<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- ------ EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
- ------ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition from to
------------ ------------
Commission file number 1-11723
------------------
WYNDHAM HOTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2636072
- ---------------------------------------- --------------------
(State of other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
2001 Bryan Street, Suite 2300
Dallas, Texas 75201
- ---------------------------------------- --------------------
(address of principal executive offices) (Zip Code)
(214) 863-1000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorten period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days.
YES X NO
---------- ----------
The number of shares outstanding of the issuer's common stock as of November
13, 1996: Common Stock, $.01 par value - 20,018,299 shares.
<PAGE> 2
WYNDHAM HOTEL CORPORATION
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
PART I - FINANCIAL INFORMATION Page
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Consolidated Balance Sheets as of December 31, 1995
and September 30, 1996 . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statements of Income - Quarter and Nine
Months Ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . 3
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1995 and 1996 . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . 12
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . 16
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . 18
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WYNDHAM HOTEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . $ 4,160 $ 20,147
Cash, restricted . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,053 857
Accounts receivable, less allowance of $267 at December 31, 1995
and $840 at September 30, 1996 . . . . . . . . . . . . . . . . . 10,838 13,441
Due from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . 3,584 14,066
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,020 1,437
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . - 1,448
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 769 1,964
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 23,424 53,360
Investment in an affiliate's hotel partnership . . . . . . . . . . . . . . 2,597 -
Notes and other receivables from affiliates . . . . . . . . . . . . . . . . 7,674 7,685
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,450 726
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . 87,604 129,689
Management contract costs, net . . . . . . . . . . . . . . . . . . . . . . 7,579 7,073
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14,398
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . - 14,749
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,075 12,411
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 133,403 $ 240,091
========= =========
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current Liabilities:
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . $ 8,454 $ 23,646
Accounts payable and accrued expenses due to affiliates . . . . . . . . 1,578 198
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,667 1,073
Deposits from affiliates . . . . . . . . . . . . . . . . . . . . . . . 354 344
Current portion of long-term debt and capital lease obligations . . . . 16,035 499
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,592 -
--------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 30,680 25,760
--------- ---------
Payable to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,627 -
Payable to minority interest . . . . . . . . . . . . . . . . . . . . . . . 218 -
Long-term debt and capital lease obligation . . . . . . . . . . . . . . . . 74,943 130,165
Deferred gain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12,250
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . --------- ---------
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,788 142,415
--------- ---------
7,378 -
--------- ---------
Partners' Capital and Stockholders' Equity:
Partners' capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,860 -
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 200
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . - 84,342
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . - 7,894
Receivables from affiliates . . . . . . . . . . . . . . . . . . . . . . (2,303) (1,352)
Notes receivable from stockholders . . . . . . . . . . . . . . . . . . - (19,168)
--------- ---------
Total partners' capital and stockholders' equity . . . . . . . . . . 17,557 71,916
--------- ---------
Total liabilities and equity . . . . . . . . . . . . . . . $ 133,403 $ 240,091
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 4
WYNDHAM HOTEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------- ----------------------
1995 1996 1995 1996
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues:
Hotel revenues . . . . . . . . . . . . . . . $ 13,025 $ 30,388 $ 41,685 $ 71,302
Management fees . . . . . . . . . . . . . . . 1,554 1,953 5,439 6,434
Management fees - affiliates . . . . . . . . 2,693 4,015 6,470 10,112
Service fees . . . . . . . . . . . . . . . . 582 426 1,494 1,111
Service fees - affiliates . . . . . . . . . . 418 763 1,329 1,850
Reimbursements . . . . . . . . . . . . . . . 1,384 1,503 3,833 4,636
Reimbursements - affiliates . . . . . . . . . 1,492 2,386 3,902 6,176
Other . . . . . . . . . . . . . . . . . . . . 1,119 (19) 1,349 320
-------- -------- -------- --------
Total revenues . . . . . . . . . . . . . . 22,267 41,415 65,501 101,941
-------- -------- -------- --------
Operating costs and expenses:
Hotel expenses . . . . . . . . . . . . . . 9,262 23,923 28,060 52,227
Selling, general and administrative
expenses . . . . . . . . . . . . . . . . 4,205 4,373 10,127 12,877
Equity participation compensation . . . . . . 998 - 2,994 2,919
Reimbursable expenses . . . . . . . . . . . . 1,384 1,503 3,833 4,636
Reimbursable expenses - affiliates . . . . . 1,492 2,386 3,902 6,176
Depreciation and amortization . . . . . . . . 1,617 2,151 4,558 5,609
-------- -------- -------- --------
Total operating costs and expenses . . . . 18,958 34,336 53,474 84,444
-------- -------- -------- --------
Operating income . . . . . . . . . . . . . . . . 3,309 7,079 12,027 17,497
Interest income . . . . . . . . . . . . . . . . . 93 539 231 982
Interest income - affiliates . . . . . . . . . . - 180 9 536
Interest expense . . . . . . . . . . . . . . . . (2,155) (3,407) (6,407) (8,462)
Equity in earnings of affiliate's hotel partnership 380 - 1,395 870
Foreign currency gain . . . . . . . . . . . . . . 139 - 253 -
Amortization of deferred gain . . . . . . . . . . - 185 - 320
-------- -------- -------- --------
Income before minority interests . . . . . . . . 1,766 4,576 7,508 11,743
Income attributable to minority interests . . . . 61 - 607 571
-------- -------- -------- --------
Income before income taxes and extraordinary item 1,705 4,576 6,901 11,172
Income tax (provision) benefits . . . . . . . . . - (1,807) - 10,388
-------- -------- -------- --------
Income before extraordinary item . . . . . . . . 1,705 2,769 6,901 21,560
Extraordinary item (less applicable
income tax benefits of $270) . . . . . . . . - - - (1,131)
-------- -------- -------- --------
Net income . . . . . . . . . . . . . . . . . . . $ 1,705 $ 2,769 $ 6,901 $ 20,429
======== ======== ======== ========
Earnings per share:
Income before extraordinary item - primary
and fully diluted . . . . . . . . . . . . N/A $ .14 N/A $ 1.08
Extraordinary item - primary and fully diluted N/A $ - N/A $ (.06)
Net income - primary and fully diluted . . . N/A $ .14 N/A $ 1.02
Average number of common
shares outstanding . . . . . . . . . . . . 20,018 20,018
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 5
WYNDHAM HOTEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
-----------------
1995 1996
------ ------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,901 $ 20,429
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . 4,558 5,168
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . - (12,958)
Provision for bad debt . . . . . . . . . . . . . . . . . . . . . . . . . . 78 628
Amortization of deferred debt issuance costs . . . . . . . . . . . . . . . - 441
Write-off of predecessor deferred debt issuance costs . . . . . . . . . . . - 1,401
Amortization of deferred gain . . . . . . . . . . . . . . . . . . . . . . . - (312)
Equity in earnings of affiliate's hotel partnership . . . . . . . . . . . . 61 -
Foreign currency translation gain . . . . . . . . . . . . . . . . . . . . . (253) -
Equity participation compensation . . . . . . . . . . . . . . . . . . . . . 2,994 2,919
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 607 571
Net (deposits to)/withdrawals from restricted cash . . . . . . . . . . . . (128) 2,196
Changes to operating assets and liabilities, net of effects from purchase of hotels:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,225) (3,887)
Due from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105 (3,901)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 (67)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (77) (2,846)
Current income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . - 2,569
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . . . . (3,909) 10,409
Accounts payable and accrued expenses due affiliates . . . . . . . . . . . 976 (2,309)
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (251) (1,672)
Deposits from affiliates . . . . . . . . . . . . . . . . . . . . . . . . . (253) (10)
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (13,676)
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,301 (2,564)
------- --------
Net cash provided by operating activities . . . . . . . . . . . . 8,534 2,529
------- --------
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . (2,753) (4,964)
Proceeds from sale of property and equipment . . . . . . . . . . . . . . . - 136,374
Investments in management contracts . . . . . . . . . . . . . . . . . . . . (6,261) (575)
Notes and other receivable from affiliates . . . . . . . . . . . . . . . . (2,184) (11)
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (911) 1,724
Payment for purchase of hotels, net of cash acquired . . . . . . . . . . . - (33,470)
Acquisition of minority interest . . . . . . . . . . . . . . . . . . . . . - (5,479)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (907) -
------- --------
Net cash provided by (used in) investing activities . . . . . . . . (13,016) 93,599
------- --------
Cash flows from financing activities:
Partners' contributed capital . . . . . . . . . . . . . . . . . . . . . . . 15,378 4,801
Partners' capital distributions . . . . . . . . . . . . . . . . . . . . . . (5,891) (29,593)
Distribution made to withdrawing partner . . . . . . . . . . . . . . . . . (2,577) (982)
Decrease (increase) in receivables from affiliates . . . . . . . . . . . . (73) 996
Decrease in payable to affiliates . . . . . . . . . . . . . . . . . . . . . (1,192) (2,627)
Increase (decrease) in payable to minority interest . . . . . . . . . . . . 12 (218)
Proceeds from issuance of common stock . . . . . . . . . . . . . . . . . . - 69,504
Net proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . 7,069 94,383
Repayments on long-term debt and capital lease obligations . . . . . . . . (5,670) (197,516)
Notes receivable from stockholders . . . . . . . . . . . . . . . . . . . . - (18,889)
------- --------
Net cash provided by (used in) financing activities . . . . . . . . 7,056 (80,141)
------- --------
Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . 2,574 15,987
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . 3,617 4,160
------- --------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . $ 6,191 $ 20,147
======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE> 6
WYNDHAM HOTEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION:
Wyndham Hotel Corporation ("WHC") was incorporated and formed in
February 1996. In May 1996, WHC implemented substantially all of its
formation and financing plan. The accompanying consolidated financial
statements of WHC at September 30, 1996 and for the period since WHC's
implementation of its formation and financing plan in May 1996 and through
September 30, 1996 include the accounts of WHC and its wholly owned
subsidiaries resulting from the formation (collectively, the "Company").
Financial statements at December 31, 1995 and for the periods prior to the
formation included the combined accounts of WHC and its majority owned
entities. All significant intercompany balances and transactions have been
eliminated.
These unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. They do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation at September 30, 1996 have been included. Operating results
for the three months and nine months ended September 30, 1996 are not
necessarily indicative of the operating results for the year ending
December 31, 1996. These financial statements should be read in
conjunction with the consolidated financial statements and footnotes
thereto included in the prospectus of the Company (the "Prospectus") dated
May 20, 1996, as filed with the Securities and Exchange Commission.
Certain prior period amounts have been reclassified to conform to the
current period presentation.
2. INITIAL PUBLIC OFFERINGS ("OFFERINGS") AND REVOLVING CREDIT FACILITY:
In May 1996, the Company implemented a financing plan. As a part of
the financing plan, the Company offered 4,197,500 shares of its common
stock for public trading on the New York Stock Exchange and concurrently
issued $100.0 million of subordinated notes (the "Notes".) The Company
also entered into a new $100.0 million revolving credit facility (the
"Revolving Credit Facility") with a financial institution. For more
information regarding the Company's financing plan, reference is made to
the Prospectus.
3. ACQUISITIONS:
On May 2, 1996, a 70% partnership interest in Garden Hotel Associates,
L.P. ("GHALP") owned by an unaffiliated third party was acquired by a newly
formed partnership owned by an affiliate and senior executive officers. In
a subsequent series of transactions the properties were sold to an
unaffiliated real estate investment trust, and all debt was paid off. The
hotel properties (the "GHALP Properties") were leased back to a newly
formed limited partnership owned by the affiliate and senior executive
officers under a leasing arrangement qualifying as an operating lease and
the lease was transferred to the Company in connection with the formation
of the Company. For a detailed description of the transaction, reference
is made to the Prospectus.
In July 1996, the Company, in separate transactions, acquired a 181
room hotel in Kansas and a 254 room hotel in Dallas, Texas for a total
purchase price of $13.7 million. These acquisitions were funded with a
portion of the net cash proceeds from the initial public offerings and
were accounted for using the purchase method.
On August 30, 1996, the Company acquired a 287 room hotel, the Bristol
Place hotel in Toronto, Canada, (the "Bristol Hotel".) The total
investment approximated $19.9 million with a purchase price of $17.4
million and renovation and other cost of $2.5 million. The acquisition was
paid in cash and the renovation will be completed in April 1997. The cash
payments were funded with a portion of the net proceeds from the initial
public offerings. The acquisition was accounted for using the purchase
method. For financial statements of Bristol Hotel and pro forma financial
information of the Company, see "Item 5. Other Information."
5
<PAGE> 7
4. EARNINGS PER SHARE:
The Company adopted Statement of Financial Accounting Standards No.
123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation, "
effective January 1, 1996. SFAS No. 123 defines a fair value based method
of accounting for employee stock options or similar instruments and permits
companies to adopt that method of accounting for all of their employee
stock compensation plans. However, it also allows a company to measure
compensation cost for those plans using the intrinsic value based method of
accounting prescribed by APB Opinion No. 25 ("APB No. 25"), "Accounting for
Stock Issued to Employee". The Company has elected to measure compensation
cost in conformity with APB No. 25 and to make pro forma disclosures of net
income and earnings per share in its annual report on Form 10-K for the
year ending December 31, 1996, as if the fair value based method of
accounting defined in SFAS No. 123 had been applied.
Earnings per share for the quarter and nine months ended September 30,
1996 are computed based on the weighted average number of shares of common
stock outstanding. The impact of common stock equivalents to earnings per
share is immaterial.
Earnings per share data for the quarter and nine months ended
September 30, 1995 relates to periods prior to the Company's formation and
therefore is not presented.
5. FEDERAL INCOME TAXES:
Since the Company's formation in May 1996, federal income taxes have
been provided in accordance with Statement of Financial Accounting
Standards No. 109 ("SFAS 109"). Under the liability method of SFAS 109,
deferred taxes are determined based on the difference between the financial
statement and tax bases of assets and liabilities using enacted tax rates
in effect in the years the differences are expected to reverse. In
accordance with SFAS 109, the Company has recorded a net income tax
benefit of $10.7 million since its formation.
6. COMMITMENTS AND CONTINGENCIES:
Litigation has been initiated against the Company pertaining to the
right to use the Wyndham name for hotel service in the New York
metropolitan area. On January 29, 1996, a temporary restraining order was
issued by the Supreme Court of the State of New York which, pending the
outcome of a trial, prevents the Company from using the Wyndham name in the
New York area. An adverse decision in the litigation could prevent the
Company from operating Wyndham brand hotels or advertising the Wyndham name
in connection with the operation of a Wyndham brand hotel within a 50 mile
radius of a hotel in Manhattan operated under the "Wyndham" name. It is
management's opinion, based on legal counsel, that the range of losses
resulting from the ultimate resolution of the aforementioned claim cannot
be determined. The cost of $886,000 at September 30, 1996 for defending
the trademark has been capitalized and is being amortized over 17 years,
pending the ultimate resolution. An adverse decision may result in the
immediate write-off of those capitalized costs.
The Company received a Notice of Intent to make Sales and Use Tax
audit changes from the Tampa Region of the Florida Department of Revenue
for the period from July 31, 1990 through June 30, 1995. The audit
assessed additional taxes of $584,399, penalty of $223,494 and interest of
$201,024 for a total assessment of $1,008,917. The previous owners (an
affiliate) have agreed to indemnify the Company with respect to any
additional sales and use tax paid by the Company for the audit period.
Management, after review and consultation with legal counsel, believes the
Company has meritorious defenses to this matter and that any potential
liability in excess of the $189,000 recorded would not materially effect
the Company's consolidated financial statements.
On February 29, 1996, an affiliate and the Company were served with a
complaint filed on November 22, 1995 by an owner of a hotel managed by the
affiliate. The claim involves the collection of a promissory note relating
to an earlier litigation between the affiliate and the owner. The owner
alleges that the transfer of certain management contracts by the affiliate
to the Company was a fraudulent conveyance that rendered the affiliate
insolvent. Liability for payment of the promissory note was not
transferred to or assumed by the Company. The affiliate has agreed to
indemnify the Company with respect to this litigation.
6
<PAGE> 8
The Company has pending several other claims incurred in the normal
course of business which, in the opinion of management, based on the advice
of legal counsel, will not have a material effect on the consolidated
financial statements.
Pursuant to the terms of the management agreements of two
affiliate-owned hotels under construction, the Company has undertaken
certain commitments to provide furniture, fixtures and equipment for each
hotel at a fixed price totaling $8.1 million. The Company has guaranteed
to fund up to $230,000 in working capital per year for three years after
one of the hotels is opened in the event that the hotel generates
inadequate cash flow and the Company has guaranteed $875,000 in
indebtedness. Pursuant to the terms of an interim management agreement for
a resort hotel property, the Company has undertaken, subject to certain
contingencies, certain commitments to provide approximately $1.3 million,
approximately $750,000 of which shall be used for preopening expenses and
the purchase of furniture, fixtures and equipment and the remainder of
which shall be used to fund working capital for the hotel.
Pursuant to the terms of a management agreement of a hotel owned by an
affiliate, the Company has guaranteed to fund up to $600,000 of working
capital per year to the extent the entity experiences operating deficits,
with a maximum required contribution of $2.3 million over the term of the
guarantee extending from 1995 to 2000. The Company has not to date been
required to make any capital contribution under the guarantee.
The Company is subject to environmental regulations related to the
ownership, management, development and acquisition of real estate (hotels).
The cost of complying with the environmental regulations was not material
to the Company's consolidated statements of income for the year ended
December 31, 1995 and the nine months ended September 30, 1996. The
Company is not aware of any environmental condition on any of its
properties which is likely to have a material adverse effect on the
Company's financial statements.
7. CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF GUARANTOR SUBSIDIARIES:
In connection with the issuance of the $100 million subordinated notes
("Notes"), all of the Company's direct and indirect subsidiaries, with the
exception of a number of subsidiaries (which subsidiaries are individually
and collectively inconsequential), are fully and unconditionally
guaranteeing the Company's obligations under the Notes on a joint and
several basis (the "Guarantor Subsidiaries"). Accordingly, the condensed
consolidated financial information set forth below summarizes financial
information for all of the Guarantor Subsidiaries on a consolidated basis.
Separate complete financial statements and other disclosure for the
Guarantor Subsidiaries have not been presented because management does not
believe that such information is material to investors. The condensed
consolidated financial information of the Guarantor Subsidiaries as of
December 31, 1995 and September 30, 1996, and for the quarter and nine
months ended September 30, 1995 and 1996 are presented as follows:
7
<PAGE> 9
GUARANTOR SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $ 3,708 $ 5,039
Cash, restricted . . . . . . . . . . . . . . . . . . . . . . . . . 2,595 857
Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . 13,732 21,500
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,606 2,714
-------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . . . 21,641 30,110
Investment in an affiliate's hotel partnership . . . . . . . . . . . 2,597 -
Notes and other receivables from affiliates . . . . . . . . . . . . 7,674 7,685
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . 2,450 726
Property and equipment, net . . . . . . . . . . . . . . . . . . . . 47,321 59,041
Management contract costs, net . . . . . . . . . . . . . . . . . . . 7,579 7,073
Security deposits . . . . . . . . . . . . . . . . . . . . . . . . . - 14,398
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,068 3,314
-------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $ 90,330 $ 122,347
======== =========
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities
Accounts payable and accrued liabilities . . . . . . . . . . . . . $ 6,600 $ 16,371
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,914 1,147
Current portion of long-term debt and capital lease obligation . . 3,428 499
Due to affiliates . . . . . . . . . . . . . . . . . . . . . . . . 1,454 39,792
-------- ---------
Total current liabilities . . . . . . . . . . . . . . . . . . 13,396 57,809
-------- ---------
Payable to affiliates . . . . . . . . . . . . . . . . . . . . . . . 2,627 -
Payable to minority interest . . . . . . . . . . . . . . . . . . . . 218 -
Long-term debt and capital lease obligation . . . . . . . . . . . . 40,659 30,083
-------- ---------
43,504 30,083
-------- ---------
Minority interest . . . . . . . . . . . . . . . . . . . . . . . . . 7,379 -
-------- ---------
Partners' capital and stockholders' equity:
Receivable from affiliates . . . . . . . . . . . . . . . . . . . . (1,927) (1,352)
Partners' capital . . . . . . . . . . . . . . . . . . . . . . . . 27,978 -
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . - 31,071
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . - 4,736
-------- ---------
Total partners' capital and stockholders' equity . . . . . . . 26,051 34,455
-------- ---------
Total liabilities and equity . . . . . . $ 90,330 $ 122,347
======== =========
</TABLE>
See note to the condensed consolidated financial information.
8
<PAGE> 10
GUARANTOR SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------- -----------------
1995 1996 1995 1996
------ ------ ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $16,369 $ 33,422 $ 48,344 $ 82,280
------- -------- -------- --------
Operating costs and expenses . . . . . . . . 13,328 25,438 37,008 60,778
Depreciation and amortization . . . . . . . 1,029 1,180 2,793 3,352
Other . . . . . . . . . . . . . . . . . . . 48 76 34 520
------- -------- -------- --------
Total operating costs and expenses . . . 14,405 26,694 39,835 64,650
------- -------- -------- --------
Operating income . . . . . . . . . . . . . . 1,964 6,728 8,509 17,630
Interest expense, net . . . . . . . . . . . (1,039) (338) (3,033) (2,128)
Equity in earnings of affiliate's hotel partnership 380 - 1,395 870
Foreign currency gain . . . . . . . . . . . 139 - 253 -
------- -------- -------- --------
Income before minority interests . . . . . . 1,444 6,390 7,124 16,372
Income attributable to minority interests . 61 - 607 571
------- -------- -------- --------
Income before income taxes and
extraordinary item . . . . . . . . . . . 1,383 6,390 6,517 15,801
Income taxes . . . . . . . . . . . . . . . . - 2,524 - 3,325
------- -------- -------- --------
Income before extraordinary items . . . . . 1,383 3,866 6,517 12,476
Extraordinary item (less applicable tax benefits) - - - (1,028)
------- -------- -------- --------
Net income . . . . . . . . . . . . . . . $ 1,383 $ 3,866 $ 6,517 $ 11,448
======= ======== ======== ========
</TABLE>
See note to the condensed consolidated financial information
9
<PAGE> 11
GUARANTOR SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
---------------------
1995 1996
------- -------
(UNAUDITED)
<S> <C> <C>
Net cash provided by operating activities $ 5,634 $ 2,322
-------- ---------
Cash flows from investing activities:
Purchase of property and equipment . . . . . . . . . . . . . . . . . . (2,277) (3,581)
Sale of property and equipment . . . . . . . . . . . . . . . . . . . . - 133,778
Investments in management contracts . . . . . . . . . . . . . . . . . . (3,478) (575)
Notes and other receivable from affiliates . . . . . . . . . . . . . . (2,184) (11)
Payment for purchase of hotels, net of cash acquired . . . . . . . . . - (2,520)
Acquisition of minority interest . . . . . . . . . . . . . . . . . . . - (5,479)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,546) 1,674
-------- ---------
Net cash provided by (used in) investing activities . . . . . . . . . . (9,485) 123,286
-------- ---------
Cash flows from financing activities:
Partners' contributed capital . . . . . . . . . . . . . . . . . . . . . 11,135 26,502
Partners' capital distributions . . . . . . . . . . . . . . . . . . . . (7,888) (42,572)
Decrease (increase) in receivables from affiliates . . . . . . . . . . (73) 5,327
Increase (decrease in payable to affiliates . . . . . . . . . . . . . . (55) 32,379
Increase (decrease) in payable to minority interest . . . . . . . . . . 11 (218)
Proceeds from issuance of debt . . . . . . . . . . . . . . . . . . . . 7,100 2,500
Repayment of long-term debt and capital lease obligations . . . . . . . (3,416) (148,195)
-------- ---------
Net cash provided by (used in) financing activities . . . . . . . . 6,814 (124,277)
-------- ---------
Increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . 2,963 1,331
Cash and cash equivalents at beginning of period . . . . . . . . . . . . 2,469 3,708
-------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ 5,432 $ 5,039
======== =========
</TABLE>
Note to Condensed Consolidated Financial Information:
(1) The foregoing condensed combined financial information includes GHALP
Corporation, Waterfront Management Corporation, WHCMB, Inc., Wyndham
Management Corporation, Wyndham Hotels & Resorts (Aruba) N.V., WHC
Vinings Corporation, WH Interest, Inc., Wyndham IP Corporation, Rose
Hall Associates, L.P., XERXES Limited, WHC Caribbean, Ltd., WHC
Development Corporation, Rodehouse Restaurants of Kansas, Inc.,
WHCMB, Toronto, Inc., WHC Columbus Corporation, Wyndham Hotels &
Resorts Management Ltd. and a management subsidiary for a non-branded
hotel. They all are wholly-owned subsidiaries of the Company at
September 30, 1996.
8. SUBSEQUENT EVENTS
Subsequent to the quarter ended September 30, 1996, the Company entered into
separate letters of intent and made non-refundable earnest money deposits
totalling approximately $1.4 million to acquire one hotel property and one
minority interest investment in a hotel property.
10
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues are derived from the following primary sources:
(1) The Company's hotel revenues are generated from the hotels owned or
leased by the Company during the periods presented and reflect revenues from
room rentals, food and beverage sales and other sources, including telephone,
guest services, meeting room rentals, gift shops and other amenities.
(2) The Company derives management fees from the hotels it manages. These
fees are comprised of base and incentive management fees, as well as trade name
fees. Base management fees are typically calculated based upon a specified
percentage of gross revenues from hotel operations, and incentive management
fees are usually calculated based upon a specified percentage of the hotel's
operating profit or the amount by which the hotel's operating profit exceeds
specified performance targets. Trade name fees are typically calculated based
upon a specified percentage of gross room revenues for hotels operated under
the Wyndham brand name.
(3) The Company generates service fee revenues from hotels that it manages
or franchises. Service fee revenues include fees derived from accounting,
design, construction and purchasing services, as well as technical assistance
provided to managed or franchised portfolio hotels. As a substantial portion
of the fees derived from the provision of design, construction and initial
purchasing services are generated in connection with hotel construction and
renovation activities, the amount of these fees varies depending upon the level
of the Company's external activities, including new hotel management contracts
and construction projects.
(4) The Company derives reimbursement revenues from hotels that it manages
or franchises. These revenues are intended primarily to match corresponding
expenses and serve to reimburse the Company for the expense associated with
providing advertising and promotion, sales and marketing, centralized
reservations and other services.
The following sets forth certain operating data with respect to certain
hotels owned, operated or franchised by the Company or its subsidiaries:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
------------------ ------------------
COMPARABLE HOTELS(1) 1996 1995 % CHANGE 1996 1995 % CHANGE
---- ---- -------- ---- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Average Daily Rate $88.95 $81.76 8.8% $91.83 $84.76 8.3%
Occupancy 72.7% 69.9% 4.0% 72.3% 70.8% 2.1%
Revenue Per Available Room $64.68 $57.12 13.2% $66.37 $60.04 10.5%
HOTELS OPERATED
SINCE 1/1/93(2)
Average Daily Rate $89.03 $80.98 9.9% $91.96 $84.18 9.2%
Occupancy 70.9% 73.3% (3.3%) 72.7% 73.6% (1.2%)
Revenue Per Available Room $63.10 $59.38 6.3%(3) $66.85 $61.94 7.9%(3)
</TABLE>
(1) The comparable hotel statistics reflect the results of the 51
hotels for three months and 56 hotels for nine months that were
operated by Wyndham for both reporting periods.
(2) The Company's prospectus contained on the comparable set of 30
hotels which have been managed by the Company since January 1,
1993.
(3) Excluding hotels operating in the Caribbean, RevPar increase was
8.8% and 8.6% for the three and nine months periods, respectively.
11
<PAGE> 13
RESULTS OF OPERATIONS
The following table sets forth certain financial data expressed as a
percentage of total revenues and certain other data for each of the periods
presented:
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
------------- -----------------
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Hotel revenues . . . . . . . . . . . . . . . . 58% 73% 64% 70%
Management fees . . . . . . . . . . . . . . . 19 15 18 16
Services fees . . . . . . . . . . . . . . . . 5 3 4 3
Reimbursement revenues . . . . . . . . . . . . 13 9 12 11
Other . . . . . . . . . . . . . . . . . . . . 5 - 2 -
--- --- --- ---
Total revenues . . . . . . . . . . . . . . 100 100 100 100
--- --- --- ---
Operating costs and expenses:
Hotel expenses . . . . . . . . . . . . . . . . 42 58 43 51
Selling, general and administrative expense . 19 11 15 13
Equity participation compensation . . . . . . 4 - 5 3
Reimbursable expense . . . . . . . . . . . . . 13 9 12 11
Depreciation and amortization . . . . . . . . 7 5 7 5
--- --- --- ---
Total operating costs and expenses . . . . 85 83 82 83
--- --- --- ---
Operating income . . . . . . . . . . . . . . . . . 15 17 18 17
Interest expense, net . . . . . . . . . . . . . . . (10) (6) (9) (7)
Equity in earnings of affiliate's hotel partnership 2 - 2 1
Foreign currency gain . . . . . . . . . . . . . . . 1 - - -
Amortization of deferred gain . . . . . . . . . . . - - - 1
--- --- --- ---
Income before minority interests . . . . . . . . . 8 11 11 12
Income attributable to minority interests . . . . . - - 1 1
--- --- --- ---
Income before income tax benefit
and extraordinary item . . . . . . . . . 8% 11% 10% 11%
=== === === ===
</TABLE>
1996 Third Quarter Compared to 1995 Third Quarter
Total revenues increased by 86%, or $19.1 million to $41.4 million in 1996
from $22.3 million in 1995. Total operating expenses increased by 81%, or
$15.3 million to $34.3 million in 1996 from $19.0 million in 1995. The
increase in total revenues and expenses was attributable principally to the
addition of the GHALP Properties resulting from the consummation of the GHALP
transaction on May 2, 1996, reflecting the consolidation of the results of the
GHALP Properties resulting from a change from an equity investment to a
leasehold interest. The GHALP Properties accounted for 79%, or $15.1 million
of the increase in total revenues and 90%, or $13.9 million of the increase in
total expenses. The increase in total revenues and expenses was also
attributable to the increase in the number of hotels in the hotel portfolio.
Hotel revenues increased by 133%, or $17.4 million, to $30.4 million in
1996 from $13.0 million in 1995. Approximately 87% of the increase, or $15.1
million was due to the GHALP Properties. The balance of the increase was the
result of the acquisition of four new hotels. As a percentage of total
revenues, hotel revenues increased to 73% in 1996 compared to 58% in 1995,
primarily reflecting the effects of consolidating the GHALP Properties.
The operating results of a company-owned Caribbean resort decreased from
the corresponding period in the prior year as a result of the disruption created
by several hurricanes this fall. However, this negative impact was offset by
the improved operating results of other existing hotels.
12
<PAGE> 14
Revenues from management fees increased by 41% or approximately $1.7
million to $6.0 million in 1996 from $4.3 million in 1995. Approximately
$910,000 of this increase resulted from new managed hotels added between
September 30, 1995 and September 30, 1996. Approximately $1.7 million of the
increase was attributable to increased management fees as a result of improved
operating results of the existing managed hotels. The increase also reflected
management fee revenues of approximately $301,000 as a result of the release
and discharge of the Company from its obligation to make payments to an
affiliate under an agreement. The increase was offset by approximately
$380,000 from the loss of certain management contracts and $837,000 from the
elimination of the revenues from GHALP Properties as a result of consolidating
the GHALP Properties into the Company.
Revenues from service fees increased by 19%, or approximately $189,000, to
$1.2 million in 1996 from $1.0 million in 1995, due primarily to increased
central accounting fees and higher revenues derived from the provision of
purchasing services. The increase was partially offset by the elimination of
service fees of approximately $182,000 earned from GHALP Properties as a result
of the consolidation of the results of operations of GHALP Properties.
Reimbursable revenues increased by 35% or approximately $1.0 million, to
$3.9 million in 1996 from $2.9 million in 1995. The increase was due to growth
of the hotel portfolio for the 1996 quarter as noted above in comparison to
1995, resulting in increased payments to the Company's Marketing Fund. The
increase was partially offset by approximately $449,000, reflecting the
elimination of reimbursable revenues from the GHALP Properties as a result of
consolidation of the operating results of GHALP Properties.
Other income decreased by 102%, or approximately $1.1 million, comparing
the 1996 quarter with the 1995 quarter. Included in the 1995 quarter was a fee
of $1.0 million recognized from the termination of a management contract.
Hotel expenses increased by 158%, or $14.7 million, to $23.9 million in
1996 from $9.2 million in 1995. The consolidation of results of operations of
the GHALP Properties accounted for $13.6 million, or 93%, of the increase. The
balance of the increase was the result of the acquisition of four new hotels.
As a percentage of total revenues, hotel expenses increased to 58% in 1996 as
compared with 42% in 1995, primarily reflecting the effects of consolidating
the GHALP Properties.
The Company did not recognize any equity participation expenses in the 1996
quarter. The primary component of the compensation expense was fixed at the
initial public offering price, and therefore is not incurred for periods
subsequent to the equity offering. See Prospectus.
Reimbursable expenses grew by 35%, or $1.0 million, to $3.9 million in 1996
from $2.9 million in 1995. As a percentage of total revenues, reimbursable
expenses constituted 9% of total revenues in 1996 compared with 13% in 1995.
These increases were primarily due to increased advertising and promotional
expense, as well as costs associated with expanding the Company's national
sales staff to support both individual business and group sales as a result of
growth of the hotel portfolio in 1996 as noted previously in comparison to
1995. Offset to the increase was a decrease of $449,000, reflecting the
elimination of reimbursable expenses from the GHALP Properties as a result of
the consolidation of the results of the operations of the GHALP Properties.
Depreciation and amortization expense increased by 33%, or approximately
$535,000, to $2.1 million in 1996 from $1.6 million in 1995 due to the net
acquisition of property and equipment and the amortization of the acquisition
costs of management contracts. Also included in the increase was approximately
$331,000 from amortization of deferred debt issuance costs relating to the
Notes and the Revolving Credit Facility.
Interest income increased by approximately $626,000 to $719,000 in 1996
from approximately $93,000 in 1995. The increase was primarily attributable to
approximately $428,000 to income earned on unused cash generated from the
Offerings and income on notes receivable.
Interest expense increased by 58%, or $1.2 million, to $3.4 million in 1996
from $2.2 million in 1995, reflecting the additional interest from the Notes,
capital leases and bank fees, less the elimination of interest expense from the
retired debt and affiliated borrowings.
Earnings from the Company's equity investment in hotel partnership ceased
following the May 2, 1996 consolidation of the results of operations of GHALP
Properties.
13
<PAGE> 15
Income attributable to minority interest was eliminated as a result of the
acquisition of the minority interest as part of the Company's formation.
Reference is made to the Prospectus.
As a result of the changes noted above, income before income tax provision
increased by 168% or $2.9 million, to $4.6 million in 1996 from $1.7 million in
1995.
Income taxes of $1.8 million represent the tax provision for the results of
operations for the 1996 quarter. The operations of the entity were not taxable
for 1995.
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1995
Total revenues increased by 56%, or $36.4 million to $101.9 million in 1996
from $65.5 million in 1995. Total operating costs and expenses increased by
58%, or $31.0 million to $84.4 million in 1996 from $53.4 million in 1995.
The increase in total revenues and operating expenses was attributable
principally to the addition of the GHALP Properties resulting from the
consummation of the GHALP Properties transaction on May 2, 1996 and to an
increase in the number of hotels in the hotel portfolio.
Hotel revenues increased by 71%, or $29.6 million, to $71.3 million in 1996
from $41.7 million in 1995. Approximately 84% of the increase, or $24.8
million was due to the GHALP Properties. The balance of the increase was the
result of an increase in hotel room rental revenues and the acquisition of four
new hotels.
Revenues from management fees increased by 39%, or approximately $4.7
million, to $16.5 million in 1996 from $11.9 million in 1995. Approximately
$2.5 million of this increase resulted from 20 new managed hotels added between
September 30, 1995 and September 30, 1996. Approximately $3.7 million of the
increase was attributable to increased management fees as a result of improved
operating results of managed hotels. The increase also reflected management
fee revenues of approximately $624,000 as a result of the release and discharge
of the Company from its obligation to make payments to an affiliate under an
agreement. The increase was offset by $876,000 from the loss of certain
management contracts and $1.2 million which was attributable to the elimination
of management fees earned from GHALP Properties as a result of the
consolidation of the results of operations of GHALP Properties.
Revenues from service fees increased by 5%, or approximately $137,000 to
$3.0 million in 1996 from $2.8 million in 1995. The increase was primarily due
to increased central accounting fees. The increase was offset by approximately
$201,000 attributable to the elimination of service fees earned from GHALP
Properties, reflecting the consolidation of the results of GHALP Properties.
Reimbursable revenues increased by 40%, or $3.1 million, to $10.8 million
in 1996 from $7.7 million in 1995. The increase was due to growth of the hotel
portfolio for 1996 as noted previously in comparison to 1995, resulting in
increased payments to the Company's Marketing Fund. The increase was partially
offset by approximately $818,000 reflecting the elimination of reimbursable
revenues earned from the GHALP Properties as a result of the consolidation of
the results of operations of GHALP Properties.
Other income decreased by 76%, or $1.0 million in 1996. Other income
included $1.0 million and approximately $250,000 in fees recognized from
termination of management contracts in 1995 and 1996, respectively.
Hotel expenses increased by 86%, or $24.1 million, to $52.2 million in 1996
from $28.1 million in 1995, reflecting the additional hotel expenses from GHALP
Properties as a result of the consolidation of the results of operations of
GHALP Properties. Approximately 93% of the increase, or $22.5 million, was a
result of the consolidation of the GHALP Properties. The increase also
reflected an increase in room expenses and food and beverages expenses
commensurate with revenue increases. These increases were offset by a $544,000
reduction in hotel expense resulting from the write-off of a reserve for
contingent liabilities as a result of the final settlement of contract
assignments on one of the Company's hotel properties. As a percentage of hotel
revenues, hotel expenses increased to 73% in 1996 from 67% in 1995. The
increase in hotel expense percentage was primarily attributable to a $5.7
million lease payment associated with the GHALP Properties. Excluding the
GHALP Properties lease payment and the reversal of contingent liabilities, the
percentage of hotel expenses to hotel revenues would have been 65%.
14
<PAGE> 16
SG&A expenses increased by 27%, or $2.8 million, to $12.9 million in 1996
from $10.1 million in 1995. As a percentage of total revenues, SG&A expenses
decreased to 13% in 1996 from 15% in 1995. Of the increase in SG&A expenses,
79% of the increase, or $2.2 million was due to increased wage, contract labor
and benefit costs arising from the addition of corporate management and staff
personnel related to the general growth of the Company. In addition, 10% of
the increase, or approximately $281,000, is due to the establishment of a
provision for bad debt expense for management fees on an unaffiliated hotel,
and 12% or $321,000 is due to the establishment of a provision for bad debt
related to certain receivables. The increase also reflected additional costs of
managing and administering a publicly held company.
Equity participation compensation expenses decreased by 3%, or
approximately $75,000, to $2.9 million in 1996 from $3.0 million in 1995. The
primary component of the compensation expense, which is that attributable to
the senior executive officers, was fixed at the initial public offering price,
and the Company will not incur additional expense for such component for
periods subsequent to the equity offering. See Prospectus.
Reimbursable expenses grew by 40%, or $3.1 million, to $10.8 million in
1996 from $7.7 million in 1995. As a percentage of total revenues,
reimbursable expenses decreased to 11% in 1996 from 12% in 1995. These
increases were primarily due to increased advertising and promotional expense,
as well as costs associated with expanding the Company's national sales staff
to support both individual business and group sales as a result of growth of
the hotel portfolio in 1996 as noted previously in comparison to 1995.
Offsetting the increase was a decrease of $818,000 reflecting the elimination
of reimbursable expenses from the GHALP Properties as a result of the
consolidation of the results of the operations of GHALP Properties.
Depreciation and amortization expense increased by 23%, or $1.0 million, to
$5.6 million in 1996 from $4.6 million in 1995 due to the net acquisition of
property and equipment and the amortization of the acquisition costs of
management contracts. Also included in the increase was approximately $441,000
from the amortization of deferred debt issuance costs relating to the Notes and
the Revolving Credit Facility.
Interest income increased by $1.3 million to $1.5 million in 1996 from
approximately $240,000 in 1995. The increase was primarily attributable to
approximately $671,000 income earned on unused cash generated from the
Offerings and approximately $557,000 income on notes receivable.
Interest expense increased by 32%, or approximately $2.1 million, to $8.5
million in 1996 from $6.4 million in 1995, reflecting the additional interest
from the Notes, capital leases, less the elimination of interest expense from
the retired debt and affiliated borrowings.
Earnings from the Company's equity investment in hotel partnership ceased
following the May 2, 1996 consolidation of the results of operations of the
GHALP Properties.
Income attributable to minority interest was eliminated as a result of the
acquisition of the minority interest as part of the Company's formation.
Reference is made to the Prospectus.
As a result of the changes noted above, income before income tax benefit
increased by 62%, or $4.3 million, to $11.2 million in 1996 from $6.9 million
in 1995.
Income tax benefit of $10.7 million reflected the effect of recording
deferred income taxes arising as a result of incorporation in the amount of
$13.0 million, net of $2.3 million for the provision for the results of
operations since incorporation.
The extraordinary item of $1.1 million was a writeoff of the unamortized
debt costs of $1.4 million as the Company's pre-existing debt was paid off at
the Company's formation, net of applicable tax of approximately $270,000.
15
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital and liquidity needs include cash to finance
operations, capital requirements relating to ongoing hotel maintenance and
improvements at the Company's owned and leased hotels, capital requirements
associated with the Company's entry into new management contracts and
improvements to the related hotel properties, hotel acquisition financing and
the repayment of indebtedness. The Company has historically satisfied its
capital and liquidity needs through cash generated by operations, mortgage
indebtedness and commercial debt financing.
During the nine months ended September 30, 1996, the Company generated cash
from operations of $2.5 million as compared to $8.5 million in the 1995 period.
On acquired properties, the Company intends to make renovations of
approximately $15.7 million and make improvements of approximately $3.2 million
on an existing resort property.
During the quarter ended June 30, 1996, the Company consummated the
formation and the Offerings. The Company received net proceeds from the
Offerings in the aggregate amount of $161 million. These proceeds, including
the "Bedrock" contribution of $10.0 million (as described in the Prospectus),
were used to implement the Company's formation and financing plan. Remaining
proceeds will be applied in accordance with the formation and financing plan.
See Prospectus.
The Company issued $100 million in 10-1/2% Senior Subordinated Notes which
are due in 2006. The Notes are unsecured obligations of the Company and are
guaranteed by each of the Company's subsidiaries (except for a number of
inconsequential subsidiaries). The Notes bear interest at 10-1/2% per annum
and such interest is payable semi-annually on May 15 and November 15,
commencing November 15, 1996. Except in the event of a "change of control" (as
defined), there will be no principal due on the Notes prior to final maturity.
The Indenture relating to the Notes contains certain covenants restricting the
Company's ability to incur indebtedness and otherwise limiting the Company's
activities.
The Company also obtained a $100 million revolving line of credit in May,
1996 (the "Revolving Credit Facility"). The Revolving Credit Facility is a
direct obligation of the Company and is fully and unconditionally guaranteed by
each of the Company's subsidiaries. Such obligations and guaranties rank
senior in right of payment to the Notes and are secured by substantially all of
the assets of the Company and subsidiaries. While no amounts had been drawn
under the Revolving Credit Facility at September 30, 1996, approximately $43.1
million aggregate principal amount was available for borrowings at such date in
accordance with the terms of the Revolving Credit Facility. Availability under
the Revolving Credit Facility is subject, among other things, to a borrowing
base test calculated with reference to the cash flow from the Company's hotels,
hotel properties and management contracts pledged to secure the obligations of
the Company under the Revolving Credit Facility, the location of certain of
such properties, the terms of such management contracts, the relative
contribution to the borrowing base of the different values attributed to such
properties and the values attributable to both the properties taken as a whole
and the management contracts taken as a whole and other factors. Under the
terms of the Revolving Credit Facility, no further borrowings may be made by
the Company following the third anniversary of the closing of the Revolving
Credit Facility. The Revolving Credit Facility will mature four years from its
closing date. Amounts drawn under the Revolving Credit Facility bear interest
at a variable rate. The Revolving Credit Facility contains covenants requiring
the Company to maintain certain financial ratios and certain covenants
restricting the activities of the Company.
The Company assumed $9.7 million in bond indebtedness as part of the
acquisition of the Wyndham Vinings Hotel.
The Company does not intend to declare any cash dividends in the
foreseeable future. The Company anticipates that cash provided by operations,
the Offerings and the Revolving Credit Facilities discussed above and in the
Prospectus will be sufficient to meet anticipated cash requirements in the near
future.
16
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
FINANCIAL STATEMENTS OF ACQUIRED PROPERTY
On August 30, 1996, the Company acquired a 287 room hotel, the Bristol
Hotel, from an unaffiliated party. The audited financial statements of the
Bristol Hotel for the year ended December 31, 1995 as required by Rule 3-05 of
Regulation S-X are presented as Exhibit 99 to this report.
PRO FORMA FINANCIAL INFORMATION
The following pro forma financial information are presented in accordance
with Regulation S-X to reflect the acquisition of Bristol Hotel as if it had
occurred at the beginning of the year (in thousands, expect per share data):
<TABLE>
<CAPTION>
Historical Pro Forma Pro Forma
Data Adjustments Data
---------- ----------- ---------
<S> <C> <C> <C>
Nine months ended September 30, 1995:
Total revenues $ 65,501 $ 7,597 $ 73,098
Net income 6,901 (9) 6,892
Earnings per share (primary and fully diluted) N/A - N/A
Nine months ended September 30, 1996:
Total revenues $101,941 $ 6,533 $108,474
Income before extraordinary item 21,560 (267) 21,293
Net income 20,429 (267) 20,162
Earnings per share (primary and fully diluted)
Income before extraordinary items 1.08 (.01) 1.07
Net Income 1.02 (.01) 1.01
</TABLE>
NEW MANAGEMENT CONTRACT
On August 26, 1996, a subsidiary of the Company entered into a master
management assistance agreement (the "Agreement) with Homegate Hospitality,
Inc., a newly formed public company, to be the exclusive provider of hotel
management, purchasing, marketing and technical services for extended-stay
hotel properties. The hotel properties are operated under the name Homegate
Studios and Suites and are targeted principally at business travellers and
professionals on temporary work assignments who typically spend a week or more
in one location. The Agreement provides for the Company to manage up to sixty
extended-stay properties pursuant to separate 10 year management contracts.
The Agreement terminates upon the earlier of the signing of a management
contract for the sixtieth hotel or December 31, 1998. For the term of the
Agreement, the Company has agreed, subject to certain exceptions, not to own,
operate or manage competing extended-stay hotel properties. As of September
30, 1996, the Company managed six Homegate Studios & Suites Hotels.
17
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number
(10.1) Management contract between Homegate Hospitality, Inc. and
Wyndham Hotel Corporation, dated August 26, 1996.
(11) Computation of Earnings Per Share.
(27) Financial Data Schedule.
(99) Audited Financial Statements of Acquired Property.
(b) Reports on Form 8-K:
Form 8-K dated September 16, 1996 reporting WHC's acquisition of
a hotel property in Toronto, Canada on August 30, 1996. No financial
statements were included. However, the financial statements of the
acquired property and proforma financial information of WHC required
in accordance with Regulation S-X are included in "Part II Item 5.
Other Information" and Exhibit 99 of this report.
18
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WYNDHAM HOTEL CORPORATION
-------------------------
(Registrant)
Date: November 13, 1996 By: /S/ JAMES D. CARREKER
--------------------------------------
James D. Carreker
President and Chief Executive Officer
Date: November 13, 1996 By: /S/ ANNE L. RAYMOND
--------------------------------------
Anne L. Raymond
Chief Financial Officer, Executive
Vice President and Director (principal
Financial Officer)
<PAGE> 21
EXHIBIT INDEX
Exhibit
Number
10.1 Management contract between Homegate Hospitality, Inc. and Wyndham
Hotel Corporation, dated August 26, 1996.
11 Computation of Earnings Per Share.
27 Financial Date Schedule.
99 Audited Financial Statements of Acquired Property.
<PAGE> 1
EXHIBIT 10.1
EXTENDED-STAY
MANAGEMENT ASSISTANCE AGREEMENT
This Extended-Stay Management Assistance Agreement (this
"AGREEMENT") is entered into as of August 26,1996, between EXTENDED STAY
LIMITED PARTNERSHIP, a Delaware limited partnership ("OWNER"), and WYNDHAM
MANAGEMENT CORPORATION, a Delaware corporation ("MANAGER").
RECITALS
Owner intends to acquire and develop mid-priced, extended-stay lodging
facilities ("HOTELS") and has requested that Manager enter into certain
agreements regarding the provision of services in connection therewith. Manager
desires to manage the Hotels and provide the other services set forth herein.
AGREEMENTS
For valuable consideration, whose receipt and sufficiency are
acknowledged, the parties agree as follows:
1 TERM. The term of this Agreement (the "TERM") shall begin on
the date hereof and continue through the earlier of December 31, 1998, or the
date on which a Management Agreement (defined below) is executed by Owner and
Manager for the 60th Hotel pursuant to the terms hereof-, however, if (a) Owner
sells all or substantially all of its assets to a person that is not an
Affiliate (defined below) of Owner or (b) if a person (which is not an
Affiliate of the persons currently owning the beneficial interests in Owner)
acquires control of Owner, directly or indirectly through one or more
intermediaries, then either Owner or Manager may terminate this Agreement by
delivering at least 60-days' prior written notice thereof to the other party.
"AFFILIATE" means another person that directly or indirectly through one or
more intermediaries, controls, is controlled by or is under common control with
the person in question. The term "CONTROL" means the possession, direct or
indirect, of power to direct or cause the direction of the management policies
of a person, whether through the ownership of voting securities or otherwise
and shall in any event include ownership or power to vote 50% or more of the
outstanding equity interests of such person, but shall not include, in and of
itself, changes in the members of the board of directors of a person that is a
corporation. The term "person" means a person or entity. The extended-stay
facility located in Grand Prairie, Texas and currently operated under the name
"Studio Suites" shall be a Hotel for which a Management Agreement has been
entered.
2 TECHNICAL SERVICES. Manager shall assist Owner in developing
interior and exterior design concepts and detailed purchasing specifications
for Owner's prototype Hotel. Owner and Manager acknowledge the services
described in the previous sentence regarding exterior design have been
performed. For such services, Owner shall pay Manager $25,000 in five
installments of $5,000 each, with one installment being due upon the execution
of each of the first five Management
1
<PAGE> 2
Agreements (defined below). If Owner desires Manager's services in connection
with a material change in the interior or exterior design or purchasing
specifications for its Hotel, then Owner and Manager shall enter into a
technical services agreement, in form and substance reasonably satisfactory to
each party, for such services.
3 MANAGEMENT. If, during the Tenn, Owner or an Affiliate
thereof acquires a Hotel or acquires land for the construction of a Hotel,
then, subject to the following sentences, Owner and Manager shall enter into a
ten-year Management Agreement for the Hotel in question, whose form is attached
as Exhibit A (the "MANAGEMENT AGREEMENT"); however, the Management Agreements
for the five hotels owned by VPS I, Ltd. shall not provide for any termination
fee in connection with the termination thereof and shall provide such incentive
fee as Owner and Manager may agree upon. Manager shall not be required to enter
into a Management Agreement for a Hotel if Manager reasonably determines in
good faith that its management of that Hotel could reasonably be expected to
(a) subject Manager to any material liability that is not typically incurred in
the hotel management business or (b) cause Manager to violate any law, court
order, or presently existing contractual obligations or restrictions. If
Manager makes such determination, then it shall so advise Owner within ten
business days after Manager receives (1) notice from Owner of Owner's intention
to acquire the Hotel or site in question and (2) all relevant information
necessary to make such determination. If Owner intends to acquire a site or
Hotel that is located outside of the Protected States (defined below) and
Manager has a then-existing business relationship with a lodging facility
("EXISTING COMPETING PROJECT") which would be a Competing Extended-Stay Project
(based upon the stabilized pro forma average weekly rates for the Hotel to be
acquired or developed by Owner) but for its location outside of the Protected
States, then Owner shall notify Manager of its pending acquisition and Manager
shall within 30 days following the receipt of such notice from Owner, notify
Owner that Manager will (A) terminate its business relationship with the
Existing Competing Project prior to the scheduled opening date of the Hotel in
question or (B) decline management of the Hotel in question. If Manager
determines not to manage a Hotel pursuant to the previous two sentences, then
Owner may self-manage or engage any other party to manage such Hotel without
payment of any fee to Manager of any kind.
4 MARKETING SERVICE. Upon Owner's request, Manager shall
perform the following services: (a) provide Owner with marketing research for
locations designated by Owner and assist Owner in determining the suitability
of the acquisition or development of Hotel sites; and (b) promote Hotels which
are subject to Management Agreements through national and local marketing
programs consisting of advertising, promotion, publicity and public relations
designed to attract guests to Hotels, as provided in each individual Management
Agreement. Owner and Manager shall enter into a MIS service agreement under
which Manager shall assist Owner in developing a property management system and
related software for Hotel operations, which shall be in form and substance
reasonably satisfactory to Owner and Manager.
5 PURCHASING ASSISTANCE. Owner and Manager shall enter a
purchase agreement under which Owner shall use Manager's purchasing procurement
department to acquire furniture, fixtures, and equipment and operating supplies
to be used in the Hotels (collectively, "OPERATING EQUIPMENT "). Such agreement
shall be in form and substance reasonably satisfactory to Owner and Manager and
shall provide, among other things, the following: Owner shall pay Manager a
commission equal to 5% of the aggregate purchase price of all items acquired
under such agreement;
2
<PAGE> 3
Owner may terminate the agreement at any time by delivering to Manager at least
90-days' prior written notice thereof, provided that Owner either (a)
reimburses to Manager the amount of penalties or lost discounts under then-
pending volume-discount contracts entered into with Owner's prior written
approval, but only to the extent such lost discounts or penalties were caused
by such termination and are not related to items or quantities that reasonably
can be used at other properties managed or operated by Manager; and such
reimbursement shall be made within ten days after Manager delivers to Owner
evidence reasonably satisfactory to Owner evidencing such lost discounts or
penalties; or (b) allows Manager to continue purchasing the Operating Equipment
that is the subject of such volume-discount contract for the then-remaining
term of such volume-discount contract.
6 NON-COMPETITION.
(a) DEFINITIONS. When used in this Section 6, the
following terms shall have the following meanings:
"COMPETING EXTENDED-STAY PROJECT" means a lodging facility in
any of the Protected States whose primary business is the leasing or providing
of hotel rooms to guests for average stays of one week or more for a price that
is within 20% of (1) the stabilized pro forma average weekly rates for Hotels
planned or under construction in the applicable market of the Protected State
in question or (2) if a Hotel has been completed in such market, the average
weekly rates for completed Hotels operating in the applicable market of the
Protected State.
"PORTFOLIO PROJECT" means a Competing Extended-Stay Project
acquired in connection with (1) the direct or indirect acquisition of a
controlling interest in another person which owns or manages hotel facilities
which include Competing Extended-Stay Projects or (2) the direct or indirect
acquisition in a single transaction of a controlling interest in hotel
facilities which include Competing Extended-Stay Projects (a "Portfolio
Transaction").
"PROTECTED STATE" means (1) each of the States described on
Exhibit B and (2) other states in the 48 continental United States in which a
Hotel exists for which Owner and Manager have actually entered into a
Management Agreement.
"RESTRICTED RADIUS" means the area in which Manager is
prohibited from competing against Owner in the extended-stay lodging business
under a Management Agreement, subject to the terms and conditions set forth
therein.
(b) Manager shall not directly or indirectly, through one
or more intermediaries, and shall cause its Affiliates not to, construct, own,
operate or manage any Competing Extended-Stay Project during the Term, except
as provided below. If Manager acquires a Portfolio Project, in a Protected
State, then Manager may continue to own, operate or manage the Portfolio
Project unless it is within a Restricted Radius, in which case, Manager shall
either (1) terminate its business relationship with the Portfolio Project
within the Restricted Radius or (2) terminate the Management Agreement for the
Hotel in the Restricted Radius (in which case, no termination fee shall be
payable in connection therewith). Such election shall be made by Manager within
30 days after the Portfolio Transaction in question occurs and any termination
shall be effective no earlier than 45 nor later than
3
<PAGE> 4
90 days after such election. If Manager elects to terminate the Management
Agreement for the Hotel in the Restricted Radius, Owner may elect to keep such
Management Agreement in effect by delivering to Manager written notice thereof,
in which case Manager shall continue to manage such Hotel and may own, operate,
or manage the Portfolio Project in the Restricted Radius. From time to time,
Owner and Manager, may, by mutual agreement, add additional Protected States or
delete states as Protected States to this Agreement by signing and attaching a
new Exhibit B hereto including such State as a Protected State. This non-
competition provision is a material inducement to the execution of this
Agreement by Owner, and is consideration therefor. Manager acknowledges and
stipulates that the non-competition provisions of this Section are reasonable
in light of Owner's agreement to allow Manager to manage Hotels and Owner's
intended expansion plans for developing Hotels during the Term. In addition to
all of the other rights and remedies therefor, each of Manager and Owner shall
be entitled to injunctive relief if either party violates the terms of this
Agreement.
7 SEVERABILITY. If any provision hereof is found to be invalid
or unenforceable, all the other provisions shall remain in full force and
effect to the maximum extent permitted by law and such invalid or unenforceable
provisions shall be interpreted and deemed to be modified so as to give effect
to the intent and purpose thereof to the fullest extent permitted by law.
8 NOTICES. All notices provided or permitted to be given under
this Agreement must be in writing and may be served by depositing the notice in
the United States Mail addressed to the party to be notified, postage prepaid,
registered or certified with return receipt requested; by delivering the notice
in person to such party or by overnight courier service; or by facsimile
transmission. Notice given in accordance herewith shall be effective when
delivered to the address of the addressee. The address for notices for each
party hereto is set forth under its signature to this Agreement. Any party may
change its address for notice by giving three-days' prior written notice
thereof to the other parties.
9 BINDING EFFECT, GOVERNING LAW. This Agreement shall be
binding on Owner and Manager and their respective successors and assigns.
Except as provided below, neither Owner nor Manager may assign its rights or
delegate its obligations hereunder without the prior written consent of the
other, which may be withheld or granted in its sole discretion. Owner may,
without Manager's consent, assign all of its rights and obligations hereunder
to Homegate Hospitality, Inc. ("Homegate") in a merger in which Owner merges
with Homegate in connection with an initial public offering of the common stock
of Homegate, in which case, Owner shall be relieved of all obligations and
liabilities hereunder. Manager may, without Owner's consent, assign its
interest in this Agreement to any Affiliate of Manager having full right, power
and authority to provide to Owner all services and organizational expertise
(including applicable trademarks, service marks and marketing services) which
Manager is required to provide hereunder, provided that all then-existing
Management Agreements are assigned to such Affiliate or (b) any assignee which
also acquires all, or substantially all, of the assets of Manager (including
all then-existing Management Agreements) and assumes its obligation, provided
such assignee is financially responsible and capable of performing the duties
of manager hereunder. This Agreement shall be governed by Texas law.
10 GRANT OF RIGHT OF FIRST REFUSAL. As an inducement to Manager
to enter into this Agreement, Owner hereby agrees to cause Wyndham Hotel
Corporation to be granted, prior to or concurrently with the closing of any
initial public offering of equity securities of Homegate, a right
4
<PAGE> 5
of first refusal to acquire the equity interest in Homegate then or thereafter
beneficially held by CRI/ESH Partners, L.P., Harlan Crow or any affiliate of
either of them or of Crow Family, Inc. (for purposes hereof, such affiliates
are not to include Homegate, JMI/Greystar Extended Stay Partners, L.P., or
JMI/Greystar Extended Stay Partners, L.P.'s affiliates). Such right of first
refusal shall be exercisable in connection with any proposed sale of the
securities covered thereby into the public market pursuant to Rule 144 under
the Securities Act of 1933, as amended, or pursuant to a shelf registration
statement filed pursuant to such Act and such right of first refusal otherwise
shall be on such terms as Wyndham Hotel Corporation and such parties may agree.
Executed as of the date first written above.
EXTENDED STAY LIMITED PARTNERSHIP, a
Delaware limited partnership
By: ESH Partners, L.P., a Texas limited partnership and
its general partner
By: Crow Family, Inc.
By:
----------------------------------------
Name:
--------------------------------------
Its:
---------------------------------------
Address:
-----------------------------------
----------------------------------
WYNDHAM MANAGEMENT CORPORATION
By:
---------------------------------------------------------
Name:
-------------------------------------------------------
Title:
------------------------------------------------------
Address:
----------------------------------------------------
---------------------------------------------------
5
<PAGE> 6
CONSENT
This undersigned hereby consents to and agrees to be bound by the terms of
Section 6 hereof.
WYNDHAM HOTEL CORPORATION
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
6
<PAGE> 7
EXHIBIT B
THE PROTECTED STATES
Alabama Mississippi
Arizona Missouri
Arkansas Nevada
California New Mexico
Colorado North Carolina
Florida Ohio
Georgia Oklahoma
Illinois Oregon
Indiana South Carolina
Iowa Tennessee
Kansas Texas
Louisiana Utah
Minnesota Virginia
Washington
B-1
<PAGE> 8
EXHIBIT A
STANDARD FORM
EXTENDED STAY PROGRAM
---------------
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT ("Agreement") is made and entered into as of
________________, 199_ by and between HOMEGATE HOSPITALITY, INC., a Delaware
corporation, whose address is ________________________ (the "Owner") and
WYNDHAM MANAGEMENT CORPORATION, a Delaware corporation, whose address is 2001
Bryan Tower, 2001 Bryan Street, Suite 2300, Dallas, Texas 75201 (the
"Manager").
RECITALS:
Owner owns ___________________ title to the Site (hereinafter defined)
and all improvements now situated thereon.
Owner desires to retain Manager's services in managing and operating
the hotel situated on the Site and Manager is willing to provide such services,
all upon the terms and conditions set forth in this Agreement. For and in
consideration of the premises and of the mutual covenants and agreements set
forth herein, Owner and Manager agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms. Certain terms in this Agreement have been
given specially defined meanings. The defined terms may be used in the singular
or plural or in varying tenses or forms, but such variations shall not affect
their defined meaning so long as they are written with initial capital letters.
Section 1.2 Definitions. As used herein, the following terms shall
have the respective meanings indicated:
Adjusted Owner's Yield on Cost for any period shall mean (i) if
Owner's Yield on Cost for such period is less than (13%), the Owner's Yield on
Cost for such period; (ii) if Owner's Yield an Cost for any period equals or
exceeds thirteen percent (13%) but is less than sixteen percent (16%), a
fraction, expressed as a percentage, the numerator of which shall be the amount
determined by subtracting from Operating Cash Flow for such period an amount
equal to one percent (1%) of Gross Revenues for such period, and the
denominator of which shall be the average Owner's Cost for such period; and
(iii) if Owner's Yield on Cost for any period equals or
<PAGE> 9
MANAGEMENT AGREEMENT
exceeds sixteen percent (160%), a fraction, expressed as a percentage, the
numerator of which shall be the amount determined by subtracting from Operating
Cash Flow for such period an amount equal to two percent (2%) of Gross Revenues
for such period, and the denominator of which shall be the sum of the average
Owner's Cost for such period. In the case of any period of less than twelve
(12) calendar months, the result of the calculation pursuant to the preceding
sentence shall be adjusted to an annualized percentage based on a full calendar
year. The following table illustrates the foregoing provisions:
Owner's Yield on Cost Adjusted Owner's Yield on
for applicable period* Cost for applicable period*
--------------------- --------------------------
Less than 13% Owner's Yield on Cost (i.e.,
no adjustment)
13% or greater (Operating Cash Flow for
but less than 16% such period minus 1%
of Gross Revenues
for such period)
------------------------
Average Owner's Cost for
such period
16% or greater (Operating Cash Flow for
such period minus 2%
of Gross Revenues
for such period)
------------------------
Average Owner's Cost for
such period
- -------------------
* To be annualized in respect of any period of less than twelve (12)
calendar months.
Affiliate shall mean any person or entity that directly or indirectly
through one or more intermediaries, controls, is controlled by or is under
common control with another person or entity. The term "control" shall mean the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies of a person, whether through the ownership of
voting securities, by contract or otherwise, and shall in any event include the
ownership or power to vote fifty percent (50%) or more of the outstanding
equity interests of such other person. Notwithstanding the foregoing, for
purposes of this Agreement,
- 2 -
<PAGE> 10
MANAGEMENT AGREEMENT
Owner and Manager in any event shall not be "Affiliates" of one another.
Annual Plan shall mean an annual plan for the operation of the Project
prepared by the Manager and approved by Owner in accordance with Section 6.1,
consisting of the Operating Budget, Capital Improvements Budget and FF&E Budget
and a description or narrative which shall reasonably describe the methods to
be employed and the strategies to be adopted in order to achieve the results
set forth in such Budgets.
Average Monthly Management Fee shall mean (a) after this Agreement has
been in effect for a period of at least twelve (12) calendar months following
the Opening Date, one-twelfth (1/12) of the total Management Fees for the
twelve (12) full calendar months immediately preceding the event requiring a
determination of the Average Monthly Management Fee or (b) prior to such time
as this Agreement has been in effect for twelve (12) calendar months following
the Opening Date, the monthly average of the Management Fees for the number of
full calendar months following the Opening Date during which this Agreement has
been in effect.
Base Fee in respect of any period shall mean an amount equal to three
percent (3%) of Gross Revenues for such period.
Capital Improvements shall mean any and all major alterations and
improvements to the Hotel and all major repairs and replacements to the
structural, mechanical, electrical, HVAC, plumbing or vertical transportation
elements of the Hotel other than certain non-routine repairs and maintenance to
the Project which are normally capitalized under generally accepted accounting
principles.
Capital Improvements Budget shall mean each annual budget prepared by
the Manager and approved by Owner as part of the Annual Plan, reflecting the
estimated costs for all Capital Improvements which in the reasonable opinion of
Manager are necessary to keep and maintain the Project during the applicable
Operating Year in good condition and in keeping with the Operating Standards.
Capital Transaction shall mean any sale, transfer or other disposition
for value or any refinancing of all or any substantial part of the Project.
Competing Extended-Stay Project shall mean a lodging facility that is
similar in operation to the Hotel and whose primary
- 3 -
<PAGE> 11
MANAGEMENT AGREEMENT
business is the leasing or providing of hotel rooms to guests for average stays
of one week or more for a price that is within twenty percent (20%) of the
average weekly rate for the Hotel.
Condemnation shall mean the acquisition of all or any portion of the
Project by any Governmental Authority having the power of condemnation or
eminent domain, by compulsory acquisition, conveyance in lieu of or under
threat of condemnation or like procedure.
Cumulative CPI Percentage, as of any adjustment date for the amounts
referred to in Section 7.5, shall mean a fraction (expressed as a percentage),
the numerator of which is the Consumer Price Index (all items) for all Urban
Consumers, All Cities (198284 = 100) (the "CPI Index") as of such adjustment
date and the denominator of which is the CPI Index as of the end of the first
Operating Year.
Default Rate shall mean the lesser of (i) the Prime Rate plus four
percent (4%) or (ii) the highest lawful rate permitted by applicable Legal
Requirements.
Demonstrable Negligence shall have the meaning provided therefor in
Section 8.4(a).
Effective Date shall mean the date on which Manager commences
performing Preopening Services pursuant to Section 3.5 in preparation for the
Opening Date.
Executive Personnel shall mean the general manager and any other key
executive of the Project designated by Manager.
Fair Market Share Penetration refers to the performance of the
Project, measured on the basis of revenue per available room ("REVPAR"),
relative to its competition in its market area. REVPAR is defined as. net room
revenue (defined according to the Uniform System of Accounts), divided by the
number of annualized rooms available in the Project. The Project's Fair Market
Share Penetration shall be the ratio of the Project REVPAR, divided by the
market average REVPAR for the defined competitive set. For purposes of this
Agreement, the defined competitive set shall include the Project and the
following hotels:
Hotel Rooms
------------------------- -------------------------
- 4 -
<PAGE> 12
MANAGEMENT AGREEMENT
------------------------- -------------------------
------------------------- -------------------------
------------------------- -------------------------
The competitive set may be redefined from time to time by mutual agreement of
Owner and Manager.
Fixed Charges shall have the meaning provided therefor in the Uniform
System of Accounts.
Force Majeure shall mean acts of God, war, insurrection, civil
commotion, riots, strikes, lockouts, embargoes, shortages of labor or materials
specified or reasonably necessary in connection with the construction,
refurbishment, equipping, ownership or management of the Project, fire,
unavoidable casualties, failure of any applicable Governmental Authority to
issue required Governmental Permits and any other occurrence, event or
condition (excluding financial difficulty) beyond the reasonable control of
Owner or Manager, whichever shall be applicable.
FF&E shall mean all furniture, fixtures, furnishings and specialized
equipment and systems (exclusive of Operating Equipment) necessary or
customary (now or in the future) in the reasonable opinion of Manager in order
to operate the Project in accordance with the terms of this Agreement and the
Operating Standards, including but not limited to all equipment required for
the operation of kitchens, laundries, dry cleaning facilities and bars, special
lighting and other equipment, signs, carpets, drapes, shades, tapestries,
pictures, paintings, beds, mattresses, chairs, desks, tables, sofas, wall
coverings, televisions, radios, intercoms, telephones and office equipment and
machinery.
FF&E Budget shall mean each annual budget prepared by the Manager and
approved by Owner as part of the Annual Plan, reflecting the estimated costs
and expenses for all FF&E which in the reasonable opinion of Manager are
necessary or customary in order to operate the Project during the applicable
Operating Year in accordance with the terms of this Agreement and the Operating
Standards.
Governmental Authority shall mean the United States of America, State
of _____________ , County of ______________, City of ________________
and any political or other subdivision of any of the foregoing, and any agency,
department, commission, board,
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MANAGEMENT AGREEMENT
bureau, court or instrumentality of any of them which now or hereafter has
jurisdiction over the Owner, the Manager, any part of the Project or operation
or management of the Project.
Governmental Permits shall mean all certificates, licenses and permits
from any Governmental Authority required to evidence full compliance by Owner
or Manager with all Legal Requirements or required to evidence conformance of
the Project with all Legal Requirements.
Gross Revenues in respect of any period shall mean all revenues,
receipts and income of Owner of every kind derived directly or indirectly
during such period from all or any part of the Project, as finally determined
on an accrual basis in accordance with the Uniform System of Accounts and
generally accepted accounting principles consistently applied, including but
not limited to (i) all rentals and charges for guest rooms, suites and-public
rooms, including but not limited to all charges for room reservations and
deposits not refunded to guests; (ii) all sales or leases of miscellaneous and
sundry merchandise and services including but not limited to laundry, valet,
garage, parking, telephone, telex, telecopy, check room, vault and other
miscellaneous services, cover and minimum charges for guest entertainment, fees
charged for the temporary use of facilities at the Project, all sales through
vending machines and all other receipts from business conducted by, through or
under Manager at, in, on, about or from the Project; (iii) all business
interruption insurance awards received in respect of the Project; (iv)
Condemnation awards for temporary use of the Project; and (v) all rentals,
fees, commissions, concessions and other payments derived from lessees,
licensees and concessionaires. Gross Revenues for any such period shall not
include:
(1) Excise, sales and use taxes or similar impositions collected
directly from patrons or guests or included as part of the sales price of any
goods or services and paid to any Governmental Authority, such as gross
receipts, admission or similar equivalent taxes;
(2) Sales and other receipts of tenants, licensees and
concessionaires, except to the extent payable as rent under a lease or
occupancy agreement;
(3) Insurance proceeds (subject, however, to the inclusion of
business interruption insurance awards as provided in clause (iv) above);
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MANAGEMENT AGREEMENT
(4) Condemnation awards, except as provided in clause (v) above;
(5) Proceeds from sale or refinancing of the Project or any part
thereof;
(6) With respect to in-room video services and long distance
telephone service, charges payable by guests directly to the providers of such
services (but Gross Revenues shall include amounts payable to Owner by the
providers of such services); and
(7) Interest on any escrow accounts maintained in respect of the
Project.
Gross Room Revenues in respect of any period shall mean all revenues
derived during such period, as finally determined on an accrual basis in
accordance with the Uniform System of Accounts and generally accepted
accounting principles consistently applied, from (i) rentals and charges for
guest rooms and suites ("Rooms"); (ii) all business interruption insurance
awards in respect of the Rooms; and (iii) Condemnation awards for temporary use
of the Rooms.
Hazardous Materials shall mean (i) any "hazardous waste,, as defined
by the Resource Conservation and Recovery Act of 1976 (42 U.S.C. Section 6901
et seq.) as amended from time to time, and regulations promulgated thereunder;
(ii) any "hazardous substance" as defined by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et
sea.), as amended from time to time, and regulations promulgated thereunder
(including petroleum-based products as described therein); (iii) asbestos in
any quantity or form which would subject it to regulation under any applicable
environmental law; (iv) polychlorinated biphenyls; (v) any substance, the
presence of which on the Project is prohibited by any Legal Requirements; (vi)
underground storage tanks; and (vii) any other substance which by any Legal
Requirements requires special handling in its collection, storage, treatment or
disposal. In no event, however, shall the term "Hazardous Materials" include
(1) chemicals routinely used in office areas or (2) janitorial supplies,
cleaning fluids or chemicals necessary for the day-to-day operation or other
maintenance of the Project if the disposition, handling, storage or quantity of
the items described in (1) and (2) herein are at all times in compliance with
all applicable Legal Requirements.
Hazardous Materials Contamination shall mean the contamination
(whether presently existing or hereafter occurring) of the
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MANAGEMENT AGREEMENT
improvements, facilities, soil, groundwater, air or other elements on or of the
Project by Hazardous Materials, or the contamination of the buildings,
facilities, soil, groundwater, air or other elements on or of any other
property as a result of Hazardous Materials at any time (whether before or
after the date of this Management Agreement) emanating from the Project.
Hotel shall mean and include (i) the hotel situated on the Site, all
facilities therein and all related improvements, equipment and facilities and
(ii) all FF&E, Inventories and Operating Equipment now or hereafter placed or
installed therein.
Impositions shall mean all real estate, personal property, utility,
business or occupation taxes that cannot be passed along to customers of the
Project and other taxes (other than income and payroll), imposed by any
Governmental Authority which at any time may be assessed, levied or imposed on
or with respect to the Project.
Incentive Fee in respect of any period shall mean an amount equal to
(i) three percent (3%) of Gross Revenues if the Adjusted Owner's Yield on Cost
for such period equals or exceeds sixteen percent (16%), (ii) two percent (2%)
of Gross Revenues if the Adjusted Owner's Yield on Cost for such period equals
or exceeds thirteen percent (13%) but is less than sixteen percent (16%) or
(iii) one percent (1%) of Gross Revenues if the Adjusted Owner's Yield on Cost
for such period equals or exceeds ten percent (10%) but is less than thirteen
percent (13%).
Independent Auditor shall mean a national firm of independent
certified public accountants having hotel experience selected by Manager from
time to time and approved by Owner, such approval not to be unreasonably
withheld or delayed.
Inventories shall mean all fuel, soap, light bulbs, mechanical
supplies, cleaning supplies, stationery, paper supplies and other similar
consumable and expendable items necessary or customary (now or in the future)
in the reasonable opinion of Manager in order to operate the Project in
accordance with the terms of this Agreement and the Operating Standards.
Legal Requirements shall mean any law, ordinance, order, rule or
regulation of any Governmental Authority and any requirement, term or condition
contained in any restriction or restrictive covenant affecting Owner, Manager,
the Project or the construction or operation of the Project.
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MANAGEMENT AGREEMENT
Management Fee in respect of any period shall mean the sum of the Base
Fee and the Incentive Fee payable for such period.
Marketing Services shall have the meaning provided therefor in Section
7.4.
Mortgagee shall mean any mortgage or deed of trust encumbering all or
any portion of the Project, whether now in existence or hereafter created.
Mortgagee shall mean the mortgagee or beneficiary (whether one or
more) under any Mortgage.
Opening Date shall mean the date on which the Hotel is first open to
the public for business.
Operating Accounts shall mean one or more accounts (as Owner may
elect) with a bank or banks designated by Owner and approved by Manager, such
approval not to be unreasonably withheld or delayed, bearing a name identifying
the Project and styled Operating Account, into which all funds advanced to the
Project by Owner as working capital or otherwise derived from the operation of
the Project shall be deposited and from which sums shall be withdrawn in
accordance with this Agreement. Unless prohibited by the terms of a Mortgage,
the funds advanced by Owner for the benefit of, or derived from the operation
of, the Project and deposited in such account or accounts may be commingled
with funds advanced by Owner for, or derived from the operation of, other
hotels that are similar in operation to the Hotel, are managed by Manager and
are owned or franchised to third parties by Owner.
Operating Budget shall mean an annual budget prepared by the Manager
and approved by Owner as part of the Annual Plan, reflecting in reasonable
detail the projected or estimated revenues and expenses in respect of the
Project for the applicable Operating Year.
Operating Cash Flow in respect of any period shall mean the amount by
which gross cash receipts from Project operations for such period (excluding
proceeds of any Capital Transaction or any sale of Operating Equipment, FF&E or
Inventories) exceed the aggregate of, without duplication, (a) all operating
costs and expenses of the Project paid in cash during such period, including
amounts (other than the Incentive Fee) payable to Manager pursuant to this
Agreement, (b) Owner's administrative and other partnership expenses provided
for in the Annual Plan paid during such period,
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MANAGEMENT AGREEMENT
(c) Fixed Charges (other than the Incentive Fee and interest or principal
payments on Mortgage or other indebtedness) paid during such period, (d)
amounts added during such period to the Reserve, to any reserve required by a
Mortgagee, including a reserve for taxes or insurance, or to any other reserve
deemed reasonably necessary by Owner and Manager and (e) expenditures during
such period for FF&E and Regular Capital Improvements to the extent not funded
out of the Reserve or any other reserve required by a Mortgagee, but funded
from operations. The proceeds from the elimination or reduction of any such
reserve shall be added to Operating Cash Flow for the period during which such
elimination or reduction occurs. There shall not be deducted in computing
Operating Cash Flow depreciation, amortization or any other noncash charge.
Operating Equipment shall mean all blankets, linens, uniforms, silver,
china, glassware, crockery, kitchen utensils, cleaning equipment or any other
similar items necessary or customary (now or in the future) in the reasonable
opinion of Manager in order to operate the Project in accordance with the terms
of this Agreement and the Operating Standards.
Operating Standards shall mean the operation of the Project in a
manner consistent with (i) the condition of the Project as of the Opening Date
(or, after the completion of any renovation specifically contemplated by this
Agreement, the.condition of the Project as of the date of completion of such
renovation) and the condition and level of operation of extended stay hotels of
comparable class and standing to the Project, (ii) then current market
conditions regarding rental rates and lease terms and conditions with respect
to extended stay hotels of comparable class and standing to the Project, and
(iii) then current prudent business and management practices applicable to the
leasing, operation, repair, maintenance and management of a hotel comparable in
size, character and location to the Project, including those concerning
compliance with applicable Legal Requirements.
Operating Year shall mean each twelve (12) month period during the
Term commencing on January 1 and ending on December 31, except that the first
Operating Year shall be that period commencing on the Opening Date and ending
on the next succeeding December 31. In the event that this Agreement shall
terminate on a date other than December 31, the last Operating Year hereunder
shall end on the date of termination.
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MANAGEMENT AGREEMENT
Owner's Cost, as of any date, shall mean an amount equal to the sum
of, without duplication, (a) the purchase price for the acquisition of the Site
by Owner and other direct costs and expenses incurred by Owner in connection
with the acquisition of the Site and any improvements thereon, (b) the direct
costs and expenses incurred by owner in connection with, if applicable, the
design and construction or, if applicable, the initial refurbishment and
renovation of the Hotel on the Site, (c) amounts expended by Owner through such
date to fund (i) pre-opening expenses and operating working capital in respect
of the Project and (ii) any reserve required by a Mortgagee and any other
reserve reasonably deemed necessary by owner, (d) the cost of Special Capital
Improvements and (e) the cost of Regular Capital Improvements and additions to
FF&E in excess of those funded out of the Reserve or any other reserve required
by a Mortgagee or directly from operations. Owner's Cost shall include
contributions made to fund interest payments on Mortgage indebtedness until the
earlier of the date that (i) is six (6) months after the Opening Date or (ii)
the Project first achieves occupancy of eighty percent (80(80%) of guest rooms.
To the extent the Project consists of one or more significant assets in
addition to the Hotel, and the Hotel or one of such other assets is sold,
Owner's Cost shall be reduced by the net sales proceeds (after deducting all
closing costs) reasonably allocable to the asset that is sold. In the event
that the Project is transferred or sold to a party other than an Affiliate of
Owner and this Agreement is not terminated in connection therewith as herein
provided, the portion of the Owner's Cost described in clauses (a) and (b)
shall thereafter be fixed at the amount thereof as it existed immediately prior
to such transfer or sale.
Owner's Yield on Cost, for any period, shall mean a fraction,
expressed as a percentage, the numerator of which shall be the Operating Cash
Flow for such period and the denominator of which shall be the average Owner's
Cost for such period. In the case of any period of less than twelve (12)
calendar months, the result of the calculation pursuant to the preceding
sentence shall be adjusted to an annualized percentage based on a full calendar
year.
Portfolio Transaction shall mean Manager's or its Affiliate's direct
or indirect acquisition (i) of a controlling interest in another person which
owns or manages hotel facilities which include Competing Extended-Stay Projects
or (ii) in a single transaction of a controlling interest in hotel facilities
which include Competing Extended-Stay Projects.
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<PAGE> 19
MANAGEMENT AGREEMENT
Preopening Budget shall have the meaning provided thereof or in
Section 3.5.
Preopening Period shall have the meaning provided therefor in Section
3.5.
Preopening Services shall have the meaning provided therefor in
Section 3.5.
Prime Rate shall mean the rate that is announced from time to time by
Citibank, N.A. as its "prime", "base" or similar reference rate of interest for
commercial loans.
Project shall mean the Hotel and the Site.
Regular Capital Improvements shall mean all Capital Improvements other
than Special Capital Improvements (but such term shall not include the initial
construction of the Hotel on the site).
Reimbursable Expenses shall mean all travel, lodging, entertainment,
telephone, telecopy, postage, courier, delivery, employee training and other
expense incurred by Manager which are directly related to its performance of
this Agreement, other than those incurred in connection with the performance of
Marketing Services and any national sales office services provided by Manager.
The Reimbursable Expenses projected for each Operating Year shall be expressly
set forth in the Annual Plan. Reimbursable Expenses shall not include any of
Manager's corporate office overhead expenses, except as may otherwise be
approved in the Annual Plan.
Reserve shall mean the reserve established pursuant to Section 5.2(b)
of this Agreement to be deposited in one or more accounts with a bank or banks
designated by Owner and approved by Manager, (such approval not to be
unreasonably withheld or delayed), or with a bank or banks designated by any
Mortgagee, and in either case such account shall bear the name of the Project
and styled "Repairs and Replacement Account." Unless prohibited by the terms of
a Mortgage, the funds deposited in the Repairs and Replacement Account may be
commingled with funds advanced for similar purposes for the benefit of other
hotels that are similar in operation to the Hotel, are managed by Manager and
are owned or franchised to third parties by Owner.
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<PAGE> 20
MANAGEMENT AGREEMENT
Restoration shall mean the repairing, rebuilding and replacing of the
Hotel upon the destruction or damage of the Project or any part thereof or upon
the taking of the Project or any part thereof by Condemnation to a value,
condition and character substantially the same as (in the case of damage or
destruction) or as near as possible to (in the event of Condemnation) the
value, condition and character of the Project immediately prior to such damage,
destruction or Condemnation.
Securities Act shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Securities
and Exchange Commission (or successor agency) thereunder, all as the same shall
be in effect at the applicable time.
Site shall mean that certain tract of land located in the State of ,
County of ______________, City of ______________, more particularly described
in Exhibit A to this Agreement.
Special Capital Improvements shall mean Capital Improvements made in
connection with a major addition to, or expansion or renovation of, the Project
(but such term shall not include the initial construction of the Hotel on the
Site).
Term shall mean that period commencing on the Effective Date and
continuing through and including the tenth anniversary of the Opening Date,
unless this Agreement shall be sooner terminated or extended as herein
provided, in which case the word "Term" shall mean such lesser or extended
period of time.
Termination Fee, in respect of any termination of this Agreement
pursuant to which a Termination Fee is payable, shall
mean an amount equal to the following:
Date of Termination Termination Fee
------------------- ---------------
Opening Date through 48 x Average Monthly
sixth anniversary of Management Fee
the Opening Date
Following sixth anniversary * x Average Monthly
of the Opening Date Management Fee
----------------
*Number of calendar months (or parts thereof) remaining after such
termination until the end of the original Term or any renewal Term (as
applicable).
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MANAGEMENT AGREEMENT
Total Income Before Fixed Charges for any period shall mean an amount
equal to total income before fixed charges for such period as calculated
pursuant to the Uniform System of Accounts.
Uniform System of Accounts shall mean the Uniform System of Accounts
for Hotels, Eighth Revised Edition, 1986, as adopted by the American Hotel and
Motel Association and all future amendments and supplements thereto approved by
Manager and Owner (such approval not to be unreasonably withheld or delayed).
ARTICLE II
APPOINTMENT OF MANAGER AND RENEWAL RIGHTS,
Section 2.1 Appointment of Manager. Owner hereby appoints
Manager as its sole and exclusive agent to manage and operate the Project
during the Term in accordance with the Operating Standards and the terms and
conditions set forth in this Agreement. Manager agrees to manage the Project
during the Term as the agent of Owner in accordance with the. Operating
Standards and the terms and conditions of this Agreement. Owner and Manager
agree that the agency created by this Agreement is coupled with an interest and
is terminable only in accordance with the express provisions of this Agreement.
Section 2.2 Renewal of Term. Upon expiration of the original
Term of this Agreement, it shall be automatically renewed 'from month to month
thereafter unless terminated by Owner or Manager effective at the end of such
original Term or any such subsequent month by notice in writing to the other
given not later than ninety (90) days prior to the end of the original Term or
thirty (30) days prior to the end of such subsequent month, as the case may be.
Unless otherwise agreed, upon the effective date of any renewal, the Term of
this Agreement and all other terms, covenants and conditions set forth in this
Agreement shall be automatically extended to the expiration of the applicable
renewal term.
Section 2.3 Conformity to Annual Plan. Manager will use all
commercially reasonable efforts to cause the Project to be operated in
accordance with the Annual Plan. Owner and Manager acknowledge, however, that
the Annual Plan is a budget based upon assumptions believed to be reasonable at
the time of its preparation and, as such, is only an estimate of the results of
operation and other activity with respect to the Project. Manager cannot
guarantee that the actual operation of the Project will
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<PAGE> 22
MANAGEMENT AGREEMENT
conform to the Annual Plan or that the financial results reflected therein will
actually be realized. Notwithstanding any other provision of this Agreement,
any and all references herein to the Annual Plan (including the Preopening
Budget during the Preopening Period as provided in Section 3.5) shall be
qualified by this Section 2.3.
ARTICLE III
OPERATION OF THE PROJECT
Section 3.1 Duties and Authority of Manager. Subject to and
consistent with the Operating Standards and the Annual Plan, Manager shall have
exclusive supervision, control and discretion in the management, maintenance
and operation of the Project, including, but not limited to, the right, power
and authority to (a) enter into such contracts and agreements in the name and
at the expense of Owner as Manager may deem to be reasonably necessary or
advisable in connection with the management, maintenance and operation of the
Project, provided, however, that Manager shall not enter into any such contract
or agreement without the approval of Owner if it obligates Owner for more than
Twenty-Five Thousand Dollars ($25,000) or has a term, not cancelable upon not
more than ninety (90) days' notice without payment of any cancellation fee, of
more than one (1) year, unless such contract or agreement has previously been
approved by Owner as part of the Annual Plan; (b) determine and implement terms
of admittance, charges for rooms and commercial space, which right shall
specifically allow Manager to charge varying rates to different customers or
groups of customers and allow Manager, in the exercise of reasonable and sound
business judgment consistent with the Operating Standards, to permit persons to
occupy rooms or suites at the Project at rates lower than published rates or
free of charge; (c) determine and implement all phases of advertising,
promotion and publicity relating to the Project; (d) determine and implement
all employment policies (including salaries, wages, fringe benefits and other
compensation, the hiring and discharge of employees and the establishment of
employee retirement, severance and other benefit plans); (e) determine and
implement credit policies (including arrangements with credit card
organizations); (f) receive, hold and disburse funds, maintain bank accounts,
procure Inventories, Operating Equipment,' supplies and services; (g) engage
independent contractors to provide legal, accounting or other professional or
technical services in connection with the operation of the Project; (h)
initiate, settle or otherwise dispose of litigation or claims which might give
rise to litigation, including the adjustment of
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<PAGE> 23
MANAGEMENT AGREEMENT
insurance claims, provided, however, that Manager shall not have such authority
without the approval of Owner with respect to any litigation or claim where the
amount in controversy exceeds Fifty Thousand Dollars ($50,000); and (i) manage
and direct generally all activities incidental to the operation of the Project
in the ordinary course of business. Manager shall operate the Project in a
businesslike and efficient manner and shall operate the Project solely for the
operation of a hotel business and for such other activities which are customary
and usual in connection therewith. Except as otherwise expressly provided in
this Agreement, to the extent that Owner's approval is required for any matter
in connection with the foregoing or any other matter in connection with this
Agreement, Owner shall approve or disapprove such matter within fifteen (15)
business days after being notified thereof by Manager; provided, however, that
Owner shall approve or disapprove any such matter involving pending litigation
concerning the Project within ten (10) business days after being notified
thereof by Manager. It Owner does not approve or disapprove any such matter
within the specified time period, Owner shall be deemed to have approved such
matter.
Section 3.2 Working Capital. Owner shall at all times cause
sufficient funds to be on hand in the Operating Accounts to assure the timely
payment of all current liabilities of the Project, including but not limited to
all items entering into the calculation of Total Income Before Fixed Charges,
all other monthly costs and expenses incurred in connection with the Project
pursuant to this Agreement and the performance by Manager of its obligations
under this Agreement, all fees, charges and reimbursements payable monthly to
Manager hereunder and all amounts required hereunder to be transferred monthly
into the Reserve or any other reserve required by a Mortgagee. In no event
shall owner permit the balance in the operating Accounts to be less than an
amount equal to the estimated average monthly operating expenses of the Project
as reflected in the then current Operating Budget. From time to time, upon five
(5) days prior written notice from Manager that such funds are required, Owner
shall furnish to Manager funds which Manager deems reasonably necessary to
assure that the Project shall have adequate working capital as herein provided.
Section 3.3 Owner to Bear All Expenses. In performing its duties
under any provision of this Agreement and in managing and operating the
Project, Manager shall act solely for the account of and as the agent of Owner.
All expenses incurred by Manager in accordance with Section 2.3 in performing
its duties hereunder and in managing and operating the Project shall be borne
exclusively by
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MANAGEMENT AGREEMENT
Owner. To the extent that the funds necessary therefor are not generated by the
operation of the Project, they shall be promptly supplied by Owner in the
manner provided in Section 3.2 above. Manager shall in no event be required to
advance any of its funds or utilize Manager's credit for the operation of the
Project, nor shall Manager be required to incur any liability in connection
therewith, unless owner shall have furnished Manager with funds necessary for
the discharge thereof.
Section 3.4 Transactions with Affiliates. With Owner's prior
consent, Manager may engage one or more of its Affiliates or other related
parties to furnish goods or services to the Project, provided, however, that
the terms of any such arrangement shall be no less favorable in any material
respect to the Project than those reasonably obtainable from an unrelated
party. Manager will promptly notify owner of any such engagement of Manager's
Affiliates. Amounts payable pursuant to the arrangements described in -this
Section 3.4 shall be in addition to the Management Fee and other amounts
payable to Manager under this Agreement.
Section 3.5 Preopening Services. It is contemplated that certain
activities must be undertaken prior to the Opening Date so that the Project can
function in an orderly and businesslike manner on the Opening Date. To the
extent and in the manner contemplated by the Preopening Budget, Manager shall,
prior to the Opening Date, and subject to the same Owner approval requirements
as apply hereunder after the Opening Date, (i) plan and implement a marketing
program for the Project, including advertising, public relations and related
activities with respect to the opening of the Project, (ii) recruit, employ and
train the employees necessary for operation of the Project, (iii) assist and
advise in applying for and obtaining Governmental Permits required in
connection with the operation of the Project, and (iv) render such other
services as in the judgment of Manager are reasonably necessary to prepare the
Hotel for operation on the Opening Date. The foregoing services are referred to
collectively as "Preopening Services". During the period from the Effective
Date to the Opening Date (the "Preopening Period"), Manager's duties and
responsibilities under this Agreement with respect to the management of the
Project and operation of the Hotel shall be confined to performing Preopening
Services, notwithstanding any other provision in this Agreement to the
contrary. The costs and expenses incurred by Manager in accordance with Section
2.3 in connection with the Preopening Services shall be at Owner's sole cost
and expense, and Owner shall furnish all funds required therefor. Owner shall
give Manager not less than one hundred twenty (120) days, advance notice of the
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<PAGE> 25
MANAGEMENT AGREEMENT
Opening Date, and Manager thereafter will notify Owner of the Effective Date.
Manager shall submit to Owner not less than thirty (30) days prior to the
Effective Date, either separately or as part of the Annual Plan for the first
Operating Year, a proposed budget for the Preopening Period (the "Preopening
Budget"), and such budget shall be considered the "Annual Plan" for the
Preopening Period for purposes of this Agreement, the approval or disapproval
of which by Owner shall be governed by Section 6.1.
Section 3.6 Cooperation with Owner. Manager shall cooperate in
keeping Owner informed about the operation of the Project, including providing
such information from time to time as Owner may reasonably request, and Manager
shall also meet with Owner's representatives and Mortgagees, from time to time,
upon reasonable request.
Section 3.7 Non-Competition.
(a) During the Term, without the prior written consent of Owner,
Manager shall not (nor will it permit its Affiliates to) acquire any ownership
interest in, loan money to, develop, or provide management services to, any
other hotel which is both (i) operated as an extended stay lodging project
similar in operation, format and quality to the Hotel and (ii) located within a
radius of five (5) miles of the Hotel; provided, however, that Manager may
engage in any such transaction or activity or provide such services in respect
of another such hotel within the five (5) -mile radius if a "Big Six"
accounting firm selected by Manager and Owner determines that the operation of
the hotel in question is not likely to have a material adverse impact on the
operation and performance of the Hotel.
(b) Notwithstanding the provisions of subsection (a) above, so
long as Manager complies with the following provisions of this subsection (b),
during the Term Manager may enter into and consummate one or more Portfolio
Transactions even if the consummation thereof would result in a violation of
subsection (a). If Manager consummates a Portfolio Transaction and the effect
thereof is to violate the provisions of subsection (a), then Manager shall, at
its election, either (i) terminate its business relationship with the Competing
Extended-Stay Project or Projects that were included in such Portfolio
Transaction and that violate such subsection or (ii) terminate this Agreement,
in which. case no Termination Fee shall be payable in connection therewith.
Manager shall make such election within thirty (30) days after the consummation
of such Portfolio Transaction, and any termination
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<PAGE> 26
MANAGEMENT AGREEMENT
shall be effective no earlier than forty-five (45) and no later than ninety
(90) days after the date of such election. Notwithstanding any such election by
Manager to terminate this Agreement, Owner may elect to keep this Agreement in
effect by delivering to Manager written notice of such election no later than
thirty (30) days after receiving notice of Manager's election to terminate, in
which case this Agreement shall not terminate and the provisions of subsection
(a) shall be deemed permanently waived as to the Competing Extended-Stay
Project or Projects that were included in such Portfolio Transaction. Manager
shall not be liable to Owner for damages, and shall not be subject to any
equitable remedy, in respect of any violation of such subsection (a) resulting
from the consummation of a Portfolio Transaction if Manager subsequently
complies with such subsection or terminates this Agreement in accordance with
the provisions of this subsection (b). The termination right provided to
Manager under this Section is in addition and without prejudice to any other
right that Manager may have to terminate this Agreement under any other
provision of this Agreement.
ARTICLE IV
PERSONNEL
Section 4.1 Employment of Personnel. Manager shall be responsible
for and shall have the sole and exclusive right to hire, promote, discharge,
supervise, train, transfer and determine the terms of employment of the
Executive Personnel and, through the Executive Personnel, all other
administrative, service and operating employees of the Project; provided,
however, that, without restricting Manager's authority to discharge any
employee pursuant to the foregoing, Owner shall have the right to approve the
terms of the severance packages, if any, applicable to all employees, and each
employee must be employed on an "at will" basis unless Owner consents to any
different arrangement. All such employees of the Project shall be employees of
Manager or one of Manager's Affiliates. In addition, Manager may, from time to
time, assign one or more of its employees to the staff of the Project on a
full-time, part-time or temporary basis. Notwithstanding the provisions of this
Section 4.1 or any other provision of this Agreement, the responsibility of
Manager for acts or omissions of Project employees shall not extend beyond
responsibility for acts or omissions of the Executive Personnel. Manager
acknowledges, however, that the Executive Personnel have the duties specified
in
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MANAGEMENT AGREEMENT
the first sentence of this Section 4, 1 with respect to other Project
employees.
Section 4.2 Union Negotiations. Manager will negotiate, subject
to owner's right to have a representative present at any time, with any labor
union lawfully entitled to represent employees of the Project. Manager shall
not enter into any collective bargaining agreements or labor contracts with
respect to employees of the Project without the prior written consent of Owner,
which consent shall not be unreasonably withheld or delayed.
Section 4.3 Payment of Employees. Manager shall be entitled to
withdraw from the Operating Accounts all wages, salaries, fringe benefits and
other compensation paid or payable with respect to all Project employees and
Manager shall pay such compensation directly to such employees.
Section 4.4 Personnel Accommodations. Manager shall decide which,
if any, of the Executive Personnel shall reside at the Project. Manager shall
be permitted to provide free room and board to one member of the Executive
Personnel and his or her family. In addition, Manager shall be permitted to
provide free accommodations and amenities to manager's employed and
representatives visiting the Project on a temporary basis in connection with
the management and operation of the Project.
Section 4.5 Employee Health Insurance. Subject to reasonable
availability, Manager shall, at no cost to Manager, be responsible for
arranging health insurance coverage for employees of the Project. Subject to
the prior agreement of Owner and Manager and subject to reimbursement of
Manager of all applicable costs and expenses (including, but not limited to,
those associated with compliance with the Consolidated Omnibus Budget
Reconciliation Act of 1985 and an exit premium in connection with the
termination of such coverage), Manager may permit the enrollment of some or all
of such employees under health insurance plans maintained by Manager.
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MANAGEMENT AGREEMENT
ARTICLE V
REPAIRS, MAINTENANCE AND CAPITAL IMPROVEMENTS
Section 5.1 Repairs and Maintenance. During the Term, Manager, at
the expense of Owner, shall take good care of the Project (other than such
portions thereof as are leased to tenants who undertake a duty of repair and
maintenance) and maintain the same in good order and condition and make all
repairs thereto as may be necessary to maintain and operate the Project in
accordance with the Operating Standards; provided, however, that in no event
shall the responsibilities of Manager include the obligation to repair or
otherwise maintain the structural integrity of the Hotel or other matter
relating to defects in design, materials or workmanship in the construction of
the Hotel, all of which shall be the responsibility of owner.
Section 5.2 Repairs and Replacements.
(a) Manager shall, from funds derived from the operation of the
Project or funds contributed by Owner, establish the Reserve to cover the cost
of (i) Regular Capital Improvements, (ii) additions to and substitutions,
replacements and renewals of FF&E and (iii) certain non-routine repairs and
maintenance to the Project which are normally capitalized under generally
accepted accounting principles such as exterior and interior repainting,
resurfacing building walls, floors, roof and parking areas, replacing folding
walls and similar items. The Reserve shall be maintained in an interest-bearing
account or, if directed by Owner, shall be invested in short-term obligations
approved by Owner. All amounts in the Reserve shall be the property of Owner,
and any interest on amounts in the Reserve shall remain a part of the Reserve.
To the extent that Manager shall be required to pay any income taxes on any
interest paid on amounts in the Reserve, the same shall be payable out of the
Reserve.
(b) Once each calendar month, Manager shall transfer from the
Operating Accounts into the Reserve an amount equal to four percent (4%) of the
Gross Revenues for each such month during the Term; provided, however, that,
unless otherwise agreed by Owner, if the Project is encumbered by a first
Mortgage held by a Mortgagee that is not an Affiliate of Owner, the balance of
the Reserve shall at no time exceed the amount required by such Mortgagee. The
amount to be contributed to the Reserve is an estimate of amounts required for
the purposes set forth in Section 5.2(a). The parties recognize that the
passage of time or unforeseen events or
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MANAGEMENT AGREEMENT
conditions may render such amount insufficient to keep the Reserve at the level
required to maintain the Project in good repair and condition in keeping with
the Operating Standards and this Agreement.
(c) To the extent funds are available in the Reserve or are
otherwise supplied by Owner, Manager shall from time to time make such Regular
Capital Improvements and additions to and substitutions, replacements and
renewals of FF&E and all such nonroutine repairs to the Hotel (as described in
Section 5.2 (a) (ii) above) in accordance with the Annual Plan or as otherwise
approved by Owner and Manager shall be entitled to withdraw funds from the
Reserve for such purpose. Proceeds from the sale of FF&E no longer necessary to
the operation of the Project shall be deposited in the Reserve in addition to
the amounts otherwise required to be deposited into the Reserve under Section-
5.2 (b) At the end of each Operating Year, any amounts remaining in the
Reserve shall be carried forward to the next Operating Year. Any amount
remaining in the Reserve upon termination of this Agreement shall be
transferred to Owner.
Section 5.3 Special Capital Improvements.
(a) Manager shall promptly notify Owner of the need for all
Special Capital Improvements provided for in the Annual Plan then in effect,
whereupon work in respect of such Special Capital Improvements will be promptly
commenced and completed by Owner in accordance with plans, schedules and
specifications therefor approved by Manager. Owner and Manager acknowledge,
however, that Manager' s responsibilities and compensation under this Agreement
do not include the supervision or carrying out of the development, or
refurbishment or renovation, of the Project or the provision of any purchasing
services in connection therewith, and that any such services may be provided,
if at all, only pursuant to a separate agreement or agreements providing for
the compensation and other terms and conditions relating to the provision of
such services. Except as otherwise provided herein or in the Annual Plan then
in effect, Manager shall make no Special Capital Improvements in or to the
Project without the express written approval of Owner. Notwithstanding the
foregoing, if Manager shall, at any time, believe that (i) a dangerous
condition exists at the Project, (ii) repairs or Capital Improvements are
required to comply with any applicable Legal Requirement or (iii) expenditures
are required to remedy any condition caused by fire, Act of God, flood,
earthquake or other like casualty or other emergency, Manager shall (except in
the case of an emergency) notify Owner and Manager shall as
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MANAGEMENT AGREEMENT
promptly as possible take all steps and make all expenditures necessary to
remedy or cure any such condition or to comply with any applicable Legal
Requirement. In the case of an emergency, Manager shall notify Owner as
promptly as practicable after the occurrence thereof, but such notice shall not
be required prior to taking such steps or making such expenditures.
(b) The cost of all Capital Improvements made under this Section
(except as otherwise expressly provided in (a) above) shall be borne and paid
for directly by Owner.
Section 5.4 Enforcement of Guaranties and Warranties. Owner shall
furnish to Manager copies of all guaranties and warranties relating to the
Project. Manager shall use all reasonable efforts to enforce all such
guaranties or warranties and Owner shall cooperate with Manager in such
efforts.
Section 5.5 Ownership of Replacements. All changes, repairs,
alterations, improvements, renewals or replacements of FF&E and Capital
Improvements to the Project shall be the property of Owner.
Section 5.6 Payment of Certain Obligations. Upon request of Owner
and subject to the availability of adequate funds to do so, Manager shall pay
all costs of insurance and Impositions concerning the Project and any other
payments for which Owner is responsible pursuant to Section 11.1 hereof.
ARTICLE VI
ANNUAL PLAN, BOOKS, RECORDS AND REPORTS
Section 6.1 Annual Plan.
(a) At least thirty (30) days prior to the commencement of each
Operating Year (except the first Operating Year), Manager shall submit to Owner
for Owner's written approval the Annual Plan for the following Operating Year.
Manager shall submit the Annual Plan for the first Operating Year not less than
sixty (60) days prior to the Opening Date. Manager shall submit a preliminary
estimate of its Annual Plan for the first Operating Year within thirty (30)
days after the execution hereof.
(b) Owner shall give its written approval or disapproval of the
Annual Plan not later than thirty (30) days after its submission to Owner by
Manager.
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MANAGEMENT AGREEMENT
(c) If Owner does not approve or disapprove such Annual Plan
within such thirty (30) day period, then Owner shall be deemed to have approved
the Annual Plan as submitted by Manager. If Owner objects to all or any portion
of such Annual Plan, then Owner shall notify Manager of the reasons for its
objections, and Owner and Manager shall use their best efforts to agree in
respect of the items to which Owner objects. Should Owner and Manager not reach
agreement on all or any portion of the Annual Plan, pending agreement being
reached, and in the case of the first Operating Year, during the period prior
to submission of the Annual Plan, Manager shall operate the Project in
accordance with the operating Standards and this Agreement and, if such
disagreement relates to an Operating Year after the first Operating Year, at
rates or levels of expenditures comparable to those of the preceding Operating
Year with suitable adjustments of rates and expenses for such items or portions
thereof as dictated by inflationary factors, seasonality and the necessity of
operating the Project in accordance with the Operating Standards and this
Agreement. The foregoing procedure shall also apply to approval of proposed
revisions to the Annual Plan pursuant to Section 6.1(d)-.
(d) Manager shall monitor the Annual Plan throughout the Operating
Year. Should Manager consider it necessary to revise the Annual Plan during the
course of the Operating Year, whether due to changed trading climate,
unforeseen capital requirements or for any other reason, Manager shall submit
such revisions to Owner for Owner's approval, setting forth the reasons for the
revisions.
(e) The Operating Budget is intended as, and will represent only,
an estimate of the anticipated results for the Operating Year in question,
based upon assumptions believed by Manager to be reasonable at the time of the
preparation of such Operating Budget, and the same shall not be construed as a
guarantee of actual results which may be experienced during and for such
Operating Year.
Section 6.2 Books and Records; Operating Accounts.
(a) Manager shall keep full and adequate books of account and such
other records as are necessary to reflect the results of operation of the
Project, and such books of account and records shall be the property of Owner.
Such books of account shall be kept in all material respects in accordance with
generally accepted accounting principles and the Uniform System of Accounts and
shall contain the information necessary to make the cash adjustments required
to calculate Operating Cash Flow. The books of account
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MANAGEMENT AGREEMENT
and all other records relating to, or reflecting the operation of, the Project
shall be kept at the Project or at the corporate of f ice of Manager and shall
be available to Owner and its representatives at all reasonable times for
examination, inspection and copying. Upon any termination of this Agreement,
all of such books and records (or copies thereof) shall be turned over to Owner
forthwith so as to insure the orderly continuance of the operation of the
Project, but the books and records through such date of termination shall
thereafter be available to Manager at all reasonable times for inspection,
examination and copying.
(b) Manager shall cause all funds advanced to the Project by Owner
as working capital and all funds derived from the operation of the Project to
be deposited in the Operating Accounts. Manager shall have sole control of the
Operating Accounts and Manager shall be entitled to pay out of the Operating
Accounts all costs and expenses incurred in connection with the operation of
the Project, including without limitation all wages, salaries, fringe benefits
and other compensation and expenses of Project employees, all costs and
expenditures which Manager is permitted or required to make pursuant to this
Agreement, all fees, charges, reimbursements and other amounts due Manager
under this Agreement and all other amounts required to perform Manager's
obligations hereunder. Checks or other documents of withdrawal drawn upon the
Operating Accounts shall be signed by representatives of Manager or Project
employees designated by Manager. Subject to the provisions of Section 5.6,
Owner shall be responsible for and shall pay directly from funds outside the
Operating Accounts and the Reserve all costs of Capital Improvements and
insurance required to be maintained pursuant to this Agreement, as well as the
payments and related costs and expenses for which Owner is responsible pursuant
to Section 11.1 hereof. In addition to the Operating Accounts, Manager shall
be entitled to maintain such funds as are set forth in the Annual Plan in house
banks or in petty cash funds at the Project.
Section 6.3 Reports.
(a) On or before the fifteenth (15th) day of each calendar month
during the Term, Manager shall deliver to Owner monthly unaudited financial
statements prepared from the books of account maintained by Manager, consisting
of a balance sheet and a profit and loss statement for the Project for the
preceding calendar month and the Operating Year to date. The monthly financial
statements shall also contain or be accompanied by (i) a monthly variance
report in reasonable detail and in a format reasonably approved by
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MANAGEMENT AGREEMENT
Manager describing the variances between actual results of operations and the
Annual Plan and (ii) statements and calculations of the Base Fee for the
preceding calendar month. Manager shall. also furnish to Owner weekly reports
reflecting occupancy, average rate and average length of stay information for
the Project.
(b) Within thirty (30) days after the end of each calendar quarter
during the Term, Manager shall deliver to Owner quarterly unaudited financial
statements prepared from the books of account maintained by Manager, consisting
of a balance sheet and profit and loss statement for the Project for such
quarter and the Operating Year to date.
(c) Within sixty (60) days after the end of each Operating Year,
Manager shall cause to be delivered to Owner financial statements for such
Operating Year consisting of at least a balance sheet and related statement of
profit and loss, together with a source and application of funds analysis for
such Operating Year, audited and certified by the Independent Auditor as
prepared in accordance with the Uniform System of Accounts and generally
accepted accounting principles consistently applied. The annual financial
statements shall also include or be accompanied by a statement prepared by the
Independent Auditor showing the calculation of the Management Fee for such
Operating Year. Unless Owner and Manager agree otherwise, such financial
statements shall be conclusive upon the parties and shall be deemed to be a
final determination of the Management Fee for such Operating Year. The cost of
the annual audit shall be an operating expense of the Project.
(d) Subject to reimbursement by Owner of any related out-of-pocket
expenses or increased staffing costs incurred by Manager, Manager shall from
time to time prepare and deliver to Owner such other reports concerning the
operation and performance of the Project as any Mortgagee may reasonably
request.
ARTICLE VII
MANAGEMENT FEE, EXPENSE REIMBURSEMENT AND REMITTANCES TO OWNER
Section 7.1 (a) Base Fee. On or before the tenth (10th) day of
each calendar month during the Term, and at the expiration or sooner
termination of the Term, Owner shall pay to Manager an amount equal to the Base
Fee for the period from the commencement of the then current Operating Year to
the end of the immediately
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MANAGEMENT AGREEMENT
preceding calendar month or the date of such expiration or sooner termination
of the Term, as the case may be, less the aggregate amount of monthly payments
theretofore paid in respect of the Base Fee for such Operating Year.
(b) Incentive Fee. On or before thirty (30) days following the end
of each Operating Year, and at the expiration or sooner termination of the
Term, Owner shall pay to Manager an amount equal to the Incentive Fee, if any,
for such Operating Year.
Section 7.2 Year-End Adjustment to Management Fee. If for any
Operating Year, the aggregate amount of the payments of the Management Fee
theretofore paid by Owner to Manager shall be more or less than the Management
Fee payable for such Operating Year based upon the final determination of such
Management Fee as reflected in the annual financial statements certified by the
Independent Auditor in accordance with Section 6.3 of this Agreement, then, by
way of year-end adjustment, within f if teen (15) days after the delivery of
such annual financial statements to Owner, Manager shall pay to Owner the
amount of any overpayment or withdraw from the Operating Accounts the amount
of any underpayment; provided, however, that in the event that funds in the
Operating Accounts are not sufficient to pay fully the Management Fee payable
to Manager hereunder, Owner shall promptly pay to Manager on demand the amount
of such deficiency.
Section 7.3 Expense Reimbursement. Owner shall be obligated to
reimburse Manager for all Reimbursable -Expenses incurred by it in connection
with the performance of this Agreement in accordance with Section 2.3. Manager
shall submit a monthly invoice for its Reimbursable Expenses showing in
reasonable detail the nature and amount of such expenses, and such invoices
shall be payable within five (5) days after submission.
Section 7.4 Marketing Services and Advertising.
(a) To the extent that (i) owner shall establish a marketing fund
for the benefit of the Project and other extended stay hotels owned or
franchised to third parties by Owner and managed by Manager and (ii) Owner
shall make monthly contributions (on or before the tenth (10th) day of each
calendar month) to such fund in an amount equal to one and one-half percent
(1.5%) of Gross Room Revenues of the Project (or such other amount as may be
provided for in the Annual Plan) for the preceding calendar month, Manager,
upon request by Owner, will administer such marketing fund and shall provide
for the Project during the Term such marketing and
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MANAGEMENT AGREEMENT
advertising services as may be set forth in a marketing plan developed by Owner
and Manager (the "Marketing Services"). Manager shall be an authorized
signatory for, and shall be entitled to pay out of, the marketing fund all
costs and expenses incurred in connection with the provision of the Marketing
Services. A marketing budget setting forth the estimated costs and expenses of
the Marketing Services for each Operating Year shall be set forth in each
Annual Plan delivered under this Agreement.
(b) In the event that any business is referred or provided to the
Hotel by the national sales offices that Manager operates pursuant to its
management of Wyndham hotels, or if at any time Manager operates a national
sales office that, upon Owner's request, is dedicated to provide services for
the extended stay hotels owned or franchised to third parties by Owner, Owner
shall pay separately the cost of such services as reasonably determined by
Manager and approved by Owner, which approval will not be unreasonably withheld
or delayed.
(c) owner and Manager acknowledge that, as of the Effective Date,
no centralized reservations services are being provided in respect of the
Project, either by Manager or any other party. If Owner at any time during the
Term should elect to utilize centralized reservations services for the Project
and all other extended stay hotels owned or franchised to third parties by
Owner, before negotiating with any third party to provide such services, Owner
will offer Manager the opportunity to provide such services. If Manager elects
to provide such services for the Project and all such other hotels on terms and
conditions acceptable to Owner, the centralized reservation costs incurred in
respect of the Project shall be paid or reimbursed on the basis of an initial
link-up charge and subsequent charges based on the cost of handling
reservations made at the Project.
Section 7.5 Accounting and Related Services. To cover the costs
and expenses incurred by Manager or any of its Affiliates in providing property
accounting to be provided by Manager hereunder with respect to the operation of
the Project, owner shall pay Manager, on a monthly basis, an amount equal to
(i) $1,000 per month during the first Operating Year and (ii) an amount equal
to $1,000 multiplied by the Cumulative CPI Percentage for each succeeding
Operating Year, with the Cumulative CPI Percentage to be adjusted as of the
first day of each such succeeding Operating Year. To the extent the Term of
this Agreement commences or ends on a day other than the first day of a month,
the fee to be paid
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MANAGEMENT AGREEMENT
under this Section 7.5 shall be pro rated to cover the actual number of days
included in the Term.
Section 7.6 Purchasing and Technical Services Fees, Management
Information Services. To the extent provided for in the Annual Plan or
otherwise approved by Owner, Manager or one of its Affiliates shall be entitled
to the payment of purchasing and technical services fees with respect to the
acquisition, or supervision of installation or construction, of Capital
Improvements, FF&E, Operating Equipment and Inventories at the Project. In
addition, to the extent that Owner elects to utilize management information
services provided by Manager, then Owner and Manager shall enter into a
separate management information services agreement setting forth the charges
therefor and otherwise in form and substance reasonably satisfactory to each
party. Unless otherwise provided in such agreement, any recurring service and
maintenance charges in connection with such management information services
shall be provided for in the Annual Plan.
Section 7.7 Remittances to Owner. On or before the fifteenth
(15th) day of each calendar month of each Operating Year, Manager shall remit
to Owner all sums in the Operating Accounts in excess of the then working
capital requirements of the Project determined in accordance with Section 3.2
of this Agreement.
ARTICLE VIII
INSURANCE AND INDEMNITIES
Section 8.1 Insurance. Subject to reasonable availability,
Manager shall, at no cost to Manager, procure and maintain with responsible and
properly licensed companies reasonably acceptable to owner insurance in such
amounts, written on such forms and covering such risks as shall be required by
any Mortgagee or as shall otherwise be reasonably required by Owner or Manager,
including but not limited to the insurance in respect of the Project described
in Exhibit B to this Agreement.
Section 8.2 Evidence of Insurance. Manager agrees to deliver to
Owner evidence reasonably satisfactory to Owner that all insurance required to
be maintained under this Agreement is in full force and effect. In addition,
prior to the date on which any such insurance premiums must be paid to prevent
delinquency thereof, Manager will deliver to Owner a statement or statements
showing the amount of the premiums required to be paid, the name and mailing
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MANAGEMENT AGREEMENT
address of the party to whom the same is payable and receipts reflecting that
all such amounts have been fully paid.
Section 8.3 Investigation of Claims and Reports. Manager shall
promptly investigate and, as soon as reasonably practicable, make a full
written report to Owner as to all material accidents, claims for damage
relating to the ownership, operation and maintenance of the Project and the
estimated cost of repair thereof, and shall prepare at the expense of and for
the approval of Owner, any and all reports required by any insurance company in
connection therewith. All such reports shall be promptly filed with the
applicable insurance company. Subject to the rights of any Mortgagee, all
policies of insurance required under this Agreement shall provide for
adjustment of losses of less than Fifty Thousand Dollars ($50,000) by Manager
alone and of greater losses by Owner and Manager jointly.
Section 8.4 Indemnities.
(a) Manager shall indemnify and hold harmless Owner and its
shareholders and Affiliates and their respective partners, shareholders,
directors, officers, employees and agents from and against any and all
liability, loss, damages, costs and expenses ("Liabilities") incurred by reason
of the management and operation of the Project by Manager during the Term
insofar and only insofar as such Liabilities are caused by the Demonstrable
Negligence, willful misconduct or willful violation of Legal Requirements by
Manager. Project employees other than the Executive Personnel shall not be
deemed to be employees or agents of, or otherwise acting on behalf of, Manager.
"Demonstrable Negligence,, shall mean a demonstrable failure, established by
clear and convincing evidence, to use such care as a reasonably prudent person
would use under similar circumstances.
(b) Owner shall indemnify and hold harmless Manager and its
shareholders and Affiliates and their respective partners, shareholders,
directors, officers, employees and agents from and against any and all
Liabilities (INCLUDING THOSE CAUSED BY THE SIMPLE NEGLIGENCE OF THE INDEMNITEE
THAT DOES NOT CONSTITUTE DEMONSTRABLE NEGLIGENCE AND THOSE AS TO WHICH THE
INDEMNITEE MAY BE STRICTLY LIABLE) (i) arising out of or incurred in connection
with the construction, renovation, management or operation of the Project or
(ii) which may be asserted or arise as a direct or indirect result of the
presence on or under, or escape, seepage, leakage, spillage, discharge,
emission or release from the Project of any Hazardous Materials or any
Hazardous Materials Contamination
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MANAGEMENT AGREEMENT
or arise out of or result from the environmental condition of the Project or
the applicability of any Legal Requirements relating to Hazardous Materials,
except, in the case of both (i) and (ii) above, those Liabilities caused by the
Demonstrable Negligence, willful misconduct or willful violation of Legal
Requirements by Manager during the Term.
(c) In case an action covered by this Section 8.4 is brought
against any indemnified party, the indemnifying party will be entitled to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election to so
assume the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that the fees and expenses of the indemnified
party, s counsel shall be at the expense of the indemnifying party if (i) the
employment of such counsel has been specifically authorized in writing by the
indemnifying party or (ii) such indemnified party shall have been advised by
counsel that there is a conflict of interest or issue conflict involved in the
representation by counsel employed by the indemnifying party in the defense of.
such action on behalf of the indemnified party or that there may be one or more
legal defenses available to such indemnified party which are not available to
the indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of such indemnified party,
it being understood, however, that the indemnifying party shall not, in
connection with any one such action or separate but substantially similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys for the indemnified party, which firm
shall be designated in writing by the indemnified party).
(d) The provisions of this Section shall survive any termination
or expiration of this Agreement, whether by lapse of time or otherwise, and
shall be binding upon the parties hereto and their respective successors and
assigns.
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MANAGEMENT AGREEMENT
ARTICLE IX
DAMAGE AND CONDEMNATION
Section 9.1 Damage or Destruction.
(a) If the Hotel shall be totally destroyed or substantially
damaged by fire or other casualty, either party may, within sixty (60) days
after the occurrence of such event, give written notice to the other
terminating this Agreement. For purposes of this Section, the Hotel shall
be deemed to have been substantially damaged if the estimated cost of
Restoration shall exceed twenty percent (20%) of the cost of replacing the
Hotel by constructing, furnishing and equipping a new hotel on the site
substantially the same as the Hotel prior to such casualty. In the
event Owner terminates this Agreement by reason of such damage or destruction,
Owner shall, contemporaneously with the giving of notice of such termination
and as a condition (which may be waived by Manager) to the effectiveness of
such termination, pay to Manager the applicable Termination Fee.
(b) In the event of (i) any damage to the Hotel by fire or other
casualty which does not amount to "substantial damage" as described in
subsection (a) above, or (ii) the total destruction of or substantial damage to
the Project and the failure of either party to terminate this Agreement
pursuant to subsection (a) above, then this Agreement shall not terminate, and
Owner shall, at its own expense and in accordance with plans and specifications
therefor developed by Owner in consultation with Manager, promptly commence and
expeditiously complete the Restoration and, subject to the rights of any
Mortgagee, all proceeds of property and casualty insurance shall be made
available to Owner for this purpose. Owner shall promptly commence and
diligently pursue the Restoration to completion; provided, however, that if
owner shall not fully complete the Restoration within a reasonable period of
time after the date of such casualty or one hundred eighty (180) days,
whichever is- earlier (or such longer period as Manager may approve), then
Manager shall have the right to terminate this Agreement upon thirty (30) days'
prior written notice to Owner, whereupon Owner shall, within ten (10) days
following such notice and as a condition (which may be waived by Manager) to
the effectiveness of such termination, pay to Manager the applicable
Termination Fee.
(c) Manager's monthly compensation following damage to the Project
until the Restoration with respect to such damage is
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MANAGEMENT AGREEMENT
completed shall in no event be less than fifty percent (50%) of the Average
Monthly Management Fee at the time the damage occurs; provided, however, that
such amount shall be payable only from, and to the extent of, the proceeds of
business interruption insurance maintained in respect of the Project.
(d) Notwithstanding the provisions of subsections (a) and (b) of
this Section 9.1, the Termination Fee payable thereunder shall be payable (i)
in any event to the extent it is covered by insurance, and (ii) to the extent
it is not covered by insurance, such Termination Fee shall be payable by Owner
unless, at or any time prior to the date of the related termination of this
Agreement, Manager has managed f or Owner and Owner I s franchisees an
aggregate of at least fifteen (15) extended stay hotels similar in operation to
(and including) the Hotel, in which case such portion of the Termination Fee
shall not be payable to Manager. In addition, in the event that, on or before
the date that is twelve (12) months after the related termination of this
Agreement, Manager has managed for Owner and Owner's franchisees an aggregate
of at least fifteen (15) extended stay hotels similar in operation to (and
including) the Hotel, then Manager shall repay to Owner the amount of such
Termination Fee paid to Manager hereunder.
Section 9.2 Condemnation.
(a) If all or a substantial portion of the Project shall be taken
by Condemnation (other than for temporary use), this Agreement shall terminate
as of the date of such taking. A substantial portion of the Project shall be
deemed taken if in the reasonable opinion of Manager or Owner the part not
taken may not be repaired, restored, replaced, rebuilt or utilized so as to
constitute a hotel facility in keeping with this Agreement. If this Agreement
shall terminate pursuant to the foregoing provisions of this Section, (i) the
Condemnation award, after payment of all sums due and payable to any Mortgagee,
shall be paid to Owner as its property, provided, however, that so long as it
does not reduce the Condemnation award payable to Owner, Manager may make a
separate and distinct claim against the condemning authority for the value of
the loss of its interest in this Agreement, and (ii) Owner shall, within ten
(10) days following such termination and as a condition (which may be waived by
Manager) to the effectiveness thereof, pay to Manager the applicable
Termination Fee. Provided Owner pays the applicable Termination Fee, Manager
shall remit to Owner any amount received by it pursuant to any claim it pursues
in accordance with clause (i) above.
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(b) If a portion of the Project shall be taken by Condemnation and
this Agreement is not terminated pursuant to subsection (a) above, the
Condemnation award relating to damage to or the taking of the Project,
including any interest thereon, shall, subject to the rights of any Mortgagee,
be made available to Owner for application to the Restoration of the Project
made,necessary by such taking. Such Restoration shall be promptly commenced and
expeditiously completed by, and at the expense of, Owner in accordance with
plans and specifications therefor developed by Owner in consultation with
Manager (which approval shall not be unreasonably withheld or delayed) so as to
restore the Project as nearly as possible to its value, condition and character
immediately prior to the Condemnation.
(c) In the event of a Condemnation of all or part of the Project
for temporary use, this Agreement shall remain in full force and effect, and
the following shall be applicable:
(i) If the Condemnation is for a period not extending
beyond the Term, the Condemnation award, including any interest, shall
be included in Gross Revenues for the Operating Year or Years in which
received. When and if during the Term the period of temporary use
shall terminate, Owner shall, at its own expense, after its approval,
in consultation with Manager, of plans and specifications, promptly
commence and expeditiously complete the Restoration necessary to
restore the Project to its condition prior to the Condemnation for
temporary use; or
(ii) If the Condemnation is for a period extending beyond
the Term, that portion of the Condemnation award which is attributable
to the period up to the expiration of the Term shall be included in
Gross Revenues for the Operating Year or Years in which received. The
remainder of the Condemnation award shall be paid to owner as its
property.
(d) Manager's monthly compensation following a Condemnation until
the Restoration with respect to such Condemnation is completed or during any
period of Condemnation for temporary use shall in no event be less than fifty
percent (50%) of the Average Monthly Management Fee at the time the
Condemnation occurs; provided, however, that such amount shall be payable only
from, and to the extent of, the proceeds or business interruption insurance
maintained in respect of the Project.
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(e) Notwithstanding the provisions of subsection (a) of this
Section 9.2, the Termination Fee payable thereunder shall be payable (i) in any
event to the extent it is covered by insurance, and (ii) to the extent it is
not covered by insurance, such Termination Fee shall be payable by Owner
unless, at or any time prior to the date of the related termination of this
Agreement, Manager has managed for Owner and Owner's franchisees an aggregate
of at least fifteen (15) extended stay hotels similar in operation to (and
including) the Hotel, in which case such portion of the Termination Fee shall
not be payable to Manager. In addition, in the event that, on or before the
date that is twelve (12) months after the related termination of this
Agreement, Manager has managed for Owner and Owner's franchisees an aggregate
of at least fifteen (15) extended stay hotels similar in operation to (and
including) the Hotel, then Manager shall repay to Owner the amount of such
Termination Fee paid to Manager hereunder.
ARTICLE X
ASSIGNMENT
Section 10.1 Assignment by Manager. Manager shall have
the right, without the consent of Owner, to assign its interest in this
Agreement to (i) any Affiliate of Manager having full right, power and
authority to provide to Owner all services and organizational expertise
(including applicable trademarks, service marks and Marketing Services) which
Manager is required to provide hereunder, or (ii) any assignee who also
acquires all, or substantially all, of the assets of Manager and assumes its
obligations, provided such assignee is financially responsible and capable of
performing the duties of Manager hereunder. In such latter event, Manager's
liability hereunder shall terminate upon such assignment, but in the event of
such an assignment to an Affiliate of Manager, Manager shall continue to be
liable under this Agreement to the same extent as though such assignment had
not been made. Manager shall also have the right to assign its rights to
receive payments hereunder as security for indebtedness or any other
obligation. Except as herein provided, Manager shall not assign its rights and
obligations under this Agreement without the approval of Owner.
Section 10.2 Assignment by Owner.
(a) Owner may transfer or convey the Project to an Affiliate of
Owner pursuant to the transfer of all of the assets and
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liabilities of Owner to such Affiliate. Owner shall give Manager not less than
thirty (30) days' written notice prior to the consummation of any such transfer
and provide to Manager such information regarding the proposed transferee as
Manager may reasonably request.
(b) owner also may transfer or convey the Project in connection
with a bona fide sale to an independent third party, whereupon owner shall have
the right to terminate this Agreement as set forth in Section 12.5 (a) and
Manager shall have the right to terminate this Agreement as set forth in
Section 12.4 (b). Owner shall give Manager not less than thirty (30) days'
written notice prior to the consummation of any such sale of the Project and
provide to Manager such information regarding the proposed transferee as
Manager may reasonably request; provided, however, that if Owner intends to
exercise its right to terminate this Agreement as set forth in Section 12.5(a)
in connection with such sale, Owner shall give manager notice of such sale and
of such termination not less than ten (10) (rather than thirty (30)) days prior
to the consummation thereof and, in such event, owner shall not be required to
provide Manager with any information regarding the proposed transferee.
Notwithstanding the requirements for notice of sale set forth in this Section
10. 2 (b) and Section 12. 5 (a)-, Owner I s failure to give any such notice in
connection with a sale pursuant to which this Agreement is to terminate shall
not preclude owner's consummation of such sale and termination of this
Agreement in connection therewith, and shall not constitute a breach of this
Agreement, so long as Owner pays to Manager the applicable Termination Fee as a
condition precedent to the consummation of such sale and such termination.
(c) In the event of a bona fide sale to an independent third party
pursuant to subsection (b) above where neither Owner nor Manager exercises its
termination right referenced therein, or in the event of a transfer to an
Affiliate pursuant to subsection (a) above, Owner shall cause the transferee or
assignee by reason of any such sale, transfer or conveyance to assume and agree
to perform all of owner's duties, obligations and liabilities herein contained
pursuant to a written instrument in form and substance reasonably satisfactory
to Manager and reflecting any amendments. to this Agreement reasonably
necessary in order to preserve and protect Manager's rights hereunder in light
of the change in ownership.
(d) Subject to the following provisions of this Section 10.2(d),
the sale or other disposition of fifty percent (50%) or
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MANAGEMENT AGREEMENT
more of the beneficial interests in Owner (whether partnership interests,
shares of stock or other beneficial interests), whether in a single transaction
or in a series of transactions, shall be deemed to constitute the transfer or
conveyance of the Project for purposes of this Section. The "deemed transfer"
provisions of the preceding sentence shall not apply in respect of, or
following, a registered public offering under the Securities Act of 1933, as
amended, of equity interests in Owner or any successor to Owner, which public
offering is made pursuant to a registration statement on Form S-1 or a
successor form (i.e., such a public offering will not permit either Owner or
Manager to terminate this Agreement pursuant to Section 12. 5 (a) or Section
12.4 (b)); provided, however, that, in the event that following such a public
offering fifty percent (50%) or more of the beneficial interests in owner are
acquired by a person who is directly or indirectly engaged in the hotel
management business under a brand owned by it or one of its Affiliates or is
directly or indirectly engaged in the hotel franchising business as a
franchisor, then Owner shall have the right to terminate this agreement as set
forth in Section 12.5(d), and Manager shall have the right to terminate this
Agreement as set forth in Section 12.4 (c). In addition, prior to the closing
of such a public offering, any person who is a partner in Owner on the
Effective Date may transfer all or part of his interest in Owner to a Permitted
Transferee, and such transfer shall not constitute a transfer or conveyance of
the Project for purposes of this Section (even if the interest transferred
represents fifty percent (50%) or more of the beneficial interests in Owner).As
used in the preceding sentence, "Permitted Transferee,, shall mean (i) an
Affiliate of the transferor partner or (ii) any other person who also is a
partner in Owner on the Effective Date and at the time of such transfer or an
Affiliate thereof.
(e) Except as otherwise expressly provided for herein, Owner may
not sell, transfer or otherwise convey all or any part of the Project or
Owner's interest therein or assign this Agreement or any interest herein
without the express prior written consent of Manager.
Section 10.3 Notice of Intention to Sell Prior to offering the
Project for sale or accepting an unsolicited offer to purchase the Project,
Owner shall give Manager reasonable notice of its intention to sell the
Project.
Section 10.4 Binding Effect. Subject to the terms of this Article,
this Agreement shall be binding upon and inure to the
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MANAGEMENT AGREEMENT
benefit of the parties hereto and their respective successors and assigns.
ARTICLE XI
OWNER'S COVENANTS, TITLE AND ENCUMBRANCES
Section 11.1 Covenants and Warranties. With respect to any ground
or underlying leases, mortgages, deeds of trust, security agreements or other
encumbrances affecting the Project, Owner agrees to use all commercially
reasonable efforts to secure for Manager's benefit a non-disturbance agreement
(in form and substance satisfactory to Manager) to the effect that this
Agreement shall not be subject to forfeiture or termination except in
accordance with the provisions hereof, notwithstanding a default, termination,
foreclosure or exercise of a power of sale with respect to any such lease or
encumbrance. Owner further warrants that, so long as Manager shall not be in
default hereunder, Manager shall be entitled to operate the Project for the
Term, and Owner shall, at no expense to Manager, undertake and prosecute all
appropriate actions, judicial or otherwise, required to assure such right of
operation to Manager. Owner further agrees that it shall do the following,
except to the extent that any failure to do so could not reasonably be expected
to materially and adversely affect the operation of the Project by Manager or
result in any failure to pay amounts due, or otherwise provide funds, to
Manager hereunder:
(a) Keep and maintain, or cause to be kept and maintained, any
leases covering real or personal property or other agreements necessary to the
ownership or control of the Project, or any part thereof, in full force and
effect and free from default, and in this connection Owner shall pay and
discharge, or cause to be paid and discharged, any ground rents or other rental
payments or other charges payable by owner in respect of the Project;
(b) observe, or cause to be observed, and comply with or cause to
be complied with, any and all other liens, encumbrances, covenants, charges,
burdens or restrictions pertaining to the Project or any part thereof;
(c) Fully comply with the terms and provisions of all documents
and instruments evidencing or securing any Mortgages or other loans secured by
an interest in or otherwise related to the ownership or operation of the
Project and all other agreements (whether written or oral) to which Owner is a
party;
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MANAGEMENT AGREEMENT
(d) Pay all Impositions prior to delinquency, and upon request of
Manager, furnish Manager with evidence that all such Impositions have been so
paid; provided, however, that Owner shall have the right to contest in good
faith the validity or amount of any Impositions by appropriate proceedings, so
long as such proceedings do not interfere with the operation of the Hotel or
result in a default under any Mortgage or any loans secured by an interest in
or otherwise related to the ownership or operation of the Project or any ground
lease affecting the Project and provided, further, that during the time any
such contest is pending, Owner shall pay all Impositions being contested unless
collecting or enforcement of any lien securing payment thereof is effectively
stayed during such pendency; and
(e) Obtain and maintain in good standing all Governmental Permits,
except those which under applicable Legal Requirements are required to be
obtained and maintained by Manager.
Section 11.2 Estoppel Certificates. Manager agrees, at any time
and from time to time, upon not less than fifteen (15) days' prior notice by
Owner or any Mortgagee, to execute, acknowledge and deliver to owner or such
Mortgagee a statement in writing certifying that this Agreement has not been
modified and is in full force and effect (or, if there have been modifications,
that the same is in full force and effect as modified and specifying the
modifications) and stating whether or not to the best knowledge of the party
providing such certificate there exists any default of which such party may
have knowledge. Upon similar notice, Manager shall be entitled to a similar
certificate from Owner.
ARTICLE XII
DEFAULT AND TERMINATION
Section 12.1 Events of Default.
(a) The following shall constitute events of default:
(i) The filing of a voluntary petition in bankruptcy or
insolvency or a petition for reorganization under any
bankruptcy law by either party;
(ii) The consent to an involuntary petition in bankruptcy
or the failure to vacate within thirty (30) days from
the date of entry thereof any order approving an
involuntary petition by either party;
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MANAGEMENT AGREEMENT
(iii) The entering of an order, judgment or decree by any
court of competent jurisdiction, on the application
of a creditor, adjudicating either party as bankrupt
or insolvent or approving a petition seeking
reorganization or appointing a receiver, trustee or
liquidator of all or a substantial part of such
party's assets, and such order, judgment or decree
shall continue unstayed and in effect for thirty (30)
days after its entry;
(iv) The appointment of a receiver or trustee for all or
any substantial portion of the property of either
party and the order, judgment or decree appointing
any such receiver or trustee shall continue unstayed
and in effect for thirty (30) days after its entry;
(v) The death, legal incapacity, liquidation, termination
or dissolution of either party;
(vi) Any representation or warranty made in this Agreement
by either party shall be false or misleading in any
material respect on the date as of which it is made
or deemed made;
(vii) The failure of either party to make any payment or
provide funds to or on behalf of the other party in
accordance with the terms hereof and the continuation
of such failure for ten (10) days after notice of
such failure is given to the defaulting party; or
(viii) The failure of either party to perform, keep or
fulfill any of the other covenants, undertakings,
obligations or conditions set forth in this
Agreement, and the continuance of such default for a
period of thirty (30) days after written notice is
given by the other party specifying said failure;
provided that in the event such failure is of the
nature that it cannot, with due diligence, be cured
within thirty (30) days, it shall not constitute an
event of default unless the defaulting party fails to
proceed promptly and with due diligence to cure the
same, it being the intention of the parties that with
respect to a failure not susceptible of being cured
within
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MANAGEMENT AGREEMENT
thirty (30) days, the time of such defaulting party
within which to cure the same shall be extended for
such period as may be necessary for the curing
thereof with the exercise of due diligence.
(b) Upon the occurrence of any event of default, in addition to
and cumulative of any and all rights and remedies available to the non-
defaulting party under this Agreement, at law or in equity, the non-defaulting
party may give to the defaulting party notice of intention to terminate this
Agreement, whereupon this Agreement shall terminate upon the expiration of
thirty (30) days after the giving of such notice. In addition to and
cumulative of the foregoing, upon the occurrence of any event of default on the
part of Owner, all earned Management Fees and all other sums payable to Manager
under this Agreement shall be immediately due and payable without notice. In no
event shall the provisions of this Agreement with respect to the payment of a
Termination Fee upon termination of -this Agreement under certain circumstances
be construed as defining or limiting the amount recoverable by Manager from
Owner by reason of any event of default on the part of Owner.
Section 12.2 Manager' s Right to Perform Owner' s Obligations. If
Owner shall fail to make any payment or to perform any act to be made or
performed by owner pursuant to this Agreement and such failure continues for a
period of ten (10) days after Owner is notified thereof, then Manager may (but
shall not be obligated to) without further notice to, or demand upon, owner,
and without waiving or releasing Owner from any obligations under this
Agreement, make such payment (either with its own funds or with funds withdrawn
for such purpose from the Operating Accounts or the Reserve) or perform such
act. All sums so paid by Manager from its funds and all necessary incidental
costs and expenses incurred by Manager in connection with the performance of
any such act, together with interest thereon at the Default Rate from the date
of making such expenditure or expenditures by Manager, shall be payable to
Manager upon demand.
Section 12.3 Default Interest. It either party hereto shall fail
to pay to the other party hereto any sum payable when due hereunder, then such
defaulting party shall, without notice or demand, be liable to the non-
defaulting party for the payment of all such sums together with interest
thereon at the Default Rate. The terms and provisions of this Section shall
survive any termination of this Agreement for any reason whatsoever (including
the expiration of the Term) and shall continue until all such amounts, together
with interest thereon, are paid in full.
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MANAGEMENT AGREEMENT
Section 12.4 Special Rights of Manager to Terminate. In addition
and without prejudice to any other right Manager may have to terminate this
Agreement under any other provision of this Agreement:
(a) Manager shall have the right to terminate this Agreement if
any Governmental Permit required to be maintained by owner for the operation of
the Project, including without limitation any certificate of occupancy or
restaurant or liquor license, shall at any time be suspended, terminated or
revoked and such suspension, termination or revocation is not due to the fault
of Manager and shall continue for a period of thirty (30) days, unless such
suspension, termination or revocation is subject to cure within such period by
reasonable efforts on the part of Manager and Manager fails to take such
action. In the event that Manager elects to terminate this Agreement pursuant
to this Section 12.4(a) Manager shall give Owner written notice of such
election whereupon this Agreement shall terminate as of the date set forth in
any such notice of termination, which date shall be not less than thirty (30)
days after the date such notice is given. Not later than the effective date of
termination of this Agreement by Manager pursuant to clause (1) of this Section
12.4 (a), and as a condition (which may be waived by Manager) to the
effectiveness of any such termination, Owner shall pay to Manager the
applicable Termination Fee.
(b) If Owner proposes to effect a bona fide sale of the Project
and does not elect to terminate this Agreement as provided in Section 12.5(b)
below, Manager shall have the right to terminate this Agreement effective upon
consummation of such sale, transfer or conveyance, upon written notice to owner
not more than fifteen (15) days after Owner's notice to Manager pursuant to
Section 10.2, provided, however, that Manager shall have such right to
terminate this Agreement only if Manager reasonably determines that such sale,
transfer or conveyance involves an unsuitable transferee or assignee. Manager
shall make its determination based solely on an evaluation of whether (i) the
proposed transferee or assignee has adequate net worth to timely discharge all
of the obligations of Owner under this Agreement, (ii) the transferee or
assignee or one or more of its Affiliates are known to have engaged in criminal
activities or are shown by credible evidence to be of bad character or (iii)
the proposed transferee or assignee or one or more of its Affiliates is
directly or indirectly engaged in the hotel management business under a brand
owned by it or one of its Affiliates or is directly or indirectly engaged in
the hotel franchising business as a franchisor. Any such notice of
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MANAGEMENT AGREEMENT
termination shall be deemed ineffective if such sale, transfer or conveyance
thereafter is not consummated. Not later than the effective date of termination
of this Agreement by Manager pursuant to this Section 12.4 (b), and as a
condition (which may be waived by Manager) to the effectiveness of any such
termination, Owner shall pay to Manager the applicable Termination Fee. It,
within one year after the date of any such termination by Manager and payment
of the applicable Termination Fee by Owner, Manager and Owner's transferee or
assignee enter into a management agreement pursuant to which Manager is to
manage the Project, then Manager shall, upon the execution of such agreement,
repay to Owner the amount of such Termination Fee paid to Manager.
(c) If, following a registered public offering of the type
described in Section 10.2(d) of equity interests in Owner or any successor to
Owner, any person, other than Manager or an Affiliate of Manager, who is
directly or indirectly engaged in the hotel management business under a brand
owned by it or one of its Affiliates or is directly or indirectly engaged in
the hotel franchising business as a franchisor acquires fifty percent (50%) or
more of the beneficial interests in owner (whether in a single transaction or
series of transactions), then Manager shall have the right to terminate this
Agreement upon at least thirty (30) days prior written notice to Owner given
not later than the date that is ninety (90) days after such person first
acquires such interest. Not later than the effective date of termination of
this Agreement by Manager pursuant to this Section 12.4 (c), and as a condition
(which may be waived by Manager) to the effectiveness of any such termination,
Owner shall pay to Manager the applicable Termination Fee. If, within one year
after the date of any such termination by Manager and payment of the applicable
Termination Fee by Owner, Manager and Owner or any transferee or assignee from
Owner enter into a management agreement pursuant to which Manager is to manage
the Project, then Manager shall, upon the execution of such agreement, repay to
Owner the amount of such Termination Fee paid to Manager.
Section 12.5 Special Rights of Owner to Terminate. In addition
and without prejudice to any other right Owner may have to terminate this
Agreement under any other provision of this Agreement, Owner shall have the
following rights to terminate this Agreement:
(a) If Owner proposes to effect a bona fide sale of the Project as
permitted by Section 10. 2 (b), owner shall have the right to terminate this
Agreement, effective upon consummation of such
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MANAGEMENT AGREEMENT
sale, upon written notice to Manager not less than ten (10) days prior to such
consummation. Any such notice shall be deemed ineffective if such sale
thereafter is not consummated. Not later than the effective date of termination
of this Agreement by Owner pursuant to this Section 12. 5 (a), and as a
condition (which may be waived by Manager) to the effectiveness of any such
termination, Owner shall pay to Manager the applicable Termination Fee.
(b) Owner shall have the right, subject to Manager's rights to
cure described below, to terminate this Agreement if, for a reason other than
Force Majeure or Owner's breach of this Agreement, in any two (2) consecutive
Operating Years, commencing with the third Operating Year, both (i) Total
Income Before-Fixed Charges for such Operating Years is less than seventy-five
percent (75%) of the Total Income Before Fixed Charges projected for such
Operating Years in the approved Annual Plans for such Operating Years and (ii)
the Fair Market Share Penetration of the Project is less than ninety percent
(90%) (collectively, the "Annual Performance Standard"). Such determinations
shall be made in accordance with the audited annual financial statements
prepared and delivered pursuant to Section 6.3 (c) of this Agreement. If the
Annual Performance Standard is not satisfied for any two consecutive (2)
Operating Years, commencing with the third Operating Year, Manager may, within
sixty (60) days after the delivery to Owner. of the audited annual financial
statements for the second consecutive such Operating Year for which the Annual
Performance Standard was not satisfied, pay to Owner an amount which, when
added to the Total Income Before Fixed Charges for such Operating Years, equals
the amount necessary to satisfy clause (i) of the Annual Performance Standard
for such Operating Years and upon such payment the Annual Performance Standard
for such Operating Years shall be deemed to have been satisfied. If the Annual
Performance Standard is not satisfied and not cured as provided above for two
(2) consecutive Operating Years, commencing with the third Operating Year, and
Owner elects to exercise its right to terminate this Agreement pursuant to this
Section, Owner shall give written notice to Manager of such election within
sixty (60) days after delivery to Owner of such audited annual financial
statements, which notice shall specify a date for the termination of this
Agreement that is not less than ninety (90) days after the date such notice is
given. Failure to give such notice shall constitute a waiver of such right. In
addition to the right to cure set forth above, Manager may, within thirty (30)
days following the date upon which Owner's notice of termination has been
given, pay to Owner an amount which, when added to the aggregate amount of
Total Income Before Fixed Charges for the two
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MANAGEMENT AGREEMENT
(2) Operating Years in question, equals the amount necessary to satisfy
clause (i) of the Annual Performance Standard for each such Operating Year.
Upon such payment, the Annual Performance Standard shall be deemed to have been
satisfied for each such Operating Year, Owner shall have no right to terminate
this Agreement based upon such operating Years and Owner' s election to do so
shall be of no further force or effect.
(c) If Owner elects to assume the management of the Project,
rather than utilize any third party manager for such purpose, Owner shall have
the right to terminate this Agreement, effective upon its assumption of such
management, upon written notice to Manager not less than thirty (30) days prior
to such assumption. Not later than the effective date of any termination of
this Agreement by Owner pursuant to this Section 12.5(c), and as a condition
(which may be waived by Manager) to the effectiveness of any such termination,
Owner shall pay to Manager the applicable Termination Fee-. If, within one year
following the date of any such termination of this Agreement, Owner shall elect
to cease managing the Project itself and engage a third party for such purpose,
Owner shall, before engaging any third party manager, offer (which offer shall
be in writing) to Manager the right to manage the Project on the same terms as
set forth in this Agreement. Manager may accept such offer by giving written
notice thereof to Owner within thirty (30) days after Manager's receipt of such
offer. If Manager fails to give such notice within such period of time, Manager
shall be deemed to have rejected such offer. If Manager accepts such offer and
re-assumes responsibility for the management of the Project, then, provided
that the term of the new management arrangement is no less than ten (10) years
from and after the date that Manager re-assumes such management, Manager shall
repay to Owner the amount of the Termination Fee that Owner paid to it in
connection with the termination of this Agreement pursuant to this Section 12.5
(c). Such amount shall be payable on the date that Manager re-assumes such
management. Manager acknowledges and agrees that the right of first refusal
provided under this subsection shall not be available following any bona fide
sale or deemed sale of the Project by Owner to an independent third party
(including a transaction described in Section 12.5 (d)). The provisions of this
Section 12.5 (c) shall survive any termination of this Agreement.
(d) If, following a registered public offering of the type
described in Section 10.2(d) of equity interests in Owner or any successor to
Owner, any person, other than Manager or an Affiliate of Manager, who is
directly or indirectly engaged in the hotel management business under a brand
owned by it or one of its
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MANAGEMENT AGREEMENT
Affiliates or is directly or indirectly engaged in the hotel franchising
business as a franchisor acquires fifty percent (50%) or more of the beneficial
interests in Owner (whether in a single transaction or series of transactions),
then Owner shall have the right to terminate this Agreement upon at least
thirty (30) days prior written notice to Manager given not later than the date
that is ninety (90) days after such person first acquires such interest. Not
later than the effective date of termination of this Agreement by Owner
pursuant to this Section 12.5(d), and as a condition (which may be waived by
Manager) to the effectiveness of any such termination, Owner shall pay to
Manager the applicable Termination Fee.
Section 12.6 Termination of Employees. In connection with any
termination of this Agreement, Manager shall, unless otherwise requested in
writing by Owner, give notice of termination of employment to all Project
employees containing such information as is -required by any severance policy
applicable to such employees and the provisions of any applicable federal or
state plant closing or similar laws. The notice to employees shall be given
within ten (10) days after notice of termination of this Agreement is given by
Owner or Manager, as the case may. be. To the extent Manager satisfies its
obligation under the foregoing provisions of this Section 12.6, Owner shall
bear the severance and related costs of terminating such employees and any
failure to comply with the notification requirements of any applicable federal
or state plant closing or similar laws in connection with any termination of
this Agreement.
Section 12.7 Termination Assistance. Upon the termination or
expiration of this Agreement, Manager shall (a) assist Owner and the successor
management company in a smooth and orderly transition in the management and
operation of the Hotel in a manner consistent with past practices for daily
operations, (b) provide the successor management company with Hotel
information, including, without limitation, employee records, sales records,
and definite and tentative bookings whether maintained at the Hotel or
elsewhere, (c) continue to operate the Hotel in a manner consistent with prior
operations through the termination date, including, without limitation,
marketing of the Hotel, soliciting advanced bookings, and rendering marketing
services to the extent then provided under this Agreement through the
termination date, (d) surrender, assign and transfer to Owner, without
recourse, to the extent assignable and transferable, all of Manager's rights,
titles and interest, if any, in or to all Governmental Permits relating
specifically to the Hotel (or, if not assignable, terminate the same at Owner's
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MANAGEMENT AGREEMENT
request) and in all bank accounts, bank agreements and other similar
instruments used in the daily operation of the Hotel, (e) transfer the
Operating Accounts, and (f) specifically identify all property Manager intends
to remove from the Hotel.
ARTICLE XIII
MISCELLANEOUS
Section 13.1 Use of Names. (a) During the Term of this Agreement, the
Project shall at all times be known and designated under such name as owner may
determine and as may be approved by Manager (which approval shall not be
unreasonably withheld or delayed). Initially, the Project shall be known as
"Homegate Studios & Suites." Owner represents and warrants to Manager that, to
the best of Owner's knowledge, the name "Homegate Studios & Suites" and any
other name or names by which the Project shall be known and designated are, and
shall be, owned by Owner or Owner has, and shall have, the right to use such
name without infringing any rights of any other party. Without limiting the
provisions of Section 8.4(b), Owner shall indemnify Manager and Manager's
shareholders and Affiliates and their respective partners, shareholders,
directors, officers, employees and agents from and against any and all
liabilities, costs and expenses (including, but not limited to, attorneys'
fees) arising out of or incurred in connection with any such infringement or
claim of such infringement. Such indemnity shall survive any termination or
expiration of this Agreement and shall be binding upon Owner and its successors
and assigns.
(b) Owner agrees that the name, trade name, trademark and service
mark "Wyndham" when used alone or in conjunction with some other emblem,
design, slogan, word or words, and all other trademarks, service marks, trade
names and names owned in whole or in part by Manager or an Affiliate of
Manager, when used alone or in conjunction with some other design, emblem,
slogan, word or words, are the exclusive property of Manager or such Affiliate,
as the case may be, and shall not be used by owner in any manner. Accordingly,
Owner agrees that no right or remedy of Owner for any default of Manager or
delivery or possession of the Project to Owner upon the expiration or sooner
termination of this Agreement, shall confer, nor shall any provisions of this
Agreement confer, upon the Owner or any person acquiring an interest in owner
or the Project, the right to use the name "Wyndham," either alone or in
conjunction with some other emblem, design, slogan, word or words, or any other
name, trade name, trademark or service mark owned in
- 47 -
<PAGE> 55
MANAGEMENT AGREEMENT
whole or in part by Manager or any of its Affiliates, either alone or in
conjunction with some other design, emblem, slogan, words or words, in the use
and operation of the Project or any other property.
(c) Manager agrees that it has no ownership rights in the name
"Homegate Studios & Suites" and that such name is, and shall remain upon
expiration or termination of this Agreement, the exclusive property of Owner.
(d) In the event of any breach of this Section by Owner or
Manager, then the other party shall be entitled to damages, relief by
injunction and to any other right or remedy at law or equity. The provisions of
this Section shall survive the expiration or sooner termination of this
Agreement and shall be binding upon Owner and Manager, and their respective
successors and assigns.
Section 13.2 Limitations on Ability to Perform. Notwithstanding
any other provision in this Agreement to the contrary, Manager or Owner shall
be excused from the performance of its obligations under this Agreement (i) to
the extent and whenever Manager or Owner shall be prevented from such
compliance by Force Majeure (but this clause (i) shall not apply to any payment
obligation), (ii) to the extent of any breach by the other party of any
material provision of this Agreement, including but not limited to a breach by
owner of any of its obligations under Sections 3.2 and 3.3 of this Agreement,
and (iii) in the case of excusing Manager only, to the extent and whenever
there is provided in this Agreement a limitation upon the ability of Manager to
expend funds in respect of the Project.
Section 13.3 Negation of Partnership or Joint Venture. Nothing in
this Agreement shall constitute or be construed to constitute or create a
partnership, joint venture or lease between Owner and Manager with respect to
the Project.
Section 13.4 Right to Make Agreement. Each party warrants and
represents, with respect to itself, that neither the execution of this
Agreement nor performance of the obligations contemplated hereby shall violate
any Legal Requirement, result in or constitute a breach or default under any
indenture, contract or other commitment or restriction to which it is a party
or by which it is bound, or require any consent, vote or approval which has not
been obtained, or at the appropriate time shall not have been given or
obtained. Each party covenants that it has and will continue to have throughout
the Term full right and authority to enter into
- 48 -
<PAGE> 56
MANAGEMENT AGREEMENT
this Agreement and to perform its obligations hereunder and each party agrees
to supply to the other party upon request evidence of such right and authority.
Section 13.5 Further Assurances. Each party hereto will execute
and acknowledge any and all agreements, contracts, leases, licenses,
applications, verifications and such other additional instruments and documents
as may be requested by the other party hereto in order to carry out the intent
of this Agreement and to perfect or give further assurances of any of the
rights granted or provided for herein.
Section 13.6 Form of Documents and Evidence. Each written
instrument or other document required by this Agreement to be furnished to
either party shall be duly executed by the person or persons specified (or
where no particular person is specified, by such person as the recipient may
require) and, in the case of affidavits, waivers and similar sworn instruments,
duly sworn to and subscribed before a notary public or similar public official
authorized to act in the premises by Governmental Authority and shall be
furnished to recipient in one or more copies as required by the recipient and
shall in all respects be in form and substance reasonably satisfactory to the
recipient. Where evidence of the existence or non-existence of any circumstance
or condition is required by this Agreement to be furnished to either party,
such evidence shall in all respects be in form and substance reasonably
satisfactory to the recipient.
Section 13.7 Approvals by Manager. Owner and Manager agree that
whenever Manager is required to give its approval of plans, specifications,
budgets, drawings, schedules or financing, pursuant to this Agreement or
otherwise, such approval shall not imply or be deemed to constitute an opinion
by Manager nor impose upon Manager any responsibility for the design or
construction of the Hotel or any part thereof, including but not limited to its
structural integrity and/or life safety requirements, compliance with Legal
Requirements, or the adequacy of any such budgets or financing. All reviews and
approvals by Manager under the terms of this Agreement or otherwise are for the
sole and exclusive benefit of Manager and no other person or party shall have
the right to rely on any such reviews or approvals. Manager shall have absolute
right, in its sole discretion, to waive any such reviews or approvals required
under this Agreement.
Section 13.8 Sale of Securities. In the event Owner, or any
Affiliate of Owner, shall at any time, sell or offer to sell any
- 49 -
<PAGE> 57
MANAGEMENT AGREEMENT
securities in any way relating to the Project, through the medium of any
prospectus or otherwise, it shall do so only in compliance with all applicable
Legal Requirements and shall clearly disclose to all purchasers and offerees
that (i) neither Manager nor any of its partners nor any of their respective
officers, directors, agents or employees shall in any way be deemed an issuer
or underwriter of said securities, and (ii) Manager and said partners,
officers, directors, agents and employees have not assumed and shall not have
any liability arising out of or relating to the sale or offer of said
securities, including but not limited to any liability or responsibility for
any financial statements, projections or other financial information contained
in the prospectus or similar written or oral communication. Manager shall have
the right to reasonably approve any description of Manager, or any description
of this Agreement or of the Owner's relationship with Manager hereunder, which
may be contained in any prospectus or other communication, and Owner further
agrees to furnish copies of all-such materials to Manager for such purpose at a
time that will allow for a reasonable review period by Manager prior to
delivery thereof to any prospective purchaser.
Section 13.9 Third Party Beneficiaries. This Agreement has been
made and entered into for the sole protection and benefit of the Manager and
Owner and their respective successors and assigns (but in the case of assigns,
so long as any such assignment has been made in accordance with this
Agreement), and no other person or entity shall have any right or action under
this Agreement, except as otherwise expressly provided in Section 8.4.
Section 13.10 Notices. All notices to be given hereunder shall be
in writing, and all payments to be made hereunder shall be by check, and may be
given, served or made by depositing the same in the United States mail
addressed to the party to be notified, postpaid and registered or certified
with return receipt requested, or by delivering the same in person to such
party. Notice deposited in the mail in accordance with the provisions hereof
shall be deemed to have been given on the fourth day next following the date
postmarked on the envelope containing such notice, or when actually received,
whichever is earlier. Notice given in any other manner shall be effective only
if and when received by the party to be notified. Copies of all notices given
to Manager regarding defaults shall be delivered in the manner provided above
to M. Charles Jennings, Esq., Locke Purnell Rain Harrell, Suite 2200, 2200 Ross
Avenue, Dallas, Texas 75201. All notices to be given to the parties hereto
shall be sent to or delivered at the addresses set forth at the beginning of
this Agreement. By giving the other
- 50 -
<PAGE> 58
MANAGEMENT AGREEMENT
party at least fifteen (15) days written notice thereof, each party hereto
shall have the right to change its address and specify as its new address for
the purposes hereof any other address in the United States of America.
Section 13.11 Waiver. No consent or waiver, express or implied, by
either party to this Agreement to or of any breach or default by the other in
the performance of any obligations hereunder shall be deemed or construed to be
consent or waiver to or of any other breach or default by such party hereunder.
Except as otherwise provided herein, failure on the part of any party hereto to
complain of any act or failure to act by the other party or to declare the
other party in default hereunder, irrespective of how long such failure
continues, shall not constitute a waiver of the rights of such party hereunder.
Section 13.12 Counterparts. This Agreement may be executed in. one
or more counterparts, each of which shall be deemed an original and all of
which, taken together, shall be construed as a single instrument.
Section 13.13 Captions. The captions used for the Articles and
Sections in this Agreement are inserted only as a matter of convenience and f
or reference and in no way define, limit or describe the scope or the intent of
this Agreement or any Article or Section hereof.
Section 13.14 Gender. Unless the context clearly indicates to the
contrary, words singular or plural in number shall be deemed to include the
other and pronouns having a neuter, masculine or feminine gender shall be
deemed to include the others. The term "person" shall be deemed to include an
individual, corporation, partnership, trust, unincorporated organization,
government and governmental agency or subdivision, as the context shall
require.
Section 13.15 Unenforceable Provisions. In the event any provision
of this Agreement is declared or adjudged to be unenforceable or unlawful by
any Governmental Authority, then such unenforceable or unlawful provision shall
be excised herefrom, and the remainder of this Agreement, together with all
rights and remedies granted thereby, shall continue and remain in full force
and effect.
Section 13.16 Cumulative Remedies. All rights, powers, remedies,
benefits and privileges available under any provision of this Agreement to any
party hereunder are in addition to and
- 51 -
<PAGE> 59
MANAGEMENT AGREEMENT
cumulative of any and all rights, powers, remedies, benefits and privileges
available to such party under all other provisions of this Agreement, at law or
in equity.
Section 13.17 Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the matters covered
hereby. All prior negotiations, representations and agreements with respect
thereto not incorporated in this Agreement are hereby canceled. This Agreement
can be modified or amended only by a written document duly executed by the
parties hereto or their duly appointed representatives.
Section 13.18 Governing Law. This Agreement shall be governed by
and construed under the laws of the State of Texas and the United States of
America.
Section 13.19 Exhibits. Exhibits referred to in this Agreement and
attached hereto are incorporated herein in full by this reference as if each of
such exhibits were set forth in the body of this Agreement and duly executed by
the parties hereto.
Section 13.20 Confidentiality. Owner agrees not to disclose the
terms or conditions of this Agreement to any person other than a Permitted
Person (as hereinafter defined), provided, however, that the restrictions of
this Section 13.20 shall not apply to any information required to be disclosed
by applicable law or to information that becomes public other than by virtue of
a breach of this Section. For purposes of this Section, the term "Permitted
Person" shall mean (i) the partners, shareholders, directors, officers and
employees of Owner, (ii) accountants, attorneys, consultants and other
professionals engaged to render services in connection with the Project and
(iii) lenders, potential lenders, potential investors, potential underwriters
and potential purchasers of the Project. Permitted Persons shall be informed of
the confidential nature of the information disclosed to them.
Section 13.21 Limitation on Recourse. Manager agrees that, in
connection with the enforcement of any obligations of Owner hereunder in
respect of any period during which Extended Stay Limited Partnership is the
Owner hereunder, it will not look to, or seek to recover from, any assets of
Crow Family, Inc. other than the interest of Crow Family, Inc. in ESH Partners,
L.P. (or any successor thereto) or any assets of Greystar Holdings, Inc. other
than the interest of Greystar Holdings, Inc. in JMI/Greystar Extended Stay
Partners, L.P. (or any successor thereto). The foregoing shall not otherwise
limit Manager's recourse to Extended
- 52 -
<PAGE> 60
MANAGEMENT AGREEMENT
Stay Limited Partnership, any general partner in Extended Stay
Limited Partnership or any of their respective assets.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
HOMEGATE HOSPITALITY, INC.,
a Delaware corporation
("Owner")
By:
--------------------------------------
Name:
-------------------------------
Title:
-------------------------------
WYNDHAM MANAGEMENT CORPORATION, a
Delaware corporation
("Manager")
By:
--------------------------------------
Name:
-------------------------------
Title:
-------------------------------
- 53 -
<PAGE> 61
MANAGEMENT AGREEMENT
EXHIBIT B
INSURANCE
A. Pursuant to Section 8.1 of the Management Agreement
("Agreement") made and entered into as of ____________________ 199_ by and
between_______________________ (the "Owner") and Wyndham Management Corporation
(the "Manager"), subject to reasonable availability, Manager shall procure and
maintain insurance in respect of the Project (as that term is defined in the
Agreement), at Owner's expense, as follows:
1. Property damage insurance in an amount not less than
that stipulated by Owner covering all real and personal property,
which insurance shall be written on an "all risks" and replacement
cost form;
2. Boiler and machinery coverage insuring against damage
to, and against loss or damage caused by an accident or occurrence
arising from or related to, boilers, heating apparatus, pressure
vessels and pipes, air conditioning apparatus and electrical
equipment, which insurance coverage shall be written. on a standard,
broad form boiler and machinery policy (on a blanket or comprehensive
basis) and shall include "repair and replacement" coverage;
3. Commercial general liability insurance in an amount
not less than $1,000,000.00 per occurrence/$3,000,000.00 aggregate,
insuring against liability for bodily injury and property damage and,
including without limitation, the following coverage:
a) premises and operations liability;
b) independent contractors liability;
c) product/completed operations liability;
d) broad form property damage liability;
e) blanket contractual liability with respect to
all contracts, written and oral;
f) personal injury liability;
g) liquor liability, if applicable;
h) incidental malpractice liability; and
<PAGE> 62
MANAGEMENT AGREEMENT
i) garagekeepers legal liability, if applicable.
4. If there are any owned vehicles, comprehensive
automobile liability insurance in an amount not less than
$1,000,000.00 per occurrence covering liability for bodily injury and
property damage arising out of the ownership, maintenance or use of
all private passenger and commercial vehicles and other equipment
required to be licensed for road use;
5. Innkeeper's legal liability insurance covering the
property of premises guests in an amount not less than $10,000.00 per
guest and $250,000.00 per occurrence;
6. Safe depository insurance in an amount not less than
$250,000.00 per occurrence;
7. Business interruption insurance written on an "all
risks" form either as endorsements to the policies satisfying (1) and
(2) above or on a separate policy, such insurance to include specific
coverage for Manager's Management Fee calculated based on the Gross
Revenues used as the basis for calculation of the business
interruption insurance award and specific coverage for any Termination
Fee in the event there is 100%; constructive loss; and
8. Broad form umbrella/excess liability insurance, which
shall cover defense costs on a "first dollar" basis and shall provide
coverage not less than "following form" in respect of all underlying
coverages, in an amount not less than $25,000,000.00 covering against
excess liability over coverages provided by all primary general
liability, automobile liability and employers' liability insurance
policies.
B. In addition, Owner and Manager agree that, subject to
reasonable availability, Manager shall maintain the following insurance with
respect to Project employees, agents and servants, at Owner's expense:
1. Workers' compensation insurance complying with the
statutory workers, compensation law for the state in which the Project
is located; provided, however, that, with the approval of Owner
pursuant to the Annual Plan or otherwise and so long as such election
is permitted by applicable law, Manager may elect, in lieu of
subscribing to any worker's compensation coverage under the law of any
state, to procure and maintain an excess indemnity policy (or
alternate coverage) covering
B-2
<PAGE> 63
MANAGEMENT AGREEMENT
each claim formerly covered by such law. Such policy will provide
legal liability coverage, including, to the extent permitted by law,
punitive damages and proportionate share of defense costs, over a
retention by Owner of $500,000 per occurrence, with a policy limit of
$5,000,000 per occurrence. Manager also shall procure and maintain an
excess umbrella liability policy covering, among other things, any
losses from claims in excess of $5,000,000, up to $25,000,000 in the
aggregate. If at any time Manager determines that subscribing to
coverage under any applicable state, s law would be more economical
than the foregoing procedures, or if subscribing to any such coverage
is required by law, then Manager shall do so and shall obtain
statutory workers compensation, employers liability and such other
insurance coverage as is required thereunder, provided that Owner
consents to any such change not required by law;
2. Employer, s liability insurance in an amount not less
than $500,000.00 covering against liability in respect of employees,
agents and servants not covered by workers' compensation insurance and
against occupational disease benefits; and
3. Employee fidelity insurance in an amount not less
than $1,000,000.00.
4. Employment practices insurance in an amount not less
than $1,000,000 per claim/aggregate.
Manager shall also maintain such other insurance as Manager shall deem
necessary for operation of the Project, with the prior approval of Owner.
C. All insurance procured and maintained pursuant to the
Agreement shall have such deductibles, limits and coverages, and shall
otherwise be in such form, as Owner and Manager shall agree. However, Owner
assumes all responsibility and risks with respect to the adequacy of insurance
in respect of the Hotel.
D. All insurance policies procured and maintained pursuant to the
Agreement shall have attached thereto an endorsement that such policy shall not
be canceled or materially changed without at least thirty (30) days prior
written notice to owner and Manager.
E. All property damage insurance procured and maintained pursuant
to the Agreement, including, without limitation, insurance procured and
maintained pursuant to A(l), A(2) and A(7) above, shall name Owner and Manager
as insureds and shall provide for the
B-3
<PAGE> 64
MANAGEMENT AGREEMENT
payment of losses thereunder to Owner and Manager as their respective interests
shall appear thereon. All liability insurance procured and maintained pursuant
to the Agreement, including without limitation, the policies procured and
maintained pursuant to A(3), (4), (5), (6) and (8), shall name Owner, Manager,
their Affiliates and their and their Affiliates I respective shareholders,
partners, directors, officers, agents and employees as insureds. All policies
of Workers Compensation and Employers Liability pursuant to B (1) and (2) shall
include a waiver of subrogation in favor of owner.
F. Any insurance procured and maintained pursuant to the
Agreement by either party may be effected under policies of blanket insurance
which may cover other properties managed or owned by such party.
<PAGE> 1
EXHIBIT 11
WYNDHAM HOTEL CORPORATION
COMPUTATION OF EARNINGS PER SHARE
QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Quarter Ended Nine Months Ended
September 30 September 30
------------------- ---------------------
1995 1996 1995 1996
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Primary Earnings Per Share:
Number of Shares:
Common stock outstanding - 20,018 - 20,018
Assumed exercise of stock options* - - - -
-------- -------- -------- --------
- 20,018 - 20,018
======== ======== ======== ========
Income before extraordinary item $ 1,705 $ 2,769 $ 6,901 $ 21,560
Extraordinary item - - - (1,131)
-------- -------- -------- --------
Net income $ 1,705 $ 2,769 $ 6,901 $ 20,429
======== ======== ======== ========
Earnings per common share outstanding:
Income before extraordinary item N/A $ .14 N/A $ 1.08
Extraordinary item N/A - N/A (.06)
-------- --------
Net Income N/A $ .14 N/A $ 1.02
======== ========
Fully Diluted Earnings Per Share:
Number of Shares:
Common stock outstanding - 20,018 - 20,018
Assumed exercise of stock options* - - - -
-------- -------- -------- --------
- 20,018 - 20,018
======== ======== ======== ========
Income before extraordinary item $ 1,705 $ 2,769 $ 6,901 $ 21,560
Extraordinary item - - - (1,131)
-------- -------- -------- --------
Net income $ 1,705 $ 2,769 $ 6,901 $ 20,429
======== ======== ======== ========
Earnings per common share outstanding:
Income before extraordinary item N/A $ .14 N/A $ 1.08
Extraordinary item N/A - N/A (.06)
-------- --------
Net Income N/A $ .14 N/A $ 1.02
======== ========
</TABLE>
* Dilution from assumed exercise of stock options is less than 3 percent of
earnings per common share outstanding, therefore, is not included in the
calculation.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 20,147
<SECURITIES> 0
<RECEIVABLES> 28,347
<ALLOWANCES> (840)
<INVENTORY> 1,437
<CURRENT-ASSETS> 53,360
<PP&E> 161,929
<DEPRECIATION> (32,240)
<TOTAL-ASSETS> 240,091
<CURRENT-LIABILITIES> 25,760
<BONDS> 109,675
0
0
<COMMON> 200
<OTHER-SE> 71,716
<TOTAL-LIABILITY-AND-EQUITY> 240,091
<SALES> 71,302
<TOTAL-REVENUES> 101,941
<CGS> 0
<TOTAL-COSTS> 52,227
<OTHER-EXPENSES> 31,615
<LOSS-PROVISION> 602
<INTEREST-EXPENSE> 8,462
<INCOME-PRETAX> 11,172
<INCOME-TAX> (10,388)
<INCOME-CONTINUING> 21,560
<DISCONTINUED> 0
<EXTRAORDINARY> (1,131)
<CHANGES> 0
<NET-INCOME> 20,429
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
</TABLE>
<PAGE> 1
EXHIBIT 99
WYNDHAM HOTEL CORPORATION ACQUISITION HOTEL -
THE BRISTOL PLACE HOTEL TORONTO
(IN RECEIVERSHIP)
FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT ACCOUNTANTS
FOR THE YEAR ENDED DECEMBER 31, 1995
<PAGE> 2
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Wyndham Hotel Corporation:
We have audited the accompanying balance sheet of the Wyndham Hotel
Corporation Acquisition Hotel - The Bristol Place Hotel Toronto (described in
Note 1) as of December 31, 1995 and the related statements of operations,
partners' deficit, and cash flows for the year then ended. These financial
statements are the responsibility of management of the Partnership. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The accompanying financial statements were prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission as described in Note 1 to the financial statements.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Wyndham Hotel Corporation
Acquisition Hotel - The Bristol Place Hotel Toronto as of December 31, 1995
and its results of operations and its cash flows for the year ended December
31, 1995, in conformity with generally accepted accounting principles.
COOPERS & LYBRAND, LLP
Dallas, Texas
November 7, 1996
<PAGE> 3
WYNDHAM HOTEL CORPORATION ACQUISITION HOTEL -
THE BRISTOL PLACE HOTEL TORONTO
(IN RECEIVERSHIP)
BALANCE SHEET
DECEMBER 31, 1995
(IN U.S. DOLLARS)
<TABLE>
<CAPTION>
<S> <C>
ASSETS
Investment in hotel property at cost:
Buildings and improvements $ 6,544,826
Furniture, fixtures and equipment 4,060,874
------------
10,605,700
Less accumulated depreciation and amortization (7,478,951)
------------
Net investment in hotel property 3,126,749
Cash and cash equivalents 655,804
Accounts receivable 651,680
Inventories 178,930
Other assets 71,174
------------
Total assets $ 4,684,337
============
LIABILITIES AND PARTNERS' DEFICIT
Mortgages payable and accrued interest $ 27,204,560
Accounts payable, trade 559,537
Accrued expenses and other liabilities 588,370
------------
Total liabilities 28,352,467
Commitments and contingencies
Partners' deficit (23,668,130)
------------
Total liabilities and partners' deficit $ 4,684,337
============
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
WYNDHAM HOTEL CORPORATION ACQUISITION HOTEL -
THE BRISTOL PLACE HOTEL TORONTO
(IN RECEIVERSHIP)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN U.S. DOLLARS)
<TABLE>
<S> <C>
Revenues:
Rooms $ 5,048,871
Food and beverage 4,747,696
Other 507,098
------------
Total revenue 10,303,665
------------
Expenses:
Property operating costs and expenses 2,032,047
Food and beverage costs and expenses 3,741,512
Selling, general and administrative 1,274,665
Repairs and maintenance 502,394
Utilities 388,291
Receivership expenses 339,079
Management fees 305,273
Franchise cost 84,733
Depreciation and amortization 229,079
Real estate and personal property taxes, and property insurance 1,008,687
Interest expense 2,770,274
Other expense 258,499
------------
Total expenses 12,934,533
------------
Net loss $ (2,630,868)
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 5
WYNDHAM HOTEL CORPORATION ACQUISITION HOTEL -
THE BRISTOL PLACE HOTEL TORONTO
(IN RECEIVERSHIP)
STATEMENT OF PARTNERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN U.S. DOLLARS)
<TABLE>
<S> <C>
Balance at December 31, 1994 $(20,505,040)
Translation adjustment (532,222)
Net loss (2,630,868)
------------
Balance at December 31, 1995 $(23,668,130)
============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 6
WYNDHAM HOTEL CORPORATION ACQUISITION HOTEL -
THE BRISTOL PLACE HOTEL TORONTO
(IN RECEIVERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN U.S. DOLLARS)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $(2,630,868)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 229,079
Changes in assets and liabilities:
Accounts receivable (214,304)
Inventories 34,049
Prepaid expenses 59,270
Other assets (5,861)
Accounts payable, trade (1,063)
Accrued expenses and other liabilities 178,074
Accrued interest recognized in mortgages payable 2,077,287
-----------
Net cash provided by operating activities (274,337)
-----------
Cash flows used in investing activities:
Improvements and additions to hotel property (22,719)
-----------
Cash flows provided by financing activities:
Proceeds from borrowings 732,500
-----------
Effect of exchange rate changes on cash 16,214
Net change in cash and cash equivalents 451,658
Cash and cash equivalents at beginning of periods 204,146
-----------
Cash and cash equivalents at end of periods $ 655,804
===========
Supplement disclosure of cash flow information:
Cash paid during the period for interest $
===========
</TABLE>
5
<PAGE> 7
WYNDHAM HOTEL CORPORATION ACQUISITION HOTEL -
THE BRISTOL PLACE HOTEL TORONTO
(IN RECEIVERSHIP)
NOTES TO FINANCIAL STATEMENTS
(IN U.S. DOLLARS)
1. ORGANIZATION AND BASIS OF PRESENTATION:
Organization - Wyndham Hotel Corporation ("WHC") acquired a 287 room -
hotel, The Bristol Place Hotel ("Bristol"), located in Toronto, Ontario,
Canada from parties controlled by persons unaffiliated with WHC on
August 30, 1996. The hotel was placed into receivership by the mortgage
payable holders on July 25, 1995.
Basis of Presentation - The accompanying financial statements of Bristol
have been presented on a basis consistent with WHC due to the anticipated
common ownership and management since the entity will be the subject of a
business combination with WHC. The financial statements have been
presented in accordance with U.S. generally accepted accounting
principles and using U.S. dollars as the reporting functional currency.
The hotel was owned by an unincorporated joint venture for income tax
purposes and therefore federal and provincial income taxes are the
responsibility of the owners. Substantially all assets and operations of
the joint venture were acquired by WHC on August 30, 1996.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Investment in Hotel Property - The hotel property is stated at the lower
of cost or net realizable value and is depreciated using the declining
balance method at a rate of 5% for building and improvements and 20% for
furniture, fixtures and equipment.
The management of Bristol reviews the carrying value of the property to
determine if circumstances exist indicating an impairment in the carrying
value of the investment of the hotel property or that depreciation
periods should be modified. If facts or circumstances support the
possibility of impairment, the owner of the Bristol will prepare a
projection of the discounted future cash flows, without interest charges,
of the specific hotel property and determine if the investment in hotel
property is recoverable based on the discounted future cash flows. The
owner of Bristol does not believe that there are any factors or
circumstances indicating impairment of any of its investment in hotel
property.
Maintenance and repairs are charged to operations as incurred; major
renewals and betterments are capitalized. Upon the sale or disposition of
a fixed asset, the asset and related accumulated depreciation are removed
from the accounts and the gain or loss is included in operations.
6
<PAGE> 8
WYNDHAM HOTEL CORPORATION ACQUISITION HOTEL -
THE BRISTOL PLACE HOTEL TORONTO
(IN RECEIVERSHIP)
NOTES TO FINANCIAL STATEMENTS - (continued)
(IN U.S. DOLLARS)
Cash and Cash Equivalents - For purposes of reporting cash flows, all
highly liquid debt instruments with original maturities of three months
or less are considered to be cash equivalents.
Inventories - Inventories consist primarily of food and beverage items
and are stated at the lower of cost or market, with cost determined using
the first-in, first-out method.
Foreign Currency Translation - Assets and liabilities denominated in
foreign currencies are translated into US dollars at the current rate in
effect at year-end. All foreign income and expenses are translated at the
weighted average exchange rates during the year.
Current year translation loss is reported separately as a component of
partners' capital.
Income Taxes - The hotel is included in an unincorporated joint venture
which is not a taxable entity. The results of operations are included in
the tax returns of the partners. The joint venture's tax return and the
amount of allocable income or loss are subject to examination by federal
and provincial taxing authorities. If such examinations result in changes
to income or loss, the tax liability of the partners could be changed
accordingly.
Revenue Recognition - Room, food and beverage and other revenues are
recognized when earned. Ongoing credit evaluations are performed and an
allowance for potential credit losses is provided against the portion of
accounts receivable which is estimated to be uncollectible.
Use of Estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Advertising Costs - The hotel participates in various advertising and
marketing programs. All advertising costs are expensed in the period
incurred. The hotel recognized advertising expenses of $205,846 for the
year ended December 31, 1995.
7
<PAGE> 9
WYNDHAM HOTEL CORPORATION ACQUISITION HOTEL -
THE BRISTOL PLACE HOTEL TORONTO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
3. MORTGAGES PAYABLE:
Mortgages payable at December 31, 1995 consists primarily of four
mortgage note payables totaling $25,961,537, including accrued interest
(as described below) and an escrow account for property taxes paid in the
amount of $459,439, including interest at a rate of 11.50%.
All debt is collateralized by the investment in hotel property.
<TABLE>
<CAPTION>
Mortgage Interest Amount
-------------------- -------------- -----------
<S> <C> <C>
First 10.00% $ 2,648,841
Second 11.00% 1,813,051
Third 11.50% 2,691,454
Fourth 11.50% 18,859,275
-----------
Total $26,012,621
===========
</TABLE>
The owner defaulted on the mortgage note payables on July 25, 1995 and
the hotel was placed into receivership by the trustee.
A receivers certificate was received on September 8, 1995 in the amount
of $732,500, the liability to the receiver is due upon receivership
termination and Bristol accrued $51,328 interest at a rate of prime plus
2%.
Upon the sale of the hotel to WHC on August 30, 1996, the receiver
anticipates using the proceeds from the sale to repay the receivers
certificate in full and to repay the remainder to the mortgage note
payables holders.
4. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Statements of Financial Accounting Standards No. 107 requires all
entities to disclose the fair value of certain financial instruments in
their financial statements. Accordingly, Bristol reports the carrying
amounts of cash and cash equivalents, accounts receivable, accounts
payable, accrued expenses and other liabilities at cost, which
approximates fair value due to the short maturity of these instruments.
The carrying amount of Bristol's debt approximates fair value due to the
ability to obtain such borrowings at comparable interest rates.
8
<PAGE> 10
WYNDHAM HOTEL CORPORATION ACQUISITION HOTEL -
THE BRISTOL PLACE HOTEL TORONTO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
5. COMMITMENTS AND CONTINGENCIES:
The hotel is required to remit 11.5% of gross room revenue to the
franchiser for reservation costs and sales and advertising expenses
incurred to promote the hotel at the national level. Additional sales and
advertising costs are incurred at the local property level.
Participation fees represent the annual expense under the terms of the
lease agreement expiring November 30, 2066. Participation costs are based
upon 8% of the defined gross annual profit up to $582,880 and 4.5% upon
profit exceeding the limit. When the mortgages are repaid these amounts
reduce to 6.5% and 3% respectively.
WHC is subject to environmental regulations related to the ownership of
real estate (hotels). As part of the diligence procedures, WHC has
conducted a Phase I environmental assessment on the hotel prior to
acquisition. The cost of complying with the environmental regulations was
not material to the statements of operations for the year ended December
31, 1995. WHC is not aware of any environmental condition at the hotel
which is likely to have a material adverse effect on the financial
statements.
The aggregate future minimum lease payments for operating leases relating
to the premises and the hotel's operations are as follows:
<TABLE>
<CAPTION>
For the year ending: Amount
----------
<S> <C>
December 31, 1996 $ 101,837
December 31, 1997 88,941
December 31, 1998 87,847
December 31, 1999 71,061
December 31, 2000 55,302
Thereafter 2,370,907
----------
Total $2,775,895
==========
</TABLE>
9
<PAGE> 11
WYNDHAM HOTEL CORPORATION ACQUISITION HOTEL -
THE BRISTOL PLACE HOTEL TORONTO
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. RELATED PARTY TRANSACTIONS:
Transactions between related parties included in the financial statements
are as follows:
<TABLE>
<CAPTION>
<S> <C>
Bristol Group International--management fees $305,273
Park Plaza Hotel--other operating expenses 25,309
--------
Total $330,582
--------
</TABLE>
7. SUBSEQUENT EVENTS:
As discussed in Note 1, Bristol was acquired by WHC on August 30, 1996.
The acquisition will be accounted for by WHC under the purchase method of
accounting. Accordingly, the cost basis of the hotel will change to
reflect the acquisition price of the hotel by WHC. Any post-acquisition
debt will be different than the historical debt reflected in the
accompanying financial statements. The management agreement is expected
to be terminated concurrently with the sale of the hotel to WHC. The
financial statements do not reflect the effects of this transaction.
10
