EXHIBIT 10.11
FRANCHISE LICENSE AGREEMENT
for
Homewood Suites by Hilton Hotels
WASHINGTON-DULLES INTERNATIONAL AIRPORT, VA
2185 Fox Mill Road
Herndon, Virginia
between
PROMUS HOTELS, INC.
and
APPLE SUITES MANAGEMENT, INC.
Dated: June 25, 2001
Table of Contents
1. DEFINITIONS ............................................................. 1
a. The Hotel ............................................................ 1
b. The Marks ............................................................ 1
c. The System ........................................................... 1
d. The Manual ........................................................... 1
e. Including ............................................................ 2
f. License Term ......................................................... 2
2. GRANT OF LICENSE ........................................................ 2
3. OUR RESPONSIBILITIES .................................................... 2
a. Training ............................................................ 2
b. Reservation Services ................................................ 2
c. Consultation ........................................................ 2
d. Arrangements for Marketing, Etc. .................................... 2
e. Inspections/Compliance Assistance. .................................. 3
f. Manual. ............................................................. 3
g. Equipment and Supplies .............................................. 3
4. PROPRIETARY RIGHTS ...................................................... 3
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 ............................................. 8
c. Staff and Management ................................................ 8
7. FEES .................................................................... 9
a. Monthly Fees ........................................................ 9
b. Determination and Payment of Fees ................................... 9
c. Room Addition Fee ................................................... 9
d. Other Fees .......................................................... 9
e. Taxes ............................................................... 9
f. Application of Fees ................................................. 9
8. RECORDS AND AUDITS ...................................................... 10
a. Reports ............................................................. 10
b. Maintenance of Records .............................................. 10
c. Audit ............................................................... 10
d. Ownership of Information ............................................ 10
9. INDEMNITY ............................................................... 11
10. RIGHT OF FIRST OFFER .................................................... 11
11. TRANSFER ................................................................ 11
a. Our Transfer of this Agreement ....................................... 11
b. Your Transfer ........................................................ 11
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12. CONDEMNATION AND CASUALTY ............................................... 15
a. Condemnation. ....................................................... 15
b. Casualty. ........................................................... 15
c. No Extensions of Term ............................................... 16
13. TERM OF LICENSE ......................................................... 16
14. TERMINATION ............................................................. 16
a. Termination or Suspension by Us on Advance Notice ................... 16
b. Immediate Termination by Us ......................................... 16
c. Liquidated Damages upon Termination by Us ........................... 18
d. De-identification of Hotel Upon Termination ......................... 18
e. Special Termination ................................................. 19
15. RELATIONSHIP OF PARTIES ................................................. 19
a. No Agency Relationship .............................................. 19
b. Notices to Public Concerning Your Independent Status ................ 19
16. MISCELLANEOUS ........................................................... 19
a. Severability and Interpretation ..................................... 19
b. Controlling Law ..................................................... 20
c. Exclusive Benefit ................................................... 20
d. Entire Agreement .................................................... 20
e. Consent; Business Judgment .......................................... 21
f. Notices ............................................................. 21
g. General Release. .................................................... 21
h. Estoppel Certificate ................................................ 21
i. Descriptive Headings ................................................ 21
j. Representations and Warranties ...................................... 21
k. Time. ............................................................... 21
l. Counterparts. ....................................................... 21
m. Performance Requirements/Responsibilities. .......................... 21
n. Informational Copies. ............................................... 22
17. WAIVER OF JURY TRIAL ................................................... 22
ATTACHMENT A - RIDER TO FRANCHISE LICENSE AGREEMENT ....................... A-1
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FRANCHISE LICENSE AGREEMENT
Dated as of the date set forth on the Rider attached hereto as Attachment A (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 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 below) or in other communications to you, and programs
for our inspecting the Hotel and 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. 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
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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 a 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. During the term of this Agreement, 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.
b. Reservation Services. During the term of this Agreement, 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
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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 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 term of this Agreement 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
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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 own 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 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.
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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;
(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;
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(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 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 below), 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;
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(21) refer guests and customers, wherever reasonably possible, only
to, Licensed Brand, Network, Hilton International, Vista, and Conrad
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 any member of an affiliated group (as defined by the Internal Revenue
Code), 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 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 from (i) owning a minority interest in a
Competitor if you 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
Effective Date 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);
7
(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 Paragraph 7) 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.
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.
8
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. 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 the
Rider will be determined on an accounting basis set forth in the Manual, based
on the then current Uniform System of Accounts for Lodging Industry (currently,
the Ninth Revised Edition, 1996). "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 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 section 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.
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.
9
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.
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 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.
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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, mark 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 are adjudged by a court of competent jurisdiction to have been
the result of the gross 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 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. You agree and acknowledge that you
are directly responsible for all fees and charges due and owing Hilton with
respect to the prior franchise license agreement for this Hotel, if any such
fees and charges remain outstanding as of the Effective Date, and all
responsibilities and liabilities for all Claims relating to the Hotel including
its operation as a System hotel and including by way of example, Claims relating
to ownership, operation and management of the Hotel existing at or accruing
after the execution of this Agreement.
10. Right of First Offer PARAGRAPH 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 may want to sell or
transfer all or part of your interest in this Agreement, 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 partners, members or
stockholders (if you are a partnership, company,
11
corporation or other legal entity). As a result, you agree that if you desire to
sell, transfer or lease your interest in this Agreement, or in the Hotel, or in
any entity that has an interest in this Agreement 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 (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 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 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. 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 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 (individual or
collectively, a "Transfer"), except as specifically provided in this
Subparagraph 11.b.(2). If you want to transfer any Equity Interest in the
Licensee, or your interest in this Agreement or in the Hotel, 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 of your Equity Owners as of
the date of this Agreement may sell, lease, transfer or otherwise convey any
Equity Interest in the Licensee, this Agreement, or the Hotel to an Affiliate
(each an "Affiliate Transfer"); provided that such event does not, in our
opinion, result in a change in the ultimate controlling party 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
12
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 (i) you are not then in material default under this Agreement; (ii)
the Affiliate Transfer is not, directly or indirectly, to a Competitor; and
(iii) 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 an Equity Owner are a natural person,
and desire to sell, lease, transfer or otherwise convey any Equity Interest in
the Licensee, this Agreement, or the Hotel, (i) to a member or member of your or
any such Equity Owner's immediate family i.e. spouse, children, parents,
siblings ("Family Members") or (ii) 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 change in the ultimate controlling party 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 (i) the Transfer is to a Family
Member or to a legal entity formed by such Family Member(s), and (ii) within one
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).
(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 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,
13
as required by this Agreement, is in full force and effect on the date of
Closing;
(iii) Payment of the amount of any fees and charges we estimate will
accrue to us or any Entity 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 Entity, 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 (unless the proposed owner is an unrelated
third party) 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. 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 of this Agreement or
of your relationship with us, or any use of the Marks, contained in any
"prospectus" or other communications or
14
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 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, 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 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 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 (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 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 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
15
the Hotel as set forth above in this Paragraph, 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
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.
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 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 an Entity, relating to the
Hotel, including, any computer system agreement, or any agreement to manage the
Hotel. An "Event of 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:
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(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; or
(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 (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; or
(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, 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;
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(m) Becomes a Competitor (as defined in Subparagraph 6.a.(23));
or
(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
(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") you owed us 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
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(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 or
more franchise license agreements between yourself (or 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 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 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 Entity 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.
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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 1946 (Lanham Act;
15 U.S.C. P. 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 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 Entity 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.
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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 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 principle executive
offices is as follows: 9336 Civic Center Drive, Beverly Hills, CA 90210. If to
you prior to the Opening of the Hotel, then to the address set forth for you in
the Rider. If to you after the Opening of the Hotel, then to the address of the
Hotel, and addressed to you if you are an individual, or to the person shown in
our records to be your principal owner or designated senior officer if you are
an entity.
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, (collectively, "Claims"). 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 and conditions requirements, is incorporated by
reference and made a part of this Agreement.
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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.
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.
22
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, 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 below) 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 (as defined below). 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 (as
defined below). 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 reasonable business
hours to inspect the Hotel and the Renovation Work. However, neither
we
23
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, war, or general governmental restrictions ("Force
Majeure")) until it is completed. For purposes of this Paragraph,
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 "Construction 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 each month (or more frequently
if we so 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 we have no responsibilities in these
areas. You must indemnify us with regard to compliance with
24
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.)
25
Attachment B
ATTACHMENT B -
RIDER TO FRANCHISE LICENSE AGREEMENT
Effective Date: June 25, 2001
Licensor Name: PROMUS HOTELS, INC.
A Delaware corporation
Licensed Brand: Homewood Suites by Hilton
Initial Approved Hotel Name (Trade Name): Homewood Suites by Hilton
Washington-Dulles International Airport
Principal Name in Licensed Brand: Homewood
Licensee Name and Address (Principal Correspondent): Apple Suites Management, Inc.
Justin G. Knight
306 East Main Street
Richmond, Virginia 23219
Address of Hotel: 2185 Fox Mill Road
Herndon, Virginia 20171
Initial Number of Approved Guest Rooms: 109
Plans Submission Dates: As required under the Product
Improvement Plan (Attachment C)
Renovation Work Commencement Date: Upon Closing
Renovation Work Completion Date: Within 180 days of Closing, but not
later than December 30, 2001
Licensee agrees that the Renovation Work Commencement
Date and Renovation Work Completion Date may be extended by written
notice from Licensor in its discretion.
Expiration of Term: At midnight, 20 years from the Effective Date
Monthly Royalty Fee: Four percent (4%) of the Hotel's Gross Rooms Revenue,
as defined in Subparagraph 7.b. of the Agreement, for
the preceding calendar month.
Additional Requirements/Special Provisions:
o This Agreement shall be effective as of the date Licensee closes the
purchase of and obtains possession and control of the Hotel
("Closing"). It shall be a condition precedent to the validity of this
Agreement, and this Agreement shall be of no force and effect and
Licensee shall have no rights hereunder unless and until on or before
June 30, 2001,
Licensee shall have submitted to Licensor, written verification, in a
form satisfactory to Licensor, that Closing has occurred.
o Licensee agrees to assume responsibility for any fees due and owing to
Licensor relative to the Hotel at the time of Closing.
o Please refer to Paragraph 9 of the Franchise License Agreement.
o Paragraph 10 of the Franchise License Agreement is deleted in its
entirety.
o Please refer to Paragraph 16.g. of the Franchise License Agreement.
Attachment C
Product Improvement Plan
[Omitted]
Your Ownership Structure:
Name Nature of Ownership Interest % Interest
---- ---------------------------- ----------
Apple Suites, Inc., Stockholder 100%
a Virginia corporation
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 SUITES MANAGEMENT, INC., PROMUS HOTELS, INC.,
a Virginia corporation a Delaware corporation
By: /s/ Thomas P. Powell
------------------------
By: /s/ Glade M. Knight Name: Thomas P. Powell
--------------------------------- ----------------------------
Glade M. Knight, President
Title: Vice President
----------------------------
Executed on:
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