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EXHIBIT 10.23
MANAGEMENT SERVICES AGREEMENT
MANAGEMENT SERVICES AGREEMENT dated as of March 17, 1998 (this
"Agreement") between U.S. Franchise Systems, Inc., a Delaware corporation
("USFS"), and Constellation Development Fund LLC, a Delaware limited liability
company (the "Fund").
The Fund desires for USFS to provide certain ongoing
management and advisory services to the Fund, and USFS is willing to provide
such services subject to the terms and conditions contained herein. Capitalized
terms used herein and not otherwise defined shall have the meanings set forth
for such terms in the Fund's Operating Agreement made and entered into as of the
date hereof by and among the members of the Fund (the "Operating Agreement").
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
Section 1. Identification of Projects. USFS shall have the
responsibility of identifying Projects described in Section 2.3(a) of the
Operating Agreement and locating an independent third-party developer for each
Project who will oversee the construction or renovation of the Project. In
connection with each proposed Project, USFS shall prepare and submit to the
Board a written investment analysis (the "Investment Memorandum") for such
Project which contains all of the following information:
(a) A detailed statement of estimated sources and uses of
funds for the Project, including the terms of debt and equity securities to be
issued by the Project LLC.
(b) Written certification of USFS, with supporting
biographical information and project histories which support such certification,
that the Independent Developer (i) is or was affiliated with a Person with whom
USFS had successful business experience, or (ii) is otherwise known to USFS or
its management as a reputable developer.
(c) Factors which establish that the subject property is
located in a market which presents an opportunity for growing demand for hotel
rooms and/or relatively limited hotel room supply, including a feasibility study
for the Project issued by an independent third party consultant selected by USFS
which indicates (i) that the Project is expected to provide an Internal Rate of
Return of at least twenty-five percent (25%) or more on the Fund's total
investment (i.e., debt and equity) based on an eleven percent (11%)
capitalization rate and assuming a sale of the Project no sooner than
twenty-four (24) months from the time that a certificate of occupancy is granted
for the Project, and (ii) the Project is expected to provide a minimum annual
return on cost of thirteen and one-half percent (13.5%) for the second year of
operation.
(e) An environmental report for the Project issued by an
independent environmental consultant, which shall be satisfactory to USFS.
(f) A copy of a contractor's bid specifying the construction
costs for the Project on a fixed-price contract.
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Within four (4) business days after its receipt of such Investment Memorandum,
the Board shall provide written notice to USFS of any information (i) required
to be included in the Investment Memorandum but which was omitted therefrom, or
(ii) which does not comply with the requirements set forth herein. Promptly upon
receipt of such notice, USFS shall amend the Investment Memorandum to cure such
deficiencies and shall obtain the written acknowledgment of the Board of USFS's
cure of such deficiencies. If such notice is not provided to USFS within four
(4) business days after receipt by the Board of the Investment Memorandum, then
the Investment Memorandum shall be deemed approved.
Section 2. Approval of Projects. The Manager appointed by Newco shall
have the right, acting reasonably and in good faith, to approve Microtel
Projects meeting the requirements of Sections 2.7 and 2.8 of the Operating
Agreement. Upon approval of any Project by the Fund pursuant to Section 2.9 of
the Operating Agreement, USFS shall issue to the Independent Developer, on
behalf of the Fund, a commitment letter evidencing the Fund's commitment to
provide equity and debt funding to the Project on the terms described in the
Investment Memorandum and, upon request by USFS, the Fund shall make a capital
call to the Members pursuant to Article III of the Operating Agreement to fund
the Fund's investment in such Project.
Section 3. Financial Reports. USFS shall cause to be prepared (i) as of
the end of each Fiscal Year of the Fund, (ii) as of the date of dissolution of
the Fund, and (iii) as of such additional dates as the Managers may direct, in
accordance with generally accepted accounting principles consistently applied,
appropriate financial statements showing the assets, liabilities, capital,
profits, expenses, losses, and recovered and unrecovered capital expenditures of
the Fund and a statement showing all amounts credited and debited to each
Member's Capital Account and of each Member's distributive share, for federal
income tax purposes, of income, gains, deductions, losses, and credits (or items
thereof) arising out of Fund operations, as required by law, and a further
statement reconciling any difference between the Member's respective Capital
Accounts as shown in such financial statements and their Capital Accounts as
determined in accordance with the provisions of this Agreement. A copy of each
such report shall be delivered to each Member within 90 days after each such
applicable date.
Section 4. Other Reports. USFS shall cause to be prepared and
distributed to the Members the following reports:
(a) Weekly. On each Tuesday before 12 noon EST, an update
of significant events from the prior week;
(b) Monthly. Within the earlier of (i) 30 days following the
end of the each month or (ii) 15 days after receiving the information necessary
to prepare such reports, a:
- Revenue and expense report.
- Cash flow and sources and uses report and
cash requirements update
- Project update reports.
- Permit, insurance, and entitlement status
report.
- Debt financing status report.
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(c) Quarterly. Within 30 days following the end of each
quarter, including the end of the fourth quarter, unaudited financial statements
consisting of a balance sheet, income statement (comparing actual to budget with
variance explanations and revised cash requirements projections), and cash flow
sources and uses.
(d) Annually. Within 90 days after the end of each Fiscal
Year, financial statements consisting of a balance sheet income statement and
cash flow statement, all audited by the Fund Accountant.
(e) Other. Such other financial statements, budgets, plans and
schedules as are from time to time reasonably requested by any Member.
In addition, USFS shall use reasonable, commercial efforts promptly to
advise and inform the Members of any transaction, notice, event or proposal of
which it becomes aware which it believes does or is likely to affect
significantly, either adversely or favorably, the Fund.
Section 5. Covenant of USFS. USFS hereby covenants that it will use its
best efforts to cause Xxxxx X. Xxxxxxxx of NorthStar to be elected to USFS's
board of directors after the execution of this Agreement.
Section 6. USFS Compensation. In calendar years 1998 and 1999 the Fund
shall pay USFS a management services fee equal to 2% of the total Commitments.
Based on Commitments of $50,000,000, the management services fee will equal One
Million Dollars ($1,000,000) in 1998 and 1999. In calendar years 2000, 2001 and
2002, the Fund shall pay USFS a management services fee equal to one percent
(1%) of the total Commitments. Based on Commitments of $50,000,000, the
management services fee will equal Five Hundred Thousand Dollars ($500,000) in
calendar years 2000, 2001 and 2002. Thereafter the Fund shall pay USFS a
management services fee equal to twenty five basis points (0.25%) of the total
value of the Fund's equity investment in any Project LLC in which the Fund is a
Member (assuming that the fair market value of a Project equals the cost of the
Project). The management services fees shall be paid to USFS in arrears in equal
quarterly amounts on March 20, June 20, September 20, and December 20 of each
year. At the end of each such calendar year, USFS agrees that if its management
services fee for such year as set forth above is greater than the amount of the
fee if the fee was based on the amount of funds committed by the Fund to
Projects rather than the amount of total Commitments, such excess fees shall
reduce the amount of distributions that Newco is entitled to receive under
Section 5.1(b) of the Operating Agreement by the amount of such excess.
Section 7. Key Man Life Insurance. The Fund shall have the right to
require Xxxxxxx Xxxxx and Xxxx Xxxxxxx to apply for key man life insurance up to
the amount of $10 million and $5 million, respectively, with the premiums
therefor to be paid by the Fund and USFS shall cause each to take all actions
reasonably requested by an insurer in providing such policies.
Section 8. Right of First Refusal. USFS hereby grants to NorthStar and
Xxxxx a right of first refusal to provide or raise funds in connection with the
Business or the funding of any other entity created by USFS which is similar to
the Business of the Fund ("Additional Investments"). USFS shall give written
notice to NorthStar and Xxxxx of the proposed Additional Investments together
with a term sheet setting forth in reasonable detail the terms of such
Additional Investments (the "Offer Notice"). NorthStar and Xxxxx shall have 45
days from the date of receipt of the Offer Notice to accept or decline the
Additional Investments. If accepted, the parties shall use reasonable efforts to
consummate the
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Additional Investments. If NorthStar and Xxxxx reject the Offer Notice, USFS may
seek Additional Investments from a third party on terms no less favorable to
USFS as those in the Offer Notice, provided that such transaction closes within
the earlier of (i) 45 days after the rejection of the Offer Notice or (ii) the
lapse of time to respond to the Offer Notice.
Section 9. Indemnification.
(a) General. The Fund, its receiver, or its trustee (in the
case of its receiver or trustee, to the extent of the Property) shall indemnify
and save harmless, USFS and any officers, employees, managers, members,
stockholders or directors (each, an "Indemnitee") relating to any losses,
claims, demands, costs, damages, liabilities, expenses of any nature (including
reasonable attorneys' fees and disbursements), judgments, fines, settlements,
and other amounts arising from any and all claims, demands, actions, suits, or
proceedings, civil, criminal, administrative, or investigative, in which such
Indemnitee may be involved, or threatened to be involved, as a party or
otherwise, by reason of any act performed or omitted to be performed by such
Indemnitee in connection with this Agreement, including all such liabilities
under federal and state securities laws (including the Securities Act of 1933,
as amended) as permitted by law.
(b) Environmental. The Fund, its receiver, or its trustee (in
the case of its receiver or trustee, to the extent of the Property) shall
indemnify and hold harmless, to the maximum extent permitted by law, each
Indemnitee from and against any and all liabilities, sums paid in settlement of
claims (if such settlement is consented to by the Fund), obligations, charges,
actions (formal or informal), claims (including, without limitation, claims for
personal injury under any theory or for real or personal property damage),
liens, taxes, administrative proceedings, losses, damages (including, without
limitation, punitive damages), penalties, fines, court costs, administrative
service fees, response and remediation costs, stabilization costs, encapsulation
costs, treatment, storage or disposal costs, groundwater monitoring or
environmental study, sampling or monitoring costs, other causes of action, and
any other costs and reasonable expenses (including, without limitation,
reasonable attorneys, experts, and consultants' fees and disbursements and
investigating, laboratory, and data review fees) imposed upon or incurred by
USFS (whether or not indemnified against by any other party) arising from and
after the date of this Agreement directly or indirectly out of:
- the past, present, or future treatment, storage, disposal,
generation, use, transport, movement, presence, release, threatened release,
spill, installation, sale, emission, injection, leaching, dumping, escaping, or
seeping of any hazardous substances or material containing or alleged to contain
hazardous substances at or from any past, present, or future properties or
assets of the Fund; and/or
- the violation or alleged violation by the Fund or any
third party of any Environmental Laws with regard to the past, present, or
future ownership, operation, use, or occupying of any property or asset of the
Fund.
(c) Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit, or proceeding subject to this Section 9 shall, from time
to time, be advanced by the Fund prior to the final disposition of such claim,
demand, action, suit, or proceeding upon receipt by the Fund of an undertaking
by or on behalf of the Indemnitee to repay such amounts if it is ultimately
determined that such person is not entitled to be indemnified as authorized in
this Section 9. The indemnification provided by this Section 9 shall be in
addition to any other rights to which an Indemnitee may be entitled under any
agreement, consent of the Fund, as a matter of law or equity, or otherwise,
shall continue as to
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an Indemnitee who has ceased to serve in such capacity and shall inure to the
benefit of the heirs, successors, assigns and administrators of the Indemnitee.
Subject to the foregoing sentence, the provisions of this Section 9 are for the
benefit of the Indemnities and shall not be deemed to create any rights for the
benefit of any other persons.
(d) The debts, obligations, and liabilities of the Fund, whether
arising in contract, tort, or otherwise, shall be solely the debts, obligations,
and liabilities of the Fund, and no officer of USFS shall be obligated
personally for any such debt, obligation, or liability by reason of his or her
acting as a manager under this Agreement.
(e) USFS does not, in any way, guarantee the return of the Member's
Capital Contributions or a profit for the Members from the operations of the
Fund. USFS shall not be responsible to any Members because of a loss of their
investment in the Fund or a loss in the operations of the Fund, unless the loss
shall have been the result of the USFS' actual fraud, gross negligence, willful
misconduct, breach of fiduciary duty, or breach of this Agreement. Except as
expressly provided under this Agreement, USFS shall incur no liability to the
Fund or to any of the Members as a result of engaging in any other business or
venture.
Section 10. Confidentiality. All disclosures of trade secrets,
know-how, financial information, or other confidential information made by the
Fund to USFS or made by any Member of the Fund under or in connection with this
Agreement, shall be received and maintained in confidence by the recipient
during the term hereof and for three (3) years after dissolution of the Fund and
USFS shall treat all such trade secrets, know-how, financial information or
other confidential information as confidential except:
(a) as to the persons directly responsible for the performance of
the obligations of this Agreement and for the effective operation of the Fund;
(b) as to the professional advisers of the USFS and the Fund;
(c) as to such disclosures to customers of the Fund as are
necessary for the effective carrying on of business by the Fund;
(d) as to such information as is required by law to be disclosed by
USFS; and
(e) as to such information as is or may fall within the public
domain otherwise than in violation of the provisions of this Section 10.
Section 11. Duty of Care. Each Member will take such steps as lie
within its power to assure that all managers, officers and employees of USFS, to
whom confidential information is disclosed, take all proper precautions to
prevent the unauthorized disclosure and use of the confidential information
referenced in Section 11.
Section 12. Reimbursement. The Fund will pay, on a quarterly basis, all
reasonable out-of-pocket expenses incurred by USFS in connection with the
performance of its duties under this Agreement, excluding salaries and other
annual overhead expenses.
Section 13. Default Notice and Cure Period. The Fund shall give
reasonably prompt written notice to USFS of any default or breach hereof by USFS
specifying in reasonable detail such default or
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breach. USFS shall have 10 days from the receipt of such notice to cure such
default or breach prior to the Fund declaring a default or breach hereof and
pursuing any remedies it may have. If such default or breach is not susceptible
of cure within such 10 day period but is susceptible to cure, such 10 day period
shall be extended until such default or breach is cured so long as USFS
commences cure efforts within such 10 day period and continues to diligently
pursue such cure efforts thereafter.
Section 14. Notices. All notices and other communications required or
permitted to be given or made under this Agreement shall be given or made in
writing. Such notices shall be delivered by hand delivery, by telecopy, or
similar electronic means, by nationally recognized overnight courier, fees
prepaid, addressed as follows:
If to the Fund: c/o NorthStar Capital Partners, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxx Xxxxxx
Fax: (000) 000-0000
with copies to: NorthStar Capital Partners, LLC
000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, XX 00000
Attn: Xxxx Xxxxxx
Fax: (000) 000-0000
Xxxxxx-Xxxxx Funds
000 Xxxx Xxxx Xxxxxx
Xxxxxxxxxx, XX 00000
Attn: Xxxx Xxxxx
Fax:
Klehr, Harrison, Xxxxxx, Xxxxxxxxx & Xxxxxx LLP
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000-0000
Attn: Xxxxxxx X. Xxxxx
Fax: (000) 000-0000
Xxxxxxxxxx Xxxxx Xxxxxx & Xxxxxxxxxx, P.C.
000 Xxxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxxxxx 00000-0000
Attn: Xxxxxx Xxxxxxxxxx
Fax: (000) 000-0000
If to USFS: U. S. Franchise Systems, Inc.
00 Xxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attn: Xxxx Xxxxxxx
Fax: (000) 000-0000
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with a copy to: Xxxxx, Xxxxxxxx & Xxxxxxx, LLP
0000 Xxxxxxxxx Xxxxxx, XX
Xxxxx 0000, Promenade II
Xxxxxxx, Xxxxxxx 00000-0000
Attn: Xxxxxx X. Xxxxxx
Fax: (000) 000-0000
Any party may change its address for the purpose of this section by
notice to the other given in the manner set forth above. Any such notice shall
be deemed given, when delivered if hand delivery, the business day sent if
telecopies, or the business day following deliver to a nationally recognized
overnight courier, if sent by courier.
Section 15. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware in a like
manner as an agreement made and wholly to be performed in the State of Delaware.
Section 16. Successors and Assigns. This Agreement shall bind and
inure to the benefit of the parties hereto and their respective successors and
assigns.
Section 17. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original and all
of which shall constitute one and the same agreement.
Section 18. Termination. Unless earlier terminated in writing by
the Fund and USFS, this Agreement shall terminate upon the dissolution of the
Fund in accordance with the Operating Agreement.
Section 19. Amendment. This Agreement may only be amended in
writing signed by the Fund and USFS.
* * * * *
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first written above.
U.S. FRANCHISE SYSTEMS, INC.
By: /s/ Xxxx Xxxxxxx
--------------------------------
Name: Xxxx Xxxxxxx
Title: Executive Vice President
CONSTELLATION DEVELOPMENT FUND LLC
By: /s/ Xxxxx X. Xxxxxxxx
--------------------------------
Xxxxx X. Xxxxxxxx, Manager
By: /s/ Xxxx Xxxxxxx
--------------------------------
Xxxx Xxxxxxx, Manager
By: /s/ Xxxx Xxxxx
--------------------------------
Xxxx Xxxxx, Manager
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