EXHIBIT 10.10
MANAGEMENT AGREEMENT
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This Management Agreement (as the same may be amended, modified or
supplemented from time to time, this "Agreement") is made and entered into as of
the __________ day of _____________, 2001 ("Effective Date") between Apple
Suites Management, Inc., a Virginia corporation, whose address is 000 Xxxx Xxxx
Xxxxxx, Xxxxxxxx, Xxxxxxxx 00000 ("Owner") and Promus Hotels, Inc., a Delaware
corporation, whose address is 000 Xxxxxxxxx Xxxx, Xxxxxxx, Xxxxxxxxx 00000
("Manager").
ARTICLE 1
THE HOTEL
Section 1.01. The Hotel. The subject matter of this Agreement is the
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management of the "Hotel", as defined in the Homewood Suites License Agreement
attached hereto as Exhibit "A" (hereinafter collectively referred to as the
"License Agreement"), by Manager. The Hotel is owned in fee by Apple Suites,
Inc., a Virginia corporation ("Fee Owner") and leased to Owner pursuant to a
lease between Fee Owner and Owner with a commencement date of even date herewith
covering the Hotel (hereinafter the "Percentage Lease"). The License Agreement
shall exclusively govern Owner's right to use the Homewood Suites "System" (as
defined in the License Agreement) in the operation of the Hotel. Fee Owner shall
have no right to use the Homewood Suites "System" except as expressly set forth
in the License Agreement. Owner hereby expressly acknowledges that neither it
nor Fee Owner shall derive any rights in or to the use of the "Homewood Suites"
name or the Homewood Suites "System" from this Agreement.
ARTICLE 2
TERM
Section 2.01. Term. The terms shall commence on the Effective Date and
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continue for the term of years from the Effective Date set forth on Exhibit "B"
("Term").
ARTICLE 3
MANAGER'S OBLIGATIONS
Section 3.01. Manager's Obligations. Manager shall, on behalf of Owner
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and at Owner's expense, direct the operation of the Hotel pursuant to the terms
of this Agreement and the License Agreement. Manager shall be exclusively
responsible for directing the day-to-day activities of the Hotel and
establishing all policies and procedures relating to the management and
operation of the Hotel. Except as specifically otherwise provided, all cost(s)
and expense(s) incurred by Manager in association with the performance of the
obligations hereinafter set forth shall be, regardless of the designation of a
portion thereof as Fee Ownership Costs (as herein defined), operating costs and
shall accordingly be paid from the Bank Account(s) as hereinafter
defined in Section 3.01(iv) below. Manager, during the Term, shall have the
following obligations:
(i) Costs of Fee Owner and Owner. Pursuant to the terms of the
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Percentage Lease, Manager understands that Fee Owner has
agreed to pay, among other things (i) land, building and
personal property taxes and assessments applicable to the
Hotel, (ii) premiums and charges for the casualty insurance
coverages specified on Exhibit "D", (iii) expenditures for
capital replacements, and (iv) expenditures for maintenance
and repair of underground utilities and structural elements
of the Hotel (collectively, "Fee Ownership Costs"). To the
extent this Agreement obligates or authorizes Manager to pay
any such Fee Ownership Costs, Manager shall pay such Fee
Ownership Costs on behalf of Fee Owner to the extent of
funds in the Bank Account(s) (as herein defined) in the
order of priority set forth in Exhibit B or the Reserve Fund
(as herein defined ) and Fee Owner and Owner shall make such
adjustments and payments to each other as may be necessary
from time to time to take into account any such payments by
Manager. Manager shall have no duty, obligation or liability
to Fee Owner or Owner (i) to make any determination as to
whether any expense required to be paid by Manager hereunder
is a Fee Ownership Cost or a cost of Owner, (ii) to make any
determination as to whether funds in the Bank Account(s) or
the Reserve Fund belong to Fee Owner or Owner or (iii) to
require that Fee Ownership Costs be paid from funds which
can be identified as belonging to Fee Owner, or that other
costs and expenses required to be paid by Owner be paid from
funds which can be identified as belonging to Owner; it
being the intent of the parties to this Agreement that (i)
Owner and Fee Owner shall look only to each other and not to
Manager with respect to moneys that may be owed one to the
other as a consequence of Manager's performance under this
Agreement and (ii) Manager need only look to Owner to pay
operating costs, including, without limitation, those
designated herein as Fee Ownership Costs;
(ii) Personnel. Manager shall be the sole judge of the fitness
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and qualification of all personnel working at the Hotel
("Hotel Personnel") and shall have the sole and absolute
right to hire, supervise, order, instruct, discharge and
determine the compensation, benefits and terms of employment
of all Hotel Personnel. All Hotel Personnel shall be
employees of Manager. Manager shall also have the right to
use employees of Manager, Manager's parent and subsidiary
and affiliated companies, not located at the Hotel to
provide services to the Hotel ("Off-Site Personnel") and the
right to have the general manager of the hotel serve as the
regional manager for other hotels managed by Manager. All
expenses, costs (including, but not limited to, salaries,
benefits and severance pay), liabilities and claims which
are related to Hotel Personnel and Off-Site Personnel shall
be operating costs; provided, however, with respect to any
moving expenses for any Hotel Personnel who has not been an
employee at the Hotel for at least twelve (12) months, only
that portion of such
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moving expenses equal to Owner's Share (as hereinafter
defined) shall constitute operating costs and the balance
shall be paid by Manager and/or such employee. Manager shall
also have the right to have Off-Site Personnel performing
regional or area duties relating to the Hotel and other
hotels managed by manager lodged at the Hotel from time to
time free of charge. "Owner's Share" shall mean a fraction
having twelve (12) as its denominator and the number of
months or part thereof such person has been one of the Hotel
Personnel as its numerator. All expenses for Off-Site
Personnel shall be included as a separate category or item
of the Operating Budgets or shall otherwise be approved by
Owner.
Manager agrees that it will consult with Owner regarding the
hiring, transferring, or terminating of the general manager
and director of sales for the Hotel. Owner shall be afforded
an opportunity to review the resumes of, and to interview,
the candidates for these positions, all within a time frame
established by Manager, which shall be reasonable under the
circumstances in question. Manager and Owner shall consult
with each other concerning such decisions and Manager agrees
to give serious consideration to the views of Owner prior to
Manager's making a final decision with respect to any such
individual;
(iii) Hotel Policies. Manager shall determine the terms of guest
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admittance to the Hotel, establish room rates, and use of
rooms for commercial purposes;
(iv) Bank Accounts. Manager shall open and operate the Hotel's
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bank accounts. All sums received from the operation of the
Hotel and all items paid by Manager arising by virtue of
Manager's operation of the Hotel shall pass though bank
account(s) established by Manager in Owner's name at such
banks as Manager and Owner shall mutually agree ("Bank
Account(s)"); only Manger's designees shall be exclusively
authorized to operate and draw from the Bank Account(s).
Each fiscal month Manager, on behalf of Owner, shall
disburse funds from the Bank Account(s) in the order of
priority and to the extent available in accordance with the
priority schedule set forth on Exhibit "B";
(v) Operating Budgets. Manager has submitted to Owner, for
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Owner's approval, a proposed operating budget for the
ensuing full or partial fiscal year, as the case may be
("Operating Budget"). Hereafter, Manger shall, not less than
forty-five (45) days prior to the commencement of each full
fiscal year, submit to Owner, for Owner's approval, a
proposed Operating Budget for the ensuring full or partial
fiscal year, as the case may be. Each Operating Budget shall
be accompanied by, and shall include, a business plan which
shall describe business objectives and strategies for the
period covered by the Operating Budget. The business plan
shall include, without limitation, an analysis of the market
area in which the
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Hotel competes, a comparison of the Hotel and its business
with competitive hotels, an analysis of categories of
potential guests, and a description of sales and marketing
activities designated to achieve and implement identified
objectives and strategies. Fee Owner shall have no right to
approve any Operating Budget.
Owner's approval of the Operating Budget shall not be
unreasonably withheld and shall be deemed given unless a
specific written objection thereto is delivered by Owner to
Manager within fifteen (15) days after submission. Owner
shall review the Operating Budget on a line-by-line basis.
To be effective, any notice which disapproves a proposed
Operating Budget must contain specific objections in
reasonable detail to individual line items.
If the initial Operating Budget contains disputed budget
item(s), said item(s) shall be deemed adopted until Owner
and Manager have resolved the item(s) objected to by Owner
or the Accountant(s) (hereinafter defined in Section 10.02)
have resolved the item(s) objected to by Owner. Thereafter,
if Owner disapproves or raises objections to a proposed
Operating Budget in the manner and within the time period
provided therefor, and Owner and Manager are unable to
resolve the disputed or objectionable matters submitted by
Owner prior to the commencement of the applicable fiscal
year, the undisputed portions of the proposed Operating
Budget shall be deemed to be adopted and approved and the
corresponding line item contained in the Operating Budget
for the preceding fiscal year shall be adjusted as set forth
herein and shall be substituted in lieu of the disputed
items in the proposed Operating Budget. Those line items
which are in dispute shall be determined by increasing the
preceding fiscal year's corresponding line items by an
amount determined by Manager which does not exceed the
Consumer Price Index for All Urban Consumers published by
the Bureau of Labor Statistics of the United States
Department of Labor, U.S. City Average, all items
(1984-1986=100) (the "CPI") for the fiscal year prior to the
fiscal year with respect to which the adjustment to the line
item is being calculated or any successor or replacement
index thereto. The resulting Operating Budget obtained in
accordance with the preceding sentence shall be deemed to be
the Operating Budget in effect until such time as Manager
and Owner have resolved the items objected to by Owner.
Manager shall revise the Operating Budget from time to time,
as necessary, to reflect any unpredicted significant
changes, variables or events or to include significant,
additional, unanticipated items of income or expense. Any
such revision shall be submitted to Owner for approval,
which approval shall not be unreasonably withheld, delayed
or conditioned. Manager shall be permitted to reallocate
part or all of the amount budgeted with respect to any line
item to another line item and to
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make such other modifications to the Operating Budget as
Manager deems necessary, provided, however, that Manager may
not reallocate from one Department to another without
Owner's consent, which shall not be unreasonably withheld or
delayed. The term "Department" shall mean and refer to those
general divisional categories shown in the Operating Budget
(e.g., Guest Services Department or Administration
Department), but shall not mean or refer to subcategories
(e.g., linen replacement or uniforms) appearing in a
divisional category. In addition, in the event actual
Adjusted Gross Revenues (as defined in Exhibit "C" hereto)
for any calendar period are greater than those provided for
in the Operating Budget, the amounts approved in the
Operating Budget for suite maintenance, guest services, food
and beverage, telephone, utilities, marketing and hotel
repair and maintenance for any calendar month shall be
automatically deemed to be increased to an amount that bears
the same relationship (ratio) to the amounts budgeted for
such items as actual Adjusted Gross Revenue for such month
bears to the projected Adjusted Gross Revenue for such
month. Owner acknowledges that the Operating Budget is
intended only to be a reasonable estimate of the Hotel's
income and expenses for the ensuring fiscal year. Manager
shall not be deemed to have made any guarantee, warranty or
representation whatsoever in connection with the Operating
Budget;
(vi) Operating Statement. Manager shall prepare and furnish
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Owner, on or before the twentieth (20th) day of the fiscal
month immediately following the close of a fiscal month,
with a detailed operating statement setting forth the
results of the Hotel's operations. Within ninety (90) days
after the end of each fiscal year, Manager shall furnish
Owner with a detailed operating statement setting forth the
results of the Hotel's operations for the fiscal year;
(vii) Capital Budgets. Manager shall, not less than forty-five
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(45) days prior to the commencement of each fiscal year,
submit to Owner, for Owner's approval, a recommended
"Capital Budget" for the ensuing full or partial fiscal
year, as the case may be, for furnishings, equipment, and
ordinary Hotel capital replacement items as shall be
required to operate the Hotel in accordance with the
standards referred to in the License Agreement. Manager, to
the extent it is able to do so without compromising
compliance with the minimum standards required under the
terms of the License Agreement, shall take into
consideration, among other factors, the amount of funds
available to pay for the proposed capital expenditures.
Manager shall also identify for Owner those projects that
are required to meet the minimum standards of the License
Agreement and give priority to such items. Owner and Manager
shall meet to discuss the proposed Capital Budget and Owner
shall be required to make specific written objections to a
proposed Capital Budget in the manner and within the same
time periods specified in Section 3.01(v) with respect to an
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Operating Budget. Owner agrees not to unreasonably withhold
or delay its consent. If Owner does not approve the Capital
Budget, Manager (i) with respect to Capital Improvements (as
herein defined) required to meet the minimum standards of
the License Agreement, will be entitled to spend such
amounts as are necessary to meet such minimum standards and
(ii) with respect to any other Capital Improvements, will
only spend such amounts as are approved by Owner, acting
reasonably, provided, however, that in any event Manager
shall be entitled to spend up to five percent (5%) of
Adjusted Gross Revenue for capital expenditures after the
date hereof until the disputed Capital Budget item(s) have
been resolved in accordance with Section 10.02.1(e).
Manager, at Owner's expense, shall be responsible for
supervising the design, installation and construction of
alterations or additions to, or rebuilding or renovation of,
the Hotel, including any additions to Hotel furnishings and
equipment (collectively, "Capital Improvements"). Owner
shall have the right to approve and inspect the installation
and construction of Capital Improvements and any mortgagee
having a first lien on Owner's leasehold estate in the Hotel
("Owner's Leasehold Mortgagee") or a first lien on Fee
Owner's fee estate in the Hotel (the "Fee Owner's
Mortgagee") shall also have any right of approval or
inspection of the installation and construction of the
Capital Improvements to the extent set forth in the
mortgage, deed of trust or other loan documents
(collectively, the "Mortgage Documents") (but only if and to
the extent the Manager has been provided with copies of the
Mortgage Document). Fee Owner shall not have the right to
approve any Capital Budget.
After a Capital Budget has been adopted, it shall be subject
to review and modification in the event unpredicted or
unanticipated capital expenditures are required during any
calendar year. Manager and Owner each agree not to
unreasonably withhold or delay its consent to a proposed
modification of a Capital Budget. Any amendment this is
mutually agreed upon shall be set forth in writing and
signed by both parties. It is acknowledged by Owner that
capital expenditures required as a result of an emergency
situation shall not reduce amounts available pursuant to the
Capital budget or otherwise hereunder, other than to the
extent a Capital Budget item is subsumed within the capital
expenditures required as a result of the occurrence of the
emergency;
(viii) General Maintenance Non-Capital Replacements. Manager
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shall supervise the maintenance, repair and replacement of
non-capital replacements;
(ix) Operating Equipment. Manager shall select and purchase all
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operating equipment for the Hotel such as linens, utensils,
uniforms and other similar items, provided, however, that if
Owner determines that it can purchase operating equipment of
a quality at least equal to that which
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Manager generally uses at a price lower than the price
obtained by Manager, Manager shall purchase such operating
equipment from the vendor designated by Owner;
(x) Operating Supplies. Manager shall select and purchase all
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operating supplies for the Hotel such as food, beverages,
fuel, soap, cleansing items, stationary and other consumable
items, provided, however, that if Owner determines that it
can purchase operating supplies for a quality at least equal
to that which Manager generally uses at a price lower than
the price obtained by Manager, Manager shall purchase such
operating supplies from the vendor designated by Owner;
(xi) Accounting Standards. Manager shall maintain the books and
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records reflecting the operations of the Hotel in accordance
with the accounting practices of Manager in conformity with
generally accepted accounting practices consistently applied
and shall adopt and follow the fiscal accounting periods
utilized by Manager in its normal course of business. The
Hotel level generated accounting records reflecting detailed
day-to-day transactions of the Hotel's operations, shall be
kept by Manager at the Hotel or at Manager's regional
offices or corporate headquarters, or at such other location
as Manager shall reasonably determine. Manager shall receive
a monthly fee for accounting services provided to the Hotel
("Accounting Fee"). The current Accounting Fee is set forth
on Exhibit "B". The Accounting Fee shall be adjusted by
Manager from time to time and set forth in the annual
Operating Budget;
(xii) Marketing and Advertising. Manager shall advertise and
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promote the Hotel in coordination with the sales and
marketing programs of Manager and other Homewood Suites
hotels. Manager may participate in sales and promotional
campaigns and activities involving complimentary rooms.
Manager, in marketing and advertising the Hotel, shall have
the right to use marketing and advertising services of
employees of Manager and its parent and affiliated companies
not located at the Hotel. Manager may charge the Hotel for
personnel and other costs and expenses incurred in providing
such services; provided that (i) Manager's allocation of
such costs and expenses among hotels, including the Hotel,
shall be pro rated among all hotels owned or managed by
Manager and (ii) the annual allocation of such costs and
expenses to the Hotel shall not exceed $10,000.00. Such
costs and expenses shall be reflected in the budget and
operating statements required to be prepared and submitted
by Manager under this Agreement;
(xiii) Permits and Licenses. Manager shall obtain and maintain
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the various permits and licenses required or permitted to be
held in its name that are necessary to enable Manager to
operate the Hotel in accordance with the terms of this
Agreement and the License Agreement, provided, however,
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that Manager shall only hold liquor licenses and alcoholic
beverage licenses if required by the laws of the
jurisdiction in which the Hotel is located. In addition,
Manager shall upon request cooperate with and assist Owner
in obtaining the various permits and licenses that are
required to be held in the name of either or both of Owner
and Fee Owner that are necessary to enable Manager to
operate the Hotel. Manager, at Owner's cost and expense,
shall use all reasonable efforts, to the extent within its
control, to comply with the terms and conditions of all
licenses and permits issued with respect to the Hotel and
the business conducted at the Hotel, including, without
limitation, the terms and conditions of the Licensed
Agreement;
(xiv) Owner Meetings. The Hotel's general manager shall meet with
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Owner's Representative as hereinafter defined in Section
4.01(viii) quarterly to review and discuss the previous and
future month's operating statement, cash flow, budget,
capital expenditures, important personnel matters and the
general concerns of Owner and Manager. In addition, a
representative of Manager's corporate staff shall meet with
Owner's Representative quarterly to review and discuss the
previous and future quarter's operating statement, cash
flow, budget, capital expenditures, important personnel
matters and the general concerns of Owner and Manager.
Except to the extent otherwise mutually agreed upon by Owner
and Manager, the quarterly meetings described in this clause
(xiv) shall be held at the Hotel;
(xv) Insurance. Manager shall procure and maintain throughout the
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Term the insurance coverages set forth on Exhibit "D";
(xvi) Compliance with Law. Manager, at Owner's cost and expense,
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shall use all reasonable efforts to comply with all laws,
ordinances, regulations and requirements of any federal,
state or municipal government that are applicable to the use
and operation of the Hotel, as well as with all orders and
requirements of the local fire department, of which Manager
has knowledge; provided, however, that Owner shall have the
right to contest by proper legal proceedings, the validity
of any such law, ordinance, rule, regulation, order,
decision or requirement and may postpone compliance
therewith to the extent and in the manner provided by law
until final determination of any such proceedings. Manager
promptly shall notify Owner in writing of all notices of
legal requirements applicable to the Hotel that are received
by Manager;
(xvii) Satisfaction of Obligations. Manager agrees to pay, when
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due, all amounts due under any equipment leases and all
other contracts and agreements relating to the operation or
maintenance of the Hotel, and, if requested by Owner, any
Mortgage Documents relating to the loan from Owner's
Leasehold Mortgagee ("Owner's Mortgage Documents"), but
solely from and to the extent that funds are available in
the Bank
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Account(s), and to comply, at Owner's cost and expense, with
all other covenant and obligations contained in the
equipment leases and all utility contracts, concession
agreements, and service and maintenance contracts, and, if
requested by Owner, Owner's Mortgage Documents to the extent
that compliance therewith is within the reasonable control
of Manager by reason of its management and operation of the
Hotel pursuant to this Agreement; provided, however, Manager
shall have no obligation to comply with any provisions in
the Mortgage Documents that conflict with its rights and
obligations under this Agreement. Manager shall have no
obligation to perform or comply with any obligations of (i)
Fee Owner or Owner under the Percentage Lease or (ii) Fee
Owner under any Mortgage Documents relating to the loan from
Fee Owner's Mortgagee (other than any right to approve or
inspect Capital Improvements contemplated by Section
3.01(vii) above);
(xviii) Requests for Information. Manager shall respond, with
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reasonable promptness, to any information requests by
Owner's Leasehold Mortgagee in accordance with Owner's
Mortgage Documents, to the extent such information is
required to be furnished by Manager to Owner pursuant to
this Agreement. Any additional information or reports
requested by Owners Leasehold Mortgagee shall be provided by
manager only if Owner so directs Manager in writing and, to
the extent such information or reports are not being
prepared for Owner in the ordinary course of business
pursuant to this Agreement, Owner agrees to pay the
reasonable expenses of preparing such information and
reports;
(xix) Tax and Insurance Accruals. If requested by Owner, Manager
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shall accrue and set aside on a monthly basis funds from
Adjusted Gross Revenues if available in the priority set
forth on Exhibit B for the payment of real estate taxes and
insurance premiums, and such accruals shall be deposited in
a separate account and not commingled with other operating
accounts for Hotel operations generally, provided, however,
that to the extent such accruals exceed the amount necessary
to pay the actual amount of real estate taxes and insurance
premiums, such excess shall be available for operating
costs, ownership costs, and other items set forth on, and in
the priority set forth on, Exhibit B. If such accruals do
not exceed the actual amounts due in respect of real estate
taxes and insurance premiums but Owner and Manager agree in
writing, the tax and insurance accruals on deposit may be
used from time to time to pay operating costs if Adjusted
Gross Revenues are not otherwise sufficient to pay such
operating costs.
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ARTICLE 4
OWNER'S OBLIGATIONS
Section 4.01. Owner's Obligations. During the Term, Owner shall have
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the obligations set forth below:
(i) License Agreement. Owner shall comply with all the terms and
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conditions of the License Agreement (specifically including,
but not limited to, Licensee's obligation to pay the fees,
charges and contributions set forth in paragraphs 3.c and 7
of the License Agreement) and keep the License Agreement in
full force and effect from the Effective Date through the
remainder of the Term. Nothing in this Agreement shall be
interpreted in a manner which would relieve Owner of any of
its obligations under the License Agreement;
(ii) Licenses and Permits. Owner shall obtain and maintain, with
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Manager's assistance and cooperation, all governmental
permissions, licenses and permits required to be held in
Owner's and/or Fee Owner's name that are necessary to enable
Manager to operate the Hotel in accordance with the terms of
this Agreement and the License Agreement;
(iii) Insurance. Owner shall procure and maintain throughout the
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Term the insurance coveraes set forth on Exhibit "E";
(iv) Intentionally Omitted;
(v) Operating Funds. Owner shall provide all funds necessary to
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enable Manager to manage and operate the Hotel in accordance
with the terms of this Agreement and the License Agreement,
regardless of the designation of a portion of the operating
costs as Fee Ownership Costs. Owner agrees to deliver to
Manager for deposit into the Bank Account(s) on the
Effective Date the amount specified on Exhibit "B" which
amount shall be the "Minimum Balance" to be maintained by
Owner during the first year of the Hotel's operation. The
Minimum Balance thereafter shall be no less than the Hotel's
operating costs for the preceding fiscal month. The Minimum
Balance shall serve as working capital for the Hotel's
operations. Owner agrees, upon Manager's written request, to
immediately furnish Manager with sufficient funds to make up
any deficiency in the Minimum Balance;
(vi) Capital Funds. Owner shall expend such amounts for
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renovation programs, furnishings, equipment and ordinary
Hotel capital replacement items as are required from time to
time to (a) maintain the Hotel in good order and repair, (b)
comply with the standards referred to in the License
Agreement, and (c) comply with governmental regulations and
orders. Owner shall cooperate fully with Manager in
establishing appropriate procedures and timetables for Owner
to under take capital replacement projects.
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It is recognized that expenditures for capital replacements
are incapable of precise calculation in advance. Therefore,
five percent (5%) of Adjusted Gross Revenues each year shall
be paid over in cash in each calendar month after the
Effective Date into a Reserve Fund (as hereinafter defined)
to pay for capital replacements. In lieu of funding monthly
into the Reserve Fund as contemplated above, Owner shall
have the right, but not the obligation, to deposit into the
Reserve Fund, on or about the commencement of each year, the
full amount set forth in the Capital Budget. Manager shall
establish a reserve for capital replacements on the books of
account for the Hotel and the cash amounts required for such
reserve shall be placed into an interest-bearing account
(the "Reserve Fund") established in the Hotel's name at the
bank at which the Bank Account(s) are established, with
Manager's designees being the only authorized signatories on
said account. All amounts on deposit in the Reserve Fund
shall be Owner's. Any expenditures for capital replacements
during any calendar year which have been included in an
approved Capital Budget may be made without Owner's or Fee
Owner's additional approval and, to the extent available,
shall be made by Manager from the Reserve Fund (including
accrued interest and unused accumulations from prior
calendar years). Any amounts remaining in the Reserve Fund
at the close of each calendar year shall be carried forward
and retained in the Reserve Fund until fully used as herein
provided. To the extent the Reserve Fund is insufficient at
a particular time or to the extent the Reserve Fund plus
anticipated contributions for the ensuing calendar year is
less than the budgeted expenditures set forth in the
approved Capital Budget for the ensuing calendar year then
in either such event, Manager shall give Owner written
notice thereof at least sixty (60) days before the
anticipated date such funds will be needed. Owner shall
supply the necessary funds by deposit to the Reserve Fund at
least fifteen (15) days before the anticipated date such
funds will be needed. All proceeds from the sale of capital
items no longer needed for the operation of the Hotel shall
be deposited to the Reserve Fund. Sale of such items shall
be at the discretion of Manager, and conducted in a
commercially reasonable manner. Manager shall not dispose of
any capital item or group of capital items having a value in
excess of ten thousand dollars ($10,000) without Owner's
prior written consent unless the replacement of such capital
item or group of capital items has been contemplated in the
applicable Capital Budget. Manager also shall obtain the
consent of owner's Leasehold Mortgagee when required for any
disposition of capital items otherwise prohibited under the
terms of Owner's Mortgage Documents, provided, however, that
to the extent a capital item is being replaced because the
same is defective or obsolete or with an item of equal or
greater value no such consent need be obtained from Owner's
Leasehold Mortgagee. Upon termination of this Agreement for
whatever reason or upon sale of the Hotel, Manager's right
to expend any unused portion of the Reserve Fund shall
terminate
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and the balance of the fund shall be paid over to Owner,
less any sums then due Manager.
To the extent any expenditure under this Section 4.01(vi)
shall exceed twenty thousand dollars ($20,000), Manager
shall first solicit bids from at least three different
reputable and qualified third parties, and the lowest of the
bidders shall be selected unless acceptance of a higher bid
has been approved by Owner in writing or unless Manager
provides a reasonably detailed explanation for its selection
of a bid higher than the lowest of the bidders;
(vii) Payments to Manager. Owner shall promptly pay to Manager
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all amounts due Manager under this Agreement;
(viii) Owner's Representative. Owner shall appoint a
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representative to represent Owner in all matters relating to
this Agreement and/or the Hotel ("Owner's Representative").
Owner's initial Owner's Representative shall be the
individual named on Exhibit "B". Manager shall have the
right to deal solely with the Owner's Representative on all
such matters. Manager may rely upon statements and
representations of Owner's Representative as being from and
binding upon Owner. Owner may change its Owner's
Representative from time to time by providing written notice
to Manager in the manner provided for herein. Owner shall
cause the Owner's Representative to attend all quarterly
meetings referred to in Section 3.01(xiv);
(ix) Owner's Audits. Owner shall have the right to have its
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independent accounting firm examine the books and records of
the Hotel at any reasonable time upon forty-eight (48) hours
notice to Manager;
(x) Right of Inspection and Review. Owner, Owner's Leasehold
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Mortgagee, Fee Owner and Fee Owner's Mortgagee and their
respective accountants, attorneys, agents and other
representatives and invitees, shall have the right to enter
upon any part of the Hotel at all reasonable times during
normal business hours and during the term of this Agreement
upon reasonable prior notice to Manager for the purpose of
examining or inspecting the Hotel, showing the Hotel to
prospective purchasers or mortgagees, or auditing, examining
or making extracts of books and records of the Hotel, or for
any other purpose which Owner, in its reasonable discretion,
shall deem necessary or advisable, but the same shall be
done with as little disruption to the business of the Hotel
as under the circumstances is reasonable; and
(xi) Quiet and Peaceable Operation. Owner shall ensure that
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Manager is able to peaceably and quietly operate the Hotel
in accordance with the terms of this Agreement, free from
molestation, eviction and disturbance by Owner
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or by any other person or persons claiming by, through or
under Owner. Owner shall undertake and prosecute all
reasonable and appropriate actions, judicial or otherwise,
required to assure such quiet and peaceable operations by
Manager.
ARTICLE 5
MANAGEMENT FEE
Section 5.01. Management Fee. On the first day of each fiscal month
--------------
after the Effective Date, Manager is authorized by Owner to pay itself from the
Bank Account(s) the Management Fees calculated in the manner set forth on
Exhibit "C".
ARTICLE 6
CLAIMS AND LIABILITY
Section 6.01. Claims and Liability. Owner and manager mutually agree
--------------------
for the benefit of each other to look only to the appropriate insurance
coverages in effect pursuant to this Agreement in the event any demand, claim,
action, damage, loss, liability or expense occurs as a result of injury to
person or damage to property regardless whether any such demand, claim, action,
damage, loss, liability or expense is caused or contributed to, by or results
from the negligence of Owner or Manager or their subsidiaries, affiliates,
employees, directors, officers, agents or independent contractors and regardless
whether the injury to person or damage to property occurs in and about the Hotel
or elsewhere as a result of the performance of this Agreement. Nevertheless, the
event the insurance proceeds are insufficient or there is no insurance coverage
to satisfy the demand, claim, action, loss, liability or expense and the same
did not arise out of the gross negligence or willful misconduct of Manager,
owner agrees, at its expense, to indemnify and hold Manager and its
subsidiaries, affiliates, officers, directors, employees, agents or independent
contractors harmless to the extent of the excess liability.
Section 6.02. Survival. The provisions of this Article 6 shall survive
--------
any cancellation, termination or expiration of this Agreement and shall remain
in full force and effect until such time as the applicable status of limitation
shall cut off all demands, claims, actions, damages, losses, liabilities or
expenses which are the subject of the provisions of this Article 6.
ARTICLE 7
CLOSURE, EMERGENCIES AND DELAYS
Section 7.01. Events of Force Majeure. If at any time during the Term
-----------------------
of this Agreement it becomes necessary, in Manager's opinion, to cease operation
of the Hotel in order to protect the Hotel and/or the health, safety and welfare
of the guests and/or employees of the Hotel for reasons beyond the reasonable
control of Manager, such as, but not limited to, acts of war, insurrection,
civil strife and commotion, labor unrest, governmental regulations and orders,
shortage or lack of adequate supplies or lack of skilled or unskilled employees,
contagious
13
illness, catastrophic events or acts of God, which shall no include Manager's
computer systems and software not being able to accurately process date data and
information, including, but not limited to, calculating, comparing and
sequencing from, into and between the twentieth century, the year 2000 and the
twenty-first century ("Force Majeure"), then in such event or similar events
Manager may close and cease operation of all or any part of the Hotel, reopening
and commencing operation when Manager deems that such may be done without
jeopardy to the Hotel, its guests and employees.
Manager and Owner agree, except as otherwise provided herein, that the
time within which a party is required to perform an obligation and Manager's
right to manage the Hotel under this Agreement shall be extended for a period of
time equivalent to the period of delay caused by an event of Force Majeure.
Section 7.02. Emergencies. If a condition of an emergency nature should
-----------
exist which requires that immediate repairs be made for the preservation and
protection of the Hotel, its guests or employees, or to assure the continued
operation of the Hotel, Manager is authorized to take all actions and to make
all expenditures necessary to repair and correct such condition, regardless
whether provisions have been made in the applicable budget for such emergency
expenditures. Expenditures made by Manager in connection with an emergency shall
be paid, in Manager's sole discretion, out of the Bank Account(s). Owner shall
immediately replenish such funds paid from the Bank Account(s). Manager shall
endeavor to communicate with Owner prior to making any expenditures to correct
an emergency condition, but in any event shall promptly notify Owner after the
emergency expenditures have been made.
ARTICLE 8
CONDEMNATION AND CASUALTY
Section 8.01. Condemnation. If the Hotel is taken in any eminent
------------
domain, expropriation, condemnation, compulsory acquisition or similar
proceeding by a competent authority, this Agreement shall automatically
terminate as of the date of taking or condemnation. Any compensation for the
taking or condemnation of the physical facility comprising the Hotel shall be
paid to Owner. Manager, however, with the full cooperation of Owner, shall have
the right to file a claim with the appropriate authorities for the loss of
Management Fee income for the remainder of the Term and any extension thereof
because of the condemnation or taking. If only a portion of the Hotel is so
taken and the taking does not make it unreasonable or imprudent, in Manager's
and Owner's opinion, to operate the remainder as a hotel of the type immediately
preceding such taking, this Agreement shall not terminate. Any compensation
shall be used, however, in whole or in part, to render the Hotel a complete and
satisfactory architectural unit as a hotel of the same type and class as it was
immediately preceding such taking or condemnation.
Section 8.02. Casualty. In the event of a fire or other casualty, Owner
--------
shall comply with the terms of the terms of the License Agreement and this
Agreement shall remain in full force and effect so long as the License Agreement
remains in full force and effect.
14
ARTICLE 9
TERMINATION RIGHTS
Section 9.01. Bankruptcy and Dissolution. If either party is
--------------------------
voluntarily or involuntarily dissolved or declared bankrupt, insolvent, or
commits an act of bankruptcy, or if a company enters into liquidation whether
compulsory or voluntary otherwise than for the purpose of amalgamation or
reconstruction, or compounds with its creditors, or has a receiver appointed
over all or any part of its assets, or passes title in lieu of foreclosure, the
other party may terminate this Agreement immediately upon serving notice to the
other party, without liability on the part of the terminating party.
Section 9.02. Manager's Termination Right Upon the Termination of
---------------------------------------------------
License Agreement. If the License Agreement is terminated for any reason,
-----------------
Manager may terminate this Agreement immediately upon serving notice to Owner,
without liability on the part of Manager. Upon such termination, unless
specifically provided otherwise herein, Manager shall be entitled to receive the
Early Termination Fee calculated in the manner set forth on Exhibit "B".
Notwithstanding anything contained herein, Manager shall not be entitled to
receive the Early Termination Fee if the License Agreement is terminated because
of Manager's failure to perform its obligations hereunder and Manager's failure
was not caused by the failure of Owner to perform its obligations hereunder.
Section 9.03. (a) Owner's Default. The following shall, at the election
---------------
of Manger, constitute events of default by Owner under this Agreement (each such
event being referred to herein as an "Owner's Default"):
(i) The failure of Owner to pay any amount to Manager provided
for herein for a period of ten (10) days after written
notice by Manager of such failure to pay.
(ii) Failure of Owner to keep or perform any duty, obligation,
covenant or agreement of Owner under this Agreement (other
than the obligation to pay that is the subject of paragraph
(i) above) and such failure continues for a period of thirty
(30) days after receipt of written notice thereof from
Manager; provided, however, if such failure cannot
reasonably be remedied or corrected within such thirty (30)
day period, then such thirty (30) day period shall be
extended for such additional period as may be reasonably
required to cure such default but only if Owner promptly
commences to cure such default ad continues thereafter with
all due diligence to complete such a cure to the
satisfaction of Manager.
(iii) The occurrence of a default under or other termination of
the Percentage Lease.
(iv) Failure of Fee Owner to keep or perform any duty,
obligation, covenant or agreement of Fee Owner under the
"Comfort Letter" of even date here with from Manager to Fee
Owner agreed to and accepted by Fee Owner (the "Comfort
Letter") relating to the Hotel and such failure continues
for a period of thirty (30) days after receipt of written
notice thereof from Manager; provided, however, if
15
such failure cannot reasonably be remedied or corrected
within such thirty (30) day period, then such thirty (30)
day period shall be extended for such additional period as
may be reasonably required to cure such default and
continues thereafter with all due diligence to complete such
a cure to the satisfaction of Manager.
On the occurrence of any Owner's Default, Manager shall have the right
to terminate this Agreement by written notice to Owner, in addition to its
rights to seek damages or other remedies available to it at law or in equity.
(b) Manager Default. The following shall, at the election of Owner,
---------------
constitute an event of default by Manager under this Agreement (such event being
referred to herein as the "Manager Default"): Failure of Manager to keep or
perform any duty, obligation, covenant or agreement of Manager under this
Agreement and such failure shall continue for a period of thirty (30) days after
receipt of written notice thereof from Owner; provided, however, if such failure
cannot reasonably be remedied or corrected within such thirty (30) day period,
then such thirty (30) day period shall be extended for such additional period as
may be reasonably required to cure such default provided that Manager promptly
commences to cure such default and continues thereafter with all due diligence
to complete such cure to the satisfaction of Owner. Upon the occurrence of the
Manager Default, Owner shall have the right to terminate this Agreement by
written notice to Manager, in addition to its right to seek damages or other
remedies available to it at law or in equity.
Section 9.04. Owner's - Termination Rights. (a) Provided Owner is not
----------------------------
in default under this Agreement at the time of delivery of the Termination
Notice (as defined herein) or on the Termination Date (as defined herein), Owner
shall have the right, after the first anniversary of the Effective Date, to
terminate this Agreement by giving written notice (a "Termination Notice") to
Manager setting forth an effective termination date which shall be the last day
of a month (the "Termination Date") and which shall be not less than six (6)
months nor more than twelve (12) months after the date of such Termination
Notice and shall in no event be prior to the first anniversary of the Effective
Date. If Owner terminates this Agreement pursuant to this Section 9.04(a), in
addition to payment of all other fees and reimbursable sums due to Manager on
the Termination Date, Manager shall have the right to receive the Early
Termination Fee calculated in the manner set forth on Exhibit "B". Such
termination shall be effective so long as on or before the Termination Date
Owner pays to Manager the Early Termination Fee and all amounts determined by
Owner and Manager, each acting reasonably and in good faith, to be due and
owning to Manger pursuant to the terms and provisions of this Agreement.
(b) (i) provided Owner is not in default under this Agreement, Owner
shall have the right to terminate this Agreement if, beginning in the first full
calendar year of Hotel operations, Manager fails to achieve, in any two
consecutive calendar years, a Gross Operating Profit (as herein defined) which
is at least eighty-five percent (85%) of the amount set forth in the respective
annual Operating Budget for Gross Operating Profit ("Budgeted GOP"); provided,
however, that, if within sixty (60) days of receipt of a notice from Owner that
Owner intends to terminate this Agreement pursuant to this Section 9.04(b)(i),
Manager pays in cash to Owner the difference between the achieved Gross
Operating Profit and eighty-five percent (85%) of the Budgeted GOP for the
second of the two consecutive calendar years in which shortfalls occurred,
16
then Owner shall not be entitled to terminate this Agreement. If Owner is
entitled to and elects to terminate this Agreement, Owner shall give the written
notice to Manager within ninety (90) days following delivery to Owner of the
annual financial statements for the calendar year. If such notice is not
provided by Owner to Manager within such ninety (90) day period, Owner shall be
deemed to have waived its right hereunder to terminate this Agreement with
respect to the calendar year as to which the failure occurred. In the event
Owner has the right to terminate with respect to a calendar year but waives such
right, Owner's right to terminate shall carry forward and shall be applicable
tot he next succeeding calendar year if Manager fails to achieve eighty-five
percent (85%) of Budgeted GOP for the next succeeding year, subject to Manager's
right to cure for such calendar year. For purposes of this section, the term
"Gross Operating Profit" shall mean the amount, if any, by which Adjusted Gross
Revenues for any calendar year exceed operating costs for such calendar year.
(ii) The provisions of clause (b)(i) above shall not apply in any
calendar year in which the operation of the Hotel, or the use of the Hotel's
facilities, are significantly disrupted by casualty loss, strike, eminent
domain, or other events of Force Majeure that are beyond the reasonable control
of Manager, or major repairs to or refurbishment of the Hotel. In the event
Owner exercises the right of termination contemplated in clause (b)(i) above,
(a) Owner shall have no obligation to pay any termination fee or other damages
to Manager as a consequence of such termination, except that Owner shall be
liable to Manager and shall pay immediately upon such termination all fees
earned and other amounts and expenses payable or reimbursable to Manager
pursuant to this Agreement and (b) the exercise of the right of termination
shall only be valid if on or prior to the termination date all sums outstanding
under the Acquisition Loan shall have been paid in full.
Section 9.05. Manager's right to Terminate Upon Sale. If there is to be
--------------------------------------
a "Change in Ownership" as defined in the License Agreement and the new owner of
the Hotel has not received a Homewood Suites License Agreement for the operation
of the Hotel (for purposes of this Section 9.05, said agreement shall be
referred to as the "License Agreement"), Manager shall have the right upon
giving notice to Owner to terminate this Agreement on the date the Change of
Ownership occurs. If there is a Change of Ownership and the new owner of the
Hotel receives a License Agreement, but does not enter into an assumption
agreement, pursuant to which the new owner assumes all of Owner's obligations
hereunder, with Manager prior to the date the Change of Ownership occurs,
Manager shall have the right, upon giving notice to Owner, to terminate this
Agreement on the date the Change of Ownership occurs. If manager terminates this
Agreement pursuant to this Section 9.05 (in addition to payment of all other
fees and reimbursable sums due to Manager to the date of termination), Manager
shall have the right to receive the Early Termination Fee calculated in the
manner set forth on Exhibit "B". If a Change of Ownership occurs, and the new
owner obtains a License Agreement and the new owner and Manager enter into an
assumption agreement pursuant to which this Agreement remains in full force and
effect, Manager shall not receive Termination Fee and references in this
Agreement to License Agreement shall be to the License Agreement with such new
owner.
Section 9.06. Delays. Notwithstanding any other provision of this
------
Agreement, if any event of the type described in Article 7 or 8 occurs after the
Effective Date and manager is unable to operate the Hotel for a period of ninety
(90) days, Manager shall have the option to
17
terminate this Agreement upon thirty (30) days' prior written notice to Owner,
without liability on the part of Manager, its parent or other subsidiaries or
affiliates.
Section 9.07. Employment Solicitation Restriction Upon Termination.
----------------------------------------------------
Owner and its affiliates and subsidiaries and their successors hereby agree not
to solicit the employment of the Hotel general manager, assistant general
manager or director of sales at any time during the term of this Agreement
without Manager's prior written approval. Furthermore, Owner and its affiliates
and subsidiaries and successors agree not to employ the Hotel's general manager,
assistant general manager or director of sales for a period of twelve (12)
months after the termination or expiration of this Agreement, without Manager's
prior written approval.
Section 9.08. Transition Upon Termination. Upon any termination of this
---------------------------
Agreement, all fees and payments due to Manager as of the effective date of
termination, including all accrued and unpaid fees and reimbursable charges and
expenses, shall be paid to Manager within ten (10) days after delivery to Owner
of an itemized statement of such fees and payments. Manager shall be entitled to
exercise the right of setoff provided in Section 11.16 hereof with respect to
such fees, charges and expenses. Manager shall deliver to Owner, or such other
person or persons as Owner may designate, copies of all books and records of the
Hotel and all funds in the possession of Manager belonging to Owner or received
by Manager pursuant to the terms of this Agreement, and shall assign, transfer
or convey to such person or persons all service contracts and personal property
relating to or used in the operation and maintenance of the Hotel, except any
personal property which is owned by Manager. Manager also shall, for a period of
thirty (30) days after such expiration or termination, make itself available to
consult with and advise Owner or such other person or persons regarding the
operation and maintenance of the Hotel at a consultation fee to be agreed upon
between Manger and Owner.
ARTICLE 10
APPLICABLE LAW AND ARBITRATION
Section 10.01. Applicable Law. The interpretation, validity and
--------------
performance of this Agreement shall be governed by the procedural and
substantive laws of the state of Georgia and any and all disputes, except those
specifically referred to below, shall be brought and maintained within that
state. If any judicial authority holds or declares that the law of another
jurisdiction is applicable, this Agreement shall remain enforceable under the
laws of that jurisdiction.
Section 10.02. Arbitration of Financial Matters.
--------------------------------
Subsection 10.02.1. Matters to be Submitted to Arbitration. In
---------------------------------------
the case of a dispute with respect to any of the following matters,
either party may submit such matter to arbitration which shall be
conducted by the Accountants (as hereinafter defined in Subsection
10.02.2): (a) computation of the Management Fees; (b) reimbursements
due to Manager under the provisions of Section 11.15; (c) any
adjustment in the Minimum Balance under the provisions of Section
4.01(v); (d) any adjustment in dollar amounts of insurance coverages
required to be maintained; and (e) any dispute concerning the approval
of an Operating Budget.
18
All disputes concerning the above matters shall be submitted to
the Accountants. The decision of the Accountants with respect to any
matters submitted to them under this Subsection 10.02.1 shall be
binding on both parties hereto.
Subsection 10.02.2. The Accountants. The "Accountants" shall be
---------------
one of three (3) firms of certified public accountants of recognized
national standing in the hotel industry. Until otherwise agreed to by
the parties, the three (3) firms shall be Xxxxxx Xxxxxxxx & Co., Price
Waterhouse Coopers, and Ernst & Young, notwithstanding any existing
relationships which may exist between Owner and such accounting firms
or Manager and such accounting firms. The party desiring to submit any
matter to arbitration under Subsection 10.02.1 shall do so by written
notice to the other party, which notice shall set forth the items to
be arbitrated and such party's choice of one of the three (3)
accounting firms. The party receiving such notice shall within fifteen
(15) days after receipt of such notice either approve such choice, or
designate one of the remaining two (2) firms by written notice back to
the first party, and the first party shall within fifteen (15) days
after receipt of such notice either approve such choice or disapprove
the same. If both parties shall have approved one of the three (3)
firms under the preceding sentence, then such firm shall be the
"Accountants" for the purpose of arbitrating the dispute; if the
parties are unable to agree on an accounting firm, then the third
firm, which was not designated by either party, shall be the
"Accountants" for such purpose. The Accountants shall be required to
render a decision in accordance with the procedures described in
Subsection 10.02.3 within fifteen (15) days after being notified of
their selection. The fees and expenses of the Accountants will be paid
by the non-prevailing party.
Subsection 10.02.3. Procedures. In all arbitration proceedings
----------
submitted to the Accountants, the Accountants shall be required to
agree upon and approve the substantive position advocated by Owner or
Manager with respect to each disputed item. Any decision rendered by
the Accountants that does not reflect the position advocated by Owner
or Manager shall be beyond the scope of authority granted to the
Accountants and, consequently, may be overturned by either party. All
proceedings by the Accountants shall be conducted in accordance with
the Uniform Arbitration Act, except to the extent the provisions of
such act are modified by this Agreement or the mutual agreement of the
parties. Unless otherwise agreed, all arbitration proceedings shall be
conducted at the Hotel.
Section 10.03. Performance During Disputes. It is mutually agreed that
---------------------------
during any kind of controversy, claim, disagreement or dispute, including a
dispute as to the validity of this Agreement, Manager shall remain in possession
of the Hotel as Manager; and Owner and Manager shall continue their performance
of the provisions of this Agreement and its exhibits. Manager shall be entitled
to injunctive relief from a civil court or other competent authority to maintain
possession in the event of a threatened eviction during any dispute,
controversy, claim or disagreement arising out of this Agreement.
19
ARTICLE 11
GENERAL PROVISIONS
------------------
Section 11.01. Authorization. Owner and Manager represent and warrant
-------------
to each other that their respective corporations have full power and authority
to execute this Agreement and to be bound by and perform the terms hereof. On
request, each party shall furnish the other evidence of such authority.
Section 11.02. Relationship. Manager and Owner shall not be construed
-----------
as joint venturers or partners of each other by reason of this Agreement and
neither shall have the power to bind or obligate the other except as set forth
in this Agreement.
Section 11.03 Manager's Contractual Authority in the Performance of
-----------------------------------------------------
this Agreement. Manager is authorized to make, enter into and perform in the
--------------
name of and for the account of Owner any contracts deemed necessary by manager
to perform its obligations under this Agreement. In exercising its authority
hereunder, Manager shall be entitled to execute and enter into contracts without
the specific approval of Owner and Fee Owner so long as each such contract (i)
requires expenditures or otherwise establishes liability of twenty-five thousand
dollars ($25,000) or less and (ii) has a term (excluding options in favor of
---
Manager and Owner to renew) of one (1) year or less or can be cancelled without
--
penalty upon sixty (60) days' notice or less, provided, however, that any
contract entered into pursuant to the last paragraph of Section 4.01(vi) shall
be governed by the provisions of said Section 4.01(vi). Any contract that does
not satisfy the conditions set forth in the preceding sentence shall require the
prior approval in each instance of Owner, regardless whether such expenditure is
authorized in an applicable budget, unless the form of the contract proposed to
be entered into has been approved in advance by Owner. Owner agrees to promptly
respond to any request for approval and further agrees that its consent shall
not be unreasonably withheld or delayed. Manager shall be authorized to enter
into contracts with affiliates of Manager, but only so long as Owner shall have
approved in advance the cost of the service or product to be provided.
Section 11.04. Further Actions. Owner and Manager agree to execute all
---------------
contracts, agreements and documents and to take all actions necessary to comply
with the provisions of this Agreement and the intent hereof.
Section 11.05. Successors and Assigns. Owner's consent shall not be
----------------------
required for Manager to assign any of its rights, interests or obligations as
Manager hereunder to any parent, subsidiary or affiliate of Manager or Promus
Hotel Corporation, provided that any such assignee agrees to be bound by the
terms and conditions of this Agreement and provided, further, that such assignee
has received an assignment of all or substantially all of the management
agreements entered into by Manager with respect to other Homewood Suites hotels.
The acquisition of Manager or its parent company by a third party shall not
constitute an assignment of this Agreement by Manager and this Agreement shall
remain in full force and effect between Owner and Manger. Except as herein
provided, Manager shall not assign any of its obligations hereunder without the
prior written consent of Owner, which shall not be unreasonably withheld or
delayed. Owner shall be deemed to have consented to such an assignment of this
Agreement
20
if Owner has not notified Manager in writing to the contrary within fifteen (15)
days after Owner has not notified Manager's request for Owner's consent to an
assignment. Manager shall have the right to pledge or assign its right to
receive the Management Fees hereunder without the prior written consent of
Owner.
Owner shall have the right to assign this Agreement to the person or
entity which has obtained (i) leasehold title to the Hotel in accordance with
the Comfort Letter and (ii) a Homewood Suites License Agreement for the Hotel.
Except as hereinabove provided, Owner shall not have the right to assign this
Agreement.
Section 11.06. Notices. All notices or other communications provided
-------
for in this Agreement shall be in writing and shall be either hand delivered,
delivered by certified mail, postage prepaid, return receipt requested,
delivered by an overnight delivery service, or delivered by facsimile machine
(with an executed original sent the same day by an overnight delivery service),
addressed as set forth on Exhibit "B". Notices shall be deemed delivered on the
date that is four (4) calendar days after the notice is deposited in the U.S.
mail (not counting the mailing date) if sent by certified mail, or, if hand
delivered, on the date the hand delivery is made, or if delivered by facsimile
machine, on the date the transmission is made. If given by an overnight delivery
service, the notice shall be deemed delivered on the next business day following
the date that the notice is deposited with the overnight delivery service. The
addresses given above may be changed by any party by notice given in the manner
provided herein.
Section 11.07. Documents. Owner shall furnish Manger copies of all
---------
leases, title documents, property tax receipts and bills, insurance statements,
all financing documents (including notes and mortgages) relating to the Hotel
and such other documents pertaining to the Hotel as Manager shall request.
Section 11.08. Defense. Manager shall defend and/or settle any claim or
-------
legal action brought against Manager or Owner, individually, jointly or
severally in connection with the operation of the Hotel. Manager shall retain
and supervise legal counsel, accountants and such other professionals,
consultants and specialists as Manager deems appropriate to defend and/or settle
any such claim or cause of action. Owner shall have the right to participate
actively in the defense of any such claim or cause of action in which Owner is a
named defendant. Owner's approval shall be required with respect to any proposed
settlement of any claim or cause of action in which Owner is a named party or
that is not covered by insurance (excluding any deductible amount specified in
the applicable policy of insurance). Manager shall confer with Owner concerning
any settlement proposal that manager is considering accepting, regardless of
whether Owner is a named party, but Owner's approval shall not be required if
Owner is not a named party and the settlement is covered by insurance. All
liabilities, costs, and expenses, including attorneys' fees and disbursements,
incurred in defending and/or settling any such claim or legal action which are
not covered by insurance shall be paid by Owner.
Section 11.09. Waivers. No failure or delay by Manager or Owner 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
thereof, shall constitute a waiver of any such breach or any subsequent breach
of such covenant, agreement, term or condition. Xx
00
xxxxxxxx, xxxxxxxxx, xxxx, or condition of this Agreement and no breach thereof
shall be waived, altered or modified except by written instrument. No waiver of
any breach shall affect or alter this Agreement, but each and every covenant,
agreement, term and condition of this Agreement shall continue in full force and
effect with respect to any other than existing or subsequent breach thereof.
Section 11.10. Changes. Any change to or modification of this
-------
Agreement, including, without limitation, any change in the application of this
Agreement to the Hotel, must be evidenced by a written document signed by both
parties hereto.
Section 11.11. Captions. The captions for each Article and Section are
--------
intended for convenience only.
Section 11.12. Severability. If any of the terms and provisions hereof
------------
shall be held invalid or unenforceable, such invalidity or unenforceability
shall not affect any of the other terms or provisions hereof. If, however, any
material part of a party's rights under this Agreement shall be declared invalid
or unenforceable (specifically including Manager's right to receive its
Management Fees), the party whose rights have been declared invalid or
unenforceable shall have the option to terminate this Agreement upon thirty (30)
days' written notice to the other party, without liability on the part of the
terminating party.
Section 11.13. Interest. Any amount payable to Manager or Owner by the
--------
other which has not been paid when due shall accrue interest at the lessor of:
(a) the highest legal limit in the state in which the Hotel is located, (b) the
highest legal limit in the state of Georgia, or (c) two percentage points (2%)
over the published base rate of interest charged by Citibank, N.A., New York, to
borrowers on ninety (90) day unsecured commercial loans, as the same may be
changed from time to time.
Section 11.14. Reimbursement. The performance by Manager of its
-------------
responsibilities under this Agreement are conditioned upon Owner providing
sufficient funds to Manager on a timely basis to enable Manager to perform
rights obligations hereunder. Nevertheless, Manager shall be entitled, at its
option, after first providing not less than ten (10) days' prior written notice
to Owner specifying the obligations to be satisfied and the amount of money to
be advanced, to advance funds or contribute property, on behalf of the Owner, to
satisfy obligations of Owner in connection with the Hotel and this Agreement.
Manager shall keep appropriate records to document all reimbursable expenses
paid by Manager, which records shall be made available for inspection by Owner
or its agents upon request. Owner agrees to reimburse Manager with interest upon
demand for money paid or property contributed by Manager to satisfy obligations
of Owner in connection with the Hotel and this Agreement. Interest shall be
calculated at the rate set forth in Section 11.13 from the date Owner was
obligated to remit the funds or contribute the property for the satisfaction of
such obligations to the date reimbursement is made.
Section 11.15 Travel and Out-of-Pocket Expenses. Manager shall be
---------------------------------
reimbursed for all reasonable travel and out-of-pocket expenses of Manager's
employees reasonably incurred in the performance of this Agreement, provided,
however, that travel and out-of-pocket expenses of officers of Manager, its
parent and affiliates shall not be reimbursable by Owner. Manager shall
22
have sole discretion, which shall not be unreasonably exercised, to determine
the necessity for such travel or other expenses.
Section 11.16. Set off. Without prejudice to Manager's right to
-------
terminate this Agreement pursuant to the provisions of this Agreement, Manager
may at any time and without notice to Owner set off or transfer any sum or sums
held by Manager or other affiliate of Promus Hotels, Inc. to the order or on
behalf of Owner or Fee Owner or standing to the credit of Owner or Fee Owner in
the Bank Account(s) in or towards satisfaction of any of Owner's liabilities to
Manager in respect of all sums due to Manager under the terms of this Agreement.
Section 11.17. Third Party Beneficiary. This Agreement is exclusively
-----------------------
for the benefit of the parties hereto and it may not be enforced by any party
other than the parties to this Agreement and shall not give rise to liability to
any third party other than the authorized successors and assigns of the parties
hereto.
Section 11.18. Brokerage. Manager and Owner represent and warrant to
---------
each other that neither has sought the services of a broker, finder or agent in
this transaction, and neither has employed, nor authorized, any other person to
act in such capacity. Manager and Owner each hereby agrees to indemnify and hold
the other harmless from and against any and all claims, loss, liability, damage
or expenses (including reasonable attorneys' fees) suffered or incurred by the
other party as a result of a claim brought by a person or entity engaged or
claiming to be engaged as a finder, broker or agent by the indemnifying party.
Section 11.19. Survival of Covenants. Any covenant, term or provision
---------------------
of this Agreement which, in order to be effective, must survive the termination
of this Agreement, shall survive any such termination.
Section 11.20. Estoppel Certificate. Manager and Owner agree to furnish
--------------------
to the other party, from time to time upon request, an estoppel certificate in
such reasonable form as the requesting party may request stating whether there
have been any defaults under this Agreement known to the party furnishing the
estoppel certificate and such other information relating to the Hotel as may be
reasonably requested.
Section 11.21. Other Agreements. Except to the extent as may now or
----------------
hereafter be specifically provided, nothing contained in this Agreement shall be
deemed to modify any other agreement between Owner and Manager with respect to
the Hotel or any other property. This Agreement, together with the Comfort
Letter, contains the entire agreement between Owner and Manager regarding the
management of the Hotel.
Section 11.22. Periods of Time. Whenever any determination is to be
---------------
made or action is to be taken on a date specified in this Agreement, if such
date shall fall on a Saturday, Sunday or legal holiday under the laws of the
states of Tennessee and Virginia and/or the state in which the Hotel is located,
then in such event said date shall be extended to the next day which is not a
Saturday, Sunday or legal holiday.
23
Section 11.24. Exhibits. All exhibits attached hereto are incorporated
--------
herein by reference and made a part hereof as if fully rewritten or reproduced
herein.
Section 11.25. Attorneys' Fees and Other Costs. The parties to this
-------------------------------
Agreement shall bear their own attorneys' fees in relation to negotiating and
drafting this Agreement. Should Owner or Manager engage in litigation to enforce
their respective rights pursuant to this Agreement, the prevailing party shall
have the right to indemnity by the non-prevailing party for an amount equal to
the prevailing party's reasonable attorney's fees, court costs and expenses
arising therefrom.
Section 11.26. Agreement Not an Interest in Real Property. This
------------------------------------------
Agreement is not, and shall not be deemed at any time to be or to create, an
interest in real estate or a lien or other encumbrance of any kind whatsoever
against the Hotel or the land on which it is erected.
Section 11.27. Counterparts. This Agreement may be executed in two (2)
------------
or more counterparts, each of which shall be deemed an original.
The parties have respectively caused this Agreement to be executed as
of the respective dates show below.
OWNER:
/s/ Xxx X. Remppies
----------------------- APPLE SUITES MANAGEMENT, INC., a
Witness: Virginia corporation
By: /s/ Xxxxx X. Xxxxxx
--------------------------------
Name: Xxxxx X. Xxxxxx
Title: President
Date: 6-19-01
MANAGER:
/s/ Xxxx Bodask PROMUS HOTELS, INC.
---------------------------
Witness:
By: /s/ Xxxx Xxxxxx
-----------------------------------
Name: Xxxx Xxxxxxx
Title: Senior Vice President
Date: 6-22-01
EXHIBIT "A"
LICENSE AGREEMENT
-----------------
[ Filed separately as Exhibit 10.11 ]
EXHIBIT "B"
DEAL SPECIFIC TERMS
TERM: Five (5) years from the Effective Date
----
INITIAL MINIMUM BALANCE
FOR THE BANK ACCOUNT(S): $75,000
-----------------------
INITIAL OWNER'S REPRESENTATIVE: Xxxxxx Xxxxxx
------------------------------
DISBURSEMENT PRIORITY SCHEDULE:
------------------------------
Each fiscal month Manager, on behalf of Owner, shall disburse funds
from the Bank Account(s) in the following order of priority and to the extent
available:
(a) all fees, assessments and charges due and payable under the
License Agreement when issued;
(b) the Management Fee;
(c) all reimbursement expenses due Manager;
(d) all other Hotel operating costs (herein and in the Agreement
referred to as "operating costs"), as such costs and expenses are
defined under the accounting practices of Manager in conformity
with generally accepted accounting practices consistently
applied, specifically including, but not limited to, (i) the cost
of operating equipment and operating supplies, wages, salaries
and employee fringe benefits, advertising and promotional
expenses, the cost of personnel training programs, utility and
energy costs, operating licenses and permits, grounds and
landscaping maintenance costs and equipment rentals approved by
Manager as an operating cost; (ii) all expenditures made for
maintenance and repairs to keep the Hotel in good condition and
repairs, specifically excluding expenditures for Capital
Replacements; and (iii) premiums and charges on the insurance
coverages specified in Exhibit "D" incurred after the Effective
Date. There shall be excluded from the operating costs of the
Hotel the following, which shall be ownership costs of the Hotel:
(i) depreciation of the Hotel, furnishings, fixtures and
equipment; (ii) rental pursuant to a ground lease, if any, or the
Percentage Lease or any other lease payments; (iii) debt service
(interest and principal) on any mortgage(s) encumbering Owner's
leasehold interest in, and/or Fee Owner's fee interest in, the
Hotel; (iv) property taxes and assessments; (v) expenditures for
Capital Replacements; (vi) property taxes and assessments; (v)
expenditures for Capital Replacements; (vi) audit, legal and
other professional or special fees; (vii) premiums for insurance
coverages specified in Exhibit "E", (viii) administrative
and general expenses and disbursements of Owner, including
compensation of employees of Owner; (ix) Federal, State and local
Franchise and Income Taxes; (x) amortization of bond discounts
and mortgages expenses; (xi) deposits into the Reserve Fund or
amounts held pursuant to Section 3.01(xix); and (xiii) such other
costs or expenses which are normally treated as ownership costs
under the accounting practices of Manager in conformity with
generally accepted accounting practices consistently applied;
(e) the following ownership costs, disbursed in the following order
of priority and to the extent available:
(i) an amount (annualized) to satisfy land, building and
personal property taxes and assessments;
(ii) an amount (annualized) to satisfy the premiums for the
insurance required to be obtained by Owner in accordance
with Exhibit "E";
(iii) the amount to be deposited in the Reserve Fund pursuant to
Section 4.01(d); and
(iv) any ground lease payments, but specifically excluding,
except as specifically itemized above, any sums payable by
Owner to Fee Owner pursuant to the Percentage Lease;
(f) any payments not specifically contemplated above which are
required to be paid by Owner to Fee Owner pursuant to the
Percentage Lease; and
(g) except as provided above, debt service upon any mortgage(s)
encumbering the Hotel and any capital lease payments.
After the disbursements set forth above, any excess funds remaining in
the Bank Account(s) over the Minimum Balance shall be distributed to
Owner. If after making the disbursements set forth above, there shall
be a deficiency in the Minimum Balance, Owner shall immediately provide
such funds as may be required to maintain the Minimum Balance in the
Bank Account(s).
NOTICES:
Owner: Apple Suites Management, Inc.
----- 000 Xxxx Xxxx Xxxxxx
Xxxxxxxx, Xxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xx. Xxxxx X. Xxxxxx
Manager: Promus Hotels, Inc.
------- 000 Xxxxxxxxx Xxxx
Xxxxxxx, Xxxxxxxxx 00000
Fax: (000) 000-0000
Attention: Xxxx Xxxxxxx
with a copy to: Hilton Hotels Corporation
0000 Xxxxx Xxxxxx Xxxxx
Xxxxxxx Xxxxx, XX 00000
Fax: (000) 000-0000
Attention: General Counsel
EARLY TERMINATION FEE.
---------------------
The "Early Termination Fee" shall be as follows: (i) $350,000 if the
termination of this Agreement occurs pursuant to Sections 9.02 or 9.05
of this Agreement before the first anniversary of the Effective Date,
(ii) $350,000 if the termination of this Agreement occurs during the
period commencing on the first anniversary of the Effective Date and
ending on the second anniversary of the Effective Date; (iii) $250,000
if the termination of this Agreement occurs after the third anniversary
of the Effective Date but on or before the fourth anniversary of the
Effective Date; and (v) $25,000 if the termination of this Agreement
occurs after the fourth anniversary of the Effective Date.
ACCOUNTING FEE: $1,000/month, as such amount may be increased annually
--------------
in accordance with increases in the CPI from ___________, 2001.
EXHIBIT "C"
MANAGEMENT FEES
---------------
The "Management Fee" shall mean and refer to a fee equal to the
following: (i) two percent (2%) of Adjusted Gross Revenues (as hereinafter
defined) with respect to each fiscal month during the first year of the term of
this Agreement, (ii) three percent (3%) of Adjusted Gross Revenues with respect
to each fiscal month during the second year of the term of this Agreement and
(iii) four percent (4%) of Adjusted Gross Revenues with respect to each fiscal
month during the remainder of the term of this Agreement.
The term "Gross Revenue" shall be defined as all revenues and income of any
nature derived directly or indirectly from the Hotel or from the use or
operation thereof, whether on or off the Site, including total room sales, food
and beverage sales, if any, laundry, telephone, telegraph and telex revenues,
other income, rental or other payments from lessees, sublessees, licensees and
concessionaires (but not the gross receipts of such lessees, sublessees,
licensees or concessionaires) and the proceeds of business interruption, use,
occupancy or similar insurance.
The term "Adjusted Gross Revenues" shall be defined a s Gross Revenues
less the following revenues actually received by the Hotel and included in Gross
Revenues: (i) any gratuities or service charge added to a customer's xxxx; (ii)
any credits or refunds made to customers, guests or patrons; (iii) any sums and
credits received by Owner for lost or damaged merchandise; (iv) any sales taxes,
excise taxes, gross receipt taxes, admission taxes, entertainment taxes, tourist
taxes or charges; (v) any proceeds from the sale or other disposition of the
Hotel, furnishings and equipment or other capital assets; (vi) any fire and
extended coverage insurance proceeds; (vii) any condemnation awards; (viii) any
proceeds of financing or refinancing of the Hotel; and (ix) any interest on the
Bank Account(s).
EXHIBIT "D"
INSURANCE
---------
In accordance with Section 3.01(xv), Manager shall, on behalf of Owner
and at Owner's expense, procure the insurance coverages hereinafter set forth
and ensure that they are in full force and effect as of the Effective Date and
that they remain in full force and effect throughout the Term of this Agreement.
All cost(s) and expenses(s) incurred by Manager in procuring the following
insurance coverages shall be operating costs and shall be paid from the Bank
Account(s):
Coverages: Amounts of Insurance
--------- --------------------
Comprehensive General Liability $10,000,000
-------------------------------
Including -
Premises - Operations
Products/Completed Operations
Contractual
Personal Injury
Liquor Liability/Dram Shop
(if applicable)
Elevators and Escalators
Automotive Liability $10,000,000
--------------------
Owned Vehicles
Non-Owned Vehicles
Uninsured Motorist where Required
By Statute
Automobile Physical Damage (Optional)
-------------------------------------
Comprehensive (To Value if Insured)
Collision
Workers' Compensation Statutory
---------------------
Employer's Liability $1,000,000
--------------------
Fidelity (Employee Dishonesty) As required
--------
Money and Securities As required
--------------------
All insurance coverages provided for under this Exhibit "D" shall be
effected by policies issued by insurance companies (i) that are authorized to do
business in the state in which the Hotel is located; and (ii) that are of good
reputation and of sound and adequate financial adequate financial
responsibility, having a Bests Rating of B+ VI, or better, or a comparable
rating if Bests cease to publish its ratings or materially changes its rating
standards or procedures.
Manager shall deliver to Owner duly executed certificates of insurance
with respect to all of the policies of insurance procured, including existing,
additional and renewal policies.
Each policy of insurance maintained in accordance with this Exhibit
"D," to the extent obtainable, shall specify that policies shall not be
cancelled or materially changed without at least thirty (30) days' prior written
notice to Owner and Manager.
Except as otherwise provided in the Agreement, Manager and Owner each
waives, releases and discharges the other from all claims or demands which each
may have or acquire against the other, or against each other's subsidiaries,
affiliates, directors, agents or independent contractors. Each policy of
insurance maintained in accordance with this Exhibit "D" shall contain a
specific waiver of subrogation reflecting the above with respect to insured
claim.
All policies of insurance provided from under this Exhibit "D" shall be
carried in the name of the Manager. Owner's interest and that of any other
applicable party will be included in the coverage by an additional insured
endorsement.
All such policies of insurance shall be written on an "occurrence"
basis, with no aggregate limitation.
Either Manager of Owner, by notice to the other, shall have the right
to require that the minimum amount of insurance to be maintained with respect to
the Hotel under this Exhibit "D" be increased to make such insurance comparable
with prudent industry standards and to reflect increases in liability exposures,
taking into account the size and location of the Hotel.
Owner hereby authorizes Manager to utilize the services of and/or place
the insurance set forth in this Exhibit "D" with (i) any subsidiary or
affiliated company of Promus Hotels, Inc. in the insurance business as Manager
deems appropriate; or (ii) a third party insurance carrier meeting the
specification set forth above.
EXHIBIT "E"
INSURANCE
---------
In accordance with Section 4.01(iii), Owner agrees, at its expense, to
procure and maintain the following insurance coverages, as reasonably adjusted
from time to time, throughout the Term of this Agreement:
Coverages: Amounts of Insurance
---------- --------------------
Builders Risk Completed value of the Hotel
-------------
All risk for term of the initial and any subsequent Hotel
construction and renovation.
Real and Personal Property 100% replacement value of
-------------------------- building and contents
Blanket Coverage
Replacement Cost - all risk
Boiler Machinery - written on a comprehensive form
Business Interruption Calculated yearly based on
--------------------- estimated Hotel revenues
Blanket Coverage for the perils insured against under Real and
Personal Property in this Exhibit "E". This coverage shall
specifically cover Manager's loss of Management Fees. The
business interruption insurance shall be for a twelve (12) month
indemnity period.
Owner's Protective Liability $10,000,000
----------------------------
All risks from Hotel construction and renovation projects
costing more than $250,000.
All insurance coverages provided for under this Exhibit "E" shall be
effected by policies issued by insurance companies (i) that are authorized to do
business in the state in which the Hotel is located; and (ii) that are of good
reputation and of sound and adequate financial responsibility, having a Bests
Rating of B+ VI, or better, or a comparable rating of Bests ceases to publish
its ratings or materially changes its rating standards or procedures.
Owner shall deliver to Manager duplicate copies of either insurance
policies or certificates of insurance (at Manager's option) with respect to all
of the policies of insurance
procured, including existing, additional and renewal policies, and in the case
of insurance nearing expiration, shall deliver duplicate copies of the insurance
policies or certificates of insurance with respect to the renewal policies to
Manager not less than thirty (30) days prior to the respective dates of
expiration.
Each policy of insurance maintained in accordance with this Exhibit
"E," to the extent obtainable, shall specify that such policies shall not be
cancelled or materially changed without at least thirty (30) days' prior written
notice to Owner and Manager.
Except as otherwise provided in this Agreement, Manager and Owner each
waives, releases and discharges the other from all claims or demands which each
may have or acquire against the other, or against each other's subsidiaries,
affiliates, directors, officers, agents, employees, independent contractors or
partners, with respect to any claims for any losses, damages, liabilities or
expenses (including attorneys' fees) incurred or sustained by either of them on
account of injury to persons or damage to property or business arising out of
the ownership, management, operation and maintenance of the Hotel, regardless
whether any such claim or demand may arise because of the fault of negligence of
the other party or its subsidiaries, affiliates, officers, employees, directors,
agents or independent contractors. Each policy of insurance maintained in
accordance with this Exhibit "E" shall contain a specific waiver of subrogation
reflecting the above with respect to insured claims.
All policies of insurance provided for under this Exhibit "E" shall be
carried in the name of the Owner and Manager, and losses thereunder shall be
payable to the parties as their respective interests may appear. All liability
policies shall name the Owner and Manger, and in each case any of their
affiliated or subsidiary companies which they may specify, and their respective
directors, officers, agents, employees and partners as additional named
insureds.
All such policies of insurance shall be written on an "occurrence"
basis.
Either Manager or Owner, by notice to the other, shall have the right
to require the minimum amount of insurance to be maintained with respect to the
Hotel under this Exhibit "E" be increased to make such insurance comparable with
prudent industry standards and to reflect increases in liability exposures,
taking into account the size and location of the Hotel.
