EXHIBIT 10.29
SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
HOTEL FRANCHISING LIMITED PARTNERSHIP
A Delaware Limited Partnership
Dated as of
November 20, 1996
TABLE OF CONTENTS
Page
1. DEFINITIONS; ACCOUNTING TERMS..................................... 1
1.1. Definitions............................................. 1
1.2. Number; Gender.......................................... 22
1.3. Accounting Terms and Determinations..................... 22
2. ORGANIZATION...................................................... 22
2.1. Continuation of Limited Partnership. .................. 22
2.2. Name ............................................... 22
2.3. Purpose ............................................... 23
2.4. Places of Business...................................... 23
2.5. Registered Office and Agent............................. 23
2.6. Fiscal Year............................................. 23
2.7. Powers ............................................... 23
2.8. Limitations on Certain Activities....................... 23
3. PARTNERS.......................................................... 25
3.1. General and Limited Partner............................. 25
3.2. Liability of Related Persons............................ 26
3.3. Limited Liability of Limited Partners................... 27
3.4. Partnership Property; Partnership Interest.............. 27
4. CAPITAL CONTRIBUTIONS, CAPITAL ACCOUNTS........................... 27
4.1. Capital Contributions.................................... 28
4.2 Capital Accounts......................................... 31
4.3 Allocations of Net Income and Net
Losses......................................... 32
4.4 Special Allocations............................ 33
4.5 Binding Effect of Allocations.................. 36
4.6 Tax Allocations: Code Section 704(c).......... 36
4.7 Transfer or Change in Partnership
Interest....................................... 36
4.8 Characterization of Additional Capital
Loans and Additional LP Capital
Contributions for Income Tax Purposes.......... 37
4.9. General Partner......................................... 37
4.10 Future Capital Requirements............................. 38
5. DISTRIBUTIONS..................................................... 39
5.1. No Right to Withdraw.................................... 39
5.2. Minimum LP Distributions................................ 39
5.3 Investment Income Distributions......................... 42
5.4. Annual Distributions.................................... 42
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5.5 Mechanics of Distributions............................ 42
5.6. Restrictions on Distributions......................... 43
5.7. Withholding........................................... 43
5.8 Certain Distributions to the Original
Limited Partner.............................. 44
6. MANAGEMENT...................................................... 44
6.1. Management by General Partner; Corporate
Services Fee; Third Parties.................. 44
6.2. Third Party Reliance.................................. 46
6.3. Other Activities of Related Persons................... 46
6.4. Certificates and Fictitious Name Filings.............. 48
6.5. Funds Management...................................... 48
6.6. Expenses ............................................. 48
6.7. Development Advances, Property Guaranties............. 49
6.8. Insurance............................................. 49
7. REPRESENTATIONS AND WARRANTIES.................................. 50
7.1. Representations and Warranties of the
General Partner.............................. 50
7.2. Representations and Warranties of Limited
Partners..................................... 50
8. GENERAL PARTNER'S TENDER RIGHT................................... 51
9. ORIGINAL LIMITED PARTNER'S PUT RIGHTS............................ 53
9.1. Sixth Year Put Right.................................. 53
9.2. Additional Put Right.................................. 55
10. GENERAL PARTNER'S CALL OPTION................................... 57
11. ACCOUNTING, BOOKS, RECORDS AND REPORTS......................... 58
11.1 Books of Account...................................... 58
11.2 Method of Accounting.................................. 58
11.3 Tax Elections......................................... 58
11.4 Preparation of Tax Returns............................ 58
11.5 Audited Financial Statements.......................... 59
11.6 Tax Matters Partner................................... 59
11.7 Banking ............................................. 59
12. TRANSFER OF PARTNERSHIP INTERESTS; SUBSTITUTE
AND ADDITIONAL PARTNERS..................................... 60
12.1. Assignments.......................................... 60
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12.3. Effect of Retirement, Withdrawal, Bank-
ruptcy, Dissolution, Death, Etc. of
Limited Partner.............................. 61
12.4. Substitute Limited Partners.......................... 61
13. INDEMNIFICATION OF GENERAL PARTNER............................. 62
13.1. In General........................................... 62
13.2. Not Liable for Return of Capital..................... 63
14. DURATION AND TERMINATION OF THE PARTNERSHIP.................... 64
14.1. Term ............................................. 64
14.2. Winding-Up........................................... 64
14.3. Distributions in Cash or in Kind..................... 65
14.4. Time for Liquidation................................. 65
14.5. Termination.......................................... 66
14.6. Compliance with Certain Requirements of
Treasury Regulations......................... 66
15. DISSOLUTION, ETC. OF GENERAL PARTNER........................... 66
15.1. Disabling Events..................................... 66
15.2. Effect of a Disabling Event.......................... 67
16. AMENDMENTS..................................................... 67
16.1. Consent to Amendments................................ 67
16.2. Amendments by General Partner........................ 68
17. MISCELLANEOUS.................................................. 69
17.1. Waiver of Partition.................................. 69
17.2. Entire Agreement..................................... 69
17.3. Choice of Law........................................ 69
17.4. Successors and Assigns............................... 69
17.5. Captions............................................. 69
17.6. Severability......................................... 69
17.7. Counterparts......................................... 69
17.8. Additional Documents................................. 70
17.9. Non-Waiver........................................... 70
17.10. Manner of Consent................................... 70
17.11. Notices............................................. 70
17.12. Grant of Power of Attorney.......................... 71
17.13. Irrevocable and Coupled with an Interest;
Copies to Be Transmitted..................... 72
17.14. Survival of Power of Attorney....................... 72
17.15. Limitation of Power of Attorney..................... 73
17.16. Exercise of Rights.................................. 73
17.17. Confidentiality..................................... 73
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17.18. Submission to Jurisdiction........................... 74
17.19. Waiver of Trial by Jury.............................. 74
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SECOND AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
This SECOND AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF HOTEL FRANCHISING LIMITED PARTNERSHIP (the "Partnership") is
made as of the 20th day of November, 1996, by and between GENERAL FRANCHISE
SYSTEMS, INC., as General Partner (the "General Partner"), and FRANCHISE
INVESTORS L.L.C., a Delaware limited liability company, as Limited Partner
(the "Original Limited Partner"), amending and restating the Amended and
Restated Agreement of Limited Partnership, dated as of the 31st day of March,
1995 (the "Original Partnership Agreement"), among the General Partner, the
Original Limited Partner and Xxxx X. Xxxxxxxx as the withdrawing initial
limited partner (the "Initial Limited Partner"), which amended and restated
the Agreement of Limited Partnership, dated as of the 20th day of March, 1995,
between the General Partner and the Initial Limited Partner.
WHEREAS, the parties hereto desire to amend
and restate the Original Partnership Agreement, and continue the Partnership
as a limited partnership under the Act and this Agreement;
NOW, THEREFORE, in consideration of the mutual
promises and obligations contained herein, the parties, intending to be
legally bound, hereby amend and restate the Original Partnership Agreement in
its entirety and hereby agree as follows:
1. DEFINITIONS; ACCOUNTING TERMS.
1.1. Definitions.
As used herein the following terms shall
have the following respective meanings:
Act -- as defined in Section 2.1.
Additional LP Capital Contributions -- as
defined in Section 4.1(c).
Additional Capital Loans -- as defined in
Section 4.1(d).
Adjusted Capital Account -- at any time, the then
balance in the Capital Account of a Partner, after giving effect to the
following adjustments:
(i) credit to such Capital Account any amounts that
such Partner is deemed obligated to restore as described in the
penultimate sentences of Treasury Regulations Section 1.704-2(g)(1)
and Treasury Regulations Section 1.704-2(i)(5); and
(ii) debit to such Capital Account the items
described in Treasury Regulations Sections 1.704-1(b)(2)(ii)(d)(4),
(5) and (6).
The foregoing definition of Adjusted Capital Account is intended to comply
with the provisions of Treasury Regulations Section 1.704-1(b)(2)(ii)(d) and
shall be interpreted consistently therewith.
Adjusted Royalty Revenues -- the Gross Royalty
Revenues for each Eligible Hotel Property from time to time owing to the
Partnership under each Franchise Agreement, calculated as if each Eligible
Hotel Property in the System paid royalty fees at the average royalty
percentage provided for throughout the Initial Term of the Franchise Agreement
relating to such Eligible Hotel Property.
Adjusted Unamortized Development Advances -- the
lesser of (i) the unamortized Development Advances on the Partnership's
audited balance sheet as of the Put Reference Date and (ii) the Partnership's
unamortized Development Advances calculated as if all such Development
Advances were amortized over a period of 15 years.
Administrative Fee -- each annual administrative fee
in the amount of $100,000 payable by the Original Limited Partner to the
Designated Member not more than 90 days following the end of each Fiscal Year
of the Partnership (pro-rated for the Partnership's first Fiscal Year and for
the Partnership's last Fiscal Year, if such last Fiscal Year is less than a
full calendar year).
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Advisory Fee -- that certain non-refundable fee of
$500,000 payable by the Partnership to HFS on the Initial Closing Date.
Affiliate -- with reference to any Person, any other
Person of which such first Person is a member, director, officer, general
partner or employee or any other Person directly or indirectly controlling or
controlled by or under direct or indirect common control with such first
Person.
Agreement -- this Second Amended and Restated
Agreement of Limited Partnership, as the same may be amended, supplemented or
otherwise modified hereafter from time to time as provided herein.
Annual Distributions -- as defined in Section 5.4.
Assign -- to make an Assignment.
Assignee -- a Person who receives an Assignment of an
interest in the Partnership.
Assignment -- as defined in Section 12.1.
Authorized Representative -- as defined in Section
17.17.
Bankruptcy Code -- Title 11 of the United States Code
entitled "Bankruptcy," as amended from time to time, and any successor statute
or statutes thereto.
Big Six Accounting Firm -- any one of the nationally
recognized accounting firms of: (i) Xxxxxx Xxxxxxxx & Co.; (ii) Coopers &
Xxxxxxx; (iii) Deloitte & Touche LLP; (iv) Ernst & Young; (v) KPMG Peat
Marwick; and (vi) Price Waterhouse, and any successor firm to any of the
foregoing.
Business Day -- any day excluding Saturday, Sunday and
any day which shall be in the City of New York a legal holiday or a day on
which banking institutions in New York are authorized or required by law or
other government actions to close.
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Call -- the General Partner's option to acquire the
Original Limited Partner's limited partnership interest in accordance with
Section 10 hereof.
Capital Accounts -- the capital account maintained by
the Partnership for each of the Partners as described in Section 4.2 hereof.
Capital Commitment -- the amount set forth opposite
each Partner's name on Schedule A hereto, as amended from time to time in
accordance with the provisions of this Agreement.
Capital Contributions -- as to any Partner, the amount
of cash and the initial Gross Asset Value of any property (other than money)
contributed to the capital of the Partnership by such Partner pursuant to
Section 4.1 or Section 4.10. As to the General Partner, the term Capital
Contributions shall also include the amount of organizational expenses of the
Partnership, up to One Million Dollars ($1,000,000), incurred, payable or paid
by the General Partner prior to the Initial Closing Date.
Capital Deficiency -- as to any Partner at any time,
the positive excess, if any, of such Partner's remaining Capital Commitment
over the balance in such Partner's Capital Account.
Cash Available for Distribution -- for any fiscal year
shall mean (i) the GAAP net income of the Partnership for such Fiscal Year,
plus (ii) the GAAP depreciation and amortization for such Fiscal Year of
capitalized Development Advances and organizational expenses and fixed assets
and other GAAP non-cash reserves less (iii) in each Fiscal Year Development
Advances disbursed, plus (iv) Property Guaranty Payments made in such Fiscal
Year, it being the intent of the parties hereto that neither Property Guaranty
Payments nor Property Guaranty Reimbursements shall affect this definition,
less (v) Property Guaranty Reimbursements received in such Fiscal Year, it
being the intent of the parties hereto that neither Property Guaranty Payments
nor Property Guaranty Reimbursements shall affect this definition, less (vi)
in the Partnership's first Fiscal Year, the Advisory Fee, the structuring and
placement fee of
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$400,000 payable by the Partnership to Xxxxxxx Xxxxx, and other organizational
expenses paid by the Partnership (excluding any such expenses referred to in
Section 4.1(a)), less (vii) Minimum LP Distributions and Investment Income
Distributions made in such Fiscal Year, plus (viii) the cash balance at the
beginning of such Fiscal Year reduced by Annual Distributions, if any, made in
such year and by the cash, up to $2,000,000, required to meet the current
operating needs of the Partnership, plus (or less) (ix) changes in other
assets and liabilities (such assets and liabilities resulting from the
ordinary course of business, of a class or sort not otherwise addressed in
this definition), less (x) the amount of any payment to HFS in respect of any
Shortfall Loan made by HFS to the Partnership, whether for principal or
interest thereon, provided, that if in any Fiscal Year ending prior to the Put
Date, GAAP net income of the Partnership is less than zero, Cash Available for
Distribution for such Fiscal Year shall be zero.
Chain Facilities -- the Hotel Properties
authorized by the Partnership to operate using the System
and identified by the Marks.
Code -- the Internal Revenue Code of 1986, as the same
may be amended hereafter from time to time.
Collateral -- as defined in the Loan Agreement.
Completion Fee -- the one-time fee, payable by the
Original Limited Partner to Xxxxxxx Xxxxx upon the acquisition by the General
Partner of all (but not less than all) of the then outstanding limited
partnership interest owned by the Original Limited Partner, or immediately
prior to the dissolution or liquidation of the Original Limited Partner, or
the consolidation of the Original Limited Partner into the General Partner or
HFS, in an amount (x) in the case of the Put, the Early Put, a Tender Offer,
dissolution or liquidation of the Original Limited Partner, or consolidation
of the Original Limited Partner into the General Partner or HFS, equal to the
greater of $200,000 or 30% of the Partnership's Adjusted Royalty Revenues in
excess of $9,000,000 (i) in the case of the Early Put or a Tender Offer, for
the 12-month
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period ending on the date which is 90 days prior to the date of consummation
of the Early Put or Tender Offer, as the case may be, (ii) for the 12-month
period immediately preceding dissolution, liquidation or consolidation of the
Original Limited Partner, if applicable, or (iii) for the 12-month period
immediately preceding the Put Reference Date, in the case of the Put, or (y)
in the case of the Call, equal to 50% of the Adjusted Royalty Revenues for the
12-month period immediately preceding the date the General Partner gives
notice to the Original Limited Partner of its election to Call, provided, that
in no event shall such fee exceed $1,500,000.
Confidential Matter -- as defined in Section 17.17.
Corporate Services Fee -- as defined in Section
6.1(a).
Damages -- any and all damages, disbursements, suits,
claims, liabilities, obligations, judgments, fines, penalties, charges,
amounts paid in settlement, costs and expenses (including, without limitation,
attorneys' fees and expenses) arising out of or relating to litigation and
interest on any of the foregoing, including, without limitation, Damages
incurred in investigating, preparing or defending any action, claim, suit,
inquiry, proceeding, investigation or appeal taken from any of the foregoing
(including reasonable fees and disbursements of counsel) by or before any
court or Governmental Authority, whether pending or threatened, and whether or
not any indemnitee thereof is or may be a party thereto.
Depreciation -- for any Fiscal Year or portion
thereof, an amount equal to the depreciation, amortization or other cost
recovery deduction allowable with respect to an asset for such period for
federal income tax purposes, except that if the Gross Asset Value of an asset
differs from its adjusted basis for federal income tax purposes at the
beginning of such period, Depreciation shall be an amount that bears the same
relationship to such beginning Gross Asset Value as the depreciation,
amortization or cost recovery deduction in such period for Federal income tax
purposes bears to the
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beginning adjusted tax basis; provided, however, that if the adjusted basis
for federal income tax purposes of an asset at the beginning of such period is
zero, Depreciation shall be determined with reference to such beginning Gross
Asset Value using any reasonable method selected by the General Partner.
Designated Member -- ML Leasing Partners, Inc., and
its permitted successors and assigns, initially owning at least 1% of the LLC
Interests.
Development Advances -- advances or remuneration made
by the Partnership in its discretion from time to time to Franchisees, as an
inducement to purchase a Franchise or for such other reasons as the General
Partner deems appropriate, including, without limitation, (i) the payment of
fees (whether in cash or otherwise) or the making of, or provision for, loans
to Franchisees or Affiliates thereof; (ii) the omission or reduction of fees
customarily charged to Franchisees; and (iii) the provision of other items or
services of value, whether or not specifically provided for by the relevant
Franchise Agreement between the Partnership and a Franchisee, provided, that
such advances and remuneration shall be paid only in respect of Eligible Hotel
Properties, and shall not exceed in the aggregate for any Eligible Hotel
Property $250,000.
Disabling Event -- as defined in Section 15.1.
Early Put -- the Original Limited Partner's right to
require the General Partner to purchase all or a portion of its limited
partnership interest in the Partnership pursuant to Section 9.2 hereof.
Early Put Date -- as defined in Section 9.2(a).
Eligible Hotel Property -- means each Hotel Property
in the System which has opened for business and which is authorized by the
Partnership to operate using the System and to be identified by the Marks.
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Event of Default -- as defined in the Loan Agreement.
Event of Termination -- as defined in Section 14.1.
Extension Fee -- as defined in the definition of
Franchise Fees.
Fair Market Value -- on any date, the fair market
value of property on such date as determined, in the case of Section 9.2 or
Section 14.3, by independent appraisal, and in all other cases as reasonably
determined by the General Partner by reference to an arm's- length transaction
or a recognized public market for such property.
First-round Offer -- as defined in Section 4.10(b).
Fiscal Year -- as defined in Section 2.6.
Franchise Agreements -- All such agreements as are
entered into between the Partnership as Franchisor, and each of its
Franchisees, providing for the sale of Franchises and the provision of
services to Franchisees, for which the Partnership will receive Franchise Fees
and other payments.
Franchise -- a non-exclusive license to operate a
specified Hotel Property using the System and the Marks.
Franchisee -- each Person purchasing a Franchise
pursuant to a Franchise Agreement.
Franchise Fees -- the aggregate amount of fee and
royalty payments payable to the Partnership under each Franchise Agreement,
generally consisting of (a) initial and application fees, (b) a relicense fee
payable upon a transfer of an Eligible Hotel Property, (c) a System Assessment
Fee and special marketing assessments, (d) an extension fee (payable in the
sole discretion of the Partnership) of a specified amount per day upon delays
in opening of a Hotel Property, and payable in
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lieu of Royalties (the "Extension Fee"), (e) liquidated damages, payable by
Franchisees upon Franchise termination under Franchise Agreements, and (f)
Royalties.
Franchisee Loan Documents -- the documents required by
the SPV or the SPV Credit Agreement in connection with the making of each
Franchisee Loan by the SPV, as same may from time to time be amended, modified
or supplemented in accordance with their terms and the terms of the SPV Loan
Documents.
Franchisee Loans -- the borrowings made by Franchisees
from the SPV in accordance with the terms and provisions of the SPV Credit
Agreement and the Franchisee Loan Documents.
GAAP -- as defined in Section 1.3.
General Partner -- as defined in the introduction to
this Agreement.
Governmental Authority -- any nation or government,
any state or other political subdivision thereof and any other Person
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
Gross Asset Value -- with respect to any Partnership
asset, the asset's adjusted basis for federal income tax purposes, except as
follows:
(i) The initial Gross Asset Value of any asset
contributed by a Partner to the Partnership shall be the Fair Market
Value of such asset on the date of contribution;
(ii) The Gross Asset Value of all Partnership
assets shall be adjusted to equal their respective Fair Market Values
as of the following times: (a) the acquisition of an additional
interest in the Partnership by any new or existing Partner in
exchange for more than a de minimis Capital Contribution; (b) the
distribution by the Partnership to a Partner of more than a de
minimis amount of Partnership property as consideration for an
9
interest in the Partnership; and (c) the liquidation of the
Partnership within the meaning of Treasury Regulations Section
1.704-1(b)(2)(ii)(g); provided, however, that adjustments pursuant to
clauses (a) and (b) above shall be made only if the General Partner
reasonably determines that such adjustments are necessary or
appropriate to reflect the relative economic interests of the
Partners in the Partnership;
(iii) The Gross Asset Value of any Partnership
asset distributed to any Partner shall be adjusted to equal the Fair
Market Value of such asset on the date of distribution; and
(iv) The Gross Asset Values of Partnership assets
shall be increased (or decreased) to reflect any adjustments to the
adjusted basis of such assets pursuant to Code Section 734(b) or Code
Section 743(b), but only to the extent that such adjustments are
taken into account in determining Capital Accounts pursuant to
Treasury Regulations Section 1.704-1(b)(2)(iv)(m) and paragraph (vi)
of the definition of Net Income and Net Losses and Section 4.4(f);
provided, however, that Gross Asset Values shall not be adjusted
pursuant to this paragraph (iv) to the extent the General Partner
determines that an adjustment pursuant to paragraph (ii) above is
necessary or appropriate in connection with a transaction that would
otherwise result in an adjustment pursuant to this paragraph (iv).
If the Gross Asset Value of an asset has been determined or adjusted pursuant
to paragraphs (i), (ii) or (iv) above, such Gross Asset Value shall thereafter
be adjusted by the Depreciation taken into account with respect to such asset
for purposes of computing Net Income and Net Losses.
Gross Royalty Revenues -- the sum of Royalties and
Extension Fees payable to the Partnership and accruing during the relevant
time period.
Guaranty Agreement -- the guaranty agreement by HFS in
favor of the Original Limited Partner
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in substantially the form of Exhibit A hereto, as same may from time to time
be amended, waived or modified in accordance with its terms.
HFS -- HFS Incorporated, a Delaware corporation, and
its successors and assigns.
HFS SPV Guaranty -- the guaranty by HFS in favor of
the SPV Lenders, dated as of November 20, 1996, of not more than $36,000,000
of SPV Loans from time to time outstanding (subject to the terms thereof), as
same may from time to time be amended, modified or supplemented in accordance
with its terms, including modification to increase the amount of the guaranty.
Hotel Property -- land, together with improvements,
buildings, common areas, structures, appurtenances, fixtures, facilities and
the like, owned or leased by a Franchisee or potential Franchisee, which is
designed to be a hotel but which does not yet constitute an Eligible Hotel
Property.
Indebtedness -- as to any Person, (a) all obligations
of such Person for borrowed money, all obligations evidenced by bonds,
debentures, notes or other similar instruments and all obligations upon which
interest charges are customarily paid, (b) all obligations of such Person
under conditional sale or other title retention agreements and all obligations
issued or assumed as full or partial payment for property, whether or not any
such obligations represent obligations for borrowed money, (c) all
indebtedness secured by any Lien on property owned or acquired by such Person
subject to such Lien whether or not the obligations secured thereby shall have
been assumed, (d) all leases required to be capitalized in accordance with
GAAP and all operating leases, (e) all reimbursement obligations, whether
actual, contingent or otherwise, under any letter of credit, and (f) all of
the obligations specified in clauses (a) through (e) of another Person, but
without duplication thereof, guaranteed, directly or indirectly, in any
manner, by such first Person.
Indemnity Agreement -- that certain indemnity
agreement, dated as of the date hereof, among
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HFS, the General Partner, the Partnership, the Designated Member, the Manager
and Xxxxxxx Xxxxx, in substantially the form attached hereto as Exhibit B, as
same may from time to time be amended, waived or modified in accordance with
its terms.
Initial Closing Date -- March 31, 1995.
Initial Limited Partner -- as defined in the
introduction
Initial Term -- For each Franchise Agreement, the
stated initial term of such Agreement, which shall be for a period of twenty
years less one day, or such lesser period as may be specified in any Franchise
Agreement, but in no event less than ten years, commencing on the date that
the Hotel Property which is the subject of such Franchise Agreement becomes an
Eligible Hotel Property.
Investment Company Act -- the United States Investment
Company Act of 1940, as amended, and as the same may be amended from time to
time hereafter.
Investment Income -- The amount of income, if any, of
the Partnership in each Fiscal Year earned from amounts invested in accordance
with Section 6.5 hereof, which is properly treated as portfolio income (as
defined in Treasury Regulations Section 1.469- 2T(c)(3))(net of any losses or
expenses of the Partnership in such Fiscal Year that would be properly
deductible against such income by the General Partner and the Members if the
General Partner and all such Members were individuals that were not materially
participating in the activity within the meaning of Section 469 of the Code
and the Treasury Regulations promulgated thereun- der).
Investment Income Distribution -- as defined in
Section 5.3.
IRS -- The Internal Revenue Service or its successor.
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Lender -- HFS and its successors and assigns under the
Loan Agreement.
Lien -- any mortgage, pledge, lien, charge, security
interest, hypothecation or other encumbrance on any property, real, personal
or mixed.
Limited Partners -- collectively the Original Limited
Partner, any Subsequent Limited Partners admitted to the Partnership in
accordance with Section 4.10 hereof, and any Substitute Limited Partners
admitted to the Partnership in accordance with Section 12.4 hereof.
LLC Interests -- the issued and outstanding ownership
interests in the Original Limited Partner, initially consisting of up to 300
such interests, each such interest representing an initial investment of
$50,000.
Loan Agreement -- that certain loan and security
agreement, dated as of the Initial Closing Date between HFS, as Lender, and
the Original Limited Partner, as borrower, in substantially the form attached
hereto as Exhibit B, as same may from time to time be amended, waived or
modified in accordance with its terms.
Manager -- ML Fund Administrators, Inc.
Mandatory Payment Date -- as defined in Section
4.1(d).
Marks -- collectively, (i) the service marks
associated with the System published in the System Standards Manual from time
to time, including, but not limited to the name, design and logo for "Xxxxxxx
Inn" or such other brand name and service marks as the General Partner may
adopt, and other marks from time to time, and (ii) tradenames, trade dress,
logos and derivations and associated good will and related intellectual
property interests.
Members -- at any time those Persons who
are the record and beneficial owners of all of the issued
and outstanding LLC Interests of the Original Limited
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Partner including, without limitation, the Designated Member.
Xxxxxxx Xxxxx -- Xxxxxxx Lynch, Pierce, Xxxxxx & Xxxxx
Incorporated and its successors and assigns.
Minimum LP Distributions -- as defined in Section 5.2
hereof.
Minimum LP Distribution Shortfall -- the amount, if
any, which is the difference between the Minimum LP Distribution then due to
the Original Limited Partner and the cash balance of the Partnership in excess
of the amount determined in good faith by the General Partner to be necessary
for the funding of Development Advances and other Partnership obligations,
taking into account the cash available from Additional LP Capital
Contributions.
Net Income or Net Losses -- for each Fiscal Year or
portion thereof, an amount equal to the Partner- ship's items of taxable
income or loss for such year or period, determined in accordance with Section
703(a) of the Code (for this purpose, all items of income, gain, loss and
deduction required to be stated separately pursuant to Section 702 of the Code
shall be included in taxable income or loss) with the following adjustments:
(i) any income which is exempt from Federal income
tax and not otherwise taken into account in computing Net Income or
Net Losses shall be added to taxable income or loss;
(ii) any expenditures of the Partnership described
in Code Section 705(a)(2)(B) or treated as Section 705(a)(2)(B)
expenditures under Regulations Section 1.704-1(b)(2)(iv)(i) and not
otherwise taken into account in computing Net Income or Net Losses,
shall be subtracted from taxable income or loss;
(iii) in the event that the Gross Asset Value of
any Partnership asset is adjusted pursuant to the definition of Gross
Asset
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Value contained in this Section 1, the amount of such adjustment
shall be taken into account as gain or loss from the disposition of
such asset for purposes of computing Net Income and Net Losses;
(iv) gain or loss resulting from any disposition of
Partnership assets with respect to which gain or loss is recognized
for Federal income tax purposes shall be computed by reference to the
Gross Asset Value of the property disposed of, notwithstanding that
the adjusted tax basis of such property differs from its Gross Asset
Value;
(v) in lieu of the depreciation, amortization and
other cost recovery deductions taken into account in computing such
taxable income or loss, there shall be taken into account
Depreciation for such Fiscal Year or other period;
(vi) to the extent an adjustment to the adjusted
tax basis of any Partnership asset pursuant to Code Section 734(b) or
Code Section 743(b) is required pursuant to Treasury Regulations
Section 1.704-1(b)(2)(iv)(m)(4) to be taken into account in
determining Capital Accounts as a result of a distribution other than
in complete liquidation of a Partner's Partnership Interest, the
amount of such adjustment shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the
adjustment decreases the basis of the asset) from the disposition of
the asset and shall be taken into account for purposes of computing
Net Income or Net Losses; and
(vii) any items specially allocated pursuant to
Section 4.4 hereof shall not be considered in determining Net Income
or Net Losses.
Nonrecourse Deductions -- has the meaning set forth in
Treasury Regulations Section 1.704-2(c).
15
Offer Price -- as defined in Section 8(a).
Operating Agreement -- that certain agreement, dated
as of the Initial Closing Date, among the Members of the Original Limited
Partner, relating to the formation and governance of the Original Limited
Partner, as same may (subject to the restrictions contained herein and in the
other Transaction Documents) from time to time be amended, waived or modified
in accordance with its terms as such terms relating to amendments, waivers and
modifications are in effect on the Initial Closing Date.
Original Limited Partner -- as defined in the
introduction.
Original Partnership Agreement -- as defined in the
introduction.
Other Expenses -- the annual audit, accounting and
any related legal fees of the Original Limited Partner, any other reasonably
necessary fees and expenses payable to third parties (including, without
limitation, legal fees) incurred by the Original Limited Partner with the
prior written consent of the General Partner (such consent not to be
unreasonably withheld), and, so long as the Original Limited Partner is
treated as a partnership for Federal income tax purposes, any franchise,
unincorporated business or other similar taxes payable from time to time by
the Original Limited Partner.
Partner Nonrecourse Debt -- has the meaning
set forth in Treasury Regulations Section 1.704-2(b)(4).
Partner Nonrecourse Debt Minimum Gain --
has the meaning set forth in Treasury Regulations Section
1.704-2(i).
Partner Nonrecourse Deductions -- has the
meaning set forth in Treasury Regulations Section 1.704-
2(i).
Partners -- the Original Limited Partner,
the General Partner, and such Subsequent Limited Partners
16
and Substitute Partners as shall be admitted to the Partnership in accordance
with the terms of this Agreement.
Partnership -- as defined in the introduction.
Partnership Entities -- as defined in Section 3.2.
Partnership Expenses -- as defined in Section 6.6.
Partnership Minimum Gain -- has the meaning set forth
in Treasury Regulations Sections 1.704-2(b)(2) and 1.704-2(d).
Permitted Lien -- (a) Liens for taxes, assessments, or
governmental charges or claims for sums either not yet delinquent or being
contested in good faith and by adequate proceedings, if reserves or other
appropriate provisions, as required by GAAP, have been made therefor; (b)
statutory Liens of landlords, carriers, warehousemen, mechanics, materialmen,
and other Liens imposed by law and incurred in the ordinary course of business
for sums either not yet delinquent or being contested in good faith by
adequate proceedings, if reserves or other appropriate provisions, as required
by GAAP, have been made therefor; (c) any attachment or judgment Lien in
existence less than thirty calendar days after the entry thereof, or with
respect to which execution has been stayed, or with respect to which payment
in full above any applicable deductible is covered by insurance (so long as no
reservation of rights has been made by the insurer in connection with such
coverage), and Liens incurred to secure any surety bonds, appeal bonds, or
other instruments serving a similar purpose in connection with the appeal of
any such judgment; (d) bankers' Liens in respect of deposit accounts in the
nature of rights of setoff; (e) purchase money Liens on assets acquired for
use in connection with Partnership business or intended in the good faith
judgment of the General Partner to advance the business of the Partnership as
described in Section 2.3; (f) Liens upon assets hereafter acquired by the
General Partner or the Partnership which are existing at the time of
acquisition thereof; (g)
17
survey exceptions or encumbrances, easements or reservations, or rights of
others for rights-of-way, utilities and other similar purposes, or zoning or
other restrictions as to the use of real property, which are necessary for the
conduct of the business of the General Partner or the Partnership or which
customarily exist on real property of Persons engaged in similar activities
and similarly situated and which do not in any event in the aggregate
materially impair the conduct of the business of the General Partner or the
Partnership; (h) Liens, not arising in connection with the incurrence of debt,
that are incurred in the ordinary course of business of the General Partner or
the Partnership and that do not in the aggregate materially impair the use or
value of the assets of the General Partner or the Partnership or the conduct
of their respective business; and (i) Liens arising under or in connection
with the Pledge Agreement.
Person -- an individual, partnership, corporation,
limited liability company, trust or unincorporated organization, and a
government or agency or political subdivision thereof.
Pledge Agreement -- the pledge agreement, dated as of
November 20, 1996 made by each of the General Partner and the Partnership of
its respective interest in the SPV in favor of the SPV Lenders.
Prime Rate -- the rate publicly announced from time to
time by the main New York City office of The Chase Manhattan Bank (or its
successors and assigns), as its "prime rate", which rate shall change on the
effective date of each change in Chemical Bank's prime rate.
Property Guaranty -- as defined in Section 4.1(f).
Property Guaranty Commitment -- the total amount under
each Property Guaranty for which the Partnership might be liable upon a
default by the primary obligor under the financing for an Eligible Hotel
Property.
Property Guaranty Payment -- each amount from time to
time paid over by the Partnership under a
18
Property Guaranty upon a default by the primary
obligor on the obligations guaranteed by such Property Guaranty.
Property Guaranty Reimbursement -- the amounts, if
any, from time to time received in reimbursement of a Property Guaranty
Payment made by the Partnership (unless such reimbursement is rescinded,
avoided, disregarded or required to be repaid in any bankruptcy or similar
proceeding or otherwise).
Put -- the Original Limited Partner's right
to require the General Partner to purchase all or a portion of its limited
partnership interest in the Partnership pursuant to Section 9.1 hereof.
Put Date -- August 29, 2001.
Put Response Date -- July 30, 2001.
Put Reference Date -- April 1, 2001.
Related Person -- as defined in Section 3.2.
Representative -- as defined in Section 14.2.
Reservation System -- any system operated and
maintained by HFS, or any subcontractor of HFS, for offering to interested
parties, booking and communicating guest room reservations for Chain
Facilities.
Royalties -- the amounts payable by Franchisees under
the Franchise Agreements for a license to use the Marks and the System, which
are expected to equal 4.5% of gross room revenues accruing during the calendar
month for each Eligible Hotel Property, but which may be any such lesser (or
greater) percentage as the General Partner, in its reasonable business
judgment, deems appropriate.
Second-round Offer -- as defined in Section 4.10(b).
19
Securities Act -- the Securities Act of 1933, as
amended, and as the same may be hereafter amended from time to time.
Securities Exchange Act -- the Securities Exchange Act
of 1934, as amended, and as the same may be hereafter amended from time to
time.
Shortfall Loan -- a loan made by HFS in accordance
with Section 5 of the Support Agreement and as defined therein.
Software Contracts -- those certain contracts between
the General Partner, HFS or an Affiliate of the General Partner or HFS and
each Franchisee, providing for the licensing of computer software for hotel
reservation and property management systems to such Franchisee, pursuant to
which the General Partner, HFS or an Affiliate of the General Partner or HFS
will earn software fees.
SPV -- Xxxxxxx Financial, LLC, a Delaware limited
liability company.
SPV Commitment -- the amount available from time to
time for borrowing by the SPV under the SPV Credit Agreement, which initially
shall not exceed $60,000,000.
SPV Credit Agreement -- initially, that certain credit
agreement, dated as of November 20, 1996, by and among the SPV, as borrower
and the SPV Lenders, and, subsequently, any renewal or replacement credit
facility entered into by the SPV, whether with the initial SPV Lenders, or
subsequent SPV Lenders, as any of same may from time to time be amended,
modified or supplemented in accordance with their respective terms.
SPV Lenders -- initially, The Chase
Manhattan Bank and such other lenders as are from time to time party to the
SPV Credit Agreement, and subsequently, such lenders as are from time to time
party to the SPV Credit Agreement (including any renewal or replacement
thereof), whether the same or different from the initial
20
SPV Lenders, and, in each case, their successors and permitted assigns.
SPV LLC Agreement -- the limited liability company
agreement, dated as of November 20, 1996, by and between the General Partner,
as SPV Manager and a member, and the Partnership, as a member, providing for
the formation of the SPV, as same may from time to time be amended, modified
or supplemented in accordance with its terms.
SPV Loan Documents -- the SPV Credit Agreement, the
SPV Notes, the HFS Guaranty and the SPV Security Documents.
SPV Loans -- the aggregate principal amount of the
loans made to the SPV pursuant to the SPV Commitment, from time to time
outstanding under the SPV Credit Agreement.
SPV Manager -- the General Partner, or such other
Person serving from time to time as manager and designated member of the SPV.
SPV Notes -- the promissory notes from time to time
outstanding and payable to the SPV Lenders under the SPV Credit Agreement, as
same may from time to time be amended, modified or supplemented in accordance
with the terms of the SPV Credit Agreement.
SPV Security Documents -- the Pledge Agreement, the
Collateral Assignment Documents (as defined in the SPV Credit Agreement), and
such other security documents as may be required from time to time by the SPV
Lenders pursuant to the SPV Credit Agreement, and any renewals or replacements
thereof, as each of same may from time to time be amended, modified or
supplemented in accordance with its terms.
Subsequent Closing Dates -- as defined in Section
4.1(b).
Subsequent Limited Partners -- as defined in Section
4.10.
21
Substitute Limited Partner -- a Limited Partner who is
admitted to the Partnership as a Substitute Limited Partner pursuant to the
provisions of Section 12.4.
Substitute Partners -- any Substitute Limited Partner
and/or Successor General Partner.
Successor General Partner -- any Person admitted to
the Partnership as a successor general partner pursuant to Section 15.2.
Support Agreement -- that certain agreement among HFS,
the General Partner and the Partnership, dated as of the Initial Closing Date,
in substantially the form attached hereto as Exhibit D, as same may from time
to time be amended, waived or modified in accordance with its terms.
System -- the comprehensive system of providing to
Franchisees Hotel Property services under the Marks, including, without
limitation, (i) the Marks, (ii) other intellectual property, including any
Confidential Matter, System Standards Manual and know-how, (iii) marketing,
advertising, publicity and other promotional materials and programs, (iv)
training programs and materials, (v) quality assurance inspection and scoring
programs, and (vi) the Reservation System.
System Assessment Fee -- the fees charged by the
Partnership under Franchise Agreements for reservations, marketing,
advertising, promotion, public relations, training and other related services
and programs.
System Standards -- the standards of operation and
design for participation in and use of the System, published in the Systems
Standards Manual, including, without limitation, design standards, standards
for furniture, fixtures and equipment, Xxxx standards, operations standards,
technology and maintenance standards, and any other standards, policies, rules
and procedures promulgated by HFS regarding System operation and usage.
22
System Standards Manual -- the standards of operation
and design manual, the planning and design standards manual, and any other
manual published or distributed by the Partnership relating to System
Standards, and all other standards, policies, rules and procedures promulgated
by the Partnership relating to System Standards.
Tax Matters Partner -- as defined in Section 11.6.
Tender Offer -- an offer by the General Partner to the
Original Limited Partner to purchase all or a part of its limited partnership
interest pursuant to Section 8 hereof.
Transaction Documents -- as defined in Section 3.2.
Treasury Regulations -- the Income Tax Regulations,
including Temporary Regulations, promulgated under the Code, as the same may
be amended hereafter from time to time (including corresponding provisions of
succeeding Income Tax Regulations).
U.S. Dollars and $ -- lawful money of the United
States of America.
Withdrawing Limited Partner -- the Initial Limited
Partner.
1.2. Number; Gender. Defined terms shall include in
the singular number the plural, and in the plural number the singular, and
pronouns in the masculine, feminine or neuter gender shall include the pro-
nouns of the other genders.
1.3. Accounting Terms and Determinations. All
accounting terms used in this Agreement and not otherwise defined shall have
the meaning accorded to them in accordance with generally accepted accounting
principles ("GAAP") in the United States of America as in effect from time to
time and, except as expressly provided herein, all accounting determinations
shall be made in accordance with GAAP, consistently applied.
23
2. ORGANIZATION.
2.1. Continuation of Limited Partnership. The parties
to this Agreement hereby agree to continue the Partnership as a limited
partnership pursuant to the provisions of the Delaware Revised Uniform Limited
Partnership Act (6 Del. C. ss.17-101 et seq., as amended, the "Act"), and in
accordance with the terms and provisions of this Agreement.
2.2. Name. The name of the Partnership heretofore
formed and continued hereby shall be "Hotel Franchising Limited Partnership"
or such other name or names as may be selected by the General Partner from
time to time, and its business shall be carried on in such name with such
variations and changes as the General Partner deems necessary to comply with
requirements of the jurisdictions in which the Partnership's operations are
conducted.
2.3. Purpose. The Partnership is organized primarily
for the object and purpose of (a) developing and marketing the System,
creating goodwill for the Marks, selling Franchises, and executing, performing
under and enforcing the Franchise Agreements relating thereto and (b) engaging
in such related activities as the General Partner shall deem necessary or
advisable, all upon the terms and conditions set forth in this Agreement.
2.4. Places of Business. The Partnership shall have
its principal place of business at Six Xxxxxx Xxx, Xxxxxxxxxx, Xxx Xxxxxx
00000, or at such other place or places as the General Partner may, from time
to time, select. The Partnership may from time to time have such other place
or places of business in such other jurisdictions as the General Partner may
deem advisable.
2.5. Registered Office and Agent. The address of the
Partnership's registered office in the State of Delaware is 00 Xxxxxxxxxx
Xxxxxx, Xxxxx X-000, Xxxxx, Xxxxxxxx 00000. The name of the registered agent
at that address is The Xxxxxxxx-Xxxx Corporation System, Inc.
24
2.6. Fiscal Year. The fiscal year of the Partnership
(each, a "Fiscal Year") shall end on the 31st day of December in each year,
including the year during which the Partnership is organized, which Fiscal
Year shall also be the taxable year of the Partnership (so long as such
taxable year is not in contravention of any applicable provision of the Code
or Treasury Regulations).
2.7. Powers. Subject to the provisions of Section 2.8,
the Partnership, and the General Partner acting on behalf of the Partnership,
shall be empowered to do or cause to be done, or not to do, any and all acts
deemed by the General Partner in its sole discretion to be necessary or
appropriate in furtherance of the purposes of the Partnership. Without
limiting the foregoing, the Partnership is empowered to invest in the SPV and
carry out the transactions contemplated by the SPV LLC Agreement and the SPV
Loan Documents.
2.8. Limitations on Certain Activities. Neither the
Partnership, nor the General Partner acting on behalf of the Partnership,
will, unless the Original Limited Partner shall have consented thereto in
writing, or unless otherwise specifically permitted hereby:
(i) sell, or permit to be sold, any Franchise
Agreements, Marks or other intellectual property of the Partnership, provided,
that the General Partner may exercise its reasonable discretion to sell,
assign or dispose of, on behalf of the Partnership, any Franchise Agreement
which is the subject of a Franchisee default;
(ii) incur or assume any Indebtedness in excess of
$2,500,000 in the aggregate, except for (x) Indebtedness described in clause
(c) of the definition thereof, incurred under or in connection with the Pledge
Agreement, and (y) Indebtedness on account of Shortfall Loans, short-term
borrowings for working capital purposes, and, subject to Section 4.1(f),
Indebtedness represented by Property Guaranties, provided, that, for purposes
of determining permitted Indebtedness represented by Property Guaranties, the
aggregate amount of Property
25
Guaranty Commitments at any one time outstanding, together with the
aggregate amount of Additional Capital Loans then made, shall not
exceed the lesser of $60,000,000 or $600,000 multiplied by the then
existing number of Eligible Hotel Properties, and provided further,
that, for purposes of determining permitted Indebtedness described in
clause (x) hereof, the aggregate amount of Property Guaranty
Commitments at any one time outstanding, together with the aggregate
amount of Additional Capital Loans then made and the amount
guaranteed by the HFS SPV Guaranty, shall not exceed $60,000,000;
(iii) purchase any assets other than assets
associated with the ordinary course of business of the Partnership as
described herein or intended in the good faith and reasonable
judgment of the General Partner to advance the business of the
Partnership as described in Section 2.3;
(iv) create or permit the creation of any Lien, other than
Permitted Liens, on any assets of the Partnership;
(v) own or operate hotels, except in connection
with a judgment or claim against any Person, in which event the
Partnership shall cease to own or operate any such hotel no later
than three years after the commencement of its ownership or operation
of same; or
(vi) enter into any SPV Loan Documents, unless such
documents shall specifically preclude recourse to the Partnership or
the General Partner for the obligations of the SPV, except to the
extent of the pledge of the equity interest of the General Partner or
of the Partnership in the SPV contained in the Pledge Agreement.
The consent of the Original Limited Partner
to any activity described above shall be given by the Original Limited
Partner, in accordance with Section 16.1, if Members holding more than 50% of
the then outstanding LLC Interests consent thereto.
26
2.9. Withdrawal of Initial Limited Partner. On the
Initial Closing Date, the Original Limited Partner was admitted to the
Partnership as a limited partner of the Partnership. Upon such admission of
the Original Limited Partner to the Partnership, the Initial Limited Partner
withdrew from the Partnership and was entitled to receive his capital
contribution, without interest or deduction.
3. PARTNERS.
3.1. General and Limited Partner. The Partnership
shall initially consist of the General Partner and the Original Limited
Partner, and thereafter, the General Partner or any Successor General Partner
and such additional or substituted Limited Partners as shall be admitted to
the Partnership pursuant to Section 4.10 or 12.4. The General Partner shall
cause Schedule A to be amended from time to time to reflect any increase in
the Original Limited Partner's Capital Commitment by virtue of subsequent
additional initial Capital Contributions, the admission of any Partner, the
removal, expulsion, retirement or death of any Partner or the receipt by the
Partnership of notice of any change of name of a Partner.
3.2. Liability of Related Persons. Neither the General
Partner, HFS, the SPV or any of their respective Affiliates, nor any officer,
director, manager, member, stockholder, partner or employee of the General
Partner, HFS, or any of their respective Affiliates (collectively, the
"Related Persons"), shall be liable, responsible or accountable, whether
directly or indirectly, to the Partnership, any Partner, any Member, the
Manager or any Affiliate of any of the foregoing (collectively, "Partnership
Entities") for any Damages asserted against, suffered or incurred by any
Partnership Entity arising out of or relating to (a) the management or conduct
of the business and affairs (other than the Partnership) of any Related Person
in which any Partnership Entity has an interest (including, without
limitation, actions taken or not taken by any Related Person as a director of
any such Person), and (b) the management or conduct of the business and
affairs of any Related Person insofar as such business or affairs may relate
to any
27
Partnership Entity, including, without limitation, all activities in the
conduct of other business engaged in by a Related Person which might involve a
conflict of interest with any Partnership Entity, or in which any Related
Person realizes a profit or has an interest, except for Damages resulting from
acts or omissions of such Related Person which constitute gross negligence or
willful misconduct. For purposes of this Agreement, no action or failure to
act on the part of any Related Person in a situation which involves a conflict
of interest with any Partnership Entity, or in which such Related Person
realizes a profit or has an interest shall constitute, per se, gross
negligence or willful misconduct. Any Related Person may consult with
independent counsel or a Big Six Accounting Firm and each Related Person shall
be deemed not to have engaged in gross negligence or willful misconduct with
respect to any action or failure to act and shall be fully protected and
justified in so acting or failing to act, if such action or failure to act is
in accordance with the advice or opinion of such independent counsel or Big
Six Accounting Firm that such action does not constitute gross negligence or
willful misconduct. Nothing contained in this Section 3.2 shall be deemed to
relieve any party of its contractual obligations under this Agreement, the
Loan Agreement, the Support Agreement, the Operating Agreement, the Indemnity
Agreement, the Guaranty Agreement, or any other agreement or instrument
referred to herein or therein (collectively, the "Transaction Documents").
3.3. Limited Liability of Limited Partners. The
liability of the Limited Partners is limited to their obligation to make
Capital Contributions to the Partnership in amounts and from time to time as
provided by this Agreement, and, in the case of the Original Limited Partner,
to repay the Additional Capital Loans in accordance with the terms of the Loan
Agreement and this Agreement, all of which obligations are intended to be
enforceable only by the Partnership and the General Partner, or the Lender, as
the case may be, and only against the Original Limited Partner and not the
Members, but not by creditors of the Partnership, and nothing elsewhere set
forth in this Agreement or in any other document, and nothing arising from any
other transaction whatsoever between or among any or all of the Partners or
the Part-
28
nership, shall have the effect of removing, diminishing or otherwise affecting
such limitation. No officer, agent, director or employee of the General
Partner who is also a Member shall be deemed or construed to act as a general
partner by virtue of the performance of his or her duties or his or her
actions taken in such capacity as an officer, agent, director or employee of
the General Partner.
3.4. Partnership Property; Partnership Interest. No
real or other property of the Partnership shall be deemed to be owned by any
Partner individually, but shall be owned by and title shall be vested solely
in the Partnership. The interests of the Partners in the Partnership shall
constitute personal property.
3.5 Withdrawing Limited Partner. The execution of this
Agreement by the Withdrawing Limited Partner constitutes its withdrawal as a
limited partner of the Partnership. Because of such withdrawal, the
Withdrawing Limited Partner shall have no further right, interest or
obligation of any kind whatsoever as a limited partner of the Partnership. Any
capital contribution to the Partnership of the Withdrawing Limited Partner
shall be returned to such Withdrawing Limited Partner on the date of this
Agreement without interest or deduction.
4. CAPITAL CONTRIBUTIONS, CAPITAL ACCOUNTS
4.1. Capital Contributions. (a) On the Initial Closing
Date, each Partner shall make a Capital Contribution to the Partnership in the
amount set forth in Schedule A hereto opposite its name. The Capital
Contribution payable by the Original Limited Partner shall equal the aggregate
amount of proceeds received by it from the sale of LLC Interests by such date.
The Capital Contribution of the General Partner shall also include the amount
of organizational expenses of the Partnership, up to One Million Dollars
($l,000,000), incurred, paid or payable by the General Partner. Except to the
extent set forth in the prior sentence or in connection with a contribution of
assets other than cash, the Capital Contributions of each Partner (as set
forth in Schedule A hereto) shall be payable to the Partnership, in
immediately available funds, by wire transfer to
29
such bank account as the General Partner may specify in writing.
(b) After the Original Limited Partner
receives payment for the sale of additional LLC Interests, the Original
Limited Partner shall make one or more additional initial Capital
Contributions to the Partnership in amounts equal to the amounts it receives
from the sale of such LLC Interests (the date of each such additional initial
Capital Contribution being a "Subsequent Closing Date"), and the General
Partner shall amend Schedule A accordingly. Each such additional initial
Capital Contribution shall be payable to the Partnership in the manner
specified in clause (a) above.
(c) In addition, at any time and from time to time
prior to the Put Reference Date, but subject to clause (d) below, the
Partnership may require the Original Limited Partner to make additional
Capital Contributions of up to $600,000 per Eligible Hotel Property in the
System, provided that such additional Capital Contributions together with
outstanding Property Guaranty Commitments shall not exceed at any time the
lesser of $60,000,000 or $600,000 multiplied by the then existing number of
Eligible Hotel Properties, and provided further, that such additional Capital
Contributions, together with outstanding Property Guaranty Commitments and the
amount guaranteed by the HFS SPV Guaranty, shall not exceed at any time,
$60,000,000 (collectively, the "Additional LP Capital Contributions"). The
General Partner will give the Original Limited Partner at least 5 Business
Days' written notice thereof, which notice will comport with the requirements
of Section 1.2(b) of the Loan Agreement.
(d) The General Partner will arrange,
with or through HFS, for loans (the "Additional Capital Loans") to the
Original Limited Partner in an amount equal to each Additional LP Capital
Contribution required by the Partnership. In the event that HFS fails to make
or arrange for any Additional Capital Loan, the Original Limited Partner shall
not be required to make such Additional LP Capital Contribution until such
Additional Capital Loan is made. The Additional Capital Loans will be made
pursuant to the terms of the Loan Agreement.
30
Such Additional Capital Loans (or a portion thereof, if so specified in the
Loan Agreement) will become due and payable, together with accrued interest,
on the terms set forth in the Loan Agreement, upon the earliest of (i)
dissolution of the Original Limited Partner or the Partnership, (ii) the date
of consummation of the Call, (iii) the date of consummation of a Tender Offer,
(iv) the occurrence of an Event of Default, and the acceleration of the
Additional Capital Loans, (v) the Early Put Date or (vi) in the event that the
Partnership receives a Property Guaranty Reimbursement, within three Business
Days following receipt of such amount (each a "Mandatory Payment Date"). Any
portion of the Additional Capital Loans which remains outstanding on the Put
Date shall become due and payable on the Put Date. In the event that less than
the full limited partnership interest of the Original Limited Partner is
purchased by the General Partner in connection with a Tender Offer or a
partial Early Put, a pro rata portion of the Additional Capital Loans shall
become due and payable on the Early Put Date, or the date of consummation of
such Tender Offer, as the case may be, equal to the percentage of the limited
partnership interest being purchased by the General Partner. Any Minimum LP
Distribution payable on a due date for payment of interest on any Additional
Capital Loans shall be reduced by the interest then due, shall be paid over by
the General Partner to the Lender for the account of the Original Limited
Partner, and shall be applied directly in payment of such interest. Any other
distribution payable to the Original Limited Partner on a due date for payment
of the principal of any Additional Capital Loans shall be reduced by the
principal amount of such Additional Capital Loans then payable, shall be paid
over by the General Partner to the Lender for the account of the Original
Limited Partner and shall be applied directly in repayment thereof.
(e) The Additional Capital Loans shall bear interest
at an annual rate equal to the Prime Rate. Interest shall be payable quarterly
at the time that Minimum LP Distributions are paid, on any Mandatory Payment
Date and on the Put Date. Additional Capital Loans shall be non-recourse to
the Members of the Original Limited Partner, including, without limitation,
the Designated Member, but will be recourse to the assets of
31
the Original Limited Partner (including, without limitation, the Capital
Contributions of the Members), and will be secured by its limited partnership
interest in the Partnership.
(f) Additional LP Capital Contributions shall be used,
among other things, for Development Advances and for guaranties given by the
Partnership in its discretion, and on a selective basis in respect of
Franchisees meeting such criteria as the General Partner may from time to time
establish, in favor of lenders (excluding the SPV Lenders under the SPV Credit
Agreement) providing financing for Eligible Hotel Properties. Each such
guaranty (each a "Property Guaranty") shall be on such terms as the General
Partner may approve, provided, that (i) the aggregate amount of all Property
Guaranties covering an Eligible Hotel Property shall not exceed the lesser of
20% of the principal amount of such financing or $600,000, (ii) each Property
Guaranty shall be for a maximum period of three years from the date the
relevant Hotel Property becomes an Eligible Hotel Property (without renewals
thereafter), (iii) the Partnership, as guarantor shall receive such collateral
security and other credit support as the General Partner deems appropriate,
but no Property Guaranty shall be issued by the Partnership in the absence of
any collateral security or other credit support, and (iv) in the event that
any Franchisee has multiple Eligible Hotel Properties, the Partnership may
issue a pooled Property Guaranty, covering 20% of the aggregate principal
amount of permanent financings for all such Eligible Hotel Properties,
provided, that the aggregate face amount of any such pooled Property Guaranty
shall not exceed an amount equal to $600,000 multiplied by the number of
Eligible Hotel Properties which are the subject of such pooled Property
Guaranty. Each issuance of a Property Guaranty shall reduce the amount
available under the commitment for Additional Capital Loans (other than an
Additional Capital Loan required to fund a Property Guaranty Payment in
respect of such Property Guaranty) described in the Loan Agreement by an
amount equal to the Property Guaranty Commitment of the Partnership under such
Property Guaranty. Any Property Guaranty Payment shall be made from the
proceeds of an Additional LP Capital Contribution, and any Property Guaranty
Reimbursement shall be used by the
32
General Partner on behalf of the Original Limited Partner to repay, within 3
Business Days of receipt by the Partnership, a portion of the Additional
Capital Loans in the amount of such Property Guaranty Reimbursement. None of
the requirements relating to Property Guaranties contained in this clause (f),
except for any reduction of the SPV Commitment which may be required in
connection therewith, shall be construed to apply to or limit the ability of
the Partnership or the General Partner to execute, deliver or perform the SPV
Loan Documents in accordance with their terms.
(g) Except as set forth in this Section
4.1, no Limited Partner shall be required to make any
additional Capital Contributions.
4.2 Capital Accounts. A separate capital account (each
a "Capital Account") shall be maintained for each Partner in accordance with
the following provisions:
(a) To each Partner's Capital Account there shall be
credited such Partner's Capital Contributions, such Partner's distributive
share of Net Income and any items in the nature of income or gain which are
specially allocated pursuant to Section 4.4 hereof, and the amount of any
Partnership liabilities assumed by such Partner or which are secured by any
Partnership property distributed to such Partner.
(b) To each Partner's Capital Account there shall be
debited the amount of cash and the Gross Asset Value of any Partnership
property distributed to such Partner pursuant to any provision of this
Agreement, such Partner's distributive share of Net Losses and any items in
the nature of expenses or losses which are specially allocated pursuant to
Section 4.4 hereof, and the amount of any liabilities of such Partner assumed
by the Partnership or which are secured by any property contributed by such
Partner to the Partnership.
(c) In the event all or a portion of a Partnership
interest is transferred in accordance with the terms of this Agreement, the
transferee shall succeed
33
to the Capital Account of the transferor to the extent
it relates to the transferred Partnership interest.
(d) In determining the amount of an liability for
purposes of Sections 4.2(a) and 4.2(b) hereof, there shall be taken into
account Code Section 752(c) and any other applicable provisions of the Code
and Treasury Regulations.
(e) This Section 4.2 and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended to
comply with Treasury Regulations Section 1.704-1(b), and shall be interpreted
and applied in a manner consistent with such Treasury Regulations. In the
event the General Partner shall determine that it is prudent to modify the
manner in which the Capital Accounts, or any debits or credits thereto are
computed, in order to comply with such Treasury Regulations, the General
Partner may make such modification, provided that it is not likely to have a
material effect on the amounts distributed to any Partner upon the dissolution
of the Partnership.
4.3 Allocations of Net Income and Net
Losses.
(a) Net Income. After giving effect to
the special allocations set forth in Section 4.4 hereof, Net Income shall be
allocated in the following order of priority:
(i) First, to the General Partner until
the cumulative Net Income allocated pursuant to this Section 4.3(a)(i) equals
the cumulative Net Losses previously allocated to the General Partner pursuant
to the last sentence of Section 4.3(b)(ii) hereof.
(ii) Thereafter, Net Income shall be
allocated 99% to the Original Limited Partner and 1% to
the General Partner.
(b) Net Losses.
(i) After giving effect to the special
allocations set forth in Section 4.4 hereof, Net Losses
34
shall be allocated 99% to the Original Limited Partner
and 1% to the General Partner.
(ii) The Net Losses allocated pursuant to
Section 4.3(b)(i) hereof shall not exceed the maximum amount of Net Losses
that can be so allocated without causing the Original Limited Partner to have
a deficit Adjusted Capital Account balance as of the close of any taxable
year. All Net Losses exceeding the limitation set forth in this Section
4.3(b)(ii) shall be allocated to the General Partner.
4.4 Special Allocations. The following
special allocations shall be made in the following order:
(a) Items Relating to SPV. In the event
that the Partnership is allocated losses (including, but not limited to, any
bad debt deductions) and/or any income (including, but not limited to,
cancellation of indebtedness income) recognized by the SPV with respect to a
Franchisee Loan, such losses and/or income (i) recognized by the SPV and
allocated to the Partnership or (ii) recognized by the Partnership, on account
of HFS's or its Affiliates' satisfaction of the HFS SPV Guaranty shall be
allocated entirely to the General Partner to the extent of any amount payable
or paid by HFS or any of its Affiliates in connection with the HFS SPV
Guaranty of the SPV Loan related to such Franchisee Loan. This Section 4.4(a)
is intended to ensure that the Partner, if any, that economically bears the
loss (or whose Affiliate bears the loss) relating to a Franchisee Loan is
allocated such loss (and any associated income) and shall be interpreted and
applied in a manner consistent with such intention.
(b) Minimum Gain Chargeback. Except as
otherwise provided in Treasury Regulations Section 1.704- 2(f),
notwithstanding any other provision of this Agreement, if there is a net
decrease in Partnership Minimum Gain during any Fiscal Year, each Partner
shall be specially allocated items of Partnership income and gain for such
Fiscal Year (and, if necessary, subsequent Fiscal Years) in an amount equal to
such Partner's share of the net decrease in Partnership Minimum Gain,
determined in accordance with Treasury Regulations Section 1.704-2(g).
35
The items to be so allocated shall be determined in accordance with Treasury
Regulations Sections 1.704- 2(f)(6) and 1.704-2(j)(2). This Section 4.4(a) is
intended to comply with the minimum gain chargeback requirement in Treasury
Regulations Section 1.704-2(f) and shall be interpreted consistently
therewith.
(c) Partner Minimum Gain Chargeback.
Except as otherwise provided in Treasury Regulations Section 1.704-2(i)(4),
notwithstanding any other provision of this Agreement, if there is a net
decrease in Partner Nonrecourse Debt Minimum Gain attributable to Partner
Nonrecourse Debt during any Partnership Fiscal Year, each Partner who has a
share of the Partner Nonre- course Debt Minimum Gain attributable to such
Partner Nonrecourse Debt, determined in accordance with Treasury Regulations
Section 1.704-2(i)(5), shall be specially allocated items of Partnership
income and gain for such Fiscal Year (and, if necessary, subsequent Fiscal
Years) in an amount equal to such Partner's share of the net decrease in
Partner Nonrecourse Debt Minimum Gain attributable to such Partner Nonrecourse
Debt, determined in accordance with Treasury Regulations Section 1.704-
2(i)(4). The items to be so allocated shall be determined in accordance with
Treasury Regulations Sections 1.704-2(i)(4) and 1.704-2(j)(2). This Section
4.4(b) is intended to comply with the minimum gain chargeback requirement in
Treasury Regulations Section 1.704-2(i)(4) and shall be interpreted
consistently therewith.
(d) Qualified Income Offset. In the event the Original
Limited Partner receives any adjustments, allocations, or distributions
described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5), or
(6), items of Partnership income and gain shall be specially allocated to such
Partner in an amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations, the deficit Adjusted Capital Account
balance of such Original Limited Partner as quickly as possible, provided that
an allocation pursuant to this Section 4.4(c) shall be made only if and to the
extent that such Original Limited Partner would have a deficit Adjusted
Capital Account balance after all other allocations provided for in this
Agreement have been tentative-
36
ly made, as if this Section 4.4(c) were not in this Agreement.
(e) Gross Income Allocation. In the event the Original
Limited Partner has a deficit Capital Account balance at the end of any
Partnership Fiscal Year which is in excess of the amount such Original Limited
Partner is deemed to be obligated to restore pursuant to the penultimate
sentences of Treasury Regulations Section 1.704-2(g)(1) and Treasury
Regulations Section 1.704- 2(i)(5), such Original Limited Partner shall be
specially allocated items of Partnership income and gain in the amount of such
excess as quickly as possible, provided that an allocation pursuant to this
Section 4.4(d) shall be made only if and to the extent that such Original
Limited Partner would have a deficit Capital Account balance in excess of such
sum after all other allocations provided for in this Agreement have been made,
as if Section 4.4(c) hereof and this Section 4.4(d) were not in the Agreement.
(f) Nonrecourse Deductions. Nonrecourse
Deductions for any Fiscal Year shall be allocated 99% to the Original Limited
Partner and 1% to the General Partner.
(g) Partner Nonrecourse Deductions. Any
Partner Nonrecourse Deductions for any Fiscal Year shall be specially
allocated to the Partner who bears the economic risk of loss with respect to
the Partner Nonre- course Debt to which such Partner Nonrecourse Deductions
are attributable, in accordance with Treasury Regulations Section
1.704-2(i)(1).
(h) Section 754 Adjustments. To the
extent an adjustment to the adjusted tax basis of any Partnership asset
pursuant to Code Section 734(b) or Code Section 743(b) is required, pursuant
to Treasury Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Treasury
Regulations Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in
determining Capital Accounts as the result of a distribution to a Partner in
complete liquidation of his interest in the Partnership, the amount of such
adjustment to Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of
37
the asset) or loss (if the adjustment decreases such basis) and such gain or
loss shall be specially allocated to the Partners in a manner consistent with
the manner in which their Capital Accounts are required to be adjusted
pursuant to such Sections of the Treasury Regulations.
4.5 Binding Effect of Allocations. The
Partners are aware of the income tax consequences of the allocations set forth
in Sections 4.3, 4.4 and 4.6 hereof and hereby agree to be bound by the
provisions of this Agreement in reporting their shares of Partnership income,
gain, loss, deduction and credit for income tax purposes.
4.6 Tax Allocations: Code Section
704(c).
(a) Income, gain, loss and deduction with
respect to any property contributed to the capital of the Partnership shall,
solely for tax purposes, be allocated among the Partners so as to take account
of any variation between the adjusted tax basis of such property to the
Partnership and its initial Gross Asset Value. Such allocations shall be made
in accordance with any permissible method or methods under Section 704(c) of
the Code and the Treasury Regulations promulgated thereunder, as determined by
the General Partner in its sole discretion.
(b) In the event the Gross Asset Value of
any Partnership asset is adjusted pursuant to the definition of "Gross Asset
Value" set forth herein, subsequent allocations of income, gain, loss, and
deduction with respect to such asset shall take account of any variation
between the adjusted tax basis of such asset and its Gross Asset Value. Such
allocations shall be made in accordance with any permissible method or methods
under Section 704(c) of the Code and the Treasury Regulations promulgated
thereunder, as determined by the General Partner in its sole discretion.
(c) Allocations pursuant to this Section
4.6 are solely for Federal, state and local income tax purposes and shall not
affect, or in any way be taken into account in computing, any Partner's
Capital Account or share of Net Income, Net Losses or other items or
38
distributions pursuant to any provision in this Agreement.
4.7 Transfer or Change in Partnership Interest. If the
respective interests of the existing Partners in the Partnership change or if
a Partnership interest is Assigned, in accordance with Section 12.1, to any
other person or entity, for the Fiscal Year of Assignment all income, gains,
losses, deductions, tax credits and other tax incidents resulting from the
operations of the Partnership shall be allocated, as between transferor and
transferee, by taking into account their varying interests in the Partnership
in accordance with Section 706 of the Code and the Treasury Regulations
promulgated thereunder.
4.8 Characterization of Additional Capital
Loans and Additional LP Capital Contributions for Income Tax Purposes.
Notwithstanding any other provision of this Agreement, the Partners hereby
agree to treat the Additional Capital Loans, the proceeds of which will be
used to make the Additional LP Capital Contributions, as Capital Contributions
by the General Partner for all income tax purposes including, but not limited
to, (a) the maintenance of Capital Accounts under Section 4.2 hereof, (b) the
determination of the Partners' tax bases in their partnership interests in the
Partnership and (c) the determination of the amount realized by the Limited
Partner as a result of the transfer of its partnership interests in the
Partnership to the General Partner pursuant to (x) the General Partner's
Tender Offer as described in Section 8 hereof, (y) its Early Put and Put
rights as described in Section 9 hereof and (z) the General Partner's Call
option as described in Section 10 hereof.
4.9. General Partner. The interest of the
General Partner as General Partner (without taking into account any Limited
Partner interest owned by or for the General Partner) in each material item of
Partnership income, gain, loss, deduction or credit shall be equal to at least
1% of each such item at all times during the existence of the Partnership,
subject to certain temporary allocations that may be required under Section
704(b) and (c) of the Code. The General Partner shall
39
maintain a minimum Capital Account balance equal to the lesser of 1 percent of
the total positive Capital Account balances for the Partnership (if any) or
$500,000. Notwithstanding any other provision of this Agreement, whenever a
Limited Partner makes a Capital Contribution to the Partnership, the General
Partner is obligated to make a Capital Contribution equal to 1.01 percent of
the Limited Partners' Capital Contributions or a lesser amount (including
zero) that causes the General Partner's Capital Account balance to equal the
lesser of 1 percent of the total positive Capital Account balances for the
Partnership (if any) or $500,000.
4.10 Future Capital Requirements. (a) If
the General Partner elects to increase the capital of the Partnership over and
above the sum of (i) the initial Capital Contributions of the General Partner
and the Original Limited Partner (including, without limitation, additional
initial Capital Contributions made at Subsequent Closings) and (ii) the
Additional LP Capital Contributions (irrespective of whether all of the
Capital Contributions referred to in clauses (i) and (ii) are then paid in),
if any such Additional LP Capital Contributions are made, the General Partner
may do so through the issuance of additional limited partnership interests
provided, that no additional limited partnership interests may be offered on
terms which would, prior to the Put Date, (x) reduce or change the timing or
priority of, any distribution or payment otherwise receivable by the Original
Limited Partner in accordance with the terms of this Agreement, or (y) provide
for any puts, calls, tenders or the like on terms more favorable (whether in
price, timing or otherwise) to the holders of such additional limited
partnership interests (the "Subsequent Limited Partners") than the terms of
the Early Put, the Put, the Call and the Tender Offer provided for to the
Original Limited Partner.
(b) Such additional limited partnership interests
shall be offered first to the Original Limited Partner, at the price which the
General Partner proposes to offer the same to third parties and otherwise on
the same terms, which right of first refusal shall be exer- cisable by the
Original Limited Partner for a period of 35 days. The Original Limited Partner
shall, immediately
40
upon receipt of any such offer from the General Partner, offer (a "First-round
Offer") to the Members of the Original Limited Partner, ratably in accordance
with the LLC Interests then outstanding, additional LLC Interests, on the same
terms, and for the same price, as have been offered to the Original Limited
Partner. Such First-round Offer from the Original Limited Partner shall be
exercis- able by the Members for a 22-day period, commencing on the date the
Original Limited Partner receives its offer from the General Partner; any
Member electing to accept such offer must pay the specified price in
immediately available funds to the Designated Member by the 23rd day. If no
Members accept a First-round Offer, there shall be no Second-round Offer. If
any, but less than all, Members elect to purchase their ratable portion of
additional LLC Interests corresponding to such additional limited partnership
interests, the Original Limited Partner shall offer (a "Second-round Offer")
the unpurchased additional LLC Interests to each purchasing Member ratably in
accordance with the following formula: the number of remaining unsold
additional LLC Interests shall be multiplied by a fraction, the numerator of
which shall be the number of additional LLC Interests purchased by such Member
in the First-round Offer, and the denominator of which shall be the total
number of additional LLC Interests purchased in the First-round Offer. Such
Second-round Offer shall be exercisable by the Members who accepted the
First-round Offer for a period of twelve days commencing on the 23rd day of
the First-round Offer. Any Member electing to accept a Second-round Offer must
pay the specified price in immediately available funds to the Designated
Member by the 35th day of the offer period.
(c) On the first Business Day following the 35th day
of the offer period, the Original Limited Partner shall purchase such
aggregate number of additional limited partnership interests as are
proportionate to the aggregate number of additional LLC Interests being
purchased by the Members pursuant to the First-round Offer and the
Second-round Offer. Subject to the foregoing provisions of this Section 4.10,
the General Partner shall be entitled to amend this Agreement without the
consent of the Original Limited Partner to admit any Subsequent Limited
Partners to the Partnership.
41
5. DISTRIBUTIONS.
5.1. No Right to Withdraw. No Partner shall have the
right to withdraw or demand distributions of any amount in its Capital
Account, except as expressly provided in this Section 5.
5.2. Minimum LP Distributions. (a) The Partnership
will provide minimum distributions ("Minimum LP Distributions") to the
Original Limited Partner, on each date on which interest on the Additional
Capital Loans becomes due and payable (except as otherwise provided in the
Loan Agreement), and on each date for payment of the Administrative Fee and
Other Expenses, equal to the sum, as applicable, of (i) the interest, if any,
then accrued and payable on the Additional Capital Loans (except as otherwise
provided in the Loan Agreement), (ii) the Administrative Fee of the Designated
Member,and (iii) the Other Expenses then due and payable. The obligation of
the Partnership to make Minimum LP Distributions shall be non-recourse to the
assets of the General Partner as general partner (other than assets comprising
the capital of the Partnership). So long as no Additional Capital Loans are
outstanding, Minimum LP Distributions will not exceed the amount specified by
clauses (ii) and (iii) above and will be declared and paid on an annual basis
with respect to the Administrative Fee and as needed with respect to Other
Expenses. So long as any Additional Capital Loans are outstanding, Minimum LP
Distributions will be declared at the end of each fiscal quarter of the
Partnership and upon any Mandatory Payment Date (except as otherwise provided
herein or in the Loan Agreement), and on the Put Date, and with respect to
Other Expenses, as needed. Minimum LP Distributions which are payable
quarterly will be payable no later than 60 days after the close of the
relevant quarterly period, except for the last quarter of each Fiscal Year, in
which case Minimum LP Distributions will be payable 90 days after the end of
such quarter. In addition, Minimum LP Distributions payable in respect of
interest on Additional Capital Loans will be payable (except as otherwise
provided in the Loan Agreement) on each Mandatory Payment Date and on the Put
Date.
42
(b) In the event that there exists a Minimum LP Distribution
Shortfall at the time any Minimum LP Distribution becomes payable to the
Original Limited Partner, the General Partner will arrange (on a non-recourse
basis to the General Partner) for a Shortfall Loan from HFS to the
Partnership, in accordance with the terms of the Support Agreement, in an
amount equal to such Minimum LP Distribution Shortfall. In addition, if at any
time an indemnity payment becomes due and owing by the Partnership under
Section 2 of the Indemnity Agreement, and in the reasonable judgment of the
General Partner, the Partnership lacks sufficient funds to make such indemnity
payment, then the General Partner will arrange for a Shortfall Loan from HFS
to the Partnership, in an amount equal to such indemnity payment Shortfall.
Each Shortfall Loan shall bear interest at the Prime Rate. Interest shall
accrue, and shall be payable annually 90 days after the end of each fiscal
year, before any Annual Distribution is made to the Original Limited Partner
or the General Partner, to the extent that, at the end of the Fiscal Year in
which such Shortfall Loan is made (and each subsequent Fiscal Year in which
such Shortfall Loan is outstanding), the Partnership has Cash Available for
Distribution (before taking into account clause (vii) of such definition) and
to the extent of such Cash Available for Distribution. After the payment of
interest as provided for in the preceding sentence, the principal of each
Shortfall Loan shall be repaid 90 days after the end of each Fiscal Year in
which any such Shortfall Loan is made, before any Annual Distribution is made
to the Original Limited Partner or the General Partner, to the extent the
Partnership has Cash Available for Distribution (before taking into account
clause (vii) of such definition except for interest payable on such Shortfall
Loan). If, at the end of any Fiscal Year in which a Shortfall Loan is made
(and any subsequent Fiscal Year in which such Shortfall Loan is outstanding)
the Partnership is unable to repay such Shortfall Loan in full, together with
interest thereon, the principal amount remaining unpaid shall continue to
accrue interest at the Prime Rate. Until the repayment in full of all
Shortfall Loans outstanding, together with interest accrued thereon, any Cash
Available for Distribution (before taking into account clause (vii) of such
definition) in each subsequent Fiscal Year shall be applied first to pay
interest
43
accrued on such Shortfall Loans and then to repay the principal thereof before
any Annual Distribution is made to the Original Limited Partner or the General
Partner.
(c) Minimum LP Distributions, to the extent attributable to clause
(i) of Section 5.2(a) hereof, shall be treated for income tax purposes as
guaranteed payments (within the meaning of Section 707(c) of the Code and
Treasury Regulations Section 1.707-1(c)) to the General Partner. Minimum LP
Distributions, to the extent attributable to clauses (ii) and (iii) of Section
5.2(a) hereof, shall be treated for income tax purposes as cash distributions
to the Original Limited Partner which directly reduces its Capital Account
pursuant to Section 4.2(b) hereof.
5.3 Investment Income Distributions. The Partnership
shall, as of the end of each Fiscal Year, declare a distribution (each an
"Investment Income Distribution") equal to 50% of the Investment Income earned
in such Fiscal Year. Investment Income Distributions shall be distributed to
the General Partner and to the Original Limited Partner in proportion to the
amount of Investment Income allocated to each such Partner for such Fiscal
Year pursuant to Sections 4.3, 4.4 and 4.6 hereof. Investment Income
Distributions shall be payable annually, no later than 90 days after the close
of the relevant Fiscal Year. Investment Income Distributions shall be treated
for income tax purposes as cash distributions to the Original Limited Partner
and the General Partner, as the case may be, which directly reduce their
respective Capital Accounts pursuant to Section 4.2(b) hereof.
5.4. Annual Distributions. After payment
(in the following order) of Minimum LP Distributions as required by Section
5.2(a), Investment Income Distributions in accordance with Section 5.3,
payment of any Corporate Services Fee then due, as required by Section 6.1(a)
and payment of any Shortfall Loans with interest as required by Section
5.2(b), the Partnership shall as of the close of each Fiscal Year, declare a
distribution (each an "Annual Distribution") equal to the Cash Available for
Distribution. Cash Available for Distribution shall be distributed 1% to the
General Partner and 99% to the Limited Partner. Annual Distributions
44
will be declared as at the end of each Fiscal Year and will be payable no
later than 90 days after the close of each Fiscal Year.
5.5 Mechanics of Distributions. At the option of the
General Partner, any distribution payable to the Original Limited Partner may
be paid directly to the bank account of each Member specified in the Operating
Agreement. If the General Partner elects to make any such distribution
directly to the Members, it shall give the Designated Member at least five
Business Days' telephonic or telefax notice thereof, and shall, on the payment
date for such distribution, pay same directly to each Member's bank account,
provided, that, if the Designated Member shall, within two Business Days prior
to any distribution payment date, give notice to the General Partner in
writing that all or a portion of the distribution payable to the Original
Limited Partner must be used to pay obligations of the Original Limited
Partner then due and owing, the General Partner shall pay such portion of such
distribution to the Designated Member for credit to the Original Limited
Partner as the Original Limited Partner shall have requested, and the General
Partner shall thereupon have discharged its obligation to make such payments
and shall have no further obligation or liability in respect of such
distribution to any Person.
5.6. Restrictions on Distributions. The foregoing
provisions of this Section 5 to the contrary notwithstanding, no distribution
shall be made (a) if such distribution would violate any contract or agreement
to which the Partnership is then a party or any law, rule, regulation, order
or directive of any Governmental Authority then applicable to the Partnership,
(b) to the extent that the General Partner reasonably determines that any
amount otherwise distributable should be retained by the Partnership to pay,
or to establish a reserve for the payment of, any liability or obligation of
the Partnership, whether liquidated, fixed, contingent or otherwise or (c) to
the extent that the General Partner reasonably determines that the cash
available to the Partnership is insufficient to permit such distribution after
taking into account the proceeds of any Shortfall Loans.
45
5.7. Withholding. Notwithstanding any
other provision of this Agreement, the General Partner is authorized to take
any action that it determines to be necessary or appropriate to cause the
Partnership to comply with any foreign or United States Federal, state or
local withholding requirement with respect to any allocation, payment or
distribution by the Partnership to any Partner or other Person. All amounts so
withheld, and, in the manner determined by the General Partner, amounts
withheld with respect to any allocation, payment or distribution by any Person
to the Partnership, shall be treated as distributions to the applicable
Partners under Section 5.2, 5.4 or 14.2, as the case may be. If any such
withholding requirement with respect to any Partner exceeds the amount
distributable to such Partner under Section 5.2, 5.4 or 14.2, as the case may
be, or if any such withholding requirement was not satisfied with respect to
any amount previously allocated or distributed to such Partner, such Partner
and any successor or Assignee with respect to such Partner's interest in the
Partnership hereby indemnifies and agrees to hold harmless the General Partner
and the Partnership for such excess amount or such withholding requirement, as
the case may be.
5.8 Certain Distributions to the Original Limited
Partner. Notwithstanding any other provision of this Agreement, in the event
that the Original Limited Partner is allocated Net Income solely as a result
of (i) any allocation to the Partnership of net income of SPV or (ii) the
receipt of any payment by the Partnership from SPV pursuant to Section 2.6 of
the SPV LLC Agreement (net of any deduction of the Partnership resulting from
the payment of such amounts to HFS pursuant to Section 4.3 of the Support
Agreement), the Partnership shall distribute to the Original Limited Partner
an amount equal to the Net Income resulting solely from the events described
in clauses (i) and (ii) above.
6. MANAGEMENT.
6.1. Management by General Partner; Corporate Services Fee;
Third Parties. (a) The Part- nership shall, subject to clause (b) below, be
managed exclusively by the General Partner. The General Partner
46
will be responsible for, among other things, management of Franchise sales,
Franchisee compliance, and execution and administration of Franchise
Agreements and other contracts. The General Partner will devote its time and
attention to the business and affairs of the Partnership and perform those
duties as it in its sole discretion deems reasonably necessary to manage
effectively the Partnership's business. The General Partner may also, in the
name of the Partnership, invest in the SPV, and pledge collateral in
accordance with the terms of the Pledge Agreement. The General Partner (or
HFS, pursuant to clause (b) below) will be entitled to reimbursement from, and
will be reimbursed by, the Partnership for certain salaries, benefits, costs
and expenses incurred in carrying out these services on the terms set forth in
the Support Agreement. In addition, the General Partner shall be entitled to
payment of an annual fee (each a "Corporate Services Fee") of $100,000 plus
$2,000 per Eligible Hotel Property (pro-rated in the year each such Eligible
Hotel Property opens). The $100,000 fixed portion of each annual Corporate
Services Fee shall be payable by the Partnership on the last Business Day of
each month in twelve equal monthly installments. The $2,000 portion of the
Corporate Services Fee will accrue and be paid by the Partnership on the last
Business Day of each fiscal quarter. Subject to the order of payments set
forth in Section 5.4, the Corporate Services Fee shall be paid in full before
any Annual Distribution is made. The Corporate Services Fee shall be treated
for income tax purposes as a guaranteed payment (within the meaning of Section
707(c) of the Code and Treasury Regulations Section 1.707-1(c)) to the General
Partner.
(b) The Partnership and the General Part-
ner shall contract with HFS for the provision of certain personnel, services
and facilities for which the General Partner is responsible in accordance with
the terms of the Support Agreement. The General Partner may pay to HFS all or
a portion of its Corporate Services Fee in connection therewith. In addition,
certain salaries, benefits, costs and expenses of HFS (without duplication of
salaries, benefits, costs and expenses reimbursed to the General Partner) will
be reimbursed by the Partnership, on the terms set forth in the Support
Agreement,
47
and, among other things, the System Assessment Fee will be paid over to HFS in
its entirety.
(c) In addition to the services contracted for under
the Support Agreement, the General Partner may, from time to time, employ any
Person or engage third parties to render services to the Partnership
(including, without limitation, HFS) on such terms and for such compensation
as the General Partner may determine in its sole discretion including, without
limitation, attorneys, investment consultants, brokers or finders, independent
auditors and printers, provided, that unless ML Leasing Partners, Inc. shall
have been removed for cause as the Designated Member, or unless ML Fund
Administrators, Inc. shall have been removed for cause as the Manager, and
subject to applicable laws and Xxxxxxx Xxxxx'x right to resign or withdraw,
Xxxxxxx Xxxxx will be the sole investment banker to the Partnership. Such
employees and third parties may include Related Persons, Partnership Entities,
any Franchisee or its Affiliates or any other Person having an interest in the
Partnership's business. Persons retained, engaged or employed by the
Partnership may also be engaged, retained or employed by and act on behalf of
Related Persons, Partnership Entities, any Franchisee or its Affiliates or any
other Person having an interest in the Partnership's business. Any fees or
compensation payable to HFS or an Affiliate of HFS (other than any sharing of
the Corporate Services Fee and reimbursement of expenses in accordance with
the terms of the Support Agreement) shall be charged consistently with the
method of allocation used by HFS for other similar purposes, and (where
applicable) on terms at least as favorable as would be available from a third
party.
(d) No Limited Partner shall take part in the control
of the business of the Partnership, nor shall any Limited Partner have any
right or authority to act for or bind the Partnership.
6.2. Third Party Reliance. Third parties dealing with
the Partnership are entitled to rely conclusively upon the authority of the
General Partner as set forth in this Agreement.
48
6.3. Other Activities of Related Persons. (a) The
Partnership and each Limited Partner expressly agree that the Related Persons
(other than the Partnership and, except as permitted by Section 6.3(e), the
General Partner), may engage independently or with others, for their own
accounts and for the accounts of others, in other business ventures and
activities of every nature and description. No Partnership Entity shall have
any rights or obligations by virtue of this Agreement in and to such
independent ventures and activities or the income or profits derived
therefrom.
(b) In addition to transactions described or
contemplated in the Transaction Documents, the SPV LLC Agreement, the SPV Loan
Documents and the Franchisee Loan Documents, the Related Persons and
Partnership Entities may engage in transactions with or among each other, the
Franchisees and their Affiliates, and such transactions may involve conflicts
of interest with the Partnership or any of such Persons. Without limiting the
generality of the foregoing, all or some of the directors and officers of HFS
may serve as the directors of the General Partner and the SPV, certain
officers of HFS will also serve as officers of the General Partner and may be
officers of the General Partner and the SPV, certain officers and/or directors
of HFS (as well as Franchisees) may be Members of the Original Limited Partner
and/or the SPV, the General Partner may serve as SPV Manager, the General
Partner and the Partnership may be members of the SPV and may execute, deliver
and perform the SPV Security Documents to which each is a party, the SPV may
incur the SPV Loans in order to fund Franchisee Loans to Franchisees, HFS may
issue the HFS SPV Guaranty, and all or any of the foregoing relationships may
give rise to conflicts of interest with the Partnership. No Person shall have
any right, claim or remedy against any other Person under any of the
Transaction Documents arising from or relating to any such conflicts of
interest.
(c) Except as set forth in Sections 2.3,
2.8 and 6.3(a), no provision of this Agreement shall be deemed to prohibit or
restrict any Related Person from engaging in or pursuing, directly or
indirectly, any interest in other business ventures of any kind, nature or
description, independently or with others, whether
49
such ventures are competitive with the business of the Partnership, or
otherwise, including, without limitation, the sale of franchises of different
brand hotels, regardless of whether or not any such franchises compete,
directly or indirectly, with the Partnership's Xxxxxxx Inn brand. No Related
Person shall be obligated to disclose or refer to any Partnership Entity any
business opportunity of any kind or nature. No Partnership Entity shall have
any right to participate in any manner in any such independent venture or
other partnership or account or in any profits or income earned or derived by,
or accruing to, any Related Person.
(d) The Partnership and the Limited Part-
ners understand and agree that the Related Persons (other than the Partnership
and General Partner, except, in the case of the Software Contracts, with
respect to the Software Contracts) may earn revenues, royalties, fees
(including director's fees or other similar compensation) and other
remuneration from other Persons in connection with any of their businesses, in
the form of cash, securities or otherwise, and that any such fees shall be for
the sole account of the Related Persons.
(e) Without limiting the generality of
the foregoing, the General Partner, HFS or an Affiliate will enter into
Software Contracts directly with each Franchisee. All licensing and other
fees, costs, expenses and remuneration payable under such Software Contracts,
and any other payment, or reimbursement of expenses thereunder shall be solely
for the account of the General Partner, HFS or such Affiliate, as the case may
be, and no Partnership Entity shall have any interest in or rights to any such
fees or other payments. In addition, HFS may contact Franchisees (i) to
solicit or promote the sale or lease of goods and services through its
purchasing and communications divisions or programs sponsored or promoted by
such divisions, (ii) to solicit their participation in the "preferred vendor"
programs of HFS for goods and services offered to Franchisees or to guests at
Chain Facilities, or (iii) to introduce financing sources to, and solicit
applications for financing of Franchisees on behalf of sources referred by
HFS. HFS may receive compensation from any party selling, arranging for or
providing such goods, services or financing
50
arising from transactions with Franchisees and the Partnership shall have no
claim to all or any portion of such compensation.
6.4. Certificates and Fictitious Name Fil-
ings. The General Partner is hereby authorized to execute and file a
certificate of limited partnership pursuant to the Act and to execute or cause
to be executed all other instruments, certificates, notices and documents, and
to do or cause to be done all such filing, recording, publishing and other
acts as may be deemed by the General Partner in its sole discretion to be
necessary or appropriate from time to time to comply with all applicable
requirements for the formation or operation or, when appropriate, termination
of a limited partnership in the State of Delaware and all other jurisdictions
where the Partnership does or shall desire to conduct its business.
6.5. Funds Management. The General
Partner will be responsible for managing the funds of the Partnership. The
General Partner shall invest any available funds of the Partnership either (i)
in bank deposits, (ii) in short-term debt securities issued by the U.S.
government or agencies thereof or (iii) in corporate commercial paper rated
A-1 or better by Standard & Poor's Ratings Group and P-1 by Xxxxx'x Investors
Service, Inc.
6.6. Expenses. The Partnership will be
responsible for all expenses ("Partnership Expenses"), including, without
limitation, (i) all organizational costs and expenses of the Partnership
(subject to Section 4.1(a)), the General Partner, the Original Limited Partner
and the Designated Member, (ii) all expenses incurred in connection with
Partnership operations, including all third party out-of-pocket costs and
expenses of custodians, paying agent, registrar, counsel and independent
accountants, and any taxes, fees or other charges of any Governmental
Authority levied against or payable by the Partnership, (iii) all costs
incurred in connection with the preparation of or relating to reports made to
the Partners, (iv) all costs related to litigation involving the Partnership,
directly or indirectly, including, without limitation, attorneys' fees
incurred in connec-
51
tion therewith, (v) all costs related to the Partnership's indemnification
obligations set forth in Section 13.1, (vi) all costs related to any offering
of Partnership interests, (vii) the expenses payable by the Partnership
referred to in Section 6.1, and (viii) interest on the Shortfall Loans.
6.7. Development Advances, Property Guar-
anties and Franchisee Loans. Subject to and in accordance with the terms and
provisions of this Agreement, the Partnership may, in its sole discretion,
provide Development Advances and Property Guaranties to Franchisees of an
Eligible Hotel Property from time to time, either as an inducement for the
sale of a Franchise or for other reasons deemed appropriate by the General
Partner. Property Guaranties shall be subject to the limitations established
in Section 4.1(f). In addition to the foregoing, the Partnership (as a member
of the SPV) may cause the SPV to borrow the SPV Loans (and, in connection
therewith, each of the SPV, the General Partner and the Partnership shall
execute and deliver the Pledge Agreement), and lend such funds to Franchisees
in the form of Franchisee Loans, provided, that the aggregate amount of the
amount guaranteed under the HFS SPV Guaranty, Development Advances and
Property Guaranty Commitments at any time outstanding shall not exceed
$60,000,000.
6.8. Insurance. The Partnership will, at its own cost
and expense, procure and maintain property and casualty insurance for its
physical assets, and commercial general liability insurance in a minimum
amount of $25,000,000, and will require that Franchisees carry commercial
general liability insurance, consistent with coverage required by comparable
Affiliates of HFS, at such Franchisees' expense. The Partnership's insurance
will name HFS, the General Partner and the Original Limited Partner as
additional insureds. The Partnership will require that insurance carried by
Franchisees will name the Partnership, HFS, the General Partner and the
Original Limited Partner as additional insureds.
52
7. REPRESENTATIONS AND WARRANTIES
7.1. Representations and Warranties of the
General Partner. The General Partner represents and warrants that (i) the
General Partner has the necessary corporate power and authority to execute,
deliver and perform this Agreement, it has duly executed this Agreement and
this Agreement constitutes the legal, valid and binding obligation of the
General Partner, enforceable in accordance with its terms; and (ii) the
execution, delivery and performance by the General Partner of this Agreement
and its consummation of the transactions contemplated hereby do not and will
not conflict with or result in any breach of any of the provisions of,
constitute a default under, result in a violation of, or require any
authorization, consent, approval, exemption, or other action by or notice to
any Governmental Authority, under the provisions of the charter or by-laws of
the General Partner, any indenture, mortgage, lease, loan agreement, or other
agreement or instrument to which the General Partner or its properties are
subject, or any statute, law, judgment, decree, order, writ, injunction,
regulation, or rule applicable to the General Partner or its assets.
7.2. Representations and Warranties of Limited
Partners. Each Limited Partner represents and warrants to the General Partner,
as to itself only, the following (i) such Limited Partner has the necessary
corporate or individual power and authority to execute, deliver, and perform
this Agreement, it has duly executed this Agreement and this Agreement
constitutes the legal, valid and binding obligation of such Limited Partner
enforceable against it or him in accordance with its terms; and (ii) the
execution, delivery, and performance by such Limited Partner of this Agreement
and the consummation by such Limited Partner of the transactions contemplated
hereby do not and will not conflict with or result in any breach of any of the
provisions of, constitute a default under, result in a violation of, or
require any authorization, consent, approval, exemption, or other action by or
notice to any Governmental Authority, under the provisions of the charter,
by-laws or Operating Agreement of such Limited Partner, any indenture,
mortgage, lease, loan agreement, or other agreement or in-
53
strument to which such Limited Partner or its properties are subject, or any
statute, law, judgment, decree, order, writ, injunction, regulation, or rule
applicable to such Limited Partner or its assets.
8. GENERAL PARTNER'S TENDER RIGHT.
(a) The General Partner shall have the right at any
time and from time to time, but no more than once in any twelve-month period
(provided, that any modification or amendment to the terms of any Tender Offer
made within 120 days of the initiation thereof shall not constitute a second
offer within any 12-month period) to make a Tender Offer in writing to the
Original Limited Partner to purchase all or part of the limited partnership
interest owned by the Original Limited Partner for a fixed price (the "Offer
Price"). Upon receipt of such Tender Offer, the Original Limited Partner shall
be obligated to, and shall offer in writing to, redeem all (in the case of a
full Tender Offer) or a proportionate amount (in the case of a partial Tender
Offer) of the outstanding LLC Interests for the Offer Price, and otherwise on
the same terms as were offered by the General Partner. In the event there is
an over-subscription by the Members of the Original Limited Partner's offer to
redeem a proportionate amount of the LLC Interests pursuant to a partial
Tender Offer, the Original Limited Partner shall be obligated to redeem LLC
Interests pro-rata from all Members accepting such offer. If, prior to the Put
Date, more than 75% of the then outstanding LLC Interests are submitted for
redemption by the Members (but not pursuant to any over-subscription by the
Members pursuant to a partial Tender Offer), then the Original Limited Partner
will be required to sell the whole limited partnership interest to the General
Partner. If, after the Put Date, more than 50% of the then outstanding LLC
Interests are submitted for redemption by the Members (but not pursuant to any
over-subscription by the Members pursuant to a partial Tender Offer), then the
Original Limited Partner will be required to sell the whole limited
partnership interest to the General Partner. In either case the General
Partner shall purchase the whole limited partnership interest of the Original
Limited Partner for the Offer Price. Upon purchase of the entire limited
partnership interest and the making of payment to
54
the Original Limited Partner of any amount owing to it (after taking into
account the payments required to be made under clause (c) hereof) in
accordance with the terms of this Section 8, the Original Limited Partner
shall automatically cease to be a Partner in the Partnership. The other terms
and timing of any such Tender Offer shall be provided to the Original Limited
Partner in writing at the time of such Tender Offer. Without limiting the
generality of the foregoing, the General Partner shall have the right to make
Tender Offers contingent upon such percentage acceptance as the General
Partner may elect, including "all or nothing" Tender Offers for the limited
partnership interest.
(b) In the event that the General Partner
shall purchase less than the full limited partnership interest, the General
Partner shall (unless otherwise provided for in the General Partner's Tender
Offer) purchase a ratable portion of the outstanding limited partnership
interest from the Original Limited Partner for a ratable portion (except in
the case of a Tender Offer for less than the entire limited partnership
interest) of the Offer Price, determined by reference to the percentage that
the number of LLC Interests being redeemed by Members of the Original Limited
Partner bears to the total number of outstanding LLC Interests.
(c) The proceeds of any Tender Offer shall be used
first, to pay any Completion Fee then due and payable to Xxxxxxx Xxxxx by the
Original Limited Partner, and second, to repay all of the Additional Capital
Loans then outstanding in accordance with Section 4.1(d), in the event that
the General Partner purchases the full limited partnership interest of the
Original Limited Partner, or a proportionate share of the Additional Capital
Loans then outstanding, equal to the proportionate share of LLC Interests
redeemed, in the event that less than the whole of the Original Limited
Partner's limited partnership interest is purchased. After payment of the
foregoing, any remaining net proceeds of the Offer Price will be distributed
by the General Partner to the Limited Partner, or at the General Partner's
option, in accordance with Section 5.4 hereof. On the date of consummation of
any Tender Offer, accrued interest on the Additional Capital Loans being
prepaid on
55
such date will be paid, subject to this clause (c), solely out of the proceeds
of a Minimum LP Distribution from the Partnership to the Original Limited
Partner.
9. ORIGINAL LIMITED PARTNER'S PUT RIGHTS.
9.1. Sixth Year Put Right. (a) Within 90
days after the Put Reference Date, the General Partner shall deliver to the
Designated Member, on behalf of the Original Limited Partner, audited
financial statements for the twelve-month period ended on the Put Reference
Date, and the Designated Member shall be obligated to deliver such audited
financial statements to each Member. Members of the Original Limited Partner
shall have the right to elect to put their LLC Interests to the Original
Limited Partner on or before the Put Response Date. If a Member elects to put
any of its LLC Interests to the Original Limited Partner, such Member must put
all (and not less than all) of its LLC Interests to the Original Limited
Partner. Upon receipt of any such put, the Original Limited Partner in turn
shall be required to and shall Put all of the limited partnership interest, in
the case of a put of all of the LLC Interests, or a proportionate amount of
its limited partnership interest, in the case of a put of less than all of the
LLC Interests, to the General Partner at a price calculated (ratably in the
case of a partial Put) as (i) a multiple of 6.8 times the Adjusted Royalty
Revenues for the twelve-month period ending on the Put Reference Date, plus
(ii) the difference, if positive, between (x) the cumulative Additional LP
Capital Contributions made by the Original Limited Partner to the Partnership
less the amount of any Development Advances repaid in cash (it being
understood that payment of Franchise Fees shall not be construed as repayment
of any Development Advances) and (y) 110% of the Partnership's Adjusted
Unamortized Development Advances plus all Property Guaranty Payments made less
all Property Guaranty Reimbursements received, plus (iii) the amount of any
Administrative Fee then payable by the Original Limited Partner to the
Designated Member, plus (iv) the amount of any Completion Fee payable by the
Original Limited Partner to Xxxxxxx Xxxxx. If more than 50% of the LLC
Interests are put to the Original Limited Partner (whether voluntarily in
accordance with this clause (a) or mandatorily in accordance with clause (b)
56
below), the Original Limited Partner will be required to Put the entire
limited partnership interest to the General Partner. On the Put Date, if the
full limited partnership interest of the Original Limited Partner is Put, the
Original Limited Partner shall automatically cease to be a Partner in the
Partnership.
(b) All Additional Capital Loans shall become due and
payable on the Put Date, together with interest accrued thereon. The Original
Limited Partner shall require any Member which does not elect to put its LLC
Interests to the Original Limited Partner to pay, at least 15 days prior to
the Put Date, to the Original Limited Partner an amount equal to its pro rata
portion of the principal of the Additional Capital Loans, and on the Put Date,
the Original Limited Partner shall pay over such amounts to the Lender in
repayment of the relevant portion of the Additional Capital Loans.
(c) In the event that the Original Limited
Partner does not receive the amount owed by any non- putting Member under
Section 9.1(b) at least fifteen days prior to the Put Date, such Member shall
automatically be deemed to have elected to put all LLC Interests owned by it
to the Original Limited Partner, and the Original Limited Partner shall be
obligated to, and shall, Put a corresponding proportion of its limited
partnership interest to the General Partner on the Put Date. The Original
Limited Partner shall give notice to the General Partner on the fourteenth day
prior to the Put Date of any Member who has failed to make such payment, and
the percentage of its limited partnership interest which has become subject to
a mandatory Put.
(d) On the Put Date, the proceeds from the
exercise of a Put by the Original Limited Partner of the full outstanding
limited partnership interest shall be used first to pay any Completion Fee
then due and payable to Xxxxxxx Xxxxx by the Original Limited Partner and,
second, to repay, in accordance with Section 4.1(d), the principal of the
Additional Capital Loans in full. The proceeds from the exercise of a partial
Put of the outstanding limited partnership interests by the Original Limited
Partner shall be used first to repay, in accordance with Section 4.1(d), a pro
rata portion of the
57
Additional Capital Loans. On the Put Date, accrued interest on the Additional
Capital Loans will be paid by the Original Limited Partner out of the proceeds
of a Minimum LP Distribution from the Partnership to the Original Limited
Partner. Following payment of the foregoing obligations, any remaining net
proceeds will be distributed to the Original Limited Partner, or at the
General Partner's option, in accordance with Section 5.4 hereof. If the
proceeds from the exercise of a Put are insufficient to pay any Completion Fee
and repay the Additional Capital Loans, the Original Limited Partner (and the
putting Members) will not receive any distribution in respect of the Put, but
the Original Limited Partner (and the Members) will not be liable for such
unpaid Additional Capital Loans coming due on the Put Date. In that event, the
limited partnership interests which are Put to the General Partner shall be
transferred subject to the unpaid portion of the Additional Capital Loans
attributable thereto, or in satisfaction of such amount as the case may be.
9.2. Additional Put Right. (a) If HFS shall enter into
any agreement (i) for the sale, transfer, or disposition of all or a
controlling portion of its interest in the General Partner, or (ii) for the
acquisition of HFS by any Person (whether through a merger or sale of all or
substantially all of HFS's assets or stock), then, in any such event, the
General Partner will give the Original Limited Partner at least 60 days prior
written notice of the scheduled date of consummation of the transaction, and
prior to, or contemporaneously with the consummation of the transactions
contemplated by such agreement (the date on which such transaction is closed
being the "Early Put Date"), HFS's transferee or successor in interest shall
assume HFS's obligations under the Loan Agreement, the Support Agreement, the
Guaranty Agreement, and the Indemnity Agreement. Upon consummation of the
Early Put, or expiry of the Early Put Right, HFS shall be released from its
obligations under the Transaction Documents to which it is a party.
(b) Members of the Original Limited Partner shall have
the right to elect to put all (but not less than all) of their respective LLC
Interests to the Origi-
58
nal Limited Partner on or before the fifteenth day prior to the Early Put
Date. Upon receipt of any such put, the Original Limited Partner in turn shall
be required to and shall exercise the Early Put in respect of all of its
limited partnership interest, in the case of a put of all of the LLC
Interests, or a proportionate amount of its limited partnership interest, in
the case of a put of less than all of the LLC Interests. The price payable by
the General Partner for the limited partnership interest being purchased under
the Early Put shall be payable in cash on the Early Put Date, and shall equal
the Fair Market Value of the limited partnership interest (or the ratable
portion thereof) being purchased by the General Partner, as determined by an
independent appraisal conducted by a Big Six Accounting Firm selected by the
General Partner, including the Fair Market Value of the sixth year Put right,
plus the amount of the Completion Fee, if any, then due and owing. Such
appraisal shall occur at least 30 days prior to the Early Put Date, shall
constitute a fair market value appraisal as of the date on which notice is
given to the Original Limited Partner pursuant to clause (a) above, and shall
be an expense of the General Partner. The General Partner shall provide notice
of the results of the appraisal to the Members of the Original Limited Partner
at least 25 days prior to the Early Put Date. If at least 66.7% of the LLC
Interests are put to the Original Limited Partner under the circumstances
described in this Section 9.2, the Original Limited Partner will be required
to exercise the Early Put in respect of the entire limited partnership
interest.
(c) That percentage of Additional Capital Loans equal
to the percentage of LLC Interests being put to the Original Limited Partner
by the Members shall become due and payable on the Early Put Date, together
with interest accrued thereon. On the Early Put Date, the proceeds from the
exercise of the Early Put by the Original Limited Partner of all of the
outstanding limited partnership interests shall be used first to pay any
Completion Fee then due and payable to Xxxxxxx Xxxxx by the Original Limited
Partner and second, to repay, in accordance with Section 4.1(d), the principal
of the Additional Capital Loans in full. The proceeds from the exercise of a
partial Early Put of the outstanding limit-
59
ed partnership interests by the Original Limited Partner (which shall occur if
Members put less than 66.7% of the aggregate LLC Interests to the Original
Limited Partner) shall be used first to repay a pro rata portion of the
Additional Capital Loans. On the Early Put Date, accrued interest on the
Additional Capital Loans will be paid by the Original Limited Partner out of
the proceeds of a Minimum LP Distribution from the Partnership to the Original
Limited Partner. Following payment of the foregoing obligations, any remaining
net proceeds will be distributed to the Original Limited Partner, or at the
General Partner's option, in accordance with Section 5.4 hereof. If the
proceeds from the exercise of an Early Put are insufficient to pay any
Completion Fee then due and owing and to repay the Additional Capital Loans
plus interest then due and owing, the Original Limited Partner (and the
putting Members) will not receive any distribution in respect of the Early
Put, but the Original Limited Partner (and the Members) will not be liable for
such unpaid Additional Capital Loans or interest. In that event, the limited
partnership interests which are Put to the General Partner shall be
transferred subject to the unpaid portion of the Additional Capital Loans
attributable thereto, or in satisfaction of such amount as the case may be.
10. GENERAL PARTNER'S CALL OPTION.
(a) The General Partner shall have the option, upon 15
days' written notice thereof, to Call the Original Limited Partner's limited
partnership interest in the Partnership. Such Call may be exercised at any
time after the third anniversary of the Initial Closing Date, but prior to the
fifth anniversary of the Initial Closing Date. The Call Price will equal the
sum of (i) Additional Capital Loans then outstanding, (ii) initial Capital
Contributions made by the Limited Partner plus a 30% annual compounded return
on such initial Capital Contributions, (iii) an additional call premium
payment calculated as 1.0 times the Adjusted Royalty Revenues for the
twelve-month period immediately preceding the date the General Partner gives
notice of the Call, and (iv) an additional call premium payment equal to the
lesser of (x) 0.5 times the Adjusted Royalty Revenues for the twelve-month
period immediately preceding the date the
60
General Partner gives notice of the Call and (y) $1,500,000.
(b) The proceeds of the Call will be used first to pay
any Completion Fee then due and payable to Xxxxxxx Xxxxx by the Original
Limited Partner, and second, to repay, in accordance with Section 4.1(d), the
principal of the Additional Capital Loans in full. Following payment of such
obligations, any remaining net proceeds will be distributed to the Original
Limited Partner, or at the General Partner's option, in accordance with
Section 5.4 hereof. At the time the Call is exercised, accrued interest on the
Additional Capital Loans will be paid by the Original Limited Partner out of
the proceeds of a Minimum LP Distribution from the Partnership to the Original
Limited Partner.
On the date of consummation of the Call, the Original
Limited Partner shall automatically cease to be a Partner in the Partnership.
11. ACCOUNTING, BOOKS, RECORDS AND REPORTS.
11.1 Books of Account. The Partnership's books of
account shall be maintained at its principal place of business as designated
in Section 2.4 hereof or at such other locations and by such person or persons
as may be designated by the General Partner. The Partnership shall pay the
expense of maintaining its books of account. Each Partner shall have, during
reasonable business hours and upon reasonable prior notice, access to the
books of the Partnership and in addition, at its expense, shall have the right
to copy such books.
11.2 Method of Accounting. The Partnership books of
account shall be maintained and kept, and its income, gains, losses and
deductions shall be accounted for, in accordance with GAAP.
11.3 Tax Elections. The General Partner may in its
sole discretion determine whether to make any available elections under the
Code; provided that, the Partnership shall make the election referred to in
Section 754 of the Code in accordance with the Treasury Regulations
promulgated thereunder, effective for its
61
first taxable year and each succeeding taxable year of the Partnership.
11.4 Preparation of Tax Returns. The General Partner
shall arrange for the preparation and timely filing of all income and other
tax returns of the Partnership. The General Partner shall furnish to each
Partner, within a reasonable period after the end of each Fiscal Year but in
all events not later than March 15 of each Fiscal Year, all information
(including an IRS Schedule K-1) concerning the Partnership and its operations
reasonably necessary for the preparation of each Partner's federal income tax
returns.
11.5 Audited Financial Statements. Within 90 days
after the end of each Fiscal Year of the Partnership, the General Partner
shall deliver to the Designated Member, on behalf of the Original Limited
Partner, audited financial statements for the Fiscal Year ended on such date,
and the Designated Member shall be obligated to deliver such audited financial
statements to each Member.
11.6 Tax Matters Partner. The General Partner is
hereby designated as the "Tax Matters Partner" (within the meaning of Section
6231 of the Code and any similar provisions of state or local tax law) and
shall have all of the rights and obligations consistent with such designation.
In such capacity, the General Partner is authorized and required to represent
the Partnership (at the Partnership's expense) in connection with all audits
and examinations of the Partnership by taxing authorities, including resulting
administrative and judicial proceedings and to expend Partnership funds for
costs associated therewith including, but not limited to, professional fees.
11.7 Banking. All funds of the Partnership shall be
deposited in such bank account or accounts as shall be designated by the
General Partner. All withdrawals therefrom shall be made with checks signed by
the General Partner. Each bank account shall be segregated from any other bank
accounts maintained by the General Partner.
62
11.8 Election to be Treated as a Partnership for Tax
Purposes. If the proposed Treasury Regulations under Section 7701 of the Code
setting forth modified entity classification rules which would allow certain
entities to elect to be treated as either a partnership or an association
taxable as a corporation for federal income tax purposes are promulgated in
final form, the Tax Matters Partner shall, if necessary, promptly make an
election for the Partnership to be treated as a partnership for federal income
tax purposes. In addition, if a retroactive election for the Partnership to be
treated as a partnership for federal income tax purposes is permitted by such
Treasury Regulations, then the Tax Matters Partner shall, if necessary, make
such retroactive election effective as of the date of formation of the
Partnership. By executing this Agreement, each of the Partners hereby consents
to any election (including both retroactive and prospective elections) made by
the Tax Matters Partner for the Partnership to be treated as a partnership for
federal income tax purposes.
12. TRANSFER OF PARTNERSHIP INTERESTS; SUBSTITUTE AND
ADDITIONAL PARTNERS.
12.1. Assignments. No Limited Partner may
withdraw from the Partnership or make a demand for paid-in capital until the
termination of the Partnership. Except as otherwise provided in Section 12.2,
no Limited Partner may sell, transfer, assign, hypothecate, pledge or
otherwise dispose of or encumber (each, an "Assignment") all or any part of
such Partner's interest in the Partnership (whether voluntarily, involuntarily
or by operation of law) without the prior written consent of the General
Partner, the granting or denial of which shall be in the General Partner's
sole discretion, and any such purported Assignment without the consent of the
General Partner shall be null and void. Each Limited Partner and each Assignee
thereof hereby agree that it will not effect any Assignment of all or any part
of its interest in the Partnership (whether voluntarily, involuntarily or by
operation of law) in any manner contrary to the terms of this Agreement or the
Loan Agreement, in the case of the Original Limited Partner, or that violates
or causes the Partnership or the General Partner to
63
violate the Securities Act, the Securities Exchange Act, the Investment
Company Act, or the laws, rules, regulations, orders and other directives of
any Governmental Authority. In addition, the Original Limited Partner
covenants and agrees that it will not sell or permit the sale of any LLC
Interests to, or admit any Person as a Member of the Original Limited Partner,
who has not represented to the Original Limited Partner that it is an
"accredited investor" as defined in Rule 501 of Regulation D of the Securities
Act, without the prior written consent of the General Partner.
12.2. Assignments by Original Limited Partner to
General Partner. On any date on which all or a portion of the limited
partnership interest of the Original Limited Partner is purchased by the
General Partner in connection with any Put, Early Put, Call or Tender Offer,
the Original Limited Partner shall assign all or such portion, as the case may
be, of such limited partnership interest to the General Partner or its
designee, without recourse, except for representations and warranties of the
Original Limited Partner as to its ownership of, and no Liens on, the limited
partnership interest. Such Assignment shall be in form and substance
reasonably satisfactory to the General Partner. In connection therewith, the
Original Limited Partner shall take such other actions, and execute and
deliver such other documents, certificates and the like to evidence such
transfer as the General Partner may reasonably request.
12.3. Effect of Retirement, Withdrawal, Bankruptcy,
Dissolution, Death, Etc. of Limited Partner. The retirement, withdrawal,
bankruptcy, dissolution, death, incapacity or adjudication of incompetency of
a Limited Partner shall not, in and of itself, dissolve the Partnership, and
the Partnership shall continue in a reconstituted form, if necessary, without
any action on the part of the remaining Partners. The trustee, executor,
administrator, committee or guardian of such affected Limited Partner or of
the Limited Partner's estate, as the case may be, shall have all the rights of
the Limited Partner for the purpose of settling or managing the estate and
such power as the bankrupt, deceased or incompetent Limited Partner possessed
to
64
Assign all or part of the Limited Partner's interest in the Partnership,
provided that any such trustee, executor, administrator, committee or guardian
shall become a Substitute Limited Partner only upon compliance with the
provisions of Section 12.4.
12.4. Substitute Limited Partners. No Assignee of all
or any part of an interest of a Limited Partner in the Partnership shall be
admitted to the Partnership as a substitute Limited Partner (a "Substitute
Limited Partner") unless and until (a) the General Partner shall have
consented in writing to such admission (the granting or denial of which shall
be in the General Partner's sole discretion), (b) the Assignee has executed a
counterpart of this Agreement (as modified or amended from time to time) and
such other instruments as the General Partner may reasonably deem necessary or
appropriate to confirm the undertaking of the Assignee to be bound by all the
terms and provisions of this Agreement and (c) the Assignee has undertaken in
writing to pay all expenses incurred by the Partnership in connection with
such Assignment and substitution. Unless and until an Assignee of a
Partnership interest becomes a Substitute Limited Partner, such Assignee shall
not be entitled to exercise any vote, consent or any other right or entitle-
ment with respect to such interest in such Partnership interest.
13. INDEMNIFICATION OF GENERAL PARTNER.
13.1. In General. (a) The Partnership shall, to the
maximum extent permitted by applicable law, indemnify and hold harmless all
Related Persons from and against any and all Damages, including, without
limitation, Damages incurred in investigating, preparing or defending any
action, claim, suit, inquiry, proceeding, investigation or appeal taken from
any of the foregoing by or before any court or governmental, administrative or
other regulatory agency, body or commission, whether pending or threatened,
whether or not a Related Person is or may be a party thereto, which, in the
judgment of the General Partner, arises out of, relates to or is in connection
with this Agreement or the management or conduct of the business or affairs of
the General Partner, the Partnership or any of their respective Affili-
65
ates (including, without limitation, actions taken or not taken by any Related
Person as a director of any of its Affiliates or activities with respect
thereto or activities of any Related Person which relate to the offering, sale
and administration of hotel franchises (including, without limitation,
Franchises)), except for any such Damages that are finally found by a court of
competent jurisdiction to have resulted from the gross negligence or willful
misconduct of the Person seeking indemnification, provided, that the
Partnership indemnity obligations hereunder shall not extend to any Related
Person for acts or omissions unrelated to the Partnership or the transactions
contemplated by the Transaction Documents. Such attorneys' fees and expenses
shall be paid by the Partnership as they are incurred upon receipt, in each
case, of an undertaking by or on behalf of the Related Person on whose behalf
such expenses are incurred to repay such amounts if it is ultimately
determined that such Related Person is not entitled to indemnification with
respect thereto.
The termination of any proceeding by settlement shall
not be deemed to create a presumption that the Related Person involved in such
settlement acted in a manner which constituted gross negligence or willful
misconduct. The indemnification provisions of this Section 13.1 may be
asserted and enforced by, and shall be for the benefit of, each Related
Person, and each Related Person is hereby specifically empowered to assert and
enforce such right; provided that any Related Person (other than the General
Partner) who enters into a settlement of any proceeding without the prior
approval of the Partnership (such approval to be given by the General Partner)
shall not be entitled to the indemnification provided in this Section 13.1.
The right of any Related Person to the indemnification provided herein shall
be cumulative of, and in addition to, any and all rights to which such Related
Person may otherwise be entitled by contract or as a matter of law or equity
and shall extend to his or its heirs, successors, assigns and legal
representatives.
All judgments against a Related Person wherein such Related
Person is entitled to indemnification must first be satisfied from Partnership
66
assets before the General Partner is responsible for these obligations.
(b) If for any reason the indemnity
provided for in Section 13.1(a) and to which a Related Person is otherwise
entitled is unavailable to such Related Person in respect of any Damages, then
the Partnership, in lieu of indemnifying such Related Person, shall contribute
to the amount paid or payable by such Related Person as a result of such
Damages in the proportion the total capital of the Partnership (exclusive of
the balance in the Related Person's Capital Accounts (which, for purposes of
this Section 13.1(b) in the case of a Related Person which is not a Partner,
shall mean the General Partner's Capital Accounts if the Related Person is an
Affiliate thereof) bears to the total capital of the Partnership (including
the balance in the Related Person's Capital Accounts), which contribution
shall be treated as an expense of the Partnership.
(c) No Limited Partner or any Member thereof shall be
personally obligated with respect to the indemnification or contribution
provided for in this Section 13.1.
13.2. Not Liable for Return of Capital. Neither the
General Partner nor any other Related Person shall be personally liable for
the return of the Capital Contributions of any Limited Partner or any portion
thereof or interest thereon, and such return shall be made solely from
available Partnership assets, if any.
14. DURATION AND TERMINATION OF THE PARTNERSHIP.
14.1. Term. The existence of the Partnership commenced
on the date of the filing of a certificate of limited partnership described in
Section 17- 201 of the Act in the office of the Secretary of State of the
State of Delaware in accordance with the Act and shall continue until the
first to occur of the following events (each an "Event of Termination"):
(a) the failure to continue the business of the
Partnership as provided in Section 15.2 following a Disabling Event in respect
of the General Partner;
67
(b) the exercise of the Put, the Early Put, the Call
or a Tender Offer, which results in the purchase by the General Partner of all
of the then outstanding limited partnership interest of the Original Limited
Partner; and
(c) December 31, 2045.
14.2. Winding-Up. Upon the occurrence of
an Event of Termination, the Partnership shall be dissolved and wound-up. In
connection with the dissolution and winding-up of the Partnership, the General
Partner or, if there is no General Partner, a liquidator or other
representative (the "Representative") appointed by the Original Limited
Partner in accordance with Section 16.1, shall use its reasonable efforts in
accordance with its reasonable discretion to proceed with the sale or
liquidation of such of the assets of the Partnership as the General Partner
may elect (including the conversion to cash or cash equivalents of its notes
or accounts receivable) and shall apply and distribute the proceeds of such
sale or liquidation in the following order of priority, unless otherwise
required by mandatory provisions of applicable law:
(a) first, to pay (or to make provision
for the payment of) all amounts owing to creditors of the Partnership
(including the Lender and Partners who are creditors of the Partnership) and
the expenses of liquidation, in the order of priority, if any, required by
applicable law, in satisfaction of all debts, liabilities or obligations of
the Partnership due such creditors and of such expenses of liquidation;
(b) second, to the establishment of any
reserve which the General Partner or the Representative, as the case may be,
may deem reasonably necessary for any contingent or unforeseen liabilities or
obligations of the Partnership (such reserve may be paid over by the General
Partner or the Representative to an escrow agent acceptable to the General
Partner or the Representative, to be held for disbursement in payment of any
of the aforementioned liabilities and, at the expiration of such period as
shall be deemed advisable by the General Partner or the Representative, for
distribution of the bal-
68
ance in the manner hereinafter provided in this Section
14.2); and
(c) third, after the payment (or the
provision for payment) of all debts, liabilities and obligations of the
Partnership in accordance with clauses (a) and (b) above, to the Partners or
their legal representatives in proportion to the balances in their respective
positive Capital Accounts as adjusted pursuant to Section 4 for all
Partnership operations up to and including such liquidation, no later than 90
days after the date of liquidation of the Partnership.
14.3. Distributions in Cash or in Kind.
The General Partner or the Representative, as the case may be, shall hire an
independent appraiser, which shall be a Big Six Accounting Firm (the cost of
such appraisal to be considered a Partnership Expense), to appraise the Fair
Market Value of Partnership assets not sold or otherwise disposed of in
accordance with Section 14.2 hereof. The General Partner shall purchase such
assets from the Partnership for a price, payable in cash, equal to the
aggregate Fair Market Value of such assets. The proceeds of such purchase
shall be distributed in the manner set forth in Section 14.2 hereof. The
General Partner or the Representative shall in good faith attempt to liquidate
sufficient Partnership assets to satisfy in cash the debts and liabilities
described in Section 14.2 hereof.
14.4. Time for Liquidation. A reasonable amount of
time shall be allowed for the orderly liquidation of the assets of the
Partnership and the discharge of liabilities to creditors so as to enable the
General Partner or the Representative to minimize the losses attendant upon
such liquidation.
14.5. Termination. Upon compliance with
the foregoing distribution plan, the Partnership shall cease to be such, and
the General Partner or the Representative, as the case may be, shall execute,
acknowledge and cause to be filed with the Secretary of State of the State of
Delaware a certificate of cancellation of the Partnership pursuant to the
power of attorney contained in Section 17.12.
69
14.6. Compliance with Certain Requirements of Treasury
Regulations. In the event the Partnership is "liquidated" within the meaning
of Treasury Regulations Section 1.704-1(b)(2)(ii)(g), (a) if the General
Partner's Capital Account has a deficit balance (after giving effect to all
contributions, distributions, and allocations for all taxable years, including
the year during which such liquidation occurs), such General Partner shall
contribute to the capital of the Partnership the amount necessary to restore
such deficit balance to zero in compliance with Treasury Regulations Section
1.704-1(b)(2)(ii)(b)(3) and (b) distributions shall be made pursuant to this
Section 14 to the Partners who have positive Capital Accounts in compliance
with Treasury Regulations Section 1.704-1(b)(2)(ii)(b)(2).
15. DISSOLUTION, ETC. OF GENERAL PARTNER.
15.1. Disabling Events. The occurrence of any of the
following (each a "Disabling Event") shall, subject to the grace periods
specified below, constitute grounds for the Limited Partners to remove the
General Partner:
(a) the General Partner shall breach Section 2.8;
(b) any representation or warranty made herein by the
General Partner proves to have been untrue or incorrect in any material
respect as of the date when made, and such untruth or incorrectness could have
a material adverse effect upon the Original Limited Partner's limited
partnership interest or on the business of the Partnership;
(c) the General Partner shall create or
permit the creation of any Lien (other than Permitted Liens) upon the assets
of the Partnership, or sell, Assign or otherwise dispose of, all or any part
of its general partnership interest in the Partnership, or the General Partner
shall withdraw or retire as the General Partner or voluntarily dissolve or
liquidate the Partnership (other than on the terms contemplated herein);
70
(d) the General Partner shall commence or have
commenced against it any bankruptcy or insolvency proceedings, and such
proceedings are not dismissed within 60 days; or
(e) the General Partner shall have commenced a process
which would lead to its dissolution (whether voluntarily or by operation of
law).
15.2. Effect of a Disabling Event. Upon the occurrence
of a Disabling Event, the Original Limited Partner may, within 90 days
following such occurrence, upon the vote of Members holding at least 66 2/3%
of the LLC Interests then outstanding, remove the General Partner, and appoint
one or more Successor General Partners. In such event, any remaining General
Partner shall reconstitute and continue the Partnership. Any provisions in
this Agreement to the contrary notwithstanding, upon the occurrence of a
Disabling Event in respect of the last remaining General Partner, the
Partnership shall be dissolved and wound up as provided in Section 14, unless
within 90 days of such Disabling Event all of the Limited Partners consent in
writing to the reconstitution and continuation of the operations of the
Partnership and the election of one or more Successor General Partners.
16. AMENDMENTS.
16.1. Consent to Amendments. Subject to Sections 17.12
and 17.15, any provision of this Agreement may be modified, waived or amended
only with the written consent of the General Partner and the Original Limited
Partner. The consent of the Original Limited Partner to any such waiver,
modification or amendment shall be given on behalf of the Original Limited
Partner by the Designated Member if Members holding more than 50% of the LLC
Interests then outstanding vote affirmatively for such waiver, modification or
amendment, provided, that any waiver, modification or amendment of Section 4,
5.2, 5.3, 8, 9, 10, 14.1 or this Section 16.1 shall be consented to by the
Original Limited Partner only if Members holding at least 66.7% of the LLC
Interests then outstanding approve same (except that (a) a change in the
percentage of Members' consent required to make acceptance of an offer to
redeem by the Original Limited Partner under
71
Section 8 mandatory upon all Members shall require the affirmative vote of
Members holding at least 75% of the LLC Interests then outstanding and (b) any
change requiring Members to contribute additional cash to the Original Limited
Partner shall not be binding upon any Member who does not consent to such
change in writing). In any such case, the General Partner shall transmit such
request for any waiver, modification or amendment to the Members on behalf of
the Designated Member and solicit their votes. The Members shall, unless
otherwise provided in such request, have ten Business Days in which to
respond, and, at the close of business on such tenth (or other as provided in
the request from the General Partner) Business Day, the Original Limited
Partner will cast a single vote to accept or reject the General Partner's
request in accordance with the votes of the Members.
16.2. Amendments by General Partner. Subject to the
provisions of Section 16.1, the General Partner shall have the authority to
amend or modify this Agreement without any vote or other action by the Limited
Partners, as expressly permitted by Section 17.12 or to satisfy any
requirements, conditions, guidelines, directives, orders, rulings or
regulations of any Governmental Authority, or as otherwise required by
applicable law. Subject to the provisions of Section 16.1, the General Partner
shall have the authority to amend or modify this Agreement without any vote or
other action by the Limited Partners (a) to reflect the admission of
Substitute, Additional or Subsequent Partners and transfers of interests of
Partners pursuant to Section 8, (b) to form, qualify or continue the
Partnership as a limited partnership in all jurisdictions in which the
Partnership conducts or plans to conduct business, (c) to change the name of
the Partnership, (d) to cure any ambiguity or correct or supplement any
provision herein contained which may be incomplete or inconsistent with any
other provision herein contained or (e) to correct any typographical errors
contained herein.
72
17. MISCELLANEOUS.
17.1. Waiver of Partition. Each of the Partners hereby
irrevocably waives any and all rights that such Partner may have to maintain
any action for partition of any of the Partnership's property.
17.2. Entire Agreement. This Agreement together with
the documents expressly referred to herein, each as amended or supplemented,
constitutes the entire agreement among the parties with respect to the subject
matter herein or therein. They supersede any prior agreement or understanding
among the parties hereto.
17.3. Choice of Law. THIS AGREEMENT AND THE RIGHTS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE AND, WITHOUT LIMITATION THEREOF, THAT THE
ACT AS NOW ADOPTED OR AS MAY BE HEREAFTER AMENDED SHALL GOVERN THE PARTNERSHIP
ASPECTS OF THIS AGREEMENT.
17.4. Successors and Assigns. Except as
otherwise specifically provided herein, this Agreement shall be binding upon
and inure to the benefit of the parties and their legal representatives,
heirs, administrators, executors, successors and assigns.
17.5. Captions. Captions contained in this
Agreement are inserted only as a matter of convenience and in no way define,
limit or extend or otherwise affect the scope or intent of this Agreement or
any provision hereof.
17.6. Severability. If any provision of
this Agreement, or the application of such provision to any Person or
circumstance, shall be held invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
provisions of this Agreement, or the application of such provision in
jurisdictions or to Persons or circumstances other than those to which it is
held invalid, illegal or unen- forceable shall not be affected thereby.
17.7. Counterparts. This Agreement may be
executed in several counterparts, each of which shall be
73
deemed an original but all of which shall constitute one and the same
instrument. It shall not be necessary for all Partners to execute the same
counterpart hereof.
17.8. Additional Documents. Subject to the
provisions of this Agreement, each party hereto agrees to execute, with
acknowledgment or affidavit, if required, any and all documents and writings
which may be necessary or expedient in connection with the creation of the
Partnership and the achievement of its purposes, specifically including (a)
any amendments to this Agreement and such certificates and other documents as
the General Partner deems necessary or appropriate to form, qualify or
continue the Partnership as a limited partnership (or a partnership in which
the Limited Partners have limited liability) in all jurisdictions in which the
Partnership conducts or plans to conduct business and (b) all such agreements,
certificates, tax statements, tax returns and other documents as may be
required of the Partnership or its Partners by the laws of the United States
of America or any jurisdiction in which the Partnership conducts or plans to
conduct business, or any political subdivision or agency thereof.
17.9. Non-Waiver. No provision of this Agreement shall
be deemed to have been waived unless such waiver is contained in writing given
to the party claiming such waiver has occurred, provided that no such waiver
shall be deemed to be a waiver of any other or further obligation or liability
of the party or parties in whose favor the waiver was given.
17.10. Manner of Consent. Any consent or
approval required by this Agreement may be given or ratified by a written
consent given by the consenting Partner at, prior to or following the taking
of the action for which the consent is solicited, or by the affirmative vote
of the consenting Partner to the taking of the action for which the consent is
solicited at any meeting duly called and held (prior to or after the taking of
such action) to consider the taking of such action.
17.11. Notices. To be effective, unless
otherwise specified in this Agreement, all notices,
74
requests, offers (including the Early Put, the Put, the Tender Offer and the
Call), demands, consents and other communications under this Agreement must be
in writing and shall be deemed given (a) three days after depositing the same
in the United States mail, postage prepaid, certified or registered, return
receipt requested, provided that any notice to the General Partner shall be
effective only if and when received by the General Partner, (b) upon
delivering the same in person and receiving a signed receipt therefor, (c) one
day after sending the same by a recognized overnight delivery service or (d)
when sent by telecopy and confirmed. For purposes of all notices, requests,
demands, consents and other communications under this Agreement, the addresses
of the Partners shall be as set forth on Schedule A to this Agreement, as
amended from time to time, and the address of the Partnership shall be as set
forth in Section 2.4. Any Partner or its Assignee may designate a different
address to which notices or demands shall thereafter be directed and such
designation shall be made by written notice given in the manner hereinabove
required and, in the case of a Limited Partner or its Assignee, directed to
the Partnership at its offices as hereinabove set forth. Notices to any
Assignee of a Limited Partner shall be given to such Limited Partner unless
such Assignee has designated a different address therefor by written notice
given in the manner hereinabove required.
17.12. Grant of Power of Attorney. Each Limited
Partner hereby irrevocably constitutes and appoints the General Partner and
each member of the General Partner vested with management rights with respect
to the General Partner, as its true and lawful attorney and agent, in its
name, place and stead to make, execute, acknowledge and, if necessary, to file
and record:
(a) any certificates or other instruments or
amendments thereof which the Partnership may be required to file under the Act
or any other laws of the State of Delaware or pursuant to the requirements of
any Governmental Authority having jurisdiction over the Partnership or which
the General Partner shall deem it advisable to file, including, without
limitation, this Agreement, any amended Agreement and a certificate of
cancellation as provided in Section 14.5;
75
(b) any certificates or other instruments (including
counterparts of this Agreement with such changes as may be required by the law
of other jurisdictions) and all amendments thereto which the General Partner
deems appropriate or necessary to qualify, or continue the qualification of,
the Partnership as a limited partnership (or a partnership in which the
Limited Partners have limited liability) and to preserve the limited liability
status of the Partnership in the jurisdictions in which the Partnership may
acquire investment interests;
(c) any certificates or other instruments
which may be required in order to effectuate any change in the membership of
the Partnership or to effectuate the dissolution and termination of the
Partnership pursuant to Section 14.5; and
(d) any amendments to any certificate or
to this Agreement necessary to reflect any other changes made pursuant to the
exercise of the powers of attorney contained in this Section 17.12 or pursuant
to this Agreement.
17.13. Irrevocable and Coupled with an
Interest; Copies to Be Transmitted. The powers of attorney granted under
Section 17.12 shall be deemed irrevocable and to be coupled with an interest.
A copy of each document executed by the General Partner pursuant to the powers
of attorney granted in Section 17.12 shall be transmitted to each Limited
Partner promptly after the date of the execution of any such document.
17.14. Survival of Power of Attorney. The
powers of attorney granted in Section 17.12 shall survive delivery of an
Assignment by any Limited Partner of the whole or any part of such Partner's
Partnership interest, provided that if such Assignment was of all of such
Limited Partner's Partnership interest and the substitution of the Assignee as
a Limited Partner has been consented to by the General Partner, the foregoing
powers of attorney shall survive the delivery of such Assignment for the
purpose of enabling the General Partner to execute, acknowledge and file any
and all certificates and other instruments necessary to effectuate the
substitu-
76
tion of the Assignee as a Substitute Limited Partner. Such powers of attorney
shall survive the death, incapac- ity, dissolution, adjudication of
incompetency or termination of a Limited Partner and shall extend to such
Limited Partner's successors and assigns.
17.15. Limitation of Power of Attorney. The powers of
attorney granted under Section 17.12 cannot be utilized by the General Partner
for purposes which require the express consent of the Original Limited Partner
under Section 16.1.
17.16. Exercise of Rights. The Limited Partners shall
be permitted to exercise any of the voting rights set forth in this Agreement
unless, prior to the exercise by the Limited Partners of any specified voting
right or rights, the Partnership shall have obtained (and furnished a copy
thereof to each Limited Partner) an opinion of counsel for the Partnership to
the effect that the exercise of such specified right or rights will (a)
adversely affect the limited liability of the Limited Partners, or (b)
adversely affect the classification of the Partnership as a partnership for
federal income tax purposes.
17.17. Confidentiality. Each Limited Partner agrees,
as set forth below, with respect to any information pertaining to the
Partnership, HFS or their Affiliates or the business of any of them that is
provided to such Limited Partner pursuant to this Agreement or otherwise
(including, without limitation, any trade secrets owned or protected by HFS,
the Partnership or the General Partner, other proprietary information not
generally known to the lodging industry, including confidential portions of
the System Standards Manual, information otherwise imparted by HFS to the
General Partner, the Partnership or any Franchisee in confidence, the "Rules
of Operation Manual", all other System Standards manuals and documentation,
including those on the subjects of employee relations, finance and
administration, field operation, purchasing and marketing, and the Reservation
System software and applications software (collectively, "Confidential
Matters")) to treat as confidential all such information, together with any
analyses, studies or other documents or records prepared
77
by such Partner, HFS or their Affiliates, or any representative or other
Person acting on behalf of such Limited Partner (collectively, its "Authorized
Representatives"), which contain or otherwise reflect or are generated from
Confidential Matters, and will not, and will not permit any of its Authorized
Representatives to, disclose any Confidential Matter, provided that any
Limited Partner (or its Authorized Representative) may disclose any such
information to any Governmental Authority having jurisdiction over such
Limited Partner (or its Authorized Representative), to its auditors, attorneys
and other professional advisors, as may be required or appropriate in response
to any summons or subpoena, or as to which the General Partner has consented
in writing.
17.18. Submission to Jurisdiction. EACH LIMITED
PARTNER IRREVOCABLY CONSENTS AND AGREES THAT ANY LEGAL ACTION OR PROCEEDING
WITH RESPECT TO THIS AGREEMENT AND ANY ACTION FOR ENFORCEMENT OF ANY JUDGMENT
IN RESPECT THEREOF MAY BE BROUGHT IN THE UNITED STATES FEDERAL COURTS FOR THE
SOUTHERN DISTRICT OF NEW YORK, OR ANY STATE COURT LOCATED IN NEW YORK CITY,
AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH LIMITED PARTNER HEREBY
SUBMITS TO AND ACCEPTS FOR ITSELF AND IN RESPECT OF ITS PROPERTY, GENERALLY
AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
APPELLATE COURTS FROM ANY APPEAL THEREOF. EACH LIMITED PARTNER FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF IN THE MANNER SET FORTH IN SECTION 17.11. EACH LIMITED PARTNER
HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO
THE LAYING OF VENUE OF ANY OF THE AFORESAID ACTIONS OR PROCEEDINGS ARISING OUT
OF OR IN CONNECTION WITH THIS AGREEMENT BROUGHT IN THE COURTS REFERRED TO
ABOVE AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM
IN ANY SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE
RIGHT OF THE GENERAL PARTNER OR THE PARTNERSHIP TO SERVE PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL ACTIONS OR PROCEEDINGS OR
OTHERWISE PROCEED AGAINST ANY OTHER PARTNER HEREUNDER IN ANY OTHER
JURISDICTION.
78
17.19. Waiver of Trial by Jury. TO THE
EXTENT PERMITTED BY APPLICABLE LAW, EACH PARTY HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM,
ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR ANY MATTER ARISING
HEREUNDER.
IN WITNESS WHEREOF, the undersigned have
hereunto set their hands as of the date first set forth
above.
GENERAL FRANCHISE SYSTEMS, INC., FRANCHISE INVESTORS L.L.C.,
GENERAL PARTNER LIMITED PARTNER
By:/s/Xxxx X. Xxxxxxxx By: ML LEASING PARTNERS, INC.,
----------------------------------- Designated Member
Name: Xxxx X. Xxxxxxxx
Title: Senior Vice President-
Legal
By:/s/Xxxxxx X. Xxxxx
--------------------------
Name: Xxxxxx X. Xxxxx
Title: Vice President
THE PARTNERSHIP INTERESTS HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE
SECURITIES LAWS OR THE LAWS OF ANY OTHER NATION OR JURISDICTION AND MAY NOT BE
SOLD OR OTHERWISE TRANSFERRED UNLESS THE SAME HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE GENERAL PARTNER HAS BEEN RENDERED TO THE PARTNERSHIP THAT
AN EXEMPTION FROM REGISTRATION UNDER APPLICABLE SECURITIES LAWS IS AVAILABLE.
IN ADDITION, TRANSFER OR OTHER DISPOSITION OF THE LIMITED PARTNERSHIP
INTERESTS IS RESTRICTED AS PROVIDED IN THIS AGREEMENT OF LIMITED PARTNERSHIP.
Schedule A
Capital Contributions
Initial Capital
Contribution
General Partner: $3,000,000
General Franchise
Systems, Inc.
Six Sylvan Way
Parsippany, N.J. 07054-
0278
Attn: Executive Vice
President and
General Counsel
Telecopy: 000-000-0000
Original Limited Part-
ner:
FRANCHISE INVESTORS
L.L.C. $1,250,000
c/o ML Leasing Partners,
Inc.
World Financial Center
South Tower 14th floor
000 Xxxxxxx Xx.
Xxx Xxxx XX 00000-0000
Attn: Xxxxxx XxXxxxxxx
Telecopy: 000-000-0000
with a copy to:
ML Fund Administrators,
Inc.
World Financial Center
South Tower, 23d floor
000 Xxxxxxx Xx.
Xxx Xxxx, XX 00000-0000
Attn: Xxxxxx X. Xxxxx
Telecopy: 000-000-0000
