1
EXHIBIT 10.3.
AGREEMENT ON MANAGEMENT AND FRANCHISE-RELATED MATTERS
AGREEMENT dated June 20, 1997 among Summerfield Suites Management
Company, L.P., a Kansas limited partnership ("Franchisor'), Summerfield Suites
Lease Company, L.P., a Kansas limited partnership ("Franchisee"), and
Innkeepers USA Limited Partnership, a Virginia limited partnership
(collectively, the "Partnership").
W I T N E S S E T H
WHEREAS, the partnership is controlled by Innkeepers USA Trust, a
Maryland real estate investment trust (the "REIT"); and
WHEREAS, the Partnership or its designee proposes to acquire pursuant
to Contribution Agreements dated June 2, 1997 (each, a "Contribution Agreement"
and collectively, the "Contribution Agreements") the Summerfield Suites, Sierra
Suites and Sunrise Suites hotel properties described in Exhibit A hereto from
partnerships affiliated with Franchisor and Franchisee (the "Contributing
Partnerships"); and
WHEREAS, the Partnership or its affiliates may in the future acquire
and lease to Franchisee or affiliates of Franchisee additional Summerfield
Suites and Sierra Suites hotels (collectively with the hotels acquired from the
Contributing Partnerships, the "Hotels"); and
WHEREAS, Franchisor holds all rights necessary to franchise the use of
the name and concept for "Summerfield Suites" and "Sierra Suites" hotel
franchise brands; and
WHEREAS, Franchisor has entered into franchise agreements with
Franchisee dated June 20, 1997, in the form attached hereto as Exhibit B and
may enter into franchise agreements with respect to Hotels acquired by the
Partnership or its affiliates in the future (each, a "Franchise Agreement" and
collectively, the "Franchise Agreements"); and
WHEREAS, upon the Partnership's (or its designee's) acquisition of the
Hotels, the Partnership (or its designee) ("Lessor") proposes to lease the
Hotels to Franchisee (or an affiliate of Franchisee ("Lessee") pursuant to
lease agreements (collectively, the "Leases") which give Franchisee or an
affiliate of Franchisee the right to lease and operate the Hotels; and
WHEREAS, Franchisee will enter into management contracts with
Franchisor; and
WHEREAS, it is a condition to the Partnership's (or its designee's)
agreement to acquire the Hotels from the Contributing Partnerships and lease
the Hotels to Franchisee pursuant to the
2
Leases and a Lease Master Agreement (the "Lease Master Agreement") that the
parties shall have entered into this Agreement; and
WHEREAS, Franchisor and Franchisee will obtain material benefits from
the Partnership's acquisition of the Hotels from affiliates of Franchisor and
Franchisee pursuant to the Contribution Agreements and lease of the Hotels to
Franchisee pursuant to the Leases; and
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Franchise Agreement. Franchisor and Franchisee represent and
warrant to the Partnership that (i) Exhibit B is a true, correct and complete
form of each of the Franchise Agreements, (ii) Franchisee has all rights and
duties as franchisee/licensee under each Franchise Agreement and is not in
default under any Franchise Agreement and there is no event or state of facts
that with the passage of time or notice of default would constitute a default
under the Franchise Agreement or a violation of Franchisor's standards manual,
and (iii) there are no agreements or undertakings, oral or otherwise, between
Franchisor and Franchisee with regard to the franchises created by the
Franchise Agreement. During the term of the Leases, Franchisor and Franchisee
will not amend, modify or terminate any Franchise Agreement related to a Hotel
subject to a Lease (except in the event of a default by Franchisee under a
Franchise Agreement) without the prior written consent of the Partnership. To
the extent that any provision of the Lease is inconsistent with any terms or
provisions of this Agreement, the terms and provisions of this Agreement shall
control.
2. Boards. For so long as the Partnership and its affiliates
collectively own at least 10% of the hotels open and operating within the
Summerfield Suites and Sierra Suites franchise brands (in each case, a
"Controlled Brand") and during the term of the Leases (and for so long as the
Franchise Agreements remain in full force and effect), a designee of the
Partnership shall be a member of Franchisor's marketing association board and
franchisee association board for such Controlled Brands.
3. Comfort Letters. Upon the request of the Partnership from
time to time, Franchisor and Franchisee promptly will provide customary
assurances and comfort letters to the Partnership's or the REIT's lenders,
underwriters or similar parties and their counsel with respect to the Franchise
Agreements being in full force and effect, there being no default under the
Franchise Agreements, the existence and binding effect of this Agreement, and
such other matters as the Partnership may reasonably request.
4. Changes to Franchise. For so long as the Partnership owns at
least 75% of the hotels open and operating within a Controlled Brand,
Franchisor shall not make any material changes to the form, terms or provisions
of the franchise agreement for such Controlled Brand or materially change the
Controlled Brand concept or standards without the prior written consent of the
Partnership. Without limiting the generality of the foregoing, the Partnership
shall have the right to approve any change to the prominent trade name of
"Summerfield Suites" or "Sierra
-2-
3
Suites" (other than the addition of a "tag line"). Any change to the prominent
trade name shall be without cost to the Partnership and Franchisor agrees to
pay or to reimburse the Partnership, upon request, for any third-party costs or
expenses in connection with any such change, including, without limitation,
costs associated with any signage or logo changes and other capital
improvements not currently contemplated by the Franchise Agreements.
5. Capital Improvements. Unless the Partnership and the
Franchisee otherwise agree in writing, Franchisor and Franchisee agree with the
Partnership that the capital improvements schedule set forth on Exhibit C
hereto (the "5/10/15 Year Re-Do Schedule") shall be imposed on Franchisee as a
part of Franchisee's obligations pursuant to the Franchise Agreements for the
Hotels and Franchisee agrees with Franchisor and the Partnership to cause the
items set forth on the 5/10/15 Year Re-Do Schedule to be performed at the
Hotels by the dates and in the manner described in the 5/10/15 Year Re-Do
Schedule.
6. Relationship with Franchise. Franchisor hereby agrees with
the Partnership that Franchisor will enforce the terms of the Franchise
Agreements against Franchisee in good faith and on an arms'-length basis.
7. Transfer. Franchisor represents that on the Closing Date, the
owners of Franchisor are as described in Exhibit D ("Owners"). For so long as
the Partnership owns at least 75% of the open and operating hotels of a
Controlled Brand, Franchisor shall not permit any merger, sale of its stock or
sale, transfer or conveyance of all or substantially all of the assets of
Franchisor, or the sale, transfer of conveyance of the Franchise Agreements (a
"Transfer"), if, as a result thereof, Franchisor or the surviving entity would
cease to be controlled by the Owners without (i) at least 30 days' prior
written notice to the Partnership describing in reasonable detail the proposed
transaction and (ii) the Partnership's prior written consent. Notwithstanding
the foregoing, the Partnership shall consent to the Transfer if (i) the party
proposed to acquire control of Franchisor or its assets (the "Transferee")
assumes, pursuant to an assumption document reasonably satisfactory to the
Partnership, all of the obligations and covenants of Franchisor pursuant to
this Agreement, (ii) the Transferee (A) is an established national hotel
franchise or management company which has a good reputation in the industry as
reasonably determined by the Partnership; (B) is operating and/or franchising
prior to such acquisition at least fifty (50) fully operating hotels in the
United States containing an aggregate of not less than seven thousand five
hundred (7,500) keys and (C) has a Net Worth, as determined by generally
accepted accounting principles consistently applied, of not less than
$25,000,000 and (iii) the Transfer includes the transfer of not less than all
of the Franchise Agreements of such Controlled Brand to the Transferee. In no
event may Franchisor transfer or assign less than all of the Franchise
Agreements of such Controlled Brand without the Partnership's prior written
consent.
8. Termination of Leases. In the event (i) the Partnership
terminates one or more of the Leases, or (ii) Franchisee defaults under a
Franchise Agreement and any applicable cure periods have expired without the
default having been cured, Franchisor and Franchisee agree that upon written
notice from the Partnership, the Franchise Agreement will be transferred and
-3-
4
assigned to the Partnership or an affiliate or designee of the Partnership.
Such transfer and assignment shall be without cost to the Partnership or its
affiliate or designee, including without limitation, any product improvement
plan ("PIP") costs, franchise or other transfer application fee or any other
cost, fee or expense (excluding, however, the Partnership's legal and
accounting costs and overhead), and shall not be conditioned upon the
Partnership or its affiliate or designee taking any action or incurring any
obligation other than execution of the Franchise Agreement or an assignment
thereof or a new franchise agreement with (a) a term equal to the unexpired
term of the franchise agreement and (b) other terms which are identical to the
terms of the Franchise Agreement.
9. Non-Compete. Throughout the term of the Leases, neither
Franchisor nor any Affiliate of Franchisor shall develop, build, own, lease,
operate, manage, franchise or have any interest in (i) any Summerfield Suites
hotel that is located within a five (5) mile radius of any Hotel that is a
Summerfield Suites hotel or (ii) any Sierra Suites hotel that is located within
a five (5) mile radius of any Hotel that is a Sierra Suites hotel, other than
pursuant to a Percentage Lease. Franchisor agrees to notify the Partnership,
from time to time at the request of the Partnership, of the location of any
hotel or motel property Franchisor or any affiliate owns, leases, operates,
manages or has an interest in. The Partnership agrees to notify Franchisor,
from time to time at the request of Franchisor, of the location of any hotel or
motel property in which the Partnership or an affiliate of the Partnership has
an interest.
10. Right of First Offer. During the term of the Franchise
Agreements, the Partnership (or its designee) shall have a right of first offer
(the "Right of First Offer") to acquire from Franchisor or any affiliate of
Franchisor any hotel acquired or developed by Franchisor or any affiliate of
Franchisor within a five (5) mile radius of any Hotel (a "Right of First Offer
Hotel"). Before entering into a binding contract to sell any Right of First
Offer Hotel, Franchisor or its affiliate shall first offer to sell the Right of
First Offer Hotel to the Partnership. The terms of the Right of First Offer
shall be substantially equivalent to the terms set forth in Section 36.1(f) of
the Leases, as modified appropriately to reflect that the Franchisor or an
affiliate is the offeror and the Partnership or its designee is the offeree.
11. Subordination. Franchisor and Franchisee hereby agree with
the Partnership that the payment of all franchise fees and costs by Franchisee
to Franchisor, pursuant to Franchise Agreements or otherwise, shall be
subordinated to all Rent (as defined in the Leases) payments due and owing to
the Partnership from Franchisee pursuant to the Leases for so long as
Franchisor and Franchisee are affiliates.
12. Sale. It shall be a condition of the sale of all or
substantially all of Franchisor's assets, or Franchisor's rights with respect
to the "Summerfield Suites" and "Sierra Suites" brands, that any proposed
transferee or assignee of such assets or rights execute and deliver to the
Partnership an assumption agreement and acknowledgement that the terms of this
Agreement remain in full force and effect.
-4-
5
13. Successor or Assigns. This Agreement shall inure to the
benefit of the Partnership and other affiliates of the REIT and shall be
binding upon Franchisor and Franchisee and their respective successors and
assigns.
14. Rights to Cure Franchisee Default. Prior to terminating any
Franchise Agreement following a default by Franchisee thereunder, Franchisor
shall (a) give notice of the default to Partnership, (b) permit Partnership to
cure such default within (i) ten (10) days after such notice is received, if
the default is a monetary default, (ii) thirty (30) days after such notice is
received, if the default is a non-monetary default, or (iii) if such default is
not capable of cure within thirty (30) days after such notice is received,
within such time as is reasonably required to cure such default if such cure is
commenced promptly and pursued diligently until completion and, (c) upon
Partnership's termination of the Lease relating to the Hotel subject to such
Franchise Agreement and notice to Franchisor, comply with Section 8 above.
15. Amendment. This Agreement may not be amended or modified in
any respect except by the written agreement of the parties hereto.
16. Notices. (a) Franchisor agrees to send the Partnership a copy
of any notice or statement of any breach, default or non-compliance or alleged
breach, default or non-compliance under any Franchise Agreement.
(b) All notices, requests, demands and other communications
hereunder shall be in writing and shall be delivered by hand, transmitted by
facsimile transmission or sent prepaid by international courier at the
addresses as designated below. Any notice, request, demand or other
communication delivered or sent in the manner aforesaid shall be deemed given
or made (as the case may be) when delivered by hand or confirmed by facsimile
transmission or, in the case of delivery by courier, when actually delivered to
the address of the intended recipient.
If to the Partnership: INNKEEPERS USA LIMITED
PARTNERSHIP
000 Xxxxx Xxxxxxxxx Xxx
Xxxx Xxxxx, Xxxxxxx 00000
Fax: (000) 000-0000
Attn: Xxxx X. Xxxxxx
If to Franchisor or Franchise: SUMMERFIELD SUITES LEASE
COMPANY, L.P.
or
SUMMERFIELD SUITES MANAGEMENT
COMPANY, L.P.
0000 Xxxx 00xx Xxxxxx, Xxxxxxxx 000
Xxxxxxx, Xxxxxx 00000
Fax: (000) 000-0000
Attn: General Partner
-5-
6
17. Affiliate. Any currently existing or future affiliate of the
Partnership ("Affiliate") that is or may be a lessor under a Lease shall become
a party to this Agreement, entitled to the same rights, benefits and remedies
hereunder to which the Partnership is entitled hereunder by execution of an
addendum to this Agreement in the form of Exhibit E hereto. Upon the request
of the Partnership, Franchisor and Franchisee, and any affiliate of Franchisee
which may be a lessee under a Lease, agree to execute any documents,
instruments or amendments hereto reasonably requested by the Partnership to
further evidence any such Affiliate's rights, benefits and remedies hereunder;
provided, however, that at such time as the Affiliate or the Hotel properties
of which it is the owner cease to be owned, directly or indirectly, 100% by the
Partnership, then this Agreement shall be amended and modified solely as to
such property or such Affiliate, as the case may be, by the following
provisions:
(a) The rights, benefits, and remedies of this Agreement
may be extended to a transferee of a Hotel (a
"Transferee Hotel") or of an Affiliate in the limited
manner provided herein; the transferee consents to
the terms of and any agreements or documents
(including the Franchise Agreement and Lease Master
Agreement) to which the transferor and the Franchisor
were parties relating to the Hotel; and the
transferee executes an Adoption and Addendum
Agreement (a "Permitted Transferee").
(b) By executing the Adoption and Addendum Agreement, the
Permitted Transferee shall become a party to this
Agreement for the limited purpose of enforcing the
provisions of Sections 3, 5, 6, 8 (as modified by
subsection (c) below), 9 (as modified by subsection
(d) below), 10, 11, 12, 13, 14, 15, 16, 18 (as
modified by subsection (e) below) and 19 solely with
respect to each Transferee Hotel owned or controlled
by the Permitted Transferee and for no other purpose.
All other rights granted the Partnership under this
Agreement are expressly retained by the Partnership
and may not be exercised by the Permitted Transferee.
(c) With respect to the provisions of Section 8, any
Franchisee/designee of a permitted Transferee
thereunder shall be subject to the approval of
Franchisor, which approval shall not be unreasonably
withheld. In connection with any such approval,
Franchisor agrees to subject any such designee to the
same Franchisee qualification criteria and standards,
to which it subjects other Franchisee candidates,
generally.
(d) With respect to the provisions of Section 9, the
5-mile radius for the non-competition provisions
shall be reduced to 3 miles.
(e) Paragraph 18 shall be modified to provide that it
shall not apply to the Permitted Transferee in the
exercise of the rights granted in B above, as to the
Transferee Hotel.
-6-
7
18. Joint Exercise. This Agreement provides the Partnership and
its Affiliates certain rights, benefits and remedies. These rights, benefits,
and remedies, may be exercised, availed of, or otherwise performed jointly by
the Partnership and any Affiliates who subsequently become a party hereto, and
not singly or separately by any one or more but less than all of them. The
REIT is hereby designated and appointed the representative of the Partnership,
each of its Affiliates, and any permitted transferees, and the Franchisor and
Franchisee shall be permitted to rely upon any written or oral communication or
notification from the Partnership, as being from all of the REIT, its
affiliates, and permitted transferees, acting jointly. Any notice required to
be given hereunder shall be given to the Partnership as representative for all
of the Partnership, its affiliates and permitted transferees.
19. Management Fees. Franchisor shall act as manager of the
Hotels pursuant to a Management Agreement with Franchisee. Franchisor agrees
that upon termination of the Lease or termination of Lessee's right to
possession of the Hotel for any reason whatsoever, the Management Agreement may
be terminated by Lessor without liability for any payment due or to become due
to the manager of the Hotel, and that all fees and other amounts payable by
Lessee to the manager shall be subordinate on a month-to-month basis to rent
and other amounts payable by Lessee to Lessor prior to the existence of an
Event of Default under the Lease Agreement and shall be at all times
subordinate to rent and such other amounts after the occurrence of an Event of
Default under the Lease Agreement. Franchisor, as Manager, consents to such
provisions as if contained in the executed Management Agreement. This Section
19 shall be binding upon the Franchisee and Franchisor, as manager, any of
their respective successors and assigns.
-7-
8
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the day and year first above written.
INNKEEPERS USA LIMITED PARTNERSHIP
By: INNKEEPERS FINANCIAL
CORPORATION, its general partner
By: /s/ Xxxx Xxxxxx
------------------------------------
Name: Xxxx X. Xxxxxx
-----------------------------
Title: Vice President
----------------------------
FRANCHISOR:
SUMMERFIELD SUITES MANAGEMENT
COMPANY, L.P.
By: Summerfield Suites Management
Corporation, a Delaware corporation,
its general partner
By: /s/ Xxxx Xxxxx
------------------------------
Name: Xxxx X. Xxxxx
-----------------------------
Title: Senior Vice President & General Counsel
----------------------------------------
FRANCHISEE:
SUMMERFIELD SUITES LEASE
COMPANY, L.P.
By: Summerfield Suites Lease Corporation,
a Kansas corporation, its general
partner
By: /s/ Xxxx Xxxxx
-------------------------------
Name: Xxxx X. Xxxxx
-----------------------------
Title:Senior Vice President and General Counsel
-----------------------------------------
[Agreement on Management and Franchise-Related Matters]
