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EXHIBIT 2(q)
MANAGEMENT AGREEMENT
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ARTICLE NO. DESCRIPTION OF ARTICLE PAGE NO.
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1. Appointment and Term 1
2. Hotel Operation 2
3. Annual Plan 3
4. Hotel Accounts; Maintenance of Minimum Balance 5
5. Books and Records 5
6. Management Fees and Expenses 7
7. Disbursements 9
8. Insurance 10
9. Indemnities 12
10. Condemnation 13
11. Casualty 13
12. Termination for Cause 13
13. Termination Fee 14
14. Definitions 14
15. General Provisions 19
SCHEDULE DESCRIPTION OF SCHEDULE
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I Terms of Agreement
II Management Services Included in Base Management Fee
III Sample Statement of Profit and Loss
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (this "Agreement") is made on the date specified
on Schedule I, by and between Owner identified on Schedule I and PRIME
HOSPITALITY CORP., having offices at 700 Route 46 East, Fairfield, New Jersey
07004 (hereinafter referred to as "Manager").
PREAMBLE
Owner is the owner of the Hotel described on Schedule I. Owner and Manager
have entered into this Management Agreement to provide for the management and
operation of the Hotel. Definitions for the capitalized words contained
throughout the Management Agreement are found in Article 14.
1. APPOINTMENT AND TERM.
1.01 APPOINTMENT. Owner hereby appoints Manager as manager of the
Hotel with the exclusive right to direct, supervise, manage and operate the
Hotel, subject to Owner's obligations under New Jersey law as holder of a
plenary retail consumption license with respect to the sale and consumption of
alcoholic beverages (the "Alcohol Beverage License"). Owner acknowledges its
obligations as holder of the Alcoholic Beverage License pursuant to the rules
and regulations of the New Jersey Division of Alcoholic Beverage Commission.
Owner will not employ any other manager to manage the Hotel during the periods
Manager is to manage the Hotel pursuant to the terms of this Agreement.
1.02 OPERATING TERM. The initial operating term of this Agreement
will commence at 12:01 A.M. on the date identified on Schedule I (the
"Commencement Date") and terminate at 11:59 on the expiration date identified on
Schedule I (the "Expiration Date").
1.03 MANAGEMENT PROCEDURES. Manager will consult with Members of
Owner on a periodic and regular basis with respect to the management of the
Hotel. Manager on behalf of Owner may take all actions it deems appropriate for
the operation of the Hotel. For purposes of communications between Manager and
Owner, Owner's authorized representatives will be those individuals identified
in writing by Owner.
1.04 DEALINGS WITH AFFILIATES. Manager may purchase products or
services from affiliates of Manager provided that all such transactions and
dealings shall be arms length and on commercially reasonable terms.
2. HOTEL OPERATIONS.
2.01 HOTEL MANAGEMENT SERVICES.
A. Manager will manage the Hotel in accordance with standards
and policies appropriate for the operation of comparable facilities, including
the standards and policies of the franchisor, if any, and with respect to
operations subject to the Alcoholic Beverage License in accordance with the rule
and regulations of the New Jersey Division of Alcoholic Beverage Control.
Manager will perform the activities contained on Schedule II, but only to the
extent that sufficient funds are available to Manager to perform those
activities.
B. Manager's services do not include design and purchasing
services for new construction or renovations of the public areas or of three or
more guest rooms ("Major Construction"). At Owner's request, Manager will
provide design and purchasing services for Major Construction for a fee as set
forth on Schedule I.
2.02 EMPLOYEES.
A. Manager will select a general manager and the department
heads for the Hotel and all personnel which Manager determines to be necessary
for the operation of the Hotel (collectively "Employees"). All Employees will be
employed at Owner's cost and expense, but will be employees of Manager, provided
that the Owner shall have the right to direct the actions of and terminate, if
required, the employment of any Employee engaged directly or indirectly in the
operation of the Owner's alcohol beverage service to the fullest extent required
by the rules and regulations of the New Jersey Division of Alcoholic Beverage
Control..
B. Subject to Owner's obligations as holder of the Alcoholic
Beverage License, all decisions with regard to the terms of employment of
Employees not engaged wholly or in part in the service of alcoholic beverages ,
including but not limited to compensation, bonuses, fringe benefits, discharge
and replacement of all Employees, will be made and implemented directly by
Manager or through the general manager, department heads or any of their
designees under the supervision of Manager.
2
C. All decisions with regard to the terms of employment of
Employees engaged wholly or in part in the service of alcoholic beverages ,
including but not limited to compensation, bonuses, fringe benefits, discharge
and replacement of all Employees, will be made by Owner through the general
manager, department heads or any of their designees.
D. Manager will enroll the Employees in Manager's employee
benefits program (the "Benefits Program"). Manager will administer the Benefits
Program in the same manner that it administers the Benefits Program at other
hotels it operates. The Hotel will be charged as an Operating Expense the cost
of such Benefits Program under the same formula used to calculate the cost
charged to other hotels Manager operates.
E. Manager will assist Owner in responding to organizational
efforts by unions and in negotiating and implementing union agreements. With
respect to Manager's employees, Manager will control the terms of any union
contract and will not be required to take actions which will unreasonably
increase Manager's liabilities pursuant to the union contract. Upon termination
of this Agreement, Owner will assume Manager's obligations under the union
contact with respect to any employees hired by Owner at that time.
2.03 CAPITAL REPLACEMENTS.
A. An independent and segregated replacement reserve account
will be created in the name of Owner (the "Capital Replacement Reserve
Account.") The Capital Replacement Reserve Account will be funded by
transferring on the tenth (10th) of each month a sum equal to the percentage
identified on Schedule I of the Gross Revenue of the preceding month. All funds
will be held in an interest bearing account.
B. Proceeds (insurance or otherwise) received in reimbursement
for expenditures previously charged to the Capital Replacement Reserve Account
for Capital Replacements and all proceeds from the sale of any capital items
determined by Manager to no longer be needed or appropriate for the operation of
the Hotel or to be replaced, will be added to the Capital Replacement Reserve
Account.
C. Manager will administer the Capital Replacement Reserve
Account on behalf of Owner. The proceeds of the Capital Replacement Reserve
Account will be applied to Capital Replacements in accordance with the Annual
Plan or with Owner's approval.
3. ANNUAL PLAN.
3.01 PREPARATION AND SUBMISSION. Owner and Manager acknowledge that
the budgeting process is a critical factor to the successful operation of the
Hotel and also a key communication link between the parties. Following the
Commencement Date, Manager will submit to Owner, for its approval, an operating
budget for the initial Operating Year. For purposes of this Article 3, the
operating budget for the initial Operating Year will be deemed the annual plan
for that year. Thereafter, Manager will submit to Owner, for its approval, not
later than thirty (30) days before the beginning of each Operating Year the
proposed annual plan for the Hotel (the "Annual Plan") comprised of the
following:
(a) a statement of the estimated income and expenses for the
Operating Year, including assumptions as to payroll costs, room rates and
occupancies, which will reflect the estimated results of the operation during
each month of the Operating Year;
(b) either as part of the statement of the estimated income
and expenses referred to in the preceding clause (a), or separately, budgets
covering proposed expenditures for the coming Operating Year for (i) Capital
Replacements and (ii) Operating Equipment;
(c) a marketing plan.
Owner acknowledges that Manager's budgets and forecasts are
management tools to be used solely for internal management purposes and do not
represent performance standards or warranties of performance by Manager. In
preparing all budgets and forecasts and the estimated profit and loss statements
comprising the Annual Plan, Manager will base its estimates upon the most recent
and reliable information available taking into account the location of the Hotel
and Manager's experience in Hotel operations. Manager expressly disclaims any
warranty of or representations as to results of operations of the Hotel.
3.02 OWNER'S APPROVAL. Owner will review the Annual Plan within
fifteen (15) days after receiving the Plan. Within fifteen (15) days after Owner
completes its review, Owner and Manager will meet to discuss Owner's comments
and to review Manager's financial and operational analysis. If an agreement is
not reached by the first day of the Operating Year, the Annual Plan will be
based on actual results of the previous Operating Year.
3.03 COMPLIANCE WITH ANNUAL PLAN. Manager will use reasonable
efforts to comply with the Annual Plan and will not incur any material
additional expense or change materially the manner of operation of the Hotel
without the written approval of Owner.
3.04 AGREEMENT LIMITATION. Manager will not enter into any
commitment on behalf of Owner requiring payments of amounts in excess of the
amount set forth on Schedule I or requiring performance over a time period in
excess of the period set forth on Schedule I without the written approval of
Owner.
3.05 EMERGENCIES. The limitations of Sections 3.03 and 3.04 do not
apply to emergency repairs or emergency actions. For the purposes of this
Section 3.05, an emergency means an unforeseen circumstance that in the opinion
of Manager requires immediate action which cannot be delayed in order to
minimize injury to the Hotel or injury to any person or property.
4. HOTEL ACCOUNTS; MAINTENANCE OF MINIMUM BALANCE.
4.01 HOTEL BANK ACCOUNTS. All funds received in the operation of the
Hotel, including the proceeds from credit cards and direct-bill clients, will be
deposited into one or more special accounts bearing the name of the Hotel (the
"Hotel Accounts") or the Capital Replacement Reserve Account, as appropriate, in
the banks selected by Manager. Manager will control all Hotel accounts to ensure
the orderly receipt, disbursement, and accounting of funds. Manager will have no
liability for any loss to Owner as a result of any bank insolvency or failure or
as a result of any negligence or misconduct of the Bank or its employees. The
Owner's funds will not be co-mingled with funds of the Manager or funds of other
hotels managed by Manager, except that all of the Hotel's disbursements may be
made out of Manager's common corporate
disbursement account along with disbursements for other hotels. To the extent
practicable, all funds will be held in an interest bearing account.
4.02 MINIMUM BALANCE. Upon establishment of the Hotel Accounts and
at Manager's direction, Owner will deliver to Manager for deposit in the Hotel
Accounts the sum set forth on Schedule I (the "Minimum Balance") and will
advance additional funds from time to time at Manager's request to maintain the
Minimum Balance. Owner will at all times provide Manager with funds sufficient
to manage and operate the Hotel in accordance with the terms of this Agreement
and all such funding will be the sole responsibility of the Owner. Manager will
have no responsibility to make any payment if funds are not available or if in
Manager's discretion, such payment would result in an insufficient balance.
5. BOOKS AND RECORDS.
5.01 MAINTENANCE OF BOOKS AND RECORDS.. Manager will keep complete
and adequate books of account and such other records as are necessary to reflect
the results of the operation of the Hotel on a calendar year basis. Manager will
keep the books and records for the Hotel in all material respects in accordance
with the Uniform System of Accounts, on an accrual basis, in accordance with
generally accepted accounting principles consistently applied.
5.02 LOCATION; EXAMINATION AND INSPECTION. All personnel records
shall be the property of Manager and shall not be available to the Owner. All
software and the data with respect to the operation and accounts of the Hotel on
such software shall be the property of Manager and Owner shall not be entitled
to copies of such software, provided, Owner shall be entitled to receive printed
extracts of such data. Except as set forth above, the books of account and all
other records relating to or reflecting the operation of the Hotel will be the
property of Owner and will be kept at the Hotel or at Manager's home office. All
books and records will be available to Owner and its representatives upon
reasonable request for examination, inspection and transcription.
5.03 OWNER TO RECEIVE ALL BOOKS AND RECORDS UPON TERMINATION. Upon
any termination of this Agreement, all original books and records of all books
and records not kept at the Hotels, will be turned over to Owner forthwith so as
to ensure the
orderly continuance of the operation of the Hotel, provided, however, Manager
will at its expense be entitled to retain copies of all books and records
wherever located.
5.04 REPORTS TO OWNER.
A. Manager will deliver not later than the twentieth (20th)
day of the month, a detailed (i) profit and loss statement showing the results
of operation of the Hotel for the prior month and the year to date, with a
comparison to the budgets contained in the then current Annual Plan; (ii) market
segmentation report; and (iii) accounts receivable aging report as of the end of
the previous month.
B. Within ninety (90) days after the end of each Operating
Year, Manager will deliver a balance sheet and a profit and loss statement
certified by an officer of the Manager. Costs of a certified audit or any other
reports by an independent certified public accountant, if and when requested by
Owner, will be an Operating Expense borne by Owner and will be directed as to
scope and content by Manager.
C. At Owner's request, Manager will further deliver financial
reports required by third parties. All costs in producing these reports, will
constitute an Operating Expense to be borne by Owner.
5.05 FINAL ACCOUNTING. Upon termination of this Agreement, for any
reason, Manager will promptly deliver to Owner, but will be permitted to retain
a copy of, the following:
(a) a final accounting, reflecting the balance of income and
expenses of the Hotel as of the date of termination;
(b) any balance or moneys in the Hotel Accounts, or
elsewhere, held by Manager with respect to the Hotel
(after payment or reservation with respect to all
committed obligations); and
(c) all books and records of the Hotel (including those
stored on computerized software), and all contracts,
bookings, reservations, leases, receipts for deposits,
unpaid bills and other records, papers or documents
which pertain to the Hotel, and duplicate copies of
personnel records of
employees employed directly by Owner (provided Manager
will not be required to turn over computer software, but
will provide all printouts from the software related to
the Hotel).
5.06 FORM OF REPORTS. All reports will be in Manager's customary
detail and form for managed properties in accordance with the standard profit
and loss statement currently used by Manager.
6. MANAGEMENT FEES AND EXPENSES.
6.01 MANAGEMENT FEES. Owner will pay to Manager a base management
fee (the "Base Management Fee"), together with any sales and use taxes. The Base
Management Fee will be equal to the percentage of Gross Revenues set forth on
Schedule I with respect to each separate, full or partial month during the term
of this Agreement. The Base Management Fee will be payable no later than the
tenth (10th) day of the month immediately succeeding the month for which the
Base Management Fee is earned.
6.02 ACCOUNTING SERVICES FEE. Manager will charge an accounting
services fee as set forth on Schedule I.
6.03 REIMBURSEMENT OF COSTS AND EXPENSES. Manager shall not be
reimbursed for any portion of its overhead, provided that Owner will reimburse
Manager for all costs and expenses incurred by Manager for Owner's account in
the ordinary course of business under the terms and provisions of this Agreement
and will include, but not be limited to the following:
(a) the salaries and wages, including costs of payroll
taxes, bonuses, retirement plan contributions, fringe
benefits, and related payroll items incurred with
respect to Manager's employees assigned to the Hotel;
(b) Expenses for shared services and purchases (equitably
allocated to each hotel benefiting from the shared
services or purchases in a manner consistent with
Manager's allocation policy uniformly applied to all
managed hotels;)
(c) All taxes, including sales and use taxes and similar
assessments levied against all fees and reimbursements
payable by Owner to Manager or Manager's affiliates
under this Agreement.
6.04 REBATES AND DISCOUNTS. Because of its purchasing power derived
through its operations of its proprietary hotels, its management of hotels, and
its franchising of hotels, Manager may from time to time negotiate rebates and
discounts from the vendors of certain products and services comprising Manager's
vendor network. Manager will be entitled to retain such rebates and discounts.
Any discounts and rebates from local vendors not comprising Manager's vendor
network but serving the Hotel shall be credited to the Hotel.
6.05 SUBORDINATION OF THE BASE MANAGEMENT FEE. Manager agrees to
subordinate this Agreement to the First Mortgage, provided such subordination is
on commercially reasonable terms and provided further that the subordination
shall not cause the Manager to be responsible for the payment of or suffer any
loss with respect to any costs of the operation of the Hotel.
7. DISBURSEMENTS.
7.01 PRIORITY OF PAYMENTS. All Gross Revenues will be deposited in
the Hotel Accounts as and when received. Manager is authorized to and will
disburse on a current basis, on behalf of Owner, funds from the Hotel Accounts
(to the extent available) in the following order of priority:
(a) Payment of payroll and payroll taxes and other
employment costs identified in Section 6.03(a),
including any sales and use taxes imposed on such costs;
(b) Payment of all remaining sales and use taxes, including
sales and use taxes on fees and reimbursements to
Manager;
(c) Payment to Manager of all other amounts due under
Article 6 ;
(d) Payment of any Operating Expenses (i) payable to
Manager, or (ii) with respect to which Manager has
pledged its credit;
(e) Payment of all other Operating Expenses;
(f) Transfers pursuant to Section 2.03;
(g) Payment (as allocated by Owner to the extent of
available cash) of real estate and personal property
taxes, debt service on the First Mortgage, rents and
other sums due under the Ground Lease and Fixed Charges
(not otherwise provided for in this schedule of
priorities;
(h) Other Cash Flow Expenditures (not otherwise provided for
in this schedule of priorities);
(i) Payment of the balance to Owner.
Manager may reserve funds in the Hotel Accounts each month (i) for
any of the above items that are not paid on a monthly basis for a period of up
to twelve (12) months in advance and (ii) for cash deficiencies anticipated to
occur at the Hotel during the ninety (90) day period following any monthly
disbursement date.
7.02 REMITTANCES TO OWNER. Concurrently with delivery of the monthly
statements required pursuant to Section 5.04A., Manager, upon Owner's request,
will remit to Owner all sums in the Hotel Accounts (except the Capital
Replacement Reserve Account) in excess of the Minimum Balance plus reserve
funds.
8. INSURANCE.
8.01 MAINTENANCE OF INSURANCE. Owner will maintain at Owner's cost
and expense all risk property insurance and boiler and machinery valued at
replacement cost and endorsed for business interruption coverage inclusive of
ordinary payroll for a period of 12 months. The Owner will use any claim related
insurance recovery to respectively repair/replace any damaged Hotel property or
as contribution to Gross Revenue.
Manager will maintain with respect to Manager's operations at
Owner's cost and expense:
(a) commercial general liability, including but not limited to
products, contractual, personal/advertising injury and liquor liability with a
limit of $10,000,000;
(b) comprehensive auto liability including non-owned and rental
vehicles with a limit of $5,000,000;
(c) workers' compensation & employers' liability with a limit of
$100,000; and
(d) fidelity (crime) with limit sufficient to cover operational
exposures.
8.02 OWNER METHODS OF OBTAINING INSURANCE. At its option, Owner may
procure and obtain the property insurance by (i) undertaking of the insurance
directly in its own name and behalf or (ii) agreeing to coverage under Manager's
blanket policy in accordance with Manager's proposal at a price proposed by the
Manager. Manager's price shall not include any profit markup.
8.03 PARTIES INSURED, AMOUNT OF COVERAGE, ETC. All insurance
policies in article 8.01 will be endorsed to provide:
(a) property insurance - Manager as named insured as
respects their interests in the business interruption
portion of coverage with claim settlement rights and
insurer's waiver of subrogation against Manager;
(b) property insurance - policy will have coverage for
demolition and increased cost of construction off
premises utility interruption , debris removal, and
flood and earthquake. Deductibles will be reasonably
agreed to from time to time by Owner and Manager. Hotel
will absorb insurance policy deductible for each loss.
The deductible will be allocated between property damage
and business interruption in proportion to the total
loss;
(c) a requirement that all insurers will provide at least
thirty (30) days notice of cancellation or material
change in the terms and provisions of the policies.
(d) general and automobile liability insurance - Owner as
additional insured as regards the Manager's liability
arising from the management of the Hotel;
(e) coverage and deductibles as will be reasonably agreed to
from time to time by Manager and Owner;
(f) a requirement that all insurers will provide at least
thirty (30) days notice of cancellation or material
change in the terms and provisions of the policies; and
(g) all carriers should have a minimum rating of "A 8."
8.04 EVIDENCE OF INSURANCE. At least thirty (30) days prior to the
expiration date of all insurance policies, the party maintaining the insurance
will provide the other party evidence of insurance in the form of certificates
of insurance evidencing renewal and coverage for the above endorsements.
8.05 LIMITATION ON SCOPE OF SERVICES. Manager is not advising the
Owner as to insurance coverage and Owner will seek independent advice. Manager
is not responsible for the solvency of any insurance carrier. Owner acknowledges
that Manager's insurance set forth in Section 8.01 insures Owner with respect to
Manager's negligence in connection with the operation of the Hotel and not with
respect to Owner's negligence. Owner may wish to consider separate coverage for
Owner's negligence.
9. INDEMNITIES.
9.01 INDEMNIFICATION TO MANAGER. To the fullest extent permitted by
law, the Owner will defend, indemnify and hold Manager harmless from and against
all actions, suits, penalties, claims, damages, losses and expenses, including
but not limited to attorney's fees, arising out of or resulting from Manager's
performance of this Agreement provided that any such claim, damage, loss or
expense is not attributable to Manager's breach of this Agreement, gross
negligence, willful misconduct, failure to act in good faith or action beyond
the authority granted to the Manager by this Agreement.
9.02 INDEMNIFICATION TO OWNER. To the fullest extent permitted by
law, the Manager will defend, indemnify and hold Owner harmless from and against
all actions, suits, penalties, claims, damages, losses and expenses, including
but not limited to attorney's fees, arising out of or resulting from Manager's
breach of this Agreement,
gross negligence, willful misconduct, failure to act in good faith or action
beyond the authority granted to the Manager by this Agreement. Notwithstanding
the above, Manager shall not be responsible for any liabilities, costs and
expenses resulting from (i) isolated acts of Hotel employees unless those acts
are directly attributable to Manager's substantial deviation from Manager's
standard operating procedures, and (ii) errors in judgment made in good faith
unless such errors are repeated after notice and result in liabilities not
normally incurred in the ordinary course of a hotel business.
9.03 INDEMNIFIED PARTIES. The parties indemnified contained in this
Article 9 will run to the benefit of both Manager and Owner, and the directors,
officers, subsidiaries, assigns, agents and employees of Manager and Owner and
affiliates.
9.04 CERTAIN CLAIMS TO BE OPERATING EXPENSES. All costs and expenses
including attorney's fees arising out of (i) claims of negligence against Hotel
Employees or (ii) any proceeding before any state or federal employment
commission, wages and hours commission, and union grievance committee, or any
similar proceeding will be deemed an Operating Expense.
10. CONDEMNATION.
10.01 FULL TAKING. If (i) the entire hotel is condemned, or (ii)
only a portion is condemned but it is unreasonable to or Owner elects not to
continue operating the remainder of the Hotel, this Agreement will terminate on
the date when the ownership of the Hotel or condemned portion is transferred to
the condemning authority. For purposes of this Article 10, a "condemnation" is
any exercise of the power of eminent domain by any governmental authority,
including a voluntary conveyance in lieu of judicial proceedings.
10.02 PARTIAL TAKING. Upon any condemnation not covered by Section
10.01, unless Owner elects to terminate this Agreement as a result of its
election not to restore the building and continue the operation of a hotel,
Owner will promptly repair the Hotel and restore it to operating condition.
11. CASUALTY.
11.01 DAMAGE BY FIRE AND OTHER CAUSES. If all or any part of the
Hotel is damaged or destroyed by fire or other casualty, unless Owner elects to
terminate this Agreement as a result of its election not to restore the building
and continue the
operation of a hotel, Owner promptly will repair the Hotel and restore it to
operating condition.
12. TERMINATION FOR CAUSE.
12.01 TERMINATION BY MANAGER. Manager may terminate this Agreement
upon the occurrence of any of the following:
(a) Owner defaults in its performance of any obligation of
the Agreement and (i) fails to cure the default within
thirty (30) days after written notice or (ii) if the
default is susceptible to cure but cannot be cured in
thirty (30) days, then fails to commence within thirty
(30) days and to diligently pursue the cure.
(b) Manager notifies Owner that it has insufficient funds to
repair or correct any condition at the Hotel which is in
violation of any Legal Requirement or insurance
requirement or presents a threat to life safety and
Owner fails to provide sufficient funds to repair or
correct the condition within seven days of the notice.
12.02 TERMINATION BY OWNER. Owner may terminate this Agreement if
Manager defaults in its performance of any term of the Agreement and (i) fails
to cure the default within thirty (30) days after written notice, or (ii) if the
default is susceptible to cure but cannot be cured in thirty (30) days, then
fails to commence within such thirty (30) days and to diligently pursue the
cure. In addition, Owner may terminate this Agreement if the Members of the
Owner are deadlocked and the interest of Prime-Meadowlands, L.L.C. in the Owner
is purchased pursuant to Article XIV of the Operating Agreement between
Prime-Meadowlands, L.L.C. and AFP Eighteen Corp. dated December 19, 2002.
12.03 REMEDIES RESERVED. Termination of this Agreement will not
constitute the exclusive remedy of either Manager or Owner. Both Manager and
Owner will retain all other remedies provided for in this Agreement and by law.
13. TERMINATION FEE.
13.01 TERMINATION FEE. Owner may terminate this Agreement at any
time by giving Manager sufficient notice to comply with all applicable laws,
including laws governing notification to employees (but not less than thirty
(30) days notice in any event) including with its notice payment of the
termination fee (the "Termination Fee") set forth on Schedule I, together with
the balance due of any and all amounts due Manager, including the Base Fee
earned through the date of termination. Notwithstanding anything herein to the
contrary, (i) a termination under Sections 10.01, 10.02 (provided that Owner
elects not to restore the building and continue the operation of a hotel), and
11.01 (provided that Owner elects not to restore the building and continue the
operation of a hotel), (ii) or a termination in connection with a sale of the
Hotel in an arms length transaction, (iii) or a termination as a result of a
default by Manager under Section 12.02, (iv) or a termination pursuant to the
second sentence of Section 12.02 shall be without the payment of a Termination
Fee.
13.02 ADDITIONAL CONSIDERATION. Owner acknowledges that Manager will
suffer damage and be entitled to compensation if as a result of Owner's breach
of this Agreement, this Agreement terminates or Manager is otherwise unable to
continue managing the Hotel. Accordingly, Owner, as additional consideration,
agrees to pay to Manager at the termination of this Agreement upon Owner's
breach the amounts set forth in Section 13.01, together with amounts sufficient
to indemnify Manager against liability arising under any law governing
notification to employees.
14. DEFINITIONS.
14.01 "ACCOUNTING SERVICES FEE" has the meaning contained in Section
6.02.
14.02 "ANNUAL PLAN" has the meaning contained in Section 3.01.
14.03 "BASE MANAGEMENT FEE" has the meaning contained in Section
6.01.
14.04 "BASE YEAR" means the twelve full calendar months preceding
the Commencement Date.
14.05 "CAPITAL REPLACEMENT RESERVE ACCOUNT" has the meaning
contained in Section 2.03A.
14.06 "CAPITAL REPLACEMENTS" means the furnishings and equipment and
other items, the cost of which for accounting purposes may not be expensed but
must be capitalized over a useful life of greater than one year according to
generally acceptable accounting principles.
14.07 "COMMENCEMENT DATE" means the date contained on Schedule I.
14.08 "EMPLOYEES" has the meaning contained in Section 2.02.
14.09 "EXCLUDED REVENUES" means (i) any gratuity or sales charges
added to a customer's bill, which are payable to Hotel employees, (ii) sales
taxes, excise taxes, gross receipt taxes, admission taxes, entertainment taxes,
tourist taxes or other similar taxes, (iii) proceeds from the sale or
refinancing of the Hotel, (iv) abatement of taxes and refunds, and (v) proceeds
of insurance, except business interruption insurance.
14.10 "EXPIRATION DATE" has the meaning contained in Section 1.02.
14.11 "FIRST MORTGAGE" means the mortgage described on Schedule I.
14.12 "FIXED CHARGES" means any and all amounts paid or expenses
incurred in connection with the following:
(a) Rental and other charges imposed under any lease for the
use, possession or operation of the Hotel, including
Fixed Expense Leases;
(b) Taxes (other than income and payroll taxes), including,
without limitation, real and personal property taxes,
business and occupation taxes, and utility taxes such as
sewer taxes;
(c) Insurance (other than employee benefit insurance such as
workers' compensation insurance and health or life
insurance);
(d) Transfers to the Capital Replacement Reserve Account.
14.13 "FIXED EXPENSE LEASE" means any lease of real property and of
furnishings and equipment, which if not leased would be purchased and
capitalized as fixed assets.
14.14 "FRANCHISE COSTS" means expenditures for compliance with the
requirements of the Franchisor of the Hotel, including without limitation
payment of royalties, marketing contributions, and reservation system fees, but
excluding the cost of compliance with Franchisor's operating standards requiring
Capital Replacements.
14.15 "FRANCHISOR" means the hotel franchise company licensing the
use of the Hotel name, if any.
14.16 "FURNISHINGS AND EQUIPMENT" means all furniture, furnishings,
equipment, fixtures, apparatus and other personal property used in, or held in
storage for use in (or if the context so dictates, required in connection with),
the operation of the Hotel, other than Operating Equipment and Operating
Supplies.
14.17 "GROSS REVENUES" means all revenues of the Hotel and all its
uses of every nature and kind regardless of source, excluding Excluded Revenues.
By way of illustration but not limitation, Gross Revenues will include:
(a) The amount received as payment for the use and occupancy
of all guest rental units;
(b) The amount received as payment for the use and occupancy
of all meeting rooms, banquet function rooms, and public
areas;
(c) All revenues derived from the sale of food and other
edibles in restaurants, lounges, meeting rooms,
banquets, guest rooms and any other location at the
Hotel;
(d) All revenues derived from the sale of liquor, beverages,
and other potables in restaurants, lounges, meeting
rooms, banquets, guest rooms, and any other location at
the Hotel;
(e) All revenues derived from the use of telephone in guest
rooms or in public areas;
(f) All revenues derived from leases, subleases,
concessions, vending, valet services, swimming pool
memberships, banquet extras, movies or income of a
similar or related
nature; and
(g) Proceeds of business interruption insurance.
14.18 "GROUND LEASE" means the lease described on Schedule I.
14.19 "HOTEL" means the hotel described on Schedule I.
14.20 "HOTEL ACCOUNT(S)" has the meaning contained in Section 4.01.
14.21 "HOUSE PROFIT" OR "GROSS OPERATING PROFIT" means Gross
Revenues less Operating Expenses.
14.22 "LEGAL REQUIREMENTS" means all laws, statutes, ordinances,
orders, rules, regulations, permits, licenses, authorizations, directions and
requirements of all governments and governmental authorities, which now or
hereafter may be applicable to the Hotel and its operation.
14.23 "MANAGER" means Prime Hospitality Corp., or its successor.
14.24 "MINIMUM BALANCE" has the meaning contained in Section 4.02.
14.25 "NET OPERATING INCOME" means House Profit less the Base
Management Fee, the Fixed Charges and Other Cash Flow Expenditures.
14.26 "OPERATING EQUIPMENT" means all china, glassware, linens,
silverware and uniforms used in, or held in storage for use in (or if the
context so dictates, required in connection with), the operation of the Hotel.
14.27 "OPERATING EXPENSES" means any and all amounts paid or
expenses incurred in connection with the operation of the Hotel, as determined
in accordance with the Uniform System of Accounts for Hotels, in accordance with
generally accepted accounting principles consistently applied, but excluding the
Base Management Fee, Accounting Services Fee, expenses paid from Excluded
Revenues, Fixed Charges, Other Cash Flow Expenditures and non-cash items such as
depreciation. By way of illustration but not limitation, Operating Expenses
include:
(a) Salaries, wages, payroll taxes, bonuses and employee
benefits, including sales and use taxes imposed thereon, and
payroll processing fees.
(b) Legal, accounting and other professional fees.
(c) Fees for licenses and permits.
(d) Costs of Operating Supplies.
(e) Costs of Operating Equipment.
(f) Rentals under Operating Leases.
(g) Franchise Costs.
(h) Expenses allocated by Manager in the ordinary course as
department expenses not otherwise itemized above
directly related to rooms, food, beverage, telephone,
and other segregated outlets.
(i) Expenses not allocated by Manager to a specific
department in the ordinary course and not otherwise
itemized above including administrative and general;
advertising, sales and promotion; heat, light and power;
and repairs and maintenance (but not of Capital
Replacements).
14.28 "OPERATING LEASE" means leases of personal property, which are
not Fixed Expense Leases.
14.29 "OPERATING SUPPLIES" means consumable items used in or held in
storage for use in (or if the context so dictates, required in connection with),
the operation of the Hotel, including but not limited to food and beverages,
fuel, soap, cleaning material, matches, stationery and other similar items.
14.30 "OPERATING YEAR" means each twelve month period commencing on
the first day of January (except for the first year, which will commence on the
Commencement Date), and ending on the subsequent December 31 (except for the
last year which will end on the date of termination, whether by expiration of
the term of the Agreement or otherwise).
14.31 "OTHER CASH FLOW EXPENDITURES" means any and all expenses
incurred in connection with the following:
(a) Interest, principal, and other payments on any debt or
other obligation for borrowed money, including debt
service on any mortgage debt and rents and other charges
of Fixed Expense Leases; and
(b) Payments and distributions to Owner, excepting the
distribution required pursuant to Section 7.01(j).
14.32 "OWNER" means the entity identified on Schedule I or its
successors.
14.33 "TERMINATION FEE" has the meaning contained in Section 13.01.
14.34 "UNIFORM SYSTEM OF ACCOUNTS" means the Uniform System of
Accounts for Hotels (Eighth Revised Edition, 1986) as revised from time to time;
but not any subsequent revisions unless approved by both Owner and Manager in
writing.
15. GENERAL PROVISIONS.
15.01 ESTOPPEL CERTIFICATES. Owner and Manager each, upon at least
ten (10) days' notice, will execute and deliver to the other, and to any third
party having, or about to have a bona fide interest in the Hotel, a written
certificate stating that this Agreement is unmodified and in full force and
effect, or if not, stating the details of any modification, and stating that as
modified it is in full force and effect, the date to which payments have been
paid, and whether there is any existing default on the part of the other.
15.02 NO PARTNERSHIP OR JOINT VENTURE. Nothing contained in this
Agreement will be construed to be or create a partnership or joint venture
between Owner, any affiliate of Owner, its successors or assigns, on the one
part, and Manager, any affiliate of Manager, its successors and assigns, on the
other part.
15.03 MODIFICATIONS AND CHARGES. This Agreement cannot be changed or
modified except by another agreement in writing signed by the party sought to be
charged therewith, or by its duly authorized agent.
15.04 UNDERSTANDINGS AND AGREEMENTS. This Agreement constitutes all
of the understandings and agreements of whatsoever nature or kind existing
between the parties with respect to Manager's management of the Hotel.
15.05 HEADINGS. The article and Section headings contained herein
are for convenience or reference only and are not intended to define, limit or
describe the scope or intent of any provisions of this Agreement.
15.06 SURVIVAL OF COVENANTS. Any covenant, term or provision of this
Agreement which, in order to be effective, must survive the termination of this
Agreement, will survive any such termination.
15.07 THIRD PARTIES. None of the obligations of this Agreement of
either party will run to or be enforceable by any party other than the party to
this Agreement or its assignee pursuant to the terms of this Agreement. Owner is
expressly authorized to assign its rights under this Agreement to any mortgagee
of the Hotel.
15.08 WAIVERS. No failure by Manager or Owner to insist upon the
strict performance of any covenant, agreement, term or condition of this
Agreement, or to exercise any right or remedy consequent upon the breach of this
Agreement will constitute a waiver of any breach or any subsequent breach of the
covenant, agreement, term or conditions. No covenant, agreement, term or
condition of this Agreement and no breach of this Agreement will be waived,
altered or modified, except by written instrument. No waiver of any breach will
affect or alter this Agreement, but each and every covenant, agreement, term and
condition of this Agreement will continue in full force and effect with respect
to any other then existing or subsequent breach.
15.09 APPLICABLE LAW. This Agreement will be construed and
interpreted by, and be governed by, the laws of the State of New Jersey. Owner
agrees that the federal and state courts of the State of New Jersey shall have
exclusive jurisdiction over any proceeding arising out of or with respect to
this Agreement and further consents to the jurisdiction of such federal and
state courts of the State of New Jersey and to the removal of any such
proceeding brought in any other jurisdiction.
15.10 NOTICES. Except as otherwise provided in this Agreement, all
notices required or permitted to be given hereunder, or which are to be given
with respect to this Agreement, will be in writing sent by registered or
certified mail, postage prepaid, return receipt requested, addressed to the
party to be so notified as set forth on Schedule I. Any notice will be deemed
delivered when received or receipt rejected. Notices may also be delivered by
hand, or by special courier, if, in either case, receipt is acknowledged
by the addressee. Any notice delivered by hand, or by special courier, will be
deemed delivered when received. Either party may at any time change the
addresses for notices by written notice to the other party.
15.11 BINDING EFFECT. This Agreement will be binding upon and will
inure to the benefit of the successors in interest and the assigns of the
parties hereto, provided that no assignment, transfer, sale, pledge,
encumbrance, mortgage, lease or sublease by or through Manager or by or through
Owner, as the case may be, in violation of the provisions of this Agreement,
will vest any rights relative to this Agreement in the assignee, transferee,
purchaser, secured party, mortgagee, pledgee, lessee, sublessee or occupant, or
will diminish, reduce or release the obligations of the parties hereto.
15.12 CONFIDENTIALITY. Manager and Owner agree that the contents of
this Agreement will not be disclosed to any other individual or entity (except
as directed by law or judicial order), provided, Owner may disclose the contents
of this Agreement to (i) its partners and limited partners, or shareholders and
directors, if a corporate partner, and (ii) individuals or entities providing,
or proposing to provide, financing to Owner.
15.13 NON-SOLICITATION OF MANAGER'S EMPLOYEES. Owner agrees that it
will not for a period of two (2) years from the date of expiration or earlier
termination of this Agreement, directly or indirectly (i) solicit (other than
general solicitations made to the public at large) the employment of any key
employee, officer or senior or regional director or manager of the Manager or
(ii) hire any key employee, officer or senior and regional directors and
managers employed by the Manager or any former key employee, officer or senior
manager whose employment with the Manager has ceased within 180 days of such
solicitation or hire. The term "key employee" includes regional and on-site
hotel employees such as the regional vice presidents, regional directors of
sales, district managers, hotel general managers and assistant general managers,
hotel directors of sales, hotel food and beverage managers and assistant food
and beverage managers, and executive housekeepers. Owner and Manager agree that
Manager will suffer substantial damage as the result of the loss of trained,
experienced, supervisory personnel and that Owner's agreement contained in this
Section 15.13 is a material consideration. Further, Owner and Manager
acknowledge that Manager's damages as a result of Owner's breach of this
provision are substantial but are difficult to ascertain. Therefore, Owner and
Manager agree to provide for liquidated damages in the sum of $100,000.00,
representing Owner's and Manager's best estimate as to the damages arising from
each separate breach of this Section by Owner, and not as a penalty or
forfeiture. Owner and Manager agree that such liquidated damages are in lieu of
any other remedy and that the solicitation and/or employment of each individual
in violation of this Section 15.13 will constitute a separate breach and give
rise to a separate damage award. Owner will cause its affiliates to comply with
the provisions of this Section 15.13.
15.14 REPRESENTATION BY COUNSEL. The parties acknowledge that they have
had the opportunity to review the terms of this Agreement with counsel of their
choice and to negotiate its terms and provisions. No principal of law construing
this Agreement against the preparing party will be applied to this Agreement.
15.15 TRIAL BY JURY. Due to the high cost and time involved in
commercial litigation before a jury, the parties waive all right to a jury trial
on all issues in any action or proceeding relating to this Agreement, the
transaction contemplated by this Agreement, or any documents executed in
connection with the contemplated transaction.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
Agreement to be executed, all as of the day and year specified on Schedule I.
OWNER:
EAST RUTHERFORD GROUP, L.L.C.
By: /s/ Anthony Miceli
-----------------------------------
Anthony Miceli, Manager
PRIME HOSPITALITY CORP.
By: /s/ Douglas Vicari
-----------------------------------
Douglas Vicari, Sr. V. P.
SCHEDULE I
TERMS OF AGREEMENT
1. DATE OF AGREEMENT:
December 19, 2002
2. DESCRIPTION OF HOTEL (PREAMBLE):
Sheraton Plaza Drive
Two Meadowlands Plaza
East Rutherford, New Jersey 07073
3. COMMENCEMENT DATE (SECTION 1.02):
December 19, 2002
4. EXPIRATION DATE (SECTION 1.02):
December 18, 2007.
5. DESIGN AND PURCHASING SERVICES (SECTION 2.01B):
For design services previously authorized by Owner in writing, Manager
will charge a fee of five (5%) percent of the invoice cost of the Major
Construction. For purchasing services, Manager will charge five (5%)
percent of the invoice cost of each capital item purchased.
6. CAPITAL REPLACEMENT RESERVE ACCOUNT (SECTION 2.03):
4% of Gross Revenue
7. AGREEMENT LIMITATIONS (SECTION 3.04):
Manager will not enter into any agreement for the acquisition of goods
and services other than standard maintenance agreements, repair
agreements and agreements for the purchase of operating supplies
without the written consent of the Owner.
8. MINIMUM BALANCE(SECTION 4.02):
$225,000 plus an amount sufficient to cover one month's debt service.
9. BASE MANAGEMENT FEE (SECTION 6.01):
2% of Gross Revenue
10. N/A
11. ACCOUNTING SERVICES FEE (SECTION 6.02):
$1,000 per month.
12. TERMINATION FEE (SECTION 13.01):
The Termination Fee will be a sum equal to (a) the monthly average of
the Base Management Fee paid or payable for the twelve (12) full
calendar months immediately preceding the date of termination times (b)
the lesser of sixty (60) or such number of full or partial months left
in the term of this Agreement. If less than twelve (12) full months
have elapsed since the Commencement Date, the Base Management Fee will
be determined by annualizing Gross Revenues . Gross Revenues will be
annualized by multiplying the average monthly Gross Revenues for the
period of management times twelve (12).
13. FIRST MORTGAGE (SECTION 14.11):
14. GROUND LEASE (SECTION 14.18):
15. OWNER (SECTION 14.33):
East Rutherford Group, L.L.C.
c/o Prime Hospitality Corp.
700 Route 46 East
Fairfield, New Jersey 07004
16. NOTICES (SECTION 15.10):
Manager: Prime Hospitality Corp.
700 Route 46 East
Fairfield, New Jersey 07004
(973) 882-1010
Attention: President
With a copy to: Prime Hospitality Corp.
700 Route 46 East
Fairfield, New Jersey 07004
Attention: Law Department
Owner AFP Eighteen Corp.
c/o United Capital Corp.
United Capital Building
Nine Park Place
Great Neck, NY 11021
With a copy to: Samuel Ross, Esq.
c/o Olshan Grundman
505 Park Avenue
New York, New York 10022
SCHEDULE II
MANAGEMENT SERVICES INCLUDED IN BASE MANAGEMENT FEE
AND ACCOUNTING SERVICES FEE
PROPERTY LEVEL
1. Establish staffing requirements
2. Establish employment policies such as hiring policies, terms of
employment, wage scales, and vacation and benefit packages
3. Select key employees and department heads
4. Provide property level training
5. Establish rates and charges for the goods and services to be sold by the
Hotel
6. Implement sales and marketing strategies
7. Supervise property operations
8. Negotiate and sign purchase orders and service agreements
HOME OFFICE
1. Provide a regional director of operations to supervise property activities
2. Provide a regional sales director
3. Provide human resources management
4. Provide management information systems
5. Make available Manager's legal staff to provide assistance in day-to-day
property operations.
6. Negotiate national vending contracts
7. Purchase all Operating Supplies and Operating Equipment
8. Pay all expenses incurred in the operation of the Hotel
9. Maintain the Hotel in good order, repair, and condition
10. Prepare a schedule of suggested insurance coverages and administer the
purchase of insurance, if requested by Owner.
11. Implement Manager's standard administrative, accounting, budgeting,
marketing, and operational policies and practices
ACCOUNTING SERVICES
1. Prepare sales and use tax returns
2. Process accounts payable
3 Prepare monthly and yearly financial statements
4. Provide cash management services
5. Process payroll and related payroll items
SCHEDULE III
SAMPLE STATEMENT OF PROFIT AND LOSS
Standard Prime Hospitality Corp. Profit and Loss Statement currently in use.