Hotel Management Agreement

Exhibit 10.4


FORM OF
HOTEL MANAGEMENT AGREEMENT


by and between


----------------------------


(as "MANAGER")


and


-----------------------------


(as "OWNER")


for


--------------------


Dated as of _______


TABLE OF CONTENTS


Page PREAMBLE..........................................................................................................1


RECITALS..........................................................................................................1


DEFINITION OF TERMS...............................................................................................1


ARTICLE I MANAGEMENT OF THE HOTEL.................................................................................9
1.01 Management of the Hotel...............................................................................9
1.02 Management Responsibilities...........................................................................9
1.03 Centralized Services; Purchasing; Loyalty Programs...................................................12
1.04 Employees............................................................................................14
1.05 Owner's Right to Inspect.............................................................................17
1.06 Limitations on Manager's Authority...................................................................17
1.07 Performance Standards................................................................................18
1.08 Indemnification......................................................................................18


ARTICLE II TERM..................................................................................................19
2.01 Term.................................................................................................19
2.02 Termination Right....................................................................................20


ARTICLE III COMPENSATION OF MANAGER..............................................................................19
3.01 Management Fees......................................................................................19
3.02 Distribution of Net Operating Income.................................................................19


ARTICLE IV ACCOUNTING MATTERS....................................................................................20
4.01 Accounting, Distributions and Annual Reconciliation..................................................20
4.02 Books and Records....................................................................................22
4.03 Accounts; Expenditures...............................................................................22
4.04 Annual Operating Projection..........................................................................22
4.05 Inventory; Operating Equipment.......................................................................26


ARTICLE V REPAIRS, MAINTENANCE AND REPLACEMENTS..................................................................26
5.01 Repairs and Maintenance..............................................................................26
5.02 Capital Reserve......................................................................................26
5.03 Ownership of Replacements............................................................................27
5.04 Owner's Capital Expenditures.........................................................................27


ARTICLE VI INSURANCE, DAMAGE, CONDEMNATION.......................................................................27
6.01 Insurance............................................................................................27
6.02 Insurance Claims.....................................................................................29
6.03 Damage and Repair....................................................................................30
6.04 Condemnation.........................................................................................30


ARTICLE VII TAXES 31
7.01 Real Estate and Personal Property Taxes..............................................................31


ARTICLE VIII FINANCING...........................................................................................32
8.01 Subordination........................................................................................32
8.02 Non-Disturbance and Attornment.......................................................................33
8.03 Liens; Credit........................................................................................34


-i-


ARTICLE IX DEFAULTS..............................................................................................34
9.01 Events of Default....................................................................................34
9.02 Remedies.............................................................................................35
9.03 Additional Remedies..................................................................................35


ARTICLE X ASSIGNMENT, SALE, RIGHT OF FIRST OFFER, CALL OPTIONS...................................................35
10.01 Assignment...........................................................................................35
10.02 Sale of the Hotel....................................................................................36


ARTICLE XI MISCELLANEOUS.........................................................................................37
11.01 Right to Make Agreement..............................................................................37
11.02 Agreement for Services...............................................................................37
11.03 Relationship.........................................................................................37
11.04 Applicable Law.......................................................................................37
11.05 Headings.............................................................................................37
11.06 Notices..............................................................................................37
11.07 Actions to be Taken Upon Termination.................................................................38
11.08 Confidentiality; Public Relations Statements.........................................................40
11.09 Manager's Intellectual Property; Owner's Intellectual Property.......................................40
11.10 Competing Facilities.................................................................................41
11.11 Waiver...............................................................................................42
11.12 Partial Invalidity...................................................................................42
11.13 Survival.............................................................................................42
11.14 Affiliates...........................................................................................42
11.15 Negotiation of Agreement.............................................................................42
11.16 Estoppel Certificates................................................................................42
11.17 Non Recourse.........................................................................................43
11.18 Condition Precedent to Agreement.....................................................................43
11.19 Entire Agreement.....................................................................................43


EXHIBIT "A" Legal Description EXHIBIT "B" Centralized Services EXHIBIT "C" Minimum Insurance Requirements EXHIBIT "E" Loss Limits


-ii-


HOTEL MANAGEMENT AGREEMENT


This Hotel Management Agreement ("Agreement") is made as of the ___ day of _____, 200___ by ______________________________ ("Owner"), with a mailing address at 77 W. Wacker Drive, Suite 4600, Chicago, Illinois 60602, and ________________________ ("Manager"), with a mailing address at ___________________________________________________________.


R E C I T A L S:


A. Owner owns the land (the "Site") located at _______________________ and legally described on Exhibit "A" attached to this Agreement and incorporated herein and any improvements to the Site (the "Improvements").


B. Owner desires to engage Manager to manage and operate the Hotel and Manager desires to accept such engagement upon the terms and conditions set forth in this Agreement.


NOW, THEREFORE, in consideration of the mutual covenants contained in this Agreement and other good and valuable consideration, the receipt of which is hereby acknowledged, Owner and Manager agree as follows:


DEFINITION OF TERMS


The following terms when used in the Agreement shall have the meanings indicated:


"Accounting Period" shall mean a calendar month.


"Accounting Period Statement" shall have the meaning set forth in Section 4.01(b).


"Accounting Principles" shall mean the generally accepted accounting principles in the United States of America set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the accounting profession as practiced in the United States of America) which are applicable to the circumstances as of the date of determination, as modified or supplemented by the Uniform System of Accounts.


"Affiliate" shall mean, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person. With respect to Manager, an Affiliate shall also mean a Person which holds the right to receive five percent (5%) or more of the profits or distributions of Manager or a Person in which Manager holds the right to receive five percent (5%) or more of the profits or distributions. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, directly or indirectly, of the power to vote twenty percent (20%) or more of the voting stock of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting stock, by contract or otherwise.


"Agreement" shall mean this Management Agreement between Owner and Manager, including the exhibits and any addenda attached hereto.


"Annual Operating Projection" shall have the meaning ascribed to it in Section 4.04(a).


"Base Management Fee" shall mean an amount payable to Manager as a Deduction from Gross Receipts equal to ____________% of Gross Receipts.


"Calendar Year" shall mean a calendar year which begins each January 1 and ends at midnight on December 31; provided, however, that the first (1st) Calendar Year shall begin on the Effective Date and shall expire on December 31 immediately following, and the final Calendar Year shall expire upon the effective date of any Termination of this Agreement.


"Capital Budget" shall have the meaning set forth in Section 4.04(a)(ii).


"Capital Expenditure" shall have the meaning set forth in Section 4.04(a)(ii).


"Capital Reserve" shall have the meaning ascribed to it in Section 5.02(a).


"Centralized Services" shall have the meaning set forth in Section 1.03.


"Certified Financial Statement" shall have the meaning set forth in Section 4.01(d).


"Comparable Hotels" shall mean the following hotels: __________________ ________________________________________________________________________________ _________________________________. Owner and Manager agree to mutually, reasonably and in good faith, discuss appropriate changes (including additions) to the hotels, if necessary, to be included in the definition of Comparable Hotels. In connection with such discussion, Owner and Manager shall consider, inter alia, if any of such hotels, subsequent to the Effective Date, changes its chain affiliation, is repositioned in the market, ceases to operate, or otherwise ceases to reflect the general quality and character of such hotels as of the Effective Date. If, within thirty (30) days after commencement of discussion regarding appropriate changes to the hotels to be included in the definition of Comparable Hotels, the parties cannot reach agreement, either party may submit the issue to arbitration in accordance with the provisions of Section 4.04(c)(iii) of this Agreement.


"CPI Adjustment" when applied to any specific dollar amount shall mean that dollar amount increased by a percentage equal to the amount, if any, by which the CPI Index in effect as of the end of the month preceding the date on which the CPI Adjustment is being computed exceeds the CPI Index in effect as of the Effective Date.


"CPI Index" The CPI Index is the Consumer Price Index for that area which is the smallest area encompassed by the Consumer Price Index which also includes the area in which the Hotel is located (1982-84 = 100) published from time to time by the United States Bureau of Labor Statistics. If the CPI Index is discontinued or is unavailable or is substantially revised, a comparable index, reasonably satisfactory to Owner and Manager, reflecting changes in the cost of living or the purchasing power of the consumer dollar, published by any United States of America governmental agency or other recognized authority, shall be used in place thereof. If the base year(s) for the CPI Index in effect on the date hereof shall be different from the base year(s) in effect on the date of computation of the CPI Adjustment, an appropriate adjustment shall be made to convert the later CPI Index to a basis comparable to the earlier CPI Index.


-2-


"Deductions" shall mean the following, subject to any other limitations provided for in this Agreement:


(i) the cost of sales, including, without limitation (but
subject to other provisions of this Agreement), compensation, bonuses,
fringe benefits, payroll taxes, ERISA-related liabilities, pension-fund
withdrawal liabilities, severance payments, and other costs related to
Hotel employees (the foregoing costs shall include the allocable
portion of the salary and other employee costs of any personnel
assigned to a "cluster" of hotels which includes the Hotel);


(ii) departmental expenses incurred at departments within the
Hotel; administrative and general expenses incurred with respect to and
relating exclusively to the Hotel; the cost of marketing incurred by
the Hotel; advertising and business promotion incurred by the Hotel;
heat, light, and power; computer line charges; and routine repairs,
maintenance and minor alterations treated as Deductions under Section
5.01;


(iii) the cost of Inventories and Operating Equipment consumed
in the operation of the Hotel (other than Inventory and Operating
Equipment supplied and accounted for as a portion of the Conversion
Costs);


(iv) a reasonable reserve for uncollectible accounts
receivable as determined by Owner and Manager;


(v) all costs and fees of professionals who are retained to
perform services at or for the benefit of the Hotel;


(vi) all costs and fees of technical consultants,
professionals and operational experts who are retained or employed for
specialized services (including, without limitation, quality assurance
inspectors, personnel providing architectural, technical or procurement
services for the Hotel, tax consultants, and personnel providing legal
services in connection with matters directly involving the Hotel);
provided, however, that the same shall not be Deductions to the extent
paid for from the Capital Reserve;


(vii) the Base Management Fee and the Incentive Management
Fee;


(viii) insurance costs and expenses as provided in Article VI;


(ix) taxes, if any, payable by or assessed against Manager
related to this Agreement or to Manager's operation of the Hotel
(including, without limitation, room taxes, entertainment taxes and the
like to the extent not reimbursed through payments by guests or other
patrons of the Hotel, but exclusive of Manager's income taxes or
franchise taxes);


(x) Impositions;


(xi) the amount of any transfers into or accruals of the
Capital Reserve required pursuant to Section 5.02;


(xii) charges for Centralized Services;


(xiii) payments related to capital leases for systems or
equipment permitted under or approved by Manager in accordance with
this Agreement; and,


(xiv) such other costs and expenses not of a capital nature
and incurred (either at the Hotel or elsewhere in connection with
operating the Hotel) as are specifically provided for elsewhere in this
Agreement or are otherwise reasonably necessary for the proper and
efficient operation of the Hotel.


-3-


Notwithstanding anything to the contrary contained herein, in no event shall Non Reimbursable Expenses be Deductions.


"Default" shall have the meaning ascribed to it in Section 9.01.


"Effective Date" shall mean the date on which Owner turns the Hotel over to Manager to manage the operations of the Hotel as a ___________ brand hotel.


"Event of Default" shall have the meaning ascribed to it in Section 9.01.


"FF&E" shall mean furniture, furnishings, fixtures, kitchen appliances, vehicles, carpeting and equipment, including front desk and back-of-the house computer equipment, but shall not include Operating Equipment or any computer software of any type (including upgrades and replacements) owned by Manager, an Affiliate of Manager, or the licensor of any of them.


"Flash Report" shall have the meaning ascribed to it in Section 4.01(a).


"Foreclosure" shall mean any exercise of the remedies available to a Mortgagee, upon a default under the Mortgage held by such Mortgagee, which results in a transfer of title to or possession of the Hotel. The term "Foreclosure" shall include, without limitation, any one or more of the following events, if they occur in connection with a default under a Mortgage: (i) a transfer by judicial foreclosure; (ii) a transfer by deed in lieu of foreclosure; (iii) the appointment by a court of a receiver to assume possession of the Hotel; (iv) a transfer of either ownership or control of the Owner, by exercise of a stock pledge or otherwise resulting from a default under a Mortgage or pledge; (v) if title to the Hotel is held by a tenant under a ground lease, an assignment of the tenant's interest in such ground lease; or (vi) any similar judicial or non-judicial exercise of the remedies held by the Mortgagee.


"Gross Receipts" shall mean all revenues and receipts of every kind determined in accordance with the Accounting Principles derived from operating the Hotel and all departments and parts thereof, including, but not limited to: income (from both cash and credit transactions) from rental of Guest Rooms, income derived from telephone charges, income from the leasing or licensing of stores, offices, exhibit or sales space of every kind; license, lease and concession fees and rentals (not including gross receipts of licensees, lessees and concessionaires); income from vending machines; income from parking; health club membership fees; food and beverage sales; wholesale and retail sales of merchandise; service charges; and proceeds, if any, from business interruption or other loss of income insurance; provided, however, that Gross Receipts shall not include the following: gratuities to employees of the Hotel; federal, state or municipal excise, sales or use taxes or any other taxes collected directly from patrons or guests or included as part of the sales price of any goods or services; proceeds from the sale of FF&E; interest received or accrued with respect to the funds in the Capital Reserve or the other operating accounts of the Hotel; any refunds, rebates, discounts and credits of a similar nature, given, paid or returned in the course of obtaining Gross Receipts or components thereof; key money and similar lease, license and concessionaire payments; proceeds from judgments or settlements of litigation, other than the net proceeds of collection cases for revenues from sources which would have been included in Gross Receipts if received in the ordinary course of business; the funds, if any, furnished by the Owner for Working Capital, Capital Expenditures or otherwise; payments received pursuant to warranties and guaranties; insurance proceeds (other than proceeds from business interruption or other loss of income insurance); condemnation proceeds (other than for a temporary taking); or from the refinancing of any debt encumbering the Hotel.


"Guest Room" shall mean a lodging unit in the Hotel.


-4-


"Hotel" shall mean the Site together with the following: (i) the Improvements and all other Improvements constructed on the Site; (ii) all FF&E, Operating Equipment and Inventories installed or located on the Site or in the Improvements; and (iii) all easements or other appurtenant rights thereto. The term "Hotel," as used in this Agreement, shall also include any off-site improvements which are necessary for the operation of the Hotel in accordance with the Required Standards.


"Hotel Sale Closing Date" shall have the meaning ascribed to it in Section 10.02(b).


"Impositions" shall have the meaning ascribed to it in Section 7.01.


"Improvements" shall have the meaning ascribed to it in Section A of the Recitals.


"Incentive Management Fee" shall mean, with respect to each Calendar Year (as equitably adjusted for any partial Calendar Year), ________% of Net Operating Income after Owner's Return.


"Inventories" shall mean consumables such as, but not limited to, provisions in storerooms, refrigerators, pantries and kitchens; beverages in wine cellars and bars; other merchandise intended for sale; fuel; mechanical supplies; stationery; and other expensed supplies and similar items.


"Legal Requirement" shall mean any federal, state or local law, code, rule, ordinance, regulation or order of any governmental or quasi-governmental authority or agency having jurisdiction over the business or operation of the Hotel or the matters which are the subject of this Agreement, including, without limitation, the following: (i) any building, zoning or use laws, ordinances, regulations or orders; and (ii) environmental, health and life safety laws applicable to the Hotel, generally.


"Manager" shall have the meaning ascribed to it in the Preamble hereto or shall mean any permitted successor or permitted assign, as applicable.


"Manager's Fees" shall mean the Base Management Fee and the Incentive Management Fee.


"Manager's Intellectual Property" shall mean: (i) Manager's Trade Names; (ii) Manager's Software; and, (iii) all manuals, brochures and directives issued by Manager to its employees at the Hotel regarding the procedures and techniques to be used in operating the Hotel.


"Marketing Budget" shall have the meaning ascribed to it in Section 4.04(a)(iv).


"Marketing Plan" shall have the meaning ascribed to it in Section 4.04(a)(iv).


"Mortgage" shall mean any mortgage, deed of trust, or security document encumbering the Hotel and/or the Site in accordance with the terms of this Agreement.


"Mortgagee" shall mean the holder of any Mortgage.


"Net Operating Income" shall mean, for each Accounting Period (equitably adjusted for any partial Accounting Period), the excess of Gross Receipts over the Deductions.


"Non-Disturbance Agreement" shall have the meaning ascribed to it in Section 8.02(b).


-5-


"Non Reimbursable Expenses" shall mean the following expenses incurred by the Manager which are to be borne by the Manager and are not to be paid from Gross Receipts or otherwise treated as Deductions: general, administrative and overhead expenses of home and regional offices, personnel costs for home and regional office personnel (except to the extent they are working at the Hotel and the expense of such personnel for such work is included in the approved Annual Operating Projection), and travel expenses for airfare in excess of the least expensive fare available from the least expensive of either the point of origin or the home or regional or corporate office of the Manager nearest to the Hotel.


"Operating Accounts" shall have the meaning set forth in Section 4.03(a).


"Operating Budget" shall have the meaning set forth in Section 4.04(a)(i).


"Operating Equipment" shall mean those items including, but not limited to, linen, china, glassware, tableware, uniforms, and similar items used in connection with the Hotel, but excluding FF&E.


"Operating Loss" shall mean a negative Net Operating Income.


"Owner" shall have the meaning ascribed to it in the Preamble or shall mean any successor or permitted assign, as applicable.


"Owner's Accountants" shall mean a nationally recognized accounting firm selected by Owner in the exercise of its reasonable judgment.


"Owner's Intellectual Property" shall mean (i) the name __________ together with any other names or logos used by the Hotel or restaurants or lounges located in the Hotel, whether used alone or in any combination of words or phrases; (ii) any and all information regarding guests and other users of Guest Rooms or other amenities and facilities ...