Exhibit 10.6
MANAGEMENT AGREEMENT
THIS HOTEL MANAGEMENT AGREEMENT (the "Agreement" or "Hotel Management
Agreement") made and entered into as of this 18th day of February 2005, by and
between Summit Hospitality II, LLC a Delaware limited liability company
(hereinafter referred to as "Owner"), and The Summit Group, Inc., a South Dakota
corporation, acting on its own behalf, (hereinafter referred to as "Manager").
WHEREAS, it is the desire of the Owner that all hotels currently owned or
hereinafter owned by Owner ("Hotels") be managed and operated efficiently and
effectively; and
WHEREAS, Manager is a corporation engaging in hotel management;
WHEREAS, the Owner desires to engage the Manager to manage the Hotels and
the Manager desires to accept said engagement, all in accordance with the terms
and conditions of this agreement as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
the parties hereto agree as follows:
1. ENGAGEMENT
The Owner hereby engages the Manager, and the Manager hereby accepts such
engagement, as the manager for the Hotels upon the terms and conditions
hereinafter set forth, for a period ending on the first to occur of: (1)the
dissolution of the Owner, or (2)termination of this Agreement. The Manager
shall manage the Hotels, devoting such time thereto as in its sole
discretion, it shall determine to be necessary to manage the Hotels in an
efficient and effective manner.
2. INDEPENDENT CONTRACTOR
In the performance of its duties under this Agreement, the Manager shall
occupy the position of an independent contractor with respect to the Owner.
Except as expressly otherwise provided for herein, nothing contained herein
shall be construed as making the Manager an employee of the Owner.
3. DUTIES AND AUTHORITY OF THE MANAGER
(A) GENERAL DUTIES AND AUTHORITY
Subject only to the restrictions and limitations provided for herein and
the right of the Owner to terminate this Agreement as provided herein, the
Manager shall have the sole and exclusive authority to fully and completely
supervise the Hotels and supervise and direct the business and affairs
associated or related to the operation thereof, and to that end to cause or
direct the Owner to execute such documents or instruments and hire or
discharge such employees as, in the sole judgment of the Manager, may deem
necessary or advisable.
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(B) OPERATION OF THE HOTELS
The Manager shall direct and establish policies and procedures for the
Owner's employees who will have direct responsibility for the Hotel's
operations. The Manager shall have the sole discretion, which discretion
shall be exercised in good faith, to establish the terms and conditions of
patrol occupancy, including, although not necessarily limited to, room
rental schedules, occupancy policies, and departure times. The Manager is
hereby authorized to direct and control the promotional activity of the
Owner's employees and cause the Owner to advertise in such media and to the
extent that it deems necessary and appropriate.
(C) ACCOUNTING
The Manager shall devise, establish and supervise the operation of an
accounting system for the Hotel staff who will be primarily responsible
for, among other things, performing all bookkeeping and administrative
duties in connection with the Hotels, including all collections and all
disbursements to be paid out of funds generated by such operations or
otherwise supplied by the Owner. At Manager's sole discretion any or all
accounting, bookkeeping and administrative duties may be performed by
employees of Manager. Expenses of Manager's bookkeeping department shall be
paid by all hotels and businesses, including Hotels, for which Manager
performs bookkeeping services, on a pro rata per number of rooms per hotel
managed basis.
(D) DEPOSITS AND DISBURSEMENTS
The Manager shall cause the establishment of bank accounts in the name of
the Owner and shall establish and be responsible for administrating a
policy for specifying the identity of signatories to such bank accounts.
The Manager shall deposit or cause to be deposited in the Owner's bank
accounts all receipts and monies arising from the operations of the Hotels
or otherwise received for an on behalf of the Owner. The Manager shall be
responsible for the disbursement of the Owner's funds in payment of all
expenses incurred in connection with the operations of the Hotels.
Notwithstanding the above, the parties agree that Manager may hold and
invest Owner's monies in accounts held in Manager's name, pursuant to the
terms and conditions on Exhibit A attached hereto and incorporated herein
by this reference.
(E) AGREEMENTS
Manager shall negotiate and enter into leases, licenses, permits, service
contracts, employee agreements, and agreements for guest room rental on
behalf of Owner, in Owner's name.
(F) RESTRICTIONS
Notwithstanding anything to the contrary set forth in this section, the
Manager shall not be required to do, or cause to be done, anything for the
account of the Owner (1) which would make the Manger liable to third
parties except in the course of managing and operating the Hotels; (2)
which may not be commenced,
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undertaken, or completed because of insufficient funds available in the
accounts established pursuant to this section; (3) which may, under
applicable law, constitute an impermissible delegation of the duties and
responsibilities of the Owner, including but not limited to, the purchase
or construction of capital improvements, the sale or disposition of all or
substantially all of the Owner's assets, and any action which may result in
a change in the Owner's primary business; or (4) which may not be
commenced, undertaken, or completed because of acts of God, strikes,
governmental regulations or laws, acts of war, or other types of events
beyond the Manager's control whether similar or dissimilar to the
foregoing.
4. DUTIES OF THE OWNER
(A) COOPERATION
The Owner hereby agrees to cooperate with the Manager in the performance of
its duties under this Agreement and to execute all documents or instruments
necessary or advisable to enable the manager to fulfill its duties under
this Agreement.
(B) EXPENSES BORNE BY OWNER
All operating expenses, ownership costs, and expenses incurred by Manager
on behalf of Owner or Hotels shall be the responsibility of Owner.
Operating expenses include but are not limited to: salaries, wages and
benefits for all Hotel employees; repairs and maintenance to the Hotels,
including capital expenditures; marketing and advertising expenses; debt
service on any mortgage or other loans to the Hotels; property taxes; all
administrative and general expenses; all legal, accounting and bookkeeping
expenses; and franchise fees.
(C) ADVANCE FUNDS
Manager shall not be obligated to advance any of its own funds for the
maintenance and operation of the Hotels or for the account of Owner, nor to
incur any liability with respect to the Hotels. However, if manager shall
have advanced funds for any necessary and appropriate expenses, Owner shall
reimburse manager therefore on demand. In the event Manager advances funds
for the maintenance and operation of the Hotels or for the account of
Owner, Owner shall pay Manager interest on the advanced funds at a rate to
be determined by the parties.
5. COMPENSATION TO THE MANAGER
The Manager, as a Management Fee, shall be reimbursed for its overhead
costs and expenses related to managing the Hotels. If Manager manages more
hotels than the Hotels contemplated by this Agreement, then Manager shall
charge each hotel managed, including Hotels, its pro rata share of all
overhead expenses, which include but are not limited to: wages of employees
and officers, including the salary of Xxxxx X. Xxxxxxxxxxx; rent; legal;
accounting; insurance; and travel expenses. In no event will the annualized
Management Fee exceed four and one-
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half percent (4.5%) of annual gross revenues. Such Management Fee shall be
paid to Manager on a monthly basis. Any expenses for services that would
customarily be handled by a hotel property, such as bookkeeping, and
expenses that are paid for third party services, such as accounting and
legal services, shall be paid directly by the Hotels or Owner or shall be
reimbursed to the Manager and shall not be included in the four and
one-half percent of gross revenue cap.
6. TERMINATION
(A) FOR CAUSE.
This Agreement may be terminated by the Owner and the Manager may be
removed, in part or in while, as further described in Section 6b
below, only for "cause". "Cause" shall mean a material violation or
breach of the authority, duty or obligations given to the Manager
under this Agreement, or knowingly and intentionally failing to
discharge such duties, willfully and wantonly disregarding the
interest of the Owner or the Hotels, intentionally and deliberately
disregarding standards of behavior or conduct for a hotel management
position which the Owner and others have a right to expect of Manager,
or any other acts or omissions of carelessness or negligence of such
degree or recurrence as to manifest equal culpability or wrongful
intent. Mere failure to perform as the result of a good faith error in
judgment or discretion shall not constitute "cause".
(B) PARTIAL TERMINATION.
In the event that the grounds for removal of Manager are deemed
specific to one or more individual Hotels, either under a respective
franchise agreement or otherwise, this Agreement shall only be
terminated with respect to such Hotel or Hotels. The remaining rights,
authority and obligations of Manager with respect to the remaining
Hotels shall remain.
(C) NOTICE TO FRANCHISOR.
Except as otherwise provided herein, Owner shall provide no less than
thirty (30) days prior written notice of removal of Manager from
management of a Hotel or Hotels to the Franchisor or Franchisors of
such Hotels. In the event the breach warrants immediate removal of the
Manager, such as theft, fraud, or actions or omissions that default
under a franchise agreement, notice shall be promptly provided to the
respective Franchisors, but the Manager may be removed immediately.
7. ASSIGNMENT
This Agreement and any rights hereunder may be assignable by the Manager,
provided, however, any such assignee must assume all obligations of the
Manager hereunder.
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8. INDEMNIFICATION
The Owner hereby agrees to indemnify and hold harmless the Manager, all
companies affiliated with the Manager, all officers, directors, and
employees of the Manager, and any affiliated companies harmless from any
and all costs, expenses, attorney fees, suits, liabilities, judgments,
damages, and claims in connection with the management of the Hotels
(including the loss of use thereof following any damage, injury, or
destruction) arising from any cause except for fraud or misconduct on the
part of the Manager or such other persons and entities. The Manager, all
persons affiliated with the Manager, all officers, directors, and employees
of the Manager, and any affiliated persons also shall not be liable for any
error of judgment or for any mistake of fact or law, or for anything which
it or they may do or refrain from doing hereinafter, except in cases of
fraud or misconduct. The Manager hereby agrees to indemnify and hold the
Owner harmless from any and all costs, expenses, attorney fees, suits,
liabilities, judgments, damages and claims in connection with the
management of the Hotels arising from the fraud or misconduct of the
Manager or any of its affiliates. The Owner shall have one year from the
action or inaction giving rise to such claim to bring suit against the
Manager.
9. FRANCHISE COMPLIANCE
Manager understands that the Hotels may be franchised by various national
hotel franchise companies ("Franchisors"). Each of the Franchisors sets
forth rules, standards and procedures that must be followed by the Hotels
that are bound by the respective franchises.
10. CAPTIONS
The captions contained herein are for convenience of reference only and are
not intended to define, limit, or describe the scope or intent of any
provisions of this Agreement.
11. GOVERNING LAW
The validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties shall be governed by
the laws of the State of South Dakota.
12. NOTICES
Any notice required or permitted herein to be given shall be in writing and
shall be personally delivered or mailed, first-class mail, postage prepaid,
to the respective addresses of the parties set forth below their signatures
on the signature page hereof, or to such address as any party may give to
the other in writing.
13. SEVERABILITY
Should any term or provision hereof be deemed invalid, void, or
unenforceable either in its entirety or in a particular application, the
remainder of this Agreement shall nonetheless remain in full force an
defect, and if the subsequent term or
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provision is deemed to be invalid, void, or unenforceable only with respect
to a particular application, such term or provision shall remain in full
force an defect with respect to all other applications. The parties
recognize that broad discretionary authority has been granted by Owner to
the Manager in the supervision and direction of the Owner's business and
financial affairs, and it is their intent that such authority be fully
exercisable by the Manager within the limitations imposed by applicable
law.
14. SUCCESSORS
This Agreement shall be binding upon and inure to the benefit of the
respective parties hereto and their permitted assigns and successors in
interest.
15. ATTORNEY FEES
If it shall become necessary for either party hereto to engage attorneys to
institute legal action for the purpose of enforcing its rights hereunder or
for the purpose of defending legal action brought by the other party
hereto, the party or parties prevailing in such litigation shall be
entitled to receive all costs, expenses, and fees (including reasonable
attorney's fees) incurred by it in such litigation (including appeals).
16. OTHER DOCUMENTS
The parties shall and do hereby agree to execute any other and further
documents which may be necessary to effectuate this Agreement.
17. MODIFICATION
This Agreement may be amended or modified at any time by the parties hereto
provided that the same is reduced to writing and signed by each party
hereto. This Agreement may not be modified by oral agreement.
18. COMPLETE AGREEMENT
This Agreement constitutes the complete agreement by and between the
parties hereto and supplants and supersedes all prior or contemporaneous
oral or written discussions, agreements or effects.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement in duplicate
on the date first above written.
OWNER: MANAGER:
SUMMIT HOSPITALITY II, LLC THE SUMMIT GROUP, INC.
By: /s/ Xxxxx X. Xxxxxxxxxxx By: /s/ Xxxxx X. Xxxxxxxxxxx
--------------------------------- ------------------------------------
Name: Xxxxx X. Xxxxxxxxxxx Name Xxxxx X. Xxxxxxxxxxx
Its: Chief Manager Its: President
0000 X. Xxxxxxxxx Xxxxxx, Xxxxx 0 0000 X. Xxxxxxxxx Xxxxxx, Xxxxx 0
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Xxxxx Xxxxx, XX 00000 Xxxxx Xxxxx, XX 00000
Exhibit A
Description of Cash Management Process
The following provides an explanation of the process and procedures concerning
the flow of cash of the Borrower, Summit Hospitality II, LLC.
1. In payment of services provided, cash and checks are received by each
Hotel. The cash and checks received are deposited into the property
bank account.
2. In payment of services provided, receipts from credit card sales are
deposited directly by the merchant credit card processor into the Cash
Management Account.
3. The Cash Management Account shall be managed by and accounted for by
The Summit Group, Inc. ("Summit"). The Cash Management Account shall
also include funds owned by entities which are affiliates of Borrower
and Borrower's sole member.
4. Summit shall account for the funds deposited by and earned by each
entity which deposits funds into the Cash Management Account,
including Borrower.
5. Summit shall credit each entity with funds in the Cash Management
Account for interest or other earnings on the funds in the Cash
Management Account by determining the amount of funds owned by each
entity on a weekly basis and then crediting a pro rata share of
interest or other earnings on the Cash Management Account to such
entity.
6. Summit shall apportion any bank charges, fees or costs of the Cash
Management Account to each entity with funds on deposit in the Cash
Management Account by calculating the amount of funds owned by each
entity on a weekly basis and then debiting a pro rata share of bank
charges, fees or costs incurred by the Cash Management Account to such
entity.
7. On a weekly basis Summit shall debit each entity's funds on deposit in
the Cash Management Account by the amount of withdrawals directly
attributable to such entity.
8. Excess funds may be withdrawn from the Cash Management Account and
deposited into one or more investment accounts ("Investment
Accounts"). Any Investment Account shall be managed by and accounted
for by The Summit Group, Inc. ("Summit"). The Investment Accounts
shall also include funds owned by entities which are affiliates of
Borrower and Borrower's sole member.
9. Accounting of the funds on deposit in the Investment Accounts shall be
in accordance with paragraphs 5 through 9 above.
10. Immediately upon notice that any entity depositing funds into the Cash
Management Account or Investment Accounts has filed, or may file
bankruptcy or for protection from such entity's creditors, Summit
shall distribute all funds owned by such bankrupt entity immediately
to such bankrupt entity. Thereafter, Summit shall not allow such
bankrupt entity to participate in the Cash Management Account or
Investment Accounts.
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