EXHIBIT 10.28
MANAGEMENT AGREEMENT
for
------------------
------------------
by and between
------------------
as Lessee,
and
▇▇▇▇▇▇ Hospitality Management, LLC,
a Tennessee limited liability corporation
as Manager,
Dated ______________
Table of Contents
Table of Contents..............................................................i
PRELIMINARY STATEMENT..........................................................1
1. APPOINTMENT AND TERM.....................................................1
1.01 Appointment........................................................1
1.02 Operating Term.....................................................1
1.03 Management Authority...............................................1
1.04 Limitations on Manager.............................................2
2. HOTEL OPERATIONS.........................................................2
2.01 Hotel Management Services..........................................2
2.02 Employees..........................................................4
3. ANNUAL PLAN..............................................................5
3.01 Preparation and Submission.........................................5
3.02 Lessee's Approval..................................................5
3.03 Compliance with Annual Plan........................................6
3.04 Agreement Limitations..............................................6
3.05 Emergencies........................................................6
4. HOTEL ACCOUNTS; MAINTENANCE OF MINIMUM BALANCE...........................7
4.01 Hotel Bank Accounts................................................7
4.02 Minimum Balance....................................................7
5. BOOKS AND RECORDS........................................................7
5.01 Maintenance of Books and Records...................................7
5.02 Location; Examination and Inspection...............................7
5.03 Lessee to Receive all Books and Records Upon Termination...........7
5.04 Reports to Lessee..................................................8
5.05 Final Accounting...................................................8
5.06 Form of Reports....................................................9
6. MANAGEMENT FEES AND EXPENSES.............................................9
6.01 Management Fees....................................................9
6.02 Reimbursement of Costs and Expenses................................9
6.03 Rebates and Discounts.............................................10
7. DISBURSEMENTS...........................................................10
7.01 Priority of Payments..............................................10
8. INSURANCE...............................................................10
8.01 Maintenance of Insurance..........................................10
8.02 Lessee Methods of Obtaining Insurance.............................11
8.03 Coverages.........................................................11
8.04 Responsibility for Premiums.......................................12
8.05 Replacement Cost..................................................12
8.06 Waiver of Subrogation and Indemnities.............................12
8.07 Form Satisfactory, etc............................................13
8.08 Increase in Limits................................................13
8.09 Blanket Policy....................................................13
8.10 Separate Insurance................................................13
8.11 Reports on Insurance Claims.......................................14
8.12 Deductibles to be Operating Expenses..............................14
9. INDEMNITIES.............................................................14
9.01 Indemnification of Manager........................................14
9.02 Indemnification of Lessee.........................................14
9.03 Indemnified Parties...............................................15
9.04 Certain Claims to be Operating Expenses...........................15
10. CONDEMNATION.........................................................15
10.01 Definitions....................................................15
10.02 Parties' Rights and Obligations................................15
10.03 Total Taking...................................................15
10.04 Partial Taking.................................................16
10.05 Temporary Taking...............................................16
11. CASUALTY.............................................................17
11.01 Insurance Proceeds.............................................17
11.02 Reconstruction - Damage or Destruction Covered by Insurance....17
11.03 Reconstruction - Damage or Destruction not Covered by
Insurance....................................................18
11.04 Abatement......................................................18
11.05 Damage Near End of Term........................................18
12. DEFAULT..............................................................18
12.01 Events of Default by Manager...................................18
12.02 Lessee Default.................................................20
12.03 Unavoidable Delay..............................................20
12.04 Damages........................................................20
12.05 Litigation Costs...............................................20
13. LESSEE'S TERMINATION WITHOUT AN EVENT OF DEFAULT.....................21
13.01 Without Payment of Termination Fee.............................21
13.02 With Payment of Termination Fee................................21
14. DEFINITIONS..........................................................21
15. GENERAL PROVISIONS...................................................24
15.01 Estoppel Certificates..........................................24
15.02 Arbitration....................................................25
15.03 Telecommunications Leases and Licenses.........................26
15.04 No Partnership or Joint Venture................................26
15.05 Modifications and Charges......................................26
15.06 Understandings and Agreements..................................26
15.07 Headings.......................................................26
15.08 Survival of Covenants..........................................27
15.09 Waivers........................................................27
15.10 Applicable Law.................................................27
15.11 Notices........................................................27
15.12 Binding Effect.................................................27
15.13 Confidentiality................................................28
15.14 Conflicts......................................................28
15.15 Third Party Beneficiary........................................28
15.16 Subordination..................................................28
15.17 Time of the Essence............................................28
15.18 Counterparts...................................................28
SCHEDULE I - Terms of Agreement...............................................31
SCHEDULE II - Management Services Included in Management Fee..................33
SCHEDULE III - Sample Statement of Profit and Loss............................35
SCHEDULE IV - Definition of Capital Replacements..............................36
SCHEDULE V - STR Competitive Set..............................................39
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is made as of the ________
day of ____________, by and between ____________________________ ("Lessee") and
▇▇▇▇▇▇ Hospitality Management, LLC, a Tennessee limited liability corporation
(hereinafter referred to as "Manager").
PRELIMINARY STATEMENT
A. Lessee is the lessee of the Hotel described on Schedule I.
B. Manager is an independent contractor engaged in the management of
hotels throughout the United States, and Manager is experienced in the various
phases of hotel operations.
C. Lessee is desirous of utilizing the services and experience of
Manager in connection with the operation of the hotel, and Manager desires to
render such services, all upon the terms and conditions hereinafter set forth.
1. APPOINTMENT AND TERM.
1.01 Appointment.
Lessee hereby appoints Manager as manager of the Hotel with the obligation to
direct, supervise, manage and operate the Hotel on the terms set forth herein.
Lessee will not employ any other manager to manage the Hotel during the Term.
1.02 Operating Term.
The initial operating term (the "Initial Term") of this Agreement will commence
at 12:01 A.M. on the date identified on Schedule I (the "Commencement Date") and
terminate at 11:59 on the expiration date identified on Schedule I (the
"Expiration Date"). Thereafter, the Term of this Agreement shall continue on a
month-to-month basis for a maximum term of six additional months, and Lessee
shall have the right to terminate this Agreement upon thirty (30) days prior
written notice to Manager. The Initial Term, as extended pursuant to the
preceding sentence, shall be referred to herein as the "Term." In no event shall
the Term of this Agreement exceed the term of the License Agreement.
1.03 Management Authority.
Manager shall have the sole and exclusive right and obligation to manage and
operate the Hotel pursuant to the terms of this Agreement and Manager agrees
that it shall manage and operate the Hotel as a first class hotel in accordance
with the standards of the Franchisor, taking into account the size, location and
character of the Hotel.
1.04 Limitations on Manager.
During the Term and any renewal thereof, Manager agrees that:
(A) Manager shall not permit wagering activities to be conducted at or in
connection with the Hotel;
(B) Manager shall not own, directly or indirectly (within the meaning of Section
856(d)(5) of the Internal Revenue Code of 1986, as amended (the "Code")), more
than 35% of the shares of Equity Inns, Inc.;
(C) No more than 35% of the total combined voting power of Manager's outstanding
stock (or 35% of the total share of all classes of its outstanding stock) shall
be owned, directly or indirectly, by one or more persons owning 35% or more of
the outstanding stock of Equity Inns, Inc.; and
(D) Manager (or a person who is a "related person" within the meaning of Section
856(d)(9)(F) of the Code (a "Related Person") with respect to the Manager shall
be actively engaged in the trade or business of operating "qualified lodging
facilities" (defined below) for one or more persons who are not Related Persons
with respect to Equity Inns, Inc. or Lessee ("Unrelated Persons"). In order to
meet this requirement, Manager agrees that it (or a Related Person with respect
to Manager (i) shall derive at least 10% of both its revenue and profit from
operating "qualified lodging facilities" for Unrelated Persons and (ii) shall
comply with any regulations or other administrative guidance under Section
856(d)(9) of the Code with respect to the amount of hotel management business
with Unrelated Persons that is necessary to qualify as an "eligible independent
contractor" with the meaning of such Code Section.
A "qualified lodging facility" is defined in Section 856(d)(9)(D) of
the Code and means a "lodging facility" (defined below), unless wagering
activities are conducted at or in connection with such facility by any person
who is engaged in the business of accepting ▇▇▇▇▇▇ and who is legally authorized
to engage in such business at or in connection with such facility. A "lodging
facility" is a hotel, motel or other establishment more than one-half of the
dwelling units in which are used on a transient basis, and includes customary
amenities and facilities operated as part of, or associated with, the lodging
facility so long as such amenities and facilities are customary for other
properties of a comparable size and class owned by other entities unrelated to
Equity Inns, Inc. In the event that Manager fails to comply with any of the
provisions of this Section 1.04, the same shall not be deemed an Event of
Default hereunder, but Lessee shall have the right to terminate this Agreement.
2. HOTEL OPERATIONS.
2.01 Hotel Management Services.
(A) Manager will manage the Hotel in accordance with standards and policies
appropriate for the operation of comparable facilities, including the standards
and policies of the Franchisor. Manager will perform those activities typically
performed by management companies operating comparable facilities, including
those activities contained on Schedule II, but only to the extent that
sufficient funds are available to Manager to perform those activities.
(B) Manager shall have the right to establish all prices, price schedules, rates
and rate schedules, rents, lease charges, and concession charges, all within the
parameters of the approved Annual Plan; provided, "trade-outs" in excess of one
thousand dollars ($1,000) per month shall be approved by Lessee. The Manager
shall have the right to administer leases, license and concession agreements for
all public space at the Hotel, including all stores, office space and lobby
space. All such leases, licenses or concessions shall be in Lessee's name and
may be executed by Manager on Lessee's behalf; provided, however, any such
lease, license or concession for a term in excess of one (1) year shall be
approved by Lessee, which approval shall not be unreasonably withheld or
delayed. Manager shall have the right and the obligation to negotiate and enter
into, on behalf of the Lessee, service contracts and licenses required in the
ordinary course of business in operating the Hotel, provided, however, any
contract for a term in excess of one (1) year shall be approved by Lessee, which
approval shall not be unreasonably withheld or delayed. Upon termination of this
Management Agreement, Manager shall assign any such service contracts and
licenses to the successor manager, who shall agree to assume responsibility for
said items. Manager shall sign such documents as are reasonably necessary to
effectuate the assignment and assumption.
(C) Manager will keep the Hotel and all private roadways, sidewalks and curbs
appurtenant thereto that are under Manager's control, including windows and
plate glass, parking lots, HVAC, mechanical, electrical and plumbing systems and
equipment (including conduit and ductware), and non-load bearing interior walls,
in good order and repair, except for ordinary wear and tear (whether or not the
need for such repairs occurred as a result of Manager's use, any prior use, the
elements or the age of the Hotel or portion thereof), and, except as otherwise
provided in the provisions of this Agreement regarding hazard insurance,
condemnation proceeds and Capital Replacements, with reasonable promptness, make
all necessary and appropriate maintenance, repairs, replacements, and
improvements thereto of every kind and nature, whether interior or exterior
ordinary or extraordinary, foreseen or unforeseen or arising by reason of a
condition existing prior to the commencement of the Term of this Agreement
(concealed or otherwise), or required by any governmental agency having
jurisdiction over the Hotel in such manner as to minimize current and future
Capital Replacements. The cost of all such maintenance and repairs shall be
deemed an Operating Expense. All repairs shall, to the extent reasonably
achievable, be at least equivalent in quality to the original work. Manager will
not take or omit to take any action, the taking or omission of which might
materially impair the value or the usefulness of the Hotel or any part thereof
for its Primary Intended Use.
(D) Manager shall regularly and consistently perform and shall maintain precise
records of an ongoing preventative maintenance program, the cost of which shall
be deemed an Operating Expense. Such preventative maintenance program shall be
performed as frequently as is necessary to maintain the subject equipment or the
Hotel in a first class condition and include (but not be limited to) the
following:
$ Carpet cleaning
$ Carpet and upholstery stain removal
$ HVAC maintenance (including filter cleaning and replacement)
$ Boilers
$ Painting (including door frames)
$ FF&E repair and touch up
$ Exterior cleaning (including power washing of building and sidewalks)
Manager shall maintain the Hotel (interior and exterior), including all public
and back of the house areas, at a high level of cleanliness at all times.
2.02 Employees.
(A) Manager, subject to Lessee's approval, will select a general manager for the
Hotel. Manager will select all other department heads for the Hotel and all
personnel which Manager determines to be necessary for the operation of the
Hotel (collectively "Employees"). All Employees will be employed at Lessee's
cost and expense, but will be employees of Manager; provided that wages and
related expenses will be deemed Operating Expenses and will be set forth in the
approved Annual Plan. Manager agrees that neither the general manager nor the
lead salesperson at the Hotel may be transferred to another hotel or similar
property owned, leased, or managed by Manager or any of its Affiliates in the
same Market Tract as determined by ▇▇▇▇▇ Travel Research without the consent of
the Lessee. In the event that Manager desires to make such a transfer, Manager
shall submit its request to Lessee in writing, and Lessee shall respond to the
request in writing, within fifteen (15) days following receipt of Manager's
request. If Lessee fails to respond to Manager's request within such fifteen
(15) day period, Lessee shall be deemed to have consented to the transfer. The
Manager shall set all personnel policies.
(B) Subject to the approved Annual Plan, all decisions with regard to the terms
of employment, including but not limited to compensation, bonuses, fringe
benefits, discharge and replacement of all Employees, will be made and
implemented directly by Manager or through the general manager, department heads
or any of their designees under the supervision of Manager.
(C) Manager will enroll the Employees in Manager's employee benefits program
(the "Benefits Program"). Manager will administer the Benefits Program in the
same manner that it administers the Benefits Program at other Hotel it operates.
The Hotel will be charged as an Operating Expense the cost of such Benefits
Program under the same formula used to calculate the cost charged to other Hotel
Manager operates and such costs shall be set forth in the approved Annual Plan.
(D) Manager will respond to organizational efforts by unions and in negotiating
and implementing union agreements. With respect to Manager's employees, Manager
will control the terms of any union contract and will not be required to take
actions which will unreasonably increase Manager's liabilities pursuant to the
union contract. Upon termination of this Agreement, Lessee will assume Manager's
obligations under the union contact with respect to any employees hired by
Lessee at that time.
(E) Manager shall indemnify and hold Lessee harmless from and against any and
all actions, suits, claims, penalties, losses, damages and expenses, including
reasonable attorneys' fees, based upon or arising out of Manager's gross
negligence or willful misconduct in connection with the employment of any and
all Hotel employees, including but not limited to any claims based upon
discrimination in employment.
3. ANNUAL PLAN.
3.01 Preparation and Submission.
Lessee and Manager acknowledge that the budgeting process is a critical factor
to the successful operation of the Hotel and also a key communication link
between the parties. Manager will submit to Lessee, for its approval, not later
than the dates indicated below the proposed annual plan for the Hotel (the
"Annual Plan"). The Manager shall submit to the Lessee no later than thirty (30)
days after the Commencement Date of this Agreement for the first partial
operation year and no later than November 1 of the year prior to the applicable
Operating Year, a statement of the estimated gross revenues, gross expenses and
gross operating profit for the Operating Year and prior year actual results,
including Manager's good faith reasonable assumptions as to payroll costs, room
rates and occupancies, which will reflect the estimated results of the operation
during each month of the Operating Year (the "Operating Budget") and a marketing
plan. In preparing all budgets and forecasts and the estimated profit and loss
statements comprising the Annual Plan, Manager will use its good faith
reasonable judgment and will base its estimates upon the most recent and
reliable information available taking into account the location of the Hotel and
Manager's experience in hotel operations. Manager expressly disclaims any
warranty of or representations as to results of operations of the Hotel.
3.02 Lessee's Approval.
Within thirty (30) days following submission of any components of the Annual
Plan to Lessee, Lessee shall give Manager written notice either (a) that Lessee
approves such component of the Annual Plan or (b) indicating with reasonable
specificity the respects in which Lessee objects to such component of the Annual
Plan, or component thereof; provided, however, that Lessee's approval rights
shall not apply with respect to non-discretionary budget items required by law
such as impositions (subject to the right of the Lessee to contest such
impositions or other non-discretionary items). In the latter event, Lessee and
Manager shall act promptly, reasonably and in good faith to seek to resolve
Lessee's objections. In the event that Lessee and Manager fail to reach
agreement with respect to any material component of the Operating Budget or
Annual Plan within thirty (30) days after receipt of Lessee's written notice,
Manager and Lessee shall refer any disputed Operating Budget matter to
arbitration using procedures set forth in Section 16.02 below and each party
shall endeavor to cause such arbitration to be completed as quickly as possible,
but in any event not later than six (6) months following referral to
arbitration. Pending the results of such arbitration or the earlier agreement of
the parties, (i) as to any matters in the Operating Budget or Annual Plan which
have not been agreed upon, the Hotel will be operated in a manner reflecting the
prior Operating Year's actual results adjusted by multiplying said number by the
number obtained by dividing the average CPI for the twelve months ended on
September 30 of the most recently completed Operating Year by the average CPI
for the twelve months ended on September 30 of the prior Operating year, until a
new Operating Budget is adopted. In the event Lessee fails to deliver the notice
set forth in this section, within the required time period, the component of the
Annual Plan at issue shall be deemed approved.
3.03 Compliance with Annual Plan.
Manager will use good faith reasonable efforts to comply with and operate the
Hotel in accordance with the approved Annual Plan and will not incur any
material additional expense or change materially the manner of operation of the
Hotel without the written approval of Lessee unless an emergency occurs as
provided in Section 3.06.
3.04 Agreement Limitations.
Except as provided in Section 2.01 Manager will not enter into any commitment on
behalf of Lessee requiring payments of amounts in excess of the amount set forth
on Schedule I or requiring performance over a time period in excess of the
period set forth on Schedule I without the prior written approval of Lessee.
Manager shall make no payments to Affiliates as Operating Expenses hereunder
unless expressly set forth in the Operating Budget or otherwise expressly agreed
to in writing by Lessee in advance, in either case, after full written
disclosure by Manager to Lessee of the affiliation, competitive pricing and any
other related information requested by Lessee. Manager may provide Hotel rooms
and services at the Hotel on a complimentary basis without charge or other
consideration to employees of Manager or its Affiliates visiting the Hotel from
outside the area in which the Hotel is located to the extent such practice does
not materially decrease profitability, but Manager shall not provide such
complimentary rooms or service as compensation to parties providing materials or
services to the Manager or an Affiliate of Manager.
3.05 Emergencies.
The limitations of Section 3.05 do not apply to emergency repairs or emergency
actions. For the purposes of this Section 3.06, an emergency means an unforeseen
circumstance that in the opinion of Manager requires immediate action which
cannot be delayed in order to minimize injury to the Hotel or injury to any
person or property, provided that Manager shall give Lessee immediate notice of
any such emergency action.
4. HOTEL ACCOUNTS; MAINTENANCE OF MINIMUM BALANCE.
4.01 Hotel Bank Accounts.
Manager will select all banks with which the Hotel will conduct its various
banking affairs, subject however, to Lessee's approval, not to be unreasonably
withheld. Manager will have no liability for any loss to Lessee as a result of
any bank insolvency or failure or as a result of any negligence or misconduct of
the Bank or its employees. All funds received in the operation of the Hotel will
be deposited into one or more special accounts bearing the name of the Hotel
(the "Hotel Accounts") in the banks so selected. Subject to the provisions of
Section 7, all amounts in the Hotel Accounts are the property of Lessee. The
Lessee's funds will not be co-mingled with funds of the Manager or funds of
other Hotel managed by Manager.
4.02 Minimum Balance.
Upon establishment of the Hotel Accounts, the sum set forth on Schedule I and
designated as the Minimum Balance (the "Minimum Balance") will be deposited in
the Hotel Accounts by the Lessee and will be maintained throughout the Term. All
funds in excess of the Minimum Balance will be transferred bi-weekly to Lessee
on Friday by 12:00 p.m., Eastern Time. Notwithstanding this bi-weekly
distribution, said amounts nonetheless will be subject to adjustment in
accordance with Section 6.01 and 6.02. Any additional funds necessary to
maintain the Minimum Balance will be funded by Lessee no later than one (1)
business day following receipt of a notice to that effect from Manager.
5. BOOKS AND RECORDS.
5.01 Maintenance of Books and Records.
Manager will keep complete and adequate books of account and such other records
as are necessary to reflect the results of the operation of the Hotel on a
calendar year basis. Manager will keep the books and records for the Hotel in
all material respects in accordance with GAAP or the Uniform System of Accounts,
on an accrual basis.
5.02 Location; Examination and Inspection.
Except for the books and records which may be kept in Manager's home office or
other suitable location pursuant to the adoption of a central billing system or
other centralized service, the books of account and all other records relating
to or reflecting the operation of the Hotel will be the property of Lessee and
will be kept at the Hotel. All books and records will be available to Lessee and
its representatives upon reasonable request for examination, inspection and
transcription.
5.03 Lessee to Receive all Books and Records Upon Termination.
Upon any termination of this Agreement, all original books and records of all
books and records not kept at the Hotel, will be turned over to Lessee forthwith
so as to ensure the orderly continuance of the operation of the Hotel, provided,
however, Manager will at its expense be entitled to retain copies of all books
and records wherever located.
5.04 Reports to Lessee.
(A) Each month, Manager will deliver to Lessee, a detailed (i) profit and loss
statement showing the results of operation of the Hotel for the prior month and
the year to date, with a comparison to the budgets contained in the then current
Annual Plan and to prior year results; and (ii) balance sheet. Manager also
shall prepare, monthly, for the Hotel, forecasts of occupancy, average daily
rate ("ADR") and revenue per available room ("REVPAR") for that month, and other
reports similar to those produced by Manager or its Affiliates for hotels they
own. Manager shall use its best efforts to deliver these items to Lessee by the
12th of each month; but in no event shall delivery be later than the 15th of the
month. In addition, quarterly, Manager will provide Lessee with a forecast for
Gross Revenues, Gross Operating Profit and Net Operating Profit less insurance
for the remainder of the Operating Year, by month.
(B) Costs of a certified audit or any other reports by an independent certified
public accountant selected by Lessee, if and when requested by Lessee, will be
an expense borne by Lessee and will be coordinated by Manager.
(C) At Lessee's request, Manager will further deliver financial reports required
by third parties. All reasonable costs in producing these reports will be borne
by Lessee.
(D) At Lessee's request, Manager agrees to meet with Lessee via conference call
or in person to discuss the operating results of the Hotel on a quarterly basis,
and will comply with all reasonable requests to meet with Lessee to discuss
other issues.
5.05 Final Accounting.
Upon termination of this Agreement for any reason, Manager will promptly deliver
to Lessee, but will be permitted to retain a copy of, the following:
(A) a final accounting, reflecting the balance of income and expenses of the
Hotel as of the date of termination;
(B) any balance or moneys in the Hotel Accounts, or elsewhere, held by Manager
with respect to the Hotel (after payment or reservation with respect to all
committed obligations), which balance will be distributed in accordance with the
formula set forth in Section 6.01; and
(C) all books and records of the Hotel (including those stored on computerized
software), and all contracts, bookings, reservations, leases, receipts for
deposits, unpaid bills and other records, papers or documents which pertain to
the Hotel, and duplicate copies of the personnel records of employees of the
hotel (provided Manager will not be required to turn over computer software, but
will provide all printouts from the software related to the Hotel).
5.06 Form of Reports.
All reports will be in Manager's customary detail and form for managed
properties and will be transmitted electronically to Lessee in addition to hard
copies being provided by mail. A sample of the currently used profit and loss
statement is attached as Schedule III.
6. MANAGEMENT FEES AND EXPENSES.
6.01 Management Fees.
(A) Base Management Fees. In consideration of the services to be performed
during the term of this Agreement by Manager, the Lessee shall pay to the
Manager a periodic base management fee ("Base Management Fee") in the amount of
two percent (2%) of Gross Revenues for each month. Each such periodic fee shall
be paid to Manager (or retained by Manager as provided below) at such time as
the final monthly report for such month is submitted to Lessee pursuant to
Section 5.04.
(B) Incentive Management Fees. In addition to the Base Management Fee and in
consideration of the services to be performed during the term of this Agreement,
the Lessee shall pay to the Manager for each Year (or partial Year), an
incentive fee ("Incentive Management Fee"), at the times and in the amounts
designated on Schedule I.
6.02 Reimbursement of Costs and Expenses.
Lessee will reimburse Manager for all costs and expenses incurred by Manager for
Lessee's account in the ordinary course of business in accordance with the
approved Annual Plan under the terms and provisions of this Agreement and will
include, but not be limited to the following:
(A) the salaries and wages, including costs of payroll taxes, bonuses,
retirement plan contributions, fringe benefits, and related payroll items
incurred with respect to Manager's employees assigned to the Hotel;
(B) Expenses for shared services and purchases (equitably allocated to each
hotel benefiting from the shared services or purchases in a manner consistent
with Manager's allocation policy uniformly applied to all managed hotels) and
reflected in the Annual Plan;
(C) All tourist-class travel expenses, reasonable meals, and customary out of
pocket expenses (i.e., telephone, fax and postage) for home office personnel
(regional operations and sales managers), to the extent directly allocable to
the Hotel and not to other business for such home office personnel and the
salaries of such personnel for such time as such personnel are located at the
Hotel and are performing exclusive full-time services for regular Hotel
Employees.
The reimbursement shall be paid out of Operating Revenue no later than
the date of the payment of the Base Management Fee for any month. The Manager
shall retain the Base Management Fee each month, from Gross Operating Profits.
6.03 Rebates and Discounts.
Because of its purchasing power derived through its operations of its
proprietary hotels, its management of hotels, and its franchising of hotels,
Manager may from time to time negotiate rebates and discounts from the vendors
of certain products and services. Manager agrees that the portion of such
rebates and discounts allocable to the Hotel will be passed on to the Lessee.
7. DISBURSEMENTS.
7.01 Priority of Payments.
All Gross Revenues will be deposited in the Hotel Accounts as and when received.
Manager is authorized to and will disburse on a current basis, on behalf of
Lessee, funds from the Hotel Accounts (to the extent available) in the following
order of priority:
(A) Payment of payroll and payroll taxes and other employment costs identified
in Section 6.02(A), including any sales and use taxes imposed on such costs;
(B) Payment of all remaining sales and use taxes, including sales and use taxes
on fees and reimbursements to Manager;
(C) Payment of all other Operating Expenses;
(D) Payment of the cost of the insurance required under Section 8 and rents
under any Operating Leases;
(E) The Minimum Balance (to be maintained in the Hotel Accounts).
Lessee is solely responsible to pay from its own funds the real and personal
property taxes, other impositions and mortgage debt service payments for the
Hotel.
8. INSURANCE.
8.01 Maintenance of Insurance.
Lessee shall at all times keep the Hotel insured with the kinds and amounts of
insurance described in Section 8.03 below and in accordance with any mortgage
and the Franchise Agreement with the exception of workers' compensation
insurance and employment practices liability insurance, provided for in Sections
8.03(H) and 8.03(J), respectively. This insurance shall be written by qualified,
solvent companies which can legally write insurance in the state in which the
Hotel is located. The policies must name Lessee and Manager as parties insured,
as their interest may appear, with minimum deductibles customary in the
industry, but in any event, not greater than $25,000. Losses shall be payable to
Lessee except as provided in Section 8.03(D). Subject to Section 8.11 below, any
loss adjustment with respect to the insurance coverages set forth in items (A),
(B) and (C) of Section 8.03 below shall be made by Lessee acting in its sole and
absolute discretion. Evidence of insurance shall be deposited with Manager.
8.02 Lessee Methods of Obtaining Insurance.
At its option, Lessee may procure and maintain the insurance by (i) undertaking
the procuring of insurance directly in its own name and behalf or (ii) agreeing
to coverage under Manager's blanket policies in accordance with Manager's
proposal at a price established by Manager. Upon and in the event of the
selection of the Manager's insurance policy, such policy shall be deemed
acceptable to the Lessee.
8.03 Coverages.
The policies shall include:
(A) Building insurance of risks on the "Special Form" or "All Risk Form" in an
amount not less than 100% of the then full replacement cost thereof (as defined
in Section 8.05 below) or such other amount which is acceptable to Lessee and
Manager, and personal property insurance on the "Special Form" or "All Risk
Form" in the full amount of the replacement cost thereof;
(B) Earthquake and, if the Hotel is in the 100-year floodplain, flood insurance
in reasonable and adequate amounts as reasonably determined by Lessee;
(C) Insurance for loss or damage (direct and indirect) from steam boilers,
pressure vessels or similar apparatus, now or hereafter installed in the Hotel,
in the minimum amount of $5,000,000 or in such greater amounts as are then
customary or as may be reasonably determined by Lessee from time to time;
(D) Loss of income and business interruption insurance on the "Special Form" or
"All Risk Form", which business interruption proceeds, shall be paid into the
Hotel Accounts and distributed in accordance with the formula set forth in
Section 6.01;
(E) Commercial general liability insurance, with amounts not less than
$40,000,000 covering each of the following: bodily injury, death, or property
damage liability per occurrence, personal and advertising injury, general
aggregate, products and completed operations, and liquor law or "dram shop"
liability, if liquor or alcoholic beverages are served at the Hotel, with
respect to Lessee and Manager;
(F) Insurance covering such other hazards and in such amounts as may be
customary for comparable properties in the area of the Hotel and is available
from insurance companies, insurance pools or other appropriate companies
authorized to do business in the state in which the Hotel is located at rates
which are economically practicable in relation to the risks covered as may be
reasonably determined by Lessee ;
(G) Fidelity bonds with limits and deductibles as may be reasonably determined
by Lessee, covering Manager's employees in job classifications normally bonded
under prudent hotel management practices in the United States or otherwise
required by law;
(H) Workers' compensation insurance coverage for all persons employed by Manager
at the Hotel. Such workers' compensation insurance shall be in accordance with
the requirements of applicable local, state and federal law, and shall always be
procured and maintained by Manager;
(I) Vehicle liability insurance for owned, non-owned, and hired vehicles, in the
amount of $15,000,000;
(J) Employment practices liability insurance in an amount not less than
$2,000,000.00, which shall always be procured and maintained by Manager;
(K) Such other insurance as Lessee and Manager may reasonably determine for
facilities such as the Hotel and the operation thereof, or as Franchisor may
require; and
(L) Crime Coverage in the amount of $500,000, Guest Property and Safe Deposit
Liability in the aggregate amount of $25,000 ($1,000 per guest), and Innkeeper's
Liability in the amount of $25,000.
8.04 Responsibility for Premiums.
All premiums shall be reflected in the approved Annual Plan and paid out of
Gross Revenue pursuant to Section 7.01.
8.05 Replacement Cost.
The term "full replacement cost" as used herein shall mean the actual
replacement cost of the Hotel requiring replacement from time to time including
an increased cost of construction endorsement, if available, and the cost of
debris removal. In the event either party believes that full replacement cost
(the then-replacement cost less such exclusions) has increased or decreased at
any time during the Term of this Agreement, it shall have the right to have such
full replacement cost re-determined.
8.06 Waiver of Subrogation and Indemnities.
All insurance policies carried by Lessee or Manager covering the Hotel,
including, without limitation, contents, fire and casualty insurance, shall
expressly waive any right of subrogation on the part of the insurer against the
other party. The parties hereto agree that their policies will include such
waiver clause or endorsement so long as the same are obtainable without extra
cost, and in the event of such an extra charge the other party, at its election,
may pay the same, but shall not be obligated to do so.
8.07 Form Satisfactory, etc.
All of the policies of insurance referred to in this Section 8 shall be written
in a form, with deductibles and by insurance companies reasonably satisfactory
to the party to whom the benefit of the insurance runs in accordance with the
terms of this Agreement. Lessee shall deliver such policies or certificates
thereof to Manager prior to their effective date (and, with respect to any
renewal policy, thirty (30) days prior to the expiration of the existing
policy), and in the event of the failure of Lessee to effect such insurance as
herein called for, or to deliver such policies or certificates thereof to
Manager at the times required, Manager shall be entitled, but shall have no
obligation, to effect such insurance, the premiums for which will be paid in
accordance with Section 8.04. Each insurer mentioned in this Section 8 shall
agree, by endorsement of the policy or policies issued by it, or by independent
instrument, that it will give to Lessee and Manager thirty (30) days' written
notice before the policy or policies in question shall be materially altered,
allowed to expire or canceled.
8.08 Increase in Limits.
If either Lessee or Manager at any time deems the limits of the personal injury
or property damage under the comprehensive public liability insurance then
carried to be either excessive or insufficient, Lessee and Manager shall
endeavor in good faith to agree on the proper and reasonable limits for such
insurance to be carried and such insurance shall thereafter be carried with the
limits thus agreed on until further change pursuant to the provisions of this
Section.
8.09 Blanket Policy.
Notwithstanding anything to the contrary contained in this Section 8, Lessee may
bring the insurance provided for herein within the coverage of a so-called
blanket policy or policies of insurance carried and maintained by Lessee;
provided, however, that the coverage afforded to Lessee and Manager will not be
reduced or diminished or otherwise be different from that which would exist
under a separate policy meeting all other requirements of this Agreement by
reason of the use of such blanket policy of insurance, and provided further that
the requirements of this Section 8 are otherwise satisfied.
8.10 Separate Insurance.
Lessee shall not on Lessee's own initiative or pursuant to the request or
requirement of any third party, take out separate insurance concurrent in form
or contributing in the event of loss with that required in this Section to be
furnished, or increase the amount of any then existing insurance by securing an
additional policy or additional policies, unless all parties have an insurable
interest in the subject matter of the insurance, including in all cases Manager,
are included therein as additional insured, and the loss is payable under such
additional separate insurance in the same manner as losses are payable under
this Agreement. Lessee shall immediately notify Manager that Lessee has obtained
any such separate insurance or of the increasing of any of the amounts of the
then existing insurance.
8.11 Reports on Insurance Claims.
Manager, with the assistance of Lessee, shall promptly investigate and make a
complete and timely written report to the appropriate insurance company as to
all accidents, claims for damage relating to the ownership, operation, and
maintenance of the Hotel, any damage or destruction to the Hotel and the
estimated cost of repair thereof and shall prepare any and all reports required
by any insurance company in connection therewith. All such reports shall be
timely filed with the insurance company as required under the terms of the
insurance policy involved, and a final copy of such report shall be furnished to
Lessee. Manager shall not adjust, settle, or compromise any insurance loss, or
execute proofs of such loss, with respect to the insurance coverages with
respect to any casualty or other event without the prior written consent of
Lessee.
8.12 Deductibles to be Operating Expenses.
Any Deductibles paid toward insurance claims shall be deemed Operating Expenses.
9. INDEMNITIES.
9.01 Indemnification of Manager.
Lessee will defend, indemnify and hold Manager harmless from and against any and
all actions, suits, claims, penalties, losses, liabilities, damages and
expenses, including attorney's fees arising out of Manager's performing the
services to be performed by Manager in accordance with the terms of this
Agreement, including liabilities under statutes requiring notice as a
prerequisite to the discharge of employees if Lessee terminates this Agreement,
except claims based upon Manager's gross negligence or willful misconduct,
failure to act in good faith, or action beyond the authority granted to Manager
by this Agreement, and except claims based upon Manager's employment practices,
including but not limited to employment agreements, union contracts, and
discrimination and wrongful termination claims.
9.02 Indemnification of Lessee.
Manager will defend, indemnify and hold Lessee harmless from and against any and
all claims to the extent such claims arise on account of Manager's gross
negligence, willful misconduct, failure to act in good faith, or action beyond
the authority granted to Manager by this Agreement.
9.03 Indemnified Parties.
The indemnities contained in this Section 9 will run to the benefit of both
Manager and Lessee, and the directors, officers, partners, agents and employees
of Lessee and Manager and of their affiliates.
9.04 Certain Claims to be Operating Expenses.
All costs and expenses including attorney's fees arising out of (i) claims of
gross negligence against Hotel Employees or (ii) any proceeding before any state
or federal employment commission, wages and hours commission, and union
grievance committee, or any similar proceeding where Manager is the prevailing
party will be deemed an Operating Expense.
10. CONDEMNATION.
10.01 Definitions.
(A) "Condemnation" means Taking resulting from (1) the exercise of any
governmental power, whether by legal proceedings or otherwise, by a Condemnor,
and (2) a voluntary sale or transfer by Lessee and/or its Lessor to any
Condemnor, either under threat of condemnation or while legal proceedings for
condemnation are pending.
(B) "Date of Taking" means the date the Condemnor has the right to possession of
the property being condemned.
(C) "Award" means all compensation, sums or anything of value awarded paid or
received on a total or partial Condemnation.
(D) "Condemnor" means any public or quasi-public authority, or private
corporation or individual, having the power of Condemnation.
(E) "Taking" means a taking or voluntary conveyance during the term of this
Agreement of all or a part of the Hotel, or any interest therein, or right
accruing thereto or use thereof, as the result of, or in settlement of, any
Condemnation or other eminent domain proceeding affecting the Hotel whether or
not the same shall have actually been commenced.
10.02 Parties' Rights and Obligations.
If during the Term there is any Condemnation of all or any part of the Hotel,
the rights and obligations of Lessee and Manager shall be determined by this
Section 10.
10.03 Total Taking.
If title to the fee of the whole of the Hotel is condemned by any Condemnor,
this Agreement shall cease and terminate as of the Date of Taking by the
Condemnor. If title to the fee of less than the whole of the Hotel is so taken
or condemned, which nevertheless renders the Hotel Unsuitable or Uneconomic for
its Primary Intended Use, Lessee and Manager shall each have the option, by
notice to the other, at any time prior to the Date of Taking, to terminate this
Agreement as of the Date of Taking. Upon such date, if such notice has been
given, this Agreement shall thereupon cease and terminate. If this Agreement
terminates pursuant to this Section 10.03, Manager will comply with the
provisions of Section 5.05, and Lessee shall be solely entitled to any Award.
10.04 Partial Taking.
If title to less than the whole of the Hotel is condemned, and the Hotel is
still suitable for its Primary Intended Use, and not Uneconomic for its Primary
Intended Use, or if Manager or Lessee is entitled but neither elects to
terminate this Agreement as provided in Section 10.03 above, Lessee at its cost
shall with all reasonable dispatch, but only to the extent of any condemnation
awards available to Lessee, restore the untaken portion of the Hotel so that it
constitutes a complete architectural unit of the same general character and
condition (as nearly as may be possible under the circumstances) as existed
immediately prior to the Condemnation. If the condemnation awards are not
adequate to restore the Hotel to that condition, each of Lessee and Manager
shall have the right to terminate this Agreement, without in any way affecting
any other management agreements in effect between Lessee and Manager, by giving
notice to the other. Upon the date set forth in such notice, this Agreement
shall thereupon cease and terminate, Manager will comply with the provisions of
Section 5.05, and Lessee shall be solely entitled to any Award.
10.05 Temporary Taking.
If the whole or any part of the Hotel is condemned by any Condemnor for its
temporary use or occupancy, which nevertheless renders the Hotel Unsuitable or
Uneconomic for its Primary Intended Use, Lessee and Manager shall each have the
option, by notice to the other, at any time prior to the Date of Taking, to
terminate this Agreement as of the Date of Taking. Upon such date, if such
notice has been given, this Agreement shall thereupon cease and terminate. If
this Agreement terminates pursuant to this Section 10.05, Manager will comply
with the provisions of Section 5.05, and Lessee shall be solely entitled to any
Award. If, however, the whole or any part of the Hotel is condemned by any
Condemnor for its temporary use or occupancy, and the Hotel is still suitable
for its Primary Intended Use, and not Uneconomic for its Primary Intended Use,
this Agreement shall not terminate by reason thereof. Except only to the extent
that Manager may be prevented from so doing pursuant to the terms of the order
of the Condemnor, Manager shall continue to perform and observe all of the other
terms, covenants, conditions and obligations hereof on the part of the Manager
to be performed and observed, as though such Condemnation had not occurred. In
the event of any Condemnation as in this Section described, the amount of any
Award made for such Condemnation and available to Lessee, to the extent required
to make all payments required under Section 7.01 herein, shall be deposited in
the Hotel Accounts and disbursed by Manager, with the balance to be retained by
Lessee. Lessee covenants that upon the termination of any such period of
temporary use or occupancy it will, at its sole cost and expense, restore the
Hotel as nearly as may be reasonably possible to the condition in which the same
was immediately prior to such Condemnation, but only to the extent of the Award
available to Lessee, unless such period of temporary use of occupancy extends
beyond the expiration of the Term, in which case Lessee shall not be required to
make such restoration.
11. CASUALTY.
11.01 Insurance Proceeds.
Subject to the provisions of Section 8.03(D) with respect to loss of income
insurance and Section 11.05 below and the terms of any mortgage, all proceeds
payable by reason of any loss or damage to the Hotel, or any portion thereof,
and insured under any policy of insurance required by Section 8.03(A) through
(C) and (F) above shall be settled or compromised by and paid to Lessee and held
in trust by Lessee in an interest-bearing account, shall be made available, if
applicable, for reconstruction or repair, as the case may be, of any damage to
or destruction of the Hotel, or any portion thereof, and, if applicable, shall
be paid out by Lessee from time to time for the reasonable costs of such
reconstruction or repair upon terms specified in this Agreement and such other
reasonable terms and conditions specified by Lessee consistent with the
disbursement procedures for a construction loan of similar size and scope. Any
excess proceeds of insurance remaining after the completion of the restoration
or reconstruction of the Hotel shall be paid to Lessee. If neither Lessee nor
Manager is required or elects to repair and restore, and this Agreement is
terminated as described in Section 11.02 below, all such insurance proceeds
shall be retained by Lessee. All salvage resulting from any risk covered by
insurance shall belong to Lessee.
11.02 Reconstruction - Damage or Destruction Covered by Insurance.
(A) Except as provided in Section 11.05 below, if during the Term the Hotel is
totally or substantially destroyed by a risk covered by the insurance described
in Section 8 above and the Hotel thereby is rendered Unsuitable for its Primary
Intended Use, Lessee shall, at Lessee's option, either (1) restore the Hotel to
substantially the same condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of this Agreement, but
only to the extent of insurance proceeds available to Lessee, or (2) terminate
this Agreement by written notice thereof to Manager. If Lessee elects
restoration of the Hotel, the insurance proceeds shall be paid out by Lessee
from time to time for the reasonable costs of such restoration upon satisfaction
of reasonable terms and conditions, and any excess proceeds remaining after such
restoration shall be paid to Lessee.
(B) Except as provided in Section 11.05 below, if during the Term the Hotel is
partially destroyed by a risk covered by the insurance described in Section 8
above, but the Hotel is not thereby rendered Unsuitable for its Primary Intended
Use, Lessee (with the cooperation of the Manager) shall restore the Hotel to
substantially the same condition as existed immediately before the damage or
destruction and otherwise in accordance with the terms of this Agreement, but
only to the extent of insurance proceeds available to Lessee. Such damage or
destruction shall not terminate this Agreement. However, if, under this Section,
Lessee cannot within a reasonable time obtain all necessary government
approvals, including building permits, licenses and conditional use permits,
after diligent efforts to do so, to perform all required repair and restoration
work and to operate the Hotel for its Primary Intended Use in substantially the
same manner as that existing immediately prior to such damage or destruction and
otherwise in accordance with the terms of this Agreement, Lessee may (a) give
Manager written notice of termination of this Agreement or (b) restore the Hotel
using the proceeds of insurance. If Lessee restores the Hotel, the insurance
proceeds shall be paid out by Lessee from time to time for the reasonable costs
of such restoration, and any excess proceeds remaining after such restoration
shall be paid to Lessee.
11.03 Reconstruction - Damage or Destruction not Covered by Insurance.
---------------------------------------------------------------
Except as provided in Section 11.06 below, if during the Term the Hotel is
totally or substantially destroyed by a risk not covered by the insurance
described in Section 8 above, whether or not such damage or destruction renders
the Hotel Unsuitable for its Primary Intended Use, Lessee at its option shall
either (a) restore the Hotel to substantially the same condition it was in
immediately before such damage or destruction and such damage or destruction
shall not terminate this Agreement, or (b) terminate this Agreement. If Lessee
terminates this Agreement, Manager will comply with the provisions of Section
5.05.
11.04 Abatement.
Any damage or destruction due to casualty notwithstanding, this Agreement shall
remain in full force and effect provided that the obligation of Manager to make
payments and to pay all other charges required hereunder shall not ▇▇▇▇▇ during
the period required for the applicable repair and restoration.
11.05 Damage Near End of Term.
Notwithstanding any provisions of Section 11.02 or 11.03 appearing to the
contrary, if damage to or destruction of the Hotel rendering it unsuitable for
its Primary Intended Use occurs during the last 4 months of the Term, then
Lessee shall have the right to terminate this Agreement by giving written notice
to Manager within thirty (30) days after the date of damage or destruction,
whereupon.
12. DEFAULT.
12.01 Events of Default by Manager.
If any one or more of the following events (individually, an "Event of Default")
occurs:
(A) if Manager fails to observe or perform any term, covenant or condition of
this Agreement and such failure is not cured by Manager within a period of
thirty (30) days after receipt by Manager of notice thereof from Lessee, unless
such failure cannot with due diligence be cured within a period of thirty (30)
days, in which case Manager shall have an additional reasonable period of time
to cure such breach provided Manager proceeds promptly and with due diligence to
cure the failure and diligently completes the curing thereof; or
(B) if Manager shall file a petition in bankruptcy or reorganization for an
arrangement pursuant to any federal or state bankruptcy law or any similar
federal or state law, or shall be adjudicated a bankrupt or shall make an
assignment for the benefit of creditors or a shall admit in writing its
inability to pay its debts generally as they become due, or if a petition or
answer proposing the adjudication of Manager as a bankrupt or its reorganization
pursuant to any federal or state bankruptcy law or any similar federal or state
law shall be filed in any court and Manager shall be adjudicated a bankrupt and
such adjudication shall not be vacated or set aside or stayed within sixty (60)
days after the entry of an order in respect thereof, or if a receiver of the
Manager or of the whole or substantially all of the assets of the Manager shall
be appointed in any proceedings brought by the Manager or if any such receiver,
trustee or liquidator shall be appointed in any proceeding brought against
Manager shall not be vacated or set aside or stayed within sixty (60) days after
such appointment; or
(C) if Manager is liquidated or dissolved, or begins proceedings toward such
liquidation or dissolution, or, if Manager in any manner, permits the sale or
divestiture of substantially all of its assets; or
(D) if the interest of Manager in this Agreement or any part thereof or any
ownership interest in Manager is voluntarily or involuntarily transferred,
assigned, conveyed levied upon or attached in any proceeding, except (i) where
Manager is contesting such lien or attachment in good faith in accordance with
the express terms of this Agreement, and (ii) otherwise expressly permitted
herein;
(E) if, except as a result of a total or substantial Condemnation or Casualty
that renders the Hotel unsuitable for its primary intended use, Manager (without
the consent of Lessee) voluntarily ceases operations of the Hotel for a period
in excess of twenty-four (24) hours;
(F) if an Event of Default has been declared by the Franchisor under the
Franchise Agreement with respect to the Hotel as a result of any action or
failure to act by the Manager (other than a failure to complete a Capital
Replacement required by the Franchisor resulting from Lessee's failure to fund
the cost of such Capital Replacement pursuant to Section 2.01 hereof) and
Manager has failed, within thirty (30) days thereafter, to cure such default by
curing the underlying default under the Franchise Agreement and paying all costs
and expenses associated therewith, provided, however, that if Manager is in good
faith disputing an assertion of default by the Franchisor or is proceeding
diligently to cure such default, the 30-day period shall be extended for such
reasonable period of time as Manager continues during this period to dispute
such default in good faith or diligently proceeds to cure such default and so
long as there is no period during which the Hotel is not operated pursuant to
the Franchise Agreement; or
(G) if Manager, or anyone acting on Manager's behalf, or
within Manager's employ or control commits a crime on or about the Hotel
premises, whether such crime is against Lessee or any other person or entity,
including but not limited to theft, embezzlement, vandalism, arson and the like;
THEN, and in any such event, Lessee may exercise one or more
remedies available to it herein or at law or in equity, including but not
limited to its right to terminate this Agreement, without payment of the
Termination Fee.
12.02 Lessee Default.
If Lessee fails to observe or perform any term, covenant or condition of this
Agreement or the Franchise Agreement and such failure is not cured by Lessee
within a period of thirty (30) days after receipt by Lessee of notice thereof
from Manager, unless such failure cannot with due diligence be cured within a
period of thirty (30) days, in which case it shall not be deemed an "Lessee
Default" if Lessee proceeds promptly and with due diligence to cure the failure
and diligently completes the curing thereof, then Manager may exercise one or
more remedies available to it herein or at law or in equity, including, but not
limited to its right to terminate this Agreement.
12.03 Unavoidable Delay.
No Event of Default under Section 12.01(A) or Lessee Default under Section 12.02
(other than a failure to make a payment of money) shall be deemed to exist
during any time the curing thereof is prevented by an Unavoidable Delay,
provided that upon the cessation of such Unavoidable Delay, Lessee or Manager,
as the case may be, remedies such default or Event of Default or Lessee's
Default without further delay.
12.04 Damages.
In the event of Manager's termination of this Agreement due to an Lessee Default
hereunder, Lessee shall forthwith pay to Manager, as and for liquidated and
agreed current damages for an Lessee Default, the termination fee set forth on
Schedule I ("Termination Fee").
12.05 Litigation Costs.
If litigation is commenced with respect to any alleged default under this
Agreement, the prevailing party in such litigation shall receive, in addition to
its damages incurred, such sum as the court shall determine as its reasonable
attorneys' fees, and all costs and expenses incurred in connection therewith,
provided that such litigation is in accordance with Section 16.02 herein.
13. LESSEE'S TERMINATION WITHOUT AN EVENT OF DEFAULT.
13.01 Without Payment of Termination Fee.
Intentionally Omitted.
13.02 With Payment of Termination Fee.
Lessee may terminate this Agreement at any time by giving Manager sufficient
notice to comply with all applicable laws, including laws governing notification
to employees (but not less than thirty (30) days notice in any event) including
with its notice payment of the Termination Fee amount, together with the balance
due of any and all amounts due Manager earned through the date of termination.
14. DEFINITIONS.
14.01 "Affiliate" means, with regard to any Person, (a) any Person that,
directly or indirectly, controls or is controlled by or is under common control
with such Person, (b) any other Person that owns, beneficially, directly or
indirectly, more than fifty percent (50%) of the outstanding capital stock,
shares or equity interests of such Person, or (c) any officer, director,
employee, partner or trustee of such Person or any Person controlling,
controlled by or under common control with such Person (excluding trustees and
Persons serving in similar capacities who are not otherwise an Affiliate of such
Person).
14.02 "Annual Plan" has the meaning contained in Section 3.01.
14.03 "Commencement Date" means the date contained on Schedule I.
14.04 "CPI" means the "Consumer Price Index" published by the Bureau of Labor
Statistics of the United States Department of Labor,
U.S. City Average, All Items for Urban.
14.05 "Employees" has the meaning contained in Section 2.02.
14.06 "Excluded Revenues" means (i) any gratuity or sales charges added to a
customer's ▇▇▇▇, which are payable to Hotel employees, (ii) sales taxes, excise
taxes, gross receipt taxes, admission taxes, entertainment taxes, tourist taxes
or other similar taxes, (iii) proceeds from the sale or refinancing of the
Hotel, (iv) abatement of taxes, (v) proceeds of insurance, except business
interruption insurance and (vi) Telecom Revenues.
14.07 "Franchise Agreement" means the franchise agreement of even date herewith
between Lessee and Franchisor relating to the Hotel.
14.08 "Franchisor" means the hotel franchise company licensing the use of the
Hotel name, if any.
14.09 "Franchise Costs" means expenditures for compliance with the requirements
of the Franchisor of the Hotel, including without limitation payment of
royalties, marketing contributions, and reservation system fees, but excluding
the cost of compliance with Franchisor's operating standards requiring Capital
Replacements.
14.10 "GAAP" means U.S. generally accepted accounting principles.
14.11 "Gross Operating Profit" means Gross Revenues less Operating Expenses.
14.12 "Gross Revenues" means all revenues of the Hotel and all its uses of every
nature and kind regardless of source, excluding Excluded Revenues. By way of
illustration but not limitation, Gross Revenues will include:
(A) The amount received as payment for the use and occupancy of all guest rental
units;
(B) The amount received as payment for the use and occupancy of all meeting
rooms, banquet function rooms, and public areas;
(C) All revenues derived from the sale of food and other edibles in restaurants,
lounges, meeting rooms, banquets, guest rooms and any other location at the
Hotel;
(D) All revenues derived from the sale of liquor, beverages, and other potables
in restaurants, lounges, meeting rooms, banquets, guest rooms, and any other
location at the Hotel;
(E) All revenues derived from the use of telephone in guest rooms or in public
areas;
(F) All revenues derived from leases, subleases, concessions, vending, valet
services, swimming pool memberships, banquet extras, movies or income of a
similar or related nature; and
(G) Proceeds of business interruption insurance.
14.13 "Hotel" means the hotel described on Schedule I.
14.14 "Hotel Account(s)" has the meaning contained in Section 4.01.
14.15 "Manager" means ▇▇▇▇▇▇ Hospitality Management, LLC.
14.16 "Operating Equipment" means all china, glassware, linens, silverware and
uniforms used in, or held in storage for use in (or if the context so dictates,
required in connection with), the operation of the Hotel.
14.17 "Operating Expenses" means any and all amounts paid or expenses incurred
in connection with the operation of the Hotel, as determined in accordance with
GAAP or the Uniform System of Accounts for Hotel, excluding taxes (other than
the sales and use and payroll taxes described below), interest, principal, and
other payments on any debt or other obligation for borrowed money, including
debt service on any mortgage debt, and non-cash items such as depreciation
(these excluded items shall be paid directly by Lessee). By way of illustration
but not limitation, Operating Expenses include:
(A) Salaries, wages, payroll taxes, bonuses and employee benefits and payroll
processing fees.
(B) Legal, accounting and other professional fees.
(C) Fees for licenses and permits.
(D) Costs of Operating Supplies including sales and use taxes imposed thereon.
(E) Costs of Operating Equipment including sales and use taxes imposed thereon.
(F) Franchise Costs.
(G) Department expenses not otherwise itemized above directly related to rooms,
food, beverage, telephone, and other segregated outlets.
(H) Expenses not attributed to a specific department in the ordinary course and
not otherwise itemized above including administrative and general; advertising,
sales and promotion; heat, light and power; and repairs and maintenance (but not
of Capital Replacements).
(I) Base Management Fee.
14.18 "Operating Leases" means leases of personal property and equipment which,
if not leased, would be purchased and classified as Capital Replacements.
14.19 "Operating Supplies" means consumable items used in or held in storage for
use in (or if the context so dictates, required in connection with), the
operation of the Hotel, including but not limited to food and beverages, fuel,
soap, cleaning material, matches, stationery and other similar items.
14.20 "Operating Year" means each twelve month period commencing on the first
day of January (except for the first year, which will commence on the
Commencement Date), and ending on the subsequent December 31 (except for the
last year which will end on the date of termination, whether by expiration of
the term of the Agreement or otherwise).
14.21 "Lessee" means the entity identified on Schedule I or its successors.
14.22 "Telecom Revenues" has the meaning described in Section 15.03.
14.23 "Unavoidable Delays" means delays due to strikes, lock-outs, labor unrest,
inability to procure materials, power failure, acts of God, governmental
restrictions, enemy action (including terrorist activities), civil commotion,
fire, unavoidable casualty or other similar causes beyond the control of the
party responsible for performing an obligation hereunder, provided that lack of
funds shall not be deemed a cause beyond the control of either party hereto
unless such lack of funds is caused by the failure of the other party hereto to
perform any obligations of such party under this Agreement or any guaranty of
this Agreement.
14.24 "Uneconomic for its Primary Intended Use" means a state or condition of
the Hotel such that, in the good faith judgment of Lessee and Manager,
reasonably exercised, the Hotel cannot be operated on a commercially practicable
basis for hotel purposes and such other uses as may be necessary or incidental
thereto, taking into account, among other relevant factors, the number of usable
rooms and projected revenues and expenses.
14.25 "Uniform System of Accounts" means the Uniform System of Accounts for
Hotel (Eighth Revised Edition, 1986) as revised from time to time; but not any
subsequent revisions unless approved by both Lessee and Manager in writing.
14.26 "Unsuitable for its Primary Intended Use" means a state or condition of
the Hotel such that, in the good faith judgment of Lessee and Manager,
reasonably exercised, due to casualty damage or loss through Condemnation, the
Hotel cannot function as an integrated hotel facility consistent with standards
applicable to a well maintained and operated hotel.
15. GENERAL PROVISIONS.
15.01 Estoppel Certificates.
Lessee and Manager each, upon at least ten (10) days' notice, will execute and
deliver to the other, and to any third party having, or about to have a bona
fide interest in the Hotel, a written certificate stating that this Agreement is
unmodified and in full force and effect, or if not, stating the details of any
modification, and stating that as modified it is in full force and effect, the
date to which payments have been paid, and whether there is any existing default
on the part of the other.
15.02 Arbitration.
All disputes hereunder shall be subject to arbitration pursuant to the
provisions of this Section. The party initiating arbitration (the "Claimant")
shall do so by giving written notice (the "Demand") to the other party (the
"Respondent") of its intention to arbitrate, which Demand shall contain a
statement setting forth the nature of the dispute, the amount in dispute, if
any, and the remedy sought. The arbitration panel shall apply the substantive
law of the State of Tennessee and the location of the arbitration shall be
Memphis, Tennessee. The American Arbitration Association ("AAA") shall give each
party a list of at least fifteen (15) arbitrators technically competent and
experienced in the field of knowledge in controversy no later than twenty (20)
days after the Demand. Each party may strike up to three (3) names from the
list. The parties shall then endeavor in good faith to agree on a panel of three
(3) from the remaining list. In the event the parties are unable to agree on a
panel, then no later than ten (10) days following the Demand each party shall
select one (1) arbitrator from the list. Within five (5) days thereafter the
third panelist shall be selected by agreement of the first two so selected.
(A) Procedure. Matters involving less than $250,000.00. Any matter
subject to arbitration pursuant to this section and involving
less than $250,000.00 in controversy shall be conducted in
accordance with the rules of the AAA and shall not be subject
to judicial review for any cause other than denial of due
process of law.
(B) Matters Involving $250,000.00 or More. Any matter subject to
arbitration pursuant to this section and involving $250,000 or
more in controversy shall be subject to the following:
(1) each party shall be entitled to discovery consisting of
document production requests, interrogatories and depositions
of fact and expert witnesses. The parties shall also exchange
expert reports in a form to be determined by the panel.
Limitations on such discovery shall be at the discretion of
the panel;
(2) no later than thirty (30) days prior to commencement of
testimony, each party shall provide to the other a list of
witnesses it expects to call, a list of exhibits it intends to
introduce and a statement of issues to be resolved;
(3) the panel shall have the authority to resolve issues on motion
in accordance with the standards applicable to motions for
summary judgment in courts within the district in which the
hearing is to be conducted;
(4) the arbitrators shall apply the applicable rules of evidence
to the proceeding, except to the extent otherwise stipulated
in writing by the parties;
(5) the arbitrators shall prepare in writing their findings of
fact, conclusions of law and award; and
(6) the arbitrators shall not have the power to commit errors of
law or legal reasoning, and the award shall be reviewable and
subject to modification, reversal or remand concerning such
errors by a court of competent jurisdiction.
(C) Fees and Costs. All costs of arbitration shall be paid by the
losing party, including any and all attorney's fees.
(D) Enforcement of Award. Subject to the provisions of paragraph 6
above, the award rendered by the arbiter or arbiters shall be
final and binding upon the parties, and judgment may be
entered and enforced in any court having competent
jurisdiction.
15.03 Telecommunications Leases and Licenses.
Notwithstanding anything in this Agreement to the contrary, Lessee, without the
consent of Manager, shall have the right to lease or license portions of the
Hotel for telecommunications and similarly related facilities, or other uses, to
the extent such leases and licenses do not materially interfere with operations
of the Hotel. Any revenues derived therefrom shall be called "Telecom Revenues"
and shall belong solely to Lessee, and shall not be included in hotel revenue.
15.04 No Partnership or Joint Venture.
Nothing contained in this Agreement will be construed to be or create a
partnership or joint venture between Lessee, any affiliate of Lessee, its
successors or assigns, on the one part, and Manager, any affiliate of Manager,
its successors and assigns, on the other part. Manager shall be deemed to be an
independent contractor of Lessee for purposes of this Agreement.
15.05 Modifications and Charges.
This Agreement cannot be changed or modified except by another agreement in
writing signed by the party sought to be charged therewith, or by its duly
authorized agent.
15.06 Understandings and Agreements.
This Agreement constitutes all of the understandings and agreements of
whatsoever nature or kind existing between the parties with respect to Manager's
management of the Hotel.
15.07 Headings.
The Section headings contained herein are for convenience or reference only and
are not intended to define, limit or describe the scope or intent of any
provisions of this Agreement.
15.08 Survival of Covenants.
Any covenant, term or provision of this Agreement which, in order to be
effective, must survive the termination of this Agreement, will survive any such
termination.
15.09 Waivers.
No failure by Manager or Lessee to insist upon the strict performance of any
covenant, agreement, term or condition of this Agreement, or to exercise any
right or remedy consequent upon the breach of this Agreement will constitute a
waiver of any breach or any subsequent breach of the covenant, agreement, term
or conditions. No covenant, agreement, term or condition of this Agreement and
no breach of this Agreement will be waived, altered or modified, except by
written instrument. No waiver of any breach will affect or alter this Agreement,
but each and every covenant, agreement, term and condition of this Agreement
will continue in full force and effect with respect to any other then existing
or subsequent breach.
15.10 Applicable Law.
To the extent legally permissible, this Agreement will be construed and
interpreted by, and be governed by, the laws of the State of Tennessee.
15.11 Notices.
Except as otherwise provided in this Agreement, all notices required or
permitted to be given hereunder, or which are to be given with respect to this
Agreement, will be in writing sent by registered or certified mail, postage
prepaid, return receipt requested, by a reputable overnight delivery service
such as Federal Express, or by facsimile transmission, provided that a
simultaneous copy of the faxed notice is sent via overnight delivery, addressed
to the party to be so notified as set forth on Schedule I. Any notice will be
deemed delivered when received or receipt rejected. Notices may also be
delivered by hand, or by special courier, if, in either case, receipt is
acknowledged by the addressee. Any notice delivered by hand, or by special
courier, will be deemed delivered when received. Either party may at any time
change the addresses for notices by written notice to the other party.
15.12 Binding Effect.
This Agreement will be binding upon and will inure to the benefit of the
successors in interest and the assigns of the parties hereto, provided that no
assignment, transfer, sale, pledge, encumbrance, mortgage, lease or sublease by
or through Manager or by or through Lessee, as the case may be, in violation of
the provisions of this Agreement, will vest any rights relative to this
Agreement in the assignee, transferee, purchaser, secured party, mortgagee,
pledgee, lessee, sublessee or occupant, or will diminish, reduce or release the
obligations of the parties hereto.
15.13 Confidentiality.
Manager and Lessee agree that the contents of this Agreement will not be
disclosed to any other individual or entity (except as directed by law or
judicial order), provided, Lessee may disclose the contents of this Agreement to
(i) its partners and limited partners, or shareholders and directors, if a
corporate partner, and (ii) individuals or entities providing, or proposing to
provide, financing to Lessee.
15.14 Conflicts.
In the event of any conflicts between the terms of this Agreement and the
Franchise Agreement, the terms of this Agreement shall control.
15.15 Third Party Beneficiary.
None of the obligations of this Agreement of either party will run to or be
enforceable by any party other than the party to this Agreement or its assignee
pursuant to the terms of this Agreement. Lessee is expressly authorized to
assign its rights under this Agreement to any mortgagee of the Hotel.
15.16 Subordination.
This Agreement shall be subordinate to any mortgage encumbering the Hotel, and
Manager agrees to enter into such subordination agreements, and to execute and
deliver such estoppel certificates, as lender may require from time to time,
which shall include all reasonable provisions required by the lender, including,
without limitation, Manager's acknowledgment that its real estate interest in
and to the Hotel, if any, created by this Agreement is subordinate to any
mortgage encumbering such Hotel.
15.17 Time of the Essence.
Time is of the essence of this Agreement.
15.18 Counterparts.
This Agreement may be signed in one or more counterparts, which, when taken
together, constitute the entire Agreement.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year specified on Schedule I.
LESSEE:
----------------------------------------
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
Manager: ▇▇▇▇▇▇ Hospitality Management, LLC,
a Tennessee limited liability corporation
By:
----------------------------------------
Name:
----------------------------------------
Title:
----------------------------------------
39
SCHEDULE I - Terms of Agreement
1. DATE OF AGREEMENT:
2. DESCRIPTION OF HOTEL (Preamble)
-----------------------------------
3. COMMENCEMENT DATE (Section 1.02):
Upon lender and franchisor approval, or such other date as the
parties may agree upon.
4. EXPIRATION DATE (Section 1.02):
-----------------------------------
5. AGREEMENT LIMITATIONS (Section 3.04):
Maximum Amount: _________
Time Period: _________
6. MINIMUM BALANCE (Section 4.02):
------------
7. ACCOUNTING FEE:
Manager may charge a monthly accounting fee of $________ per
month to be paid from the Gross Revenue of the hotel. The
accounting fee will include all accounting services, training
provided by Manager personnel, and Manager allocations for
postage and telephone services incurred at the Manager's
office.
8. BASE MANAGEMENT FEE;
___% of Gross Revenues from the operation of the Hotel for the
preceding month.
9. INCENTIVE MANAGEMENT FEE:
_________ Percent (__%) of the amount by which Gross Operating
Profit for the final twelve (12) months of the term exceeds
$_________ shall be paid to Manager as an Incentive Management
Fee in accordance with Section 6.01(B). Notwithstanding the
foregoing, the Incentive Management Fee shall not exceed ____
Percent (__%) of the Gross Operating Revenues of the Hotel.
There will be no incentive management fee for the initial
three (3) months of the term.
10. LESSEE (Section 15.20): _____________________
11. NOTICES (Section 16.11):
Manager: ▇▇▇▇▇▇ Hospitality Management, LLC
▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇
Fax: ▇▇▇-▇▇▇-▇▇▇▇
Lessee: _______________________
c/o Equity Inns, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
SCHEDULE II - Management Services Included in Management Fee
(All to be conducted in accordance with the approved Annual Plan)
PROPERTY LEVEL
1. Establish staffing requirements
2. Establish employment policies such as hiring policies, terms of employment,
wage scales, and vacation and benefit packages
3. Select key employees and department heads
4. Provide property level training
5. Establish rates and charges for the goods and services to be sold by the
Hotel
6. Implement sales and marketing strategies
7. Supervise property operations
8. Negotiate and sign purchase orders and service agreements
HOME OFFICE
1. Provide a regional director of operations to supervise property activities
2. Provide a regional sales director
3. Provide human resources management
4. Provide management information systems
5. Make available Manager's legal staff to provide assistance in day-to-day
property operations.
6. Negotiate national vending contracts
7. Purchase all Operating Supplies and Operating Equipment
8. Pay all expenses incurred in the operation of the Hotel
9. Maintain the Hotel in good order, repair, and condition
10. Prepare a schedule of suggested insurance coverages and administer the
purchase of insurance, if requested by Lessee.
11. Implement Manager's standard administrative, accounting, budgeting,
marketing, and operational policies and practices
ACCOUNTING SERVICES
1. Prepare sales and use tax returns
2. Process accounts payable
3 Prepare monthly and yearly financial statements
4. Provide cash management services
5. Process payroll and related payroll items
SCHEDULE III - Sample Statement of Profit and Loss
SCHEDULE IV - Definition of Capital Replacements
CAPITAL REPLACEMENT:
A Capital Replacement is defined as an investment in a readily identifiable
facility which (1) is held for use or income rather than for sale or conversion
into goods or cash and (2) has a useful service life in excess of one year.
Nonrecurring expenses directly associated with the investment should be included
as part of the total expenditure for evaluation purposes, this includes
preopening expenses.
Capitalization Policy
If the cost of the capital addition is $1,000 or greater and the items acquired
have an expected service life of more than one year, the expenditure is
capitalized. See "Maintenance and Repairs" for those expenditures which are
expensed without regard to the $1,000 guideline.
If the item(s) acquired meet the more than one-year life criterion, but the
total invoice cost is less than $1,000, the expenditure is considered an expense
item.
Replacement - Component Parts
If the estimated job or total invoice cost for replacement of the following
major components of building is under $5,000, the expenditure is to be expensed
to maintenance and repairs:
Heating Equipment - Pumps, boilers, heat exchangers, thermostats;
pressure gauges alarm devices, piping.
Plumbing Equipment - Pumps, meters, minor sprinkler system, piping.
Air Conditioning Equipment - Compressors, condensers, motors, cooling
towers, evaporative coolers, piping.
Fire Prevention Equipment - Major fire system sprinklers, smoke
detectors.
Power - Transformer, conduits and boxes, panel boards, switches and
outlets.
Betterments
If the estimated job or total invoice cost is $5,000 or above, and the
expenditure(s) will extend the useful life of an asset previously capitalized,
then the expenditure should be capitalized.
Maintenance and Repairs
The following replacement expenditures are considered maintenance and repairs
and are not subject to the total invoice cost guideline of $1,000.
Repainting of Buildings, Pools, Park Areas (1)(6)
Refinishing of Furniture (2)
Glass Replacement (except when Thermal replaces regular glass)
Maintenance Service Contracts, such as Yard, Television, Elevator,
Swimming Pool
Wall Paper (not Vinyl) (2)
Reupholstery of Furniture (2)
Replastering (2)
Replacement of Chain Locks, Key Blanks, Keys, Locks, Locksets. Locks
and locksets installed in new doors or offering substantial
security improvements should be capitalized if the invoice is over
$1,000.
Patching Parking Lot (3)
Roof Repairs (4)
Waterproofing of Lamp Globes and Light Bulbs
Section Replacement for Neon Signs
Caulking and Sealing (1)
Toilet Seats
Stolen Televisions
Small Parts for Equipment (see below)
Landscaping/Plants (5)
1. If the complete exterior of the building is repainted,
including caulking and sealing of the building, those costs
will be capitalized.
2. Expenditures for interior painting, wall paper, refinishing of
furniture, replastering or upholstering may be capitalized if:
(a) These expenditures are part of a major refurbishment
project, or
(b) The cost of these expenditures exceed $10,000 and extend
the useful life of the asset.
3. Repairing of parking lots, including resealing and
resurfacing, will be capitalized if the expenditure exceeds
$10,000.
4. Replacement of the complete roof or complete section of the
roof (including laying a roof over an existing roof) will be
capitalized if total expenditure exceeds $10,000.
5. If the landscaping is new or replacement of existing interior
or exterior landscaping and exceeds $10,000, the cost of the
landscaping can be capitalized.
6. Major overhauls to the pool which exceed $10,000 in cost and
extend the useful life of the asset will be capitalized.
All expense items will be expensed to M&R expense line items above GOP. These
expenses, as a rule, should be funded from operating cash flow. Only large M&R
expenditures (in excess of $25,000) which will be funded from capital
replacement reserve may be classified to miscellaneous expense below the line.
These items must be approved by the Hotel Financial Controller.
Replacement of Component Parts
Expenditures for parts of equipment to keep the equipment in working condition
are expenses and not capital expenditures. The equipment as a whole is only
repaired by the replacements, which merely keeps it in working condition - e.g.,
compressors for air conditioners.
Software
Software costs will not be capitalized unless the cost of the software exceeds
$5,000, or it is included with the purchase of the hardware.
Retirements
If an item capitalized replaces an asset with a remaining life on the books, the
replaced asset should be written off.
SCHEDULE V - STR Competitive Set
(See Attached)