Document:

Exhibit 10.1

 

AMENDED AND RESTATED

 

ADVISORY AGREEMENT

 

This Amended and Restated Advisory Agreement (this “Agreement”) is made effective as of June 1, 2018 (the “Effective Date”) by and among Lodging Fund REIT III, Inc., a Maryland corporation (the “General Partner”), Lodging Fund REIT III OP, LP, a Delaware limited partnership (the “Partnership,” and together with the General Partner and their subsidiaries referred to collectively as the “Company”), and Legendary Capital REIT III, LLC, a Delaware limited liability company (the “Advisor”).

 

WHEREAS, the Company intends to acquire Projects focused in the lodging (hotel) market through the Partnership and its subsidiaries, and to originate and acquire the Loans.

 

WHEREAS, the Company desires to avail itself of the experience, sources of information, advice and assistance of the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth on behalf of, and subject to, the supervision of the Board.

 

WHEREAS, the Advisor is willing to undertake to render such services on the terms and conditions herein set forth.

 

NOW THEREFORE, in consideration of the mutual covenants herein set forth, and for valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

 

1.                                      Definitions.  As used herein, the following terms shall have the meanings set forth below:

 

(a)                                 “Acquisition Costs” shall mean any and all expenses incurred by the Company, the Advisor and their Affiliates related to selecting, evaluating, acquiring and rehabilitating properties, whether or not acquired, including, but not limited to, legal fees and expenses, travel and communications expenses, cost of appraisals and surveys, market surveys, nonrefundable option payments on property not acquired, accounting fees and expenses, computer use related expenses, architectural and engineering reports, environmental and asbestos audits, title insurance and escrow fees, personnel and miscellaneous expenses related to the selection and acquisition of properties, and the costs of any property improvement plan undertaken at the time of acquisition.

 

(b)                                 “Affiliate” shall mean as to any individual, corporation, partnership, trust or other association (i) any Person, directly or indirectly, through one or more intermediaries, controlling, controlled by or under common control with another Person, (ii) any Person, directly or indirectly, owning or controlling 10% or more of the outstanding voting securities of another Person, (iii) any officer, director, partner, member or trustee of such Person, (iv) any Person 10% or more of whose outstanding voting securities are directly or indirectly owned, controlled or held, with power to vote, by such other Person and (v) if such other Person is an officer, director, partner, member or trustee of a Person, the Person for which such Person acts in any such capacity.

 

(c)                                  “Board” shall mean the Board of Directors of the General Partner.

 

(d)                                 “Capital Gain” shall mean, with respect to a Project, an amount equal to the gross sales price of the Project less (i) the original acquisition cost of the Project, without regard to depreciation or amortization of such Project, (ii) any capitalized expenditures made to improve the Project, and (iii) any Real Estate Commissions or other incidental selling costs incurred in selling the Project.

 

(e)                                  “Disposition Expenses” shall mean any and all expenses incurred by the Company, the Advisor or their Affiliates in connection with the sale, exchange or other disposition of the Projects, whether or not sold or disposed of, including, but not limited to, legal fees and expenses, travel

 

 

and communications expenses, costs of appraisals and other third party reports, accounting fees and expenses, title insurance, transfer taxes, transfer fees, recording fees and other customary disposition closing costs.

 

(f)                                   “Financing Expenses” shall mean any and all expenses incurred by the Company, the Advisor or their Affiliates in connection with any loan, financing or other debt secured by the Projects or otherwise obtained in connection with the Projects, whether or not actually obtained, including, but not limited to, loan origination and assumption fees and lender expenses, legal fees and expenses, travel and communications expenses, costs of appraisals and other third party reports, accounting fees and expenses, title insurance, recording fees, and other customary financing closing costs.

 

(g)                                  “Fiscal Year” shall mean any period for which any income tax return is submitted by the Company to the Internal Revenue Service and which is treated by the Internal Revenue Service as a reporting period.

 

(h)                                 “Gross Assets” shall mean the original basis, or if it relates to an asset of the Partnership, the asset’s book value, of the assets of the Company, as reflected on the books and records of the Company until the Company determines a net asset value (“NAV”) of the Company.  Once the Company has determined an NAV, the Gross Assets will be based on the gross value as determinable by the NAV (and grossed up for liabilities).  Notwithstanding the above, the Advisor can elect, from time to time, to waive any fees attributable to the value of the assets of the Company that exceed the value of the real estate assets of the Company.

 

(i)                                     “Loans” shall mean high-yield loans made by the Company to certain qualified borrowers and/or Affiliates, which are secured, directly or indirectly, by real estate-related asset, including mortgages, senior secured loans, subordinated loans, mezzanine loans and bridge loans.

 

(j)                                    “Offering” shall mean the offering of REIT Shares of the General Partner pursuant to that certain Confidential Private Placement Memorandum of Lodging Fund REIT III, Inc. June 1, 2018, as may be supplemented and amended (the “Memorandum”).

 

(k)                                 “Offering Termination Date” shall mean the earlier to occur of (i) the date that all 10,000,000 REIT Shares are subscribed in the Offering, (ii) June 1, 2019, which may be extended for such period of time as determined in the sole discretion of the Board and (iii) a decision of the General Partner to terminate the Offering.

 

(l)                                     “Organization and Offering Expenses” shall mean any and all costs and expenses incurred by the Company, the Advisor or their Affiliates in connection with the organization and formation of the Company, the preparation of the Offering materials, and the marketing and sale of the REIT Shares and any other securities of the Company, including but not limited to legal, accounting, tax planning fees, promotional fees or expenses, filing and recording fees, market research and surveys, property inspections and research, engineering services, printing costs, securities sales commissions, travel expenses and other costs or expenses incurred in connection therewith.

 

(m)                             “Partners” shall mean the General Partner, the Series B Limited Partner and the common limited partners of the Partnership.

 

(n)                                 “Partnership Agreement” shall mean the Limited Partnership Agreement of the Partnership dated April 11, 2018, as may be amended from time to time.

 

(o)                                 “Person” shall mean any natural person, partnership, corporation, association, trust, limited liability company or other legal entity.

 

2

 

(p)                                 “Projects” shall mean the lodging and hotel real estate properties located primarily in the Heartland of the United States which are acquired by the Company, including any improvements thereon.

 

(q)                                 “Real Estate Commissions” shall mean the real estate, brokerage, investment banker or other commission paid in connection with the sale of a Project.

 

(r)                                    “REIT” shall mean a “real estate investment trust” under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, or corresponding provisions of subsequently enacted Federal revenue laws.

 

(s)                                   “REIT Shares” shall mean the shares of common stock, $0.01 par value per share, of the General Partner.

 

(t)                                    “Series B Limited Partner” shall mean the holder of the Series B Limited Partnership Units as reflected in the books and records of the Partnership.

 

(u)                                 “Series B Limited Partnership Units” shall mean the Series B limited partnership units in the Partnership.

 

2.                                      Advisor Duties.  The Advisor shall perform the following duties and responsibilities:

 

(a)                                 The Advisor shall assist in the performance of all services related to the organization of the Company and any offering of the Company’s securities (including the Offering) other than services that (i) are to be performed by a broker-dealer, (ii) the Company elects to perform directly or (iii) would require the Advisor to register as a broker-dealer with the Securities and Exchange Commission.

 

(b)                                 The Advisor shall advise the Board as to investment decisions, including the acquisition and disposition of the Projects and the origination or acquisition of the Loans.

 

(c)                                  The Advisor shall review the underwriting of all prospective investments and coordinate all architectural, engineering, professional and other acquisition services required in order to properly plan and proceed with the acquisition of the Projects and the origination or acquisition of the Loans.

 

(d)                                 The Advisor shall negotiate and enter into, on behalf of the Company, all mortgage financing, interim bank financing and any other credit arrangements required by the Company in connection with the Projects and the Loans.

 

(e)                                  The Advisor shall advise the Board regarding the sale, assignment, transfer, liquidation or other disposition of the Projects and the Loans and the reinvestment of the proceeds therefrom.

 

(f)                                   The Advisor shall negotiate all franchising or licensing and marketing agreements with respect to the Projects.

 

(g)                                  The Advisor shall negotiate all leases and management agreements with respect to the Projects, and shall administer such leases including the collection of rent and depositing the same into the Company’s bank accounts.

 

(h)                                 The Advisor shall manage all construction, rehabilitation and property improvement projects at the Projects, including all legal, financial and regulatory requirements associated with such projects.

 

3

 

(i)                                     The Advisor, at the Company’s expense, shall provide suitable office facilities for the Company, and shall provide sufficient staff and other personnel necessary to conduct the day-to-day operations of the Company.

 

(j)                                    The Advisor shall furnish, at the Company’s expense, all office equipment and supplies necessary to conduct the operations of the Company and shall pay for all routine supplies, postage, and other costs of operating said office.

 

(k)                                 The Advisor shall be responsible for the payment of distributions to the Partners and the shareholders of the General Partner, and the preparation of all reports and communications to the Partners and the shareholders of the General Partner, including but not limited to, annual reports and notices of Partners’ and shareholders’ meetings.

 

3.                                      Authority of the Advisor; Delegation of Duties.

 

(a)                                 Pursuant to the terms of this Agreement, and subject to the continuing and exclusive authority of the Board, the Board hereby delegates to the Advisor the authority to perform the services described in Section 2.  The Advisor shall have the power to delegate all or any part of its rights and powers to manage and control the business and affairs of the Company to such officers, employees, Affiliates, agents and representatives of the Advisor or the Company as it may deem appropriate.  Any authority delegated by the Advisor to any other Person shall be subject to the limitations on the rights and powers of the Advisor specifically set forth in this Agreement.

 

(b)                                 The Advisor shall have the power to delegate all or any part of its duties (as opposed to the Company’s duties) to appropriate third parties, provided that the Advisor shall continue to supervise and monitor the performance of the duties so delegated and any such delegation shall not relieve the Advisor of any of its other duties or obligations under this Agreement.  Any compensation payable to any such third parties shall be paid by the Advisor.

 

(c)                                  The Advisor acknowledges and agrees that the acquisition, financing, origination and disposition of any Project or Loan shall require the prior approval of the officers of the Company.

 

4.                                      Basic Compensation.  As its basic compensation for providing the above services, the Advisor shall receive an annual asset management fee (the “Asset Management Fee”), paid on a monthly basis, equal to 0.75% of the Gross Assets of the Company held on the last day of the month for which the payment is made.  If the Company has not liquidated all of the Projects on or before the 5th anniversary of the Offering Termination Date (the “Fee Adjustment Date”), the Asset Management Fee shall be reduced to 0.375% of the Gross Assets of the Company beginning after the Fee Adjustment Date.

 

5.                                      Additional Compensation.  For its services in investigating and negotiating the acquisition, financing, origination and disposition of the Projects, the Loans and any other investments of the Company, the Advisor shall receive the following additional compensation:

 

(a)                                 Acquisition Fee.  An acquisition fee for each Project acquired by the Company equal to 1.4% of the contract purchase price of the Project, including funds allocated for any property improvement plan, which shall be paid at the closing of the acquisition.

 

(b)                                 Financing Fee and Refinancing Fee.  A financing fee (the “Financing Fee”) equal to 1.4% of the contract purchase price of the Project, including funds allocated for any property improvement plan, and a refinancing fee equal to 0.75% of the principal amount of the refinancing (the “Refinancing Fee”), which shall be paid at the closing of the financing or refinancing.  The Financing Fee and the Refinancing Fee shall be in addition to any fee paid to a third-party in connection with such financing or refinancing.

 

4

 

(c)                                  Disposition Fee.  A disposition fee (the “Disposition Fee”) to be determined as follows:

 

(i)                                     In the event of a sale, exchange or other disposition of a Project, a Disposition Fee equal to between 0.0% and 4.0% of the contract sales price of the Project which shall be paid at the closing of such disposition, to be determined as follows:

 

(A)                               In the event the Capital Gain on a Project is negative or zero, the Disposition Fee percentage shall be 0.0%.

 

(B)                               In the event the Capital Gain on a Project is greater than zero but less than 5.0% on an annualized, non-compounded basis of the net capital investment (prior to any reduction for the Disposition Fee) per year following the Offering Termination Date, the Disposition Fee percentage shall be 0.75%.

 

(C)                               In the event the Capital Gain on a Project is greater than or equal to 5.0% but less than 10% on an annualized, non-compounded basis of the net capital investment (prior to any reduction for the Disposition Fee) per year following the Offering Termination Date, the Disposition Fee percentage shall be 2.0%.

 

(D)                               In the event the Capital Gain on a Project is greater than or equal to 10% but less than 15% on an annualized, non-compounded basis of the net capital investment (prior to any reduction for the Disposition Fee) per year following the Offering Termination Date, the Disposition Fee percentage shall be 2.5%.

 

(E)                                In the event the Capital Gain on a Project is greater than or equal to 15% but less than 20% on an annualized, non-compounded basis of the net capital investment (prior to any reduction for the Disposition Fee) per year following the Offering Termination Date, the Disposition Fee percentage shall be 3.0%.

 

(F)                                 In the event the Capital Gain on a Project is greater than 20% on an annualized, non-compounded basis of the net capital investment (prior to any reduction for the Disposition Fee) per year following the Offering Termination Date, the Disposition Fee percentage shall be 4.0%.

 

For the removal of doubt, the Advisor shall forgo any Disposition Fees that result in a net loss on the Project.

 

(ii)                                  In the event that all or substantially all of the Company is sold, merged or otherwise transferred, the Disposition Fee will be calculated as follows and will be paid at the closing of such merger, sale or other transaction:

 

(A)                               The gross consideration per share will be determined by the Board (the “Share Price”);

 

(B)                               The Share Price will be added to any and all distributions (whether dividends or return of capital) made to the shareholders in excess of a 6% cumulative, but not compounded, return per annum (combined the “Total Return Per Share”);

 

(C)                               The Disposition Fee percentage will be obtained by utilizing the chart on Exhibit A; and

 

5

 

(D)                               The Disposition Fee percentage will be multiplied by the gross consideration received in such merger, sale or other transaction (as grossed up for all liabilities of the Company) to determine the Disposition Fee payable.

 

(d)                                 Guarantee Fee.  An annual guarantee fee (“Guarantee Fee”) due to certain Affiliates of the Advisor for debt obligations of the Projects owned by the Company and personally guaranteed by those Affiliates in the amount of 1.0% of the guaranty per year, payable monthly.  Certain lenders may require personal guarantees to further secure credit facilities while others may not.  In cases in which a personal guarantee is not required, no Guarantee Fee would apply.

 

(e)                                  Subordinated Performance Fee.  An annual subordinated performance fee (the “Performance Fee”) equal to 20% of the distributions after the Partners (including the General Partner but not the Series B Limited Partner) have received a 6.0% cumulative, but not compounded, return per annum.  The Performance Fee amount will depend on the Company’s performance as well as the number of REIT Shares sold in the Offering and the period of time the investors continue to hold the Shares.  The Performance Fee shall be paid annually in arrears no later than 90 days after the end of the Fiscal Year, and may be made in any form and from any source, including Offering proceeds, dividend reinvestment program proceeds, financing proceeds and/or cash flows.

 

(f)                                   Real Estate Commissions.  For substantial assistance in connection with the sale of a Project in which the Advisor or its Affiliate or agent provides substantial services, the Advisor (or its Affiliate or agent) shall receive a Real Estate Commission of up to 3.0% of the contract sales price of the Project; provided, however, that in no event shall such commission be greater than one-half of the total Real Estate Commission paid with respect to the sale of the Project if a Real Estate Commission is paid to both a third-party and the Advisor (or its Affiliate or agent).  Further, in no event shall the sum of the Real Estate Commissions paid to the Advisor (or its Affiliate or agent) and unaffiliated third parties exceed 5.0% of the contract sales price of the Project.  For purposes of this Section 5(h), “substantial assistance” in connection with the sale of a Project includes the preparation of an investment package for the Project (including an investment analysis, a property description and other due diligence information) or certain other substantial services performed by the Advisor or its Affiliate or agent in connection with such sale.  In the event the entire Company is sold, merged or otherwise transferred, the Real Estate Commission will be due in an amount as if the Projects were all sold at their gross value based on the merger or sale consideration (as grossed up for liabilities).

 

(g)                                  Distributions to Series B Limited Partner.  Under the Partnership Agreement, the Advisor, as the Series B Limited Partner, will receive the distributions which are payable to the Series B Limited Partner as provided thereunder.

 

6.                                      Expenses.

 

(a)                                 Company Expenses.  In addition to the compensation paid to the Advisor pursuant to Sections 4 and 5, the Company shall pay directly or reimburse the Advisor for all of the costs and expenses paid or incurred by the Advisor in connection with providing the services to the Company pursuant to this Agreement, including, but not limited to, all Acquisition Costs, Disposition Expenses and Financing Expenses.

 

(b)                                 Non-Reimbursable Acquisition Costs.  The Company shall be solely responsible for, and the Advisor shall be reimbursed by the Company for any Acquisition Costs incurred by the Advisor and its Affiliates relating to potential Projects and Loans that are either not submitted to the Board for approval or are approved by the Board.  The Advisor shall be responsible for all Acquisition Costs for the Projects or Loans that are submitted to the Board but rejected by the Board.

 

6

 

(c)                                  Organization and Offering Expenses.  The Company shall pay directly or reimburse the Advisor for all Organization and Offering Expenses (including all Selling Commissions and Expenses (as defined in the Memorandum)) in an amount not to exceed 15% of the gross proceeds of the Offering, and the Advisor shall bear the cost of all Organization and Offering Expenses (including all Selling Commissions and Expenses) in excess of 15% of the gross proceeds of the Offering.  The Company, either directly or through the Advisor, may fund any Organization and Offering Expenses (including all Selling Commissions and Expenses) in excess of such 15% limitation during the Offering period, provided that, at the end of the Offering period, the Advisor must reimburse the Company for any Organization and Offering Expenses (including all Selling Commissions and Expenses)in excess of 15% of the gross proceeds of the Offering either by payment or by reduction of the Asset Management Fee.

 

(d)                                 Overhead Expenses.  Subject to Section 2(j), the Advisor shall be responsible for all of its overhead expenses associated with its operations and ordinary expenses incidental to managing the Company including expenses of any ordinarily recurring nature such as rent, utilities, supplies, charges for furniture, fixtures and equipment, employee benefits (including insurance, payroll and other taxes) and compensation of all personnel.

 

7.                                      Term and Termination.

 

(a)                                 Term.  The term of this Agreement shall commence on the Effective Date and continue until the tenth anniversary of the Effective Date, unless sooner terminated in accordance with this Section 7.

 

(b)                                 Termination During Term.  The Company may terminate this Agreement at any time for cause in the event (i) the Advisor has been adjudicated bankrupt or insolvent by a court of competent jurisdiction and the adjudication or order shall remain in force or unstayed for a period of 30 days, (ii) of fraud, gross negligence or willful misconduct of the Advisor as determined by a final, non-appealable judgment of a court of competent jurisdiction or (iii) the Advisor commits a material breach of this Agreement and such breach is not cured within 30 days following written notice by the Company of such breach.

 

(c)                                  Termination by Agreement.  The parties hereto may terminate this Agreement by mutual written agreement at any time and on any terms as they may mutually agree.

 

(d)                                 Survival.  The termination of this Agreement shall not extinguish (i) the obligations of the Company for the payment of compensation and expenses in respect of the services rendered by the Advisor prior to the effective date of such termination or (ii) the exculpation and indemnification obligations hereunder.

 

8.                                      Limitation of Liability.  Notwithstanding any other provision of this Agreement, except as otherwise provided by federal or state laws, the Advisor and its managers, members, officers, employees and Affiliates, acting in good faith, shall not be liable to the Company or any other party for any act, omission, investment recommendation or decision, or any loss arising out of or relating to any activity undertaken (or omitted to be undertaken), in connection with the performance of their services to the Company as described herein or in the Partnership Agreement, on the same terms and conditions applicable to an “Indemnitee” in the Partnership Agreement in effect as of the date that the Company first became a party to this Agreement.

 

9.                                      Indemnification by the Company.  The Company shall indemnify, defend and hold the Advisor and its managers, members, officers, employees and Affiliates (the “Advisor Parties”) harmless from and against any loss, damage, liability, claim, cost or expense (including, without limitation, reasonable attorneys’ fees and expenses) arising out of any act or failure to act in the performance of their duties hereunder, unless (i) attributable to the fraud, gross negligence or willful misconduct of the

 

7

 

Advisor Parties or (ii) covered by the Company’s insurance to the extent the insurance proceeds are received by Company.  Notwithstanding the foregoing, the Advisor Parties shall not be entitled to indemnification or be held harmless pursuant to this Section 9 for any activity which the Advisor Parties shall be required to indemnify the Company pursuant to Section 10.  Any indemnification of the Advisor Parties may be made only out of the net assets of the Company.

 

10.                               Indemnification by the Advisor.  The Advisor shall indemnify and hold the Company, its managers, members, shareholders, Partners, Board members, officers, employees and Affiliates harmless from and against any loss, damage, liability, claim, cost or expense (including, without limitation, reasonable attorneys’ fees and expenses) arising out of any act or failure to act by the Advisor Parties in the performance of their duties hereunder by reason of their fraud, gross negligence or willful misconduct and which are not fully reimbursed by insurance.

 

11.                               Bank Accounts.  The Advisor may establish and maintain one or more bank accounts in its own name for the account of the Company, or in the name of the Company, and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of the Company, under such terms and conditions as the Board may approve; provided, however, that no funds shall be commingled with the funds of the Advisor, and the Advisor shall from time to time render appropriate accountings of such bank accounts to the Board and the auditors of the Company.

 

12.                               Records; Access.  The Advisor shall maintain appropriate records of all its activities hereunder and make such records available for inspection by the Board and by counsel, auditors and authorized agents of the Company, at any time during normal business hours.  The Advisor agrees that all records it maintains and keeps for the Company shall at all times remain the property of the Company and shall be promptly surrendered to the Company upon the termination of this Agreement or otherwise upon written request of the Company.  The Advisor shall at all reasonable times have access to the books and records of the Company.

 

13.                               Other Activities of the Advisor.  Nothing herein contained shall prevent the Advisor from engaging in other activities, including, but not limited to, the rendering of advice to other Persons (including other REITs) and the management of other programs advised, sponsored or organized by the Advisor or its Affiliates, nor shall this Agreement limit or restrict the right of any member, manager, officer or employee of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other Person.  The Advisor may, with respect to any investment in which the Company is a participant, also render advice and service to each and every other participant therein.

 

14.                               Non-Exclusive Management.  The services furnished by the Advisor under this Agreement are not exclusive.  The Advisor may, in its discretion, render the same or similar services to any Person or Persons whose business may be in direct or indirect competition with the Company.  The Advisor, its principals, managers, members, employees and agents may have, recommend or take the same or similar positions in specific investments for their own accounts, or for the accounts of other funds, as the Advisor recommends to the Company.  The Advisor intends to allocate any investment opportunities among the various competing funds (including the Company) in good faith using its reasonable business judgment, taking into consideration all relevant factors including the individual needs of each fund and the capital available for investment.

 

15.                               Relationship of Advisor and Company.  The Company and the Advisor do not intend to form a joint venture, partnership or similar relationship.  Instead, the parties intend that Advisor shall act solely in the capacity of an independent contractor for the Company.  Nothing in this Agreement shall cause the Advisor and the Company to be joint venture or other partners of each other, and neither shall have the power to bind or obligate the other party by virtue of this Agreement, except as expressly provided in this Agreement.

 

8

 

16.                               Assignment.  This Agreement may be assigned by the Advisor to an Affiliate with the approval of the Board.  The Advisor may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board.  This Agreement shall not be assigned by the Company without the consent of the Advisor, except in the case of an assignment by the Company to a corporation or other organization which is a successor to all of the assets, rights and obligations of the Company, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company are bound by this Agreement.

 

17.                               Miscellaneous.

 

(a)                                 Notices.  Any notice, report or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice is accepted by the party to whom it is given, and shall be given by being delivered by hand or by overnight delivery service to the addresses set forth on the signature page of this Agreement.  Either party may at any time give notice in writing to the other party of a change in its address for the purposes of this Section 16(a).

 

(b)                                 Modification.  This Agreement shall not be changed, modified, terminated or discharged, in whole or in part, except by an instrument in writing signed by all of the parties hereto or their respective successors or assigns.

 

(c)                                  Entire Agreement.  This Agreement constitutes the entire agreement and understanding among the parties hereto with respect to the subject matter described herein, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof.  The express terms hereof control and supersede any course of performance and/or usage of trade inconsistent with any of the terms hereof.

 

(d)                                 Severability.  The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.

 

(e)                                  No Waivers.  Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence.  No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

 

(f)                                   Governing Law and Venue.  This Agreement is made and shall be construed under the laws of the state of Delaware without giving effect to principles of conflicts of law.  Any disputes arising under this Agreement shall be brought in the state or federal courts having jurisdiction over Cass County, North Dakota, and the parties consent to and waive any objections they may have to the exclusive jurisdiction of such courts.

 

(g)                                  Counterparts.  This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement, notwithstanding that all parties shall not have signed the same counterpart.

 

9

 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first written above.

 

	
 
    	
GENERAL PARTNER:
    
	
 
    	
 
    
	
Address:
    	
Lodging Fund REIT   III, Inc., a Maryland corporation
    
	
 
    	
 
    
	
1635   43rd Street, Suite 205
    	
 
    
	
Fargo,   North Dakota 58103
    	
 
    
	
 
    	
By:
    	
/s/ Corey R. Maple
    
	
 
    	
 
    	
Corey R. Maple
    
	
 
    	
 
    	
Chief Executive Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PARTNERSHIP:
    
	
 
    	
 
    
	
Address:
    	
Lodging Fund REIT III   OP, LP, a Delaware limited partnership
    
	
 
    	
 
    
	
1635   43rd Street, Suite 205
    	
 
    
	
Fargo,   North Dakota 58103
    	
By:
    	
Lodging Fund REIT   III, Inc., a Maryland corporation, its General Partner
    
	
 
    	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    	
By:
    	
/s/ Corey R. Maple
    
	
 
    	
 
    	
Corey R. Maple
    
	
 
    	
 
    	
Chief Executive Officer
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
ADVISOR:
    
	
 
    	
 
    
	
Address:
    	
Legendary Capital REIT   III, LLC, a Delaware limited liability company
    
	
1635   43rd Street, Suite 205
    	
 
    
	
Fargo,   North Dakota 58103
    	
 
    
	
 
    	
By:
    	
/s/ Corey R. Maple
    
	
 
    	
 
    	
Corey R. Maple
    
	
 
    	
 
    	
Chief Executive Officer
    

 

10

 

EXHIBIT A

 

	
 
    	
 
    	
Total Return Per Share
    
	
Disposition
   Fee
   Percentage
    	
 
    	
Year 5 and
   beyond (1)
    	
 
    	
Year 4 (1)
    	
 
    	
Year 3 (1)
    	
 
    	
Year 2 (1)
    	
 
    	
Year 1 (1)
    
	
0.00%
    	
 
    	
below $10.00
    	
 
    	
below $10.00
    	
 
    	
below $10.00
    	
 
    	
below $10.00
    	
 
    	
below $10.00
    
	
0.75%
    	
 
    	
$10.00 to $12.50
    	
 
    	
$10.00 to $12.00
    	
 
    	
$10.00 to $11.50
    	
 
    	
$10.00 to $11.00
    	
 
    	
$10.00 to $10.50
    
	
2.00%
    	
 
    	
$12.51 to $15.00
    	
 
    	
$12.01 to $14.00
    	
 
    	
$11.51 to $13.00
    	
 
    	
$11.01 to $12.00
    	
 
    	
$10.51 to $11.00
    
	
2.50%
    	
 
    	
$15.01 to $17.50
    	
 
    	
$14.01 to $16.00
    	
 
    	
$13.01 to $14.50
    	
 
    	
$12.01 to $13.00
    	
 
    	
$11.01 to $11.50
    
	
3.00%
    	
 
    	
$17.51 to $20.00
    	
 
    	
$16.01 to $18.00
    	
 
    	
$15.51 to $16.00
    	
 
    	
$13.01 to $14.00
    	
 
    	
$11.51 to $12.00
    
	
4.00%
    	
 
    	
over $20.00
    	
 
    	
over $18.00
    	
 
    	
over $16.00
    	
 
    	
over $14.00
    	
 
    	
over $12.00
    

 

(1)         The period of time shall begin on the Offering Termination Date and the sale, merger or other transfer shall occur during the applicable year thereafter.Exhibit 10.2

 

 

MANAGEMENT AGREEMENT

 

AMENDMENT AND RESTATEMENT

 

BY AND BETWEEN

 

LF3           TRS, LLC

AND

 

NHS LLC dba NATIONAL HOSPITALITY SERVICES

 

LOCATION:

 

DATE:

 

 

MANAGEMENT AGREEMENT

 

THIS AMENDED AND RESTATED MANAGEMENT AGREEMENT (the “Agreement”), is made on          , to be effective as of the Effective Date, as that term is defined below, by and between LF3               TRS, LLC, a Delaware limited liability company, (“Owner”), having a registered office at 1635- 43rd St. South, Suite 205, Fargo, ND 58103, and NHS LLC dba NATIONAL HOSPITALITY SERVICES (the “Operator”) or its assignee, having its principal offices at 1635 - 43rd St. South, Suite 305, Fargo, ND 58103.

 

WITNESSETH:

 

RECITALS

 

A.                                    Owner is the owner of certain personal property and business operations and lessee of the real estate located at                          (the “Hotel”), which Hotel has      rooms and approximately       square feet of conference/banquet space.  Owner is the tenant of LF3         , LLC, a Delaware limited liability company (the “Land Owner”), which is the lessor of the real estate.

 

B.                                    Operator, together with its affiliates, has been engaged in the operation of hotels and inns for many years.

 

C.                                    Owner desires to utilize the services and experience of Operator in connection with the operation of the Hotel.

 

D.                                    All prior management agreements are terminated and no longer in effect. This agreement amends and restates all terms only under the mutual understanding agreed to herein.

 

NOW, THEREFORE, Owner and Operator agree:

 

ARTICLE 1

 

DEFINITIONS

 

1.01                        Definitions.  As used herein, the following terms shall have the respective meanings indicated below:

 

(a)                                 “Affiliates” means any corporation, partnership, or other entity that directly or indirectly controls, is controlled by, or is under common control with Operator.

 

(b)                                 “Annual Plan” is defined in Section 3.01(a) below.

 

(c)                                  “Budget” is defined in Section 3.01(b) below.

 

(d)                                 “Business” means the management and operation of the Hotel by Operator.

 

1

 

(e)                                  “Capital Improvements” means any alteration of, addition to, or renovation of, the Real Property, the cost of which is not expensed as repairs and maintenance under Generally Accepted Accounting Principles.

 

(f)                                   “Compensation” means the direct salaries and wages paid to any executive or other employee of the Business, together with all fringe benefits to which such employee is entitled, including: employer’s F.I.C.A contribution; payment for unemployment benefits; employment taxes; pension fund contributions; Worker’s Compensation premiums; group life and accident insurance premiums; health insurance premiums; and employee benefit programs including, but not limited to, profit sharing, retirement, disability and similar benefits.

 

(g)                                  “Effective Date” means               .

 

(h)                                 “Executive Staff” means the general manager, sales manager, controller, and food and beverage manager of the Business.

 

(i)                                     “Franchise” means the license under which the Business is operated.

 

(j)                                    “Furnishings and Operating Equipment” means all furniture, furnishings and equipment, other than fixtures attached to and forming part of the building, which are required for the operation of a hotel, including, without limitation, guest room furniture, office furniture, safes, computers, cash registers, duplication and communication machines, maintenance equipment (including tools), kitchen equipment, laundries, dry-cleaning facilities, bars and cocktail lounges, special lighting, chinaware, glassware, linens, silverware, uniforms and all specialized hotel equipment and personal property needed for such purpose.

 

(k)                                 “General Account” means a banking account in Owner’s name with Owner and Owner-approved representatives of Operator as authorized signatories.

 

(l)                                     “Group Services” means services provided by Operator or its Affiliates that are also provided to two or more hotels and inns operated by Operator that are designed to provide cost savings or efficiency, or both, and include, without limitation services for (i) group advertising and business promotion and publicity, (ii) central purchasing and procuring, (iii) credit card association, (iv) central accounting, (v) advice and consulting in connection with the design, planning, and construction of the Hotel and the organization, licensing, and operation of the Business, provided through specialists regularly employed or retained by Operator and its Affiliates, and (vi) any other services now or hereafter furnished by Operator to two or more hotels and inns operated by Operator. Operator shall have sole discretion over all phases of promotion and publicity with respect to the Group Services.

 

2

 

(m)                             “Hotel” means the Real Property and the Furnishings and Operating Equipment used in the Business.

 

(n)                                 “Hotel Accounts” means the General Account and Owner’s Depository Account.

 

(o)                                 Reserved

 

(p)                                 “Impositions” means all taxes, assessments, water, sewer or other rents, rates and charges, levies, license fees, permit fees, inspection fees and any other fees and charges, which at any time may be assessed, levied, confirmed, or imposed on the Business by a governmental or quasi-governmental authority or utility, but excluding income taxes payable by Owner resulting from operations.

 

(q)                                 “Insurance Requirements” means all terms of each insurance policy required to be carried hereunder, and all orders, rules, regulations and other requirements of the National Board of Fire Underwriters (or any other body exercising similar functions) applicable to the Business but does not include recommendations of the insurance carriers.

 

(r)                                    “Leased Land” means the parcel or parcels of real property legally described in Schedule 1 attached and Owner’s interest therein, whether in a fee or leasehold estate, together with all entrances, exits, rights of ingress and egress, easements and appurtenances.

 

(s)                                   “Legal Requirements” means all laws, statutes, ordinances, orders, rules, regulations, permits, licenses, authorizations, directions, and requirements of all governmental authorities, that now or hereafter apply or are asserted to apply to the Business, but not to Owner’s federal, state, and local tax returns.

 

(t)                                    “License Agreements” means the existing Franchise, if any, described in Schedule 2 attached and any other license or franchise agreement selected by Owner in its sole discretion, that grants to Owner a franchise or license to use the distinctive trademarks, trade names, signs, emblems, color schemes and other readily recognizable symbols of a national or international lodging chain and providing such additional benefits as access to a national reservations system.

 

(u)                                 “Mortgage” means any mortgage, deed of trust, reciprocal operating agreement, security agreement, equipment or chattel lease, or other agreement now or hereafter securing an obligation of Owner with assets of the Hotel.

 

(v)                                 “Mortgagee” means the holders of any obligation secured by a Mortgage.

 

(w)                               “Operator” means NHS LLC dba NATIONAL HOSPITALITY SERVICES, or its permitted designees, which may include Affiliates.

 

3

 

(x)                                 “Operating Supplies” means food and beverages and other immediately consumable items used in the operation of the Business such as fuel, soap, cleaning supplies, stationery and similar items.

 

(y)                                 “Operating Year” means the 12-month period commencing on January 1, except that the “first Operating Year” means the period beginning on the Effective Date and ending on December 31 of that year.

 

(z)                                  “Operator Hotels and Inns” means all other hotels and inns within the United States owned, leased, or managed, directly or indirectly, by Operator or its Affiliates.

 

(aa)                          “Owner” means the person or entity named in the preamble, its successors and assigns.

 

(bb)                          “Owner’s Depository Account” means an account designated by Owner in which the funds are at the disposal in Owner’s discretion.

 

(cc)                            “Owner Hotels and Inns” means all other hotels and inns within the United States owned, leased, or managed, directly or indirectly, by Owner.

 

(dd)                          “Permitted Encumbrances” means (i) all Mortgages, (ii) liens for Impositions not delinquent, (iii) undetermined or inchoate liens or charges for labor or materials which have not at the time been filed or recorded pursuant to law, and (iv) easements, restrictions on use, zoning laws and ordinances, rights of way and other encumbrances and minor irregularities in title, that have been identified to Operator and do not individually or in the aggregate impair the operation of the Business.

 

(ee)                            “Real Property” means the Leased Land and all buildings, structures and improvements now or hereafter located on the Leased Land.

 

(ff)                              “Service Contracts” is as defined in Section 9.02 below.

 

(gg)                            “Tax Returns” means federal, state and local income or other business tax returns, real property and personal property tax returns, and occupancy tax returns.

 

(hh)                          “Term” means the period beginning with the Effective Date and ending upon the expiration or earlier termination of this Agreement.

 

(ii)                                  “Uniform System of Accounts for Hotels” means the Ninth Revised Edition of that publication and is referred to in Section 5.05.

 

4

 

ARTICLE 2

ENGAGEMENT, TERM AND RENEWAL

 

2.01                        Engagement of Operator.  Owner hereby engages Operator to be the sole and exclusive person to supervise and direct the day-to-day Business in accordance with the terms and provisions of this Management Agreement.  Operator agrees that it will supervise and direct the day-to-day Business as a top-rated hotel comparable to other hotels of the same class, condition and franchise.  Operator and Owner shall endeavor to jointly determine operating policy, standards of operation, quality of service and any other policy matters affecting customer relations or the Business. In the event that Operator and Owner cannot reach a joint decision on operating policy, Operator’s decision on policy shall control, subject to adherence to the Budget.

 

2.02                        The Term.  The term of this Agreement shall commence on the Effective Date and shall expire at midnight on December 31 of the fifth (5th) full calendar year after the Effective Date if not earlier terminated under Article 6.  If not terminated, this Agreement will automatically renew under for successive periods of five (5) years each unless either party gives to the other written notice of non-renewal at least sixty (60) days before the end of the Term or any renewal term.

 

ARTICLE 3

 

HOTEL OPERATION

 

3.01                        Budget; Reports. Operator will provide a budget before the start of Owner’s fiscal year, for each consecutive year after the Effective Date; if the effective day is on any date other that the start of the fiscal year, then the Operator will provide a budget within 60 days of the Effective Date.  Operator will prepare:

 

(a)                                 A business plan (the “Annual Plan”) setting forth Operator’s estimates of the following fiscal year’s operations, based upon the most recent and reliable information then available taking into account the location of the Hotel and Operator’s experience in other comparable Operator Hotels and Inns. Annual Plans will be in such detail as is necessary for Owner to effectively review the Annual Plan. Operator may update and revise any Annual Plan from time to time to reflect variables and events not reasonably foreseeable by or within the control of Operator at the time of preparation of the Annual Plan. Operator does not guarantee the performance of the Hotel.

 

(b)                                 A budget estimating income and expense and cash flow, in reasonable detail, for the following Operating Year (the “Budget”), including among other things (i) a schedule of Hotel room rentals (and cabana rental, if applicable), (ii) occupancy levels and average room rate, (iii) complimentary accommodations and services, (iv) categories of income, (v) operating expenses, detailed by type, and (vi) anticipated cash flow available for distribution to Owner’ Depository Account. The Budget will be subject to the approval of Owner and, if applicable or requested, Mortgagee(s). Owner shall be responsible to obtain Mortgagee approval of the

 

5

 

Budget, if required. Owner shall approve reasonable expenses in the Budget for the cost of employing the Executive Staff. Operator shall make the information utilized in preparing the Budget available to Owner upon Owner’s request. In the event of a disagreement with regard to a proposed Budget, and pending settlement thereof, Operator may continue to operate the Hotel in accordance with the standards herein set forth at levels of expenditure not exceeding those of the preceding year.  Operator may make such expenditures from General Account as Operator deems necessary for such continued operations.

 

(c)                                  If requested by Owner, Operator shall prepare the Budget to estimate the ensuing year expenditures for (i) repairs and maintenance, (ii) the purchase of Furnishings and Operating Equipment, (iii) Capital Improvements, and (iv) separate advertising, business promotion and personnel programs of the Hotels (as distinct from the programs included in Group Services).

 

(d)                                 If requested by Owner, but not more often than quarterly, a narrative overview of all revenue and expense levels in the Budget and an analysis of the year over year actual results, with an explanation of any differences between the Budgets and the results and a reconciliation thereof.

 

(e)                                  Operator shall comply with the applicable Budgets in all material respects unless modified verbally or in writing by Owner and Operator.  Operator shall be entitled to make additional expenditures not included in a Budget in case of emergencies arising out of fire or any other casualty or other unforeseen circumstance or in order to comply with any applicable Legal or Insurance Requirements.

 

3.02                        Group Services.  During the Term, Operator will furnish to the Hotel the Group Services furnished to other Operator Hotels and Inns and suggest preventative maintenance programs known to Operator which it deems suitable for the Hotel. With respect to credit services, Owner agrees that the Hotel’s policy regarding association with any credit card system shall be in conformity with Operator’s general policy at the time in effect.  Operator will provide, as needed, supervisory and control services to the Hotel’s front office, food and beverage, personnel, and other operating departments. Operator shall have sole discretion over Group Services promotion and publicity.

 

3.03                        Personnel.

 

(a)                                 Employment.  In conformity with the approved Annual Plans, Operator shall, at the expense of the Business, employ, train, pay, supervise, promote and discharge all employees and personnel for the operation of the Hotel including the Executive Staff.  Operator shall use due care to select qualified, competent and trustworthy employees and personnel. Each person so hired shall be an employee only of Owner

 

6

 

or Owner’s designee(s).  Owner or Owner’s designee(s) shall at all times employ a sufficient number of employees to enable Operator to properly, adequately, safely, and economically manage, operate and maintain the Hotel. All personnel employed in the Business shall be the employees of Owner. At no time shall the employees of Owner, Owner’s designee(s), any independent contractor(s), or employee(s) of independent contractors be considered employees of Operator. Owner and Owner’s designee(s) shall comply in all respects with all federal, state and local Legal Requirements governing its employees, including, without limitation, workers’ compensation, social security, unemployment insurance, hours of labor, wages, working conditions and other employer requirements. Owner shall have the right to review and approve Executive Staff candidates before being hired. In the event that Owner disapproves of three candidates selected by Operator for any Executive Staff position, Operator shall have the right to employ any other candidate for that Executive Staff position without Owner’s approval.

 

(b)                                 Unions.  Operator shall have the authority and responsibility to negotiate with any labor union(s) representing or attempting to represent employees at the Hotel but shall not, except when a Legal Requirement exists, enter into negotiations with any labor union regarding wages and working conditions without the prior written consent of Owner. Operator shall consult with Owner, unless Owner gives written waiver of this right, during the course of any negotiations as to terms acceptable to Owner, and shall conduct such negotiations within parameters agreed to by Owner. Operator shall use diligent efforts to settle and compromise all controversies and disputes arising under any labor union contracts affecting the employees of the Hotel upon such terms and conditions as Operator may deem to be in Owner’s best interests. Nothing in this Agreement shall require Owner to employ persons belonging to labor unions.

 

(c)                                  Forms.  Operator shall prepare and be responsible for the execution and filing of all employment related forms, reports, and returns required by Legal Requirements in connection with unemployment insurance, workers’ compensation, disability benefits, job safety, Immigration and Naturalization Service compliance and reporting, tax withholding, Social Security, pension, profit-sharing and other employee benefit plans. If any violations of such Legal Requirements shall occur as a result of any act or omission by Operator, all costs, fines and penalties resulting therefrom, if any, shall be paid by Operator without reimbursement by Owner.  Operator shall provide Owner with all information that is (i) available to Operator, and (ii) necessary for the completion of Tax Returns required to be filed by Owner in connection with the ownership or operation of the Hotel. Owner shall prepare and file all such returns.

 

(d)                                 Room and Board.  On Site If Operator deems it advisable, the general manager, resident manager, and/or the housekeeper will reside at the Hotel at no cost.  In such a case, they will receive the maintenance (e.g., room, board and laundry)

 

7

 

customarily provided for such employees of a hotel or inn.  Operator and Owner shall jointly approve the rooms in the Hotel that may be occupied by the general manager, resident manager, and housekeeper. The reasonable business expenses of the general manager and sales manager, including travel and business entertainment expenses, shall be paid or reimbursed by the Hotel.

 

3.04                        Additional Responsibilities of Operator.  Operator will, either in its own name or as an authorized agent of Owner, perform or cause to be performed, the following:

 

(a)                                 with the approval of Owner, make arrangements with concessionaires, licensees, tenants, or other intended users of the facilities of the Hotel;

 

(b)                                 enter into such contracts for the furnishings of utilities and maintenance and other services to the Hotel;

 

(c)                                  in accordance with the Annual Plans, make all repairs, decorations, alterations and improvements to the Hotel for the proper maintenance thereof in good order, condition and repair;

 

(d)                                 submit to Owner recommendations for preventative maintenance programs and perform such preventative maintenance as shall be in the Annual Plans or approved by Owner in writing;

 

(e)                                  purchase such Operating Supplies as Operator deems necessary or advisable for the operation of the Hotel;

 

(f)                                   cooperate with Owner to apply for, obtain, and maintain all licenses and permits required of Owner or Operator in connection with the Business; provided that Owner shall execute and deliver any and all applications and other documents and otherwise fully cooperate with Operator in applying for, obtaining, and maintaining such licenses and permits; further provided that a liquor license, if any, shall be in the name of an entity designated by Owner and all related fees, costs, and expenses shall be paid by Owner before they become delinquent.

 

(g)                                  do or cause to be done, all acts and things in and about the Business as shall be necessary to comply with all Legal Requirements and Insurance Requirements; provided that Owner is responsible for compliance with Legal Requirements that relate to the sale of alcoholic beverages by, through, or at the Hotel.

 

(h)                                 to discharge any lien, encumbrance or charge on or with respect to the Business, other than Permitted Encumbrances;

 

(j)                                    pay all Impositions;

 

8

 

(i)                                     use its best efforts to cause the Hotel to comply with the License Agreements (if any);

 

(k)                                 institute any and all legal actions or proceedings to (i) collect charges, rent or other income due to the Business, (ii) dispossess guests, tenants or other persons in possession therefrom, or (iii) cancel or terminate any lease, license or concession agreement for default thereunder by the tenant, licensee, or concessionaire; provided, however, that without the consent of Owner, Operator shall not institute any proceedings to terminate any lease, license or concession agreement having a then unexpired term of one (1) year or more without the written consent of Owner.

 

When any of the foregoing responsibilities require payment by or on behalf of the Business, payment will be made from the General Account, provided that there are sufficient funds to do so.  In the event that there are not sufficient funds in the General Account, Owner shall provide the necessary funds to make timely payments. For expenditures greater than $10,000.00 in any one expense category which are not within or anticipated in the Annual Plan, Operator shall be required to obtain written consent from Owner.  It is agreed that utilities, payroll, taxes, food & beverage costs greater than $10,000.00 are approved and anticipated in the Annual Plans.

 

The individuals identified on the attached Schedule 3 are the only persons authorized to bind Owner and Operator respectively, then only to the extent of the limits set forth opposite their respective names and within the limits specified elsewhere in this Agreement.

 

3.05                        Management Fee.  Owner shall pay to Operator the management fee computed and payable as provided in the Management Fee Rider attached hereto (“Management Fee”).

 

3.06                        Reimbursements to Operator.  In addition to the Management Fee, Operator and its Affiliates shall be entitled to be reimbursed for the following costs and expenses:

 

(a)                                 upon Owner election and approval prior to any services being rendered, the Operator is entitled to all fees or expenses of Group Services that are separate and distinct from the Ancillary Fee described in the Fee Rider attached hereto;

 

(b)                                 all costs and expenses of any separate advertising and business promotion programs of the Business alone, separate and distinct from other Operator Hotels and Inns;

 

(c)                                  all costs, expenses, salaries, wages and other compensation limited to the attached fee rider, for all officers and employees of Operator and its Affiliates while such officers and employees are working in an operational role at and for the benefit of the Hotel; and

 

(d)                                 reasonable travel and entertainment expenses for all officers and employees of

 

9

 

Operator and its Affiliates incurred in connection with the Business, provided the same is consistent with the Annual Plan.

 

3.07                        Standard of Performance.  Operator shall operate, manage and maintain the Hotel and all of its facilities and activities (a) in a diligent, careful and vigilant manner in accordance with the requirements of this Agreement and the standards imposed by the Franchise Agreement, if any, (b) that maintain the condition and character of the Hotel, (c) with the primary goal of generating short-term and long-term profitability, and (d) in a manner that takes reasonable and prudent measures to provide for the security of the Hotel and its guests.  Operator shall provide such facilities and services at the Hotel as are normally provided by operators of similar commercial hotels, within the limitation of the Hotel’s facilities.  Operator shall act in accordance with the high standards of hotel and motel managers in the area serviced by the Hotel and apply prudent and reasonable business practices in Owner’s best interests in the conduct of the Business (e.g., practices which include granting complimentary rooms, food and beverage).  Operator shall use all reasonable and prudent efforts to promote profitable trade, commerce and business for the Hotel and shall bring to Owner’s attention opportunities to obtain and increase profits.

 

3.08                        Contest of Impositions.  Operator shall review the appropriateness of all Impositions and shall advise Owner of any that, in Operator’s opinion, should be challenged and recommend action to obtain a reduction of such Impositions. Owner shall notify Operator if Owner intends to contest any Imposition or lien upon the Hotel. At Owner’s request, Operator shall institute protests or challenges to any Imposition or lien. All expenses incurred in contesting or seeking a reduction or elimination thereof including legal, appraisal and accounting fees, if required, shall be borne by Owner. Operator shall not pay any contested Imposition or lien under protest or otherwise without Owner’s consent. Operator shall set aside the amount necessary to pay any Imposition or lien under protest, plus interest and penalties, in an interest-bearing reserve account (or shall deposit such amount with a third party if so directed by Owner).  In the event that there are not sufficient funds in the General Account for Operator to make required payments, Operator shall notify Owner in writing and Owner shall promptly pay the amount of the Imposition shortfall into the General Account. Operator shall promptly reimburse Owner for any interest or penalty payment imposed on Owner by reason of the failure of Operator to make payment of uncontested Impositions when the funds therefor in the Budget were available.

 

3.09                        Mortgage Payments.  Owner shall provide Operator with a copy of any Mortgages on the Hotel.  At Owner’s request and if monies in the General Account are available, Operator shall make payments due under the Mortgage on or before their due date. Owner shall be solely responsible for payment of any late fees or interest resulting from a late payment due under the Mortgage if monies are not available in the General Account sufficient to make payments on or before their due date. Operator shall endeavor to comply with all covenants under any Mortgage within the authority granted to Operator under this Agreement.

 

10

 

3.10                        Payments under License Agreements.  Owner shall provide Operator with a copy of the License Agreements. At Owner’s request, and if monies in the General Account are available, Operator shall make payments due under License Agreements on or before their due date. If notified by Operator that monies are not available in the General Account to may such payments, Owner shall deposit monies sufficient to make such payments before the payments are due. If resources are available under this Agreement, Operator shall (a) perform all covenants required by Owner to be performed under the License Agreements, (b) generally operate the Business in accordance with the terms and conditions of the License Agreements and do nothing to cause or permit anything to be done which would constitute a violation of the License Agreements, and (c) at Owner’s request, represent Owner in submissions, correspondence, at conferences, and during negotiations with the current franchisor under the existing License Agreements and with potential new franchisors.

 

ARTICLE 4

INSURANCE

 

4.01                        Business Insurance.  During the Term, Operator shall obtain, keep in force, and maintain at all times Minimum Insurance Amounts that (a) is property damage coverage for the Hotel on an “open perils” basis (including builder’s risk during any period or periods of time that construction or remodeling is being performed), (b) includes, without limitation, the perils of fire, vandalism, and malicious mischief, flood, seepage and back-up of sewers and drains, sinkhole, loss or damage from sprinklers and from leakage or explosion or cracking of boilers carrying steam, water or gas, pressure vessels or similar apparatus, (c) is in an amount equal to 100% of the full replacement cost of all improvements to the Hotel, (d) has a deductible of no more than Ten Thousand Dollars ($10,000.00), and (e) includes business interruption for at least 12 months. Owner, and Mortgagee(s) if applicable, shall be added as loss payees as their interests may appear. The policy or policies of such insurance shall contain or include waiver of subrogation clauses or endorsements acceptable in all respects to Owner and Mortgagee(s) and as required by any leases. If Owner objects to the insurance obtained by Operator, Owner shall thereafter be responsible for obtaining and keeping in force, the Minimum Insurance Amounts with Operator named an additional insured.

 

4.02                        Operator’s Insurance.  Operator shall carry, keep and maintain at all times during the term of this Agreement insurance of the types and in the minimum amounts set forth below. Upon written request, Operator shall provide Owner and Mortgagees with certificates of insurance and copies of insurance policies evidencing the insurance required by this Section 4.02. Operator shall deliver to Owner and Mortgagees renewal policies and certificates not less than thirty (30) days prior to the expiration of any such insurance. Owner and Mortgagees shall be named as additional named insureds on each insurance policy required by this Section 4.02 and the Business shall pay any costs associated therewith. Operator hereby expressly waives all rights against Owner and Mortgagees, their respective affiliates and their respective officers, directors, employees, agents and

 

11

 

Operators for and in connection with all claims, losses and/or damages covered by any insurance required by this Section 4.02.

 

(a)                                 All of the policies of insurance required by this Section 4.02 shall:

 

(i)                                     be issued by financially responsible insurance carriers or companies;

 

(ii)                                  be in a form acceptable in all respects to Operator, Owner, and Mortgagees;

 

(iii)                               include all standard construction industry clauses and endorsements and such other clauses and/or endorsements as Owner or Mortgagees may from time to time require;

 

(iv)                              provide that such policies shall not be canceled, terminated or the terms thereof modified or amended without at least thirty (30) days’ prior written notice to Owner and Mortgagees;

 

(v)                                 include waiver of subrogation clauses or endorsements acceptable in all respects to Owner and Mortgagees;

 

(vi)                              be on an occurrence basis; and

 

(vii)                           be written as primary policies, not contributing with, and not in excess of, any insurance coverage that Owner or Mortgagees and/or their respective successors, assigns, parent companies, subsidiaries and/or affiliates may carry against same hazards.

 

(b)                                 Minimum Amounts. Only as it pertains to the Operator, and the Operator’s employee’s, the Operator shall carry, keep and maintain, with no deductible, at all times the following types of insurance in the minimum amounts set forth below:

 

(i)                                     Workers’ Compensation in an amount not less than the applicable statutory minimum requirement.  Operator shall also maintain employer’s liability insurance in an amount not less than Five Hundred Thousand Dollars ($500,000.00).

 

(ii)                                  The following insurance coverage to protect against claims that may arise out of or result from operations away from the Hotel that are connected with Operator’s performance of this Agreement: Comprehensive Commercial General Liability (including blanket personal contractual and innkeeper’s and liquor liability, products completed operations, independent Operators and broad form property damage) in an amount not less than One Million Dollars ($1,000,000.00) per occurrence and Two Million Dollars ($2,000,000.00) aggregate for bodily injury and One Million Dollars ($1,000,000.00) per occurrence and Two Million Dollars ($2,000,000.00)

 

12

 

aggregate for property damage.

 

(iii)                               Comprehensive Automobile Liability (including owned, non-owned, leased and hired car coverage) in an amount not less than One Million Dollars ($1,000,000.00) per occurrence for bodily injury and One Million Dollars ($1,000,000.00) per occurrence for property damage.  This insurance shall apply to all operations of Operator both at and away from the site of the Hotel.

 

(iv)                              Umbrella/Excess Liability in an amount not less than Twenty-Five Million Dollars ($25,000,000.00) per occurrence and Twenty-Five Million Dollars ($25,000,000.00) aggregate.

 

(v)                                 Employment insurance, including Employee Dishonesty Fidelity and Forgery Insurance, in amounts anticipated to be sufficient to protect the Business from any claims covered thereby.

 

4.03                        Payment of Insurance and Deductibles. Operator shall be responsible for the payment of insurance premiums and any and all deductibles in connection with any insurance policy described in Section 4.02. Operator will proportionally invoice the Hotel, for the attributable amount insurance coverage contracted for by Operator. No payment therefor shall be made through the General Account except that the costs associated with adding Owner and Mortgagees as additional insureds on Operator’s commercial general liability policy and all deductibles required under laws, rules, and regulations applicable to a liquor license issued with respect to the Business shall be paid from the General Account.

 

4.04                        Operator Cooperation.  Operator will cooperate with Owner as follows:

 

(a)                                 Notice of Loss.  In the event of any loss, damage or injury at the Hotel, Operator shall:

 

(i)                                     notify Owner, Mortgagee and the insurance carrier as soon as possible but no later than forty-eight (48) hours after Operator receives notice of any such loss, damage or injury;

 

(ii)                                  take no action that could be construed as an admission of liability or that might otherwise bar Owner or Mortgagee from obtaining any protection afforded insurance or which might prejudice Owner or Mortgagee in its defense to any claim for an insured loss, damage or injury;

 

(iii)                               upon request of Owner, agree that Owner or Mortgagee shall have the exclusive right to conduct the defense to any claim, demand or suit within limits prescribed by the policy or policies of insurance; and

 

13

 

(iv)                              defend any claim if requested by Owner.

 

(b)                                 Claim Information.  Operator shall furnish information that is requested by Owner or Mortgagees for the purpose of establishing the appropriate insurance coverages and shall cooperate in every reasonable way with respect to such insurance and any loss thereunder.

 

(c)                                  Potential Risks.  Operator shall give Owner and Mortgagees written notice of any facts of which Operator is aware that might cause an increase in the risk of a casualty loss or a claim of liability in connection with the Business.  Such notice shall be given promptly after Operator, or any member of the Executive Staff, has actual knowledge of such facts.

 

(d)                                 Prompt Investigation.  Operator shall promptly investigate and make a full timely written report to the insurance company as to all accidents, claims for damages relating to the Business, any damage or destruction and the estimated cost of repair thereof, and Operator shall prepare any and all reports required by any insurance company in connection therewith. Operator shall file all such reports in a timely manner with the appropriate insurance company as required under the terms of the relevant insurance policy.

 

(e)                                  Blanket Policies.  Owner agrees that the insurance Operator is required to obtain and maintain may be provided in one or more blanket policies, provided that Operator and Owner, and if required by the Mortgage, the Mortgagees, are named insureds thereunder and the fairly allocated cost associated therewith is paid out of the General Account.

 

4.05                        Standard Coverage.  The specific insurance requirements set forth above in this Article are in addition to and not in limitation of the basic or standard insurance coverages afforded by (a) the policies of insurance required above and (b) the policies of insurance otherwise maintained by Owner or Mortgagees in the course of their business.

 

4.06                        Construction Contractors, Subcontractors, and Vendors Insurance.

 

(a)                                 If engaged by Operator, Operator shall require that all Contractors, Subcontractors, and Vendors that engage in construction activities for the Business have insurance coverage at the expense of each, respectively, and evidence of such insurance shall be demonstrated at the time of contract. With respect to any Contractors, Subcontractors and Vendors engaged to provide construction activities that were previously engaged by Owner or any other party for work that is ongoing and not insured to the level required in this section 4.06, Operator shall have a period of thirty (30) days from the date of this Agreement to endeavor to bind the required insurance coverage. Operator shall require that all construction Contractors, Subcontractors and Vendors it hires are licensed in the state where the Hotel is

 

14

 

located for all such activities that require licensing.

 

(b)                                 Contractors, Subcontractors, and Vendors shall have coverage in the following minimum amounts:

 

(i)                                     Worker’s compensation - Statutory Amount;

 

(ii)                                  Employer’s Liability - Statutory Minimum;

 

(iii)                               Commercial General Liability - $1,000,000 per occurrence and $3,000,000 aggregate; and

 

(iv)                              Auto Liability Policy - Including owned, non-owned, leased or hired and used in their business in the amount of $1,000,000 combined single limit.

 

(c)                                  Proof of Coverage. A certificate of insurance showing proof of this coverage must be obtained and received by Operator before any work, service, or sale shall occur. Owner and Mortgagees shall be named as additional insureds, and such policy shall not be modified, amended, or canceled without prior written notice to Owner and Mortgagees.

 

(d)                                 Waiver of Insurance Requirements.  Operator must obtain Owner’s and Mortgagees’ permission to waive any of the requirements of this Section 4.06. Higher amounts may be required if the work to be performed is deemed hazardous. Operator shall keep on file the Certificates of Insurance it is required to obtain.

 

ARTICLE 5

ACCOUNTS; WORKING FUNDS; RECORDS AND REPORTS

 

5.01                        Hotel Accounts.  Operator shall establish a General Account or assume control of an existing General Account, and Owner will deliver to Operator for deposit into the General Account, a sum agreed by both parties, to be maintained at all times, and funded by Owner from time to time at Operator’s request.  All monies received by Operator in connection with the Business, or derived from claims, insurance or otherwise, shall be received by Operator for the benefit of Owner and promptly deposited by Operator into the General Account.

 

5.02                        No Co-Mingling of Funds. The Hotel Accounts shall be used in connection with the operation of the Business and the performance of the terms and conditions of this Agreement. Operator agrees to segregate from other revenues all receipts, accounts and records pertaining to the Business. Operator may not co-mingle the monies of the Business with the monies of any other business of Operator.

 

15

 

5.03                        Expenditures.  Operator is hereby authorized to pay from the General Account (or if appropriate, from available house banks or petty cash funds) to the extent consistent with the Annual Plans such amounts and at such times as are required in connection with the Business, including without limitation the following:

 

(a)                                 salaries and expenses of employees at the Business, including the Executive Staff, in accordance with Section 3.03;

 

(b)                                 all expenditures and reimbursements for which Operator or its subsidiaries are entitled to under any provisions of this Agreement;

 

(c)                                  the Management Fee, computed in accordance with the provisions of the Management Fee Rider;

 

(d)                                 deposits in Owner’s Depository Account and moneys in excess of those required for the General Account; and

 

(e)                                  all costs and expenditures incurred or made in connection with the items to which Operator or its subsidiaries and Affiliates are permitted or required to make under this Agreement.

 

5.04                        Expenses to be Borne by Operator.  Operator shall be solely responsible for the following expenses:

 

(a)                                 All costs, expenses, salaries, wages and other compensation of officers and employees of Operator and its Affiliates, subject to the reimbursements from Owner to Operator pursuant to Section 3.06(c);

 

(b)                                 Expenses of Operator’s principal and branch offices;

 

(c)                                  Expenses for advertising or promotional materials that feature Operator’s name or activities;

 

(d)                                 Operator’s capital expenditures;

 

(e)                                  Operator’s overhead or general expenses, including but not limited to telephone, telex, duplicating, stationery and postage expenses, excluding postage expenses for overnight or special delivery charges incurred at Operator’s principal and branch offices, and except as may be expressly those of the Business or assumed by Owner under this Agreement;

 

(f)                                   Any travel expenses of Operator’s central office employees in excess of the expenses permitted under Section 3.06(d) or the Annual Plans;

 

16

 

(g)                                  Any interest or penalty with respect to an Imposition or Lien upon the Hotel imposed on Owner by reason of (i) the failure of Operator to make a payment required to be made by Operator under this Agreement when the funds authorized therefor were available, or (ii) funds therefor were not available and Operator failed to provide a funding request to Owner for the same reasonably in advance of their due date;

 

(h)                                 The cost of the insurance described in Section 4.03 of this Agreement; and

 

(i)                                     Accounting fees paid or incurred by Operator for its own operations.

 

5.05                        Books and Records.   Operator shall keep full and adequate books of account and such other records as are necessary to reflect the results of the operation of the Business.  Such books and records shall be kept in all material aspects in accordance with the Uniform System of Accounts for Hotels.

 

5.06                        Reports to Owner.

 

(a)                                 Monthly Reports. Operator will deliver or cause to be delivered to Owner on or before the twentieth (20th) day of each calendar month, a detailed profit and loss statement for operation of the Hotel during the previous calendar month and the year-to-date (“Monthly Report”). The statement must list or describe any material variances to the Annual Plans and must include a comparison to the same month and year-to-date period from the preceding year, a comparison of calendar month and year-to date to the applicable Annual Plan, trial balance, and balance sheet and related statement of profit and loss, which must include all supporting departmental schedules of revenues, and expenses.

 

(b)                                 Annual Report. Within forty-five (45) days after the end of each calendar year, Operator will deliver a final balance sheet, a profit and loss statement, accounts payable aging report, accounts receivable aging report, general ledger trial balance, and a detailed general ledger (“Annual Report”). If and when an audit or other report is requested by Owner or a Mortgagee, the cost of the audit and any other reports, including all labor and operating costs of Operator incurred in connection with the audit and preparation of other reports, will be an operating expense of the Business. Owner will determine the scope and content of the audit and other reports.

 

(c)                                  Preparation Costs. All costs and expenses included in the Budget that are incurred in connection with the preparation of any statements, schedules, computations and other reports required under this Section 5.06 (a), (b), or (c) shall be operating expenses of the Business.

 

5.07                        Owner’s Right of Inspection and Review.  Operator shall accord to Owner, its accountants, attorneys and agents, the right to enter the Hotel on reasonable notice during normal

 

17

 

business hours during the term of this Agreement for the purposes of examining or inspecting and making extracts of the books and records of the Business or for any purpose which Owner, in its discretion, shall deem necessary or advisable. Entry for such purposes shall be accomplished with as little disruption to the Business as practicable. Books and records of the Hotel shall be kept at the Hotel or at such other place as the parties may agree. In the event such books and records are not kept at the Hotel, Operator shall accord Owner, its accountants, attorneys and agents the same access rights to such books and records as if kept at the Hotel. Operator shall cooperate fully with Owner, its accountants, attorneys and agents and shall make available to them any and all information concerning the Business.

 

ARTICLE 6

TERMINATION RIGHTS

 

6.01                        Termination at Will. This Agreement may be terminated at will, by any reason or no reason, by either party, upon providing sixty (60) day written notice. If either party elects to exercise its right of termination, then the non-terminating party may pursue damages as afforded by law.

 

ARTICLE 7

TITLE MATTERS

 

7.01                        Title to Hotel.  Owner covenants that, as of the Effective Date, Land Owner is the fee owner of the Hotel and will, on request, provide evidence thereof to the reasonable satisfaction of Operator.

 

7.02                        Assignment by Operator.  Operator, in its sole discretion, shall have the right to assign this Agreement to any Affiliate of Operator or to any successor or assignee of Operator resulting from any merger, consolidation or reorganization, or to another corporation which shall acquire all or substantially all of the business and assets of Operator. Operator will give prompt notice to Owner of any such assignment. Operator may, with the consent of Owner not to be unreasonable delayed or withheld, assign this Agreement to any non-Affiliate. Except in the case of an assignment to an Affiliate of Operator, Operator shall be released of all of its covenants and liabilities hereunder, other than liabilities that have accrued prior to the date of the delivery of notice to Owner.

 

7.03                        Mortgages.  Land Owner reserves the right to grant a mortgage, deed of trust, or similar security document encumbering all or any part of the properties of the Business to secure indebtedness of Land Owner.  Land Owner agrees to provide written notice to Operator of any Mortgage including the name and address of the Mortgagees (or beneficiary) under such Mortgages. Operator agrees that so long as the Real Property are subject to any Mortgage:

 

18

 

(a)                                 that simultaneously with the giving of any notice of default or termination to Owner and Land Owner, it will concurrently send a copy of such notice by certified mail to the Mortgagees, and no notice to Owner or Land Owner of any default or termination hereunder shall be effective unless a copy of such notice shall have been sent as herein provided;

 

(b)                                 that Operator will not exercise its right of termination hereunder with respect to a default under clauses (a) or (b) of Section 6.01 during the period of grace provided for therein, if any of the Mortgagees shall give Operator notice of its intention to cure such default and proceeds diligently to do so;

 

(c)                                  that upon the request of any Mortgagee and consent of Owner, Operator will furnish to such Mortgagee, copies of the Annual Plans described in Section 3.01, and the unaudited monthly and audited annual financial reports described in Section 5.06(a), (b), and (c) concurrently with the furnishing of the same to Owner; and

 

(d)                                 Operator shall accord to the Land Owner, Mortgagees, their accountants, attorneys and agents, the right to enter upon the Hotel on reasonable notice during normal business hours during the Term of this Agreement for the purpose of examining or inspecting and making extracts of the books and records of the Business for any purpose permitted under the Mortgage.

 

7.04                        Successors and Assigns.  Subject to the foregoing, this Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, legal representatives, successors and assigns, and with respect to Owner, the phrase “successors and assigns” shall include purchasers of Owner’s interest in the Business.

 

7.05                        Remedies.  Any assignment by either party of this Agreement in violation of the provisions of this Article 7 shall be null and void. In addition to any other remedies available to the parties, the provisions of this Article 7 shall be enforceable by injunctive proceeding or by a suit for specific performance.

 

ARTICLE 8

DAMAGE OR DESTRUCTION; EMINENT DOMAIN

 

8.01                        Damage or Destruction.  If the Hotel shall be substantially damaged by fire or other casualty so that restoration of operations cannot reasonably be expected to be completed within 15 days after the occurrence of the event, then Owner or Operator shall each have the right to terminate this Agreement and neither party shall have any further obligation to the other party hereunder, except with respect to those that are stated to survive termination. Written notice of termination due to damage or destruction must be given to the other party within sixty (60) days after the occurrence of such event.

 

19

 

8.02                        Eminent Domain.  In the event of any condemnation or similar proceeding the entire award for damages shall belong solely to Owner. The foregoing shall not limit Operator’s right to seek a separate condemnation award relating to its loss of fees and the proceeds, costs or damages permitted by applicable law.

 

ARTICLE 9

GENERAL PROVISIONS

 

9.01                        Purchases.

 

(a)                                 Group Services. Operator will offer Group Services to Owner and recommend firms or sources for the purchase of Furnishings and Operating Equipment and Operating Supplies for the Business. Owner shall not be obligated to purchase from the recommended sources. However, prior to purchasing from other sources, Owner shall submit to Operator such samples and other information with respect to the proposed purchases as shall be necessary to assure Operator that the quality of such items is at least equal to those available from the sources recommended by Operator and the design conforms to the type and class of Hotel.

 

(b)                                 Benefit of Group Services. In connection with any purchases made by Operator and its Affiliates for the account of Owner, Operator and its Affiliates may perform services as a representative of the source to secure the benefits of lower costs, and that all savings resulting therefrom shall be passed on to Owner. In addition, all trade discounts, rebates and refunds, and all returns from the sale of Furnishings and Operating Equipment and Operating Supplies shall accrue to the benefit of Owner.

 

9.02                        Service Contracts.

 

(a)                                 Procurement. Consistent with the Annual Plan, Operator shall endeavor to procure competitive proposals for, negotiate, enter into, administer, pay (as an Operating Expense), and enforce contracts for services required in the ordinary course of the Business (“Service Contracts”). Service Contracts include, without limitation, contracts for water, electricity, gas, telephone, detective agency protection, vermin extermination, cleaning, elevator and boiler maintenance, air conditioning maintenance, laundry service, dry cleaning service, trash removal, landscape maintenance, snow removal, window cleaning and all other services which are provided in hotels of a similar class. All Service Contracts shall be signed by Operator on behalf of Owner. Operator shall diligently seek to obtain a waiver of liens with respect to any Service Contract providing labor or materials for the Hotel. Available rebates, commissions, discounts, and allowances for Service Contracts shall accrue to the benefit of Owner.

 

20

 

(b)                                 Conflict of Interest. Operator shall disclose to Owner in writing any proposed Service Contracts or proposed purchases of supplies, equipment or other property that will benefit Operator and its Affiliates.  By proposing such contract or purchase, Operator represents and warrants that Operator and its Affiliates will perform the service or sell the property for the best price and terms offered to any party by Operator and that the price and terms are fair, competitive, and reasonable.

 

9.03                        Reserved.

 

9.04                        Indemnification by Owner.  Except for the extent covered by insurance, Owner indemnifies and agrees to defend and hold Operator free and harmless from and against all claims, costs, expenses, demands, attorneys’ fees and disbursements, suits, liabilities, judgments and damages caused by the negligent acts, omissions, misconduct, or the failure to perform or exercise any of the duties, obligations, powers or authorities of Owner or Owner’s employees which may be suffered by Operator as a result of any occurrence or event happening in or about the Hotel unless such event stems from a fraudulent activity or from gross negligence of Operator. Owner agrees to reimburse Operator upon demand for any monies (including reasonable attorneys’ fees and disbursements) which Operator is required to pay for any items which are the responsibility of Owner pursuant to the terms of this Section 9.04. The provisions of this Section 9.04 shall survive the termination of this Agreement.

 

9.05                        Indemnification by Operator. Except to the extent covered by insurance, Operator indemnifies and agrees to defend and hold Owner free and harmless from and against all claims, costs, expenses, demands, attorneys’ fees and disbursements, suits, liabilities, judgments and damages caused by the grossly negligent acts, omissions, misconduct, or the failure to perform or exercise any of the duties, obligations, powers or authorities of Operator or Operator’s employees which may be suffered by Owner as a result of any occurrence or event happening in or about the Hotel unless such event stems from a fraudulent activity or from gross negligence of Owner. The provisions of this Section 9.05 shall survive the termination of this Agreement.

 

9.06                        Trade Name.  During the Term, the Hotel (excepting space subject to commercial lease(s)) shall be known by such trade name and accompanying phraseology as may from time to time be mutually approved by Operator and Owner.  The initial name approved is Holiday Inn Express Cedar Rapids (Collins Rd).

 

9.07                        License Agreement.  Owner reserves the right to amend, modify, cancel or terminate any License Agreement with respect to the Hotel.  Owner further reserves the right to enter into a new or replacement License Agreement for the Hotel. Owner shall deliver written notice to Operator of any new or substituted License Agreement or of any amendment, modification, cancellation, or termination of a License Agreement. If Operator reasonably

 

21

 

believes that the change in a License Agreement will adversely affect Operator’s ability to perform its services under this Agreement, it may terminate this Agreement.

 

9.08                        Notices.  All notices, requests, demands or other communications hereunder shall be in writing and deemed sent and received on the earliest of the date received or 3 business days after mailed or the next business day if sent by overnight delivery. Faxes shall be deemed received on the date sent if received by the recipient prior to 4:00 p.m. on a business day and otherwise the next business day. Notices should be sent as follows:

 

	
If   to Owner:
    	
LF3              TRS, LLC
    
	
 
    	
1635   43rd St.   South, Suite 205
    
	
 
    	
Fargo,   ND 58103
    
	
 
    	
Attn:   Corey Maple
    
	
 
    	
Telephone No.: 701-281-7122
    
	
 
    	
Telecopy No.: 701-281-7145
    
	
 
    	
 
    
	
And   Copy to:
    	
David   R. Durell
    
	
 
    	
Chief   Acquisition Officer and General Counsel
    
	
 
    	
644   Lovett SE, Suite A
    
	
 
    	
Grand   Rapids, MI 49506
    
	
 
    	
Telephone No.: 616-264-3840
    
	
 
    	
Telecopy No.: 616-264-3841
    
	
 
    	
 
    
	
If   to Operator:
    	
NHS   LLC dba NATIONAL HOSPITALITY SERVICES
    
	
 
    	
1635   43rd St. South, Suite 305
    
	
 
    	
Fargo,   ND 58103
    
	
 
    	
Attn:   Norman H. Leslie
    
	
 
    	
Telephone No.: 701-281-7122
    
	
 
    	
Telecopy No.: 701-281-7145
    

 

Or to such other address as the parties may from time to time designate by notice in writing to the other parties.

 

9.09                        No Partnership or Joint Venture. Nothing contained in this Agreement shall constitute or be construed to be or create a partnership or joint venture between Owner, its successors or assigns, on the one part, and Operator, its successors or assigns, on the other part.

 

9.10                        Modification and Changes. This Agreement cannot be changed or modified except by an agreement in writing signed by both parties of this Agreement.

 

9.11                        Understandings and Agreements. This Agreement, and the Management Fee Rider attached hereto, constitute all of the understandings and agreements of whatsoever nature or kind existing between the parties with respect to Operator’s management of the Hotel.

 

22

 

9.12                        Headings. The Article and Section headings contained herein are for convenience of reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement.

 

9.13                        Third Parties.  Except for the provisions of Section 7.03 which are for the benefit of the Mortgagees, none of the obligations hereunder of either party shall run to or be enforceable by any party other than the other party to this Agreement or by a party deriving rights hereunder as a result of an assignment permitted pursuant to the terms hereof.

 

9.14                        Non-Recourse. In no event and under no circumstances shall Owner or any officer, director, employee or shareholder have any personal obligation or liability to perform any of Owner’s obligations hereunder, and the sole remedy of Operator in the event of default by Owner hereunder shall be to proceed against Owner’s interest in the Hotel.

 

9.15                        Estoppel Certificate. Operator agrees that from time to time upon not less than ten (10) days’ prior request by Owner, Operator will deliver to Owner a statement in recordable form certifying (a) that this Agreement is unmodified and in full force and effect (or if there have been modifications that the Agreement as modified is in full force and effect and stating the modifications); (b) the dates to which the Management Fees and other charges have been paid; (c) that Owner is not in default under any provision of this Agreement, or if in default, the nature thereof in detail; and (d) such other items as Owner may reasonably request.

 

9.16                        Attorneys’ Fees. In the event either party hereto institutes legal action against the other party to interpret or enforce this Agreement or to obtain damages for any alleged breach hereof, the prevailing party in such action shall be entitled to an award of reasonable attorneys’ fees incurred at all levels (including, without limitation, appellate levels).

 

9.17                        Interpretation. In interpreting this Agreement, the provisions in this Agreement shall not be construed against or in favor of either party on the basis of which party drafted this Agreement.

 

9.18                        Governing Law. This Agreement shall be governed and construed in accordance with the laws of the state in which the Hotel is located.

 

9.19                        Non-solicitation by Owner. Unless otherwise waived by Operator in writing, Owner shall not, during the term of this Agreement and for twelve (12) months thereafter, solicit or hire any employee of Operator that was directly or indirectly employed by Operator during any period of this Agreement. In the event Operator has not waived this provision and Owner does hire any said employee of Operator, Owner agrees to pay Operator, as damages/fees, the amount of three (3) times said employees contractual annual salary for one year due immediately upon hiring. For purposes of this section, employee of Operator shall be an employee of Operator or an employee of Owner on the payroll of the Business. For the

 

23

 

sake of clarity, if the Business is sold to third party (“New Buyer”), the staff of the Hotel will be permitted to be employed by the New Buyer with no fee to Operator.

 

9.20                        Counterparts; Electronic Signatures. This Agreement may be signed in any number of counterparts, each of which shall be deemed an original, and all counterparts, when taken together, will constitute one and the same agreement. The parties agree that this Agreement may be delivered by facsimile, email, or other form of electronic means in lieu of an original signature, and the parties agree to treat such electronic signatures as originals.

 

SIGNATURES ON FOLLOWING PAGE

 

IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement to be executed, all as of the day and year first above written.

 

	
 
    	
OWNER:   LF3            TRS, LLC
    
	
 
    	
a   Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
By:   Lodging Fund REIT III TRS, Inc.
    
	
 
    	
Its:   Sole Member
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   Corey R. Maple
    
	
 
    	
Its:   Chief Executive Officer
    

 

24

 

	
 
    	
OPERATOR:   NHS LLC DBA NATIONAL HOSPITALITY SERVICES
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   Norman H. Leslie
    
	
 
    	
Its:   President
    

 

25

 

CONSENT OF LAND OWNER TO MANAGEMENT AGREEMENT

 

By signing below, Land Owner consents to the Owner and Operator entering into this Management Agreement.

 

	
 
    	
LF3              , LLC
    
	
 
    	
a   Delaware limited liability company
    
	
 
    	
 
    
	
 
    	
BY:   Lodging Fund REIT III OP, LP
    
	
 
    	
ITS:   Sole Member
    
	
 
    	
 
    
	
 
    	
By:   Lodging Fund REIT III, Inc.
    
	
 
    	
Its:   General Partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:   Corey R. Maple
    
	
 
    	
Its:   Chief Executive Officer
    

 

26

 

MANAGEMENT FEE RIDER TO

MANAGEMENT AGREEMENT BETWEEN

LF3            TRS, LLC

AND

NHS LLC DBA NATIONAL HOSPITALITY SERVICES

Dated:              

 

MANAGEMENT FEE RIDER

 

Management Fee.  As compensation for Operator’s services during the Operating Period, Owner shall pay monthly to Operator a management fee equal to four percent (4.00%) of the Gross Revenue from the operation of the Hotel in each Operating Year (herein called the “Management Fee”). For the purpose of determining the Management Fee, the term “Gross Revenue” shall be as determined by the Uniform System of Accounts for Hotels as published by the American Hotel and Lodging Association, as it may be in effect from time to time. The Management Fee shall be payable in estimated monthly installments concurrently with the delivery to Owner of the Monthly Report. Owner shall pay any underpayment or Operator shall reimburse any overpayment of the Management Fee within fifteen (15) days of Operator giving the Annual Report to Owner.

 

Onboarding Fee.   Owner shall pay Operator’s additional out of pocket, which includes any hourly rate charges for labor costs, non-recurring start-up costs, which may not exceed $10,000.00 without Owner’s written consent. In the event that Operator determines that start-up costs in excess of $10,000.00 are reasonable in Operator’s sole opinion, and Owner does not consent to the additional start-up costs, then Operator shall have the right to terminate this Agreement and Operator will have earned and be paid the Onboarding Fee. If the Hotel is sold within six (6) months of onboarding, Operator will be paid for training and support costs.

 

Accounting Fee.  Operator will assign for quality enhancement, and the monthly accounting fee for service shall be $14.00 per room (“Accounting Fee”). The Accounting Fee shall be the sole and entire amount for accounting fees for which Owner shall be responsible to pay Operator.  Owner shall be responsible for payment of charges for third party reports, audits, and tax returns.  No deduction or disbursement in excess of the Accounting Fee amount may be made from the General Account or any other account of Owner for the accounting services provided by Operator. The Accounting Fee may be adjusted annually at the discretion of Operator, but in no case shall such adjustment exceed the annual increase in the National Consumer Price Index (CPI), as published by the Bureau of Labor Statistics.

 

Operator’s Employees.  Employees from other properties managed by Operator or from within the Operator’s staff - that are required to fill day to day operational duties of the Hotel shall be billed at 1.20 multiplied by the total hourly cost of such employee, which hourly cost includes the hourly wage plus taxes, fringe benefits, and workers compensation insurance. Payroll records will be made available to Owner on request.

 

Ancillary Services Fee. Operator will charge 0.60% of Gross Revenue for all of Operator’s 

 

27

 

internally furnished services relating to Operators human resources, technology and purchasing fee associated with Operating the Business. This fee will be evaluated each year, for any market conditions that may vary.

 

Off Boarding Fee. Upon the sale or disposition of the Hotel, Operator will receive an Off-Board/Transition fee equal to two months of the average of T12 billing plus all out of pocket expense. This is not to exceed the contract maturity. This fee is waivable if a Buyer appoints Operator as its Management Company for at least a six-month time post-closing. Any and all travel or out of pocket expense relating to the transitions or terminations will be paid as billed within 60 days upon receipt.

 

Guarantee of Payment; Security Agreement.  The individual(s) signing on behalf of Owner, by affixing their signature(s) below, do hereby guarantee payment of all fees due to Operator under the Agreement and this Management Fee Rider. By signing the Agreement, Owner, and the individual(s) signing on its behalf, hereby agree that the Agreement constitutes a Security Agreement permitting Operator to file a financing statement securing the payments due Operator with the assets of Owner and Hotel. Owner consents to such financing statements and agrees to cooperate with Operator to sign any documentation that is necessary or helpful in connection with such financing statements. Owner agrees to provide Operator with twenty (20) days advance written notice of Owner’s intent to change its name, change its address, dispose of assets, sell the Hotel, sell the entity of Owner, or merge Owner with any third party.

 

New Services or Fees. If requested by Owner, all new services provided by Operator and fees associated are subject to review and approval prior to implementation.

 

	
             OWNER
    	
          OPERATOR
    

 

28

 

SCHEDULE 1 TO MANAGEMENT AGREEMENT

(Legal Description)

 

29

 

SCHEDULE 2 TO MANAGEMENT AGREEMENT

(License Agreement)

 

30

 

SCHEDULE 3

 

AUTHORIZED SIGNERS AND LIMITATIONS ON SPENDING AUTHORITY

 

	
AMOUNT
    	
 
    	
VENDOR EMPLOYEE/AGENT
    
	
Up to $5,000
    	
 
    	
NHS Regional Director
    
	
 
    	
 
    	
 
    
	
Up to $10,000
    	
 
    	
NHS Vice President of Operations
    
	
 
    	
 
    	
 
    
	
Up to $15,000
    	
 
    	
NHS Executive Vice President
    
	
 
    	
 
    	
NHS Chief Development Officer
    
	
 
    	
 
    	
 
    
	
All Levels and Any Amounts
    	
 
    	
NHS President
    

 

31

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00298-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00298-of-00352.parquet"}]]