9/5/95
7:00 pm
JOINT VENTURE AGREEMENT
between
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
(as The Company)
and
U.S. FRANCHISE SYSTEMS, INC.
(as Newco)
RELATING TO THE WORLD-WIDE
FRANCHISING OF THE
MICROTEL SYSTEM
TABLE OF CONTENTS
PAGE
RECITALS
1. TRANSFER OF ASSETS ................................................. 2
2. TERM ............................................................... 4
3. POST CLOSING OBLIGATIONS OF NEWCO .................................. 5
4. THE COMPANY'S RETAINED PROPERTIES .................................. 5
5. CONSULTING BY THE COMPANY .......................................... 8
6. FEES ............................................................... 9
7. CLOSING ............................................................ 10
8. RIGHTS AND OBLIGATIONS PENDING THE CLOSING ......................... 14
9. DEFAULT PENDING CLOSING ............................................ 16
10. REPRESENTATIONS AND WARRANTIES ..................................... 17
11. CONFIDENTIAL INFORMATION ........................................... 24
12. ACCOUNTING AND RECORDS ............................................. 25
13. INSURANCE .......................................................... 25
14. TRANSFERABILITY OF INTEREST ........................................ 26
15. DEFAULT BY NEWCO AFTER CLOSING ..................................... 27
16. OBLIGATIONS DUE TO POST CLOSING DEFAULT BY NEWCO ................... 28
17. DEFAULT BY THE COMPANY AFTER CLOSING ............................... 29
18. OBLIGATIONS DUE TO POST CLOSING DEFAULT BY THE COMPANY ............. 30
19. POST CLOSING COVENANTS OF THE COMPANY .............................. 30
20. NOTICES ............................................................ 31
21. SURVIVAL OF REPRESENTATIONS AND WARRANTIES ......................... 32
22. INDEMNIFICATION .................................................... 32
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23. RIGHT TO SET-OFF ................................................... 35
24. SEVERABILITY AND CONSTRUCTION ...................................... 35
25. APPLICABLE LAW ..................................................... 36
26. ENTIRE AGREEMENT ................................................... 36
27. MISCELLANEOUS BUSINESS TERMS ....................................... 36
28. MISCELLANEOUS ...................................................... 37
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DEFINED TERMS
"Company" ...................................................... 1
"Newco" ........................................................ 1
"Suites" ....................................................... 1
"Suites Hotel" ................................................. 1
"Business", the "System" ....................................... 1
"Microtel System" .............................................. 1
"Proprietary Marks" ............................................ 1
"Manual" ....................................................... 1
"Assets" ....................................................... 2
"Existing Franchise Agreements" ................................ 2
"Existing Franchisees" ......................................... 2
"Existing Franchises" .......................................... 2
"New Microtel Franchises" ...................................... 3
"New Microtel Franchisees" ..................................... 3
"Microtel Hotels" .............................................. 3
"New Franchise Agreement" ...................................... 3
"Current Agreement Form" ....................................... 3
"Development Schedule" ......................................... 3
"Scheduled Microtels" .......................................... 3
"under development" ............................................ 3
"Commencement Date" ............................................ 3
"Cure Payment" ................................................. 4
"Retained Properties" .......................................... 5
"Franchise Royalties" .......................................... 6
"Additional Hotel Franchises" .................................. 6
"Additional Suite Hotel Franchises" ............................ 6
"Supplemental Hotel Franchises" ................................ 6
"Substitute Hotel Franchise" ................................... 7
"Supplemental Suites Franchises" ............................... 7
"Impact Issues" ................................................ 8
"Encroachment Issues" .......................................... 8
"Trademark Royalty" ............................................ 9
"Operating Properties" ......................................... 9
"Revenues Subject to Royalties" ................................ 9
"Closing" ...................................................... 10
"EMILI Agreement" .............................................. 11
"UFOC" ......................................................... 17
"FTC" .......................................................... 17
"Company's Employees" .......................................... 22
"knowledge" or "awareness" .................................... 24
"control" ...................................................... 26
"Reversion of Microtel Rights" ................................. 29
"Indemnified Party" ............................................ 34
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"Asserted Liability" ........................................... 34
"Claims Notice" ................................................ 34
"Indemnifying Party" ........................................... 34
"Contest Notice" ............................................... 34
"Loss" ......................................................... 35
"Expiration Time and Date" ..................................... 37
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STATE OF GEORGIA
COUNTY OF FULTON
JOINT VENTURE AGREEMENT
THIS AGREEMENT is made and entered into as of September 7, 1995, by and
between MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION, a New York
corporation, with its principal place of business at One Airport Way, Suite
200, Rochester International Airport, Rochester, New York, 14624, U.S.A. (the
"Company"); and U.S. FRANCHISE SYSTEMS, INC., a Delaware corporation, with its
principal place of business at 1800 Peachtree Street, Suite 615, Atlanta,
Georgia 30309 ("Newco").
WITNESSETH:
WHEREAS, the Company, as a result of the expenditure of time, skill,
effort, and money has developed a distinctive concept, system and business
relating to the establishment, operation and franchising of super budget or
hard budget hotels (including without limitation, an all-suites hotel
product, hereinafter referred to as "Suites" or "Suites Hotel") which operate
under the name "Microtel" (hereinafter referred to as the "Business", the
"System" or the "Microtel System"), as is more particularly described in
Exhibit "A" attached hereto;
WHEREAS, the components of the System and Business include, without
limitation:
A. Any and all trade names, trademarks, service marks or other types or
items of intellectual property used in the operation of or developed in
connection with the Business, including, without limitation, "MICROTEL"
and the other service marks listed on Exhibit "A-1" attached hereto
(hereinafter "Proprietary Marks");
B. All of the prototypical architectural plans, designs, and layouts used
in the operation of or developed in connection with the Business,
including, without limitation, all site plans, floor plans, roof plans,
plumbing plans, lobby plans, electrical plans, landscape plans and any
copyrights in connection therewith;
C. All reservation referral systems used in the operation of or developed
in connection with the Business;
D. All directories of Microtel hotels;
E. All management and personnel training programs and materials used in
the operation of or developed in connection with the Business;
F. All management and operational procedures and techniques used in the
operation of or developed in connection with the Business including
without limitation as prescribed in confidential manuals (hereinafter
the "Manual");
G. All standards and specifications for construction, equipment, and
furnishings used in the operation of or developed in connection with
the Business, including without limitation as described in the Manual;
H. All advertising, marketing, and promotional programs, layouts and
materials used in the operation of or developed in connection with the
Business;
I. Any and all related intellectual property which may be necessary for
full and complete operation of the System or Business;
J. All rights to develop any and all hotel products based upon or derived
in whole or in part from the Microtel System (whether or not utilizing
the name "Microtel"), including without limitation, Suites Hotels.
K. Any and all business records used by the Company or necessary to
operate the Business; and
L. Any and all other assets related to an necessary for the Company's
operation of the System (all of the foregoing, including without
limitation, the items set forth on Exhibit "A", being sometimes
hereinafter collectively referred to as the "Assets").
WHEREAS, the Company has previously entered into or has committed to enter
into franchise agreements (the "Existing Franchise Agreements"), with various
parties (some of which may be affiliates of the Company) ("Existing
Franchisees") relating to a total of twenty-seven (27) Microtel properties, of
which twenty-one (21) are currently open and under operation, three (3) are
currently under construction, and three (3) are under development (the
"Existing Franchises");
WHEREAS, the Company desires to transfer all rights and interest in and to
the System and the Assets to a party who will utilize its best efforts to
provide the resources necessary to exploit the System on a world-wide basis;
WHEREAS, Newco has proposed to raise capital, establish an organization
consisting of key executive and management personnel, and enter into an
agreement with the Company, to the end that Newco shall exclusively undertake
the world-wide sale and maintenance of franchises under the System; and
WHEREAS, Newco understands the importance of and fully intends to continue
the sales and maintenance of franchises under the Microtel System;
NOW, THEREFORE, the parties, in consideration of the undertakings and
commitments of each party to the other party set forth herein, hereby agree
as follows:
1. TRANSFER OF ASSETS.
1.1 Subject to terms, covenants and conditions of this Agreement, Newco
agrees to undertake the world-wide franchising of properties using the System
based upon the Microtel concept. It is agreed that Newco shall be the sole
entity with the authority, right and power to act as franchisor for the
System. The respective rights and obligations of the parties hereto shall be
as established in this Agreement, which shall survive and shall govern the
ongoing rights of the parties inter se.
1.2 To permit Newco to fulfill its obligations hereunder, the Company
shall transfer to Newco at Closing (as defined herein) any and all right,
title and interest in and to: (i) all of the Assets; and (ii) the Existing
Franchise Agreements.
1.3 At Closing, Newco shall assume the obligations of the Company as
franchisor under the Existing Franchise Agreements. Except as specifically
set forth herein, Newco shall not assume any other liability or obligation of
the Company whatsoever.
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1.4 To further enable Newco to fully exploit the sale of franchises under
the System, and to avoid confusion, the Company shall, no later than one year
after the Closing Date, change its corporate name to a name which does not
contain the words "Microtel," or "U.S. Franchise Systems," or any words
confusingly similar, and will require any and all of its affiliated
companies, subsidiaries, or other related entities under common control or
management to similarly change their legal names, or to execute a name
license agreement acceptable to Newco in is sole discretion, and will use its
best efforts to have any other entity not under control of the Company to
take similar steps. Following Closing, Microtel agrees that Microtel will
operate its business under the name "Hudson Hotels" or some other assumed name
which does not contain the words "Microtel" or "U.S. Franchise Systems" or any
words confusingly similar.
1.5 The Company further shall transfer, assign and convey to Newco any and
all of its rights to the Suites Hotel concept and all future franchise rights
thereto.
1.6 Without limitation Newco shall have the right to and will undertake
the following as determined by Newco in its sole discretion: (i) to undertake
on an exclusive world-wide basis, the offering and sale of franchises or
licenses under the Microtel System utilizing the Proprietary Marks ("New
Microtel Franchises") to individuals or entities ("New Microtel Franchisees"),
which may or may not be affiliated with Newco and which may include Newco,
(ii) to establish and operate Microtel hotels and Microtel Suites using the
Microtel System and the Proprietary Marks ("Microtel Hotels") throughout the
world; (iii) to fulfill the obligations of franchisor under all New Microtel
Franchises which may be sold by Newco; and (iv) to fulfill the obligation of
franchisor under the Existing Franchises.
1.6.1 The term "New Microtel Franchises" shall mean and shall include: (i)
any franchise issued by Newco using any of the Proprietary Marks;
and (ii) any franchise issued by Newco in the Hard Budget or Super
Budget category, whether or not using the Proprietary Marks, other
than franchises issued pursuant to registered trademarks or other
proprietary marks acquired by Newco from another entity. For
purposes hereof, the terms "Hard Budget" or "Super Budget" shall mean
an economy based hotel or motel facility with minimal amenities,
intended to be, or compete directly with, the lowest average daily
room rate in each target market.
1.7 Newco shall have all right, title and interest in and to the Assets,
the Business and the System. Accordingly, Newco shall have the right in its
sole discretion to use the Assets and the System, including, without
limitation, operating Microtel Hotels, changing, modifying or improving the
System, approving hotel sites, determining, modifying or amending any and all
terms and conditions of agreements with franchisees, including Existing
Franchisees (to the extent permitted pursuant to the Existing Franchise
Agreements), determining any and all fees to be paid by franchisees, and
accepting New Microtel Franchisees.
1.8 Each new Microtel Hotel shall be established and operated pursuant to
a standard form of franchise agreement to be developed by Newco and revised
or amended from time to time (the "New Franchise Agreement") and entered into
between Newco and such New Franchisee. Without limitation, Newco shall have
the right to establish the various fees and terms and conditions under each
New Franchise Agreement. The current form of standard franchise agreement
utilized by the Company throughout the United States is attached hereto as
Exhibit "B" (the "Current Agreement Form").
1.9 Newco and the Company hereby agree on a schedule for the future
development of Microtel Hotels or Suites by Newco or through its New Microtel
Franchisees (the "Development Schedule"). The Development Schedule is attached
as Exhibit "C" to this Agreement and requires Newco, subject to the
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provisions of Section 1.10 below, to execute New Franchise Agreements for,
and have open or under development, the number of Microtel Hotels by the date
set forth on the Development Schedule ("Scheduled Microtels"). For purposes of
this Agreement, the term "under development" shall mean that: (i) a site for
the Microtel Hotel has been acquired by purchase or otherwise by the New
Franchisee; (ii) the New Franchisee has executed a New Franchise Agreement;
and (iii) the New Franchisee has commenced construction of the hotel by
breaking ground. For purposes of this Section 1.9, the term New Franchisee
may include Newco or an affiliate of Newco. For the purposes of this
Agreement, "Commencement Date" shall mean the earlier of: (i) the date on
which Newco shall be able to offer franchises to prospective franchisees in
all fifty (50) states within the United States of America, or (ii) ninety
(90) days following Closing. Newco shall comply in all material respects with
the Development Schedule.
1.10 The Company and Newco agree that the failure by Newco to satisfy the
Development Schedule for two consecutive periods, excluding delays caused by
events beyond Newco's control, including, without limitation, strikes, civil,
or political unrest, labor and/or material shortages, acts of God, and war,
shall constitute a default under this Agreement. Notwithstanding the language
of Section 1.9 and Section 15 hereof, if, at the date which is the end of
such second consecutive period Newco shall have open, or under development,
in the aggregate, at least seventy-five percent (75%) of the Scheduled
Microtels required at the date which is the end of any such second
consecutive period, Newco may cure such default and be deemed to have opened,
or have under development, the number of Scheduled Microtels then required at
the end of such second consecutive period (for purposes of determining
compliance with the Development Schedule at the end of such second
consecutive period and in all subsequent periods during the term of this
Agreement) by paying to the Company the amount of One Million Dollars
($1,000,000) (such payment being hereinafter referred to as the "Cure
Payment"), within thirty (30) days of written notice by the Company to Newco
of such default. By the way of example and not limitation, if at the end of
Period Number 3 (three years after Commencement Date) if Newco shall have
open or under development 80 Microtel Hotels and shall pay the Cure Payment,
Newco will be deemed to have open or under development 100 Microtel Hotels.
Therefore, in order to meet the subsequent Development Schedule, Newco would
have to open or have under development during Periods 4 and 5 the number of
Microtel Hotels required pursuant to the Development Schedule assuming the
actual number of Microtel Hotels open or under development at the end of
Period Number 3 was 100 (instead of 80). Further, under this example, Newco
could not be in default pursuant to Section 1.9 (subject to cure) for the
purposes of this Agreement before the end of Period Number 5, if at all.
Further, under this example, assuming Newco has paid the cure payment at the
end of Period Number 3, and if (i) during Periods 4 and 5, Newco opens or has
under development at least eighty-eight (88) additional Microtel Hotels; and
(ii) Newco shall pay an additional cure payment at the end of Period 5, Newco
shall be deemed to have satisfied forever the Development Schedule.
1.11 Once Newco has under Development within the term of the Development
Schedule at any time a cumulative number of Microtel Hotels equal to the
number of Microtel Hotels required by the Development Schedule, then Newco
will be deemed to have complied in full with the requirement of the
Development Schedule and no further obligations or conditions for sale or
placement of franchises shall apply.
1.12 Except for payment of the royalties and other fees provided for
herein, the Warrants, and other specific obligations of the parties hereto,
neither party shall have any rights or interest in the assets or the business
of the other. No joint venture or partnership shall be created hereby, and
neither party shall have any authority to speak for or bind the assets or
property of the other.
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2. TERM.
This Agreement shall commence on the date of execution hereof. The term of
this Agreement shall continue unless terminated as provided herein.
3. POST CLOSING OBLIGATIONS OF NEWCO.
Following Closing:
3.1 Newco will use its best efforts to register or take other appropriate
action as soon as practicable after Closing to be able to offer franchises of
Microtel Hotels in all fifty (50) states within the United States of America.
Newco shall register as a franchisor in all jurisdictions, which now require
or from time to time during the term hereof may require such registration, in
which Newco shall be actively pursuing the sale of franchises and shall
otherwise conduct its Business and deal with Franchisees and prospective
franchisees so as to materially comply in all respects with all applicable
federal, state and local laws, rules and regulations, now in effect or
hereafter enacted, affecting or governing the advertising or sale of
franchises, or the relationship and dealings between franchisors and
franchisees.
3.2 Newco (either directly or through an operating subsidiary or affiliate)
shall execute a New Franchise Agreement as franchisor or licensor for each
New Franchisee and each new Microtel Hotel (subject to approval of each New
Microtel Franchisee and New Microtel Franchise location, and satisfaction of
all other regular conditions). Newco (either directly or through an operating
subsidiary or affiliate) shall assume, undertake and discharge the
obligations of the Company as franchisor under the Existing Franchise
Agreements.
3.3 Recognizing the value of advertising and the importance of the
standardization of advertising programs to the furtherance of the goodwill
and public image of the System, Newco may develop or cause to be developed a
national advertising program designed to promote the knowledge of the System
and the advantages of Microtel Hotels in the minds of the consuming public.
3.4 Newco will during the term of this Agreement develop and implement a
reservation system, in which all Microtel Hotels (including New Franchises
and Existing Franchises) who pay to Newco the appropriate fee established by
Newco and who install the appropriate equipment and software as determined by
Newco shall be eligible to participate.
3.5 Newco shall use its best efforts and consistent with sound business
practices, to vigorously enforce its rights under all franchise agreements
with Franchisees and to promptly and vigorously pursue its rights with
respect to any alleged infringement or unlawful or improper use of any
Proprietary Mark(s) or of the "trade dress" associated with Microtel.
4. THE COMPANY'S RETAINED PROPERTIES.
Following Closing, the Company shall have or retain the following rights as
to the Existing Franchises, as well as to certain Additional Hotel Franchises
(including, if and when developed, Additional Suite Hotel Franchises), as
well as to certain Supplemental Franchises, if and when opened or developed
by the Company (hereinafter collectively referred to as the "Retained
Properties"):
5
4.1 Existing Franchises. The Company shall assign and transfer to Newco at
Closing any and all rights, and Newco shall accept and agree to perform and
shall have the sole authority to perform the obligations of Company, as
franchisor, related to the Existing Franchise Agreements. To the extent that
the prospective Franchisees for any of the Existing Franchises have not
executed Franchise Agreements at the time of Closing (specifically, the three
franchise locations identified as under development), the Company shall use
its best efforts to cause such Franchisees to execute, when available, the
New Franchise Agreement. However, with respect to each such Existing
Franchise, the Company shall retain all rights to receive from the fees
generated from such Existing Franchise Agreements, an amount equal to: (i)
all Franchise Royalties (as hereinafter defined), plus (ii) any renewal
franchise fees paid by the Existing Franchisee pursuant to the applicable
Existing Franchise Agreement. The Company will use best efforts to persuade
all of the Existing Franchisees with whom the Company has an ongoing
contractual relationship to comply with the franchisee standards as may
hereafter be established or required pursuant to the New Franchise Agreement
as may be developed by Newco.
4.1.1 For purposes hereof, the term "Franchise Royalties" shall mean all
amounts payable by each respective Franchisee to the Franchisor under the
terms of the respective Franchise Agreement then in effect, based on or
calculated as a percentage of the gross receipts collected by such Franchisee
for the rental of guest rooms or otherwise, provided, however, the term
Franchise Royalties shall specifically exclude for purposes hereof any
amounts designated as reservation, advertising, or marketing fees and shall
also exclude any other amounts payable which are designated or described as
one time or non-recurring fees or charges other than regular monthly royalty
fees, such as fees for renewal, placement, substitution, amendment,
organization, initial placement, termination, or transfer.
4.2 The Company's Additional Hotel Franchises. Subject to Newco's authority
as Franchisor with respect to operation of the System, the Company shall have
the right to acquire from Newco after Closing, an additional number of
franchises (the "Additional Hotel Franchises") for the purposes of developing
and operating additional Microtel Hotels (not including any Suites) such that
the total number of Existing Franchises plus Additional Hotel Franchises
shall equal fifty (50). Each of the Additional Hotel Franchises shall be
entered into upon the New Franchise Agreement as may be developed by Newco.
With respect to each such Additional Hotel Franchise, the Company shall
retain the right to collect or receive from such New Franchisee (i) the
initial franchise placement fee paid or payable by such New Franchisee; and
(ii) all Franchise Royalties. Franchisees or potential Franchisees eligible
for consideration as an Additional Franchisee can include only (i) an entity
in which the Company has a material ownership and management interest; or
(ii) an entity in which one of the individuals or entities set forth in
Schedule 19.1.3 shall have a material ownership and management interest.
4.3 The Company's Suites. Subject to Newco's authority as Franchisor with
respect to operation of the System, the Company shall have the additional
right to acquire franchises from Newco for the purposes of developing and
operating ten (10) Suites Hotels ("Additional Suite Hotel Franchises"), so
long as the Company shall have such Additional Suite Hotel Franchises open or
under development within five (5) years following the date Newco first
registers (in any state) an offering of a franchise of Suites. Each such New
Franchise shall be entered into using a New Franchise Agreement for Microtel
Suites Hotels as may be developed by Newco and used as its standard form of
franchise agreement for Suites Hotels. With respect to each such Additional
Suites Hotel Franchise, the Company shall retain the right to collect or
receive from such New Franchisee (i) the initial franchise placement fees and
(ii) all Franchise Royalties.
4.4 Supplemental Franchises.
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4.4.1 At any time the sum of the number of Existing Franchises plus the
number of Additional Hotel Franchises actually open and operational equals
fifty (50), subject to Newco's authority as Franchisor with respect to the
operation of the System, the Company shall have the right to acquire
additional hotel franchises ("Supplemental Hotel Franchises") from Newco for
the purposes of developing and operating additional Microtel Hotels (but not
including Suites), on the terms hereinafter set forth. In order for the
Company to obtain a Supplemental Hotel Franchise, the Company shall transfer
to Newco and Newco shall accept one (1) of the following: (i) an Existing
Franchise or (ii) an Additional Hotel Franchise (the Existing Franchise or
the Additional Hotel Franchise being transferred, as applicable, being
designated as a "Substitute Hotel Franchise") (but not including Suites) from
the retained rights set forth above for each such additional property
franchised. In order to be eligible for consideration as a Substitute Hotel
Franchise such franchisee must agree to execute a New Franchise Agreement
with Newco, must be current on payment of all fees and royalties payable, and
must otherwise meet then applicable franchise standards. In addition thereto,
the Company (or the franchisee) shall pay to Newco a fee ("Substitution Fee")
equivalent in amount to the fee payable to Newco pursuant to the terms of the
New Franchise Agreement upon any transfer of the franchise.
4.4.2 The Company shall also have the right to acquire additional
franchises from Newco for the purposes of developing and operating Suites
("Supplemental Suites Franchises"), so long as the Company shall transfer to
Newco and Newco shall accept one (1) of the Additional Suites Franchises (the
Additional Suites Franchise being transferred being designated as a
"Substitute Suites Franchise") from the retained rights set forth above for
each such additional Suites property franchise. In order to be eligible for
consideration as a Substitute Suite Franchise, such franchisee must agree to
execute a New Franchise Agreement with Newco, must be current on payment of
all fees and royalties payable, and must otherwise meet then applicable
franchise standards. In addition thereto, the Company (or the franchisee)
shall pay to Newco the Substitution Fee.
4.4.3 Subject to Newco's rights hereunder, each Supplemental Hotel
Franchise and each Supplemental Suites Franchise shall thereafter be deemed a
Retained Property, and the Company shall be entitled to collect or receive
from such franchisee (i) an amount equal to fifty percent (50%) of the
initial franchise placement fee as provided for in the New Franchise
Agreement and (ii) all Franchise Royalties payable under the New Franchise
Agreement.
4.4.4 For each Substitute Hotel Franchise and each Substitute Suites
Franchise transferred to Newco hereunder, Newco shall be entitled to receive
all of the Franchise Royalties plus any other fees, expenses, or other
compensation or remuneration payable thereunder (including, without
limitation the Substitution Fee), and the Company shall relinquish and
transfer to Newco all of such rights.
4.5 The Company and Newco hereby agree that the Company may accept payment
of any amounts due to the Company pursuant to this Section 4 hereunder (but
only such amounts) directly from the franchisees of Retained Properties, and
Newco shall cooperate with such direct payment, however, Newco shall have no
liability to the Company for failure of the franchisees of the Retained
Properties to remit payments due. However, the Company shall be required to
account to Newco (in such form, manner, and time as determined by Newco from
time to time) for any such amounts paid to the Company. To the extent
7
any of such fees, payments or other amounts are remitted to Newco, Newco
shall promptly transfer, assign, or pay over such amounts to the Company.
4.6 Notwithstanding any other provision to the contrary contained herein
with respect to Retained Properties, the Company agrees that Newco shall not
be required to pay to the Company any fees or compensation paid to or payable
to Newco by Franchisees relating to reservation, advertising, or marketing
fees with respect to Retained Properties, the Supplemental Hotel Franchises,
the Supplemental Suites Franchises, the Additional Hotel Franchises or the
Additional Suites Hotel Franchises. The Company shall also immediately pay to
Newco any such fees relating to reservation or marketing which the Company
receives from the franchisees of any Retained Property, Supplemental Hotel
Franchises, the Supplemental Suites Hotel Franchises, or Additional Hotel
Franchises or the Additional Suites Hotel Franchises. The Company agrees to
take those actions requested by Newco to assist, implement, maintain and
collect such fees.
4.7 With respect to the Company's retained rights pursuant to this Section
4, the judgment of the Company as to the viability of a site for the
development of a Microtel Hotel shall be conclusive, provided, however, Newco
shall have the right, in its sole discretion, to reject such proposed site as
a Microtel location if Newco should determine upon review of all Encroachment
Issues or Impact Issues (as hereinafter defined) that development of the
potential site would have a material negative impact upon the gross room
revenue generated or anticipated to be generated by an Existing Microtel
Franchise facility.
4.7.1 For purposes hereof, "Impact Issues" or "Encroachment Issues" shall
refer to all issues or matters which in the sole discretion of Newco, as
Franchisor, should be considered in evaluating the impact which the
development of a new Microtel Franchise on a prospective site would have upon
the gross guest room revenues generated or anticipated to be generated by an
existing Microtel franchise facility, including but not limited to any
specific geographic or territorial restriction contained in the franchise
agreement for the existing Microtel franchise facility, traffic patterns and
volume, anticipated growth patterns, development patterns in the same
geographic area, and general business conditions.
4.8 Newco agrees that any agreement it may enter into after Closing for any
future development of unspecified franchise locations on an exclusive
territorial basis will reflect and will be subject to the rights of the
Company hereunder for development of additional franchise locations and such
exclusive territorial rights will not affect the Company as to any of the
Retained Properties Additional Hotel Franchises, Additional Suites Hotel
Franchises, or any Supplemental Franchises. The foregoing notwithstanding,
Newco and the Company agree that, without limitation, the New Franchise
Agreements or similar franchise agreements entered into with New Microtel
Franchisees for specified franchise locations may contain exclusive franchise
territory agreements related to hotel market Impact Issues, and that the
Company shall not have the right to develop a property or obtain a franchise
within any such restricted geographic area. Newco represents and warrants to
the Company that Newco has not entered into and is not now negotiating any
such agreement with any party.
5. CONSULTING BY THE COMPANY.
5.1 To ensure the ultimate successful operation of the System, the Company
shall, for a period of three (3) years following the Closing Date of this
Agreement, consult with and assist Newco as may be required or as reasonably
requested by Newco, to establish Newco as an operating entity in the business
of selling and administering franchises utilizing the System, which
consulting and assistance may be expected to include, without limitation,
some or all of the following:
8
5.1.1 Consulting and advice regarding the general outlines, parameters and
philosophy of the System and the Microtel concept;
5.1.2 Assistance in the preparation of Newco's UFOC and compliance with
applicable federal and state franchising laws;
5.1.3 Identification of and contacts with franchising prospects known to
the Company;
5.1.4 Consulting regarding prototypical plans and specifications;
5.1.5 Review of existing manuals, training programs and other elements of
the System;
5.1.6 Consultation regarding the desirability or feasibility of proposed
sites for franchise development; and
5.1.7 Ongoing compliance with regulatory requirements, including federal,
state and international franchising laws.
5.2 After the date which is one (1) year after the Closing Date, any
required consultation and assistance shall be provided as reasonably
requested by Newco and shall be scheduled subject to the workloads of the
personnel of the Company.
6. FEES.
6.1 The Company shall retain the rights to collect fees and royalties from
the Existing Franchisees designated as Retained Properties, as provided for
in Section 4 hereinabove. Newco shall assist the Company with direct
collection of such amounts and shall, to the extent such funds are
transmitted or paid to Newco, promptly remit such funds to the Company,
provided, however, Newco shall have no liability to the Company for failure
of the franchisees of the Retained Properties to remit payment due.
6.2 In consideration for the transfer of the Proprietary Marks to Newco
pursuant to Section 1 hereof, Newco shall pay or cause to be paid to the
Company from the Franchise Royalties collected from each New Microtel
Franchisee after Closing, as royalties with respect to each New Microtel
Franchise (excluding any franchises designated as Retained Properties), a
continuing monthly royalty fee (the "Trademark Royalty") in an amount equal
to the sum of: (i) one percent (1%) of the Revenues Subject To Royalties (as
hereinafter defined), for the applicable month for each New Microtel
Franchise on the first 100 operating properties (other than Retained
Properties) opened by Newco ("Operating Properties"); plus (ii) seventy-five
hundredths of one percent (0.75%) of the Revenues Subject to Royalties for
the applicable month for each New Microtel Franchise on the next 150
Operating Properties; plus (iii) one half of one percent (0.5%) of the
Revenues Subject to Royalties for each New Microtel Franchise after the first
250 Operating Properties. Payment of the Trademark Royalty shall be deferred
until the month in which Newco actually receives its Franchise Royalties from
each respective Franchisee and shall be paid to the Company not later than
the twentieth (20th) day of the month following such receipt by Newco.
6.2.1 For purposes hereof, "Revenues Subject to Royalties" shall mean the
gross receipts collected by Franchisees for the rental of guest rooms at a
Microtel Hotel or Microtel Suite, whichever is applicable, as well as any
other revenues which are subject to royalty payments by Franchisee to Newco
as set forth in the applicable franchise agreement.
9
6.2.2 In addition to Trademark Royalty payable hereunder, Newco shall pay
to the Company a portion of any termination fee received by Newco upon
termination of any New Microtel Franchise, such portion to be calculated as
(i) the total amount of the termination fee actually received by Newco, (ii)
less any direct expenses incurred by Newco in connection with collecting and
receiving such fee and terminating such franchise (including but not limited
to attorney's fees) with the remainder (iii) multiplied by a fraction, (aa)
the numerator of which shall be the lowest marginal percentage rate then
applicable for purposes of calculating the Trademark Royalty set forth
herein, and (bb) the denominator of which shall be the percentage rate set
forth in the applicable Franchise Agreement which is used for calculation of
the Franchise Royalties payable by such franchisee to Newco.
6.2.3 The parties acknowledge and agree that Newco, as franchisor, may
waive the requirement for a specific Franchisee to pay Franchise Royalties
for a specified period of time (not to exceed 120 days) from the date when a
New Franchise Agreement is effective and the Franchise facility is
operational, and that no Trademark Royalty shall accrue or be due or payable
by Newco for such period during which the obligation to pay Franchise Royalty
is actually waived.
6.3 In consideration of the performance by the Company of its consulting
obligations set forth in Section 5 hereof, the transfer of the Assets (other
than the Proprietary Marks) and rights under the Existing Franchise
Agreements, and all of the Company's other obligations hereunder, Newco
shall pay to the Company the amount of Three Million Seven Hundred
Thirty-Seven Thousand Six Hundred Forty-One and NO/100ths Dollars U.S.
(U.S. $3,737,641.00), plus simple interest at the rate of ten percent (10%)
per annum as reflected on Exhibit "F" attached hereto, due and payable as
follows: Two Million Dollars U.S. (U.S. $2,000,000) upon Closing; One Million
Dollars U.S. (U.S. $1,000,000) on the date one (1) year from the Closing Date
hereof; Five Hundred Thousand Dollars U.S. (U.S. $500,000) on the date two
(2) years from the Closing Date hereof; and Five Hundred Thousand Dollars
U.S. (U.S. $500,000) on the date three (3) years from the Closing Date
hereof.
6.4 The Company shall be responsible for any and all taxes or similar
charges relating to payments by Newco (or on Newco's behalf) to the Company,
including but not limited to value-added taxes, goods and services taxes,
consumption taxes, gross receipts taxes and sales taxes, (but excluding taxes
based upon Newco's income), which may be imposed now or in the future, and
the Company shall transmit such taxes to the appropriate fiscal authorities.
6.5 If any payment owed by Newco to the Company under this Agreement or
under any other agreement with the Company is finally determined to be
overdue pursuant to Sections 15 and 16 below, Newco shall pay the Company, in
addition to the overdue amount, interest on such amount from the date it was
due until paid, at a rate which is one percent (1%) above the interest rate
the Company pays on its operational line of credit from its principal bank,
or if the Company has no line of credit, two percent (2%) above the prime
rate of interest as reported in The Wall Street Journal on the day such
amount was due, or the maximum rate permitted by law, whichever is less. In
the event any amount is finally determined to be overdue and intentionally
unpaid by Newco pursuant to Sections 15 and 16 below for more than ninety
(90) days, then the interest payable by Newco under this section shall be
computed at a rate of eighteen percent (18%) per annum, computed on a daily
basis, or the maximum amount permitted by law, whichever is less. Entitlement
to such interest shall be in addition to any other remedies the Company may
have.
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6.6 Except for the amounts specifically payable to the Company as set
forth in this Section, all revenues generated by the conduct of the Business
or otherwise by Newco after Closing shall belong to Newco.
7. CLOSING.
7.1 Time and Place. Closing shall take place at the offices of Boylan,
Brown, Code, Fowler, Vigdor & Wilson, L.L.P., 900 Midtown Tower, Rochester,
New York 14604, at 9:00 a.m. or at such other mutually determined location
and time within two (2) business days following the date of the last to be
satisfied of the conditions below, but in no event later than Monday, October
9, 1995, or such other date and place as the parties hereto shall mutually
agree upon ("Closing").
7.2 Conditions of Closing.
7.2.1 Closing of the transactions contemplated hereunder shall be
conditioned upon, at Newco's option:
7.2.1.1 All of the covenants to be performed or complied with by the
Company and all required deliveries by the Company or on the
Company's behalf contained in this Agreement will have been
performed, complied with, or delivered on or before Closing.
7.2.1.2 All of the representations and warranties made by the Company
to Newco shall be and remain true, accurate and complete as
of the Closing Date.
7.2.1.3 The approvals of the transactions contemplated hereby and of
this Agreement by the Board of Directors and, if required,
the Stockholders of the Company shall have been obtained.
7.2.1.4 The approvals of the transactions contemplated hereby and of
this Agreement by the Board of Directors and, if required,
the Stockholders of Newco shall have been obtained.
7.2.1.5 The Company shall have obtained all third party consents or
approvals as shall be necessary or appropriate to the
completion of the transaction in all respects or as may be
required by law or regulation.
7.2.1.6 The Company shall have executed any and all assignments
required to transfer to Newco any and all rights in the
Proprietary Marks and any other intellectual property. Such
assignments shall be in a form acceptable to Newco for
recording with the U.S. Patent and Trademark Office and any
other state, county or local governmental department agency,
domestic or foreign.
7.2.1.7 The Company shall have effected the termination of the Master
Franchise Agreement by and between the Company and Essex
Microtel International Lodging, Inc. (the "EMILI Agreement").
11
7.2.1.8 The Company shall obtain final execution of Franchise
Agreements from all of the Existing Franchisees using either
the Current Agreement Form or the New Franchise Agreement.
7.2.1.9 Michael A. Levin ("CEO Candidate") shall have resigned from
his current position and agreed to become Chief Executive
Officer of Newco.
7.2.1.10 At the Closing Date: (a) there shall be no effective
injunction, restraining order, or order of any nature issued
by any court of competent jurisdiction which directs or has
the effect of directing that this Agreement or any material
transactions contemplated hereby shall not be consummated as
herein provided; (b) there shall be no investigation,
action, or other proceeding pending before any court or
governmental authority or threatened against the Company or
Newco or any of the directors or officers of the Company or
Newco in connection with this Agreement or the consummation
of the transactions contemplated by this Agreement which is
likely, in the opinion of Newco's counsel (after
consideration of any defense), to result in such substantial
damages or other substantial relief being obtained, as to
materially and adversely affect the Business on or after the
Closing Date; and (c) none of the parties hereto shall have
received from any governmental authority any notice (oral or
written) of any potential litigation, civil, criminal, or
administrative, against the Company or Newco for a violation
alleged to arise out of the consummation of the transactions
contemplated hereby.
7.2.2.11 Newco shall have secured the minimum offering of $12,400,000
as provided for in Newco's initial private placement dated
August 19, 1995;
7.2.2 Closing of the transactions contemplated hereunder shall be
conditioned upon, at the Company's option:
7.2.2.1 All of the covenants to be performed or complied with by
Newco and all required deliveries by Newco or on Newco's
behalf contained in this Agreement will have been performed,
complied with, or delivered on or before Closing.
7.2.2.2 All of the representations and warranties made by Newco to
the Company shall be and remain true, accurate and complete
as of the Closing Date.
7.2.2.3 The individual who has been identified as the CEO Candidate
of Newco shall have resigned from his current position and
agreed to become Chief Executive Officer of Newco.
7.2.2.4 Newco shall have secured the minimum offering of $12,400,000
as provided for in Newco's initial private placement dated
August 19, 1995;
7.2.2.5 The approvals of the transactions contemplated hereby and of
this Agreement by the Board of Directors and, if required,
the Stockholders of Newco shall have been obtained.
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7.2.2.6 The Company shall have received the documents or information
described in Exhibit "D" hereof.
7.2.2.7 At the Closing Date: (a) there shall be no effective
injunction, restraining order, or order of any nature issued
by any court of competent jurisdiction which directs or has
the effect of directing that this Agreement or any material
transactions contemplated hereby shall not be consummated as
herein provided; (b) there shall be no investigation, action,
or other proceeding pending before any court or governmental
authority or threatened against the Company or Newco or any
of the directors or officers of the Company or Newco in
connection with this Agreement or the consummation of the
transactions contemplated by this Agreement which is likely,
in the opinion of the Company's counsel (after consideration
of any defense), to result in such substantial damages or
other substantial relief being obtained, as to materially and
adversely affect the Business on or after the Closing Date;
and (c) none of the parties hereto shall have received from
any governmental authority any notice (oral or written) of
any potential litigation, civil, criminal, or administrative,
against Company or Newco for a violation alleged to arise out
of the consummation of the transactions contemplated hereby.
7.2.2.8 Newco shall have prepared and available for distribution to
potential offerees a current UFOC disclosure document.
7.3 Deliveries at Closing.
7.3.1 The Company shall deliver to Newco at Closing:
7.3.1.1 An executed Secretarial Certificate of the Company
satisfactory to Newco;
7.3.1.2 All of the appropriate assignments or other transfer
documents of all of the Assets, Proprietary Marks and other
intellectual property as described herein satisfactory to
Newco;
7.3.1.3 The Warrant relating to the purchase of shares of the
Company, fully executed in the form attached hereto as
Exhibit "E";
7.3.1.4 An opinion of Boylan, Brown, Code, Fowler, Vigdor & Wilson,
L.L.P., corporate and intellectual property counsel to the
Company, in a form satisfactory to Newco;
7.3.1.5 All assignments or other transfer documents required to
transfer to Newco any and all rights in the Proprietary Marks
and any other intellectual property. Such assignments shall
be in a form acceptable to Newco for recording with the U.S.
Patent and Trademark Office and any other state, county or
local governmental department or agency, domestic or foreign.
7.3.2 Newco shall deliver to the Company at Closing:
7.3.2.1 An executed Secretarial Certificate of Newco satisfactory to
the Company;
13
7.3.2.2 $2,000,000 in cash, certified check or wire transfer at
Newco's option;
7.3.2.3 An instrument or instruments reflecting Newco's assumption of
the obligations of franchisor under the Existing Franchise
Agreements; and
7.3.2.4 An opinion of Bodker, Ramsey & Andrews, a Professional
Corporation, counsel to Newco, in a form satisfactory to the
Company.
7.4 Allocation of Consideration.
7.4.1 At the Closing, the Company and Newco shall execute an allocation
of all payments hereunder pursuant to Section 1060 of the Internal
Revenue Code of 1986, as amended, substantially in the form of
Exhibit "F" hereto. The Company and Newco hereby agree to prepare
their respective tax and other returns and to take and pursue any
and all other actions (including without limitation, in connection
with tax examinations) to reflect and retain such allocation.
7.4.2 The Company and Newco hereby acknowledge and agree that (i) the
Company intends to treat the payments received by the Company
pursuant to Section 6.2 hereof as amounts received on account of a
transfer, sale or other disposition of a franchise, trademark or
trade name which are contingent on the productivity, use or
disposition of the franchise, trademark or trade name transferred
and thus as amounts received from the sale or other disposition of
property which is not a capital asset pursuant to Internal Revenue
Code Section 1253(c), as amended, and (ii) Newco intends to treat
the payments made by the Company pursuant to Section 6.2 hereof as
amounts paid on account of a transfer, sale or other disposition of
a franchise, trademark or trade name which are contingent on the
productivity, use or disposition of the franchise, trademark or
trade name which are paid as a part of a series of payments which
are payable not less frequently than annually and which are
substantially equal in amount (or payable under a fixed formula)
and thus allowed as a deduction as paid or accrued under Internal
Revenue Code Section 162(a), all pursuant to Internal Revenue Code
Section 1253(d)(1) as amended, or other similar tax principles
which provide for such payments to be deductible as paid or
accrued. The Company and Newco acknowledge the importance of such
intended treatment by the Company and Newco and accordingly agree
to prepare their respective tax and other returns and to take and
pursue any and all other actions (including without limitation, in
connection with audit examinations) to retain and reflect such
intended tax treatment.
8. RIGHTS AND OBLIGATIONS PENDING THE CLOSING.
During the period commencing on the date hereof and ending on the Closing
Date:
8.1 In order to allow Newco to perform its due diligence investigation,
the Company will or will cause its agents to give to Newco its
representatives, auditors, and attorneys, access, during normal business
hours, to the facilities of the Company and to the books, records, contracts,
and documents of the Company and to furnish to Newco such information as
Newco may reasonably request from time to time.
8.2 The Business and Assets and properties of the Company will continue to
be operated, used, and employed by the Company in the ordinary course of
business. Specifically without limiting the
14
foregoing, the Company will continue to pursue and support new business;
faithfully perform in all material respects all the obligations required to
be performed under existing contracts, Existing Franchise Agreements, and
commitments; and use its best efforts and take all reasonable steps to retain
the patronage of all customers and Franchisees (whether existing business or
business obtained after the date hereof). The foregoing notwithstanding, the
parties acknowledge and agree that the Company will not enter into new
franchise agreements from the date of the agreement through Closing but with
the prior written consent of Newco.
8.3 Not in limitation of Section 8.2, the Company will not take the
following actions, without the written consent of Newco:
8.3.1 make any material change in the Current Agreement Form, any Existing
Franchise Agreements, or the UFOC, or to any existing contracts or
commitments pertaining to the Business, except as such changes occur
in the ordinary course of business;
8.3.2 enter into any new contract pertaining to the Business.
8.4 The Company will promptly supply counsel for Newco with copies of
all litigation or legal proceedings against the Company which may arise after
the date of this Agreement and will also notify counsel for Newco of any
litigation or other legal proceeding which to the actual knowledge of the
officers or directors of the Company is threatened against Newco or the
Company.
8.5 Newco will promptly supply counsel for the Company with copies of
all litigation or legal proceedings against Newco which arise after the date
hereof and will also notify counsel for Company of any litigation or other
legal proceeding which to the actual knowledge of the officers or directors
of Newco is threatened against Newco or the Company.
8.6 The Company will promptly notify Newco of any matters with respect
to Franchisees or other parties which could materially adversely affect any
Existing Franchise Agreement, the Business, the System, results of operations
or financial condition of the Company or its Franchisees or adversely affect
the ability of the Company to perform its obligations hereunder.
8.7 Newco will keep the provisions of this Agreement strictly
confidential and will not without the prior consent of the Company, which
shall not be unreasonably withheld, disclose such provisions to any third
party, except for (a) disclosure to employees, directors, potential
investors, offerees, stockholders, officers, lawyers, and financial advisors
of Newco on a "need-to-know" basis; (b) such disclosures as may reasonably be
required pursuant to applicable state and federal laws, for securities,
franchise and business opportunity law purposes; (c) such other disclosures
as may reasonably be required for Newco to comply with its pre-closing
obligations hereunder; and (c) such other disclosures as may be required by
law, without the prior consent of the Company, which shall not be
unreasonably withheld.
8.8 The Company will keep the provisions of this Agreement strictly
confidential and will not, without the prior consent of Newco, which shall
not be unreasonably withheld, disclose such provisions to any third party,
except for (a) disclosure to employees, directors, officers, lawyers, and
financial advisors of the Company on a "need-to-know" basis; (b) such other
disclosures as may reasonably be required for the Company to comply with its
pre-closing obligations hereunder; and (c) disclosures as may be required by
law.
15
8.9 Upon final acceptance of this Agreement, Newco and the Company will
issue in writing a mutually agreeable public announcement as to the
transaction contemplated herein.
8.10 Until the Closing, or the date of termination of this Agreement
pursuant to the terms hereof, whichever first occurs, the Company will not
solicit, encourage, or conduct, directly or indirectly, any discussions or
negotiations with, or provide any information to, any entity or person other
than Newco with respect to the sale of the rights to the System and its
component parts or the transactions contemplated herein or any transactions
similar to any of those contemplated herein. The Company shall immediately
notify Newco of any solicitation or offer by a third party with respect to
the sale or transfer of the rights to the System or its component parts.
8.11 The Company will obtain any and all required consents of third
parties prior to the Closing.
8.12 The Company and Newco will fully cooperate with each other and their
respective counsel and accountants in connection with all steps to be taken
as part of their respective obligations under this Agreement. The Company and
Newco will use their best efforts to cause the conditions to the other
party's obligation to close to be fulfilled on or prior to the Closing Date.
8.13 The Company shall take all necessary and appropriate steps including
changing its assumed name as provided for in this Agreement to assure that
all rights to the "Microtel" name will inure to Newco.
8.14 Notwithstanding any provision in this Agreement to the contrary, and
in addition to (and without waiving) any other rights Newco may have pursuant
to this Agreement or otherwise, regardless of whether the transactions
contemplated by this Agreement are consummated, each party shall be
responsible for and bear all of its own expenses and fees, including attorney
and accountant fees, incurred by it in connection with the transactions
contemplated herein; provided, however, if the transactions contemplated
herein are not consummated for any reason except due to Newco's default under
this Agreement, the Company agrees to pay Newco's legal fees and related
expenses incurred in the drafting of this Agreement in an amount not to
exceed $15,000.00
8.15 Newco shall utilize its best efforts to prepare a uniform franchise
offering circular to be used for filing or registration at or near the
Closing Date.
8.16 Prior to Closing, the Company shall in accordance with the
limitations set forth herein, continue to conduct its business in the
ordinary course (except that the Company will not enter into new franchise
agreements with potential new franchisees, but with the prior written Consent
of Newco), preserving its rights to franchise the System and taking
reasonable steps to protect the Proprietary Marks and other intellectual
property which constitutes the System.
9. DEFAULT PENDING CLOSING.
9.1 Default by Company: In the event of any default by Company in any of
its closing obligations hereunder or agreements to be performed prior to
Closing, or in the event any of the representations and warranties of Company
shall be discovered prior to Closing to be untrue or false in any material
respect, Newco shall provide written notice to Company and, should such
default, untruthfulness, or falsity not immediately be cured, Newco, at the
sole option of Newco, shall have the right to either: (i) waive compliance
with such obligation or lack of performance and proceed with Closing; (ii)
proceed to Closing and reserving to Newco all rights and remedies provided
for hereunder or otherwise available at law or in
16
equity, including but not limited to the right to seek specific performance,
or the right to indemnification pursuant to Section 22 and to setoff amounts
payable to Company all costs and expenses incurred in connection therewith in
accordance with the provisions of Section 23 hereof; (iii) postpone Closing
upon written notice to Company for a reasonable period of time and take such
remedial action as may reasonably be necessary or appropriate to cure such
default or to make the representation and warranty not untrue or false, and
to deduct the reasonable costs, expenses, and attorney's fees thereof from
the consideration to be paid to Company at Closing; (iv) terminate this
Agreement upon written notice to the Company, whereupon Company shall
immediately pay or reimburse to Newco all fees, costs, expenses, or other
costs or claims of any kind or nature whatsoever incurred by Newco, the CEO
Candidate, or its principals (including but not limited to reasonable
attorney's fees, any consequential damages or damages for loss of economic
opportunity or profits) arising out of or related to the negotiation and
entering into of this Agreement and related activities in connection with
preparation for Closing.
9.2 Default by Newco: In the event of any default by Newco in any of its
closing obligations hereunder, or in the event any of the representations are
warranties of Newco shall be discovered prior to Closing to be untrue or
false in any material respect, the Company shall provide written notice of
such default, untruthfulness or falsity and the Company, at the sole option
of the Company, shall have the right to either: (i) waive compliance with
such obligation or lack of performance and proceed with Closing; (ii) proceed
to Closing and reserving to the Company all rights or remedies provided for
hereunder or otherwise available at law or in equity, including but not
limited to the right to seek specific performance, or the right to seek
indemnification pursuant to Section 22 hereof; or (iii) terminate this
Agreement upon written notice to Newco, whereupon Newco shall immediately pay
or reimburse to the Company all fees, costs, expenses, or other costs or
claims of any kind or nature whatsoever incurred by the Company (including
but not limited to reasonable attorney's fees, any consequential damages or
damages for loss of economic opportunity or profits) arising out of or
related to the negotiation and entering into of this Agreement and related
activities in connection with preparation for Closing.
10. REPRESENTATIONS AND WARRANTIES
10.1 The Company represents, warrants and agrees to and with Newco as of
the date hereof and through the date of Closing as follows:
10.1.1 The Company (a) is a corporation duly organized, validly
existing and in good standing under the laws of the State of New
York; (b) is qualified to licensed to do business and is in good
standing in all jurisdictions in which the nature of its
business or its properties makes such qualification or licensing
necessary, except as set forth on Schedule 10.1.1; and (c) has
all requisite legal and corporate power and authority to own,
operate or lease its properties and assets and to carry on its
business as now conducted.
10.1.2 (a) The Company has registered the Uniform Franchise Offering
Circular ("UFOC") in every jurisdiction in which the UFOC is
required to be registered including any federal, state, county,
municipal or other governmental agency, department, commission,
board, bureau or instrumentality, both domestic and foreign.
Schedule 10.1.2(a) is a list of all such agencies with which the
UFOC has been registered, the date of such registration, and the
renewal date, if any, for such registration. The most recent
UFOC registered is dated June 27, 1995, and the UFOC has not
been updated or modified since June 27, 1995, except as provided
in Schedule 10.1.2(b). Except as provided in Schedule 10.1.2(c),
the Company is not aware of, nor received any notice of any
proceedings, revocation,
17
termination or other action or threat of action against or with
respect to any registration or its UFOC or otherwise which would
affect the Company's ability to transact or conduct its business
or operations in any jurisdiction.
(b) The most recent UFOC dated June 27, 1995, and all prior
UFOC's issued, used and/or relied upon by the Company were
prepared, maintained and distributed in compliance with all
applicable statutes, rules and regulations, including but not
limited to the United States Federal Trade Commission ("FTC")
and applicable status regulatory authorities.
10.1.3 This Agreement has been duly and validly executed and delivered
by the Company. The execution and delivery by the Company of
this Agreement, and the consummation of the transactions
contemplated hereby, have been duly and validly authorized and
approved by all necessary and proper action on the part of the
Board of Directors. No shareholder action or approval, or
consents of any third parties or of any governmental agencies
are required for Closing except as set forth on Schedule 10.1.3
attached (which consents the Company is required to obtain prior
to Closing), and no further action is required to be taken or
obtained by the Company in connection with authorization and
approval of the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. The
Company has all requisite legal and corporate power and
authority to enter into, perform and carry out this Agreement.
The representatives of the Company who have executed this
Agreement have been duly authorized to do so by the Company, and
no law, ordinance, judicial decree, order or regulation
prohibits the Company from executing this Agreement or
performing any of its obligations hereunder.
10.1.4 Neither the execution and delivery of this Agreement not the
consummation of the transactions contemplated hereby will
constitute or, with the giving of notice or the passage of time
or both, would constitute a violation of or a default under or
conflict with any term or provision of the Certificate of
Incorporation or By-Laws of the Company, or any of the terms,
conditions or provisions of any agreement, contract, lease,
instrument, indenture, license or franchise to which the Company
is a party, or by which it or any of its properties or assets is
of may be bound, or result in the creation or imposition of any
lien, claim, charge or encumbrance of any nature whatsoever upon
any of its properties or assets, or constitute a violation of
any statute, law or ordinance or any rule, regulation, order of
any governmental authority, including, without limitation, any
franchise law, rule, regulation or order, and any securities
law, rule, regulation or order, or any judicial decree, or
require the consent or approval of any governmental authority,
lending institution or other third party.
10.1.5 Schedule 10.1.5(a) is a list of all actions, suits,
investigations, claims or proceedings pending or threatened in
the last five (5) years against the Company (or to the knowledge
of the Company, against any of the Existing Franchisees) at law
or in equity or before or by any federal, state, municipal or
other governmental court, department, commission board, bureau,
agency or instrumentality, domestic or foreign, whether or not
any such claims have been litigated, settled, or otherwise
decided. Except as provided in Schedule 10.1.5(b) there is no
action, suit, investigation, claim or proceeding pending or
threatened against the Company (or, to the knowledge of the
Company against any of the Existing Franchisees) at law or in
equity or before or by any federal, state, county, municipal or
18
other governmental court, department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any
arbitrator or panel of arbitrators which individually or in the
aggregate either (a) questions the validity of this Agreement or
of any action taken or to be taken in connection herewith, or
(b) if determined adversely to the Company or any Existing
Franchisee might have a material adverse effect upon the
Business, the Assets, the System, results of operations or
financial condition of the Existing Franchisees or adversely
affect the ability of the Company to perform its obligations
hereunder. The Company is not in violation, in any material
respect, of any laws, statutes, ordinances, regulations, orders,
writs, injunctions, decisions, awards or decrees or any court or
federal, state, county, municipal or other governmental
department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, or any arbitrator or panel
of arbitrators, relating to the Business, the Assets, or the
System and the Company has no knowledge or any basis for any
claim for compensation or damage or otherwise from any violation
of the foregoing.
10.1.6 Schedule 10.1.6 sets forth a list of all defaults, actions,
suits, or claims pending or threatened by the Company against
any Existing Franchisee, or other third party as relates to the
Business, the Assets, or the System, at law or in equity or
before any arbitrator or federal, state, county, municipal or
other governmental court, domestic or foreign.
10.1.7 This Agreement constitutes a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance
with its terms.
10.1.8 Except for such liens shown on Schedule 10.1.8 which will be
released prior to or at Closing, the Company shall have good,
marketable, and indefeasible title to all of the Assets, free
and clear of all liabilities, mortgages, conditional sales
agreements, security interests, liens, pledges, encumbrances,
restrictions, charges, claims, tax liens, or any other
imperfections of title whatsoever.
10.1.9 Except as set forth on Schedule 10.1.9(a), the Company (a) has
all right, title and interest in and to the Proprietary Marks;
(b) all such Proprietary Marks are valid and enforceable; (c)
the Company's ownership of such Proprietary Marks has been duly
recorded in the U.S. Patent and Trademark Office; (d) all such
Proprietary Marks have been maintained and all fees have been
paid to maintain their validity, enforceability, and to ensure
the issuance of any necessary registrations or certificates; (e)
the Company is unaware of any infringement or misappropriation
of any proprietary property rights of others by the Company; (f)
there is no action, suit, claim or proceeding pending or
threatened against the Company alleging or involving any state
of facts that the Company has infringed or misappropriated any
proprietary property rights of others; (g) there has been no
infringement or misappropriation of any of the Proprietary
Marks; (h) the Company has no knowledge of any current
infringement or misappropriation of the Proprietary Marks, or
any actions, suits or proceedings pending or threatened against
any party for actual or alleged infringement or misappropriation
of the Proprietary Marks; and (i) the Company has no knowledge
of any potential or future infringement or misappropriation of
(1) the Proprietary Marks by any party, or (2) any proprietary
property rights by the Company, which would affect the ability
to use the Proprietary Marks or to develop and franchise the
Microtel concept and System. Exhibit "A-1" is a complete and
accurate list of the
19
Proprietary Marks showing with whom each mark is registered, the
registration number and the date registered.
10.1.10 The Company is the owner of and has authority to assign and
transfer to Newco the Assets, the exclusive rights, Proprietary
Marks and System which are the subject of this Agreement. Each
of the Proprietary Marks, the System and all of Microtel's
rights therein are valid and are in good standing and
uncontested. The Company has not received any notice and has no
knowledge with respect to any alleged infringement or unlawful
or improper use of any Proprietary Mark or the System. The
Company has not granted any licenses or other rights to use any
of the Proprietary Marks or to develop, build, establish or
operate the Business except as expressly set forth on Schedule
10.1.10 hereto.
10.1.11 Schedule 10.1.11(a) identifies all confidential and proprietary
property, other than the Proprietary Marks, with respect to the
franchising and operation of the Business and the System which
the Company has maintained as confidential in nature. Except as
provided in Schedule 10.1.11(b), the Company is unaware of any
infringement, misappropriation or public disclosure of any of
the property included in Schedule 10.1.11(a), and has no
knowledge of any current infringement, misappropriation or
public disclosure or any actions, suits or proceedings pending
or threatened against any party for actual or alleged
infringement, misappropriation or public disclosure of such
property.
10.1.12 Schedule 10.1.12 is a list of all franchise agreements which
the Company has executed and is true and complete list
indicating for each such franchise agreement (a) the location
of such Franchise; (b) whether the Company has a management
agreement with the Franchisee; (c) if the Franchisee is a
related party, the nature of such relationship to the Company.
Except as provided on Schedule 10.1.12, all franchise
agreements (a) are in full force and effect; (b) have not been
amended; (c) are not in default; and (d) may be transferred or
assigned without the consent of the Franchisee or any other
party other than the Company. There are no such franchise
agreements other than the Existing Franchise Agreements for the
Existing Franchises. Except as provided on Schedule 10.1.12,
there has not been any waiver, amendment, or other reduction of
any royalties, management fees, or other payments of any kind
with respect to the franchise agreements, below the level of
such fees as set forth in the respective disclosure documents
for such Franchise. A true, correct and complete copy of each
of the Existing Franchise Agreements set forth on Schedule
10.1.12 has been provided to Newco.
10.1.13 Except as provided on Schedule 10.1.13, since March 31, 1995
(a) the operations of the Business have been carried on only in
the ordinary course consistent with past practice, and (b)
there has been no material adverse change, and there has been
no event or circumstance which is reasonably anticipated to
result in a material adverse change with respect to the
Business, the Existing Franchises, or the System or its
component parts.
10.1.14 Except as provided on Schedule 10.1.14, the Company has timely
filed or otherwise timely secured extensions for filing with
the appropriate federal, state, local and foreign governmental
authorities all tax returns and information returns required by
it to be filed, and there will remain on the date of Closing no
unpaid taxes, assessments or public charges of any type or
nature whatsoever due and payable to any governmental agency or
authority, whether federal, state, local or foreign, including,
without limitation, any
20
income, intangible property, social security, unemployment
insurance, Worker's Compensation premiums, other employment
sales, use and other taxes, assessments or charges and any
deposits required to be made with respect thereto, which are or
could become a lien or charge against or otherwise affect any
of the assets of the Company or the System or its component
parts of the Assets transferred hereunder. The Company has not
been delinquent in the payment of any taxes, assessment,
deposit, or other charge by any governmental authority and no
liability, obligation, deficiency, or other claim is pending or
has been assessed, asserted or threatened against the Company,
the Assets, or the System or its component parts in connection
with any tax and, to the Company's knowledge, there is no basis
for any such liability. The Company has not received any notice
of assessment or proposed assessment in connection with any tax
returns and there are no pending tax examinations of or tax
claims asserted against the Company, the Assets, or the System
or any of its component parts, including without limitation,
any claim by any governmental authority in any jurisdiction
where the Company did not file tax returns, that the Company is
or may be subject to or liable for taxes imposed by that
governmental authority or jurisdiction. There are no liens,
security interests, pledges, or other encumbrances for any
taxes (other than any lien for current real property or ad
valorem taxes not yet due and payable) on the Assets, or System
or any of its component parts. No tax is required to be
withheld pursuant to Section 1445 of the Internal Revenue Code
of 1986, as amended, as a result of any of the transfers
contemplated by this Agreement and the Company will provide any
certificate required by Newco as Closing with respect thereto.
The Company has provided to Newco true, correct and complete
copies of the Company's corporate income tax return for the
fiscal year ended March 31, 1994 filed with the Internal
Revenue Service and most recent franchise/net worth tax returns
filed with each state or jurisdiction in which such returns are
required to be filed.
10.1.15 Schedule 10.1.15 is a true and complete list of all oral or
written contracts which the Company has executed which relate
to the development and operation of the System, indicating for
each such contract whether such contract is with a related
party, the nature of such relationship to the Company and the
principal terms of such contracts. Except as provided on
Schedule 10.1.15, all such contracts (a) are in full force and
effect; (b) have not been amended; (c) are not in default; and
(d) may be transferred or assigned without the consent of the
other parties to the Contract or any other third parties.
10.1.16 The Company has not employed any finder, agent, broker or other
person to act for it with respect to the transactions
contemplated by this Agreement, and the Company agrees to
indemnify, defend and save Newco harmless from and against any
claims of the finder, agent, broker or other person resulting
from its actions with respect to the transactions contemplated
hereby.
10.1.17 All of the assets and the operations of the Business of an
insurable nature and of a character usually insured by
companies of similar size and in similar businesses are insured
by the Company in such amounts and against such losses,
casualties or risks as is (a) usual in such companies and for
such assets, operations and businesses, (b) required by law,
ordinance, regulation, rule or other statute applicable to the
Company or its operations, or (c) required by any contract,
agreement, lease, commitment or other arrangement of the
Company relating to the System or its component parts and the
Company's franchising operations. Schedule 10.1.7 contains a
complete and accurate list
21
of all insurance policies held or owned by the Company relating
to the Assets, the System and its component parts and the
Company's franchising operations and now in force. All such
policies are in full force and effect and enforceable in
accordance with their terms. The Company is not now in default
regarding the provisions of any such policy, including, without
limitation, failure to make timely payment of all premiums due
thereon, and has not failed to give any notice or present any
claim thereunder in due and timely fashion. Except as set forth
in Schedule 10.1.7, the Company has not been refused, or denied
renewal of, any insurance coverage in connection with the
ownership or use of its assets or operations. In addition to
the deductibles set forth on Schedule 10.1.7, such Schedule
discloses all risks that are self-insured by the Company that
in the ordinary course of business could be insured.
10.1.18 Termination of the EMILI Agreement will not constitute or, with
the giving of notice or the passage of time or both, would not
constitute a violation of or a default under or a conflict with
any term or provision of the Certificate of Incorporation or
By-Laws of the Company, or any of the terms, conditions or
provisions of any agreement, contract, lease, instrument,
indenture, license, or franchise to which the Company is a
party, or by which it or any of its properties or assets is or
may be bound, or result in the creation of imposition of any
lien, claim, charge or encumbrance of any nature whatsoever
upon any of its properties or assets, or constitute a violation
of any statute, law or ordinance or any rule, regulation, order
of any governmental authority, including, without limitation,
any franchise law, rule, regulation, or order, and any
securities law, rule, regulation or order, or any judicial
decree, or require the consent or approval of any governmental
authority, lending institution or other third party. Upon
termination of the EMILI Agreement the Company will have no
further obligations or liabilities thereunder (except
obligations arising under the warrants to purchase common stock
of the Company issued in connection with the original execution
of the EMILI Agreements). The Company has heretofore provided
to Newco a true, correct and complete copy of such EMILI
Agreement. Such termination will not in any manner prohibit or
materially adversely affect Newco's prospective operations or
development of the franchise business in Canada or elsewhere.
10.1.19 Except as provided in Schedule 10.1.19, the Company has not
executed nor is it actively negotiating or considering
negotiating a master franchise development, area development,
multiple franchise or similar agreement with any other entity
other than the EMILI Franchise Agreement covering any
jurisdiction, city, state, country or other geographical area.
10.1.20 The Company is not, and will not be, on the date of Closing, a
party to any union, collective bargaining or similar agreement
relating to the Business.
10.1.21 The Company has not used any business names, trade names and
other names to conduct or carry out the Business in the last
five (5) years.
10.1.22 No representation or warranty made by the Company or any
statement, certificate or instrument furnished or to be
furnished to Newco pursuant to this Agreement or any other
document, agreement or instrument referred to herein or therein
contains or will contain any untrue material statement of fact
or omit or will omit to state a material fact necessary to make
the statements contained therein not misleading.
22
10.1.23 Except as provided in Schedule 10.1.23, the consummation of the
transactions contemplated by this Agreement will not give rise
to any liability for any employee benefits, including, without
limitation, liability for severance pay, unemployment
compensation, termination pay or withdrawal liability, or
accelerate the time of payment or vesting or increase the
amount of compensation or benefits due to any of the Company's
Employees. As used in this Agreement, the term the "Company's
Employees" means (i) all active or former employees or
directors of the Company, (ii) all employees of the Company
who, as of the Closing, are on workers' compensation, military
leave, other approved leaves of absences, long-term or
short-term disability, non-occupational disability and
employees on layoff with recall rights, (iii) all individuals
who are covered under any employee benefit plan as a result of
previously being described in (i) or (ii) above, and (iv)
beneficiaries or dependents under any employee benefit plan or
anyone described in (i) through (iii) above.
10.1.24 that the Company has not issued or given any written consent
permission or authorization to any of the Existing Franchisees
to use the term "Microtel" or any other of the Proprietary
Marks as part of the corporate or other legal name of such
Franchisee.
10.1.25 No provision of the Existing Franchise Agreements restricts or
prohibits the right of Newco, as franchisor, to collect and
administer in its sole discretion (but in accordance with
applicable law) any amounts designated as reservation,
advertising, or marketing fees.
10.2 Newco represents and warrants to the Company as follows:
10.2.1 Newco (a) is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware; (b) is
qualified and licensed to do business and is in good standing in
all jurisdictions in which the nature of its business or its
properties makes such qualification or licensing necessary,
except as set forth on Schedule 10.2.1 and (c) has all requisite
legal power and authority to own or lease its properties and
assets and to carry on its business as now conducted.
10.2.2 This Agreement has been duly and validly executed and delivered
by Newco. The execution and delivery by Newco of this Agreement,
and the consummation of the transactions contemplated hereby,
shall be duly and validly authorized and approved at the time of
Closing by all necessary and proper action on the part of the
board of directors of Newco. Newco has all requisite legal and
corporate power and authority to enter into, perform and carry
out this Agreement. No consent of any third parties or
governmental agencies is required to be taken or obtained by
Newco in connection with the authorization and approval of the
execution and delivery of this Agreement. The representatives of
Newco who have executed this Agreement have been duly authorized
to do so by Newco, and no law, ordinance, judicial decree, order
or regulation prohibits Newco from executing this Agreement or
performing any of its obligations hereunder.
10.2.3 Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will
constitute or, with the giving of notice or the passage of time
or both, would constitute a violation of or a default under or
conflict with any term or provision of the Certificate of
Incorporation or By-Laws of Newco, or any
23
of the terms, conditions or provisions of any agreement,
contract, lease, instrument, indenture, license or franchise to
which Newco is a party, or by which it or any of its properties
or assets is or may be bound, or result in the creation or
imposition of any lien, claim, charge or encumbrance of any
nature whatsoever upon the properties or assets of Newco, or
constitute a violation on the part of Newco of any statute, law
or ordinance or any rule, regulation, order of any governmental
authority or any judicial decree, or require Newco to obtain the
consent or approval of any governmental authority, lending
institution or other third party.
10.2.4 This Agreement constitutes a legal, valid and binding obligation
of Newco, enforceable against Newco in accordance with its
terms.
10.2.5 Except as provided on Schedule 10.2.5, there are no actions,
suits or proceedings pending or, to the knowledge of Newco,
threatened against Newco before or by any court or federal,
state, county, municipal or other governmental department,
commission, board, bureau, agency or instrumentality, domestic
or foreign, or any arbitrator or panel of arbitrators. Newco is
not in violation of any laws, statutes, ordinances, regulations,
orders, writs, injunctions, decisions, awards or decrees of any
court or federal, state, county, municipal or other governmental
department, commission, board, bureau, agency, court or
instrumentality, domestic or foreign, or any arbitrator or panel
of arbitrators, relating to Newco or its business and Newco has
no knowledge of any basis for any claim for compensation or
damage or otherwise from any violation of the foregoing.
10.2.6 Newco has not taken any action or failed to take any action for
purposes of compliance with applicable state or federal
securities laws which would materially limit the ability of
Newco to carry out its obligations hereunder.
10.2.7 Except as provided on Schedule 10.2.7, there are no material
restrictions in the existing employment contract of the
individual identified as the Chief Executive Officer candidate
of Newco such that such individual could not be employed by
Newco.
10.2.8 No representation or warranty made by Newco or any statement,
certificate or instrument furnished or to be furnished to the
Company pursuant to this Agreement or any other document,
agreement or instrument referred to herein or therein contains
or will contain any untrue material statement of fact or omit or
will omit to state a material fact necessary to make the
statements contained therein not misleading.
10.3 For purposes of this Section 10 the terms "knowledge" or "awareness"
or words of similar comport mean facts, circumstances or conditions known to
or, which by reason of job function, responsibility or circumstances, and
after such inquiry as such person or entity should have reasonably conducted
under the circumstances, should have been known by, any person or entity or,
if such person or entity is a corporation, any officer or director of such
corporation.
11. CONFIDENTIAL INFORMATION.
11.1 The Company shall not, during the term of this Agreement and prior to
a Reversion of Microtel Rights (as defined hereinafter) communicate, divulge,
or use for the benefit of any other person, partnership, association,
corporation or other entity other than Newco any confidential information,
knowledge, or know-
24
how concerning the methods of operation of the System and the Microtel Hotels
or Suites; and further the Company shall not, during the term of this
Agreement or following any Reversion of Microtel Rights communicate, divulge,
or use any confidential information, knowledge or know-how relating to Newco
(including for purposes of this section the affiliates and subsidiaries of
Newco), or the business of Newco which may be known or communicated in
writing, verbally or otherwise to the Company, or which the Company may be
apprised by virtue of Newco's operation hereunder. The Company shall divulge
such confidential information only to such employees of the Company as must
have access to it in order to exercise the Company's rights or perform the
Company's obligations hereunder. Without limitation, any and all information,
knowledge, know-how, and techniques which Newco reasonably designates as
confidential shall be deemed confidential for purposes of this Agreement.
11.2 "Confidential information, knowledge, or know-how relating to Newco
or the business of Newco" shall not include any information, knowledge or
know-how disclosed or made known to the Company provided that: (i) the source
of such information is not known by the Company to be subject to a
confidentiality agreement; (ii) such information has been or is independently
acquired or developed by the Company without reference to any other
confidential information; or (iii) such information was or becomes generally
available to the public on a non-confidential basis.
11.3 Subject to and not in limitation of any and all of Newco's rights
hereunder (including without limitation those relating to the representations
and warranties given by the Company hereunder and relating to the terms,
covenants and conditions contained herein), Newco acknowledges that all
information furnished under this Agreement is provided without a specific
representation, warranty, or guarantee by the Company as to its successful
and profitable use, and acknowledges in that specific respect that the
Company does not guarantee the success or profitability of Newco's business
in any manner whatsoever.
12. ACCOUNTING AND RECORDS.
12.1 During the term of this Agreement from and after Closing, Newco shall
maintain, and preserve for the purposes of accounting for payments to be made
to the Company hereunder for a period of five (5) years from the dates of
their preparation, full, complete, and accurate books, records, and accounts
pertaining to the royalties and other fees paid by Franchisees to Newco in
accordance with the Uniform System of Hotel Accounts (8th Rev.Ed. 1986), as
it may be amended or supplemented from time to time, or such other system of
accounting as may be designated by the Company and agreed to by Newco, and in
the form and manner reasonably prescribed by the Company and agreed to by
Newco from time to time in writing. The Company or its designated agents
shall have the right, upon seven (7) days notice and without material
interruption to Newco's business, to examine, copy, and inspect, at Newco's
place of business, at the Company's expense, such books, records, and
accounts. The Company shall also have the right, upon reasonable notice
agreed to by Newco and without material interruption to Newco's business, to
have an independent audit made of such books, records, and accounts of Newco,
at the Company's expense. Subject to the notice and cure provisions of
Sections 15 and 16 hereof, if such an inspection or audit of Newco discloses
an intentional underpayment by Newco to the Company of five percent (5%) or
more of the total amount that should have been paid to the Company during any
six (6) month period, Newco shall, in addition to repayment of such
understated amount with such interest at the rate calculated pursuant to
Section 6.5 hereof, reimburse the Company for any and all reasonable costs
and expenses incurred in connection with the inspection or audit (including,
without limitation, reasonable accounting and attorneys' fees). In addition
to any rights Newco may have pursuant to this Agreement, Newco shall have the
right to review all records and documents related to any such independent
audit by the Company.
25
12.2 During the term of this Agreement from and after Closing, Newco shall,
at its expense, submit to the Company no later than (i) the twentieth day of
each month; (ii) within forty-five (45) days after the end of each fiscal
quarter of Newco; and (iii) within one hundred twenty (120) days after the end
of each fiscal year of Newco, periodic reports accurately reflecting occupancy
data and Revenues Subject to Royalties for each Microtel Hotel during the
applicable prior period, and all continuing monthly royalty fees and all other
fees paid by Franchisees to Newco during such periods. The Company reserves the
right to require submission as received by Newco of audited annual financial
statements, prepared at Newco's expense, by an independent certified public
accountant regularly selected by Newco. All audited annual financial statements
shall be prepared according to generally accepted accounting principles.
13. INSURANCE
13.1 During the term of this Agreement, Newco shall procure as soon as is
reasonably practicable after Closing, and, following Closing, Newco and the
Company shall maintain in full force and effect at all times during the term
of this Agreement, at each party's respective expense, an insurance policy or
policies determined by each respective party in its reasonable business
judgment to be necessary to protect Newco and the Company, and their
respective officers, directors, partners, employees, agents, and
shareholders, against those certain demands, claims, losses, liabilities, or
expenses determined by each respective party in its reasonable business
judgment to be necessary in an amount reasonably determined by each party to
be necessary. Such insurance policy or policies shall be consistent with
industry standards. Newco shall have the right to use self insurance upon
completion of the Development Schedule.
13.2 Each party's obligation to obtain and maintain the foregoing policy
or policies shall not be limited in any way by reason of any insurance which
may be maintained by the other party, nor shall each party's performance of
such obligation relieve it of liability under the indemnity provisions set
forth in this Agreement.
13.3 Prior to the commencement of any operations by Newco under this
Agreement, and thereafter at least thirty (30) days prior to the expiration
of any policy, each party shall deliver to the other party certificates or
other evidence of insurance demonstrating the proper coverage as required
hereunder.
14. TRANSFERABILITY OF INTEREST
14.1 Subject to the prior written consent of Newco (and subject to any
applicable restrictions on transfer set forth in the applicable franchise
agreement), the Company shall have the right to transfer, sell, assign, or
otherwise encumber all or any part of its rights or obligations under this
Agreement to any person or legal entity. Newco's prior written consent shall
be required to such transfer, sale, assignment or other encumbrance, but
Newco's discretion shall be limited to considerations based on whether the
party (or future party) to whom such rights or obligations are transferred,
sold, assigned or otherwise encumbered would qualify as a franchisee of
Newco. Any permitted transfer and assignment of such rights or obligations
pursuant to this Agreement by the Company shall not constitute a novation of
this Agreement.
14.2 In the event that the Company shall propose to sell, transfer or
assign either directly or indirectly, through a transfer of control or
otherwise, any or all of its rights hereunder to any third party or entity or
any third party shall propose to purchase or acquire such rights, the Company
shall give notice of such intention to Newco, and the Company shall in good
faith give Newco the opportunity to bid and negotiate to purchase or acquire
such rights. For the purposes of this Agreement, "control" shall mean the
possession, direct or indirect, of the power to direct or cause the direction
of the management and policies
26
of a person, corporation or other business entity, whether through the
ownership of voting securities, by contract, or otherwise.
14.3 Subject to the provision of Section 14.6 hereof, in the event that
Newco shall propose to sell transfer or assign, either directly or
indirectly, through a transfer of control or otherwise, all or substantially
all the Assets acquired hereunder to any unrelated third party or entity
pursuant to a bona fide offer to purchase or acquire such Assets, Newco shall
give notice of such intention to the Company, setting forth the terms of the
offer. The Company shall have the right of first refusal, to be exercised by
written notice to Newco within twenty (20) days, to purchase such Assets on
terms and conditions that are economically equivalent in all material
respects, including relative economic strength of the Purchaser and all
future economic consideration to be received. Should the Company not agree
with the decision of Newco as to whether such terms and conditions are
economically equivalent, then the Company shall have the right within ten
(10) days of notice of such decision to demand that such issue be arbitrated
within ten (10) days by an independent and nationally recognized investment
banking firm to be mutually agreed upon (with neither party unreasonably
withholding its consent as to choice of such investment banking firm),
provided, however, any such demand or arbitration must be final and concluded
within thirty (30) days of the date of notice of the decision of Newco. In
the event that the Company shall fail or decline to exercise its right of
first refusal, Newco may proceed with the sale upon the proposed terms;
provided, that any amounts not yet paid under Section 6.3 hereof shall be due
and payable upon transfer. If Newco shall subsequently fail to close or
transfer in accordance with the terms disclosed to the Company, then the
right of first refusal shall apply to any future proposal.
14.4 Notwithstanding any other contrary provision contained herein, Newco
may sell, transfer or assign any part or all of the Assets or any of its
rights or obligations acquired hereunder without notice to or consent of
Company, to any related or affiliated party where such entity has a net book
value of at least $5.0 million dollars. In addition, prior to Closing, Newco
may assign all or any portion of its rights to a wholly owned operating
subsidiary or to a separate legal entity (including but not limited to a
limited liability company) having similar management, ownership and
capitalization as Newco which subsidiary or other legal entity satisfies the
conditions to Closing, and Newco may sell shares (or other interests) to its
subscribers.
14.5 Notwithstanding any other provision of this Agreement, the Company's
right of first refusal shall not apply to the assignment, transfer, pledge,
or hypothecation by Newco of this Agreement, or any of the Assets acquired in
this Agreement, or all and any part of Newco, to a creditor as collateral
security for loans made directly to or for the benefit of Newco's business
hereunder; provided however, that Newco shall use its best efforts to have
such creditor agree that if such creditor exercises its rights under its
agreement(s) with Newco, and intends to sell, assign, transfer, or otherwise
dispose of the pledged collateral, the secured creditor will give the Company
not less than thirty (30) days notice of any public sale or proposed
disposition, and the secured creditor shall first offer to the Company the
right to acquire such pledged collateral on the same terms and conditions
under which the secured creditor intends to dispose of it.
14.6 All limitations (either expressly set forth or implied herein) on the
ability of Newco to freely sell, transfer, or assign all or any part of the
Assets, stock, ownership, interests, or any of its rights hereunder, and all
other rights of the Company under this Section 14, including but not limited
to the Company's right of first refusal pursuant to Sections 14.3 or 14.5,
shall terminate upon the occurrence of the earlier of (i) the execution by
Newco and its underwriters of a firm (and not a best efforts) underwriting
agreement underwriting an offering of Newco securities; or (ii) the
completion by Newco of the Development Schedule.
27
14.7 The consent of the Company or of Newco to a transfer of any interest in
the rights granted herein shall not constitute a waiver of any claims such party
may have against the transferring party, nor shall it be deemed a waiver of the
right of the Company or Newco, as applicable, to demand exact compliance with
any of the terms of this Agreement by the transferee.
15. DEFAULT BY NEWCO AFTER CLOSING.
15.1 An Event of Default shall have occurred if from or after the date of
Closing, (i) Newco fails to maintain its registrations which materially
affects Newco's ability to sell or maintain franchises; (ii) subject to the
cure provisions of Section 1.10 hereof, Newco fails to open or have under
construction the minimum number of Microtel Hotels pursuant to Section 1.9
hereof; (iii) Newco fails to pay to the Company any amounts determined to be
due hereunder; or (iv) Newco otherwise fails to fulfill its material
obligations hereunder.
15.2 The foregoing notwithstanding, Newco shall not be deemed to be in
default and there shall be no Event of Default hereunder unless or until
Newco shall have received written notice of the alleged default and shall
have had thirty (30) days to cure such alleged default or to take such
actions to initiate a cure of such default pursuant to reasonable efforts by
Newco to be substantially completed or performed within a reasonable time.
Upon cure, substantial completion or performance by Newco, this Agreement
shall remain in full force and effect as if no such breach or default or
alleged breach or default shall have existed.
16. OBLIGATIONS DUE TO POST CLOSING DEFAULT BY NEWCO.
16.1 Until the time of occurrence of either of the events set forth in
Section 14.6, upon the occurrence of an Event of Default pursuant to Section
15 from and after the date of Closing and failure by Newco to cure within the
applicable notice and cure period therein:
16.1.1 Newco shall immediately cease to operate the Microtel Business
operated pursuant to this Agreement and shall not thereafter,
directly or indirectly, represent to the public or hold itself out
as a present franchisor of Microtel Hotels, and shall have no right
or obligation to franchise or license any other party to establish
or operate any Microtel Hotel for which a franchise agreement has
not been executed by Newco at the time of termination.
16.1.2 Newco shall immediately execute and deliver to the Company
assignments and transfers of the Proprietary Marks and such other
assignments as may be required to vest in the Company all rights in
and to the intellectual property then constituting the Microtel
System.
16.1.3 Subject to the provisions of Section 16.2 hereof, Newco shall
immediately transfer and assign all Newco's rights and obligations
in all of the Microtel franchise agreements to the Company, and the
Company shall assume such rights and obligations; and Newco shall
immediately provide to the Company all records in Newco's
possession prepared or retained in connection with Newco's
obligations under Section 12 hereof, and all records relating to
the Microtel Hotels operating under this Agreement.
16.1.4 Newco shall immediately and permanently cease to use the
Proprietary Marks and distinctive logos, slogans, signs, symbols,
and forms associated with the System.
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16.1.5 Newco shall immediately execute and deliver to the appropriate state
and international authorities documents evidencing the termination of
its registration to sell Microtel Hotel franchises.
16.1.6 To the extent Newco continues or subsequently begins to operate any
other business, Newco shall not use any reproduction, counterfeit,
copy, or colorable imitation of the Proprietary Marks, either in
connection with such other business or the promotion thereof, which
is likely to cause confusion, mistake, or deception, and shall not
utilize any designation of origin or description or presentation
which falsely suggests or represents an association or connection
with the Company.
16.1.7 Newco shall immediately pay all sums owing to the Company and its
affiliates pursuant to this Agreement including all damages, costs,
and expenses, including but not limited to reasonable attorney's
fees and expenses incurred by the Company as a result of the
default and the enforcement of the Company's rights hereunder.
16.1.8 Newco shall not have the right to claim any indemnity,
reimbursement, or compensation for alleged loss of clientele or
goodwill, loss of profits or anticipated sales, or any other
reimbursement for losses or damages resulting from such expiration
or termination.
16.1.9 Notwithstanding any other contrary provision contained herein,
Newco or its affiliates shall continue to operate any Microtel
Hotel pursuant to a franchise agreement.
16.2 Following the reversion to the Company of certain rights to the
System and Assets as specifically set forth in Section 16.1 hereof (the
"Reversion of Microtel Rights"), the Company shall pay to Newco (less the
amount to be paid to the Company pursuant to Section 6.2 hereof), on a
monthly basis, all Franchise Royalties received from each New Franchisee so
long as such New Franchisee (or its successor assign) remains a Franchisee,
including, without limitation, by renewal, amendment, execution or a new
Franchise Agreement, or otherwise, less the following: (i) a servicing fee
equal to seventy-five one hundredths of one percent (0.75%) of all Revenues
Subject To Royalties; and less, (ii) any reservation or marketing fees
collected by the Company (but only if the Company continues to operate a
central reservation system). Newco shall have and retain the right to collect
directly for its own account any amounts owing to Newco hereunder following
any such Reversion of Microtel Rights. The Company shall also provide to
Newco accounting and records similar to those provided to the Company
pursuant to Section 12 hereof, as well as all other rights or remedies
otherwise available to the Company in connection with collection of any
amounts owing hereunder.
16.3 Notwithstanding any other provision to the contrary contained in this
Agreement, no Reversion of Microtel Rights shall result from the occurrence
of an Event of Default by Newco after the occurrence of the earlier of the
events described in Section 14.6 herein.
16.4 Notwithstanding any other provision to the contrary contained herein,
no Reversion of Microtel Rights shall be effective until a court of competent
jurisdiction shall have finally determined that an Event of Default which
could result in a Reversion of Microtel Rights shall have occurred and until
Newco shall have had the opportunity to cure such default following such
final determination by payment of any amounts so finally determined to be
owed by Newco to the Company or by taking such actions necessary to cure such
default and unless Newco shall not so cure within thirty (30) days of such
final determination such default or take such actions to initiate a cure of
such default pursuant to reasonable efforts by Newco to be
29
substantially completed or performed within a reasonable time. Upon cure,
substantial completion or performance by Newco, this Agreement shall remain
in full force and effect as if no such breach or default or alleged breach or
default shall have existed as provided for in this Section 16.4.
16.5 Notwithstanding any other provision to the contrary contained herein,
if a Reversion of Microtel Rights shall occur, any and all of Newco's other
rights under and interest in this Agreement including but not limited to
Newco's right of indemnification under Section 22 shall survive such
termination.
17. DEFAULT BY THE COMPANY AFTER CLOSING.
17.1 Following Closing, an Event of Default shall have occurred if from or
after the date of Closing, (i) the Company shall fail to pay to Newco any
amounts determined to be due hereunder after written notice; or (ii) the
Company shall otherwise fail to fulfill its material obligations hereunder.
17.2 Provided, however, the Company shall not be deemed to be in default
and there shall be no Event of Default hereunder unless or until the Company
shall have received written notice of the alleged default and shall have had
thirty (30) days to cure such alleged default pursuant to reasonable efforts
by the Company to be substantially completed or performed within a reasonable
time. Upon cure, substantial completion or performance by the Company, this
Agreement shall remain in full force and effect as if no such breach or
default or alleged breach or default shall have existed.
18. OBLIGATIONS DUE TO POST CLOSING DEFAULT BY THE COMPANY.
18.1 Upon occurrence of an Event of Default pursuant to Section 17 from
and after the date of Closing and failure by the Company to cure within the
applicable notice and cure period therein, Newco, at the sole option of
Newco, shall have the right to exercise any one or more of the following
rights and remedies: (i) exercise its rights to indemnification pursuant to
the provision of Section 22 hereof and to set off from amounts payable to the
Company all losses, costs and expenses incurred in connection therewith in
accordance with the provisions of Section 23 hereof; (ii) to cease the
entering into of any agreements with the Company as franchisee, or to accept
the tender or offer by the Company of any of the Existing Retained Properties
or Substitute Retained Properties; (iii) to declare the right of the Company
to acquire any Additional Franchises (including by not limited to franchises
for Suites) terminated and of no further force and effect; (iv) to seek
injunctive relief where applicable; or (v) to take such other action or seek
such other remedy as may otherwise be available to Newco under the terms
hereof or otherwise available at law or in equity.
19. POST CLOSING COVENANTS OF THE COMPANY.
19.1 The Company hereby covenants and agrees with Newco:
19.1.1 Immediately after the Closing, the Company shall terminate all
registrations or filings relating to the offering and sale of
franchises under the System.
19.1.2 During the term of this Agreement, following Closing and until the
occurrence of a Reversion of Microtel Rights, the Company, its
directors, its officers or any of its affiliates (directly or
indirectly) shall not enter into or operate any business which
develops or offers or sells franchises for a hospitality or hotel
product (including a Suites Hotel type concept) in the super budget
or hard budget category. This provision shall not be
30
construed to restrict the Company from developing, owning or
managing individual properties of any other category, brand or
type.
19.1.3 During the term of this Agreement, following Closing and until the
occurrence of a Reversion of Microtel Rights, the Company shall not
solicit as a potential venture partner, investor, co-developer,
owner, or other participant in any new hotel development or
property utilizing the Microtel concept, or as a customer of the
Company, any Existing Franchisee, or any new Franchisee, or any
party who Newco is actively pursuing as a prospective franchisee
for a Microtel Hotel other than for those parties set forth on
Schedule 19.1.3 attached hereto.
19.1.4 During the term of this Agreement, following Closing and until the
occurrence of a Reversion of Microtel Rights, the Company as part
of its ongoing Hotel development activities: (i) shall comply at
all times with the limitations and restrictions of applicable law
regarding the solicitation of any potential venture partner,
investor, co-developer, owner, or other participant in any new
hotel development or property utilizing the Microtel concept; (ii)
shall not act as a franchise salesperson or broker on behalf of or
in the name of Newco, or hold itself out as a salesperson, broker,
or representative of Newco; (iii) shall make no representations or
warranties regarding a potential Microtel franchise to any
potential venture partner, investor, co-developer, or other
participant in any new Microtel hotel development; (iv) shall
promptly report to Newco any such potential venture partner,
investor, co-developer, owner, or other participant who could be
classified as a potential offeree or franchisee, so that Newco may
properly register each person or entity and provide to such person
or entity a current UFOC disclosure package; and (v) shall promptly
refer to Newco all leads for potential franchisees made known to
the Company or other inquiries regarding acquiring a franchise.
20. NOTICES.
All notices to either of the parties hereto desired or required to be
given hereunder shall be in writing, addressed to recipient as specified
below, and shall be deemed delivered upon the earlier of: (i) the time and
date of actual delivery by hand, mail, or express delivery; or (ii) three (3)
days following deposit thereof in the United States Mail, postage prepaid,
certified, returned receipt requested. All such notices shall be addressed as
follows:
To the Company: Microtel Franchise and
Development Corporation
One Airport Way, Suite 200
Rochester, New York 14624
Attn: Bruce A. Sahs
Telephone: 716-436-6000
Facsimile: 716-436-1865
31
and the Company's counsel:
Boylan, Brown, Code, Fowler,
Vigdor & Wilson, L.L.P.
900 Midtown Tower
Rochester, New York 14604
Attn: Alan S. Lockwood, Esq.
Telephone: 716-232-5300
Facsimile: 716-232-3528
To Newco: U.S. Franchise Systems, Inc.
196 East 75th Street
Apt. 19-C
New York, New York 10021
Attn: Neal K. Aronson
Telephone: 212-772-6741
Facsimile: 212-772-0574
and Newco's counsel: Bodker, Ramsey & Andrews
A Professional Corporation
1800 Peachtree Street, N.W.
Suite 615
Atlanta, Georgia 30309
Attn: Brian D. Bodker
Telephone: 404-351-1615
Facsimile: 404-352-1285
The address specified for notice to any party may be changed pursuant to
written notice by such party delivered in accordance herewith. Specifically
for purposes of Section 29 hereof, written notice may be given by facsimile
and shall be deemed delivered at the time of transmission.
21. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
21.1 All representations, warranties, agreements and covenants made or
undertaken by the parties in this Agreement are material, have been relied
upon by each party hereto, shall survive the Closing hereunder and the
termination of this Agreement, unless specifically provided to the contrary
herein, and shall not merge in the performance of any obligation by any party
hereto.
21.2 The representations and warranties made by the Company and contained
in Section 10.1 of this Agreement and the representations and warranties made
by Newco and contained in Section 10.2 of this Agreement are deemed by the
parties hereto to have been made by the Company and Newco, as the case may
be, on and as of both the date hereof and the Closing Date with the same
force and effect as if this Agreement were executed by the Company and Newco
on each of the date hereof and the Closing Date. The Company acknowledges and
agrees that prior to the Closing Date, Newco intends to perform such
investigation of the Company, its business operations and assets as it may
deem necessary or appropriate; however, no such investigation by Newco will
diminish or obviate any of the representations, warranties, covenants or
agreements made or to be performed by the Company pursuant to this Agreement
or Newco's right to fully rely upon such representations, warranties,
covenants and agreements.
32
INDEMNIFICATION.
22.1 Obligation of the Company to Indemnify. The Company hereby covenants
and agrees to indemnify, defend and hold Newco (for purposes of this section,
Newco to be deemed to include the officers, directors, stockholders,
employees, agents, attorneys, and affiliates of Newco) harmless from and
against all Losses (as hereinafter defined) asserted against, imposed upon or
incurred by Newco by reason of, resulting from, arising out of, based upon or
otherwise in respect of the following:
22.1.1 any action or inaction of the Company or any other matter, thing
or occurrence related to the subject of this Agreement that
accrued, occurred, or arose prior the Closing Date;
22.1.2 any breach or inaccuracy in any representation or warranty made
by the Company pursuant to this Agreement;
22.1.3 any breach of any covenant or agreement made or to be performed
by the Company pursuant to this Agreement;
22.1.4 any and all liabilities, indebtedness or other obligations not
expressly assumed by Newco pursuant to this Agreement;
22.1.5 any claim by any broker, finder, agent or other person employed
or allegedly employed by the Company in connection with the
transactions contemplated by this Agreement;
22.1.6 the conduct by the Company of the Business or System, or
ownership of the Assets prior to the Closing Date;
22.1.7 the conduct by the Company of any business or activity other
than the Business, either before or after Closing.
22.1.8 the operation of the Company's ongoing business subsequent to
the Closing Date, including without limitation with respect to
any Loss related to the operation or ownership by the Company of
Retained Properties (but not including any Loss solely caused by
Newco's breach of those obligations as franchisor under the
Existing Franchise Agreements which are specifically to be
assumed by Newco hereunder).
22.2 Obligation of Newco to Indemnify. Newco agrees to indemnify, defend
and hold the Company (for purposes of this Section, Company to be deemed to
include the officers, directors, stockholders, employees, agents, attorneys,
and affiliates of Company) harmless from and against all Losses asserted
against, imposed upon or incurred by the Company by reason of, resulting
from, arising out of, based upon or otherwise in respect of the following:
22.2.1 any breach or inaccuracy in any representation or warranty made
by Newco pursuant to this Agreement;
22.2.2 any breach of any covenant or agreement made or to be performed
by Newco pursuant to this Agreement;
33
22.2.3 any claim by any broker, finder, agent or other person employed
or allegedly employed by Newco in connection with the
transactions contemplated by this Agreement; and
22.2.4 any claim, demand, damage or cause or chose in action of any
kind or nature incurred by or asserted against the Company as a
result of or arising out of the operation of the Business by
Newco that accrues, occurs or arises for or with respect to any
period subsequent to the Closing Date, except for any claim,
demand, damage or cause or chose in action of any kind or nature
incurred by or asserted against the Company as a result of or
arising out of the operation of the Business by Newco for which
Newco shall be entitled to indemnification or the right of
set-off under any other provision of this Agreement.
22.2.5 the conduct by Newco of any other business or activity other
than the Business, either before or after the Closing.
22.2.6 the private offering conducted by Newco, provided, however, that
said Loss is not caused by any default or breach by the Company
of this Agreement.
22.3 Notice of Loss or Asserted Liability. Promptly after (a) becoming
aware of circumstances that have resulted or might result in a Loss for which
any person or persons entitled to indemnification pursuant to Section 22.1 or
Section 22.2 hereof intends to seek indemnification under such Section (the
"Indemnified Party") or (b) receipt by the Indemnified Party of written
notice of any demand, claim or circumstances which, with the lapse of time,
the giving of notice or both, would give rise to a claim or the commencement
(or threatened commencement) of any lawsuit, arbitration, proceeding or other
action that may result in a Loss (an "Asserted Liability"), the Indemnified
Party shall give notice thereof (the "Claims Notice") to any party obligated
to provide indemnification pursuant to Section 22.1 or Section 22.2 hereof
(the "Indemnifying Party"). The Claims Notice shall describe the Loss or the
Asserted Liability in reasonable detail, and shall indicate the amount
(estimated, if necessary) of the Loss that has been or may be suffered by the
Indemnified Party. The Claims Notice may be amended on one or more occasions
with respect to the amount of the Asserted Liability or the Loss at any time
prior to final resolution of the obligation to indemnify relating to the
Asserted Liability or the Loss. If a Claims Notice is not provided promptly
as required by this Section 22.3, the Indemnified Party nonetheless shall be
entitled to indemnification by the Indemnifying Party to the extent that the
Indemnifying Party has not established that it has been prejudiced by such
late receipt of the Claims Notice. Notwithstanding the foregoing sentence,
however, if the Claims Notice is not provided prior to compromise or payment
of any Asserted Liability by the Indemnified Party, the Indemnified Party
shall only be entitled to indemnification by the Indemnifying Party to the
extent that the Indemnified Party has established that the Indemnifying Party
has not been prejudiced by either such late receipt of the Claims Notice or
by the making of such compromise or payment prior to the making of the Claims
Notice.
22.4 Opportunity to Contest. Subject to the provisions of Section 22.5
hereof, the Indemnifying Party may elect to compromise or contest, at its own
expense and with counsel reasonably acceptable to the Indemnified Party, any
Asserted Liability. If the Indemnifying Party elects to compromise or contest
such Asserted Liability, it shall, within twenty (20) days (or sooner, if the
nature of the Asserted Liability so requires), notify the Indemnified Party
of its intent to do so by sending a notice to the Indemnified Party (the
"Contest Notice"), and the Indemnified Party shall cooperate, at the expense
of the Indemnifying Party, in the compromise or contest of such Asserted
Liability. If the Indemnifying Party either (i) elects not to compromise or
contest the Asserted Liability, (ii) fails to notify the Indemnified Party of
its election as herein provided, or (iii) contests its obligation to
indemnify under this Agreement, then in any such case the
34
Indemnified Party shall have the right to pay, compromise or contest such
Asserted Liability on behalf of and for the account and risk of the
Indemnifying Party. Anything in this Section 22.4 to the contrary
notwithstanding, the Indemnified Party shall (i) have the right, at its own
cost and for its own account (except as provided in Section 22.5) hereof, to
compromise or contest any Asserted Liability, and (ii) not, without the
Indemnified Party's written consent, settle or compromise any Asserted
Liability or consent to entry of any judgment which does not include an
unconditional term releasing the Indemnified Party from all Liability in
respect of such Asserted Liability. In any event, the Indemnified Party and
the Indemnifying Party may participate, at their own expense, in the contest
of such Asserted Liability. Each of the Company and Newco shall cooperate
fully with the other as to all Asserted Liabilities, shall make available to
the other as reasonably requested all information, records, and documents
relating to all Asserted Liabilities and shall preserve all such information,
records, and documents until the termination of any Asserted Liability. Each
of the Company and Newco also shall make available to the other, as
reasonably requested, its personnel, agents and other representatives who are
responsible for preparing or maintaining information, records, or other
documents, or who may have particular knowledge with respect to any Asserted
Liability.
22.5 Subrogation Rights. In the event that the Indemnifying Party shall be
obligated to indemnify the Indemnified Party pursuant to this Section 22, the
Indemnifying Party shall, upon payment of such indemnity in full, be
subrogated to all rights of the Indemnified Party with respect to the Loss to
which such indemnification relates; provided, however, that the Indemnifying
Party shall only be subrogated to the extent of any amount paid by it
pursuant to this Section 22 in connection with such Loss.
22.6 Indemnification Payments. Unless a Loss is contested pursuant to
Section 22.4 hereof or otherwise subject to insurance reimbursement from any
insurer, an Indemnifying Party shall pay to the Indemnified Party the full
amount of any such Loss within ten (10) days after the receipt by the
Indemnifying Party of notice of such Loss. With respect to any Asserted
Liability that has been contested, the Indemnifying Party shall pay the full
amount of any Loss resulting therefrom within ten (10) days of the date the
contest has been settled, compromised or terminated or the date a final
judgment or award is rendered and no appeal is taken, and thereafter the
amount of such Loss shall bear interest at a rate equal to the lesser of two
percent (2%) per month or the maximum amount permitted by law. Newco shall be
entitled to offset from any payments due to the Company for any reason
whatsoever any amount due and owing to Newco by way of indemnification
pursuant to Section 22.1 hereof, or any other provision herein, and Newco
shall not be liable for any amounts so offset. Likewise, the Company is
entitled to offset from any payments due to Newco for any reason whatsoever
any amount due and owing to the Company by way of indemnification pursuant to
Section 22.2 hereof, and the Company shall not be liable for any amounts so
offset.
22.7 For purposes of this Section 22 the term "Loss" means any and all
direct or indirect demands, claims, payments, obligations, recoveries,
deficiencies, fines, penalties, interest, assessments, actions, causes of
action, suits, losses, damages, liabilities, costs, expenses (including
without limitation (i) interest, penalties and reasonable attorneys' fees and
expenses, (ii) attorneys' fees and expenses necessary to enforce rights to
indemnification hereunder, and (iii) consultant's fees and other costs of
defense or investigation), and interest on any amount payable to a third
party as a result of the foregoing, whether accrued, absolute, contingent,
known, unknown, or otherwise as of the Closing Date or thereafter.
23. RIGHT TO SET-OFF.
If (i) a Claims Notice is given by Newco to the Company, pursuant to
Section 22, or (ii) Newco reasonably believes Newco is owed any sum under any
provision of this Agreement or otherwise by the
35
Company and the Company shall fail to pay any such sum within thirty (30)
days after demand therefor has been made by Newco, Newco may (without in any
way limiting or compromising any rights to which it may be entitled at law
for additional damages or compensation) prior to expiration of the applicable
notice and cure provision of Section 17.2 set-off against or withhold from
any sums which Newco may then owe or which Newco may later owe to the Company
up to the amount (estimated, if necessary) (i) of Loss indicated in the
Claims Notice as having been or may be suffered by Newco, or (ii) which the
Company has failed to pay Newco, and, upon demand of the Company, pay such
funds into an applicable registry of court or to any third party commercial
escrow agent to be held pending expiration of such cure period.
24. SEVERABILITY AND CONSTRUCTION.
24.1 Except as expressly provided to the contrary herein, each portion,
section, part, term, and provision of this Agreement shall be considered
severable. If, for any reason, any term or provision herein is determined to
be invalid and contrary to, or in conflict with, any existing or future law
or regulation by a court or agency having valid jurisdiction, such shall not
impair the operation, or have any other effect upon, such other portions,
sections, parts, terms, and provisions of this Agreement as may remain
otherwise intelligible, and the latter shall continue to be given full force
and effect to bind the parties, and said invalid terms or provisions shall be
deemed not to be part of this Agreement.
24.2 Except as has been expressly provided to the contrary herein, nothing
in this Agreement is intended, nor shall be deemed to confer any rights or
remedies created or granted by this Agreement upon any person or legal entity
other than Newco, the Company, the officers, directors, and employees of
Newco and the Company, and such respective successors and assigns of Newco
and of the Company as may be contemplated by Section 14 hereof.
24.3 Any provision or covenant of this Agreement which expressly or by its
nature imposes obligations beyond the expiration or termination of this
Agreement shall survive such expiration or termination.
25. APPLICABLE LAW.
25.1 This Agreement shall be interpreted and construed under the laws of
the State of Georgia and shall be treated in all respects as a Georgia
contract. In the event of any conflict of law, the laws of the State of
Georgia shall prevail, without regard to the application of conflict-of-law
rules.
25.2 No right or remedy conferred upon or reserved to the Company or Newco
by this Agreement is intended to be, nor shall be deemed, exclusive of any
other right or remedy herein or by law or equity provided or permitted, but
each shall be cumulative of every other right or remedy.
25.3 Nothing herein contained shall bar the Company's or Newco's right to
seek and obtain injunctive relief in any court of competent jurisdiction
against threatened conduct that will cause the Company or Newco loss or
damages, under the applicable rules for obtaining specific performance,
restraining orders, preliminary injunctions, and any other injunctive relief.
The non-prevailing party shall pay all court costs and reasonable attorneys'
fees and expenses incurred by the prevailing party in obtaining such relief.
26. ENTIRE AGREEMENT.
This Agreement, the documents referred to herein or related to this
Agreement, and the Schedules and Exhibits hereto, constitute the entire,
full, and complete agreement between the Company and Newco
36
concerning the subject matter hereof and supersede any and all prior
agreements. No amendment, change, or variance from this Agreement shall be
binding on either party unless mutually agreed to by the parties and executed
by their authorized officers or agents in writing.
27. MISCELLANEOUS BUSINESS TERMS.
27.1 At Closing the Company will issue to Newco warrants to purchase
100,000 shares of the Company's common stock at an exercise price equal to
the closing price on July 16, 1995. The form of warrant is attached hereto as
Exhibit "E".
27.2 Subject to the Company providing complete Directors and Officers
liability insurance satisfactory to Newco and subject to the Company
providing satisfactory contractual indemnification, Newco shall use its best
efforts to have, during the term of this Agreement from and after the date of
Closing, the Chief Executive Officer candidate of Newco agree to serve on the
Board of Directors of the Company.
27.3 During the term of this Agreement from and after the date of Closing,
E. Anthony Wilson, or a Company designee, will be offered a permanent seat on
Newco's Franchisee Advisory Board.
27.4 During the term of this Agreement from and after the date of Closing,
the Company shall have the right to purchase key man insurance upon the life
of the Chief Executive Officer of Newco in an amount mutually determined by
Newco and the Company, and Newco shall cooperate in all respects to enable
the Company to obtain such insurance.
28. MISCELLANEOUS.
28.1 Cooperation of Parties. Newco and the Company will fully cooperate
with each other and their respective counsel and accountants in connection
with all steps to be taken as part of their obligations under this Agreement.
Newco and the Company will use their best efforts to cause the conditions to
the other party's obligation to close to be fulfilled on or prior to the
Closing Date.
28.2 Transfer Documents. The parties hereto will at the Closing or at any
time thereafter deliver and/or execute such further instruments as may
reasonably be requested by the other party which are necessary to or
appropriate with respect to the consummation of the transactions described
herein. None of the documents or instruments requested hereunder shall be
required to contain an undertaking or representation not contained in this
Agreement or be required if inconsistent with the understandings and
representations contained in this Agreement.
28.3 Headings. The headings of the articles and sections of this Agreement
are inserted for convenience only and shall not constitute a part hereof.
28.4 Waiver. There can be no waiver of any term, provision, or condition
of this Agreement which is not in writing signed by both parties hereto.
28.5 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
28.6 Time. Time is and shall be of the essence of this Agreement.
37
29. OFFER TO ACCEPT.
29.1 This Agreement has been executed by the Company as a continuing and
irrevocable offer to Newco to remain open for acceptance by Newco no later
than 5:00 p.m. Eastern Daylight Time on Monday, September 11, 1995 (the
"Expiration Time and Date"). The Company acknowledges and agrees that Newco,
the officers, directors and stockholders of Newco, and the Chief Executive
Officer candidate of Newco, intend to undertake material and significant
actions based upon and in reliance on such offer and accordingly, that such
offer shall be irrevocable by the Company until the Expiration Time and Date
shall have passed. Newco may accept this offer by delivery of written notice
of acceptance to the Company as provided for herein prior to passing of the
Expiration Time and Date. Should the Expiration Time and Date pass without
the delivery of such acceptance, such offer shall be deemed withdrawn and
this Agreement of no further force and effect. Should such offer be accepted
by Newco, the parties shall cooperate to fully execute multiple counterparts
of this Agreement as soon as is reasonably practicable and provide a fully
executed counterpart to each party, and shall jointly issue a mutually agreed
upon public announcement of the entering into of this Agreement.
WHEREOF, the parties hereto have duly executed and delivered this
Agreement on the date first above-written.
COMPANY:
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION,
a New York corporation
/s/ E. Anthony Wilson
By:_________________________
E. Anthony Wilson, Chairman
NEWCO:
U.S. FRANCHISE SYSTEMS, INC., a Delaware
corporation
/s/ Neal K. Aronson
By: ____________________
Neal K. Aronson, Initial Director
jv-egt.901/4270
38
Exhibit "A"
The Microtel "System"
The Microtel system includes the following:
I. Architectural and design
A. Prototypical plans
1. two-story
2. three-story
(in varying footprints as available from master architect based on
existing constructed "Microtels" to fit site location and
circumstances)
B. Specification manual.
C. Design standards manual.
D. List of fixture and equipment requirements.
E. Listing of potential vendors with negotiated prices.
II. Trademarks and service marks
A. MICROTEL (word mark)
B. MICROTEL (stylized logo)
C. "Don't sleep with Amenity Creep" (word mark)
D. "First the Hotel, Then the Motel, Now Microtel." (word mark)
E. "Savings you can Sleep on." (word mark)
F. Microtel Suites (word mark)
G. Microtel & Suites (word mark)
III. Reservation Referral System
A. "800" national referral telephone number
(800-365-MTEL) (800-365-6835)
B. Existing National directories of operating Microtel units
C. Rights and obligations of "800" referral system, directory design and
distribution
IV. Operational Property & Philosophy
A. Manager/owner training-orientation program
B. Operations manual
C. Advertising, promotional material and layouts
D. Philosophy
1. Provide consistent clean, safe, contemporary guest rooms without
unnecessary amenities (including upscale decor and furnishings with
strong curb appeal).
2. Provide excellent price value to the customer at rates competitive
with other nationally franchised brands.
3. Provide a product with low turnkey construction costs and operating
costs lower than the competition.
4. Orient the franchiser to realize that quality accommodations and
pleasant, efficient service will provide a satisfied Microtel guest.
V. Other
A. Microtel investment analysis
B. Microtel newsletter
C. Prospective Franchisee sales packages
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
FRANCHISE AGREEMENT
THIS AGREEMENT, made and entered into , 19, by and between
Microtel Franchise & Development Corporation, a New York Corporation, (the
"Franchisor"), and , (the "Franchisee").
WITNESSETH:
WHEREAS, Franchisor, as the result of the expenditure of time, skill, effort,
and money has developed and owns a unique concept and system (hereinafter
"System") relating to the establishment and operation of hotels which operate
under the name "MICROTEL", "MICROTEL & SUITES", OR "MICROTEL SUITES", and
which feature modern up-scale accommodations, down-sized standard guest rooms
or two-room suites, and economy room rates;
WHEREAS, the distinguishing characteristics of the System, all of which may
be changed, improved, or further developed by Franchisor from time to time,
include, without limitation:
A. Tradenames, trademarks, and service marks, including, without
limitation, "MICROTEL", "MICROTEL & SUITES", "MICROTEL SUITES",
"SAVINGS YOU CAN SLEEP ON", and such other tradenames, trademarks, and
service marks as are now designated (and may hereafter be designated by
Franchisor in writing) as part of the System (hereinafter "Proprietary
Marks");
B. Prototypical architectural plans, designs, and layouts, including,
without limitation, site plan, floor plan, roof plan, plumbing plan,
lobby plan, electrical plan, and landscape plan;
C. A national "800" number for reservation referrals;
D. A national Microtel directory;
E. Management and personnel training, and training programs and materials;
F. Management and operational procedures and techniques as prescribed in
the Confidential Manuals (hereinafter the "Manuals");
G. Standards and specifications for construction, equipment, and
furnishings, as described in the Manuals; and
H. Advertising, marketing, and promotional programs
WHEREAS, Franchisee desires to establish and operate a Microtel hotel,
Microtel & Suites hotel, or Microtel Suites hotel, as defined in Attachment
A, under the System, at the location specified herein, and wishes to obtain a
Franchise from the Franchisor for that purpose, as well as to receive the
training and other assistance provided by Franchisor in connection therewith;
and
WHEREAS, Franchisee understands and acknowledges the importance of the
standards of quality and service developed by Franchisor and the necessity of
operating the Microtel hotel, Microtel & Suites hotel, or Microtel Suites
hotel franchised hereunder in conformity with them.
EXHIBIT A-1
REGISTERED SERVICEMARKS
Principal Register of the U.S. Patent and Trademark Office:
Mark Registration Date Registration Number Class
MICROTEL (word mark) December 31, 1991 1,670,688 35 & 42
MICROTEL (stylized) February 25, 1992 1,677,179 35 & 42
"Don't Sleep With Amenity Creep" August 22, 1989 1,553,217 35
"First the Hotel.
Then the Motel.
Now Microtel." December 31, 1991 1,670,687 42
"Savings You Can Sleep On" March 3, 1992 1,678,009 42
Microtel Suites Application filed 12/22/94 35
Microtel & Suites Application filed 12/22/94 35
Florida
Microtel and Design T10310 January 5, 1989
Georgia
Microtel and Design S-8721 October 28, 1988
Microtel S-8722 October 28, 1988
Louisiana
Microtel and Design October 17, 1988
Microtel October 17, 1988
Maine
Microtel and Design 19890086M October 14, 1988
South Carolina
Microtel and Design October 24, 1988
Utah
Microtel and Design 29,480 October 17, 1988
Microtel 29,481 October 17, 1988
Mark Registration Date Registration Number Class
Canada
Applications for Proposed Use filed with the Canadian Trademark Office:
Microtel (word mark) 2/11/91 675,754 42
(Extension filed 5/23/95)
Microtel and Design 3/8/91 381,158 35
Microtel and Design 2/11/91 675,853 42
(Extension filed 5/15/95)
"First the Hotel . . ." 2/8/91 676,203 42
(Extension filed 7/28/95)
"Savings You Can Sleep On" 2/8/91 675,205 42
(Extension filed 5/8/95)
United Kingdom
Microtel (word mark) 3/27/90 1423166 35
Microtel and Design 6/4/93-withdrawn 1423167 42
Logo only 5/26/93 1536884 42
Logo only 5/26/93 1536883 35
Mexico
Microtel and Design 2/3/95 478,447 42
Microtel** )
"Don't Sleep With Amenity Creep"**) Renewal applications pending
"Savings You Can Sleep On"** )
Note: International Class 35-Franchise Services
International Class 42-Hotel/Motel Services
EXHIBIT "B"
Current standard form of Franchise Agreement utilized by the Company
throughout the United States.
EXHIBIT C
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
FRANCHISE AGREEMENT
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
FRANCHISE AGREEMENT
TABLE OF CONTENTS
RECITALS PAGE
1. GRANT ................................................................... 2
2. TERM AND RENEWAL ........................................................ 2
3. DUTIES OF FRANCHISOR .................................................... 2
4. FEES .................................................................... 3
5. DUTIES OF FRANCHISEE .................................................... 4
6. PROPRIETARY MARKS ....................................................... 7
7. CONFIDENTIAL MANUALS .................................................... 8
8. CONFIDENTIAL INFORMATION ................................................ 9
9. ACCOUNTING AND RECORDS .................................................. 9
10. ADVERTISING ............................................................ 10
11. INSURANCE .............................................................. 11
12. TRANSFER OF INTEREST ................................................... 13
13. DEFAULT AND TERMINATION ................................................ 15
14. OBLIGATIONS UPON TERMINATION ........................................... 17
15. COVENANTS .............................................................. 19
16. CORPORATE OR PARTNERSHIP FRANCHISEE .................................... 19
17. TAXES, PERMITS, AND INDEBTEDNESS ....................................... 20
18. INDEPENDENT CONTRACTOR AND INDEMNIFICATION ............................. 20
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
FRANCHISE AGREEMENT
TABLE OF CONTENTS
(Continued)
19. APPROVALS AND WAIVERS ................................................ 21
20. NOTICES .............................................................. 21
21. ENTIRE AGREEMENT ...................................................... 22
22. SEVERABILITY AND CONSTRUCTION ......................................... 22
23. APPLICABLE LAW ........................................................ 22
24. ACKNOWLEDGEMENTS ...................................................... 23
GUARANTEE ............................................................. 24
ATTACHMENT A ......................................................... 25
ATTACHMENT B ......................................................... 26
MICROTEL FRANCHISE AND DEVELOPMENT CORPORATION
FRANCHISE AGREEMENT
THIS AGREEMENT, made and entered into , 19, by and between
Microtel Franchise & Development Corporation, a New York Corporation, (The
"Franchisor"), and, (the "Franchisee").
WITNESSETH:
WHEREAS, Franchisor, as the result of the expenditure of time, skill, effort,
and money has developed and owns a unique concept and system (hereinafter
"System") relating to the establishment and operation of hotels which operate
under the name "MICROTEL", "MICROTEL & SUITES", OR "MICROTEL SUITES", and
which feature modern up-scale accommodations, down-sized standard guest rooms
or two-room suites, and economy room rates;
WHEREAS, the distinguishing characteristics of the System, all of which may
be changed, improved, or further developed by Franchisor from time to time;
include, without limitation:
A. Tradenames, trademarks, and service marks, including, without
limitation, "MICROTEL", "MICROTEL & SUITES", "MICROTEL SUITES",
"SAVINGS YOU CAN SLEEP ON", and such other tradenames, trademarks,
and service marks as are now designated (and may hereafter be
designated by Franchisor in writing) as part of the System
(hereinafter "Proprietary Marks");
B. Prototypical architectural plans, designs, and layouts, including,
without limitation, site plan, floor plan, roof plan, plumbing plan,
lobby plan, electrical plan, and landscape plan;
C. A national "800" number for reservation referrals;
D. A national Microtel directory;
E. Management and personnel training, and training programs and
materials;
F. Management and operational procedures and techniques as prescribed
in the Confidential Manuals (hereinafter the "Manuals");
G. Standards and specifications for construction, equipment, and
furnishings, as described in the Manuals; and
H. Advertising, marketing, and promotional programs
WHEREAS, Franchisee desires to establish and operate a Microtel hotel,
Microtel & Suites hotel, or Microtel Suites Hotel, as defined in Attachment
A, under the System, at the location specified herein, and wishes to obtain a
Franchise from the Franchisor for that purpose, as well as to receive the
training and other assistance provided by Franchisor in connection therewith;
and
WHEREAS, Franchisee understands and acknowledges the importance of the
standards of quality and service developed by Franchisor and the necessity of
operating the Microtel hotel, Microtel & Suites hotel, or Microtel Suites
hotel franchised hereunder in conformity with them.
NOW THEREFORE, the parties, in consideration of the undertakings and commitments
of each party to the other party set forth herein, hereby mutually agree as
follows:
1. GRANT
Franchisor hereby grants to Franchisee, upon the terms and conditions herein
contained, the right and franchise, and Franchisee undertakes the obligation,
to develop, construct, and operate a Microtel hotel, Microtel & Suites hotel,
or Microtel Suites hotel (the "Franchised Business"), as defined in
Attachment A, and to use solely in connection therewith, Franchisor's System,
as it may be changed, improved, and further developed from time to time, at
and only at the location specified in Attachment A hereto (hereinafter
"Approved Location"). By approving the location and configuration of a
Microtel hotel, Microtel & Suites hotel, or Microtel Suites hotel, the
Franchisor does not explicitly or implicitly represent or warrant that the
Franchisee's location will be successful.
2. TERM AND RENEWAL
2.1 Except as otherwise provided in this Agreement, the term of this
franchise shall commence on the date of this Agreemnt, and unless sooner
terminated in accordance with the provisions hereof, shall expire ten years
from the "Opening Date", as specified in Section 5.6.
2.2 Franchisee may, at Franchisee's opton, renew this Franchise for one
additional period of ten years, upon compliance with the following terms and
conditions:
2.2.1 Franchisee shall not be in default of any provision of this
Agreement, or any other agreement between the parties, and shall have
substantially complied with all the terms and conditions of all such
agreemnts during the terms thereof;
2.2.2 Franchisee shall present satisfactory evidence that Franchisee
has the right to remain in possession of the Approved Location during
the entire renewal term;
2.2.3 Franchisee shall have satisfied all monetary obligations owed by
Franchisee to Franchisor and its subsidiaries and affiliates, and shall
have timely met these obligations throughout the term of this
Agreement;
2.2.4 Franchisee shall submit a renewal application to Franchisor not
less than six months nor more than twelve months prior to the end of
the initial term, and shall pay with its renewal application a renewal
fee in an amount equal to twenty-five perent of the then-current
franchisee fee being charged by Franchisor, computed on a per-room
basis;
2.2.5 Franchisee's managers and other employees shall comply with
Franchisor's then-current training requirements, and Franchisee shall,
at Franchisee's expense, upgrade the Franchised Business to conform to
the then-current standards standards and specifications of Franchisor
as may be specified in the Manuals or otherwise in writing; and
2.2.6 Franchisee and Franchisor shall execute mutual general releases,
in a form prescribed by Franchisor, of any and all claims of each party
against the other, and their respective subsidiaries, affiliates,
officers, directors, agents and employees.
3. DUTIES OF FRANCHISOR
3.1 Franchisor shall provide continuing consultation and advisory assistance
to Franchisee, in the manner at at such times as Franchisor deems advisable,
concerning the management, construction, development, operation, and
marketing of the Franchised Business.
2
3.2 Franchisor shall make available a set of prototypical plans and
specifications (not for construction) for the Franchised Business, which
shall be adapted for use by Franchisee's architects and engineers.
3.3 Franchisor shall make available to Franchisee and Franchisee's employees
an initial training program. Franchisor shall make available to Franchisee
and Franchisee's employees such continuing training programs, conferences,
and seminars as Franchisor deems appropriate. All training programs shall be
conducted at such locations as Franchisor may designate and shall be subject
to the terms and conditions as set forth in Section 5.8 of this Agreement.
3.4 Franchisor shall provide Franchisee one (1) copy of the Manuals, as more
fully described in Section 7 hereof.
3.5 Franchisor shall maintain a national directory (the "Directory"), listing
the address and telephone number of all Microtel hotels, Microtel & Suites
hotels, and Microtel Suites hotels operating under the System.
3.6 Franchisor shall maintain, and make available to Franchisee, a national
"800" number reservation referral system.
3.7 Franchisor shall have the right to establish, maintain, and administer an
advertising fund for the System, subject to the provisions of Section 10.2
hereof.
4. FEES
4.1 Franchisor acknowledges having received from Franchisee an initial
franchise fee in an amount equal to the greater ofthousand dollars
($), ordollars ($) per room, as determined by the
number of guest rooms or suites specified on Attachment A hereto. The initial
franchise fee is deemed fully earned and non-refundable upon the execution of
this Agreement, in consideration for the administrative and other expenses
incurred by Franchisor in furnishing services and assistance to Franchisee,
and for the Franchisor's lost or deferred opportunities to franchise others.
4.2 In consideration of the franchise granted herein, Franchisee shall pay
Franchisor as a continuing monthly royalty fee during the term of this
Agreement a percentage of Franchisee's Gross Room Revenues from the operation
of the Franchised Business, computed as follows:
Microtel
Microtel & Suites
(Applicable when 50% or more total guest rooms are of standard Microtel
configuration):
a. two and one-half percent during the period when fewer than fifty
Microtel hotels, Microtel & Suites hotels, or Microtel Suites hotels
are open for business and receivng Gross Room Revenues;
b. three percent during the period commencing on the first day of the
month following the month when at least fifty but fewer than one
hundred Franchised Businesses are open for business and receiving Gross
Room Revenues; and
c. three and one-half percent during the period commencing on the first
day of the month following the month when at least one hundred
Franchised Businesses are open for business and receiving Gross Room
Revenues.
3
Microtel & Suites
Microtel Suites
(Applicable when 51% or more total guest rooms are of Suite configuration):
three and a half percent of gross room revenues
4.3 "Gross Room Revenues" shall mean the gross receipts attributable to or
payable for the rental of guest rooms at the Franchised Business, including,
without limitation, the net proceeds (after deduction of the expenses of
adjustment and collection) of use and occupancy, or for business
interruption, rent loss, or similar insurance with respect to the Franchised
Business (provided that insurance proceeds shall be included in Gross Room
Revenues only when and to the extent actually received). Gross Room Revenues
shall not include gratuities to employees or service charges levied in lieu
of such gratuities, which, in Either case, are payable to employees, or
federal, state, and local taxes or fees collected by Franchisee for
transmittal to the appropriate taxing authorities.
4.4 All monthly payments required by this Agreement shall be paid to
Franchisor on or before the tenth day of each month, shall be based on the
Gross Room Revenues for the preceding calendar month, and shall be submitted
to Franchisor together with all reports required under this Agreement. Any
payment or report not actually received by Franchisor on or before such date
shall be deemed overdue. If any payment is overdue, Franchisee shall pay to
Franchisor, in addition to the amount overdue, interest on such amount from
the day it was due until paid at one and a half percent per month or the
maximum rate permitted by law, whichever is less. Entitlement to such
interest shall be in addition to any of the remedies Franchisor may have.
5. DUTIES OF FRANCHISEE
5.1 Franchisee acknowledges that every detail of the System is important to
Franchisor and other franchisees operating under the System in order to
develop and maintain the standards and public image of the System. Franchisee
agrees to comply with the details of the System as specified by Franchisor in
the Manuals, or otherwise in writing.
5.2 Within ninety days following the date of this Agreement, Franchisee shall
submit to Franchisor for Franchisor's written approval a site layout,
preliminary plans, and outline specifications adapting Franchisor's
then-prototypical plans and specifications to the Approved Location, which
shall comply with all local and state laws, regulations, and ordinances.
Within sixty days of Franchisee's receipt of Franchisor's written approval,
Franchisee shall submit to Franchisor for Franchisor's approval, complete
working drawings and specifications for the hotel and the hotel premises.
When approved by Franchisor, such drawings and specifications shall not
thereafter be changed or modified without the prior written consent of
Franchisor, which consent shall not be unreasonably withheld.
5.3 Franchisee shall commence construction within sixty days after Franchisor
has approved the complete working drawings and specifications, which date
shall be designated the "Commencement Date". Franchisee shall, within five
days after the Commencement Date, provide written notice to Franchisor that
construction has begun. Commencement of construction shall mean the
excavation for footings. Franchisee shall maintain continuous consruction
(except for any interruption of by reason of events constituting force
majeure) until construction is completed in accordance with the approved site
layout and plan. As used in this Agreement, "force majeure" means an act of
God, war, civil disturbance, government action, fire flood, accident,
hurricane, earthquake or other calamity, strike or other labor dispute, or
other action beyond the control of Franchisee. Franchisee and Franchisor
agree that time is of the essence in the construction and opening of the
Franchised Business.
5.4 Franchisee shall notify Franchisor as soon as the interior walls have
been completed so that Franchisor and/or its designees may inspect the site
and the construction in order to determine (solely for its own benefit)
whether construction is proceeding in accordance with the Franchisor's
standards and specifications and approved plans. Franchisee shall cooperate
and cause its architects, engineers, contractors, and subcontractors to
cooperate fully with Franchisor's inspection.
4
5.5 Subject to any permitted extensions for force majeure interruptions,
Franchisee shall, within two hundred seventy days after the Commencement
Date, complete all required construction and site work, purchase and install
all fixtures, equipment, furnishings, furniture, signs, supplies, and other
items necessary for the completion and operation of the Franchised Business,
as specified in the approved plans and in the Manual, and be ready to open
for business (the "Completion Date").
5.6 Franchisee shall, within tens days of the Completion Date, submit a
written request to Franchisor for Franchisor to conduct a final inspection.
Upon receipt of such request, Franchisor shall promptly conduct such final
inspection. Franchisee shall open for business within ten days after receipt
of Franchisor's authorization to do so. The date upon which Franchisee
receives authorization to open for business shall be the "Opening Date".
Franchisee shall not open for business until Franchisor provides final
approval and authorization in writing.
5.7 Franchisee may request approval by Franchisor to commence operation of a
completed portion of the Franchised Business for an interim period prior to
the Completion Date. Such request shall be in writing and shall demonstrate
to the Franchisor's satisfaction that Franchisee has complied with
Franchisor's standards and specifications with respect to contruction,
training, and pre-opening operations of the Franchised Business, has obtained
all governmental licenses and permits necessary to operate the Franchised
Business under the System, and that a minimum of seventy-five percent of the
scheduled total number of guest rooms or suites have been fully designed,
built, and equipped, and are ready to be opened for occupancy in accordance
with this Agreement. If Franchisor approves Franchisee's request, Franchisee
shall conduct business during the interim period in accordance with all terms
and conditions of this Agreement (including, without limitation, payment of
all fees), as well as any additional conditions which Franchisor may
reasonbly impose for the interim period.
5.8 Prior to the Opening Date, Franchisee's General Manager shall atend and
successfully complete Franchisor's initial training program unless, in the
sole judgement of Franchisor, the General Manager has sufficient prior
experience to make training unnecessary. At Franchisor's discretion, other
employees of Franchisee also may attend the initial training session. All
training shall be provided at such locations as Franchisor may designate.
Franchisee shall be responsible for all expenses associated with attendance
at training, including, but not limited to, transportation, room, board, and
wages of each of its employees. Franchisor may periodically make available
other required or optional training courses to Franchisee's employees, as
well as other programs, conferences, and seminars; and Franchisee shall
ensure that all employees, as Franchisor may direct, satisfactorily complete
any required training within the time specified. All training shall be
provided at such location as Franchisor may designate, and Franchisee shall
be responsible for all expenses associated with attendance at training of its
employees.
5.9 Franchisee shall not expand the number of guest rooms or suites in the
Franchised Business without the prior written consent of Franchisor, which
consent shall not be unreasonably withheld; provided, however, that
Franchisor may impose reasonable conditions on its consent, including,
without limitation, the following:
5.9.1 Franchisee shall demonstrate to the satisfaction of Franchisor
that Franchisee is able to satisfy all such reasonble construction and
operations deadlines and obligations imposed by Franchisor; and
5.9.2 Franchisee shall pay to Franchisor a non-refundable expansion fee
in an amount equal to the then-current per room or suite charge made to
new franchisees multiplied by the number of additional guest rooms or
suites which Franchisee proposes to construct. The expansion fee shall
be due and payable at the time of Franchisor's approval of the proposed
expansion, and is non-refundable.
5.10 Franchisee shall use the premises solely for the operation of the
Franchised Business, and shall refrain from using or permitting the use of
the premises for any other purpose or activity at any time without first
obtaining Franchisor's prior written consent. Franchisee shall operate the
Franchised Business in conformity with such standards, policies, methods, and
techniques as Franchisor may, from time to time, prescribe in the Manuals.
Franchisee shall refrain from deviating from the Manuals, or otherwise
operating the Franchised Business in any manner which adversely reflects on
the System, the Proprietary Marks, the goodwill associated therewith,
Franchisor, or Franchisor's rights therein.
5
5.11 Franchisee shall maintain the Franchised Business in a high degree of
sanitation, repair, and condition and consistent with the System's image, and
in connection therewith, shall make such additions, alterations, repairs and
replacements thereto as may be required for that purpose (but no others
without Franchisor's prior written consent), including, without limitation,
such periodic repainting, repairs, and replacement of signs and equipment,
furnishings, and furniture as Franchisor may reasonably direct.
5.12 At Franchisor's request, which shall not be more often than once every
five years, Franchisee shall upgrade the Franchised Businss at Franchisee's
expense to conform with the building decor, trade dress, and presentation of
trademarks and service marks consistent with Franchisor's then-current public
image, including, without limitation, such remodeling, redecoration, and such
other modification to existing improvements as may be necessary and specified
by Franchisor.
5.13 Franchisee shall purchase or lease, and install, at Franchisee's
expense, all fixtures, furnishings, furniture, signs, equipment, and
supplies, meeting Franchisor's standards, specifications, and requirements as
provided in the approved plans and as Franchisor may reasonably direct from
time to time in the Manuals or otherwise in writing. Franchisee shall refrain
from installing in, on, or about the Franchised Business, or permitting to be
installed, without Franchisor's prior written consent, any fixtures,
furnishings, furniture, signs, equipment, electronic or video games, vending
machines, gambling devices, or any other items or supplies not previously
approved as meeting Franchisor's then-current standards and specifications as
set forth in the Manuals.
5.14 Franchisee shall comply with all federal, state, local laws, rules and
regulations, and shall timely obtain any and all permits, certificates, and
licenses necessary for the full and proper development and operation of the
business franchised hereunder, including, without limitation, licenses to do
business, fictitious name registrations, building permits, sales tax permits,
health and sanitation permits and ratings, and fire clearances.
5.15 Franchisee shall prominently display in and upon the premises of the
Franchised Business such signs using Franchisor's Proprietary Marks, and
other advertising signs of a nature, form, color, number, location, size and
content as are required by the Franchisor in the Manuals or otherwise in
writing, or as the Franchisor may direct from time to time, or approve in
writing. Franchisee shall comply with the requirements of the System
concerning the types of services and products that may be promoted or
advertised at the Franchised Business, including the display of promotional
materials.
5.16 Franchisee hereby grants to Franchisor and its agents the right to enter
upon the premises of the Franchised Business at any reasonable time for the
purpose of conducting inspections. Franchisee shall take such steps as may be
necessary to correct any deficiencies detected during such inspection, upon
the written request of Franchisor or its agent, within such time as may be
specified therein.
5.17 Franchisee acknowledges and agrees that offering the public a single,
efficient, reservation referral service is essential to the goodwill,
reputation, and success of the System. Franchisee agrees to obtain and
utilize an "800" telephone number and agrees to participate during the term
of this Agreement in a national reservation referral system utilizing both
Franchisor's and Franchisee's "800" numbers, which participation shall
include, without limitation, installing and maintaining at the premises of
the Franchised Business, at Franchisee's expense, such equipment as
Franchisor may prescribe from time to time for use in connection with such
reservation referral system. Franchisee shall also be responsible for
telephone line charges for connecting Franchisee's reservation equipment to
the system, and for the cost of software and supplies used in the operation
of the equipment, and for other related expenses. Franchisee shall execute
the Collateral Assignment of Telephone Numbers and Listings ("Telephone
Listing Agreement") attached hereto as Attachment B, prior to commencement of
operations of the Franchised Business.
5.18 Franchisee shall list the Franchised Business in Franchisor's Directory,
and shall furnish to Franchisor in writing such information as Franchisor may
request for that purpose. Franchisee understands and acknowledges that the
success and utility of the Directory may require that Franchisee provide
information concerning rates for lodging accommodations; that Franchisee
shall have sole discretion for determining the room rates which appear in
each Directory; and that Franchisor assumes no liability for, not shall be
deemed liable by reason of, any failure by Franchisor or Franchisor's other
franchisees to honor any rates for any period for which each Directory is in
effect.
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5.19 Franchisee shall comply with all other requirements set forth in this
Agreement.
6. PROPRIETARY MARKS
6.1 Franchisor represents with respect to the Proprietary Marks that:
6.1.1 Franchisor is the owner of all right, title, and interest in and to
the Proprietary Marks.
6.1.2 Franchisor will take all steps reasonably necessary to preserve and
protect the ownership and validity in and to the Proprietary Marks.
6.2 With respect to Franchisee's licensed use of the Proprietary Marks
pursuant to this Agreement, Franchisee agrees that:
6.2.1 Franchisee shall use only the Proprietary Marks designated by
Franchisor and shall use them only in the manner authorized and permitted
by the Franchisor.
6.2.2 Franchisee shall use the Proprietary Marks only for the operation of
the Franchised Business at the Approved Location.
6.2.3 During the term of this Agreement, Franchisee shall identify itself
as the owner of the Franchised Business in conjunction with any use of the
Proprietary Marks, including, but not limited to, on invoices, order
forms, receipts, business cards, and contracts, and at such conspicuous
locations of the Franchised Business' premises (such as behind the front
desk or in the lobby) as Franchisor shall designate in writing. The
identification shall be in the form which specified Franchisee's name,
followed by the term "Franchised Owner" or such other identification as
shall be approved by Franchisor.
6.2.4 Franchisee's right to use the Proprietary Marks is limited to such
uses as are authorized under this Agreement, and any unauthorized use
thereof shall constitute an infringement of Franchisor's rights.
6.2.5 Franchisee shall not use the Proprietary Marks to incur any
obligation or indebtedness on behalf of Franchisor.
6.2.6 Franchisee shall not use the Proprietary Marks as part of its
corporate or other legal name, without the prior written consent of
Franchisor.
6.2.7 Franchisee shall comply with Franchisor's instructions in filing and
maintaining the requisite trade name or fictitious name registrations, and
shall execute any documents deemed necessary by Franchisor or to its
counsel to obtain protection for the Proprietary Marks or to maintain
their continued validity and enforceability.
6.3 Franchisee expressly understands and acknowledges that:
6.3.1 As between the parties hereto, Franchisor is the owner of all right,
title, and interest in and to the Proprietary Marks and the goodwill
associated with and symbolized by them.
6.3.2 The Proprietary Marks are valid and serve to identify the System and
those who are franchised under the System.
6.3.3 Franchisee shall not directly or indirectly contest the validity or
the ownership of the Proprietary Marks.
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6.3.4 Franchisee's use of the Proprietary Marks pursuant to this Agreement
does not give Franchisee any ownership interest or other interest in or to
the Proprietary Marks, except the nonexclusive franchise granted herein.
6.3.5 Any and all goodwill arising from Franchisee's use of the
Proprietary Marks in its Franchised Business under the System shall insure
solely and exclusively to the benefit of Franchisor, and upon expiration
or termination of this Agreement and the franchise herein granted, no
monetary amount shall be assigned as attributable to any goodwill
associated with Franchisee's use of the System or the Proprietary Marks.
6.3.6 The right and license of the Proprietary Marks granted hereunder to
Franchisee is nonexclusive, and Franchisor thus may:
6.3.6.1 Itself use, and grant franchises to others to use, the
Proprietary Marks.
6.3.6.2 Establish, develop, and franchise other systems, different from
the System franchised herein, without offering or providing Franchisee
any rights in, to, or under such other systems.
6.3.7 Franchisor reserves the right to substitute different Proprietary
Marks for use in identifying the System and the businesses operating
thereunder, and Franchisee agrees to comply with Franchisor's requirements
relating thereto.
6.4 Franchisee shall promptly notify Franchisor of any unauthorized use of
the Proprietary Marks or marks confusingly similar thereto, any challenge to
the validity of the Proprietary Marks, or any challenge to Franchisor's
ownership of, or Franchisee's right to use, the Proprietary Marks. Franchisee
acknowledges that Franchisor has the sole right to direct and control any
administrative proceeding or litigation involving the Proprietary Marks,
including any settlement thereof. Franchisor has the right, but not the
obligation, to take action against uses by others that may constitute
infringement of the Proprietary Marks.
6.5 Provided Franchisee has used the Proprietary Marks in accordance with
this Franchise Agreement, Franchisor will defend at Franchisor's expense
against any third party claim, suit, or demand involving the Proprietary
Marks and arising out of Franchisee's use thereof. In the event that
Franchisee has not used the Proprietary Marks in accordance with this
Agreement, Franchisor shall defend Franchisee, at Franchisee's expense,
against such third party claims, suits, or demands.
6.6 In the event of any litigation or administrative proceeding relating to
the Proprietary Marks, Franchisee shall execute any and all documents and do
all acts as may, in the opinion of Franchisor, be necessary to carry out such
defense or prosecution, including, but not limited to, becoming a nominal
party to any legal action. Except to the extent that such litigation is the
result of Franchisee's use of the Proprietary Marks in a manner inconsistent
with the terms of this Agreement, Franchisor agrees to reimburse Franchisee
for its out of pocket costs in performing such acts, except that Franchisee
shall bear the salary costs of its employees, and Franchisor shall bear the
cost of any judgement or settlement.
7. CONFIDENTIAL MANUALS
7.1 Franchisee shall at all times treat the Manuals, all supplements and
revisions thereto, any other manuals created for or approved for use in the
operation of the Franchised Business and the information contained therein as
confidential, and shall use all reasonable efforts to maintain the
confidentiality of such information. Franchisee shall not at any time,
without Franchisor's prior written consent, copy, duplicate, record, or
otherwise reproduce the foregoing materials, in whole or in part, nor
otherwise make the same available to any unauthorized person. Franchisee may
disclose such information and materials only to such of Franchisee's
contractors, architects, lenders, investors, employees, agents, or others who
must have access to it in connection with their employment or the performance
of this Agreement, in which event Franchisee shall obtain the agreement of
such persons and entities to maintain the confidentiality thereof. The
Manuals shall remain at all times in the sole property of Franchisor.
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7.2 Franchisor may from time to time revise the contents of the Manuals, and
Franchisee expressly agrees to comply with each new or changed standard.
Franchisee shall at all times ensure that Franchisee's copy of the Manuals is
kept current and up-to-date; in the event of any dispute as to the content of
the Manuals, the terms of the master copy of the Manuals maintained by
Franchisor at Franchisor's home office shall be controlling.
8. CONFIDENTIAL INFORMATION
8.1 Franchisee shall not, during the term of this Agreement or thereafter,
communicate, divulge, or use for the benefit of any other person, persons,
partnership, association, or corporation any confidential information,
knowledge, or know-how concerning the System or the operation of the
Franchised Business which may be communicated to Franchisee, or of which
Franchisee may be apprised, by virtue of Franchisee's operation under the
terms of this Agreement. Franchisee shall divulge such confidential
information only to such of Franchisee's employees or agents as must have
access to it in order to operate the Franchised Business. Any and all
information, trade secrets, knowledge, know-how, or other data which
Franchisor designates as confidential shall be deemed confidential for
purposes of this Agreement, except information which Franchisee can
demonstrate came to Franchisee's attention prior to disclosure thereof by
Franchisor, or which, at or after the time of disclosure by Franchisor to
Franchisee, had become or later becomes a part of the public domain, through
publication or communication by others.
8.2 Franchisee acknowledges that the provisions in this Section 8 are and
have been a primary inducement to Franchisor to enter into this Agreement,
and that any failure to comply with the requirements of Section 8.1 will
cause Franchisor irreparable injury without an adequate remedy at law; and
Franchisee agrees to pay all court costs and reasonable attorneys' fees
incurred by Franchisor in obtaining specific performance of, or an injunction
against any violation of, the requirements of Section 8.1.
9. ACCOUNTING AND RECORDS
9.1 During the term of this Agreement, Franchisee shall maintain and
preserve, for at least five years from the date of their preparation, full,
complete, and accurate, books, records, and accounts in accordance with the
most current version of a Uniform System of Accounts for Hotels and in the
form and manner prescribed by Franchisor from time to time in the Manuals or
otherwise in writing.
9.2 Franchisee shall, at Franchisee's expense, submit to Franchisor, by the
tenth day of each month, a monthly statement on forms prescribed by
Franchisor accurately reflecting all Gross Room Revenues, and all other
revenues generated at the Franchised Business, for the preceding calendar
month, and such other data and other information as Franchisor may require,
including, without limitation, room occupancy rates, occupancy percentage,
average daily room rate, reservation data, and the sources and amount of all
expenses and revenues. Each statement shall be signed by Franchisee attesting
that it is true and correct.
9.3 Franchisee shall, at Franchisee's expense, submit to Franchisor an
unaudited semi-annual profit and loss statement (in the form prescribed by
Franchisor), and a balance sheet within sixty days of the end of each
semi-annual fiscal period during the term hereof with respect to the
operations of the Franchised Business. Each statement shall be signed by
Franchisee attesting that it is true and correct.
9.4 Franchisee shall submit to Franchisor, for review and auditing, such
other forms, periodic and other reports, records, information, and data, as
Franchisor may reasonably designate, in the form at the times and places
reasonably required by Franchisor, upon request and as specified from time to
time in the Manuals or otherwise in writing.
9.5 Franchisor or its designated agents shall have the right at all
reasonable times to examine and copy, at its expense, all books, records, and
tax returns of Franchisee related to the Franchised Business and, at its
option, to have an independent audit made. If an inspection or audit should
reveal that payments have been understated in any report to Franchisor, then
Franchisee shall immediately pay to Franchisor the amount understated upon
demand, in addition to interest from the date such amount was due until paid,
at one and
9
one half percent per month or the maximum rate permitted by law, whichever is
less. In such event, Franchisor shall also have the right to require that all
future financial statements of Franchisee related to the Franchised Business
be audited at Franchisee's expense for each fiscal year by an independent
certified public accounting firm selected by Franchisee and approved by
Franchisor. If an inspection discloses an underpayment to Franchisor of five
percent or more of the total amount that should have been paid to Franchisor
during any six month period, Franchisee shall, in addition to repayment of
such understated amount, with interest, reimburse Franchisor for any and all
costs and expenses incurred in connection with the inspection or audit
(including, without limitation, reasonable accounting and attorney's fees).
The foregoing remedies shall be in addition to any other remedies Franchisor
may have, including, without limitation the remedies for default.
10. ADVERTISING
10.1 Recognizing the value of advertising and the importance of the
standardization of advertising programs to the furtherance of the goodwill
and public image of the System, the parties agree that all advertising by
Franchisee in any medium shall be conducted in a dignified manner and shall
conform to such standards and requirements as Franchisor may specify from
time to time in writing. Franchisor reserves the right to disapprove upon
written notice to Franchisee any advertising, or promotional materials used
by Franchisee, if in Franchisor's judgement, such materials appear to have a
substantial adverse effect upon the Proprietary Marks or Franchisor's
goodwill therein or to infringe upon the proprietary rights of others.
Franchisee shall discontinue use of any disapproved material upon receipt of
such written notice.
10.2 Recognizing the value to all Franchised Businesses in the System of
marketing and advertising, Franchisor reserves the right to establish,
maintain, and administer an Advertising Fund (the "Fund") for the System. If
the Fund is established, Franchisee agrees to contribute one percent of its
Gross Room Revenues to the Fund, on a monthly basis and in accordance with
the procedures set forth in Section 4.4. Franchisee further agrees that
Franchisor shall maintain and administer the Fund for the System as follows:
10.2.1 The Fund shall be used on behalf of the System for advertising and
marketing including, without limitation, for any and all costs associated
with developing, preparing, producing, directing, administering,
conducting, maintaining, and disseminating advertising, marketing,
telemarketing, promotional, and public relations materials, programs and
campaigns, conducting market research, and publishing the Directory. All
sums paid by Franchisee, other franchisees in the System, and Franchisor
to the Fund, plus any interest or other income earned from such
contributions, shall be maintained in a separate account from the other
funds of Franchisor and shall not be used to defray any of Franchisor's
general operating expenses, except for the reasonable administration costs
and overhead Franchisor incurs in directing and administering the Fund
including, without limitation, the cost of collecting and accounting for
assessments for the Fund.
10.2.2 Franchisee agrees and acknowledges that the Fund is intended to
maximize general public recognition, acceptance, and use of the System,
and that Franchisor undertakes no obligation in administering the Fund to
make expenditures for Franchisee which are equivalent or proportionate to
Franchisee's contribution or to ensure that any particular franchisee
benefits directly or pro rata from expenditures for the Fund.
10.2.3 Franchisee shall contribute to the Fund by check made payable to
the Fund. If Franchisor owns and operates any Microtel hotel, Microtel &
Suites hotel, or Microtel Suites hotel under the System, Franchisor shall
make contributions to the Fund on the same basis as the assessments
required of comparable Franchised businesses within the System.
10.2.4 It is anticipated that all contributions to the Fund shall be
expended during the taxable year within which the contributions are made.
If, however, excess amounts remain in the Fund at the end of such taxable
year, all expenditures in the following taxable year(s) shall be made
first out of accumulated earnings from previous years, next out of
earnings in the current year, and finally from contributions.
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10.2.5 The Fund is not and shall not be an asset of Franchisor and an
audit of the operation of the Fund shall be prepared annually by an
independent certified public accountant selected by Franchisor and shall
be made available to Franchisee.
10.2.6 Although Franchisor intends the Fund to be of perpetual duration,
Franchisor maintains the right to terminate the Fund at any time. The Fund
shall not be terminated, however, until all monies in the Fund have been
expended for the purposes described in this Section.
11. INSURANCE
11.1 Prior to the commencement of any activities or operations pursuant to
this Agreement, Franchisee shall procure and maintain in full force and
effect during the term of this Agreement, at Franchisee's expense, those
insurance policies (set forth in this Section) protecting Franchisee and
Franchisor, and their officers, directors, partners, joint venturers and
employees against any loss or liability resulting in bodily injury, personal
injury, death, property damage or other related expenses arising or occurring
upon, as a result of, or in connection with the Franchised Business, or by
reason of the construction, operation or occupancy of the Franchised
Business.
11.2 Such policy or policies shall be written by an insurance company or
companies satisfactory to Franchisor in accordance with standards and
specifications set forth in the Manuals or otherwise in writing, and shall
include, at a minimum (except as additional coverages and higher policy
limits may reasonably be specified for all franchisees from time to time by
Franchisor in the Manuals or otherwise in writing), the following:
11.2.1 Comprehensive general liability insurance, including bodily injury,
property damage, personal injury coverage, independent contractors
coverage, broad form contractual liability, broad form property damage
endorsement, including products liability and completed operations
coverage. No insurance policy shall contain any exclusion for explosion,
collapse, or underground hazard. Coverage amount will be not less than
five million dollars per occurrence or aggregate. Such policy shall
contain a waiver of subrogation endorsement in favor of Franchisor.
11.2.2 Comprehensive automobile liability insurance, including bodily
injury and property damage for all owned, non-owned and hired vehicles,
with limits of liability not less than five million dollars combined
single limit. Such policy shall have the contractual exclusion removed, or
Franchisee shall provide separate evidence that contractual liability for
automobile exposure is otherwise insured. Such policy shall contain a
waiver of subrogation endorsement in favor of Franchisor.
11.2.3 Worker's compensation and employer's liability insurance as well as
other insurance as may be required by statute or rule of the state in
which the Franchised Business is located. Such policy shall contain a
waiver of subrogation endorsement in favor of Franchisor.
11.2.4 Commercial umbrella liability insurance with limits which bring the
total of all primary underlying coverages to not less than five million
dollars total limit of liability. Such umbrella liability will provide at
minimum those coverages and endorsements required in the underlying
policies.
11.2.5 Property insurance providing for all risk of direct physical loss
or damage including the perils of flood and earthquake. Appropriate
coverage shall also be provided for boiler and machinery exposures and
business interruption/extra expense exposures. Property insurance shall
provide replacement cost coverage, and shall be written to include values
not less than ninety percent of the full replacement value of the premises
of the Franchised Business, its furniture, fixtures, equipment and stock
(real and personal property). Any
11
deductibles contained in such policy shall be subject to review and
approval by Franchisor. Property insurance policy(ies) shall contain a
waiver of subrogation in favor of Franchisor.
11.3 In connection with all significant construction of, on or about the
Microtel hotel, Microtel & Suites hotel, or Microtel Suites hotel premises
during the term hereof Franchisee shall cause the general contractor to
effect and maintain at the general contractor's own expense, insurance
policies and bonds set forth below. All such policies must name the
Franchisor and Franchisee as co-insured, contain waiver of subrogation
endorsements in favor of Franchisor and Franchisee, be written by insurance
or bonding companies satisfactory to Franchisor, and shall insure the
following:
11.3.1 Comprehensive general liability insurance providing those coverages
and limits specified in Section 11.2.1.
11.3.2 Comprehensive automobile liability providing those coverages and
limits specified in Section 11.2.2.
11.3.3 Worker's compensation and employer's liability insurance or other
insurance as is specified in Section 11.2.3.
11.3.4 Commercial umbrella liability insurance as specified in Section
11.2.4.
11.3.5 Owners contracts protective policy in the name of Franchisor and
Franchisee with a combined single limit of liability of five
million dollars.
11.3.6 General contractor shall assure compliance by all independent or
subcontractors and maintain evidence that all such independent or
sub-contractors have insurance written to comply with limits and
coverages together with appropriate endorsements as specified in
Sections 11.3.1, 11.3.2, and 11.3.3. Commercial umbrella liability
insurance shall be provided with limits of liability not less than
five million dollars.
11.3.7 General contractor shall provide a builder's risk insurance policy
providing for all risk of direct physical loss or damage in an
amount equal to the full estimated completed value of the
Franchised Business. Such policy shall include Franchisor and
Franchisee as additional named insured and also provide a waiver of
subrogation in favor of both Franchisor and Franchisee.
11.4 Upon execution of this Agreement, on each policy renewal date
thereafter, and each time a change is made in any insurance or insurance
carrier, Franchisee shall submit evidence of satisfactory insurance and proof
of payment therefor to Franchisor, together with, upon request, original or
duplicate copies of all policies and policy amendments. The evidence of
insurance shall include a statement by the insurer that the policy or
policies will not be cancelled or materially altered without at least thirty
(30) days' prior written notice to Franchisor.
11.5 Franchisee's obligation to obtain and maintain the foregoing policy or
policies in the amounts specified shall not be limited in any way by reason
of any insurance which may be maintained by Franchisor, not shall
Franchisee's performance of that obligation relieve Franchisee of liability
under the indemnity provisions set forth in Section 18.3 of this Agreement.
11.6 Should Franchisee, for any reason, fail to procure or maintain the
insurance required by this Agreement, as revised from time to time for all
franchisees by Franchisor in the Manuals or otherwise in writing, Franchisor
shall have the right and authority (without, however any obligation to do so)
immediately to procure such insurance and to charge same to Franchisee, which
charges, together with a reasonable fee for Franchisor's expenses in so
acting, shall be payable by Franchisee immediately upon notice.
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12. TRANSFER OF INTEREST
12.1 Transfer by Franchisor
Franchisor shall have the right to transfer or assign all or any part of its
rights or obligations in this Agreement to any person or legal entity.
12.2 Transfer by Franchisee
12.2.1 Franchisee understands and acknowledges that the rights and duties
set forth in this Agreement are personal to Franchisee, and that
Franchisor has granted this franchise in reliance on the business skill,
financial capacity, and character of Franchisee and its partners or
shareholders. Accordingly, neither Franchisee nor any immediate or remote
successor to any part of Franchisee's interest in this franchise, nor any
individual, partnership, corporation, or other legal entity which directly
or indirectly owns any interest in this franchise or in Franchisee shall
sell, sign, transfer, convey, give away, mortgage, or otherwise encumber
any direct or indirect interest in this franchise (including any ownership
interest in Franchisee), this Agreement, the Franchised Business, or a
substantial portion of the assets (including building and real estate) of
the Franchised Business without the prior written consent of Franchisor;
provided, however, that the transfer of less than a ten percent (10%)
equity interest in Franchisee in a single transaction, which does not have
the affect of transferring control (as described in Sections 12.2.2 and
12.2.5 hereof), shall not require the prior approval of Franchisor,
provided that Franchisee notifies Franchisor in writing of such transfer
within thirty (30) days following such transfer. Any purported assignment
or transfer, by operation of law or otherwise, not having the prior
written consent of Franchisor shall be null and void and shall constitute
a material breach of this Agreement, for which Franchisor may then
terminate without opportunity to cure pursuant to Section 13.2.6 of this
Agreement and seek injunctive relief as well as monetary damages.
12.2.2 Franchisor shall not unreasonably withhold its consent to a
transfer of any interest in this franchise, in Franchisee, in this
Agreement, in the Franchised Business, or in a substantial portion of the
assets (including building and real estate) of the Franchised Business;
provided, however, that if a transfer, alone or together with other
previous, simultaneous, or proposed transfers, would have the affect of
transferring a controlling interest in the franchise, Franchisee, this
Agreement, the Franchised Business, or substantially all of the assets
(including building and real estate) of the Franchise Business. Franchisor
may, in its sole discretion, require any or all of the following a
conditions of its approval:
12.2.2.1 All of Franchisee's accrued monetary obligations to Franchisor
and its subsidiaries and affiliates and all other outstanding
obligations related to the Franchised Business shall have been
satisfied;
12.2.2.2 Franchisee is not in default of any provision of this
Agreement, any amendment hereof or successor hereto, or any other
agreement between Franchisee and Franchisor, or its affiliates;
12.2.2.3 The transferor shall have executed a general release under
seal, in a form satisfactory to Franchisor, of any and all claims
against Franchisor and its officers, directors, shareholders, and
employees, in their corporate and individual capacities, including,
without limitation, claims arising under federal, state, and local
laws, rules, and ordinances;
12.2.2.4 The transferee, and all shareholders or general partners in
the transferee, shall enter into a written assignment, under seal and
in a form satisfactory to Franchisor, assuming and agreeing to
discharge all of Franchisee's obligations under this Agreement.
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12.2.2.5 The transferee, and all shareholders in the transferee, shall
demonstrate to Franchisor's satisfaction that the transferee and its
shareholders or general partners, as appropriate, meet Franchisor's
education, managerial, and business standards; possess good moral
character, business reputation, and credit rating; have the aptitute
and ability to conduct the Franchised Business (as may be evidenced by
prior related business experience or otherwise); and have adequate
financial resources and capital to oeprate the Franchised Business;
12.2.2.6 At the Franchisor's option, the transferee and the
shareholders or general partners in the transferee shall execute for a
term ending on the expiration date of this Agreement and with such
renewal term as may be provided by this Agreement, the standard from
franchise agreement then being offered to new System franchisees and
such other anciallary agreements as Franchisor may require for the
Franchised Businesses, provided, however, that the transferee shall not
be required to pay any innitial franchise fee.
12.2.2.7 The transferee shall, at the transferee's expense and upon the
reasonable requrest of Franchisor, upgrade the Franchised Business to
conform to the then-current standards and specifications for hotels
operating under the System, and shall complete the upgrading and other
requirements within the reasonable time specified by Franchisor.
12.2.2.8 Franchisee shall remain liabile for all obligations to
Franchisor and its subsidiaries and affiliates in connection with the
Franchised Busines prior to the effective date of the transfer and
shall execute any and all instruments reasonably requested by
Franchisor to evidence such liabilty;
12.2.2.9 At the transferee's expense, an officer of the transferee and
the transferee's general manager shall complete the intial training
program then in effect for new licensees upon such terms and conditions
as Franchisor may reasonable require;
12.2.2.10 Franchisee shall pay a transfer fee of Seven Thousand Five
Hundred Dollars ($7,500), except that no fee shall be required for
transfers to the spouse, issue, parent, or sibling of a partner or
shareholder in Franchisee, or from one partner or shareholder to
another.
12.2.3 Notwithstanding any other provision of this Agreement, Franchisor
shall not require approval of the assignment, transfer, pledge, or
hypothecation of all or any part of the assets of the Franchised Business,
excluding this franchise and this Agreement, (and, if Franchisee is a
corporation all and any part of the stock of the said corporation) to
banks or other lending institutions as collateral security for loans made
directly to or for the benefit of the Franchised Business.
12.2.4 Franchisee acknowledges and agrees that each condition which must
be met by the transferee is necessary to assure such transferee's full
performance of the obligations hereunder.
12.2.5 For the purposes of this Agreement, "control" shall mean the
possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of a person, corporation or other
busines entity, whether through the ownership of voting securities, by
contract, or otherwise.
12.3 Transfer Upon Death or Mental Incompetence
Upon the death or mental incompetency of Franchisee or a person owning all or
any interest in Franchisee, the executor, administrator, or personal
representative of such person shall transfer within three (3) months after
14
such death or mental incompetency his interest to a third party approved by
Franchisor. Such transfers, including, without limitation, transfers by
devise or inheritance, shall be subject to the same conditions as any inter
vivos transfer. However, in the case of transfer by devise or inheritance, if
the heirs or beneficiaries of any such person are unable to meet the
conditions in this Section 12, the personal representative of the deceased
shareholder shall have reasonable time to dispose of the deceased's interest
in the Franchisee, which disposition shall be subject to all the terms and
conditions for transfers contained in this Agreement. If the interest is not
disposed of within nine months, Franchisor may terminate this Agreement.
12.4 Offerings by Franchisee
Securities in Franchisee may be offered to the public only with the prior
written consent of Franchisor, which consent shall not be unreasonably
withheld. All materials required by federal or state law for the sale of any
interest in Franchisee shall be submitted to Franchisor for review prior to
filing with any government agency; and any materials to be used and any
exempt offering shall be submitted to Franchisor for review prior to their
use. No Franchisee offering shall imply (by use of the Proprietary Marks or
otherwise) that Franchisor is participating as an underwriter, issuer, or
officer of Franchisee's or Franchisor's securities; and Franchisor's review
of any offering shall be limited solely to the subject of the relationship
between Franchisee and Franchisor. Franchisee and other participants in the
offering must fully indemnify Franchisor in connection with the offering. For
each proposed offering, Franchisee shall pay to Franchisor a non-refundable
fee of Five Thousand Dollars, or such greater amount as is necessary to
reimburse Franchisor for its reasonable cost and expenses associated with
reviewing the proposed offering, including, without limitation, legal and
accounting fees.
12.5 Non-Waiver of Claims
Franchisor's consent to a transfer of any interest in the franchise 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 Franchisor's right to
demand exact compliance with any of the terms of this Agreement by the
transferee.
13. DEFAULT AND TERMINATION
13.1 Franchisee shall be deemed to be in default under this Agreement, and
all rights granted herein shall automatically terminate without notice to
Franchisee, if Franchisee shall become insolvent or makes a general
assignment for the benefit of creditors; or if a petition in bankruptcy is
filed by Franchisee or such a petition is filed against and consented to by
Franchisee; or if Franchisee is adjudicated a bankrupt; or if a bill in
equity or other proceeding for the appointment of a receiver of Franchisee or
other custodian for Franchisee's business or assets is filed and consented to
by Franchisee; or if a receiver or other custodian (permanent or temporary)
of Franchisee's assets or property, or any part thereof, is appointed by any
court of competent jurisdiction; of if proceedings for a composition with
creditors under any state or federal law is instituted by or against
Franchisee; or if a final judgement against Franchisee remains unsatisfied or
of record for ninety days or longer (unless a supersedeas bond is filed); or
if Franchisee is dissolved; or if execution is levied against any asset of
the Franchised Business, or suit to foreclose any lien or mortgage against
any asset of the Franchised Business is instituted against Franchisee and not
dismissed within ninety days; or if any asset of the Franchised Business is
sold after levy.
13.2 Franchisee shall be deemed to be in default and Franchisor may, at its
option, terminate this Agreement and all rights granted hereunder, without
affording Franchisee any opportunity to cure the defaults, effective
immediately upon receipt of notice by Franchisee, upon the occurrence of any
of the following:
13.2.1 If Franchisee ceases to do business at the Approved Location, or
ceases to operate the Franchised Business under the Proprietary Marks and
System, or loses the right to possession of the Franchised Business, or
otherwise forfeits the right to conduct the Franchised Business at the
Approved Location; provided, however, that if the cessation of business or
loss of possession results from the governmental exercise of the power of
eminent domain, or a fire
or other casualty, through no fault of Franchisee, then, in such event, this
Agreement shall not be terminated for that reason for six months thereafter,
provided that within that time Franchisee applies for a receives Franchisor's
approval to reconstruct or relocate the Franchised Business, which approval
shall not unreasonably be withheld;
13.2.2 If Franchisee fails to commence construction within the time frame and
in accordance with all of the terms and conditions of this Agreement;
13.2.3 If Franchisee fails to meet its Completion Date within the time frame
and in accordance with all of the terms and conditions of this Agreement;
13.2.4 If a threat or danger to public health or safety results form the
construction, maintenance, or operation of the Franchised Business and an
immediate shutdown thereof is reasonably determined by Franchisor to be
essential to avoid a substantial liability or loss of goodwill; provided,
however, Franchisor shall reinstate this Agreement within six months after
termination under this Section 13.2.4, if, within that period, the threat or
danger to public health or safety is eliminated and Franchisor, in its sole
discretion, reasonably determines that reopening the Franchised Business
would not cause a substantial loss of goodwill;
13.2.5 If Franchisee or any guarantor of this Agreement is convicted of a
felony or any other crime or offense that is reasonably likely, in the sole
opinion of Franchisor, to adversely affect the System, the Proprietary Marks,
the goodwill associated therewith or Franchisor's interest therein;
13.2.6 If Franchisee or any partner or shareholder in Franchisee purports to
transfer any rights or obligations under this Agreement or any interest in
Franchisee or in the Franchised Business or in the substantial portion of the
assets of the Franchised Business to any third party without the Franchisor's
prior written consent, or in a manner violative of this Agreement;
13.2.7 If Franchisee intentionally discloses or divulges the contents of the
Manuals or other trade secrets or confidential information provided to
Franchisee by Franchisor to any unauthorized person or fails to exercise
reasonable care to prevent such disclosure;
13.2.8 If, following Franchisee's death or mental incompetency, an approved
transfer is not effected within the time frame and in accordance with the
provisions of Section 12.3 hereof;
13.2.9 If Franchisee intentionally or negligently makes any material false
statements or omissions to Franchisor in connection with Franchisee's
application for the franchise granted herein, or in connection with any
information submitted to Franchisor; or
13.2.10 If Franchisee misuses or makes any unauthorized use of the
Proprietary Marks or otherwise impairs the goodwill associated therewith or
Franchisor's rights therein.
13.3 Except as provided in Sections 13.1 and 13.2 of this Agreement,
Franchisee shall have thirty days (or such longer period as Franchisor may
specify) from receipt of a written Notice of Termination (citing the
reason(s) therefor) within which to remedy any default hereunder and provide
evidence thereof to Franchisor. If any such default is not cured within that
time, or such longer period as applicable law may require (or such longer
period as may be reasonably required by Franchisee to cure any non-monetary
default if Franchisee immediately commences, diligently and in good faith
pursues, and cures such default), this Agreement shall terminate without
further notice to Franchisee effective immediately upon the expiration of the
thirty day period, expiration of any extended period as described above, or
such longer period as applicable law may require. Franchisee shall be in
default hereunder for any failure to comply with any of the requirements
imposed by this Agreement, as it may from time to time reasonably be
supplemented by the Manuals, or to carry out the terms of this Agreement in
good faith. Such defaults shall include, for example, without limitation, the
occurrence of any of the following:
16
13.3.1 If Franchisee fails, refuses, or neglects to pay promptly any
monies owing to Franchisor or its subsidiaries or affiliates when due, or
to submit the financial information or other reports required by
Franchisor under this Agreement;
13.3.2 If Franchisee fails to pay all its financial obligations to third
parties in the ordinary course of business;
13.3.3 If Franchisee, by act or omission, allows a continued violation in
connection with the operation of the Franchised Business, of any law,
ordinance, rule or regulation of a governmental agency, in the absence of
a good faith dispute over its application or legality and without having
promptly resorted to an appropriate administrative or judicial forum for
relief therefrom;
13.3.4 If Franchisee misuses or makes any unauthorized use of the
Proprietary Marks or otherwise impairs the goodwill associated therewith
or Franchisor's rights therein; or
13.3.5 If Franchisee is in default of or terminated any management
agreement under which the Franchised Business is operated if, as a result
of such default or termination, Franchisee fails to operate the Franchised
Business in compliance with the terms and conditions of this Agreement.
13.4 Franchisee may terminate this Agreement on the anniversary date of the
fifth year of its execution by giving written notice no more than fifteen
months but no less than twelve months prior to such anniversary date to
Franchisor. The notice shall be accompanied by a lump sum payment equal to
the total of all amounts required under Section 4 hereof for the thirty-six
calendar months of operation preceding the notice.
14. OBLIGATIONS UPON TERMINATION
Upon termination or expiration of this Agreement, this Agreement and all
rights granted hereunder to Franchisee shall forthwith terminate, and:
14.1 Franchisee shall immediately cease to operate the Franchised Business as
a System hotel and shall not thereafter, directly or indirectly, represent to
the public or hold itself out as a present or former franchisee of
Franchisor.
14.2 Franchisee shall immediately and permanently cease to use, by
advertising or in any other manner whatsoever, the names "MICROTEL",
"MICROTEL & SUITES", "MICROTEL SUITES", and "SAVINGS YOU CAN SLEEP ON" and
other Proprietary Marks of Franchisor, any other identifying characteristics
of the System, and all confidential methods, procedures and techniques
associated with the System. Franchisee shall promptly remove from its place
of business, and discontinue using for any purpose, any and all signs,
fixtures, furniture, furnishings, equipment, advertising materials,
stationery, supplies, forms or other articles which display the Proprietary
Marks or any distinctive features or designs associated with the System. Any
signs containing the Proprietary Marks which Franchisee is unable to remove
within one day of expiration or termination of this Agreement shall be
completely covered by Franchisee until the time of their removal.
14.3 Franchisee shall, at its expense, immediately make such modifications or
alterations as may be necessary to distinguish the Franchised Business so
clearly from its former appearance and from other Microtel hotels, Microtel &
Suites hotels, or Microtel Suites hotels operated under the System as to
prevent any possibility of confusion therewith by the public, and to prevent
the operation of any business at the Approved Location by Franchisee or
others in derogation of this Paragraph 14.3 (including, without limitation,
removal or changing of the triple gabled roof line, the semi-circular window
in the front lobby wall, the floor-to-ceiling mirrors behind the bed, the
built-in furnishings in the guest rooms (e.g. the night-stands and desks),
and the removal of all distinctive physical and structural features
identifying Microtel hotels, Microtel & Suites hotels, or Microtel Suites
hotels in the System, removal of all distinctive signs and emblems, and
removal or changing of any design or decor features that Franchisor, in its
discretion, determines to be indicative of hotels operating under the System.
Further, until all modifications and alterations required by this Paragraph
14.3 are
17
completed, Franchisee shall (i) maintain a conspicuous sign at the
registration desk in a form specified by Franchisor stating that the
Franchised Business is no longer associated with the Microtel System, and
(ii) advise all customers or prospective customers telephoning the Franchised
Business that it is no longer associated with the Microtel System. If
Franchisee fails to initiate immediately and complete such alterations when
required by this Paragraph 14.3, Franchisee agrees that Franchisor or its
designated agents may enter the premises and adjacent areas at any time and
make such alterations, at Franchisee's sole risk and expense, without
responsibility for any actual or consequential damages to the property of
Franchisee or others, and without liability for trespass or other tort or
criminal act. Franchisee expressly acknowledges that its failure to make such
alterations will cause irreparable injury to Franchisor.
14.4 Franchisee shall take such action as may be necessary to cancel any
assumed name or equivalent registration which contains the name "MICROTEL",
"MICROTEL & SUITES", "MICROTEL SUITES", or any variation thereof or any other
service mark or trademark of Franchisor, and Franchisee shall furnish
Franchisor with evidence satisfactory to Franchisor of compliance with this
obligation within thirty days after termination or expiration of this
Agreement.
14.5 Franchisee shall promptly pay all sums owing to Franchisor and its
subsidiaries and affiliates, including all damages, costs and expenses,
including reasonable attorneys' fees, incurred by Franchisor as a result of
the default. Franchisor shall have the right within sixty days following
termination or expiration of this Agreement, to inspect Franchisee's hotel
premises and offices, and conduct a review and/or an audit of Franchisee's
books and records, for the purpose, among other things, of assuring
Franchisee's compliance with the provisions of this Section 14.
14.6 In the event of termination as a result of Franchisee's default under
Sections 13.1, 13.2, or 13.3, of this Agreement, Franchisee agrees to pay
Franchisor a lump sum payment (for premature termination only, and not as a
penalty or in lieu of any other payments required under this Agreement),
equal to the total of all amounts required under Section 4 hereof for the
thirty-six calendar months of operation preceding Franchisee's default, or in
the event the Franchisee has not been operating for thirty-six months, an
amount equal to the average of the monthly amounts required under Section 4
hereof during the months that Franchisee was operating pursuant to this
Agreement, multiplied by thirty-six. Franchisor shall not be limited to the
provisions of this Section 14.6 with respect to its rights or remedies
arising out of Franchisee's default under Section 13, but shall be entitled
to pursue all available remedies at law or in equity including, without
limitation, recovery of damages and lost future profits.
14.7 Franchisee shall pay to Franchisor all damages, costs and expenses,
including reasonable attorneys' fees, incurred by Franchisor subsequent to
the termination or expiration of the franchise herein granted in obtaining
injunctive or other relief for the enforcement of any provisions of this
Section 14.
14.8 Franchisee shall immediately turn over to Franchisor all manuals,
including the Manuals, records, files, instructions, correspondence, and all
other materials provided by Franchisor related to the operation of the
Franchised business, and all copies thereof (all of which are acknowledged to
be Franchisor's property), and shall retain no copy or record of any of the
foregoing, excepting only Franchisee's copy of this Agreement and of any
correspondence between the parties, and any other documents which Franchisee
reasonably needs for compliance with any provision of law.
14.9 Franchisee hereby assigns to Franchisor all right, title, and interest
in any telephone numbers and business listings used by Franchisee in
connection with its conduct of the Franchised Business, and agrees that any
such right, title or interest may be assumed by Franchisor, at Franchisor's
option, upon termination or expiration of this Agreement. If the Telephone
Listing Agreement is not in a form acceptable to the telephone company
servicing the Franchised Business, Franchisee shall execute such other
similar telephone number assignment agreement provided by Franchisor.
Franchisee also hereby appoints Franchisor as its attorney-in-fact with full
power and authority to execute on Franchisee's behalf any documents that are
necessary to effectuate such an assignment.
14.10 Franchisor shall have the right, but not the duty, to be exercised by
notice of intent to do so within thirty days after termination of expiration,
to purchase any and all signs, advertising materials, supplies and inventory
and any other items bearing Franchisor's Proprietary Marks, at Franchisee's
cost, or, in the case of
18
capital equipment, at Franchisee's net book value. With respect to any
purchase by Franchisor as provided herein, Franchisor shall have the right to
set off all amounts due from Franchisee under this Agreement.
15. COVENANTS
15.1 Franchisee specifically acknowledges that, pursuant to this Agreement,
Franchisee will receive valuable specialized training and confidential
information, including, without limitation, information regarding the
operational, sales, promotional, and marketing methods and techniques of
Franchisor and the System. Franchisee covenants that it will at all times
retain and exercise management control over the Franchised Business.
Franchisee's General Manager shall devote full time, energy and best efforts
to the management and operation of the Franchised Business. Franchisee's
General Manager shall not, except as otherwise approved in writing by
Franchisor (which approval shall not be unreasonably withheld), assist,
promote, or engage in any competing business and shall use every reasonable
means to encourage use by the public of Microtel hotels, Microtel & Suites
hotels, and Microtel Suites hotels owned by other franchisees. The General
Manager shall not engage in any other business or activity, directly or
indirectly which requires substantial managerial responsibility and which may
conflict with Franchisee's or General Manager's obligations herein.
15.2 Franchisee covenants that during the term of this Agreement, except as
otherwise approved in writing by Franchisor, Franchisee shall not, either
directly or indirectly, for itself, or through, on behalf of, or in
conjunction with any person, persons, partnership or corporation, divert or
attempt to divert any business or customer of the Franchised Business or
other franchisee, to any competitor, or competing business, by direct or
indirect inducement or otherwise, or do or perform, directly or indirectly,
any other act injurious or prejudicial to the goodwill associated with
Franchisor's Proprietary Marks and the System.
15.3 Franchisee represents and warrants that Franchisee has no direct or
indirect financial or management interest in any non-Microtel transient
lodging facility, except as disclosed by Franchisee in Exhibit A hereto.
Franchisee agrees to advise Franchisor of any change or modification of such
interest, or the acquisition of any new interest as soon as it occurs, and in
no event later than thirty (30) days thereafter.
15.4 Franchisee and Franchisor covenant and agree that neither party will
seek to employ any person who is at that time employed by the other party or
otherwise directly or indirectly induce such person to leave his or her
employment.
16. CORPORATE OR PARTNERSHIP FRANCHISEE
16.1 Franchisee, if a corporation, shall comply with the following
requirements:
16.1.1 Franchisee shall be newly organized and its charter shall at all
times provide that its activities are confined exclusively to operating
the Franchised Business, and other businesses operated pursuant to
franchises granted to Franchisee by Franchisor;
16.1.2 Copies of Franchisee's Articles of Incorporation, Bylaws, and other
governing documents, and any amendments thereto, including the resolutions
of the Board of Directors authorizing entry into this Agreement shall be
promptly furnished to Franchisor;
16.1.3 Franchisee shall maintain stop transfer instructions against the
transfer on its records of any equity securities, and each stock
certificate of Franchisee shall have conspicuously endorsed on its face
the following printed legend:
The transfer of the stock represented by this certificate
is subject to the terms and conditions of a Franchise
Agreement with Microtel Franchise & Development
Corporation dated , 19 . Reference is made to
the provisions of the said Franchise Agreement and to the
Articles and Bylaws of this Corporation, provided,
however, that this Section 16.1.3 shall not apply if
Franchisee is a publicly-held corporation.
19
16.1.4 Franchisee shall maintain a current list of all owners of record
and all beneficial owners of any class of voting stock of Franchisee and
shall furnish the list to Franchisor upon request; and
16.1.5 Such shareholders of Franchisee as specified by Franchisor shall
jointly and severally guarantee Franchisee's performance hereunder and
shall bind themselves to the terms of this Agreement.
16.2 Franchisee, if a partnership, shall comply with the following
requirements throughout the term of this Agreement:
16.2.1 Franchisee shall furnish Franchisor with its partnership agreement
as well as such other documents as Franchisor may reasonably request, and
any amendments thereto; and
16.2.2 Franchisee shall prepare and furnish to Franchisor, at any time,
upon request, a list of all general and limited partners in Franchisee.
17. TAXES, PERMITS, AND INDEBTEDNESS
17.1 Franchisee shall promptly pay when due all taxes levied or assessed by
any federal, state, or local tax authority, and any and all other
indebtedness incurred by Franchisee in the conduct of the Franchised
Business. Franchisee shall pay to Franchisor an amount equal to any sales
tax, gross receipts tax, or similar tax imposed on Franchisor with respect to
any payments to Franchisor required under this Agreement, unless the tax is
credited against income tax otherwise payable by Franchisor.
17.2 In the event of any bona fide dispute as to liability for taxes assessed
or other indebtedness, Franchisee may contest the validity of the amount of
the tax or indebtedness in accordance with the procedures of the taxing
authority or applicable law; however, in no event shall Franchisee permit a
tax sale or seizure by levy of execution or similar writ or warrant, or
attachment by a creditor, to occur against the Franchised Business or any of
its assets.
17.3 Franchisee shall maintain compliance with all federal, state, and local
laws, rules, and regulations and shall timely obtain any and all permits,
certificates or licenses necessary for the full and proper conduct of the
business franchised under this Agreement, including, without limitation,
licenses to do business, fictitious name registration, sales tax permits,
health and sanitation permits and ratings, and fire clearances. Copies of all
inspection reports, warnings, certificates, and ratings issued by any
governmental entity during the term of this Agreement in connection with the
conduct of the Franchised Business which indicate Franchisee's failure to
meet or maintain Franchisor's standards or less than full compliance with any
applicable law, rule, or regulation shall be forwarded to Franchisor by
Franchisee within five days after Franchisee's receipt thereof.
17.4 Franchisee shall notify Franchisor in writing within five days after the
commencement of any action, suit, or proceeding and of the issuance of any
order, writ, injunction, award, or decree of any court, agency, or other
governmental instrumentality which may adversely affect the operation or
financial condition of the Franchised Business.
18. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
18.1 It is understood and agreed by the parties hereto that this Agreement
does not create a fiduciary relationship between them, and Franchisee shall
be an independent contractor and that nothing in this Agreement is intended
to constitute either party an agent, legal representative, subsidiary, joint
venturer, partner, employee or servant of the other for any purpose
whatsoever.
18.2 During the term of this Agreement and any extensions hereof, Franchisee
shall hold itself out to the public as an independent contractor operating
the business pursuant to a franchise from Franchisor and as an authorized
user of the Proprietary Marks which are owned by Franchisor. Franchisee
agrees to take such
20
affirmative action as may be necessary to do so, including, without
limitation, exhibiting a notice of that fact in a place on the premises of
the Franchised Business as required under Section 6.2.3 hereof.
18.3 It is understood and agreed that nothing in this Agreement authorizes
either party to make any contract, agreement, warranty or representation on
the other's behalf, or to incur any debt or other obligation in the other's
name, and that neither party shall in any event assume liability for, or be
deemed liable hereunder as a result of, any such action, or by reason of any
act or omission of the other party or any claim or judgement arising
therefrom. Franchisee shall indemnify and hold Franchisor harmless against
any and all claims arising directly or indirectly from, as a result of, or in
connection with, Franchisee's operation of the Franchised Business, as well
as the costs, including reasonable attorneys' fees, of defending against
them. Franchisor shall indemnify and hold Franchisee harmless against any and
all claims arising directly or indirectly from, as a result of, or in
connection with Franchisor's acts (except as set forth in this Section 18.3
and Section 19.2) as well as the costs, including reasonable attorneys' fees,
of defending against them. Franchisee agrees that all of the obligations of
Franchisor under this Agreement are to Franchisee, and no other party is
entitled to rely on, enforce, or obtain relief for breach of such obligations
either directly or indirectly or by subrogation. Franchisor shall not
indemnify or hold Franchisee harmless against any action or claim by any
third party based upon Franchisor's exercise of any of its rights in
accordance with the terms of this Agreement.
19. APPROVALS AND WAIVERS
19.1 Whenever this Agreement requires the prior approval or consent of
Franchisor, Franchisee shall make a timely written request to Franchisor
therefor, and such approval or consent shall be obtained in writing.
19.2 Except as otherwise provided in this Agreement or any other written
agreement between Franchisor and Franchisee, Franchisor makes no warranties
or guarantees upon which Franchisee may rely. Franchisor assumes no liability
or obligation to Franchisee, by providing any waiver, approval, consent, or
suggestion to Franchisee in connection with this Agreement or by reason of
any delay or denial of any request made therefor.
19.3 No failure of a party to exercise any power reserved to it by this
Agreement, or to insist upon strict compliance by the other party with any
obligation or condition hereunder, and no custom or practice of the parties
at variance with the terms hereof, shall constitute a waiver of such party's
right thereafter to demand exact compliance with any of the terms herein.
Waiver by a party of any particular default by the other party shall not
affect or impair such party's rights with respect to any subsequent default
of the same, similar, or different nature; nor shall any delay, forbearance,
or omission of a party to exercise any power or right arising out of any
breach or default by the other party of any of the terms, provisions, or
covenants hereof, affect or impair such party's right to exercise the same.
20. NOTICES
Any and all notices required or permitted under this Agreement shall be in
writing and shall be delivered by any means which will provide evidence of
the date received, to the respective parties at the following addresses
unless and until a different address has been designated by written notice to
the other party:
Notices to FRANCHISOR: Microtel Franchise & Development Corporation
One Airport Way
Suite 200
Rochester, New York 14624
Notices to FRANCHISEE: _____________________
_____________________
_____________________
_____________________
Any notice shall be deemed to have been given at the date and time it is
received.
22
Agreement and Warrant to Purchase 100,000 Common Shares
to
U.S. FRANCHISE SYSTEMS, INC.
This certifies that, for value received, U.S. Franchise Systems, Inc., the
registered holder hereof or its assign (the "Warrantholder") is entitled to
purchase from Microtel Franchise and Development Corporation, a New York
corporation with its principal office at One Airport Way, Suite 200,
Rochester, New York (the "Company") one hundred thousand (100,000) shares of
common stock of the Company (the "Shares") at or before 5:00 p.m. Eastern
Standard Time on September 1, 2000 at the purchase price per share of $
(the "Warrant Price"), subject to the following terms and conditions. The
number of Shares purchasable upon exercise of this Warrant and the Warrant
Price per Share shall be subject to adjustment from time to time as set forth
herein.
1. Consideration. This Warrant is granted as part of the consideration for
the Joint Venture Agreement between the parties hereto dated September 1,
1995.
2. Exercise. This Warrant may be exercised in whole or in part by
presentation of this Warrant with the Purchase Form as attached hereto
duly completed and executed, together with payment of the Warrant Price at
the principal office of the Company. Payment of the Warrant Price may be
made in cash, by wire transfer or by check. Upon surrender of the Warrant
and payment of such Warrant Price as aforesaid, the Company shall issue
and cause to be delivered with all reasonable dispatch to or upon the
written order of the Warrantholder and in such name or names as the
Warrantholder may designate a certificate or certificates for the number
of full Shares so purchased upon the exercise of the Warrant, together
with Fractional Warrants, as provided in Section 8 hereof, in respect of
any fractional Shares otherwise issuable upon such surrender. Such
certificate or certificates shall be deemed to have been issued and any
person so designated to be named therein shall be deemed to have become a
holder of record of such Shares as of the date of the surrender of the
Warrant and the payment of the Warrant Price, as aforesaid,
notwithstanding that the certificates representing the Shares shall not
actually have been delivered or that the stock transfer books of the
Company shall then be closed. The Warrant shall be exercisable, at the
election of the Warrantholder, either in full or from time to time in part
and, in the event that a certificate evidencing the Warrant is exercised
in respect of less than all of the Shares specified therein at any time
prior to the Termination Date, a new certificate evidencing the remaining
Warrant will be issued by the Company.
3. Reservation of Shares. There has been reserved, and the Company shall at
all times keep reserved so long as the Warrant remains outstanding, out of
its authorized Common Shares, such number of Shares as shall be subject to
purchase under the Warrant. Every transfer agent for the Common Shares and
other securities of the Company issuable upon the exercise of the Warrant
will be irrevocably authorized and directed at all times to reserve such
number of authorized Shares and other securities as shall be requisite for
such purpose. The Company will keep a copy of this Warrant on file with
every transfer agent for the Common Shares and other securities of the
Company issuable upon the exercise of
1
the Warrant. The Company will supply such transfer agent with duly
executed stock and other certificates for such purpose.
4. Further Obligations of Company. The Company covenants and agrees that all
Shares which may be delivered upon exercise of this Warrant shall, upon
delivery, be fully paid and non-assessable, and be free from all taxes,
liens and charges with respect to the purchase thereof hereunder, and
without limiting the generality of the foregoing, the Company covenants
and agrees that it shall from time to time take all such action as may be
necessary to assure that the par value per share of the Common Shares is
at all times equal to or less than the then current Warrant Price per
share of the Common Shares issuable pursuant to this Warrant.
5. Registration and Transfer. The Warrant shall be registered on the books of
the Company when issued and shall be transferable only on the books of the
Company maintained at its principal office in Rochester, New York, or
wherever its principal executive offices may then be located, upon
delivery thereof duly endorsed by the Warrantholder or its duly authorized
attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. Upon any registration or
transfer, the Company shall execute and deliver a new Warrant to the
person entitled thereto. Notwithstanding any other provision hereof, this
Warrant may not be transferred to any person other than an affiliate of
Warrantholder without the express written consent of the Company.
6. Exchange of Warrant Certificate. This Warrant certificate may be exchanged
for another certificate or certificates entitling the Warrantholder to
purchase a like aggregate number of Shares as the certificate or certificates
surrendered then entitled the Warrantholder to purchase. The Warrantholder
desiring to exchange a Warrant certificate shall make such request in writing
delivered to the Company, and shall surrender, properly endorsed, the
certificate evidencing the Warrant to be so exchanged. Thereupon, the Company
shall execute and deliver to the person entitled thereto a new Warrant
certificate as so requested.
7. Adjustment of Warrant Price and Number of Shares.
7.1 General. The number of Shares purchasable upon the exercise of the
Warrant and the Warrant Price shall be subject to adjustment from time
to time upon the happening of certain events, as follows:
7.1.1. In case the Company shall, with regard to its Common Shares (or
securities convertible into or exchangeable for Common Shares)
(A) pay a dividend in Common Shares or make a distribution in
Common Shares, (B) subdivide its outstanding Common Shares into
a greater number of Shares, (C) combine its outstanding Common
Shares into a smaller number of Common Shares, or (D) issue by
reclassification of its Common Shares other securities of the
Company, the number of Shares purchasable upon exercise of the
Warrant immediately prior
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thereto shall be adjusted so that the Warrantholder shall be
entitled to receive the kind and number of Shares or other
securities of the Company which it would have owned or would
have been entitled to receive after the happening of any of the
events described above, had the Warrant been exercised
immediately prior to the happening of such event or any record
date with respect thereto. Any adjustment made pursuant to this
subsection shall become effective immediately after the
effective date of such event retroactive to the record date, if
any, for such event.
7.1.2. In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of Common Shares entitling
them for a period expiring within forty-five (45) calendar days
(after such record date) to subscribe for or purchase Common
Shares at a price per share of Common Shares less than the
Closing Price per share of Common Shares on such record date,
the Warrant Price to be in effect after such record date shall
be determined by multiplying the Warrant Price in effect
immediately prior to such record date by a fraction, of which
the numerator shall be the number of shares of Common Shares
outstanding on such record date plus the number of shares of
Common Shares which the aggregate offering price of the total
number of shares of Common Shares so to be offered would
purchase at such Closing Price and of which the denominator
shall be the number of shares of Common Shares outstanding on
such record date plus the number of additional shares of Common
Shares to be offered for subscription or purchase. Shares of
Common Shares owned by or held for the account of the Company
shall not be deemed outstanding for the purpose of any such
computation. Such adjustments shall be made successively
whenever such record date is fixed; and in the event that such
rights or warrants are not so issued, the Warrant Price shall
again be adjusted to be the Warrant Price which would then be in
effect if such record date had not been fixed.
7.1.3. In case the Company shall fix a record date for the making of a
distribution to all holders of Common Shares (including any
distribution made in connection with a consolidation or merger
in which the Company is the continuing corporation) of evidence
of indebtedness or assets (other than cash dividends or cash
distributions payable out of consolidated earnings or earned
surplus or dividends payable in Common Shares) or subscription
rights or warrants (excluding those referred to in Section
7.1.2), the Warrant Price to be in effect after such record date
shall be determined by multiplying the Warrant Price in effect
immediately prior to such record date by a fraction of which the
numerator shall be the Closing Price per shares of Common Shares
on such record date, less the fair market value (as determined
by the Board of Directors of the Company, whose determination
shall be conclusive absent manifest error) of the portion of the
assets or evidences of indebtedness so to be distributed or of
such subscription rights or warrants applicable to one share of
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Common Shares and of which the denominator shall be the Closing
Price per share of Common Shares. Such adjustments shall be made
successively whenever such a record date is fixed; and in the
event that such distribution is not so made, the Warrant Price
shall again be adjusted to be the Warrant Price which would then
be in effect if such record date had not been fixed.
7.1.4. No adjustment in the number of Shares purchasable hereunder
shall be required unless such adjustment would require an
increase or decrease of at least one percent in the aggregate
number of Shares then purchasable upon the exercise of the
Warrant; provided however, that any adjustments which by reason
of this Section 7.14 are not required to be made immediately
shall be carried forward and taken into account in any
subsequent adjustment.
7.1.5. Whenever the number of Shares purchasable upon the exercise of
the Warrant is adjusted as herein provided, the Warrant Price
payable upon exercise of the Warrant shall be adjusted by
multiplying such Warrant Price immediately prior to such
adjustment by a fraction, of which the numerator shall be the
number of Shares purchasable upon the exercise of the Warrant
immediately prior to such adjustment, and of which the
denominator shall be the number of shares so purchasable
immediately thereafter. Whenever the Warrant Price is adjusted
as herein provided, the number of Shares purchasable upon the
exercise of the Warrant shall be adjusted so that thereafter the
Warrant shall evidence the right to purchase, at the adjusted
Warrant Price, that number of Shares obtained by multiplying the
number of Shares converted by the Warrant Price in effect
immediately prior to such adjustment and dividing the product so
obtained by the Warrant Price in effect immediately after such
adjustment.
7.1.6. Whenever the number of Shares purchasable upon the exercise of
this Warrant or the Warrant Price is adjusted as herein
provided, the Company shall cause to be promptly mailed to the
Warrantholder in accordance with the provisions of Section 10
hereof, notice of such adjustment or adjustments and a
certificate of a firm of independent public accountants selected
by the Board of Directors of the Company (who may be the regular
accountants employed by the Company) setting forth the number of
Shares purchasable upon the exercise of the Warrant and the
Warrant Price after such adjustment, a brief statement of the
facts requiring such adjustment, and the computation by which
such adjustment was made.
7.1.7. For the purpose of this Section 7.1., the term "Common Shares"
shall mean (A) the class of shares designated as (or convertible
or exercisable for) the Common Shares of the Company at the date
of this Agreement, or (B) any other class of shares resulting
from successive changes or reclassifications of such Common
Shares including changes in par value, or from par value to no
par value, or
4
from no par value to par value. In the event that at any time,
as a result of an adjustment made pursuant to this Section 7,
the Warrantholder shall become entitled to purchase any shares
of the Company other than Common Shares, thereafter the number
of such other shares so purchasable upon exercise of the Warrant
and the Warrant Price of such shares shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the
Shares contained in this Section 7.
7.2. No Adjustment of Dividends. Except as provided in Section 7.1, no
adjustment in respect of regular cash dividends shall be made during
the term of the Warrant or upon the exercise of the Warrant.
7.3. Preservation of Purchase Rights upon Reorganization,
Reclassification, Consolidation, Merger, etc. In case of any capital
reorganization or reclassification of the Common Shares of the
Company, or in case of any consolidation of the Company with or
merger of the Company into another corporation or in case of any sale
or conveyance to another person of the property, assets or business
of the Company as an entirety or substantially as an entirety, the
Company or such successor or purchaser, as the case may be, shall
execute with the Warrantholder an agreement that the Warrantholder
shall have the right thereafter upon payment of the Warrant Price in
effect immediately prior to such action to purchase upon exercise of
the Warrant the kind and amount of shares and other securities and
property which it would have owned or have been entitled to receive
after the happening of such reorganization or reclassification,
consolidation, merger, sale or conveyance had the Warrant been
exercised immediately prior to such action. In the event of a merger
described in Section 368(a)(2)(E) of the Internal Revenue Code of
1986, as amended, in which the Company is the surviving corporation,
the right to purchase Shares under the Warrant shall terminate on the
date of such merger and thereupon the Warrant shall become null and
void but only if the controlling corporation shall agree to
substitute for the Warrant its warrant which entitles the holder
thereof to purchase upon its exercise the kind and amount of shares
and other securities and property which it would have owned or had
been entitled to receive had the Warrant been exercised immediately
prior to such merger. The adjustments required by this Section 7.3
shall be effected in a manner which shall be as nearly equivalent as
may be practicable to the adjustments provided for elsewhere in this
Section 7. The provisions of this Section 7.3 shall similarly apply
to successive consolidations mergers, sales or conveyances.
7.4. Statement on Warrants. Irrespective of any adjustments in the Warrant
Price or the number or kind of Shares purchasable upon the exercise
of the Warrant, the Warrant certificate or certificates theretofore
or thereafter issued may continue to express the same price and
number and kind of Shares as are stated in this initially issued
Warrant.
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8. Fractional Shares. The Company shall not be required to issue fractional
Shares on the exercise of the Warrant. If any fraction of a Share would,
except for the provisions of this Section 8, be issuable on the exercise
of the Warrant (or specified portion thereof), the Company shall issue to
the Warrantholder a fractional Warrant entitling Warrantholder, upon
surrender with other fractional Warrants aggregating one or more full
Shares, to purchase such full Shares. If fractional Warrants do not
aggregate a full Share, their value (over and above their exercise price)
shall be paid in full in cash upon exercise to the exercising
Warrantholder.
9. No Rights as Shareholder; Notices to Warrantholder. Nothing contained in
this Agreement or in any of the Warrants shall be construed as conferring
upon the Warrantholder or its transferees any rights as a shareholder of
the Company, including the right to vote, receive dividends, or consent
as a shareholder in respect of any meeting of shareholders for the
election of directors of the Company or any other matter. However, the
Company shall be required to give notice in writing to the Warrantholder
of any meeting of shareholders of the Company or any proposed consent of
the shareholders as provided in Section 10 hereof at least twenty (20)
days prior to the date fixed as a record date or the date of closing the
transfer books for the determination of the shareholders entitled to any
relevant dividend, distribution, subscription rights or other rights or
for the determination of shareholders entitled to vote at any such
meeting or as to which any consent is requested. Such notice shall
specify such record date or the date of closing the transfer books, as
the case may be.
10. Notices. Any notice pursuant to this Agreement by the Company or by the
Warrantholder shall be in writing and shall be deemed to have been duly
given if delivered by hand or if mailed by certified mail, return receipt
requested, postage prepaid, addressed as follows:
10.1. If to the Warrantholder-addressed to U.S. Franchise Systems, Inc. at
. . .
10.2 If to the Company-addressed to Microtel Franchise and Development
Corporation, One Airport Way, Suite 200, Rochester International
Airport, Rochester, New York 14624, Attention: Bruce A. Sahs, Vice
President or to such other address as any such party may designate by
notice to the other party. Notices shall be deemed given at the time
they are delivered personally or three days after they are mailed in
the manner set forth above.
11. Successors. All the covenants and provisions of this Agreement by or for
the benefit of the Company or the Warrantholder shall bind and inure to
the benefit of their respective successors and assigns hereunder.
12. Merger or Consolidation of the Company. The Company will not merge or
consolidate with or into any other corporation or sell all or
substantially all of its property to another person, unless the
provisions of Section 7.3 are complied with.
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13. Applicable Law. This Agreement shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said State applicable to
contracts made and to be performed entirely within such State.
14. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
15. Headings. The headings in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officers and the corporate seal hereunto fixed.
MICROTEL FRANCHISE AND
DEVELOPMENT CORPORATION
(corporate seal) By:
Attest: E. Anthony Wilson
Chairman
Alan S. Lockwood,
Secretary
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EXHIBIT Y
Interest Paid
at 10% Per
Annum Consulting Principal Total Payment
Payment at Closing $400,000.00 $1,600,000.00 $2,000,000.00
Payment 1 yr. after Closing $143,764.00 150,000.00 706,236.00 1,000,000.00
Payment 2 yrs. after Closing 73,141.00 150,000.00 276,860.00 500,000.00
Payment 3 yrs. after closing 45,455.00 454,545.00 500,000.00
$4,000,000.00
Purchase Price Allocation
Consulting Services (Section 5) $700,000.00
Category III Assets (Except trademarks and
trade names) and Warrant
(Allocation to Warrant to be mutually
agreed upon by Company and Newco prior
to Closing) $3,037,641.00
Total Purchase Price $3,737,641.00
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