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EXHIBIT 10.9.a
SUBURBAN LODGE(R)
FRANCHISE AGREEMENT
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SUBURBAN LODGE
FRANCHISE AGREEMENT
TABLE OF CONTENTS
Heading Page
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1. Parties and Recitals 1
2. Grant of Franchise 1
3. Term and Renewal 2
4. Operating Assistance 2
5. Fees 4
6. Licensed Marks 5
7. Standards of Design, Construction and Operations 6
8. Confidential Operating Manual 10
9. Advertising and Marketing 11
10. Statements, Records and Fee Payments 13
11. Covenants 14
12. Transfer and Assignment 15
13. Default and Termination 17
14. Post Term Obligations 20
15. Insurance 21
16. Taxes, Permits and Indebtedness 22
17. Indemnification and Independent Contractor 22
18. Written Approvals, Waivers, Forms
of Agreement and Amendment 22
19. Enforcement 23
20. Notices 24
21. Governing Law and Dispute Resolution 24
22. Severability and Construction 25
23. General Provisions 25
24. Acknowledgments 25
Guaranty of Franchise Owner's Undertakings
Exhibit 1 - Licensed Marks and Acknowledgement
Regarding Controlling Persons
Exhibit 2 - Territory
State Rider
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1. PARTIES AND RECITALS
(a) This Franchise Agreement ("Agreement") is entered into as of
__________________, 19____, (the "Execution Date"), by and between Suburban
Franchise Systems, Inc., a Georgia corporation, with its principal place of
business at 1000 Parkwood Circle, Suite 850, Atlanta, Georgia 30339 ("SFS"), and
_________________________________ ("Franchise Owner") with its principal place
of business at __________________________________________________________.
(b) SFS owns and has the right to license certain trade names,
trademarks, service marks and/or indicia of origin (the "Licensed Marks")
identified on Exhibit 1 hereto, the uniqueness and value of which are
acknowledged by Franchise Owner. In connection therewith, SFS has developed a
plan for the organization and operation of a system of extended stay lodging
establishments which system includes assistance in site evaluation and
selection, equipment and furnishings selection and layout, prototype
architectural plans and specifications, proprietary management software and
procedures, manuals covering development issues, business practices and
policies, sales and promotional techniques, personnel training, and other
matters relating to the operation and promotion of SUBURBAN LODGE facilities
(hereinafter collectively referred to as the "SUBURBAN LODGE System") all of
which are designed to enhance the reputation and goodwill with the public of
establishments operated pursuant to the SUBURBAN LODGE System.
(c) Franchise Owner has investigated and become familiar with the
SUBURBAN LODGE System, and desires, upon the terms and conditions set forth
herein, to obtain a license to operate a business which will utilize the
Licensed Marks and the SUBURBAN LODGE System (the "Franchised Business"). SFS is
willing, upon the terms and conditions set forth herein, to license Franchise
Owner to operate the Franchised Business.
2. GRANT OF FRANCHISE
(a) Subject to all of the terms and conditions herein, SFS grants to
Franchise Owner the right to operate a SUBURBAN LODGE System facility (the
"Unit") solely at the following address:________________________________________
___________________________________________________________________________ (the
"Premises") and the non-exclusive right to utilize the Licensed Marks in
conjunction therewith. The rights granted herein are sometimes referred to in
this Agreement as the "Franchise."
(b) Franchise Owner acknowledges and agrees that the Franchise relates
solely to the Premises and the Unit thereon, and affords Franchise Owner no
right to use the SFS prototype architectural plans and specifications for any
other purpose or to construct or operate any additional, expanded or modified
facilities on the Premises, nor any right to construct or operate the Franchised
Business at any location other than the Premises.
(c) Franchise Owner expressly acknowledges and agrees that SFS may
itself construct and/or operate, and grant to others the right to construct
and/or operate any business not utilizing the Licensed Marks, at any location.
(d) Franchise Owner expressly acknowledges and agrees that SFS may
itself construct and/or operate, and grant to others the right to construct
and/or operate any business utilizing the Licensed Marks, at any location
outside the territory referenced in Exhibit 2 attached hereto. The territory
referenced in Exhibit 2 shall be deemed to be that area bounded by the right of
ways (i.e., streets and highways), county lines, city lines, and/or land lot
lines highlighted in red on Exhibit 2, running from the center of such right of
ways, county lines, city lines, and/or land lot lines to the Premises, or as
otherwise indicated by the area inside the red highlighting on the map attached
to Exhibit 2.
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3. TERM AND RENEWAL
(a) This Agreement, unless previously terminated pursuant to Paragraph
13 hereof, shall expire ten (10) years and three (3) months from the date of
commencement of operations to the public ("Commencement Date") at the Premises,
as determined by SFS in its sole discretion (the "Initial Term").
(b) Upon the expiration of the Initial Term of this Agreement,
Franchise Owner shall be entitled to the issuance of a new franchise agreement
with respect to the Franchised Business for an additional ten (10) year term,
subject to the following conditions, otherwise, such renewal right shall
automatically expire:
(i) Franchise Owner, at the expiration of the Initial
Term and within twelve (12) months prior thereto, shall not be or have been in
default in the performance of any material obligation under this Agreement;
(ii) Franchise Owner shall have modernized or contracted
to modernize the Premises, which may include structural changes, additions to or
modification, as well as refurbishment of the buildings, signs, equipment,
furnishings and decor so as to reflect the then-current image of SUBURBAN LODGE
System units;
(iii) Franchise Owner shall have duly made written
application to SFS for a new franchise agreement not less than one hundred
eighty (180) days nor more than twelve (12) months prior to the expiration date
of the Initial Term and shall have duly executed and returned to SFS for final
approval and execution the new franchise agreement within thirty (30) days of
receipt. The new franchise agreement to be issued to Franchise Owner shall be
SFS's then-current standard form franchise agreement and may contain terms and
conditions substantially different from those contained herein, including
without limitation, increased fees and/or required advertising contributions,
and renewal terms; and,
(iv) Franchise Owner shall have duly tendered to SFS in
lieu of the initial franchise fee specified in the new franchise agreement an
administrative fee equal to ten percent (10%) thereof prior to the expiration
date of this Agreement.
4. OPERATING ASSISTANCE
(a) Prior to Franchise Owner's commencement of business, SFS shall
provide Franchise Owner with the following assistance, on the same basis as it
will from time to time make available to other franchise owners of SUBURBAN
LODGE System units:
(i) One (1) set of any written facility development
materials which SFS may make available (known as the Confidential Development
Manual(s)), as the same may be amended from time to time by SFS in its sole
discretion;
(ii) Information with respect to site evaluation and
selection;
(iii) Proprietary and confidential information with respect
to prototype plans, specifications and layouts for the Unit, which SFS shall
provide to Franchise Owner for use only during the term of this Agreement, and
standards and specifications for all fixtures, signs, improvements, equipment
and other related facilities for use in typical or similar units;
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(iv) Such information as SFS may have concerning possible
sources of fixtures, signs, improvements, equipment, furnishings and other
related facilities and other products and services available in connection with
the operation of SUBURBAN LODGE System units;
(v) A minimum of three to five (3 - 5) days of training
(and such additional time as SFS may deem necessary) in the operation of the
Franchised Business prior to its opening for either Franchise Owner or its
designated manager selected by Franchise Owner and approved by SFS. Such
training shall be conducted exclusively by SFS or its designee at a site to be
designated by SFS; provided, however, Franchise Owner shall pay all its and its
employees' costs and living expenses during and in connection with such
training; and, provided further, that for training provided at Franchise Owner's
Unit, Franchise Owner shall pay the reasonable transportation, meals and living
expenses of SFS or its designees. If this is Franchise Owner's first SUBURBAN
LODGE System Unit, at least three to five (3 - 5) additional days of training
shall take place at the Unit, prior to, during and/or subsequent to its opening.
(vi) Such on-Premises pre-opening or opening assistance by
SFS or its representative(s) in the initial operation of the Franchised Business
as SFS may, in its discretion, deem appropriate; provided, however, that for
assistance requested by Franchise Owner, SFS may require Franchise Owner to pay
the reasonable transportation, meals and living expenses of SFS or its
designees; and, provided further, that if Franchise Owner requests SFS or an
affiliate of SFS to take principal responsibility for supervising the
development or construction of Franchise Owner's Unit, SFS or an affiliate of
SFS may provide such services to Franchise Owner pursuant to a separate
agreement providing for separate charges for such services;
(vii) One (1) set of any written facility operational
materials which SFS may make available (known as the Confidential Operating
Manual(s), as defined in Paragraph 8 hereof), as the same may be amended from
time to time by SFS in its sole discretion;
(viii) An initial supply of accounting forms for reporting
transactions to SFS in accordance with Paragraphs 5 and 10 hereof. Subsequent
supplies will be available at SFS's cost plus handling charges;
(ix) Proprietary computer software programs and procedures
which may be required by SFS to be utilized by Franchise Owner in the operation
of the Franchised Business and which may be updated or modified by SFS from time
to time during the term of this Agreement. Any such proprietary software
programs shall remain the property of SFS and shall be on loan to Franchise
Owner for six month intervals during the term of this Agreement. SFS shall be
obligated to renew such loan but only so long as Franchise Owner is in good
standing under this Agreement.
(b) SFS reserves the right to require Franchise Owner to maintain
standards of quality, appearance and service at all SUBURBAN LODGE System units,
thereby maintaining the public image and reputation of the SUBURBAN LODGE System
and the demand for the services provided thereunder, and to that end SFS will
provide Franchise Owner upon request from Franchise Owner with such of the
following as it shall deem appropriate, in its sole discretion, and as it then
supplies other similarly situated franchise owners:
(i) Periodic assistance in local advertising and
marketing, and sales and promotional techniques;
(ii) Periodic individual or group counseling in the
operation of the Franchised Business rendered in person, by seminar, or by
newsletters or bulletins made available from time to time to all SUBURBAN LODGE
System franchise owners;
(iii) Advice concerning operating problems, new techniques
or operating methods disclosed by reports submitted to or inspections made by
SFS;
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(iv) Advice and guidance with respect to new and improved
methods of operation or business procedures developed by SFS, use of the
Confidential Operating Manual, management materials, promotional materials,
advertising formats and the Licensed Marks;
(v) The opportunity to participate in group purchasing programs
for inventory, supplies, insurance and equipment which SFS may, from time to
time, use, develop, sponsor or provide and upon such terms and conditions as may
be determined solely by SFS; and
(vi) Periodic inspections of the Premises and other SUBURBAN
LODGE System units and of the services they offer.
5. FEES
(a) In consideration of the execution of this Agreement, Franchise
Owner agrees to pay SFS an initial franchise fee which shall be equal to the
greater of Two Hundred Twenty-Five Dollars ($225) per licensed guest room or
Thirty Thousand Dollars ($30,000). Three Thousand Dollars ($3,000) of the
initial franchise fee was paid on the date of execution of the Preliminary
Agreement for a License to Operate a SUBURBAN LODGE Unit ("Preliminary
Agreement"). An additional Three Thousand Dollars ($3,000) of the initial
franchise fee shall be paid on the Execution Date of this Agreement. The
remaining balance shall be paid on the date Franchise Owner breaks ground to
commence construction of the Unit (as determined by SFS in its sole discretion)
or the date the Franchise Owner's construction loan is closed, whichever is
earlier. Each payment of the initial franchise fee shall be non-refundable.
(b) At all times after the Commencement Date, Franchise Owner shall pay
to SFS the following recurring fees:
(i) A continuing fee equal to four percent (4%) of the Gross
Volume of Business (as hereinafter defined), except during the first ninety (90)
days of operation during which time there shall be no continuing fee.
(ii) SFS may, in its sole discretion, upon ninety (90) days
prior written notice to Franchise Owner and all other similarly situated
SUBURBAN LODGE franchise owners, but not before a minimum of fifteen (15)
SUBURBAN LODGE System units are in operation, require payment of an advertising
and marketing fee to support national, regional and/or local advertising,
initially not to exceed one percent (1%) of the Gross Volume of Business. The
advertising and marketing fee shall be expended in accordance with the terms of
Paragraph 9. The level of the advertising and marketing fee may be increased
from time to time by SFS for all SUBURBAN LODGE System units at the sole option
of SFS upon sixty (60) days written notice to Franchise Owner, provided,
however, that in no event shall the advertising and marketing fee percentage
hereunder exceed one and one-half percent (1.5%) of the Gross Volume of Business
at any given time during the term of this Agreement without the concurrence of a
majority (in the aggregate) of all company and franchised units then open for
business to the public and provided further that the advertising and marketing
fee percentage hereunder shall never exceed two percent (2%) of the Gross Volume
of Business during the Initial Term. It is the intention of the parties that the
cost of the advertising and marketing program shall be shared on a similar basis
by all SUBURBAN LODGE System units, including units owned or operated by SFS or
its affiliates, rather than for SFS to make a profit from such fees.
(iii) A reservations referral program fee not to exceed one
percent (1%) of the Gross Volume of Business, for the purpose of compensating
SFS for costs incurred in administering its reservations referral programs and
related overhead costs. SFS may in its sole discretion from time to time raise
the level of the reservations referral program fee for all SUBURBAN LODGE System
units upon thirty (30) days written notice to Franchise Owner, but only to
offset any increased costs or expenditures for reservation referral
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programs. It is the intention of the parties that the cost of the reservations
referral program shall be shared on a similar basis by all SUBURBAN LODGE System
units, including units owned or operated by SFS or its affiliates, rather than
for SFS to make a profit from such fees.
(iv) An amount equal to any sales, gross receipts or similar tax
imposed on SFS and calculated solely on payments required under the Franchise
Agreement, unless the tax is an optional alternative to an income tax otherwise
payable by SFS.
(c) Unless otherwise provided, all fees and other amounts due to SFS
hereunder shall be paid in the manner, at the times, and such payments shall be
accompanied by the statement required under Paragraph 10 of this Agreement.
(d) If any fee or any other amount due under this Agreement is not paid
within ten (10) days after such payment is due, Franchise Owner shall pay a
service charge equal to the lesser of the daily equivalent of eighteen percent
(18%) per annum of such overdue amount per year or the highest rate then
permitted by applicable law for each day such amount is past due. This charge
shall accrue whether or not SFS exercises its right to terminate this Agreement
pursuant to Paragraph 13 hereof.
(e) The term "Gross Volume of Business," as used in this Agreement,
shall mean the aggregate gross amount of all revenues from whatever source
derived (whether in the form of cash, credit, agreements to pay or other
consideration, and whether or not payment is received at the time of sale) which
arise from or are derived by Franchise Owner or by any other person from
business conducted or which originated in, on, from, or through the Premises,
whether such business is conducted in compliance with or in violation of the
terms of this Agreement, including, but not limited to, receipts from the rental
of guest rooms and revenues derived from the sale and rental of services and
merchandise including vending and laundry machine receipts, but excluding key
deposit forfeitures, security deposit forfeitures for room damages and sales or
use taxes imposed by any governmental authority directly on sales and collected
by Franchise Owner, provided that the amount thereof is added to the selling
price or absorbed therein and actually paid to the governmental authority.
(f) All payments by Franchise Owner pursuant to this Paragraph 5 shall
be applied in such order as SFS may designate from time to time. Franchise Owner
agrees that it may not designate an order for application of any fees different
from that designated by SFS and expressly acknowledges and agrees that SFS may
accept fees paid pursuant to different instructions without any obligation to
follow such instructions, even if such payment is made by its terms conditional
on such instructions being followed. This provision may be waived only by
written agreement signed by SFS, which written agreement must be separate from
the check or other document constituting payment.
6. LICENSED MARKS
(a) Franchise Owner expressly acknowledges SFS's rights in and to the
Licensed Marks and agrees not to represent in any manner that Franchise Owner
has acquired any ownership rights in the Licensed Marks. Franchise Owner agrees
not to use any of the Licensed Marks or any marks, names or indicia which are or
may be confusingly similar in its own corporate or business name except as
authorized in this Agreement. Franchise Owner further acknowledges and agrees
that any and all goodwill associated with the SUBURBAN LODGE System and
identified by the Licensed Marks shall inure directly and exclusively to the
benefit of SFS and that, upon the expiration or termination of this Agreement
for any reason, no monetary amount shall be assigned as attributable to any
goodwill associated with Franchise Owner's use of the Licensed Marks.
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(b) Franchise Owner understands and agrees that any use of the Licensed
Marks other than as expressly authorized by this Agreement, without SFS's prior
written consent, may constitute an infringement of SFS's rights therein and that
the right to use the Licensed Marks granted herein does not extend beyond the
termination or expiration of this Agreement. Franchise Owner expressly covenants
that, during the term of this Agreement and thereafter, Franchise Owner shall
not, directly or indirectly, commit any act of infringement or contest or aid
others in contesting the validity of SFS's right to use the Licensed Marks or
take any other action in derogation thereof.
(c) Franchise Owner shall promptly notify SFS of any claim, demand or
cause of action that it believes may exist or that it becomes aware of, that SFS
may have based upon or arising from any unauthorized attempt by any person or
legal entity to use the Licensed Marks, any colorable variation thereof, or any
other mark, name or indicia in which SFS has or claims a proprietary interest.
Franchise Owner shall assist SFS, upon request and at SFS's expense, in taking
such action, if any, as SFS may deem appropriate to halt such activities, but
shall take no action nor incur any expenses on SFS's behalf without SFS's prior
written approval. If SFS undertakes the defense or prosecution of any litigation
relating to the Licensed Marks, Franchise Owner agrees to execute any and all
documents and to do such acts and things as may, in the opinion of SFS's legal
counsel, be reasonably necessary to carry out such defense or prosecution.
(d) Franchise Owner further agrees and covenants to operate and
advertise only under the names or marks from time to time designated by SFS for
use by similar SUBURBAN LODGE System franchise owners; to adopt and use the
Licensed Marks solely in the manner prescribed by SFS; to refrain from using the
Licensed Marks to perform any activity or to incur any obligation or
indebtedness in such a manner as may, in any way, subject SFS to liability
therefore; to observe all laws with respect to the registration of trade names
and assumed or fictitious names, to include in any application therefore a
statement that Franchise Owner's use of the Licensed Marks is limited by the
terms of this Agreement, and to provide SFS with a copy of any such application
and other registration document(s); to observe such requirements with respect to
trademark and service mark registrations and copyright notices as SFS may, from
time to time, require, including, without limitation, affixing "SM", "TM", or
(R) adjacent to all such Licensed Marks in any and all uses thereof; and, to
utilize such other appropriate notice of ownership, registration and copyright
as SFS may require.
(e) SFS reserves the right, in its sole discretion, to designate one or
more new, modified or replacement Licensed Marks for use by franchise owners and
to require the use by Franchise Owner of any such new, modified or replacement
Licensed Marks in addition to or in lieu of any previously designated Licensed
Marks. Any expenses or costs associated with the use by Franchise Owner of any
such new, modified or replacement Licensed Marks shall be the sole
responsibility of Franchise Owner.
7. STANDARDS OF DESIGN, CONSTRUCTION AND OPERATION
SFS shall establish and Franchise Owner shall maintain standards of
quality, appearance and operation for the Franchised Business. For the purpose
of enhancing the public image and reputation of businesses operating under the
SUBURBAN LODGE System and for the purpose of increasing the demand for services
and products provided by franchise owners and SFS, the parties agree as follows:
(a) In connection with the construction of the Unit at which the
Franchised Business is to operate, Franchise Owner shall, at its expense,
furnish to SFS for its approval the following:
(i) A proposed preliminary site plan for the Unit, adapted from
SFS's standard plans by Franchise Owner's architect or engineer for use at the
Premises, which shall be supplied to SFS before construction of the Unit is
begun and which, if approved, shall not thereafter be materially changed without
SFS's prior consent;
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(ii) Copies of Franchise Owner's plans and specifications for
construction of the Unit, adapted from SFS's standard plans and specifications
by Franchise Owner's architect or engineer for use at the Premises, in proposed
final form with the stamp of Franchise Owner's architect or engineer affixed
thereon, for approval by SFS, which, if approved, shall not thereafter be
materially changed without SFS's prior consent. In addition, Franchise Owner
shall furnish SFS copies for SFS's review of all commitments and plans for
construction and permanent financing, the name, address and contact with respect
to each lender (which information shall be kept current by Franchise Owner at
all times hereunder), the name and address of the contractor, together with a
copy of the construction contract, and such other additional information as SFS
may from time to time request. Franchise Owner shall also furnish SFS throughout
the period of the construction of Franchise Owner's Unit monthly inspection
reports signed by Franchise Owner's architect or the lender's inspector
certifying the general compliance of Franchise Owner's Unit, as constructed to
the date of each such report, with the plans and specifications approved by SFS.
(iii) All such permits and certifications as may be required for
the lawful construction and operation of the Unit, together with copies of all
building inspection reports and certification from all governmental authorities
having jurisdiction over the site that all necessary permits have been obtained,
and that all requirements for construction have been met; and
(iv) A copy of the lease agreement, if the Premises are leased,
and a copy of any billboard or off Premises sign leases, which agreements shall
provide for SFS to have the right to enter the Premises or the property on which
such billboards or off Premises signs are located to make any modifications
necessary to protect the Marks, and the option to assume any such lease, with
the right to sublease for all or any part of its term, both upon Franchise
Owner's default or termination thereunder, and upon the termination or
expiration of this Agreement.
(b) Prior to opening the Franchised Business to the public, Franchise
Owner or, if applicable, its designated manager, shall have been certified by
SFS as meeting SFS's qualifications for management at similar SUBURBAN LODGE
System units. Franchise Owner agrees that the Franchised Business shall only be
operated directly by Franchise Owner or by a trained manager employed by
Franchise Owner, or by a management company that has previously been approved by
SFS and has not thereafter been disapproved. Franchise Owner shall notify SFS in
writing at least 30 days prior to employing any such manager or management
company, setting forth in reasonable detail all pertinent information relative
to the individual's or management company's character and business background
and experience. No such trained manager or management company shall be employed
to operate the Franchised Business (or any part thereof) without SFS's prior
consent, based upon such standards and requirements as SFS may from time to time
specify, in writing or otherwise. If SFS rejects or later disapproves such
trained manager or management company, it shall notify Franchise Owner of the
pertinent reasons therefor. Notwithstanding the right of SFS to protect the
goodwill of the SUBURBAN LODGE System by disapproving any manager or management
company employed by Franchise Owner, such manager or management company shall
not be deemed an employee or agent of SFS for any purpose whatsoever. No part of
the Premises shall be leased to or managed (either directly or indirectly) by
any party other than Franchise Owner without SFS's prior consent. Franchise
Owner and/or such of its designated managerial personnel as approved by SFS
shall complete, to SFS's reasonable satisfaction, any and all training programs
as SFS may reasonably require. If any trainee fails to complete the required
initial training program satisfactorily, SFS shall notify Franchise Owner of
such failure and require Franchise Owner to designate a substitute trainee.
Franchise Owner's Unit shall at all times continue to be managed by personnel
who have met SFS's training requirements. SFS may, at its option, require others
of Franchise Owner's initial and subsequent management employees to attend and
satisfactorily complete all or any part of such training programs. All expenses
incurred in training, including, without limitation, cost of travel, room, board
and wages of the person(s) receiving such training shall be borne by Franchise
Owner. Franchise Owner shall also bear the cost of any additional training which
may be required by SFS. Franchise Owner agrees that at all times during the term
of this Agreement there is to be at least one employee of Franchise Owner or its
approved management company (the "designated manager") who:
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(i) Is principally responsible for the operation of the
Franchised Business on a full-time, in-person basis at the Unit, and
(ii) Has attended and satisfactorily completed such training,
retraining or refresher training program as SFS may require, in its sole
discretion, at such times and places prior to the expiration of this Agreement
as SFS may reasonably designate.
(c) Franchise Owner shall (i) commence construction of the Unit, in
accordance with the site and building plans approved by SFS, not later than six
(6) months from and including the Execution Date, (ii) complete the construction
of the Unit and open the Franchised Business on a continuous basis to the public
not later than fifteen (15) months from and including the Execution Date and
(iii) in any event, at all times make a good faith reasonable effort to develop
and construct the Unit during such periods. SFS shall not unreasonably withhold
consent to a written request by Franchise Owner to extend either or both of the
foregoing deadlines for commencing or completing construction and opening to the
public if such consent is requested due to delays beyond the control of the
Franchise Owner, provided that Franchise Owner is without fault in failing to
prevent or causing the delay, and such delay cannot reasonably be circumvented
by Franchise Owner through the use of alternative sources, workaround plans or
other means. Any such consent by SFS to extend either or both of the foregoing
deadlines shall only be effective if made in writing. Construction of the Unit
shall not be considered completed, and the Franchised Business shall not be
opened to the public, until Franchise Owner receives written authorization from
SFS, which such authorization shall not unreasonably be withheld by SFS acting
in good faith. Upon receipt of such authorization, the Franchise Owner shall
open the Franchised Business to the public as soon as practicable.
(d) All fixtures, signs, improvements, equipment, furnishings and
supplies for the Franchised Business selected by Franchise Owner must meet the
quality and appearance standards set forth in SFS's standard plans and
specifications, Confidential Operating Manual or other writing delivered by SFS
to Franchise Owner, subject to compliance with applicable laws and regulations.
(e) Subject to compliance with applicable laws and regulations,
Franchise Owner shall acquire all signs as required by SFS for use at or in
connection with the Franchised Business.
(f) Franchise Owner agrees to comply with all SUBURBAN LODGE System
rules, regulations, policies and standards which are by their terms mandatory
including, without limitation, those contained in the Confidential Operating
Manual. Franchise Owner shall operate and maintain the Franchised Business
solely in the manner and pursuant to the standards prescribed herein, in the
Confidential Operating Manual or in other written materials provided by SFS to
Franchise Owner.
(g) Franchise Owner agrees to use the Premises solely for the operation
of the Franchised Business in the manner and pursuant to the standards
prescribed herein, in the Confidential Operating Manuals or otherwise in
writing, and to refrain from using or permitting the use of the Premises for any
other purpose or activity at any time.
(h) Franchise Owner agrees to construct and operate the Franchised
Business in conformity with such methods, standards and specifications as SFS
may from time to time prescribe in its standard plans and specifications or
Confidential Operating Manual to insure that SFS's required degree of quality,
service and image is maintained; and to refrain from deviating therefrom and
from otherwise operating in any manner which adversely reflects on SFS's name
and goodwill, or on the Licensed Marks. Without limiting the generality of the
foregoing, and provided SFS applies these requirements on a reasonably
non-discriminatory basis to comparable units, including units operated by SFS
and its affiliates, Franchise Owner specifically agrees:
(i) To purchase and install, at Franchise Owner's expense, all
such fixtures, signs, equipment, furnishings and supplies, all as may be
required by SFS, and meet the specifications of the
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approved site layout and plan, and all other such items as SFS may prescribe
from time to time; and to refrain from installing, or permitting to be
installed, on or about or in connection with the Premises or the Franchised
Business, any such item not meeting SFS's standards and specifications.
(ii) To maintain in sufficient supply, and use at all times, only
operating products, materials, supplies and expendables, including paper goods,
as conform with SFS's then-current standards and specifications, and to refrain
from using nonconforming items without SFS's prior consent.
(iii) To sell and to offer for sale all such products, goods and
services as SFS may, from time to time require, and only those which SFS may,
from time to time approve, which are not subsequently disapproved, as meeting
its quality standards and specifications. In addition to any remodeling,
repairs, replacement and redecoration required by Paragraph 7(i) hereof, in
order to introduce new products or services through all SUBURBAN LODGE System
units, Franchise Owner may be required to expend additional amounts on new,
different or modified equipment or fixtures necessary to offer such new services
or products. In such event, Franchise Owner shall have up to three (3) months to
complete any modifications necessitated by the introduction of such new products
and/or services.
(i) Franchise Owner agrees to maintain the Premises, and all buildings,
fixtures, signs, equipment, furnishings and improvements thereon, in conformity
with SFS's then current standards at all times during the term of this
Agreement, and to make such repairs and replacements thereto as SFS may require.
Without limiting the generality of the foregoing, Franchise Owner specifically
agrees:
(i) To keep the Unit at all times in a high degree of
sanitation, repair, order and condition, including, without limitation, such
periodic repainting of the exterior and interior of all buildings and related
facilities, such maintenance and repairs to all equipment, and such
refurbishment or replacement of obsolete or outdated fixtures, furnishings,
uniforms, signs and equipment as SFS may from time to time reasonably direct;
(ii) To meet and maintain at all times the highest grade of
governmental standards and ratings applicable to the operation of the Unit;
(iii) To refurbish the Unit periodically upon SFS's reasonable
request including, without limitation, remodeling and redecorating of the
interior and exterior of all buildings and related facilities on the Premises,
and such repair and replacement of existing fixtures, furnishings, signs and
equipment, as may be necessary to reflect the then current public image required
of new units by SFS and to insure the presentation of the Marks consistently
therewith; provided, however, that SFS shall not require Franchise Owner to
refurbish more frequently than every five (5) years and the total required to be
spent by Franchise Owner at such time shall not exceed two thousand two hundred
and fifty ($2,250) dollars (as increased by the increase in the CPI index using
the year in which this Agreement is entered into as the base year) for each
guest room in the Unit. SFS agrees to apply this requirement on a reasonably
nondiscriminatory basis to comparable units, including units operated by SFS and
its affiliates.
(j) Franchise Owner agrees to permit SFS or its agents, at any
reasonable time, to remove from the Premises, at SFS's option, certain samples
of any products, materials, supplies and expendables without payment therefor,
in amounts reasonably necessary for testing by SFS or any independent
laboratory, to determine whether such samples meet SFS's then-current standards
and specifications, with no liability to Franchise Owner for any damage to such
samples as a result of such testing.
(k) Franchise Owner shall purchase all fixtures, furnishings, signs,
equipment, inventory, uniforms, advertising materials, and other supplies,
products and materials required for the operation of the Franchised Business
that comply with standards and specifications published by SFS from time to
time. If Franchise Owner desires to purchase any items that do not comply with
such standards and specifications, Franchise Owner shall submit to SFS a written
request for such approval in accordance with procedures
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prescribed from time to time by SFS. SFS reserves the right to designate itself
an approved supplier and to make a profit from the sale of supplies to Franchise
Owner.
(l) Franchise Owner shall use only business stationery, business cards,
marketing materials, advertising materials, printed materials or forms which
have been approved in advance by SFS. Franchise Owner shall not employ any
person to act as a representative of Franchise Owner in connection with local
promotion of the Franchised Business in any public media without the prior
written approval of SFS. Any and all supplies or materials purchased, leased or
licensed by Franchise Owner shall always meet those standards specified by SFS
in the Confidential Operating Manual or otherwise in writing.
(m) In all advertising displays and materials and at the Premises,
Franchise Owner shall, in such form and manner as may be specified by SFS in the
Confidential Operating Manual, notify the public that Franchise Owner is
operating the business licensed hereunder as a franchise owner of SFS and shall
identify its business location in the manner specified by SFS in the
Confidential Operating Manual. Further, at the request of SFS, Franchise Owner
shall display in the guest lobby, or otherwise make available as directed by
SFS, literature provided by SFS relating to the availability of franchises and
the location of other Units in the SUBURBAN LODGE System.
(n) Franchise Owner shall promptly respond to customer complaints and
shall take such other steps as may be required to insure positive customer
relations.
(o) Franchise Owner hereby grants to SFS and its agents the right to
enter upon the Premises, without notice, at any reasonable time for the purpose
of conducting inspections of the Premises, Franchise Owner's books, records and
register tapes, and Franchise Owner agrees to render such assistance as may
reasonably be requested and to take such steps as may be necessary immediately
to correct any deficiencies detected during such an inspection upon the request
of SFS or its agents.
(p) Because complete and detailed uniformity under many varying
conditions may not be possible or practical, SFS specifically reserves the right
and privilege, in its sole discretion and as it may deem in the best interests
of all concerned in any specific instance, to vary standards for any franchise
owner based upon the peculiarities of a particular site or circumstance, density
of population, business potential, population of trade area, existing business
practices or any other conditions which SFS deems to be of importance to the
successful operation of such franchise owner's business. Franchise Owner shall
have no recourse against SFS on account of any variation from standard
specifications and practices granted to any franchise owner and shall not be
entitled to require SFS to grant Franchise Owner a like or similar variation
hereunder.
(q) Franchise Owner agrees to install, update or replace any equipment
(including computer equipment and cash registers) or software designed to be
used in connection with the operation of the Franchised Business, and to utilize
equipment and software of such kind and in such manner as is specified by SFS
from time to time. Without limiting the generality of the foregoing, Franchise
Owner agrees that it shall install and utilize in connection with the Franchised
Business such hardware and software as SFS may require from time to time, which
is compatible with and continuously accessible to SFS's central management
system through modem or other manual or electronic access. SFS agrees to apply
this requirement on a reasonably nondiscriminatory basis to comparable units,
including units operated by SFS and its affiliates. Upon request of SFS,
Franchise Owner agrees to provide SFS access to its computer data base and to
send SFS original or duplicate copies of all diskettes utilized by Franchise
Owner in the operation of the Franchised Business.
(r) Franchise Owner agrees that this Agreement shall constitute a lien
upon all exterior sign facia bearing any Licensed Marks which are to be
displayed on the exterior of the Premises or other exterior locations and in the
event of any termination or expiration of this Agreement, Franchise Owner agrees
to remove immediately such exterior facia bearing any of the Licensed Marks. If
Franchise Owner fails to make such alterations within fifteen (15) days after
termination or expiration of this Agreement, Franchise Owner
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agrees that SFS or its designated agents may enter upon any such location at any
time to make such alterations, at Franchise Owner's sole risk and expense,
without liability for trespass.
(s) Franchise Owner hereby grants to SFS the right to take such steps
as are necessary to manage the Franchised Business for the account of Franchise
Owner in the event of Franchise Owner's death or in the event that an
independent third party (such as a medical doctor) reasonably determines that
Franchise Owner is incapacitated or incapable of running the Franchised
Business, and to receive a reasonable fee for such services.
8. CONFIDENTIAL OPERATING MANUAL AND OTHER INFORMATION
(a) In order to protect the reputation and goodwill of the businesses
operating under the SUBURBAN LODGE System and to maintain standards of operation
under the Licensed Marks, Franchise Owner shall conduct the Franchised Business
operated under the SUBURBAN LODGE System in accordance with various written
instructions and confidential manuals (hereinafter and previously referred to as
the "Confidential Operating Manual"), including such amendments thereto, as SFS
may publish from time to time, all of which Franchise Owner acknowledges belong
solely to SFS and shall be on loan from SFS during the term of this Agreement.
When any provision in this Agreement requires that Franchise Owner comply with
any standard, specification or requirement of SFS, unless otherwise indicated,
such standard, specification or requirement shall be such as is set forth in
this Agreement or as may, from time to time, be set forth by SFS in the
Confidential Operating Manual.
(b) Franchise Owner shall at all times use its best efforts to keep
SFS's Trade Secrets and Confidential Information (as each term is defined below)
as confidential, and shall limit access to SFS's Trade Secrets and Confidential
Information to employees of Franchise Owner on a need-to-know basis. Franchise
Owner acknowledges that the unauthorized use or disclosure of SFS's Confidential
Information or Trade Secrets will cause irreparable injury to SFS and that
damages are not an adequate remedy. Franchise Owner accordingly covenants that
it shall not at any time, without SFS's prior written consent, disclose, use,
permit the use of (except as may be required by applicable law or authorized by
this Agreement), copy, duplicate, record, transfer, transmit or otherwise
reproduce any Trade Secrets or Confidential Information, in any form or by any
means, in whole or in part, or otherwise make the same available to any
unauthorized person or source. For purposes of this Agreement:
"Trade Secrets" means the Confidential Operating Manual and any other
manuals (including the Confidential Development Manual), the contents
thereof, the SFS proprietary prototype architectural plans and
specifications, the SFS proprietary management software, and any
methods of operation, standards, techniques, materials, goods and
information created or used by SFS or involving the SUBURBAN LODGE
System and designated for confidential use within the SUBURBAN LODGE
System, and the information contained therein, to the extent such items
(A) derive economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means
by, other persons or entities who can obtain economic value from their
disclosure or use, and (B) are the subjects of efforts by SFS that are
reasonable under the circumstances to maintain their secrecy.
"Confidential Information" means information other than Trade Secrets
that belongs to SFS or is licensed by SFS, that is of a confidential or
secret nature material to SFS, and that is not generally known to the
public.
(c) Franchise Owner understands and acknowledges that SFS may, from
time to time, revise the contents of the Confidential Operating Manual to
implement new or different requirements for the operation
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of the Franchised Business, and Franchise Owner expressly agrees to comply with
all such changed requirements which are by their terms mandatory; provided that
such requirements shall also be applied in a reasonably nondiscriminatory manner
to comparable businesses operated under the SUBURBAN LODGE System by other
franchise owners. The implementation of such requirements may require the
expenditure of reasonable sums of money by Franchise Owner at the Premises.
(d) Franchise Owner shall at all times insure that its copy of the
Confidential Operating Manual is kept current and up to date. In the event of
any dispute as to the contents thereof, the terms and dates of the master copy
thereof maintained by SFS at its principal place of business shall be
controlling.
9. ADVERTISING AND MARKETING
Recognizing the value of standardized advertising and marketing
programs to the furtherance of the goodwill and public image of the SUBURBAN
LODGE System, the parties agree as follows:
(a) SFS or its designee shall exclusively maintain and administer the
SUBURBAN LODGE Advertising Fund ("Fund") (if established), for national,
regional and/or local advertising, public relations and marketing programs and
market research ("Advertising") and shall direct all such Advertising with sole
discretion over the concepts, materials and media used therein. All advertising
and marketing fees paid by Franchise Owner pursuant to Paragraph 5(b)(ii) hereof
shall be part of such Fund. SFS shall have the sole right to enforce the
obligations of Franchise Owner, and all other franchise owners of the SUBURBAN
LODGE System, who are obligated to contribute to the Fund, and neither Franchise
Owner nor any other SUBURBAN LODGE franchise owner who shall be obligated to
contribute to the Fund shall be deemed a third party beneficiary with respect to
said Fund or have any right to enforce any obligation to contribute thereto.
Franchise Owner understands and acknowledges that the Fund is intended to
maximize general public recognition and acceptance of the Licensed Marks for the
benefit of the SUBURBAN LODGE System as a whole and that SFS and its designee
undertake no obligation in administering the Fund to insure that any particular
franchise owner benefits directly or pro rata from the Advertising. No part of
the Fund shall be used by SFS to defray any of its general operating expenses
other than those reasonably allocable to such Advertising, or other activities
reasonably related to the administration or direction of the Fund and its
related programs. SFS may, in its sole discretion from time to time, advance
monies to the Fund and charge the Fund interest on such advances at two percent
(2%) above the prime rate then designated by the Wachovia Bank of Georgia, NA
(or if no such rate is then being so designated, at such rate as reasonably
determined by SFS as an equivalent rate) and may authorize repayment of such
advances from the Fund, all in accordance with such terms as SFS deems necessary
or appropriate. Franchise Owner agrees that the Fund may otherwise be used to
meet any and all costs incident to such Advertising. In addition, SFS shall have
the right to expend all, or any portion of, the Fund for co-op advertising or
promotional programs on a regional or local basis; provided, however, that such
programs shall be available to all similarly situated franchise owners as
determined by SFS in its reasonable discretion.
(b) SFS shall maintain contributions to the Fund in a separate bank
account from SFS's general operating account. SFS shall furnish Franchise Owner
with annual financial statements of the Fund, certified to be correct by an
officer of SFS. SFS may, in its sole discretion, elect to accumulate monies in
the Fund for such periods of time as it deems necessary or appropriate, with no
obligation to expend all monies received in any fiscal year during such fiscal
year. In the event SFS's expenditures for Advertising in any one fiscal year
shall exceed the total amount contributed to the Fund during such fiscal year,
SFS shall have the right to be reimbursed to the extent of such excess
contributions from any amounts subsequently contributed to the Fund or to use
such excess as a credit against its future contributions.
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(c) Franchise Owner agrees to expend an amount of at least Three
Thousand Dollars ($3,000) on promotion and advertising of the Franchised
Business in form, content and media approved by SFS, during the period beginning
thirty (30) days prior to and ending sixty (60) days following the Commencement
Date.
(d) SFS may offer to provide Franchise Owner, from time to time, with
local advertising and marketing materials, including without limitation
newspaper mats, radio commercial tapes, merchandising materials, sales aids,
special promotions and similar advertising at a reasonable price, plus handling.
(e) Franchise Owner, at its expense and exclusive of any fees paid to
the Fund, shall:
(i) Obtain listings of the Franchised Business in the white and
yellow pages of such local telephone directories and of the kind and size
specified from time to time by SFS for all comparable SUBURBAN LODGE System
units; and
(ii) Obtain and maintain any special promotional materials of the
kind and size as SFS may from time to time require for comparable SUBURBAN LODGE
System units, including but not limited to system directories of all Units in
the SUBURBAN LODGE System, which Franchise Owner shall display and maintain in
the guest lobby of Franchise Owner's Unit.
(f) Franchise Owner shall submit (through the mail, return receipt
requested) to SFS for its prior approval (except with respect to prices to be
charged), samples of all Advertising to be used by Franchise Owner that have not
been prepared or previously approved by SFS or its designated agents. Franchise
Owner shall include in all Advertising any "1-800" number required by SFS.
(g) Franchise Owner shall participate in all cooperative advertising
and/or marketing programs as are from time to time prescribed by SFS; provided,
however, that no such cooperative advertising and/or marketing programs shall
require Franchise Owner to adhere to any specific price(s), nor shall it require
any funds other than those required to be paid under Paragraph 5(b)(ii) hereof.
The terms and conditions required for participation in any such co-op
advertising program or programs shall be as specified in the Confidential
Operations Manual.
10. STATEMENTS, RECORDS AND FEE PAYMENTS
(a) Franchise Owner shall, in a manner satisfactory to SFS, maintain
original, full and complete register tapes or sales records, other records,
accounts, books, data, licenses and contracts which shall accurately reflect all
particulars relating to Franchise Owner's business and such statistical and
other information or records as SFS may require and shall keep all such
information for not less than three (3) years, even if this Agreement is no
longer in effect. In addition, upon the request of SFS, Franchise Owner shall
compile and provide to SFS any statistical or financial information regarding
the operation of the Franchised Business, as SFS may reasonably request for
purposes of evaluating or promoting the Franchised Business or the SUBURBAN
LODGE System in general. SFS and its designated agents shall have the right to
examine and audit such records, accounts, books and data at all reasonable times
to insure that Franchise Owner is complying with the terms of this Agreement. If
such inspection discloses that the Gross Volume of Business during any scheduled
reporting period actually exceeded the amount reported by Franchise Owner as its
Gross Volume of Business, by an amount equal to two percent (2%) or more of the
Gross Volume of Business originally reported to SFS, then Franchise Owner shall
bear the cost of such inspection and audit and shall immediately pay to SFS any
such deficiency with interest from the date due at the lesser of eighteen
percent (18%) per annum of such overdue amount or the highest rate permitted by
applicable law, immediately upon the request of SFS. SFS agrees to keep the
Franchise Owner's operating results confidential, except that SFS may disclose
such data in summary form with other SUBURBAN LODGE System units or as may be
required by law.
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(b) No later than the fifteenth (15th) day of each month SFS shall
receive from Franchise Owner, in the form prescribed by SFS, statements stating
the fees due to SFS during the preceding month itemized by revenue producing
activity as specified from time to time by SFS, the Gross Volume of Business at
the Premises for the prior month, and such other information as SFS may require,
all signed and certified as true and correct by an authorized agent of Franchise
Owner. Together with such statements, Franchise Owner shall pay to SFS all
amounts due hereunder with respect to the period of time covered by each such
statement.
(c) Upon SFS's request, Franchise Owner shall furnish SFS with a copy
of each of its reports and returns of sales, use and gross receipt taxes and
complete copies of any state or federal income tax returns covering the
operation of the Franchised Business, all of which Franchise Owner shall certify
as true and correct.
(d) If requested by SFS, Franchise Owner shall prepare and deliver to
SFS on a monthly basis, no later than the thirtieth (30th) day of each month, an
unaudited profit and loss statement in a form satisfactory to SFS acting in its
sole and subjective discretion covering Franchise Owner's business for the prior
month and such additional reports as SFS may require, all of which shall be
certified by Franchise Owner as true and correct. Franchise Owner shall also
submit to SFS by March 1 and September 1 of each year during the term of this
Agreement, an unaudited balance sheet reflecting the financial position of the
Franchised Business as of the preceding December 31 and June 30. In addition,
Franchise Owner, as well as any guarantor(s) of this Agreement, shall, within
sixty (60) days after request from SFS, deliver to SFS a financial statement,
certified as correct and current, in a form which is satisfactory to SFS and
which fairly represents the total assets and liabilities of Franchise Owner and
any such guarantor(s).
(e) In addition to the foregoing statements, within one hundred and
five (105) days after the close of each fiscal year of Franchise Owner,
Franchise Owner shall furnish to SFS, at Franchise Owner's expense, financial
statements which shall include a statement of income and retained earnings of
Franchise Owner for such fiscal year, a statement of cash flows and a balance
sheet of Franchise Owner as of the end of such fiscal year. Such annual
financial statements shall be audited if an independent audit is required by
Franchise Owner's lenders or otherwise performed; otherwise such financial
statements shall be accompanied by the written certification of Franchise
Owner's chief executive officer and chief financial officer, if any, that such
statements are true and correct.
11. COVENANTS
(a) During the Term of this Agreement, Franchise Owner, and each
guarantor hereof, covenants, individually:
(i) To use its best efforts in operating the Franchised Business
and in recommending, promoting and encouraging patronage of all SUBURBAN LODGE
System units;
(ii) Not to engage as an owner, operator, or in any managerial
capacity in any extended stay lodging business featuring efficiency guest rooms
rented primarily for periods in excess of one day, other than as a franchise
owner of a SUBURBAN LODGE System unit ("Competing Facility"), except that
Franchise Owner and each guarantor hereof shall be permitted to own and/or
operate any such Competing Facility outside of a three (3) mile radius of any
then existing SUBURBAN LODGE System unit (or where construction of such unit has
begun), so long as such Competing Facility's minimum guest room rates generally
available to customers is at least equal to or greater than 200% of the average
single occupancy guest check-in rate generally available for all SUBURBAN LODGE
System units (in the aggregate) at the time of Franchise Owner's or guarantor's
engagement as an owner or operator of, or in any managerial capacity for, such
Competing Facility (and shall be maintained above such level throughout the
first three (3) years of Franchise
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Owner's or guarantor's engagement); provided, however, that Franchise Owner and
each guarantor hereof shall not be prohibited hereby from owning equity
securities of any extended stay lodging business, whose shares are traded on a
stock exchange or on the over-the-counter market so long as the Franchise
Owner's or the guarantor's ownership interest shall represent two percent (2%)
or less of the total number of outstanding shares of such business;
(b) During the Term of this Agreement and thereafter, Franchise Owner
and each guarantor covenants not to communicate directly or indirectly, nor to
divulge to or use for its benefit or the benefit of any other person or legal
entity, any Trade Secrets or Confidential Information (as defined in Paragraph
8(b) hereof), except as expressly permitted by SFS. In the event of any
termination, expiration or nonrenewal of this Agreement, Franchise Owner agrees
that it shall never use SFS's Trade Secrets and shall not, for at least two
years from the date of such expiration or termination, use SFS's Confidential
Information in the design, development or operation of any extended stay lodging
business featuring efficiency guest rooms rented primarily for periods in excess
of one day. Franchise Owner agrees that if it engages as an owner, operator or
in any managerial capacity in any such business, it will assume the burden of
proving that it has not used SFS's Trade Secrets or Confidential Information.
The protection granted hereunder shall be in addition to and not in lieu of all
other protections for some or all of the Trade Secrets and Confidential
Information as may otherwise be afforded in law or in equity. In addition,
Franchise Owner agrees to execute employee nondisclosure and noncompetition
agreements in such form as SFS may specify in its Confidential Operating Manual,
with its managers, which shall prohibit competition by such persons during and
for a period of one (1) year after termination of their employment with
Franchise Owner in any extended stay lodging business at or within a three (3)
mile radius of any existing or under construction SUBURBAN LODGE unit and which
shall further prohibit disclosure by such parties to any other person or legal
entity of any Trade Secrets or Confidential Information. Such employee
nondisclosure agreements shall be subject to the prior written approval of SFS
and shall also be for the benefit of SFS. SFS shall be a third party beneficiary
of such agreements and Franchise Owner shall not amend, modify or terminate any
such agreement without SFS's prior written consent.
(c) The parties agree that each of the foregoing covenants shall be
construed as independent of any other covenant or provision of this Agreement.
Should any part of one or more of these restrictions be found to be
unenforceable by virtue of its scope in terms of area, business activity
prohibited or length of time, and should such part be capable of being made
enforceable by reduction of any or all thereof, Franchise Owner and SFS agree
that the same shall be enforced to the fullest extent permissible under the law.
In addition, SFS may, unilaterally, at any time, in its sole discretion, revise
any of the covenants in this Paragraph 11 so as to reduce the obligations of
Franchise Owner hereunder. The running of any period of time specified in this
Paragraph 11 shall be tolled and suspended for any period of time in which the
Franchise Owner is found by a court of competent jurisdiction to have been in
violation of any restrictive covenant. Franchise Owner further expressly agrees
that the existence of any claim it may have against SFS whether or not arising
from this Agreement, shall not constitute a defense to the enforcement by SFS of
the covenants in this Paragraph 11.
12. TRANSFER AND ASSIGNMENT
(a) This Agreement and all rights and duties hereunder may be freely
assigned or transferred by SFS in its sole discretion to any person or legal
entity which agrees to assume SFS's obligations hereunder, including a
competitor of SFS, and shall be binding upon and inure to the benefit of SFS's
successors and assigns including, without limitation, any entity which acquires
all or a portion of the capital stock of SFS or any entity resulting from or
participating in a merger, consolidation or reorganization in which SFS is
involved.
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(b) Franchise Owner understands and acknowledges that the rights and
duties created by this Agreement are personal to Franchise Owner, and that SFS
has granted this Franchise in reliance on many factors, including, without
limitation, (i) the individual or collective character, skill, aptitude and
business and financial capacity of Franchise Owner and any persons owning an
interest in Franchise Owner and (ii) that Franchise Owner is the entity directly
holding the fee simple, leasehold or other similar property rights interest in
the Premises and the Unit (subject only to those mortgage rights of any
financial institution(s) or other lender(s) of which Franchise Owner has given
SFS written notice prior to the execution of this Agreement). Accordingly, and
only subject to construction and/or permanent Unit financing and refinancing
with a financial institution (to which SFS's consent is not required), neither
Franchise Owner nor any person owning any direct or indirect equity interest
therein, shall, without SFS's prior written consent, directly or indirectly
sell, assign, transfer, convey, give away, pledge, mortgage or otherwise
encumber any interest in this Agreement or any portion or aspect thereof, the
Franchised Business, the Unit, the Premises, or any equity or voting interest in
Franchise Owner, nor permit the Franchised Business, Unit or Premises to be
operated, managed, directed, controlled or owned, directly or indirectly, by any
person other than Franchise Owner without the prior written approval of SFS. Any
such purported assignment occurring by operation of law or otherwise, including
any assignment by a trustee in bankruptcy, without SFS's prior written consent
shall be a material default of this Agreement. In addition, in the event
Franchise Owner is a corporation, the stock of such corporation shall not be
publicly sold or traded on any securities exchange or in the over-the-counter
market without the express prior written consent of SFS, which consent may be
given or denied in SFS's sole discretion.
Notwithstanding the foregoing, SFS's consent shall not be required for the
transfer of equity and voting interests in Franchise Owner: (i) among the
persons originally named in Paragraph 2 of Exhibit 1 of this Agreement or by
such persons to or for the benefit of their respective spouses and children,
provided that any such spouse or child legally can and does consent in writing
to be bound by the provisions of this Agreement and any Guaranty, to the same
extent as the person who is initially a party to such document, and such persons
continue to maintain voting control in Franchise Owner and decision making
authority in the operations of the Franchised Business, or (ii) among any other
persons owning an interest in Franchise Owner or by such persons to or for the
benefit of their respective spouses and children.
(c) SFS will not unreasonably withhold its consent to a transfer
under this Paragraph 12 if:
(i) The proposed transferee is a person or entity which meets
SFS's standards of qualification then applicable with respect to all new
applicants for similar SUBURBAN LODGE System franchise owners;
(ii) The proposed transfer is at a price and upon such terms and
conditions that do not endanger the economic viability of the transferee to
continue as a SUBURBAN LODGE System franchisee;
(iii) As of the date of the proposed transfer, all obligations of
Franchise Owner hereunder and under any other agreements between Franchise Owner
and SFS are fully satisfied;
(iv) As of the date of the proposed transfer, all obligations of
the proposed transferee to SFS under all other agreements, including franchise
agreements, are fully satisfied; and
(v) As of the date of the proposed transfer, SFS shall have
forwarded to Franchise Owner its approval, granted in its reasonable discretion,
of the proposed transfer to the proposed transferee, in accordance with the
provisions of this Paragraph 12.
(d) Franchise Owner shall submit to SFS prior to any proposed transfer
of any equity or voting interest in Franchise Owner, and at any other time upon
request, a list of all holders of direct or indirect equity and voting interests
in Franchise Owner reflecting their respective present and/or proposed direct or
indirect interests in Franchise Owner, in such form as SFS may require.
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(e) SFS may require, as a condition of its approval of any proposed
transfer, satisfaction of the additional requirements set forth in Paragraph
12(f) in the event Franchise Owner is a partnership or privately-held
corporation and the proposed transfer, alone or together with all other
previous, simultaneous and/or proposed transfers, would have the effect of
reducing directly or indirectly to less than fifty-one percent (51%) the
percentage of equity and voting interest (as reasonably determined by SFS) owned
in Franchise Owner by the initial equity and voting owners identified in
Paragraph 2 of Exhibit 1 attached hereto, or in the event Franchise Owner is a
natural person and the proposed transfer, alone or together with other
simultaneous or proposed transfers, would have the effect of reducing directly
or indirectly Franchise Owner's equity or voting interest, as reasonably
determined by SFS, in this Franchise to less than fifty-one percent (51%). In
computing the percentages of equity and voting interest owned in Franchise Owner
for purposes of this Paragraph 12(e), general partnership interests shall not be
distinguished from limited partnership interests.
(f) The requirements for all such transfers under Paragraph 12(e) are
as follows:
(i) Franchise Owner must cause the prospective transferee to be
provided with SFS's current form of disclosure document required by the Federal
Trade Commission's Trade Regulation Rule on Franchising and/or other applicable
state franchise registration/disclosure laws, and a receipt for such document
shall be delivered to SFS; provided, however, SFS shall not be liable for any
representations other than those contained in such disclosure document;
(ii) The proposed transferee must execute a new franchise
agreement, namely, SFS's then-current form of franchise agreement, which may
contain terms and conditions substantially different from those in this
Agreement, for an initial term equal to the time remaining in the term of this
Agreement as of the date of such transfer;
(iii) There shall have been paid to SFS, together with the
application for consent to the transfer, the transfer fee then required by SFS
of similar SUBURBAN LODGE System franchise owners; provided, however, that in no
event shall such transfer fee exceed twenty-five percent (25%) of the
then-current initial franchise fee being offered by SFS to prospective franchise
owners;
(iv) The transferor and its guarantors and the transferee and its
guarantors shall have executed a general release under seal where required, in a
form satisfactory to SFS, of any and all claims based on acts or omissions
occurring on or before the date of such transfer against SFS, its parent,
subsidiaries, affiliates and their officers, directors, attorneys, shareholders,
and employees, in their corporate and individual capacities, including, without
limitation, claims arising under federal, state, and local laws, rules, and
ordinances arising out of, or connected with, the performance of this Agreement
or any other agreement;
(v) The transferee shall demonstrate to SFS's reasonable
satisfaction that it meets all of SFS's requirements for becoming a franchise
owner, including, without limitation, that it meets SFS's managerial and
business standards then in effect for similarly situated franchise owners;
possesses a good moral character, business reputation, and satisfactory credit
rating; is not a competitor of SFS; will comply with all instruction and
training requirements of SFS and has the aptitude and ability to operate the
Franchised Business (as may be evidenced by prior related business experience or
otherwise); and
(vi) The transferee and/or its designated managerial personnel
(as applicable) shall have completed, to SFS's satisfaction, the training then
required by SFS.
(g) Upon the death or mental or physical incompetency (as reasonably
determined by an independent third party such as a licensed doctor) of any
person with any direct or indirect interest in Franchise Owner and who has
managerial responsibility for the operation of the Franchised Business, the
executor, administrator, or personal representative of such person shall
transfer his interest to a third party approved by SFS within six months after
the death or finding of incompetency. Such transfers shall be subject
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to the same conditions as any inter vivos transfer. If the heirs or
beneficiaries of any such person are unable to meet the conditions in Paragraph
12(f) hereof, SFS may terminate this Agreement without penalty to Franchise
Owner.
(h) Except as provided in Paragraph 12(b) above, if Franchise Owner or
any person or entity holding any direct or indirect interest in Franchise Owner,
this Agreement or the Premises desires to sell or transfer for value, either an
interest in Franchise Owner, this Agreement or the Premises, Franchise Owner
shall first notify SFS in writing of such intention and offer to sell or
transfer such interest to SFS upon the terms and conditions set forth in such
notice, net of any real estate and/or business brokerage commissions, at SFS's
option. If SFS and Franchise Owner cannot agree within thirty (30) days of such
notice on the terms and conditions of such sale or transfer, or if SFS notifies
Franchise Owner that it does not want to acquire such interest, Franchise Owner
may sell or transfer such interest to a bona fide third party; provided that
such sale or transfer is made within 180 days after the expiration of any offer
to SFS, that such sale or transfer is made at a net price and on terms no more
favorable than those offered in writing to SFS, and that all applicable
requirements of Paragraph 12 hereof are met, and in connection with such sale or
transfer, that the Premises shall continue to be operated pursuant to the
SUBURBAN LODGE System. Failure of SFS to exercise the option afforded by this
Paragraph 12(h) shall not constitute a waiver of any other provision of this
Agreement, including all requirements of this Paragraph 12 with respect to a
proposed transfer. In the event the consideration, terms and/or conditions
offered by a third party are such that SFS may not reasonably be required to
furnish the same consideration, terms and/or conditions, then SFS may purchase
the interest proposed to be sold for the reasonable equivalent in cash. If the
parties cannot agree within a reasonable time on the reasonable equivalent in
cash of the consideration, terms, and/or conditions offered by the third party,
an independent appraiser shall be designated by SFS, and its determination shall
be binding.
(i) Notwithstanding the foregoing, it is understood that Franchise
Owner (if an individual) may assign this Agreement, the Franchised Business, and
Franchise Owner's rights and obligations hereunder on one occasion to a
corporation organized by Franchise Owner for that purpose only provided that at
least fifty-one percent (51%) of all the issued and outstanding shares of voting
stock and equity interest shall be owned and voted continuously by Franchise
Owner, and further provided that SFS shall approve all other shareholders of
such corporation holding equity or voting interests, which consent shall not be
unreasonably withheld. SFS shall be given written notice of such assignments and
delegation, and thereupon such corporation shall have all of such rights and
obligations, and the term "Franchise Owner" as used herein shall refer to such
corporation; provided, however, that such assignment shall in no way affect the
obligations hereunder of the individual above designated "Franchise Owner," who
shall remain fully bound by and responsible for the performance of all of such
obligations, jointly and severally with such corporation. Such corporation shall
at no time engage in any business or activities other than the exercise of the
rights herein granted to the Franchise Owner and the performance of its
obligations as Franchise Owner hereunder.
(j) SFS's consent to a transfer of any interest in the Franchise Owner
granted herein shall not constitute a waiver of any claims it may have against
the transferring party, nor shall it be deemed a waiver of SFS's right to demand
exact compliance with any of the terms of this Agreement by the transferee.
13. DEFAULT AND TERMINATION
(a) SFS may not terminate this Agreement prior to its expiration
except for "good cause," which shall mean the occurrence of any event
of default described below. Upon the occurrence of any event of default, SFS
may, at its option, and without waiving its rights hereunder or any other
rights available at law or in equity, including its rights to damages,
terminate this Agreement and all of Franchise Owner's rights hereunder
effective: immediately upon the date SFS gives written notice of termination,
upon such other date as may be set forth in such notice of termination, or in
those instances enumerated below in subparagraph (i), automatically upon the
occurrence of, or the lapse of the specified period following, an event of
default.
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The occurrence of any one or more of the following events shall constitute an
event of default and grounds for termination of this Agreement by SFS:
(i) Automatically, without notice or action required by SFS, if
Franchise Owner becomes insolvent or makes a general assignment for the benefit
of creditors, or, unless otherwise prohibited by law, if a petition in
bankruptcy is filed by Franchise Owner, or such a petition is filed against and
consented to by Franchise Owner or not dismissed within thirty (30) days, or if
a bill in equity or other proceeding for the appointment of a receiver of
Franchise Owner or other custodian for Franchise Owner's business or assets is
filed and consented to by Franchise Owner, or if a receiver or other custodian
(permanent or temporary) of Franchise Owner's assets or property, or any part
thereof, is appointed;
(ii) If Franchise Owner fails to pay any financial obligation
pursuant to this Agreement within ten (10) days of the date on which SFS gives
notice of such delinquency or immediately upon written notice if Franchise Owner
is determined to have underreported its Gross Volume of Business during any
month by two percent (2%) or more of the actual Gross Volume of Business during
such month on two or more occasions during the term of this Agreement, whether
or not Franchise Owner subsequently rectifies such deficiency;
(iii) If Franchise Owner fails to commence construction of the
Unit or to complete construction of the Unit and open the Franchised Business to
the public within the respective time periods specified in Paragraph 7(c) hereof
or, within such time periods, fails to at all times make a good faith reasonable
effort to develop and construct the Unit;
(iv) If Franchise Owner makes, or has made, any materially false
statement or report to SFS in connection with this Agreement or application
therefore;
(v) If there is any violation of any transfer and assignment
provision contained in Paragraph 12 of this Agreement;
(vi) If Franchise Owner receives from SFS three (3) or more
notices to cure the same or similar defaults or violations of this Agreement
during any twelve (12) month period, whether or not such defaults are cured;
(vii) If Franchise Owner fails, for a period of fifteen (15) days
after notification of noncompliance by appropriate authority to comply with any
law or regulation applicable to the operation of the Franchised Business, except
Franchise Owner shall have the right to appeal the interpretation of any such
law or regulation, during which time no default shall occur;
(viii) If Franchise Owner violates through gross negligence or
intentionally any covenant of confidentiality or nondisclosure contained in
Paragraph 8 of this Agreement or otherwise discloses, uses, permits the use of,
copies, duplicates, records, transmits or otherwise reproduces any manuals,
materials, goods or information created or used by SFS and designated for
confidential use within the SUBURBAN LODGE System without SFS's prior approval;
(ix) If Franchise Owner or any person controlling, controlled by
or under common control with Franchise Owner, or any principal officer or the
designated manager of Franchise Owner or any such person, owning an interest in
the Franchised Business is convicted of a felony, or any other crime or offense
that is reasonably likely, in the sole opinion of SFS, to affect adversely the
SUBURBAN LODGE System, any SUBURBAN LODGE System unit, the Licensed Marks or the
goodwill associated therewith;
(x) If Franchise Owner fails to perform or breaches any
covenant, obligation, term, condition, warranty or certification herein or fails
to operate the Franchised Business as specified by SFS in the Confidential
Operating Manual and fails to cure such noncompliance or deficiency within
thirty (30) days
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after SFS's written notice thereof; provided, however, in the event such failure
or breach cannot reasonably be expected to be cured within thirty (30) days,
then for such additional time as may be reasonably required to cure such failure
or breach, provided Franchise Owner commences such cure during the initial
thirty (30) day period and thereafter promptly and diligently prosecutes same to
completion, but not to exceed an additional thirty (30) days;
(xi) If Franchise Owner abandons or ceases to operate all or any
part of the Franchised Business conducted under this Agreement for twenty-four
(24) hours or longer (except as otherwise provided herein) or defaults under any
mortgage, deed of trust or lease with SFS or any third party covering the
Franchised Business or the Premises, and SFS or such third party treats such act
or omission as a default, and Franchise Owner fails to cure such default to the
satisfaction of SFS or such third party within any applicable cure period
granted Franchise Owner by SFS or such third party; or
(xii) If Franchise Owner or any guarantor(s) hereof default in any
other agreement with SFS, and such default is not cured in accordance with the
terms of such other agreement.
(b) Franchise Owner may not terminate this Agreement prior to the
expiration of its term except as a result of SFS's material breach of this
Agreement or otherwise with SFS's consent. In the event that Franchise Owner
shall claim that SFS has failed to meet any obligation under this Agreement,
Franchise Owner shall provide SFS with written notice of such claim, within six
(6) months of its occurrence, specifically enumerating all alleged deficiencies
and providing SFS with an opportunity to cure, which shall in no event be less
than thirty (30) days from the date of receipt of such notice by SFS from
Franchise Owner. Failure to give such notice shall constitute a waiver of any
such alleged default.
(c) If after opening the Franchised Business to the public the Unit
suffers destruction or significant damage by act of God or other event beyond
SFS and Franchise Owner's reasonable anticipation and Franchise Owner's control
such that the Unit ceases to be operated in the normal course of business as an
extended stay lodging facility, Franchise Owner shall promptly notify SFS in
writing of the casualty event, giving information as to the availability of
guest rooms. Franchise Owner shall advise SFS in writing within 60 days after
the casualty event whether it will restore, rebuild and refurbish the Unit to
comply with the approved building plans, which must be completed within 240 days
after the casualty event, or it elects to terminate the Agreement, effective as
of the date of notice. Franchise Owner's failure to make such an election within
the time permitted shall be deemed an election to terminate the Agreement. Any
termination under this paragraph shall require no payment of damages as set
forth in Paragraph 14(f)(i)(B) hereof, provided Franchise Owner pays all amounts
owed to SFS accruing prior to the effective date of termination within 10 days
after the termination notice is given or deemed to occur, and Franchise Owner
follows the post termination requirements set forth in Paragraph 14. Once
undertaken, Franchise Owner's failure to complete the restoration of the Unit on
time or to pursue the same diligently shall permit SFS to terminate the
Agreement. If the Unit is condemned, or such a substantial portion of the Unit
shall be condemned such that continued operation in accordance with SFS's
quality standards, or with adequate parking facilities, is commercially
impractical, or the Unit or a substantial portion is sold to the condemning
authority in lieu of condemnation, then the Agreement will be deemed terminated
on the later of the date the Unit or substantial portion is conveyed to or taken
over by the condemning authority or the date the Unit ceases to operate as an
extended stay lodging facility. No damages will be owed under Paragraph
14(f)(i)(B) by Franchise Owner in the event of such condemnation or sale if
Franchise Owner notifies SFS about the condemnation within 10 days after it
receives formal notice from the condemning authority and then pays SFS all
amounts due under this Agreement or otherwise within 30 days after the deemed
termination date.
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14. POST TERM OBLIGATIONS
Upon the expiration or termination of this Agreement, Franchise Owner
shall immediately:
(a) Cease to be a franchise owner of SFS under this Agreement and cease
to operate the former franchised business under the SUBURBAN LODGE System.
Franchise Owner shall not thereafter, directly or indirectly, represent to the
public that the former franchised business is or was operated or in any way
connected with the SUBURBAN LODGE System or hold itself out as a present or
former franchise owner of SFS at or with respect to the Premises;
(b) Pay all sums owing to SFS.
(c) Return to SFS the Confidential Operating Manual, Confidential
Development Manual, the SFS prototype architectural plans and specifications and
any other manuals, materials, goods and information created or used by SFS and
designated for confidential use within the SUBURBAN LODGE System and all Trade
Secrets and Confidential Information, as well as materials, equipment and other
property owned by SFS, including but not limited to, all computer software
provided to Franchise Owner by SFS, and all copies thereof. Franchise Owner
shall retain no copy or record of any of the foregoing; provided Franchise Owner
may retain its copy of this Agreement, any correspondence between the parties,
and any other document which Franchise Owner reasonably needs for compliance
with any applicable provision of law;
(d) Take such action as may be required by SFS at its sole option and
allowed by the appropriate vendors, to disconnect or forward to SFS's corporate
office all telephone listings of the former Franchised Business that refer to
the former Franchised Business as being operated or as being formerly operated
as a "Suburban Lodge", or transfer and assign to SFS or its designee, all
telephone numbers, white and yellow page telephone references and
advertisements, and all trade and similar name registrations and business
licenses that refer to the former Franchised Business as being operated or as
being formerly operated as a "Suburban Lodge", and to cancel any interest which
Franchise Owner may have in the same; and
(e) Cease to use in advertising, or in any manner whatsoever, any
methods, procedures or techniques associated with the SUBURBAN LODGE System in
which SFS has a proprietary right, title or interest; cease to use the Licensed
Marks and any other marks and indicia of operation associated with the SUBURBAN
LODGE System and within sixty (60) days, remove all trade dress, physical
characteristics, color combinations and other indications of operation under the
SUBURBAN LODGE System from the Premises, including removing the lattice of SFS's
trademarked arch and repainting the doors of the Premises in a color other than
blue. Without limiting the generality of the foregoing, Franchise Owner agrees
that in the event of any termination or expiration of this Agreement, SFS or a
designated agent may enter upon the Premises at any time to make such changes at
Franchise Owner's sole risk and expense and without liability for trespass and
further that SFS may remove all signage bearing the Licensed Marks. SFS shall
have the right, but not the obligation, to purchase some or all of the Unit's
fixtures, furnishings, equipment and supplies bearing the Licensed Mark(s) at
the lower of their cost or net book value, with the right to set off the
aggregate purchase price thereof against any sums then owed to SFS by Franchise
Owner.
(f) Anything in this Paragraph 14 to the contrary notwithstanding, upon
termination of this Agreement as a result of breach by Franchise Owner,
Franchise Owner shall immediately both:
(i) In addition to paying to SFS any sums otherwise due pursuant
to this Agreement, pay to SFS:
(A) reasonable attorney's fees, and costs and
expenses, incurred by SFS as a result of the default by Franchise Owner; plus
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(B) damages for lost future continuing fees in an
amount equal to "X" times "Y" where:
"X" equals the number of years (or portion thereof) left in
the term of this Agreement, and
"Y" equals seventy-five percent (75%) of Franchise Owner's
last twelve (12) months' continuing fees due and payable
pursuant to Paragraph 5(b)(i) hereof; provided, however, that
if the termination becomes effective prior to the first
fifteen (15) months of Franchise Owner's operation of its
Unit, then "Y" equals seventy-five percent (75%) of the
average continuing fees paid by all franchised Units in the
Suburban Lodge System during the previous twelve (12) months
(with such average adjusted up or down to reflect the number
of guestrooms in Franchise Owner's Unit compared to the
average number of guestrooms in all franchised Units and
without accounting for Franchise Owner or any other Franchise
Owner otherwise being relieved pursuant to Paragraph 5(b)(i)
from paying continuing fees during the first ninety (90) days
of operation of the respective Unit).
The parties acknowledge that the injury caused to SFS by
Franchise Owner's default with respect to the continuing fees, will be
impossible of accurate determination, that this provision is intended to provide
for compensation for SFS's lost continuing fees and not as a penalty, and that
the stipulated method of computation constitutes a reasonable pre-estimate of
SFS's probable damages from lost continuing fees resulting from Franchise
Owner's default.
(ii) Grant SFS or its designee the option, to acquire, through
asset or stock purchase, merger or other form SFS designates, Franchise Owner
and/or the Franchised Business and/or the Premises and/or Franchise Owner's
interest therein (including the Unit thereon) for a price equal to the fair
market value thereof. If SFS and Franchise Owner are unable to agree on such
fair market value price, such value shall be determined by an independent
appraiser experienced in appraising property of the type being acquired,
designated by SFS, whose determination shall be final and binding. SFS shall be
entitled to offset against the purchase price all sums owed SFS by Franchise
Owner or any guarantor of Franchise Owner. The net purchase price shall be
payable in cash at closing; or, at SFS' option, all or any part of the portion
of the purchase price which exceeds the amount of outstanding secured mortgage
debt with a financial institution on the Premises may be paid in unregistered
shares of Suburban Lodges of America, Inc.'s common stock using the average
closing price per share for the 15 trading days preceding closing as the per
share price of such stock. The closing shall be held on a day designated by SFS
which is not more than 30 days after the determination of fair market value of
the acquired property.
15. INSURANCE
(a) Franchise Owner shall, at its expense and no later than the
Commencement Date, procure and maintain in full force and effect throughout the
term of this Agreement the types of insurance enumerated in the Confidential
Operating Manual or otherwise in writing which shall be in such amounts as may
from time to time be required by SFS and which shall designate SFS and its
affiliates as additional named insureds, including the following:
(i) "all risk" property coverage for the Unit with limits no
less than 80% of replacement cost, with an endorsement if the Unit is in a flood
plain, for floods;
(ii) comprehensive broad form public and premises general
liability insurance, with endorsements covering at least contractual liability,
innkeeper's liability, safe deposit liability (if applicable), and personal
injury liability (with employee exclusion deleted);
(iii) workers' compensation and employer's liability;
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(iv) automobile liability coverage on owned, non-owned and hired
vehicles used for Unit business; and
(v) umbrella liability coverage.
(b) Franchise Owner shall make timely delivery of certificates of all
required insurance to SFS, each of which shall contain a statement by the
insurer that the policy will not be canceled or materially altered without at
least thirty (30) days' prior written notice to SFS.
(c) The procurement and maintenance of such insurance shall not relieve
Franchise Owner of any liability to SFS under any indemnity requirement of this
Agreement.
16. TAXES, PERMITS AND INDEBTEDNESS
(a) Franchise Owner shall promptly pay when due any and all federal,
state and local taxes including without limitation unemployment and sales taxes,
levied or assessed with respect to any services or products furnished, used or
licensed pursuant to this Agreement and all accounts or other indebtedness of
every kind incurred by Franchise Owner in the operation of the Franchised
Business.
(b) Franchise Owner shall comply with all federal, state and local
laws, rules and regulations and timely obtain any and all permits, certificates
and licenses for the full and proper conduct of the Franchised Business.
(c) Franchise Owner hereby expressly covenants and agrees to accept
full and sole responsibility for any and all debts and obligations incurred in
the operation of the Franchised Business.
17. INDEMNIFICATION AND INDEPENDENT CONTRACTOR
(a) Franchise Owner agrees to protect, defend, indemnify, and hold SFS,
and its respective directors, officers, agents, attorneys and shareholders,
jointly and severally, harmless from and against all claims, actions,
proceedings, damages, costs, expenses and other losses and liabilities,
consequently, directly or indirectly incurred (including without limitation
attorneys' and accountants' fees) as a result of, arising out of, or connected
with the operation of the Franchised Business; provided, however, no indemnity
shall be given with respect to claims specifically arising from Franchise
Owner's compliance with procedures required by SFS.
(b) In all dealings with third parties including, without limitation,
employees, suppliers and customers, Franchise Owner shall disclose in an
appropriate manner acceptable to SFS that it is an independent entity licensed
by SFS. Nothing in this Agreement is intended by the parties hereto to create a
fiduciary relationship between them nor to constitute Franchise Owner an agent,
legal representative, subsidiary, joint venturer, partner, employee or servant
of SFS for any purpose whatsoever. It is understood and agreed that Franchise
Owner is an independent contractor and is in no way authorized to make any
contract, warranty or representation or to create any obligation on behalf of
SFS.
18. WRITTEN APPROVALS, WAIVERS, FORMS OF AGREEMENT AND
AMENDMENT
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(a) Whenever this Agreement requires SFS's prior approval, Franchise
Owner shall make a timely written request. Unless a different time period is
specified in this Agreement, SFS shall respond with its approval or disapproval
within fifteen (15) days of receipt of such request. If SFS has not specifically
approved a request within such fifteen (15) day period, such failure to respond
shall be deemed a disapproval of any such request.
(b) No failure of SFS to exercise any power reserved to it by this
Agreement and no custom or practice of the parties at variance with the terms
hereof shall constitute a waiver of SFS's right to demand exact compliance with
any of the terms herein. No waiver or approval by SFS of any particular breach
or default by Franchise Owner, nor any delay, forbearance or omission by SFS to
act or give notice of default or to exercise any power or right arising by
reason of such default hereunder, nor acceptance by SFS of any payments due
hereunder shall be considered a waiver or approval by SFS of any preceding or
subsequent breach or default by Franchise Owner of any term, covenant or
condition of this Agreement.
(c) No warranty or representation is made by SFS that all SUBURBAN
LODGE System franchise agreements heretofore or hereafter issued by SFS do or
will contain terms substantially similar to those contained in this Agreement.
Further, Franchise Owner recognizes and agrees that SFS may, in its reasonable
business judgment, due to local business conditions or otherwise, waive or
modify comparable provisions of other franchise agreements heretofore or
hereafter granted to other SUBURBAN LODGE System franchise owners in a
non-uniform manner, subject, however, to those provisions of this Agreement
which require SFS to act toward its Franchise Owners on a reasonably
nondiscriminatory basis.
(d) Except as otherwise provided in Paragraph 11(c) or 22(a) hereof, no
amendment, change or variance from this Agreement shall be binding upon either
SFS or Franchise Owner except by mutual written agreement. If an amendment of
this Agreement is executed at Franchise Owner's request, any legal fees or costs
of preparation in connection therewith shall, at the option of SFS, be paid by
Franchise Owner.
19. ENFORCEMENT
(a) In order to ensure compliance with this Agreement and to enable SFS
to carry out its obligations under this Agreement, Franchise Owner agrees that
SFS and its designated agents shall be permitted, with or without notice, full
and complete access during business hours to inspect the Premises and all
records thereof including, but not limited to, records relating to Franchise
Owner's customers, suppliers, employees and agents. Franchise Owner shall
cooperate fully with SFS and its designated agents requesting such access.
(b) SFS or its designee shall be entitled to obtain declarations,
temporary and permanent injunctions, and orders of specific performance, all
without bond, in order to enforce the provisions of this Agreement relating to:
(i) Franchise Owner's use of the Licensed Marks,
(ii) the obligations of Franchise Owner upon termination
or expiration of this Agreement, and
(iii) assignment of the Franchise and ownership interests
in Franchise Owner;
or to prohibit any act or omission by Franchise Owner or its employees which
constitutes a violation of any applicable law or regulation, which is dishonest
or misleading to prospective or current customers of businesses operated under
the SUBURBAN LODGE System, which constitutes a danger to other franchise
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owners, employees, customers or the public, or which may impair the goodwill
associated with the Licensed Marks.
(c) If SFS secures any declaration, injunction or order of specific
performance pursuant to Paragraph 19(b) hereof, or if any provision of this
Agreement is enforced at any time by SFS or if any amounts due from Franchise
Owner to SFS are, at any time, collected by or through an attorney at law or
collection agency, Franchise Owner shall be liable to SFS for all costs and
expenses of enforcement and collection including, but not limited to, court
costs and reasonable attorneys' fees.
20. NOTICES
Any notice required to be given hereunder shall be in writing and shall
be either mailed by certified mail, return receipt requested or delivered by a
recognized courier service, receipt acknowledged. Notices to Franchise Owner
shall be addressed to it at the address listed in Paragraph 1 of this Agreement.
Notices to SFS shall be addressed to it at the address listed in Paragraph 1 of
this Agreement, Attention: President. Any notice complying with the provisions
hereof shall be deemed to be given three (3) days after mailing, or on the date
of receipt, whichever is earlier. Each party shall have the right to designate
any other address for such notices by giving notice thereof in the foregoing
manner, and in such event all notices to be mailed after receipt of such notice
shall be sent to such other address.
21. GOVERNING LAW AND DISPUTE RESOLUTION
(a) This Agreement is accepted by SFS in the State of Georgia and shall
be governed by and construed in accordance with the laws thereof, which laws
shall prevail in the event of any conflict; provided, however, that the service
charge provisions in Paragraph 5(d) may be governed by the laws of the state
where the Franchised Business is operated, and the restrictive covenants
contained in Paragraph 11 hereof shall be construed in accordance with the laws
of the State(s) where such restriction(s) is(are) to apply, and the laws of such
State(s) shall determine the enforceability of such covenants to be performed in
such State(s).
(b) The parties hereto agree that it is in their best interest to
resolve disputes between them in an orderly fashion and in a consistent manner.
Therefore, the parties hereby agree as follows:
(i) Franchise Owner consents and agrees that the following
courts shall have personal jurisdiction over it in all lawsuits relating to or
arising out of this Agreement and hereby waives any defense Franchise Owner may
have of lack of personal jurisdiction in any such lawsuits filed in these
courts: (x) all courts included within the state court system of the State of
Georgia; and (y) all courts of the United States of America sitting within the
State of Georgia including, but not limited to, all the United States District
Courts sitting within the State of Georgia.
(ii) Franchise Owner consents and agrees that venue shall be
proper in any of the following courts in all lawsuits relating to or arising out
of this Agreement and hereby waives any defense it may have of improper venue in
any such lawsuits filed in these courts: (x) the state court of the county where
SFS has its principal place of business (presently, Cobb County); and (y) the
United States District Court for the Northern District of Georgia, Atlanta
Division. In the event any of these courts are abolished, Franchise Owner agrees
that venue shall be proper in the state or federal court in Georgia which most
closely approximates the subject-matter jurisdiction of the abolished court as
well as any of these courts which are not so abolished. All lawsuits filed by
Franchise Owner against SFS relating to or arising out of this Agreement shall
be required to be filed in one of these courts; provided, however, that if none
of these courts has subject-matter jurisdiction over such a lawsuit such lawsuit
may be filed in any court having such subject-matter jurisdiction if in-personam
jurisdiction and venue in such court are otherwise proper. Lawsuits
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filed by SFS against Franchise Owner may be filed in any of the courts named in
this subparagraph or in any court in which jurisdiction and venue are proper.
(iii) In all lawsuits relating to or arising out of this
Agreement, Franchise Owner consents and agrees that it may be served with
process outside the State of Georgia in the same manner as service may be made
within the State of Georgia by any person authorized to make service by the laws
of the state, territory, possession or country in which service is made or by
any duly qualified attorney in such jurisdiction, and Franchise Owner hereby
waives any defense it may have of insufficiency of service of process relating
to such service. This method of service shall not be the exclusive method of
service available in such lawsuits and shall be available in addition to any
other method of service allowed by law.
22. SEVERABILITY AND CONSTRUCTION
(a) Should any provision of this Agreement be for any reason held
invalid, illegal or unenforceable by a court of competent jurisdiction, such
provision shall be deemed restricted in application to the extent required to
render it valid; and the remainder of this Agreement shall in no way be affected
and shall remain valid and enforceable for all purposes, both parties hereto
declaring that they would have executed this Agreement without inclusion of such
provision. In the event such total or partial invalidity or unenforceability of
any provision of this Agreement exists only with respect to the laws of a
particular jurisdiction, this paragraph shall operate upon such provision only
to the extent that the laws of such jurisdiction are applicable to such
provision. Each party agrees to execute and deliver to the other any further
documents which may be reasonably required to effectuate fully the provisions
hereof. Franchise Owner understands and acknowledges that SFS shall have the
right, in its sole discretion, on a temporary or permanent basis, to reduce the
scope of any covenant or provision of this Agreement that is binding upon
Franchise Owner, or any portion hereof, without Franchise Owner's consent,
effective immediately upon receipt by Franchise Owner of written notice thereof;
and Franchise Owner agrees that it will comply forthwith with any covenant as so
modified, which shall be fully enforceable.
(b) This Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original, but such
counterparts together shall constitute one and the same instrument.
(c) The table of contents, headings and captions contained herein are
for the purposes of convenience and reference only and are not to be construed
as a part of this Agreement. All terms and words used herein shall be construed
to include the number and gender as the context of this Agreement may require.
The parties agree that each section of this Agreement shall be construed
independently of any other section or provision of this Agreement.
23. GENERAL PROVISIONS
(a) Time is of the essence of this Agreement.
(b) The covenants and agreements made by the Franchise Owner hereunder
shall survive the expiration or termination of this Agreement.
(c) This Agreement constitutes the entire agreement between SFS and
Franchise Owner which supersedes all prior negotiations, commitments,
representations, and undertakings of the parties with respect to the subject
matter hereof. No change, modification, amendment, termination or attempted
waiver of any provisions of this Agreement shall be binding upon the parties
hereto unless in writing and signed by SFS and Franchise Owner.
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\
24. ACKNOWLEDGMENTS
Franchise Owner hereby acknowledges the following:
(a) FRANCHISE OWNER HAS CONDUCTED AN INDEPENDENT INVESTIGATION OF THE
BUSINESS CONTEMPLATED BY THIS AGREEMENT AND UNDERSTANDS AND ACKNOWLEDGES THAT
THE BUSINESS CONTEMPLATED BY THIS AGREEMENT INVOLVES BUSINESS RISKS MAKING THE
SUCCESS OF THE VENTURE LARGELY DEPENDENT UPON THE BUSINESS ABILITIES AND
PARTICIPATION OF FRANCHISE OWNER AND ITS EFFORTS AS AN INDEPENDENT BUSINESS
OPERATOR. FRANCHISE OWNER AGREES THAT NO CLAIMS OF SUCCESS OR FAILURE HAVE BEEN
MADE TO IT PRIOR TO SIGNING THIS AGREEMENT; AND THAT IT UNDERTAKES ALL THE TERMS
AND CONDITIONS OF THIS AGREEMENT. SFS EXPRESSLY DISCLAIMS THE MAKING OF, AND
FRANCHISE OWNER ACKNOWLEDGES THAT IT HAS NOT RECEIVED OR RELIED UPON, ANY
WARRANTY OR GUARANTEE, EXPRESS OR IMPLIED, AS TO THE POTENTIAL VOLUME, PROFITS
OR SUCCESS OF THE BUSINESS VENTURE CONTEMPLATED BY THIS AGREEMENT, OR AS TO THE
SUITABILITY OF THE SITE FOR THE UNIT AS A SUCCESSFUL LOCATION FOR THE UNIT.
(b) FRANCHISE OWNER REPRESENTS THAT IT HAS (OR WILL EMPLOY MANAGERS OR
A MANAGEMENT COMPANY APPROVED UNDER PARAGRAPH 7(b) WHO HAVE) THE NECESSARY
MANAGEMENT EXPERTISE AND EXPERIENCE TO ACQUIRE, DESIGN, CONSTRUCT, DEVELOP,
EQUIP, OPERATE, MARKET, MAINTAIN AND MANAGE THE UNIT.
(c) FRANCHISE OWNER HAS NO KNOWLEDGE OF ANY REPRESENTATIONS BY SFS OR
ITS OFFICERS, DIRECTORS, SHAREHOLDERS, EMPLOYEES, AGENTS OR SERVANTS, ABOUT THE
BUSINESS CONTEMPLATED BY THIS AGREEMENT THAT ARE CONTRARY TO THE TERMS OF THIS
AGREEMENT OR THE DOCUMENTS INCORPORATED HEREIN. FRANCHISE OWNER REPRESENTS, AS
AN INDUCEMENT TO SFS'S ENTRY INTO THIS AGREEMENT, THAT IT HAS MADE NO
MISREPRESENTATIONS IN OBTAINING THIS AGREEMENT.
(d) FRANCHISE OWNER ACKNOWLEDGES THAT SFS'S APPROVAL OF FRANCHISE
OWNER'S PREMISES DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE
LOCATION OF THE UNIT, NOR ANY ASSURANCE BY SFS THAT THE OPERATION OF A UNIT AT
THE PREMISES WILL BE SUCCESSFUL OR PROFITABLE.
(e) FRANCHISE OWNER ACKNOWLEDGES THAT ITS ENTIRE KNOWLEDGE OF SFS'S
COMPUTER SOFTWARE IS DERIVED FROM INFORMATION DISCLOSED TO THE FRANCHISE OWNER
BY SFS, AND THAT SUCH INFORMATION IS PROPRIETARY AND CONFIDENTIAL AND A TRADE
SECRET OF SFS.
(f) FRANCHISE OWNER ACKNOWLEDGES THAT SFS OR ITS AGENT HAS PROVIDED
FRANCHISE OWNER WITH A FRANCHISE OFFERING CIRCULAR NOT LATER THAN THE EARLIER OF
THE FIRST PERSONAL MEETING HELD TO DISCUSS THE SALE OF A FRANCHISE, TEN (10)
BUSINESS DAYS BEFORE THE EXECUTION OF THIS AGREEMENT, OR TEN (10) BUSINESS DAYS
BEFORE ANY PAYMENT OF ANY CONSIDERATION. FRANCHISE OWNER FURTHER ACKNOWLEDGES
THAT FRANCHISE OWNER HAS READ SUCH FRANCHISE OFFERING CIRCULAR AND UNDERSTANDS
ITS CONTENTS.
(g) FRANCHISE OWNER ACKNOWLEDGES THAT SFS HAS PROVIDED FRANCHISE OWNER
WITH A COPY OF THIS AGREEMENT AND ALL RELATED DOCUMENTS, FULLY COMPLETED, AT
LEAST FIVE (5) BUSINESS DAYS PRIOR TO FRANCHISE OWNER'S EXECUTION HEREOF.
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(h) FRANCHISE OWNER ACKNOWLEDGES THAT IT HAS HAD AMPLE OPPORTUNITY TO
CONSULT WITH ITS OWN ATTORNEYS, ACCOUNTANTS AND OTHER ADVISORS AND THAT THE
ATTORNEYS FOR SFS HAVE NOT ADVISED OR REPRESENTED FRANCHISE OWNER WITH RESPECT
TO THIS AGREEMENT OR THE RELATIONSHIP THEREBY CREATED.
(i) FRANCHISE OWNER ACKNOWLEDGES THAT THE REASONS FOR TERMINATION
UNDER PARAGRAPH 13 CONSTITUTE GOOD CAUSE, AND THAT THE NOTICE PROVISIONS
RELATING THERETO CONSTITUTE REASONABLE NOTICE.
(j) FRANCHISE OWNER, TOGETHER WITH ITS ADVISERS, HAS SUFFICIENT
KNOWLEDGE AND EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS TO MAKE AN INFORMED
INVESTMENT DECISION WITH RESPECT TO THE FRANCHISE.
(k) FRANCHISE OWNER IS AWARE OF THE FACT THAT OTHER PRESENT OR FUTURE
FRANCHISE OWNERS OF SFS MAY OPERATE UNDER DIFFERENT FORMS OF AGREEMENT(S), AND
CONSEQUENTLY THAT SFS'S OBLIGATIONS AND RIGHTS WITH RESPECT TO ITS VARIOUS
DEVELOPERS AND FRANCHISE OWNERS MAY DIFFER MATERIALLY IN CERTAIN CIRCUMSTANCES.
(l) FRANCHISE OWNER ACKNOWLEDGES THAT THIS INSTRUMENT CONSTITUTES THE
ENTIRE AGREEMENT OF THE PARTIES. THIS AGREEMENT TERMINATES AND SUPERSEDES ANY
PRIOR AGREEMENT BETWEEN THE PARTIES CONCERNING THE SAME SUBJECT MATTER.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement under seal on the date first written above.
[SIGNATURES NEXT PAGE]
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FRANCHISE OWNER: SFS:
- ---------------------------------- SUBURBAN FRANCHISE SYSTEMS, INC.
By: By:
------------------------------- ---------------------------
Title: Title:
--------------------------- -------------------------
(Affix Corporate Seal) (Affix Corporate Seal)
Attest: Attest:
--------------------------- -------------------------
Title: Title:
---------------------------- -------------------------
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GUARANTY OF FRANCHISE OWNER'S UNDERTAKINGS
In consideration of, and as an inducement to, the execution of the
foregoing Franchise Agreement ("Agreement") dated as of , 19 , by Suburban
Franchise Systems, Inc. ("SFS"), each of the undersigned hereby guarantees unto
SFS that the Franchise Owner named herein will perform during the term of this
Agreement each and every covenant, payment, agreement and undertaking on the
part of Franchise Owner contained and set forth in such Agreement.
SFS, its successors and assigns, may from time to time, without notice
to the undersigned: (a) resort to the undersigned for payment of any of the
liabilities accruing under the Agreement ("Liabilities"), whether or not it or
its successors have resorted to any property securing any of the Liabilities or
proceeded against any other of the undersigned or any party or parties primarily
or secondarily liable on any of the Liabilities, (b) release or compromise any
liability of any of the undersigned hereunder or any liability of any party or
parties primarily or secondarily liable on any of the Liabilities, and (c)
extend, renew or credit any of the Liabilities for any period (whether or not
longer than the original period); alter, amend or exchange any of the
Liabilities; or give any other form of indulgence, whether under the Agreement
or not.
The undersigned agrees to comply with and abide by the restrictive
covenants and nondisclosure provisions contained in Paragraph 11 of the
Agreement to the same extent, and for the same period of time, as Franchise
Owner is required to comply with and abide by such covenants and provisions,
except to the extent otherwise required by the Agreement. These obligations of
the undersigned shall survive any expiration or termination of the Franchise
Agreement or this Guaranty.
The undersigned further waives presentment, demand, notice of dishonor,
protest, nonpayment and all other notices whatsoever, including without
limitation: notice of acceptance hereof; notice of all contracts and
commitments; notice of the existence or creation of any Liabilities and of the
amount and terms thereof; and notice of all defaults, disputes or controversies
between Franchise Owner and SFS resulting from such Agreement or otherwise, and
the settlement, compromise or adjustment thereof.
The undersigned agrees to pay all expenses paid or incurred by SFS in
enforcing the foregoing Agreement and this Guaranty against Franchise Owner and
against the undersigned and in collecting or attempting to collect any amounts
due thereunder and hereunder, including reasonable attorneys' fees if such
enforcement or collection is by or through an attorney-at-law. Any waiver,
extension of time or other indulgence granted from time to time by SFS, its
agents, its successors or assigns, with respect to the foregoing Agreement,
shall in no way modify or amend this Guaranty, which shall be continuing,
absolute, unconditional and irrevocable.
If more than one person has executed the Guaranty, the term "the
undersigned," as used herein shall refer to each such person, and the liability
of each of the undersigned hereunder shall be joint and several and primary.
IN WITNESS WHEREOF, each of the undersigned has executed this Guaranty
under seal effective as of the date of the foregoing Agreement.
- ----------------------------- ---------------------------- (SEAL)
Witness Guarantor
- ----------------------------- ---------------------------- (SEAL)
Witness Guarantor
- ----------------------------- ---------------------------- (SEAL)
Witness Guarantor
33
FRANCHISE AGREEMENT
DATED _________________________, 19____
between
SUBURBAN FRANCHISE SYSTEMS, INC.
and
____________________________________
1. Licensed Marks. SFS is the sole and exclusive licensor of the
following service marks and trademarks currently used in connection with the
SUBURBAN LODGE System:
Design Mark - Registration No. 1,528,954; Registration Date:
March 7, 1989; registered with the United States Patent and
Trademark Office, Principal Register, as a service mark in
class 42 for motel services.
"Suburban Lodge" - Registration No. 1,548,778; Registration
Date: July 18, 1989; registered with the United States Patent
and Trademark Office, Supplemental Register, as a service mark
in class 42 for motel services. Registration No. 1,864,047;
Registration Date: November 22, 1994; registered with the
United States Patent and Trademark Office, Principal Register,
as a service mark in class 42 for motel services.
"Lodge for Less" - Registration No. 1,616,316; Registration
Date: October 2, 1990; registered with the United States
Patent and Trademark Office, Supplemental Register, as a
service mark in class 42 for motel services.
Franchise Owner shall be authorized to utilize only such Licensed Marks
as from time to time are authorized hereunder.
Exhibit 1 to Franchise Agreement
Page 1
34
2. Acknowledgement Regarding Controlling Persons. Franchise Owner hereby
acknowledges that Franchise Owner is a(n):
________ individual
________ partnership
________ joint venture
________ corporation
________ limited liability company
________ other business form_______________________
(check one) (describe)
Franchise Owner hereby warrants and represents that the following
persons own, either legally or beneficially, voting control of Franchise Owner:
TYPE OF OWNERSHIP PERCENTAGE OF
NAME (LEGAL OR BENEFICIAL) INTEREST OWNED
---- --------------------- ---------------
Franchise Owner hereby warrants and represents that Franchise Owner is
the party that owns or leases, or not later than immediately prior to the
groundbreaking for construction of Franchise Owner's Unit will own or lease, the
Premises, the Unit and any other improvements upon the Premises. Franchise Owner
has provided SFS, or will provide SFS prior to groundbreaking, evidence of such
ownership or lease.
Franchise Owner hereby acknowledges that SFS is relying on these
representations as a material basis for entering into this Franchise Agreement,
and that the information set forth above is true and correct.
FRANCHISE OWNER
By:________________________________________
Date:______________________________________
Exhibit 1 to Franchise Agreement
Page 2
35
FRANCHISE AGREEMENT
Dated __________, 199__
between
SUBURBAN FRANCHISE SYSTEMS, INC.
and
_____________________________
Map attached and marked as indicated in Paragraph 2(d) of the Franchise
Agreement.
Exhibit 2 to Franchise Agreement