FORM OF SECOND AMENDMENT TO MANAGEMENT AGREEMENT
Exhibit
10.2
FORM
OF
SECOND
AMENDMENT TO MANAGEMENT AGREEMENT
THIS
SECOND AMENDMENT TO MANAGEMENT AGREEMENT (“Amendment”)
is
being made effective the 3rd
day of
October, 2006 (the “Effective
Date”),
by
and among ____________, (the “Owner”
or
“Franchisee”),
_____________, (the “Manager”)
and
AmeriSuites Franchising, Inc. (the “Franchisor”).
RECITALS
AND SUMMARY OF CHANGES:
Owner
and
Manager are parties to that Management Agreement dated January 1, 2002, as
amended by the First Amendment to Management Agreement dated May 14, 2003,
between Owner and Manager (the “First
Amendment”
and
collectively, the “Management
Agreement”),
with
respect to the management and operation of Owner’s AmeriSuites hotel located at
________, _________, _____ (the “Hotel”).
Owner, Manager and Franchisor, together with certain other of their respective
affiliates, are parties to a Master Agreement dated the date hereof (the
“Master
Agreement”)
which
provides for, among other things, the termination of the Management Agreement,
as amended hereby, and the Existing Franchise Agreement (as defined in the
Master Agreement) on the date of completion of conversion of the Hotel to a
Hyatt Place hotel in accordance with the terms of the Master Agreement (the
“Date
of Conversion”),
all
as set forth in the Master Agreement. Capitalized terms used but not defined
herein shall have the meanings set forth in the Master Agreement. The parties
now wish to enter into this Amendment to evidence their agreement to amend
certain provisions of the Management Agreement or in the Master Agreement,
as
the case may be, as set forth herein accordingly, which amendments among other
things will provide the following:
A. Effective
as of the Effective Date, the calculation of Owner’s Return shall be subject to
modification, as set forth herein.
B. On
_________, 200__ (the “Existing
Guarantee Termination Date”),
Manager’s obligation to make payment of Owner’s Return shall continue until the
earlier of 150 days after the Existing Guarantee Termination Date or the Date
of
Conversion (the “New
Guarantee Termination Date”).
C. Effective
as of the New Guarantee Termination Date, the Management Fees and Continuing
Royalty Fees shall be subject to subordination as herein provided, unless the
Management Agreement, as amended hereby, has been terminated in accordance
with
the terms of the Master Agreement.
NOW,
THEREFORE, in consideration of the foregoing, and other good and valuable
consideration, the receipt and legal sufficiency of all of which is hereby
acknowledged, the parties hereby agree to amend the Management Agreement as
follows:
1. Amendments.
(a) Effective
as of the Effective Date, Section 6.01 of the Management Agreement is
hereby amended to add the following at the end of existing
Section 6.01:
Owner
and
Manager hereby agree that the Minimum Return for the 2006 Fiscal Year is
$___________, subject to annual CPI adjustment as set forth herein. In addition,
Minimum Return for any period shall be increased quarterly beginning July 1,
2006, by an amount determined by multiplying (A) Conversion Cost to date by
(B) 9.5% and further multiplying the product thereof by the number of
months elapsed in the Fiscal Year divided by 12.
(b) Effective
as of the Effective Date, paragraph 3. of the First Amendment shall be of no
further force or effect.
(c) Effective
as of the New Guarantee Termination Date, Section 6.01 of the Management
Agreement shall be deleted in its entirety and replaced with the
following:
6.01 Management
Fees.
For each
Fiscal Year, Owner shall pay Management Fees to Manager as follows:
(a) a
basic
fee (“Basic
Fee”)
equal
to three percent (3%) of the Gross Receipts, provided however, if in any given
Fiscal Year, there is a Deficiency, as calculated monthly on a cumulative Fiscal
Year-to-Date basis, with Owner’s Priority being calculated on a monthly and
Fiscal Year-to-Date basis by multiplying (A) Project Costs by (B) 9.5% and
further multiplying the product thereof by the number of months elapsed in
the
Fiscal Year divided by 12, then the Management Fees shall be reduced by an
amount equal to the full amount of the Deficiency, provided however, if the
amount of the Fiscal Year-to-Date Deficiency exceeds the full amount of the
Management Fees for the Fiscal Year-to-Date, Manager shall have no other
obligations to Owner with respect to any remaining Deficiency, subject to the
Franchisor complying with its obligations to subordinate its Continuing Royalty
Fee in accordance with Section 6.04
of this
Amendment. The obligation of Manager to reduce or eliminate its Management
Fees
as to any Fiscal Year is limited to the full amount of the Deficiency for such
Fiscal Year only, and Owner and Manager hereby agree that the Management Fees
for any Fiscal Year shall not be reduced as a result of any Deficiency in any
prior or subsequent Fiscal Year.
(b) an
Incentive Fee (“Incentive
Fee”)
equal
to ten percent (10%) of the amount of Excess Adjusted NOI.
Except
for the Management Fees and the fees and reimbursements to Manager and its
Affiliates referred to herein and in the Existing Franchise Agreement, Manager
and its Affiliates shall not be entitled to any fees or other form of
remuneration or compensation for any services provided to the Hotel. Other
than
as provided in this Section 6.01(b),
there
shall be no reduction in the Basic Fee or other liability to Manager for any
deficit in Adjusted NOI for any Fiscal Year, nor shall any deficit in Adjusted
NOI be carried back to any previous Fiscal Year or carried forward to any
subsequent Fiscal Year.
An
example of the calculation and payment of Basic Fee, Incentive Fee and
Continuing Royalty Fee and the reduction of fees is set forth on Exhibit
A
hereto,
including for periods that are less than a full calendar year.
(d) Effective
as of the New Guarantee Termination Date, the Franchisor shall be added as
a
party to the Management Agreement and Article 6 of the Management Agreement
shall be amended to include Section 6.04
as
follows:
6.04 Franchise
Fees.
Notwithstanding
anything to the contrary in this Agreement or the Existing Franchise Agreement,
Franchisor, by execution hereof, agrees that (i) the Continuing Royalty Fee
payable pursuant to Section 9.3 of the Existing Franchise Agreement shall
be 4% of Franchisee’s prior month’s Gross Room Sales (as defined in the Existing
Franchise Agreement) and (ii) until the 60 month anniversary of the Full
Conversion Date, the Continuing Royalty Fee otherwise payable by Owner for
any
Fiscal Year shall be reduced, up to the full amount of any such Continuing
Royalty Fee in the event of any Deficiency for such Fiscal Year, to the extent
of the Deficiency remaining after reduction of the Basic Fee in accordance
with
Section 6.01(a).
The
obligation of Franchisor to reduce or eliminate its Continuing Royalty Fee
in
any Fiscal Year is limited to the full amount of the Deficiency for such Fiscal
Year only, and the Continuing Royalty Fee for any Fiscal Year shall not be
reduced as a result of any Deficiency in any prior or subsequent Fiscal Year.
Owner hereby agrees that, for any Fiscal Year, the combined obligation of
Franchisor and Manager to reduce their respective fees as set forth in this
Section 6.04
and
Section 6.01
shall
not exceed the amount of the Deficiency for such Fiscal Year. In each Fiscal
Year during which both the Continuing Royalty Fee and the Basic Fee are reduced
due to a Deficiency, the Basic Fee
shall
be reduced in full before the Continuing Royalty Fee is reduced to cover any
remaining amount of the Deficiency. To the extent Franchisor has received any
such Continuing Royalty Fee it will remit such fees to Owner as determined
herein.
An
example of the calculation and payment of Basic Fee, Incentive Fee and
Continuing Royalty Fee and the reduction of fees is set forth on Exhibit
A
hereto,
including for periods that are less than a full calendar year.
(e) Effective
as of the Effective Date, the following Article 18 is hereby added to the
Management Agreement:
18. ASSIGNMENT.
18.1 Assignment
by Manager.
(a) Except
as
herein provided, Manager shall not sell, assign, hypothecate, transfer or
otherwise dispose of, in whole or in part, any of its rights or interests
hereunder. Notwithstanding the foregoing, Manager may transfer or assign its
rights under this Agreement in whole, but not in part, to any Affiliate of
Manager, whether as a result of a merger, reorganization, acquisition or “change
in control,” subject, in each such case, to each of the following terms and
conditions:
(1) The
transferee shall, no later than the effective date of the transfer, be an
Affiliate of Hyatt Corporation;
(2) The
transferee shall have the full right, power and authority to enter into this
Agreement and to fulfill the obligations of Manager hereunder;
(3) Not
later
than the effective date of any such transfer, the transferee shall have
available to it the entire operating system of Manager for the use and benefit
of the transferee and the management and operation of the Hotel as part of
AmeriSuites Hotels, including, without limitation, the benefit of services
that
are designed to approximate the services available to the Hotel prior to any
such transfer; and
(4) The
transferee shall have executed a written instrument in form and substance
reasonably satisfactory to Owner, a certified copy of which shall be delivered
to Owner not later than twenty (20) days following the effective date of any
such transfer, expressly assuming and agreeing to pay, perform and discharge
all
of the liabilities and obligations of Manager hereunder, including, without
limitation, any such liabilities or obligations arising or accruing prior to,
on
or after the effective date of any such transfer.
(b) Upon
satisfaction and discharge of all conditions set forth in Section 18.1(a),
Manager
shall be relieved of any liability or obligation hereunder arising after the
date of such assignment.
(c) Except
as
otherwise provided in this Section 18.1,
upon
any other assignment or transfer by Manager of its rights or interests in this
Agreement, Owner shall have the option, exercisable from the time of such
transfer or assignment and for 60 days following notice to Owner of such
transfer or assignment, to terminate this Agreement without liability or payment
to Manager.
18.2 Assignment
by Owner.
(a) In
addition to any permitted collateral assignments to Lenders, Owner shall have
the right to assign its entire rights and interests in this Agreement without
the prior written consent of Manager to (i) any Person Affiliated with
Owner, (ii) any Person in connection with a sale or transfer of the Hotel
(including, without limitation, any lease of the Hotel in its entirety), so
long
as in the case of (ii), all conditions set forth in this Section 18.2
shall
have been met and satisfied and such assignee shall have applied for and
qualified for the assumption of the Existing Franchise Agreement or entered
into
a then-current AmeriSuites franchise agreement for the duration of the Term
(as
defined in the Management Agreement), prior to the effective date of any such
assignment. Unless otherwise agreed to by Manager, Owner shall not sell, assign
or transfer the Hotel, or any interest therein or issue or permit the transfer
of any Ownership Interest to any Person (i) engaged, directly or
indirectly, as a substantial part of its business, in franchise licensing of
hotels and not Affiliated with Owner; (ii) who fails or refuses to assume
Owner’s responsibilities under this Agreement; (iii) who would otherwise
not qualify as a franchisee under the terms of the Existing Franchise Agreement
or (iv) who does not wish to apply for and enter into a then-current AmeriSuites
franchise agreement for the Hotel. Upon any assignment hereof in connection
with
a sale or other transfer of the Hotel, Owner shall be relieved of its duties,
obligations and liabilities hereunder arising after such assignment so long
as
all conditions set forth in this Section 18.2(a)
have
been met and the assignee thereof expressly assumes in writing all such duties,
obligations and liabilities (including, without limitation, those arising or
relating to events occurring prior to any such assignment) and shall agree
to be
bound by this Agreement as evidenced by a written instrument executed by such
assignee in favor of Manager in form and substance reasonably satisfactory
to
Manager. If Owner desires to effect an assignment of a majority of its Ownership
Interest, Owner shall give Manager not less than forty-five (45) days advance
notice of its intention to do so, which notice shall identify in reasonable
detail the direct and indirect owners of the proposed purchaser. In the event
that the sale or transfer contemplated in this subsection (a)
is to a
Person not Affiliated with Owner or involves the transfer of a majority
Ownership Interest in Owner, then the assignment of this Agreement shall
specifically exclude Manager’s and Franchisor’s obligations set forth in
Section 6.01
and
6.04
hereof.
Any such assignment further shall provide that that the Basic Fee is three
percent (3%) of the Gross Receipts as of the effective date of the assignment
of
this Agreement. Notwithstanding the foregoing, if (i) Owner transfers 50%
or more of the Ownership Interest to a Person Affiliated With Owner,
(ii) Owner transfers fifty percent (50%) or more of the Affiliate Hotels
(including the Hotel in a single transaction or series of related transactions
with the same buyer or Persons Affiliated with that buyer, and provided such
Affiliate Hotels are being operated as AmeriSuites Hotels) or (iii) there
is a transaction or event which constitutes a “change in control” of Equity
Inns, Inc., then this Agreement and specifically including Section 6.01
and
6.04
hereof
(along with the applicable Existing Management Agreements) shall be assignable
without any modifications or exclusions so long as the transferees comply with
the provisions of this Section 18.2.
(b) Notwithstanding
the foregoing, in no event shall Owner subject the Hotel, or any part or
interest therein, to a strata or condominium ownership regime, or permit the
same to be so subjected, without the written consent of Manager, which consent
shall be in Manager’s sole discretion.
(c) In
the
event of an assignment of any Ground Lease relating to the Hotel, whether to
or
from an Affiliate of the then Owner or Ownership Participant or otherwise,
(i) if the lessee shall become the “Owner” hereunder, such Person shall
assume all of the liabilities and obligations of Owner herein set forth; and
(ii) if the lessee is an Affiliate of Owner, the lessor shall not be
relieved of any of the liabilities or obligations of Owner
hereunder.
(d) Notwithstanding
anything herein to the contrary, the provisions of this Section 18
shall be
binding upon any transferee or subsequent transferee.
(f) Effective
as of the Effective Date, Article 14 of the Management Agreement is hereby
amended by inserting into the appropriate alphabetical locations, the following
definitions:
“Conversion”
shall
mean all construction, renovation, installation and work to be performed at
the
Hotel, both in the guest rooms and in the public areas and the equipping of
the
Hotel and purchase and stocking of the Operating Equipment, operating supplies
and inventory items meeting the Systems Standards and all other requirements
of
the Affiliate Franchise Agreement for purposes of the Hotel being converted
to a
Hyatt Place Hotel as set forth in the Master Agreement.
“Conversion
Cost”
shall
mean all amounts expended by Owner for the Conversion of the Hotel, including
without limitation, all rebranding, construction and related costs as set forth
in the scope of work attached to the Master Agreement, all FFE, all Operating
Equipment and related costs required to be capitalized in accordance with GAAP,
all operating systems and the cost associated with the personnel hired for
the
installation of the same, all fees and reimbursements for the Pre-Opening
Services provided by contractors and vendors (recommended by Manager) and
Manager and its Affiliates.
“Fiscal
Year”
shall
mean the calendar year except that the first Fiscal Year hereunder shall
commence on the Effective Date and end on December 31 of the same calendar
year
as the Effective Date, and the last Fiscal Year hereunder shall commence on
January 1 of the calendar year in which the last day of the Term occurs or
the
earlier termination of this Agreement occurs and end on the date of the last
day
of the Term or the date of earlier termination of this Agreement.
“Operating
Equipment”
shall
mean linens, china, glassware, silverware, uniforms and the like, excluding
FFE.
“Pre-Opening
Services”
shall
mean the (i) services provided by the project manager recommended by Select
to assist in and to oversee the Conversion and to coordinate with the vendors
providing the FFE and Operating Equipment and operating supplies and inventory
items and (ii) any other service provided by Select or its Affiliates to
prepare and convert the Hotel as a Hyatt Place Hotel, not otherwise covered
under the Franchise Agreement, including without limitation, recommendations
of
vendors and contractors to owner, assistance and review of the budget for the
Conversion and approval of contractors and vendors hired by Owner.
(g) Effective
as of the New Guarantee Termination Date, Article 14 of the Management Agreement
is hereby amended by inserting into the appropriate alphabetical locations,
the
following definitions:
“Adjusted
NOI”
shall
mean, for any relevant period, Income After Undistributed Operating Expenses
less deductions for the following amounts incurred for and allocable to such
relevant period (but only to the extent that such amounts are not otherwise
deducted in computing Income After Undistributed Operating
Expenses):
(a) An
amount
equal to Maintenance Cap Ex Reserve of 4% of Gross Receipts for such
period;
(b) The
cost
of all insurance maintained by Owner and Manager in accordance with the
provisions of this Agreement, together with the cost of property insurance
and
terrorism insurance (if any) maintained by Owner with respect to the
Hotel;
(c) All
real
and personal property taxes (less refunds, offsets or credits thereof, and
interest thereon, if any, received during the period in question);
(d) The
Basic
Fee and all fees payable under the Existing Franchise Agreement;
(e) Lease
payments; and
(f) All
other
amounts deductible in respect of such period under the express terms of this
Agreement.
To
the
extent the Hotel is part of a mixed-use project (which, for this purpose, shall
mean any project that includes, in addition to the Hotel, any facilities not
subject to management or operation by Manager hereunder), a portion of common
costs relating both to the Hotel and to the non-Hotel portions of the project,
such as, for example, but not by way of limitation, real estate taxes,
insurance, common area landscaping, site maintenance, trash removal,
extermination and other such costs intended for the benefit both of the Hotel
and the non-Hotel portions of the development, shall be allocated in a fair
and
reasonable manner so that the Hotel shall bear only its fair and reasonable
portion of such common expenses.
“Basic
Fee”
shall
have the meaning set forth in Section 6.01
hereof.
“Deficiency”
shall
mean, for any relevant period, the amount by which Adjusted NOI is less than
Owner’s Priority for such relevant period.
“Excess
Adjusted NOI”
shall
mean the amount by which Adjusted NOI exceeds Owner’s Priority.
“Incentive
Fee”
shall
have the meaning set forth in Section 6.01
hereof.
“Gross
Receipts”
for any
period shall mean all revenues and income of any kind derived, directly or
indirectly, from the operation of the Hotel during such period, including all
revenues derived from the sale during such period of rooms, food and beverages,
telephone revenue, revenue derived from any other revenue source and rents
or
fees payable by tenants or concessionaires for such period (but not the gross
receipts of such sub-tenants or concessionaires). Without limiting the
generality of the foregoing, it is the intention of the parties that the term
“Gross
Receipts”
shall
mean all amounts properly accounted for as Revenue or Total Revenue or Total
Operated Departments in accordance with, and as defined in, the Uniform System.
Notwithstanding the foregoing, there shall be excluded in determining Gross
Receipts for any period the sum of (i) any sales, excise or occupancy taxes
actually collected during such period in accordance with Legal Requirements
from
guests or patrons of the Hotel and either remitted, or required to be remitted,
to appropriate taxing authorities; (ii) amounts collected from guests or
patrons of the Hotel on behalf of Hotel tenants and other third parties;
(iii) interest earned on funds held in Operating Accounts (if any); and
(iv) insurance proceeds, condemnation proceeds, financing or refinancing
proceeds and the proceeds of sale of any real or personal property comprising
part of the Hotel (as distinguished from the sale of merchandise, food and
beverage and other consumer goods or services). Gross Receipts shall in all
events include only amounts actually paid or payable to the Hotel (in cash
or
services), and shall not include, except as otherwise herein expressly provided,
(i) the value of any Hotel goods or services in excess of actual amounts
paid (in cash or services) provided by the Hotel on a complimentary or
discounted basis, (ii) gratuities or service charges collected for payment
to Hotel employees and (iii) credits or refunds to Hotel
guests.
“Income
After Undistributed Operating Expenses”
shall
mean such amount as is calculated in the ninth edition of the Uniform System,
without regard to any revisions or future editions thereof.
“Owner’s
Priority”
shall
mean an amount equal to nine and one-half percent (9.5%) of the Project
Costs.
“Project
Costs”
shall
mean the sum of (a) the actual gross (i.e., undepreciated) costs of the Hotel
incurred and paid or accrued on or before December 31, 2006 by Owner, to the
extent required to be capitalized under GAAP and (b) the Conversion Cost; LESS
the amount equal to four percent (4%) of the Gross Receipts for twelve (12)
months of the Fiscal Year during which the majority of the Conversion occurs
(anticipated to be 2007).
2. Conforming
Amendments.
The
terms of this Amendment shall control if there is any conflict between any
term
of this Amendment and any term of the Management Agreement. Each term of the
Management Agreement hereby is amended as required to conform to the terms
of
this Amendment, whether or not such term of the Management Agreement is
identified or expressly amended in this Amendment.
3. Execution.
This
Amendment may be executed by the parties in counterparts, each of which shall
be
deemed an original.
4. No
Further Amendments.
Other
than with respect to those amendments set forth herein, including the conforming
amendments under paragraph 2, above, the Management Agreement shall remain
in
full force and effect and is hereby ratified and confirmed by the
parties.
[Signature
page follows.]
IN
WITNESS WHEREOF,
the
parties executed this Amendment to be mad effective on the Effective
Date.
OWNER:
[__________________]
By:
Name:
Title:
MANAGER:
[______________________]
By:
Name:
Title:
FRANCHISOR:
AMERISUITES
FRANCHISING, INC.
By:
Name:
Title:
[Signature
page to Second Amendment to Management Agreement]
Exhibit
A
EXAMPLE
COMPUTATION OF MANAGEMENT FEES/FRANCHISE FEES
(amounts
are for demonstration purposes only)
|
YTD
3/31/08
|
YTD
8/31/08
|
YTD
12/31/08
|
|
|
Project
Costs
|
$10,000,000
|
$10,000,000
|
$10,000,000
|
|
Minimum
% Return Owner’s Priority
|
9.50%
$950,000
|
9.50%
$950,000
|
9.50%
$950,000
|
|
Cumulative
YTD Owner’s Priority (1)
|
A
$237,500
|
$633,333
|
$950,000
|
|
Total
Hotel Revenue (i.e. Gross Receipts)
|
$650,000
|
$1,700,000
|
$2,400,000
|
|
Adjusted
NOI, before Continuing Royalty Fee & Basic Fee
|
B
$266,500
|
$799,000
|
$1,080,000
|
|
Adjusted
NOI above Owner’s Priority (2)
|
B-A
$29,000
|
$165,667
|
$130,000
|
|
Continuing
Royalty Fee Earned (Max of 4%)
|
C
$26,000
4.0%
|
$68,000
4.0%
|
$96,000
4.0%
|
|
Basic
Fee Earned
(Max
of 3%)
|
D
$3,000
0.5%
|
$51,000
3.0%
|
$34,000
1.4%
|
|
Adjusted
NOI
|
B-C-D=E
$237,500
|
$680,000
|
$950,000
|
|
Excess
Adjusted NOI
|
E-A
$0
|
$46,667
|
$0
|
|
Incentive
Fee Earned (10% of Excess Adjusted NOI)
|
None
|
$4,667
0.3%
|
None
|
(1)
Calculated based on actual months divided by 12.
(2)
Before Continuing Royalty Fee and Basic Fee.
