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HOTEL OPERATING AGREEMENT TERM SHEET

RITZ CARLTON XXX


This Hotel Operating Agreement Term Sheet outlines the general terms under which MARRIOTT would
be willing to manage the Hotel for Owner, subject to the terms set forth in the letter attached hereto,
including the negotiation, execution and delivery of the Operating Agreement and any other required
Definitive Agreements and the approval of the Board of Directors or duly authorized executive committee
of MARRIOTT, which may be withheld in its sole and absolute discretion. All capitalized terms used, but
not defined, in this Hotel Operating Agreement Term Sheet shall have the meanings assigned to such
terms in the letter attached hereto or in the Residential Agreements Term Sheet attached to such letter.
Owner
[RITZ CARLTON XXX]
Operator
MARRIOTT or any one of its affiliates
Description of Hotel
The Hotel would consist of approximately the following facilities and amenities, and subject to further
modification as the parties may agree:
XXX rentable guest rooms consisting of XXX guest rooms, XXX suites;
XXX square feet of meeting space (including pre-function area);
XXX square feet of food and beverage facilities, including restaurant space;
XXX square foot gym and swimming pool;
[XX] dedicated parking spaces or more if needed to comply with applicable laws; and
any such other additional facilities and amenities required by the Operating Standards.
Hotel Brand and Name
Operator would manage the Hotel for Owner under the, RITZ CARLTON brand (the Brand), and the
Hotel would be known as the RITZ CARLTON XXX].
Construction of Hotel
Owner would provide or obtain all financial and other resources necessary to complete the development
and construction of the Hotel and Residences in accordance with the Operating Agreement and Technical
Services Agreement (as defined below), and Operator would not be required to provide any funds for the
construction of the Hotel or Residences.
[Add if MARRIOTT provides mezzanine financing: Notwithstanding the foregoing, MARRIOTT
would provide mezzanine debt financing to Owner on the terms set forth in the Mezzanine Loan Term
Sheet.]
Owner would use diligent efforts to obtain (a) all entitlements, zoning, FAR and similar permits and
approvals required under applicable law for Owner to commence the construction of the Hotel, but
expressly excluding excavation, construction, building and similar permits and approvals for specific
THIS TERM SHEET IS CONFIDENTIAL AND MAY NOT BE DISCLOSED BY OWNER TO ANY THIRD PARTY,
EXCEPT AS EXPRESSLY PROVIDED IN THE LETTER OF INTENT OR CONFIDENTIALITY AGREEMENT.

work to be performed (the Entitlements) prior to [Month DAY, YEAR] (the Outside Entitlements
Date), and (b) a binding commitment from a qualified, non-affiliated and reputable institutional
financing source (subject to customary conditions precedent) for all debt financing in an amount
sufficient, when added to Owners available equity sources [and the Mezzanine Loan to be provided by
Operator], to cover the full cost of construction of the Hotel and Residences (the Construction Financing
Commitment) prior to [MONTH, DAY, YEAR] (the Outside Commitment Date) and thereafter to
close the Construction Financing prior to the Outside Commencement Date.
Upon obtaining such Entitlements and Construction Financing Commitment, Owner would (a) perform
all work necessary to cause the commencement of site clearance, pouring of the foundation for the Hotel
and all other construction-related activities preparatory to the actual construction of the Hotel which
would occur (the Commencement of Construction) prior to [MONTH, DAY, YEAR] (the Outside
Commencement Date), with time being of the essence, and (b) perform all work necessary to cause the
Hotel to open prior to [MONTH, DAY, YEAR] (the Outside Opening Date), with time being of the
essence. Owner would cause the construction of the Hotel to be performed and completed in accordance
with Operators design guide, the plans and specifications as approved by Operator, the Operating
Standards and all applicable laws.
Operator would have the right to terminate the Operating Agreement upon 30 days notice to Owner if
(a) Owner has not obtained all Entitlements by the Outside Entitlements Date (regardless of any force
majeure), (b) Owner has not obtained a Construction Financing Commitment by the Outside Commitment
Date or has not closed the Construction Financing by the Outside Commencement Date (in each case,
regardless of any force majeure), (c) the Commencement of Construction has not occurred by the Outside
Commencement Date (regardless of any force majeure), (d) after the Commencement of Construction,
Owner ceases work on the Hotel for at least 30 consecutive days (as extended day-for-day for any force
majeure), or (e) the Hotel does not open by the Outside Opening Date (regardless of any force majeure).
Term
The initial term of the Operating Agreement would commence on the opening of the Hotel and expire on
December 31st of the 30th full calendar year after the opening date (the Term). Operator, at its election,
would have the right to extend the Term for up to 2 additional, consecutive periods of 10 years each.
Base Fee
Operators annual base fee would be equal to 4.0% of the Hotels gross operating revenues (the Base
Fee). The Base Fee would be payable monthly in arrears from funds in the operating account.
Incentive Fee
Operators annual incentive fee would be 10% of the Incentive Income for each operating year (the
Incentive Fee). The Incentive Fee would be payable monthly in arrears from funds in the operating
account.
Incentive Income would be the excess (if any) of Gross Operating Profit for the Hotel for each
operating year over the sum of the following amounts attributable to such operating year: (a) the Base
Fee, (b) taxes assessed in connection with the ownership or operation of the Hotel, but excluding income,
franchise, or similar taxes imposed on Owner, (c) insurance premiums relating to liability and casualty
coverage and business interruption insurance policies maintained with respect to the Hotel, (d)
contributions to the Reserve Fund for each operating year, [Add if Incentive Fee is subordinate to
Owners priority return: and (e) Owners Priority Return].
THIS TERM SHEET IS CONFIDENTIAL AND MAY NOT BE DISCLOSED BY OWNER TO ANY THIRD PARTY,
EXCEPT AS EXPRESSLY PROVIDED IN THE LETTER OF INTENT OR CONFIDENTIALITY AGREEMENT.

Add if Owners Priority Return is based on Project Costs: Owners Priority Return means the amount
equal to a [_] % annual, non-accruing and non-compounding return on the Project Costs. Project
Costs means the total costs required to construct the Hotel, as reviewed and approved by Operator in its
reasonable discretion, including, without limitation, the (a) building rental payments during the
construction period, (b) design, architecture, engineering, legal and similar soft costs for the
development of the Hotel, (c) construction and similar hard costs for construction of the Hotel, (d)
initial furniture, fixtures, equipment, and operating supplies and inventories for the Hotel, (e) tenant
improvement costs, (f) construction period interest on a normal and customary level of senior debt, (g)
pre-opening costs, and (h) initial working capital for the operation of the Hotel. Notwithstanding the
foregoing, Project Costs would be the lesser of (i) actual Project Costs, and (ii) $[AMOUNT] per key.]
[Add if Owners Priority Return is based on Owners equity: Owners Priority Return means the
amount equal to (a) a [__]% annual, non-accruing and non-compounding return on the excess of Owners
total capital investment in the Hotel over the total amount of the first mortgage financing secured by the
Hotel, as reduced for dividends, distributions, retained earnings and refinancing from time to time, plus
(b) the total scheduled interest and principal payments payable for such operating year under the terms of
the first mortgage financing secured by the Hotel, which first mortgage financing would (i) not exceed
[__]% of Project Costs, (ii) bear interest at a rate no higher than [__]%, (iii) amortize over a period no less
than [__] years, and (iv) not exceed $[AMOUNT] per key.]
Pre-Opening Marketing Fee
An amount equal to $30.00 per guest room per month for 12 months.
Reserve Fund
A reserve fund would be established to facilitate the funding of all routine capital improvements by
transferring funds from the operating account to a reserve account monthly in the following amounts:
2.0% of Hotels gross operating revenues for the first 12 full months after the opening date, 3.0% of
Hotels gross operating revenues for the 13th through the 24th full months after the opening date, and
4.0% of the Hotels gross operating revenues for all months thereafter (the Reserve Fund).
Initial Working Capital
The minimum initial working capital (Initial Working Capital) to be provided by Owner upon the
opening of the Hotel is estimated to be $1,500 per hotel guest room, which is subject to change based on
Operators reasonable estimates prior to opening the Hotel.
Brand Diversification Programs
Operator would have the right, at Operators expense, to market, promote and/or sell at the Hotel products
or services offered by Operator, its Affiliates or any other person designated a Designated Brand
Partner, including timeshare, fractional and other lodging, spa or residential products or services (a
Brand Diversification Program). Operator would have the right to use space, facilities, equipment or
personnel at the Hotel as reasonably required for such Brand Diversification Programs; provided,
however, if any such program requires more than a de minimus use of space, facilities, equipment,
utilities or personnel, then the parties would negotiate in good faith arms length compensation for such
use (the BDP Payment) which such compensation shall not include percentage rent, and if not agreed
within 30 days, either party would be permitted to submit the issue to arbitration. Owner would not
market, promote or sell, or enter into any arrangement to market, promote or sell, any products or services
THIS TERM SHEET IS CONFIDENTIAL AND MAY NOT BE DISCLOSED BY OWNER TO ANY THIRD PARTY,
EXCEPT AS EXPRESSLY PROVIDED IN THE LETTER OF INTENT OR CONFIDENTIALITY AGREEMENT.

at the Hotel that, in Operators reasonable judgment, would compete with any products or services offered
pursuant to a Brand Diversification Program. If Owner enters into a legally binding arrangement to
provide any such competitive products or services prior to being notified by Operator of a competing
applicable Brand Diversification Program, then Operator would have the right to require Owner to
terminate such arrangement; provided, that, (1) the Brand Diversification Program would provide for total
BDP Payments to Owner no less than the amount that would have been payable to Owner under such
terminated arrangement, and (2) Operator would reimburse Owner any termination costs and penalties
payable to the party being terminated. Owner would have no right to any amounts derived from, or
otherwise participate in, any Brand Diversification Programs, except for the BDP Payments, and
(ii) Owner would not acquire any other rights or interest in any Brand Diversification Programs or the
products, services or goodwill associated therewith.
Non-Disturbance
Owner would not incur any indebtedness (including to affiliated parties) which is secured by a mortgage
or other security interest in the Hotel or any portion thereof, unless Owner obtains a non-disturbance
agreement from Owners lender providing that, as long as Operator is not in material default under the
Operating Agreement, Operator would have the right to occupy and operate the Hotel during the term of,
and in accordance with, the Operating Agreement, without any interference or ejection by Owner or any
person or entity claiming under, through or by right of Owner.
Termination for Performance
Owner would have the right to terminate the Operating Agreement if for each of any two consecutive
operating years beginning after the fifth full operating year both: (a) the GOP achieved by the Hotel for
each operating year is less 85% of the GOP in the approved operating budget, and (b) the annualized
RevPAR for the Hotel is less than 85% of the annualized RevPAR for the Competitive Set (the
Performance Test). Notwithstanding the foregoing, Owner's right of termination would not be
exercisable if the applicable level of GOP or the applicable relative Annualized RevPAR is not achieved
as a result of: (i) a force majeure event, (ii) a failure of Owner to provide sufficient funds as required
under the Operating Agreement or (iii) the impact of significant capital improvement programs at any of
the hotels in the Competitive Set.
The parties would establish a competitive set of hotels (the Competitive Set) for the purposes of the
Performance Test, which would consist of the hotels in the Hotels immediate market area that are most
comparable to the Hotel in quality, price and market (with due consideration given to age, quality, size,
amenities, amount of meeting space and business mix); provided that (a) the Competitive Set would
include at least 3 hotels and no more than six hotels, and (b) in no event would any single hotel in the
Competitive Set account for more than 40% of the total guest rooms of all Hotels included in the
Competitive Set. The initial Competitive Set would include properties listed in an exhibit attached to the
definitive Operating Agreement. All determinations as to which hotels are to be included in the
Competitive Set would be made by the agreement of the parties or, if the parties are unable to reach
agreement, as determined by a nationally recognized hospitality industry consultant that is mutually
acceptable to the Parties.
If Owner has the right to terminate the Operating Agreement pursuant to the foregoing paragraphs for
failure of the Performance Test, Operator shall have the right (the Cure Right), but not the obligation, to
cure such failure and avoid termination by paying to Owner an amount equal to the difference between (i)
the actual GOP for the second of the two consecutive operating years giving rise to Owners right to
terminate, and (ii) 90% of the GOP in the approved Operating Budget for such operating year. In the
event Operator elects to make such payment, Owners notice of termination shall be deemed withdrawn
THIS TERM SHEET IS CONFIDENTIAL AND MAY NOT BE DISCLOSED BY OWNER TO ANY THIRD PARTY,
EXCEPT AS EXPRESSLY PROVIDED IN THE LETTER OF INTENT OR CONFIDENTIALITY AGREEMENT.

and Owner shall not have the right to send another notice of termination unless the Performance Test is
failed for another two consecutive operating years thereafter. The Cure Right may be exercised only once
in any rolling seven (7) year period.
Termination Upon Sale
After the 10th operating year, Owner would have the right to terminate the Operating Agreement upon a
sale of the Hotel to a bona fide third-party purchaser by providing Operator with notice at least 60 days
prior to such sale; provided, however, that Owner would pay the Termination Fee as a condition to the
effectiveness of such termination. Termination Fee would equal: (a) 4 times the Operating Fees for the
12 months prior to termination if terminated in the 11th to 20th operating years, (b) 2 times the Operating
Fees for the 12 months prior to termination if terminated in the 21st to 29th operating years and (c) 1 times
Operating Fees for the 12 months prior to termination if terminated any time thereafter.
Restricted Area
During the first 10 operating years of the Term, neither Operator nor any of its affiliates would own,
operate or license a Brand hotel or residences (including a so-called condo hotel or similar transient
lodging facility) in the same Category as the Hotel that is located within the Restricted Area, provided this
restriction would not apply to any (a) Brand hotel(s) located within the Restricted Area that is in a
different Category than the Hotel; (b) other MARRIOTT brand hotels located within the Restricted Area,
(c) time-share or interval ownership facilities, vacation clubs or residences sold, marketed or operated
under the Brand or any other MARRIOTT brand and located within the Restricted Area, (d) hotel located
in the Restricted Area that are part of another chain, franchise system or portfolio of at least four hotels
acquired by operator any of its affiliates (whether through purchase, sale, merger, consolidation or other
transaction) and is converted to a Brand hotel in the same Category as the Hotel, provided, however, that
if any such hotel is so converted, Owner would have the right to terminate this Agreement by providing
notice to Operator, which termination would be effective no earlier than the date such other hotel is
converted to a Brand hotel in the same Category as the Hotel, or (e) Brand hotel(s) located within the
Restricted Area on the date of the Operating Agreement, or any substitution, replacement, expansion or
replacement of such existing hotel or facility, provided, however, that any such substitution, replacement,
expansion or replacement does not increase the number of guest rooms in such hotel or facility by more
than 30% of the number of guest rooms at such hotel or facility as of the date of the Operating
Agreement. Any ownership, operation or licensing of Brand hotels, as well as other MARRIOTT brand
hotels, located outside the Restricted Area would be completely unrestricted.
Category means a classification designated by Operator as a subgroup of Brand hotels and/or other
MARRIOTT Brand hotels, and/or lodging properties and related facilities and services owned, operated
or licensed by Operator or any of its affiliates, as may be identified on a customer service basis (such as,
for example, frequent individual business travelers), geographical basis (such as southeast United States),
target business basis (such as resorts, convention hotels, or suburban hotels), or on a combination of
factors (such as, Caribbean resorts), provided, however, no Category in which the Hotel is placed would
consist of less than four hotels, including the Hotel. A Category may have specific operating standards
and policies or may be a designation only. Without limiting the generality of the foregoing, the Categories
and definitions most generally used are: (a) Suite Hotel (75% or more of guestrooms are suites
(bedroom and parlor area plus bath area); (b) Convention Hotel (400 or more Guest Rooms, with 75
square feet or more of meeting space for each Guest Room, or is attached to or is in close proximity to a
convention center); (c) Airport Hotel (located within a two-mile radius of the main terminal of the
airport); (d) Resort Hotel (two or more of the following amenities on or adjacent to the premises: (1)
golf course, (2) beach or lake front, (3) tennis, (4) spa, (5) fantasy pool, (6) skiing, or (7) world class
THIS TERM SHEET IS CONFIDENTIAL AND MAY NOT BE DISCLOSED BY OWNER TO ANY THIRD PARTY,
EXCEPT AS EXPRESSLY PROVIDED IN THE LETTER OF INTENT OR CONFIDENTIALITY AGREEMENT.

tourist/leisure attraction(s)); and (e) Regular Hotel (a hotel that is not placed into any of the above
categories).
Restricted Area would be as set forth on the attached Exhibit A.
Technical Services
Operator would provide certain technical assistance to Owner relating to the planning, design and
construction of the Hotel and the Other Project Components (the Technical Services), pursuant to a
separate agreement to be negotiated and agreed upon between Owner and Operator in accordance with
this Letter of Intent (the Technical Services Agreement). The Technical Services would be limited to
reviewing the design, architecture and engineering plans and specifications prepared by Owners
designers, architects, engineers and contractors, relating to the work to be completed by Owner to confirm
that such plans and specifications comply with the Operating Standards, and to provide general
recommendations on the Hotel and facilities design, as more specifically set forth in the Technical
Services Agreement.
Owner would pay to Operator a fee (the Technical Services Fee) equal to the greater of (i) $403,205 or
(ii) $1,500 per rentable guest room and Branded Residence for such Technical Services, payable in an
initial installment equal to 25% of the total Technical Services Fee upon execution and delivery of the
Technical Services Agreement, with the balance payable in advance in 12 equal monthly installments
commencing on the one-month anniversary of the date thereof. The Technical Services Fee would be
increased following prior written notice to Owner for any material change in design or delay in
construction of the Hotel or Other Project Components. Owner also would reimburse Operator for its
travel and other out-of-pocket costs incurred in providing such Technical Services (the Reimbursable
Expenses).
Governing Law
All definitive agreements shall be governed by Maryland law.
*

THIS TERM SHEET IS CONFIDENTIAL AND MAY NOT BE DISCLOSED BY OWNER TO ANY THIRD PARTY,
EXCEPT AS EXPRESSLY PROVIDED IN THE LETTER OF INTENT OR CONFIDENTIALITY AGREEMENT.

EXHIBIT A

Restricted Area

THIS TERM SHEET IS CONFIDENTIAL AND MAY NOT BE DISCLOSED BY OWNER TO ANY THIRD PARTY,
EXCEPT AS EXPRESSLY PROVIDED IN THE LETTER OF INTENT OR CONFIDENTIALITY AGREEMENT.

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