EXHIBIT 10.2
FRANCHISE LICENSE AGREEMENT
HOMEWOOD SUITES BY HILTON-COLORADO SPRINGS,
COLORADO
TABLE OF CONTENTS
SECTION PAGE NO.
-----------------------------------------------------------------------
1. DEFINITIONS................................................... 1
A. The Hotel................................................. 1
B. The Marks................................................. 1
C. The System................................................ 1
D. The Manual................................................ 2
E. Including................................................. 2
F. License Term.............................................. 2
2. GRANT OF LICENSE.............................................. 2
3. OUR RESPONSIBILITIES.......................................... 2
A. Training.................................................. 2
B. Reservation Services...................................... 3
C. Consultation.............................................. 3
D. Arrangements for Marketing, Etc........................... 3
E. Inspections/Compliance Assistance......................... 3
F. Manual.................................................... 3
G. Equipment and Supplies.................................... 3
4. PROPRIETARY RIGHTS............................................ 4
5. PROPRIETARY MARKS............................................. 4
A. Use of Trade Name......................................... 4
B. Trademark Disputes........................................ 4
C. Web Sites................................................. 4
D. Covenant.................................................. 5
6. YOUR RESPONSIBILITIES......................................... 5
A. Operational and Other Requirements........................ 5
B. Hotel Quality Assurance................................... 9
C. Staff and Management...................................... 9
7. FEES.......................................................... 9
A. Monthly Fees.............................................. 9
B. Determination and Payment of Fees......................... 9
C. Room Addition Fee......................................... 10
D. Other Fees................................................ 10
E. Taxes..................................................... 10
F. Application of Fees....................................... 10
8. RECORDS AND AUDITS............................................ 10
A. Reports................................................... 10
B. Maintenance of Records.................................... 11
C. Audit..................................................... 11
D. Ownership of Information.................................. 11
9. INDEMNITY..................................................... 11
10. RIGHT OF FIRST OFFER INTENTIONALLY DELETED .................. 12
i
11. TRANSFER...................................................... 12
A. Our Transfer of This Agreement............................ 12
B. Your Transfer............................................. 12
12. CONDEMNATION AND CASUALTY..................................... 16
A. Condemnation.............................................. 16
B. Casualty.................................................. 16
C. No Extensions of Term..................................... 17
13. TERM OF LICENSE............................................... 17
14. TERMINATION................................................... 17
A. Termination or Suspension by Us On Advance Notice......... 17
B. Immediate Termination by Us............................... 18
C. Liquidated Damages Upon Termination by Us................. 20
D. De-identification of Hotel Upon Termination............... 20
E. Special Termination....................................... 20
15. RELATIONSHIP OF PARTIES....................................... 21
A. No Agency Relationship.................................... 21
B. Notices to Public Concerning Your Independent Status...... 21
16. MISCELLANEOUS................................................. 21
A. Severability and Interpretation........................... 21
B. Controlling Law........................................... 21
C. Exclusive Benefit......................................... 22
D. Entire Agreement.......................................... 22
E. Consent; Business Judgment................................ 22
F. Notices................................................... 23
G. General Release........................................... 23
H. Estoppel Certificate...................................... 23
I. Descriptive Headings...................................... 23
J. Representations and Warranties............................ 23
K. Time...................................................... 23
L. Counterparts.............................................. 23
M. Performance Requirements/Responsibilities................. 23
N. Informational Copies...................................... 23
17. WAIVER OF JURY TRIAL.......................................... 24
ATTACHMENT A - PERFORMANCE CONDITIONS: CHANGE OF OWNERSHIP........ A-1
ATTACHMENT B - RIDER TO FRANCHISE LICENSE AGREEMENT................ B-1
ATTACHMENT C - PRODUCT IMPROVEMENT PLAN
ii
FRANCHISE LICENSE AGREEMENT
Dated as of the date set forth on the Rider attached hereto as Attachment B (the
"Rider") between the licensor entity set forth on the Rider ("we," "us," "our"
or "Licensor"), and the licensee entity ("you," "your" or "Licensee"), the name
and address of which is set forth on the Rider.
INTRODUCTION
We are a subsidiary of Hilton Hotels Corporation, a Delaware corporation
("HHC"). HHC and its subsidiaries and affiliates (collectively, "Hilton") own,
lease, operate, manage and provide various services for a network of hotels,
inns, conference centers, time share properties and other operations (the
"Network"). HHC and Hilton Hospitality, Inc., a wholly owned subsidiary of HHC,
have authorized us to grant licenses to selected, first-class, independently
owned or leased hotel properties, to operate under the brand name set forth in
the Rider (the "Licensed Brand"). You have expressed an interest in operating
the property identified on the Rider under the Licensed Brand. You have
confirmed to us that you (i) independently investigated the risks of operating a
hotel under the Licensed Brand, including current and potential market
conditions, and competitive factors and risks, and have made an independent
evaluation of all such matters, and (ii) reviewed our uniform franchise offering
circular ("UFOC"). After doing so, you have expressed a desire to enter into a
Franchise License Agreement with us to obtain a license to use the Licensed
Brand in the operation of a hotel at the address set forth on the Rider.
NOW, THEREFORE, in consideration of the premises and the undertakings
and commitments of each party to the other party as set forth in this agreement
(the "Agreement"), the parties agree as follows:
1. DEFINITIONS
The following capitalized terms will have the meanings set forth after
each term:
a. The Hotel. The Hotel is the property you will operate under this
Agreement. The "Hotel" includes all structures, facilities, appurtenances,
furniture, fixtures, equipment, and entry, exit, parking and other areas located
on the site we have approved for your business, or located on any land we
approve in the future for additions, signs, parking or other facilities.
b. The Marks. References to the "Marks" will include the Licensed Brand
service marks and all other service marks, copyrights, trademarks, logos,
insignia, emblems, symbols, designs, slogans, distinguishing characteristics,
trade names, domain names, and all other marks or characteristics associated or
used with or in connection with the System (as we define that term in
Subparagraph 1c.), and similar intellectual property rights, that we designate
from time to time to be used in the System.
c. The System. The "System" is the elements we designate from time to
time to identify hotels operating under the Licensed Brand that provide to the
consuming public a similar, distinctive, high quality hotel service. "System
hotels" means hotels we license to operate under the System and to use the
Licensed Brand name. The System currently includes the Licensed Brand and the
Marks; access to a reservation service; advertising, publicity and other
marketing programs and materials; training programs and materials, standards,
specifications and policies for construction, furnishing, operation, appearance
and service of the Hotel, and other elements we refer to in this Agreement or in
the Manual (as defined in Subparagraph 1.d.) or in other communications to you,
and programs for our inspecting the Hotel and
1
consulting with you. We may add elements to the System or modify, alter or
delete elements of the System at our sole discretion.
d. The Manual. References to the "Manual" will include all written
standards and requirements we adopt from time to time for constructing,
equipping, furnishing, supplying, operating, maintaining and marketing System
hotels, including the Hotel. Changes made in the Manual will apply to System
hotels as specified and may not apply to all System hotels. We may set forth
these standards and requirements in one or more documents or guides. All of
these items, as we modify them from time to time, will be considered the Manual.
We will change the Manual from time to time. We will notify you at least thirty
(30) days before any change becomes effective. You will be responsible for the
costs of complying with the Manual, including any changes.
e. Including. The word "including," whenever used in this Agreement,
will mean "including, by way of example, but without limitation."
f. License Term. References to the "License Term" will mean the period
from the date of this Agreement through the expiration of this Agreement.
2. GRANT OF LICENSE
We hereby grant to you and you hereby accept a non-exclusive license
(the "License") to use the System at, and in connection with the operation of,
the Hotel, in accordance with the terms of this Agreement.
This Agreement does not limit our right, or the right of any of our
present or future owners, subsidiaries, and affiliated entities (the
"Entities"), to own, license or operate any other business of any nature ("Other
Businesses"), including a hotel, inn, conference center, time share property,
lodging facility or similar business, whether under the Licensed Brand, or as a
competitive brand, or otherwise. We reserve the right to engage in any Other
Businesses, even if they compete with the Hotel, the System, or the Licensed
Brand, whether we start those businesses, or purchase, merge with, acquire, be
acquired by, or affiliate with, such businesses. We may also: (a) use or license
to others all or part of the System; (b) use the facilities, programs, services
and/or personnel used in connection with the System in Other Businesses; and (c)
use the System, the Licensed Brand, and the Marks, in the Other Businesses. You
acknowledge and agree that you are not acquiring any rights other than the
non-exclusive right to use the System to operate the Hotel under the Licensed
Brand at the site licensed under this Agreement and in accordance with the terms
of this Agreement. You waive and release any claims, demands or damages arising
from or related to any of the foregoing activities, and you acknowledge and
agree that such activities will not give rise to any liability on our part,
including liability for claims for unfair competition, breach of contract,
breach of the implied covenant of good faith and fair dealing, or divided
loyalty.
The Hotel will be initially known by the trade name set forth in the
Rider (the "Trade Name"). We may change the Trade Name and/or the Licensed Brand
name and/or any of the Marks at any time at our sole discretion, but we will not
change the principal name identified in the Rider. You may not change the Trade
Name without our specific written consent. You acknowledge and agree that you
are not acquiring the right to use any service marks, copyrights, trademarks,
logos, designs, insignia, emblems, symbols, designs, slogans, distinguishing
characteristics, trade names, domain names or other marks or characteristics
owned by Hilton or the Entities that we do not specifically designate to be used
in the System.
3. OUR RESPONSIBILITIES
a. Training. We will specify required and optional training programs and
provide these programs at various locations. We may charge you for (i) required
training services and materials and (ii) optional training services and
materials we provide to you. You are also responsible for all travel, lodging
and other expenses you or your employees incur in attending these programs.
2
b. Reservation Services. We will, directly or indirectly, furnish you
with the Reservation Service (as defined in Subparagraph 6a(15) below). This
service will be furnished to you on the same basis as is furnished to other
System hotels, subject to the provisions of Subparagraph 14a(3) below.
c. Consultation. We may, from time to time at our sole discretion, make
available to you consultation and advice in areas such as operations,
facilities, and marketing. We have the right to establish fees in advance for
our consultation and advice on a project-by-project basis.
d. Arrangements for Marketing, Etc. Periodically, we or one of the
Entities will publish and make available to the traveling public a directory of
System hotels, including the Hotel. Additionally, we will include the Hotel, or
cause the Hotel to be included in (i) national or regional group advertising of
System hotels, and (ii) international, national and regional market programs
offered by us or the Entities, subject to and in accordance with the general
practice for System hotels.
We will use your Monthly Program Fee (as defined in Subparagraph 7a.
below) to pay for various programs to benefit the System, including (i)
advertising, promotion, publicity, public relations, market research, and other
marketing programs; (ii) developing and maintaining Licensed Brand directories
and Internet sites; (iii) developing and maintaining the Reservation Service
systems and support; and (iv) administrative costs and overhead related to the
administration or direction of these projects and programs. We will have the
sole right to determine how we spend these funds, including sole control over
the creative concepts, materials and media used in the programs, and the
placement and allocation of advertising. We may enter into arrangements for
development, marketing, operations, administrative, technical and support
functions, facilities, programs, services and/or personnel with any other
entity, including our affiliates. You acknowledge that Monthly Program Fees are
intended for the benefit of the System, and will not simply be used to promote
or benefit any one property or market. We will have no obligation in
administering any activities paid by the Monthly Program Fee to make
expenditures for you which are equivalent or proportionate to your payments, or
to ensure that the Hotel benefits directly or proportionately from such
expenditures. We may create any programs and allocate monies derived from
Monthly Program Fees to any regions or localities, as we consider appropriate in
our sole judgment. The aggregate of Monthly Program Fees paid to us by System
hotels does not constitute a trust or "advertising fund" and we are not a
fiduciary with respect to the Monthly Program Fees paid by you and other System
hotels. We are not obligated to expend funds in excess of the amounts received
from System hotels. If any interest is earned on unused Monthly Program Fees, we
will use the interest before using the principal. The Monthly Program Fee does
not cover your costs of participating in any optional marketing programs and
promotions offered by us or Hilton from time to time in which you voluntarily
choose to participate. These fees also do not cover the cost of operating the
Hotel in accordance with the standards in the Manual.
e. Inspections/Compliance Assistance. We will administer a quality
assurance program for the System which may include conducting periodic
inspections of the Hotel and guest satisfaction surveys and audits to ensure
compliance with System standards. We have the right to inspect the Hotel and its
operations at any time, with or without prior notice to you, and to determine if
the Hotel is in compliance with the standards and rules of operation set forth
in this Agreement and in the Manual. If the Hotel fails to comply with such
standards and rules of operation, we may, at our option and at your cost,
require an action plan to correct the deficiencies. You must then take all steps
necessary to correct any deficiencies within the times we establish. Our
approval of an action plan does not waive any rights we may have under this
Agreement, nor does it relieve you of any obligations under this Agreement. We
will also have the right to place materials required for System and Hilton
purposes at the Hotel.
f. Manual. We will issue the Manual to you, and any revisions and
updates we may make to the Manual.
g. Equipment and Supplies. We will make available to you for use in the
Hotel various purchase, lease, or other arrangements with respect to exterior
signs, operating equipment, operating
3
supplies, and furnishings, which we or Hilton may have and which we make
available to other System hotels.
4. PROPRIETARY RIGHTS
You acknowledge, and will not contest, either directly or indirectly
during the License Term or after termination or expiration of this Agreement:
(i) our (and/or any Entities') ownership of, rights to and interest in the
System, Licensed Brand, Marks and any of their element(s) or component(s),
including present and future distinguishing characteristics; (ii) our sole right
to grant licenses to use all or any element(s) or component(s) of the System;
(iii) that we (and/or the Entities) are the owner of (or the licensee of, with
the right to sub-license) all right, title and interest in and to the Licensed
Brand and the Marks used in any form and in any design, alone or in any
combination, together with the goodwill they symbolize; and (iv) the validity or
ownership of the Marks. You acknowledge that these Marks have acquired a
secondary meaning which indicates that the Hotel, Licensed Brand and System is
operated by or with Hilton's approval. All improvements and additions to, or
associated with, the System, all Marks, and all goodwill arising from your use
of the System and the Marks, will inure to our benefit and become our property
(or the Entities), even if you develop them. At our request, you will promptly
assign to us any rights or registrations to the Marks that you may obtain. You
acknowledge that you are not entitled to receive any payment or other value from
us or any of the Entities for any goodwill associated with your use of the
System or the Marks, or any element(s) or component(s) of the System.
5. PROPRIETARY MARKS
a. Use of Trade Name. You will operate under, and prominently display,
the Marks in the Hotel. You will not adopt any other names in operating the
Hotel that we do not approve. You also will not use any of the Marks, or the
word "Hilton", or other Network trademarks, trade names or service marks, or any
similar word(s) or acronyms, in (i) your corporate, partnership, business or
trade name except as we provide in this Agreement or the Manual, or (ii) any
Internet-related name (including a domain name), except as we provide in this
Agreement or in the Manual, or (iii) any business operated separate from the
Hotel, including the name or identity of developments adjacent to or associated
with the Hotel. You agree that any unauthorized use of the Marks will be an
infringement of our rights and a material breach of this Agreement.
b. Trademark Disputes. We and you each agree that the protection of the
Marks and their distinguishing characteristics as standing for the System is
important to all of us. Accordingly, you will immediately notify us of any
infringement or dilution of or challenge to your use of any of the Marks and
will not, absent a court order or our prior written consent, communicate with
any other person regarding any such infringement, dilution, challenge or claim.
We will take the action we deem appropriate with respect to such challenges and
claims and have the sole right to handle disputes concerning use of all or any
part of the Marks or the System. You will extend your full cooperation to us at
your expense in these matters. You appoint us as your exclusive
attorney-in-fact, to prosecute, defend and/or settle all disputes of this type
at our sole discretion. You will sign any documents we believe are necessary to
prosecute, defend or settle any dispute or obtain protection for the Marks and
the System and assign to us any claims you may have related to these matters.
Our decision as to the prosecution, defense and settlement of the dispute will
be final. All recoveries made as a result of disputes regarding use of all or
part of the System or the Marks will be for our account.
c. Web Sites. You may not register, own, maintain or use any domain
names, World Wide Web or other electronic communications sites (collectively,
"Site(s)"), relating to the Network or the Hotel or that includes the Marks. The
only domain names, Sites, or Site contractors that you may use relating to the
Hotel or this Agreement are those assigned or otherwise approved in writing by
us. You also agree to obtain our prior written approval concerning any
third-party Site in which the Hotel will be listed, and any proposed links
between such Site and any other Site(s) ("Linked Sites") and any proposed
modifications to same. All Sites containing any of the Marks and any Linked
Sites must advertise, promote, and reflect on the Hotel and the System in a
first-class, dignified manner. You acknowledge and agree that our right to
approve all materials is necessitated by the fact that those materials will
include and be linked with our
4
Marks. Therefore, any use of the Marks on the World Wide Web, the Internet, or
any computer network/electronic distribution, must conform to our requirements,
including the identity and graphics standards for all System hotels. Given the
changing nature of this technology, we have the right to withhold our approval,
and to withdraw any prior approval, and to modify our requirements.
You acknowledge that you may not, without a legal license or other legal
right, post on your Site(s) any material in which any third party has any direct
or indirect ownership interest (including video clips, photographs, sound bites,
copyrighted text, trademarks or service marks, or any other text or image in
which any third party may claim intellectual property ownership interests). You
also agree to incorporate on your Site(s) any other information we require in
the manner we deem necessary to protect our Marks.
Upon the expiration or termination of this Agreement, you agree to
irrevocably assign and transfer to us (or to our designee) all of your right,
title and interest in any domain name listings and registrations which contain
any reference to our Marks, System, Network or Licensed Brand, and will notify
the applicable domain name registrar(s) of the termination of your right to use
any domain name or Site(s) associated with the Marks or the Licensed Brand, and
will authorize and instruct the cancellation or transfer of the domain name to
us (or our designee), as directed by us. You will also delete all references to
our Marks, System, Network or Licensed Brand from any other Site(s) you own,
maintain or operate beyond the expiration or termination of this Agreement.
d. Covenant. You agree, as a direct covenant with Hilton, that you will
comply with all of the provisions of this Agreement related to the manner, terms
and conditions of the use of the Marks, and the termination of any right on your
part to use any of the Marks. You agree that any non-compliance by you with this
covenant, the terms of this Agreement, or any unauthorized or improper use of
the System or the Marks will cause irreparable damage to us and/or to the
Entities. You therefore agree that if you engage in this non-compliance, or
unauthorized and/or improper use of the System or the Marks during or after the
License Term, Hilton, its successors and assigns, separately or along with us,
will be entitled to both temporary and permanent injunctive relief against you
from any court of competent jurisdiction, in addition to all other remedies that
Hilton or we may have at law. You consent to the entry of such temporary and
permanent injunctions. You will be responsible for payment of all costs and
expenses, including, reasonable attorneys' fees, which we and/or Hilton and/or
the Entities may incur in connection with your non-compliance with this
covenant.
6. YOUR RESPONSIBILITIES
a. Operational and Other Requirements. During the License Term, you
agree to:
(1) promptly pay to us, or reimburse us for, all amounts due to
us and/or Hilton as Monthly Royalty Fees, Monthly Program Fees, and other
charges, or for goods or services purchased by you or your agents, including
those set forth in Paragraph 7 below;
(2) operate the Hotel twenty-four (24) hours a day every day,
except as we may otherwise permit based on special circumstances;
(3) operate, furnish, maintain and equip the Hotel in a clean,
safe and orderly manner and in first-class condition in accordance with the
provisions of this Agreement and the Manual, and in compliance with all
applicable local, state, and federal laws, customs and regulations, including
maintaining and conducting your business in accordance with sound business and
financial practices;
(4) provide efficient, courteous and high-quality service to the
public;
(5) adopt, use and comply with the standards, requirements,
services, products, programs, materials, specifications, policies, methods,
procedures, and techniques set forth in the Manual, as it may be amended by us
from time to time, and keep your Manual current at all times;
5
(6) comply with System standards, specifications and
requirements regarding the purchase of products and services, including
furniture, fixtures, equipment, food, operating supplies, consumable
inventories, merchandise for resale to be used at, and/or sold from, the Hotel,
in-room entertainment, computer networking, and any and all other items used in
the operation of the Hotel (collectively, the "Supplies"), including our
specifications for all Supplies. We may from time to time require you to
purchase a particular brand of product ("Required Brand"), however, you may
purchase this Required Brand from any authorized source of distribution;
(7) comply with System standards, specifications and
requirements as to the types and levels of services, amenities and products that
either must or may be used, promoted or offered at or in connection with the
Hotel;
(8) install, display, and maintain signage displaying or
containing the Licensed Brand name and other distinguishing characteristics in
accordance with plans, specifications and standards we establish for System
hotels;
(9) comply with System requirements for the training of persons
involved in the operation of the Hotel, including completion by the general
manager and other key personnel of the Hotel of a training program for operation
of the Hotel under the System at a site we designate, except that if, in our
sole opinion, it is not necessary or desirable for the general manager or any
other key personnel of the Hotel to complete that training program, then we may
waive this requirement in whole or in part. You will pay us for all fees and
charges, if any, we require for your personnel to attend these training
program(s) on the same basis as we charge other System hotels. You will also be
responsible for the wages, room, board and travel expenses of your personnel;
(10) purchase and maintain property management, revenue
management, in-room entertainment, telecommunications and other computer and
technology systems we designate as System-wide (or area-wide) programs based on
our assessment of the long-term best interests of hotels using the System,
considering the interest of the System as a whole;
(11) advertise and promote the Hotel and related facilities and
services on a local and regional basis in a first-class, dignified manner, using
our identity and graphics standards for all System hotels, at your cost and
expense. You agree to submit to us samples of all advertising and promotional
materials that we have not previously approved (including any materials in
digital, electronic or computerized form, or in any form of media that exists
now or is developed in the future) before you produce or distribute them. You
will not begin using the materials until we approve them. You also agree to
immediately discontinue your use of any advertising or promotional materials we
reasonably believe is not in the best interest of the Hotel or System, even if
we previously approved the materials;
(12) participate in, and pay all charges in connection with (i)
all required System guest complaint resolution programs, which programs may
include chargebacks to the Hotel for guest refunds or credits, and (ii) all
required System quality assurance programs, such as guest comment card and
mystery shopper programs; and maintain minimum performance standards and scores
for such quality assurance programs that we may establish from time to time in
the Manual;
(13) comply with System standards, specifications and
requirements as to maintenance, appearance and condition of the Hotel, and adopt
in your business all changes or additions to the System as we may periodically
designate;
(14) honor all nationally recognized credit cards and credit
vouchers issued for general credit purposes which are generally honored at other
System hotels, and enter into all necessary credit card and voucher agreements
with the issuers of such cards or vouchers;
(15) participate in and use, on the terms set forth in this
Agreement and in the Manual, those reservation services which we require (the
"Reservation Service"), including any additions, enhancements, supplements or
variants which we or the Entities develop or adopt; and honor and give
6
first priority on available rooms to all confirmed reservations referred to the
Hotel through the Reservation Service. You agree that the only reservation
service or system you may use in regard to outgoing reservations referred by and
from the Hotel to other hotels will be the Reservation Service or other
reservation services we or the Entities designate;
(16) comply with all governmental requirements, including the
filing and maintenance of any required trade name or fictitious name
registrations, pay all taxes, and maintain all governmental licenses and permits
necessary to operate the Hotel in accordance with the System;
(17) permit inspection of the Hotel by our representatives at
any time to ensure compliance with System standards, cooperate fully with our
representatives during these inspections and take all steps necessary to correct
any deficiencies detected within the time periods we specify. You will also
provide free lodging to our personnel at the Hotel while they are making their
inspections on a space-available basis;
(18) provide to us statistics on Hotel operations in the form we
specify and using definitions we specify;
(19) not engage, directly or indirectly, in any cross-marketing
or cross-promotion of the Hotel with any other hotel, lodging or related
business, except for Affiliated Hotels (as defined in Subparagraph 6.a.21),
without our prior written consent;
(20) participate in, and pay all fees of, any System travel
agent commission payment program(s) as modified from time to time, and promptly
pay as we require in the Manual and/or specific program terms, all travel agent
commissions and third party reservation service charges (such as airline
reservation systems) in accordance with the terms of these programs;
(21) refer guests and customers, wherever reasonably possible,
only to, Licensed Brand, Network, Hilton International, and Xxxxxx International
hotels (collectively, the "Affiliated Hotels") and (if and as we direct) any
other hotel systems owned or licensed by us and/or the Entities (each, an "Other
Hotel") (except that this will not prohibit us from requiring you to participate
in programs designed to refer prospective customers to other hotels, whether in
the System or otherwise); display all material, including brochures and
promotional material we provide for Affiliated Hotels and Other Hotel Systems;
and allow advertising and promotion only of Affiliated Hotels and Other Hotel
Systems on the Hotel premises;
(22) treat as confidential the Manual, and all other information
or materials concerning the methods, techniques, plans, specifications,
procedures, information, systems and knowledge of and experience in the
development, operation, marketing and licensing of the System (the "Proprietary
Information"). You acknowledge and agree that you: (i) do not acquire any
interest in Proprietary Information other than the right to utilize the same in
the development and operation of the Hotel under the terms of this Agreement,
(ii) will not use the Proprietary Information in any business or for any purpose
other than in the development and operation of the Hotel under the System, (iii)
will maintain the absolute confidentiality of the Proprietary Information during
and after the License Term, (iv) will not make unauthorized copies of any
portion of the Proprietary Information, and (v) will adopt and implement all
reasonable procedures we may periodically establish to prevent unauthorized use
or disclosure of the Proprietary Information, including restrictions on
disclosure to employees and the use of non-disclosure and non-competition
clauses in agreements with employees, agents and independent contractors who
have access to the Proprietary Information. These restrictions will not apply to
any information that does not relate or refer in any way or part to the System,
Manual, Licensed Brand and/or Marks and that you can demonstrate came lawfully
to your attention before our disclosure or which, at the time of or after our
disclosure, becomes a part of the public domain through lawful publication or
communication by others;
(23) not own, at any time during the term of this Agreement, in
whole or in part, or be the licensor of, a hotel brand, or trade name, either
directly or through an Affiliate as defined in Subparagraph 11.b.(2)(a)(i)of
this Agreement, without our prior written consent. Any entity that, directly or
through an Affiliate, owns in whole or in part, or is the licensor or other
owner of a hotel brand or trade
7
name (whether or not licensed) that, in our judgment, competes with the System,
irrespective of the number of hotels comprising the competitive hotel brand or
trade name will be referred to as a "Competitor". These restrictions do not
restrict you or your Affiliate from (i) owning a minority interest in a
Competitor if you or your Affiliate do not provide services to the Competitor
(including as a consultant or employee), do not have any officer, director, or
similar position with the Competitor, and have no control or influence in the
business decisions of the Competitor, (ii) being a licensee of a Competitor; or
(iii) managing a property for a Competitor;
(24) own fee simple title (or long-term ground leasehold
interest, provided that such interest has been granted to you by an unrelated
third party ground lessor in an arms length transaction for a term equal to, or
longer than, the License Term) to the real property and improvements of the
Hotel, or, at our request, cause the fee simple owner or other third party
acceptable to us, to provide its guarantee covering all of your obligations
under this Agreement in form and substance acceptable to us;
(25) maintain possession and control of the Hotel and Hotel
site, and promptly deliver to us a copy of any notice of default you receive
from any mortgagee, trustee under any deed of trust, or ground lessor for the
Hotel, and upon our request, provide any additional information we may request
related to any alleged default or any subsequent action or proceeding in
connection with any alleged default;
(26) refrain from directly or indirectly conducting, or
permitting by lease, concession arrangement or otherwise, gaming or casino
operations in the Hotel or on its premises without our express written
permission, which we may withhold at our sole discretion, and then only to the
extent and subject to the terms set forth in such permission;
(27) obtain and maintain in full force and effect from and after
the confirmed Opening Date of the Hotel as set forth in Attachment A
(conditional or otherwise) all licenses required for the sale of alcoholic
beverages at the Hotel (unless no alcoholic beverages are offered at or from the
premises of the Hotel);
(28) promptly provide to us or Hilton all information we
reasonably request with respect to you and your affiliates, including your
respective officers, directors, shareholders, partners or members, and/or the
Hotel, title to the property on which the Hotel is constructed and any other
property used by the Hotel. The information requested may include, but not
necessarily be limited to, financial condition, personal and family background,
litigation, indictments, criminal proceedings and the like in which any of the
aforementioned may have been involved;
(29) participate in, and pay, all charges related to (i) our and
Hilton's marketing programs (in addition to programs covered by Monthly Program
Fees), and (ii) all guest frequency programs we or Hilton require. You also
agree to honor the terms of any discount or promotional programs (including any
frequent guest program) that we or Hilton offer to the public on your behalf,
any room rate quoted to any guest at the time the guest makes an advance
reservation, and any award guest certificates issued to Hotel guests
participating in these programs;
(30) operate the Hotel so as to maximize Gross Rooms Revenue (as
defined in Subparagraph 7.b.) consistent with sound marketing and industry
practice and not engage in any conduct that is likely to reduce Gross Rooms
Revenue in order to further other business activities; and
(31) maintain, at your expense, insurance, of the types, and in
the minimum amounts, we specify in the Manual. All such insurance must (i) be
with insurers having minimum ratings we specify, (ii) name as additional
insureds the parties we specify in the Manual, and (iii) carry the endorsements
and notice requirements we specify in the Manual. If you fail or neglect to
obtain or maintain the insurance or policy limits required by this Agreement, we
have the option, but not the obligation to obtain and maintain such insurance
without notice for you, and you, will immediately upon our demand, pay us the
premiums and cost we incur in obtaining this insurance.
8
b. Hotel Quality Assurance. We may from time to time require you to
modernize, rehabilitate and/or upgrade the Hotel's fixtures, equipment,
furnishings, furniture, signs, computer hardware and software and related
equipment, supplies and other items to meet the then current standards and
specifications specified in the Manual. These standards will benefit the System
as a whole and you will make all these changes at your sole cost and expense.
Nothing in this paragraph will relieve you from the obligation to maintain
acceptable product quality ratings at the Hotel and maintain the Hotel in
accordance with the Manual at all times during the Agreement. We may make
limited exceptions to some of those standards based on local conditions or
special circumstances but we are not required to do so. You may not make any
change in the number of approved guest rooms (the "Guest Rooms") set forth in
the Rider or any other significant change (including major changes in structure,
design or decor) in the Hotel without our prior written approval. Minor
redecoration and minor structural changes that comply with our standards and
specifications will not be considered significant.
c. Staff and Management. You are at all times responsible for the
management of the Hotel's business. You may fulfill this responsibility only by
providing (i) qualified and experienced management, which may be a third party
management company, and (ii) a general manager, (the "Management"), each
approved by us in writing. However, you represent and agree that you have not,
and will not, enter into any lease, management agreement or other similar
arrangement for the operation of the Hotel or any part of the Hotel with any
person or entity without our prior written consent. To be approved by us as the
operator of the Hotel, you or any proposed Management must be qualified to
manage the Hotel. We may refuse to approve you or any proposed Management which,
in our reasonable business judgment is inexperienced or unqualified in
managerial skills or operating capacity or capability, or is unable to adhere
fully to the obligations and requirements of this Agreement. You understand that
we reserve the right to not approve a Competitor, or any entity that (through
itself or an affiliate) is the exclusive manager for a Competitor, to manage the
Hotel. If the Management becomes a Competitor or otherwise becomes unsuitable in
our sole discretion to manage the Hotel at any time during the License Term, you
will have ninety (90) days to retain qualified substitute Management acceptable
to us. Any Management must have the authority to perform all of your obligations
under this Agreement, including all indemnity and insurance obligations. In the
case of any conflict between this Agreement and any agreement with Management,
this Agreement prevails.
7. FEES
a. Monthly Fees. Beginning on the Opening Date, you will pay to us for
each month (or part of a month, including the final month you operate under this
Agreement) the Monthly Royalty Fees as set forth and defined in the Rider and a
Monthly Program Fee in the amount of four percent (4%) of the Hotel's Gross
Rooms Revenue (as the term is defined more specifically in Subparagraph 7.b.
below) for the preceding calendar month. The amount of this Monthly Program Fee
is subject to change by us from time to time, provided that any change will be
established in the Manual. However, increase in the Monthly Program Fee, if any,
will not exceed one percent (1%) of the Hotel's Gross Rooms Revenue in any
calendar year, and the cumulative increases in the Monthly Program Fee, during
the Term of this Agreement, will not exceed five percent (5%) of Gross Rooms
Revenue.
b. Determination and Payment of Fees. The monthly fees (described in
Subparagraph 7.a.) will be determined in accordance with the accounting methods
of then current Uniform System of Accounts for Lodging Industry (currently, the
Ninth Revised Edition, 1996), or such other accounting methods as may otherwise
be specified by Licensor from time to time in the Manual. "Gross Rooms Revenue,"
as used in the calculation of the Monthly Royalty Fee and the Monthly Program
Fee under the Agreement, means all revenues derived from the sale or rental of
Guest Rooms (both transient and permanent) of the Hotel, including guaranteed
no-show revenue and credit transactions, whether or not collected, at the actual
rates charged, less allowances for any Guest Room rebates and overcharges, and
will not include federal, state and local taxes collected directly from patrons
or guests. Gross Rooms Revenue will also include the proceeds from any business
interruption insurance applicable to loss of revenues due to the
non-availability of Guest Rooms. The Monthly Royalty Fee and the Monthly Program
Fee will be paid to us at the place we designate on or before the fifteenth
(15th) day of each month and will be accompanied by our standard schedule
setting forth in reasonable detail the computation of the
9
Monthly Royalty Fee and Monthly Program Fee for such month. There will be an
annual adjustment within ninety (90) days after the end of each operating year
so that the total Monthly Royalty Fees and Monthly Program Fees paid annually
will be the same as the amounts determined by audit. We reserve the right to
require you to transmit the Monthly Royalty Fee and the Monthly Program Fee and
all other payments required under this Agreement by wire transfer or other form
of electronic funds transfer. You agree to bear all costs of wire transfer or
other form of electronic funds transfer.
c. Room Addition Fee. If you add or construct additional Guest Rooms at
the Hotel at any time after you sign this Agreement, you will pay us a
nonrefundable fee equal to the prevailing per Guest Room initial fee charged to
System hotels multiplied by the number of additional Guest Rooms ("Room Addition
Fee"). You must pay the Room Addition Fee to us when you submit an application
to add any Guest Rooms to the Hotel, and you must submit that application to us
before you enter into any agreement to add any Guest Rooms to the Hotel. As a
condition to our granting approval of such application, we may require you to
modernize, rehabilitate or upgrade the Hotel, subject to Subparagraph 6.b. of
this Agreement.
d. Other Fees. You will timely pay all amounts due any of the Entities
for any invoices or for goods or services purchased by or provided to you or
paid by any of the Entities on your behalf, including pre-opening sales and
operations training.
e. Taxes. If any gross receipts, sales, use, excise or any similar tax
that is based upon gross income or revenues is imposed upon us for the receipt
of any payments you are required to make to us under this Paragraph 7 (including
the fees set forth in the Rider), then you must also pay us an amount equal to
such tax. If any gross receipts, sales, use, excise or any similar tax that is
based upon gross income or revenues is imposed upon the payment made pursuant to
this Subparagraph 7.e., the amount due under this Subparagraph 7.e. will be an
amount such that the net amount retained by us, after payment of such tax,
equals the tax imposed on all payments made under Paragraph 7 other than
Subparagraph 7.e.
This Subparagraph 7.e., does not apply to federal or state income taxes
payable by Licensor or Hilton as a result of its net income relating to any fees
collected under this Agreement.
f. Application of Fees. We may apply any amounts received under this
Paragraph 7 to any amounts due under this Agreement. If any amounts are not paid
when due, such non-payment will constitute a material breach of this Agreement
and, in addition, such unpaid amounts will accrue a service charge beginning on
the first day of the month following the due date of one and one-half percent (1
1/2%) per month or the maximum amount permitted by applicable law, whichever is
less. Should we hire counsel to collect any amounts due under this Agreement,
and/or any late charges, you will pay our reasonable attorneys' fees.
8. RECORDS AND AUDITS
a. Reports. At our request, you will prepare and deliver to us daily,
monthly, quarterly and annual operating statements, profit and loss statements,
balance sheets, and other reports (the "Reports") we require, prepared in the
form, and by the methods and within the time frames, we require in the Manual.
The reports will contain all information we require, including daily rate and
room occupancy, and will be certified as accurate in the manner we require. You
will also provide us any additional related information and Reports we may
periodically request and permit us to inspect your books and records at all
reasonable times. At least monthly, you will prepare a statement that will
include all information concerning Gross Rooms Revenue, other revenues generated
at the Hotel, room occupancy rates, reservation data and other information we
require (the "Data"). By the fifteenth (15th) day of each month, you will submit
to us a statement setting forth the Data for the previous month and reflecting
the computation of the amounts then due under Paragraph 7, in the form and
detail we reasonably request.
10
b. Maintenance of Records. You will, in a manner and form satisfactory
to us and using accounting and reporting standards we reasonably require,
prepare on a current basis (and preserve for no less than the greater of four
(4) years or our record retention requirements), complete and accurate records
concerning Gross Rooms Revenue and all financial, operating, marketing and other
aspects of the Hotel, and maintain an accounting system that fully and
accurately reflects all financial aspects of the Hotel and its business. These
records will include books of account, tax returns, governmental reports,
register tapes, daily reports, and complete quarterly and annual financial
statements (including profit and loss statements, balance sheets and cash flow
statements).
c. Audit. We may require you to have the Gross Rooms Revenue or other
monies due to us computed and certified as accurate by a certified public
accountant. During the License Term and for two (2) years thereafter, we and our
authorized agents will have the right to verify information required under this
Agreement by requesting, receiving, inspecting and auditing, at all reasonable
times, any and all records referred to above wherever they may be located (or
elsewhere if requested by us). If any inspection or audit reveals that you
understated or underpaid any payment due to us that is not fully offset by
overpayments, you will promptly pay to us the deficiency plus interest from the
date each payment was due until paid at a rate of one and one-half percent (1
1/2%) per month or the maximum amount permitted by applicable law, whichever is
less. If the audit or inspection reveals that the underpayment is either
willful, or is for five percent (5%) or more of the total amount owed for the
period being inspected, you will also reimburse us for all inspection and audit
costs (including reasonable travel, lodging, meals, salaries and other expenses
of the inspecting or auditing personnel). Our acceptance of your payment of any
deficiency will not condone your breach of this Agreement, or waive that breach,
or any rights we may have for your breach, including our right to terminate this
Agreement as provided in Paragraph 14. If the audit discloses an overpayment, we
will credit this overpayment against your future payments under this Agreement,
without interest.
d. Ownership of Information. All of the information we obtain from you
or about the Hotel or its guests under this Agreement, or under any agreement
ancillary to this Agreement (including agreements relating to the computerized
reservation, revenue management, property management, and other system(s) we
provide or require), or otherwise related to the Hotel (the "Information"), and
all revenues we derive from such information will be our property. However, you
may at any time during or after the License Term use to the extent lawful and at
your sole risk and responsibility any information that you acquire from third
parties in operating the Hotel, such as customer data. The Information (except
for Information you provide to us or Hilton with respect to you and your
affiliates, including your respective officers, directors, shareholders,
partners or members) will become our Proprietary Information which we may use
for any reason as we deem necessary or appropriate, in our discretion, including
making an earnings claim in our UFOC.
9. INDEMNITY
You agree, during and after the License Term, to indemnify us and the
Entities, and our successors and assigns, and the members, officers, directors,
employees, agents, predecessors, successors and assigns of each such entity (the
"Indemnified Parties") against, and hold them harmless from, all losses, costs,
liabilities, damages, claims, and expenses, including reasonable attorneys'
fees, arising out of or resulting from (i) any claimed occurrence at the Hotel
or arising from, as a result of, or in connection with the development,
construction or operation of the Hotel (including the design, construction,
financing, furnishing, equipment, acquisition of Supplies or operation of the
Hotel in any way); (ii) any bodily injury, personal injury, death or property
damage suffered by any guest, customer, visitor or employee of the Hotel; (iii)
your alleged or actual infringement or violation of any patent, xxxx or
copyright or other proprietary right owned or controlled by third parties; (iv)
your alleged or actual violation or breach of any contract, federal, state or
local law, regulation, ruling, standard or directive applicable to the Hotel, or
of any industry standard; (v) any other business conducted by you or a third
party in, on or about the Hotel or its grounds; or (vi) any other of your acts,
omissions or obligations or those of anyone associated or affiliated with you or
the Hotel or in any way arising out of or related to this Agreement. However,
you do not have to indemnify us to the extent damages otherwise covered under
this Paragraph 9 are adjudged by a court of competent jurisdiction to have been
the result of the gross
11
negligence or willful misconduct of any of the Indemnified Parties so long as
the claims are not asserted on the basis of (i) theories of vicarious liability,
including agency, apparent agency or employment or (ii) our failure to compel
you to comply with the provisions of this Agreement. You will give us written
notice of any action, suit, proceeding, claim, demand, inquiry or investigation
involving an Indemnified Party within five (5) days of your actual or
constructive knowledge of it. At our election, you will defend us and/or the
Indemnified Parties against the same, or we may elect to assume (but under no
circumstance will we be obligated to undertake) the defense and/or settlement of
the action, suit, proceeding, claim, demand, inquiry or investigation at your
expense and risk. We may obtain separate counsel of our choice if we believe
your and our interests may conflict. Our undertaking of defense and/or
settlement will in no way diminish your obligation to indemnify the Indemnified
Parties and to hold them harmless. In either case, you will also reimburse the
Indemnified Parties upon demand for all expenses, including reasonable
attorneys' fees and court costs the Indemnified Parties incur to protect
themselves, or to remedy your defaults. Under no circumstances will the
Indemnified Parties be required to seek recovery from third parties or otherwise
mitigate their losses to maintain a claim against you, and their failure to do
so will in no way reduce the amounts recoverable from you by the Indemnified
Parties. Further, you will indemnify the Indemnified Parties for any claim for
damages by reason of failure of any contractor, subcontractor, supplier or
vendor doing business with you relating to the Hotel to maintain adequate
insurance as required in the Manual.
10. PARAGRAPH 10 INTENTIONALLY DELETED
11. TRANSFER
a. Our Transfer of this Agreement. We have the right to transfer or
assign this Agreement or any of our rights, obligations, or assets under this
Agreement to any person or legal entity so long as the transferee assumes all of
our obligations to you under this Agreement. You acknowledge and agree that this
Agreement is a license for the Licensed Brand only, and the programs that are
unique to the Licensed Brand. Therefore, if we transfer or assign this
Agreement, your right to use any programs, rights or services related to or
provided by the Entities or their designees, including the Reservation Service,
any guest frequency program not unique to the Licensed Brand, and any Marks, may
terminate.
b. Your Transfer. We recognize that at some time, you or other persons
associated with you or the Hotel may want to sell or transfer all or part of an
interest in this Agreement, the Licensee or in the Hotel. At the same time, you
understand and acknowledge that the rights and duties set forth in this
Agreement are personal to you, and that we are entering into this Agreement in
reliance on your business skill, financial capacity, and personal character (if
you are an individual), and that of your officers, directors, partners, members,
stockholders or trustees (if you are a partnership, company, corporation, trust
or other legal entity). As a result, you agree that if you or other persons
associated with you or the Hotel desire to sell, transfer or lease an interest
in this Agreement, the Licensee or in the Hotel, or in any entity that has an
interest in this Agreement, the Licensee or the Hotel, you will abide by the
terms of this Subparagraph 11.b.
For purposes of this Subparagraph 11.b., the term "control" in all its
forms, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of an entity, or of the power
to veto major policy decisions of an entity, whether through the ownership of
voting securities, by contract, or otherwise. References in this Agreement to
"Equity Interests" mean any direct or indirect beneficial interest in the
Licensee, the Equity Owners and/or the Hotel (an "indirect" interest is an
interest in an entity other than the Licensee that either itself, or through
others, has an interest in the Licensee). References in this Agreement to
"Equity Owners" mean the owners of a direct or indirect Equity Interest in the
Licensee the Agreement and/or in the Hotel. "Publicly Traded Equity Interest"
means any Equity Interest that is traded on any securities exchange or is quoted
in any publication or electronic reporting service maintained by the National
Association of Securities Dealers, Inc., or any of its successors. In computing
changes of Equity Interests, limited partners will not be distinguished from
general partners except as provided below. General partners, managing members
and other controlling interests in Licensee will be considered Equity Owners for
purposes of this section, regardless whether they have any actual ownership
interest in the Licensee. Non-voting equity interests
12
may not qualify as an Equity Interest, at our discretion. Our judgment will be
final if there is any question as to the definition of Equity Interest or as to
the computation of relative Equity Interests. You represent that as of the date
of this Agreement the Equity Interests are directly and (if applicable)
indirectly owned as shown on the Rider.
(1) Transfers That Do Not Require Our Consent or Notification.
(a) Privately Held Equity Interests: Less than 25% Change/No
Change of Control. Equity Interests that are not publicly traded may be
transferred by you and the Equity Owners without notice to us and without our
consent, if after the transaction: (i) less than twenty-five percent (25%) of
all Equity Interests in Licensee will have changed hands since the date of this
Agreement, and (ii) there has not been a change of control of the Licensee, of
this Agreement or of the Hotel since the date of this Agreement.
(b) Publicly Held Equity Interests. Publicly Traded Equity
Interests may be transferred without notice to us and without our consent if the
transfer does not effectuate a change of control of the Licensee, of this
Agreement or of the Hotel since the date of this Agreement.
(c) Commercial Leases. You may lease or sublease commercial
space in the Hotel that is customarily subject to lease, or enter into
concession arrangements in the ordinary course of business at the Hotel, without
notice to us and without our consent.
(2) Other Transfers. No other direct or indirect interest in the
Hotel or in this Agreement, and no direct or indirect Equity Interest in the
Licensee, may be sold, leased, assigned, or transferred in any way (individually
or collectively, a "Transfer"), except as specifically provided in this
Subparagraph 11.b.(2). If you or any Equity Owners want to transfer any Equity
Interest, other than in a transaction that meets the requirements of the
foregoing clause (1), you must first notify us and you must first obtain our
consent.
(a) Permitted Transfers. Certain transfers are transfers we
describe as "Permitted Transfers." We will consent to a Permitted Transfer, so
long as you (i) give us sixty (60) days advance written notice of any proposed
Permitted Transfer (the "Permitted Transfer Consent Request"), and (ii) submit
to us a nonrefundable processing fee of Two Thousand Five Hundred Dollars
($2,500) with the Permitted Transfer Consent Request to cover our costs to
review the Transfer (except that in the case of a Transfer of Equity Interests
which requires registration under any federal or state securities law, you must
pay us an additional processing fee of Two Thousand Five Hundred Dollars
($2,500) as provided for in Subparagraph 11.b.(3) below), and meet the
requirements for the particular Permitted Transfer as described below.
(i) Affiliate Transfer. You or any Equity Owners as of the
date of this Agreement may sell, lease, transfer or otherwise convey any Equity
Interest to an Affiliate (each an "Affiliate Transfer"); provided that such
event does not, in our opinion, result in a change in the ultimate controlling
Equity Owners of the Licensee, this Agreement or the Hotel and the following
conditions are met. "Affiliate" means, with respect to any entity, any natural
person or firm, corporation, partnership, association, trust or other entity
which, directly or indirectly, controls, is controlled by, or is under common
control with, you or any Equity Owners as of the date of this Agreement. A
natural person or entity which has an entity as an Affiliate will also be deemed
to be an Affiliate of that entity. We will not withhold our consent to an
Affiliate Transfer if (x) you are not then in material default under this
Agreement; (y) the Affiliate Transfer is not, directly or indirectly, to a
Competitor; and (z) you otherwise satisfy the conditions as set forth in
Subparagraphs 11.b.(2)(b)(i)-(vii), (ix) and (x) below.
(ii) Family Transfers. If you or any Equity Owners as of
the date of this Agreement are a natural person, and desire to sell, lease,
transfer or otherwise convey any Equity Interest to:, (x) a member or member of
your or any such Equity Owner's immediate family i.e. spouse, children, parents,
siblings ("Family Members") or (y) a trust or trusts for the benefit of Equity
Owner or the Equity Owner's Family Member(s) (each, a "Family Transfer"), in
either case, without causing a
13
change in the ultimate controlling Equity Owners of the Licensee, this
Agreement, or the Hotel, we will not withhold our consent to a Family Transfer
if you otherwise satisfy the conditions set forth in Subparagraphs
11.b.(2)(b)(i)-(vii), (ix), and (x) below that we may require you to satisfy.
(iii) Transfer Upon Death. Upon the death of a Licensee or
Equity Owner, this Agreement or the Equity Interest (if applicable) may pass in
accordance with such person's will or, if such person dies intestate, in
accordance with laws of intestacy governing the distribution of such person's
estate, without our consent, provided that (x) the Transfer is to a Family
Member or to a legal entity formed by such Family Member(s), and (y) within one
(1) year after the death, such Family Member(s) or entity meets all our then
current requirements for an approved applicant.
(iv) Brick and Mortar Transfers. You may sell, lease or
transfer the Hotel, the Hotel site, or any portion thereof if, in our reasonable
judgment, after the sale, you retain possession and control of the Hotel site
and the management control of the Hotel operations and continue to comply with
the requirements of Subparagraph 6.a.(24), provided you give us at least sixty
(60) days' prior notice of the proposed transfer, and any Transfer Information
(as defined below) that we request. If, in our reasonable judgment, the Transfer
will result in your loss of possession or control of the Hotel or Hotel site or
management of the Hotel, the sale will then be considered a change of ownership
and you must comply with the provisions of Subparagraph 11.b.(2)(b).
(v) Privately Held Equity Interests: 25% or Greater
Change/No Change of Control. You or any Equity Owners as of the date of this
Agreement may sell, lease, transfer or otherwise convey Equity Interests if a
twenty-five percent (25%) or more cumulative change in Equity Interests in
Licensee will have changed hands since the date of this Agreement; provided that
such event does not, in our opinion, result in a change in the ultimate
controlling Equity Owner of the Licensee, this Agreement or the Hotel and the
following conditions are met: (x) you are not then in material default under
this Agreement; (y) the Transfer is not, directly or indirectly, to a
Competitor; and (z) you otherwise satisfy the conditions as set forth in
Subparagraphs 11.b.(2)(b)(i)-(vii), (ix) and (x) below.
(b) Change of Ownership. Any proposed Transfer that does not
otherwise qualify as a Permitted Transfer as defined in Subparagraph 11.b.(2)(a)
above will be considered a change of ownership ("Change of Ownership"). If there
is a proposed Change of Ownership and the proposed owner desires to continue to
operate the Hotel as a System hotel, the proposed owner must submit to us a
complete application for a new franchise license agreement (the "Change of
Ownership Application") accompanied by payment of our then prevailing
application fee. If we do not approve the Change of Ownership Application, we
will refund the application fee, less Two Thousand Five Hundred Dollars ($2,500)
for processing costs. The proposed owner may also be required to pay the then
prevailing property improvement plan ("PIP") fee for us to determine the
renovation requirements for the Hotel. If we approve the Change of Ownership
Application, the new owner will then be required to pay any other applicable
fees and charges we then impose for new Licensed Brand franchise licenses.
We will process the Change of Ownership Application in accordance with our then
current procedures, including review of criteria and requirements regarding
upgrading of the Hotel, credit, background investigation, operations abilities
and capabilities, prior business dealings, market feasibility, guarantees, and
other factors we consider relevant. We will have sixty (60) days from our
receipt of the completed and signed application to consent or withhold our
consent to the proposed owner as Licensee.
We may, at our option, make our consent subject to satisfaction of certain
conditions, including:
(i) The cure of any existing defaults or events that would
become defaults with the giving of notice and passage of time, including, the
payment in full at the closing of the Transfer (the "Closing") of all unpaid
obligations owed to us and any Entities by you, and/or the renovation by you or
the proposed owner of all or part of the Hotel;
(ii) Receipt of evidence from the transferee that insurance
coverage, as required by this Agreement, is in full force and effect on the date
of Closing;
14
(iii) Payment of the amount of any fees and charges we
estimate will accrue to us or any of the Entities through the date of Closing;
(iv) That you at all times remain in compliance with the
terms of this Agreement pending the Closing;
(v) Your signing of a voluntary termination agreement, and
an estoppel and a general release in a form satisfactory to us, of any and all
claims, demands and causes of action that you and your partners, proprietors,
directors, officers, shareholders, members, successors and assigns (as the case
may be) may or might have against us or any of the Entities, and their
respective officers, directors, shareholders, agents, attorneys, contractors and
employees in their corporate and individual capacities including claims arising
under federal, state and local laws, rules and ordinances;
(vi) That you submit to us all information related to the
Transfer that we may reasonably require, including copies of any proposed
agreement(s), the proposed ownership structure of the proposed transferee if
ownership of this Agreement or of the Hotel is being transferred and/or all
entities involved, the names and addresses of the proposed owners of the Equity
Interests and of the site at which the Hotel is operated, and financial
statements and business information for all participants in the proposed sale or
lease (collectively, the "Transfer Information");
(vii) Evidence of adequate assurances (as determined by us
in our sole discretion) of the proposed owner's assumption of and ability to
perform all, or its pro rata share, of your or any Equity Owners' obligations
under this Agreement;
(viii) Execution by the new owner of a new franchise license
agreement ("New License") with us for the then unexpired term of this Agreement
(or for such other term as we may approve in our sole discretion). The New
License will (i) be on our then current form for the grant of new franchise
licenses, (ii) contain our then current license terms (except for duration), and
(iii) contain upgrading and other requirements, if any, that we impose.
(ix) Execution of the form of guarantee we proscribe by the
same guarantors, if any, of this Agreement or substitute guarantors we approve;
and
(x) Successful completion by the proposed owner and its
management team of any training and orientation programs we require.
We have the right to withhold our consent to any proposed Transfer if
any of these conditions are not met to our satisfaction, or if the proposed
owner is a Competitor. If we approve the Change of Ownership Application, we
will not assess you any liquidated damages for early termination of this
Agreement as long as the New License is signed by the new owner no later than
the Closing of the Change of Ownership transaction. If we do not approve the
Change of Ownership Application, or if you or the new owner do not comply with
all these conditions and the Transfer still occurs, then you will be in material
default of this Agreement and we will be entitled to all of our remedies,
including the right to terminate this Agreement, and the right to payment of all
amounts set forth in Subparagraph 14.c.
(3) Public Offering. If you "offer to sell" or "sell" any
"securities" in the Licensee or in the Hotel, you shall do so in accordance
with the terms and conditions set forth in this Subparagraph 11.b.(3). All
materials required by federal, state or other applicable law for the offer or
sale of those securities must be submitted to us for review at least twenty (20)
days before the date you distribute those materials, or file them with any
governmental agency, including any materials to be used in any offering exempt
from registration under federal or state securities laws. You must submit a
non-refundable Two Thousand Five Hundred Dollar ($2,500) processing fee to us
with the offering documents, and agree to pay any additional costs we may incur
in reviewing your documents, including reasonable attorneys' fees. You also may
not use any of the Marks or otherwise imply Hilton's or our participation or
endorsement of any securities offering. We will have the right to approve any
description
15
of this Agreement or of your relationship with us, or any use of the Marks,
contained in any "prospectus" or other communications or materials you use in
the sale or offer of any "securities." You may not imply Hilton's or our
participation in or endorsement of any such "securities." To the extent we give
you any comments to your documents, you must modify the documents to address
those comments, satisfactory to us, before filing or distributing the documents.
Our review of these documents will not in any way be considered our agreement
with any statements contained in those documents, including any projections, or
our acknowledgment or agreement that the documents comply with any applicable
laws.
You may not sell any "securities" unless you do so in compliance with
all applicable federal and state securities laws, and unless you clearly
disclose to all purchasers and offerees that (i) neither we, nor any Entity, nor
any of our or their respective officers, directors, agents or employees, will in
any way be deemed an "issuer" or "underwriter" of said "securities," and that
(ii) we, the Entities, and our respective officers, directors, agents and
employees have not assumed and will not have any liability or responsibility for
any financial statements, prospectuses or other financial information contained
in any "prospectus" or similar written or oral communication. You agree to
indemnify, defend and hold the Indemnified Parties free and harmless of and from
any and all liabilities, costs, damages, claims or expenses arising out of or
related to the "sale" or "offer" of any of your "securities" to the same extent
as provided in Paragraph 9 of this Agreement. All terms used in this
Subparagraph 11.b.(3) will have the same meaning as in the Securities Act of
1933, as amended.
(4) Transfers Not in Accordance With This Agreement. Any purported
Transfer, by operation of law or otherwise, not in accordance with the
provisions of this Agreement, will be null and void and will constitute a
material breach of this Agreement, which will allow us to terminate this
Agreement without giving you any opportunity to cure. In addition, any purported
transfer of this Agreement, not in accordance with the provisions of this
Agreement, shall be deemed null and void. Further, we will have all other rights
and remedies, including the right to specific performance or mandatory or
prohibitory injunctive relief, to redress any attempt on your part to transfer
this Agreement other than in accordance with the provisions of this Agreement.
(5) Pledge to Lending Institution. Notwithstanding any other
provision of this Agreement, you do not need to notify us to obtain our approval
if you want to pledge or mortgage the assets of the Hotel or any Equity Interest
to a third-party bank or other commercial lending institution that is not a
Competitor. However, you do need to notify us and obtain our consent if you want
to pledge or mortgage your interest in this Agreement. As a condition to our
giving our consent to a pledge or mortgage of this Agreement we will require the
lender to sign a lender comfort letter that describes our requirements on
foreclosure. If it desires to continue to operate the Hotel as a System hotel,
the lender will be required to conform to the lender comfort letter signed with
us or, if no lender comfort letter was signed, then it must meet the terms and
conditions of this Agreement for a Transfer involving a Change of Ownership.
12. CONDEMNATION AND CASUALTY
a. Condemnation. You will, at the earliest possible time, give us notice
of any proposed taking of any portion of the Hotel by eminent domain. If we
agree that the Hotel or a substantial part of the Hotel is to be taken, we may,
in our sole discretion and within a reasonable time of the taking (within four
months) transfer this Agreement to a nearby location you select. If we approve a
new location, and if within one (1) year of the closing of the Hotel you open a
new hotel (or are diligently proceeding toward opening a new hotel and
ultimately do so) at the new location in accordance with our specifications and
in accordance with our timing requirements, then the new hotel will be deemed to
be the Hotel licensed under this Agreement. If a condemnation takes place and a
new hotel does not, for whatever reason, become the Hotel under this Agreement
in strict accordance with this Paragraph 12 (or if it is reasonably evident to
us that this will be the case), then we may terminate this Agreement immediately
upon notice to you, and we will not require you to pay a Termination Fee under
Subparagraph 14.c.
b. Casualty. If the Hotel is damaged by fire or other casualty, you will
immediately notify us. If the damage or repair requires closing the Hotel, you
may choose to repair or rebuild the Hotel according
16
to our standards, provided you (i) immediately notify us (ii) begin
reconstruction within four (4) months after closing, and (iii) reopen the Hotel
for continuous business operations as soon as practicable (but in any event
within one (1) year after the closing of the Hotel), giving us ample advance
notice of the date of reopening. Until we determine that the Hotel can be
re-opened as a System hotel, the Hotel will not promote itself as a System
hotel, or otherwise identify itself with any of the Marks without our prior
written consent. You and we each have the right to terminate this Agreement if
you elect not to repair or rebuild the Hotel as set forth above in this
Paragraph 12, provided the terminating party gives the other party sixty (60)
days written notice, in which case we will not require you to pay a Termination
Fee under Subparagraph 14.c; provided however, if subsequent to such termination
notice and prior to the natural expiration of the License Term, you, or any of
your Affiliates, have a controlling interest in and/or operate a hotel at this
Hotel site and such hotel is not operated under a license or franchise from one
of the Entities, then you must pay us the Termination Fee.
c. No Extensions of Term. Nothing in this Paragraph 12 will extend the
License Term.
13. TERM OF LICENSE.
a. Unless terminated earlier, this Agreement will expire without notice
on the date set forth on the Rider. You acknowledge and agree that this
Agreement is non-renewable and that this Agreement confers upon you absolutely
no rights of license renewal whatsoever following the expiration of the License
Term.
b. Renewal Period. Notwithstanding the terms set forth in Paragraph
13.a., Licensee shall have the option to enter into a new license agreement for
the Hotel for each of the two (2) successive periods of five (5) years each
(collectively, the "Option Periods", individually, the "Option Period") beyond
the terms set forth on the Rider, upon the then current franchise agreement form
in use by Licensor, including without limitation all terms, conditions, fees and
charges then commonly imposed by Licensor, which may include an updated Product
Improvement Plan for the Hotel, provided that you strictly comply with each of
the following conditions: (i) Licensee shall exercise its right of renewal by
written notice to Licensor, with respect to the first renewal term, given not
later than six (6) months less ten (10) days prior to expiration of the initial
term, and with respect to the second renewal term, given not later than six (6)
months less ten (10) days prior to expiration of the first renewal term (the
"Renewal Notice"); (ii) at the time such notice is given, the Hotel meets the
then current physical requirements deemed necessary by Licensor to maintain the
Hotel as a System hotel; (iii) Licensee shall complete a Product Improvement
Plan, if Licensor deems necessary, to bring the Hotel in compliance with item
(ii) above; and (iv) Licensee shall not be in default under the Agreement at any
time from the time the Renewal Notice is provided to Licensor through the
commencement of the Option Periods. Should Licensee be in default during the
aforementioned period, the Renewal Notice shall be deemed cancelled, Licensee's
right of renewal under this provision shall thereupon become void and the
Agreement shall terminate at the end of the then current term.
14. TERMINATION
a. Termination or Suspension by Us on Advance Notice. Except in the case
of an immediate termination as provided in Subparagraph 14.b below, we have the
right to terminate this Agreement if you fail to cure an Event of Default (as
defined in Subparagraph 14.a.(1)) within thirty (30) days after we furnish
notice of default to you based on the Event of Default, or, if there is a
non-monetary Event of Default that is incapable of cure within thirty (30) days,
if you fail to diligently pursue cure of such default and fail to cure the
default within the additional time periods we set forth in the notice of
default.
(1) An "Event of Default" will occur if you fail to satisfy or
comply with any of the obligations, requirements, conditions, or terms set forth
in (i) this Agreement, the Manual (including the standards in the Manual and
minimum performance scores required by the Manual), or any attachment to this
Agreement; or (ii) any other agreement you have with us, or any of the Entities,
relating to the Hotel, including, any computer system agreement, or any
agreement to manage the Hotel. An "Event of
17
Default" will also occur if you make any misrepresentations to us, whether in
entering into this Agreement, or in the performance of your obligations to us.
(2) Our notice of termination will not relieve you of your
obligations under this Agreement or any of its attachments.
(3) Upon written notice of a monetary Event of Default, we may also
at any time, in our sole discretion, suspend our obligations under this
Agreement (including reservation services as more fully described below). If at
any time a monetary Event of Default occurs, we will also have the right, in our
sole discretion, upon notice to you of an Event of Default, to remove the
listing of the Hotel from any directories we publish, and from any advertising
we publish, and/or to remove or suspend you from the Reservation System
immediately upon notice to you. We will have the right to divert reservations
previously made for the Hotel to other System hotels after giving you notice of
a monetary Event of Default, and suspend you from the Reservation System. If you
fully cure the monetary default within the time provided in our notice, we will
restore you to the Reservation System, and add you to all future directories we
publish and to all advertising we subsequently disseminate (except advertising
that was ordered before your reinstatement), but we will not be required to
redirect to you any reservations previously made for the Hotel and diverted to
other System hotels during the period of suspension or removal, and you will be
entitled to no compensation in connection with our election to suspend or remove
the Hotel from our directories, advertising or the Reservation System. You agree
that our exercise of these rights will not result in actual or constructive
termination of this Agreement, and that the rights granted to us in this clause
(3) are in addition to, and apart from, any other rights we may have in this
Agreement, including our right to terminate this Agreement. If we exercise any
of these rights, the exercise will not be a waiver of any breach by you of any
term, covenant or condition of this Agreement.
b. Immediate Termination by Us. We have the right to terminate this
Agreement immediately upon notice to you (or terminate it at the earliest time
permitted by applicable law) if one or more of the following breaches to this
Agreement or any of its attachments occur:
(1) After curing any material violation of this Agreement or the
Manual, you engage in the same noncompliance within any consecutive twenty four
(24) month period, whether or not the noncompliance is corrected after notice;
or after we have notified you of your noncompliance with any of the requirements
imposed by this Agreement or the Manual, regardless of materiality, you engage
in a pattern of noncompliance with any of those requirements, whether or not the
noncompliance is corrected after notice, which pattern of non-compliance in and
of itself will be deemed material;
(2) You or any guarantor of your obligations under this Agreement:
(a) Generally fails to pay its debts as they become due or
admits in writing its inability to pay its debts, or makes a general assignment
for the benefit of its creditors;
(b) Commences any case, proceeding or other action seeking
reorganization, arrangement, adjustment, liquidation, dissolution or composition
of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property;
(c) Takes any corporate or other action to authorize any of the
actions set forth above in clauses (a) or (b);
(d) Suffers initiation of any case, proceeding or other action
against it seeking to have an order for relief entered against it as debtor, or
seeking reorganization, arrangement, adjustment, liquidation, dissolution or
composition of it or its debts under any law relating to bankruptcy, insolvency,
reorganization or relief of debtors, or seeking appointment of a receiver,
trustee, custodian or other similar official for it or for all or any
substantial part of its property, and such case, proceeding or other action
18
(i) results in the entry of an order for relief against it which is not fully
stayed within seven (7) business days after the entry of the order or (ii)
remains undismissed for forty-five (45) days;
(e) Allows an attachment to remain on all or a substantial part
of the Hotel or of its assets for thirty (30) days;
(f) Fails within sixty (60) days of the entry of a final
judgment against it in any amount exceeding One Hundred Thousand Dollars
($100,000) to discharge, vacate or reverse the judgment, or to stay execution of
it, or if appealed, to discharge the judgment within thirty (30) days after a
final adverse decision in the appeal;
(g) Loses possession or the right to possession of all or a
significant part of the Hotel or Hotel site, whether through foreclosure,
including, but not limited to, foreclosure of any lien, trust deed, or mortgage,
loss of lease, or for other reasons apart from those described in Paragraph 12;
(h) Fails to continue to identify the Hotel to the public as a
System hotel, or abandons the operation of the Hotel by failing to operate the
Hotel for five (5) consecutive days, or any shorter period after which it is not
unreasonable under the facts and circumstances for us to conclude that you do
not intend to continue to operate the Hotel, unless the failure to operate is
due to fire, flood, earthquake or similar causes beyond your control, provided
that you have taken reasonable steps to minimize the impact of such events;
(i) Contests in any court or proceeding our ownership of the
System or any part of the System, or the validity of any of the Marks;
(j) Takes any action toward dissolving or liquidating itself, if
it is a corporation, limited liability company or partnership, except for death
of a partner;
(k) Any of the owners of a controlling Equity Interest is
discovered to have been convicted of a felony (or any other offense or conduct
if we reasonably determine it is likely to adversely reflect upon or affect the
Hotel, the System, us and/or any Entity);
(l) Conceals revenues, maintains false books and records of
accounts, submits false reports or information to us or otherwise attempts to
defraud us;
(m) Becomes a Competitor (as defined in Subparagraph 6.a.(23));
(n) Transfers any interest in this Agreement or in the Hotel
other than in the transaction that we have approved (unless the transfer is of a
type described in Paragraph 11 where our approval is not required); or
(o) Does not purchase or maintain insurance required by this
Agreement, or does not reimburse us for our purchase of insurance on its behalf;
(3) Information involving you or your affiliates, whether provided
by you under Subparagraph 6.a.(28) or obtained through Hilton's or our own
investigation, discloses facts concerning you or your affiliates, including your
respective officers, directors, shareholders, partners or members, and/or the
Hotel, or title to the property over which the Hotel is constructed or any other
property used by the Hotel, which, in the reasonable opinion of Hilton is likely
to adversely reflect upon or affect in any manner, any gaming licenses or
permits held by the Entities or the then current stature of any of the Entities
with any gaming commission, board, or similar governmental or regulatory agency,
or the reputation or business of any of the Entities;
(4) We make a reasonable determination that continued operation of
the Hotel by you will result in an imminent danger to public health or safety;
or
19
(5) Any guarantor of your obligations under this Agreement breaches
its guarantee, if any, or any guarantee fails to be a continuing obligation
fully enforceable against the person(s) signing the guarantee, or if there is
any inadequacy of the guarantee or guarantor, and the guarantor fails to provide
adequate assurances to us as we may reasonably request.
c. Liquidated Damages upon Termination by Us. If we terminate the
Agreement under Subparagraphs 14.a. or 14.b. above, you acknowledge that your
default will cause substantial damage to us, the actual amount of which will be
difficult to determine. Therefore, you agree that if we terminate this Agreement
under Subparagraphs 14.a. or 14.b. as a result of your default or breach of this
Agreement, or if you unilaterally terminate this Agreement without cause, which
is not authorized and which would be a material breach of this Agreement, then
upon termination you must pay us a lump-sum payment equal to the sum of the
following: (i) all amounts owed to us for periods prior to the date of
termination, plus (ii) as liquidated damages for the future Monthly Royalty Fees
and Monthly Program Fees we will lose, a "Termination Fee" determined by
multiplying the average of the Monthly Royalty Fees and Monthly Program Fees
(collectively, the "Average Monthly Fees") with respect to the Hotel for the
twenty-four (24) month period immediately preceding the month of termination, by
thirty-six (36), or by such lesser multiple as would represent the remaining
full or partial months between the date of termination and the expiration of the
License Term. If the Hotel has been open for less than twenty-four (24) months,
then in calculating the Termination Fee we will multiply thirty-six (36) by the
greater of a) the Average Monthly Fees you owed us from the Opening Date through
the month immediately preceding the month of termination, and b) the average
Monthly Royalty Fees and Monthly Program Fees per Guest Room owed to us by all
System hotels in operation throughout the same twenty-four (24) month period,
multiplied by the number of Guest Rooms in the Hotel. The Termination Fee is
intended to compensate us only for the value lost in Monthly Royalty Fees and
Monthly Program Fees as a result of the early termination of the Agreement, and
you agree that you remain liable for all other obligations and claims under the
Agreement, including obligations following termination under Subparagraphs 5.c.,
5.d., 8.c., 14.d. and Paragraph 9 and liabilities arising out of your breach or
default.
d. De-identification of Hotel Upon Termination. Upon expiration or
termination of this Agreement for any reason, you will immediately stop holding
yourself out to the public as a System hotel, and will take whatever action is
necessary to assure that no use is made of any part of the System (including the
Marks, all forms of advertising and other indicia of operation as a System
hotel), and discontinue use of all distinguishing indicia of System and HHC
hotels, including such indicia on exterior and interior signs, stationery,
operating equipment and supplies, Internet sites, brochures and other
promotional material at or in connection with the Hotel or otherwise. You will
return to us the Manual and all other proprietary materials, remove all
distinctive System features of the Hotel, including the primary freestanding
sign down to the structural steel, and take all other actions
("De-identification Actions") required to preclude any possibility of confusion
on the part of the public that the Hotel is still using all or any part of the
System or is otherwise holding itself out to the public as a System hotel. If
within thirty (30) days after the termination or expiration of this Agreement,
you fail to comply with this paragraph, we and our agents, at your expense, may
enter the premises of the Hotel to perform the De-identification Actions without
being deemed guilty of or liable for trespass or any other tort, and make or
cause to be made such changes at your expense. You will pay all such expenses
that we incur upon demand. If you fail to take all De-identification Actions, we
and Hilton will be entitled to recover all losses, costs, expenses and damages
caused by that failure. We and Hilton will also be entitled to relief by
injunction, and any other right or remedy at law or in equity to enforce our
rights under this Agreement.
e. Special Termination. You recognize the additional harm by way of
confusion for national accounts, greater difficulty in re-entering the market,
and damage to goodwill of the Marks that we will suffer if (i) you cause two (2)
or more franchise license agreements between yourself (or any of your
Affiliates) and us to be terminated prior to the expiration date within twelve
(12) months of each other (and if we terminate those agreements following your
breach or default, you (or your Affiliate) will be deemed to have caused the
termination) or (ii) this Agreement terminates or is terminated by us following
an unapproved Transfer to a Competitor (each of these will be referred to as a
"Special Termination"). In the case of a Special Termination, the amount due to
us upon termination will be an amount equal to the
20
amount set forth in clause (i) of Subparagraph 14.c., plus an additional amount
equal to two (2) times the Termination Fee payable under clause (ii) of
Subparagraph 14.c.
15. RELATIONSHIP OF PARTIES
a. No Agency Relationship. You are an independent contractor. Neither of
us is the legal representative or agent of the other, or has the power to
obligate (or has the right to direct or supervise the daily affairs of) the
other for any purpose. You expressly acknowledge that we have a business
relationship based entirely on, and defined by, the express provisions of this
Agreement and that no partnership, joint venture, agency, fiduciary or
employment relationship is intended or created by reason of this Agreement.
Neither we nor any of the Entities will have any responsibility to any person
for any debts, liabilities, damages, claims or expenses related to the
establishment, construction or operation of the Hotel or arising out of or
related to your policies, procedures, practices or alleged practices in the
operation of the Hotel or any other business conducted at the Hotel.
b. Notices to Public Concerning Your Independent Status. You will take
all steps reasonably necessary to minimize the chance of a claim being made
against us for anything that occurs at the Hotel, or for the acts or omissions
of you or anyone associated or affiliated with you or the Hotel, including steps
mandated by us in the Manual or otherwise. You will not incur any obligation or
indebtedness on our behalf. All contracts for the Hotel's operations and
services at the Hotel will be in your name or in the name of your management
company. You will not enter into or sign any contracts in our name or using the
name of the Licensed Brand or the Marks or any acronyms or variations on same.
You will disclose in all dealings with suppliers and third parties that you are
an independent entity and that we have no liability for your debts.
16. MISCELLANEOUS
a. Severability and Interpretation. The remedies provided in this
Agreement are cumulative. These remedies are not exclusive of any other remedies
to which you or we may be entitled in case of any breach or threatened breach of
the terms and provisions hereof. If any provision of this Agreement is held to
be unenforceable, void or voidable, that provision will be ineffective to the
extent of the prohibition without in any way invalidating or affecting the
remaining provisions of this Agreement, and all remaining provisions will
continue in effect. If any provision of this Agreement is held unenforceable due
to its scope, but may be made enforceable by limiting its scope, the provision
will be considered amended to the minimum extent necessary to make it
enforceable. This Agreement will be interpreted without interpreting any
provision in favor of or against either of us by reason of the drafting of the
provision, or either of our positions relative to the other. Any covenant, term
or provision of this Agreement that provides for continuing obligations after
the expiration or termination of this Agreement will survive any expiration or
termination. To the extent that the provisions of this Agreement provide for
periods of notice less than those required by applicable law, or provide for
termination, cancellation, non-renewal or the like other than in accordance with
applicable law, those provisions will, to the extent they are not in accordance
with applicable law, be superseded by said law, and we will comply with
applicable law in connection with each of these matters.
b. Controlling Law. This Agreement will become valid when signed by both
of us. We each agree that the State of New York has a deep and well developed
history of business decisional law. For this reason, we each agree that except
to the extent governed by the United States Trademark Act of 0000 (Xxxxxx Xxx;
15 U.S.C. Para 1050 et seq.), as amended, this Agreement, all relations between
us, and any and all disputes between us, whether sounding in contract, tort, or
otherwise, are to be exclusively construed in accordance with and/or governed by
(as applicable) the laws of the State of New York without recourse to New York
(or any other) choice of law or conflicts of law principles. If, however, any
provision of this Agreement would not be enforceable under the laws of New York,
and if the Hotel is located outside of New York and the provision would be
enforceable under the laws of the state in which the Hotel is located, then the
provision in question (and only that provision) will be interpreted and
construed under the laws of that state. Nothing in this section is intended to
invoke the application of any franchise, business opportunity, antitrust,
"implied covenant," unfair competition, fiduciary or any other
21
doctrine of law of the State of New York or any other state which would not
otherwise apply absent this Paragraph 16b.
Because, as stated above, the State of New York has a well developed
history of business decisional law and because the courts of the State of New
York are best suited to interpret and apply that law, we each agree that any
litigation arising out of or related to this Agreement, any breach of this
Agreement, the relationship between us, and, any and all disputes between us,
whether sounding in contract, tort, or otherwise, will be submitted to and
resolved exclusively by a court of competent jurisdiction located in the City
and State of New York. You waive, and agree never to assert, move or otherwise
claim that this venue is for any reason improper, inconvenient, prejudicial or
otherwise inappropriate (including, any claim under the judicial doctrine of
forum non conveniens).
If our mutual choice of venue in the City and State of New York is not
honored by the subject court(s), then we each agree that any litigation arising
out of or related to this Agreement; any breach of this Agreement; the
relationship between us; and, any and all disputes between us, whether sounding
in contract, tort, or otherwise, will instead be submitted to and resolved
exclusively by a court of competent jurisdiction located in the City and County
of Los Angeles, California. You waive, and agree never to assert, move or
otherwise claim that this substitute venue is for any reason improper,
inconvenient, prejudicial or otherwise inappropriate (including, any claim under
the judicial doctrine of forum non conveniens).
c. Exclusive Benefit. This Agreement is exclusively for our and your
benefit, and none of the obligations of either of us in this Agreement will run
to, or be enforceable by, any other party (except for covenants in favor of the
Entities, which covenants will run to and be enforceable by the Entities or
their successors and assigns), or give rise to liability to a third party,
except as otherwise specifically set forth in this Agreement.
d. Entire Agreement. You and we acknowledge that we want all terms of
this business relationship defined in this written Agreement, and that neither
of us wants to enter into a business relationship with the other in which any
terms or obligations are subject to any oral statements or in which oral
statements serve as the basis for creating rights or obligations different than
or supplementary to the rights and obligations set forth in this Agreement.
Therefore, you and we agree that this Agreement and its attachments will be
construed together and will supersede and cancel any prior and/or
contemporaneous discussions or writings (whether described as representations,
inducements, promises, agreements or by any other term) between us. We each
agree that we placed, and will place, no reliance on any such discussions or
writings. You agree that no claims, representations or warranties of earnings,
sales, profits, success or failure of the Hotel have been made to you. This
Agreement and its attachments is the entire agreement between us and contains
all of the terms, conditions, rights and obligations between us with respect to
the Hotel and any other aspect of the relationship between us. No change,
modification, amendment or waiver of any of the provisions of this Agreement
will be effective and binding upon us unless it is in writing, specifically
identified as an amendment to this Agreement and signed by one of our officers.
If any provision of this Agreement is inconsistent with the Manual, the
provisions of this Agreement will prevail. No failure by us or by any of the
Entities to exercise any power given us under this Agreement or to insist on
strict compliance by you with any of your obligations, and no custom or practice
at variance with the terms of this Agreement, will be considered a waiver of our
or any Entity's right to demand exact compliance with the terms of this
Agreement.
e. Consent; Business Judgment. Wherever our consent or approval is
required in this Agreement, unless the provision specifically indicates
otherwise, we have the right to withhold our approval in our discretion taking
into consideration our assessment of the long-term interests of the System
overall. You and we recognize, and any arbitrator or judge is affirmatively
advised that if those decisions are supported by our business judgment, neither
an arbitrator nor a judge nor any other person reviewing those decisions will
substitute his, her or its judgment for our judgment. When the terms of this
Agreement specifically require that we not unreasonably withhold our approval or
consent, if you are in default or breach under this Agreement, any withholding
of our approval or consent will be considered reasonable. Our approvals and
consents will not be effective unless given in writing. In no event may
22
you make any claim for money damages based on any claim that we have
unreasonably withheld or delayed any consent or approval to a proposed act by
you under the terms of this Agreement. You also may not claim damages by way of
set-off, counterclaim or defense for our withholding of consent. Your sole
remedy for the claim will be an action or proceeding to enforce the provisions
of this Agreement by specific performance or by declaratory judgment.
f. Notices. All notices must be in writing and will be effective on the
earlier of (i) the day it is sent via facsimile with a confirmation of receipt;
or (ii) the day it is delivered by express delivery service; or (iii) the third
business day after it is sent by first-class or certified mail to the
appropriate party at the following single address, or such other single address
as may be designated by the party to be notified (which, in no event, is a P.O.
Box). If to us, the notice should be sent to our principal executive offices,
addressed to "General Counsel." The current address of our principal executive
offices is as follows: 0000 Xxxxx Xxxxxx Xxxxx, Xxxxxxx Xxxxx, XX 00000. If to
you, then to the address set forth for you in the Rider. Notice to you is deemed
given if 1) delivered in writing via one of the delivery methods set forth above
and 2) addressed to the Principal Correspondent at the address you designate in
the Rider. Any change to your address or Principal Correspondent for notice must
be delivered to us in writing in accordance with the delivery procedure set
forth in this Subparagraph 16.f.
g. General Release. You and your heirs, administrators, executors,
agents and representatives and their respective successors and assigns release,
remise, acquit and forever discharge us and the Entities and their officers,
directors, employees, agents, representatives and their respective successors
and assigns from any and all actions, claims, causes of action, suits, rights,
debts, liabilities, accounts, agreements, covenants, contracts, promises,
warranties, judgments, executions, demands, damages, costs and expenses, whether
known or unknown at this time, of any kind or nature, absolute or contingent, at
law or in equity, on account of any matter, cause or thing whatsoever that has
happened, developed or occurred before you sign and deliver this Agreement to
us. This release will survive the termination of this Agreement.
h. Estoppel Certificate. Whenever we reasonably request it, you will
deliver to us an estoppel certificate in the form we require as to the matters
described in this Agreement.
i. Descriptive Headings. The descriptive headings in this Agreement are
for convenience only and will not control or affect the meaning or construction
of any provision in this Agreement.
j. Representations and Warranties. You warrant, represent and agree that
all statements made by you in the Application you submitted to us in
anticipation of this Agreement and all other documents and information you
submitted to us are true, correct and complete as of the date of this Agreement
and that you will continue to update them so that they are always true, correct
and complete. You further represent and warrant to us that you have the full
legal power and authority to enter into this Agreement and that by entering into
this Agreement you will not be breaching any agreement to which you are a party.
You hereby indemnify and hold us harmless from any breach of these
representations and warranties. These warranties and representations will
survive the termination of this Agreement.
k. Time. Time is of the essence in this Agreement.
l. Counterparts. This Agreement may be signed in counterparts, each of
which will be considered an original.
m. Performance Requirements/Responsibilities. Attachment A, setting
forth certain of your performance conditions and requirements, is incorporated
by reference and made a part of this Agreement.
n. Informational Copies. You acknowledge that we may provide, but are
not required to provide, copies of any information we provide to you concerning
the Hotel (such as quality assurance reports and default notices) to the owner
and/or lessor of the Hotel.
23
17. WAIVER OF JURY TRIAL
TO THE EXTENT EITHER PARTY INITIATES LITIGATION INVOLVING THIS AGREEMENT
OR ANY ASPECT OF THE RELATIONSHIP BETWEEN US (EVEN IF OTHER PARTIES OR OTHER
CLAIMS ARE INCLUDED IN SUCH LITIGATION), ALL THE PARTIES WAIVE THEIR RIGHT TO A
TRIAL BY JURY. THIS WAIVER WILL APPLY TO ALL CAUSES OF ACTION THAT ARE OR MIGHT
BE INCLUDED IN SUCH ACTION, INCLUDING CLAIMS RELATED TO THE ENFORCEMENT OR
INTERPRETATION OF THIS AGREEMENT, ALLEGATIONS OF STATE OR FEDERAL STATUTORY
VIOLATIONS, FRAUD, MISREPRESENTATION, OR SIMILAR CAUSES OF ACTION, AND IN
CONNECTION WITH ANY LEGAL ACTION INITIATED FOR THE RECOVERY OF DAMAGES BETWEEN
OR AMONG US OR BETWEEN OR AMONG ANY OF OUR OWNERS, AFFILIATES, OFFICERS,
EMPLOYEES OR AGENTS.
[THIS AGREEMENT CONTINUES WITH AN ATTACHMENT A, ATTACHMENT B, AND
ATTACHMENT C WHICH ARE A PART OF THIS AGREEMENT.]
24
ATTACHMENT A - PERFORMANCE CONDITIONS:
CHANGE OF OWNERSHIP
A. Consultation. You or your representative(s) will meet with us to consult
and coordinate with the project manager we assign to you. The meeting
will take place within forty-five (45) days after we notify you of
approval, and the meeting will be held at a location we select.
B. Work and Purchase Requirement. If applicable, the Product Improvement
Plan (the "PIP"), is attached to this Agreement as Attachment C, and
incorporated herein by reference. You will perform the renovation and/or
construction work and purchase the items described on the PIP (the
"Renovation Work") on or before the completion date specified on the
Rider. The Renovation Work will include your purchasing and/or leasing
and installing all fixtures, equipment, furnishings, furniture, signs,
computer terminals and related equipment, supplies and other items that
would be required of a new System hotel under the Manual and any other
equipment, furnishings and supplies as we may require for you to operate
the Hotel. You will be responsible for obtaining all necessary licenses,
permits and zoning variances required for the Hotel.
C. Approval of Architect/Designer/Contractors. Before you submit Plans and
Designs (as defined in Paragraph D) to us, you will furnish us with
resumes and other information we request pertaining to the architect
and/or interior designer you desire to retain to prepare your Plans and
Designs. The Plans and Designs will not be approved until we have
approved the architect and designer who are to prepare the Plans and
Designs. Before Renovation Work, you will also submit to us resumes and
other information we request pertaining to the general contractor and/or
any major subcontractors for the Renovation Work. Renovation Work will
not begin until we have approved the contractors, which approval may be
conditioned on bonding of the contractors.
D. Approval of Plans and Designs. On or before the date specified on the
Rider for submission of the Plans, you must submit to us your plans,
layouts, specifications, drawings and designs for the Renovation Work,
including any proposed changes to the Hotel's furnishings, fixtures,
equipment, signs, decor, and physical appearance (collectively, the
"Plans and Designs"). We may supply you with representative prototype
Guest Room and public area plans and schematic building plans as a guide
for preparation of the Plans and Designs. Renovation Work will not begin
unless and until we have approved the Plans and Designs. Before we
approve the Plans and Designs, we may require you to submit to us the
existing plans, equipment, layouts, specifications, drawings and designs
for the Hotel. Once we approve the Plans and Designs, no change may be
made to the Plans and Designs without our advance consent. In approving
the Plans and Designs, we do not warrant the depth of our analysis or
assume any responsibility for the efficacy of the Plans and Designs or
the resulting Renovation Work. You will cause the Hotel renovation
and/or construction to be in accordance with this Agreement, the
approved Plans and Designs, the Manual and the PIP. You will be solely
responsible for obtaining all necessary licenses, permits and zoning
variances that may be required for the Renovation Work. You should not
rely upon our approval for any purpose whatsoever except compliance with
our then prevailing standards, and requirements of the Manual.
You are responsible for making certain that the Hotel and the Renovation
Work complies in all respects with all Legal Requirements. For purposes
of this Agreement, "Legal Requirements" means all public laws, statutes,
ordinances, orders, rules, regulations, permits, licenses,
authorizations, directions and requirements of all governments and
governmental authorities, which, now or hereafter, may apply to the
construction, completion, equipping and Opening of the Hotel and the
operation of the Hotel, including environmental, zoning, building, and
life safety. We and Hilton will have the right to, and you will arrange
for us and Hilton to, participate in all progress meetings during the
development and construction of the Hotel, to have access to all
contract and construction documents relating to the Hotel, and to have
access to the Hotel during
Attachment A - 1
reasonable business hours to inspect the Hotel and the Renovation Work.
However, neither we nor Hilton are obligated to participate in progress
meetings, or inspect the Hotel and the Renovation Work, and our and
Hilton's participation and inspection are not to be considered as a
representation of the adequacy of the construction, the structural
integrity, or the sufficiency of mechanical and electrical systems for
the Hotel. Before we approve your Plans, your architect or other
certified professional must certify to us that the Plans either comply
with, or do not require compliance with, the Americans with Disabilities
Act and its architectural guidelines as well as all applicable state and
local codes for accessible facilities. Within ten (10) days after
completion of the Renovation Work, your architect, general contractor or
other certified professional must provide us with a certificate stating
that the as-built premises either comply with, or are not required to
comply with, the Americans with Disabilities Act and its architectural
guidelines and all applicable state and local codes for accessible
facilities.
E. Commencement; Completion. You will begin the Renovation Work on or
before the date specified on the Rider and will continue the Renovation
Work uninterrupted (except to the extent continuation is prevented by
events beyond Licensee's control, such as acts of God, third party
strikes, acts of terrorism, war, or general governmental restrictions
("Force Majeure")) until it is completed. For purposes of this Paragraph
E, Force Majeure does not include your own financial inability,
inability to obtain financing, inability to obtain permits or any other
events unique to you or the Hotel. Notwithstanding any Force Majeure, or
any other matter, the Renovation Work must be completed and the Hotel
must be furnished, equipped, and comply with this Agreement no later
than the date specified in the Rider (the "Renovation Work Completion
Date"). We will have the sole right to determine whether the Renovation
Work has been completed in accordance with this Agreement, the approved
Plans and Designs, the Manual and the PIP.
F. Inspection. During the course of Renovation Work, you and your
architect, designer, contractors, and subcontractors will cooperate
fully with us for the purpose of permitting us to inspect the Hotel and
the Renovation Work in order to determine whether Renovation Work is
being done in accordance with this Agreement, the approved Plans and
Designs, the Manual, and the PIP. In addition, you and your contractors,
architect and designer will supply us with samples of construction
materials, supplies, equipment, materials and reports as we may request
and give our representatives access to the Hotel site and Renovation
Work in order to permit us to carry out our inspections.
G. Progress Reports. You will submit to us upon our request a report
showing progress made toward fulfilling the terms of this Agreement.
H. Acquisition of Equipment, Furnishings, and Supplies. You will purchase
and/or lease and install all fixtures, equipment, furnishings,
furniture, signs, computer terminals and related equipment, supplies and
other items we require in order to assure that the Renovation Work is
completed under this Agreement.
I. Cost of Construction and Equipping. You will bear the entire cost of the
Renovation Work, including the cost of the Plans and Designs,
professional fees, licenses, permits, equipment, furniture, furnishings
and supplies.
J. Limitation of Liability. We will have no liability or obligation with
respect to design and construction of the Hotel. We have furnished to
you that portion of the Manual which contains the technical standards
and specifications to assist you in completing the Renovation Work. You
acknowledge you have studied these standards and specifications and
satisfied yourself that the Hotel can be designed, furnished and
equipped in accordance with these standards and specifications and that
you and your design and construction consultants and contractors have
the necessary resources and skills to do so. The Manual does not
encompass the architectural, structural, mechanical or electrical
safety, adequacy, integrity or efficiency of the design or compliance
with applicable Legal Requirements. We do not undertake to approve the
Hotel as complying with governmental requirements or as being safe for
guests or other third parties and
Attachment A - 2
we have no responsibilities in these areas. You must indemnify us with
regard to compliance with these matters to the extent provided in
Paragraph 9 of this Agreement. The Manual may not be used by you or any
design or construction professional for any hotel project other than the
Hotel.
K. Conditional Authorization. We may conditionally authorize you to
continue to operate the Hotel as a System hotel even though you have not
fully complied with the terms of this Attachment. Under certain
circumstances, we may suspend services to the Hotel (including
reservation services) while the Renovation Work is being performed by
you.
L. Performance of Agreement. You agree to satisfy all of the terms and
conditions of this Agreement, and to equip, supply, staff and otherwise
make the Hotel ready to continue to operate under our standards. As a
result of your efforts to comply with the terms and conditions of this
Agreement, you will incur significant expense and expend substantial
time and effort. You acknowledge and agree that we will have no
liability or obligation to you for any losses, obligations, liabilities
or expenses you incur if we terminate this Agreement because you have
not complied with the terms and conditions of this Agreement.
(Remainder of page left intentionally blank.)
Attachment A - 3
ATTACHMENT B -
RIDER TO FRANCHISE LICENSE AGREEMENT
Effective Date: February 26, 2003 (Closing Date)
Licensor Name: PROMUS HOTELS, INC., a Delaware corporation
Licensed Brand: Homewood Suites by Hilton
Initial Approved Hotel Name (Trade Name): Homewood Suites by Hilton - Colorado Springs
Principal Name in Licensed Brand: Homewood
Licensee Name and Address Apple Hospitality Five Management, Inc.,
a Virginia corporation
(Principal Correspondent for Notice): Xx. Xxxxxx X. Xxxxxxxx
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxx, XX 00000
Fee Owner: Apple Hospitality Five, Inc.
Address of Hotel: 0000 Xxxxxxxx Xxxxx
Xxxxxxxx Xxxxxxx, XX 00000
Initial Number of Approved Guest Rooms: 127
Plans Submission Dates: As Required by PIP
Renovation Commencement Date: Upon Closing or as required by PIP
Renovation Work Completion Date: As Required by PIP
Licensee agrees that the Renovation Commencement Date and Renovation Work
Completion Date may be extended by written notice from Licensor in its
discretion.
Expiration of Term: At Midnight twenty (20) Years from the Effective Date (subject to the Renewal
Period set forth at Paragraph 13.b. of the Agreement)
Monthly Royalty Fee:
You will pay a Monthly Royalty Fee representing a percentage of the
Gross Rooms Revenue of the Hotel, as defined in Subparagraph 7.b. of the
Agreement, in the amounts set forth below:
Years 1* and 2 Two percent (2%) of Gross Rooms Revenue
Year 3 Two and one-half percent (2.5%) of Gross Rooms Revenue
Year 4 Three percent (3%) of Gross Rooms Revenue
Year 5 through end of Term Four percent (4%) of Gross Rooms Revenue
*through the first twelve (12) full calendar months after the Effective Date of
the Hotel
Additional Requirements/Special Provisions [Paragraph #]:
Attachment B - 1
.. All references to Opening Date in the Agreement are hereby amended to
read "Effective Date"
.. Paragraph 10 Intentionally Deleted
.. Refer to Paragraph 13.b.
Your Ownership Structure: Apple Hospitality Five Management, Inc., 100%
a Virginia corporation
NAME (SHAREHOLDER, PARTNER,
MEMBER, AND MANAGER) NATURE OF OWNERSHIP INTEREST % INTEREST
---------------------------- ---------------------------- ----------
Apple Hospitality Five, Inc. Stockholder 100%
IN WITNESS WHEREOF, the parties have executed this Agreement, which has an
effective date as of the date set forth in this Rider (the "Effective Date").
LICENSEE: LICENSOR:
APPLE HOSPITALITY FIVE MANAGEMENT, INC., PROMUS HOTELS, INC.,
a Virginia corporation a Delaware corporation
By: /s/ Xxxxx X. Xxxxxx By: /s/ Xxxx X. Xxxxx
------------------------------ ------------------------------
Name: Xxxxx X. Xxxxxx Name: Xxxx X. Xxxxx
----------------------------- ---------------------------
Title: President Title: VP-Finance Administration
--------------------------- ---------------------------
Executed on: February 26, 2003
----------------------
Attachment B - 2
ATTACHMENT C
PRELIMINARY
PRODUCT IMPROVEMENT REPORT
[OMITTED]
ATTACHMENT C - 1
