Exhibit 10.8
June 2, 2000
Mr. Xxxxx Xxxxxxxxx
Alpine Hospitality Holdings LLC
1285 Avenue of the Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Re: SUPPLEMENT TO AGREEMENTS
Dear Xxxxx:
Reference is made to that certain Supplement to Agreements ("Supplement")
executed on April 28, 1998 by and between U.S. Franchise Systems Inc., USFS
Management, Inc., Best Franchising, Inc. (collectively, "USFS Parties"), and
RSVP-BI OPCO, LLC, RSVP-ABI REALCO, LLC, and Alpine Hospitality Ventures LLC
(collectively, "OPCO Parties"), a copy of which is attached hereto as Exhibit A.
All capitalized terms used herein and not otherwise defined shall have the
meanings ascribed to them in the Supplement.
On June 2, 2000 (the "Effective Date") Hostmark Investors, LP ("Third Party
Manager") will begin managing, and USFS Parties will cease having any management
responsibilities for, the 17 Best Inns hotels owned by RSVP-BI OPCO, LLC and
RSVP-ABI REALCO, LLC (the "Alpine Hotels"), other than providing transition
services, including required financial, accounting, payroll and tax reporting
(including preparation of W-2 forms for the period ended June 1, 2000) and
continued assistance in pending and potential litigation and other matters (the
"Transition Services").
In consideration of the foregoing, the payment of:
(1) $2.4 million by USFS Parties to Alpine Hospitality Holdings LLC
("Holdings"), and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree that the
Supplement will be amended as of the Effective Date as follows: Paragraph 16 is
hereby deleted in its entirety; and
(2) $100,000 (together with the payment of $2.4 million set forth
above, collectively the "Termination Payment") by USFS Parties to Holdings, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree that the Supplement will be amended as of
the Effective Date as follows:
(a) All references to the Management Agreement in the Supplement
are hereby deleted in their entirety, it being the intention of the
parties to terminate the Management Agreement simultaneously with
the commencement of the management of the Alpine Hotels by the
Third Party Manager and the consent of PW Real Estate Investments,
Inc. (the "Lender") to such termination and the appointment of the
Third Party Manager;
(b) Paragraph 2 is hereby deleted in its entirety, it being
understood and agreed that no liquidated damages are due to
Operator as a result of such termination;
(c) Paragraph 14 is hereby deleted in its entirety;
(d) Paragraph 15 is hereby deleted in its entirety;
(e) Paragraph 18 is hereby deleted in its entirety; and
(f) All references to a USFS Entity in the Supplement shall be
deemed to be references to Hostmark Hospitality L.P., in lieu of
such USFS Entity, or any successor management company for the
Alpine Hotels ("Successor Manager") unless the reference relates to
the Franchise Agreements in which case the references shall
continue to be to such USFS Entity or as the
context otherwise so requires. References to Operator shall refer
to the Successor Manager in lieu of such USFS Entity unless the
context otherwise requires.
Effective as of the Effective Date, the USFS Parties are released and discharged
from all obligations arising on or after the Effective Date under Paragraphs 2,
14, 15, 16 and 18 of the Supplement and other provisions of the Supplement with
respect to which references to a USFS Entity are hereafter deemed references to
Hostmark Hospitality, L.P.
Except as modified herein, all other terms and provisions of the Supplement
shall remain unmodified and in full force and effect. This letter agreement
shall supersede with respect to the obligations set forth in this letter
agreement, and accordingly survive the delivery of, the mutual release contained
in that certain Voluntary Termination and Mutual Release Agreement (the
"Release") between the Opco Parties and the USFS Parties and any claims arising
under this letter agreement shall not be subject to such mutual release.
The USFS Parties agree, jointly and severally, (i) to pay the Termination
Payment to Holdings in immediately available funds when due in accordance with
the terms of this Agreement and (ii) to perform or cause to be performed on a
timely basis the Transition Services.
The Opco Parties hereby agree to maintain exclusive usage of the current MCI
phone service at the Alpine Hotels through June 30, 2001.
The USFS Parties and Opco Parties and Holdings agree that the Termination
Payment will be payable as follows: (i) $1.25 million by wire transfer upon
execution of this Agreement; and (ii) $1.25 million by wire transfer on the
earlier to occur of October 2, 2000 or the closing of the proposed
Recapitalization transaction between U.S. Franchise Systems, Inc. and SDI, Inc.
The $1.25 million payment referred to in this subsection (ii) shall be evidenced
by a promissory note in the form attached hereto as Exhibit B (the "Note"). If
for any reason the Note is not paid when due, the USFS Parties acknowledge and
agree that the Release shall become, without any further act, null and void ab
initio.
Holdings, as the parent of the Opco Parties, is causing the Opco Parties to
execute this Agreement to evidence such parties' agreement to be bound by the
terms contained herein.
If the foregoing correctly sets forth the agreement between the parties with
respect to the subject matter hereof, please sign below as indicated and return
the fully executed copy, whereupon this letter shall serve as a binding and
enforceable agreement between the parties.
Very truly yours,
U.S. Franchise Systems, Inc.
/s/ Xxxxxxx X. Xxxxxxx
-------------------------------
By: Xxxxxxx X. Xxxxxxx
USFS Management, Inc.
/s/ Xxxxxxx X. Xxxxxxx
-------------------------------
By: Xxxxxxx X. Xxxxxxx
Best Franchising, Inc.
/s/ Xxxxxxx X. Xxxxxxx
-------------------------------
By: Xxxxxxx X. Xxxxxxx
ACCEPTED AND AGREED:
ALPINE HOSPITALITY HOLDINGS LLC
By: /s/ Xxxxx X. Xxxxxxxxx
----------------------------------------
Xxxxx Xxxxxxxxx, Chief Executive Officer
RSVP-BI OPCO, LLC
By: Opco Manager Inc., its managing member
By: /s/ Xxxxx Xxxxxxxxx
----------------------------------------
Xxxxx Xxxxxxxxx
RSVP-ABI REALCO, LLC
By: RSVP-BI OPCO, LLC,
its managing member
By: Opco Manager Inc., its managing member
By: /s/ Xxxxx X. Xxxxxxxxx
---------------------------------
Xxxxx Xxxxxxxxx
ALPINE HOSPITALITY VENTURES LLC
By: Ventures Manager Inc., its managing member
By: /s/ Xxxxx X. Xxxxxxxxx
----------------------------
Xxxxx Xxxxxxxxx
EXHIBIT A
April 28, 1998
Alpine Hospitality Ventures LLC
RSVP-BI OPCO, LLC
RSVP-ABI REALCO, LLC
0000 Xxxxxx xx xxx Xxxxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
SUPPLEMENT TO AGREEMENTS
Dear Sirs:
Reference is made to (i) the Hotel Management Agreement, dated today and
previously executed and delivered (the "Management Agreement"), between RSVP-BI
OPCO, LLC, a Delaware limited liability company ("OPCO"), RSVP-ABI REALCO, LLC,
a Delaware limited liability company ("REALCO," and together with OPCO,
"Borrower") and Alpine Hospitality Ventures LLC, a Delaware limited liability
company ("Parent"), on the one hand, and USFS Management, Inc., a Georgia
corporation ("Operator"), wholly owned by U.S. Franchise Systems, Inc., a
Delaware corporation ("USFS"), on the other hand; (ii) each of the 17 Amended
and Restated License Agreements, dated today and previously executed and
delivered (collectively, the "Franchise Agreements" and individually a
"Franchise Agreement"), between Borrower and Best Franchising, Inc., a Georgia
corporation ("Licensor"), wholly owned by USFS, relating to the 17 Best Inn or
Best Suite hotels (the "Hotels") being acquired today by Borrower; (iii) the
Loan Agreement, dated today, between Borrower and PW Real Estate Investments
Inc., as the same may be amended from time to time, or any successor
Page -2-
agreement(s) relating to any refinancing thereof (the "Loan Agreement"); (iv)
the Senior Subordinated Note Purchase Agreement, dated today and previously
executed and delivered, between Parent and USFS (the "Subordinated Loan
Agreement"); and (v) the guaranties executed by Parent with respect to each of
the Franchise Agreements (the Franchise Agreement Guaranties"). The original
Franchise Agreements were originally executed by America's Best Inns, Inc., as
franchisor, and affiliates of America's Best Inns, Inc, as franchisees, and
subsequently assigned to Borrower and Licensor and amended and restated in their
entirety. Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings ascribed to them in the Management Agreement and
the Franchise Agreements (collectively, the "Agreements"), as the case may be.
In order to induce Borrower to acquire and fund the Hotels and to enter
into the Agreements and to induce the Borrower and Parent to enter into the
Overall Transaction (as defined in the Subordinated Loan Agreement) and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, USFS, Operator and Licensor, on the one hand, and OPCO,
REALCO and Parent, on the other hand, agree as follows:
1. Notwithstanding any provision to the contrary contained in the
Management Agreement or the Franchise Agreements, each reference therein to (i)
any "consent", "permission" or "approval" (or any words or phrases of similar
import) of any party being required shall be deemed modified by the phrase
"which shall not be unreasonably withheld, delayed or conditioned"; and (ii) any
"request" (or any words or phrases of
Page -3-
similar import) being made shall be deemed modified by the word "reasonable" or
"reasonably", as the context requires.
2. Notwithstanding Section 5.2 of the Management Agreement to the
contrary, the Termination Fee amount shall be equal to one (1) multiplied by the
Applicable Annual Amount in lieu of three (3) multiplied by the Applicable
Annual Amount if (i) prior to giving the notice of termination contemplated by
Section 5.1B. (the "Termination Notice") neither Xxxxxxx X. Xxxxx is Chief
Executive Officer of the parent company of Operator nor Xxxx X. Xxxxxxx is Chief
Financial Officer of the parent company of Operator; or (ii) concurrently with
the giving of the Termination Notice, Parent irrevocably commits to prepay
within 180 days of the effective termination date the outstanding balance of the
subordinated note issued under the Subordinated Loan Agreement; provided,
however, in either of the cases described in the preceding clause in lieu of
paying any Termination Fee, Licensor may make the effective termination date of
the Management Agreement the first anniversary of the Termination Notice. In
addition, if under the PW Loan (as defined in the Subordinated Loan Agreement),
the lender has exercised its right to cause Borrower to replace the Manager and
as a result Borrower terminates the Management Agreement, then no Termination
Fee shall be payable notwithstanding any provision to the contrary of the
Management Agreement.
3. Notwithstanding any provision to the contrary of the Management
Agreement or the Franchise Agreements, Borrower shall not be required to obtain
insurance coverage (or deliver documents related thereto, with the exception of
certificates
Page -4-
naming USFS, Operator and Licensor as additional insureds) more burdensome than
the insurance coverage required to be obtained under or pursuant to the Loan
Agreement.
4. Notwithstanding any provision to the contrary of the Management
Agreement or the Franchise Agreements, neither USFS nor any of its controlled
affiliates (collectively with USFS, a "USFS Entity") shall manage or have a
direct or indirect interest (including, without limitation, through any
development fund or joint venture) in any Microtel Inn or Suite or other
"Microtel" product in any of the Territories covered by the Franchise
Agreements.
5. Notwithstanding any provision to the contrary of the Management
Agreement or the Franchise Agreements, (i) the "Opening Date" under the
Franchise Agreements and the "Effective Date" under the Management Agreement
shall each be deemed to be April 28, 1998, at which time the respective
obligations of Borrower and Parent to pay fees under the Agreements shall
commence, with all fees payable under the Agreements being paid on a pro rata
basis to account for the closing of the purchase of the Hotels by Borrower prior
to May 1, 1998; (ii) the term of the Management Agreement and the Franchise
Agreements shall be 20 years and neither the Operator nor the Licensor shall
have any right to extend unilaterally the term thereof; (iii) if USFS
guarantees, directly or indirectly, the payment or performance of Operator's
and/or Licensor's obligations under any management agreement and/or franchise
agreement, USFS shall be deemed to have guaranteed the due and punctual payment
and performance of all Operator's obligations under the Management Agreement
and/or all of Licensor's obligations under the Franchise Agreements, as the case
may be; (iv) to the extent there is a
Page -5-
cash flow deficit, after paying debt service under the Loan Agreement and
operating expenses for the Hotels, the fees under the Agreements will be
deferred until there is available cash; and (v) Paragraphs 3D.(4) and 8B.(2)(f)
of the Franchise Agreements are hereby deleted.
6. In addition, if during the term of the Agreements, one or more USFS
Entities effectively charge a person or entity or a group of affiliated or
related persons or entities with respect to more than two hotels management fees
and/or franchise fees (including reservation and marketing fees) for Best Inn or
Suite or other "Best" product lower or on more favorable terms than those
charged to Borrower under the Management Agreement and/or Franchise Agreements,
then the applicable fees charged under the Agreements shall be automatically
decreased or adjusted on a retroactive basis.
7. Notwithstanding any provision to the contrary of the Management
Agreement or the Franchise Agreements, no action shall be required under the
Agreements to the extent such action would violate the Loan Agreement or any
related document.
8. So long as a USFS Entity serves as Operator under the Management
Agreement, (i) the audit provisions contained in Section 6C. of the Franchise
Agreements shall not be applicable and (ii) the Operator shall cause to be
delivered to Borrower five business days prior to the date required to be
delivered to the lender under the Loan Agreement, all certificates, reports,
financial information (including budgets) and other documents relating to the
Hotels required to be delivered under the Loan Agreement and shall coordinate
the payment of property taxes and insurance and the application of insurance
proceeds, all in accordance with the terms of the Loan Agreement.
Page -6-
9. Notwithstanding any provision to the contrary of the Franchise
Agreements, so long as a USFS Entity serves as Operator under the Management
Agreement, Borrower shall not be deemed in default as a result of Borrower's
failure to comply that may be reasonably attributable to Operator, the manager,
employees or agents under Operator's supervision or control, including, without
limitation, the failure to deliver timely any reports or documents required to
be delivered under the Franchise Agreements; provided, however, the foregoing
provisions of this paragraph 9 shall not apply if Borrower fails to provide
Operator with funds or cooperation necessary to permit compliance with the terms
of the Franchise Agreements (such as failure to provide funds for capital
expenditures or payroll).
10. Notwithstanding any provision to the contrary of the Franchise
Agreements, the "transfer" provisions relating to Borrower contained in the
Franchise Agreements (and the related fee, notice, consent and other
requirements) shall be applicable only if there is a "Change of Control" of
Alpine Equity Partners L.P. ("Alpine"). A Change of Control of Alpine shall be a
transfer by Alpine of more than 50% of its equity interests to any unaffiliated
person or entity not an investor in Alpine today, without the consent of USFS,
which shall not be unreasonably withheld, delayed or conditioned.
11. The grace or cure periods, notice provisions and the "de-minimis"
amounts contained in Section 10B. of the Franchise Agreements shall be deemed to
be increased to the extent that the comparable default provisions in the Loan
Agreement are more favorable to Borrower.
Page -7-
12. Notwithstanding any provision to the contrary of the Management
Agreement or the Franchise Agreements, Borrower shall not be obligated to
indemnify, defend or hold harmless or reimburse Licensor, Operator or any other
Indemnified Parties for the acts or omissions of Operator, the manager,
employees or agents under Operator's supervision or control, if such acts or
omissions constitute gross negligence or willful misconduct on the part of any
such person.
13. Within 30 days, Attachment B annexed to each of the Franchise
Agreements will be reviewed on a property-by-property basis and modified as
necessary to implement the parties intention that a sufficient Territory will be
associated with each of the Hotels in accordance with commercial practices
normally applied in the industry in order not to impair the value of such Hotel.
14. Notwithstanding anything to the contrary in the Management Agreement,
if Net Profit of Borrower (as defined below) for any 12-month period commencing
on April 1, 2000 is less than $8,620,000 (the "Target"), then the Operator or
USFS shall reimburse the Borrower in an amount equal to the excess of the Target
over the Net Profit of Borrower for such 12-month period but not to exceed 4.5%
of the Gross Revenues used to calculate the Management Fee actually paid for
such 12-month period (the "Unadjusted Management Fee").
(i) Any reimbursement required by this paragraph 14 shall be paid
within 30 days after the end of the relevant 12-month period.
(ii) "Net Profit of Borrower" shall mean its earnings before
interest, tax, depreciation and amortization, employing the Unadjusted
Management Fee
Page -8-
("EBITDA"), minus, without duplication, the sum of (A) capital
expenditures actually incurred or reserved for, during the relevant
12-month period, all as determined in accordance with generally accepted
accounting principles consistently applied, and (B) the general and
administrative expenses of Parent, other than salaries of employees of
Parent or any affiliate, relating to Borrower and its Subsidiaries,
including costs, fees and expenses necessary to satisfy obligations
imposed under the documents relating to the Overall Transaction, including
the Loan Agreement. An example of the calculation referred to in this
paragraph 14 is attached as Annex A hereto.
The parties agree in good faith to develop a procedure to make the reimbursement
obligation contemplated in this paragraph on a semi-annual rather than annual
basis. If an event described in Section 7.3 of the Subordinated Loan Agreement
takes place or there is a Change of Control (as defined therein), and the
Management Agreement is to be assigned in accordance with its terms to the
direct or indirect acquiror of the hotels so sold, then, if so requested by
Parent, the Management Agreement shall be amended prior to such assignment to
incorporate the foregoing provisions of this paragraph.
15. If any Franchise Agreement is terminated as to a particular Hotel (the
"Terminated Hotel"), the outstanding principal under the Subordinated Loan
Agreement shall be prepaid in an amount equal to such principal amount
multiplied by a fraction, the numerator of which is the Net Profit from the
Terminated Hotel for the 12 full months preceding the date of termination (the
"Measuring Period") and the denominator is the Net Profit of all the Hotels
(including the Terminated Hotel) for the Measuring Period
Page -9-
(appropriately adjusted for Hotels disposed of during such Measuring Period),
such prepayment shall be made together with any interest accrued thereon.
16. USFS agrees that in order to permit Parent to make such capital
contributions to OPCO or REALCO as may be necessary (taking into account other
funds then held by OPCO or REALCO) so that OPCO or REALCO may make one or more
Specified Payments (as defined below) under the Loan Agreement, USFS shall make
an additional loan under the Subordinated Loan Agreement to Parent in a
principal amount equal to the Specified Payments, but not in excess of
$7,500,000 principal amount, bearing interest at the rate then charged under the
Loan Agreement, and payable upon the earlier of (i) such time as the PW Debt (as
defined in the Subordinated Loan Agreement) is refinanced with availability
thereunder to pay off such aggregate principal amount and (ii) one year after
the maturity of the PW Debt. As used herein, the term "Specified Payments" shall
mean the following: (i) the prepayment by OPCO and/or REALCO of such portion of
the principal amount of the PW Loan as is necessary in order to achieve the debt
service coverage ratio that is a prerequisite to the extension of the PW Loan;
(ii) the payment of the release price of any properties that are required under
the Loan Agreement to be released from the lien of the mortgages or deeds of
trust securing the PW Loan, whether in connection with a casualty, a
condemnation or otherwise; and (iii) any interest payments, release premiums or
other amounts required to be paid by OPCO or REALCO to the holder of the PW Loan
in connection with any payment or prepayment referred to in clause (i) or (ii).
Page -10-
17. The Management Agreement and the Franchise Agreements, each as
modified herein, are in full force and effect and are binding agreements between
the parties thereto enforceable in accordance with their respective terms.
18. To the extent the Loan Agreement is modified, Borrower and Parent
shall advise Operator of all reports then required to be delivered under the
Loan Agreement, including the required form thereof and the delivery dates
therefor.
19. Notwithstanding that Parent is a party to the Management Agreement and
the Franchise Agreement Guaranties and notwithstanding any provision to the
contrary of the Management Agreement or the Franchise Agreement Guaranties, (i)
Parent shall have no obligation or liabilities under the Management Agreement,
and (ii) the Franchise Agreement Guaranties shall not be operative.
20. All references herein to any entity shall include such entity's
successors and assigns.
* * * * *
If the foregoing correctly sets forth the agreement reached between
USFS, Operator and Licensor, on the one hand, and OPCO, REALCO and Parent, on
the other hand, with respect to the subject matter hereof, please sign the
enclosed copy of this letter in the space indicated therein and return the fully
signed copy to USFS, whereupon this letter shall serve as a binding and
enforceable agreement between the parties.
Very truly yours,
U.S. FRANCHISE SYSTEMS, INC.
By: /s/ Xxxx X. Xxxxxxx
------------------------------------
Xxxx X. Xxxxxxx
USFS MANAGEMENT, INC.
By: /s/ Xxxx X. Xxxxxxx
------------------------------------
Xxxx X. Xxxxxxx
BEST FRANCHISING, INC.
By: /s/ Xxxx X. Xxxxxxx
------------------------------------
Xxxx X. Xxxxxxx
Accepted and Agreed to:
RSVP-BI OPCO, LLC
by OPCO Manager Inc.,
its managing member
By: /s/ Xxxxxxx X. Xxxxxxxxx
---------------------------------
Xxxxxxx X. Xxxxxxxxx
President
12
Accepted and Agreed to:
RSVP-ABI REALCO, LLC
by RSVP-BI OPCO, LLC,
its managing member,
by OPCO Manager Inc.,
its managing member
By: /s/ Xxxxxxx X. Xxxxxxxxx
---------------------------------
Xxxxxxx X. Xxxxxxxxx
President
ALPINE HOSPITALITY VENTURES LLC
by Ventures Manager Inc.,
its managing member
By: /s/ Xxxxxxx X. Xxxxxxxxx
---------------------------------
Xxxxxxx X. Xxxxxxxxx
President
ANNEX A
EXAMPLES OF MANAGEMENT FEE CALCULATION
For Illustrative Purposes Only
----------------------------------------
Example 1 Example 2 Example 3
--------- --------- ---------
Assumptions
Gross Revenues Used to Calculate the Management Fee $23,000,000 $23,000,000 $ 23,000,000
Target $ 8,620,000 $ 8,620,000 $ 8,620,000
EBITDA Before Unadjusted Management Fee $ 9,146,080 $10,146,080 $ 11,146,080
Less: Capital Expenditures 896,080 896,080 896,080
Less: General and Administrative Expenses of Parent 100,000 100,000 100,000
Less: Unadjusted Management Fee 1,150,000 1,150,000 1,150,000
----------- ----------- ------------
Net Profit to Borrower $ 7,000,000 $ 8,000,000 $ 9,000,000
=========== =========== ============
Reimbursable Amount
Excess of Target Over the Net Profit of the Borrower $ 1,630,000 $ 620,000 ($ 380,000)
Maximum Amount Reimbursable to Borrower (@ 4.5%) $ 1,035,000 $ 1,035,000 $ 1,035,000
----------- ----------- ------------
Amount Reimbursed to Borrower $ 1,035,000 $ 620,000 $ 0
=========== =========== ============
