to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
The terms and provisions of this Agreement shall not run with the parcel of land designated as the Site, and neither this Agreement nor any memorandum or short form hereof shall be recorded or registered without the prior written consent of Owner.
Headings of articles and sections are inserted only for convenience and are in no way to be construed as a limitation on the scope of the particular articles or sections to which they refer.
Notices, statements and other communications to be given under the terms of this Agreement shall be in writing and delivered by hand against receipt or sent by certified or registered mail (with a copy by first class mail) or Express Mail service, in each case postage prepaid, return receipt requested or by nationally utilized overnight delivery service, addressed to the parties as follows:
or at such other address as is from time to time designated by the party receiving the notice. Any such notice that is mailed in accordance herewith shall be deemed received when delivery is received or refused, as the case may be.
A. Manager shall operate the Hotel in compliance with all applicable Environmental Laws. Manager shall (i) not use, generate or store any Hazardous Materials in or on the Hotel except as necessary for the operation and maintenance of the Hotel and in compliance with the
Environmental Laws, (ii) not allow, permit or cause the release or threat of release of any Hazardous Materials in, on, under or from the Hotel, except for the ordinary use of cleaning and maintenance supplies in compliance with applicable Environmental Laws, (iii) not allow the accumulation of tires, spent batteries, construction and demolition debris or any other solid waste, except for solid waste generated from the operation of the Hotel and stored in containers for normal scheduled pickup and disposal off site in compliance with applicable Environmental Laws and (iv) use best efforts to operate and maintain the Hotel in a manner to prevent mold, fungal or other microbial growth or conditions that are favorable for such growth, including, without limitation, the proper operation and maintenance of heating, ventilation and air conditioning systems and removal of any mold, fungal or microbial growth.
B. In the event of the discovery of a release or threat of release of Hazardous Materials in, on, under or from any portion of the Hotel during the Term, Manager shall promptly notify Owner and shall take all appropriate actions with regard to such Hazardous Materials as required of an owner or operator under applicable Environmental Laws. Manager shall keep Owner apprised of the status of addressing the release or threat of release of Hazardous Materials, and Owner shall have the right at any time to assume control of the matter from Manager.
“Environmental Laws” shall mean all federal, state and local environmental, health and safety laws, rules, regulations, ordinances, permits, orders, common law or requirements of any governmental authority, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. §§ 9601,et.seq., as amended; Solid Waste Disposal Act, 42 U.S.C. §§ 6901,et.seq., as amended; Toxic Substances Control Act, 15 U.S.C. §§ 2601,et.seq., as amended; Hazardous Materials Transportation Act, 49 U.S.C. §§ 5101,et.seq., as amended; Federal Water Pollution Control Act, 33 U.S.C. §§ 1251,et.seq.
“Hazardous Materials” shall mean any hazardous substances, hazardous wastes, toxic substances, hazardous materials, petroleum or petroleum products, pollutants or contaminants (as those terms are defined under Environmental Laws), including, without limitation, polychlorinated biphenyls, lead or lead-based paint, asbestos or mold in such concentrations or amounts as may impose clean-up, removal, monitoring or other responsibility under the Environmental Laws or which may present a significant risk of harm to guests, invitees or employees of the Hotel.
10.09.Confidentiality; Projections.
A. Owner and Manager agree that the terms of this Agreement are strictly confidential and will use their reasonable efforts to ensure that the terms of this Agreement are not disclosed to any outside person or entities without the prior written consent of the other party, except (1) as Owner or Manager may determine is required by any law, rule, regulation or judicial process, or by any regulatory or supervisory authority having jurisdiction over the parties or any of their Affiliates or (2) to the extent reasonably necessary, (i) to obtain licenses, permits and other public approvals, (ii) in connection with a financing of the Hotel, Owner, or any Affiliate thereof, (iii) in connection with a Sale of the Hotel or other sale of Owner, or any Affiliate thereof or its or their corporate assets, (iv) subject to the provisions of Section 4.02, in connection with an audit or other investigation conducted pursuant to this Agreement or (v) in
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connection with either party’s enforcement of its rights and remedies under this Agreement. Notwithstanding the foregoing or anything to the contrary set forth herein, the terms of this Agreement shall not be deemed confidential to the extent: (a) such information becomes generally available to the public other than as a result of unauthorized disclosure by the recipient or persons to whom such recipient has made the information available; or (b) the party seeking to disclose such confidential information can demonstrate to the reasonable satisfaction of the other party that the information sought to be disclosed is customarily disclosed by at least 80% of all Persons directly or indirectly owning hotels in the United States; or (c) the information communicated was already known to recipient at the time of its receipt.
B. Owner acknowledges that any written or oral projections, pro formas, or other similar information that has been (prior to execution of this Agreement) or will (during the Term) be provided by Manager (or any Affiliate of either) to Owner is for information purposes only, and that Manager, and any such Affiliate do not guarantee that the Hotel will achieve the results set forth in any such projections, pro formas, or other similar information. Owner further acknowledges that any such projections, pro formas, or other similar information are based on assumptions and estimates, unanticipated events may occur subsequent to the date of preparation of such projections, pro formas, and other similar information, and the actual results achieved by the Hotel are likely to vary from the estimates contained in any such projections, pro formas, or other similar information and such variations might be material.
10.10.Indemnification.
A. Manager hereby agrees to indemnify, defend and hold harmless Owner, its officers, directors, stockholders, employees, agents and their respective successors and assigns from and against any and all claims, liabilities, damages, losses, obligations and costs (including reasonable attorneys’ fees) arising from (i) Manager’s or any of its Affiliate’s failure to comply with its obligations under this Agreement and, to the extent provided herein, the obligations of the franchisee under the Franchise Agreement, (ii) any grossly negligent act or omission, theft, fraud or willful misconduct of Manager or its Affiliates and their respective employees, agents or contractors and (iii) any claim asserted by any employee, contractor or agent of Manager or its Affiliates, including any claim for employment discrimination, wrongful termination, violations of law and other claims asserted by such employees, except, as to any of the items listed in clauses (i) – (iii) above, to the extent of any costs properly payable from Gross Revenues as Deductions, to the extent of any costs or claims covered by insurance or to the extent that the loss or liability giving rise to such claim was caused directly by Owner’s breach of its obligations under this Agreement or Owner’s grossly negligent act or omission, theft, fraud, or willful misconduct.
B. Owner hereby agrees to indemnify, defend and hold harmless Manager, its officers, directors, stockholders, employees, agents and their respective successors and assigns from and against any and all claims, liabilities, damages, losses, obligations and costs (including reasonable attorneys’ fees) arising from (i) Owner’s failure to comply with its obligations under this Agreement, (ii) any grossly negligent act or omission, theft, fraud or willful misconduct of Owner or its Affiliates or their respective employees, agents or contractors and (iii) any claim asserted by any employee, contractor or agent of Owner or its Affiliates except, as to any of the
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items listed in clauses (i)-(iii) above, to the extent the loss or liability giving rise to such claim was caused directly by Manager’s breach of its obligations under this Agreement or Manager’s grossly negligent act or omission, theft, fraud, or willful misconduct or is covered by insurance.
10.11.Actions to be Taken Upon Termination.
Upon a Termination, the following shall be applicable:
A. All fees or expenses due to Manager for the period before such Termination shall be paid to Manager. On the effective date of such Termination, Manager shall cease all activities hereunder on behalf of Owner at the Hotel and shall have no further obligations hereunder except as to matters arising before such date and except as otherwise provided in this Agreement. However, Manager shall cooperate with Owner in the orderly transfer of management to Owner or Owner’s designated agent or manager.
B. Manager shall, within forty-five (45) days after Termination, prepare and deliver to Owner a final accounting statement with respect to the Hotel, as more particularly described in Section 4.01 hereof, along with a statement of any sums due from Owner to Manager pursuant hereto, dated as of the date of Termination. Within thirty (30) days of the receipt by Owner of such final accounting statement, the parties will make whatever cash adjustments are necessary pursuant to such final statement. The cost of preparing such final accounting statement shall be a Deduction, unless the Termination occurs as a result of an Event of Default by either party, in which case the defaulting party shall pay such cost. Manager and Owner acknowledge that there may be certain adjustments for which the information will not be available at the time of the final accounting and the parties agree to readjust such amounts and make the necessary cash adjustments when such information becomes available; provided, however, that all accounts shall be deemed final two (2) years after Termination.
C. Manager shall immediately release and transfer to Owner any of Owner’s funds which are held or controlled by Manager with respect to the Hotel.
D. Manager shall make available to Owner such books and records respecting the Hotel (including those from prior years) as will be needed by Owner to prepare the accounting statements, in accordance with the GAAP, for the Hotel for the year in which the Termination occurs and for any subsequent year.
E. Manager shall (to the extent permitted by law) assign to Owner or to the new manager all operating licenses and permits for the Hotel which have been issued in Manager’s name (including liquor and restaurant licenses, if any); provided that if Manager has expended any of its own funds in the acquisition of any of any of such licenses or permits, Owner shall reimburse Manager therefor if it has not done so already unless such expenditure is a Manager’s Liability.
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F. If this Agreement is terminated by reason of Owner’s Event of Default, a reasonable reserve shall be established from Gross Revenues to reimburse Manager for all costs and expenses incurred by Manager in terminating its employees at the Hotel, such as severance pay, unemployment compensation, employment relocation and other employee liability costs arising out of the termination of employment of Manager’s employees at the Hotel. If Gross Revenues are insufficient to meet the requirements of such reserve, then Owner shall deliver to Manager, within ten (10) Business Days after receipt of Manager’s written request therefor, the sums necessary to establish such reserve.
G. If this Agreement is terminated before the expiration of the Term for any reason other than an Event of Default by Manager, Manager may submit to Owner for its approval a budget with respect to expenses anticipated to be incurred by Manager to terminate its activities at the Hotel. Upon approval of such budget by Owner, Owner shall deposit the total amount of such budget into the Hotel’s operating account, and Manager may use such deposit to pay such expenses. Manager shall provide Owner a final accounting of the foregoing, and any surplus remaining from such deposit shall be refunded to Owner.
H. Owner may, at its option, (i) provide Manager and/or the employees at the Hotel (or require Manager to provide to the employees at the Hotel) at least sixty (60) days’ notice of a Termination and/or (ii) cause the entity which shall succeed Manager as the operator of the Hotel to offer employment to a sufficient number of the employees at the Hotel to avoid the occurrence, in connection with such Termination, of a “plant closing” or “mass layoff” within the meaning of the WARN Act. If Owner elects to cause the entity which shall succeed Manager as operator of the Hotel to offer employment to certain of Manager’s employees, Manager shall not take any action that would cause such employees not to continue as employees at the Hotel.
I. Various other actions shall be taken, as described in this Agreement, including, but not limited to, the actions described in Section 4.05 and Section 6.04.
J. Manager shall peacefully vacate and surrender the Hotel to Owner on the date of termination unless otherwise agreed to by the parties.
The provisions of this Section 10.11 shall survive Termination.
10.12.Waiver.
The failure of either party to insist upon a strict performance of any of the terms or provisions of this Agreement, or to exercise any option, right or remedy contained in this Agreement, shall not be construed as a waiver or as a relinquishment for the future of such term, provision, option, right or remedy, but the same shall continue and remain in full force and effect. No waiver by either party of any term or provision hereof shall be deemed to have been made unless expressed in writing and signed by such party.
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10.13.Partial Invalidity.
If any portion of any term or provision of this Agreement, or the application thereof to any person or circumstance shall be invalid or unenforceable, at any time or to any extent, the remainder of this Agreement, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law.
10.14.Survival.
Except as otherwise specifically provided in this Agreement, the rights and obligations of the parties herein shall not survive any Termination.
10.15.Negotiation of Agreement.
Owner and Manager are both business entities having substantial experience with the subject matter of this Agreement, and each has fully participated in the negotiation and drafting of this Agreement. Accordingly, this Agreement shall be construed without regard to the rule that ambiguities in a document are to be construed against the draftsman. No inferences shall be drawn from the fact that the final, duly executed Agreement differs in any respect from any previous draft hereof.
10.16.Estoppel Certificates.
Each party to this Agreement shall at any time and from time to time, upon not less than fifteen (15) days’ prior notice from the other party, execute, acknowledge and deliver to such other party, or to any third party specified by such other party, a statement in writing: (a) certifying that this Agreement is unmodified and in full force and effect (or if there have been modifications, that the same, as modified, is in full force and effect and stating the modifications); and (b) stating to the best knowledge of the certifying party (i) whether or not there is a continuing Default or Event of Default by the non-certifying party in the performance or observance of any covenant, agreement or condition contained in this Agreement, (ii) the amount, if any, of any past due fees or other past due amounts owed to Manager or Owner; and (iii) whether or not there are any past due and unpaid obligations with respect to the Hotel, other than in the ordinary course of business. Such statement shall be binding upon the certifying party and may be relied upon by the non-certifying party and/or such third party specified by the non-certifying party as aforesaid. In addition, upon written request after a Termination, each party agrees to execute and deliver to the non-certifying party and to any such third party a statement certifying that this Agreement has been terminated.
10.17.Affiliates.
Manager shall not be entitled to contract with companies that are Affiliates (or companies in which Manager has an ownership interest if such interest is not sufficient to make such a company an Affiliate) or with third parties or their Affiliates that have other contractual relationships with Manager and/or its Affiliates to provide goods and/or services to the Hotel
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without the prior written consent of Owner, unless such transaction is in the ordinary course of business, is on terms and conditions that are no less favorable than if the transaction had been entered into with a third party and is in compliance with the Owner-approved Annual Operating Projections. Notwithstanding the foregoing, Manager may contract with Affiliates to provide marketing, accounting and human resource services subject to the conditions that (i) the costs of such services are included in the Annual Operating Projection approved by Owner and (ii) at the time Manager submits each Annual Operating Projection to Owner for its approval, Manager specifically identifies the services to be provided by Manager’s Affiliates.
10.18.Blocked Persons or Entities.
Manager represents and warrants to Owner and covenants for the benefit of Owner that (i) neither Manager nor any of its Affiliates or any of officers, directors, partners or employees of Manager or its Affiliates, or, to its knowledge, the funding sources for any of the foregoing, is or will be identified on the list of the U. S. Treasury’s Office of Foreign Asset Control (“OFAC”); (ii) neither Manager nor any of its Affiliates is or will be directly or indirectly owned or controlled by the government of any country that is subject to an embargo imposed by the United States government; and (iii) neither Manager nor any of its Affiliates is acting or will act on behalf of a government of, or is involved in business arrangements or other transactions with, any country that is subject to such an embargo. Manager will notify Owner in writing immediately upon the occurrence of any event which would render the foregoing representations and warranties incorrect.
10.19.Restrictions on Operating the Hotel in Accordance with System Standards.
In the event of either (i) a Legal Requirement, including an order, judgment or directive by a court or administrative body which is issued in connection with any Litigation involving Owner, or (ii) any action taken by a Mortgagee in connection with a Foreclosure, which in either case restricts or prevents Manager, in a material and adverse manner, from operating the Hotel in accordance with System Standards (including without limitation, any restrictions on expenditures by Manager from the Operating Accounts or from the Reserve, other than restrictions which are set forth in this Agreement), Manager shall be entitled, at its option, to terminate this Agreement upon sixty (60) days’ written notice to Owner. The foregoing shall not reduce or otherwise affect the rights of the parties under Article VIII.
10.20.Counterparts.
This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which shall constitute one and the same instrument. Such executed counterparts may be delivered by facsimile which, upon transmission to the other party, shall have the same force and effect as delivery of the original signed counterpart. The submission of an unsigned copy of this Agreement or an electronic instrument with or without electronic signature to either party shall not constitute an offer or acceptance. This Agreement shall become effective and binding only upon execution and delivery of this Agreement in non-electronic form by both parties in accordance with this Section.
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10.21.Entire Agreement.
This Agreement, together with any other writings signed by the parties expressly stated to be supplemental hereto and together with any instruments to be executed and delivered pursuant to this Agreement, constitutes the entire agreement between the parties and supersedes all prior understandings and writings, and may be changed only by a written non-electronic instrument that has been duly executed by the non-electronic signature of an authorized representative of the parties hereto.
10.22.Franchise Agreement.
During the Term of this Agreement, subject to the availability of adequate funds, Manager shall perform all of the obligations of Owner as “Franchisee” under the Franchise Agreement to the extent such obligations relate to the management or operation of the Hotel, and Manager shall not commit any act or omit to take any action that would cause a default by the Franchisee under the Franchise Agreement. In the event of any inconsistency between the provisions of this Agreement and the provisions of the Franchise Agreement, the provisions of the Franchise Agreement shall prevail. Manager shall send promptly to Owner any and all notices that Manager receives from the Franchisor with respect to the Hotel or the Franchise Agreement and shall keep Owner fully informed with respect to all matters that come to Manager’s attention under the Franchise Agreement. Notwithstanding the foregoing, Manager shall not have the right to grant any consent, approval or other right reserved to the Franchisee under the Franchise Agreement or to make any decision or agreement on behalf of Owner under the Franchise Agreement. In the event the Franchise Agreement is terminated for any reason, this Agreement shall also terminate effective as of the date of termination of the Franchise Agreement, unless the parties hereto agree otherwise.
10.23.Operation of Other Hotels.
During the Term and except for the Hotel and the other hotels described inSchedule 1, neither Manager nor any of its Affiliates shall acquire, lease, own, manage or operate, directly or indirectly, any hotel, inn, motel or other type of lodging facility, regardless of whether similar to the Hotel or whether operated under the same or a different brand, that is a Competing Hotel without Owner’s prior written consent. In addition, if Manager or any of its Affiliates shall acquire, lease, own, manage or operate, directly or indirectly, any hotel, inn, motel or other type of lodging facility, regardless of whether similar to the Hotel or whether operated under the same or a different brand, in the same geographic area or market as the Hotel, Manager shall not permit unfair favoritism in the operation and management of such other hotels that would disadvantage the operation or business of the Hotel (such as, by way of example only, directing potential Hotel guests to such other hotels instead of to the Hotel). At Owner’s request, Manager shall provide such information as may reasonably be requested by Owner to determine if there has been any such unfair favoritism and, in the event Owner, in its reasonable business judgment, determines that any such unfair favoritism has occurred, Owner may terminate this Agreement after notice and right to cure as provided in this Agreement. For purposes of this Section, a “Competing Hotel” shall mean any hotel, inn, motel or other type of lodging facility that is within the geographic area covered by the STR Report for the Hotel that markets directly to or
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makes efforts to attract customers, guests and/or hotel business that would otherwise do business with the Hotel.
10.24.Waiver of Jury Trial and Punitive Damages.
Owner and Manager each hereby absolutely, irrevocably and unconditionally waive trial by jury and the right to claim punitive damages in any litigation, action, claim, suit or proceeding, at law or in equity, arising out of or pertaining to this Agreement or any other agreement, instrument or document entered into in connection herewith.
10.25Accounting Fee. In addition to the Base Management Fee and the Incentive Management Fee, the Manager shall be paid a fee for centralized accounting services (the “Accounting Fee”) equal to the amount charged by Manager monthly for all Manager’s managed hotels based on the type of hotel managed per Accounting Period during the Term of this Agreement and for one (1) Accounting Period after the applicable termination of this Agreement with respect to the Hotel. The Accounting Fee shall be set annually and is intended to be a break-even fee for the accounting department. The Accounting Fee for 2008 is $1,500 per month. Such centralized accounting services consist of the processing of daily accounting transactions necessary for the preparation of the monthly financial statements, including general ledger, accounts payable, payroll (in conjunction with the payroll processing firm) and banking. In addition, the following expenses are included in the annual accounting fee
| | |
| a. | express mail and regular postage for items sent specifically to or on behalf of the Hotel, which would include accounts payable checks, weekly invoices and accounting information to and from the Hotel, payroll checks, payroll reports and other documents necessary for the efficient operation of the Hotel; |
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| b. | telephone and fax costs specifically for the Hotel; and |
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| c. | costs of photocopying specifically for the Hotel. |
However, Owner is responsible for all payroll processing firm fees associated with processing the hotel’s payroll as well as any banking service charges for operating and maintaining the bank account or accounts for the hotel. Owner shall have use of Manager’s software system (currently Inquire but changing to M3 Link) at no charge for this Hotel.
ARTICLE XI
DEFINITION OF TERMS
11.01.Definition of Terms.
The following terms when used in this Agreement shall have the meanings indicated:
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“Accounting Period” shall mean a calendar month.
“Accounting Period Statement” shall have the meaning ascribed to it in Section 4.0l.A.
“Accounting Quarter” shall mean three consecutive Accounting Periods, the first of which begins on the first day of the Fiscal Year.
“Affiliate” shall mean, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. For purposes of this definition, the term “control” (including the terms “controlling,” “controlled by” and “under common control with”) of a Person means the possession, directly or indirectly, of the power: (i) to vote more than fifty percent (50%) of the voting stock or other beneficial interests of such Person; or (ii) to direct or cause the direction of the management and policies of such Person, whether through the Ownership of voting stock, by contract or otherwise.
“Agreement” shall mean this Management Agreement between Owner and Manager, including the exhibits attached hereto.
“Annual Operating Projection” shall have the meaning ascribed to it in Section 4.04.
“Annual Operating Statement” shall have the meaning set forth in Section 4.0l.B.
“Available Cash Flow” shall mean an amount, with respect to each Fiscal Year or portion thereof during the Term, equal to the excess, if any, of the Operating Profit over the Owner’s Priority.
“Base Management Fee” shall mean an amount payable to Manager as a Deduction from Gross Revenues for all services provided by Manager pursuant to this Agreement, except as otherwise expressly provided herein. The Base Management Fee shall be the percentage of Gross Revenues shown onSchedule 1 for each Fiscal Year during the Term.
“Buildings” shall mean the buildings and improvements constituting that certain hotel more particularly described onSchedule 1 attached hereto and made a part hereof which is located on the Site.
“Business Day” shall mean any day other than a Saturday, Sunday or legal holiday in the Commonwealth of Virginia.
“CC&R’s” shall have the meaning ascribed to it in Section 7.04.A.
“Competitive Set” shall mean the group of hotels which are closest in geographical distance from the Hotel and which are generally within the same hotel market segment as the Hotel, as described inSchedule 1. If any such hotels, subsequent to the Effective Date, either changes its chain affiliation or ceases to operate or otherwise ceases to reflect the general criteria set forth in the first sentence of this definition, Owner and Manager agree to mutually, reasonably and in good faith, discuss appropriate changes to the foregoing list of the hotels that shall comprise the Competitive Set.
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“CPI”, shall mean the Consumer Price Index for All Urban Consumers (CPI-U) for the U.S. City Average for All Items (1982-1984=100) published by the Bureau of Labor Statistics, United States Department of Labor; provided, however, that if such index ceases to be published or is converted to a different standard or is otherwise revised, the index shall be adjusted by any then applicable conversion factor, or failing that, by any published price or cost indices or other published data which are as comparable as possible to the Index prior to its termination or revision.
“Cure Payment” shall have the meaning set forth in Section 2.02.A.
“Deductions” shall have the meaning ascribed to it in the definition of Operating Profit.
“Default” shall mean the occurrence of any event which, with the lapse of time, the giving of notice or both, would constitute an Event of Default.
“Effective Date” shall have the meaning ascribed to it in the Preamble.
“Environmental Laws” shall have the meaning ascribed to it in Section 10.08.
“Event of Default” shall have the meaning ascribed to it in Section 8.01.
“FF&E” shall mean furniture, furnishings, fixtures, soft goods, case goods, signage, audio-visual equipment, kitchen appliances, vehicles, carpeting and equipment, including front desk and back-of-the-house computer equipment, that meet Owner’s capitalization policy consistent with GAAP, but shall not include Fixed Asset Supplies or Software.
“FF&E Lease” means a lease of any property other than real property.
“Fiscal Year” shall mean a calendar year commencing on January 1 and ending on December 31; provided, however, the first fiscal year commences as of the Effective Date and ends at midnight on December 31 of that same calendar year. A partial Fiscal Year between the end of the last full Fiscal Year and the Termination of this Agreement shall also constitute a separate Fiscal Year. If Fiscal Year is changed in the future, appropriate adjustment to this Agreement’s reporting and accounting procedures shall be made; provided, however, that no such change or adjustment shall alter the term of this Agreement or in any way reduce the distributions of Operating Profit or other payments due hereunder.
“Fixed Asset Supplies” shall mean items included within “Property and Equipment” under the Uniform System of Accounts including, but not limited to, linen, china, glassware, tableware, uniforms, and similar items, whether used in connection with public space or Guest Rooms.
“Foreclosure” shall mean any exercise of the remedies available to a Mortgagee, upon a default under the Mortgage held by such Mortgagee, which results in a transfer of title to or possession of the Hotel. The term “foreclosure” shall include, without limitation, any one or more of the following events, if they occur in connection with a default under a Mortgage: (i) a
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transfer by judicial or non-judicial foreclosure; (ii) a transfer by deed in lieu of foreclosure; (iii) the appointment by a court of a receiver to assume possession of the Hotel; (iv) a transfer of either ownership or control of the Owner, by exercise of a stock pledge or otherwise; (vi) if title to the Hotel is held by a tenant under a ground lease, an assignment of the tenant’s interest in such ground lease or (vi) any similar judicial or non-judicial exercise of the remedies held by the Mortgagee resulting in actual ownership or control of the Hotel by such Mortgagee or its designee.
“Franchise Agreement” shall mean the franchise agreement described onSchedule 1 attached hereto and made a part hereof, as the same may be amended or supplemented from time to time.
“Gross Revenues” shall mean all revenues and receipts of every kind derived from operating the Hotel and all departments and parts thereof, including, but not limited to: income (from both cash and credit transactions) from rental of Guest Rooms, telephone charges, stores, offices, exhibit or sales space of every kind; license, lease and concession fees and rentals (not including gross receipts of licensees, lessees and concessionaires); income from vending machines; income from parking; health club membership fees; food and beverage sales; wholesale and retail sales of merchandise; and service charges; provided, however, that Gross Revenues shall not include the following: gratuities to employees of the Hotel; federal, state or municipal excise, sales or use taxes or any other taxes collected directly from patrons or guests or included as part of the sales price of any goods or services; proceeds from the sale of FF&E; interest received or accrued with respect to the funds in the Reserve or the other operating accounts of the Hotel; any refunds, rebates, discounts and credits of a similar nature, given, paid or returned in the course of obtaining Gross Revenues or components thereof; insurance proceeds; condemnation proceeds (other than for a temporary taking); or any proceeds from any Sale of the Hotel or from the financing or refinancing of any debt encumbering the Hotel.
“Guest Room” shall mean a separately-keyed lodging unit in the Hotel.
“Guest Room Revenues” shall mean the portion of Gross Revenues of the Hotel which is attributed to the rental of Guest Rooms.
“Hazardous Materials” shall have the meaning ascribed to it in Section 10.08.
“Hotel” shall mean the Site together with the Buildings and all other improvements construed or to be constructed on the Site pursuant to this Agreement, all FF&E and Fixed Asset Supplies installed or located on the Site or in the Buildings, and all easements or other appurtenant rights thereto.
“Hotel Lease” shall have the meaning ascribed to it in Recital B.
“Hotel Purchase Contract” shall have the meaning ascribed to it inSchedule 1.
“Impact Fees” shall have the meaning ascribed to it in Section 4.07.A.
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“Impositions” shall have the meaning ascribed to it in Section 4.07.
“Incentive Management Fee” shall mean an amount payable to Manager, pursuant to Section 3.01 and Section 4.01, that is set forth in Schedule 1 of Available Cash Flow in any Fiscal Year (or portion thereof) after payment to Owner of Owner’s Priority.
“Initial Term” shall have the meaning ascribed to it in Section 2.01.
“Inventories” shall mean “Inventories” as defined in the Uniform System of Accounts, such as, but not limited to, provisions in storerooms, refrigerators, pantries and kitchens; beverages in wine cellars and bars; other merchandise intended for sale; fuel; mechanical supplies; stationery; and other expensed supplies and similar items.
“Landlord” shall mean the party identified as “Landlord” in Schedule 1.
“Legal Requirement(s)” shall mean any federal, state or local law, code, rule, ordinance, regulation or order of any governmental authority or agency having jurisdiction over the business or operation of the Hotel or the matters which are the subject of this Agreement, including, without limitation, the following: (i) any building, zoning or use laws, ordinances, regulations or orders; and (ii) Environmental Laws.
“Litigation” shall mean: (i) any cause of action (including, without limitation, bankruptcy or other debtor/creditor proceedings) commenced in a federal, state or local court; or (ii) any claim brought before an administrative agency or body (for example, without limitation, employment discrimination claims).
“Manager” shall have the meaning ascribed to it in the Preamble hereto or shall mean any permitted successor or assign, as applicable.
“Manager’s Liability” and “Manager’s Liabilities” shall have the meanings ascribed to such terms in Section 4.03.B.
“Mortgage” shall mean any mortgage, deed of trust or similar security instrument creating a lien on the Hotel.
“Mortgagee” shall mean the holder of any Mortgage encumbering the Hotel or the Site.
“Operating Accounts” shall have the meaning ascribed to it in Section 4.03.A.
“Operating Loss” shall mean a negative Operating Profit.
“Operating Profit” shall mean the excess of Gross Revenues over the following deductions (“Deductions”) incurred by Manager, on behalf of Owner, in operating the Hotel:
1. the cost of sales, including, without limitation, compensation, fringe benefits, payroll taxes and other costs related to Hotel employees, provided that the foregoing costs shall
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not include salaries and other employee costs of executive personnel of Manager who do not work at the Hotel on a regular basis, which salaries and costs shall be Manager’s Liability;
2. departmental expenses incurred at departments within the Hotel; administrative and general expenses; the cost of marketing incurred by the Hotel; advertising and business promotion incurred by the Hotel; heat, light, and power; computer line charges; and routine repairs, maintenance and minor alterations treated as Deductions under Section 5.01;
3. the cost of Inventories and Fixed Asset Supplies consumed in the operation of the Hotel;
4. a reasonable reserve for uncollectible accounts receivable as reasonably determined by Manager with the concurrence of Owner;
5. all costs and fees of independent professionals or other third parties who are retained by Manager with the concurrence of Owner to perform services required or permitted hereunder;
6. all costs and fees of technical consultants and operational experts who are retained or employed by Manager with the concurrence of Owner for specialized services (including, without limitation, quality assurance inspectors) and the reasonable cost of attendance by employees of the Hotel at training and manpower development programs sponsored by Manager, provided Owner has approved attendance at programs and the cost thereof;
7. the Base Management Fee;
8. all royalty, marketing fund, reservation, communication support, property management system and other similar fees payable to the Franchisor under the Franchise Agreement;
9. insurance costs and expenses as provided in Section 6.04;
10. taxes, if any, payable by or assessed against Manager, Owner or Landlord related to this Agreement or to Manager’s operation of the Hotel and Impositions (exclusive of Manager’s, Owner’s and Landlord’s income taxes or franchise taxes and any other similar taxes payable by Manager and all other taxes, assessments and payments excluded from the definition of Impositions);
11. transfers to the Reserve required pursuant to Section 5.02;
12. any costs paid by Manager pursuant to the Franchise Agreement;
13. payments pursuant to FF&E leases or other forms of financing obtained for the FF&E located in or connected with the Hotel; and
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14. to the extent approved in advance by Owner, such other costs and expenses incurred by Manager as are specifically provided for elsewhere in this Agreement or are otherwise reasonably necessary for the proper and efficient operation of the Hotel, including without limitation, travel expenses or supervisory personnel of Manager incurred in connection with managing the Hotel.
The term “Deductions” shall not include (a) debt service payments pursuant to a Mortgage or (b) rental payments under any Hotel Lease, all of which shall be paid by Owner from its own funds.
“Owner” shall have the meaning ascribed to it in the Preamble or shall mean any successor or assign, as applicable.
“Owner’s Priority” shall mean the amount shown as Owner’s Priority onSchedule 1 attached hereto and made a part hereof, per Fiscal Year (prorated for any partial Fiscal Year) plus any accrued but unpaid Owner’s Priority for any prior Fiscal Year. Owner’s Priority for each Fiscal Year shall be paid to the extent of Operating Profit available in such Fiscal Year, as provided in Section 3.02 of this Agreement. In the event of any capital expenditures made with respect to the Hotel after the date of this Agreement that are in excess of the Reserve, the Owner’s Priority shall be increased (but not decreased) for the remaining portion of the Fiscal Year in which such capital expenditures are made and all subsequent Fiscal Years so as to equal a twelve percent (12%) return on an amount equal to the sum of (i) the purchase price paid by Owner for the Hotel plus (ii) such excess capital expenditures.
“Performance Termination Period” shall have the meaning ascribed to it in Schedule 1.
“Performance Termination Threshhold” shall have the meaning ascribed thereto in Schedule 1.
“Person” means an individual (and the heirs, executors, administrators, or other legal representatives of an individual), a partnership, a corporation, limited liability company, a government or any department or agency thereof, a trustee, a trust and any unincorporated organization.
“Prime Rate” shall mean the “prime rate” of interest announced from time to time in the “Money Rates” section ofThe Wall Street Journal.
“Prudent Industry Practice” shall mean the customary practices of the hotel industry in the United States for hotels comparable to the Hotel. To the extent inconsistent with the requirements of the Franchise Agreement, such practices shall be conformed to the requirements of the Franchise Agreement for purposes of this Agreement.
“Quarterly Operating Statement” shall have the meaning set forth in Section 4.0l.B.
“Reserve” shall have the meaning ascribed to it in Section 5.02A.
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“Revenue Data Publication” shall mean Smith’s STAR Report, a monthly publication distributed by Smith Travel Research, Inc. of Gallatin, Tennessee, or an alternative source, reasonably satisfactory to both parties, of data regarding the Revenue Per Available Room of hotels in the general trade area of the Hotel. If such Smith’s STAR Report is discontinued in the future, or ceases (in the reasonable opinion of either Owner or Manager) to be a satisfactory source of data regarding the Revenue Per Available Room of various hotels in the general trade area of the Hotel, Owner and Manager shall select an alternative source for such data. If the parties fail to agree on such alternative source within a reasonable period of time, either party may terminate this Agreement upon sixty (60) days prior written notice to the other party.
“Revenue Index” shall mean that fraction that is equal to (a) the Revenue Per Available Room for the Hotel divided by (b) the average Revenue Per Available Room for the hotels in the Competitive Set, as set forth in the Revenue Data Publication. Appropriate adjustments to the Revenue Index acceptable to Owner shall be made in the event of a major renovation of the Hotel.
“Revenue Index Threshold” shall mean the number shown onSchedule 1 attached hereto and made a part hereof. However, if the entry of a new hotel into the Competitive Set (or the removal of a hotel from the Competitive Set) causes significant variations in the Revenue Index that do not reflect the Hotel’s true position in the relevant market, appropriate adjustments shall be made to the Revenue Index Threshold by mutual consent of Owner and Manager each acting in good faith.
“Revenue Per Available Room” shall mean (i) the term “revenue per available room” as defined by the Revenue Data Publication, or (ii) if the Revenue Data Publication is no longer being used (as more particularly set forth in the definition of “Revenue Data Publication”), the aggregate gross room revenues of the hotel in question for a given period of time divided by the total room nights for such period. If clause (ii) of the preceding sentence is being used, a “room” shall be an available hotel guestroom that is keyed as a single unit.
“Routine Capital Expenditures” shall mean certain routine, non-major expenditures which are classified as “capital expenditures” under generally-accepted accounting principles, and which will be funded from the Reserve (pursuant to Section 5.02). Routine Capital Expenditures consist of the following types of expenditures: exterior and interior painting; resurfacing building walls and floors; resurfacing parking areas; and miscellaneous similar expenditures. Routine Capital Expenditures are not non-routine capital expenditures or major repairs or major alterations or improvements.
“Sale of the Hotel” shall mean any sale, assignment, transfer or other disposition, for value or otherwise, voluntary or involuntary, of the Site and/or the Hotel or any interest therein, in whole or part. For purposes of this Agreement, a Sale of the Hotel shall also include a lease (or sublease) of all or substantially all of the Hotel or Site or any interest therein.
“SEC Filing Period” shall mean such period of time (a) (not to exceed thirty (30) days) after the close of each Fiscal Year within which Owner must receive the Annual Operating Statement from Manager with respect to such Fiscal Year and (b) (not to exceed twenty (20)
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days) after the close of each calendar quarter of a Fiscal Year within which Owner must receive the Quarterly Operating Statement from Manager with respect to such quarter, in each case in order for Owner to have a reasonable period of time within which to prepare and make all required filings with the Securities and Exchange Commission and other applicable governmental agencies.
“Site” shall mean the real property described onExhibit A attached hereto and made a part hereof.
“Software” shall mean all computer software and accompanying documentation (including all future upgrades, enhancements, additions, substitutions and modifications thereof), other than computer software which is generally commercially available, which are used by Manager in connection with operating or otherwise providing services to the Hotel.
“Specially Designated National or Blocked Person” shall mean (i) a person designated by the U.S. Department of Treasury’s Office of Foreign Assets Control from time to time as a “specially designated national or blocked person” or similar status, (ii) a person described in Section 1 of U.S. Executive Order 13224 issued on September 23, 2001, or (iii) a person otherwise identified by government or legal authority as a person with whom Manager or its Affiliates are prohibited from transacting business. Currently, a listing of such designations and the text of the Executive Order are published under the internet website addresswww.ustreas.gov/offices/enforcement/ofac.
“Subordination Agreement” shall have the meaning ascribed to it in Section 7.03.
“Subsequent Owners” shall have the meaning ascribed to it in Section 7.03.
“System” shall have the meaning set forth in the Franchise Agreement.
“System Standards” shall mean any one or more (as the context requires) of the following three (3) categories of standards: (i) operational standards (for example, services offered to guests, quality of food and beverages, cleanliness, staffing and employee compensation and benefits, frequent traveler programs and other similar programs; (ii) physical standards (for example, quality of the hotel, FF&E, and Fixed Asset Supplies, frequency of FF&E replacements, etc.); and (iii) technology standards (for example, those relating to software, hardware, telecommunications, systems security and information technology); each of such standards shall be the standard which is generally prevailing or in the process of being implemented at other hotels in the System represented by the Franchise Agreement.
“Term” shall have the meaning ascribed to it in Section 2.01.
“Termination” shall mean the expiration or sooner cessation of this Agreement.
“Trade Name” shall mean any name, whether informal (such as a fictitious name or d/b/a) or formal (such as the full legal name of a corporation or partnership) which is used to identify an entity.
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“Uniform System of Accounts” shall mean the Uniform System of Accounts for the Lodging Industry, Ninth Revised Edition, 1996, as published by the Educational Institute of the American Hotel & Motel Association, as revised.
“WARN Act” shall mean the Worker Adjustment and Retraining Notification Act, 29 U.S.C. 2101etseq.
“Working Capital” shall mean funds that are necessary for the day-to-day operation of the business of the Hotel, including, without limitation, amounts sufficient for the maintenance of change and petty cash funds, amounts deposited in operating bank accounts, receivables, amounts deposited in payroll accounts, prepaid expenses and funds required to maintain Inventories, less accounts payable and accrued current liabilities.
ARTICLE XII
SUPPLEMENTAL PROVISIONS
All of the terms, conditions, representations, warranties, covenants and other provisions, if any, set forth in the supplemental provisions attached hereto asSchedule 2 (the ‘‘Supplemental Provisions’’) are hereby incorporated into this Agreement and shall be considered a part hereof. In the event of any conflict or inconsistency between the Supplemental Provisions and the other provisions of this Agreement, the Supplemental Provisions shall control.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal as of the day and year first written above.
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| OWNER: | |
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| APPLE TEN HOSPITALITY MANAGEMENT, INC., a |
| Virginia corporation | |
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| By: | /s/ Justin G. Knight | |
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| MANAGER: | |
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| MHH MANGEMENT, LLC | |
| a Georgia limited liability company | |
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| By: | McKibbon Hotel Group, Inc., its Manager |
Exhibit B – p. 1
SCHEDULE 1
HOTEL SPECIFIC DATA
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1. Description of Hotel: That certain hotel known as the Hampton Inn and Suites-Winston-Salem/University Area, located at 309 Summit Square Ct, Winston-Salem, North Carolina, 27105, containing 94 guest rooms, a lobby, meeting rooms, administrative offices, parking and certain amenities and related facilities located on the Site, including the following: |
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| a. Number of Guest Rooms: 94 |
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| b. Other Improvements/Amenities: 1,064 sq. ft. meeting room space; full service business center; indoor saltwater swimming pool; whirlpool; exercise room; wireless high speed internet access |
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2. | Franchise Agreement: Franchise Agreement between Apple Ten Hospitality Management, Inc. and Hampton Inns Franchise LLC, dated March 15, 2011. |
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3. | Competitive Set: |
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| Clarion Collection Hotel Sundance Plaza |
| Residence Inn Winston Salem |
| Courtyard Winston Salem University |
| Holiday Inn Winston Salem University Parkway |
| Hampton Inn Winston Salem I40 Hanes Mall |
| Comfort Inn Winston Salem |
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4. | Landlord: Apple Ten North Carolina, L.P. |
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5. | Base Management Fee: Three percent (3%) |
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6. | a.Incentive Management Fee: 20% of available cash flow after payment of Owner’s Priority |
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| b. Owner’s Priority: $1,320,000 (12% of purchase price) |
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7. | Performance Termination Period: Any 12 consecutive Accounting Periods. |
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8. | Revenue Index Threshold: 1.00 |
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9. | Hotel Purchase Contract: N/A |
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10. | Expiration Date of Term: 5 years from the Effective Date [March 14, 2016] |
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11. State in which Manager is Organized: Georgia
12. FF&E Reserve: An amount equal to five percent (5%) of Gross Revenues for each Accounting Period.
13. Reserved.
14. Termination Fee: Equals the average monthly amount of the Base Management Fee and Incentive Management Fee during the immediately preceding twelve (12) month period (“Monthly Fee Average”), multiplied by the lesser of (i) three (3) and (ii) the total number of months remaining under the Term. If, at the time of such termination, less than twelve (12) months have passed under the Agreement, the Monthly Fee Average shall be equal to the monthly average of the Base Management Fee and Incentive Management Fee during such period and shall be multiplied by (i) the total number of months remaining during the first year under the Agreement plus (ii) three (3).
15. Initial Working Capital: $25,000
16. Capital Project Fee: McKibbon will also serve as purchasing agent in connection with renovation of properties when renovation is required by franchisor or otherwise advisable in discretion of the Owner, including contract negotiation with vendors and oversight of installation of purchases, if McKibbon and Owner mutually agree to the terms and conditions of such engagement.
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SCHEDULE 2
1.Franchise Agreement. [FOR MARRIOTT BRANDS:] During the Term of this Agreement, subject to the availability of adequate funds, Manager shall perform all of the obligations of Owner as “Franchisee” under the Franchise Agreement to the extent such obligations relate to the management or operation of the Hotel, including, without limitation, the obligations of “Franchisee” under Sections XIII (Accounts and Receipts) and XIV (Insurance) of the Franchise Agreement, and Manager shall not commit any act or omit to take any action that would cause a default by the Franchisee under the Franchise Agreement. In the event of any inconsistency between the provisions of this Agreement and the provisions of the Franchise Agreement, the provisions of the Franchise Agreement shall prevail. Manager shall send promptly to Owner any and all notices that Manager receives from the Franchisor with respect to the Hotel or the Franchise Agreement and shall keep Owner fully informed with respect to all matters that come to Manager’s attention under the Franchise Agreement. Likewise, Owner shall send promptly to Manager any and all notices that Owner receives from the Franchisor with respect to the Hotel or the Franchise Agreement that would require action or compliance on the part of Manager. Notwithstanding the foregoing, Manager shall not have the right to grant any consent, approval or other right reserved to the Franchisee under the Franchise Agreement or to make any decision or agreement on behalf of Owner under the Franchise Agreement. In the event the Franchise Agreement is terminated for any reason, this Agreement shall also terminate effective as of the date of termination of the Franchise Agreement, unless the parties hereto agree otherwise.
[FOR HILTON BRANDS:] During the Term of this Agreement, subject to the availability of adequate funds, Manager shall perform all of the obligations of Owner as “Licensee” under the Franchise Agreement to the extent such obligations relate to the management or operation of the Hotel, including, without limitation, the obligations of “Licensee” under Paragraphs 6, 7 and 8 of the Franchise Agreement, and Manager shall not commit any act or omit to take any action that would cause a default by the Licensee under the Franchise Agreement. In the event of any inconsistency between the provisions of this Agreement and the provisions of the Franchise Agreement, the provisions of the Franchise Agreement shall prevail. Manager shall send promptly to Owner any and all notices that Manager receives from the Franchisor with respect to the Hotel or the Franchise Agreement and shall keep Owner fully informed with respect to all matters that come to Manager’s attention under the Franchise Agreement. Notwithstanding the foregoing, Manager shall not have the right to grant any consent, approval or other right reserved to the Licensee under the Franchise Agreement or to make any decision or agreement on behalf of Owner under the Franchise Agreement. In the event the Franchise Agreement is terminated for any reason, this Agreement shall also terminate effective as of the date of termination of the Franchise Agreement, unless the parties hereto agree otherwise.
2.Accounting Period. For purposes of this Agreement, the term “Accounting Periods” shall mean a calendar month, except that the first Accounting Period shall begin on the Effective Date and shall end on the last day of the calendar month in which the Effective Date occurs.
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3.Fiscal Year. [FOR MARRIOTT BRANDS:] For purposes of this Agreement, the term “Fiscal Year” shall mean the fiscal year as of the Effective Date that ends at midnight on the Friday closest to December 31 in each calendar year; the new Fiscal Year begins on the Saturday immediately following said Friday. Any partial Fiscal Year between the Effective Date and the commencement of the first full Fiscal Year shall constitute a separate Fiscal Year and shall be deemed the first Fiscal Year. A partial Fiscal Year between the end of the last full Fiscal Year and the Termination of this Agreement shall also constitute a separate Fiscal Year.
[FOR HILTON BRANDS:] For purposes of this Agreement, the term “Fiscal Year” shall mean, initially, the period beginning as of the Effective Date and ending at midnight on the following December 31 and thereafter each calendar year during the Term. Any partial Fiscal Year between the Effective Date and the commencement of the first full Fiscal Year shall constitute a separate Fiscal Year and shall be deemed the first Fiscal Year. A partial Fiscal Year between the end of the last full Fiscal Year and the Termination of this Agreement shall also constitute a separate Fiscal Year.
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EXHIBIT A
Legal Description
the Grantee in fee simple, all that certain lot or parcel of land situated in the City of Winston-Salem, Winston Township, Forsyth County, North Carolina and more particularly described as follows:
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| BEING KNOWN AND DESIGNATED as Lot 1, as shown on the plat of HANES MILL POINTE, as recorded in Plat Book 53, Page 61, in the Office of the Register of Deeds of Forsyth County, North Carolina, reference to which is hereby made for a more particular description. |
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EXHIBIT B
Service Contracts
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• | Elevator Contract (Otis Elevator) |
• | Telephone Contract (Windstream) |
• | Cable (Time Warner Cable |
• | Music On Hold Service Contract (DMX) |
• | Alarm Monitoring Contract (Piedmont Protective Services) |
• | Landscaping Contract (Premier Landscaping) |
• | Dumpster Rental Contract (Republic Services) |
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