinion will be in a form substantially identical to the form attached hereto
as Exhibit 1.
2.
Construction of the Hotel.
A.
Franchisee will “Commence Construction” (as defined below) of the Hotel
within one (1) year after the Effective Date, or the date upon which Franchisee will have been granted all
zoning clearances and use permits for the Hotel, whichever date is later, but under no circumstances later
than eighteen (18) months after the Effective Date, unless Franchisor has agreed in writing to an
extension of the construction commencement date. Construction will be in accordance with completed
working drawings and specifications approved by Franchisor and no substantial changes will be made to
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any approved working drawings or specifications without the prior approval of Franchisor. Construction
will be completed and the Hotel will be opened for business as a Marriott Hotel within fourteen (14)
months after the date construction commences.
B.
During the construction period, Franchisor or its representatives will have the
right to visit the job site at any time in order to observe the work. Franchisee will cause Franchisor to be
supplied with adequate photographic evidence showing the progress of construction at two (2) month
intervals. Any deficiencies and/or discrepancies may be noted and submitted to Franchisee in writing and
such items will be promptly corrected. If Franchisee does not submit plans, drawings, and specifications
as required or Commence Construction within the time period set forth herein, or having so commenced,
does not prosecute same with reasonable diligence and complete the same and open for business by the
date required, this Agreement and all rights hereunder will expire and terminate after thirty (30) days
notice to Franchisee, and any sums theretofore paid to Franchisor will remain the property of Franchisor
as provided in Section 3.1 hereof. As used herein, “Commence Construction” means that Franchisee has
(a) obtained long term and construction financing commitments in writing, (b) entered into a written
construction contract, (c) obtained zoning clearances, ingress and egress permits, and building permits in
accordance with the approved drawings and specifications, and (d) excavated or started excavation for
foundations. If requested, Franchisee agrees to submit photostatic copies of the documents required
herein to Franchisor for purposes of examination and to evidence compliance herewith. Time is of the
essence, but said date for commencement, completion and opening will be equitably extended by reason
of any delay caused by acts of God, the public enemy, strikes, war, governmental restrictions, or other
causes beyond Franchisee’s control, except that no such extension will be made for aggregate delays in
excess of thirty (30) days unless a request for additional time is made in writing to Franchisor giving
reasons for the delay, and under no circumstances will such extension exceed one hundred and eighty
(180) days.
C.
Within a reasonable period following the completion of construction, but not to
exceed ninety (90) days, Franchisee will submit to Franchisor a complete accounting of the actual costs of
constructing, furnishing and equipping the Hotel.
3.
Opening Date. Franchisee understands and specifically agrees that it will not operate the
Hotel as part of the System as a Marriott Hotel and it will not, without Franchisor’s prior approval,
advertise or otherwise hold out the Hotel as being (or becoming) a Marriott Hotel until:
A.
Construction of the Hotel has been approved and completed in accordance with,
and the Hotel complies with, this New Development Rider and the Agreement, as determined by
Franchisor in its sole discretion; Franchisee has submitted to Franchisor, if requested, an architect’s
certification that the Hotel has been constructed and completed in accordance with the Approved Plans;
Franchisee provides to Franchisor, if requested, a copy of the Certificate of Occupancy for the Hotel; and
Franchisee delivers to Franchisor the Certificate required by Section 1.C. above;
B.
Franchisee has employed a General Manager, Department Managers and a
Reservation Manager, and they have successfully completed Franchisor’s management training program;
C.
Franchisee has paid all amounts due Franchisor and its Affiliates;
D.
Franchisee has complied with the insurance requirements of the Franchise
Agreement;
E.
Franchisee has given Franchisor notice that construction has been completed and
all requirements for opening the Hotel have been satisfied and the Hotel is ready to open for business as a
Marriott Hotel; and
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F.
Franchisor has granted approval to open and operate the Hotel and established
the Opening Date. Such approval will be substantially similar to the form of letter agreement set forth at
Exhibit 2 to this New Development Rider, which letter agreement will be signed on behalf of Franchisor
by its representative who inspects the Hotel to verify its being ready to open for business and on behalf of
Franchisee by the General Manager of the Hotel or Franchisee’s Director of Operations (or a person with
a different title but similar duties) who accompanies Franchisor’s representative during such inspection.
If Franchisor establishes an Opening Date but the letter provides for additional construction, upgrading,
renovation, or training (the “Additional Work”), Franchisee is authorized to use the System and identify
the Hotel as a Marriott Hotel only for such time as Franchisee is diligently and actively completing the
Additional Work, and failure to timely complete such Additional Work will be a default under the
Franchise Agreement.
4.
Inspection of the Hotel. Franchisor will use its commercially reasonable efforts to
inspect the Hotel within twenty (20) days after receipt of the notice specified in Section 3.E above in
order to determine whether Franchisee has satisfied all the requirements for opening the Hotel as set forth
above in this New Development Rider; provided, however, Franchisor will not be liable for delays or loss
occasioned by the inability of Franchisor to complete an inspection within such time period.
5.
Pre-Opening Budget. Franchisee must prepare a pre-opening budget that includes,
salaries and wages to be paid to personnel at the Hotel or personnel otherwise involved in the pre-opening
functions, cost of interim office space, professional fees, telephone expenses, costs of opening
celebrations, the cost of heat, light, and power not chargeable to the cost of constructing the Hotel,
advertising and promotion expenses, the cost of the opening team provided under the following
paragraph, the cost of the Fixed Asset Supplies, and miscellaneous expenses as may be required for the
Hotel to be adequately staffed and capable of operating on the Opening Date and for a reasonable initial
operating period. Franchisee will submit this pre-opening budget to Franchisor for approval within a
reasonable period before implementation of such budget such that Franchisee can still implement any
changes required by Franchisor. Franchisor has the right to review and reject any budget if Franchisor
determines that it is insufficient to allow for the Hotel to be adequately staffed and capable of operating
on the Opening Date for a reasonable initial operating period as a Marriott Hotel.
6.
Opening Team. Franchisor or its designated Affiliates will provide Franchisee with an
opening team to assist in the opening of the Hotel as a Marriott Hotel and to train the Hotel employees.
The team members will be designated by Franchisor. The team members will remain at the Hotel for
such time as Franchisor deems appropriate to properly open or convert the Hotel. Franchisee will obtain
any visas, work permits or similar documentation required for team members and pay for the Travel
Expenses of the team members and other costs of Franchisor associated with providing such assistance.
7.
Opening Advertising. In connection with the opening of the Hotel as a Marriott Hotel
Franchisee must conduct an advertising and marketing campaign as required by Franchisor or as
otherwise agreed by Franchisor and Franchisee.
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65
EXHIBIT 1 TO NEW DEVELOPMENT/CONVERSION RIDER
ADA Certification
(to be completed by Franchisee’s architect, engineer,
ADA consultant, or other licensed professional)
In connection with the proposed [NAME AND LOCATION OF HOTEL] (the “Hotel”), I hereby
represent and certify to [FRANCHISEE] and to Marriott International, Inc. that:
(i)
I have used professionally reasonable efforts to ensure that the Hotel conforms to and complies
with the requirements of the Americans with Disabilities Act (“ADA”), the ADA Architectural
Guidelines (“ADAAG”), and all other related or similar state and local laws, regulations, and
other requirements governing public accommodations for persons with disabilities in effect at the
time that this certification is made, and
(ii)
In my professional judgment, the Hotel does in fact conform to and comply with such
requirements.
By:
____________________________
Print Name:
____________________________
Firm:
____________________________
Date:
____________________________
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EXHIBIT 2 TO NEW DEVELOPMENT/CONVERSION RIDER
Authority to Open Letter
Marriott International, Inc.
10400 Fernwood Road
Bethesda, Maryland 20817
Date
(Franchisee and address)
_________________________
_________________________
_________________________
Attn:_____________________
Re:
Authority to Open and Operate
the [________hotel
[address]
Dear _____________:
(the “Franchise
Reference is made to that certain Franchise Agreement dated
Agreement”) between Marriott International Inc., as Franchisor, and
, as
Franchisee. All terms, conditions and restrictions used and not otherwise defined herein have the
meanings set forth in the Franchise Agreement.
You are hereby authorized and directed to open for business as a [_____________] Hotel at the Approved
Location as of
, which date is deemed to be the Opening Date.
As of the Opening Date, the number of guest rooms at the Hotel authorized by Franchisor is _______.
The Franchise Agreement prohibits the Franchisee from changing the number of guest rooms without the
prior consent of Franchisor. [The number of guest rooms at the Hotel has increased by ______guest
rooms since the date of the Franchise Agreement, and Franchisee must pay an additional
application fee in the amount of $___________. Please send a check made payable to Marriott
International, Inc. to the address listed above to the Attention of: Franchise Development,
Dept.__________. This letter constitutes Franchisor’s consent to the increase in guest rooms.]
[As you are aware, some aspects of the Hotel have not yet been completed to Marriott’s
specifications. However, based on your agreement during the opening inspection at the Hotel to
complete the work set forth in Attachment A hereto (the “work”) by the date(s) set forth in that
Attachment, Marriott is willing to establish the Opening Date as an accommodation to you. The
work must be completed to the satisfaction of the Franchisor no later than _____________, or you
will be in material default under the Franchise Agreement, which may result in the disconnection of
the MARSHA Reservation System or termination of the Franchise Agreement.]
Respectfully submitted,
AGREED AND ACCEPTED:
FOR MARRIOTT INTERNATIONAL, INC.
FOR FRANCHISEE:
By:
_________________________(SEAL)
Name:
By:_________________________(SEAL)
Name:
Title:
Title:
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EXHIBIT D
CHANGE OF OWNERSHIP RIDER
DRAFTING NOTES: [DELETE BEFORE CIRCULATING AGREEMENT]
1.
Change references from “Franchise Agreement” on the cover page, table of contents, first page
and signature page to “Relicensing Franchise Agreement”
2.
Modify Section 4.1 to provide that the term begins on the Effective Date and terminates on the
date set forth in the deal sheet.
3.
After Recital A in the Recitals to the Franchise Agreement insert the following, modifying as
appropriate depending on the structure of the transaction, and re-designate the remaining Recitals
with new letters continuing in alphabetical order from where the last inserted Recital:
B.
[____________] (“Existing Franchisee”) and Franchisor are parties to a Marriott Hotel
franchise agreement (“Existing Franchise Agreement”) for the operation of the Hotel (defined below).
C.
Existing Franchisee has entered into a [Purchase Agreement] (“Purchase Agreement”)
with Franchisee, pursuant to which Franchisee has purchased the Hotel from Existing Franchisee (the
“Hotel Purchase Transaction”).
D.
Existing Franchisee desires to terminate the Existing Franchise Agreement in connection
with the consummation of the Hotel Purchase Transaction.
E.
Franchisor has agreed to terminate the Existing Franchise Agreement on the terms set
forth in a Termination Agreement and Release between Existing Franchisee and Franchisor (the
“Termination Agreement”).
F.
Pursuant to the Termination Agreement, the termination of the Existing Franchise
Agreement is not effective unless, among other things, this Agreement has become effective in
accordance with its terms.
G.
Franchisee desires that the Hotel remain in the System after termination of the Existing
Franchise Agreement and Franchisee desires to operate the Hotel under Franchisor’s System at the
location specified herein and to obtain a franchise from Franchisor for that purpose.
H.
The Hotel opened for business as a Marriott Hotel on ___________________ (the
“Opening Date”), and was operated under Franchisor’s System from the Opening Date until termination
of the Existing Franchise Agreement pursuant to the Termination Agreement.
I.
Certain modifications to this Agreement are required in order to account for the fact that
the Hotel was opened and operating before the Effective Date, which are set forth in the Change of
Ownership Rider attached hereto as Exhibit D.
4.
Modify the definitions in Section 1.1 to add any defined terms used in the Recitals in appropriate
alphabetical order, including the following, if using the above sample recitals and changes in this
Exhibit:
“Existing Franchisee” has the meaning stated in the Recitals.
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“Existing Franchise Agreement” has the meaning stated in the Recitals.
“Hotel Purchase Transaction” has the meaning stated in the Recitals.
“Initial Accounting Period” has the meaning stated in Section 3.11.
“Purchase Agreement” has the meaning stated in the Recitals.
“Termination Agreement” has the meaning stated in the Recitals.
5.
Insert the amount of the “Initial Fee” in the definition of “Initial Fee” in Section 1.
6.
Delete the definition of “Opening Date” in Section 1 and replace it with the following:
“Opening Date” has the meaning stated in the Recitals.
7.
Delete the following definitions:
[“Restricted Territory” has the meaning stated in Section 2.3.]
8.
Delete Section 2.3., Exhibit G (Restricted Territory Map) and corresponding bracketed language
in Section 2.2.A.
9.
Delete the Conversion Rider, the New Development Rider, and Exhibits 1 and 2 to the Riders.
RIDER PROVISIONS:
Franchisee desires that the Hotel continue to be operated as a Marriott Hotel and the following additional
terms and provisions and modifications to the Agreement will apply, which are an integral part of the
Agreement:
1.
Section 2.1 is hereby amended by inserting the following sentence at the beginning of such
Section:
“On or before the Effective Date, Franchisee has [(i)] caused Existing Franchisee to
deliver to Franchisor the Termination Agreement duly executed by all parties thereto other than
Franchisor [and (ii) paid Franchisor’s outside legal counsel fees and expenses incurred in
connection with the review, preparation and negotiation of this Agreement and ancillary
documents related thereto.]”
2.
Section 3 is hereby amended by adding a new Section 3.11 at the end of such Section, which
reads as follows:
“3.11
Initial Accounting Period Charges.
Franchisee agrees that, except for amounts due pursuant to Sections 3.2 or 3.3.A above, if
the Effective Date is not the first day of an Accounting Period then, for the Accounting Period in
which the Effective Date occurs (the “Initial Accounting Period”), Franchisee must pay to
Franchisor all amounts due to Franchisor or its Affiliates with respect to the operation of the
Hotel for the entire Initial Accounting Period as though the term of this Agreement had begun on
the first day of the Initial Accounting Period, and that any dispute between Franchisee and
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Existing Franchisee concerning the allocation of payments for the Initial Accounting Period will
be no defense to Franchisee’s obligations pursuant to this Section 3.11.”
3.
The reference to the “Opening Date” in first sentence of Section 11.2.B. is amended to be a
reference to the “Effective Date.”
4.
Section 27.4 is hereby amended by adding the following new Paragraphs F and G after Paragraph
E:
“F.
FRANCHISEE ACKNOWLEDGES THAT FRANCHISOR (i) DID NOT
ENDORSE, RECOMMEND, OR OTHERWISE CONCUR WITH THE TERMS OF ANY
TRANSACTION PURSUANT TO WHICH FRANCHISEE MAY HAVE ACQUIRED THE
RIGHT TO OPERATE THE HOTEL FROM A PRIOR FRANCHISEE OF FRANCHISOR; (ii)
DID NOT PARTICIPATE IN THE DECISION REGARDING THE PRICE OR
COMPENSATION TO BE PAID BY FRANCHISEE TO ANY THIRD PARTY FOR SUCH
RIGHT, WHICH DECISION WAS MADE WITHOUT ANY INTERVENTION, SUPPORT OR
PARTICIPATION BY FRANCHISOR; AND (iii) DID NOT COMMENT UPON ANY
FINANCIAL PROJECTIONS SUBMITTED TO FRANCHISEE BY OR ON BEHALF OF ANY
PRIOR FRANCHISEE.
G.
FRANCHISEE ACKNOWLEDGES AND AGREES TO BE BOUND BY ALL
ANCILLARY AGREEMENTS BETWEEN EXISTING FRANCHISEE AND FRANCHISOR,
INCLUDING, BUT NOT LIMITED TO, ANY LICENSING AGREEMENTS, COST SHARING
AGREEMENTS, CLUSTER REVENUE AGREEMENTS, AND ANY OTHER AGREEMENTS
RELATING TO THE EXISTING FRANCHISE AGREEMENT. FRANCHISEE AGREES TO
EXECUTE ANY SEPARATE ACKNOWLEDGEMENTS OR AMENDMENTS TO SUCH
AGREEMENTS SIGNIFYING FRANCHISEE’S AGREEMENT TO BE BOUND BY SUCH
AGREEMENTS AS FRANCHISOR MAY REASONABLY REQUEST.”
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PROPERTY IMPROVEMENT PLAN ADDENDUM
Franchisee agrees to upgrade and/or remodel the Hotel in accordance with the following terms and
provisions:
A.
IMPROVEMENT OF THE HOTEL
1.
Franchisee agrees to perform the Scope of Work set forth at Attachment One to
this Addendum (the “Scope of Work”) in a timely manner and agrees that it will not use funds in the
Reserve to pay for any items in the Scope of Work. Unless otherwise specified in this Addendum, all
work, including, without limitation, furniture, fixtures, equipment, furnishings, materials and signs, will
conform to System specifications. The Scope of Work is in addition to, and the completion of such work
does not satisfy, Franchisee’s obligation to periodically upgrade and renovate the Hotel pursuant to
Section 11.1.B of the Agreement, which obligation pursuant to such Section 11.1.B is independent of
Franchisee’s obligation to complete the Scope of Work set forth herein.
2.
IN ORDER TO SATISFY THE REQUIREMENTS OF THIS ADDENDUM,
FRANCHISEE WILL EXPEND SUBSTANTIAL TIME, EFFORT, AND EXPENSE.
NEVERTHELESS, IF FRANCHISEE DOES NOT SATISFY ALL THE REQUIREMENTS OF THIS
ADDENDUM WITHIN THE TIME SPECIFIED IN THIS ADDENDUM OR IN THE SCOPE OF
WORK, OR FRANCHISEE DOES NOT COMPLETE ANY ACTION REQUIRED IN THIS
ADDENDUM BY SUCH OTHER DATE AS IS SPECIFIED HEREIN, FRANCHISOR WILL HAVE
THE RIGHT TO TERMINATE THIS AGREEMENT AS SET FORTH IN SECTION 19.2.A OF THIS
AGREEMENT. FRANCHISEE ACKNOWLEDGES AND AGREES THAT FRANCHISOR WILL
HAVE NO LIABILITY OR OBLIGATIONS TO FRANCHISEE FOR ANY LOSSES, OBLIGATIONS,
LIABILITIES OR EXPENSES INCURRED BY FRANCHISEE IF THIS AGREEMENT IS
TERMINATED BECAUSE FRANCHISEE FAILS TO SATISFY IN A TIMELY MANNER THE
REQUIREMENTS OF THIS ADDENDUM.
3.
Franchisee agrees that time is of the essence with regard to the deadlines for the
Scope of Work.
4.
Franchisee, at its expense, must comply, to Franchisor’s satisfaction, with all of
the requirements set forth below:
a.
If required to complete the renovations, upgrading or remodeling
required by this Addendum, Franchisee must employ a qualified architect, design firm or engineer to
prepare complete working drawings, including, architectural, mechanical, electrical, civil engineering,
plumbing, and fire and life safety plans and landscaping drawings (collectively, the “Plans”). Franchisor
will have the right to disapprove the architect and design firm (as well as any contractors or
subcontractors) to be utilized in connection with the design, renovations, upgrading or remodeling of the
Hotel. If requested by Franchisor, Franchisee must provide to Franchisor, at least thirty (30) days before
their engagement by Franchisee, the name and address of any architect, design firm, engineer, contractor
or subcontractor that it wishes to retain. If Franchisor does not respond to Franchisee with its disapproval
within thirty (30) days after Franchisor’s receipt of the name, address and any other information on the
relevant party(ies) as requested by Franchisor, then Franchisee may retain such party(ies). Franchisee
acknowledges and agrees that Franchisor’s failure to request such information or to respond within the
required time period or Franchisor’s consent to Franchisee’s use of such party(ies) will not be deemed an
approval by Franchisor of any such party(ies). Franchisee acknowledges and agrees that (i) Franchisor is
not liable for the unsatisfactory performance of any architect, design firm, engineer, contractor or
subcontractor retained by Franchisee, and (ii) Franchisee is solely responsible for making sure its Plans
comply with state, local and federal laws, regulations and ordinances. Franchisee acknowledges and
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agrees that Franchisee is solely responsible for making sure that the Hotel and any renovations, upgrading
or remodeling thereto comply with state, local and federal laws, regulations and ordinances. Franchisee
must ensure that the Hotel complies with Franchisor’s Fire Protection and Life Safety standards even if
such standards exceed federal, state or local code requirements and must maintain the Hotel in accordance
with such standards, as the same may be modified from time to time by Franchisor in its sole discretion.
Franchisor requires that the Hotel comply with all state, local, and federal laws, codes and regulations,
including but not limited to the Americans with Disabilities Act and/or other similar state laws, codes,
and/or regulations governing public accommodations for persons with disabilities. Franchisee must, upon
the earlier of (i) completion of the work or (ii) the first anniversary of the Effective Date, provide to
Franchisor a written certificate or opinion from its architect, licensed professional engineer, or recognized
expert consultant on the Americans with Disabilities Act stating that the Hotel conforms to the
requirements of the Americans with Disabilities Act, the related federal regulations, and all other
applicable state and local laws, regulations and other requirements governing public accommodations for
persons with disabilities. If the completion date for any item or items set forth in the Scope of Work
extends beyond the first anniversary of the Effective Date, Franchisee must provide an additional
certificate to Franchisor with respect to such item or items upon final completion of all work related to
any and all such items. The certificate or opinion will be in a form substantially identical to the form
attached hereto as Attachment Two.
b.
Franchisee must submit Plans and specifications, furniture layouts and
FF&E specifications/samples for all work required hereunder to Franchisor for approval before
commencing such work. Franchisor will have the right to charge Franchisee an amount equal to One
Hundred Twenty-Five Dollars ($125) multiplied by the number of hours required for Franchisor’s review
of the Plans. When approved by Franchisor, such Plans will not thereafter be changed or modified,
including changes required by governmental authorities, without the prior consent of Franchisor.
Franchisee acknowledges and agrees that Franchisor’s review of the Plans under this Paragraph A.4.b. is
limited solely to determining whether the Plans comply with Franchisor’s design and construction criteria
and the approval by Franchisor of the Plans will be limited solely to compliance with such design and
construction criteria.
c.
Franchisee must obtain all permits and certifications required for lawful
completion of the renovations, upgrading or remodeling required by this Addendum and operation of the
Hotel including, without limitation, zoning, access, sign, building permits and fire requirements and must
certify in writing to Franchisor, if requested, that all such permits and certifications have been obtained.
5.
During the course of performing the Scope of Work required by this Addendum,
Franchisee, at its expense, must comply, to Franchisor's satisfaction, with all of the requirements set forth
below:
a.
The Hotel must comply with the then-current Standards.
b.
The Hotel is subject to further review by Franchisor to, among other
things, ensure that the Hotel complies with the requirements of the Property Improvement Plan (“PIP
Review”). Franchisee must ensure that the Hotel complies with all requirements specified by Franchisor
following any PIP Review. Franchisee must cooperate fully, and must cause its contractors and
subcontractors to cooperate fully, with any inspections conducted by Franchisor pursuant to any PIP
Review.
c.
If any material changes to the Hotel occur after [date walk-through
performed for the PIP], then all such changes will be subject to additional review by Franchisor
(“Material Change Review”). Franchisee must ensure that the Hotel complies with all requirements
specified by Franchisor following a Material Change Review. Franchisee must cooperate fully, and must
Marriott 384175v3 (03/31/2008)
72
cause its contractor and subcontractors to cooperate fully, with any inspections conducted by Franchisor
pursuant to a Material Change Review.
d.
Franchisor will not be deemed to have approved any work done pursuant
to this Addendum unless such approval is set forth in writing and signed by Franchisor’s authorized
representative. If such approval is partial or contingent, Franchisee hereby authorizes its General
Manager of the Hotel or its Director of Operations (or similarly titled person) to acknowledge in writing
the additional work to be performed and the time within which such work will be performed, and such
written acknowledgement will be binding on Franchisee.
e.
Franchisee must comply with the relevant insurance requirements set
forth in Section 16.2 of this Agreement.
6.
Franchisor’s exercise of its rights to approve and inspect any renovation,
upgrading or remodeling of the Hotel will be solely for the purpose of assuring compliance with the terms
of this Agreement and this Addendum, and Franchisor will have no liability or obligation with respect to
renovation, upgrading, remodeling or furnishing of the Hotel.
7.
Upon Franchisee’s written request and provided Franchisee has diligently
pursued commencement and completion of the renovation, remodeling or upgrading of the Hotel,
Franchisor may, in its sole discretion, extend the dates specified in this Addendum for commencement
and completion of the action required in this Addendum. Extension requests will be considered in
increments of one or more months. For any extension, Franchisor has the right to require Franchisee to
pay to Franchisor a nonrefundable extension fee not to exceed Two Thousand Dollars ($2,000) per month
for each month of the extension. Franchisee will pay the extension fee to Franchisor with the request for
the extension and Franchisor will fully refund the extension fee if Franchisor declines to grant the
requested extension.
B.
DEFAULT AND TERMINATION DUE TO FAILURE TO SATISFY REQUIREMENTS
Franchisee will be deemed to be in default and Franchisor may, at its option, terminate
this Agreement effective immediately upon Franchisee’s receipt of notice or upon first refusal of delivery
of notice by Franchisor, upon the occurrence of any of the following events:
1.
if Franchisee fails to commence the Scope of Work in accordance with all of the
terms of this Addendum by thirty (30) days after the Effective Date or fails to control through fee
ownership or leasehold the site of the Hotel; or
2.
if Franchisee fails to complete any action in accordance with all of the terms of
this Agreement and this Addendum within the time required in the Scope of Work with respect to such
action or item.
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73
ATTACHMENT ONE
TO PROPERTY IMPROVEMENT PLAN ADDENDUM
SCOPE OF WORK
All items are to be completed within ______ months of the Effective Date, unless otherwise
noted with respect to a particular item.
[INSERT SCOPE OF WORK]
Marriott 384175v3 (03/31/2008)
74
ATTACHMENT TWO
TO PROPERTY IMPROVEMENT PLAN ADDENDUM
ADA CERTIFICATION
(TO BE COMPLETED BY FRANCHISEE’S ARCHITECT, ENGINEER, ADA
CONSULTANT, OR OTHER LICENSED PROFESSIONAL)
In connection with the [NAME AND LOCATION OF HOTEL] (the “Hotel”), I hereby represent
and certify to [FRANCHISEE] and to Marriott International, Inc. that:
(i)
I have used professionally reasonable efforts to ensure that the Hotel conforms to and complies
with the design standards and requirements of the Americans with Disabilities Act (“ADA”), the
ADA Architectural Guidelines (“ADAAG”), and all other related or similar state and local laws,
regulations, and other requirements governing public accommodations for persons with
disabilities in effect at the time that this certification is made, and
(ii)
In my professional judgment, the Hotel does in fact conform to and comply with such design
standards and requirements.
By:
____________________________
Print Name:
____________________________
Firm:
____________________________
Date:
____________________________
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75
EXHIBIT E
FORM OF MEMORANDUM OF RIGHT OF FIRST REFUSAL
THIS MEMORANDUM OF RIGHT OF FIRST REFUSAL (“MEMORANDUM”), dated as
of ______________, between Marriott International, Inc. (“Franchisor”) and ______________
(“Franchisee”).
RECITALS
A.
Franchisor and Franchisee have entered into a Franchise Agreement dated
______________ (the “Agreement”), relating to that certain real property located in ___________
[County/City] State of _____________, more fully described on Exhibit 1 attached hereto.
B.
Franchisor and Franchisee are executing and delivering this Memorandum in accordance
with Section 17.5 of the Agreement for the purpose of submitting it to be recorded among the Land
Records of ______________ [County/City], ________________ (the “Local Jurisdiction”).
AGREEMENT
NOW THEREFORE, for the good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto state as follows with respect to the Agreement:
1.
Grant of Right of First Refusal. Pursuant to Section 17 of the Agreement, Franchisee
has granted Franchisor the right of first refusal (the “Right of First Refusal”) to purchase the real estate
located in the Local Jurisdiction, and more particularly described on Exhibit 1 attached hereto and made a
part hereof, together with the improvements thereto (the “Premises”), upon the terms contained in Section
17.4, Section 17.5 and Section 17.6 of the Agreement.
2.
Interest in Real Estate and Injunctive Relief. Franchisee acknowledges that
Franchisor’s rights under Section 17.4 of the Agreement are real estate rights in the Premises. Franchisee
acknowledges and agrees that damages are not an adequate remedy if Franchisee breaches its obligations
under Section 17.4 of the Agreement and that Franchisor will be entitled to injunctive relief to prevent or
remedy such breach without the necessity of proving the inadequacy of money damages as a remedy and
without the necessity of posting a bond.
3.
Term. The Right of First Refusal will terminate upon the termination of the Agreement;
provided that if an early termination of the Agreement, the Right of First Refusal will survive such early
termination in accordance with the provisions of Section 17.6 of the Agreement.
4.
Subordination. Franchisor’s rights in real estate under Section 17.4 of the Agreement
will only be subordinate to the exercise of the rights of bona fide lenders under a mortgage or security
deed secured by the Premises, only if and for so long as: (i) the lender is not a Competitor or Affiliate of
a Competitor (as those terms are defined in the Agreement); (ii) any such mortgage or security deed is and
remains validly recorded and in full force and effect; and (iii) the indebtedness underlying such mortgage
or security deed complies with the requirements of clauses (1) through (3) of Section 5.2 of the
Agreement.
5.
Addresses. Franchisor’s address, as set forth in the Agreement, is 10400 Fernwood
Road, Bethesda, MD 20817, Attn: Law Department. Franchisee’s address, as set forth in the Agreement,
is ____________________________________________________.
Marriott 384175v3 (03/31/2008)
76
IN WITNESS WHEREOF, the parties hereto have caused this Memorandum to be executed,
under seal, by their duly authorized representatives, as of the date first above written.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.
_________________________________
Assistant Secretary
By: ____________________________________(SEAL)
Name:
Title:
FRANCHISEE:
ATTEST/WITNESS:
____________________________________.
_________________________________
(Assistant) Secretary/Witness
By: ____________________________________(SEAL)
Name:
Title:
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77
STATE OF
CITY/COUNTY OF
I HEREBY CERTIFY that on
, before me, a Notary Public of the State
and City/County aforesaid, personally appeared
, who acknowledged himself/herself to
of Marriott International, Inc. (the
be the
“Corporation”), and that he/she, as such officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of the Corporation by himself/herself
as such officer.
WITNESS my hand and Notarial Seal.
Notary Public
My Commission Expires:
STATE OF
CITY/COUNTY OF
I HEREBY CERTIFY that on
, before me, a Notary Public of the State
and City/County aforesaid, personally appeared
, who acknowledged himself/herself to
be the
of
(the
“Franchisee”), and that he/she, as such officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of Franchisee by himself/herself as
such officer.
WITNESS my hand and Notarial Seal.
Notary Public
My Commission Expires:
Marriott 384175v3 (03/31/2008)
78
EXHIBIT 1 TO MEMORANDUM OF RIGHT OF FIRST REFUSAL
[Legal Description]
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79
EXHIBIT F
FORM OF ELECTRONIC SYSTEMS LICENSE AGREEMENT
This Electronic Systems License Agreement (this “License Agreement”) is made and entered into
effective as of the ____ day of ___________________, 2008 (“Effective Date”), between Marriott
International, Inc., a Delaware corporation (“Franchisor”), and ________________, a ______________
(“Franchisee”).
WITNESSETH:
WHEREAS, Franchisor and Franchisee have entered into a Franchise Agreement dated as of the
date hereof (the “Franchise Agreement”) under which Franchisee will establish and operate the Hotel
under Franchisor’s System at the location specified in the Franchise Agreement; and
WHEREAS, under the terms of the Franchise Agreement, Franchisee is required to use certain
Electronic Systems in connection with, and as a condition of operating the Hotel, and Franchisor desires
to make available to Franchisee such Electronic Systems under the terms of this License Agreement.
NOW, THEREFORE, in consideration of the premises and the undertakings and commitments of
each party to the other party set forth herein, the parties agree as follows:
1.
Defined Terms. Capitalized terms not defined in this License Agreement will have the
meaning given to them in the Franchise Agreement.
2.
License Grant. Subject to the terms of this License Agreement, Franchisor hereby grants
to Franchisee a nonexclusive, non-transferable right and license to use the Electronic Systems made
available by Franchisor. For each Electronic System, the license will commence on the installation date
thereof, and will extend until termination of this License Agreement or such time as Franchisor ceases to
make such Electronic System available in accordance with Franchisor’s operation of the System.
3.
Ownership; Use Restrictions. All Electronic Systems will at all times remain the sole
property of Franchisor or any third-party vendors, as applicable. Franchisee will at all times treat the
Electronic Systems as confidential. Franchisee will not at any time, without Franchisor’s or such third
party’s prior consent (which may be withheld in Franchisor’s or such third party’s sole discretion), copy,
modify, reverse engineer, or otherwise duplicate the Electronic Systems or any component thereof, in
whole or in part, or otherwise make the same available to any third party. Franchisee will use the
Electronic Systems for the exclusive purpose of operating the Hotel in accordance with the Franchise
Agreement. Franchisee will take reasonable measures to ensure that only authorized employees of
Franchisee at the Hotel have access to the Electronic Systems, and only for permitted purposes hereunder.
Such measures will be subject to review and inspection by Franchisor. Franchisee will not attempt to
modify, delete or circumvent any measures used by Franchisor to safeguard the Electronic Systems and
the Intellectual Property therein. Franchisor reserves the right to suspend Franchisee’s access to any
Electronic System in order to protect Franchisor’s Intellectual Property or other systems, data or property
of Franchisor or its vendors.
4.
Third Party Vendors; Preferred Vendors. If any Electronic System is provided by a third
party vendor, Franchisee will comply with the terms provided by such vendors in connection therewith.
Franchisee acknowledges and agrees that such third party vendors will have the right to enforce such
terms directly against Franchisee, and Franchisor will have no liability in connection with Franchisee’s
use of any third party Electronic System. Franchisor may also require Franchisee to execute license or
similar agreements directly with such third party vendors in order to obtain access to Electronic Systems
Marriott 384175v3 (03/31/2008)
80
that are required under Franchisor’s System. Franchisee will be deemed to be in direct privity of contract
with any third party provider of Electronic Systems. From time to time Franchisor may designate a third
party vendor of Electronic Systems as a “preferred vendor” based on Franchisor’s reasonable judgment
that such third party Electronic System is suitable or desirable for Franchisor’s System. Franchisee
acknowledges and agrees that Franchisor neither endorses nor makes any representations or warranties in
connection with any third party’s Electronic Systems, including any Electronic System provided by a
preferred vendor.
5.
Support Services. Franchisor will use commercially reasonable efforts to maintain and
support the Electronic Systems (the “Services”) during the term of this License Agreement either by itself
or through third party vendors as deemed appropriate by Franchisor.
6.
Term and Termination. This License Agreement will commence on the Effective Date
and remain in force until termination of the Franchise Agreement.
7.
DISCLAIMERS. FRANCHISEE ACKNOWLEDGES AND AGREES THAT, EXCEPT AS
EXPRESSLY SET FORTH IN THIS LICENSE AGREEMENT, FRANCHISOR PROVIDES THE
ELECTRONIC SYSTEMS AND ANY ASSOCIATED SERVICES ON AN AS-IS BASIS, AND
FRANCHISOR DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, CUSTOM OR USAGE IN THE TRADE, IN CONNECTION WITH FRANCHISEE’S USE OF
THE ELECTRONIC SYSTEMS AND THE PROVISION OF THE SERVICES UNDER THIS LICENSE
AGREEMENT.
8.
Limitation on Liability. Franchisor will not be liable for any damage arising out of or in
connection with the use or failure of any Electronic Systems or Services, including, but not limited to,
corruption of data, and Franchisee hereby waives any right to or claim of any exemplary, incidental,
indirect, special, consequential, or other similar damages (including loss of profits) in connection with the
use or failure of Electronic Systems or Services, even if Franchisor has been advised of the possibility of
same. Franchisor will use reasonable efforts, to the extent legally permissible, to pass through to
Franchisee any warranties or other similar protections provided to Franchisor by Franchisor’s vendors
with respect to Electronic Systems.
9.
Indemnification. Franchisee agrees to indemnify, defend and hold harmless Franchisor
and its respective officers, directors, employees, agents, successors, and assigns, from any losses, fines,
liabilities, damages and claims, and all related costs and expenses, including reasonable legal fees,
disbursements and costs of investigation, litigation, settlement, judgment, interest and penalties
(collectively, “Losses”) incurred by Franchisor in connection with Franchisee’s use of the Electronic
Systems or any failure by Franchisee to comply with the terms of this License Agreement. Such
indemnification and hold harmless obligations will be subject to and incorporated into the Section of the
Franchise Agreement delineating Franchisee’s indemnification obligations.
10.
Software License Rights Upon Termination. Franchisee acknowledges and agrees that
most Software purchased by Franchisees through Franchisor’s procurement process is purchased in
Franchisor’s name, and is not assignable to Franchisee upon termination of this License Agreement
(“Non-Assignable Software”). As such, upon termination of this License Agreement, Franchisee’s right
to use such Non-Assignable Software will automatically cease. With respect to software purchased
through Franchisor’s procurement process that is assignable to Franchisee upon termination of this
License Agreement (“Assignable Software”), upon the request of Franchisee, Franchisor will provide
reasonable assistance in helping to facilitate assignment of such software, including obtaining consent of
the vendor where necessary. Upon termination of this License Agreement, Franchisee will delete both
Assignable Software and Non-Assignable Software obtained through Franchisor’s procurement process
Marriott 384175v3 (03/31/2008)
81
and, with respect to Assignable Software, Franchisee may reinstall such software on the applicable
computing equipment using software copies obtained by Franchisee directly from the applicable vendor.
11.
Miscellaneous. All notices and other communications hereunder will be in writing and
will be delivered in accordance with the terms of the Franchise Agreement. This License Agreement may
not be modified or amended except by an agreement in writing signed by the parties hereto. Waiver of
any provision hereof in one or more instances will not preclude enforcement thereof on future occasions.
This License Agreement may not be assigned by Franchisee to any third party, except in connection with
an assignment of the Franchise Agreement as expressly permitted therein. This License Agreement and
the legal relations between the parties hereto will be governed by and construed in accordance with the
laws of the jurisdiction set forth in the Franchise Agreement. This License Agreement constitutes the
entire agreement among the parties hereto with respect to the subject matter hereof, and supersedes all
other communications, whether written or oral.
12.
WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES. FRANCHISEE AND
FRANCHISOR EACH HEREBY ABSOLUTELY, IRREVOCABLY AND UNCONDITIONALLY
WAIVE TRIAL BY JURY AND THE RIGHT TO CLAIM OR RECEIVE PUNITIVE DAMAGES
IN ANY LITIGATION, ACTION, CLAIM, SUIT OR PROCEEDING, AT LAW OR IN EQUITY,
ARISING OUT OF, PERTAINING TO OR IN ANY WAY ASSOCIATED WITH THE
COVENANTS, UNDERTAKINGS, REPRESENTATIONS OR WARRANTIES SET FORTH
HEREIN, THE RELATIONSHIPS OF THE PARTIES HERETO, WHETHER AS
“FRANCHISEE” OR “FRANCHISOR” OR OTHERWISE, THIS AGREEMENT OR ANY
OTHER MARRIOTT AGREEMENT, OR ANY ACTIONS OR OMISSIONS IN CONNECTION
WITH ANY OF THE FOREGOING. [FOR DEALS WHERE THE HOTEL OR FRANCHISEE’S
PRINCIPAL PLACE OF BUSINESS IS LOCATED IN CALIFORNIA, ADD THE FOLLOWING
SENTENCE AND ARBITRATION PROVISION: “THE FOREGOING PROVISIONS OF THIS
SECTION CONSTITUTE THE WRITTEN CONSENT OF FRANCHISEE AND FRANCHISOR TO
WAIVE THEIR RIGHT TO A JURY TRIAL, AS CONTEMPLATED BY CCP 631(D)(5) AND
EITHER PARTY MAY SUBMIT THE PROVISIONS OF THIS SECTION TO THE APPLICABLE
COURT OR JUDICIAL BODY TO EVIDENCE SUCH CONSENT OF THE PARTIES.”]
IN WITNESS WHEREOF, the parties hereto have caused this License Agreement to be duly
executed and delivered, under seal, as of the date first above written.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.
Assistant Secretary
By:
Name:
Title:
(SEAL)
FRANCHISEE:
ATTEST/WITNESS:
[FRANCHISEE]
(Assistant) Secretary/Witness
By:
Name:
Title:
Marriott 384175v3 (03/31/2008)
82
(SEAL)
EXHIBIT G
RESTRICTED TERRITORY MAP
Marriott 384175v3 (03/31/2008)
83
[FULL SERVICE - UNRELATED]
EXHIBIT __
FORM OF OWNER AGREEMENT
This AGREEMENT (“Agreement”) is entered into as of the ____ day of _________, 2008, by
and among Marriott International, Inc., a Delaware corporation (“Franchisor”), «Franchise_Name», a
«Fran_Domicili» «Fran_corp»(“Franchisee”), and «Owner_Name», a «Owner_Domicili» «Owner_corp»
(“Owner”).
W I T N E S S E T H:
[The Franchise Agreement should be revised to account for the Owner Agreement. The grant
of the franchise should be conditioned on the existence of a valid and effective Owner Agreement.
Owner’s or Franchisee’s breach of the Owner Agreement and the termination of the Lease should be
defaults under the Franchise Agreement granting Franchisor the right to terminate the Franchise
Agreement.]
WHEREAS, Franchisor and Franchisee are parties to that certain Franchise Agreement dated as
of __________ (as may be amended from time to time, the “Franchise Agreement”) relating to the Hotel
(as defined in the Franchise Agreement); and
WHEREAS, Owner represents and warrants that it holds fee title to the Hotel; and
WHEREAS, Franchisee and Owner [will enter][have entered] into a lease (the “Lease”)
pursuant to which Franchisee will lease the Hotel from Owner and will operate the Hotel; and
WHEREAS, Owner, Franchisee and Franchisor desire that the Hotel be operated as a
[Marriott/Renaissance] Hotel pursuant to the terms and conditions of the Franchise Agreement and this
Agreement.
NOW, THEREFORE, the parties, in consideration of the premises and the undertakings and
commitments of each party set forth herein, agree as follows:
1.
Defaults under the Franchise Agreement.
Franchisor will send Owner a copy of any notice of default sent to Franchisee pursuant to the
Franchise Agreement at the same time the default notice is sent to Franchisee. Owner will cure defaults
on behalf of Franchisee during the cure period, if any, established in the default notice or by applicable
law provided that such default is capable of cure by Owner. In the event that such default is not capable
of cure by Owner, Owner will immediately terminate the Lease and proceed in accordance with Section
2.A hereof. Franchisor also will notify Owner of any voluntary surrender by Franchisee of the Franchise
Agreement, in which event the provisions of Section 2.A. hereof will apply.
MHRS/RHRS
389833v3 – 2008 (Unrelated Party) Form Owner Agreement
03/31/2008
2.
Termination of the Franchise Agreement.
A.
Franchisee Default. If Franchisor terminates the Franchise Agreement for a default by
Franchisee not caused in whole or part by any act or omission of Owner and not capable of cure by
Owner, Owner will immediately after termination:
(1)
cure such default;
(2)
terminate the Lease; and
(3)
enter into (a) a New Franchise Agreement, in accordance with Section 6 hereof,
which will be effective as of the termination date of the Franchise Agreement or (b) at the election of
Franchisor, enter into a short-term, interim franchise agreement approved by Franchisor in its Reasonable
Business Judgment (an “Interim Franchise Agreement”); provided, however, that within thirty (30) days
of the date of the Interim Franchise Agreement, Owner will execute a New Franchise Agreement, in
accordance with Section 6 hereof, which will be effective as of the termination date of the Franchise
Agreement.
In the event that Owner is not qualified to operate the Hotel, as determined by Franchisor
in its sole discretion, Owner will cause a “Substitute Operator” (as defined below) to enter into an Interim
Franchise Agreement and/or New Franchise Agreement, as applicable. For purposes of this Agreement, a
“Substitute Operator” means an operator that is (i) experienced in the operation of high quality hotels, (ii)
financially capable of fully satisfying the requirements of the Interim Franchise Agreement and/or New
Franchise Agreement, as applicable and (iii) approved by Franchisor in its sole discretion. On or prior to
the execution of the Interim Franchise Agreement and/or New Franchise Agreement, Owner will have
entered into (i) a new Lease with a Substitute Operator for a term equal to the term of the Interim
Franchise Agreement or New Franchise Agreement, as applicable, and meeting the requirements of
Section 10 hereof or, at Franchisor’s option, the requirements of the Interim Franchise Agreement or New
Franchise Agreement, and (ii) a new Owner Agreement in a form substantially identical to Franchisor’s
then current form of Owner Agreement.
Upon Owner’s failure to comply with any condition of this Section 2.A, Franchisor will
have the right to terminate immediately upon notice to Owner and without further action (i) this
Agreement, (ii) the Interim Franchise Agreement or other franchise agreement for the Hotel then in effect,
and (iii) the Hotel’s relationship with the System. In such event, Franchisor will have the right to require
Owner to pay the applicable liquidated damages, in accordance with Section 19 of the Franchise
Agreement, and other costs and amounts as described in Section 20.1.B(4) of the Franchise Agreement.
B.
Owner Default. If Franchisor terminates the Franchise Agreement for a default caused in
whole or in part by an act or omission of Owner (or a default capable of cure by Owner, but uncured),
Franchisor will have the right to elect by notice to Owner either (i) to require Owner to proceed pursuant
to Section 2.A or (ii) to terminate immediately upon notice and without further action this Agreement and
the Hotel’s relationship with the System and require Owner to pay the applicable liquidated damages, in
accordance with Section 19 of the Franchise Agreement, and other costs and amounts as described in
Section 20.1.B of the Franchise Agreement.
3.
Termination of the Lease.
Owner will notify Franchisor immediately of any pending or actual termination or expiration of
the Lease that is to occur or has occurred prior to expiration of the Franchise Agreement. If Franchisor
determines that the termination or expiration of the Lease has not been caused in whole or part by any act
MHRS/RHRS
389833v3 – 2008 (Unrelated Party) Form Owner Agreement
03/31/2008
2
or omission of Owner, then Franchisor may terminate the Franchise Agreement. In the event of any such
termination of the Franchise Agreement, the parties will proceed pursuant to Section 2.A of this
Agreement. Under all other circumstances, Franchisor will have the right to elect by notice to Owner
either (i) to terminate the Franchise Agreement and proceed pursuant to Section 2.A, or (ii) to terminate
the Franchise Agreement, this Agreement and the Hotel’s relationship with the System and require Owner
to pay the applicable liquidated damages, in accordance with Section 19 of the Franchise Agreement, and
other costs and amounts as described in Section 20.1.B of the Franchise Agreement. Notwithstanding the
foregoing, if there is a dispute between Owner and Franchisee relating to the termination of the Lease,
Franchisor will have the right to permit Franchisee to operate the Hotel pursuant to the Franchise
Agreement as long as Franchisee has possession of the Hotel, and all of Franchisor’s rights under this
Agreement will be reserved pending resolution of such dispute whether by final court or administrative
order or negotiated settlement.
4.
Transfers Not Involving Competitors.
Section 17 of the Franchise Agreement will apply hereunder to any Transfer of the Hotel, any
Ownership Interest in the Hotel, this Agreement or the Lease, or a direct or indirect Ownership Interest in
Owner, as if Owner were a party thereto; any such Transfer(s) by Owner as described above will be made
only in strict compliance with Section 17 as the context requires.
5.
Transfers Involving a Competitor and Right of First Refusal.
A.
No Transfers to a Competitor. If there is a proposed Transfer to a Competitor of the
Hotel, any Ownership Interest in the Hotel, Owner’s Ownership Interest in this Agreement or in the
Lease, or an Ownership Interest in either Owner or an Affiliate of Owner, and Owner or such Affiliate of
Owner (or such Competitor, as the case may be) wishes to accept such proposed Transfer, Owner will
give written notice thereof to Franchisor, stating the name and full identity of the prospective purchaser or
tenant, as the case may be, including the names and addresses of the owners or holders of any Ownership
Interest of such prospective purchaser or tenant, the price or rental and all terms and conditions of such
proposed transaction, together with all other information with respect thereto that is requested by
Franchisor and reasonably available to Owner. Within thirty (30) days after receipt by Franchisor of such
notice from Owner, Franchisor, in its sole discretion, will elect by notice to Owner one of the immediately
following four alternatives:
(1)
Acquisition of Control of Hotel for Cash. If the proposed Transfer is a sale or
lease of the Hotel for cash consideration, Franchisor (or its designee) will have the right to purchase or
lease the Hotel at the same price or rental and upon the same terms and conditions (other than any terms
relating to the Brand of the Hotel) as those set forth in such offer from (or to) a Competitor. In such
event, Owner and Franchisor (or its designee) will promptly enter into an agreement for sale or lease at
the price or rental and on terms consistent with such offer.
(2)
Acquisition of Owner/Acquisition of Control of Hotel. If the proposed Transfer
is a purchase or lease of all or a portion of the Ownership Interests or the assets (which includes the
Hotel) of Owner or an Affiliate of Owner, or a merger with or into Owner or an Affiliate of Owner, or the
acquisition of Owner’s Ownership Interest in this Agreement or the Lease, or any sale or lease of the
Hotel involving non-cash consideration, or other form of Transfer, Franchisor (or its designee) will have
the right to purchase or lease the Hotel at the purchase or lease price under terms consistent with such
offer as agreed to by the parties. If the parties are unable to agree as to purchase or lease price and terms
within fourteen (14) days of Franchisor’s election, the purchase or lease price of the Hotel will be
determined as provided below.
MHRS/RHRS
389833v3 – 2008 (Unrelated Party) Form Owner Agreement
03/31/2008
3
(a)
Within thirty (30) days after the fourteen (14) day period in this Section
5.A.(2) expires, Franchisor and Owner will each obtain, at its own expense, an appraisal of the fair market
value of the Hotel from a nationally recognized appraiser of Hotel properties comparable to the Hotel. In
determining the fair market value, the appraisers will assume that the Hotel is not subject to a
management agreement but is subject to the existing Franchise Agreement. If, after receiving such
appraisals, the parties agree on the fair market value of the Hotel, such agreed fair market value will
constitute the purchase or lease price.
(b)
If, within fourteen (14) days after receiving the appraisals the parties are
not able to agree on such fair market value, the purchase or lease price will be determined by “baseball
arbitration” in Washington, D.C. in accordance with the Arbitration Rules for the Real Estate Industry of
the American Arbitration Association then in effect (“AAA Rules”) as modified by this Agreement. The
parties will jointly select a third party to act as the sole arbitrator (the “Arbitrator”) to determine the fair
market value of the Hotel, and such Arbitrator will be a person having at least ten (10) years’ recent
professional experience as to the subject matter in question and will be qualified to act as an Arbitrator in
accordance with the AAA Rules. If the parties do not agree on an Arbitrator with such qualifications
within fifteen (15) days after the expiration of such fourteen (14) day period referred to above, the
Arbitrator will be appointed by the American Arbitration Association in Washington, D.C. in accordance
with the AAA Rules.
(c)
The Arbitrator will be instructed and obligated to decide, within thirty
(30) days after appointment, whether the appraisal submitted by Franchisor or the appraisal submitted by
Owner more accurately reflects the fair market value of the Hotel based upon the appraisals submitted and
such information as is normally relied upon by an appraiser of hotels and real estate. Each party agrees to
fully cooperate and provide all information requested by the Arbitrator related to the Arbitrator’s
determination of the fair market value of the Hotel. The Arbitrator’s choice of appraisal will be in
writing, will constitute the purchase price hereunder, and will be final, conclusive and binding on the
parties as an “award” under the AAA Rules, and may be enforced by a court of competent jurisdiction.
The expenses of the arbitration will be borne equally by the parties to the arbitration. Franchisor (or its
designee) will have the right, at any time within thirty (30) days of being notified in writing of the
decision of the Arbitrator, to either (a) purchase the Hotel premises and related property at the valuation
determined by the Arbitrator, or (b) terminate this Agreement pursuant to clause (3) below.
(3)
Termination of Owner Agreement and Franchise Agreement. Franchisor may
place Owner and Franchisee in default and terminate this Agreement and the Franchise Agreement, in
which event Owner and Franchisee will be obligated, jointly and severally, to pay Franchisor the
applicable liquidated damages as set forth in Section 19.3 of the Franchise Agreement.
(4)
Consent. Franchisor may consent to such Transfer, which consent will be on
such terms as Franchisor may require, in its sole discretion.
This Section 5.A will survive termination of this Agreement for any reason if, before
such termination, any event specified in Section 5 occurs, as a result of which Franchisor has exercised
(or has the right to exercise) such right of first refusal, notwithstanding Section 5.G.
B.
Affiliates. If a Competitor proposes to acquire all of the Ownership Interests of an
Affiliate of Owner and the Affiliate does not directly or indirectly own, lease or operate any hotels
operating under a trade name owned by Franchisor or any of its Affiliates, Franchisor will not have any
right of first refusal to purchase the Hotel or right to terminate this Agreement, as provided above in
Section 5.A. with respect to such Transfer.
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C.
Foreclosure. If the Transfer to a Competitor is by foreclosure, judicial or legal process,
or any other means, Franchisor (or its designee) will have the right to purchase the Hotel upon notice to
Owner. If the parties are unable to agree as to a purchase price and terms within thirty (30) days of
Franchisor’s notice, the fair market value of the Hotel premises and related property will be determined
by arbitration in accordance with Section 5.A.(2) above. This provision will survive the termination of
this Agreement and the termination of the Franchise Agreement under Section 19.1 thereof in connection
with the Competitor’s actions under Section 17.4.C of the Franchise Agreement or this Section 5.C.
D.
Owner Becomes a Competitor. If Owner or any of its Affiliates becomes a Competitor,
Owner will notify Franchisor in accordance with Section 5.A., and provide all information reasonably
requested by Franchisor related to becoming a Competitor and requested thereby, or if Franchisor
otherwise determines that Owner or any of its Affiliates has become a Competitor, Franchisor will so
notify Owner and Franchisor will have the rights provided in Section 5.A., as if the Hotel were subject to
a non-cash offer from a third party except that Franchisor will have thirty (30) days instead of fourteen
(14) days to agree on purchase terms.
E.
Right of First Refusal. In addition to the events specified in Section 5.A, Franchisor will
have the rights set forth at Section 5.A. if any event occurs granting Franchisor a right of first refusal
under Section 17 of the Franchise Agreement and in connection with such event Owner fails to terminate
the Lease and enter into, or cause a Substitute Operator to enter into, an Interim Franchise Agreement
and/or a New Franchise Agreement, as applicable, in accordance with this Agreement.
F.
Real Estate Rights. Owner acknowledges that Franchisor’s rights under this Section 5 are
real estate rights with respect to the Hotel. Franchisor is entitled to file a record of such interest in and
among the appropriate real estate records of the jurisdiction in which the Hotel is located, and Owner will
cooperate as requested by Franchisor in such filing. Upon request, Franchisee and Owner must execute a
memorandum of right of first refusal in the form acceptable to Franchisor that satisfies Applicable Law to
record such interests, which will indicate that Franchisor’s rights in real estate under Section 17.4 of the
Franchise Agreement and Section 5 of this Agreement will be subordinate only to the exercise of the righs
of bona fide lenders under a mortgage or security deed secured by the Hotel, only if and for so long as: (i)
the lender is not a Competitor or Affiliate of a Competitor; (ii) any such mortgage or security deed is and
remains validly recorded and in full force and effect; and (iii) the indebtedness underlying such mortgage
or security deed complies with the requirements of clauses (1) through (3) of Section 7 hereof. Owner
agrees that damages are not an adequate remedy if Owner breaches its obligations under this Section 5. If
this Agreement is terminated and Owner’s rights under this Section 5 are no longer in effect, at the
request of Owner or the transferee, Franchisor will deliver an instrument in recordable form to terminate
such recording of interest in real estate.
G.
Survival of Right of First Refusal. Except for termination of this Agreement pursuant to
Section 5.A.(3) above, Owner agrees that Franchisor’s rights under Section 5 will survive early
termination of this Agreement (as opposed to expiration of this Agreement as set forth in Section 12
hereof) and will bind Owner and its Affiliates, if the events in either Section 5.G.(1) or Section 5.G.(2)
occurs:
(1)
before or within six (6) months after termination of this Agreement, a Competitor
offers (or receives an offer from Owner or an Affiliate of Owner) to purchase or lease the Hotel or to
purchase an Ownership Interest in Owner or an Affiliate of Owner, or merge with or into either Owner or
such Affiliate; and
(a)
the Franchise Agreement is terminated under (x) Sections 19.1.K or L;
or (y) Section 19.2.B; or (z) Section 19.2.D based upon a violation of Section 13.2; or
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(b)
the Franchise Agreement is terminated under Section 19.1.A, B, C, D or
E and an Affiliate, principal, or director of Owner obtains possession of the Hotel, or such Affiliate,
principal, or director is the party filing the suit or seeking the execution or foreclosure referenced in
Section 19.1.
(2)
there is a purported early termination of this Agreement (as opposed to expiration
of this Agreement as provided in Section 12 of this Agreement) by Owner and before or within six (6)
months after such purported termination, a proposed Transfer to a Competitor occurs with respect to the
Hotel, the Owner or an Affiliate of Owner, or an Ownership Interest in either Owner or such Affiliate.
6.
New Franchise Agreement.
For purposes of this Agreement, a “New Franchise Agreement” will mean a franchise agreement
between Franchisor or an Affiliate thereof and, at Franchisor’s election in its Reasonable Business
Judgment, Owner or a Substitute Operator, together with any agreements ancillary thereto executed in
connection with such agreement. The New Franchise Agreement will be in form and substance
substantially similar to the then-current standard [___________] Hotel Franchise Agreement offered by
Franchisor, except that the royalty fee will be identical to that contained in the Franchise Agreement (as
such may have been modified as set forth therein) and the term will be equal to the term that would have
remained in the Franchise Agreement had it not been terminated. Notwithstanding any provision of this
Agreement to the contrary, Franchisor will not be required to enter into a New Franchise Agreement
unless the conditions and requirements of Section 2 hereof have been satisfied and Franchisor has
determined in its sole discretion that (i) the Substitute Operator will have the uncontested possession of
the Hotel necessary to perform its obligations under the New Franchise Agreement for the entire term
thereof, as evidenced by, including, without limitation, an agreement, notice or court order terminating
the Lease with Franchisee and (ii) Franchisor can terminate the franchise agreement then in effect for the
Hotel and enter into the New Franchise Agreement without any liability other than the liability to be
incurred in the ordinary course under the terms of the New Franchise Agreement.
7.
Financing of the Hotel.
Owner will not incur or replace any indebtedness that is secured by a lien on or mortgage of the
Hotel or pledge of the Ownership Interests in Owner or Franchisee (whether such indebtedness is incurred
(i) individually on behalf of the Hotel or (ii) on a pooled basis with other hotels or legal entities (a
“Financed Pool”)) unless the following conditions are met: (1) the terms of such indebtedness are
commercially reasonable; (2) the maximum loan amount will not exceed seventy-five percent (75%) of
the appraised value of the Hotel (or hotels, including the Hotel, that are part of the Financed Pool); (3) if
such indebtedness is incurred or replaced on or after the third (3rd) anniversary of the Opening Date, the
debt coverage ratio is equal to or greater than 1.4; and (4) the lender is not a Competitor or an Affiliate of
a Competitor. The debt coverage ratio is the ratio of: (a) cash available for the payment of any debt
service payments (interest and principal) from Gross Revenues (after deduction for any management fee
and the Reserve) of the Hotel (or hotels, including the Hotel, that are part of the Financed Pool) for the
twelve (12) months immediately preceding the written commitment for such indebtedness, to (b) the
amount of such annual debt service payments. Owner will give notice to Franchisor of the component
hotels and legal entities in a Financed Pool before incurring such indebtedness.
8.
Operation of the Hotel.
The Hotel will be operated as a [Marriott/Renaissance] Hotel for the term hereof. Owner
hereby acknowledges and agrees that (a) a default by Franchisee under the terms and conditions of the
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Franchise Agreement will constitute default under the terms and conditions of the Lease and (b) in the
event that an uncured default caused by Franchisee leads to termination of the Franchise Agreement, the
Lease will be terminated if the Hotel is to continue in the System upon cure of the default by Owner in
accordance with Section 2.A. of this Agreement. Failure of Owner to comply with the provisions of this
Section 8 will be a material default by Owner hereunder giving Franchisor the right to terminate this
Agreement and the Franchise Agreement.
9.
Owner’s Obligations under the Franchise Agreement.
A.
Franchisee Default. If Franchisor declares Franchisee to be in default under the
Franchise Agreement, Franchisor may (after providing the notice and applicable cure period, if any,
required in Section 1 above) enforce the Franchise Agreement directly against Owner as if Owner were
the Franchisee under the Franchise Agreement, and Owner will perform, or cause to be performed, the
provisions of the Franchise Agreement including, without limitation, Section 3 on fees, Section 9 on
operations of the Hotel, Section 11.2 on reserves, and Section 16 on indemnification and insurance.
B.
Termination of Franchise Agreement. If the Franchise Agreement is terminated, pursuant
to Section 2.B(ii) hereof, and Franchisee fails to perform any post-termination obligation under the
Franchise Agreement, Franchisor may enforce the Franchise Agreement directly against Owner as if
Owner were the Franchisee under the Franchise Agreement, and Owner will perform, or cause to be
performed, all post-termination obligations of Franchisee under the Franchise Agreement, including,
without limitation, Section 16.1 on indemnification, Section 19.3 on liquidated damages, and Section 20
on de-identifying the Hotel as part of the System and cessation of the use of the System and Proprietary
Marks.
10.
Provisions of the Lease.
Any Lease between Franchisee and Owner governing the lease and operation of the Hotel will
include the substance of the immediately following provisions or such other provisions and requirements
as set forth in the New Franchise Agreement or in Franchisor’s then current disclosure document. For
purposes of this Section 10 only, “Franchise Agreement” will refer to the Franchise Agreement, New
Franchise Agreement or Interim Franchise Agreement, as applicable:
A.
Franchisee will have exclusive possession of the Hotel and exclusive control of the dayto-day operations of the Hotel.
B.
The Hotel will be operated in full compliance with the provisions of the Franchise
Agreement. The Franchise Agreement will control in case of conflict with the Lease.
C.
A default by Franchisee under the terms and conditions of the Franchise Agreement will
constitute default under the terms and conditions of the Lease.
D.
In the event of an uncured default caused by Franchisee that leads to termination of the
Franchise Agreement, the Lease will be terminated.
E.
The provisions in the Lease that reflect this Section 10 and any other provisions in the
Lease affecting, or for the benefit, of Franchisor will not be amended or modified without Franchisor’s
prior written consent.
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11.
Surrender by Franchisee.
Upon the occurrence of the events described herein for the replacement of Franchisee as
possessor and operator of the Hotel, Franchisee will surrender its rights and interest in the Franchise
Agreement to Franchisor and peaceably turn over possession of the Hotel to Owner without need for legal
or judicial process.
12.
Term.
The term of this Agreement will commence on the date first set forth above and will expire upon
the expiration of the term of the Franchise Agreement, New Franchise Agreement or Interim Franchise
Agreement, as applicable, unless this Agreement is terminated prior thereto in accordance with this
Agreement. If the term of the Franchise Agreement, New Franchise Agreement or Interim Franchise
Agreement is renewed or otherwise extended, the term of this Agreement will automatically be extended
to be coterminous with the extended term of the relevant franchise agreement.
13.
Survival.
Notwithstanding any provision to the contrary contained herein, Sections 9, 16 and 17 of this
Agreement will survive and remain in full force and effect after termination or expiration of this
Agreement for any reason, and Sections 5 and 14 will survive the termination or expiration of this
Agreement for any reason to the extent provided in such Sections.
14.
Casualty.
If the Hotel is damaged or destroyed by fire or other cause and such damage or destruction is
substantial and material, affecting over fifty percent (50%) of the Hotel, and necessitates the closing of
the Hotel for a period in excess of ninety (90) days, Owner will have the right to terminate this Agreement
and to cause the Franchise Agreement to be terminated if it elects not to repair or rebuild the Hotel upon
notice to Franchisor given within ninety (90) days of such closing of the Hotel without payment by
Owner or Franchisee of the liquidated damages due under Section 19.3 of the Franchise Agreement if
such casualty is the sole basis for termination of this Agreement and the Franchise Agreement; provided,
however, if subsequent to such notice and before the date on which the term of the Franchise Agreement
would otherwise have ended pursuant to Section 4 of the Franchise Agreement if such notice of
termination had not been given (the “Term Expiration Date”), Owner or Franchisee, or any Affiliate of
either, or any company Controlled by a Person owning or holding a Controlling Ownership Interest in
Owner or Franchisee, or any of their respective general partners, or any Person in which Owner or
Franchisee or any of their respective general partners has a Controlling Ownership Interest or an
Ownership Interest of twenty percent (20%) or greater (the “Owner Entity” or “Franchisee Entity”) in or
operates a hotel; vacation, timesharing, interval or fractional ownership facility; condominium; apartment;
or other lodging product at the Approved Location (the “Other Lodging Product”), which Other Lodging
Product is not operated pursuant to a license or franchise from Franchisor or an Affiliate of Franchisor,
then in such event, Owner or Franchisee, depending upon whether an Owner Entity or Franchisee Entity
has the Ownership Interest in or is operating the Other Lodging Product, will be obligated to promptly
pay to Franchisor an amount equal to the applicable liquidated damages set forth in Section 19.3 of the
Franchise Agreement, but clause (ii) in the calculation of liquidated damages in Section 19.3 of the
Franchise Agreement will be the lesser of (a) sixty (60) months or (b) one-half (½) the number of months
then remaining between (i) the date upon which the Other Lodging Product is first operated by or for the
Owner Entity or Franchisee Entity and (ii) the Term Expiration Date. Owner’s and Franchisee’s
obligations set forth in this Section 14 will survive termination of this Agreement. If the Hotel does not
close for ninety (90) days or the Owner does not elect to terminate this Agreement in accordance with the
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provisions of this Section 14, the Hotel will be promptly renovated and reopened within a reasonable time
in accordance with the System and pursuant to plans and specifications approved by Franchisor in
accordance with Sections 5.3 and 6.2 of the Franchise Agreement.
15.
Condemnation.
Owner will, at the earliest possible time, give Franchisor notice of any proposed taking of the
Hotel by eminent domain, condemnation, compulsory acquisition or similar proceeding. If such taking is
substantial enough in Franchisor’s opinion to render impractical the continued operation of the Hotel in
accordance with the System and guest expectations, this Agreement and the Franchise Agreement will
terminate upon notice by Franchisor to Owner and Franchisee, and Franchisor and Owner will share
equitably in the award; provided, however, Franchisor’s portion will be limited to compensating
Franchisor for Franchisor’s lost Franchise Fees, which amount will not exceed the amount of liquidated
damages due under Section 19.3 of the Franchise Agreement. Further, if such condemnation is the sole
basis for termination of this Agreement and the Franchise Agreement, the share of such award will be in
lieu of payment of the applicable liquidated damages due under Section 19.3 of the Franchise Agreement.
If such taking, in Franchisor’s opinion, will not render the continued operation of the Hotel impractical,
Owner will promptly make whatever repairs and restorations are necessary to make the Hotel conform
substantially to its condition, character, and appearance immediately before such taking, according to
plans and specifications approved by Franchisor. Owner will take all measures necessary to ensure that
the resumption of normal operation of the Hotel is not unreasonably delayed.
16.
Notices.
A.
All notices, requests, demands, statements, and other communications required or
permitted to be given under the terms of this Agreement will be in writing and delivered by hand against
receipt, sent by certified mail (postage prepaid and return receipt requested), or carried by reputable
overnight/international courier service, to the respective party at the following addresses:
To Franchisor:
Marriott International, Inc.
Franchise Attorney
Law Department 52/923.25
10400 Fernwood Road
Bethesda, MD 20817
To Franchisee:
«Franchise_Name»
«fran_street»
«fran_city», «fran_state» «franZipCode»
Attn: «Fran_Attn»
Email: «Fran_email»
To Owner:
«Owner_Name»
«own_street»
«own_city», «own_state» «own_ZipCode»
Attn: «Owner_Attn»
Email: «Owner_email»
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With a copy to:
«OA_Name»
«OA_street»
«OA_city», «OA_state» «OA_ZipCode»
Attn: «OA_Attn»
Email: «addlOA_email»
or at such other address as designated by notice from the respective party to the other parties. Any such
notice or communication will be deemed to have been given at the date and time of: (A) receipt or first
refusal of delivery, if sent via certified mail or delivered by hand; or (B) one day after the posting thereof,
if sent via reputable overnight courier service.
B.
Franchisor may provide Franchisee and/or Owner with routine information, the Standards
and other System requirements and programs, such as the Quality Assurance Program, including any
modifications thereto, by regular mail or by e-mail, facsimile, or by making such information available to
Franchisee and/or Owner on the internet, an extranet, or other electronic means.
17.
Successors and Assigns.
This Agreement will run to the benefit of and be binding upon the parties hereto and their
approved successors and assigns. Franchisor will have the right to Transfer this Agreement to any Person
without prior notice to, or consent of, Owner or Franchisee, provided the transferee assumes Franchisor’s
obligations to Owner and Franchisee under this Agreement. Owner and Franchisee hereby acknowledge
and agree that any such Transfer will constitute a release and novation of Franchisor with respect to this
Agreement. Except as may be provided above, this Agreement will not be assigned by Owner or
Franchisee.
18.
Governing Law.
This Agreement is executed pursuant to, and will be construed under and governed exclusively
by, the laws of the State of Maryland, United States of America. Each party hereby expressly and
irrevocably submits itself to the non-exclusive jurisdiction of the courts of the State of Maryland, United
States of America, in any suit, action, or proceeding arising, directly or indirectly, out of or relating to this
Agreement; and so far as is permitted under applicable law, this consent to personal jurisdiction will be
self-operative. Nothing in this Section 18 is intended, or will be deemed, to make the Maryland Franchise
Registration and Disclosure Law apply to this Agreement, or the transactions, or relationships
contemplated hereby, if such law would not otherwise be applicable.
19.
Ownership Structure.
A.
If Owner is neither a natural person nor a publicly traded corporation, the stock of which
is traded on a nationally recognized stock exchange (with no individual holding 5% or more of the
outstanding stock), Owner represents that its equity is directly and (if applicable) indirectly owned as
shown on Attachment A hereto.
B.
Owner represents and warrants to Franchisor that: (i) neither Owner (including, without
limitation, any and all of its directors and officers) nor any of its Affiliates or the funding sources for any
of the foregoing is a Specially Designated National or Blocked Person; (ii) neither Owner nor any
Affiliate is directly or indirectly owned or controlled by the government of any country that is subject to
an embargo by the United States government; and (iii) neither Owner nor any Affiliate is acting on behalf
of a government of any country that is subject to such an embargo. Owner further represents and
warrants that it is in compliance with any applicable anti-money laundering law, including, the USA
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Patriot Act. Owner agrees that it will notify Franchisor in writing immediately upon the occurrence of any
event that would render the foregoing representations and warranties of this Section 19.B. incorrect.
20.
Entire Agreement; Counterparts.
A.
This Agreement, including the attachments hereto, and the agreements executed
simultaneously herewith, or pursuant to, or in connection with, this Agreement (including, without
limitation, the Franchise Agreement), contains the entire agreement between the parties hereto as it relates
to the Hotel as of the date hereof. The Franchise Agreement is attached hereto as Attachment C; Owner
hereby acknowledges that it has read and fully understands Attachment C as it applies hereunder.
B.
This Agreement may be executed in a number of identical counterparts, each of which
will be deemed an original for all purposes and all of which will constitute, collectively, one agreement.
Delivery of an executed signature page to this Agreement by facsimile transmission will be effective as
delivery of a manually signed counterpart of this Agreement. This is a fully integrated agreement. No
agreement of any kind relating to the matters covered by this Agreement will be binding upon any party
unless and until the same has been made in a written, non-electronic instrument that has been duly
executed by the non-electronic signature of all interested parties. This Agreement may not be amended or
modified by conduct manifesting assent, or by electronic signature, and each party is hereby put on notice
that any individual purporting to amend or modify this Agreement by conduct manifesting assent or by
electronic signature is not authorized to do so.
21.
Effects of Waivers.
No waiver, delay, omission, or forbearance on the part of Franchisor or Owner to exercise any
right, option or power arising from any default or breach by the other party will affect or impair the rights
of Franchisor or Owner, respectively, with respect to any such default or breach or subsequent default or
breach of the same or of a different kind. Any delay or omission of either party to exercise any right
arising from any such default or breach will not affect or impair such party’s rights with respect to such
default or breach or any future default or breach. Franchisor will not be liable to Owner for providing (or
denying) any waiver, approval, consent, or suggestion to Owner in connection with this Agreement or by
reason of any delay or denial of any request.
22.
Cost of Enforcement.
If for any reason it becomes necessary for Franchisor or Owner to initiate any legal or equitable
action to secure or protect its rights under this Agreement, the prevailing party will be entitled to recover
all costs incurred by it in successfully enforcing said rights, including reasonable attorneys’ fees.
23.
Construction and Severability.
A.
If any provision of this Agreement or the application thereof to any Person or
circumstance will to any extent be invalid or unenforceable, the remainder of this Agreement and the
application of such provision to Persons or circumstances other than those as to which it is held invalid or
unenforceable will not be affected thereby, and each provision will be valid and enforceable to the fullest
extent permitted by law. Any invalid or unenforceable provision will be replaced with a provision that is
valid and enforceable and most nearly reflects the original intent of the invalid or unenforceable
provision.
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B.
Nothing in this Agreement is intended, or will be deemed, to confer any rights or
remedies under or by reason of this Agreement upon any Person other than Franchisor (and its Affiliates),
Franchisee, or Owner, and their respective permitted successors and assigns.
24.
Captions.
Captions and section headings are used for convenience only.
Agreement and will not be used in construing it.
25.
They are not part of this
Owner Representations, Warranties and Covenants.
Owner represents, warrants and covenants that (i) it is a legal entity duly formed, validly existing,
and in good standing under the laws of the jurisdiction of its formation, (ii) it and its Affiliates have and
will continue to have throughout the term hereof the ability to perform their obligations under this
Agreement, (iii) it has all necessary power and authority to execute and deliver this Agreement, (iv) it has
read and fully understands the Franchise Agreement (attached hereto as Attachment C) as it applies
hereunder, and (v) during the term of the Franchise Agreement it will not enter into an agreement for the
management of the Hotel that does not comply with the provisions of the Franchise Agreement, unless
otherwise approved by Franchisor.
26.
Capitalized Terms.
Unless the context requires otherwise, capitalized terms not defined herein will have the meaning
set forth in the Franchise Agreement.
27.
WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES.
OWNER, FRANCHISEE AND FRANCHISOR EACH HEREBY ABSOLUTELY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY AND THE RIGHT TO
CLAIM OR RECEIVE PUNITIVE DAMAGES IN ANY LITIGATION, ACTION, CLAIM, SUIT
OR PROCEEDING, AT LAW OR IN EQUITY, ARISING OUT OF, PERTAINING TO OR IN
ANY
WAY
ASSOCIATED
WITH
THE
COVENANTS,
UNDERTAKINGS,
REPRESENTATIONS OR WARRANTIES SET FORTH HEREIN, THE RELATIONSHIPS OF
THE PARTIES HERETO, WHETHER AS “OWNER”, “FRANCHISEE” OR “FRANCHISOR”
OR OTHERWISE, THIS AGREEMENT OR ANY OTHER MARRIOTT AGREEMENT, OR
ANY ACTIONS OR OMISSIONS IN CONNECTION WITH ANY OF THE FOREGOING. [FOR
DEALS WHERE THE HOTEL OR FRANCHISEE’S PRINCIPAL PLACE OF BUSINESS IS
LOCATED IN CALIFORNIA, ADD THE FOLLOWING SENTENCE AND ARBITRATION
PROVISION: “THE FOREGOING PROVISIONS OF THIS SECTION CONSTITUTE THE
WRITTEN CONSENT OF FRANCHISEE AND FRANCHISOR TO WAIVE THEIR RIGHT TO
A JURY TRIAL, AS CONTEMPLATED BY CCP 631(D)(5) AND EITHER PARTY MAY
SUBMIT THE PROVISIONS OF THIS SECTION TO THE APPLICABLE COURT OR
JUDICIAL BODY TO EVIDENCE SUCH CONSENT OF THE PARTIES.”].
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IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to
execute this Owner Agreement, under seal, as of the date first above written.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.
___________________________
Assistant Secretary
By: ______________________________(SEAL)
Name:
Title:
FRANCHISEE:
[WITNESS/ATTEST]:
«Franchise_Name»
a/an «Fran_Domicili» «Fran_corp»
________________________
[Witness/Assistant Secretary]
By:
__________________________(SEAL)
Name: ___________________________
Title: ___________________________
OWNER:
[WITNESS/ATTEST]:
«Owner_Name»
a/an «Owner_Domicili» «Owner_corp»
________________________
[Witness/Assistant Secretary]
By:
__________________________(SEAL)
Name: ___________________________
Title: ___________________________
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ATTACHMENT A
Equity Interest(s) in Owner
(Name(s), address(es), and percentages of ownership)
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ATTACHMENT B
FORM OF MEMORANDUM OF RIGHT OF FIRST REFUSAL
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Recording Requested by:
______________________
______________________
______________________
______________________
Document Prepared by:
______________________
______________________
______________________
______________________
When Recorded, Mail to:
______________________
______________________
______________________
______________________
This space reserved for Recorder’s use only.
FORM OF MEMORANDUM OF RIGHT OF FIRST REFUSAL
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FORM OF MEMORANDUM OF RIGHT OF FIRST REFUSAL
THIS MEMORANDUM OF RIGHT OF FIRST REFUSAL (“MEMORANDUM”), dated as
of __________________, 2008 among Marriott International, Inc., a Delaware corporation
(“Franchisor”), _________________________, a ______________________ (“Franchisee”), and
________________________, a __________________________ (“Owner”).
RECITALS
A.
Franchisor and Franchisee have entered into a Franchise Agreement dated ________________,
2008 (the “Franchise Agreement”), relating to that certain real property located in [County/City], State of
________________, more fully described on Exhibit 1 attached hereto (the “Real Property”).
B.
In connection with and in furtherance of the Franchise Agreement, Franchisor, Franchisee, and
Owner have entered into an Owner Agreement dated _________________, 2008 (the “Owner
Agreement”) with respect to the Real Property.
C.
Owner is the fee owner of the Real Property.
D.
Franchisor, Franchisee and Owner are executing and delivering this Memorandum in accordance
with Section 17.5 of the Franchise Agreement and Section 5 of the Owner Agreement for the purpose of
submitting it to be recorded among the Land Records of [County/City], _________________ (the “Local
Jurisdiction”).
AGREEMENT
NOW THEREFORE, for the good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto state as follows with respect to the Franchise
Agreement and the Owner Agreement:
1.
Grant of Right of First Refusal. Pursuant to Section 17 of the Franchise Agreement and
Section 5 of the Owner Agreement, Franchisee and Owner, respectively, have granted Franchisor the
right of first refusal (the “Right of First Refusal”) to purchase the Real Property, and more particularly
described on Exhibit 1, attached hereto and made a part hereof, together with the improvements thereto
(the “Premises”), upon the terms and conditions contained in Section 17.4, Section 17.5 and Section 17.6
of the Franchise Agreement and Section 5 of the Owner Agreement.
2.
Interest in Real Estate and Injunctive Relief. Each of Franchisee and Owner acknowledges
that Franchisor’s rights under Section 17.4 of the Franchise Agreement and Section 5 of the Owner
Agreement are real estate rights in the Premises. Each of Franchisee and Owner acknowledges and
agrees that damages are not an adequate remedy in the event that Franchisee breaches its obligations
under Section 17.4 of the Franchise Agreement or in the event that Owner breaches its obligations under
Section 5 of the Owner Agreement, and that Franchisor will in either case be entitled to injunctive relief
to prevent or remedy such breach without the necessity of proving the inadequacy of money damages as a
remedy and without the necessity of posting a bond.
3.
Term. The Right of First Refusal will terminate upon the later to occur of the termination of the
Franchise Agreement or the termination of the Owner Agreement; provided that in the event of an early
termination of either the Franchise Agreement or the Owner Agreement, the Right of First Refusal will
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survive such early termination in accordance with the provisions of Section 17.6 of the Franchise
Agreement and Section 5 of the Owner Agreement.
4.
Subordination. Franchisor’s rights in real estate under Section 17.4 of the Franchise Agreement
and Section 5 of the Owner Agreement will only be subordinate to the interests of bona fide lenders who
are not Competitors or Affiliates of Competitors (as those terms are defined in the Franchise Agreement)
and who duly record a security interest in the Premises, provided that any such financing and security
interests comply with the requirements of Section 5.2 of the Franchise Agreement and Section 7 of the
Owner Agreement, as the case may be.
5.
Addresses. Franchisor’s address, as set forth in the Franchise Agreement, is 10400 Fernwood
Road, Bethesda, MD 20817, Attn: Law Department 52/923.25. Franchisee’s address, as set forth in the
Franchise Agreement, is ___________________________________________________, [with a copy to
____________________________________________]. Owner’s address, as set forth in the Owner
Agreement, is ___________________________________________________, [with a copy to
____________________________________________].
{Signatures appear on following page.}
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IN WITNESS WHEREOF, the parties hereto have caused this Memorandum to be executed,
under seal, by their duly authorized representatives, as of the date first above written.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.,
a Delaware corporation
___________________________
Assistant Secretary
By: ______________________________(SEAL)
Name:
Title:
FRANCHISEE:
[WITNESS/ATTEST]:
______________________________,
a/an __________________________
___________________________
[Witness/Assistant Secretary]
By: ______________________________(SEAL)
Name: ___________________________
Title: ___________________________
OWNER:
[WITNESS/ATTEST]:
______________________________,
a/an __________________________
___________________________
[Witness/Assistant Secretary]
By: ______________________________(SEAL)
Name: ___________________________
Title: ___________________________
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STATE OF
CITY/COUNTY OF
I HEREBY CERTIFY that on ______________, 2008 before me, a Notary Public of the State
and City/County aforesaid, personally appeared ________________, who acknowledged himself/herself
to be the ______________________ of Marriott International, Inc. (the “Corporation”), and that he/she,
as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein
contained by signing the name of the Corporation by himself/herself as such officer.
WITNESS my hand and Notarial Seal.
_______________________________________
_____________________, Notary Public
My Commission Expires: __________________
(SEAL)
STATE OF
CITY/COUNTY OF
I HEREBY CERTIFY that on _________________, 2008 before me, a Notary Public of the State
and City/County aforesaid, personally appeared ________________, who acknowledged himself/herself
to be the ___________________ of ____________________________, a ______________________ (the
“Franchisee”), and that he/she, as such officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of Franchisee by himself/herself as
such officer.
WITNESS my hand and Notarial Seal.
_______________________________________
_____________________, Notary Public
My Commission Expires: __________________
(SEAL)
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STATE OF
CITY/COUNTY OF
I HEREBY CERTIFY that on _________________, 2008 before me, a Notary Public of the
State and City/County aforesaid, personally appeared
______________________, who acknowledged
himself/herself to be the ________________ of _______________________, a _____________________
(the “Owner”), and that he/she, as such officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of Owner by himself/herself as such
officer.
WITNESS my hand and Notarial Seal.
_______________________________________
_____________________, Notary Public
My Commission Expires: __________________
(SEAL)
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EXHIBIT 1 TO MEMORANDUM OF RIGHT OF FIRST REFUSAL
[Legal Description]
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ATTACHMENT C
FRANCHISE AGREEMENT
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[FULL SERVICE - RELATED]
EXHIBIT __
FORM OF OWNER AGREEMENT
This AGREEMENT (“Agreement”) is entered into as of the ___ day of _________, 2008, by and
among Marriott International, Inc., a Delaware corporation (“Franchisor”), «Franchise_Name», a
«Fran_Domicili» «Fran_corp» (“Franchisee”), and «Owner_Name», a «Owner_Domicili» «Owner_corp»
(“Owner”).
W I T N E S S E T H:
[The Franchise Agreement should be revised to account for the Owner Agreement. The grant
of the franchise should be conditioned on the existence of a valid and effective Owner Agreement.
Owner’s or Franchisee’s breach of the Owner Agreement and the termination of the Lease should be
defaults under the Franchise Agreement granting Franchisor the right to terminate the Franchise
Agreement.]
WHEREAS, Franchisor and Franchisee are parties to that certain Franchise Agreement dated as
of __________ (as may be amended from time to time, the “Franchise Agreement”) relating to the Hotel
(as defined in the Franchise Agreement); and
WHEREAS, Owner represents and warrants that it holds fee title to the Hotel; and
WHEREAS, Franchisee and Owner [will enter][have entered] into a lease (“Lease”) pursuant to
which Franchisee will lease the Hotel from Owner and will operate the Hotel; and
WHEREAS, Owner, Franchisee and Franchisor desire that the Hotel be operated as a
[Marriott/Renaissance] Hotel pursuant to the terms and conditions of the Franchise Agreement and this
Agreement.
NOW, THEREFORE, the parties, in consideration of the premises and the undertakings and
commitments of each party set forth herein, agree as follows:
1.
[Intentionally Omitted]
2.
Termination of the Franchise Agreement.
Franchisor will have the right to terminate this Agreement immediately upon termination of the
Franchise Agreement by delivering written notice to Owner.
3.
Termination of the Lease.
Owner will notify Franchisor immediately of any pending or actual termination or expiration of
the Lease that is to occur or occurred prior to expiration of the Franchise Agreement, and Franchisor will
have the right to terminate this Agreement and the Franchise Agreement in connection with any such
expiration or termination. If there is a dispute between Owner and Franchisee relating to the termination
of the Lease, Franchisor will have the right to permit Franchisee to operate the Hotel pursuant to the
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Franchise Agreement so long as Franchisee has possession of the Hotel, and all of Franchisor’s rights
under this Agreement will be reserved pending resolution of such dispute whether by final court or
administrative order or negotiated settlement.
4.
Transfers Not Involving Competitors.
Section 17 of the Franchise Agreement will apply hereunder to any Transfer of the Hotel, any
Ownership Interest in the Hotel, this Agreement or the Lease, or a direct or indirect Ownership Interest in
Owner, as if Owner were a party thereto; any such Transfer(s) by Owner as described above will be made
only in strict compliance with Section 17 as the context requires.
5.
Transfers Involving a Competitor and Right of First Refusal.
A.
No Transfers to a Competitor. If there is a proposed Transfer to a Competitor of the
Hotel, any Ownership Interest in the Hotel, Owner’s Ownership Interest in this Agreement or in the
Lease, or an Ownership Interest in either Owner or an Affiliate of Owner, and Owner or such Affiliate of
Owner (or such Competitor, as the case may be) wishes to accept such proposed Transfer, Owner will
give written notice thereof to Franchisor, stating the name and full identity of the prospective purchaser or
tenant, as the case may be, including the names and addresses of the owners or holders of any Ownership
Interest of such prospective purchaser or tenant, the price or rental and all terms and conditions of such
proposed transaction, together with all other information with respect thereto that is requested by
Franchisor and reasonably available to Owner. Within thirty (30) days after receipt by Franchisor of such
notice from Owner, Franchisor, in its sole discretion, will elect by notice to Owner one of the immediately
following four alternatives:
(1)
Acquisition of Control of Hotel for Cash. If the proposed Transfer is a sale or
lease of the Hotel for cash consideration, Franchisor (or its designee) will have the right to purchase or
lease the Hotel at the same price or rental and upon the same terms and conditions (other than any terms
relating to the Brand of the Hotel) as those set forth in such offer from (or to) a Competitor. In such
event, Owner and Franchisor (or its designee) will promptly enter into an agreement for sale or lease at
the price or rental and on terms consistent with such offer.
(2)
Acquisition of Owner/Acquisition of Control of Hotel. If the proposed Transfer
is a purchase or lease of all or a portion of the Ownership Interests or the assets (which includes the
Hotel) of Owner or an Affiliate of Owner, or a merger with or into Owner or an Affiliate of Owner, or the
acquisition of Owner’s Ownership Interest in this Agreement or the Lease, or any sale or lease of the
Hotel involving non-cash consideration, or other form of Transfer, Franchisor (or its designee) will have
the right to purchase or lease the Hotel at the purchase or lease price under terms consistent with such
offer as agreed to by the parties. If the parties are unable to agree as to purchase or lease price and terms
within fourteen (14) days of Franchisor’s election, the purchase or lease price of the Hotel will be
determined as provided below.
(a)
Within thirty (30) days after the fourteen (14) day period in this Section
5.A.(2) expires, Franchisor and Owner will each obtain, at its own expense, an appraisal of the fair market
value of the Hotel from a nationally recognized appraiser of Hotel properties comparable to the Hotel. In
determining the fair market value, the appraisers will assume that the Hotel is not subject to a
management agreement but is subject to the existing Franchise Agreement. If, after receiving such
appraisals, the parties agree on the fair market value of the Hotel, such agreed fair market value will
constitute the purchase or lease price.
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(b)
If, within fourteen (14) days after receiving the appraisals the parties are
not able to agree on such fair market value, the purchase or lease price will be determined by “baseball
arbitration” in Washington, D.C. in accordance with the Arbitration Rules for the Real Estate Industry of
the American Arbitration Association then in effect (“AAA Rules”) as modified by this Agreement. The
parties will jointly select a third party to act as the sole arbitrator (the “Arbitrator”) to determine the fair
market value of the Hotel, and such Arbitrator will be a person having at least ten (10) years’ recent
professional experience as to the subject matter in question and will be qualified to act as an Arbitrator in
accordance with the AAA Rules. If the parties do not agree on an Arbitrator with such qualifications
within fifteen (15) days after the expiration of such fourteen (14) day period referred to above, the
Arbitrator will be appointed by the American Arbitration Association in Washington, D.C. in accordance
with the AAA Rules.
(c)
The Arbitrator will be instructed and obligated to decide, within thirty
(30) days after appointment, whether the appraisal submitted by Franchisor or the appraisal submitted by
Owner more accurately reflects the fair market value of the Hotel based upon the appraisals submitted and
such information as is normally relied upon by an appraiser of hotels and real estate. Each party agrees to
fully cooperate and provide all information requested by the Arbitrator related to the Arbitrator’s
determination of the fair market value of the Hotel. The Arbitrator’s choice of appraisal will be in
writing, will constitute the purchase price hereunder, and will be final, conclusive and binding on the
parties as an “award” under the AAA Rules, and may be enforced by a court of competent jurisdiction.
The expenses of the arbitration will be borne equally by the parties to the arbitration. Franchisor (or its
designee) will have the right, at any time within thirty (30) days of being notified in writing of the
decision of the Arbitrator, to either (a) purchase the Hotel premises and related property at the valuation
determined by the Arbitrator, or (b) terminate this Agreement pursuant to clause (3) below.
(3)
Termination of Owner Agreement and Franchise Agreement. Franchisor may
place Owner and Franchisee in default and terminate this Agreement and the Franchise Agreement, in
which event Owner and Franchisee will be obligated, jointly and severally, to pay Franchisor the
applicable liquidated damages as set forth in Section 19.3 of the Franchise Agreement.
(4)
Consent. Franchisor may consent to such Transfer, which consent will be on
such terms as Franchisor may require, in its sole discretion.
This Section 5.A will survive termination of this Agreement for any reason if, before
such termination, any event specified in Section 5 occurs, as a result of which Franchisor has exercised
(or has the right to exercise) such right of first refusal, notwithstanding Section 5.G.
B.
Affiliates. If a Competitor proposes to acquire all of the Ownership Interests of an
Affiliate of Owner and the Affiliate does not directly or indirectly own, lease or operate any hotels
operating under a trade name owned by Franchisor or any of its Affiliates, Franchisor will not have any
right of first refusal to purchase the Hotel or right to terminate this Agreement, as provided above in
Section 5.A with respect to such Transfer.
C.
Foreclosure. If the Transfer to a Competitor is by foreclosure, judicial or legal process,
or any other means, Franchisor (or its designee) will have the right to purchase the Hotel upon notice to
Owner. If the parties are unable to agree as to a purchase price and terms within thirty (30) days of
Franchisor’s notice, the fair market value of the Hotel premises and related property will be determined
by arbitration in accordance with Section 5.A.(2) above. This provision will survive the termination of
this Agreement and the termination of the Franchise Agreement under Section 19.1 thereof in connection
with the Competitor’s actions under Section 17.4.C of the Franchise Agreement or this Section 5.C.
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D.
Owner Becomes a Competitor. If Owner or any of its Affiliates becomes a Competitor,
Owner will notify Franchisor in accordance with Section 5.A. and provide all information reasonably
requested by Franchisor related to becoming a Competitor and requested thereby, or if Franchisor
otherwise determines that Owner or any of its Affiliates has become a Competitor, Franchisor will so
notify Owner and Franchisor will have the rights provided in Section 5.A. as if the Hotel were subject to a
non-cash offer from a third party except that Franchisor will have thirty (30) days instead of fourteen (14)
days to agree on purchase terms.
E.
Right of First Refusal. In addition to the events specified in Section 5.A, Franchisor will
have the rights set forth at Section 5.A. if any event occurs granting Franchisor a right of first refusal
under Section 17 of the Franchise Agreement.
F.
Real Estate Rights. Owner acknowledges that Franchisor’s rights under this Section 5 are
real estate rights with respect to the Hotel. Franchisor is entitled to file a record of such interest in and
among the appropriate real estate records of the jurisdiction in which the Hotel is located, and Owner will
cooperate as requested by Franchisor in such filing. Upon request, Franchisee and Owner must execute a
memorandum of right of first refusal in the form acceptable to Franchisor that satisfies Applicable Law to
record such interests, which will indicate that Franchisor’s rights in real estate under Section 17.4 of the
Franchise Agreement and Section 5 of this Agreement will be subordinate only to the exercise of the
rights of bona fide lenders under a mortgage or security deed secured by the Hotel, only if and for so long
as: (i) the lender is not a Competitor or Affiliate of a Competitor; (ii) any such mortgage or security deed
is and remains validly recorded and in full force and effect; and (iii) the indebtedness underlying such
mortgage or security deed complies with the requirements of clauses (1) through (3) of Section 7 hereof.
Owner agrees that damages are not an adequate remedy if Owner breaches its obligations under this
Section 5. If this Agreement is terminated and Owner’s rights under this Section 5 are no longer in effect,
at the request of Owner or the transferee, Franchisor will delver an instrument in recordable form to
terminate such recording of interest in real estate.
G.
Survival of Right of First Refusal. Except for termination of this Agreement pursuant to
Section 5.A.(3) above, Owner agrees that Franchisor’s rights under Section 5 will survive early
termination of this Agreement (as opposed to expiration of this Agreement as set forth in Section 12
hereof) and will bind Owner and its Affiliates, if the events in either Section 5.G.(1) or Section 5.G.(2)
occurs:
(1)
before or within six (6) months after termination of this Agreement, a Competitor
offers (or receives an offer from Owner or an Affiliate of Owner) to purchase or lease the Hotel or to
purchase an Ownership Interest in Owner or an Affiliate of Owner, or merge with or into either Owner or
such Affiliate; and
(a).
the Franchise Agreement is terminated under (x) Sections 19.1.K or L;
(y) Section 19.2.B; or (z) Section 19.2.D based upon a violation of Section 13.2; or
(b)
the Franchise Agreement is terminated under Section 19.1.A, B, C, D or
E and an Affiliate, principal, or director of Owner obtains possession of the Hotel, or such Affiliate,
principal, or director is the party filing the suit or seeking the execution or foreclosure referenced in
Section 19.1.
(2)
there is a purported early termination of this Agreement (as opposed to expiration
of this Agreement as provided in Section 12 of this Agreement) by Owner and before or within six (6)
months after such purported termination, a proposed Transfer to a Competitor occurs with respect to the
Hotel, the Owner or an Affiliate of Owner, or an Ownership Interest in either Owner or such Affiliate.
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6.
[Intentionally Omitted]
7.
Financing of the Hotel.
Owner will not incur or replace any indebtedness that is secured by a lien on or mortgage of the
Hotel or pledge of the Ownership Interests in Owner or Franchisee (whether such indebtedness is incurred
(i) individually on behalf of the Hotel or (ii) on a pooled basis with other hotels or legal entities (a
“Financed Pool”)) unless the following conditions are met: (1) the terms of such indebtedness are
commercially reasonable; (2) the maximum loan amount will not exceed seventy-five percent (75%) of
the appraised value of the Hotel (or hotels, including the Hotel, that are part of the Financed Pool); (3) if
such indebtedness is incurred or replaced on or after the third (3rd) anniversary of the Opening Date, the
debt coverage ratio is equal to or greater than 1.4; and (4) the lender is not a Competitor or an Affiliate of
a Competitor. The debt coverage ratio is the ratio of: (a) cash available for the payment of any debt
service payments (interest and principal) from Gross Revenues (after deduction for any management fee
and the Reserve) of the Hotel (or hotels, including the Hotel, that are part of the Financed Pool) for the
twelve (12) months immediately preceding the written commitment for such indebtedness, to (b) the
amount of such annual debt service payments. Owner will give notice to Franchisor of the component
hotels and legal entities in a Financed Pool before incurring such indebtedness.
8.
Operation of the Hotel.
The Hotel will be operated as a [Marriott/Renaissance] Hotel for the term hereof, and Owner
will cause Franchisee to operate the Hotel in accordance with the terms of the Franchise Agreement.
Failure of the Owner to cause the Hotel to be so operated will be a material default by Owner hereunder
giving Franchisor the right to terminate this Agreement and the Franchise Agreement.
9.
Owner’s Obligations under the Franchise Agreement.
A.
Franchisee Default. If Franchisor declares Franchisee to be in default under the
Franchise Agreement, Franchisor may enforce the Franchise Agreement directly against Owner as if
Owner were the Franchisee under the Franchise Agreement, and Owner will perform, or cause to be
performed, the provisions of the Franchise Agreement including, without limitation, Section 3 on fees,
Section 9 on operations of the Hotel, Section 11.2 on reserves, and Section 16 on indemnification and
insurance.
B.
Termination of Franchise Agreement. If the Franchise Agreement is terminated and
Franchisee fails to perform any post-termination obligation under the Franchise Agreement, Franchisor
may enforce the Franchise Agreement directly against Owner as if Owner were the Franchisee under the
Franchise Agreement, and Owner will perform, or cause to be performed, all post-termination obligations
of Franchisee under the Franchise Agreement, including, without limitation, Section 16.1 on
indemnification, Section 19.3 on liquidated damages, and Section 20 on de-identifying the Hotel as part
of the System and cessation of the use of the System and Proprietary Marks.
10.
Provisions of the Lease.
The Lease will include the substance of the immediately following provisions:
A.
Franchisee will have exclusive possession of the Hotel and exclusive control of the day to
day operations of the Hotel.
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B.
The Hotel will be operated in full compliance with the provisions of the Franchise
Agreement. The Franchise Agreement will control in case of conflict with the Lease.
C.
The provisions in the Lease that reflect this Section 10 and any other provisions in the
Lease affecting, or for the benefit of, Franchisor will not be amended or modified without Franchisor’s
prior written consent.
11.
Surrender by Franchisee.
Upon the occurrence of the events described herein for the replacement of Franchisee as
possessor and operator of the Hotel, Franchisee will surrender its rights and interest in the Franchise
Agreement to Franchisor and peaceably turn over possession of the Hotel to Owner without need for legal
or judicial process.
12.
Term.
The term of this Agreement will commence on the date first set forth above and will expire upon
the expiration of the term of the Franchise Agreement, unless this Agreement is terminated prior thereto
in accordance with this Agreement. If the term of the Franchise Agreement is renewed or otherwise
extended, the term of this Agreement will automatically be extended to be coterminous with the extended
term of the relevant franchise agreement.
13.
Survival.
Notwithstanding any provision to the contrary contained herein, Sections 9, 16 and 17 of this
Agreement will survive and remain in full force and effect after termination or expiration of this
Agreement for any reason, and Sections 5 and 14 will survive the termination or expiration of this
Agreement for any reason to the extent provided in such Sections.
14.
Casualty.
If the Hotel is damaged or destroyed by fire or other cause and such damage or destruction is
substantial and material, affecting over fifty percent (50%) of the Hotel, and necessitates the closing of
the Hotel for a period in excess of ninety (90) days, Owner will have the right to terminate this Agreement
and to cause the Franchise Agreement to be terminated if it elects not to repair or rebuild the Hotel upon
written notice to Franchisor given within ninety (90) days of such closing of the Hotel without payment
by Owner or Franchisee of the liquidated damages due under Section 19.3 of the Franchise Agreement if
such casualty is the sole basis for termination of this Agreement and the Franchise Agreement; provided,
however, if subsequent to such notice and before the date on which the term of the Franchise Agreement
would otherwise have ended pursuant to Section 4 of the Franchise Agreement if such notice of
termination had not been given (the “Term Expiration Date”), Owner or Franchisee, or any Affiliate of
either, or any company Controlled by a Person owning or holding a Controlling Ownership Interest in
Owner or Franchisee, or any of their respective general partners, or any Person in which Owner or
Franchisee or any of their respective general partners has a Controlling Ownership Interest or an
Ownership Interest of twenty percent (20%) or greater (the “Owner Entity” or “Franchisee Entity”) in or
operates a hotel; vacation, timesharing, interval or fractional ownership facility; condominium; apartment;
or other lodging product at the Approved Location (the “Other Lodging Product”), which Other Lodging
Product is not operated pursuant to a license or franchise from Franchisor or an Affiliate of Franchisor,
then in such event, Owner or Franchisee, depending upon whether an Owner Entity or Franchisee Entity
has the Ownership Interest in or is operating the Other Lodging Product, will be obligated to promptly
pay to Franchisor an amount equal to the applicable liquidated damages set forth in Section 19.3 of the
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Franchise Agreement, but clause (ii) in the calculation of liquidated damages in Section 19.3 of the
Franchise Agreement will be the lesser of (a) sixty (60) months or (b) one-half (½) the number of months
then remaining between (i) the date upon which the Other Lodging Product is first operated by or for the
Owner Entity or Franchisee Entity and (ii) the Term Expiration Date. Owner’s and Franchisee’s
obligations set forth in this Section 14 will survive termination of this Agreement. If the Hotel does not
close for ninety (90) days or the Owner does not elect to terminate this Agreement in accordance with the
provisions of this Section 14, the Hotel will be promptly renovated and reopened within a reasonable time
in accordance with the System and pursuant to plans and specifications approved by Franchisor in
accordance with Sections 5.3 and 6.2 of the Franchise Agreement.
15.
Condemnation.
Owner will, at the earliest possible time, give Franchisor notice of any proposed taking of the
Hotel by eminent domain, condemnation, compulsory acquisition or similar proceeding. If such taking is
substantial enough in Franchisor’s opinion to render impractical the continued operation of the Hotel in
accordance with the System and guest expectations, this Agreement and the Franchise Agreement will
terminate upon notice by Franchisor to Owner and Franchisee, and Franchisor and Owner will share
equitably in the award; provided, however, Franchisor’s portion will be limited to compensating
Franchisor for Franchisor’s lost Franchise Fees, which amount will not exceed the amount of liquidated
damages due under Section 19.3 of the Franchise Agreement. Further, if such condemnation is the sole
basis for termination of this Agreement and the Franchise Agreement, the share of such award will be in
lieu of payment of the applicable liquidated damages due under Section 19.3 of the Franchise Agreement.
If such taking is non-substantial in Franchisor’s opinion, will not render the continued operation of the
Hotel impractical, Owner will promptly make whatever repairs and restorations are necessary to make the
Hotel conform substantially to its condition, character, and appearance immediately before such taking,
according to plans and specifications approved by Franchisor. Owner will take all measures necessary to
ensure that the resumption of normal operation of the Hotel is not unreasonably delayed.
16.
Notices.
A.
All notices, requests, demands, statements, and other communications required or
permitted to be given under the terms of this Agreement will be in writing and delivered by hand against
receipt, sent by certified mail (postage prepaid and return receipt requested), or carried by reputable
overnight/international courier service, to the respective party at the following addresses:
To Franchisor:
Marriott International, Inc.
Franchise Attorney
Law Department 52/923.25
10400 Fernwood Road
Bethesda, MD 20817
To Franchisee:
«Franchise_Name»
«fran_street»
«fran_city», «fran_state» «franZipCode»
Attn: «Fran_Attn»
Email: «Fran_email»
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To Owner:
«Owner_Name»
«own_street»
«own_city», «own_state» «own_ZipCode»
Attn: «Owner_Attn»
Email: «Owner_email»
With a copy to:
«OA_Name»
«OA_street»
«OA_city», «OA_state» «OA_ZipCode»
Attn: «OA_Attn»
Email: «addlOA_email»
or at such other address as designated by notice from the respective party to the other parties. Any such
notice or communication will be deemed to have been given at the date and time of: (A) receipt or first
refusal of delivery, if sent via certified mail or delivered by hand; or (B) one day after the posting thereof,
if sent via reputable overnight courier service.
B.
Franchisor may provide Franchisee and/or Owner with routine information, the Standards
and other System requirements and programs, such as the Quality Assurance Program, including any
modifications thereto, by regular mail or by e-mail, facsimile, or by making such information available to
Franchisee and/or Owner on the internet, an extranet, or other electronic means.
17.
Successors and Assigns.
This Agreement will run to the benefit of and be binding upon the parties hereto and their
approved successors and assigns. Franchisor will have the right to Transfer this Agreement to any Person
without prior notice to, or consent of, Owner or Franchisee, provided the transferee assumes Franchisor’s
obligations to Owner and Franchisee under this Agreement. Owner and Franchisee hereby acknowledge
and agree that any such Transfer will constitute a release and novation of Franchisor with respect to this
Agreement. Except as may be provided above, this Agreement will not be assigned by Owner or
Franchisee.
18.
Governing Law.
This Agreement is executed pursuant to, and will be construed under and governed exclusively
by, the laws of the State of Maryland, United States of America. Each party hereby expressly and
irrevocably submits itself to the non-exclusive jurisdiction of the courts of the State of Maryland, United
States of America, in any suit, action, or proceeding arising, directly or indirectly, out of or relating to this
Agreement; and so far as is permitted under applicable law, this consent to personal jurisdiction will be
self-operative. Nothing in this Section 18 is intended, or will be deemed, to make the Maryland Franchise
Registration and Disclosure Law apply to this Agreement, or the transactions or relationships
contemplated hereby, if such law otherwise would not otherwise be applicable.
19.
Ownership Structure.
A.
If Owner is neither a natural person nor a publicly held corporation, the stock of which is
traded on a nationally recognized stock exchange (with no individual holding 5% or more of the
outstanding stock), Owner represents that its equity is directly and (if applicable) indirectly owned as
shown on Attachment A hereto.
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B.
Owner represents and warrants to Franchisor that: (i) neither Owner (including, without
limitation, any and all of its directors and officers), nor any of its Affiliates or the funding sources for any
of the foregoing is a Specially Designated National or Blocked Person; (ii) neither Owner nor any
Affiliate is directly or indirectly owned or controlled by the government of any country that is subject to
an embargo by the United States government; and (iii) neither Owner nor any Affiliate is acting on behalf
of a government of any country that is subject to such an embargo. Owner further represents and
warrants that it is in compliance with any applicable anti-money laundering law, including, the USA
Patriot Act. Owner agrees that it will notify Franchisor in writing immediately upon the occurrence of any
event that would render the foregoing representations and warranties of this Section 19.B. incorrect.
20.
Entire Agreement; Counterparts.
A.
This Agreement, including the attachments hereto, and the agreements executed
simultaneously herewith, or pursuant to, or in connection with, this Agreement (including, without
limitation, the Franchise Agreement), contains the entire agreement between the parties hereto as it relates
to the Hotel as of the date hereof. The Franchise Agreement is attached hereto as Attachment C. Owner
hereby acknowledges that it has read and fully understands Attachment C as it applies hereunder.
B.
This Agreement may be executed in a number of identical counterparts, each of which
will be deemed an original for all purposes and all of which will constitute, collectively, one agreement.
Delivery of an executed signature page to this Agreement by facsimile transmission will be effective as
delivery of a manually signed counterpart of this Agreement. This is a fully integrated agreement. No
agreement of any kind relating to the matters covered by this Agreement will be binding upon any party
unless and until the same has been made in a written, non-electronic instrument that has been duly
executed by the non-electronic signature of all interested parties. This Agreement may not be amended or
modified by conduct manifesting assent, or by electronic signature, and each party is hereby put on notice
that any individual purporting to amend or modify this Agreement by conduct manifesting assent or by
electronic signature is not authorized to do so.
21.
Effects of Waivers.
No waiver, delay, omission, or forbearance on the part of Franchisor or Owner to exercise any
right, option or power arising from any default or breach by the other party will affect or impair the rights
of Franchisor or Owner, respectively, with respect to any such default or breach or subsequent default or
breach of the same or of a different kind. Any delay or omission of either party to exercise any right
arising from any such default or breach will not affect or impair such party’s rights with respect to such
default or breach or any future default or breach. Franchisor will not be liable to Owner for providing (or
denying) any waiver, approval, consent, or suggestion to Owner in connection with this Agreement or by
reason of any delay or denial of any request.
22.
Cost of Enforcement.
If for any reason it becomes necessary for Franchisor or Owner to initiate any legal or equitable
action to secure or protect its rights under this Agreement, the prevailing party will be entitled to recover
all costs incurred by it in successfully enforcing said rights, including reasonable attorneys’ fees.
23.
Construction and Severability.
A.
If any provision of this Agreement or the application thereof to any Person or
circumstance will to any extent be invalid or unenforceable, the remainder of this Agreement and the
application of such provision to Persons or circumstances other than those as to which it is held invalid or
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unenforceable will not be affected thereby, and each provision will be valid and enforceable to the fullest
extent permitted by law. Any invalid or unenforceable provision will be replaced with a provision that is
valid and enforceable and most nearly reflects the original intent of the invalid or unenforceable
provision.
B.
Nothing in this Agreement is intended, or will be deemed, to confer any rights or
remedies under or by reason of this Agreement upon any Person other than Franchisor (and its Affiliates),
Franchisee, or Owner, and their respective permitted successors and assigns.
24.
Captions.
Captions and section headings are used for convenience only.
Agreement and will not be used in construing it.
25.
They are not part of this
Owner Representations, Warranties and Covenants.
Owner represents, warrants and covenants that (i) it is a legal entity duly formed, validly existing,
and in good standing under the laws of the jurisdiction of its formation, (ii) it and its Affiliates have and
will continue to have throughout the term hereof the ability to perform their obligations under this
Agreement, (iii) it has all necessary power and authority to execute and deliver this Agreement, (iv) it has
read and fully understands Section 17 of the Franchise Agreement (attached hereto as Attachment C) as it
applies hereunder and (v) during the term of the Franchise Agreement it will not enter into an agreement
for the management of the Hotel that does not comply with the provisions of the Franchise Agreement,
unless otherwise approved by Franchisor.
26.
Capitalized Terms.
Unless the context requires otherwise, capitalized terms not defined herein will have the meaning
set forth in the Franchise Agreement.
27.
WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES.
OWNER, FRANCHISEE AND FRANCHISOR EACH HEREBY ABSOLUTELY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY AND THE RIGHT TO
CLAIM OR RECEIVE PUNITIVE DAMAGES IN ANY LITIGATION, ACTION, CLAIM, SUIT
OR PROCEEDING, AT LAW OR IN EQUITY, ARISING OUT OF, PERTAINING TO OR IN
ANY
WAY
ASSOCIATED
WITH
THE
COVENANTS,
UNDERTAKINGS,
REPRESENTATIONS OR WARRANTIES SET FORTH HEREIN, THE RELATIONSHIPS OF
THE PARTIES HERETO, WHETHER AS “OWNER”, “FRANCHISEE” OR “FRANCHISOR”
OR OTHERWISE, THIS AGREEMENT OR ANY OTHER MARRIOTT AGREEMENT, OR
ANY ACTIONS OR OMISSIONS IN CONNECTION WITH ANY OF THE FOREGOING. [FOR
DEALS WHERE THE HOTEL OR FRANCHISEE’S PRINCIPAL PLACE OF BUSINESS IS
LOCATED IN CALIFORNIA, ADD THE FOLLOWING SENTENCE AND ARBITRATION
PROVISION: “THE FOREGOING PROVISIONS OF THIS SECTION CONSTITUTE THE
WRITTEN CONSENT OF FRANCHISEE AND FRANCHISOR TO WAIVE THEIR RIGHT TO
A JURY TRIAL, AS CONTEMPLATED BY CCP 631(D)(5) AND EITHER PARTY MAY
SUBMIT THE PROVISIONS OF THIS SECTION TO THE APPLICABLE COURT OR
JUDICIAL BODY TO EVIDENCE SUCH CONSENT OF THE PARTIES.”].
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IN WITNESS WHEREOF, the parties have caused their duly authorized representatives to
execute this Owner Agreement, under seal, as of the date first above mentioned.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.
___________________________
Assistant Secretary
By: ______________________________(SEAL)
Name:
Title:
FRANCHISEE:
[WITNESS/ATTEST]:
«Franchise_Name»
a/an «Fran_Domicili» «Fran_corp»
________________________
[Witness/Assistant Secretary]
By:
__________________________(SEAL)
Name: ___________________________
Title: ___________________________
OWNER:
[WITNESS/ATTEST]:
«Owner_Name»
a/an «Owner_Domicili» «Owner_corp»
________________________
[Witness/Assistant Secretary]
By:
__________________________(SEAL)
Name: ___________________________
Title: ___________________________
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ATTACHMENT A
Equity Interest(s) in Owner
(Name(s), address(es), and percentages of ownership)
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ATTACHMENT B
FORM OF MEMORANDUM OF RIGHT OF FIRST REFUSAL
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Recording Requested by:
______________________
______________________
______________________
______________________
Document Prepared by:
______________________
______________________
______________________
______________________
When Recorded, Mail to:
______________________
______________________
______________________
______________________
This space reserved for Recorder’s use only.
FORM OF MEMORANDUM OF RIGHT OF FIRST REFUSAL
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FORM OF MEMORANDUM OF RIGHT OF FIRST REFUSAL
THIS MEMORANDUM OF RIGHT OF FIRST REFUSAL (“MEMORANDUM”), dated as
of __________________, 2008 among Marriott International, Inc., a Delaware corporation
(“Franchisor”), _________________________, a ______________________ (“Franchisee”), and
________________________, a __________________________ (“Owner”).
RECITALS
A.
Franchisor and Franchisee have entered into a Franchise Agreement dated
________________ (the “Franchise Agreement”), relating to that certain real property located in
[County/City], State of ________________, more fully described on Exhibit 1 attached hereto (the “Real
Property”).
B.
In connection with and in furtherance of the Franchise Agreement, Franchisor,
Franchisee, and Owner have entered into an Owner Agreement dated _________________, 2008 (the
“Owner Agreement”) with respect to the Real Property.
C.
Owner is the fee owner of the Real Property.
D.
Franchisor, Franchisee and Owner are executing and delivering this Memorandum in
accordance with Section 17.5 of the Franchise Agreement and Section 5 of the Owner Agreement for the
purpose of submitting it to be recorded among the Land Records of [County/City], _________________
(the “Local Jurisdiction”).
AGREEMENT
NOW THEREFORE, for the good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto state as follows with respect to the Franchise
Agreement and the Owner Agreement:
1.
Grant of Right of First Refusal. Pursuant to Section 17 of the Franchise Agreement and
Section 5 of the Owner Agreement, Franchisee and Owner, respectively, have granted Franchisor the
right of first refusal (the “Right of First Refusal”) to purchase the Real Property, and more particularly
described on Exhibit 1, attached hereto and made a part hereof, together with the improvements thereto
(the “Premises”), upon the terms and conditions contained in Section 17.4, Section 17.5 and Section 17.6
of the Franchise Agreement and Section 5 of the Owner Agreement.
2.
Interest in Real Estate and Injunctive Relief. Each of Franchisee and Owner acknowledges
that Franchisor’s rights under Section 17.4 of the Franchise Agreement and Section 5 of the Owner
Agreement are real estate rights in the Premises. Each of Franchisee and Owner acknowledges and
agrees that damages are not an adequate remedy in the event that Franchisee breaches its obligations
under Section 17.4 of the Franchise Agreement or in the event that Owner breaches its obligations under
Section 5 of the Owner Agreement, and that Franchisor will in either case be entitled to injunctive relief
to prevent or remedy such breach without the necessity of proving the inadequacy of money damages as a
remedy and without the necessity of posting a bond.
3.
Term. The Right of First Refusal will terminate upon the later to occur of the termination of the
Franchise Agreement or the termination of the Owner Agreement; provided that in the event of an early
termination of either the Franchise Agreement or the Owner Agreement, the Right of First Refusal will
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15
survive such early termination in accordance with the provisions of Section 17.6 of the Franchise
Agreement and Section 5 of the Owner Agreement.
4.
Subordination. Franchisor’s rights in real estate under Section 17.4 of the Franchise Agreement
and Section 5 of the Owner Agreement will only be subordinate to the interests of bona fide lenders who
are not Competitors or Affiliates of Competitors (as those terms are defined in the Franchise Agreement)
and who duly record a security interest in the Premises, provided that any such financing and security
interests comply with the requirements of Section 5.2 of the Franchise Agreement and Section 7 of the
Owner Agreement, as the case may be.
5.
Addresses. Franchisor’s address, as set forth in the Franchise Agreement, is 10400 Fernwood
Road, Bethesda, MD 20817, Attn: Law Department 52/923.25. Franchisee’s address, as set forth in the
Franchise Agreement, is ___________________________________________________, [with a copy to
____________________________________________]. Owner’s address, as set forth in the Owner
Agreement, is ___________________________________________________, [with a copy to
____________________________________________].
{Signatures appear on following page.}
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IN WITNESS WHEREOF, the parties hereto have caused this Memorandum to be executed,
under seal, by their duly authorized representatives, as of the date first above written.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.,
a Delaware corporation
___________________________
Assistant Secretary
By: ______________________________(SEAL)
Name:
Title:
FRANCHISEE:
[WITNESS/ATTEST]:
______________________________,
a/an __________________________
___________________________
[Witness/Assistant Secretary]
By: ______________________________(SEAL)
Name: ___________________________
Title: ___________________________
OWNER:
[WITNESS/ATTEST]:
______________________________,
a/an __________________________
___________________________
[Witness/Assistant Secretary]
By: ______________________________(SEAL)
Name: ___________________________
Title: ___________________________
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STATE OF
CITY/COUNTY OF
I HEREBY CERTIFY that on ______________, 2008 before me, a Notary Public of the State
and City/County aforesaid, personally appeared ________________, who acknowledged himself/herself
to be the ______________________ of Marriott International, Inc. (the “Corporation”), and that he/she,
as such officer, being authorized so to do, executed the foregoing instrument for the purposes therein
contained by signing the name of the Corporation by himself/herself as such officer.
WITNESS my hand and Notarial Seal.
_______________________________________
_____________________, Notary Public
My Commission Expires: __________________
(SEAL)
STATE OF
CITY/COUNTY OF
I HEREBY CERTIFY that on _________________, 2008 before me, a Notary Public of the State
and City/County aforesaid, personally appeared ________________, who acknowledged himself/herself
to be the ___________________ of ____________________________, a ______________________ (the
“Franchisee”), and that he/she, as such officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of Franchisee by himself/herself as
such officer.
WITNESS my hand and Notarial Seal.
_______________________________________
_____________________, Notary Public
My Commission Expires: __________________
(SEAL)
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STATE OF
CITY/COUNTY OF
I HEREBY CERTIFY that on _________________, 2008 before me, a Notary Public of the
State and City/County aforesaid, personally appeared
______________________, who acknowledged
himself/herself to be the ________________ of _______________________, a _____________________
(the “Owner”), and that he/she, as such officer, being authorized so to do, executed the foregoing
instrument for the purposes therein contained by signing the name of Owner by himself/herself as such
officer.
WITNESS my hand and Notarial Seal.
_______________________________________
_____________________, Notary Public
My Commission Expires: __________________
(SEAL)
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EXHIBIT 1 TO MEMORANDUM OF RIGHT OF FIRST REFUSAL
[Legal Description]
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ATTACHMENT C
FRANCHISE AGREEMENT
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EXHIBIT D
STATE AMENDMENTS TO DISCLOSURE DOCUMENT
This exhibit contains amendments to the disclosure document for the following states:
California
Hawaii
Illinois
Indiana
Maryland
Michigan
Minnesota
North Dakota
Virginia
Washington
Wisconsin
Marriott 367098v2 (03/31/2008)
CALIFORNIA
STATUTORY AND REGULATORY PROVISIONS AND
REQUIREMENTS OF THE STATE OF CALIFORNIA APPLICABLE TO THE
FRANCHISE DISCLOSURE DOCUMENT
x
THE CALIFORNIA FRANCHISE INVESTMENT LAW REQUIRES THAT A COPY OF ALL
PROPOSED AGREEMENTS RELATING TO THE SALE OF THE FRANCHISE BE DELIVERED
TOGETHER WITH THE DISCLOSURE DOCUMENT.
x
Enforceability of termination upon bankruptcy is a matter governed by federal bankruptcy law, and
enforceability or nonenforceability is subject to that law and rulings or to a court of competent
jurisdiction.
x
California Franchise Investment Law and California Franchise Relationship Act provide rights to the
Franchisee concerning termination, nonrenewal and other aspects of the Franchise Agreement and the
franchise relationship.
x
The Franchise Agreement contains liquidated damages provisions. Under California Civil Code
Section 1671, certain liquidated damages clauses are unenforceable in California.
x
The requirement that the laws of the state of Maryland govern franchise agreements may not be
enforceable with respect to certain claims under California law.
x
Item 17.u. of the disclosure document is modified to include the following:
If your hotel will be located in California or your principal place of business is located in California,
then you will be required to resolve any dispute with us through binding arbitration in Baltimore,
Maryland.
MHR/RHR 389910v2 (03/31/2008)
D-1
HAWAII
STATUTORY AND REGULATORY PROVISIONS AND
REQUIREMENTS OF THE STATE OF HAWAII APPLICABLE TO THE
FRANCHISE DISCLOSURE DOCUMENT
x
YOUR RIGHTS UPON TERMINATION OR NONRENEWAL MAY BE AFFECTED BY THE HAWAII
FRANCHISE INVESTMENT LAW, HAWAII REVISED STATUTES, TITLE 26, CHAPTER 482E,
SECTION 482E-6(3).
x
REGISTRATION IS EFFECTIVE IN MINNESOTA, SOUTH DAKOTA AND WISCONSIN; FRANCHISOR
IS EXEMPT FROM REGISTRATION IN CALIFORNIA, ILLINOIS, INDIANA, MARYLAND, NEW
YORK, NORTH DAKOTA, RHODE ISLAND, VIRGINIA AND WASHINGTON; NOTICE OF FILING IS
EFFECTIVE IN MICHIGAN. REGISTRATION IS NOT ON FILE IN ANY OTHER STATE. NO STATES
HAVE REFUSED TO REGISTER OR REVOKED OR SUSPENDED THE RIGHT TO OFFER
FRANCHISES, NOR HAS A PROPOSED REGISTRATION OF FRANCHISES BEEN INVOLUNTARILY
WITHDRAWN IN ANY STATE.
AMENDMENTS TO THE FRANCHISE
DISCLOSURE DOCUMENT FOR HAWAII
x
Item 2 - the following individuals are involved in operational matters in Hawaii:
Corporate Officer
The following person is a corporate officer of Marriott:
President and Managing Director, Marriott Lodging International: Edwin D. Fuller
Mr. Fuller has been a senior corporate officer of franchisor and President and Managing Director of Marriott
Lodging International since May 1997. He served as Executive Vice President and Managing Director of
Marriott Lodging International from 1994 until May 1997 and as Senior Vice President and Managing Director
between 1991 and 1994.
Lodging Operations Officers
The following persons are lodging operations officers of Marriott:
Executive Vice President-Asia Pacific Region, International Lodging: Geoff Garside
Mr. Garside has been Executive Vice President-Asia Pacific Region of the International Lodging Division of
franchisor since March 2005 and is located in Hong Kong, China. He was Senior Vice President-Asia, Pacific
and Australia Region of the International Lodging Division of franchisor between March 1998 and March 2005.
Mr. Garside was Area Vice President for the Asia, Pacific and Australia Region from April 1997 to April 1998.
From May 1992 to April 1997, Mr. Garside was General Manager of the Hong Kong J.W. Marriott hotel.
Senior Vice President-International Sales, International Lodging: Paul A. Cerula
Mr. Cerula has been Senior Vice President-International Sales of the International Lodging Division of
franchisor since September 1998. He was Regional Vice President, Sales and Marketing for Continental
Europe from September 1992 to September 1998.
MHR/RHR 389910v2 (03/31/2008)
D-2
Senior Vice President-International Operations, International Lodging: Scott A. Neumayer
Mr. Neumayer has been Senior Vice President-International Operations of the International Lodging Division of
franchisor since October 1998. He was Regional Vice President of Operations, Asia/Pacific from May 1997 to
October 1998, and Regional Director of Operations, UK/Asia/Pacific from September 1992 to April 1997.
Senior Vice President-International Brands and Operations Marketing, International Lodging: Belinda Pote
Ms. Pote has been Senior Vice President-International Brands and Operations Marketing, International Lodging
since July 2005 and is located in London, England. She was Regional Vice President, Brand Marketing for the
Asia-Pacific Region from June 2004 through June 2005. From September 1999 to June 2004 she was Regional
Director, Field Marketing for the Asia Pacific Region. Prior to joining franchisor, she worked for McCannErickson advertising agency in Hong Kong from January 1992 to September 1999.
Senior Vice President-International Revenue Management, International Lodging: JoAnn Cordary-Bundock
Ms. Cordary-Bundock has been Senior Vice President-International Revenue Management, International
Lodging since November 2005. She was Vice President-International Revenue Management of the
International Lodging Division of franchisor from January 1995 to November 2005. She was Regional Director
Revenue Management (Southeast Region) from October 1991 to January 1995.
Area Vice President- North Asia, Hawaii, and South Pacific, International Lodging: Ed Hubennette
Mr. Hubennette has been Area Vice President- North Asia, Hawaii and South Pacific, International Lodging
with operational responsibility for Australia, New Zealand and Fiji since February 2006. He is located in
Honolulu, Hawaii. Mr. Hubennette was Area Vice President for the Asia and South Pacific Region from May
1998 to February 2006. From July 1997 to April 1998 he was Area Vice President for Japan and Korea.
Vice President, Lodging Development: F. Kevin Aucello
Mr. Aucello has been Vice President, Lodging Development – Hawaii since February 2007. Prior to joining
franchisor, he was an Executive Vice President and Principal at the firm of CB Richard Ellis in the Honolulu
office from March 2005 to March 2007. Mr. Aucello joined CBRE’s predecessor company, CB Commercial, in
January 1997.
x
Item 6, Footnote 3, is deleted in its entirety and the following footnote is substituted in lieu thereof:
3
x
Currently, our “Accounting Period” refers to any one of the twelve (12) calendar months in the calendar year.
If we change our Accounting Period, you may be required to make the adjustment as well.
Item 6, Footnote 12, is deleted in its entirety and the following footnote is substituted in lieu thereof:
12
You must pay the expenses of personnel we send to your hotel if you request our help, including the cost of
transportation, meals, lodging, and salary or other compensation of these personnel.
MHR/RHR 389910v2 (03/31/2008)
D-3
ILLINOIS
STATUTORY AND REGULATORY PROVISIONS AND
REQUIREMENTS OF THE STATE OF ILLINOIS APPLICABLE TO THE
FRANCHISE DISCLOSURE DOCUMENT
x
THE CONDITIONS UNDER WHICH YOUR FRANCHISE CAN BE TERMINATED AND YOUR
RIGHTS UPON NONRENEWAL MAY BE AFFECTED BY ILLINOIS LAW, 815 ILCS 705/19
AND 705/20.
x
If any of the provisions of this disclosure document (Risk Factor 1., Cover Page, and Item 17.w.) are
inconsistent with Section 4. of the Illinois Franchise Disclosure Act, which states that any provision
in an Agreement that designates jurisdiction of a state other than Illinois, except for arbitration, is
void, then said Illinois law shall apply to the extent such law is constitutional and valid as applied.
x
If any of the provisions of the disclosure document (Risk Factor 1. and 2., Cover Page, and Item
17.v.) are inconsistent with Section 705/41. of the Illinois Franchise Disclosure Act, which states that
any condition, stipulation, or provision purporting to bind any person acquiring a franchise to waive
compliance with any provisions of the Act or any other law of the state of Illinois is void, then said
Illinois law shall apply to the extent such law is constitutional and valid as applied.
x
The Receipt form attached to this disclosure document is hereby amended to reflect that the
disclosure document must be provided to you fourteen (14) days before the signing of any binding
agreement or payment to us.
MHR/RHR 389910v2 (03/31/2008)
D-4
INDIANA
STATUTORY AND REGULATORY PROVISIONS AND
REQUIREMENTS OF THE STATE OF INDIANA APPLICABLE TO THE
FRANCHISE DISCLOSURE DOCUMENT
The Indiana Deceptive Franchise Practices Law provides certain rights to the Franchisee concerning
termination, nonrenewal and other aspects of the Franchise Agreement and the franchise relationship.
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MARYLAND
STATUTORY AND REGULATORY PROVISIONS AND
REQUIREMENTS OF THE STATE OF MARYLAND APPLICABLE TO THE
FRANCHISE DISCLOSURE DOCUMENT
Maryland Franchise Registration and Disclosure Law, Section 14-226, prohibits franchisors from, as
a condition to the sale of a franchise, requiring a prospective franchisee to agree to a release, assignment,
novation, waiver, or estoppel that would relieve a person from liability under the Maryland Franchise
Registration and Disclosure Law.
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MICHIGAN
STATUTORY AND REGULATORY PROVISIONS AND
REQUIREMENTS OF THE STATE OF MICHIGAN APPLICABLE TO THE
FRANCHISE DISCLOSURE DOCUMENT
THIS DISCLOSURE DOCUMENT SUMMARIZES PROVISIONS OF THE FRANCHISE AGREEMENT
AND OTHER INFORMATION IN PLAIN LANGUAGE. READ THIS DISCLOSURE DOCUMENT AND
ALL AGREEMENTS CAREFULLY.
IF WE OFFER YOU A FRANCHISE, WE MUST PROVIDE THIS DISCLOSURE DOCUMENT TO YOU
BY THE EARLIEST OF:
(1)
(2)
(3)
THE FIRST PERSONAL MEETING TO DISCUSS OUR FRANCHISE; OR
TEN BUSINESS DAYS BEFORE SIGNING OF A BINDING AGREEMENT; OR
TEN BUSINESS DAYS BEFORE ANY PAYMENT TO US.
YOU MUST ALSO RECEIVE A FRANCHISE AGREEMENT CONTAINING ALL MATERIAL TERMS
AT LEAST FIVE BUSINESS DAYS BEFORE YOU SIGN ANY FRANCHISE AGREEMENT.
IF WE DO NOT DELIVER THIS DISCLOSURE DOCUMENT ON TIME OR IF IT CONTAINS A FALSE
OR MISLEADING STATEMENT, OR A MATERIAL OMISSION, A VIOLATION OF FEDERAL AND
STATE LAW MAY HAVE OCCURRED AND SHOULD BE REPORTED TO THE FEDERAL TRADE
COMMISSION, WASHINGTON, D.C. 20580 AND THE OFFICE OF THE ATTORNEY GENERAL,
CONSUMER PROTECTION DIVISION, 670 LAW BLDG., LANSING, MICHIGAN 48913.
THE STATE OF MICHIGAN PROHIBITS CERTAIN UNFAIR PROVISIONS THAT ARE SOMETIMES
IN FRANCHISE DOCUMENTS. IF ANY OF THE FOLLOWING PROVISIONS ARE IN THESE
FRANCHISE DOCUMENTS, THE PROVISIONS ARE VOID AND CANNOT BE ENFORCED AGAINST
YOU:
(A)
A PROHIBITION ON THE RIGHT OF A FRANCHISEE TO JOIN AN ASSOCIATION OF
FRANCHISEES.
(B)
A REQUIREMENT THAT A FRANCHISEE ASSENT TO A RELEASE, ASSIGNMENT,
NOVATION, WAIVER, OR ESTOPPEL WHICH DEPRIVES A FRANCHISEE OF RIGHTS AND
PROTECTIONS PROVIDED IN THIS ACT. THIS SHALL NOT PRECLUDE A FRANCHISEE,
AFTER ENTERING INTO A FRANCHISE AGREEMENT, FROM SETTLING ANY AND ALL
CLAIMS.
(C)
A PROVISION THAT PERMITS A FRANCHISOR TO TERMINATE A FRANCHISE PRIOR TO
THE EXPIRATION OF ITS TERM EXCEPT FOR GOOD CAUSE. GOOD CAUSE SHALL
INCLUDE THE FAILURE OF THE FRANCHISEE TO COMPLY WITH ANY LAWFUL
PROVISION OF THE FRANCHISE AGREEMENT AND TO CURE SUCH FAILURE AFTER
BEING GIVEN WRITTEN NOTICE THEREOF AND A REASONABLE OPPORTUNITY,
WHICH IN NO EVENT NEED BE MORE THAN 30 DAYS, TO CURE SUCH FAILURE.
(D)
A PROVISION THAT PERMITS A FRANCHISOR TO REFUSE TO RENEW A FRANCHISE
WITHOUT FAIRLY COMPENSATING THE FRANCHISEE BY REPURCHASE OR OTHER
MEANS FOR THE FAIR MARKET VALUE, AT THE TIME OF EXPIRATION, OF THE
FRANCHISEE’S INVENTORY, SUPPLIES, EQUIPMENT, FIXTURES, AND FURNISHINGS.
PERSONALIZED MATERIALS WHICH HAVE NO VALUE TO THE FRANCHISOR AND
INVENTORY, SUPPLIES, EQUIPMENT, FIXTURES, AND FURNISHINGS NOT
REASONABLY REQUIRED IN THE CONDUCT OF THE FRANCHISE BUSINESS ARE NOT
SUBJECT TO COMPENSATION. THIS SUBSECTION APPLIES ONLY IF: (i) THE TERM OF
THE FRANCHISE IS LESS THAN 5 YEARS; AND (ii) THE FRANCHISEE IS PROHIBITED BY
THE FRANCHISE OR OTHER AGREEMENT FROM CONTINUING TO CONDUCT
SUBSTANTIALLY THE SAME BUSINESS UNDER ANOTHER TRADEMARK, SERVICE
MARK, TRADE NAME, LOGOTYPE, ADVERTISING, OR OTHER COMMERCIAL SYMBOL
IN THE SAME AREA SUBSEQUENT TO THE EXPIRATION OF THE FRANCHISE OR THE
FRANCHISEE DOES NOT RECEIVE AT LEAST 6 MONTHS’ ADVANCE NOTICE OF
FRANCHISOR’S INTENT NOT TO RENEW THE FRANCHISE.
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(E)
A PROVISION THAT PERMITS THE FRANCHISOR TO REFUSE TO RENEW A FRANCHISE
ON TERMS GENERALLY AVAILABLE TO OTHER FRANCHISEES OF THE SAME CLASS
OR TYPE UNDER SIMILAR CIRCUMSTANCES. THIS SECTION DOES NOT REQUIRE A
RENEWAL PROVISION.
(F)
A PROVISION REQUIRING THAT ARBITRATION OR LITIGATION BE CONDUCTED
OUTSIDE THIS STATE. THIS SHALL NOT PRECLUDE THE FRANCHISEE FROM
ENTERING INTO AN AGREEMENT, AT THE TIME OF ARBITRATION, TO CONDUCT
ARBITRATION AT A LOCATION OUTSIDE THIS STATE.
(G)
A PROVISION WHICH PERMITS A FRANCHISOR TO REFUSE TO PERMIT A TRANSFER
OF OWNERSHIP OF A FRANCHISE, EXCEPT FOR GOOD CAUSE. THIS SUBDIVISION
DOES NOT PREVENT A FRANCHISOR FROM EXERCISING A RIGHT OF FIRST REFUSAL
TO PURCHASE THE FRANCHISE. GOOD CAUSE SHALL INCLUDE, BUT IS NOT LIMITED
TO:
(i)
THE FAILURE OF THE PROPOSED TRANSFEREE TO MEET THE FRANCHISOR’S
THEN CURRENT REASONABLE QUALIFICATIONS OR STANDARDS.
(ii)
THE FACT THAT THE PROPOSED TRANSFEREE IS A COMPETITOR OF THE
FRANCHISOR OR SUBFRANCHISOR.
(iii)
THE UNWILLINGNESS OF THE PROPOSED TRANSFEREE TO AGREE IN WRITING
TO COMPLY WITH ALL LAWFUL OBLIGATIONS.
(iv)
THE FAILURE OF THE FRANCHISEE OR PROPOSED TRANSFEREE TO PAY ANY
SUMS OWING TO THE FRANCHISOR OR TO CURE ANY DEFAULT IN THE
FRANCHISE AGREEMENT EXISTING AT THE TIME OF THE PROPOSED
TRANSFER.
(H)
A PROVISION THAT REQUIRES THE FRANCHISEE TO RESELL TO THE FRANCHISOR
ITEMS THAT ARE NOT UNIQUELY IDENTIFIED WITH THE FRANCHISOR. THIS
SUBDIVISION DOES NOT PROHIBIT A PROVISION THAT GRANTS TO A FRANCHISOR A
RIGHT OF FIRST REFUSAL TO PURCHASE THE ASSETS OF A FRANCHISE ON THE SAME
TERMS AND CONDITIONS AS A BONA FIDE THIRD PARTY WILLING AND ABLE TO
PURCHASE THOSE ASSETS, NOR DOES THIS SUBDIVISION PROHIBIT A PROVISION
THAT GRANTS THE FRANCHISOR THE RIGHT TO ACQUIRE THE ASSETS OF A
FRANCHISE FOR THE MARKET OR APPRAISED VALUE OF SUCH ASSETS IF THE
FRANCHISEE HAS BREACHED THE LAWFUL PROVISIONS OF THE FRANCHISE
AGREEMENT AND HAS FAILED TO CURE THE BREACH IN THE MANNER PROVIDED IN
SUBDIVISION (C).
(I)
A PROVISION WHICH PERMITS THE FRANCHISOR TO DIRECTLY OR INDIRECTLY
CONVEY, ASSIGN, OR OTHERWISE TRANSFER ITS OBLIGATIONS TO FULFILL
CONTRACTUAL OBLIGATIONS TO THE FRANCHISEE UNLESS PROVISION HAS BEEN
MADE FOR PROVIDING THE REQUIRED CONTRACTUAL SERVICES.
THE FACT THAT THERE IS A NOTICE OF THIS OFFERING ON FILE WITH THE ATTORNEY
GENERAL DOES NOT CONSTITUTE APPROVAL, RECOMMENDATION, OR ENDORSEMENT BY
THE ATTORNEY GENERAL.
*
*
*
*
IF THE FRANCHISOR’S MOST RECENT FINANCIAL STATEMENTS ARE UNAUDITED AND SHOW
A NET WORTH OF LESS THAN $100,000.00, THE FRANCHISOR MUST, AT THE REQUEST OF THE
FRANCHISEE, ARRANGE FOR THE ESCROW OF INITIAL INVESTMENT AND OTHER FUNDS
PAID BY THE FRANCHISEE UNTIL THE OBLIGATIONS TO PROVIDE REAL ESTATE,
IMPROVEMENTS, EQUIPMENT, INVENTORY, TRAINING, OR OTHER ITEMS INCLUDED IN THE
FRANCHISE OFFERING ARE FULFILLED. AT THE OPTION OF THE FRANCHISOR, A SURETY
BOND MAY BE PROVIDED IN PLACE OF ESCROW.
*
*
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*
*
MINNESOTA
STATUTORY AND REGULATORY PROVISIONS AND
REQUIREMENTS OF THE STATE OF MINNESOTA APPLICABLE TO THE
FRANCHISE DISCLOSURE DOCUMENT
x
The following language will apply to Minnesota franchisees and will amend Item 17 of the disclosure
document and the Cover Page:
Minn. Stat. § 80C.21 and Minn. Rule 2860.4400J prohibit us from requiring litigation to be
conducted outside Minnesota. In addition, nothing in the disclosure document or agreement can
abrogate or reduce any of your rights as provided for in Minnesota Statutes, Chapter 80C, or your
rights to any procedure, forum, or remedies provided for by the laws of the jurisdiction.
x
Items 17. b., c., d., e., f., g. and h. of the disclosure document are modified to reflect that Minnesota
law provides franchisees with certain termination and nonrenewal rights. Minn. Stat. § 80C.l4,
Subds. 3, 4 and 5 require, except in certain specified cases, that a franchisee be given 90 days’ notice
of termination (with 60 days to cure) and l80 days’ notice for nonrenewal of the franchise agreement.
x
The following language will apply to Item 13 of the disclosure document:
Franchisor will defend Franchisee against any claim, demand, or suit based upon, or any challenge to
the validity of, the ownership of, or the right to use the Proprietary Marks and will take action against
uses by others that, in the opinion of counsel for Franchisor, constitute infringement of the
Proprietary Marks or unfair competition against Franchisor or Franchisee. The nature and extent of
Franchisor’s defense or action, including compromise or settlement, shall be within Franchisor’s sole
discretion.
x
Item 17.i. of the disclosure document is amended to reflect that the liquidated damages provisions of
Section 19.3 of the Franchise Agreement are amended as to Minnesota franchisees in accordance
with Attachment MNFA-1, Section 3.
x
Item 17.m. is amended to reflect that the general release language is deleted in franchise agreements
issued to Minnesota franchisees (see Attachment MNFA-1, Section 6).
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NORTH DAKOTA
STATUTORY AND REGULATORY PROVISIONS AND
REQUIREMENTS OF THE STATE OF NORTH DAKOTA APPLICABLE TO THE
FRANCHISE DISCLOSURE DOCUMENT
x
The damages provisions of Section l9.3 of the Franchise Agreement are amended as to North Dakota
franchisees.
x
Applicable law provisions of the Franchise Agreement are amended as to North Dakota franchisees.
x
The provisions of Section 22.3 of the Franchise Agreement are amended with respect to North
Dakota franchisees.
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VIRGINIA
STATUTORY AND REGULATORY PROVISIONS AND
REQUIREMENTS OF THE STATE OF VIRGINIA RETAIL FRANCHISING ACT
APPLICABLE TO THE FRANCHISE DISCLOSURE DOCUMENT
Virginia Administrative Code, Title 21, Chapter 110, Sections 5-110-10 through 5-110-90 (the “Act”)
provides rights to the franchisee concerning termination or nonrenewal of a franchise. If the Act applies and
the Franchise Agreement is inconsistent with the Act, the Act will control.
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WASHINGTON
STATUTORY AND REGULATORY PROVISIONS AND
REQUIREMENTS OF THE STATE OF WASHINGTON APPLICABLE TO THE
FRANCHISE DISCLOSURE DOCUMENT
The following language will be attached by addendum to Franchise Agreements issued in the state of
Washington:
x
Provisions of the Franchise Agreement may be inconsistent with the provisions of the Washington
Franchise Investment Protection Act, RCW Chapter 19.100 (the “Act”).
x
Except as described in Item 17 of the franchise disclosure document regarding transfers to a competitor,
the Franchise Agreement does not require binding arbitration.
x
Transfer fees are collectible to the extent that they reflect the Franchisor’s reasonable estimated or actual
costs in effecting a transfer.
x
The provisions of Washington statute RCW 19.100.180 and/or certain court decisions may supersede the
provisions in the Franchise Agreement relating to Franchisee’s relationship with Franchisor, including
provisions relating to renewal and termination of the franchise.
x
A release or waiver of rights executed by Franchisee shall not include rights under the Act except when
executed pursuant to a negotiated settlement after the agreement is in effect and where the parties are
represented by independent counsel. Provisions such as those which unreasonably restrict or limit the
statute of limitations period for claims under the Act and rights or remedies under the Act such as a right
to a jury trial may not be enforceable.
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WISCONSIN
STATUTORY AND REGULATORY PROVISIONS AND
REQUIREMENTS OF THE STATE OF WISCONSIN APPLICABLE TO THE
FRANCHISE DISCLOSURE DOCUMENT
x
The following will apply to disclosure documents issued in the state of Wisconsin:
The Wisconsin Fair Dealership Act, Wisconsin Statutes, Chapter l35, may apply to and govern the
provisions of franchise agreements issued in Wisconsin.
The Act’s requirements, including the requirements that, in certain circumstances, a franchisee receives
ninety (90) days’ notice of termination, cancellation, nonrenewal or substantial change in competitive
circumstances, and sixty (60) days to remedy claimed deficiencies, may supersede the requirements of
the Franchise Agreement, to the extent that they may be inconsistent with the Act’s requirements.
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EXHIBIT E
STATE AMENDMENTS TO FRANCHISE AGREEMENT
This exhibit contains amendments to the franchise agreement for the following states:
California
Hawaii
Illinois
Minnesota
North Dakota
Rhode Island
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ATTACHMENT CAFA-1
AMENDMENT TO FRANCHISE AGREEMENT
REQUIRED BY THE STATE OF CALIFORNIA
In accordance with the requirements of California law, the parties to the attached FRANCHISE AGREEMENT
(the “Agreement”) agree as follows:
1.
Section 22.3 WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES is hereby deleted and
replaced with the following:
22.3
WAIVER OF JURY TRIAL; PUNITIVE DAMAGES; ARBITRATION.
A.
FRANCHISEE AND FRANCHISOR EACH HEREBY ABSOLUTELY,
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY AND THE RIGHT
TO CLAIM OR RECEIVE PUNITIVE DAMAGES IN ANY LITIGATION, ACTION, CLAIM,
SUIT OR PROCEEDING, AT LAW OR IN EQUITY, ARISING OUT OF, PERTAINING TO
OR IN ANY WAY ASSOCIATED WITH THE COVENANTS, UNDERTAKINGS,
REPRESENTATIONS OR WARRANTIES SET FORTH HEREIN, THE RELATIONSHIPS
OF THE PARTIES HERETO, WHETHER AS “FRANCHISEE” OR “FRANCHISOR” OR
OTHERWISE, THIS AGREEMENT OR ANY OTHER AGREEMENT, INSTRUMENT OR
DOCUMENT ENTERED INTO IN CONNECTION HEREWITH, OR ANY ACTIONS OR
OMISSIONS IN CONNECTION WITH ANY OF THE FOREGOING. THE FOREGOING
PROVISIONS OF THIS SECTION CONSTITUTE THE WRITTEN CONSENT OF
FRANCHISEE AND FRANCHISOR TO WAIVE THEIR RIGHT TO A JURY TRIAL, AS
CONTEMPLATED BY CCP 631(D)(5) AND EITHER PARTY MAY SUBMIT THE
PROVISIONS OF THIS SECTION TO THE APPLICABLE COURT OR JUDICIAL BODY
TO EVIDENCE SUCH CONSENT OF THE PARTIES.
B.
(1)
Except as otherwise specified in this Agreement, any dispute, controversy,
or claim arising out of or relating to this Agreement, including any question regarding its existence,
validity, legality or termination, or regarding a breach thereof, as well as any claim that Franchisor
violated any laws in connection with the execution or enforcement of this Agreement (each, a
“Dispute”), shall be resolved referred to, and finally settled by, arbitration under and in accordance
with the Commercial Arbitration Rules of the American Arbitration Association (or any similar
successor rules thereto). The arbitrator(s) shall be appointed in accordance with said rules. The
number of arbitrators shall be one unless the parties agree otherwise in accordance with said rules.
The place where arbitration proceedings shall be conducted is Baltimore, Maryland.
(2)
The decision of the arbitral tribunal shall be final and binding upon the parties,
and such decision shall be enforceable in any courts having jurisdiction. The arbitral tribunal shall have
no authority to amend or modify the terms of this Agreement. The arbitral tribunal shall have the right to
award or include in their award any relief they deem proper in the circumstances, including money
damages (with interest on unpaid amounts from the date due), specific performance and legal fees and
costs in accordance with this Agreement; however, the arbitral tribunal may not award punitive,
consequential or exemplary damages. The costs and expenses of arbitration shall be allocated and paid by
the parties as determined by the arbitral tribunal.
(3)
Any arbitration proceeding pursuant to this Agreement shall be conducted on
an individual (not a class-wide) basis and shall not be consolidated with any other arbitration proceedings
to which Franchisor is a party, except that Franchisor may join any management company operating the
Hotel, any owner under an owner agreement related hereto, and any guarantor of any obligations
hereunder in any such proceeding. Any Dispute to be settled by arbitration pursuant to this Section shall
at the request of Franchisee or Franchisor be resolved in a single arbitration before a single tribunal
together with any Dispute arising out of or relating to any other agreement between Franchisee and
Franchisor and its Affiliates. No decision on any matter in any other arbitration proceeding in which
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Franchisor is a party shall prevent any party to the arbitration proceeding from submitting evidence with
respect to the same or a similar matter or prevent the arbitral tribunal from rendering an independent
decision without regard to such decision in such other arbitration proceeding.
(4)
Franchisor may, without waiving any rights it has under this Agreement, seek
from a court having jurisdiction any interim or provisional relief that may be necessary to protect its rights
or property (including, without limitation, any aspect of the System, or any reason concerning the safety of
the Hotel or the health and welfare of any of the Hotel’s guests, invitees or employees).
(5)
The provisions of this Section shall survive the expiration or termination of this
Agreement.
2.
Section 27.4 of the Agreement shall be supplemented by the addition of the following new Paragraph,
which shall be considered an integral part of the Agreement:
F.
Franchisee and Franchisor acknowledge and agree as follows:
(1)
Enforceability of termination upon bankruptcy is a matter governed by federal
bankruptcy law, and enforceability or non-enforceability is subject to that law and rulings or to a court of
competent jurisdiction.
(2)
California Business and Professions Code §§20000-20043 provide rights to the
franchisee concerning termination or nonrenewal of a franchise. If the Agreement is inconsistent with the
law, the law will control.
(3)
The Agreement contains liquidated damages provisions. Under California
Civil Code § 1671, certain liquidated damages clauses are unenforceable in California.
(4)
The requirement that the laws of the state of Maryland govern this Agreement
may not be enforceable with respect to claims under the California Franchise Investment Law.
3.
Each provision of this Amendment to the Agreement shall be effective only to the extent that the
jurisdictional requirements of the California Franchise Investment Law, Cal. Corp. Code §§31000-31516,
or the California Franchise Relations Act, Cal. Bus. & Prof. Code §§20000-20043, or the California Civil
Code §1671 are met independently with respect to each such provision and without reference to this
Amendment to the Agreement.
4.
Franchisor reserves the right to challenge the applicability of any law that declares provisions in the
Agreement void or unenforceable.
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed and delivered this Amendment to the
Agreement in duplicate on the day and year first above written in the Agreement.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.
_________________________________
Assistant Secretary
By:________________________________________ (Seal)
Name:
Title:
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FRANCHISEE:
ATTEST:
__________________________________________
_________________________________
Assistant Secretary
By:________________________________________ (Seal)
Name:
Title:
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ATTACHMENT HIFA-1
AMENDMENT TO FRANCHISE AGREEMENT
REQUIRED BY THE STATE OF HAWAII
In accordance with the requirements of the Hawaii Franchise Investment Law, Section 482E-6(2)(F), the parties to
the attached FRANCHISE AGREEMENT (the “Agreement”) agree as follows:
Section 1 – “Accounting Period” definition - shall be deleted in its entirety, and shall have no force or effect, and
the following shall be substituted in lieu thereof:
“Accounting Period” means Franchisor’s fiscal accounting and reporting period. Franchisor’s fiscal year
begins on January 1 and ends at midnight on December 31, and is comprised of twelve (12) one-month
Accounting Periods. If Franchisor changes its designated accounting period in the future, corresponding
adjustment to this Agreement’s accounting period and reporting procedures also shall be made.
Section 10.2 – Counseling and Advisory Services – shall be deleted in its entirety, and shall have no force or effect,
and the following shall be substituted in lieu thereof:
Franchisor will make its representatives available at Franchisor’s designated offices at reasonable hours or
to meet in person to consult with and advise (but not provide legal counsel or advise to) Franchisee
regarding the design, operation, and management of the Hotel as a Marriott Hotel. Franchisee must pay
the expenses of such representative while at, going to, and coming from, the Hotel, including Travel
Expenses, salary or other compensation, in accordance with Section 3.6.
Section 17.2.A.(1)(b) of the Agreement shall be deleted in its entirety, and shall have no force or effect, and the
following shall be substituted in lieu thereof:
Franchisee will satisfy all of its accrued monetary obligations to Franchisor and its Affiliates, including an
amount equal to a reasonable estimate of the costs and fees not yet accumulated and/or invoiced, and will
execute, in a form prescribed by Franchisor, a general release of any and all claims against Franchisor and
its Affiliates, and their respective officers, directors, agents and employees; excluding only such claims as
Franchisee may have that have arisen under the Hawaii Franchise Investment Law;
Section 25.1 – Notices – shall be deleted in its entirety, and shall have no force or effect, and the following shall be
substituted in lieu thereof:
A.
Subject to 25.1.B., all notices, requests, demands, statements, and other communications required
or permitted to be given under the terms of this Agreement will be in writing and delivered by hand
against receipt, sent by certified mail (postage prepaid and return receipt requested), or carried by
reputable overnight/international courier service, to the respective party at the following addresses:
To Franchisor:
Marriott International, Inc.
10400 Fernwood Road
Bethesda, MD 20817
Attn: Law Department 52/923.25
With a copy to:
Marriott International, Inc.
10400 Fernwood Road
Bethesda, MD 20817
Attn: Vice President, Owner and Franchise Services
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With a copy to:
Marriott International, Inc.
c/o Marriott Asia Pacific Management Ltd.
8/F The Grand Millennium Plaza
181 Queen’s Road Central
Hong Kong
Attn: Senior Vice President
To Franchisee:
«FRANCHISE_NAME»
«fran_street»
«fran_city», «fran_state» «franZipCode»
Attn: «Fran_Attn»
Email: «Fran_email»
or at such other address as designated by notice from the respective party to the other party. Any such
notice or communication will be deemed to have been given at the date and time of: (A) receipt or first
refusal of delivery, if sent via certified mail or delivered by hand; or (B) one day after the posting thereof,
if sent via reputable overnight/international courier service.
B.
Notwithstanding Section 25.1.A. above, Franchisor may provide Franchisee with routine
information, the Standards and other System requirements and programs, such as the Quality Assurance
Program, including any modifications thereto, by regular mail or by e-mail, facsimile, or by making said
information available to Franchisee on the Internet, an extranet, or other electronic means.
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed and delivered this Amendment to the
Agreement in duplicate on the day and year first above written in the Agreement.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.
_________________________________
Assistant Secretary
By:________________________________________ (Seal)
Name:
Title:
FRANCHISEE:
ATTEST:
__________________________________________
_________________________________
Assistant Secretary
By:________________________________________ (Seal)
Name:
Title:
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ATTACHMENT ILFA-1
AMENDMENT TO FRANCHISE AGREEMENT
REQUIRED BY THE STATE OF ILLINOIS
In recognition of the requirements of the Illinois Franchise Disclosure Act, the parties to the attached
FRANCHISE AGREEMENT (the “Agreement”) agree as follows:
1.
Section 4.l, “Term,” of the Agreement shall be supplemented by the following:
If any of the provisions of this Section 4.l concerning nonrenewal are inconsistent with the provisions
of Illinois law 815 ILCS 705/20, then said Illinois law shall apply.
2.
Section l9, “Default and Termination,” of the Agreement shall be supplemented by the following:
If any of the provisions of this Article 19 governing termination are inconsistent with the provisions of
Illinois law 815 ILCS 705/19, then said Illinois law shall apply.
3.
Section 22.3, “WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES,” of the Agreement shall be
deleted in its entirety, and shall have no force or effect, and the following shall be substituted in lieu
thereof:
22.3
WAIVER OF JURY TRIAL AND PUNITIVE DAMAGES.
TO THE EXTENT ALLOWED BY LAW, FRANCHISEE AND FRANCHISOR EACH
HEREBY ABSOLUTELY, IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BU
JURY AND THE RIGHT TO CLAIM OR RECEIVE PUNITIVE DAMAGES IN ANY
LITIGATION, ACTION, CLAIM, SUIT OR PROCEEDING, AT LAW OR IN EQUITY,
ARISING OUT OF, PERTAINING TO OR IN ANY WAY ASSOCIATED WITH THE
COVENANTS, UNDERTAKINGS, REPRESENTATIONS OR WARRANTIES SET FORTH
HEREIN, THE RELATIONSHIPS OF THE PARTIES HERETO, WHETHER AS
“FRANCHISEE” OR “FRANCHISOR” OR OTHERWISE, THIS AGREEMENT OR ANY
OTHER MARRIOTT AGREEMENT, OR ANY ACTIONS OR OMISSIONS IN CONNECTION
WITH ANY OF THE FOREGOING.
4.
Section 24.l, “Governing Law,” of the Agreement shall be supplemented by the following:
C.
If any of the provisions of this Section 24.l of the Agreement are inconsistent with the
provisions of Section 705/4. or 705/41. of the Illinois Franchise Disclosure Act, then said Illinois law
shall apply to the extent such law is constitutional and valid as applied.
D.
Sec. 705/4. Any provision in a franchise agreement that designates jurisdiction or venue in a
forum outside of this State is void provided that a franchise agreement may provide for arbitration in a
forum outside of this State.
E.
Sec. 705/41. Any condition, stipulation, or provision purporting to bind any person acquiring
any franchise to waive compliance with any provision of this Act or any other law of this State is void.
This Section shall not prevent any person from entering into a settlement agreement or executing a
general release regarding a potential or actual lawsuit filed under any of the provisions of this Act, nor
shall it prevent the arbitration of any claim pursuant to the provisions of Title 9 of the United States
Code.
5.
Each provision of this Amendment to the Agreement shall be effective only to the extent that the
jurisdictional requirements of the Illinois Franchise Disclosure Act are met independently with respect to
each such provision and without reference to this Amendment to the Agreement.
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6.
Franchisor reserves the right to challenge the applicability of any law that declares provisions in the
Agreement void or unenforceable.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment to the
Agreement as of the day and year first above written in the Agreement.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.
_________________________________
Assistant Secretary
By:________________________________________ (Seal)
Name:
Title:
FRANCHISEE:
ATTEST:
__________________________________________
_________________________________
Assistant Secretary
By:________________________________________ (Seal)
Name:
Title:
MHR/RHR 389899v2 (03/31/2008)
E-8
ATTACHMENT MNFA-l
AMENDMENT TO FRANCHISE AGREEMENT
REQUIRED BY THE STATE OF MINNESOTA
In recognition of the requirements of the Minnesota Franchise Act, Minn. Stat. § 80C., and of the Rules and
Regulations promulgated thereunder by the Commissioner of Commerce, the parties to the attached FRANCHISE
AGREEMENT (the “Agreement”) agree as follows:
1.
The Commissioner of Commerce for the State of Minnesota requires that certain provisions contained in
franchise documents be amended to be consistent with Minnesota Franchise Act, Minn. Stat. Section 80.01 et seq.,
and of the Rules and Regulations promulgated under the Act (collectively the “Franchise Act”). To the extent that
the Agreement and Disclosure Document contain provisions that are inconsistent with the following, such
provisions are hereby amended:
a.
Franchise Act, Sec. 80C.14, Subd. 4., requires, except in certain specified cases, that a franchisee
be given written notice of a franchisor's intention not to renew 180 days prior to expiration of the
franchise and that the franchisee be given sufficient opportunity to operate the franchise in order
to enable the franchisee the opportunity to recover the fair market value of the franchise as a
going concern. If the Agreement and/or Disclosure Document contains a provision that is
inconsistent with the Franchise Act, the provisions of the Agreement and/or Disclosure
Document shall be superseded by the Act's requirements and shall have no force or effect.
b.
Franchise Act, Sec. 80C.14, Subd. 3., requires, except in certain specified cases that a franchisee
be given 90 days notice of termination (with 60 days to cure). If the Agreement and/or
Disclosure Document contains a provision that is inconsistent with the Franchise Act, the
provisions of the Agreement and/or Disclosure Document shall be superseded by the Act's
requirements and shall have no force or effect.
c.
If the Franchisee is required in the Agreement and/or Disclosure Document to execute a release
of claims that would violate the Franchise Act, such release shall exclude claims arising under
the Franchise Act.
d.
If the Agreement and/or Disclosure Document requires that it be governed by a state's law, other
than the State of Minnesota, those provisions shall not in any way abrogate or reduce any rights
Franchisee may have as provided for in the Franchise Act, including the right to submit matters
to the jurisdiction of the courts of Minnesota.
e.
Minn. Rule 2860.4400J. prohibits the Franchisor from requiring Franchisee to consent to
liquidated damages. If the Agreement and/or Disclosure Document contains a provision that is
inconsistent with the Minn. Rule, the provisions of the Agreement and/or Disclosure Document
shall be superseded by the Minn. Rule’s requirements and Franchisee shall not be deemed to
have consented to the calculation of the amount of such damages.
2.
Each provision of this Amendment to the Agreement shall be effective only to the extent that the
jurisdictional requirements of the Minnesota Franchise Act are met independently with respect to each such
provision and without reference to this Amendment to the Agreement.
3.
Franchisor reserves the right to challenge the applicability of any law that declares provisions in the
Agreement void or unenforceable.
MHR/RHR 389899v2 (03/31/2008)
E-9
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment to the
Agreement as of the day and year first above written in the Agreement.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.
_________________________________
Assistant Secretary
By:________________________________________ (Seal)
Name:
Title:
FRANCHISEE:
ATTEST:
__________________________________________
_________________________________
Assistant Secretary
By:________________________________________ (Seal)
Name:
Title:
MHR/RHR 389899v2 (03/31/2008)
E-10
ATTACHMENT NDFA-l
AMENDMENT TO FRANCHISE AGREEMENT
REQUIRED BY THE STATE OF NORTH DAKOTA
In recognition of the requirements of the North Dakota Century Code (Section 5l-l9-09) (“North Dakota
Franchise Law”), the parties to the attached FRANCHISE AGREEMENT (the “Agreement”) agree as follows:
1.
The North Dakota Franchise Law prohibits the Franchisor from requiring a Franchisee to consent to a
termination penalty. If the Agreement contains a provision that is inconsistent with the North Dakota
Franchise Law, the provisions of the Agreement shall be superseded by the Law’s requirements and
Franchisee shall not be deemed to have consented to the calculation of the amount of such damages.
2.
Section 24.l of the Agreement requires the Agreement be governed and interpreted under Maryland
law. To the extent such Maryland law conflicts with the North Dakota Franchise Law, the North
Dakota Franchise Law shall control.
3.
Each provision of this Amendment to the Agreement shall be effective only to the extent that the
jurisdictional requirements of the North Dakota Franchise Law are met independently with respect to such
provision and without reference to this Amendment to the Agreement.
4.
Section 22.3 of the Agreement requires Franchisee and Franchisor to waive their respective rights to a jury
trial. To the extent such provision violates the North Dakota Franchise Investment Law, such law shall
prevail and such provision shall not apply with respect to claims thereunder.
5.
Franchisor reserves the right to challenge the applicability of any law that declares provisions in the
Agreement void or unenforceable.
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this Amendment to the
Agreement as of the day and year first above written in the Agreement.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.
_________________________________
Assistant Secretary
By:________________________________________ (Seal)
Name:
Title:
FRANCHISEE:
ATTEST:
__________________________________________
_________________________________
Assistant Secretary
By:________________________________________ (Seal)
Name:
Title:
MHR/RHR 389899v2 (03/31/2008)
E-11
ATTACHMENT RIFA-l
AMENDMENT TO FRANCHISE AGREEMENT
REQUIRED BY THE STATE OF RHODE ISLAND
In accordance with the requirements of the Rhode Island Franchise Investment Act, the parties to the attached
FRANCHISE AGREEMENT (the “Agreement”) agree as follows:
1.
Section 24.1 of the Agreement shall be supplemented by the following:
If any of the provisions of this Section 24.1 of the Agreement are inconsistent with § 19-28.1-14 of the
Rhode Island Franchise Investment Act, which states that a provision in an agreement restricting
jurisdiction or venue to a forum outside the state of Rhode Island or requiring the application of the
laws of another state is void with respect to a claim otherwise enforceable under this Act, then said
Rhode Island law shall apply.
2.
Each provision of this Amendment to the Agreement shall be effective only to the extent that the
jurisdictional requirements of the Rhode Island Franchise Investment Act are met independently with
respect to each such provision and without reference to this Amendment to the Agreement.
3.
Franchisor reserves the right to challenge the applicability of any law that declares provisions in the
Agreement void or unenforceable.
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed and delivered this Amendment to the
Agreement as of the day and year first above written in the Agreement.
FRANCHISOR:
ATTEST:
MARRIOTT INTERNATIONAL, INC.
By:
Assistant Secretary
(SEAL)
Vice President
FRANCHISEE:
ATTEST:
Assistant Secretary
By:
Name:
Title:
MHR/RHR 319185v2 (03/31/2007)
E-12
(SEAL)
EXHIBIT F
The registered agents authorized in various states to receive service of process on our behalf are
given below:
ALABAMA
CONNECTICUT
The Prentice-Hall Corporation System
150 South Perry Street
Montgomery, Alabama 36104-4045
The Prentice-Hall Corporation System, Inc.
50 Weston Street
Hartford, Connecticut 06120-1537
ALASKA
DELAWARE
The Prentice-Hall Corporation System, Inc.
9360 Glacier Highway, Suite 202
Juneau, Alaska 99801
The Prentice-Hall Corporation System, Inc.
2711 Centerville Road, Suite 400
Wilmington, Delaware 19808
ARIZONA
DISTRICT OF COLUMBIA
The Prentice-Hall Corporation System
2338 W. Royal Palm Road, Suite J
Phoenix, Arizona 85021
The Prentice-Hall Corporation System, Inc.
1090 Vermont Ave., N.W.
Washington, D.C. 20005
ARKANSAS
FLORIDA
The Prentice-Hall Corporation System, Arkansas
300 S. Spring Street
300 Spring Building, Suite 900
Little Rock, Arkansas 72201
The Prentice-Hall Corporation System
1201 Hays Street
Tallahassee, Florida 32301
CALIFORNIA
GEORGIA
Commissioner of Corporations
Department of Corporations
320 West 4th Street, Suite 750
Los Angeles, California 90013-2344
and
The Prentice-Hall Corporation System
2730 Gateway Oaks Drive, Suite 100 or
PO Box 526036 (95852-6036)
Sacramento, CA 95833
The Prentice-Hall Corporation System
40 Technology Parkway South, #300
Norcross, Georgia 30092
HAWAII
Commissioner of Securities
335 Merchant Street, Room 205
Honolulu, Hawaii 96813
and
PHCS Hawaii, Inc.
1001 Bishop Street
Suite 1600, Pauahi Tower
Honolulu, Hawaii 96813
and
Gerald C. Yushida
737 Bishop Street
Grosvenor Center, Suite 2100
Honolulu, Hawaii 96813
COLORADO
The Prentice-Hall Corporation System, Inc.
1560 Broadway, Suite 2090
Denver, Colorado 80202
All Brands 389847v2 (03/31/2008)
F-1
IDAHO
MAINE
The Prentice-Hall Corporation System, Inc.
1401 Shoreline Drive, Suite 2
Boise, Idaho 83702
The Prentice-Hall Corporation System, Inc.
45 Memorial Circle
Augusta, Maine 04330
ILLINOIS
MARYLAND
Illinois Attorney General
500 South Second Street
Springfield, Illinois 62706
and
The Prentice-Hall Corporation System, Inc.
33 North LaSalle Street
Chicago, Illinois 60602
Securities Commissioner
Division of Securities
State Law Department
200 St. Paul Place, 20th Floor
Baltimore, Maryland 21202
and
The Prentice-Hall Corporation System,
Maryland
7 St. Paul Street, Suite 1660
Baltimore, Maryland 21202
INDIANA
Secretary of State
302 West Washington Street, Room E-111
Indianapolis, Indiana 46204
and
The Prentice-Hall Corporation System, Inc.
251 East Ohio Street, Suite 500
Indianapolis, Indiana 46204
MASSACHUSETTS
The Prentice-Hall Corporation System, Inc.
84 State Street
Boston, Massachusetts 02109
MICHIGAN
IOWA
The Prentice-Hall Corporation System, Inc.
601 Abbott Road
East Lansing, Michigan 48823
The Prentice-Hall Corporation System, Inc.
729 Insurance Exchange Building
Des Moines, Iowa 50309
MINNESOTA
KANSAS
Minnesota Commissioner of Commerce
85 7th Place East, Suite 500
St. Paul, Minnesota 55101-2198
and
The Prentice-Hall Corporation System, Inc.
380 Jackson Street, Suite 700
Saint Paul, Minnesota 55101
The Prentice-Hall Corporation
System, Kansas, Inc.
200 S.W. 30th Street
Topeka, Kansas 66611
KENTUCKY
MISSISSIPPI
The Prentice-Hall Corporation System, Inc.
421 West Main Street
Frankfort, Kentucky 40601
The Prentice-Hall Corporation System, Inc.
506 South President Street
Jackson, Mississippi 39201
LOUISIANA
The Prentice-Hall Corporation System, Inc.
320 Somerulos
Baton Rouge, Louisiana 70802-6129
MISSOURI
The Prentice-Hall Corporation System, Inc.
221 Bolivar Street
Jefferson City, Missouri 65101
All Brands 389847v2 (03/31/2008)
F-2
MONTANA
NORTH CAROLINA
The Prentice-Hall Corporation System, Inc.
26 West Sixth Avenue, P.O. Box 1691
Helena, Montana 59624
The Prentice-Hall Corporation System, Inc.
327 Hillsborough Street
Raleigh, North Carolina 27603
NEBRASKA
NORTH DAKOTA
Nebraska Dept. of Banking and Finance
1200 N Street, Suite 311
Lincoln, Nebraska 68509
and
The Prentice-Hall Corporation System, Inc.
1900 First Bank Building
233 South 13th Street
Lincoln, Nebraska 68508
Securities Commissioner
600 East Boulevard, 5th Floor
Bismarck, North Dakota 58505-0510
and
The Prentice-Hall Corporation System, Inc.
316 North Fifth Street, P.O. Box 1695
Bismarck, North Dakota 58502
OHIO
NEVADA
CSC-Lawyers Incorporating Service
50 West Broad Street, Suite 1800
Columbus, Ohio 43215
and
The Prentice-Hall Corporation System, Inc.
50 West Broad Street, Suite 1800
Columbus, Ohio 43215
The Prentice-Hall Corporation System, Nevada,
Inc.
502 East John Street
Carson City, Nevada 89706
NEW HAMPSHIRE
OKLAHOMA
The Prentice-Hall Corporation System, Inc.
14 Centre Street
Concord, New Hampshire 03301
The Prentice-Hall Corporation
System, Oklahoma, Inc.
115 S.W. 89th Street
Oklahoma City, Oklahoma 73139-8511
NEW JERSEY
The Prentice-Hall Corporation System,
New Jersey, Inc.
830 Bear Tavern Road
Trenton, New Jersey 08628
OREGON
The Prentice-Hall Corporation System, Inc.
125 Lincoln Avenue, Suite 223
Santa Fe, New Mexico 87501
Secretary of State
255 Capitol St. NE, Suite 151
Salem, Oregon 97310
and
The Prentice-Hall Corporation System, Inc.
285 Liberty Street, NE
Salem, Oregon 97301
NEW YORK
PENNSYLVANIA
Secretary of State
99 Washington Avenue, One Commerce Plaza
6th Floor
Albany, New York 12231
and
The Prentice-Hall Corporation System, Inc.
80 State Street
Albany, New York 12207-2543
The Prentice-Hall Corporation System, Inc.
2704 Commerce Drive, Suite B
Harrisburg, Pennsylvania 17110
NEW MEXICO
All Brands 389847v2 (03/31/2008)
F-3
RHODE ISLAND
VIRGINIA
Director of Dept. of Business Regulation
233 Richmond Street
Providence, Rhode Island 02903
and
The Prentice-Hall Corporation System, Inc.
222 Jefferson Boulevard, Suite 200
Warwick, Rhode Island 02888
Clerk of the State Corporation Commission
1300 East Main Street
Richmond, Virginia 23219
and
The Prentice-Hall Corporation System, Inc.
11 South 12th Street
Richmond, Virginia 23218
SOUTH CAROLINA
WASHINGTON
The Prentice-Hall Corporation System, Inc.
1703 Laurel Street
Columbia, South Carolina 29201
Securities Administrator
Dept. of Financial Institutions
150 Israel Rd. SW
Tumwater, WA 98501
and
The Prentice-Hall Corporation System, Inc.
6500 Harbour Heights Parkway, Suite 400
Mukilteo, Washington 98275
SOUTH DAKOTA
Director of Division of Securities
Department of Revenue and Regulation
445 E. Capitol Avenue
Pierre, South Dakota 57501
and
The Prentice-Hall Corporation System, Inc.
503 South Pierre Street
Pierre, South Dakota 57501
WEST VIRGINIA
The Prentice-Hall Corporation System, Inc.
209 West Washington
Charleston, West Virginia 25302
TENNESSEE
WISCONSIN
The Prentice-Hall Corporation System, Inc.
2908 Poston Avenue
Nashville, Tennessee 37203
Administrator, Division of Securities
Dept. of Financial Institutions
345 West Washington Avenue, 4th Floor
Madison, Wisconsin 53703
and
The Prentice-Hall Corporation System, Inc.
25 West Main Street
Madison, Wisconsin 53703
TEXAS
The Prentice-Hall Corporation System, Inc.
701 Brazos, Suite 1050
Austin, Texas 78701-2507
WYOMING
UTAH
The Prentice-Hall Corporation System, Inc.
1821 Logan Avenue
Cheyenne, Wyoming 82001
The Prentice-Hall Corporation System, Inc.
2180 South 1300 East, Suite 630
Salt Lake City, Utah 84106
VERMONT
The Prentice-Hall Corporation System, Inc.
159 State Street
Montpelier, Vermont 05602
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F-4
EXHIBIT G
STATE REGULATORY AUTHORITIES
CALIFORNIA
INDIANA
Department of Corporations
320 West 4th Street
Suite 750
Los Angeles, California 90013-2344
(213) 576-7500
Chief Deputy Commissioner
Franchise Section
Indiana Securities Division
Secretary of State
302 West Washington Street
Room E-111
Indianapolis, Indiana 46204
(317) 232-6681
CONNECTICUT
Securities and Business Investment Division
Connecticut Department of Banking
260 Constitution Plaza
Hartford, Connecticut 06103-1800
(860) 240-8233
IOWA
Director of Regulated Industries Unit
Iowa Securities Bureau
340 Maple
Des Moines, Iowa 50319-0066
(515) 281-4441
FLORIDA
Department of Agriculture and Consumer
Services
Division of Consumer Services
Commissioner of Agriculture
P.O. Box 6700
Tallahassee, Florida 32314-6700
(850) 488-2221
MARYLAND
Office of the Attorney General
Division of Securities
200 St. Paul Place
20th Floor
Baltimore, Maryland 21202
(410) 576-7042
HAWAII
MICHIGAN
Commissioner of Securities
335 Merchant Street, Room 203
Honolulu, Hawaii 96813
(808) 586-2744
Office of the Attorney General
Consumer Protection Division
Attn: Franchise Section
525 W. Ottawa Street
Williams Building, 6th Floor
Lansing, Michigan 48933
ILLINOIS
Illinois Attorney General
Franchise Bureau
500 South Second Street
Springfield, Illinois 62706
(217) 782-4465
MINNESOTA
Department of Commerce
Market Assurance Division
85 7th Place East, Suite 500
St. Paul, Minnesota 55101-2198
(651) 296-6328
All Brands 389848v2 (03/31/2008)
G-1
NEBRASKA
TEXAS
Department of Banking and Finance
1200 N Street, Suite 311
P. O. Box 95006
Lincoln, Nebraska 68509
(402) 471-3445
Secretary of State
Statutory Document Section
1719 Brazos
Austin, Texas 78701
(512) 475-1769
NEW YORK
UTAH
Office of the Attorney General
Bureau of Investor Protection and Securities
New York State Department of Law
120 Broadway, 23rd Floor
New York, New York 10271
(212) 416-8211
Division of Consumer Protection
Utah Department of Commerce
160 East Three Hundred South
SM Box 146704
Salt Lake City, Utah 84114-6704
(801) 530-6601
NORTH DAKOTA
VIRGINIA
Office of Securities Commissioner
600 East Boulevard, 5th Floor
Bismarck, North Dakota 58505-0510
(701) 328-4712
State Corporation Commission
Division of Securities and Retail Franchising
Franchise Section
1300 East Main Street, 9th Floor
Richmond, Virginia 23219
(804) 371-9051
OREGON
WASHINGTON
Department of Consumer and Business Services
Division of Finance and Corporate Securities
Labor and Industries Building
Salem, Oregon 97310
(503) 378-4140
Department of Financial Institutions
Securities Division
150 Israel Rd. SW
Tumwater, WA 98501
(360) 902-8760
RHODE ISLAND
Division of Securities
233 Richmond Street, Suite 232
Providence, Rhode Island 02903
(401) 222-3048
WISCONSIN
Division of Securities
Department of Financial Institutions
P. O. Box 1768
Madison, Wisconsin 53701
(608) 266-2801
SOUTH DAKOTA
Division of Securities
445 East Capitol Avenue
Pierre, South Dakota 57501-3185
(605) 773-4823
All Brands 389848v2 (03/31/2008)
G-2
EXHIBIT A
PARTICIPATION AGREEMENT
This Participation Agreement is entered into by the party signing below (“you”) for the
benefit of the Microsoft affiliate (“Microsoft”) and shall be enforceable against you by Microsoft in
accordance with its terms. You acknowledge that Microsoft and
(“customer”) have
entered into Microsoft Select Enrollment, No.
(the “agreement”), under which you desire
to sublicense certain Microsoft products. As used in this Participation Agreement, the term to
“run” a product means to copy, install, use, access, display, run or otherwise interact with it. You
acknowledge that your right to run a copy of any version of any product sublicensed under the
agreement is governed by the applicable product use rights for the product and version licensed
as of the date you first run that copy. Such product use rights will be made available to you by
the customer, or by publication at a designated site on the World Wide Web, or by some other
means. Microsoft does not transfer any ownership rights in any licensed product and it reserves
all rights not expressly granted.
I. Acknowledgment and Agreement. You hereby acknowledge that you have obtained a
copy of the product use rights located at http://microsoft.com/licensing/resources/ applicable to
the products acquired under the above-referenced agreement; you have read and understood
the terms and conditions as they relate to your obligations; and you agree to be bound by such
terms and conditions, as well as to the following provisions:
a.
Restrictions on use. You may not:
Ɣ
Separate the components of a product made up of multiple components by running them
on different computers, by upgrading or downgrading them at different times, or by
transferring them separately, except as otherwise provided in the product use rights;
Ɣ
Rent, lease, lend or host products, except where Microsoft agrees by separate
agreement;
Ɣ
Reverse engineer, de-compile or disassemble products or fixes, except to the extent
expressly permitted by applicable law despite this limitation;
Products, fixes and service deliverables licensed under this agreement (including any license or
services agreement incorporating these terms) are subject to U.S. export jurisdiction. You must
comply with all domestic and international export laws and regulations that apply to the products,
fixes and service deliverables. Such laws include restrictions on destinations, end-user, and
end-use for additional information, see http://www.microsoft.com/exporting/.
b.
Limited product warranty. Microsoft warrants that each version of a commercial
product will perform substantially in accordance with its user documentation. This warranty is
valid for a period of one year from the date you first run a copy of the version. To the maximum
extent permitted by law, any warranties imposed by law concerning the products are limited to
the same extent and the same one year period. This warranty does not apply to components of
products which you are permitted to redistribute under applicable product use rights, or if failure
of the product has resulted from accident, abuse or misapplication. If you notify Microsoft within
the warranty period that a product does not meet this warranty, then Microsoft will, at its option,
either (i) return the price paid for the product or (ii) repair or replace the product. To the
maximum extent permitted by law, this is your exclusive remedy for any failure of any
commercial product to function as described in this paragraph.
c.
Free and beta products. To the maximum extent permitted by law, free and beta
products, if any, are provided “as-is,” without any warranties. You acknowledge that the
provisions of this paragraph with regard to pre-release and beta products are reasonable having
regard to, among other things, the fact that they are provided prior to commercial release so as
All Brands 394796v1 (03/31/2008)
to give you the opportunity (earlier than you would otherwise have) to assess their suitability for
your business, and without full and complete testing by Microsoft.
d.
NO OTHER WARRANTIES. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
MICROSOFT DISCLAIMS AND EXCLUDES ALL REPRESENTATIONS, WARRANTIES AND
CONDITIONS, WHETHER EXPRESS, IMPLIED OR STATUTORY, OTHER THAN THOSE
IDENTIFIED EXPRESSLY IN THIS AGREEMENT, INCLUDING BUT NOT LIMITED TO
WARRANTIES OR CONDITIONS OF TITLE, NON-INFRINGEMENT, SATISFACTORY
QUALITY, MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH
RESPECT TO THE PRODUCTS AND RELATED MATERIALS. MICROSOFT WILL NOT BE
LIABLE FOR ANY PRODUCTS PROVIDED BY THIRD PARTY VENDORS, DEVELOPERS OR
CONSULTANTS IDENTIFIED OR REFERRED TO YOU BY MICROSOFT UNLESS SUCH
THIRD PARTY PRODUCTS ARE PROVIDED UNDER WRITTEN AGREEMENT BETWEEN
YOU AND MICROSOFT, AND THEN ONLY TO THE EXTENT EXPRESSLY PROVIDED IN
SUCH AGREEMENT.
e.
Limitation of liability. There may be situations in which you have a right to claim
damages or payment from Microsoft. Except as otherwise specifically provided in this
paragraph, whatever the legal basis for your claim, Microsoft’s liability will be limited, to the
maximum extent permitted by applicable law, to direct damages up to the amount you have paid
for the product giving rise to the claim. In the case of Microsoft’s responsibilities with respect to
third party patent or copyright infringement claims, Microsoft’s obligation to defend such claims
will not be subject to the preceding limitation, but Microsoft’s liability to pay damages awarded in
any final adjudication (or settlement to which it consents) will be. In the case of free product, or
code you are authorized to redistribute to third parties without separate payment to Microsoft,
Microsoft’s total liability to you will not exceed US$5000, or its equivalent in local currency.
f.
NO LIABILITY FOR CERTAIN DAMAGES.
TO THE MAXIMUM EXTENT
PERMITTED BY APPLICABLE LAW, NEITHER YOU, YOUR AFFILIATES OR SUPPLIERS,
NOR MICROSOFT, ITS AFFILIATES OR SUPPLIERS WILL BE LIABLE FOR ANY INDIRECT
DAMAGES (INCLUDING, WITHOUT LIMITATION, CONSEQUENTIAL, SPECIAL OR
INCIDENTAL DAMAGES, DAMAGES FOR LOSS OF PROFITS OR REVENUES, BUSINESS
INTERRUPTION, OR LOSS OF BUSINESS INFORMATION) ARISING IN CONNECTION WITH
ANY AGREEMENT, PRODUCT, OR FIX, EVEN IF ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES OR IF SUCH POSSIBILITY WAS REASONABLY FORESEEABLE.
THIS
EXCLUSION OF LIABILITY DOES NOT APPLY TO EITHER PARTY’S LIABILITY TO THE
OTHER FOR VIOLATION OF THE OTHER PARTY’S INTELLECTUAL PROPERTY RIGHTS.
g.
Application. The limitations on and exclusions of liability for damages set forth herein
apply regardless of whether the liability is based on breach of contract, tort (including
negligence), strict liability, breach of warranties, or any other legal theory.
h.
Verifying compliance. You must keep records relating to the products you run.
Microsoft has the right to verify compliance with these terms and any applicable product use
rights, at its expense, during the term of the enrollment and for a period of one year thereafter.
To do so, Microsoft will engage an independent accountant from a nationally recognized public
accounting firm, which will be subject to a confidentiality obligation. Verification will take place
upon not fewer than 15 days notice, during normal business hours and in a manner that does not
interfere unreasonably with your operations. As an alternative, Microsoft may require you to
accurately complete its self-audit questionnaire relating to the products you use. If verification
or self-audit reveals unlicensed use of products, you must promptly order sufficient licenses to
permit all product usage disclosed. If material unlicensed use is found (license shortage of 5% or
more), you must reimburse Microsoft for the costs it has incurred in verification and acquire the
necessary additional licenses as single retail licenses within 30 days. If Microsoft undertakes
such verification and does not find material unlicensed use of products, it will not undertake
another such verification for at least one year. Microsoft and its auditors will use the information
obtained in compliance verification only to enforce its rights and to determine whether you are in
compliance with these terms and the product use rights. By invoking the rights and procedures
All Brands 394796v1 (03/31/2008)
described above, Microsoft does not waive its rights to enforce these terms or the product use
rights, or to protect its intellectual property by any other means permitted by law.
i.
Dispute Resolution; Applicable Law. This Participation Agreement will be governed
and construed in accordance with the laws of the jurisdiction whose law governs the agreement.
You consent to the exclusive jurisdiction and venue of the state and federal courts located in
such jurisdiction. This choice of jurisdiction does not prevent either party from seeking injunctive
relief with respect to a violation of intellectual property rights in any appropriate jurisdiction. The
1980 United Nations Convention on Contracts for the International Sale of Goods and its related
instruments will not apply to this agreement or any license entered into with Microsoft or its
affiliates under this agreement.
Your violation of the above-referenced terms and conditions shall be deemed to be a breach of
this Participation Agreement and shall be grounds for immediate termination of all rights granted
hereunder.
Dated as of the
day of
, 20
.
CUSTOMER AFFILIATE:
By
Name
Title
Date
All Brands 394796v1 (03/31/2008)
PRO-MARRIOTT SERVICE AGREEMENT
This PRO-MARRIOTT SERVICE AGREEMENT (“Agreement”) is made as of the
day of
, 20
(“Effective Date”), by the Franchisee indicated below on behalf of itself,
its subsidiaries and affiliates (“Franchisee”), and MARRIOTT INTERNATIONAL, INC., a Delaware
corporation with offices at 10400 Fernwood Road, Bethesda, Maryland 20817 (“Marriott”).
Name of Franchisee:
Address:
WHEREAS, Marriott has entered into a Virtual Telecommunications Network Service
Agreement with American Telegraph and Telephone Company (“AT&T”) dated May 12, 2006 as may be
further amended from time-to-time (“AT&T Agreement”) whereby Marriott pays certain rates for
interstate and intrastate calls preceded by dialing “1” (“One Plus Calls”) routed to the AT&T Network;
and
WHEREAS, Franchisee wishes to participate in Marriott’s arrangement for One Plus Calls (the
“Pro-Marriott Service”).
NOW THEREFORE, Franchisee and Marriott agree as follows:
1.
General. As indicated on Exhibit A, Franchisee’s rates under this Agreement are based
upon the type of service (dedicated or switched) and the time of day in which calls occur.
2.
Term. The term of this Agreement shall commence on the Effective Date, and shall
continue for a period of twelve (12) months unless earlier terminated in accordance with this Agreement
(“Initial Term”). Unless either party gives written notice to the other party at least 30 days prior to the
expiration of the Initial Term that it does not desire the Agreement to be automatically renewed, this
Agreement shall be automatically renewed for a subsequent 12-month period (“Renewal Term”). After
the expiration of the Renewal Term, this Agreement shall continue on a month to month basis until either
party provides thirty (30) days prior written notice to the other party that it does not desire the Agreement
to be further extended.
3.
Franchisee Properties.
(a)
Eligibility. Eligibility for Pro-Marriott Service shall be extended to the properties
owned or operated by Franchisee or its affiliates or subsidiaries that are covered by a franchise agreement
with Marriott or Marriott’s affiliates or subsidiaries (a “Marriott Franchise Agreement”), provided such
properties are identified in a properly completed “Pro-Marriott Application” that has been signed by
Franchisee and countersigned by Marriott (“Franchisee Properties”). The Pro-Marriott Application shall
be in the form of Exhibit B, as such form may be changed from time to time by Marriott (the “ProMarriott Application”). Franchisee will only list properties on a Pro-Marriott Application that are owned
or operated by Franchisee or its affiliates or subsidiaries and that are covered by a Marriott Franchise
Agreement; provided, however, that Marriott may, in its sole discretion, consent to extend eligibility to
other Franchisee properties (such consent shall be valid only if in writing and executed by a duly
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authorized officer of Marriott), in which event such other properties shall be added to the Pro-Marriott
Application and shall be deemed to be Franchisee Properties covered by this Agreement.
(b)
Changes to Pro-Marriott Application Information. If Franchisee desires to
change, add to, or delete trunk numbers or other information listed on a Pro-Marriott Application, it shall
so notify Marriott in writing by submitting a revised Pro-Marriott Application to be attached to this
Agreement. Notwithstanding the foregoing, any Franchisee Property that is not owned or operated
pursuant to a Marriott Franchise Agreement shall not be covered by this Agreement without Marriott’s
prior written consent at its sole discretion, as provided in Section 3(a).
(c)
Franchisee Single Point of Contact. Franchisee will, in the Pro-Marriott
Application, identify a single point of contact for all of its locations subject to this Agreement.
(d)
Franchisee Responsibility for Franchisee Properties. Franchisee shall be solely
responsible for the use of the Pro-Marriott Service under this Agreement by Franchisee and Franchisee
Properties, and for the acquisition, use, operation and maintenance of telephones and other
telecommunications equipment in connection therewith. Franchisee shall indemnify, defend and hold
harmless Marriott, AT&T, their affiliates and subsidiaries, and their respective employees, officers,
directors and agents (collectively, the “indemnified parties”), from and against any loss, cost, claim,
injury, expense or liability, including reasonable attorney’s fees, resulting from any claim by any third
party arising out of use of the Pro-Marriott Service or use of telephones or telecommunications equipment
in connection therewith by Franchisee or Franchisee Properties, except insofar as such claim arises from
the negligence of the indemnified parties. Franchisee shall also indemnify the indemnified parties against
any claim relating to AT&T One Plus Calls placed from telephones by owners of, or others having or
purporting to have a pecuniary interest in, a Franchisee Property. Franchisee represents and warrants that
the Franchisee Properties listed in a Pro-Marriott Application are owned or operated by Franchisee, and
that Franchisee will not act as a reseller of the services under this Agreement.
4.
Rates and Charges. The rates and charges shall be as follows:
(a)
Billing. Unless the parties agree otherwise, Franchisee understands that AT&T
will bill Franchisee or Franchisee’s Properties directly for its telephone calls related to Pro-Marriott
Service and that Franchisee will be liable for non-payment by any Franchisee Property. Marriott will have
the right to instruct AT&T to terminate the provision of the Pro-Marriott Service to any Franchisee
Property which has a balance sixty (60) days past due.
(b)
Rates. Franchisee will be billed at the rate as indicated in Exhibit A. The rate for
interstate, international, intrastate, and local calls will be the Marriott VTNS rates.
(c)
Access Credit. Marriott shall have the right to set off against the “Access Credit”
indicated in Exhibit A any amounts owed by Franchisee to Marriott under this or any other agreement
between Marriott and Franchisee or a Franchisee Property.
(d)
Access Termination Liability. Franchisee shall be responsible for arranging
installation directly with AT&T. Under the AT&T Agreement, AT&T has agreed that installation charges
will be waived for 1.5 Mbps (T1.5) access components ordered under this Agreement for which
Franchisee agrees to a minimum service period of no fewer than eighteen (18) months per installation. If
Franchisee discontinues the 1.5 Mbps access component prior to the eighteenth (18th) month of service
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for reasons other than those stated in the AT&T Agreement (relating to AT&T’s failure to meet
performance requirements), Franchisee will be billed the foregone installation charge.
5.
Termination.
(a)
General. Marriott may terminate this Agreement upon written notice if
Franchisee fails to perform its obligations under this Agreement. Marriott may also terminate this
Agreement upon written notice if any Marriott Franchise Agreement is terminated for any reason. In
addition, in the event of noncompliance by any Franchisee Property with the terms of this Agreement
following sixty (60) days notice of noncompliance, Marriott shall have the right to instruct AT&T to
terminate the provision of the Pro-Marriott Service thereto.
(b)
Automatic. This Agreement will automatically terminate as a whole or with
respect to particular locations in the event that AT&T or federal or state regulations, including FCC
tariffs, prohibit this arrangement or interfere with its continued operation, or if the AT&T Agreement is
no longer in effect.
(c)
Consequences of Termination. In the event of termination for default, any Access
Credits paid to Franchisee will be promptly returned to Marriott and any Access Credits not yet paid to
Franchisee will be forfeited. Notwithstanding any termination, Franchisee shall pay all charges incurred
hereunder. In the event of termination, Marriott will direct AT&T to convert Franchisee’s long distance
services to standard AT&T direct dial rates.
6.
Miscellaneous.
(a)
The parties expressly agree that this Agreement and its subject matter, including,
without limitation, the pricing contained in Exhibit A and all information related to AT&T One Plus
Calls, is confidential to AT&T, Marriott, and Franchisee. Franchisee shall not disclose such information
to any third party, and shall not use such information for any purpose other than pursuant to this
Agreement. In addition, such information shall be deemed to be Marriott’s confidential information
covered by the confidentiality obligations contained in the Marriott Franchise Agreement(s).
(b)
Franchisee understands and agrees that Marriott is under no additional duty with
respect to revenues or discounts to Franchisee and that this Agreement, together with all the schedules
attached hereto, constitutes the entire Agreement between the parties with respect to the subject matter
hereof and supersedes and merges all prior proposals, understandings, and all other agreements, oral and
written between the parties relating to such subject matter.
(c)
This Agreement may not be assigned in whole or in part without the express
written consent of Marriott. The parties agree that AT&T is a third party beneficiary of this Agreement.
There are no other third party beneficiaries hereunder. This Agreement may not be modified or altered
except by a written instrument executed by both parties. The failure of either party to exercise in any
respect any right provided for herein shall not be deemed a waiver of any rights. This Agreement shall be
governed and construed in accordance with the laws of the state of Maryland without regard to its
conflicts of laws principles. All written notices required under this Agreement shall be sent by registered
or certified mail, return receipt requested, postage prepaid, to the address first given above, and to such
persons or other addresses as a party shall have designated in writing.
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IN WITNESS WHEREOF, the parties have executed this Agreement and warrant that their
respective signatory whose signature appears below is duly authorized by all necessary and appropriate
corporate action to execute this Agreement.
MARRIOTT INTERNATIONAL, INC.
FRANCHISEE
By:
By:
Name:_______________________
Name:_______________________
Title:
Title:
Date:
Date:
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EXHIBIT A
I.
Pro-Marriott Calls. Franchisee will be charged the rates for interstate, international, intrastate, and
local calls reflected in applicable sections of the Marriott VTNS. The interstate Schedule A through
C rates as of May 19,2007, are set forth below. If the Marriott VTNS is amended, Franchisee will
be given written notice of any changes in rates. Franchisee is also responsible for paying the
universal service fund (“USF”) charges and presubscribed interexchange carrier charges (“PIC-Cs”)
and similar charges that may be passed through by AT&T to its customers pursuant to applicable
laws and regulations.
RATE TABLE PER MINUTE*
Type of Service
Time of Day
All (effective 5/19/07)
II
TI Access
(On-Net to On-Net)
$.019
T1 Access
(On-Net to OffNet)
$.020
Switched Access
(Off-Net to Off-Net)
$.035
Access Credit. “Access Credit” means the access credit paid by AT&T to Marriott under the
Marriott VTNS. Under the AT&T Agreement, Marriott receives an Access Credit for each month
each T1.5 Access Component (commonly referred to as a “T-1 line”) was installed during the
previous 6month period (on August to January and February to July cycles) at an eligible location.
As of the effective date of this Agreement. Marriott will pass through to Franchisee $120 of the
Access Credit paid by AT&T to Marriott for each qualifying Franchisee Property. Such payment,
pro-rated as applicable, will be paid within sixty (60) days of receipt of the credit from AT&T.
* AT&T bills for the initial 18-second increment or fraction thereof, plus each additional 6-second increment or
fraction thereof.
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Pro-Marriott Application (Exhibit B)
Physical Location:
Property Name:
Address:
Main Telephone #:
Management Company:
Brand/Type:
‰ Courtyard
‰ Fairfield Inn
‰ Fairfield Inn & Suites
‰ MHRS
‰ Renaissance
‰
‰
‰
‰
‰
Residence Inn
Spring Hill Suites
Sodexho Marriott Services
TownePlace Suites
______________________
Property Information:
Scheduled Opening Date:
Telephone Line Installation Date (if not already installed):
# of Rooms:
Contact Information:
On-Property:
Available After:
(date)
Telephone #:
Pre-Opening:
Telephone #:
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Property Name:
Telephone Line Information:
Trunks/Lines
Trunks/Lines
Trunks/Lines
(attach a separate sheet if necessary)
Note: You must notify Marriott Telecommunications if lines are added in the future.
Current Long Distance Carrier:
‰
‰
AT&T
Other
For Marriott:
For Franchisee:
Signature:
Signature:
Printed Name:
Printed Name:
Title:
Title:
Date:
Date:
Return application to: Jim Browne, Marriott International, Inc.,
Marriott Drive, Dept. 52/996.18, Washington, DC 20058
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EXHIBIT I
LAWS AND REGULATIONS SPECIFIC TO THE LODGING INDUSTRY
1.
The state in which you operate may have a regulation prohibiting the overbooking of rooms.
2.
Many states have statutes that may limit the amount of money a guest or visitor to a hotel
may recover from a hotel for loss of personal property. You must fully comply with the terms of any of those
statutes, including the provision of a safe or safe deposit boxes for safekeeping of valuables, in order to
benefit from their protection.
3.
Many states have regulations protecting hotels against persons who obtain credit, food or
lodging fraudulently without intent to pay the hotel.
4.
State or local statutes may impose certain requirements upon the operator of a hotel when a
guest dies in that hotel.
5.
The food service operations at your hotel will be regulated by federal and state laws and
regulations about health and sanitary conditions when handling foods and beverages. State and local health
statutes, regulations, and federal and state Occupational Safety and Health Administration (OSHA) laws cover
cleanliness in the preparation and serving food, beverages and utensils. Additionally, state and local health
regulations ordinarily include provisions specifically about restaurant and other food service establishments as
to sanitation, food storage, cleaning, water supply, sewage, vermin control, toxic materials, personnel,
equipment and maintenance of physical facilities.
6.
Some states have adopted truth-in-menu statutes or regulations.
7.
Sales of alcoholic beverages are controlled by statutes, rules and regulations of state, county
or local liquor authorities. State Dram Shop Acts address the liability of servers of alcoholic beverages for
injuries caused to third persons by any intoxicated person due to the unlawful selling of alcohol which caused
or contributed to the intoxication.
8.
State and local laws may require hotels to maintain guest registers. The laws ordinarily
require the register to show guests' names, residences, dates of arrival and departures. In a few jurisdictions,
the registers are required to display the automobile license plate identifications of guests. The registers may
have to be retained by the hotel for a specified period of years. A few jurisdictions permit inspections by
police or other specified authorities without first obtaining a subpoena or search warrant.
9.
States may have laws regarding cleanliness and sizing standards for bedding, sheets and
towels.
10.
Your state or local jurisdiction may have statutes or ordinances regarding water safety and
swimming pools, aid to choking victims, and reporting cases of communicable diseases.
11.
Most states and cities require a hotel operator to obtain a license to operate the hotel, a license
to sell alcoholic beverages, a license to prepare and sell food, a certificate of occupancy, and a permit for
meeting rooms.
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12.
If your hotel plays live music or music by means of tape recording or other similar devices or
by rebroadcasting radio music, then you generally have to enter into a license agreement with a copyright
association, like ASCAP, PMI or SESAC. Otherwise, the hotel may be liable for infringement of copyright.
13.
Hotels generally are subject to many federal, state and local statutes and regulations about fire
safety. These requirements can be found in building codes, multiple dwelling laws, public assembly laws,
labor laws, sanitation laws, general business laws, occupational safety and health laws.
14.
Many jurisdictions have hotel room occupancy taxes or other taxes which apply to hotels
only.
15.
Federal law requires a hotel that has a bar and sells alcoholic beverages to pay a special tax as
a retail dealer in liquors. Your state may impose excise taxes and license fees on the sale of alcoholic
beverages.
16.
Many states have laws or regulations regarding the disclosure of room rates by posting the
rates inside the hotel (for example, on the innerside of the guestroom door) and in advertising.
17.
The Americans with Disabilities Act ("ADA") contains many provisions that specifically
address hotels and restaurants as public accommodations.
This listing is intended to give you a sense of the scope of the types of laws, ordinances and
regulations which will or may apply to the operation of your hotel. You should seek the advice of legal
counsel to determine the details of the regulations and whether and to what extent they and other regulations
will apply to your hotel.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of Marriott International, Inc.:
We have audited the accompanying consolidated balance sheets of Marriott International, Inc. as of
December 28, 2007 and December 29, 2006, and the related consolidated statements of income, cash flows,
comprehensive income and shareholders’ equity for each of the three fiscal years in the period ended
December 28, 2007. These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). 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
consolidated financial position of Marriott International, Inc. as of December 28, 2007 and December 29,
2006, and the consolidated results of its operations and its cash flows for each of the three fiscal years in
the period ended December 28, 2007, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 2007 the Company adopted the provisions of FASB
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” and FASB Statement No. 156,
“Accounting for Servicing of Financial Assets.” In 2006 the Company changed its accounting for real
estate time-sharing transactions in connection with the adoption of Statement of Position 04-2, “Accounting
for Real Estate Time-sharing Transactions,” and changed its accounting for stock-based compensation in
connection with the adoption of FASB Statement No. 123(R), “Share-Based Payment.”
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Marriott International, Inc.’s internal control over financial reporting as of
December 28, 2007, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 14,
2008, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
McLean, Virginia
February 14, 2008
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME
Fiscal Years 2007, 2006, and 2005
($ in millions, except per share amounts)
2007
REVENUES
Base management fees (1) ...................................................................
Franchise fees (1) .................................................................................
Incentive management fees (1) ............................................................
Owned, leased, corporate housing, and other revenue (1) ..................
$
Timeshare sales and services (including note sale gains of
$81 million for 2007 and $77 million for 2006) ............................
Cost reimbursements (1) ......................................................................
OPERATING COSTS AND EXPENSES
Owned, leased, and corporate housing-direct ....................................
Timeshare-direct .................................................................................
Reimbursed costs (1) ............................................................................
General, administrative, and other (1) .................................................
OPERATING INCOME
Gains and other income (1) ......................................................................
Interest expense (1) ..................................................................................
Interest income (1) ...................................................................................
(Provision for) reversal of provision for loan losses (1) ..........................
Equity in earnings (1) ...............................................................................
INCOME FROM CONTINUING OPERATIONS
BEFORE
INCOME TAXES AND MINORITY INTEREST .................
Provision for income taxes ..............................................................
Minority interest ..............................................................................
INCOME FROM CONTINUING OPERATIONS ....................
Cumulative effect of change in accounting principle, net of tax .....
Discontinued operations, net of tax .................................................
NET INCOME
EARNINGS PER SHARE-Basic
Earnings from continuing operations ...........................................
Losses from cumulative effect of accounting change ..................
Earnings from discontinued operations .......................................
Earnings per share .......................................................................
$
$
$
620
439
369
1,240
$
553
390
281
1,119
2005
$
497
329
201
944
1,747
8,575
12,990
1,577
8,075
11,995
1,487
7,671
11,129
1,062
1,397
8,575
768
11,802
936
1,220
8,075
677
10,908
778
1,228
7,671
753
10,430
1,188
97
(184)
38
(17)
15
1,087
74
(124)
49
3
3
699
149
(106)
79
(28)
36
1,137
(441)
1
697
(1)
696
1,092
(380)
712
(109)
5
608
829
(284)
(2)
543
126
669
1.85
1.85
EARNINGS PER SHARE-Diluted
Earnings from continuing operations ...........................................
Losses from cumulative effect of accounting change ..................
Earnings from discontinued operations .......................................
Earnings per share .......................................................................
$
DIVIDENDS DECLARED PER SHARE ...................................
$ 0.2875
$
2006
1.75
1.75
$
$
$
$
$
1.76
(0.27)
0.01
1.50
1.65
(0.25)
0.01
1.41
$ 0.2400
$
$
$
$
$
See Notes to Consolidated Financial Statements
1.17
0.28
1.45
$ 0.2000
(1) See Footnote No. 21, “Related Party Transactions,” of the Notes to Consolidated Financial Statements for
disclosure of related party amounts.
1.26
0.29
1.55
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
Fiscal Year-end 2007 and 2006
($ in millions)
2007
ASSETS
Current assets
Cash and equivalents ................................................................
Accounts and notes receivable (1) .............................................
Inventory ..................................................................................
Current deferred taxes, net .......................................................
Assets held for sale ...................................................................
Discontinued operations ...........................................................
Other .........................................................................................
$
Property and equipment ...............................................................
Intangible assets
Goodwill ...................................................................................
Contract acquisition costs (1) ....................................................
Equity and cost method investments (1) .......................................
Notes receivable
Loans to equity method investees (1) ........................................
Loans to timeshare owners ......................................................
Other notes receivable ..............................................................
Other long-term receivables ........................................................
Deferred taxes, net (1) ...................................................................
Other (1) .........................................................................................
$
332
1,148
1,557
185
123
53
174
3,572
2006
$
191
1,060
1,186
200
411
91
180
3,319
1,329
1,233
921
635
1,556
921
575
1,496
343
402
21
408
171
600
27
316
217
560
176
678
688
8,942
178
665
735
8,588
$
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities
Current portion of long-term debt ............................................
Accounts payable (1) .................................................................
Accrued payroll and benefits ...................................................
Liability for guest loyalty program ..........................................
Liabilities of assets held for sale ..............................................
Timeshare segment deferred revenue ......................................
Liabilities related to discontinued operations ..........................
Other payables and accruals (1) .................................................
$
Long-term debt .............................................................................
Liability for guest loyalty program ..............................................
Self-insurance reserves ................................................................
Other long-term liabilities (1) ........................................................
Shareholders’ equity
Class A Common Stock ...........................................................
Additional paid-in-capital .........................................................
Retained earnings .....................................................................
Treasury stock, at cost ..............................................................
Accumulated other comprehensive income ............................
$
175
789
642
421
101
13
735
2,876
$
15
658
614
384
102
178
55
516
2,522
2,790
971
182
694
1,818
847
184
599
5
3,531
3,332
(5,490)
51
1,429
5
3,617
2,860
(3,908)
44
2,618
8,942
$
8,588
(1) See Footnote No. 21, “Related Party Transactions,” of the Notes to Consolidated Financial Statements for
disclosure of related party amounts.
See Notes to Consolidated Financial Statements
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years 2007, 2006, and 2005
($ in millions)
2007
OPERATING ACTIVITIES
Net income ........................................................................................
Adjustments to reconcile to cash provided by operating
activities:
Depreciation and amortization ......................................................
Minority interest ............................................................................
Income taxes ..................................................................................
Timeshare activity, net ..................................................................
Liability for guest loyalty program ...............................................
Cumulative effect of change in accounting principle ...................
Working capital changes and other ...............................................
Net cash provided by operating activities .........................................
$
696
2006
$
608
2005
$
669
197
(3)
(150)
(155)
122
71
778
188
(7)
(76)
(104)
113
109
139
970
184
(44)
(86)
(35)
125
27
840
INVESTING ACTIVITIES
Capital expenditures ..........................................................................
Dispositions .......................................................................................
Loan advances ...................................................................................
Loan collections and sales ................................................................
Equity and cost method investments ................................................
Purchase of available-for-sale securities ...........................................
Sale of available-for-sale securities ..................................................
Other ..................................................................................................
Net cash provided by (used in) investing activities ..........................
(671)
745
(31)
106
(40)
43
(27)
125
(529)
798
(59)
121
(95)
(27)
(90)
119
(780)
298
(56)
706
(216)
(15)
(67)
(130)
FINANCING ACTIVITIES
Commercial paper, net ......................................................................
Issuance of long-term debt ................................................................
Repayment of long-term debt ...........................................................
Debt exchange consideration, net .....................................................
Issuance of Class A Common Stock ................................................
Dividends paid ..................................................................................
Purchase of treasury stock ................................................................
Other ..................................................................................................
Net cash used in financing activities .................................................
258
820
(153)
203
(105)
(1,757)
(28)
(762)
(188)
352
(17)
378
(93)
(1,546)
15
(1,099)
499
356
(523)
(29)
125
(84)
(1,644)
26
(1,274)
(10)
201
191
(564)
765
201
INCREASE (DECREASE) IN CASH AND EQUIVALENTS ........
CASH AND EQUIVALENTS, beginning of year .............................
CASH AND EQUIVALENTS, end of year ........................................
$
141
191
332
See Notes to Consolidated Financial Statements
$
$
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Fiscal Years 2007, 2006, and 2005
($ in millions)
2007
Net income ............................................................................................................
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments ........................................................
Other derivative instrument adjustments .........................................................
Unrealized losses on available-for-sale securities ............................................
Reclassification of gains upon sale of available-for-sale securities ................
Total other comprehensive income (loss) ....................................................
Comprehensive income .............................................................................
$
696
$
35
(2)
(8)
(18)
7
703
See Notes to Consolidated Financial Statements
2006
$
608
$
28
27
55
663
2005
$
669
$
(25)
(2)
7
(20)
649
MARRIOTT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Fiscal Years 2007, 2006, and 2005
(in millions, except per share amounts)
Common
Shares
Outstanding
451.6
Class A
Common
Stock
Balance at fiscal year-end 2004 ....... $
5
Additional
Paid-inCapital
$
3,421
Deferred
Compensation
$
(108)
Retained
Earnings
$
1,951
Accumulated
Other
Comprehensive
Income (Loss)
Treasury
Stock, at
Cost
$
(1,197)
$
9
-
Net income .......................................
-
-
-
669
-
-
-
Dividends ($0.2000 per share) .........
-
-
-
(87)
-
-
11.6
Employee stock plan issuance
and other .......................................
-
141
(51.4)
Purchase of treasury stock ...............
-
-
Balance at fiscal year-end 2005 .......
5
3,562
Net income .......................................
-
-
-
608
-
-
Dividends ($0.2400 per share) .........
-
-
-
(96)
-
-
19.2
Employee stock plan issuance
and other .......................................
-
192
-
(152)
343
55
-
Impact of adoption of FAS No.
123(R) ..........................................
-
(137)
-
-
(41.5)
Purchase of treasury stock ...............
-
-
389.5
411.8
-
(29)
(33)
(137)
180
-
(1,650)
2,500
(2,667)
(20)
(11)
137
-
-
-
(1,584)
-
(3,908)
44
Balance at fiscal year-end 2006 ........
5
3,617
-
2,860
-
Impact of adoption of FAS No. 156
-
-
-
1
-
-
-
Impact of adoption of FIN 48 ..........
-
-
(34)
-
-
Opening balance fiscal year 2007 ....
5
3,496
-
2,827
Net income .......................................
-
-
-
696
-
-
389.5
-
(121)
(3,908)
44
Dividends ($0.2875 per share) .........
-
-
-
(107)
-
-
8.6
Employee stock plan issuance
and other .......................................
-
35
-
(84)
195
7
(41.0)
Purchase of treasury stock ...............
-
-
-
357.1
Balance at fiscal year-end 2007 ....... $
5
$
3,531
$
-
See Notes to Consolidated Financial Statements
$
3,332
(1,777)
$
(5,490)
$
51
MARRIOTT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements present the results of operations, financial position, and cash flows
of Marriott International, Inc. (together with its subsidiaries, “we,” “us,” or the “Company”).
The preparation of financial statements in conformity with U.S. generally accepted accounting principles
(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of
assets and liabilities as of the date of the financial statements, the reported amounts of revenues and
expenses during the reporting periods, and the disclosures of contingent liabilities. Accordingly, ultimate
results could differ from those estimates.
As a result of the discontinuation of our synthetic fuel business on November 3, 2007, the balances and
activities of the synthetic fuel reportable segment have been segregated and reported as discontinued
operations for all periods presented.
At the beginning of our 2006 fiscal year, we adopted Statement of Position 04-2, “Accounting for Real
Estate Time-Sharing Transactions,” (“SOP 04-2”) as issued by the American Institute of Certified Public
Accountants. The American Resort Development Association, a timeshare trade association of which we
are a member and the Staff of the Securities and Exchange Commission (“SEC”) had communications
regarding SOP 04-2 and the income statement presentation of timeshare note securitization gains. As a
result of those communications, we now classify Timeshare segment note securitization gains within our
“Timeshare sales and services” revenue caption. Accordingly, Timeshare sales and services revenue
reflects Timeshare segment note securitization gains of
$81 million and $77 million for 2007 and 2006, respectively. Gains from the sale of timeshare notes
receivable totaling $69 million for 2005, are classified within the “Gains and other income” caption in our
Consolidated Statements of Income.
We have reclassified certain prior year amounts to conform to our 2007 presentation. In our opinion, the
accompanying consolidated financial statements reflect all normal and recurring adjustments necessary to
present fairly our financial position at fiscal year-end 2007 and fiscal year-end 2006 and the results of our
operations and cash flows for fiscal years 2007, 2006, and 2005. We have eliminated all material
intercompany transactions and balances between entities consolidated in these financial statements.
Fiscal Year
Our fiscal year ends on the Friday nearest to December 31. Unless otherwise specified, each reference to
a particular year means the fiscal year ended on the date shown in the following table, rather than the
corresponding calendar year:
Fiscal Year
Fiscal Year-end Date
Fiscal Year
Fiscal Year-end Date
2007
2006
2005
2004
December 28, 2007
December 29, 2006
December 30, 2005
December 31, 2004
2003
2002
2001
2000
January 2, 2004
January 3, 2003
December 28, 2001
December 29, 2000
Revenue Recognition
Our revenues include: (1) base management and incentive management fees; (2) franchise fees; (3)
revenues from lodging properties and other businesses owned or leased by us; (4) timeshare sales and
services, which also includes resort rental revenue, interest income associated with our “Loans to timeshare
owners,” and for 2006 and 2007, Timeshare segment note securitization gains, as noted in the “Basis of
Presentation” caption earlier; and (5) cost reimbursements. Management fees comprise a base fee, which is
a percentage of the revenues of hotels, and an incentive fee, which is generally based on hotel profitability.
Franchise fees comprise initial application fees and continuing royalties generated from our franchise
programs, which permit the hotel owners and operators to use certain of our brand names. Cost
reimbursements include direct and indirect costs that are reimbursed to us by lodging properties that we
manage or franchise.
Base Management and Incentive Management Fees: We recognize base management fees as revenue
when earned in accordance with the contract. In interim periods and at year-end, we recognize incentive
management fees that would be due as if the contract were to terminate at that date, exclusive of any
termination fees payable or receivable by us.
Franchise Fee Revenue: We recognize franchise fees as revenue in each accounting period as fees are
earned from the franchisee.
Owned and Leased Units: We recognize room sales and revenues from other guest services for our
owned and leased units when rooms are occupied and services have been rendered.
Timeshare and Fractional Intervals and Condominiums: We recognize sales when: (1) we have
received a minimum of 10 percent of the purchase price; (2) the purchaser’s period to cancel for a refund
has expired; (3) we deem the receivables to be collectible; and (4) we have attained certain minimum
sales and construction levels. We defer all revenue using the deposit method for sales that do not meet
all four of these criteria. For sales that do not qualify for full revenue recognition as the project has
progressed beyond the preliminary stages but has not yet reached completion, all revenue and profit are
deferred and recognized in earnings using the percentage of completion method.
Timeshare Residential (Stand-Alone Structures): We recognize sales under the full accrual method of
accounting when we receive our proceeds and transfer title at settlement.
Cost Reimbursements: We recognize cost reimbursements from managed, franchised, and timeshare
properties when we incur the related reimbursable costs.
Other Revenue includes third-party licensing fees, other branding fees, land rental income, and other
revenue.
Ground Leases
We are both the lessor and lessee of land under long-term operating leases, which include scheduled
increases in minimum rents. We recognize these scheduled rent increases on a straight-line basis over the
initial lease term.
Real Estate Sales
We account for the sales of real estate in accordance with Financial Accounting Standards (“FAS”) No.
66, “Accounting for Sales of Real Estate” (“FAS No. 66”). We reduce gains on sales of real estate by the
maximum exposure to loss if we have continuing involvement with the property and do not transfer
substantially all of the risks and rewards of ownership. In sales transactions where we retain a management
contract, the terms and conditions of the management contract are generally comparable to the terms and
conditions of the management contracts obtained directly with third-party owners in competitive bid
processes.
Profit Sharing Plan
We contribute to a profit sharing plan for the benefit of employees meeting certain eligibility
requirements and electing participation in the plan. Contributions are determined based on a specified
percentage of salary deferrals by participating employees. We recognized compensation costs from profit
sharing of $107 million in 2007,
$86 million in 2006, and $69 million in 2005.
Self-Insurance Programs
We are self-insured for certain levels of property, liability, workers’ compensation and employee medical
coverage. We accrue estimated costs of these self-insurance programs at the present value of projected
settlements for known and incurred but not reported claims. We use a discount rate of 4.7 percent to
determine the present value of the projected settlements, which we consider to be reasonable given our
history of settled claims, including payment patterns and the fixed nature of the individual settlements.
We are subject to a variety of assessments related to our insurance activities, including those by state
guaranty funds and workers’ compensation second-injury funds. Our liabilities recorded for assessments
are reflected within the amounts shown in our Consolidated Balance Sheets on the self-insurance reserves
line, are not discounted, and totaled $5 million for both year-end 2007 and year-end 2006. Our liability of
$5 million as of year-end 2007 for assessments is expected to be paid by the end of 2008.
Marriott Rewards
Marriott Rewards is our frequent guest loyalty program. Marriott Rewards members earn points based
on their monetary spending at our lodging operations, purchases of timeshare interval, fractional
ownership, and residential products and, to a lesser degree, through participation in affiliated partners’
programs, such as those offered by airlines and credit card companies. Points, which we track on
members’ behalf, can be redeemed for stays at most of our lodging operations, airline tickets, airline
frequent flyer program miles, rental cars, and a variety of other awards; however, points cannot be
redeemed for cash. We provide Marriott Rewards as a marketing program to participating properties. We
charge the cost of operating the program, including the estimated cost of award redemption, to properties
based on members’ qualifying expenditures.
We defer revenue received from managed, franchised, and Marriott-owned/leased hotels and program
partners equal to the fair value of our future redemption obligation. We determine the fair value of the
future redemption obligation based on statistical formulas that project timing of future point redemption
based on historical levels, including an estimate of the “breakage” for points that will never be redeemed,
and an estimate of the points that will eventually be redeemed. These judgment factors determine the
required liability for outstanding points.
Our management and franchise agreements require that we be reimbursed currently for the costs of
operating the program, including marketing, promotion, communication with, and performing member
services for the Marriott Rewards members. Due to the requirement that hotels reimburse us for program
operating costs as incurred, we receive and recognize the balance of the revenue from properties in
connection with the Marriott Rewards program at the time such costs are incurred and expensed. We
recognize the component of revenue from program partners that corresponds to program maintenance
services over the expected life of the points awarded. Upon the redemption of points, we recognize as
revenue the amounts previously deferred and recognize the corresponding expense relating to the costs of
the awards redeemed. Our liability for the Marriott Rewards program was
$1,392 million at year-end 2007 and $1,231 million at year-end 2006.
Guarantees
We record a liability for the fair value of a guarantee on the date a guarantee is issued or modified. The
offsetting entry depends on the circumstances in which the guarantee was issued. Funding under the
guarantee reduces the recorded liability. When no funding is forecasted, the liability is amortized into
income on a straight-line basis over the remaining term of the guarantee.
Rebates and Allowances
We participate in various vendor rebate and allowance arrangements as a manager of hotel properties.
There are three types of programs that are common in the hotel industry that are sometimes referred to as
“rebates” or “allowances,” including unrestricted rebates, marketing (restricted) rebates and sponsorships.
The primary business purpose of these arrangements is to secure favorable pricing for our hotel owners for
various products and services or enhance resources for promotional campaigns co-sponsored by certain
vendors. More specifically, unrestricted rebates are funds returned to the buyer, generally based upon
volumes or quantities of goods purchased. Marketing (restricted) allowances are funds allocated by vendor
agreements for certain marketing or other joint promotional initiatives. Sponsorships are funds paid by
vendors, generally used by the vendor to gain exposure at meetings and events, which are accounted for as
a reduction of the cost of the event.
We account for rebates and allowances as adjustments of the prices of the vendors’ products and
services. We show vendor costs and the reimbursement of those costs as reimbursed costs and cost
reimbursements revenue, respectively; therefore, rebates are reflected as a reduction of these line items.
Cash and Equivalents
We consider all highly liquid investments with an initial maturity of three months or less at date of
purchase to be cash equivalents.
Restricted Cash
Restricted cash, totaling $153 million and $117 million at year-end 2007 and year-end 2006,
respectively, is recorded in the “Other long-term assets” line in the accompanying Consolidated Balance
Sheets. Restricted cash primarily consists of deposits received on timeshare interval, fractional ownership,
and residential sales that are held in escrow until the contract is closed.
Assets Held for Sale
We consider properties (other than Timeshare segment interval, fractional ownership, and residential
products, which we classify as inventory) to be assets held for sale when all of the following criteria are
met:
x
management commits to a plan to sell a property;
x
it is unlikely that the disposal plan will be significantly modified or discontinued;
x
the property is available for immediate sale in its present condition;
x
actions required to complete the sale of the property have been initiated;
x
sale of the property is probable and we expect the completed sale will occur within one year; and
x
the property is actively being marketed for sale at a price that is reasonable given its current
market value.
Upon designation as an asset held for sale, we record the carrying value of each property at the lower of
its carrying value or its estimated fair value, less estimated costs to sell, and we cease depreciation.
Assets held for sale totaled $123 million at year-end 2007 and consisted of property and equipment. The
$123 million total reflected the following segment composition: North American Full-Service-$17 million;
North American Limited-Service-$17 million; and Luxury-$89 million. There were no liabilities of assets
held for sale at year-end 2007.
Assets held for sale totaled $411 million at year-end 2006 and consisted of property and equipment of
$391 million, accounts receivable of $10 million, cash of $6 million, and other assets of $4 million. The
$411 million total reflected the following segment composition: International Lodging-$295 million;
Luxury Lodging-$73 million; and North American Full-Service Lodging-$43 million. Liabilities of assets
held for sale totaled $102 million at year-end 2006 and consisted of debt totaling $81 million, accounts
payable of $11 million, accrued payroll and benefits of $8 million, and other payables and accruals of $2
million.
In 2007 we reclassified the balances associated with one property, in conformity with other “held and
used” properties, as the property no longer satisfied the criteria to be classified as “held for sale.” In
conjunction with that reclassification, we recorded depreciation expense of $4 million in 2007 that would
have been recognized in 2006 and $4 million in late 2007 that would have been recognized earlier in 2007
had the asset been continuously classified as “held and used.”
Loan Loss Reserves
Lodging Senior Loans and Lodging Mezzanine and Other Loans
We measure loan impairment based on the present value of expected future cash flows discounted at the
loan’s original effective interest rate or the estimated fair value of the collateral. For impaired loans, we
establish a specific impairment reserve for the difference between the recorded investment in the loan and
the present value of the expected future cash flows or the estimated fair value of the collateral. We apply
our loan impairment policy individually to all loans in the portfolio and do not aggregate loans for the
purpose of applying such policy. For loans that we have determined to be impaired, we recognize interest
income on a cash basis.
Loans to Timeshare Owners
We record an estimate of expected uncollectibility on notes receivable that we receive from timeshare
purchasers as a reduction of revenue at the time we recognize profit on a timeshare sale. We assess
uncollectibility based on pools of receivables because we hold large numbers of homogeneous timeshare
notes receivable. We estimate uncollectibles based on historical activity for similar timeshare notes
receivable over the past three years. We use a technique referred to as static pool analysis, which tracks
uncollectibles for each year’s sales over the life of those notes.
Valuation of Goodwill
We evaluate the fair value of goodwill to assess potential impairments on an annual basis, or during the
year if an event or other circumstance indicates that we may not be able to recover the carrying amount of
the asset. We evaluate the fair value of goodwill at the reporting unit level and make that determination
based upon future cash flow projections that assume certain growth projections which may or may not
occur. We record an impairment loss for goodwill when the carrying value of the intangible asset is less
than its estimated fair value.
Investments
We consolidate entities that we control. We account for investments in joint ventures using the equity
method of accounting when we exercise significant influence over the venture. If we do not exercise
significant influence, we account for the investment using the cost method of accounting. We account for
investments in limited partnerships and limited liability companies using the equity method of accounting
when we own more than a minimal investment. Our ownership interest in these equity method investments
varies generally from 10 percent to
50 percent.
The fair value of our available-for-sale securities totaled $55 million and $107 million at year-end 2007
and year-end 2006, respectively. We included net unrealized holding gains on available-for-sale securities
of $9 million at year-end 2007 and $35 million at year-end 2006 in accumulated other comprehensive
income. The amount of net gains reclassified out of accumulated other comprehensive income as a result
of the sale of available-for-sale securities totaled $18 million and zero for 2007 and 2006, respectively. We
determined the cost basis of the securities sold using specific identification.
Costs Incurred to Sell Real Estate Projects
We charge the majority of sales and marketing costs we incur to sell timeshares to expense when
incurred. Selling and marketing costs capitalized were $6 million at year-end 2007 and $16 million at yearend 2006 and are included in the accompanying Consolidated Balance Sheets in the “Other” caption within
the “Current assets” section. If a contract is canceled, we charge unrecoverable direct selling and
marketing costs to expense and record deposits forfeited as income.
Residual Interests
We periodically sell notes receivable originated by our Timeshare segment in connection with the sale of
timeshare interval and fractional products. We continue to service the notes and transfer all proceeds
collected to special purpose entities. We retain servicing assets and other interests in the notes and account
for these assets and interests as residual interests. The interests are limited to the present value of cash
available after paying financing expenses and program fees and absorbing credit losses. Prior to the start of
the 2007 fiscal year, we measured servicing assets at the date of sale at their allocated previous carrying
amount based on relative fair value, classified those assets as held to maturity under the provisions of FAS
No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (“FAS No. 115”), and
recorded those assets at amortized cost. On December 30, 2006, the first day of fiscal year 2007, we
adopted FAS No. 156, “Accounting for Servicing of Financial Assets-an Amendment of Financial
Accounting Standards Board (“FASB”) Statement No. 140” (“FAS No. 156”). FAS No. 156 requires that
all separately recognized servicing assets and liabilities be initially measured at fair value, if practicable. It
also allows an entity to subsequently elect fair value measurement for its servicing assets and liabilities. In
conjunction with the adoption of FAS No. 156, we elected to subsequently measure our servicing assets
using the fair value method. Under the fair value method, we carry servicing assets on the balance sheet at
fair value and report the changes in fair value, primarily due to changes in valuation inputs and assumptions
and to the collection or realization of expected cash flows, in earnings in the period in which the change
occurs. For additional information regarding the adoption of FAS No. 156, see Footnote No. 11, “Asset
Securitizations.”
We treat the residual interests, including servicing assets, as “trading” securities under the provisions of
FAS No. 115. At the dates of sale and at the end of each reporting period, we estimate the fair value of the
residual interests, including servicing assets, using a discounted cash flow model. We report changes in the
fair values of these residual interests, including servicing assets, through the accompanying Consolidated
Statements of Income.
The rate of prepayment of loans serviced is the most significant estimate involved in the measurement
process. Estimates of prepayment rates are based on management’s expectations of future prepayment
rates, reflecting our historical rate of loan repayments, industry trends, and other considerations. Actual
prepayment rates differ from those projected by management due to changes in a variety of economic
factors, including prevailing interest rates and the availability of alternative financing sources to borrowers.
If actual prepayments of the loans being serviced were to occur more slowly than had been projected, the
carrying value of servicing assets could increase, and servicing income would exceed previously projected
amounts. Accordingly, the servicing assets actually realized, could differ from the amounts initially
recorded.
Derivative Instruments
We use derivative instruments as part of our overall strategy to manage our exposure to market risks
associated with fluctuations in interest rates and foreign currency exchange rates. As a matter of policy, we
do not use derivatives for trading or speculative purposes.
We record all derivatives at fair value either as assets or liabilities. We recognize, currently in earnings,
changes in fair value of derivatives not designated as hedging instruments and of derivatives designated as
fair value hedging instruments. We record changes in the fair value of the hedged item in a fair value
hedge as an adjustment to the carrying amount of the hedged item and recognize the change in the fair
value of the derivative in earnings in the same income statement line item.
We record the effective portion of changes in fair value of derivatives designated as cash flow hedging
instruments as a component of other comprehensive income and report the ineffective portion currently in
earnings. We reclassify amounts included in other comprehensive income into earnings in the same period
during which the hedged item affects earnings.
Foreign Operations
The U.S. dollar is the functional currency of our consolidated and unconsolidated entities operating in the
United States. The functional currency for our consolidated and unconsolidated entities operating outside
of the United States is generally the currency of the primary economic environment in which the entity
primarily generates and expends cash. We translate the financial statements of consolidated entities whose
functional currency is not the U.S. dollar into U.S. dollars, and we do the same, as needed, for
unconsolidated entities whose functional currency is not the U.S. dollar. We translate assets and liabilities
at the exchange rate in effect as of the financial statement date and translate income statement accounts
using the weighted average exchange rate for the period. We include translation adjustments from foreign
exchange and the effect of exchange rate changes on intercompany transactions of a long-term investment
nature as a separate component of shareholders’ equity. We report gains and losses from foreign exchange
rate changes related to intercompany receivables and payables that are not of a long-term investment
nature, as well as gains and losses from foreign currency transactions, currently in operating costs and
expenses, and those amounted to a $2 million loss in 2007, a $6 million gain in 2006, and a $5 million loss
in 2005. Gains and other income for 2007 included $6 million attributable to currency translation
adjustment gains, net of losses, from the sale or complete or substantially complete liquidation of
investments. There were no similar gains or losses in 2006 or 2005.
New Accounting Standards
FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”
We adopted FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes,” (“FIN 48”) on
December 30, 2006, the first day of our 2007 fiscal year. FIN 48 is an interpretation of FASB Statement
No. 109, “Accounting for Income Taxes,” which seeks to standardize practices associated with certain
aspects of measurement and recognition in accounting for income taxes. FIN 48 prescribes a recognition
threshold and measurement requirement for the financial statement recognition of a tax position taken or
expected to be taken on a tax return. Additionally, FIN 48 provides guidance on de-recognition,
classification, interest and penalties, accounting in interim periods, disclosure, and transition. Under FIN
48, an entity may only recognize or continue to recognize tax positions that meet a “more likely than not”
threshold. We recorded the cumulative effect of applying FIN 48 of $155 million as an adjustment to the
opening balance of retained earnings and additional paid-in-capital on December 30, 2006, the first day of
our 2007 fiscal year. See Footnote No. 3, “Income Taxes,” for additional information.
Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets-an Amendment
of FASB Statement No. 140”
We adopted FASB’s FAS No. 156 on December 30, 2006, the first day of our 2007 fiscal year. FAS No.
156 requires that all separately recognized servicing assets and liabilities initially be measured at fair value,
if practicable. It also allows an entity to subsequently elect fair value measurement for its servicing assets
and liabilities. We recorded the cumulative effect of applying FAS No. 156, of $1 million, net of tax, as an
adjustment to the opening balance of retained earnings on December 30, 2006. See Footnote No. 11,
“Asset Securitizations,” for additional information.
Future Adoption of Accounting Standards
EITF Issue No. 06-8, “Applicability of the Assessment of a Buyer’s Continuing Investment under FASB
Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums”
In November 2006, the Emerging Issues Task Force of FASB (“EITF”) reached a consensus on EITF
Issue No. 06-8, “Applicability of the Assessment of a Buyer’s Continuing Investment under FASB
Statement No. 66, Accounting for Sales of Real Estate, for Sales of Condominiums” (“EITF 06-8”). EITF
06-8 will require condominium sales to meet the continuing investment criterion in FAS No. 66 in order to
recognize profit under the percentage of completion method. EITF 06-8 will be effective for annual
reporting periods beginning after March 15, 2007, which for us begins with our 2008 fiscal year. The
cumulative effect of applying EITF 06-8, if any, will be recorded as an adjustment to the opening balance
of retained earnings in the year of adoption. We do not expect the impact of adoption of EITF 06-8 to be
material.
Financial Accounting Standards No. 157, “Fair Value Measurements”
In September 2006, the FASB issued FAS No. 157, “Fair Value Measurements” (“FAS No. 157”). This
standard defines fair value, establishes a methodology for measuring fair value, and expands the required
disclosure for fair value measurements. FAS No. 157 is effective for fiscal years beginning after
November 15, 2007, which for us begins with our 2008 fiscal year. Provisions of FAS No. 157 must be
applied prospectively as of the beginning of the first fiscal year in which FAS No. 157 is applied. In
November 2007, the FASB agreed to partially defer the effective date, for one year, of FAS No. 157, for
non-financial assets and liabilities, except those that are recognized or disclosed at fair value in the
financial statements on a recurring basis. We are currently evaluating the impact that FAS No. 157 will
have on our financial statements.
Financial Accounting Standards No. 159, “The Fair Value Option for Financial Assets and Financial
Liabilities Including an Amendment of FASB Statement No. 115”
In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115” (“FAS No. 159”). This
standard permits entities to choose to measure many financial instruments and certain other items at fair
value and is effective for the first fiscal year beginning after November 15, 2007, which for us begins with
our 2008 fiscal year. We do not expect to elect the fair value measurement option for any financial assets
or liabilities at the present time.
EITF Issue No. 07-6, “Accounting for Sales of Real Estate Subject to the Requirements of FASB
Statement No. 66, ‘Accounting for Sales of Real Estate,’ When the Agreement Includes a Buy-Sell
Clause”
In December 2007, the EITF reached a consensus on EITF Issue No. 07-6, “Accounting for Sales of Real
Estate Subject to the Requirements of FASB Statement No. 66, ‘Accounting for Sales of Real Estate,’
When the Agreement Includes a Buy-Sell Clause” (“EITF 07-6”). EITF 07-6 clarifies whether a buy-sell
clause is a prohibited form of continuing involvement that would preclude partial sales treatment under
FAS No. 66. EITF 07-6 is effective for new arrangements entered into and assessments of existing
transactions originally accounted for under the deposit, profit-sharing, leasing, or financing methods for
reasons other than the exercise of a buy-sell clause performed in fiscal years beginning after December 15,
2007, which for us begins with our 2008 fiscal year. We do not expect EITF 07-6 to have a material impact
on our financial statements.
Financial Accounting Standards No. 141 (Revised 2007), “Business Combinations”
On December 4, 2007, the FASB issued FAS No. 141 (Revised 2007), “Business Combinations”
(“FAS No. 141(R)”). FAS No. 141(R) will significantly change the accounting for business combinations.
Under FAS No. 141(R), an acquiring entity will be required to recognize all the assets acquired and
liabilities assumed in a transaction at the acquisition-date fair value with limited exceptions. FAS No.
141(R) also includes a substantial number of new disclosure requirements. FAS No. 141(R) applies
prospectively to business combinations for which the acquisition date is on or after the beginning of the
first annual reporting period beginning on or after December 15, 2008, which for us begins with our 2009
fiscal year. We are currently evaluating the impact that FAS No. 141(R) will have on our financial
statements.
Financial Accounting Standards No. 160, “Non-controlling Interests in Consolidated Financial
Statements-an Amendment of ARB No. 51”
On December 4, 2007, the FASB issued FAS No. 160, “Non-controlling Interests in Consolidated
Financial Statements-an Amendment of Accounting Research Bulletin (“ARB”) No. 51” (“FAS No. 160”).
FAS No. 160 establishes new accounting and reporting standards for a non-controlling interest in a
subsidiary and for the deconsolidation of a subsidiary. Specifically, this statement requires the recognition
of a non-controlling interest (minority interest) as equity in the consolidated financial statements separate
from the parent’s equity. The amount of net income attributable to the non-controlling interest will be
included in consolidated net income on the face of the income statement. FAS No. 160 clarifies that
changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity
transactions if the parent retains its controlling financial interest. In addition, this statement requires that a
parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be
measured using the fair value of the non-controlling equity investment on the deconsolidation date. FAS
No. 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. FAS No. 160 is effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008, which for us begins with our 2009 fiscal year. We are currently
evaluating the impact that FAS No. 160 will have on our financial statements.
2.
DISCONTINUED OPERATIONS
Our synthetic fuel operations consisted of four coal-based synthetic fuel production facilities (the
“Facilities”). Because tax credits under Section 45K of the Internal Revenue Code are not available for the
production and sale of synthetic fuel produced from coal after calendar year-end 2007, and because high oil
prices during 2007 will result in the phase-out of a significant portion of the tax credits available for
synthetic fuel produced and sold in 2007, on November 3, 2007, we shut down the Facilities and
permanently ceased production of synthetic fuel. Accordingly, we now report this business segment as a
discontinued operation. The book value of the Facilities was zero at year-end 2007, as the Facilities have
been transferred to third parties. Under the site leases for the Facilities, we were required to restore the
leased premises to substantially the condition the premises were in when the leases were originally
executed. However, we executed agreements with the lessors of the sites pursuant to which we transferred
the Facilities to the lessors in exchange for the release of our obligations to restore the leased premises to
their original condition. Costs associated with shutting down the synthetic fuel operation and transferring
the Facilities to the site lessors were not material.
The following table provides additional income statement and balance sheet information relating to the
discontinued operations:
Income Statement Summary
($ in millions)
2007
2006
Revenue ..................................................................
$
352
$
165
$
421
Operating loss .........................................................
Gains and other (expense) income ....................
Interest expense .................................................
Loss before income taxes and minority interest .....
..................................................................................
$
(113)
(6)
(8)
$
(76)
(15)
(4)
$
(144)
32
-
Tax benefit ........................................................
Tax credits .........................................................
Total tax benefit .....................................................
(Loss) income before minority interest ..................
Minority interest .....................................................
(Loss) income on discontinued synthetic fuel
business, net of tax ............................................
Income on discontinued distribution services
business, net of tax ............................................
Discontinued operations, net of tax ........................
$
(127)
(95)
(112)
46
80
126
32
62
94
23
167
190
(1)
-
(1)
6
78
47
(1)
5
125
(1)
5
$
Balance Sheet Summary
($ in millions)
Property, plant, and equipment .......................
Other assets ....................................................
Liabilities ........................................................
3.
2005
At Year-end
2007
At Year-end
2006
$
$
53
(13)
5
86
(55)
INCOME TAXES
We adopted the provisions of FIN 48, on December 30, 2006, the first day of fiscal year 2007. As a
result of the implementation of FIN 48, we recorded a $155 million increase in the net liability for
unrecognized tax positions, which was recorded as an adjustment to the opening balance of retained
earnings and additional paid-in-capital on December 30, 2006. The total amount of unrecognized tax
benefits as of year-end 2007 was $132 million. Included in the balance at year-end 2007 were $97 million
of tax positions that, if recognized, would impact the effective tax rate. As a large taxpayer, we are under
continual audit by the Internal Revenue Service (“IRS”) and other taxing authorities on several open tax
positions, and it is possible that the amount of the liability for unrecognized tax benefits could change
during the next 52-week period. While it is possible that one or more of these examinations may be
resolved in the next year, it is not anticipated that a significant impact to the unrecognized tax benefit
balance will occur.
The unrecognized tax benefit reconciliation from beginning balance to ending balance is as follows:
($ in millions)
Amount
Unrecognized tax benefit at beginning of year (December 30, 2006) ............ $
Change attributable to tax positions taken during a prior period ................
Change attributable to tax positions taken during the current period ..........
Decrease attributable to settlements with taxing authorities .......................
Decrease attributable to lapse of statute of limitations ...............................
Unrecognized tax benefit at end of year (December 28, 2007) ...................... $
244
163
5
(279)
(1)
132
$
1
126
In accordance with our accounting policy, we recognize accrued interest and penalties related to
unrecognized tax benefits as a component of tax expense. This policy did not change as a result of the
adoption of FIN 48. Our Consolidated Statements of Income for the year ended December 28, 2007, and
our Consolidated Balance Sheets as of that date include interest of $18 million and $8 million, respectively.
We file income tax returns, including returns for our subsidiaries, with federal, state, local, and foreign
jurisdictions. We are participating in the IRS Compliance Assurance Program (CAP) for the 2006 and
2007 tax years and we intend to participate for 2008. This program accelerates the examination of key
transactions with the goal of resolving any issues before the tax return is filed. Our 2005 federal income
tax return is currently being examined by the IRS in a traditional audit process. In June 2007, we received
IRS Revenue Agents Reports for both the 2000 through 2002 and 2003 through 2004 examination cycles.
We have fully resolved all issues and are in the final stages of closing these years. Various state, local, and
foreign income tax returns are also under examination by taxing authorities. We do not believe that the
outcome of any examination will have a material impact on our financial statements.
As disclosed in our 2006 Form 10-K, the IRS was then auditing the Company’s federal tax returns for the
2000, 2001, and 2002 fiscal years. As part of that audit, the IRS reviewed a leveraged employee stock
ownership plan (“ESOP”) feature of the Company’s Employees’ Profit Sharing, Retirement and Savings
Plan (the “Plan”) that was implemented in a transaction (the “ESOP transaction”) on June 13, 2000.
Principal and interest on the debt related to the transaction was forgiven over a 26-month period as a
mechanism for funding Company contributions of elective deferrals and matching contributions to the Plan.
We claimed federal income tax deductions for the forgiven principal on the debt in the amount of $1 billion
over that period, along with forgiven interest on the debt. The benefit related to the tax deductions was
reflected in equity and did not flow through the provision for income taxes.
On June 7, 2007, we reached a settlement of issues raised during the IRS’ and Department of Labor’s
examination of the ESOP feature of the Plan. The settlement resulted in an after-tax charge in the 2007
second quarter totaling $54 million and a reduction in shareholders’ equity of $115 million. The $54
million charge included $35 million of excise taxes (impacting general, administrative, and other expense),
$13 million of interest expense on those excise taxes, and $6 million of income tax expense primarily
reflecting additional interest. As a result of the settlement, we have made cash payments to the U.S.
Treasury and state tax jurisdictions of $205 million through year-end 2007. The remaining cash payments
of approximately $1 million are expected to be made in 2008. The payments reflect income taxes, excise
taxes, and interest charges. No penalties were assessed.
Total deferred tax assets and liabilities as of year-end 2007 and year-end 2006, were as follows:
($ in millions)
Deferred tax assets .......................................................................................
Deferred tax liabilities ..................................................................................
Net deferred taxes ....................................................................................
2007
$
$
1,013
(150)
863
2006
$
$
1,042
(177)
865
The tax effect of each type of temporary difference and carry-forward that gives rise to a significant
portion of deferred tax assets and liabilities as of year-end 2007 and year-end 2006, were as follows:
($ in millions)
2007
Self-insurance ...............................................................................................
Employee benefits .........................................................................................
Deferred income ...........................................................................................
Other reserves ...............................................................................................
Frequent guest program ................................................................................
Tax credits .....................................................................................................
Net operating loss carry-forwards .................................................................
Timeshare financing ......................................................................................
Property, equipment, and intangible assets ...................................................
Other, net ......................................................................................................
Deferred taxes ...............................................................................................
Less: valuation allowance ............................................................................
Net deferred taxes ......................................................................................
$
27
282
30
42
101
300
132
(47)
(45)
72
894
(31)
863
$
2006
$
36
250
34
52
75
383
126
(37)
(32)
12
899
(34)
865
$
At year-end 2007, we had approximately $74 million of tax credits that expire through 2027, $226
million of tax credits that do not expire, and $656 million of net operating losses, of which $360 million
expire through 2027. The valuation allowance decreased due to foreign net operating losses that we believe
will be realized and the expiration of state net operating losses.
We have made no provision for U.S. income taxes or additional foreign taxes on the cumulative
unremitted earnings of non-U.S. subsidiaries ($738 million as of year-end 2007) because we consider these
earnings to be permanently invested. These earnings could become subject to additional taxes if remitted
as dividends, loaned to us or a U.S. affiliate or if we sold our interests in the affiliates. We cannot
practically estimate the amount of additional taxes that might be payable on the unremitted earnings. We
conduct business in countries that grant a “holiday” from income taxes for 10- and 30-year periods. The
holidays expire through 2034. The aggregate amount of taxes not incurred due to tax “holidays” and the
related earnings per share impacts are $22 million ($0.06 per diluted share), $22 million ($0.05 per diluted
share), and $11 million ($0.02 per diluted share) for 2007, 2006, and 2005, respectively.
The (provision for) benefit from income taxes consists of:
($ in millions)
Current
- Federal .........................................................
- State .............................................................
- Foreign .........................................................
2007
$
Deferred - Federal .........................................................
- State .............................................................
- Foreign .........................................................
$
(303)
(59)
(61)
(423)
(10)
1
(9)
(18)
(441)
2006
$
$
(287)
(61)
(56)
(404)
5
1
18
24
(380)
2005
$
$
The current tax provision does not reflect the benefits attributable to us relating to the exercise of
employee stock options of $115 million in 2007, $194 million in 2006, and $87 million in 2005. Included
in the preceding table are tax credits of $4 million in each of 2007 and 2006, and $5 million in 2005. The
taxes applicable to other comprehensive income are not material.
(328)
(56)
(35)
(419)
108
19
8
135
(284)
A reconciliation of the U.S. statutory tax rate to our effective income tax rate for continuing operations
follows:
2007
U.S. statutory tax rate .......................................................
State income taxes, net of U.S. tax benefit .......................
Nondeductible expenses ...................................................
Change in valuation allowance .........................................
Foreign income .................................................................
Tax credits ........................................................................
Other, net ..........................................................................
Effective rate ..................................................................
35.0
2.8
1.4
(0.9)
(0.3)
0.8
38.8
2006
%
%
2005
35.0 %
2.9
0.3
(1.9)
35.0
3.0
0.3
1.7
%
(1.8)
(0.4)
0.1
34.2 %
(4.4)
(0.6)
(0.4)
34.6 %
Cash paid for income taxes, net of refunds, was $350 million in 2007, $169 million in 2006, and $182
million in 2005.
4.
SHARE-BASED COMPENSATION
Under our 2002 Comprehensive Stock and Cash Incentive Plan (“the Comprehensive Plan”), we award:
(1) stock options to purchase our Class A Common Stock (“Stock Option Program”); (2) share appreciation
rights for our Class A Common Stock; (3) restricted stock units of our Class A Common Stock; and (4)
deferred stock units. We grant awards at exercise prices or strike prices that are equal to the market price
of our Class A Common Stock on the date of grant.
We adopted FAS No. 123(R) using the modified prospective transition method at the beginning of our
2006 first quarter. In accordance with the modified prospective transition method, we did not restate our
Consolidated Financial Statements for prior periods to reflect the impact of FAS No. 123(R). For all sharebased awards granted after the date we adopted FAS No. 123(R) and for the unvested portion of previously
granted share-based awards that were outstanding on that date, FAS No. 123(R) requires that we measure
compensation costs related to our share-based payment transactions at fair value on the grant date and that
we recognize those costs in the financial statements over the vesting period during which the employee
provides service in exchange for the award. Previously, under FAS No. 123 and APB Opinion No. 25, we
accounted for our share-based employee compensation plans using the intrinsic value method under the
recognition and measurement principles of
APB Opinion No. 25 and recognized share-based compensation expense for all awards except for our Stock
Option Program awards. We recorded share-based compensation expense related to award grants of $62
million in 2005.
Under FAS No. 123(R), we recorded share-based compensation expense related to award grants of $104
million in 2007 and $108 million in 2006. Deferred compensation costs related to unvested awards totaled
$162 million at year-end 2007 and $168 million at year-end 2006, and the weighted average period over
which we expect the deferred compensation costs at year-end 2007 to be recognized is two years.
The following table illustrates the effect on net income and earnings per share as if we had applied the
fair value recognition provisions of FAS No. 123 to share-based employee compensation in 2005. We have
included the impact of measured but unrecognized compensation costs and excess tax benefits credited to
additional paid-in-capital in the calculation of diluted pro forma shares. In addition, we have included the
estimated impact of reimbursements from third parties. The reported and pro forma net income and
earnings per share figures for 2007 and 2006 in the table are the same because we calculate share-based
compensation expense under the provisions of FAS No. 123(R). We have included the 2007 and 2006
amounts in the table below to provide detail for comparative purposes to the 2005 amounts.
($ in millions, except per share amounts)
Net income, as reported .............................................
Add: Share-based employee compensation expense
included in reported net income, net of related
tax effects ...............................................................
2007
$
696
67
2006
$
608
70
2005
$
669
40
Deduct: Total share-based employee compensation
expense determined under fair value-based
method for all awards, net of related tax effects
and estimated reimbursed costs ..............................
Pro forma net income ................................................
$
(67)
696
$
(70)
608
$
(61)
648
Earnings per share:
Basic-as reported ....................................................
Basic-pro forma .....................................................
$
$
1.85
1.85
$
$
1.50
1.50
$
$
1.55
1.50
Diluted-as reported ................................................
Diluted-pro forma ..................................................
$
$
1.75
1.75
$
$
1.41
1.41
$
$
1.45
1.40
FAS No. 123(R) requires that share-based compensation expense be recognized over the period from the
grant date to the date on which the award is no longer contingent on the employee providing additional
service (the “substantive vesting period”). In periods prior to the adoption of FAS No. 123(R), we showed
share-based compensation expense in our pro forma disclosure only for option awards to retirement-eligible
employees over the awards’ stated vesting period. In periods prior to the adoption of FAS No. 123(R), we
recorded share-based compensation expense for our other awards to retirement-eligible employees over the
awards’ stated vesting period. With the adoption of FAS No. 123(R), we continue to follow the stated
vesting period for the unvested portion of awards granted prior to adoption of FAS No. 123(R) and follow
the substantive vesting period for awards granted after the adoption of FAS No. 123(R).
In accordance with FAS No. 123(R), we present the tax benefits resulting from the exercise of sharebased awards as financing cash flows. Prior to the adoption of FAS No. 123(R), we reported the tax
benefits resulting from the exercise of share-based awards as operating cash flows. Tax benefits resulting
from the exercise of share-based awards totaled $115 million, $194 million, and $87 million for 2007,
2006, and 2005, respectively.
The aggregate amount of cash we received from the exercise of stock options granted under share-based
payment arrangements was $89 million, $184 million, and $125 million for 2007, 2006, and 2005,
respectively.
We issue restricted stock units under the Comprehensive Plan to certain officers and key employees and
those units vest generally over four years in annual installments commencing one year after the date of
grant. We recognize compensation expense for the restricted stock units over the service period equal to
the fair market value of the stock units on the date of issuance. Upon vesting, restricted stock units convert
to shares and are distributed from treasury shares. At year-end 2007 and year-end 2006, we had
approximately $145 million and $138 million, respectively, in deferred compensation costs related to
restricted stock units. Share-based compensation expense associated with restricted stock units was $82
million, $77 million, and $52 million for 2007, 2006, and 2005, respectively. The weighted average
remaining term for restricted stock unit grants outstanding at year-end 2007 was two years. Restricted
stock units converted and distributed during 2007, 2006, and 2005, had aggregate intrinsic values of $147
million, $78 million, and $52 million, respectively. The weighted average grant-date fair values of
restricted stock units granted in 2007, 2006, and 2005 were $49, $35, and $32, respectively.
Changes in our outstanding restricted stock unit grants in 2007 were as follows:
Outstanding at year-end 2006 ................................................
Granted during 2007 ...........................................................
Distributed during 2007 ......................................................
Forfeited during 2007 ..........................................................
Outstanding at year-end 2007 ................................................
Number of
Restricted Stock Units
(in millions)
7.6
2.3
(3.0)
(0.2)
6.7
Weighted
Average Grant-Date
Fair Value
$
30
49
26
37
37
Employee stock options may be granted to officers and key employees at exercise prices or strike prices
equal to the market price of our Class A Common Stock on the date of grant. Non-qualified options
generally expire
10 years after the date of grant, except those issued from 1990 through 2000, which expire 15 years after
the date of the grant. Most stock options under the Stock Option Program are exercisable in cumulative
installments of one quarter at the end of each of the first four years following the date of grant.
We recognized compensation expense associated with employee stock options of $12 million in 2007
and $22 million in 2006. We did not recognize any compensation expense associated with employee stock
options in 2005. At year-end 2007 and year-end 2006, there was approximately $6 million and $18
million, respectively, in deferred compensation costs related to employee stock options. Upon the exercise
of stock options, we issue shares from treasury shares.
Changes in our outstanding Stock Option Program awards in 2007 were as follows:
Outstanding at year-end 2006 ............................................
Granted during 2007 .......................................................
Exercised during 2007 ....................................................
Forfeited during 2007 .....................................................
Outstanding at year-end 2007 ............................................
Number of Options
(in millions)
43.9
(6.2)
37.7
Weighted Average
Exercise Price
17
49
14
23
17
Stock options issued under the Stock Option Program awards outstanding at year-end 2007, were as
follows:
Outstanding
Range of
Exercise Prices
$
6 to
$
9 to
13 to
19 to
26 to
6 to
8
12
18
25
50
50
Number of
Stock
Options
(in millions)
2.7
1.4
21.8
10.3
1.5
37.7
Weighted
Average
Remaining
Life
(in years)
2
4
6
7
8
6
Exercisable
Weighted
Average
Exercise
Price
$
7
10
15
22
33
17
Number of
Stock
Options
(in millions)
2.7
1.4
21.8
9.4
0.7
36.0
Weighted
Average
Exercise
Price
$
7
10
15
22
32
17
Weighted
Average
Remaining
Life
(in years)
2
4
6
7
8
6
The weighted average grant-date fair value of the 33,000 options granted in 2007 was $19 and the
options had a weighted average exercise price of $49. The weighted average grant-date fair value of the
24,000 options granted in 2006 was $13 and the options had a weighted average exercise price of $34. The
total intrinsic value of options outstanding at year-end 2007 and year-end 2006 was $1,279 million and
$1,368 million, respectively, and the total intrinsic value for stock options exercisable as of year-end 2007
and year-end 2006 was $624 million and $1,233 million, respectively. The total intrinsic value of stock
options exercised during 2007, 2006, and 2005 was approximately $206 million, $309 million, and $173
million, respectively.
Employee share appreciation rights (“Employee SARs”) may be granted to officers and key employees at
exercise prices or strike prices equal to the market price of our Class A Common Stock on the date of grant.
Employee SARs expire 10 years after the date of grant and generally both vest and are exercisable in
cumulative installments of one quarter at the end of each of the first four years following the date of grant.
Non-employee share appreciation rights (“Non-employee SARs”) may be granted to directors at exercise
prices or strike prices equal to the market price of our Class A Common Stock on the date of grant. Nonemployee SARs expire 10 years after the date of grant and vest upon grant; however, they are generally not
exercisable until one year after grant. We first began issuing share appreciation rights in 2006. On
exercise of SARs, employees or Non-employee directors receive the number of shares of Class A Common
Stock equal to the number of share appreciation rights that are being exercised multiplied by the quotient of
(a) the final value minus the base value, divided by (b) the final value.
We recognized compensation expense associated with Employee SARs and Non-employee SARs of $5
million in 2007 and $3 million in 2006. At the end of 2007 and 2006, we had approximately $7 million and
$4 million, respectively, in deferred compensation costs related to share appreciation rights. Upon the
exercise of share appreciation rights, shares are issued from treasury shares. During 2007 and 2006, we
granted 0.4 million and 0.5 million, respectively, Employee SARs with a weighted average base value of
$49 and $34, respectively, and a weighted average grant-date fair value of $19 and $13, respectively.
During 2007 and 2006, we also granted 4,000 and 8,000, respectively, Non-employee SARs with a
weighted average base value of $46 and $37, respectively, and a weighted average grant-date fair value of
$20 and $18, respectively. No SARs have expired or been forfeited in 2007. The total intrinsic value of
SARs outstanding at year-end 2007 and year-end 2006 was zero and $7 million, respectively, and the total
intrinsic value of SARs exercisable as of year-end 2007 and year-end 2006 were each zero. The total
intrinsic value of SARs exercised during 2007 was $100,000. No SARs were exercised in 2006.
We use a binomial method to estimate the fair value of each stock option or SAR granted. The
assumptions for stock options for all years and employee SARs for 2007 and 2006 are noted in the
following table:
Annual dividends ............................................................
Expected volatility ..........................................................
Risk-free interest rate .....................................................
Expected life (in years) ...................................................
2007
$ 0.29
28 %
4.8 %
7
2006
$ 0.22
30 %
4.5 %
7
2005
$ 0.18
30 %
4.1 %
8
For Non-employee SARs issued in 2007 and 2006, the only differences in the assumptions versus
employee SARs were the use of risk-free interest rates of 4.6 percent and 5.0 percent, respectively, and for
each year’s issuances, an expected life of 10 years.
Estimated volatilities for 2007 and 2006 were based on the historical share-price volatility for a period
equal to the stock option’s or share appreciation right’s expected lives, ending on the day of grant, and
calculated based on weekly data. The weighted average expected stock option or share appreciation right
terms for 2007 and 2006 were a product of the lattice-based binomial valuation model that uses suboptimal
exercise factors to calculate the expected terms.
We also issue deferred stock units to Non-employee directors. These Non-employee director deferred
stock units vest within one year and are distributed upon election. At year-end 2007 and year-end 2006,
there was approximately $227,000 and $152,000, respectively, in deferred costs related to Non-employee
director deferred stock units. We recognized share-based expense associated with Non-employee director
deferred stock units of $666,000, $492,000, and $416,000 for 2007, 2006, and 2005, respectively. During
2007 we granted 20,000 Non-employee director deferred stock units with a weighted average grant-date
fair value of $46. For 2006 and 2005, we granted 18,000 and 21,000 Non-employee director deferred stock
units with weighted average grant-date fair values of $37 and $32, respectively. The aggregate intrinsic
value of Non-employee director deferred stock units distributed during 2007, 2006, and 2005, was $0.3
million, $1.7 million, and $0.2 million, respectively. At year-end 2007 and year-end 2006, there were
218,000 and 203,000, respectively, Non-employee deferred stock units outstanding, and the weighted
average grant-date fair value of those outstanding deferred stock units was $24 and $21, respectively.
Although the Comprehensive Plan also provides for issuance of deferred stock bonus awards, deferred
stock awards, and restricted stock awards, our Compensation Policy Committee indefinitely suspended the
issuance of deferred bonus stock commencing with our 2001 fiscal year and the issuance of both deferred
stock awards and restricted stock awards commencing with the 2003 fiscal year. At year-end 2007 and
year-end 2006, there was approximately $4 million and $8 million, respectively, in deferred compensation
costs related to these suspended award programs, and the weighted average remaining term was two years
for such award grants outstanding at year-end 2007. Share-based compensation expense associated with
these suspended award programs was $4 million, $6 million, and $10 million for 2007, 2006, and 2005,
respectively.
At year-end 2007, 63 million shares were reserved under the Comprehensive Plan including 39 million
shares under the Stock Option Program and Share Appreciation Right Program.
5.
EARNINGS PER SHARE
The table below illustrates the reconciliation of the earnings and number of shares used in the basic and
diluted earnings per share calculations.
(in millions, except per share amounts)
2007
2006
2005
Computation of Basic Earnings Per Share
Income from continuing operations .......................................
Weighted average shares outstanding ....................................
$
697
376.1
$
712
404.1
$
543
432.7
Basic earnings per share from continuing operations ............
$
1.85
$
1.76
$
1.26
$
697
$
712
$
543
Computation of Diluted Earnings Per Share
Income from continuing operations ........................................
Weighted average shares outstanding ....................................
376.1
404.1
432.7
Effect of dilutive securities
Employee stock option and share appreciation rights
plan .................................................................................
Deferred stock incentive plan .............................................
Restricted stock units ..........................................................
Shares for diluted earnings per share .....................................
16.8
1.9
2.5
397.3
20.2
3.4
2.5
430.2
19.0
7.5
3.1
462.3
Diluted earnings per share from continuing operations .........
$
1.75
$
1.65
$
We compute the effect of dilutive securities using the treasury stock method and average market prices
during the period. We determine dilution based on earnings from continuing operations.
In accordance with FAS No. 128, “Earnings per Share,” we have not included the following stock
options and SARs in our calculation of diluted earnings per share because the exercise prices were greater
than the average market prices for the applicable periods:
(a) for the year ended December 28, 2007, 0.4 million options and SARs, with exercise prices
ranging from $45.91 to $49.03;
(b) for the year ended December 29, 2006, no options, and
(c) for the year ended December 30, 2005, no options.
6.
INVENTORY
Inventory, totaling $1,557 million and $1,186 million as of December 28, 2007, and December 29, 2006,
respectively, consists primarily of Timeshare segment interval, fractional ownership, and residential
products totaling $1,536 million and $1,166 million as of December 28, 2007, and December 29, 2006,
respectively. Inventory totaling $21 million and $20 million as of December 28, 2007, and December 29,
2006, respectively, relates to hotel operating supplies for the limited number of properties we own or lease.
We value Timeshare segment interval, fractional ownership, and residential products at the lower of cost or
net realizable value and generally value operating supplies at the lower of cost (using the first-in, first-out
method) or market. Consistent with recognized industry practice, we classify Timeshare segment interval,
fractional ownership, and residential products inventory, which has an operating cycle that exceeds 12
months, as a current asset.
1.17
7.
PROPERTY AND EQUIPMENT
The following table details the composition of our property and equipment balances at year-end 2007 and
year-end 2006.
($ in millions)
Land ..........................................................................................
Buildings and leasehold improvements ....................................
Furniture and equipment ..........................................................
Construction in progress ...........................................................
Accumulated depreciation ........................................................
2007
$
399
833
900
216
2,348
(1,019)
$ 1,329
2006
$
$
316
724
837
215
2,092
(859)
1,233
We record property and equipment at cost, including interest, rent, and real estate taxes incurred during
development and construction. Interest capitalized as a cost of property and equipment totaled $49 million
in 2007, $32 million in 2006, and $30 million in 2005. We capitalize the cost of improvements that extend
the useful life of property and equipment when incurred. These capitalized costs may include structural
costs, equipment, fixtures, floor, and wall coverings. We expense all repair and maintenance costs as
incurred. We compute depreciation using the straight-line method over the estimated useful lives of the
assets (three to 40 years), and we amortize leasehold improvements over the shorter of the asset life or lease
term. Depreciation expense totaled $162 million in 2007, $155 million in 2006, and $156 million in 2005.
8.
ACQUISITIONS AND DISPOSITIONS
2007 Acquisitions
During 2007, we acquired one full-service property, one limited-service property, and one extended-stay
property for cash consideration of $199 million. These three properties were acquired in conjunction with a
land assemblage for a large hotel complex that is still in the formative development stage. In addition, we
acquired certain land parcels in 2007 for cash consideration of $52 million. Also during 2007, we acquired
the fee simple interest in the improvements of three properties and the leasehold interest in the ground
underlying the three properties for cash consideration of $58 million. The purchase included one fullservice property and two limited-service properties, which were each sold later in the same year.
During the first half of 2007, we were party to a venture that developed and marketed fractional
ownership and residential interests. In the second half of 2007, we purchased our partner’s interest in the
joint venture for $6 million. In conjunction with that transaction, we acquired assets and liabilities totaling
$90 million and $84 million, respectively, on the date of the purchase. During the first half of 2007, we
were party to another venture that was established to develop and market timeshare and residential
interests. In the second half of 2007, we purchased our partner’s interest in that joint venture, and
concurrent with this transaction, we purchased additional land and assets from our partner as well.
Aggregate cash and notes payable issued for these transactions totaled $106 million, and we acquired assets
and liabilities totaling $182 million and $76 million, respectively, on the date of purchase.
At year-end 2007, we were party to a venture that developed and marketed fractional and whole
ownership interests. Subsequent to year-end 2007, we purchased our partner’s interest in that joint venture
and concurrent with this transaction, we purchased additional land from our partner as well. Cash
consideration for this transaction totaled $37 million and we acquired assets and liabilities totaling $74
million and $37 million, respectively, on the date of purchase.
2007 Dispositions
In 2007, we sold nine properties for cash proceeds of $601 million and recognized gains totaling $24
million. We continue to operate eight of the nine properties under long-term agreements. We sold two
parcels of land for $55 million in cash proceeds that were under development and recognized a gain of $2
million. We also sold the fee simple interest in the improvements of three properties and the leasehold
interest in the ground underlying the three properties, initially acquired in early 2007, for book value and
received $58 million in cash proceeds. We continue to manage the properties under long-term agreements.
Each of the aforementioned sales was accounted for under the full accrual method in accordance with FAS
No. 66. During the year, we also sold our interests in five joint ventures for cash proceeds of $30 million
and recognized gains totaling $13 million. We had other asset sales during the year, which generated
proceeds totaling $1 million. Cash flows totaling $745 million for all the preceding dispositions in 2007
are reflected in the “Dispositions” line in our Consolidated Statements of Cash Flows.
In 2007, we also sold land that was under development. Due to a contingency in the sales contract, this
sale was accounted for under the deposit method of FAS No. 66. Accordingly, the cash proceeds, totaling
$90 million, were reflected in “Other investing activities” in our Consolidated Statements of Cash Flows.
2006 Acquisitions
During 2006, we acquired one full-service property for $130 million including aggregate cash
consideration of $46 million plus the assumption of debt. In addition we acquired three other full-service
properties for aggregate cash consideration of $134 million. We sold each of the four properties to thirdparty owners during the 2007 fiscal year.
2006 Dispositions
In 2006 we sold our interest in the 50/50 joint venture with Whitbread PLC (“Whitbread”), which held
46 hotels consisting of more than 8,000 rooms and we received approximately $164 million in cash, net of
transaction costs, which was approximately equal to the investment’s book value. We continue to manage
the hotels under the Marriott Hotels & Resorts and Renaissance Hotels & Resorts brands. We also sold our
minority interest in five other joint ventures during 2006 for cash proceeds of $64 million and recognized
gains of $43 million. Additionally, one cost method investee redeemed the preferred stock we held for $81
million in cash consideration and we recognized income of $25 million on the redemption.
During 2006 we also sold 10 full-service properties for cash proceeds of $487 million and recognized
gains totaling $14 million. We accounted for each of the sales under the full accrual method in accordance
with FAS No. 66 and will continue to operate eight of the properties under long-term management
agreements. The sold properties included eight properties purchased in 2005 from CTF Holdings Ltd. and
certain of its affiliates (collectively “CTF”). For additional information regarding the CTF transaction, see
the “2005 Acquisitions” caption later in this footnote. Prior to the sale of one property, balances associated
with that property were reclassified in conformity with other “held and used” properties, in the first half of
2006 as the property was not expected to be sold, within one year of its classification as “held for sale.” In
conjunction with that reclassification, we recorded depreciation expense of $2 million in the first half of
2006 that would have been recognized had the asset been continuously classified as “held and used.” Cash
proceeds of $26 million for one hotel sold in 2006 are not reflected in the disposition proceeds of $487
million as the proceeds were initially recorded as a deposit because of a contingency and impacted the
“Other investing activities” section of our Consolidated Statements of Cash Flows rather than
“Dispositions.” The contingency was subsequently resolved and sale accounting was achieved in 2006.
Other asset sales generated cash proceeds of $2 million.
Late in 2006, we sold a 75 percent interest in a joint venture to a third party for its book value of $14
million. At the time of the sale, the joint venture’s only asset was a parcel of land. In conjunction with the
sale, we made a $25 million bridge loan to the joint venture, which matured in early 2007. Following the
guidance found in EITF 98-8, “Accounting for Transfers of Investments That Are in Substance Real
Estate,” and FAS No. 66 due to our continuing involvement with the joint venture, we consolidated the
joint venture for the period of time that the bridge loan was outstanding. Subsequent to the bridge loan’s
repayment, we account for our remaining interest in the joint venture under the equity method as required
by APB Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock.”
In 1988, the Company as landlord, entered into a 59-year ground lease with a lessee for land that was
improved with a hotel that is owned by the lessee. The hotel was previously branded a Marriott property.
The lease contained contractual rental increases over the term of the lease and annual ground rent on the
land totaled approximately $5 million in 2006. The lease also contained a provision that permitted the
lessee, under certain circumstances, to purchase the land for a fixed price. We and the lessee had various
discussions in 2006 concerning the land as well as the hotel. During the 2006 second quarter, it became
probable that none of the proposed transactions were acceptable to both parties and the lessee indicated its
intent to exercise its option to purchase the land. Accordingly, in the 2006 second quarter, we reclassified
the land from the “Property and equipment” caption in our Consolidated Balance Sheets to the “Assets held
for sale” caption and recorded a $37 million non-cash charge to adjust the carrying amount to net realizable
value. We completed the sale of the land, at book value, to the lessee in 2007 and this transaction is
reflected in the figures noted earlier for dispositions in 2007.
2005 Acquisitions
During the third quarter of 2005, we purchased from CTF and certain of its affiliates 13 properties (in
each case through a purchase of real estate, a purchase of the entity that owned the hotel, or an assignment
of CTF’s leasehold rights) and certain joint venture interests from CTF for an aggregate price of $381
million. Prior to the sale, all of the properties were operated by us or our subsidiaries.
At the purchase date, we planned to sell eight of the properties to third-party owners and the balances
related to these full-service properties were classified within the “Assets held for sale” and “Liabilities of
assets held for sale” captions in our Consolidated Balance Sheets at year-end 2005. All eight properties
were sold in 2006. One operating lease terminated in 2005. At the purchase date we operated four
remaining properties under leases, three of which expire by 2012. Under the purchase and sale agreement
we signed with CTF in the second quarter of 2005, we were obligated to purchase two additional properties
for $17 million, the acquisition of which was postponed pending receipt of certain third-party consents.
We did not purchase these additional two properties and the obligation expired.
On the closing date we and CTF also modified management agreements on 29 other CTF-leased hotels,
28 located in Europe and one located in the United States. We became secondarily liable for annual rent
payments for certain of these hotels when we acquired the Renaissance Hotel Group N.V. in 1997. At the
closing date, we continued to manage 16 of these hotels under new long-term management agreements;
however, due to certain provisions in the management agreements, we account for these contracts as
operating leases. CTF placed approximately $89 million in trust accounts to cover possible shortfalls in
cash flow necessary to meet rent payments under these leases. In turn, we released CTF from its
guarantees in connection with these leases. In 2007, the lease agreement associated with one of these
properties was terminated. In 2007, we also entered into a transaction whereby the landlord allowed us to
assume the lease agreement for another of the properties for which we then became the primary obligor. In
conjunction with becoming the primary obligor, we received a $16 million distribution from the trust, and
the balance of the funds was distributed to the landlord. We accounted for our receipt of trust funds as a
lease incentive, the reduction of which will be recorded on a straight-line basis as an adjustment to lease
expense over the term expiring in 2033. At year-end 2007, approximately $38 million remained in these
trust accounts for the 14 properties we still manage and account for as leases. Minimum lease payments
relating to these leases are as follows: $30 million in each of 2008, 2009, and 2010; $26 million in 2011;
$17 million in 2012; and $33 million thereafter, for a total of $166 million.
For 13 European leased hotels, of the 29 properties mentioned in the preceding paragraph, CTF may
terminate management agreements with us if and when CTF obtains releases from landlords of our back-up
guarantees. Pending completion of the CTF-landlord agreements, we continue to manage these hotels
under modified management agreements and remain secondarily liable under certain of these leases. We
are also secondarily obligated for real estate taxes and other charges associated with the leases. Third
parties have severally indemnified us for all payments we may be required to make in connection with
these obligations. Since we assumed these guarantees, we have not funded any amounts and we do not
expect to fund any amounts under these guarantees in the future. CTF had originally made available €35
million in cash collateral in the event that we were required to fund under such guarantees. At year-end
2007, we still managed five of the original 13 properties. Approximately €7 million ($11 million) of cash
collateral remained available at year-end 2007. Our contingent liability exposure at year-end 2007
associated with the five remaining properties totaled $77 million as also noted in Footnote No. 17,
“Contingencies.” As CTF obtains releases from the landlords and these remaining hotels exit the system,
our contingent liability exposure will decline.
At the closing date, we continued to manage three other hotels in the United Kingdom under amended
management agreements with CTF and continued to manage 14 other properties in Asia on behalf of New
World Development Company Limited and its affiliates. CTF’s principals are officers, directors, and
stockholders of New World Development Company Limited. At the closing date, the owners of the United
Kingdom and Asian hotels agreed to invest $17 million to renovate those properties.
We and CTF also exchanged legal releases effective as of the closing date and litigation and arbitration
that was outstanding between the two companies and their affiliates was dismissed.
Simultaneously with the closing on the foregoing transactions, CTF also sold five properties and one
minority joint venture interest to Sunstone Hotel Investors, Inc. (“Sunstone”) for $419 million, eight
properties to Walton Street Capital, L.L.C. (“Walton Street”) for $578 million, and two properties to
Tarsadia Hotels (“Tarsadia”) for $29 million, in each case as substitute purchasers under our purchase and
sale agreement with CTF. Prior to consummation of the sales, we also operated all of these properties. At
closing, Walton Street and Sunstone entered into new long-term management agreements with us and
agreed to invest a combined $68 million to further upgrade the 13 properties they acquired. At the closing
date, the two properties purchased by Tarsadia were operated under short-term management and franchise
agreements.
When we signed the purchase and sale agreement for the foregoing transactions in the 2005 second
quarter, we recorded a $94 million pretax charge primarily due to the non-cash write-off of deferred
contract acquisition costs associated with the termination of the existing management agreements for
properties involved in these transactions. As described above, we entered into new long-term management
agreements with CTF, Walton Street, and Sunstone at the closing of the transactions.
In 2005 we also purchased two full-service properties, one in Paris, France and the other in Munich,
Germany, for aggregate cash consideration of $146 million. We planned to sell these two full-service
properties to third-party owners and the balances related to these properties were classified within the
“Assets held for sale” and “Liabilities of assets held for sale” line items on our Consolidated Balance
Sheets at year-end 2005. The property in Paris, France, was sold in 2006 and the property located in
Munich, Germany, was sold in 2007. The balances associated with the Munich, Germany, property were
reclassified, in conformity with other “held and used” properties in the 2006 fourth quarter as the property
was not sold at that time, as expected, within one year of its classification as “held for sale.” In conjunction
with the 2006 reclassification, we recorded depreciation expense of $5 million in the 2006 fourth quarter
that would have been recognized had the asset been continuously classified as “held and used.”
2005 Dispositions
Late in 2005, we contributed land underlying an additional nine Courtyard hotels, worth approximately
$40 million, to CBM Land Joint Venture limited partnership (“CBM Land JV”), a joint venture the
majority of which was owned, at the time of the transaction, by a third party on behalf of an institutional
investor, thereby obtaining a 23 percent equity stake in CBM Land JV. At the same time we completed the
sale of a portfolio of land underlying 75 Courtyard by Marriott hotels for approximately $246 million in
cash to CBM Land JV. In conjunction with this transaction, we recognized a gain of $17 million in 2005,
we deferred recognition of a $5 million gain due to our minority interest in the joint venture, and we also
deferred recognition of a $40 million gain due to contingencies in the transaction documents. As those
contingencies expire in subsequent years, we will recognize additional gains. In each of 2007 and 2006, we
recognized gains of $4 million, and at year-end 2007, the aggregate remaining deferred gains totaled $37
million.
We also sold a number of other land parcels in 2005 for $38 million in cash, net of transaction costs and
recognized gains totaling $6 million, and we sold two minority interests in joint ventures for $14 million in
cash and recognized gains totaling $7 million.
9.
GOODWILL AND INTANGIBLE ASSETS
The following table details the composition of our goodwill and other intangible assets at year-end 2007
and year-end 2006.
($ in millions)
Contract acquisition costs and other ......................................................
Accumulated amortization .....................................................................
2007
$
$
Goodwill ................................................................................................
Accumulated amortization .....................................................................
$
$
899
(264)
635
1,049
(128)
921
2006
$
$
$
$
809
(234)
575
1,049
(128)
921
We capitalize costs incurred to acquire management, franchise, and license agreements that are both direct
and incremental. We amortize these costs on a straight-line basis over the initial term of the agreements,
ranging from 15 to 30 years. We evaluate the carrying values of intangible assets for impairment under the
provisions of FAS No. 142, “Goodwill and Other Intangible Assets.” Amortization expense totaled $35 million
in 2007, $33 million in 2006, and $28 million in 2005. Estimated aggregate amortization expense for each of
the next five fiscal years is as follows: $29 million for 2008; $26 million for 2009; $26 million for 2010; $25
million for 2011; and $25 million for 2012.
10. NOTES RECEIVABLE
The following table details the composition of our notes receivable balances at year-end 2007 and year-end
2006.
($ in millions)
2007
Loans to timeshare owners .....................................................................
Lodging senior loans ..............................................................................
Lodging mezzanine and other loans .......................................................
$
Less current portion ................................................................................
$
476
7
206
689
(89)
600
2006
$
$
386
9
268
663
(103)
560
We classify notes receivable due within one year as current assets in the caption “Accounts and notes
receivable” in the accompanying Consolidated Balance Sheets, including $68 million and $70 million, as of
year-end 2007 and year-end 2006, respectively, related to “Loans to timeshare owners.”
Our notes receivable are due as follows: 2008-$89 million; 2009-$51 million; 2010-$134 million;
2011-$58 million; 2012-$57 million; and $300 million thereafter. The 2007 notes receivable balance is net
of unamortized discounts totaling $25 million and the 2006 notes receivable balance is net of unamortized
discounts totaling $28 million. Gains from the sale of notes receivable totaled approximately $82 million,
$79 million, and $94 million during 2007, 2006, and 2005, respectively.
Lodging Senior Loans and Lodging Mezzanine and Other Loans
Interest income associated with “Lodging senior loans” and “Lodging mezzanine and other loans” is
reflected in the accompanying Consolidated Statements of Income in the “Interest income” caption. We do
not accrue interest on “Lodging senior loans” and “Lodging mezzanine and other loans” that are impaired.
At year-end 2007, our recorded investment in impaired “Lodging senior loans” and “Lodging mezzanine
and other loans” was $112 million and we had a $92 million allowance for credit losses, leaving $20
million of our investment in impaired loans for which there was no related allowance for credit losses. At
year-end 2006, our recorded investment in impaired “Lodging senior loans” and “Lodging mezzanine and
other loans” was $92 million and we had a $70 million allowance for credit losses, leaving $22 million of
our investment in impaired loans for which there was no related allowance for credit losses. During 2007
and 2006, our average investment in impaired loans totaled $102 million and $138 million, respectively.
The following table summarizes the activity related to our “Lodging senior loans” and “Lodging
mezzanine and other loans” notes receivable reserve for 2005, 2006, and 2007:
($ in millions)
Year-end 2004 balance ........................................
Additions ........................................................
Reversals .........................................................
Write-offs ........................................................
Transfers and other .........................................
Year-end 2005 balance ........................................
Additions ........................................................
Notes
Receivable
Reserve
$
92
11
(9)
9
103
-
Reversals .........................................................
Write-offs ........................................................
Transfers and other .........................................
Year-end 2006 balance ........................................
Additions ........................................................
Reversals .........................................................
Write-offs ........................................................
Transfers and other .........................................
Year-end 2007 balance ........................................
$
(5)
(38)
10
70
11
11
92
Loans to Timeshare Owners
At year-end 2007, the weighted average interest rate for our “Loans to timeshare owners” was 12.7
percent and the stated interest rates associated with these loans ranged from zero to 19.9 percent. We
reflect interest income associated with “Loans to timeshare owners” of $50 million, $41 million, and $38
million for 2007, 2006, and 2005, respectively, in the accompanying Consolidated Statements of Income in
the “Timeshare sales and services” revenue caption. We do not accrue interest on “Loans to timeshare
owners” that are over 90 days past due. Our recorded investment in “Loans to timeshare owners” on
nonaccrual status at year-end 2007 and year-end 2006 totaled $59 million and $67 million, respectively.
We established the reserve for “Loans to timeshare owners” notes receivable in 2006 in conjunction with
the adoption of SOP 04-2.
The following table summarizes the activity related to our “Loans to timeshare owners” notes receivable
reserve for 2006 and 2007.
($ in millions)
Year-end 2005 balance ........................................
Establishment of reserve .................................
Additions for current year sales ......................
Write-offs ........................................................
Year-end 2006 balance ........................................
Additions for current year sales ......................
Write-offs ........................................................
Other ...............................................................
Year-end 2007 balance ........................................
Notes
Receivable
Reserve
$
$
25
20
(16)
29
29
(24)
(15)
19
11. ASSET SECURITIZATIONS
We periodically sell, without recourse, through special purpose entities, notes receivable originated by
our Timeshare segment in connection with the sale of timeshare interval and fractional products. We
continue to service the notes and transfer all proceeds collected to special purpose entities. We retain
servicing assets and other interests in the notes and account for these assets and interests as residual
interests. The interests are limited to the present value of cash available after paying financing expenses
and program fees and absorbing credit losses. Prior to the start of the 2007 fiscal year, we measured
servicing assets at the date of sale at their allocated previous carrying amount based on relative fair value,
classified those assets as held to maturity under the provisions of
FAS No. 115 and recorded those assets at amortized cost.
On December 30, 2006, the first day of fiscal year 2007, we adopted FAS No. 156. In conjunction with
the adoption of FAS No. 156, we elected to subsequently measure our servicing assets using the fair value
method. Under the fair value method, we carry servicing assets on the balance sheet at fair value, and
report the changes in fair value, primarily due to changes in valuation inputs and assumptions and to the
collection or realization of expected cash flows, in earnings in the period in which the change occurs.
To determine the fair value of servicing assets, we use a valuation model that calculates the present value
of estimated future net servicing income, which is based on the monthly fee we receive for servicing the
securitized notes. We use market assumptions in the valuation model, including estimates of prepayment
speeds, default rates, and discount rates. We have inherent risk for changes in the fair value of the
servicing asset but do not deem the risk significant and therefore, do not use other financial instruments to
mitigate this risk.
Effective December 30, 2006, upon the remeasurement of our servicing assets at fair value, we recorded
a cumulative-effect adjustment to the 2007 beginning balance of retained earnings of $1 million after-tax
($2 million pretax) in our Consolidated Statements of Shareholders’ Equity. Accordingly, servicing assets
totaled $11 million at year-end 2006 and $13 million on the first day of fiscal year 2007. At year-end 2007,
servicing assets totaled
$15 million.
The table below reconciles the servicing assets balance at year-end 2006, to the beginning balance on
December 30, 2006.
($ in millions)
Balance at year-end 2006 (December 29, 2006) .......................
Remeasurement upon adoption of FAS No. 156 .......................
Beginning balance at December 30, 2006 .............................
Servicing Assets
$
11
2
13
$
The changes in servicing assets, measured using the fair value method, were:
($ in millions)
Fair value, beginning of period (December 30, 2006) ...............
Servicing from securitizations ...................................................
Changes in fair value (1) .............................................................
Fair value, end of period (December 28, 2007) .....................
Servicing Assets
$
$
13
6
(4)
15
(1)
Principally represents changes due to collection/realization of expected cash flows over time and changes in fair
value due to changes in key variables listed below.
Contractually specified servicing fees, late fees, and ancillary fees earned for 2007, 2006, and 2005
totaled $6 million, $5 million, and $4 million, respectively, and were reflected within the changes in fair
value to the servicing assets noted above.
We have included gains from the sales of timeshare notes receivable totaling $81 million in 2007 and $77
million in 2006 within the “Timeshare sales and services” revenue caption in our Consolidated Statements
of Income. Gains from the sale of timeshare notes receivable of $69 million in 2005 are in the “Gains and
other income” caption in the accompanying Consolidated Statements of Income. For additional
information regarding the classification of gains from the sale of timeshare notes receivable, see the “Basis
of Presentation” caption in Footnote No. 1, “Summary of Significant Accounting Policies.” In addition, in
September 2006, we repurchased notes receivable with a principal balance of $31 million and in November
2006, sold those notes, along with $249 million of additional notes in a $280 million note securitization.
The gain on the sale of these notes is included in the $77 million gain noted earlier in this paragraph.
We had residual interests of $238 million and $221 million, respectively, at year-end 2007 and year-end
2006, which are recorded in the accompanying Consolidated Balance Sheets as other long-term receivables
of $157 million and $137 million, respectively, and other current assets of $81 million and $84 million,
respectively.
At the dates of sale and at the end of each reporting period, we estimate the fair value of residual
interests, including servicing assets, using a discounted cash flow model. These transactions may utilize
interest rate swaps to protect the net interest margin associated with the beneficial interest. We report in
income, changes in the fair value of residual interests, including servicing assets, as they are considered
trading securities under the provisions of FAS No. 115. During 2007, 2006, and 2005, we recorded trading
gains of $30 million, $19 million, and $2 million, respectively. We used the following key assumptions to
measure the fair value of the residual interests, including servicing assets, at the date of sale during 2007,
2006, and 2005: average discount rate of 9.02 percent, 9.22 percent, and 8.56 percent, respectively;
average expected annual prepayments, including defaults, of 25.02 percent, 25.22 percent, and 23.56
percent, respectively; expected weighted average life of prepayable notes receivable, excluding
prepayments and defaults, of 75 months, 70 months, and 79 months, respectively; and expected weighted
average life of prepayable notes receivable, including prepayments and defaults of 34 months, 32 months,
and 38 months, respectively. Our key assumptions are based on experience.
We used the following key assumptions in measuring the fair value of the residual interests, including
servicing assets, in our 11 outstanding note sales at year-end 2007: an average discount rate of 7.96
percent; an average expected annual prepayment rate, including defaults, of 19.58 percent; an expected
weighted average life of prepayable notes receivable, excluding prepayments and defaults, of 62 months;
and an expected weighted average life of prepayable notes receivable, including prepayments and defaults
of 35 months.
Cash flows between us and third-party purchasers during 2007, 2006, and 2005, were as follows: net
proceeds to us from new timeshare note sales of $515 million, $508 million, and $399 million, respectively;
repurchases by us of defaulted loans (over 150 days overdue) of $30 million, $24 million, and $23 million,
respectively; repurchases by us of other loans in 2006 of $31 million; servicing fees received by us of $6
million, $5 million, and $4 million, respectively; and cash flows received from our retained interests of
$100 million, $91 million, and $86 million, respectively.
At year-end 2007, $1,263 million of principal remained outstanding in all sales in which we had a
retained residual interest. Delinquencies of more than 90 days at year-end 2007 amounted to $10 million.
Existing reserves were adequate for defaulted loans that were resolved during 2007. We have been able to
resell timeshare units underlying defaulted loans without incurring material losses.
We completed a stress test on the fair value of the residual interests as of year-end 2007 with the
objective of measuring the change in value associated with independent changes in individual key
variables. The methodology used applied unfavorable changes that would be considered statistically
significant for the key variables of prepayment rate, discount rate, and weighted average remaining term.
The fair value of the residual interests was $238 million at year-end 2007, before we applied any stress test
changes. An increase of 100 basis points in the prepayment rate would decrease the year-end valuation by
$4 million, or 1.9 percent, and an increase of 200 basis points in the prepayment rate would decrease the
year-end valuation by $9 million, or 3.7 percent. An increase of 100 basis points in the discount rate would
decrease the year-end valuation by $5 million, or 2.3 percent, and an increase of 200 basis points in the
discount rate would decrease the year-end valuation by $11 million, or
4.4 percent. A decline of two months in the weighted average remaining term would decrease the year-end
valuation by $3 million, or 1.1 percent, and a decline of four months in the weighted average remaining
term would decrease the year-end valuation by $5 million, or 2.3 percent.
12. LONG-TERM DEBT
Our long-term debt at year-end 2007 and year-end 2006 consisted of the following:
($ in millions)
Senior Notes:
Series C, interest rate of 7.875%, face amount of $76, maturing
September 15, 2009 (effective interest rate of 8.018%) .....................................
Series E, interest rate of 7.000%, face amount of $91, maturing
January 15, 2008 (effective interest rate of 7.194%) .........................................
Series F, interest rate of 4.625%, face amount of $350, maturing June 15, 2012
(effective interest rate of 4.796%) ......................................................................
Series G, interest rate of 5.810%, face amount of $427, maturing
November 10, 2015 (effective interest rate of 6.571%) .....................................
Series H, interest rate of 6.200%, face amount of $350, maturing June 15, 2016
(effective interest rate of 6.294%) ......................................................................
Series I, interest rate of 6.375%, face amount of $350, maturing June 15, 2017
(effective interest rate of 6.439%) ......................................................................
Series J, interest rate of 5.625%, face amount of $400, maturing
February 15, 2013 (effective interest rate of 5.661%) .......................................
Commercial paper, average interest rate of 5.4% at year-end 2007 ..........................
Mortgage debt, average interest rate of 7.2% at year-end 2007, maturing through
2007
$
76
2006
$
76
91
91
349
349
402
399
349
349
346
-
397
585
315
May 1, 2025 .......................................................................................................
Other .........................................................................................................................
Less current portion ..................................................................................................
196
174
2,965
(175)
$ 2,790
As of year-end 2007, all debt, other than mortgage debt and $1 million of other debt, is unsecured.
During 2007, we amended and restated our multicurrency revolving credit agreement, originally entered
into in 2005, to increase the aggregate borrowings and letters of credit available under the facility from $2
billion to $2.5 billion and to extend the expiration of the facility from 2011 to 2012. The availability of
revolving credit borrowings supports our commercial paper program. Borrowings under the facility bear
interest at the London Interbank Offered Rate (LIBOR) plus a spread, based on our public debt rating.
Additionally, we pay quarterly fees on the facility at a rate also based on our public debt rating.
In 2005 we began issuing short-term commercial paper in Europe in addition to our long-standing
commercial paper program in the United States. Our United States and European commercial paper
issuances are subject to the availability of the commercial paper market, as we have no commitment from
buyers to purchase our commercial paper. We reserve unused capacity under our credit facility to repay
outstanding commercial paper borrowings in the event that the commercial paper market is not available to
us for any reason when outstanding borrowings mature. We classify commercial paper as long-term debt
based on our ability and intent to refinance it on a long-term basis.
During 2007, we issued $350 million of aggregate principal amount of 6.375 percent Series I Senior
Notes due 2017. The offering of the Notes closed on June 25, 2007. We received net proceeds before
expenses of approximately $346 million from this offering, after deducting the underwriting discount and
estimated expenses of the offering. We used these proceeds for general corporate purposes, including the
repayment of commercial paper borrowings. Interest on these notes is paid on June 15 and December 15 of
each year, and commenced on December 15, 2007. The notes will mature on June 15, 2017, and are
redeemable, in whole or in part, at any time and from time to time under the terms provided in the form of
note.
Also in 2007, we issued $400 million of aggregate principal amount of 5.625 percent Series J Senior
Notes due 2013. The offering of the notes closed on October 19, 2007. We received net proceeds before
expenses of approximately $396 million from this offering, after deducting the underwriting discount and
estimated expenses of the offering. We used these proceeds for general corporate purposes, including
working capital, capital expenditures, acquisitions, stock repurchases, and the repayment of commercial
paper borrowings. Interest on these notes is paid on February 15 and August 15 of each year, and
commenced on February 15, 2008. The notes will mature on February 15, 2013, and are redeemable, in
whole or in part, at any time and from time to time under the terms provided in the form of note.
Both the Series I Senior Notes and the Series J Senior Notes were issued under an indenture with The
Bank of New York, successor to JPMorgan Chase Bank, N.A. (formerly known as The Chase Manhattan
Bank), as trustee, dated as of November 16, 1998.
We are in compliance with covenants in our loan agreements, which require the maintenance of certain
financial ratios and minimum shareholders’ equity and also include, among other things, limitations on
additional indebtedness and the pledging of assets.
Aggregate debt maturities are: 2008-$175 million; 2009-$118 million; 2010-$51 million; 2011-$19
million; 2012-$360 million; and $2,242 million thereafter.
Cash paid for interest, net of amounts capitalized, was $115 million in 2007, $73 million in 2006, and
$87 million in 2005.
Subsequent to year-end 2007, on January 15, 2008, we made a $94 million cash payment of principal and
interest to retire, at maturity, all of our outstanding Series E Senior Notes.
167
87
1,833
(15)
$ 1,818
13. SELF-INSURANCE RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The activity in the reserve for losses and loss adjustment expenses is summarized as follows:
($ in millions)
Balance at beginning of year .................................................
Less: reinsurance recoverable ...........................................
Net balance at beginning of year ..........................................
2007
$
271
(16)
255
2006
$
264
(24)
240
Incurred related to: ................................................................
Current Year ......................................................................
Prior year ...........................................................................
Total incurred .................................................................
120
(34)
86
122
(20)
102
Paid related to: ......................................................................
Current Year ......................................................................
Prior year ...........................................................................
Total paid .......................................................................
(31)
(50)
(81)
(37)
(50)
(87)
Net balance at end of year .....................................................
Add: reinsurance recoverable ...........................................
260
14
255
16
Balance at end of year ....................................................
$
274
$
271
The provision for unpaid loss and loss adjustment expenses decreased by $34 million and $20 million in
2007 and 2006, respectively, as a result of changes in estimates from insured events of the prior years due
to changes in underwriting experience and frequency and severity trends. The year-end 2007 self-insurance
reserve of $274 million is comprised of a current portion of $92 million and long-term portion of $182
million. The year-end 2006 self-insurance reserve of $271 million is comprised of a current portion of $87
million and a long-term portion of $184 million.
14. SHAREHOLDERS’ EQUITY
Eight hundred million shares of our Class A Common Stock, with a par value of $.01 per share, are
authorized, and 10 million shares of preferred stock, without par value, are authorized. As of the 2007
fiscal year-end, there were 357.1 million shares of our Class A Common Stock outstanding and no shares
of our preferred stock were outstanding.
On March 27, 1998, our Board of Directors adopted a shareholder rights plan under which one preferred
stock purchase right was distributed for each share of our Class A Common Stock. Each right entitles the
holder to buy 1/1000th of a share of a newly issued series of junior participating preferred stock of the
Company at an exercise price of $175. The rights may not presently be exercised, but will be exercisable
10 days after a person or group acquires beneficial ownership of 20 percent or more of our Class A
Common Stock or begins a tender or exchange for 30 percent or more of our Class A Common Stock.
Shares owned by a person or group on March 27, 1998, and held continuously thereafter, are exempt for
purposes of determining beneficial ownership under the rights plan. The rights are nonvoting and will
expire on March 27, 2008, unless previously exercised or redeemed by us for $.01 each. If we are involved
in a merger or certain other business combinations not approved by the Board of Directors prior to the
expiration of the rights, each right entitles its holder, other than the acquiring person or group, to purchase
common stock of either the Company or the acquirer having a value of twice the exercise price of the right.
The Company does not plan to extend the shareholder rights plan or the rights beyond their March 27, 2008
expiration.
Accumulated other comprehensive income of $51 million at year-end 2007 primarily consisted of gains
totaling $9 million associated with available-for-sale securities and gains totaling $46 million associated
with foreign currency translation adjustments, partially offset by net losses of $5 million associated with
interest rate swap agreement cash flow hedges. Accumulated other comprehensive income of $44 million
at year-end 2006 primarily consisted of gains totaling $35 million associated with available-for-sale
securities and gains totaling $12 million associated with foreign currency translation adjustments.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
We believe that the fair values of current assets and current liabilities approximate their reported carrying
amounts. The fair values of non-current financial assets, liabilities, and derivatives are shown in the
following table.
($ in millions)
At Year-end
2007
Carrying
Fair
Amount
Value
Notes and other long-term assets ..................
$
Long-term debt and other long-term
liabilities ...................................................
$ (2,967)
$ (3,050)
$
Derivative instruments .................................
$
$
$
996
(7)
$
1,002
(7)
At Year-end
2006
Carrying
Fair
Amount
Value
$
993
(1,816)
6
$
996
$ (1,847)
$
We value notes and other receivables based on the expected future cash flows discounted at risk-adjusted
rates. We determine valuations for long-term debt and other long-term liabilities based on quoted market
prices or expected future payments discounted at risk-adjusted rates.
16. DERIVATIVE INSTRUMENTS
During 2007, we entered into interest rate swap agreements to manage the volatility of the U.S. Treasury
component of the interest rate risk associated with the forecasted issuance of our Series I and Series J
Senior Notes. During 2006, we entered into an interest rate swap agreement to manage the volatility of the
U.S. Treasury component of the interest rate risk associated with the forecasted issuance of our Series H
Notes. During 2005, we entered into two similar instruments in conjunction with the forecasted issuance of
our Series F Notes and the exchange of our Series C and Series E Senior Notes for new Series G Notes. All
five swaps were designated as cash flow hedges under FAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“FAS No. 133”) and were terminated upon pricing of the notes. All
five swaps were highly effective in offsetting fluctuations in the U.S. Treasury component. Thus, there was
no net gain or loss reported in earnings during 2007, 2006, or 2005. The net losses for these swaps were $4
million in 2007 associated with the Series I and Series J Senior Notes, zero in 2006 associated with the
Series H Senior Notes, and $2 million in 2005 associated with the Series F and Series G Senior Notes were
recorded in other comprehensive income and are being amortized to interest expense using the interest
method over the life of the notes.
At year-end 2007, we had four outstanding interest rate swap agreements to manage interest rate risk
associated with the residual interests we retain in conjunction with our timeshare note sales. Historically,
we were required by purchasers and/or rating agencies to utilize interest rate swaps to protect the excess
spread within our sold note pools. The aggregate notional amount of the swaps is $157 million, and they
expire through 2022. These swaps are not accounted for as hedges under FAS No. 133. The fair value of
the swaps was a net asset of $2 million at year-end 2007 and $5 million at year-end 2006. For the
outstanding interest rate swaps, we recorded a $3 million net loss during 2007, a $1 million net loss during
2006 and a $2 million net gain during 2005.
During 2007, 2006, and 2005, we entered into interest rate swaps to manage interest rate risk associated
with forecasted timeshare note sales. During 2007, five swaps were designated as cash flow hedges under
FAS No. 133 and were highly effective in offsetting interest rate fluctuations. The amount of the
ineffectiveness was immaterial. In 2007, we terminated two of those five swaps and recognized no gain or
loss from the sales of Timeshare segment notes receivable. The aggregate notional amount of the
remaining three swaps is $238 million at year-end 2007, and they expire through 2012. The fair value of
the remaining three swaps was a net liability of $7 million at year-end 2007. For the outstanding interest
rate swaps, we recorded in 2007 a $7 million net loss in other comprehensive income. During 2006, two
swaps (the “2006 swaps”) were designated as cash flow hedges under FAS No. 133 and were highly
effective in offsetting interest rate fluctuations. In 2006, we terminated the 2006 swaps and recognized a
net gain of $1 million in the gains from the sales of Timeshare segment notes receivable. During 2005, one
swap was designated as a cash flow hedge under FAS No. 133 and was highly effective in offsetting
interest rate fluctuations. The amount of the ineffectiveness was immaterial and upon termination we
6
recognized a net gain of $2 million in gains from the sales of Timeshare segment notes receivable. The
second swap entered into in 2005 did not qualify for hedge accounting. The non-qualifying swap resulted
in a loss of $3 million during 2005, which was also recognized in gains from the sales of Timeshare
segment notes receivable.
During 2007, 2006, and 2005, we entered into forward foreign exchange contracts to manage the foreign
currency exposure related to certain monetary assets. The aggregate dollar equivalent of the notional
amount of the contracts was $133 million at year-end 2007. The forward exchange contracts do not qualify
as hedges in accordance with FAS No. 133. The fair value of the forward contracts was an asset of $2
million at year-end 2007 and zero at year-end 2006. We recorded a $10 million loss during 2007, a $34
million loss during 2006, and a $26 million gain in 2005, relating to these forward foreign exchange
contracts. The net gains and losses for all years were recorded as general, administrative, and other
expense and were offset by income and losses recorded from translating the related monetary assets
denominated in foreign currencies into U.S. dollars.
During 2007, 2006, and 2005, we entered into foreign exchange option contracts to hedge the potential
volatility of earnings and cash flows associated with variations in foreign exchange rates. The aggregate
dollar equivalent of the notional amounts of the contracts was $86 million at year-end 2007. These
contracts have terms of less than one year and are classified as cash flow hedges. Changes in their fair
values are recorded as a component of other comprehensive income. The fair value of the option contracts
was approximately $1 million at year-end 2007 and zero at year-end 2006. We recorded an immaterial
amount in general, administrative, and other expense due to changes in the time value of these contracts,
which is excluded from the assessment of our hedge effectiveness. The hedges were highly effective and
there was no net gain or loss reported in earnings for 2007, 2006, and 2005. As of year-end 2007, the
deferred gains or losses on existing contracts accumulated in other comprehensive income that we expect to
reclassify into earnings over the next year were zero.
During 2007, we entered into foreign exchange forward contracts to hedge forecasted transactions for
contracts denominated in foreign currencies. The aggregate dollar equivalent of the notional amounts of
the contracts was $58 million at year-end 2007. These contracts have terms of less than three years and are
classified as cash flow hedges. Changes in their fair value are recorded as a component of other
comprehensive income. The fair value of the forward contracts was zero at year-end 2007. We recorded
an immaterial amount in general, administrative, and other expense due to changes in the time value of
these contracts, which is excluded from the assessment of our hedge effectiveness. The hedges were highly
effective and there was no gain or loss reported in 2007. As of year-end 2007, the deferred gains or losses
on existing contracts accumulated in other comprehensive income that we expect to reclassify into earnings
over the next three years were $1 million.
During 2007, 2006, and 2005, we entered into forward foreign exchange contracts to manage currency
exchange rate volatility associated with certain investments in foreign operations. The contracts offset the
gains and losses associated with translation adjustments for various investments in foreign operations. One
contract was designated as a hedge in the net investment of a foreign operation under FAS No. 133 at yearend 2006. The hedge was highly effective and resulted in a $1 million net loss for 2007, no net gain or loss
for 2006, and a $1 million net loss for 2005 in the foreign currency translation adjustment section of other
comprehensive income. Certain contracts did not qualify as hedges under FAS No. 133 and resulted in no
gain or loss for 2007, a loss of $17 million for 2006, and a gain of $3 million for 2005, impacting our
general, administrative, and other expenses. No contracts remained at year-end 2007. One contract
remained at year-end 2006, which had an aggregate dollar equivalent of the notional amount of $43 million
and a fair value of zero. Contracts remaining at year-end 2005 had an aggregate dollar equivalent of the
notional amount of $229 million and a fair value of approximately zero.
During 2007 and 2006, in response to high oil prices and uncertainty surrounding the potential phase out
of tax credits, we entered into oil price hedges in conjunction with our synthetic fuel operation. These
hedges do not qualify as cash flow hedges under FAS No. 133. Therefore, changes in the fair values of
these instruments are marked-to-market through interest income at each reporting period. Correspondingly,
we recorded a net loss of $8 million during 2007 and a net loss of $2 million during 2006. At year-end
2007, hedges with a total fair value of $4 million remained outstanding. At year-end 2006, hedges with a
total fair value of $5 million remained outstanding.
During 2003, we entered into an interest rate swap agreement under which we receive a floating rate of
interest and pay a fixed rate of interest. The swap modifies our interest rate exposure by effectively
converting a note receivable with a fixed rate to a floating rate. The aggregate notional amount of the swap
is $92 million and it matures in 2010. The swap is classified as a fair value hedge under FAS No. 133 and
the change in the fair value of the swap, as well as the change in the fair value of the underlying note
receivable, is recognized in interest income. The fair value of the swap was a $2 million liability at yearend 2007, and a $1 million asset at year-end 2006 and 2005. The hedge is highly effective and, therefore,
no net gain or loss was reported during 2007, 2006, and 2005.
17. CONTINGENCIES
Guarantees
We issue guarantees to certain lenders and hotel owners primarily to obtain long-term management
contracts. The guarantees generally have a stated maximum amount of funding and a term of three to 10
years. The terms of guarantees to lenders generally require us to fund if cash flows from hotel operations
are inadequate to cover annual debt service or to repay the loan at the end of the term. The terms of the
guarantees to hotel owners generally require us to fund if the hotels do not attain specified levels of
operating profit. Guarantee fundings to lenders and hotel owners are generally recoverable as loans
repayable to us out of future hotel cash flows and/or proceeds from the sale of hotels. We also enter into
project completion guarantees with certain lenders in conjunction with hotels and Timeshare segment
properties that we or our joint venture partners are building.
The maximum potential amount of future fundings for guarantees where we are the primary obligor and
the carrying amount of the liability for expected future fundings at year-end 2007 are as follows:
($ in millions)
Guarantee Type
Debt service .........................................................................
Operating profit ...................................................................
Other ....................................................................................
Total guarantees where we are the primary obligor .........
Maximum Potential
Amount of Future
Fundings
$
$
35
204
76
315
Liability for Future
Fundings at
Year-end 2007
$
$
1
31
7
39
Our guarantees of $315 million listed in the preceding table include $41 million of operating profit
guarantees that will not be in effect until the underlying properties open and we begin to operate the
properties.
The guarantees of $315 million in the preceding table do not include $245 million of guarantees that
expire in the years 2011 through 2013, related to Senior Living Services lease obligations and lifecare
bonds for which we are secondarily liable. Sunrise Senior Living, Inc. (“Sunrise”) is the primary obligor of
the leases and a portion of the lifecare bonds, and CNL Retirement Properties, Inc. (“CNL”), which
subsequently merged with Health Care Property Investors, Inc., is the primary obligor of the remainder of
the lifecare bonds. Prior to our sale of the Senior Living Services business in 2003, these preexisting
guarantees were guarantees by us of obligations of consolidated Senior Living Services subsidiaries.
Sunrise and CNL have indemnified us for any guarantee fundings we may be called on to make in
connection with these lease obligations and lifecare bonds. We do not expect to fund under the guarantees.
The table also does not include lease obligations for which we became secondarily liable when we
acquired the Renaissance Hotel Group N.V. in 1997, consisting of annual rent payments of approximately
$7 million and total remaining rent payments through the initial term of approximately $77 million. Most
of these obligations expire at the end of the 2023 calendar year. CTF had originally made available €35
million in cash collateral in the event that we are required to fund under such guarantees (approximately €7
million [$11 million] remained at year-end 2007). As CTF obtains releases from the landlords and these
hotels exit the system, our contingent liability exposure of approximately $77 million will decline. Since
the time we assumed these guarantees, we have not funded any amounts and we do not expect to fund any
amounts under these guarantees in the future.
Furthermore, in addition to the guarantees noted in the preceding table, we have provided a project
completion guarantee to a lender for a project with an estimated aggregate total cost of $586 million.
Payments for cost overruns for this project will be satisfied by the joint venture via contributions from the
partners, and we are liable on a several basis with our partners in an amount equal to our pro rata ownership
in the joint venture, which is 34 percent. We do not expect to fund under the guarantee. We have also
provided a project completion guarantee to another lender for a project with an estimated aggregate total
cost of $80 million. Payments for cost overruns for this project will be satisfied by the joint venture via
contributions from the partners, and we are liable on a several basis with our partners in an amount equal to
our pro rata ownership in the joint venture, which is 25 percent. We do not expect to fund under this
guarantee. The carrying value of the liabilities associated with these two project completion guarantees is
$7 million.
In addition to the guarantees described in the preceding paragraphs, in conjunction with financing
obtained for specific projects or properties owned by joint ventures in which we are a party, we may
provide industry standard indemnifications to the lender for loss, liability, or damage occurring as a result
of the actions of the other joint venture owner or our own actions.
Commitments and Letters of Credit
In addition to the guarantees noted previously, as of year-end 2007, we had extended approximately $4
million of loan commitments to owners of lodging properties, under which we expect to fund
approximately $2 million within one year. We do not expect to fund the remaining $2 million of
commitments, which expire after five years.
At year-end 2007, we also have commitments to invest up to $44 million of equity for minority interests
in partnerships that plan to purchase North American full-service and limited-service properties or purchase
or develop hotel anchored mixed-use real estate projects, which expire as follows: $14 million in one to
two years; and $30 million in three to five years. As of year-end 2007, we also have a commitment to
invest up to $25 million in a joint venture of which we have funded $12 million and have $13 million
remaining that we expect to fund within one year. As of year-end 2007, we also had a commitment to
invest up to $29 million (€20 million) in a joint venture in which we are an investor. We currently do not
expect to fund under this commitment.
At year-end 2007, we had $96 million of letters of credit outstanding on our behalf, the majority of which
related to our self-insurance programs. Surety bonds issued on our behalf at year-end 2007, totaled $468
million, the majority of which were requested by federal, state or local governments related to our lodging
operations, including our Timeshare segment and self-insurance programs.
Synthetic Fuel
The tax credits available under the Internal Revenue Code for the production and sale of synthetic fuels
were established by Congress to encourage the development of alternative domestic energy sources.
Congress deemed that the incentives provided by the tax credits would not be necessary if the price of oil
increased beyond certain thresholds as prices would then provide a more natural market for these
alternative fuels. As a result, the tax credits available under the Internal Revenue Code for the production
and sale of synthetic fuel in any given calendar year are phased out if the Reference Price of a barrel of oil
for that year falls within a specified range. The Reference Price of a barrel of oil is an estimate of the
annual average wellhead price per barrel of domestic crude oil and is determined for each calendar year by
the Secretary of the Treasury by April 1 of the following year. In 2005 and 2006, the Reference Price was
roughly equal to 89 percent and 90 percent, respectively, of the average price in those years of the
benchmark NYMEX futures contract for a barrel of light, sweet crude oil. The price range within which
the credit is phased out was set in 1980 and is adjusted annually for inflation. In 2006, the Reference Price
phase-out range was $55.06 to $69.12. Because the Reference Price of a barrel of oil for 2006 was within
that range, at $59.68, there was a 33 percent reduction of the tax credits available for synthetic fuel
produced and sold in 2006.
Assuming a 2.5 percent inflation adjustment factor for 2007, and assuming the ratio of the Reference
Price to the average price of the benchmark NYMEX futures contract remains the same for November and
December 2007 as it has been in the five preceding months, we currently estimate that the tax credits
available for production and sale of synthetic fuel in 2007 would begin to be phased out if the average price
of the benchmark NYMEX futures contract in 2007 exceeds approximately $62 and would be fully phased
out if the average price of the benchmark NYMEX futures contract in 2007 exceeds approximately $78.
For the year ended December 28, 2007, our results reflect a provision for an estimated 70.71 percent tax
credit phase-out as a result of high oil prices. The average price of the benchmark NYMEX futures
contract for 2007, through December 31, 2007, was approximately $72.41.
Late in 2006 and early in 2007, we entered into hedge agreements to minimize operating losses that
could occur if more than a majority of the tax credits is phased out in 2007.
See Footnote No. 2, “Discontinued Operations,” earlier in this report, for additional information related
to the synthetic fuel operations, including information related to the cessation of synthetic fuel production
permanently in November 2007.
Investment in Leveraged Lease
Historically, we had a $23 million investment in an aircraft leveraged lease with Delta Air Lines, Inc.
(“Delta”) which we acquired in 1994. The gross investment was comprised of rentals receivable and the
residual value of the aircraft offset by unearned income. On September 14, 2005, Delta filed for
bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code and informed us that it wished to
restructure the lease. As a result, our investment was impaired and we had recorded pretax charges of
approximately $18 million through 2006. We recorded an additional $5 million loss related to this
investment in fiscal 2007. We have no remaining exposure related to this historical investment.
18. LEASES
We have summarized our future obligations under operating leases at year-end 2007, below:
($ in millions)
Fiscal Year
2008 ......................................................................................................
2009 ......................................................................................................
2010 ......................................................................................................
2011 ......................................................................................................
2012 ......................................................................................................
Thereafter ..............................................................................................
Total minimum lease payments where we are the primary obligor ...
Minimum Lease
Payments
$
$
142
147
139
126
123
1,156
1,833
Most leases have initial terms of up to 20 years and contain one or more renewal options, generally for
five- or 10-year periods. These leases provide for minimum rentals and additional rentals based on our
operations of the leased property. The total minimum lease payments above include $439 million,
representing obligations of consolidated subsidiaries that are non-recourse to Marriott International, Inc.
As discussed in Footnote No. 8, “Acquisitions and Dispositions,” we became secondarily liable for
annual rent payments for certain hotels when we acquired the Renaissance Hotel Group N.V. in 1997. At
year-end 2007, we continued to manage 14 of these hotels under long-term management agreements;
however, due to certain provisions in the management agreements, we account for these contracts as
operating leases. CTF placed funds into trust accounts to cover possible shortfalls in cash flow necessary
to meet rent payments under these leases. In turn, we released CTF affiliates from their guarantees in
connection with these leases. Approximately $38 million remained in these trust accounts at year-end
2007. Minimum lease payments relating to these leases, which are not reflected in the $1,833 million in the
preceding table are as follows: $30 million in each of 2008, 2009, and 2010; $26 million in 2011; $17
million in 2012; and $33 million thereafter, for a total of $166 million.
The composition of rent expense for the last three fiscal years associated with operating leases is detailed
in the following table:
($ in millions)
Minimum rentals .......................................
Additional rentals ......................................
2007
$
$
272
100
372
2006
$
$
2005
253
109
362
$
$
211
109
320
We have summarized our future obligations under capital leases at year-end 2007, in the following table:
($ in millions)
Fiscal Year
2008 ......................................................................................................
2009 ......................................................................................................
2010 ......................................................................................................
2011 ......................................................................................................
2012 ......................................................................................................
Thereafter ..............................................................................................
Total minimum lease payments ............................................................
Less: Amount representing interest .......................................................
Present value of net minimum lease payments .................................
Minimum Lease
Payments
$
$
1
1
1
1
1
7
12
(5)
7
The accompanying Consolidated Balance Sheets for year-end 2007, included $7 million in the “Longterm debt” caption that represented the present value of net minimum lease payments associated with
capital leases.
19. BUSINESS SEGMENTS
We are a diversified hospitality company with operations in five business segments:
x North American Full-Service Lodging, which includes Marriott Hotels & Resorts, Marriott
Conference Centers, JW Marriott Hotels & Resorts, Marriott Conference Centers, Renaissance
Hotels & Resorts, and Renaissance ClubSport properties located in the continental United States and
Canada;
x North American Limited-Service Lodging, which includes Courtyard, Fairfield Inn, SpringHill Suites,
Residence Inn, TownePlace Suites, and Marriott ExecuStay properties located in the continental
United States and Canada;
x International Lodging, which includes Marriott Hotels & Resorts, JW Marriott Hotels & Resorts,
Renaissance Hotels & Resorts, Courtyard, Fairfield Inn, Residence Inn, Ramada International, and
Marriott Executive Apartments properties located outside the continental United States and Canada;
x Luxury Lodging, which includes The Ritz-Carlton and Bulgari Hotels & Resorts properties
worldwide; and
x Timeshare, which includes the development, marketing, operation, and sale of timeshare, fractional
ownership, and residential properties worldwide under Marriott Vacation Club, The Ritz-Carlton
Club, Grand Residences by Marriott, and Horizons by Marriott Vacation Club.
In addition to the segments above, in 2007 we exited the synthetic fuel business, which was formerly a
separate segment but which we now report under discontinued operations.
In addition to the brands noted above, in 2007 we announced our new brand of family-friendly resorts
and spas, “Nickelodeon Resorts by Marriott” and a new brand of lifestyle boutique hotels, “Edition.” At
year-end 2007, no properties were yet open under either brand.
In 2006, we analyzed our internal reporting process and implemented changes in the fourth quarter that
were designed to improve efficiency and, as part of this process, we evaluated the impact on segment
reporting. Accordingly, we now report five operating segments, and no longer allocate indirect
administrative expenses to our segments. We reflect this revised segment reporting throughout this report
for all periods presented, and present historical figures in a manner that is consistent with the revised
segment reporting. See also the Form 8-K that we filed on March 19, 2007, furnishing quarterly Revenues
and Income from Continuing Operations for each of 2006 and 2005 in the new segment format.
We evaluate the performance of our segments based primarily on the results of the segment without
allocating corporate expenses, interest expense, or indirect general, administrative, and other expenses.
With the exception of the Timeshare segment, we do not allocate interest income to our segments. Because
note sales are an integral part of the Timeshare segment, we include note sale gains in our Timeshare
segment results. We include interest income associated with Timeshare segment notes in our Timeshare
segment results because financing sales are an integral part of that segment’s business. We also allocate
other gains or losses as well as equity in earnings or losses from our joint ventures and divisional general,
administrative, and other expenses to each of our segments. “Other unallocated corporate” represents that
portion of our revenues, general, administrative, and other expenses, equity in earnings or losses, and other
gains or losses that are not allocable to our segments.
We aggregate the brands presented within our North American Full-Service, North American LimitedService, International, Luxury, and Timeshare segments considering their similar economic characteristics,
types of customers, distribution channels, the regulatory business environment of the brands and operations
within each segment and our organizational and management reporting structure.
Revenues
($ in millions)
North American Full-Service Segment ....................................
North American Limited-Service Segment ..............................
International Segment ..............................................................
Luxury Segment .......................................................................
Timeshare Segment ..................................................................
Total segment revenues .......................................................
Other unallocated corporate .....................................................
2007
$
2006
$
2005
5,476
2,198
1,594
1,576
2,065
12,909
81
$ 12,990
5,196
2,060
1,411
1,423
1,840
11,930
65
$ 11,995
$
5,116
1,886
1,017
1,333
1,721
11,073
56
$ 11,129
2007
2006
2005
Income from Continuing Operations
($ in millions)
North American Full-Service Segment ....................................
North American Limited-Service Segment ..............................
International Segment ..............................................................
Luxury Segment .......................................................................
Timeshare Segment ..................................................................
Total segment financial results ............................................
Other unallocated corporate .....................................................
Interest income, provision for loan losses, and interest
expense ................................................................................
Income taxes ............................................................................
$
$
478
461
271
72
306
1,588
(287)
(163)
(441)
697
$
$
455
380
237
63
280
1,415
(251)
(72)
(380)
712
$
$
349
303
133
45
271
1,101
(219)
(55)
(284)
543
Equity in Earnings (Losses) of Equity Method Investees
($ in millions)
North American Full-Service Segment ....................................
North American Limited-Service Segment ..............................
International Segment ..............................................................
Luxury Segment .......................................................................
Timeshare Segment ..................................................................
Total segment equity in earnings (losses) ............................
Other unallocated corporate .....................................................
2007
$
$
3
2
3
(4)
10
14
1
15
2006
$
$
2
(2)
(2)
(2)
5
3
2005
$
$
21
(6)
20
(1)
1
35
1
36
Depreciation and Amortization
($ in millions)
North American Full-Service Segment ...................................
North American Limited-Service Segment .............................
International Segment .............................................................
Luxury Segment ......................................................................
Timeshare Segment .................................................................
Total segment depreciation and amortization ....................
Other unallocated corporate ....................................................
Discontinued operations ..........................................................
2007
$
$
25
23
23
17
39
127
62
8
197
2006
$
$
24
24
23
7
39
117
61
10
188
2005
$
$
19
24
18
10
46
117
57
10
184
Assets
($ in millions)
North American Full-Service Segment ...................................
North American Limited-Service Segment .............................
International Segment .............................................................
Luxury Segment ......................................................................
Timeshare Segment .................................................................
Total segment assets ..........................................................
Other unallocated corporate ....................................................
Discontinued operations ..........................................................
At Year-end
2007
At Year-end
2006
At Year-end
2005
$
$
$
$
1,322
486
855
748
3,142
6,553
2,336
53
8,942
$
1,104
565
1,225
755
2,560
6,209
2,288
91
8,588
$
1,309
613
1,333
656
2,454
6,365
2,062
103
8,530
Equity Method Investments
($ in millions)
At Year-end
2007
At Year-end
2006
At Year-end
2005
North American Full-Service Segment ...................................
North American Limited-Service Segment .............................
International Segment .............................................................
Luxury Segment ......................................................................
Timeshare Segment .................................................................
Total segment equity method investments .........................
Other unallocated corporate ....................................................
$
$
$
$
16
75
62
41
99
293
23
316
$
18
35
73
17
168
311
21
332
$
21
50
119
18
115
323
26
349
Goodwill
($ in millions)
At Year-end
2007
At Year-end
2006
At Year-end
2005
North American Full-Service Segment ...................................
North American Limited-Service Segment .............................
International Segment .............................................................
Luxury Segment ......................................................................
Total segment goodwill ......................................................
$
$
$
$
406
72
273
170
921
$
406
72
273
170
921
$
407
72
273
172
924
Capital Expenditures
($ in millions)
North American Full-Service Segment ...................................
North American Limited-Service Segment .............................
International Segment .............................................................
Luxury Segment ......................................................................
Timeshare Segment .................................................................
Total segment capital expenditures ....................................
Other unallocated corporate ....................................................
2007
$
$
446
36
44
35
56
617
54
671
2006
$
$
75
38
215
104
28
460
69
529
2005
$
$
Segment expenses include selling expenses directly related to the operations of the businesses,
aggregating
$616 million in 2007, $600 million in 2006, and $609 million in 2005. Approximately 89 percent for 2007
and
90 percent for each of 2006 and 2005 of the selling expenses are related to our Timeshare segment.
The consolidated financial statements include the following related to operations located outside
the United States (which are predominately related to our International lodging segment): Revenues of
$2,287 million in 2007, $1,869 million in 2006, and $1,388 million in 2005; segment financial results of
$341 million in 2007 (32 percent from Europe, 30 percent from the Americas excluding the United States,
17 percent from Asia, 11 percent from the United Kingdom, 8 percent from the Middle East and Africa,
and 2 percent from Australia), $298 million in 2006, and $178 million in 2005; and fixed assets of $257
million in 2007 and $684 million in 2006. At year-end 2007, fixed assets totaling $257 million located
outside the United States are included within the “Property and equipment” caption in our Consolidated
Balance Sheets. At year-end 2006, fixed assets totaling $684 million located outside the United States
include fixed assets of $336 million which are included within the “Property and equipment” caption and
$348 million of fixed assets which are included within the “Assets held for sale” caption in our
Consolidated Balance Sheets. No individual country, other than the United States, constitutes a material
portion of our revenues, financial results or fixed assets.
197
10
376
84
27
694
86
780
20. VARIABLE INTEREST ENTITIES
We currently consolidate a holding company that holds 100 percent interest in four entities that are
variable interest entities under FIN 46, “Consolidation of Variable Interest Entities-revised” (“FIN 46(R)”).
At year-end 2007, the combined capital in the four variable interest entities is less than $1 million, which is
used primarily to fund hotel working capital. Our equity at risk was $3 million and we held 55 percent of
the common equity shares of the holding company. The creditors of the holding company do not have
general recourse to our credit.
We are party to a venture that develops and markets fractional ownership and residential interests.
During the 2007 second quarter, we issued a guarantee to the senior lender of the venture in support of the
senior loan facility and reevaluated our variable interests in the venture under FIN 46(R). At that time, we
determined that we were the primary beneficiary and as such, we also consolidated this venture. During the
2007 third quarter, the guarantee was replaced with the issuance of a loan facility for $40 million, of which
$36 million is receivable and outstanding at year-end 2007. Our issuance of the loan facility was a
reconsideration event under FIN 46(R); we again determined we were the primary beneficiary and continue
to consolidate the joint venture. At year-end 2007, the carrying amount of consolidated assets that are
collateral for the variable interest entity’s obligations totaled $141 million and comprised $24 million of
accounts receivable, $106 million of real estate held for development, property, equipment, and other longterm assets, and $11 million of cash. The creditors of the variable interest entity do not have general
recourse to our credit.
In conjunction with the transaction with CTF described more fully in Footnote No. 8, “Acquisitions and
Dispositions,” under the caption “2005 Acquisitions” we manage certain hotels on behalf of four tenant
entities 100 percent owned by CTF, which lease the hotels from third-party owners. At year-end 2007, the
number of hotels totaled 14. The entities have minimal equity and minimal assets comprised of hotel
working capital. CTF placed money in a trust account to cover cash flow shortfalls and to meet rent
payments. The terms of the trust require that the cash flows for the four tenant entities be pooled for
purposes of making rent payments and determining cash flow shortfalls. At year-end 2007, the trust
account held approximately $38 million. The entities are variable interest entities under FIN 46(R). We do
not consolidate the entities because we do not bear the majority of the expected losses. We are secondarily
liable for rent payments for eight of the 14 hotels in the event that there are cash flow shortfalls and there is
no money left in the trust. Future minimum lease payments through the end of the lease term for these
eight hotels total approximately $122 million. In addition, we are also secondarily liable for rent payments
of up to an aggregate cap of $44 million for the six other hotels in the event that there are cash flow
shortfalls.
21. RELATED PARTY TRANSACTIONS
Equity Method Investments
We have equity method investments in entities that own properties for which we provide management
and/or franchise services and receive fees. In addition, in some cases we provide loans, preferred equity or
guarantees to these entities. Our ownership interest in these equity method investments generally varies
from 10 to 50 percent. The amount of our consolidated retained earnings that represents undistributed
earnings attributable to our equity investments totaled $9 million at year-end 2007.
The following tables present financial data resulting from transactions with these related parties:
Income Statement Data
($ in millions)
2007
2006
2005
Base management fees ........................................................
Franchise fees ......................................................................
Incentive management fees ................................................
Cost reimbursements ...........................................................
Owned, leased, corporate housing, and other revenue .......
$
56
1
26
510
-
$
62
2
22
649
-
$
83
2
14
936
19
Total revenue .......................................................................
$
593
$
735
$
1,054
General, administrative, and other ......................................
Reimbursed costs ................................................................
$
(4)
(510)
$
(1)
(649)
$
(19)
(936)
Gains and other income ......................................................
Interest expense ...................................................................
Interest income ....................................................................
(Provision for) reversal of provision for loan losses ..........
Equity in earnings ...............................................................
25
(1)
4
(12)
15
28
(1)
4
1
3
54
31
36
Balance Sheet Data
($ in millions)
Current assets-accounts and notes receivable ................
Deferred development ...................................................
Contract acquisition costs ..............................................
Equity and cost method investments .............................
Loans to equity method investees ..................................
Long-term deferred tax assets, net .................................
At Year-end
2007
At Year-end
2006
$
$
Current liabilities:
Other payables and accruals .......................................
Other long-term liabilities .............................................
42
2
33
316
21
1
(2)
(16)
76
34
377
27
4
(2)
(13)
Summarized information for the entities in which we have equity method investments is as follows:
Income Statement Summary
($ in millions)
2007
2006
2005
Sales ..............................................................................
$
1,622
$
1,479
$
1,975
Net income ....................................................................
$
134
$
170
$
259
Balance Sheet Summary
At Year-end
2007
At Year-end
2006
Assets (primarily comprised of hotel real estate
managed by us) ............................................................
$
3,856
$
4,325
Liabilities .......................................................................
$
2,536
$
2,830
($ in millions)
22. RELATIONSHIP WITH MAJOR CUSTOMER
As of year-end 2007, Host Hotels & Resorts, Inc. (“Host”), known as Host Marriott Corporation prior to April
18, 2006, owned or leased 149 lodging properties operated by us under long-term agreements. We recognized
revenues from lodging properties owned or leased by Host (which are included in our North American FullService, North American Limited-Service, and International segments) for the last three fiscal years as shown in
the following table:
($ in millions)
Revenues ............................................................................
2007
2006
2005
$ 2,580
$ 2,475
$ 2,427
Additionally, Host is a partner in several unconsolidated partnerships that own lodging properties
operated by us under long-term agreements. As of year-end 2007, Host was affiliated with 124 such
properties operated by us. The revenues associated with those properties (which are included in our North
American Full-Service, North American Limited-Service, and International segments) that were recognized
by the Company for the last three fiscal years are shown in the following table:
($ in millions)
Revenues ............................................................................
2007
$
350
2006
$
353
2005
$
352
QUARTERLY FINANCIAL DATA – UNAUDITED
Fiscal Year 2007 (1), (2)
($ in millions, except per share data)
First
Quarter
Revenues (3) .............................................................................. $ 2,836
Operating income (3) ................................................................. $
237
Income from continuing operations ......................................... $
164
Second
Quarter
$
$
$
Third
Quarter
3,122
335
175
$ 2,943
$
210
$
122
32
207
0.43
0.08
0.51
9
131
0.31
0.02
0.33
Fourth
Quarter
$ 4,089
$
406
$
236
Fiscal Year
$
$
$
12,990
1,188
697
(
Discontinued operations, net of tax .........................................
Net income ............................................................................... $
Diluted earnings per share from continuing operations ........... $
Diluted earnings per share from discontinued operations ........
Diluted earnings per share ....................................................... $
18
182
0.40
0.04
0.44
$
$
$
First
Quarter
(1)
(2)
(3)
$
$
$
$
$
$
$
1)
696
1.75
1.75
Fiscal Year 2006 (1), (2)
($ in millions, except per share data)
Revenues (3) ..............................................................................
Operating income (3) .................................................................
Income from continuing operations .........................................
Discontinued operations, after-tax ...........................................
Cumulative effect of change in accounting principle, net of
tax ........................................................................................
Net income ...............................................................................
Diluted earnings per share from continuing operations ...........
Diluted losses per share from cumulative effect of
accounting change ................................................................
Diluted earnings per share from discontinued operations ........
Diluted earnings per share .......................................................
$
$
(60)
176
0.62
(0.16)
0.46
$ 2,648
$
230
$
167
3
$
$
(109)
61
0.38
(0.25)
0.01
$ 0.14
$
$
$
Second
Quarter
Third
Quarter
2,852
292
182
4
$ 2,697
$
227
$
144
(3)
$
$
186
0.42
$
0.01
0.43
$
$
141
0.34
$
(0.01)
0.33
Fourth
Quarter
$ 3,798
$
338
$
219
1
$
$
220
0.52
$
0.52
The quarters consisted of 12 weeks, except for the fourth quarters, which consisted of 16 weeks.
All share and per share amounts reflect the June 2006 stock split. The sum of the earnings per share for the four
quarters differs from annual earnings per share due to the required method of computing the weighted average
shares in interim periods.
Balances do not reflect the impact of the synthetic fuel business as the impact of that business is now reflected in
discontinued operations.
Fiscal Year
$
$
$
11,995
1,087
712
5
$
$
(109)
608
1.65
$
(0.25)
0.01
1.41
EXHIBIT K
MARRIOTT HOTELS & RESORTS
MANUALS, STANDARDS AND RESOURCES
As described in Item 11 of the Offering Circular
System Standards
System Standards are made available to you through an online resource. This resource contains a
complete listing of brand specific standards. The resource contains approximately 300 pages of
information concerning the following subjects:
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Architecture & Construction
Communications
Engineering
Event Management
Fitness Center & Spa
Finance & Accounting
Food & Beverage
Front Office
Golf
Housekeeping
Human Resources
Retail
Risk Management
Sales, Marketing & Revenue Management
Technology
Program Standards
Additionally, Brand Program Standards are also made available to you through an online resource. This
resource contains a complete listing of brand specific standards. The resource contains approximately 250
pages of information concerning the following subjects:
x
x
x
x
x
x
x
x
Engineering: Energy Conservation, Guestware
Event Management: Box Lunch Program, Kosher Catering, Joy Wedding Program
Fitness & Recreation: Fitness Center, Fit For You
Food & Beverage: Breakfast Program, Concept & Restaurant Design, Room Service, Bar Arts,
Product Specifications
Front Office: Lobby PC, Wired for Business, Self Service Kiosks
Guest Service Programs: Spirit to Serve Basics, At Your Services, Pre-Arrival Planning, Virtual
Concierge
Housekeeping: Bottled Water, Cleanliness Certification, Bedding.
Lodging Quality Assurance & GSS: Schedules, ESS
Marriott 389900v2 (03/31/2008)
K-1
Additional Resources
Outlined below is a summary of additional resources that are made available through an online resource.
x
x
x
x
x
Brand Voice
The Lobby Reinvented
Local Area Knowledge Expertise
Market Game Plans and Product & Service Game Plans
Smoke Free Hotel Environment
Resource Specific to Conversions and New Property Openings
An online resource is available to you for specific information related to converting or opening a new
hotel property. Users can locate information about:
x
x
x
x
x
Opening Guidelines: Timelines, Critical Path Checklists
Operations: Resource Order Form, Opening Requirements, OS&E
Sales & Marketing: MARSHA Training, Grand Opening Guide
Training: Culture Orientation, Required Training, Training Snapshot
A&C Design, Interior Design, Procurement, Interior Graphics & Exterior Signage
Marriott 389900v2 (03/31/2008)
K-2
TRADITIONAL HOTEL REVENUE MANAGEMENT
CONSULTING AGREEMENT
THIS TRADITIONAL REVENUE MANAGEMENT CONSULTING AGREEMENT ("Agreement")
day of
,
(“Commencement Date”) by and between [insert
is made and entered into this
Franchisee Name] with a mailing address at [
] ("Franchisee"), and [insert
Marriott Franchisor Company Name] with offices at 10400 Fernwood Road, Bethesda, Maryland 20817
("Franchisor").
RECITAL:
WHEREAS, Franchisor provides certain revenue management services ("Services") to its [insert
Hotel brand Name] hotels;
WHEREAS, Franchisee desires to contract with Franchisor for the provision of the Services to its
franchised hotel located at [insert Address] ("Hotel").
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby specifically acknowledged, the parties
agree as follows:
1.
Scope of Services. Franchisor shall provide Services to the Hotel according to the
specifications in Schedule "A," attached hereto and made a part hereof. The Franchisor personnel who assist
in providing the Services shall be qualified in and dedicated to revenue management. Both parties
acknowledge and agree that Franchisee is under no obligation to comply with any recommendations made by
Franchisor in connection with this Agreement, including but not limited to recommendations regarding
pricing, inventory, room allocation or rate allocation. Franchisee expressly reserves the right to make any and
all decisions relating to pricing, rate allocation and all other revenue management issues.
2.
Confidentiality. Franchisee shall not, during the term of this Agreement or thereafter,
without Franchisor's prior written consent, communicate, divulge, copy, duplicate, record, or otherwise
reproduce, or use for the benefit of any third party or business other than the Hotel, in whole or in part, any
documentation, software or other confidential information, knowledge, or know-how associated with the
Services provided under this Agreement which may be communicated or provided to Franchisee, or of which
Franchisee may be apprised, by virtue of Franchisee's operation under this Agreement, or otherwise make the
same available to any unauthorized person. Franchisee shall divulge such information only to such of
Franchisee's employees or agents as must have access to it in order to operate the Hotel. All such
information, including without limitation, market data and recommendations by Franchisor regarding rates,
pricing, inventory, room allocations and rate allocations, is confidential and provided by Franchisor to
Franchisee solely for the purposes of operating the Hotel, and Franchisee expressly acknowledges that such
information shall not be used or considered in any respect by the Franchisee in reaching decisions for any
other hotels owned, operated or franchised by the Franchisee.
3.
Extra Services. Any services not included in this Agreement shall be performed by
Franchisor only when requested by Franchisee in writing and specifically agreed to by Franchisor. Any
additional cost for such extra services shall be agreed to in writing by both parties.
4.
Term and Termination. The initial term of this Agreement shall begin on the
Commencement Date and shall expire at the end of Franchisor’s fiscal year (“Fiscal Year”) then in effect.
(Franchisor’s Fiscal Year currently expires at the end of the Friday nearest December 31 in a given calendar
year, and a new Fiscal Year begins at the start of the immediately following Saturday, but the parties agree
that Franchisor may amend its Fiscal Year at any time in its reasonable discretion, in which case the term of
All Brands 389850v2 (03/31/2008)
Traditional Revenue Management Consulting Agreement
Page 2
this Agreement shall adhere to the new Fiscal Year.) This Agreement shall automatically renew for
successive terms of one Fiscal Year unless either party provides written notice of non-renewal at least thirty
(30) days in advance of the expiration of the then-current term. In addition, Franchisee may terminate any
renewal term upon thirty (30) days’ advance notice if the fee Franchisor charges increases by more than ten
percent (10%) from the prior Fiscal Year. In the event either party breaches a material provision of this
Agreement, the non-defaulting party may terminate this Agreement by giving ten (10) days’ prior written
notice. If the default is remedied prior to the end of such ten-day period, the notice of termination shall be
null and void, provided that a party may nullify a notice of termination by remedying a material breach no
more than one time during the initial term or any single renewal term. This right of termination is in addition
to whatever rights the non-defaulting party may have at law or in equity.
5.
Fee. Franchisor will charge Franchisee a fee for each of Franchisor’s twenty-eight- day
accounting periods (“Accounting Periods,” which Franchisor may amend in its reasonable discretion) for the
Services as set forth in Schedule "B" to this Agreement, which shall be pro-rated for any partial Accounting
Period for which the Services are performed. Franchisor will send to the Hotel an invoice for the Services
performed. Franchisee agrees to pay such fees within fifteen (15) days of receipt of the invoice. Franchisor
may modify the fee with respect to each renewal term of this Agreement upon notice to Franchisee, subject to
Franchisee’s right to terminate discussed in Section 4, above.
6.
Indemnification. Franchisee agrees to defend, indemnify and hold harmless Marriott
International, Inc., Franchisor, their affiliates, and each of their officers, directors, agents and employees, from
and against any and all actions, costs, claims, losses, expenses and/or damages, including attorney's fees,
arising out of or resulting from the performance of the Services.
7.
Licenses and Permits. If any governmental license or permit is required for the provision of
the Services, then Franchisor, at its expense, shall duly procure and thereafter maintain such license or permit
and submit same for inspection by Franchisee. Franchisor, at its sole cost and expense, will at all times
comply with the requirements of each license or permit.
8.
Independent Contractor. Franchisor is an independent contractor and all persons employed
to furnish the Services are employees of Franchisor and not of Franchisee.
9.
Assignment. This agreement may not be assigned by Franchisee in whole or part without the
prior written consent of Franchisor.
10.
Notices. Notices, requests, demands and other communication hereunder shall be in writing
and shall be forwarded by registered or certified mail as follows:
If To Franchisee:
With a copy to:
If To Franchisor:
All Brands 389850v2 (03/31/2008)
Franchisee Name
Address
City, State, Zip
Attention: Franchisee Contact
Hotel Name
Address
City, State, Zip
Attention: Hotel General Manager
[Name of Franchise Company]
c/o Marriott International, Inc.
Traditional Revenue Management Consulting Agreement
Page 3
10400 Fernwood Road
Bethesda, Maryland 20817
Attention: Law Department 923
(Franchise Section)
or at any other address which may be given by either party to the other in the manner provided above.
11.
Equal Opportunity Employer. Franchisor affirms that it is an Equal Opportunity Employer
and will comply with all laws and regulations prohibiting employment discrimination in the performance of
this agreement.
12.
Entire Agreement. This Agreement contains the entire agreement between the parties,
superseding any prior agreements and writings, and it may not be changed other than by an agreement in
writing signed by the parties.
IN WITNESS WHEREOF, the parties hereto have executed the Agreement the day and year first
above written.
FRANCHISEE:
[Franchisee Name]
By:
Title:
[Franchisor Company Name]
By:
Vice President
F:\GROUPS\HOTELOPS\CZC\Revmaag.AGM
All Brands 389850v2 (03/31/2008)
1/08/02
SCHEDULE A
SERVICE SPECIFICATIONS:
TRADITIONAL HOTEL REVENUE MANAGEMENT
Franchisor agrees to provide the following services to Franchisee:
TRANSIENT ROOMS INVENTORY MANAGEMENT
ƒ Manage MARSHA inventory functions to include:
ƒ Recommend and input Guaranteed Room Types (e.g., non-smoking, king, doubles) program
allocations.
ƒ Input and update all pages (7) of MARSHA "Display-Hotel" Information.
ƒ Maintain Marsha City, State, and Suburbs Information for cross selling of the hotel.
ƒ Maintain Alternative Availability rules for cross selling.
ƒ Utilize MARSHA Bulletin Boards (when appropriate) to identify Hotel Market and Special Event
needs.
ƒ Maintain MARSHA Facts pages to identify Hotel policies and selling procedures
ƒ Recommend and input Alternate Rate Program Substitutes (General Inventory).
ƒ Aid the Hotel in reading "History" on specific reservations or MARSHA inventory.
ƒ Ensure all available rooms and rates are supplied to "outside" users (CRSs), whenever possible.
ƒ Provide Special Events selling options and on request, implement.
ƒ Recommend and, if requested by Franchisee, input daily and weekly Hotel Room inventory availability,
room authorizations, room rates, Discounts and seasons according to Hotel market strategy.
ƒ Recommend and, if requested by Franchisee, input Special Corporate pricing and Local promotions.
ƒ Discuss short-and long-term selling strategies with the Hotel, and, if requested by Franchisee, input
strategies into MARSHA.
TRANSIENT REVENUE ANALYSIS
ƒ View and analyze daily and weekly turndowns, and relay changes in selling trends to the Hotel.
ƒ View and analyze Transient Percentage of Occupancy, and relay changes in trends to the Hotel.
ƒ Participate in at least one individual Market Assessment annually.
MISCELLANEOUS
ƒ Aid the Sales Coordinator in building and maintaining Sales Group Blocks in MARSHA, when
necessary.
ƒ Supply the Hotel with Arrival and Availability information as needed during any systems downtime.
ƒ Aid the Hotel in reading all reports.
ƒ Aid the Hotel in Balancing Rooms-sold in MARSHA and PMS.
ƒ Provide technical and theoretical system training when necessary.
ƒ Support the Hotel during and after roll-out of new program.
ƒ Provide centrally processed Queued Reservations.
All Brands 389850v2 (03/31/2008)
SCHEDULE B
Franchisor will receive from Franchisee a fee for the Services provided in this Agreement according
to the schedule set forth below:
For Fiscal Year ______, ________ percent (____%) of the total annual costs associated with the
Cluster Director of Revenue Management (“CDRM”). The total annual CDRM costs for Fiscal Year ______
are currently estimated to be $___________.
All Brands 389850v2 (03/31/2008)
TOTAL HOTEL REVENUE MANAGEMENT
CONSULTING AGREEMENT
THIS TOTAL HOTEL REVENUE MANAGEMENT CONSULTING AGREEMENT
("Agreement") is made and entered into this
day of
,
(“Commencement Date”) by and
between [insert Franchisee Name] with a mailing address at [
]
("Franchisee"), and [insert Marriott Franchisor Company Name] with offices at 10400 Fernwood
Road, Bethesda, Maryland 20817 ("Franchisor").
RECITAL:
WHEREAS, Franchisor provides certain revenue management services ("Services") to its [insert
Hotel brand Name] hotels;
WHEREAS, Franchisee desires to contract with Franchisor for the provision of the Services to its
franchised hotel located at [insert Address] ("Hotel").
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good
and valuable consideration, the receipt and sufficiency of which are hereby specifically acknowledged,
the parties agree as follows:
1.
Scope of Services. Franchisor shall provide Services to the Hotel according to the
specifications in Schedule "A," attached hereto and made a part hereof. The Franchisor personnel who
assist in providing the Services shall be qualified in and dedicated to revenue management. Both parties
acknowledge and agree that Franchisee is under no obligation to comply with any recommendations made
by Franchisor in connection with this Agreement, including but not limited to recommendations regarding
pricing, inventory, room allocation or rate allocation. Franchisee expressly reserves the right to make any
and all decisions relating to pricing, rate allocation and all other revenue management issues.
2.
Confidentiality. Franchisee shall not, during the term of this Agreement or thereafter,
without Franchisor's prior written consent, communicate, divulge, copy, duplicate, record, or otherwise
reproduce, or use for the benefit of any third party or business other than the Hotel, in whole or in part,
any documentation, software or other confidential information, knowledge, or know-how associated with
the Services provided under this Agreement which may be communicated or provided to Franchisee, or of
which Franchisee may be apprised, by virtue of Franchisee's operation under this Agreement, or
otherwise make the same available to any unauthorized person. Franchisee shall divulge such
information only to such of Franchisee's employees or agents as must have access to it in order to operate
the Hotel. All such information, including without limitation, market data and recommendations by
Franchisor regarding rates, pricing, inventory, room allocations and rate allocations, is confidential and
provided by Franchisor to Franchisee solely for the purposes of operating the Hotel, and Franchisee
expressly acknowledges that such information shall not be used or considered in any respect by the
Franchisee in reaching decisions for any other hotels owned, operated or franchised by the Franchisee.
3.
Extra Services. Any services not included in this Agreement shall be performed by
Franchisor only when requested by Franchisee in writing and specifically agreed to by Franchisor. Any
additional cost for such extra services shall be agreed to in writing by both parties.
4.
Term and Termination. The initial term of this Agreement shall begin on the
Commencement Date and shall expire at the end of Franchisor’s fiscal year (“Fiscal Year”) then in effect.
(Franchisor’s Fiscal Year currently expires at the end of the Friday nearest December 31 in a given
calendar year, and a new Fiscal Year begins at the start of the immediately following Saturday, but the
parties agree that Franchisor may amend its Fiscal Year at any time in its reasonable discretion, in which
All Brands 389851v2 (03/31/2008)
Total Hotel Revenue Management Consulting Agreement
Page 2
case the term of this Agreement shall adhere to the new Fiscal Year.) This Agreement shall automatically
renew for successive terms of one Fiscal Year unless either party provides written notice of non-renewal
at least thirty (30) days in advance of the expiration of the then-current term. In addition, Franchisee may
terminate any renewal term upon thirty (30) days’ advance notice if the fee Franchisor charges increases
by more than ten percent (10%) from the prior Fiscal Year. In the event either party breaches a material
provision of this Agreement, the non-defaulting party may terminate this Agreement by giving ten (10)
days’ prior written notice. If the default is remedied prior to the end of such ten-day period, the notice of
termination shall be null and void, provided that a party may nullify a notice of termination by remedying
a material breach no more than one time during the initial term or any single renewal term. This right of
termination is in addition to whatever rights the non-defaulting party may have at law or in equity.
5.
Fee. Franchisor will charge Franchisee a fee for each of Franchisor’s twenty-eight-day
accounting periods (“Accounting Periods,” which Franchisor may amend in its reasonable discretion) for
the Services as set forth in Schedule "B" to this Agreement, which shall be pro-rated for any partial
Accounting Period for which the Services are performed. Franchisor will send to the Hotel an invoice for
the Services performed. Franchisee agrees to pay such fees within fifteen (15) days of receipt of the
invoice. Franchisor may modify the fee with respect to each renewal term of this Agreement upon notice
to Franchisee, subject to Franchisee’s right to terminate discussed in Section 4, above.
6.
Indemnification. Franchisee agrees to defend, indemnify and hold harmless Marriott
International, Inc., Franchisor, their affiliates, and each of their officers, directors, agents and employees,
from and against any and all actions, costs, claims, losses, expenses and/or damages, including attorney's
fees, arising out of or resulting from the performance of the Services.
7.
Licenses and Permits. If any governmental license or permit is required for the
provision of the Services, then Franchisor, at its expense, shall duly procure and thereafter maintain such
license or permit and submit same for inspection by Franchisee. Franchisor, at its sole cost and expense,
will at all times comply with the requirements of each license or permit.
8.
Independent Contractor. Franchisor is an independent contractor and all persons
employed to furnish the Services are employees of Franchisor and not of Franchisee.
9.
Assignment. This agreement may not be assigned by Franchisee in whole or part
without the prior written consent of Franchisor.
10.
Notices. Notices, requests, demands and other communication hereunder shall be in
writing and shall be forwarded by registered or certified mail as follows:
If to Franchisee:
Franchisee Name
Address
City, State, Zip
Attention: Franchisee Contact
With a copy to:
Hotel Name
Address
City, State, Zip
Attention: Hotel General Manager
If to Franchisor:
[Name of Franchise Company]
c/o Marriott International, Inc.
10400 Fernwood Road
All Brands 389851v2 (03/31/2008)
Total Hotel Revenue Management Consulting Agreement
Page 3
Bethesda, Maryland 20817
Attention: Law Department 923
(Franchise Section)
or at any other address which may be given by either party to the other in the manner provided above.
11.
Equal Opportunity Employer. Franchisor affirms that it is an Equal Opportunity
Employer and will comply with all laws and regulations prohibiting employment discrimination in the
performance of this agreement.
12.
Entire Agreement. This Agreement contains the entire agreement between the parties,
superseding any prior agreements and writings, and it may not be changed other than by an agreement in
writing signed by the parties.
IN WITNESS WHEREOF, the parties hereto have executed the Agreement the day and year
first above written.
FRANCHISEE:
[Franchisee Name]
By:
Title:
[Franchisor Company Name]
By:
Vice President
All Brands 389851v2 (03/31/2008)
SCHEDULE A
SERVICE SPECIFICATIONS:
TOTAL HOTEL REVENUE MANAGEMENT
Franchisor agrees to provide the following services to Franchisee:
MARKET STRATEGY
ƒ Prepare and present Marriott Business Plan.
ƒ Provide Segment Strategies for Transient, Group and Catering to include appropriate Revenue
Management initiatives to achieve or surpass hotels’ financial goals.
ƒ Conduct Strategy Meetings to include comprehensive critiques of past strategies as well as proactive
examination of future dates and initiatives.
INVENTORY MANAGEMENT
Rooms Inventory Management:
ƒ Manage MARSHA inventory functions to include:
ƒ Recommend and input Guaranteed Room Types (e.g., non-smoking, king, doubles) program
allocations.
ƒ Input and update all pages (7) of MARSHA "Display-Hotel" Information.
ƒ Maintain Marsha City, State, and Suburbs Information for cross selling of the hotel.
ƒ Maintain Alternative Availability rules for cross selling.
ƒ Utilize MARSHA Bulletin Boards (when appropriate) to identify Hotel Market and Special Event
needs.
ƒ Maintain MARSHA Facts pages to identify Hotel policies and selling procedures
ƒ Recommend and input Alternate Rate Program Substitutes (General Inventory).
ƒ Aid the Hotel in reading "History" on specific reservations or MARSHA inventory.
ƒ Ensure all available rooms and rates are supplied to "outside" users (CRSs), whenever possible.
ƒ Provide Special Events selling options and on request, implement.
ƒ Recommend and, if requested by Franchisee, input daily and weekly Hotel Room inventory
availability, room authorizations, room rates, Discounts and seasons according to Hotel market
strategy.
ƒ Recommend and, if requested by Franchisee, input Special Corporate pricing and Local promotions.
ƒ Discuss short-and long-term selling strategies with the Hotel, and, if requested by Franchisee, input
strategies into MARSHA.
ƒ Maintain DFSWIN and RMS systems and assist property in interpreting system reports and screens.
ƒ Load Group Target Rates and Ceilings into property Sales and Catering System (such as NGS or
Delphi).
ƒ Maintain group room rate restrictions and availability to EBC via GRAM.
Function Space Inventory Management:
ƒ Perform timely audits of diary system to ensure that available function space inventory is maximized:
ƒ Ensure accurate assignment of function space using optimal room combinations to meet customer
requirements and maximize available space for sale.
ƒ Realize labor efficiencies by matching setup types and minimizing turns between functions.
ƒ Return excess function space to inventory at the earliest possible time in the sales cycle.
ƒ Identify potential conflicts early in the sales cycle.
REVENUE ANALYSIS
Forecasting:
ƒ Complete monthly projection of room and catering sales for the property’s identified booking
window. Assist with weekly forecast.
All Brands 389851v2 (03/31/2008)
ƒ
Assist with annual budget process, including projection of room and catering revenue and covers by
segment.
Demand/Pricing/Profit Analysis:
ƒ Prepare critiques of previous sales strategies and present at strategy meetings.
ƒ Provide segment mix and displacement analysis, to consider both revenue as well as profit margins.
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
ƒ
Monitor transient turndowns and demand and mix trends.
Monitor property closure percentages.
Track group turndowns to include EBC as well as property transactions.
Provide Catering price and capacity turndown analysis.
Recommend strategy changes based upon results of demand analysis as appropriate.
View and analyze daily and weekly turndowns, and relay changes in selling trends to the Hotel.
View and analyze Transient Percentage of Occupancy, and relay changes in trends to the Hotel.
Data Integrity:
ƒ Provide guidelines to sales and operations staff on and off-property that maintain the integrity of data
in the revenue management systems.
Competitive Assessment:
ƒ Prepare a Competitive Assessment for the property and update semi-annually, to include rooms,
function space, and catering.
ƒ Participate in at least one individual Market Assessment annually.
Need Date Evaluation:
ƒ Determine periods of soft demand for either rooms or function space inventory and recommend
special strategies for revenue maximization.
ƒ Monitor competitive information to measure Marriott’s performance relative to competitors.
Account Analysis:
ƒ Track productivity of the property’s top accounts for all revenue streams.
ƒ Prepare data for account reviews as requested by the property sales staff.
BUSINESS EVALUATION
x Timely evaluation and decision of complex group and catering opportunity leads from outside sales
organizations that support the hotel’s Total Hotel Revenue Maximization strategy.
MISCELLANEOUS
ƒ Aid the Sales Coordinator in building and maintaining Sales Group Blocks in MARSHA, when
necessary.
ƒ Supply the Hotel with Arrival and Availability information as needed during any systems downtime.
ƒ Aid the Hotel in reading all reports.
ƒ Aid the Hotel in Balancing Rooms-sold in MARSHA and PMS.
ƒ Provide technical and theoretical system training when necessary.
ƒ Support the Hotel during and after rollout of new program.
ƒ Provide centrally processed Queued Reservations.
All Brands 389851v2 (03/31/2008)
SCHEDULE B
Franchisor will receive from Franchisee a fee for the Services provided in this Agreement
according to the schedule set forth below:
For Fiscal Year ______, ________ percent (____%) of the total annual costs associated with the
Director of Market Strategy. The total annual Director of Market Strategy costs for Fiscal Year ______
are currently estimated to be $___________.
All Brands 389851v2 (03/31/2008)
ISOP – SHARED SERVICES 1
July-04
SHARED SERVICE AGREEMENTS
Attachment 3
CLUSTER SALES
Shared Service Unit # __________ Cluster/Unit Name ______________________
Effective Date of Agreement _________________
Director of Finance ___________________ Hotel _________________________
Please Select applicable Cluster Sales Unit Type (ONLY ONE type per unit):
1. Leadership/Administrative Unit
2. Group Sales Unit
3. Market/Neighborhood Sales Unit
Describe the shared cost and/or service to be provided :
Cluster Sales is a proactive sales engine designed to target group and transient business based on individual
market needs. Cluster Sales incorporates ALL sales managers that are (1) engaged in proactive selling and (2)
shared between two or more hotels. Cluster Sales is made up of three components:
1. Leadership/Administrative
2. Group Sales
3. Market/Neighborhood Sales
Estimated Annual Cost of service (amount to be allocated) $
List each hotel (name and product number) participating.
Hotel Name & Brand
Hotel Unit # Managed or Franchised
Describe the economic benefit (s) each participating hotel will receive.
Shared Service Unit # _______________ Cluster/Unit Name __________________
Method of determining the cost of the service, and the method of allocating these cost to participating hotels.
1. Leadership/Administrative - Estimated Time Spent
2. Group Sales - Group Room Nights Booked (Quarterly True up)
MARRIOTT CONFIDENTIAL AND PROPRIETARY INFORMATION
The contents of this material are confidential and proprietary to Marriott International, Inc. and may not be reproduced, disclosed, distributed or
used without the express permission of an authorized representative of Marriott. Any other use is expressly prohibited.
Page 1 of 3
All Brands 389852v2 (03/31/2008)
July 16th, 2004
ISOP – SHARED SERVICES 1
July-04
SHARED SERVICE AGREEMENTS
Attachment 3
3. Market/Neighborhood Sales - Number of Rooms in Hotel
Describe commitment to the agreement and any withdrawal, termination, and capital funding provisions agreed
upon.
Terms of this agreement are for one Fiscal Year. During the term of this agreement, if a participant pulls out, that
participant is obligated for their portion of the operating costs through the end of the term.
Startup and Capital Expenditure Costs: All participants signing this agreement are obligated to pay their
portion for any startup or Capital Expenditure costs incurred as a result of their joining. During the term of this
agreement, if a participant pulls out or if they elect not to renew in a subsequent year, that participant is obligated
for their portion of their startup costs.
Authorization and approval signatures must be noted below.
I have reviewed the Shared Service/Costs outlined on page 1 and I authorize my hotel(s) to participate in the shared
activity and to accept an allocated portion of the costs incurred in providing the service(s).
MARRIOTT CONFIDENTIAL AND PROPRIETARY INFORMATION
The contents of this material are confidential and proprietary to Marriott International, Inc. and may not be reproduced, disclosed, distributed or
used without the express permission of an authorized representative of Marriott. Any other use is expressly prohibited.
Page 2 of 3
All Brands 389852v2 (03/31/2008)
July 16th, 2004
Agreement Authorization:
Signature
Title / Hotel
GM
Dir. of Finance
GM
Dir. of Finance
GM
Dir. of Finance
GM
Dir. of Finance
GM
Dir. of Finance
GM
Dir. of Finance
GM
Dir. of Finance
cc: Area Director -Finance & Accounting / Franchise Accounting
Page 3 of 3
All Brands 389852v2 (03/31/2008)
Date
ISOP – SHARED SERVICES 1
July-04
SHARED SERVICE AGREEMENTS
Attachment 1
EVENT BOOKING CENTER
Shared Service Unit # ________ Cluster/Unit Name _______________________
Effective Date of Agreement _________________
Director of Finance ___________________ Hotel _________________________
Describe the shared cost and/or service to be provided :
Marriott has determined that its business customer’s desire Marriott to provide a more efficient
sales effort for the hotels it manages and/or franchises under the various brand names it owns (“Marriott
Branded Hotels”). An Event Booking Center (“EBC”) is a sales office with a team of sales associates
that represent multiple Marriott brands within a market or geographic area for the handling of small
group meetings or events. The EBC sales team handles inquires, negotiates on behalf of the hotel, and
completes the booking process through the contract stage. Customers receive a benefit by having one
sales person who can quote rates and function space availability for a collection of hotels and cross-sell
from one hotel and brand to another based on customer preference.
Estimated Annual Cost of service (amount to be allocated) $________________
List each hotel (name and product number) participating.
Hotel Name & Brand
Hotel Unit # Managed or Franchised
As a participating hotel in the EBC, the hotel leadership is responsible for managing the following core
consistencies:
x Goal Setting Process: Establishing booking goals for the EBC is the responsibility of each hotel. The ENC
leader must be involved with property leadership in determining the appropriate booking goals for the EBC
team. Goals must be established based upon a sound process utilizing historical data, market conditions, and
budget guidelines.
x Exceptions: Exceptions are defined as accounts or market that have EBC-parameter production but are to be
booked by the property sales team. Revenue goals must be established for each exception account or market
segment and communicated to the EBC during the goal setting process. The EBC’s goals will not include the
revenue goal for these exceptions.
x Routing Calls: Hotel staff is responsible to adequately qualify a sales opportunity and transfer all calls (not
including ‘exceptions’ defined above) that are within the EBC’s parameters to the EBC.
x Revenue Management and Hotel Sales Strategy: Hotel is responsible for all pricing and establishing and
communicating the hotel’s sales strategy to the EBC.
x Group Parameters: Maximum peak night parameter for EBC to book cannot be less than 50 rooms.
MARRIOTT CONFIDENTIAL AND PROPRIETARY INFORMATION
The contents of this material are confidential and proprietary to Marriott International, Inc. and may not be reproduced, disclosed, distributed or
used without the express permission of an authorized representative of Marriott. Any other use is expressly prohibited.
Page 1 of 4
All Brands 389854v2 (03/31/2008)
July 16th, 2004
ISOP – SHARED SERVICES 1
July-04
SHARED SERVICE AGREEMENTS
Attachment 1
The EBC is responsible for the following:
x Goal Adjustments: Any revenue associated with an EBC-parameter booking by the hotel and not identified as
an exception will be deducted from the EBC’s goals.
x Reporting: Standardized reports that provide sales and productivity information must be reported to each
hotel at least once per period.
x Sales Strategy: EBC staff will follow the hotel’s sales strategy as determined by the hotel.
x Hiring: All EBC staff will be evaluated and hired at the discretion of the EBC Director.
x Training: The EBC Director or designee will coordinate all training.
x Managing Operating Statement: The EBC Director is responsible for managing within the operating budget
established for the unit on an annual basis.
Method of determining the cost of the service, and the method of allocating these cost to participating hotels.
x EBC costs will be allocated on a 100% variable basis based on the individual hotel percentage of the total
revenue booked (as reported on the standard EBC period end report) for all hotels represented by the EBC.
EBC costs will be trued up on a quarterly basis.
Describe commitment to the agreement and any withdrawal, termination, and capital funding provisions agreed
upon.
Each new participating hotel is responsible for all costs associated with establishing applicable systems and
telecommunications connectivity to the EBC. These costs include, but are not limited to, terminal servers,
software licenses, telephone programming, system application training and system support costs. Costs associated
with additional staffing needed to handle the business volume of a new hotel (i.e. furniture, computers, office
supplies, etc.) are absorbed into the operating costs of the unit and are recovered in the standard allocation to each
participating hotel.
Authorization and approval signatures must be noted below.
Term and Termination:
Terms of this agreement are for three (3) fiscal years beginning ___________ and ending ____________ with
annual communications outlining proposed allocation costs by hotel being provided by the EBC’s Director of
Finance for review.
The hotel may terminate its participation with an EBC after a minimum of one year by providing a 90-day
notice in writing to the EBC director. During the 90-day transition period or a mutually agreed upon date, all
business processes including routing of calls to the EBC from the hotel should continue as normal. Should the loss
of the participating hotel result in a reduction in the EBC staff, the departing hotel may be responsible for any
associate separation compensation should other employment within Marriott International not be available for the
associate(s).
Should the hotel terminate participation before the first year is complete, the hotel is responsible for its portion
of the EBC’s operating costs for the remainder of the year.
Should a hotel not effectively manage the core consistencies (described above) the EBC may terminate its
participation with a hotel after review and approval by the Regional SVP and Regional RVP of Sales & Marketing
MARRIOTT CONFIDENTIAL AND PROPRIETARY INFORMATION
The contents of this material are confidential and proprietary to Marriott International, Inc. and may not be reproduced, disclosed, distributed or
used without the express permission of an authorized representative of Marriott. Any other use is expressly prohibited.
Page 2 of 4
All Brands 389854v2 (03/31/2008)
July 16th, 2004
ISOP – SHARED SERVICES 1
July-04
SHARED SERV
(RVPSM). The RVPSM must provide 90-day notice in writing to the hotel’s General manager. During the 90-day
transition period or a mutually agreed upon date, all business processes including handling of calls by the EBC for
the hotel should continue as normal.
I have reviewed the Shared Service/Costs outlined above and I authorize my hotel(s) to participate in the shared
activity and to accept an allocated portion of the costs incurred in providing the service(s).
Agreement Authorization:
Signature
Title / Hotel
GM
Dir. of Finance
GM
Dir. of Finance
GM
Dir. of Finance
GM
Dir. of Finance
GM
Dir. of Finance
cc: Area Director-Finance & Accounting / Franchise Accounting
All Brands 389854v2 (03/31/2008)
Date
AREA RESERVATION SALES OFFICE
SHARED SERVICE AGREEMENT
This Area Reservation Sales Office (ARSO) Shared Service Agreement (this “Agreement”) is made
and entered into this <date>, 2008 (“Commencement Date”), between Franchise Company Name
(“Participant”) and Marriott International, Inc. (“Marriott”).on behalf of itself or its affiliate responsible for
billing the ARSO.
RECITALS:
WHEREAS, Marriott (or its affiliate) provides certain reservations and other related services to
its <Hotel Brand>hotels;
WHEREAS, Participant or its affiliate is a party to a franchise agreement with Marriott (the
“Franchise Agreement”) and desires to contract with Marriott for the provision of the Services (as defined
below) to its franchised hotel located at – <Hotel Name, street address, city , state and zip code.>(the
“Hotel”).
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby specifically acknowledged, the parties
agree as follows:
1.
Scope of Services. Marriott shall provide (or arrange for an affiliate to provide) to the Hotel
the services set forth on Schedule “A” attached hereto (the “Services”) and Participant agrees to use the
Services,. Marriott’s (or Marriott’s affiliate’s) personnel who assist in providing the Services shall be
qualified in and dedicated to booking reservations.
2.
Term and Termination. The initial term of this Agreement shall begin on the
Commencement Date and shall expire at the end of Marriott’s fiscal year (“Fiscal Year”) then in effect.
(Marriott’s Fiscal Year currently expires at the end of the Friday nearest December 31 in a given calendar
year, and a new Fiscal Year begins at the start of the immediately following Saturday, but the parties agree
that Marriott may amend its Fiscal Year at any time in its reasonable discretion, in which case the term of this
Agreement shall adhere to the new Fiscal Year.) This Agreement shall automatically renew for successive
terms of one Fiscal Year unless either party provides written notice of non-renewal at least thirty (30) days in
advance of the expiration of the then-current term. In addition, if the fee Marriott will charge for the Services
during any renewal term increases from the prior Fiscal Year, Participant shall have the right to not renew this
Agreement as of the end of the last day of the then-current term by delivering written notice of such nonrenewal to Marriott within seven (7) days after Participant is notified of the new fee for the Services that will
be in effect for the renewal term.
3.
Fee. Marriott will charge Participant a fee for the Services as set forth in Schedule “B” to
this Agreement. Marriott will charge the Hotel for the Services performed. Participant agrees to pay such
fees within (15) days of receipt of the invoice. Marriott may modify the fee with respect to each renewal term
of this Agreement upon notice to Participant, subject to Participant’s right of non-renewal discussed in
Section 2, above.
4.
Indemnification. Participant agrees to defend, indemnify and hold harmless Marriott, its
affiliates and subsidiaries, and each of their respective officers, directors, agents and employees, from and
against any and all actions, costs, claims, losses, expenses and/or damages, including attorney’s fees, arising
out of or resulting from the performance of the Services.
All Brands 389855v2 (03/31/2008)
Area Reservation Sales Office Shared Service Agreement
Page 2
5.
Parties Bound. If this Agreement is executed by the General Manager of a Hotel or by a
representative of the management company approved by Marriott to operate a Hotel, such person represents
that it has the authority to bind Participant; and Participant will be bound as if executed by Participant. If this
Agreement is executed by an affiliate of the franchisee that is party to a Franchise Agreement, such affiliate
represents that it has the authority to bind the franchisee; and the franchisee will be bound as if executed by
the franchisee.
6.
Licenses and Permits. If any governmental license or permit is required for the provision of
the Services, then Marriott, at its expense, shall duly procure and thereafter maintain such license or permit
and submit same for inspection by Participant. Marriott, at its sole cost and expense, will at all times comply
with the requirements of each license or permit.
7.
Independent Contractor. Marriott is an independent contractor and all persons employed to
furnish the Services are employees of Marriott and not of Participant.
8.
Assignment. This Agreement may not be assigned by Participant in whole or part without
the prior written consent of Marriott.
9.
Confidentiality. Any information provided by Marriott to Participant pursuant to this
Agreement is confidential and solely for the purposes of operating the Hotel and Participant expressly
acknowledges that such information shall not be used or considered in any respect by the Participant for any
unauthorized purpose, or disclosed to any unauthorized person without the written consent of Marriott.
10.
Notices. Notices, requests, demands and other communication hereunder shall be in writing
and shall be forwarded by registered or certified mail as follows:
If To Participant:
<Hotel Name>
<Street Address>
<City, State, Zip>
Attn: <General Manager’s Name> (GM)
If To Marriott:
Marriott International
Global Reservation Sales and Customer Care
Dept. 55/953.79
One Marriott Drive
Washington, DC 20058
or at any other address which may be given by either party to the other in the manner provided above.
11.
Equal Opportunity Employer. Marriott affirms that it is an Equal Opportunity Employer
and will comply with all laws and regulations prohibiting employment discrimination in the performance of
this Agreement.
12.
Choice of Law and Entire Agreement. This Agreement shall be interpreted and construed
under the laws of Maryland, which laws shall prevail in the event of any conflict of law. This Agreement
contains the entire agreement between the parties with respect to the subject matter hereof, superseding any
prior agreements and writings, and it may not be changed other than by an agreement in writing signed by the
parties. If there is any conflict between a Franchise Agreement and this Agreement, the Franchise Agreement
shall control.
All Brands 389855v2 (03/31/2008)
Area Reservation Sales Office Shared Service Agreement
Page 3
IN WITNESS WHEREOF, the parties hereto have executed the Agreement the day and year first
above written.
PARTICIPANT
By:
Authorized Representative
Title:
Printed Name: ______________________________
_
Date: _____________________________________
_
MARRIOTT
By:
Authorized Representative
All Brands 389855v2 (03/31/2008)
SCHEDULE A
SERVICE AND USAGE SPECIFICATIONS:
AREA RESERVATIONS SALES OFFICE SHARED SERVICE AGREEMENT
Marriott agrees to provide the following services to Participant:
ƒ
ƒ
Operate a regional hotel reservations call center
Upon request, provide additional services, such as data input relating to queues and group housing
functions, as required, at rates determined by Marriott
All Brands 389855v2 (03/31/2008)
SCHEDULE B
Marriott will receive from Participant a fee for the Services provided in this Agreement according to
the schedule set forth below:
Operating expenses associated with the ARSO (including any start-up, carryover, and/or capital
expenditures, but reduced by premiums for ad hoc services provided to hotels upon request), together with
similar expenses from all other NALO ARSOs, will be aggregated, then allocated by brand, and then further
allocated to each individual hotel within each brand, with all allocations performed on a fair and equitable
basis in Marriott’s reasonable discretion. The rates will be calculated and the allocations performed by
Marriott’s Global Reservations Sales and Customer Care (GRSCC) Accounting. The rates will be arrived at
based on the approved operating budget for all U.S. ARSOs. The current allocation template uses the
budgeted assumptions for Average Handling Time (AHT) and conversion (reservations booked divided by
calls handled) resulting in a brand-specific cost per reservation (“Estimated Cost Per Reservation”). Marriott
reserves the right, however, to change the allocation methodology at any time, so long as it remains fair and
equitable as determined in Marriott’s reasonable discretion. Each hotel participating in the ARSO will be
charged throughout the year based on the Estimated Cost Per Reservation, but charges will then be trued up to
actual costs in Period 13.
The Estimated Cost Per Reservation for <BRAND> brand hotels with respect to Fiscal Year is
<Cost> per reservation.
Participant requests additional group housing function and input services, which may be performed
by different personnel and/or from a different location than other Services performed pursuant to this
Agreement.
Estimated current rate for additional group housing function and input services: $22.50 US per hour.
All Brands 389855v2 (03/31/2008)
SALES FORCE ONE SERVICE AGREEMENT
THIS SALES FORCE ONE SERVICE AGREEMENT (this “Agreement”) is made and
entered into this ____ day of _______, _____ (the “Commencement Date”) by and between
[INSERT FRANCHISEE NAME] (“Franchisee”) and Marriott International, Inc.
(“Marriott”) with respect to the
[INSERT NAME OF HOTEL], located at
[INSERT
ADDRESS OF HOTEL] (“Hotel”).
WHEREAS, Marriott and Franchisee are parties to that [Brand] Franchise Agreement
dated ___________ (the “Franchise Agreement”);
WHEREAS, in response to customer requirements and to provide efficient sales for the
hotels Marriott and its affiliates manage or franchise under the various brand names it owns
(“Marriott Branded Hotels”), Marriott has developed a new sales initiative;
WHEREAS, Marriott is organizing the efforts of sales associates located within a
particular geographic area (such area, the “Market”) to generate business on behalf of all Marriott
Branded Hotels located within the Market that participate in the initiative referred to herein as
“Sales Force One” (and, to the extent requested by customers, to generate business for Marriott
Branded Hotels that are outside such Market or do not participate in Sales Force One);
WHEREAS, Marriott will sell to all market segments (e.g., group, transient, extended
stay) for hotels in the Market participating in Sales Force One, focusing on establishing
relationships with customer in the Market and, from such relationships, will qualify accounts,
generate new business opportunities, book group events, sell extended stay and transient room
nights, qualify accounts, and generate new business opportunities for the Marriott Branded
Hotels; and
WHEREAS, Franchisee has independently assessed Sales Force One and determined that
the potential benefits of participating in this new initiative justify the risks of participation, and
has therefore requested that the Hotel participate in Sales Force One: and
WHEREAS, Marriott is willing to allow such participation on the terms and conditions
set forth herein; and
WHEREAS, Marriott and Franchisee recognize that Sales Force One is a new
intitiative, whose success is uncertain, and desire to protect their existing relationship from the
stress, distraction and expense that would arise from disputes and litigation arising out of and
related to Sales Force One, and have therefore agreed, after full opportunity to consult with
counsel of their choosing, to the termination rights, limitations on liability, covenants not to sue
and compensation formula set forth herein.
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NOW, THEREFORE, in consideration of the benefits to be derived herefrom, the receipt
and sufficiency of which are hereby acknowledged by each of the parties hereto, it is hereby
agreed as follows:
1.
Sales Force One Participation. The Hotel will participate in the particular
Market identified by name in Attachment A on the terms and conditions set forth in this
Agreement.
2.
Sales Force One Organization. Marriott will organize and staff a Sales Force
One organization to provide sales services for the Hotel and the other hotels participating in Sales
Force One in the Market.
3.
Allocation of Costs.
a.
The costs and expenses of implementing and deploying Sales Force One in the
Market will be allocated among the hotels participating in Sales Force One in the Market in
accordance with the methodology described in Attachment B-1. The Hotel’s share of the costs
will be allocated and invoiced either (i) as the costs are incurred, or (ii) at the time the Franchisee
elects to participate in Sales Force One in the Market, whichever is later. The costs of
implementing and deploying Sales Force One do not include the ongoing operating costs that are
described in 3.b. below.
b.
The costs and expenses of operating Sales Force One in the Market will be
allocated among the hotels participating in Sales Force One in the Market in accordance with the
methodology described in Attachment B-2 (collectively with Attachment B-1, “Attachment B”).
Such costs and expenses shall include, without limitation, wages, benefits, and bonuses of the
Sales Force One associates, as well as controllables such as rent, office supplies, postage,
telephone expenses, travel expenses, training, entertainment, and depreciation of capital
expenditures such as computer systems, and office furniture and facilities. The Hotel’s share of
the costs of Sales Force One will be allocated and invoiced to Franchisee each accounting period.
c.
Franchisee shall make payment in compliance with the terms of each invoice and
the Franchise Agreement.
4.
Addition or Withdrawal of Hotel from Market. If a hotel is added as a
participant in Sales Force One, the percentage share of the costs of Sales Force One for each of
the other hotels in the Market may be adjusted proportionately by the new hotel’s share of such
costs, if deemed practicable by Marriott, as determined in accordance with this Agreement. If a
hotel withdraws as a participant in Sales Force One, the percentage share of the costs of Sales
Force One for each of the other hotels in the Market may be adjusted proportionately by the nonparticipating hotel’s share of such costs, if deemed practicable by Marriott, as determined in
accordance with this Agreement.
5.
Scope of Services; Delegation and Limit of Authority.
a.
Franchisee hereby authorizes Marriott to provide services to the Hotel in
accordance with the specifications in Attachment C (the “Services”).
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b.
Franchisee consents to Marriott, through Sales Force One, entering into any
contract or agreement related to the Services, and will, upon request by Marriott, ratify and
confirm any such contract or agreement.
c.
Franchisee is under no obligation to comply with any recommendations made by
Marriott in connection with this Agreement, including but not limited to recommendations
regarding pricing, business mix, inventory or room or rate allocation, and Franchisee
acknowledges and agrees that the success of the Hotel’s participation in Sales Force One largely
depends upon Franchisee’s decisions regarding same.
d.
Marriott is entitled to deal directly with the managers at the Hotel, regardless of
whether or not such managers are employees of Franchisee (or an affiliate thereof) or any
independent management company operating the Hotel (“Manager”), and to rely on the
instructions of same in connection with Marriott’s performance of the Services hereunder.
6.
Obligations of Franchisee. Franchisee agrees to the following:
a.
The rates and availability of space quoted by the Franchisee (or its agents) will be
accurate and will be approved by Franchisee (or its agents) in each case. The Hotel will honor the
contracts entered into by Marriott on the Hotel’s behalf.
b.
Franchisee will, no later than the Commencement Date, either:
(1)
execute, and at all times comply with the terms of, Marriott’s current
form of (A) Traditional Hotel Revenue Management Consulting Agreement or (B) Total Hotel
Revenue Management Consulting Agreement (either agreement, a “Revenue Management
Agreement”), and execute any renewal or extension thereof so that the term of any Revenue
Management Agreement is at least as long as the Term (as defined herein) of this Agreement; or
(2)
have identified and designated resources at the Hotel capable, in
Marriot’s sole discretion, of providing adequate revenue management services and otherwise able
to comply fully with the terms of this Agreement.
c.
Franchisee shall comply at all times with the terms and conditions of
participation in Sales Force One as set forth in Attachment D.
Franchisee’s failure to comply with this Paragraph 6 shall be a default under this Agreement.
7.
Term and Termination.
a.
The initial term of this Agreement shall begin on the Commencement Date and
shall expire on the last date of Marriott’s fiscal year (“Fiscal Year End Date”) in the year which
the second anniversary of the Commencement Date occurs (the “Initial Term”). (For example, if
the Commencement Date occurs on August 1, 2008, and the Fiscal Year End Date in 2009 is
December 28, then the Initial Term will expire on December 28, 2010.) Marriott’s Fiscal Year
End Date is currently the Friday nearest December 31 in a given calendar year, but the parties
agree that Marriott may amend its Fiscal Year End Date at any time in its reasonable discretion.
This Agreement shall automatically renew for successive terms of one year, each successive term
ending on the Fiscal Year End Date of the applicable year (each a “Renewal Term,” and, with the
Initial Term, the “Term”). Franchisee may elect to not renew this Agreement (and the Hotel’s
participation in Sales Force One) by giving Marriott written notice no later than the September 1
All Brands 380969v6– Sales Force One Service Agreement
3
(or if, September 1 is not a business day, the first business day following September 1) occurring
just prior to the end of the Initial Term or any Renewal Term, as applicable. In the event that
Franchisee makes an election as set forth in the preceding sentence, this Agreement will expire on
the first Fiscal Year End Date following such election.
b.
In the event that Franchisee is in default under this Agreement, Marriott may
terminate this Agreement by giving thirty (30) days’ written notice to Franchisee.
c.
Franchisee may terminate this Agreement by giving ninety (90) days’ written
notice to Marriott.
d.
This Agreement will immediately terminate upon termination of the Franchise
Agreement; except in the event that Marriott consents to or approves the transaction (including a
sale of the Hotel or other transfer requiring the consent of Marriott) pursuant to which the
Franchise Agreement is terminated, in which case this Agreement may be assigned as set forth in
any such consent or approval.
e.
Franchisee acknowledges that Marriott may be damaged in several ways upon
termination of this Agreement pursuant to Paragraph 7.b or Paragraph 7.c (an “Event
Termination”). Franchisee acknowledges that certain costs and expenses related to the Hotel’s
participation in Sales Force One, as allocated to Franchisee pursuant to Paragraph 3 and
Attachment B (including all of those costs allocated pursuant to Attachment B-1), have already
been incurred by Marriott or accrued by Franchisee prior to the date of the Event Termination
(“Prior Costs”). Furthermore, certain costs and expenses related to the Hotel’s participation in
Sales Force One, as allocated or allocable to Franchisee pursuant to Paragraph 3 and Attachment
B of this Agreement, to be incurred by Marriott or accrued by Franchisee, after the Event
Termination (“Future Costs”) may not be recoverable. In the event of an Event Termination,
Marriott shall be entitled to recover from Franchisee, and Franchisee shall be obligated to
promptly pay to Marriott, no later than the date of termination of this Agreement, the Prior Costs
and Future Costs, as reasonably determined by Marriott. The parties agree that such payment is
not a penalty and represents a reasonable estimate of just and fair compensation of Marriott for
the damages that it would suffer for an Event Termination The parties agree that it is reasonable
for Marriott to include in the calculation of Future Costs those costs anticipated to be allocated to
the Hotel (pursuant to the methodology set forth in Attachment B-2) for the remainder of the
Initial Term or Renewal Term (as applicable) as calculated according to Marriott’s most recent
projection of such costs. Franchisee's obligation to pay the Prior Costs and Future Costs shall
survive termination of this Agreement.
8.
Confidentiality. Franchisee shall not, and if Hotel is managed by a Manager
then Franchisee shall ensure that the Manager does not, during the Term of this Agreement or
thereafter, without Marriott’s prior written consent, communicate, divulge, copy, duplicate,
record or otherwise reproduce, or use for the benefit of any third party or business other than the
Hotel, in whole or in part, any documentation, software or other confidential information
knowledge, or know-how associated with Sales Force One which may be communicated or
provided to Franchisee or the Manager or of which Franchisee or Manager may be apprised, by
virtue of Franchisee’s participation under this Agreement, or otherwise make the same available
to any unauthorized person. Franchisee shall ensure that the Manager shall divulge such
information only to such of Franchisee’s or Manager’s employees or agents as must have access
to it in order to operate the Hotel. All such information including without limitation, market data,
recommendations by Marriott regarding rates and customer information is confidential and
All Brands 380969v6– Sales Force One Service Agreement
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provided by Marriott to Franchisee and Manager solely for the purpose of operating the Hotel and
honoring the contracts entered into by Marriott for Sales Force One. Franchisee expressly
acknowledges for itself and the Manager that such information shall not be used or considered in
any respect by the Franchisee or Manager in reaching decisions for the other hotels owned,
operated or franchised by the Franchisee. Franchisee acknowledges and agrees that any
unauthorized use of confidential information would cause irreparable injury to Marriott for which
no adequate remedy at law may be available, and Franchisee accordingly consents to the issuance
of an injunction prohibiting any conduct in violation of this Paragraph 8.
9.
Representations, Warranties and Covenants of Franchisee. Franchisee
represents, warrants and covenants to Marriott that:
a.
it is a legal entity duly formed, validly existing, and in good standing under the
laws of the jurisdiction of its formation, (ii) it has and will continue to have throughout the Term
hereof the ability to perform its obligations under this Agreement, and (iii) it has and will
continue to have throughout the Term hereof all necessary power and authority to execute and
deliver this Agreement;
b.
the execution and delivery of this Agreement by Franchisee (and by the person
signing this Agreement on behalf of Franchisee) and the performance by Franchisee of its
obligations under this Agreement (a) have been duly authorized by all necessary action; (b) do
not require the consent of any third parties (including lenders) except for such consents as have
been properly obtained; and (c) do not and will not contravene, violate, result in a breach of, or
constitute a default under (A) Franchisee’s certificate of formation, operating agreement, or other
governing documents, (B) any regulation of any governmental body or any decision, ruling,
order, or award by which Franchisee or any of Franchisee’s properties may be bound or affected,
or (C) any agreement, indenture or other instrument to which Franchisee is a party or by which
any of Franchisee’s properties may be bound or affected; and
c.
this Agreement is the legally valid and binding obligation of Franchisee,
enforceable against Franchisee in accordance with its terms; and
10.
ACKNOWLEDGMENTS OF FRANCHISEE.
A.
TO THE EXTENT THAT MARRIOTT IN THE COURSE OF DISCUSSIONS
REGARDING PARTICIPATION IN SALES FORCE ONE OR BUDGETING FOR SALES
FORCE ONE HAS PROVIDED ANY FINANCIAL INFORMATION OR PROJECTIONS,
FRANCHISEE ACKNOWLEDGES AND AGREES THAT SUCH INFORMATION OR
PROJECTIONS WERE NOT INTENDED AS A PROMISE, REPRESENTATION, OR
WARRANTY OF PERFORMANCE AND THAT FRANCHISEE DID NOT RELY ON ANY
SUCH INFORMATION OR PROJECTIONS NOT EXPRESSLY CONTAINED IN THIS
AGREEMENT IN MAKING ITS DECISION TO SIGN THIS AGREEMENT.
B.
FRANCHISEE ACKNOWLEDGES THAT: (1) THE SALES AND
MARKETING OF THE HOTEL – AND THE FINANCIAL AND OPERATIONAL SUCCESS
OF THE HOTEL - WILL BE LARGELY DEPENDENT UPON THE ABILITY OF
FRANCHISEE TO MARKET AND OPERATE THE HOTEL AS AN INDEPENDENT
BUSINESS, AND (2) THE SALES VOLUME, REVENUE AND PROFIT OF THE HOTEL
MAY DECLINE AFTER THE COMMENCEMENT DATE, WHETHER OR NOT AS A
RESULT OF MARRIOTT’S PERFORMANCE OF THE SERVICES OR FRANCHISEE’S
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PARTICIPATION IN SALES FORCE ONE. FRANCHISEE ACKNOWLEDGES AND
AGREES THAT MARRIOTT IS NOT ASSUMING OVERALL RESPONSIBILITY FOR THE
SUCCESS OR FAILURE OF THE HOTEL BY PROVIDING THE SERVICES, AND
MARRIOTT IS NOT PROVIDING ANY WARRANTY OR GUARANTEE, EXPRESS OR
IMPLIED, AS TO THE POTENTIAL SALES VOLUME, REVENUE, PROFIT OR SUCCESS
OF THE HOTEL AS A RESULT OF MARRIOTT’S PREFORMANCE OF THE SERVICES
OR FRANCHISEE’S PARTICIPATION IN SALES FORCE ONE.
C.
FRANCHISEE ACKNOWLEDGES THAT IT HAS READ AND
UNDERSTOOD THIS AGREEMENT AND ATTACHMENTS HERETO, AND FRANCHISEE
HAS HAD AMPLE TIME AND OPPORTUNITY TO CONSULT WITH ADVISORS AND
LEGAL COUNSEL OF FRANCHISEE’S OWN CHOOSING ABOUT THE POTENTIAL
BENEFITS AND RISKS OF ENTERING INTO THIS AGREEMENT. FRANCHISEE
ACKNOWLEDGES THAT FRANCHISEE HAS HAD AN OPPORTUNITY TO NEGOTIATE,
AND HAS FULLY NEGOTIATED, THE ESSENTIAL STIPULATIONS OF THIS
AGREEMENT AND THAT SUCH STIPULATIONS WERE NOT UNILATERALLY
IMPOSED ON IT BY MARRIOTT.
11.
Indemnification. Franchisee agrees to defend, indemnify and hold harmless
Marriott, its affiliates, and each of their respective current and former officers, directors,
shareholders, agents, representatives and employees, and all other persons or entities acting on
their behalf, from and against any and all actions, costs, claims, losses, expenses and/or damages,
including attorney's fees, asserted by third parties, arising out of or resulting from the
performance of the Services or any other action contemplated by this Agreement.
12.
Covenants not to Sue. Franchisee and Marriott hereby acknowledge their
mutual understanding that Sales Force One is a new initiative whose success is uncertain, and
their mutual desire to ensure that this initiative not damage their existing relationship by resulting
in contentious, distracting and expensive litigation. Without limiting the generality of the
foregoing, Franchisee further acknowledges that the covenants set forth in this Paragraph 12 were
a material inducement to Marriott to enter into this Agreement, because of the impact of those
covenants on the risks (and associated economic consequences) of proceeding with this
Agreement. In order to implement the foregoing acknowledgments, desires and understandings,
Franchisee and Marriott for themselves and their respective affiliates and subsidiaries and the
current and former officers, directors, shareholders, partners, employees, predecessors,
successors, attorneys, agents, representatives, and assigns and all other persons or entities acting
on the behalf or claiming under any of the foregoing, , hereby covenant not to bring any suit,
action, or proceeding, or make any demand or claim of any type, against each other , or any of the
foregoing entities or individuals, with respect to (i) the Services, or (ii) Sales Force One, or (iii)
this Agreement and any action contemplated by this Agreement, except that in the event that
Franchisee fails to make payment of Prior Costs or Future Costs in accordance with Paragraph 7.e
hereof, Marriott may bring an action for the sole purpose of collecting the payment of Prior Costs
and/or Future Costs. Any party intended as a beneficiary of these covenants not to sue may plead
or assert this Paragraph 12 as a complete defense and bar to any claim brought in contravention
of this Paragraph 12 and, if any such claim is brought, the party asserting the claim shall
indemnify, defend, and hold harmless any and all such benificiary parties from and against any
such claim.
13.
Limitation of Liability/Specification of Remedy. Franchisee acknowledges
and agrees that Marriott is not responsible or liable for any unpaid bills or other failure to perform
All Brands 380969v6– Sales Force One Service Agreement
6
by any customer pursuant to a contract entered into by Marriott on behalf of the Hotel.
NOTWITHSTANDING ANYTHING TO THE CONTRARY HEREIN, UNDER NO
CIRCUMSTANCES WILL EITHER PARTY BE LIABLE TO THE OTHER PARTY UNDER
THIS AGREEMENT FOR ANY CONSEQUENTIAL, EXEMPLARY, SPECIAL,
INCIDENTAL, INDIRECT OR PUNITIVE DAMAGES OR LOST PROFITS, WHETHER
FORESEEABLE OR UNFORSEEABLE, BASED ON CLAIMS ARISING OUT OF THE
BREACH OF THIS AGREEMENT MISREPRES